ArcelorMittal on Friday highlighted a recovery in the global steel market as well as the early fruits of a turnround programme by reporting its first annual profit in five years.
The world’s largest steelmaker by output swung from a $7.9bn net loss in 2015 — its worst performance since the megamerger of Mittal Steel and Arcelor in 2006 — to a net profit of $1.8bn last year.
Following an industry downturn that wreaked havoc on steelmakers around the world, a rebound in prices of the metal over recent months has boosted companies including Tata Steel of India and South Korea’s Posco.
“We enter 2017 with good momentum in the business and the market,” said Lakshmi Mittal, chairman and chief executive of ArcelorMittal. “The improvement in performance is, however, from a low base so we will need to continue to prioritise improved returns.”
In morning trading on Friday, ArcelorMittal’s shares rose 3.7 per cent to €7.80.
Last year the Luxembourg-based company was helped towards its first net profit since 2011 by 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 profit last year, reporting $6.3bn of earnings before interest, tax, depreciation and amortisation.
Seth Rosenfeld, analyst at Jefferies, said: “[The] slightly stronger than expected fourth-quarter results . . . reflect [ArcelorMittal’s] ability to manage a volatile steel price and raw materials input cost environment.”
There were “positive prospects” for steel demand in 2017, he added.
ArcelorMittal’s loss in 2015 was largely due to significant writedowns on the value of its iron ore and coal mining businesses, and steel stockpiles, after prices for the metal plunged amid global oversupply.
Amid tough conditions in the global steel industry, ArcelorMittal last year resorted to a $3bn rights issue to reduce its debt, having earlier suspended dividend payments.
At the same time, the company unveiled a programme to boost core profit by $3bn by 2020, through a mixture of cost-cutting, increased production and a focus on higher-value forms of steel.
On Friday, ArcelorMittal signalled the initiative 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. This stood at $11.1bn at December 31, down $4.6bn from one year earlier, and reducing net debt as a multiple of core earnings from 3 times to 1.8.
Mr Mittal said ArcelorMittal would carry on deleveraging with the goal of achieving an investment grade credit rating.
China was accused by western producers of deepening the crash in steel prices by dumping excess material overseas at lowball prices — prompting a protectionist backlash with the US and EU imposing trade tariffs.
Beijing has said it will close unused factories to deal with its industrial overcapacity.
Aditya Mittal, chief financial officer of ArcelorMittal, said China’s move was “a step in the right direction, but when you look at overall capacity utilisation [of steel plants in China], it’s still at 73 per cent. Normally a balanced industry should be closer to 85 per cent, so they have a long way to go.”
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