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ArcelorMittal takes $4.3bn writedown

Dec 21 2012 15:48 Reuters
A French CGT labour union worker in despair after

A labour union worker in despair after ArcelorMittal brought down the axe on two idled blast furnaces at the Florange plant in France. (AFP)

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Brussels - ArcelorMittal, the world's biggest steelmaker, is to write down the value of its European business by $4.3bn, underscoring gloom about prospects for the region's recession-hit manufacturers.

The group, formed in 2006 when India-born Lakshmi Mittal's steel business bought European peer Arcelor for $33bn, said on Friday demand had fallen about 8% in Europe this year and there was no sign of a quick recovery.

As a result, it will write down the goodwill - the value of intangible assets such as brands rather than physical assets such as machinery - of its European operations by 87%.

"It is negative, but it should not really be a big surprise that the book value of its European business was too high," said a London-based analyst who asked not to be named.

ArcelorMittal shares were down 2.7% at €12.85 at 15:00, one of the biggest falls by a European blue-chip stock and reversing gains made earlier this week.

Credit agency Fitch cut ArcelorMittal's long-term issuer default rating to BB+, just below investment grade, due to the challenging outlook for Western European steel markets in 2013.

The $500bn a year steel industry, a gauge of the global economy, has slowed sharply this year as a moderation in China's economic growth has compounded weak demand from austerity-ravaged Europe.
 
The World Steel Association in October forecast steel demand would rise 2.1% in 2012, down from 6.2% in 2011. It had forecast 3.6% growth in April.

Last month, Moody's cut the company's senior unsecured notes to Ba1 from Baa3, joining Standard & Poor's in rating ArcelorMittal one notch below investment grade.

Other steelmakers are hurting too. Earlier this month, Germany group ThyssenKrupp posted a full-year net loss of €4.7bn ($6.2 bn).

Weak point

Europe is a particular weak point, as austerity drives aimed at tackling a sovereign debt crisis have cut demand for cars and construction - steel's largest markets. Euro zone manufacturing has contracted for 17 straight months.
 
ArcelorMittal, which makes about 6-7% of the world's steel, said demand in Europe had fallen 29% since 2007 when the financial crisis started.

It highlighted better trends in the US where, it said, demand was up 8% this year and is now 10% lower than in 2007.

ArcelorMittal, whose output is more than double that of its nearest rival, has already announced the closure of blast furnaces in Belgium and France, with other operations temporarily idled due to overcapacity.

The writedown represents over a third of ArcelorMittal's overall goodwill of $12.5bn as of end-2012. The group, around 40% owned by the Mittal family, took on $6.6bn goodwill when it bought Arcelor.

It said the writedown would be a non-cash charge in fourth-quarter results and would not affect net debt or core profit.

Before the writedown, analysts had, on average, forecast the group would make $529.5m net profit this year, and $7.1bn core profit, according to StarMine.

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