Hit By Virus, ArcelorMittal Looks To Cut Costs And Protect Profits
Flames rise from a wagon load of coke following production at the ArcelorMittal steel plant in Kryvyi Rih, Ukraine. (Photographer: Vincent Mundy/Bloomberg)

Hit By Virus, ArcelorMittal Looks To Cut Costs And Protect Profits

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Hit hard by the Covid-19 pandemic, global steel giant ArcelorMittal is focussing on cost-reduction initiatives to protect profitability in view of uncertainty around the pace of recovery.

The world's largest steelmaker had logged a net loss of $559 million for the second quarter ended June 2020 and termed it as the most difficult period in its history.

"The company continues to focus on cost reduction initiatives to protect profitability as it navigates the evolving demand backdrop. Moving forward, as economic activity recovers the company will respond by increasing production, leading to the return of some fixed cost," the company said in its latest report.

The easing of lockdown measures has seen activity levels improving, nevertheless the demand remains significantly below normal and the pace and profile of recovery is uncertain, it said.

The company said it continues to adapt production levels to market demand and maintains the flexibility to quickly restart hot idled capacity, on a region by region basis, as demand improves.

"At the same time, the experience of the last 4-5 months has, through necessity, forced the business to operate differently. It has shown that it is possible to operate with a leaner cost structure," the company emphasised.

It is now using this experience to identify and develop options for further structural cost improvements to appropriately position the fixed cost base for the post Covid-19 operating environment, ArcelorMittal said.

Also read: Steelmakers Expect Double-Digit Dip In Demand, Revival Only In Q3 FY21: Crisil

The Luxembourg-headquartered company pointed out that it expects certain cash needs of the business to total $3.5 billion in 2020 and said it remained focused on achieving its $1 billion operating working capital efficiency target for 2020.

Ultimately, the extent of the working capital release in 2020 will be determined by the volume and price environment in the final quarter of the year, it said.

"Certain cash needs of the business for the first half of 2020 were $1.5 billion," it said adding that these included $1.3 billion capital expenditures, $0.3 billion interest and $0.3 billion income tax, offset by $0.4 billion of certain refunds mainly related to tax.

"As a result, the company expects an increase of this amount in the second half of 2020 with certain cash needs of the business expected to be $2 billion ($1.2 billion capital expenditures, $0.3 billion interest and other cash payments for taxes, pensions and other of $0.5 billion)," it added.

At the same time it said that despite the challenges caused by Covid-19, the company's $2 billion asset portfolio optimisation programme continues to progress.

"Given that suitable and viable buyers have expressed serious interest in certain assets, the company remains confident in completing the programme by mid-2021," it emphasised.

As of June 30, 2020, its net debt decreased to $7.8 billion as compared to $9.5 billion as of March 31, 2020, driven by proceeds from the capital raised offset in part by foreign exchange on debt and working capital outflow, the company said.

Its operating performance in Q2 2020 reflects the negative impact of the Covid-19 pandemic primarily on the steel business, with reduced demand leading to a 23.7% sequential reduction in steel shipments, it said.

Also read: Indian Steel Market Showing Signs Of Recovery, Says Aditya Mittal

"The first six months of the year, and particularly the second quarter, have been one of the most difficult periods in the history of the company, with demand for steel considerably disrupted by the COVID-19 pandemic," ArcelorMittal Chairman and CEO Lakshmi N Mittal said commenting on its financial results.

ArcelorMittal is the world's leading steel and mining company, with a presence in 60 countries and an industrial footprint in 18 countries. It is among one of the world's five largest producers of iron ore and metallurgical coal.

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