ArcelorMittal Returns to Profit in Third Quarter on Cost Cuts, Demand -- 2nd Update

By Alex MacDonald and John W. Miller 

LONDON-- ArcelorMittal reported a return to profitability Tuesday thanks to cost cuts and strong demand for cars and construction in the U.S.

The Luxembourg-based steelmaker reported a net profit of $680 million in the third quarter ended September 30, compared with net loss of $711 million in the same period a year earlier. "Demand is good and we are making good progress thanks to our cost competitiveness," Chief Executive Lakshmi Mittal said in an interview, citing line and plant closures and sales in the U.S. as examples.

Operating income in the company's North American division improved to $424 million from $88 million. The automotive and construction sectors were the key drivers, Mr. Mittal said.

The fourth quarter, however, is expected to be clouded by the rising price of coking coal, a key ingredient in steelmaking. Prices have nearly tripled to around $236 a metric ton in the past five months on declines in output around the world, particularly in China, where authorities reduced the number of days when mining is allowed, shrinking output.

Chief Financial Officer Aditya Mittal said the company was "surprised by the rapid and unexpected rise." The increase "will be reflected in steel prices, but in the interim there will be negative impacts," he said.

Earnings came in slightly below expectations and shares in the company fell 5.8% in afternoon European trading.

The company's share price has risen about 90% this year after ArcelorMittal tapped shareholders with a $3.1 billion rights issue earlier this year to shore up its balance sheet after a slump in steel prices last year. The company has reduced its net debt to $12.2 billion from $16.8 billion a year earlier.

Since then higher steel prices in its main markets, the U.S., Europe and in China, have provided some respite. Mr. Mittal, the CEO, said he now expects a 0.5% rise in steel demand in China this year after previously forecasting a decline, with orders helped by home building and government-backed infrastructure projects.

That is still not enough to suck up the glut in Chinese metal, which has flooded the world with excess steel and aluminum, and remains a headache for ArcelorMittal. On Monday, the Commerce Department launched an investigation into whether Chinese steelmakers are transporting steel through Vietnam to evade U.S. import tariffs.

CFO Mr. Mittal called for a "comprehensive trade solution", a reference to broader and more stringent import tariffs, and for China to "be serious about overcapacity."

ArcelorMittal's mining division, a $3 billion a year business with mines in Liberia, Ukraine, Canada, the U.S. and elsewhere, reported higher profit on higher iron-ore prices and lower unit costs which more than offset lower output from Canada, Ukraine and Liberia.

Write to Alex MacDonald at [e-mail] and John W. Miller at [e-mail]

(END) Dow Jones Newswires

November 08, 2016 09:28 ET (14:28 GMT)

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