ArcelorMittal , the world’s largest steel maker, posted a fourth-quarter loss on Friday on weak iron ore prices and a torrent of Chinese exports that have flooded global steel markets and crimped steel pricing.
The Luxembourg-based metals and mining company said it lost $955 million, compared with a $1.23 billion deficit a year earlier, and warned 2015 operating results would fall. It forecast 2015 global steel consumption to rise between 1.5% and 2%, a rate below last year’s increase.
The steelmaking business is suffering from rising exports from Asia, where economic growth has been slowing, Chief Executive Lakshmi Mittal said in an interview. “There is a price pressure everywhere due to a surge in exports” from China and South Korea, he said.
In 2014, steel exports from China rose 59% from 2013, to 82.1 million metric tons, and exports from South Korea increased 8% to 28.4 million metric tons, said Global Trade Information Services.
Steel demand in key markets should rise by more than 1% this year, except for the Commonwealth of Independent States and the U.S., ArcelorMittal said. In North America, its second largest market, it said steel demand could fall as much as 1% as oil industry spending contracts.
Investors took the lower outlook in stride, as fourth-quarter results exceeded views. The company’s New York-listed ADRs were up 7% to $11.24 on Friday.
Separately, ThyssenKrupp AG , Europe’s second largest steelmaker, said net profit for the quarter ended Dec. 31 was €50 million ($57.18 million), compared with a loss of €65 million a year earlier. Results were boosted by a weaker euro. Profit was aided by an 11% increase in sales to €10.04 billion, compared with €9.09 billion last year, driven by strong growth in its capital goods businesses.
ArcelorMittal’s results were hurt by around $1 billion in charges from asset impairments and currency exchange losses. It took a $621 million write-down on its holdings in Chinese steelmaker China Oriental Ltd.
For the full year, ArcelorMittal lowered its net loss to $1.1 billion from $2.5 billion. Steel shipments increased 3% to 85.1 million metric tons, and steel margins improved $14 a metric ton on cost cuts, better productivity, and lower raw material prices. ArcelorMittal plans to boost total steel shipments by between 4% and 5% this year, half of which will come from recent blast furnace restarts in Brazil and South Africa.
“Operating conditions remain tough [but] we expect steel markets to continue to improve, particularly for high value-added products such as automotive,” said Mr. Mittal. ArcelorMittal is the world's largest supplier of flat steel to auto makers.
The company in recent years also has become a major, and profitable, miner. It now digs iron ore, the main ingredient for making steel, in nine countries, from Canada and the U.S. to Ukraine and Liberia.
As Chinese demand growth has slowed and mining companies have expanded production, prices are half what they were a year ago. Operating income at ArcelorMittal’s mining division swung to a $50 million loss from a $324 million profit.
“We expected iron ore prices to fall,” Mr. Mittal said, adding that weaker currencies in mining countries and lower oil prices would mitigate the pain. In addition, a spokeswoman said, lower iron ore prices will help offset lower steel prices.
ArcelorMittal said its iron ore reference price had dropped 45% in the quarter compared with a year ago. Partly as a consequence, overall revenue fell 5.7% to $18.72 billion in the fourth quarter compared with the same period a year earlier. “The mining division will become less and less a profit driver for the group” in the future, said Jefferies analyst Seth Rosenfeld.
Chief Financial Officer Aditya Mittal said the company would continue to look at buying and selling assets. It unloaded a stake in a U.S. mill last year and remains interested in buying privately owned Ilva, Europe's largest steelworks, although the Italian government wants to restructure the business first before permitting a sale.
Although oil and gas markets account for a small percentage of ArcelorMittal’s American operations, the recent collapse of oil prices will hurt the company’s U.S. business. Demand for steel pipe and tube had driven up U.S. steel prices and fueled a 35% increase last year in U.S. imports to $34.2 billion. Last year, the U.S. became the world’s biggest steel importer.
Energy companies have responded to the fall in oil prices by canceling orders en masse, and the U.S. is no longer as likely to keep sucking up excess steel production. Benchmark hot-rolled coil prices are down 13% since Jan. 1.
Mr. Mittal declared himself optimistic. “Low energy pricing will help U.S. consumers spend more on cars and houses,” he said.
Source: Wall Street Journal
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