ArcelorMittal Narrows Losses, Cautions on China -- 2nd Update
May 06 2016 - 6:29AM
Dow Jones News
By Alex MacDonald
LONDON-- ArcelorMittal narrowed its net loss in the first
quarter and forecast improved earnings to come as steel prices
begin to recover, but cautioned that excess steel capacity in China
still remains a concern.
The Luxembourg-based steelmaker, the world's largest by
production accounting for some 6% of global steel output, reported
a net loss of $416 million in the three months ended March 31,
2016, compared with a $728 million net loss in the same period a
year earlier.
The net loss was worse than analysts' expectations of $319
million, but narrower than last year because of a swing to a small
foreign exchange gain compared with a $756 million foreign exchange
and net financing loss in the same quarter a year earlier.
Still, the steelmaker suffered a net loss due to a 33% drop in
earnings before interest, taxes, depreciation and amortization, or
Ebitda, to $927 million after lower steel and iron ore prices and
shipments prompted revenue to fall 22% to $13.4 billion over the
same period.
Net debt also rose to $17.3 billion as of the end of March,
compared with $15.7 billion at the end of December, because of
seasonal working capital adjustments. After taking into account the
rights issue in April and the roughly $1 billion Gestamp asset
sale, net debt would have dropped to $13.3 billion, the company
said.
ArcelorMittal' share were down 4.9% at EUR4.46 ($5.10) a share
in midafternoon European trading. Citigroup said in a note that
while the first quarter results were broadly in line with
expectations investors were likely to react negatively to the
higher-than-expected net debt.
"Our results for the first quarter reflect the very tough
operating conditions in the second half of 2015," said Chief
Executive Lakshmi Mittal. "Since that time we have seen a recovery
in spreads in our core markets to more sustainable levels, which is
expected to result in improved results in the coming quarters," he
said. Mr. Mittal, however, cautioned that the global steel market
remains fragile given excess steel capacity in China. He urged
governments to remain vigilant about unfair trade.
Steelmakers have been hammered globally by an onslaught of cheap
steel exports from China, the world's largest steel producer. China
produced more steel than all the other countries combined last year
even as steel demand slackened at home. The wave of cheap Chinese
steel shipments prompted European Union and U.S. governments to
slap import tariffs to protect their steelmakers, but not quickly
enough in the EU to stem the bleeding.
ArcelorMittal earlier this year raised EUR2.8 billion, or $3.2
billion, through a rights issue to strengthen its balance sheet
given a protracted steel price rout globally. Other steelmakers
such as Sweden's SSAB AB followed suit.
ArcelorMittal's shares rallied after the rights issue was
announced and are up 55% so far this year, buoyed by a pickup in
steel prices in its key U.S. and European markets as well as
China.
ArcelorMittal's Chief Financial Officer Aditya Mittal said the
price rise has been most pronounced in China, where the
government's stimulus package has helped buoy domestic steel
demand. The steelmaker now forecasts Chinese steel demand may
remain flat this year compared with its previous forecast for an up
to 1.5% contraction.
Steel price rises in the U.S. and Europe have also followed
suit, with Europe lagging the U.S. due to slower implementation of
trade barriers against Chinese steel exports, Mr. Mittal said.
Chinese steel exports have fallen quarter-on-quarter but are still
up year-over-year, he noted.
Mr. Mittal cautioned that China may be "kicking the can down the
road" if it fails to remove its structural excess steel production
capacity as a result of the recent government-fueled pickup in
steel demand.
Nevertheless, he expects the impact of rising steel prices to be
fully reflected in the steelmaker's earnings in the second half of
the year, although this year's Ebitda guidance of more than $4.5
billion has been kept unchanged.
Write to Alex MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
May 06, 2016 07:14 ET (11:14 GMT)
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