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ArcelorMittal Cuts Profit Target as Steel Demand Weakens

ArcelorMittal (MT), the world’s biggest steelmaker, cut its full-year profit forecast on weaker steel demand in the U.S. and Europe than previously expected.

Earnings before interest, taxes, depreciation and amortization will be more than $6.5 billion, compared with the earlier figure of more than $7.1 billion, Luxembourg-based ArcelorMittal said today in a statement.


ArcelorMittal’s profit has been damaged by falling steel demand in its biggest markets, the U.S. and Europe, and its limited operations in the faster-growing Chinese market. U.S. consumption slid 5.6 percent in the first half from a year before and European Union steel use declined 5.7 percent.

“What we’re seeing is that in markets in which we operate apparent demand is weaker than anticipated, hence our shipments are weaker than anticipated,” Aditya Mittal, chief financial officer, told reporters today. Forecast global demand growth of 3 percent this year is “on the back of a strong China.”

Steel shipments will rise 1 percent to 2 percent this year compared with a forecast of 2 percent in May, the company said. Iron-ore shipments will gain 20 percent. ArcelorMittal also cut its annual profit forecast on weaker coking coal prices.

The company sank 0.2 percent to 9.882 euros by 9:36 a.m. in Amsterdam. The stock has declined 24 percent this year.


Credit Ratings

Second-quarter Ebitda fell to $1.7 billion from $2.6 billion a year earlier. That’s almost in line with the $1.67 billion median estimate of 15 analysts surveyed by Bloomberg. In February, the steelmaker said earnings would recover in 2013 after it posted the lowest full-year profit since 2009.

“The operating environment in the first half continued to be challenging,” Chief Executive OfficerLakshmi Mittal said in the statement. “Although we have revised our full-year guidance, the second half should deliver a clear underlying improvement relative to the second half of 2012, which we believe marked the lowest point in the cycle.”

ArcelorMittal has cut more than $5 billion of debt in the past 12 months as it grapples with lower demand and excess capacity caused by Europe’s economic crisis. European steelmakers are able to produce about 210 million metric tons a year, as much as 60 million tons more than needed in a “normal market,” industry lobby group Eurofer says.

“We’re seeing the beginning of a slow turnaround” in Europe, Aditya Mittal said. “Clearly we remain cautious.”


Net Debt

While net debt fell to $16.2 billion in the quarter, ArcelorMittal said today it will rise to about $17 billion in the second half. The company is seeking to reduce borrowings after its credit rating was cut to below investment grade by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

ArcelorMittal has scaled back its dividend and sold assets, including a $1.1 billion stake in its Canadian mining business. It also raised about $4 billion in a sale of shares and bonds in a bid to pare overall borrowings.

The steelmaker has a target of cutting debt to $15 billion without a timeframe beyond saying that it’s a medium-term goal. ArcelorMittal has said it expects to regain an investment grade once it hits the debt objective and the global economy improves.

“We want to get there through free cash flow,” Aditya Mittal said. “We’re not focused on doing another asset sale or restructuring the balance sheet or doing any other equity related actions.”

ArcelorMittal, which reported sales of $20.2 billion in the quarter, said it shipped 22.5 million tons of steel and produced 15 million tons of iron ore.

Its South African unit today reported an interim loss of 140 million rand ($14 million) and said it expects lower earnings in the third quarter on flat demand and higher costs.


Source – Thomas Biesheuvel, Bloomberg