The largest manufacturer of steel in the world has unveiled a massive second quarter loss as plummeting sales and prices along with a massive debt load raise ongoing questions about its viability.
Having earlier recorded net income of $US1.016 billion in previous corresponding quarter in 2012, Luxembourg based ArcelorMittal recorded a second quarter loss of $US780 million, taking losses incurred by the company thus far this calendar year to $US1.125 billion.
The group’s sales revenue has dropped by 11.6 per cent thus far this year amid lower prices (down six per cent) and volumes of steel shipments (down 3.7 per cent).
Around the world, manufacturers of steel have been badly hit by continued weakness in manufacturing and construction, especially in Europe.
Overall steel prices have fallen by almost a quarter over the past two years, according to UK based steel industry firm MEPS, while data from the World Steel Association suggests the world is consuming less than eight-tenths of the steel it has the capacity to produce.
Local manufacturers in Australia have not been immune. BlueScope suffered a $US12 million loss in the first half of last year while Arrium (formerly OneSteel) was forced to slash $480 million off its profit forecast for the current year after writing $360 million off its merchandising and US recycling businesses, which it put up for sale last month.
In ArcelorMittal’s case, however, the slowdown has hit particularly hard because of the group’s exposure to European markets, where industry executives complain of significant oversupply amid continued weakness in economic conditions.
The company, which is trying to reduce a massive debt load built up during a spree of acquisitions prior to the GFC, has closed plants in France and Spain and idled others in Belgium and elsewhere.
Despite the disappointing result, ArcelorMittal says ‘underlying earnings’ (earnings before interest, tax, depreciation and amortisation) of $1.7 billion were up 19 per cent from the previous year.
It also says it has passed the lowest point in the cycle and has reduced its debt load to $16.2 billion.
“The operating environment in the first half continued to be challenging but we have delivered progress in a number of important areas,” ArcelorMittal chairman and CEO Lakshim N. Mittal says. “The benefits of our restructuring efforts - particularly in Europe - are evident; strong cash-flow performance has enabled us to reduce net debt to below our mid-year target and the expansion of ArcelorMittal Mines Canada is largely complete and will ramp up during the second half.
“Although we have revised our full year guidance, the second half should deliver a clear underlying improvement relative to the second half of 2012, which we believe marked the lowest point in the cycle.”