Flames rise from a wagon load of coke following production at the ArcelorMittal steel plant. (Photographer: Vincent Mundy/Bloomberg)

ArcelorMittal Cuts Estimate of Steel Demand Outside China

(Bloomberg) --

The world’s biggest steelmaker reported its smallest quarterly profit since 2016 and warned that global demand outside of China will be lower than previously expected as the industry faces increasing pressure.

  • ArcelorMittal posted first-quarter earnings before interest, taxes, depreciation and amortization of $1.65 billion, missing the average analyst estimate. The company’s shares fell to the lowest since November 2016.

Key Insights:

  • ArcelorMittal now sees global demand outside of China rising 1%-2% and the company is forecasting a contraction of up to 1% in Europe. China is seen as a rare bright spot, with the biggest consumer now expected to use more steel this year due to economic stimulus and real-estate demand. ArcelorMittal had previously forecast a contraction in Chinese demand.
  • ArcelorMittal said Monday that it was shuttering plants in Poland and Spain as it responded to the worsening environment. The company said safeguard tariffs imposed by the European Commission earlier this year have failed to stem a rise in flat-steel imports into the region.
  • ArcelorMittal’s debt increased to $11.2 billion and the company said it adjusted its borrowing target to $7 billion after it adopted new accountancy regulations. The company has made debt reduction one of its key goals, having said previously it aimed to cut borrowings to $6 billion before it restarted paying more than a token dividend.

CEO Comments

  • “Our first-quarter results reflect the challenging operating environment the industry has faced in recent months,” Chief Executive Officer Lakshmi Mittal said.
  • “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.”

Market Reaction

  • The stock fell as much as 4.8% to the lowest since November 2016 and traded 4.5% lower by 9:35 a.m. in Amsterdam.
  • The results “confirmed that the Q1 was going to be a light quarter, reflecting the margin squeeze evident in western markets,” Jefferies said. “It’s too early to judge success from recently announced European production cuts but we expect this to be a point of focus on the call this afternoon.”

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