ArcelorMittal Surges as Steel Outlook Brightens, Debt Drops

(Bloomberg) --

ArcelorMittal shares jumped the most since 2016 after the company said it’s more optimistic on the outlook for steel demand this year and reported net debt dropped to a record low.

There are signs that the demand slowdown that roiled steel markets last year is starting to stabilize, ArcelorMittal said. The company has restarted European operations that it idled last year in response to the downturn, and said it expects the coronavirus outbreak in China will have limited effect on steel.

Net debt fell to $9.3 billion at the end of 2019, the lowest since the company’s formation in a 2006 merger. The figure is closely watched by investors because ArcelorMittal has indicated it will substantially increase dividend payments once net borrowings reach $7 billion. That target may be achieved this year, it said.

ArcelorMittal rose as much as 11% in Amsterdam, the most since April 2016.

Read more: ArcelorMittal’s Results Are Solid, Guidance Positive: Analysts

On the broader market outlook, ArcelorMittal said it’s “more optimistic on the apparent demand outlook for 2020.” The largest producer expects global steel demand -- a barometer of economic growth -- to grow by 1% to 2% this year after expanding 1.1% in 2019.

The steel market is emerging from a difficult year in 2019, when the industry grappled with slumping demand from automakers, trade wars and sluggish economies in Europe. While prices edged higher in the past two months, there’s been concern the deadly virus will hurt consumption and throttle the industry’s nascent recovery.

For now, “the coronavirus will likely have a short-term negative demand impact in China and to a lesser degree elsewhere,” ArcelorMittal said.

Most of the impact on first-quarter demand from the coronavirus is expected to be recovered throughout the remainder of the year, the company said. Still, demand from China is seen weaker this year, between flat and 1% higher, from estimated growth of 3.2% in 2019.

Though ArcelorMittal has minimal exposure to China, it follows the country closely as demand there affects global steel sales and prices. The company was bearish on China’s demand a year ago and boosted its forecasts three times during 2019, while cutting estimates for the U.S. and Europe.

“Our perspective on the fundamentals of the Chinese steel market remain unchanged,” the company said Thursday.

The steelmaker reported earnings before interest, taxes, depreciation and amortization about halved in 2019, to $5.2 billion. The results were mostly better than expected and included positive guidance on cash flows, leverage and the demand outlook this year, Citigroup Inc. analysts said in a note.

To contact the reporter on this story: Elena Mazneva in London at emazneva@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Liezel Hill, Dylan Griffiths

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