Bloomberg News

ArcelorMittal Earnings Beat Estimates; Predicts Rising Shipments

July 27, 2011

July 27 (Bloomberg) -- ArcelorMittal, the world’s biggest steelmaker, reported quarterly profit grew 22 percent on higher prices and forecast rising shipments in the second half.

Earnings before interest, tax, depreciation and amortization climbed to $3.41 billion in the second quarter from $2.81 billion a year earlier, Luxembourg-based ArcelorMittal said today in a statement. That beat the $3.25 billion average estimate of 14 analysts surveyed by Bloomberg.

“The company has delivered a strong performance in the second quarter of 2011 underpinned by higher steel selling prices,” Chief Executive Officer Lakshmi Mittal said in the statement. “Although the third quarter will experience some seasonal impact, we do not expect this to be as pronounced as last year.”

Steelmakers’ earnings are benefiting from a recovery in demand for the alloy, used in construction, cars and pipes. U.S. Steel Corp., the largest U.S. producer by volume, reported its first profit in 10 quarters on July 25, while India’s JSW Steel Ltd. posted a 64 percent jump in quarterly net income yesterday.

ArcelorMittal gained 0.8 percent to 22.345 euros by the close of Amsterdam trading, paring an earlier gain of as much as 2.8 percent.

Hot-rolled steel coil, a benchmark product, has risen 4.2 percent in 2011 to 552 euros ($799) a metric ton after peaking at 636.75 euros on Feb. 15, Steel Business Briefing data show.

Shipments Recover

“Due to the continued underlying demand recovery, steel shipments in the second half of 2011 are expected to be higher than the same period in 2010,” ArcelorMittal said.

The company, seeking to avoid a repeat of last year’s slump in second-half earnings as prices fell back and costs rose, said raw material accounting charges would grow from last quarter.

Ebitda will be $2.4 billion to $2.8 billion in the third quarter, ArcelorMittal said. The range compares with the $2.68 billion average estimate of 11 analysts surveyed by Bloomberg. Use of steelmaking capacity will decline to about 75 percent in the third quarter from 78 percent in the second, it said.

Costs last quarter also weighed on net income, which fell to $1.54 billion from $1.71 billion. Steel shipments were little changed at 22.2 million tons in the period, while net debt rose by $2.4 billion to $25 billion, according to the statement.

Combating Volatility

Gains in raw-material costs have hobbled producers’ efforts to emerge from the industry’s worst crisis in 60 years following a collapse in demand after the world financial crisis. Iron ore, a steelmaking ingredient, may average $160 a ton this year, up from $122 last year, according to HSBC Holdings Plc.

In response, ArcelorMittal is boosting self-sufficiency. The company joined Peabody Energy Corp. this month to bid for Australian coal producer Macarthur Coal Ltd. In January, it and Nunavut Iron Ore Acquisition Inc. agreed on a C$590 million ($626 million) deal to acquire Baffinland Iron Mines Corp.

ArcelorMittal, which increased iron-ore output 30 percent in 2010 to 48.9 million tons, plans to expand production 10 percent this year. Steelmakers use about 1.6 tons of iron ore and half a ton of coking coal to make 1 ton of the alloy.

The World Steel Association forecast in April that steel consumption would expand by 5.9 percent this year, while Morgan Stanley expects demand to grow by 6.4 percent.

“Barring any significant developments as a result of the fiscal issues in Europe and the U.S., I would expect orders and shipments to be higher in the fourth quarter 2011 compared to the third quarter 2011,” Aditya Mittal, chief financial officer, said on a conference call today.

--With assistance from Jesse Riseborough in London Editors: John Viljoen, Tony Barrett

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net.

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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