ArcelorMittal’s Q1 2017 Earnings Review: Improved Business Conditions Drive Earnings Improvement
ArcelorMittal reported a significant improvement in its Q1 earnings as a result of improved business conditions for steelmakers in the U.S. and Europe, which translated into higher realized steel prices. In addition, higher iron ore prices helped boost the results of the company’s Mining division.
Steelmakers in the U.S. and Europe have been negatively impacted by competition from unfairly traded steel imports from a number of countries such as China and South Korea over the past few years. Competition from these imports, which were priced unfairly low, adversely impacted realized prices and shipments for steelmakers in both the U.S. and Europe. Regulatory authorities in both the U.S. and Europe imposed antidumping duties on these unfairly traded steel imports over the course of 2016. As a result of the action taken by regulators, the competition from these unfairly traded steels has dissipated, allowing steel prices to recover in these geographies, which helped boost the company’s results. Going forward, the company should benefit from fairer business conditions as a result of the regulatory action by trade authorities in its key markets.
Besides the improved steel pricing environment, the results of ArcelorMittal’s Mining division benefited from a rally in iron ore prices that began towards the end of last year. A fiscal stimulus targeting the infrastructure sector instituted by the Chinese government last year, in order to counter slowing economic growth, boosted the demand outlook for iron ore from China, the world’s largest market for the commodity. [1] The improved demand outlook triggered a surge in iron ore prices, which helped prop up the results of the company’s Mining division. However, iron ore prices have declined sharply since then. Slowing growth in Chinese housing prices in the first quarter and rising inventories of iron ore at Chinese ports are indicative of the demand from China rising at a much lower rate than previously anticipated. [2] Concerns over an oversupply of iron ore are likely to weigh on prices in the coming months. Thus, though ArcelorMittal benefited from favorable iron ore prices in Q1, the decline in prices could take the sheen off the results of the Mining division in the coming quarters. However, the company should continue to benefit from favorable business conditions for steel in Europe and the U.S. in the coming quarters.
Have more questions about ArcelorMittal? See the links below.
- Why We’re Raising Our Price Estimate For ArcelorMittal To $9
- Iron Ore & Crude Oil: The Similarities & Differences In The Market Dynamics Of These Commodities
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Notes:- Chinese growth fuelled by unsustainable stimulus, warns Fitch, Financial Times [↩]
- Iron ore price tumbles to a near six-month low, Financial Times [↩]