May 11, 2011 / 5:58 AM / 8 years ago

U.S. recovery lifts steelmaker ArcelorMittal

BRUSSELS (Reuters) - World number one steelmaker ArcelorMittal ISPA.AS predicted a post-crisis high for profits in the second quarter, helped by strong U.S. demand after a sharp rebound at the start of the year.

The maker of 6-7 percent of the world’s steel met first-quarter earnings forecasts on Wednesday as prices caught up with a spike in iron ore and coking coal costs.

The Luxembourg-based group said it expected global steel consumption would grow 6.5 to 7.0 percent this year, with the strongest growth of up to 10 percent in North America.

Demand from the U.S. auto, machinery and energy sector was strong. Core profit of the division supplying those industries more than doubled from the fourth quarter.

China, not a main market for ArcelorMittal but influential in driving prices and demand, is set to use 7 percent more steel this year than last, the company said, although Chief Financial Officer Aditya Mittal expects growth to slow in the second half.

Fresh data from China on Wednesday indeed suggested the world’s second-biggest economy may be cooling.

The construction sector, a large market for steel, remained subdued in the United States and Europe, and unrest in the Arab world and the Japan earthquake has also quelled demand, ArcelorMittal said.

Its shares were down 1.3 percent at 1005 GMT, a reversal of Tuesday’s gain, with the broader European blue-chip stock market up 0.7 percent.

Analysts expressed doubts about the second half of the year.

“Q2 could be as good as it gets in 2011,” said Commerzbank analyst Ingo-Martin Schachel.

ArcelorMittal said second-quarter core profit should be $3-$3.5 billion, the highest level since third quarter of 2008, just before the global steel sector went into freefall.

Chief executive Lakshmi Mittal, whose family owns about 41 percent of the company’s stock, said increased shipments and prices had ensured a strong start to the year and said 2011 should be stronger than 2010.

ArcelorMittal said its blast furnaces would be running at 80 percent of capacity in the second quarter, up from 75 percent in the first three months. Average prices would also be higher.

Core profit (EBITDA) in the first quarter was $2.58 billion, compared with a forecast for $2.40 billion in a Reuters poll. The result included a $300 million gain from a reversal of provisions for inventory write-downs.

That represented a 39 percent rise from the final quarter of 2010 when a raw material price spike squeezed margins.

SECOND HALF UNCERTAINTY

Steel contracts for a given quarter are mostly set during the previous three-month period, meaning the pick-up of steel prices influenced first-quarter sector earnings, but were set to have a full impact in the second quarter.

Analysts were divided on what will happen in the second half to the $500 billion steel sector, seen by many as a proxy for the global economy.

Bears point to a large price differential between Asia and other markets, a weak construction market, spare capacity and a further rise in ore and coal costs.

Bulls say inventory levels are healthy, demand is improving and Chinese prices should rise rather than Western prices fall.

Chief Financial Officer Aditya Mittal said shipments were typically lower in the second half than the first, but declined to give a forecast.

Kloeckner & Co (KCOGn.DE), Europe’s biggest independent steel trader, also reported on Wednesday, raising its full-year guidance after first-quarter profit beat expectations.

German steelmaker Salzgitter (SZGG.DE) will issue results on Thursday and peer ThyssenKrupp (TKAG.DE) on Friday.

ArcelorMittal’s results mirrored those from U.S. steelmakers such as Nucor (NUE.N) and U.S. Steel (X.N), with a turnaround following a rotten end to 2010.

However, Asian producers such as POSCO (000540.KS) and Baoshin Iron & Steel 60019.SS, are still suffering depressed margins, with record output from China and stubbornly high raw material costs.

ArcelorMittal investors also gained an insight into the health of the company’s growing mining assets, for which it provided separate results for the first time. The group said mining production profitability would also improve in the second quarter from the first three months. (Additional reporting by Clara Ferreira Marques; Editing by Rex Merrifield and Andrew Callus)

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