Arcelor Mittal Updates: Limited Impact from Labor Strikes, Kumba Arbitration Postponed

ArcelorMittal (NYSE:MT), one of the better positioned steel manufacturers globally, is making some very important moves by reallocating its production numbers from the mills in order to maintain its profitability. Moreover, it’s moving aggressively towards setting up its coal and iron ore production facilities in order to safeguard its supplies and profits going forward. The company recently faced a labor strike in some of its mills in Europe halting production, but this won’t impact the company’s outlook in our view. ArcelorMittal, the world’s largest steel manufacturing company, competes with other international steel manufacturing companies like BaoSteel, POSCO (NYSE:PKX), Nippon Steel, Tata Steel and U.S. Steel (NYSE:X). We take a look at the company’s recent developments below.

Our price estimate for ArcelorMittal is at $22, which is approximately 15 percent ahead of the current market price.

See our full analysis for ArcelorMittal Here

Little impact from the labor strikes ^[1]

ArcelorMittal has been shuffling the production at its mills by raising the production levels at some of the units while suspending the production at some in order to maintain profitability during the current unfavorable economic scenario. The workers recently protested against the company’s restructuring bid by halting the production for 24 hours in four long carbon steel plants in Luxembourg and two flat rolled steel plants in Liege and Florange.

ArcelorMittal has a huge number of steel mills so the current closure has not affected its operations as a whole. However, it is essential for the company to strike a balance between the production and the manpower issues going forward in case it does not want a situation that Freeport is facing at its Grasberg mine in Indonesia.

ArcelorMittal and Kumba postpone iron ore arbitration ((ArcelorMittal, Kumba Postpone Iron-Ore Arbitration on Sishen, Bloomberg))

ArcelorMittal was earlier entitled to iron ore supply from Kumba’s Sishen mine at preferential pricing of 3 percent above the production cost of iron ore from the mine owing to the 21.4 percent stake it held in the mine earlier. However, Kumba had cancelled the supply agreement last year as ArcelorMittal lost its rights over 21.4 percent of the mine because it failed to renew the title. Kumba has challenged the government’s decision to subsequently award the mining right to Imperial Crown Trading 289 (Pty) Ltd.(ICT) by the government on the pretext that it holds 100 percent of the mining rights in the region. Kumba and ArcelorMittal have hence also agreed to enter into an arbitration over the issue of a preferential pricing agreement. AecelorMittal’s stock surged globally on the news.

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1. ArcelorMittal Sees Limited Effect From Strikes, Wall Street Journal [↩]