ArcelorMittal Warns on Profit as Lower Prices Take Toll -- Update

By Alex MacDonald 

LONDON-- ArcelorMittal warned on Friday that it will miss its target for full-year earnings as the world's biggest steelmaker by shipments bears the brunt of lower commodity prices, despite swinging to a second-quarter net profit for the first time in nearly two years.

ArcelorMittal said higher steel and iron-ore shipments more than offset lower prices in the three months to the end of June compared with a year earlier.

The company, which produces more steel than its next two biggest competitors, swung to a net profit of $52 million in the second quarter, compared with a net loss of $780 million a year earlier. Sales rose 2.5% to $20.7 billion.

Earnings before interest, taxes, depreciation and amortization or Ebitda, rose 3.7% to $1.76 billion in the second quarter, missing analysts' expectations of $1.86 billion based on a FactSet poll of nine analysts, largely due to a $90 million charge related to the settlement of U.S. antitrust litigation on price fixing.

The group said its full-year Ebitda would likely be more than $7 billion, below a previous forecast of around $8 billion. The downgraded forecast reflected a likely average iron ore price of $105 a metric ton for this year, compared with $120 previously expected, which will hurt the profitability of its mining division, the company's largest earnings driver.

ArcelorMittal invested heavily in developing new iron ore mines during the recent decadelong commodity boom to protect itself--even profit from--burgeoning iron-ore prices. The price of the steelmaking raw ingredient rose as high as $186 a ton in 2010 as insatiable appetite from China, the world's largest consumer of iron ore, continued to grow.

But the benchmark iron ore price has fallen to $95.60 a metric ton as of Thursday, reflecting a surge in supply, particularly from Australia, that has outstripped demand growth just as the commodities boom has begun to sputter.

ArcelorMittal expects that growing iron-ore shipments from its mine expansions will offset some of the price decline, but not enough to support its previous earnings guidance.

The company also expects the profit margins of its U.S. and European steel operations to benefit from a demand recovery there.

"Looking ahead, indicators in both Europe and the U.S., which together account for two thirds of our shipments, continue to be positive and we have increased our steel demand forecasts for both markets," said Lakshmi Mittal, the company's chief executive.

ArcelorMittal raised its European steel demand forecast to 3% to 4% growth this year from up to 3% previously, and expects demand from the area comprising the U.S., Canada and Mexico to grow 6% instead of 5% this year.

The growth in Europe and North America, however, will be largely offset by a decline in Chinese steel demand, which the steelmaker now expects to grow by up to 3.5% instead of up to 4%.

ArcelorMittal kept its global demand forecast unchanged at 3% to 3.5% for 2014.

Write to Alex MacDonald at [e-mail]

ArcelorMittal has warned that lower iron-ore prices will dent its earnings in 2014. The headline on an earlier version of this article mistakenly referred to steel prices.

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