What Is Driving A Sharp Decline In ArcelorMittal’s Steel Shipments In ACIS Division?

by Trefis Team
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ArcelorMittal’s (NYSE: MT) ACIS (Africa and Commonwealth of Independent States) steel shipments refer to steel sheets and plates as well as tubular items like pipes, that are made by rolling processes, and are sold in the ACIS region. The division produces and sells slabs, sheet, strip mill plate, tin mill products, and spiral welded pipe, as well as heating radiators and refractory ceramic materials.

You can view the Trefis dashboard – ArcelorMittal’s Steel Volume: Why Is Africa & Commonwealth Of Independent States’ Steel Shipment Set To Drop Another 6% After Dropping >10%, And What Does This Mean For ArcelorMittal? – to understand the annual and quarterly steel shipment trend and the factors driving this change.

What Happened?

  • After initially increasing by 6.3% in 2016 and a marginal drop in 2017, ACIS Steel shipments decreased sharply by >10% in 2018.
  • This is expected to be followed by another >6% decrease in shipments in 2019 when the company reports its results for the previous year in early February 2020.
  • As against a cumulative increase of 0.6 million tons in shipments during the 2 years 2015-2017, shipments are expected to witness a cumulative drop of 2.1 million tons during the two years 2018 and 2019.
  • Shipments in Q3 2019 decreased by 9% y-o-y whereas for the first nine months of 2019, shipments dropped 5.6% on a y-o-y basis.

Why?

  • Historically, annual and quarterly shipments have largely moved in tandem with steel production trends.
  • Production saw a cumulative increase of 0.5 million tons between 2015 and 2017, whereas it is set to drop by 2.4 million tons during the 2 years – 2018 and 2019.
  • Production decreased sharply by over 11% in 2018 primarily due to planned (blast furnace #9) and unplanned maintenance in Ukraine in the first half of 2018 and an explosion at a gas pipeline at Temirtau (Kazakhstan) in the fourth quarter of 2018.
  • Along with lower production, ACIS shipments also dropped due to lower domestic shipments in South Africa due to weaker demand and maintenance of the hot strip mill for further improvements in Kazakhstan.

So What?

  • Despite a sharp drop in shipments, ACIS steel revenue increased 4.5% in 2018, as lower shipments were more than offset by 16% increase in steel price realization due to rise in global price levels.
  • However, with global steel prices decreasing in 2019 due to drop in demand from China in the face of GDP falling to a 27-year low, the projected 6.3% drop in shipments is expected to lead to a 9.6% decrease in ACIS revenue for 2019.
  • Additionally, lower automobile demand and slowdown in construction activity has pulled global steel prices lower.
  • This is also expected to adversely affect ArcelorMittal’s total revenue growth for the year 2019.
  • The share of ACIS in ArcelorMittal’s total revenue decreased from 11.1% in 2017 to 10.5% in 2018, which is expected to drop further to 9.7% in 2019 on the back of lower shipments and revenue.

To understand how a decrease in steel shipments in ACIS could affect ArcelorMittal’s total revenues, refer to the following Trefis analysis- ArcelorMittal Revenues: How Does ArcelorMittal Make Money?

 

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