Share

ArcelorMittal 'able to weather recession'

Brussels - ArcelorMittal, the world’s largest steelmaker and parent of ArcelorMittal SA [JSE:ACL], said it would weather a possible new recession better than in 2008/2009 because of savings made to date, a healthier balance sheet and its expansion into mining.
 
The Luxembourg-based group told investors on Friday that its core profit (earnings before interest, tax, depreciation and amortisation) would be higher than in 2009 if the developed world fell back into recession next year.
 
It repeated its forecast for third-quarter core profit to be between $2.4bn and $2.8bn and for second-half earnings to be greater than a year earlier, because of higher steel shipments and growth in iron ore and coal output.

In its first business review since last month’s stock market crash, ArcelorMittal said orders had not deteriorated much and raw material and steel prices were largely stable.
 
CEO Lakshmi Mittal and his finance director son Aditya sought at length to convince investors that their company was not the same as the one forced to cut production in half at the height of the 2008/2009 recession.
 
Inventories, Mittal senior said, were more supportive. In the United States they were 25% below peak 2008 levels. In 2008/2009, production tumbled because core auto and construction customers needed less and also drew down stocks.

Mining was also now generating a quarter of group profit. Aditya Mittal said the company would review steel expansion but press on with new mining projects, which offered healthy returns in a short space of time.
 
The company’s average debt maturity was five years at the end of June, double the level at the end of September 2008, with the majority now comprised of bonds rather than bank credit.

“We are in a much better situation than we were at that point in time,” chief financial officer Aditya Mittal told the investor meeting.

In recent weeks, the group has revealed plans to idle three blast furnaces in Europe - in Belgium, France and Germany - because of low demand.

“There is no need for us to cut volume further,” CEO Lakshmi Mittal said.
 
ArcelorMittal said its base case scenario was for two years of low growth rather than recession in the developed world and continued expansion in emerging markets, which represent about 40% of steel core profits.

Aditya Mittal said that the sharp pickup after the 2008/2009 recession suggested the recovery would be V-shaped, but today an L-shape with poor growth for an extended period appeared likely.

The $500bn steel sector is seen as a gauge for the broader economy.
 
Global growth expectations have been cut sharply in the past two months. The International Monetary Fund warned Europe and the United States could slip into recession in 2012.

Current market consensus is for ArcelorMittal to report a core profit (Ebitda) at the upper end of its own $2.4bn to $2.8bn guidance range in the third quarter and for the same figure in the fourth, Thomson Reuters I/B/E/S data show.
 
However, analysts say customer destocking and a possible margin squeeze could yield a weaker final three months.

Hot-rolled steel cord prices in Europe continued their steady rise in August but have come off 3% in the past two weeks, according to Steel Business Briefing. However, iron ore prices were up 2% in the same period, Metal Bulletin data shows.

ArcelorMittal shares have plunged 53% in the past two months, with the STOXX 600 index down 22% and the index’s basic resource components 33% lower.

Some analysts say this is pricing in a recession, which may be a step too far - at least for now.
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.88
+0.3%
Rand - Pound
23.86
+0.2%
Rand - Euro
20.39
+0.2%
Rand - Aus dollar
12.31
+0.2%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders