Commodities Boom Grips Steel as ArcelorMittal Profit Surges

(Bloomberg) --

ArcelorMittal SA reported its highest quarterly profit in a decade as steel prices soared amid a commodities boom that’s touched everything from copper to corn.

The biggest steelmaker outside China said it now expects steel demand this year -- a key barometer for global economic growth -- to be at or above the upper range of its February forecast. It projected an increase in demand of 4.5% to 5.5%, following a contraction in 2020 during the pandemic.

Aditya Mittal took the helm at ArcelorMittal from his father this year as rebounding demand from the manufacturing and construction industries collides with tight supply. The resulting boom has pushed benchmark European steel prices to the highest on record, as the reopening of economies sparks a surge across commodities markets from iron ore to lumber.

“As prices have continued to increase I would expect the second quarter to be even stronger,” said Ingo Schachel at Commerzbank AG. “I like the consistently good performance in all steel segments.”

First-quarter earnings before interest, taxes, depreciation and amortization were $3.24 billion, ArcelorMittal said Thursday in a statement. That surpassed analysts’ estimates.

“The first quarter of this year has been our strongest in a decade,” said incoming Chief Executive Officer Aditya Mittal. “While this is naturally a very welcome development following a highly challenging 2020, we are mindful that Covid continues to be a health challenge across the world especially in developing economies.”

ArcelorMittal fell 0.9% in Amsterdam trading, after gaining 4.9% on Wednesday. The shares have surged 168% over the past 12 months.

Steel producers in Europe and America have suffered for years from low prices caused by global overcapacity. That was initially compounded by the onset of the pandemic, before a dramatic turnaround over the past year.

Futures in China, by far the biggest producer, have smashed records -- even outpacing gains in key ingredient iron ore -- as the government took measures to curb output. That’s supercharged rallies of benchmark prices in Europe and America, where mills were already running at maximum capacity as they try to meet unexpectedly high demand.

Steel and iron ore futures resumed trading on a strong foot on Thursday as investors in China returned after a public holiday. Expectations are building that iron ore prices can reach $200 a ton, while rebar and hot-rolled coil futures in Shanghai marched to new heights, as demand continues to be robust from Asia to North America.

ArcelorMittal and other western steelmakers could further benefit should China’s output decline on the back of a crackdown on emissions. Keeping prices higher for longer could also help fund decarbonization initiatives in the steel industry.

Other highlights:

• First-quarter Ebitda from iron ore mining more than tripled to $1.07 billion from year earlier.
• Gross debt declined to $11.4 billion at end of first quarter, while net debt dropped to $5.9 billion.
• Company to pay 30 cents a share dividend in June as part of plan to return $570 million to shareholders.

©2021 Bloomberg L.P.