On Wednesday, October 28, Luxembourg-based steel giant ArcelorMittal, the world's largest steelmaker by volume and revenue, announced its financial results for the third quarter of 2009.
Accordingly, the steelmaker saw its results improve sequentially in the third quarter. The company posted a net profit of $903 million in the third quarter, down compared to the net profit of $3.82 billion in the third quarter of last year; however, the Q3 net profit is the company's first after three consecutive quarterly losses, as it saw the first signs of a gradual recovery in demand. According to ArcelorMittal, although the profit was still 76 percent below the level of the corresponding period of the previous year, the market was slowly improving after the global recession caused demand to plunge for steel used to make cars, machinery and buildings.
ArcelorMittal now expects its fourth quarter earnings to improve compared to the third quarter, while shipments and average steel selling prices are expected to be higher in the fourth quarter, prompting the company to raise its profit guidance for the next quarter. The results were mainly buoyed by an $899 million tax benefit compared with a tax expense of $700 million a year earlier, as well as by an unexpected foreign exchange and net financing gain of $106 million. The company's sales revenue fell to $16.17 billion from $35.2 billion in the same period of last year but was slightly higher than the $15.17 billion recorded in the second quarter as higher shipments helped offset lower average prices after some long-term contracts were renegotiated at lower levels. In addition, steel shipments rose by seven percent from the second quarter, to 18.2 million mt, although they were down 29 percent from a year earlier.
ArcelorMittal's earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.59 billion for the third quarter was down 81 percent from $8.58 billion in the same quarter last year but was 30 percent higher than $1.22 billion in the second quarter this year. In a conference call, ArcelorMittal's CFO Aditya Mittal said that the company expects its closely watched EBITDA to rise to between $2 billion and $2.4 billion in the fourth quarter, adding, "We believe we are through the worst." The ArcelorMittal CFO stated, "We remain cautious; the economy is still weak, particularly in the developed world, and the recovery will continue to be slow and progressive."
Meanwhile, expressing optimism about the outlook for the remainder of this year, Lakshmi Mittal, CEO and chairman of ArcelorMittal, stated that the company had seen the first signs of recovery in the third quarter, as anticipated, and said the steel market would grow by about 10 percent in 2010. "In response to this increased demand, a number of our facilities have now been restarted, and we expect fourth quarter crude steel capacity utilization to be approximately 70 percent," Mr Mittal said, adding, "We should continue to see further gradual improvement through 2010, although the operating environment remains challenging."
ArcelorMittal is slowly restarting steel mills and furnaces that it stilled late last year. It was running at only 50 percent capacity in the second quarter, increasing that to 55 to 61 percent in the third quarter. It plans to take the capacity utilization rate up to 70 percent in the last quarter of 2009.
Warning that sales are still "substantially lower" than a year ago and are less profitable because the economic crisis has also triggered a steep fall in selling prices, Lakshmi Mittal said that the US is seeing both "real and apparent demand" as companies go beyond restocking and increase output, while one sign of real growth is higher sales to car makers, whose recovery has been largely fueled by the US government's cash-for clunkers program. However, Mr. Mittal said it was unclear whether higher European demand reflects a solid manufacturing recovery. The company's European flat carbon and global stainless steel and services divisions continued to report a loss in the third quarter.
According to Mr. Mittal, emerging market growth does not fully compensate for sluggish growth in richer nations where the company has significant assets. The developed market economies are recovering; the level of recovery is still much lower that what it used to be in 2008. The faster and stronger it is, the better for ArcelorMittal, Mr. Mittal said.
The steel giant has already cut its net debt to $21.6 billion, a reduction of $10.9 billion over 12 months, much of the debt having been built up from an ambitious program to expand in emerging markets. ArcelorMittal has reorganized other debts and issued bonds and shares over the past year to increase capital flow. The company said it has met a target to make $2.2 billion in longer-term savings this year, which included a voluntary redundancy program that has helped it shed some 40,000 workers since the start of the economic crisis.