The Year 2016 In Review: ArcelorMittal Witnesses A Revival In Fortunes In Key Markets
The year 2016 was characterized by a continuation of the tough business conditions prevailing in previous years in ArcelorMittal’s key markets of Europe and the U.S., in large part due to competition from steel imports. In addition to the competition from steel imports, tepid demand conditions for steel in ArcelorMittal’s major markets meant that the company largely focused on cost reduction to bolster its results. However, the year 2016 also witnessed regulatory action taken against steel imports in both Europe and the U.S. that is likely to translate into more favorable business conditions for the company going forward. Moreover, an improvement in the demand outlook for steel, particularly in the U.S., should translate into better results for the company over the next few years.
Tough Business Conditions
ArcelorMittal’s Europe and NAFTA business segments reported declines in shipment volumes and realized prices in the first nine months of the year, indicative of the top line pressure experienced by the company as a whole. Whereas steel demand growth in both Europe and the NAFTA region remained flat this year, steel imports ate away at the market share of domestic steel producers in these regions. [1] With steelmakers in these regions alleging the adoption of unfair trade practices such as dumping by a number of countries exporting steels to Europe and North America, regulatory authorities have responded by levying punitive tariffs on steel imports from a number of countries. Whereas authorities in the U.S. have imposed antidumping duties on imports from a number of countries including China and South Korea, European authorities have taken action against imports from China and Russia. [2] [3] The impact of regulatory intervention boosted the results of the NAFTA division, which witnessed an 8% sequential increase in realized prices in Q3 2016. [4] Going forward, both the Europe and NAFTA divisions should benefit from an improved business environment as a result of the regulatory intervention.
Given the prevalence of adverse business conditions over the past few quarters, the company has focused on cost reduction initiatives to prop up its results. Though the company has not explicitly disclosed the extent of the impact of its cost reduction initiatives, the impact of these initiatives is evident in the improved EBITDA margins reported by the NAFTA and Europe business segments in the first nine months of the year, despite lower revenues.
The Road Ahead
Steel demand growth in ArcelorMittal’s key markets of Europe and NAFTA is expected to recover in 2017. As per the World Steel Association, steel demand growth in the EU is expected to accelerate to 1.4% in 2017, from 0.8% in 2016, whereas demand growth in the NAFTA region is expected to accelerate to 2.9% in 2017 from a decline in demand of 0.1% in 2016. [1] In addition to the improvement in demand conditions, regulatory action taken in both regions should create more favorable business conditions for ArcelorMittal. This is particularly applicable to the U.S., where President-elect Trump has promised to take a tough stance against unfairly traded steels. In addition, the President-elect’s plans for a $1 trillion overhaul of domestic infrastructure is expected to provide a boost to steel demand in the region. [5] Thus, things are looking up for ArcelorMittal going into the new year, after several quarters characterized by grim business conditions.
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Notes:- Short Range Outlook, World Steel Association [↩] [↩]
- China, Russia Steel Hit With 5-Year EU Anti-Dumping Tariffs, Bloomberg [↩]
- US issues final antidumping duties for hot-rolled coil steel from seven nations, Platts [↩]
- ArcelorMittal’s Q3 2016 Earnings Release, SEC [↩]
- Trump’s $1 Trillion Promise vs. Congress, Wall Street Journal [↩]