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ArcelorMittal, the world’s largest steelmaker, has posted its first annual profit in five years, showing signs of recovery in the global steel market as well as the early fruits of a turnround programme at the company.

The Luxembourg-based group reported net income of $1.8bn in 2016, even as sales fell 10.7 per cent to $56.8bn, while its debt pile shrank.

This represents a stark improvement on the $7.9bn net loss that ArcelorMittal chalked up a year prior – its worst financial performance since being forged from the mega-merger of Mittal Steel and Europe’s Arcelor in 2006.

That was largely down to massive writedowns on the value of its iron ore mining business and steel stockpiles, after prices for the metal plunged amid global oversupply. While steel prices have since rallied, the lingering effect was the main reason for the drop in revenue last year.

The company was helped towards its first net income since 2011 with a one-off boost of $832m from the signing of a new labour contract in the US. But it also beat analysts’ forecasts for core profits last year, with earnings hitting $6.3bn before interest, tax, depreciation and amortisation.

As a severe downturn gripped the global steel market a year ago, ArcelorMittal resorted to a $3bn rights issue a to reduce its debt, having earlier suspended dividend payments.

At the same time, the company unveiled a programme to boost core profits by $3bn by 2020, through a mixture of cost-cutting, increased production and focusing on higher-value forms of steel.

On Friday, ArcelorMittal signalled this effort was on track and had contributed $900m to 2016 operating results. In addition, its balance sheet was strengthened as net debt fell to its lowest level since the creation of the company.

Lakshmi Mittal, chairman and chief executive, said:

We enter 2017 with good momentum in the business and the market. Our increased confidence is reflected in the Board’s decision to increase capital expenditure for 2017. The improvement in performance is, however, from a low base so we will need to continue to prioritise improved returns … [G]iven global overcapacity, ensuring fair trade remains crucial and we will continue to call for a comprehensive solution to unfair trade practises.

Euronext Amsterdam-traded shares in ArcelorMittal have gained 7.2 per cent so far in 2017, valuing the company at €23bn.

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