ArcelorMittal, The World’s Largest Steel Maker, Posts Another Loss

7 May 2016

In a sign that the global steel industry’s troubles are not over, ArcelorMittal, the world’s largest steel maker, said on Friday that it lost money in the first quarter of this year largely because of low prices resulting from global overcapacity, especially in China.

The company’s chairman and chief executive, Lakshmi N. Mittal, said that despite the loss, business conditions were improving. He said in a statement that he expected “improved results in the coming quarters.”

Steel prices have rallied sharply in recent weeks, though it is not clear whether the rise is sustainable or has merely been fueled by speculation.

Mr. Mittal warned that excess capacity in China meant the market “remains fragile, and we must continue to be vigilant and active against the threat of unfair trade.”

ArcelorMittal’s loss narrowed to $416 million, compared with the $728 million that the company lost in the first quarter of last year. Revenue fell more than 20 percent, to $13.4 billion.

Analysts expect the performance of ArcelorMittal and the wider industry to improve as future results reflect a surge in steel prices — including a gain of more than 50 percent in the United States — since December. But they note that the glut of steel-making capacity around the globe is likely to limit profitability.

“We do not think the industry is healthy; we don’t think it is sustainably a high-return business,” Seth Rosenfeld, a London-based analyst at Jefferies, a securities firm, said in an interview.

ArcelorMittal has struggled in recent years. It lost nearly $8 billion in 2015 and raised $3 billion in new capital from shareholders this year to reduce debt.

The entire steel industry has been under pressure in recent years as a result of overcapacity, particularly in China, which now produces around half of the world’s steel. As China’s economic growth has slowed, it has exported its surplus steel, squeezing global prices until the recent rally.

Over the last year, the steel industry has become a focal point in Europe and in the United States of concerns about competition from China. ArcelorMittal and other steel companies have had some success in lobbying both regions to impose tariffs on steel imports from China and other low-cost producers.

The recent announcement by Tata, the largest steel producer in Britain, that it would either sell or close its British operations, threatening 15,000 jobs, has further drawn political attention to the industry.

On a call with reporters, Aditya Mittal, ArcelorMittal’s chief financial officer, said that the trade actions were supporting steel prices, especially in the United States, which has moved more quickly to protect the industry than Europe has. He also said that the problems posed by China had not yet been resolved.

“The risks remain in China because China has not yet addressed” the issue of having too much steel-making capacity, he said.

ArcelorMittal’s stock price has soared in recent weeks, following the trend in steel prices. But it was down more than 4 percent through early-afternoon trading in Europe on Friday, to 4.50 euros, or about $5.15. That is but a fraction of the stock’s high of more than €65, which it reached in 2008.


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