ArcelorMittal (NYSE:MT) released its third quarter earnings on Wednesday, October 31. It reported a net loss of $709 million compared to a net profit of $659 million in Q3 2011 and a net profit of $959 million in the previous quarter. Revenue and EBITDA figures were also lower on a year-over-year and sequential basis with revenues of $19.7 billion and $1.3 billion of EBITDA. The company’s weak performance has been attributed primarily to a slowdown occurring in China at a time when global economic conditions are already quite fragile.
The difficult operating conditions are expected to continue in the fourth quarter as well. Therefore, while we think that long term prospects for the company are good in event of an eventual economic recovery, near term headwinds are not expected to subside soon. For now, ArcelorMittal will be concentrating on asset optimization, net debt reduction and productivity and efficiency improvements. 
ArcelorMittal is the world’s leading steel and mining company with a presence in more than 60 countries. It is the leader in all major global carbon steel markets, including automotive, construction, household appliances and packaging. The company also has a world class mining business with a global portfolio of over 20 mines in operation and development, and is the world’s fourth largest iron ore producer. With operations in over 22 countries spanning four continents, the company covers all of the key industrial markets, from emerging to mature and has outstanding distribution networks.
- How Important Is China For The Global Steel Industry?
- How Has The Increase In Steel Imports To The U.S. Impacted ArcelorMittal’s North American Operations?
- With Steel Facing Competition From Aluminum In Automotive Applications, By What Percentage Will ArcelorMittal’s Automotive Steel Shipments Change By 2020?
- How Will ArcelorMittal’s Revenue Composition Change by 2020?
- By What Percentage Can ArcelorMittal’s Revenue & EBITDA Grow In The Next 3 Years?
- By What Percentage Did ArcelorMittal’s Revenue & EBITDA Change In The Last 4 Years?
Weak Performance Across All Segments
Steel shipments were lower across all major geographical segments. Flat Carbon Steel shipments in North and South America for Q3 2012 were 5.4 million tonnes, 6.7% lower than Q2 2012, driven primarily by lower slab availability in Brazil following blast furnace maintenance work in Tubarao, Brazil. Sales in the Flat Carbon Americas segment were $4.8 billion for Q3 2012, a decrease of 9.7% as compared to $5.4 billion for Q2 2012. Sales were lower due to lower steel selling prices in North America, weakening slab pricing and lower dollar prices in South America due to depreciation of Brazilian Real. This business segment contributed to around 25% of ArcelorMittal’s revenues.
Steel shipments from the Flat Carbon Europe segment for Q3 2012 were 5.8 million tonnes, a decrease of 13.8% as compared to 6.8 million tonnes for Q2 2012. Lower steel shipments were due to significantly weaker market demand and seasonal slowdown. The weaker market demand is understandable given the dire economic straits in which the region finds itself owing to the sovereign debt crisis. This business segment contributed to about 30% of ArcelorMittal’s revenues.
Short Term Plans
Outlook For The Long Term
An economic recovery in the long term should benefit steel companies, including ArcelorMittal. A lot of the negative sentiment already seems to be factored into the current stock price. Until the economy recovers, we don’t see the demand for steel increasing substantially.
We have a price estimate for ArcelorMittal of $18, which is 15% ahead of the market price. We will be revising our model shortly in light of the recent earnings results.Notes:
- ArcelorMittal reports third quarter 2012 and nine months 2012 results, ArcelorMittal Press Release [↩]
- ArcelorMittal 6-K Filing, SEC [↩]