ArcelorMittal, the world’s largest steel maker, said on Friday that it earned $52 million in the second quarter, a substantial improvement from a $780 million loss in the same period last year, as demand for steel rose in Europe and North America.
While the company’s net income was modest, its crucial businesses showed signs of returning to growth and profitability after years of taking write-offs for closing plants.
It was the first profitable quarter for the company, which is based in Luxembourg, since 2012.
Still, ArcelorMittal lowered its forecast for 2014 earnings before interest, taxes, depreciation and amortization, a closely watched metric in the industry, to about $7 billion from $8 billion. And the company’s stock fell more than 5 percent in morning trading in Amsterdam.
The company now forecasts prices for the iron ore it mines to be 13 percent lower, on average, than the $120 per metric ton it estimated at the beginning of the year.
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While the softening of iron ore prices may hurt the relatively small mining segment at ArcelorMittal, that could be countered by stronger demand for the steel that makes up most of the company’s business.
“We are seeing real progress in a turnaround on the steelmaking side of the business,” Jeff Largey, a steel analyst at Macquarie Securities in London, said in a telephone interview.
ArcelorMittal has cut the size of its operations to adapt to changing demand and could be poised for higher profitability if growth in crucial markets like Europe and the United States continues. But profitability remains modest. “It is being done in baby steps rather than leaps,” Mr. Largey said.
Earnings before interest, tax, depreciation and amortization grew 4 percent to about $1.8 billion, in line with analysts’ expectations.
Lakshmi Mittal, the company’s chief executive, said in a conference call with reporters on Friday that the company had benefited from higher demand in Europe and North America, where it ships two-thirds of its steel. “We are seeing an improvement in developed markets but a slowdown in developing markets,” he said.
Despite slowing growth in some emerging economies, Mr. Mittal said, demand for steel is strong enough in the Middle East and Africa to absorb a surplus in output from its steel plant in Ukraine, where domestic consumption has fallen because of the recent turmoil.
ArcelorMittal increased shipments from its Ukrainian operations by about 2 percent in the second quarter compared with the first quarter. It does not make steel in Russia.
In recent years, ArcelorMittal has put most of its investment money into mining operations, betting that they would generate more profit than steel. But low iron ore prices have taken a toll, and operating income in mining fell about 19 percent in the quarter, to $233 million.
The company’s European operations, its largest unit, reported operating profit of $334 million compared with a $188 million loss in the same period a year earlier. The company closed plants in the region after a substantially reduced market for steel since the beginning of the financial crisis.
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ArcelorMittal now expects steel demand in Europe to recover, as manufacturing sectors like autos and appliances gain strength. The company said on Friday that it expected demand for steel in Europe to grow 3 to 4 percent this year, after years of declines. It also predicted 5 to 6 percent growth in the United States, where the automobile and energy industries are big customers.
The company said that the finishing plant in Calvert, Ala., that it bought from ThyssenKrupp of Germany at the end of last year to serve customers in the southern part of the United States was running at 83 percent of capacity. It has also reopened a blast furnace in Brazil to supply raw steel for the Alabama plant.
North American results were hurt by the $90 million payout the company made to settle a price-fixing case in the United States.
Demand and economic growth seem to be shifting away from emerging markets to the industrialized regions of Europe and North America. Demand in China is expected to increase 3 to 3.5 percent, the company said, a big drop from the sizzling pace of recent years.
ArcelorMittal’s steel shipments worldwide increased by about 3 percent to 21.5 million metric tons, while sales increased by 2.5 percent to $20.7 billion.
Source: The New York Times