ArcelorMittal sees Q3 dip less severe than 2010
ArcelorMittal , the world's largest steelmaker, forecast a seasonal dip in the third quarter, but said there would be no repeat of the pronounced slowdown seen in the second half of last year.business Updated: Jul 27, 2011 11:54 IST
ArcelorMittal , the world's largest steelmaker, forecast a seasonal dip in the third quarter, but said there would be no repeat of the pronounced slowdown seen in the second half of last year.
Demand typically dips in the third quarter, the northern hemisphere summer, but sector earnings also face pressure from record production in China and demand capped by tighter monetary policy there, along with the impact of debt problems in Europe and the United States.
South Korea's Posco, the world's No 3 steelmaker, warned last week of weakening demand growth and persistently high costs in the second half.
ArcelorMittal has already said its blast furnaces would be running at 80% of capacity in the April-June period up from 75% in the first quarter and that steel price rises would more than offset cost increases.
The company, which makes 6% to 7% of the world's steel and whose production is more than double that of its nearest rival, said second-quarter core profit (EBITDA) surged to a post-crisis high of $3.41 billion.
But it will then fall back to between $2.4 billion and $2.8 billion in the third quarter, the company said.
According to a Reuters poll, analysts have been expecting core profit of $3.25 billion in the second quarter and $2.65 billion in the third.
The forecast third-quarter dip is less pronounced than a year ago. Relatively low levels of inventories could help avoid a repeat of last year's poor second half, with reasonable prospects of some fourth-quarter pick-up.
European hot rolled steel cord prices rose 30% in the first quarter, while spot prices for Chinese iron ore imports increased by just 3%, according to Metal Bulletin.
However, during the April-June period, steel prices fell 12%, while ore prices dropped by just 3%.
For ArcelorMittal, spot prices usually affect earnings with a three to four-month time lag, meaning tighter margins in the second quarter will be reflected in third-quarter figures.
Steelmakers have profited from a booming auto sector, but there is little sign of recovery among the other main customers in construction, a market where ArcelorMittal is more exposed than rivals.
ArcelorMittal should benefit from its increasing exposure to iron ore and coal mining, for which it is providing separate earnings figures from this year, particularly after disruptions in Brazil and Canada in the first quarter.
ArcelorMittal announced earlier this month it was bidding $5 billion, together with Peabody Energy , for Australia's Macarthur Coal and should give analysts more information on its plans for the asset.