Costly coal and lower US steel prices leave ArcelorMittal braced for weak fourth quarter

 
Francesca Washtell
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ArcelorMittal was formed in 2006 and is the world's largest steelmaking group (Source: Getty)

The world's largest steelmaker, ArcelorMittal, has warned low US steel prices and a recent rally in the price of coal will weigh on its profits in the fourth quarter.

The figures

Earnings before interest, tax, depreciation and amortisation (Ebitda) rose 40 per cent to $1.9bn (£1.5bn) at the global steelmaker in the quarter ended 30 September. However, this was below analyst estimates of $1.95bn.

Sales at the group, which was formed by a takeover of Arcelor in 2006 by Mittal Steel, fell seven per cent to $14.5bn in the quarter. Basic earnings per share came in at 22 cents per share, up from a loss of 31 cents per share in the same period of last year.

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Although steel-only Ebitda rose by 46 per cent to $83m, crude steel production dipped two per cent to 22.6m tonnes (mt) and shipments fell to 20.3mt from 21.1mt in the same period of last year.

Why it's interesting

The steel giant warned that lower steel prices in the US, taken together with rapidly rising metallurgical coal prices, is expected to lead "to a decline in profitability" in the final quarter of 2016.

"Looking ahead, while real demand remains stable, we will be impacted by the unexpected significant increase in the price of coal. While expectations are for steel prices to align with the increased costs, in the interim the higher coal price will impact steel spreads and fourth quarter performance," chief executive and chairman Lakshmi Mittal said.

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The price of Australian thermal coal, which is used by steelmakers, heated up to $100 per tonne for the first time in four years last month.

The price spike has ended a steady decline for the commodity and has been triggered by domestic mining cuts in China, requiring buyers in the Asian powerhouse to make up for a shortfall through imports.

Moody's has predicted cheap imports from China and Russia will continue to constrain European steel prices over the next year, and the availability of cut-price steel will also soak up much of the expected growth in steel demand.

What ArcelorMittal said

Mittal said:

Our third quarter results reflect the progress the company is making to improve the underlying performance of the business, as well as improved market conditions since the start of the year.

Despite seasonally low shipments, Ebitda improved compared with both the second quarter and the same period of 2015.

Overcapacity remains a concern, reinforcing the importance of a comprehensive trade response to minimise the impact of unfair trade across all product categories. But overall we remain pleased with the progress we have made this year.

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