ArcelorMittal Sees Supply-Side Reform in the Industry

ArcelorMittal Group posted net income of $1.9 billion in the second quarter of 2018. Steel shipments increased 1.8 percent from the previous quarter to 21.8 million metric tons. Sales totaled $19.9 billion compared to $19.1 billion in the first quarter and $17.2 billion in Q2 2017.

The company expects global apparent steel consumption to grow 2-3 percent in 2018. The forecast for ASC in Europe and the U.S. was revised upward to 2-3 percent based on demand in the machinery and construction markets.

Aditya Mittal, Group CFO and CEO of ArcelorMittal Europe, added further color on steel demand and pricing during the company earnings call. “If you look at the apparent steel demand in the U.S., we’re not seeing any change into the second half,” said Mittal. “Demand elasticity is quite high normally in the steel business. Clearly, in the medium-term, there should be a normalization of that, as some suppliers brought on in the U.S. steel industry, and there could be certain exemptions granted for Canada and Mexico. So I think there will be normalization, which would reflect a more reasonable margin for the U.S. steel industry, reflecting their cost position. So, at this point in time, apparent steel demand is good, and we’re able to pass on the price increases in our U.S. business.”

Most of the optimization projects launched at ArcelorMittal Indiana are now completed with the restoration of the 80-inch hot strip mill to be finished in the second half of 2018. Two new walking beam reheat furnaces at Burns Harbor will be completed in 2021.

A $1 billion three-year investment announced last year for ArcelorMittal Mexico will bring production capacity to 5.3 million metric tons and significantly enhance the proportion of higher added-value products in its product mix. The new hot strip mill will increase ArcelorMittal Mexico’s flat rolled steel capacity to 2.5 million metric tons, long steel to 1.8 million tons, and the remainder will be semi-finished slabs. Completion is expected in Q2 2020.

Modernization of ArcelorMittal Dofasco in Canada includes installation of two new coilers and runout tables to replace three end-of-life coilers. The strip cooling system will be upgraded and include innovative power cooling technology to improve product capability. Project completion is targeted for 2020, the company said.

ArcelorMittal’s joint venture AM/NS Calvert is in the crosshairs of several tariff issues with 4 million metric tons of slabs coming in from Brazil and Mexico, as well as the company’s U.S. facilities. Aditya Mittal explained that 1 million tons comes from Ternium in Brazil that is linked to HRC pricing. “The pricing completely reflects its HRC prices in the U.S. minus a certain dollar amount … and reflects the changes in the U.S. market.” Some of Calvert’s slabs come from ArcelorMittal’s U.S. facilities and the rest from a quota arrangement with another of the company’s Brazilian facilities. Calvert also buys ArcelorMittal Mexico slabs, which are then exported back to Mexico as hot band.

“All those costs and gains accrue to ArcelorMittal,” said Mittal. Nippon Steel as an equity partner gets an equity rate of return based on Calvert’s utilization rate. Some of the gains are captured by the Mexican business, because they get higher pricing for the slabs, and some of the gains are captured by the Brazilian business. The rest of the gains are embedded in the NAFTA EBITDA of Calvert, said Mittal. The utilization rate at Calvert was 88 percent due to a six-day planned outage in the second quarter.

ArcelorMittal said it welcomes the provisional safeguards in place in Europe that will guard against unfairly traded imports; however, global excess capacity remains an issue along with government subsidies.

Recent trade actions have acted as a catalyst for supply-side reform and as a result capacity utilization rates have improved, said Mittal. He added that supply reform is most pronounced in China where there has been a structural reduction of capacity.

“As a result you see the demand/supply balance is much better, capacity utilization is much higher. That’s structural; that capacity is not coming back,” said Mittal.

He also noted that China’s Blue Sky initiative means that winter closures may last longer to reduce the environmental impact.

“So the supply story is good in China,” said Mittal. “Obviously, the story is not complete, because they’re still exporting steel and there’s still some market distorting impacts. Therefore, trade action is relevant on a global basis.”

Antidumping and anti-subsidy cases were the story of 2017 and 2018, said Mittal, with action taken in Europe, the U.S. and other countries. More recent action includes Section 232 and safeguards, however. Mittal questioned the timing and length of such measures, seeming to favor AD/CVD measures. “The anti-dumping measures and anti-subsidy measures typically last five years and typically get extended by another five years,” he said.