ArcelorMitttal Cuts Production in Response to Falling Demand
ArcelorMittal (NYSE:MT) plans to shut down a blast furnace at its plant in Eisenhüttenstadt, Germany temporarily due to the decline in demand for steel. ((ArcelorMittal to idle German furnace on weak demand, Reuters)) The move should help support the declining prices of steel in the open market. ArcelorMittal, the world’s largest steel manufacturing company, was formed in 2006 by the merger of two steel giants (Arcelor and Mittal). The company competes with other international steel manufacturing companies like BaoSteel, POSCO (NYSE:PKX), Nippon Steel, Tata Steel and U.S. Steel(NYSE:X).
We have a $41 price estimate for ArcelorMittal.
Seasonal & Economic Slowdown Prompt Production Cuts
ArcelorMittal officials said that during the seasonal slowdown in the demand for steel, it has cut production at certain locations in order to optimize the production flows and to align the production capacities to demand [1]. During the first half of 2011 industrial steel buyers restocked their inventory, leading to an increase in the demand for the metal.
In order to match this demand, steel manufacturers had to increase their output accordingly. However, as the restocking cycle came to an end demand declined creating an oversupply of steel in the market. This resulted in a decline in the spot price. Accordingly, the companies have been slowing production to maintain a balance between the supply and demand of steel.
In addition to seasonality, the overall slowdown in the global economy has added to the decline in demand and has raised fears that the recovery in the European market may be slower than expected. With steel manufacturers already under pressure due to increased raw material prices, it was inevitable that they cut down on production to combat the decline in the steel prices.
We may be looking at a more long-term slowdown as opposed to a seasonal one, which means that the actual shipments and prices may take a bigger hit and miss our estimates for the Trefis forecast period, also taking a longer time to recover. In that scenario we would expect shipments to remain at current levels, or possibly decline, over the course of the next two years.
See our complete analysis for ArcelorMittal here.
Notes:- ref:1 [↩]