ArcelorMittal Loss Widens Amid Steel Glut
8 May 2015
ArcelorMittal SA said it might follow U.S. Steel Corp. in idling more American steel plants as it struggles to cope with a global steel glut, weak iron-ore prices and a surge of imports into the U.S.
The world’s biggest steelmaker, based in Luxembourg, said Thursday that its first-quarter net loss widened to $728 million from $205 million a year earlier. Revenue fell 13% to $17.12 billion.
The company plans to cut costs in its iron-ore mining business and reduce operations in the U.S., Chief Executive Lakshmi Mittal said in an interview. “We are contemplating all actions” to remain competitive, he said. “Including idling some [plants].” The U.S. is the company’s No. 2 market, after Europe.
ArcelorMittal’s more than 20,000 U.S. employees work at 25 plants in 12 states. Mr. Mittal snapped up those operations last decade from now-defunct steelmakers such at Bethlehem Steel, Republic Steel and LTV Steel.
“We have to ensure we are cost-competitive across all our operations in this tough environment,” said Lou Schorsch, CEO of ArcelorMittal Americas. He compared what might happen in the U.S. to what “we have successfully done in Europe,” where the company has shut down four blast furnaces this decade, allowing the steelmaker to become profitable.
This summer, ArcelorMittal, like U.S. Steel, will negotiate a new three-year labor deal with the United Steelworkers union, which represents most of their workers, offering both companies a chance to try to cut back on employees and costs.
The problem in the U.S. isn’t demand. Mr. Mittal said that, except for the oil and natural-gas industry, markets for steel are solid. And as inventories are unwound, “we will see a strong second half this year,” he said.
Rather, the issue is rising imports, especially from China, which has too much steel capacity and whose steel is less expensive for American buyers because of strengthening of the dollar. Chinese imports into the U.S. are up 25% so far this year.
As imports flood in, steel prices in the U.S. have fallen 25% since Jan. 1, causing pain for a number of steelmakers. U.S. Steel, which currently has 2,800 workers laid off and an additional 6,200 on layoff warning, has reduced operations at nine plants. Nucor Corp. and AK Steel Holdings Corp. both posted lower first-quarter profits.
U.S. Steel CEO Mario Longhi said in an interview that if the U.S. doesn’t raise tariffs on Chinese steel imports, “it could put at risk the existence of this industry.” Both Mr. Longhi and Mr. Mittal say China is cutting some capacity, but needs to eliminate more in order to eliminate the global steel glut.
Unlike in the past, ArcelorMittal can no longer count on its iron-ore mining business to paper over its losses at steel plants. The company has become a significant and, until recently, profitable miner. It now digs up iron ore, the main ingredient for making steel, in nine countries, including Canada, the U.S., Ukraine and Liberia. A year ago, that unit made a $274 million profit. This quarter, it incurred a $36 million loss, as iron-ore prices were sliced in half.
The company lowered its likely minimum pretax earnings forecast for 2015 to $6 billion from $6.5 billion.
There were bright spots. One was in Europe, where earnings rose 15% to $616 million and would have been higher if not for the weakness of the euro relative to the dollar. Another was the company’s debt picture. ArcelorMittal narrowed its net debt to $16.6 billion on March 31 from $18.5 billion a year earlier.