Steel Mills
ArcelorMittal Profits Plunge in Q1
Written by Sandy Williams
May 12, 2019
ArcelorMittal faced a number of challenges that impacted earnings in the first quarter resulting in net income plunging 66 percent to $414 million from $1.19 billion reported in both the fourth quarter of 2018 and first quarter of 2019. Earnings reflected a $150 million impairment charge related to the sale of assets to acquire ArcelorMittal Italia. EBITDA of $1.7 billion fell 15.3 percent from Q4 2018 and 34.2 percent year-over-year.
“Our first quarter results reflect the challenging operating environment the industry has faced in recent months,” said Chairman and CEO Lakshmi Mittal. “Profitability has been impacted by lower steel pricing due to weaker economic activity and continued global overcapacity, as well as rising raw material costs as a result of supply-side developments in Brazil. We continue to face a challenge from high levels of imports, particularly in Europe, where safeguard measures introduced by the European Commission have not been fully effective.”
The increased level of steel imports to Europe have been particularly challenging because of weaker manufacturing activity, particularly in the automotive market, said ArcelorMittal. “The 2019 safeguard quota for HRC is not country specific. We have seen a surge of Turkish exports to Europe in 1Q’19 due to its recession, compounded by shifting of volumes from the U.S. market.”
Due to deteriorating demand conditions in Europe, ArcelorMittal announced it would remove 3 million MT of flat steel production from the market by idling its plant in Poland and reducing production at ArcelorMittal Italia.
Overall, the company’s steel shipments in the first quarter increased 7.9 percent from the fourth quarter to 21.8 million MT due to the NAFTA segment and the acquisition of ArcelorMittal Italia, but were offset by lower steel shipments in Brazil.
Sales totaled $19.2 billion in the quarter, a 4.7 percent jump from $18.3 billion in the fourth quarter, and were even with sales in Q1 2018. Sales were negatively affected by lower average steel selling prices and lower market-priced iron ore shipments.
The acquisition of Essar Steel India Limited has run into a number of appeals by creditors on how to distribute payments from the insolvency resolution plan. Pending the outcome of a NCLAT hearing, a transaction closing is expected in the second or third quarter of this year. Upon completion of the deal, ArcelorMittal and Nippon Steel & Sumitomo Metal Corporation (NSSMC) will jointly own and operate ESIL.
The outlook for second quarter calls for an increase in group shipments for 2019. ArcelorMittal adjusted its 2019 forecast for global apparent steel consumption upward to +0.5 to +1.5 percent.
NAFTA Segment Results
Steel production jumped 7.12 percent to 54.4 million MT in the first quarter of 2019 despite an outage at Burns Harbor that resulted in 100,000 MT of lost production.
Steel shipments increased 2.8 percent from the fourth quarter to 5.3 million MT due to improvement in the flat rolled business that was partially offset by weaker long product shipments, primarily in Mexico. The NAFTA segments shipped 1.7 million MT of flat products and 1.2 million MT of long products
Sales increased by 4.7 percent to $5.1 billion. Operating income of $216 million declined from $310 million in the fourth quarter due to $60 million in charges related to a new labor contract, including signing bonuses for workers.
NAFTA Projects in Process
ArcelorMittal’s hot strip mill in Mexico is expected to be completed in 2020. The company expects the 2.5 million metric ton HSM to increase its share of the domestic market.
The completion of upgrades at ArcelorMittal Dofasco has been extended to 2021 from 2020 due to a change in design and delay in manufacturing. The company is replacing three aging coilers with two new ones and the accompanying runout tables.
Installation of two latest-generation walking beam furnaces will be completed in 2020 at Burns Harbor, Ind.
Sandy Williams
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