ArcelorMittal green shoots eyed in Q2 results
BRUSSELS - Signs of stabilisation if not recovery will be the focus when ArcelorMittal, the world's largest steelmaker, reports second-quarter results next week.
ArcelorMittal is expected to report an 85.5 percent slide in core profit (EBITDA) to $1.17 billion next Wednesday, July 29, according to a Reuters poll of 12 analysts, just below the $1.2 billion to $1.5 billion forecast given by the company in April.
Analysts said higher sales volumes and cost cuts should offset lower average prices, and help to boost EBITDA from the $883 million seen in the first quarter.
The third and fourth quarters should be progressively better, they added.
ArcelorMittal typically gives guidance a quarter in advance and investors will want to see a clear improvement in the EBITDA forecast for the third quarter, with analysts believing it could be as high as $2 billion. The company's debt reduction drive had been the focus when it swung into net losses in the fourth and first quarters, but equity, convertible and bond issues topping $11 billion and a relaxing of its loan covenants have taken the heat off.
The debt level will still be an important number, but you have seen the share price re-rate... The risk is that the company is now range-bound and trading at the top of that trading range, said a London-based analyst who declined to be named.
The shares have pulled up from around 21 euros to almost 26, a near 25 percent rise, since it announced it was in talks with banks on its loan covenants on July 8.
ArcelorMittal has been running at half capacity for the first half of 2009 because its key customers, the recession-hit auto and construction sectors, have preferred to run down stocks rather than buy new steel.
That destocking trend should have finished by the end of the second quarter, even if end-user demand has not improved by much.
In the past month, ArcelorMittal has announced three of its 25 European blast furnaces will reopen. Only nine are currently running.
Spot prices have come off their lows. Steel billet prices in the Black Sea had risen to above $400 a tonne at the end of June from around $300 at the end of March.
That should feed through into further price increases for ArcelorMittal, many of which are set on a quarterly basis, although a number of analysts believe they may not have a real impact until the final three months of the year.
ArcelorMittal and the steel sector as a whole face a difficult balancing task. The response to industry restocking will be to increase capacity utilisation, but ramping up production by too much could put pressure back on prices.
I think it's the biggest risk for the sector... A lot of the demand in the second half is only restocking, said one steel analyst. (Editing by Simon Jessop)
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