May 7, 2020 / 5:34 AM / 19 days ago

ArcelorMittal flags lower profits, hopes lockdown easings herald turnaround for steel

BRUSSELS (Reuters) - ArcelorMittal, the world’s largest steelmaker, forecast its steel shipments would fall by up to a third in the second quarter, leading to sharply lower profits as coronavirus restrictions hit demand.

FILE PHOTO: A logo is seen on the roof of the ArcelorMittal steelworks headquarters in Ostrava, Czech Republic, April 1, 2016. REUTERS/David W Cerny

The company said it had suspended dividend payments until further notice and was cutting planned investment this year by a quarter, but Chief Financial Officer Aditya Mittal said that while there was much uncertainty, the second quarter could be the trough. Lockdowns were easing in Europe, India and some U.S. states, with automakers restarting production, while in China demand had increased significantly, he said.

“We would expect that Q2 would be the low point in terms of activity levels but clearly it’s difficult to predict at this time but there are certain signs which would suggest that,” Aditya Mittal told a conference call.

The Luxembourg-based group’s shares rose 2.4% to 9.79 euros by 0840 GMT, although they are still down 27% since the start of this year.

ArcelorMittal said that as the full impact of the pandemic was “highly uncertain” and varies from country to country, the group was withdrawing its guidance for global steel consumption.

It now simply says steel demand will be lower than in 2019.

The company said its core profit (earnings before interest, tax, depreciation and amortisation) in the second quarter would be $400 million-$600 million. In the second quarter of last year it was $1.56 billion.

First-quarter core profit this year came in at $967 million, beating an average forecast in a company poll of $867 million.

ArcelorMittal’s steel shipments would be within a range of 13.5 million-14.5 million tonnes in April-June. That would be down by between a quarter and a third from the first-quarter level of 19.5 million tonnes, which was a fall of 10.7% from a year earlier.

Mittal said demand for steel for packaging, often used for food, had held up; manufacturing and construction were down, but not as much as expected in many countries; while automakers had shut down their facilities early on.

ArcelorMittal had proposed a dividend for 2019 of $0.30 per share, now suspended. It said it was also reducing its cash needs for this year.

“Certain cash needs of the business are now expected to be approximately $3.5 bln in 2020 (versus $4.5 bln previous guidance), due to lower planned capex (reduced to $2.4 bln from $3.2 bln previous guidance) and lower taxes,” it said.

Jefferies analysts said in a research note that the suspended dividend and low cash needs highlighted the company’s focus on preserving cash as COVID-19 disruption peaked in the second and third quarters.

ArcelorMittal said its net debt rose to $9.5 billion in the first quarter, from $9.3 billion at the end of 2019. It reiterated that it wants to get this down to $7 billion in the near term.

Reporting by Marine Strauss; editing by Philip Blenkinsop/Mark Potter/Susan Fenton

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