VALUATION HIGHLIGHTS

1. Europe constitutes 38% of the Trefis price estimate for ArcelorMittal's stock.
2. NAFTA constitutes 31% of the Trefis price estimate for ArcelorMittal's stock.
3. Brazil constitutes 13% of the Trefis price estimate for ArcelorMittal's stock.

WHAT HAS CHANGED?

1. Q4 2023 Earnings
   • ArcelorMittal posted a weaker-than-expected set of Q4 results, as the company was impacted by weaker steel prices. While revenue declined 14% year-over-year to $14.55 billion, adjusted earnings stood at $1.18 per share.

2. Near-term macro headwinds
   • There are a couple of factors clouding the near-term outlook for the steel industry. Higher interest rates are leading to lower demand from key steel consumers such as the automotive and construction industry. There are also concerns about demand from China as its real estate market faces a big downturn. This could also have an impact on the global steel market as China is the world's largest steel consumer.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of ArcelorMittal's value that present opportunities for upside or downside to the current Trefis price estimate for ArcelorMittal:

ArcelorMittal Europe

• Steel Shipments in Europe : ArcelorMittal's steel shipments in Europe fell from 41 million tons in 2018 to 30 million tons in 2022. Trefis expects the metric to rise marginally to about 33 million tons by 2029. However, if shipments grow to almost 40 million tons, there could be a 5% upside to our price estimate. On the other side, if shipment declines to about 29 million tons, there could be a 5% downside to our price estimate.


• Average Steel Price in Europe: ArcelorMittal's Average Price of steel in Europe rose from almost $800 in 2018 to almost $1200 in 2022 due to a surge in prices following the war in Ukraine. Trefis expects the metric to moderate a bit, averaging about $860 by 2029. However, if prices stand at about $1,000, there could be a 5% upside to our price estimate.

BUSINESS SUMMARY

ArcelorMittal is currently the largest steel manufacturer in the world and was formed by the merger of steel giants Arcelor and Mittal in 2006. The company has a production capacity of nearly 114 million metric tons of steel annually and has operations in 20 countries on four continents.

Headquartered in Luxembourg, the firm operates its business in five main operating segments: Brazil, Europe, NAFTA, Africa and Commonwealth of Independent States (ACIS), and Mining. More than 25% of the steel produced is in the Americas, nearly 50% in Europe, and the remainder in countries such as Kazakhstan, South Africa, and Ukraine. ArcelorMittal produces a variety of flat products such as sheets and plates and long products, including bars and rods. The firm also produces pipes and tubes for various applications.

SOURCES OF VALUE

The European segment is the most valuable division of the firm, accounting for around 30% of the company's value. It is valuable for the following reasons:

European division

The Europe division is characterized by strong underlying demand, driven by steady economic growth in Europe. The division's shipments and pricing have been negatively impacted by competition from cheap steel imports. However, with European trade authorities imposing anti-dumping duties on steel imports from several countries, the division's shipments and pricing are expected to recover over the forecast period.

KEY TRENDS

Overcapacity in the steel industry

Overcapacity in the steel industry has hit margins for many operators, as steel mills globally were running at around 50% of their actual capacity on average in mid-2020. While this saves some costs, there are significant fixed costs that cause margins to compress when capacity is not optimal. Capacity has improved over recent months and is closer to pre-Covid levels.