ArcelorMittal’s Q4 2016 Earnings Review: Improving Demand Conditions And Cost Reduction Initiatives Boost Results

February 13th, 2017 by Trefis Team
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Arcelor Mittal

ArcelorMittal, the world’s largest steel producer, reported its Q4 2016 earnings results on February 10. The company’s results were boosted by improving demand conditions for its steel producing divisions, higher iron ore prices, and the impact of its cost reduction initiatives.

Q4 2016 Earnings Review

Improving demand conditions in ArcelorMittal’s major steel markets translated into a recovery in steel shipments in Q4 2016. The recovery in demand was facilitated by action taken by trade authorities in the U.S. and Europe, as the imposition of punitive taxes on unfairly traded steels helped reduce competition from cheap steel imports. With governments in both geographies expected to take more steps to create a level playing field for their respective domestic industries, ArcelorMittal can look forward to improved demand conditions in 2017.

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Besides improved demand conditions for steel, a sharp recovery in iron ore prices boosted the results of the company’s mining division. Iron ore prices were boosted by a fiscal stimulus program targeting the infrastructure and construction sectors in China, the world’s largest importer of iron ore. [1] Besides the improved pricing environment, the impact of ArcelorMittal’s Action 2020 Plan boosted the the results of the Mining division.

ArcelorMittal’s ambitions Action 2020 Plan seeks to realize $3 billion in positive margin impact from 2016 to 2020 through a combination of cost reduction, improved product mix, and higher volumes. [2] The impact of these initiatives certainly helped boost the company’s Q4 results and should help prop up results in the coming quarters. Going forward, the company should benefit from rising shipment volumes in a more favorable business environment in ArcelorMittal’s end markets, particularly the U.S., where the U.S. government’s infrastructure spending plan should translate into considerably higher steel demand. [3] Thus, ArcelorMittal is expected to report strong results in the coming quarters.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for ArcelorMittal

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Notes:
  1. China’s stimulus-driven growth bolsters metal prices, Financial Times [↩]
  2. ArcelorMittal’s Q4 2016 Q&A Transcript, ArcelorMittal Website [↩]
  3. How Trump should spend $1 trillion on America’s infrastructure, according to architects and urban planners, Business Insider [↩]