ArcelorMittal forecasts slow steel recovery in Q1
Thursday, 11 February 2010
BRUSSELS, Feb 10 (Reuters): ArcelorMittal, the world's top steelmaker, said its markets would improve only slowly with higher shipments but lower prices in early 2010, and its profit forecast fell short of market expectations.
The company said on Wednesday that the industry, a barometer of global economic strength, would see increased demand from key customers such as carmakers and that price rises should have more of an impact in the second quarter.
"The recovery is underway, but is slow and progressive," Chief Financial Officer Aditya Mittal told a conference call, predicting global demand would rise 10 per cent this year.
ArcelorMittal, which has about 8 per cent of the global market, with output three times greater than nearest rival Nippon Steel, expects core earnings before interest, tax, depreciation and amortisation between $1.8 and $2.2 billion in the first quarter.
The average forecast in a Reuters poll of analysts was for $2.6 billion, and compares with a fourth-quarter figure of $2.1 billion, itself just short of expectations.
ArcelorMittal shares were down 5.2 per cent at 27.10 euros, the worst performer in the FTSEurofirst 300 .FTEU3, and underperforming a 0.1 per cent increase in the DJ Stoxx European basic resources index .
"What is disappointing is the guidance. With that start, it will be tough to meet market estimates for the full year. I expect them to be revised down," said Hermann Reith, analyst at BHF Bank in Frankfurt.
The $500 billion steel industry took a heavy beating in the 2008/2009 downturn, with demand from key construction and auto consumers sharply down and destocking magnifying the negative effect. Producers cut output by as much as a half.
ArcelorMittal returned to net profit in the third quarter after three consecutive losses and was again profitable in the fourth, thanks to a tax benefit of $1.3 billion.
ArcelorMittal said its shipments were expected to be higher in the first quarter of this year than at the end of 2009, with capacity utilisation rising to 75 from 70 per cent, but it would face lower average selling prices and increased costs.
Aditya Mittal said prices rises in December and January would benefit the company more in the second quarter, given an order to shipment period of 45 to 60 days. ArcelorMittal is among the most exposed companies to spot steel prices.
"The price environment is improving ... There is also going to be margin expansion, not as pronounced in Q1 but more in Q2," he said, adding further price rises could be expected to prevent a margin squeeze from high iron ore and coking coal costs.
Other steel makers' results have shown industry conditions remain tough, with the odd bright spot.
European steel body Eurofer said last week the sector in the region was recovering slowly on the back of an improving outlook for car and engineering companies, despite a continued slump in construction.
French carmaker PSA Peugeot Citroen said cost cuts would help it weather tough conditions this year, but only gave a forecast to mid-2010.
Restocking in North America and Europe, more among the auto and engineering sectors than construction, should result in 15 per cent improved demand in the developed world, albeit 23 per cent below 2008 levels, ArcelorMittal said.
China, whose heavy consumption prevented a steel sector catastrophe last year, would require only 5 per cent more in 2010, with its stocks already replenished.
The company said on Wednesday that the industry, a barometer of global economic strength, would see increased demand from key customers such as carmakers and that price rises should have more of an impact in the second quarter.
"The recovery is underway, but is slow and progressive," Chief Financial Officer Aditya Mittal told a conference call, predicting global demand would rise 10 per cent this year.
ArcelorMittal, which has about 8 per cent of the global market, with output three times greater than nearest rival Nippon Steel, expects core earnings before interest, tax, depreciation and amortisation between $1.8 and $2.2 billion in the first quarter.
The average forecast in a Reuters poll of analysts was for $2.6 billion, and compares with a fourth-quarter figure of $2.1 billion, itself just short of expectations.
ArcelorMittal shares were down 5.2 per cent at 27.10 euros, the worst performer in the FTSEurofirst 300 .FTEU3, and underperforming a 0.1 per cent increase in the DJ Stoxx European basic resources index .
"What is disappointing is the guidance. With that start, it will be tough to meet market estimates for the full year. I expect them to be revised down," said Hermann Reith, analyst at BHF Bank in Frankfurt.
The $500 billion steel industry took a heavy beating in the 2008/2009 downturn, with demand from key construction and auto consumers sharply down and destocking magnifying the negative effect. Producers cut output by as much as a half.
ArcelorMittal returned to net profit in the third quarter after three consecutive losses and was again profitable in the fourth, thanks to a tax benefit of $1.3 billion.
ArcelorMittal said its shipments were expected to be higher in the first quarter of this year than at the end of 2009, with capacity utilisation rising to 75 from 70 per cent, but it would face lower average selling prices and increased costs.
Aditya Mittal said prices rises in December and January would benefit the company more in the second quarter, given an order to shipment period of 45 to 60 days. ArcelorMittal is among the most exposed companies to spot steel prices.
"The price environment is improving ... There is also going to be margin expansion, not as pronounced in Q1 but more in Q2," he said, adding further price rises could be expected to prevent a margin squeeze from high iron ore and coking coal costs.
Other steel makers' results have shown industry conditions remain tough, with the odd bright spot.
European steel body Eurofer said last week the sector in the region was recovering slowly on the back of an improving outlook for car and engineering companies, despite a continued slump in construction.
French carmaker PSA Peugeot Citroen said cost cuts would help it weather tough conditions this year, but only gave a forecast to mid-2010.
Restocking in North America and Europe, more among the auto and engineering sectors than construction, should result in 15 per cent improved demand in the developed world, albeit 23 per cent below 2008 levels, ArcelorMittal said.
China, whose heavy consumption prevented a steel sector catastrophe last year, would require only 5 per cent more in 2010, with its stocks already replenished.