ArcelorMittal in Talks to Restructure US, South Africa Operations

   By Alex MacDonald 
 

LONDON--ArcelorMittal (MT) said Friday it is in talks with labor unions to restructure its U.S. and South African steel operations, which have suffered from shrinking steel demand and increased steel import pressure.

The talks are focused on the potential closure of the company's Vereeniging mini-mill in South Africa and boosting the productivity of its finished steel operations in the U.S.

"Clearly people are [going to be] affected," Chief Financial Officer Aditya Mittal told journalists on a call, referring to the proposed U.S. restructuring proposal. He added that the company would jointly announce the proposal with the union sometime in the third quarter.

ArcelorMittal, the world's largest steel maker that accounts for some 6% of global production, reported a swing to a small net profit of $179 million in the second quarter from a net loss of $728 million the quarter before. The profit was largely due to foreign exchange gains which masked a 1.5% drop in its earnings before interest, taxes, depreciation and amortization to $1.4 billion. Ebitda fell due to lower iron ore and steel prices as steel demand in several of it key regional markets remained weak, with the notable exception of Europe.

The company's North American apparent steel demand--which takes into account consumption of domestic and net imported steel--is forecast to shrink by as much as 4% this year versus its previous expectation for up to a 3% contraction. South African demand is also forecast to shrink although the company didn't provide a forecast.

In the U.S., the company is looking to restructure its steel finishing operations rather than closing blast furnaces, Mr. Mittal said.

"In the U.S., shipments are not off 2008 levels by 25% where they were in Europe. Europe required primary capacity changes. In the U.S., it's more how do we further improve the productivity and cost performance of our finishing operations," through debottlenecking among other things, he said.

Mr. Mittal said the underlying U.S. steel market is strong with demand already back at levels prior to the financial crisis of 2008-09. U.S. real demand is growing at a forecast 2.3% this year--the highest out of all the regions in which ArcelorMittal operates--due to strong construction and automotive steel demand. But the regional market is still suffering from tightened competition from steel imports, particularly from China, and continued U.S. inventory destocking.

ArcelorMittal employs more than 20,000 employees at 28 operations in the U.S. with an additional 1,200 employees in research, development, sales and company offices.

In South Africa, ArcelorMittal is considering closing Vereeniging Steel, a mini-mill that produces about 0.4 million tons of crude steel annually. Mr. Mittal said a final decision will depend on whether steel import pressures abate. ArcelorMittal directly employed 8,825 people in South Africa last year.

Mr. Mittal said that Chinese steel exports remain a threat to the global steel market although he noted the country's monthly steel exports are falling.

Write to Alex MacDonald at [e-mail]

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