Steel Mills
ArcelorMittal Reports Loss in Challenging Quarter
Written by Sandy Williams
August 1, 2019
ArcelorMittal suffered a net loss of $447 million in the second quarter due to high raw material costs and sharply lower steel prices in the U.S. resulting in impairment charges on fixed assets in ArcelorMittal USA of $600 million. An additional impairment charge of $347 million occurred due to the sale of assets related to the ArcelorMittal Italia acquisition.
The company’s NAFTA steel shipments increased 2.2 percent to 5.4 million metric tons. Long product shipments jumped 21.1 percent primarily from a rampup of blast furnace production in Mexico following a prolonged maintenance outage. NAFTA crude steel production increased 3.7 percent to 5.6 million MT.
NAFTA steel sales of $5.1 billion were similar to Q1, but were offset by a 4.3 percent decline in average selling prices. Flat product selling prices declined 3.6 percent and long products 5.7 percent. Declining U.S steel prices were further impacted by customer destocking, increased domestic supply, and steel pricing well below import parity. Operating loss was $539 million for the NAFTA segment in Q2 compared to a profit of $11 million in Q1. ArcelorMittal does expect U.S. steel pricing to recover and is encouraged by recent successful price increases.
“Steel prices have begun to recover, from a very low base, and we do anticipate continued recovery from the recent unsustainably low levels,” wrote the company in its earnings Q&A. “When we run our impairment models we use our most realistic expectations on all factors, but unfortunately the impact on our cash flows relative to previous assumptions is already apparent, hence the impairment. Looking forward, the situation is not expected to sustain, and we are encouraged by the recent price increases, which were not factored into the near-term forecasts of the impairment models.”
The company’s EU division has been hit by weaker demand and increased imports. After a relatively good year in 2018, the speed and extent of the downturn, beginning in October, surprised the company, said CFO Aditya Mittal. ArcelorMittal intends to temporarily idle 4.2 million MT of annualized production in 2H 2019 at its European operations. No cuts in production are proposed for NAFTA
ArcelorMittal plans to divest about $2 billion in assets over the next two years. The company is also facing expensive environmental challenges at ArcelorMittal’s Ilva facility in Italy. Legal immunity provisions are set to expire Sept. 6 and, although the company is optimistic that new provisions will be provided by the government, without such protection Ilva operations would likely cease.
Based on year-to-date growth, ArcelorMittal expects global apparent steel production to grow between +0.5 percent to +1.5 percent, downwardly revised from previous +1.0 percent to +1.5 percent growth.
ASC growth revisions by region in 2019:
- U.S.: Grow by 0.0 percent to +1.0 percent versus previous estimate of +0.5 percent to +1.5 percent
- Europe: Contract by -2.0 percent to -1.0 percent versus previous estimate of -1.0 percent to 0.0 percent
- China: Grow by +0.5 percent to +1.5 percent versus previous estimate of +0.0 percent to +1.0 percent
- World ex-China: Grow +0.5 percent to +1.0 percent versus previous estimate of +1.0 percent to +2.0 percent
Further work needs to be done by the European Commission to protect the EU steel industry from import surges, said Mittal. Current safeguards have been ineffective and the Commission is undertaking another review the situation expected to be completed by Sept. 30.
Sandy Williams
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