ArcelorMittal Q3 2017 Earnings Review: Recovery in the Brazilian Economy & Elevated Levels of Steel Pricing Drives Results

by Trefis Team
-4.88%
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ArcelorMittal
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ArcelorMittal (NYSE:MT) displayed a strong quarter by reporting an EPS of $1.18/ share, beating the market estimate by $.032/ share. The Brazilian division of the company remained a highlight for this quarter which reported an increase in shipments of 7% Y-O-Y and 12% Q-O-Q. The company painted a bullish outlook on the demand condition for steel in the upcoming year as global economic conditions improve.

Below are the key takeaways from ArcelorMittal’s 3Q’17 earnings report using our interactive platform

The company saw a steep increase in demand from its Brazilian division as the economy recovers from its deep economic crisis. The Brazilian economy, which reported a contraction of GDP by 3.6% in 2016, is expected to expand by 0.73% in 2017 and by 2.5% in 2018, as per Brazil’s Central Bank. [1] Inflation numbers have dropped from 10% (May ’16) to 2.54% (Sept ’17) and is well below the country’s inflation target of 4.5% for 2017. Furthermore, the automobile industry of the country has shown a significant recovery as sales of new vehicles in the domestic market grew by 9.28% Y-O-Y. [2] These factors have contributed to a favorable demand environment for steel in the country and boosted ArcelorMittal’s steel shipment volume by 12% Q-O-Q.

A fall in steel output by China has resulted in an increase in average price realization for steel globally. China is the world’s largest steel producer and has been cutting down its steel output due to regulatory requirements in the country to control pollution. China has already cut its steel capacity by 50 million tons this year and is expected to cut an additional 30 million tons by March ’18. [3]

With China cutting down its steel capacity, the country’s ability to dump its cheap imports into the U.S. and the Europe becomes limited. Additionally, improving economic conditions in the U.S. and Europe would boost the demand environment for steel especially in the auto and machinery sector. ArcelorMittal has depicted a strong global environment for steel in the forthcoming year and has revised its investment in working capital for 2017 by $0.5 billion to $2.0 billion. [4] With the outcome of the Section 232 investigation into the impact of steel imports on the U.S. security due in January, we await to see how these developments take shape as they would have a material impact on global steel prices.

We have a $26 price estimate for ArcelorMittal’s stock, which is 5% below the current market price.

Have more questions about ArcelorMittal? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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. APLA ’17: Brazil economy in recovery mode – Elekeiroz, ICIS []
  2. Brazil is back on track, Live Mint []
  3. China’s avg daily steel output falls in October m/m-stats bureau, Kitco []
  4. ArcelorMittal reports third quarter 2017 results, SEC filing []
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