ArcelorMittal boosted by pick-up in steel business

ArcelorMittal maintained its earnings outlook for this year despite a sharp fall in iron ore prices, after the world’s largest steelmaker by sales reported a pick-up in its steel business.

The company on Friday said it remained on track to achieve more than $7bn in earnings before interest, taxes, depreciation and amortisation for 2014.

The steelmaker was forced to downgrade its earnings forecast in August amid a decline in iron ore prices. It had previously expected full-year earnings of about $8bn based on a benchmark iron ore price of $120 a metric tonne.

Since then, the price of the steelmaking material has fallen to $76 on the back of rising supply and weakening demand from China and other emerging economies. This week, iron ore prices fell to their lowest level in five years, with the material plunging more than 40 per cent this year.

A falling iron ore price affects ArcelorMittal more than other steelmakers because it has a large mining operation. It sells about two-thirds of the iron ore it makes at market prices to other companies.

As a result, its mining business saw earnings tumble 48 per cent to $278m, from $533m a year ago.

However, Lakshmi Mittal, the Indian metals tycoon who heads up ArcelorMittal, said the improvement across its steel business had helped offset the decline in iron ore prices. He said market conditions in Europe, its largest market, had improved and also cited a recovery in its North American steel business.

“I am happy that it is our core markets doing well this year, compared to 2013 when the emerging markets were helping growth,” said Mr Mittal. “Based on today’s market conditions, I do not foresee a deterioration in our performance in the fourth quarter.”

Mr Mittal would not comment on forecasts for 2015 but said he continued to see “positive” developments in the group’s core markets.

Seth Rosenfeld, analyst at Jefferies, said: “Iron ore prices continue to disappoint, but steel margins are benefiting from improving demand, past cost cutting and lower input costs.”

The Luxembourg-based company posted its second consecutive quarter of profits, with net income of $22m for the three months to September – up from a loss of $193m in the same period a year ago.

Net debt rose slightly in the quarter to $17.8bn, up from $17.4bn at the end of June because of working capital investments.

ArcelorMittal posted third-quarter ebitda of $1.9bn, a rise of 11 per cent from $1.7bn a year ago. Analysts polled by independent research company Vuma Financial Services had forecast ebitda to be $1.82bn.

The group’s European business continued to improve, with third-quarter operating income of $166m, up from a loss of $184m a year ago. This is the third successive quarter the group’s European division has reported a profit, following six quarters of losses.

ArcelorMittal has spent the past few years restructuring its European division by closing plants and reducing the number of employees.

The steel sector, particularly in Europe, has been among the worst hit during the global economic downturn, as the slowdown in activity led to a sharp contraction in demand for the metal.

Shares in ArcelorMittal rose 2.1 per cent in early afternoon trading to €10.11 in Frankfurt.







 

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