ArcelorMittal Expects Lower Q4

NAFTA sales totaled $4.3 billion, an increase of 8.9 percent from second quarter due to higher average selling prices reflecting the lag effect of higher steel prices in prior quarters. Higher pricing offset the 1.4 percent decrease in steel shipments to 5.36 million tonnes, compared to second quarter shipments of 5.44 million tonnes. Average steel selling price was $715 per ton, up from $660 per ton in Q2 and $690 in Q3 2015.

During third quarter ArcelorMittal USA restarted the furnace at Indiana Harbor. The restart was to produce slabs for AM/NS Calvert, said CFO Aditya Mittal. “It is not to increase the amount of steel that we put into the marketplace. And just starting a furnace doesn’t necessarily mean that all of their production comes on to that market because we can also reduce some of the levels of production at some of the other furnaces.” No guidance was given as to when Indiana Harbor will be back at full capacity, but as the market pulls more volume all the ArcelorMittal furnaces will be running harder, said Aditya.

ArcelorMittal’s participation in Mexican market is primarily through Calvert. “We have the advantage of bringing in slabs from Mexico, processing them at Calvert and then shipping it back into Mexico,” said Chairman and CEO Lakshmi Mittal. “Clearly Calvert’s capabilities are second to none and that helps us improve our presence in the automotive universe in Mexico.”

ArcelorMittal expects company EBITDA to be lower in fourth quarter due to lower steel prices in the US and rapidly rising coking coal prices and steel spreads.

Lakshmi Mittal remarked, “Coal prices have spiked unexpectedly in the third quarter due to supply issues, including China’s decision to limit coal mining to 276 days per year. Near-term there will be a negative impact on global steel spreads, but I’m confident that the steel prices will adjust to these higher raw material cost.”

During the earnings call Mittal said the rise in coal prices was unexpected. “Clearly China undertook this volume capacity cut. There has been two issues, one is there was a flood issue, then we see that they announced this capacity cut. Very quickly they moved, they reduced the operating base of the coal mines and they have shut down some of the coal mines.”

Aditya Mittal noted that things improved in the U.S. market place in third quarter “There have been price increases — we’ve announced price increases. We see that the inventory levels are low and this points to return to more normal level of demand and consumption which support shipments.”

“What we’re saying is we don’t see that necessarily in Q4,” said Aditya Mittal. “In Q4 we’re forecasting, at this point in time, shipments to be lower than Q3. Clearly if the market rebounds strongly the next few weeks that may change, but at this point in time we’re expecting Q4 shipments in that to be lower than Q3.”

Lakshmi Mittal was asked to comment on the met coal shortage and Chinese steel exports:

“Okay. So in terms of China what we’ve seen just in last month perhaps because of how much working coal prices have risen, exports have reduced. So clearly that dynamic is unfolding, it would be interesting to watch. We’ve not seen exports in the last nine months change in spite of the various trade measures that have been put in place in Europe and United States and other countries. What we’re seeing is those trade flows moving towards Southeast Asia. Now suddenly in October we saw exports in China decline.”

Aditya Mittal commented that “positive demand evolution” is happening in the global steel industry. The worst of Brazil is done, and positive growth is in Europe and North America. Raw materials are also rising, which is a good indicator of general demand, said Aditya.

“The Chinese steel industry cannot survive at a spread which is lower than $130 compared to raw materials which provides a base in terms of steel pricing compared to raw materials,” said Aditya. In addition, it has been demonstrated that China has been dumping their overcapacity problem in the U.S., European and other markets which has been met by appropriate trade measures. China appears to be on the path to resolving their overcapacity, said Aditya. “The last thing that remains is we need comprehensive trade reform. We’ve made progress but we need to make sure that there is no backdoor entry or no loophole. And an example of this, as mentioned, is Vietnam and, as you’re aware, the DOJ has opened investigation on that which is good news.”