A worker operates in the blast furnace at ArcelorMittal's steel plant in Ostrava, Czech... Read More
ArcelorMittal, the world’s biggest
steelmaker, lowered its profit forecast for the year because of
declining prices of the iron ore it mines. Earnings before interest, taxes, depreciation and amortization in 2014 will be “in excess” of $7 billion, compared with an earlier forecast of $8 billion, the Luxembourg-based company said today in a statement. The profit projected at the beginning of 2014 and reiterated in May was based on iron ore averaging about $120 a metric ton this year, an estimate revised to $105 today.
Mining, including iron ore operations, contributes almost a quarter of ArcelorMittal’s earnings. The key steelmaking ingredient fell below $90 a ton for the first time since 2012 last month. Mining companies, including Vale SA and BHP Billiton Ltd., have expanded output, betting on sustained growth in demand from China even as economic expansion slowed.
“Demand out of China has been weaker than anticipated and more importantly the supply has been consistent and strong,” Chief Financial Officer Aditya Mittal told reporters on a conference call today. “People may have expected some delays” with mine expansions.
ArcelorMittal (MT) dropped as much as 6.2 percent to 10.805 euros in Amsterdam, the biggest intraday drop since Oct. 31, 2012. The stock traded 5.8 percent lower at 10.71 euros as of 10:45 a.m. local time.
Missing Estimates
Second-quarter Ebitda rose 3.7 percent to $1.76 billion from a year earlier, missing the $1.84 billion average of 18 analyst estimates compiled by Bloomberg. ArcelorMittal reported a net income of $52 million, its first quarterly profit in two years.The South Africa unit today reported a loss, excluding one-time items, of 82 South African cents (8 cents) a share for the six months through June, compared with a 37 cent loss a year earlier.
The danger of a further change in the company’s iron-ore price expectations this year was “very limited” due to good visibility for the remaining six months, Aditya Mittal said.
While iron ore weighs on its earnings, the company continues to see an improvement in the steel industry in the U.S. and Europe, its biggest markets. The company raised its forecast of demand growth in the U.S. to as much as 6 percent from an earlier forecast of 3.5 percent to 4.5 percent. It increased its expectations for European demand to rise as much as 4 percent from 2 percent to 3 percent.
Shut, Fired
ArcelorMittal has shuttered plants and fired workers as it seeks to emerge from an industry trough after dwindling demand and excess capacity shrunk profit margins.“Indicators in both Europe and the U.S., which together account for two-thirds of our shipments, continue to be positive and we have increased our steel demand forecasts for both markets,” Mittal said.
The company, which sold 21.5 million tons of steel in the second quarter, maintained its forecast for shipments to climb 3 percent and iron-ore sales to increase 15 percent this year. The company mined 16.6 million tons of iron ore in the quarter.
ArcelorMittal, which reported Ebitda per ton of steel of $82 in the quarter, has a medium-term goal of $150 as it cuts costs and demand improves. The steelmaker has reduced $4.8 billion in costs since 2008 and targets a further $3 billion in savings by 2015. It has shrunk its workforce by more than 80,000 and closed plants in Belgium and France.
Net debt fell to $17.4 billion in the quarter, according to the statement. ArcelorMittal is trying to reduce its borrowings to about $15 billion after its credit rating was cut to below investment grade by Moody’s Investors Service, Standard & Poor’s Corp. and Fitch Ratings.
ArcelorMittal also said today it agreed to buy stakes held by BHP and Areva SA in the Nimba mine in Guinea, giving the steelmaker 56.5 percent ownership. The deal is subject to approval from the government of Guinea, ArcelorMittal said, without providing any valuation.
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