Lower Steel Price Realization Amidst Slowdown In Chinese Demand Affected ArcelorMittal’s Q1 2019

by Trefis Team
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ArcelorMittal (NYSE: MT) released its Q1 2019 results on May 9, 2019. The company reported total revenue of $19.2 billion, in line with the previous year period. Flat sales were driven by impact of lower average steel prices, offset by higher steel shipments, and higher seaborne iron ore reference prices. However, on a sequential basis, revenue increased by 4.7% over Q4 2018, driven by 7.9% increase in steel shipments and 15.2% higher seaborne iron ore reference prices, partially offset by 3.1% lower average steel selling prices. On y-o-y basis, steel shipments increased due to the impact of acquisitions in Europe and Brazil, partially offset by lower steel shipments in NAFTA and ACIS (Africa and Commonwealth of Independent States) due to operational disruptions.

We have summarized the key announcements in our interactive dashboard – How did ArcelorMittal fare in Q1 2019 and what is the full year outlook? In addition, here is more Materials data.

A Quick Look at MT’s Revenue Sources

MT reported gross revenue of $81.7 billion in FY 2018. This includes 5 revenue segments:

  • NAFTA: $20.3 billion in FY 2018 (25% of total revenue). This includes the Flat, Long, and Tubular operations of the USA, Canada, and Mexico
  • Brazil: $8.7 billion in FY 2018 (11% of total revenue). This includes the Flat operations of Brazil, and the Long and Tubular operations of Brazil and its neighboring countries including Argentina, Costa Rica, Trinidad and Tobago, and Venezuela
  • Europe: $40.5 billion in FY 2018 (50% of total revenue). This comprises the Flat, Long, and Tubular operations of the European business, as well as ArcelorMittal Distribution Solution (AMDS)
  • ACIS (Africa and Commonwealth of Independent States): $8.0 billion in FY 2018 (10% of total revenue). This includes sale of steel sheets and plates as well as tubular items like pipes, that are made by rolling processes in ACIS
  • Mining: $4.2 billion in FY 2018 (5% of total revenue). This consists of iron ore and coal operations. ArcelorMittal owns mines in various countries including Canada, the U.S., Brazil, Russia, Ukraine, and Algeria

A] Key Revenue Trends


  • NAFTA revenue increased 4.7% (q-o-q) in Q1 2019 due to higher steel shipments offset in part by lower average steel selling prices.
  • Higher steel shipments were driven by improvement in flat steel business, offset by weaker long steel shipments, primarily in Mexico due to less availability of material due to a delayed restart of the blast furnace.


  • Brazil revenue decreased 11.2% (q-o-q) in Q1 2019, driven by lower steel shipments offset in part by 2.4% higher average steel selling prices mainly due to improvement in long products.
  • Decrease in shipments was mainly due to lower export volumes for both flat and long products, partially offset by increased domestic shipments.
  • On a y-o-y basis, revenue increased by 8.5%, benefiting from the impact of the Votorantim acquisition following its consolidation from April 2018.


  • Europe revenue increased by 7.5% in Q1 2019 over the previous quarter, driven by 14.4% increase in shipments, partially offset by weak price realization.
  • Segment revenue growth also reflected the impact of the Ilva acquisition, effective November 2018.


  • In line with the trend, ACIS revenue decreased further in Q1 2019, primarily due to lower price realization.
  • Shipments were flat compared to the previous quarter with the restarting of production in Temirtau (Kazakhstan) following an explosion at a gas pipeline.
  • Price realization was also affected by expectations of slowdown in Chinese demand.

B] Expenses and Profitability

  • Total expenses increased by 4.3% (y-o-y) in Q1 2019, driven by higher depreciation on the back of a growing asset base, acquisition-related costs, and higher tax expense during the quarter in the absence of any major tax credits, partially offset by productivity gains.
  • This led to shrinking of net income margin to 2.2% in Q1 2019, much lower compared to the previous quarter and the year-ago period.

Full Year Outlook

  • For the full year, we expect revenue to decline marginally by about 0.2% to $75.9 billion in 2019, primarily driven by lower Chinese demand during the year.
  • The company projects a decline of 0.5%-1.5% in demand from China in 2019, as relatively stable demand from automotive and construction is offset by declining machinery output. This is in contrast to a demand growth of 3.5% in China during 2018.
  • Though ArcelorMittal has minimal exposure to China, a slowdown in Chinese demand would likely have an adverse impact on global steel prices.
  • However, net income margin is expected to increase from 6.8% in 2018 to about 7% in 2019 due to cost efficiencies as the company nears the end of its Action 2020 Plan, which would, in turn, push EPS higher.

Trefis has a price estimate of $32 per share for MT’s stock. In February 2019, the company announced a share buyback program, which it intends to complete by December 2019, under which it plans to repurchase 4 million shares. Along with share repurchases, the company’s ongoing debt reduction program (which has been successful so far), increased dividend, improving margins, and inorganic growth is expected to support growth in the stock price through 2019.


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