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ArcelorMittal Profit Drops, Cuts Dividend on Steel Demand

October 31, 2012

ArcelorMittal Profit Falls as Economic Crisis Curbs Steel Prices

Red hot wire rod is shaped by a machine on the production line at the ArcelorMittal steel-making factory in Kryvyi Rih, Ukraine. Steel-industry earnings have slumped as Europe’s economic crisis saps demand and slower Chinese growth weighs on commodity prices. Photographer: Vincent Mundy/Bloomberg

ArcelorMittal (MT), the world’s biggest steelmaker, reported the lowest quarterly profit in almost three years and cut its 2013 dividend to save $1 billion as slowing Asian demand sinks prices and the company attempts to cut debt.

Next year’s payout will drop to 20 cents a share from the 75 cents planned for 2012, the Luxembourg-based company said in a statement. Earnings before interest, taxes, depreciation and amortization declined by 44 percent to $1.34 billion, in line with estimates by 17 analysts surveyed by Bloomberg.

ArcelorMittal is seeking to reduce its $23.2 billion in net debt amid lower prices for steel and the iron ore it mines.

Standard & Poor’s cut its rating on ArcelorMittal’s debt to junk on Aug. 2, citing a weakening industry and lack of clarity over company plans to curb borrowings. Moody’s Investors Service said it would follow suit unless ArcelorMittal reduced debt by about $5 billion before the end of the year.

“While the dividend cut today is positive in terms of addressing gearing concerns, there still remains risk that ArcelorMittal takes further actions which could be negative for equity shareholders to reduce gearing into year end,” Bank of America Corp. said in a note to clients.

ArcelorMittal fell 6.4 percent, the biggest drop in more than two months, to 11.43 euros by the close in Amsterdam.

Excluding proceeds from any further asset sales, net debt will be about $22 billion at the year-end, ArcelorMittal said.

Investment Grade

Reducing the figure is a priority and it continues to seek an investment-grade credit rating. ArcelorMittal is selling assets, moving output to cheaper sites and idling plants.

The company said in July it was selling 48 percent of engineering company Paul Wurth Group to SMS GmbH for 300 million euros ($389 million) and in May agreed to sell Skyline Steel LLC to Nucor Corp. (NUE:US) for about $605 million. It’s also considering divesting a stake of about 30 percent in its Canadian iron-ore unit, according to a person with knowledge of the matter.

While the company isn’t planning to offload mining assets, Chief Financial Officer Aditya Mittal didn’t rule out selling stakes. “I do not see ourselves selling these core assets, but clearly to strengthen our core business we may bring in captive customers,” he told a call today. “Our strategy in our mining business remains to grow our production capability.”

Annual Ebitda will be about $7 billion, ArcelorMittal said.

Lakshmi Mittal

“The already fragile global economy was further impacted in the third quarter of 2012 by the slowdown in China,” Chief Executive Officer Lakshmi Mittal said in the statement. “This resulted in very challenging operating conditions for ArcelorMittal, which are expected to continue in the fourth quarter.”

Steel-industry earnings have slumped as Europe’s economic crisis saps demand and slower Chinese growth weighs on commodity prices. Posco (005490), Asia’s third-biggest steelmaker by output, cut its 2012 sales forecast for the third time this year on Oct. 23. Profit at ArcelorMittal, which also mines iron ore from Canada to Kazakhstan, is the lowest since the fourth quarter of 2009.

Prices for hot-rolled steel coil, a benchmark product used in vehicles and buildings, averaged about $624 a ton in the third quarter, down from $764 a ton a year earlier, according to Steel Business Briefing’s global price index. Prices for iron ore, used to make the metal, fell 30 percent in the period.

Third-quarter sales fell 19 percent to $19.7 billion as the company sold less steel at lower prices. Shipments dropped 8.3 percent to 19.9 million tons from the prior three months, while per-ton Ebitda tumbled 41 percent to $67. The company, which projects about $4.5 billion of capital expenditure this year, said 2013 spending will be “meaningfully lower.”

“With net debt moving in the wrong direction, the dividend being cut and ArcelorMittal guiding slightly lower for the fourth quarter, we see these as a disappointing set of results,” Nomura Holdings Inc. said in a note to clients.

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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