ArcelorMittal Cuts Forecast as Iron Ore Conquers Steel Gains

7 May 2015

ArcelorMittal cut its annual profit target as decade-low iron ore prices overwhelm a recovery in steel.

The world’s biggest steelmaker expects $6 billion to $7 billion of earnings before interest, taxes, depreciation and amortization this year, down from the $6.5 billion to $7 billion it forecast earlier. It’s the fifth-largest iron-ore producer.

“We faced a number of headwinds in the first quarter, including a declining iron-ore price, a stronger dollar and surge of imports in the United States,” Chief Executive Officer Lakshmi Mittal said in a statement on Thursday.

The price slump is submerging rising demand for steel in Europe, the company’s biggest market. Iron ore, the main raw material in steelmaking, tumbled after producers such as BHP Billiton Ltd. expanded output, exacerbating a glut.

ArcelorMittal fell as much as 3.4 percent in Amsterdam and traded down 2.7 percent at 9.312 euros by 9:44 a.m. local time.

The company reported a 21 percent drop in first-quarter profit on Thursday. Ebitda declined to $1.38 billion from $1.75 billion a year earlier, Luxembourg-based ArcelorMittal said. That missed the $1.42 billion average of 12 analyst estimates compiled by Bloomberg. The steelmaker also reported a net loss of $728 million after a $205 million loss a year earlier.

Demand Rising

While the company still sees steel demand rising much as 2.5 percent in Europe, it was less optimistic elsewhere.

ArcelorMittal lowered its expectations for growth in global steel use to 0.5 percent to 1 percent this year from 1.5 percent to 2 percent. It expects U.S. demand to contract as much as 3 percent and Chinese sales to expand as little as 0.5 percent.

“Europe remains a bright spot,” Aditya Mittal, the chief financial officer, said on a call with reporters. “Europe has been performing well compared to past periods.”

Steel shipments were little changed at 21.6 million metric tons for the quarter. Iron-ore output was 15.6 million tons.

Mining unit profit fell 74 percent from a year earlier.

The CFO said the lower end of guidance was based on iron ore below $50 a ton, while the upper end was based on prices near current levels and a recovery in U.S. steel demand. Ore with 62 percent content at Qingdao gained 3.7 percent to $60.89 a dry ton on Wednesday, data from Metal Bulletin Ltd. show.

Net debt rose to $16.6 billion in the quarter. The company is trying to reduce 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.