We are retaining our Neutral recommendation on ArcelorMittal. The
company swung to a profit in the second quarter, aided by its cost
management initiatives. Revenues rose year over year on higher
steel shipments. The company, however, narrowed its profit margin
outlook for 2014 as a result of weak iron ore pricing.
ArcelorMittal continues to contend with soft economic conditions in
Europe, volatility in steel prices and tough competition. The
oversupply in the steel industry has pressured prices and might
lead to further price declines. However, we are impressed by the
growth opportunities arising from acquisitions and emerging markets
as well as the company's efforts to cut debt and reduce costs. We
are also encouraged by its expansion initiatives in the mining
Luxembourg-based ArcelorMittal (MT) is the world's leading steel
and mining company. With a presence in more than 60 countries, it
operates a balanced portfolio of cost competitive steel plants
across both the developed and developing world. It is the leader in
all the main sectors automotive, household appliances, packaging
and construction. The company is also the world's fourth largest
producer of iron ore, with a global portfolio of 16 operating units
with mines in operation or development.
The company's global share of the automotive steel market is
around 18%. In all, the auto industry consumes around 15% of all
the steel that ArcelorMittal produces. Long-term contracts add to
the stability of the company's business. ArcelorMittal had steel
shipments of 84.3 million tons in 2013.
ArcelorMittal has changed its organizational structure,
effective Jan 1, 2014, to reduce organizational complexity and
layers, simplify processes, and take advantage of the scale effect
within the regions. The new reporting segments now include NAFTA,
Brazil, Europe and Asia Africa and CIS (ACIS) with the Mining
segment remaining unchanged.
In January 2011, ArcelorMittal completed the spin-off of its
stainless steel operations to a separately-focused company Aperam.
Therefore, Stainless Steel is reported as discontinuing
ArcelorMittal maintains a strategy of selective divestment of
non-core assets. As part of this, the company sold its steel
foundation distribution business in NAFTA (North American Free
Trade Agreement), namely Skyline Steel and Astralloy to Nucor
Corporation for a total consideration of roughly $605 million on a
debt free and cash free basis. The agreement covered 100% of
ArcelorMittal's stake in Skyline Steel's operations in the NAFTA
countries and the Caribbean. ArcelorMittal will continue to own and
operate the foundation distribution businesses in the rest of the
world. ArcelorMittal Luxembourg has also divested its 23.48%
interest in Enovos International SA to a fund managed by AXA
Private Equity for a purchase price of 330 million. Moreover,
ArcelorMittal has sold its 48.1% stake in engineering company, Paul
Wurth Group, to SMS GmbH for around $363 million.
ArcelorMittal, in January 2013, agreed to sell its 15% stake in
one of its iron ore operations, ArcelorMittal Mines Canada (AMMC),
for $1.1 billion. The company said that it will sell the stake to a
consortium led by South Korean steelmaker Posco and Taiwan-listed
China Steel Corp. Under the agreement, ArcelorMittal, Posco and
China Steel Corp will jointly own ArcelorMittal's Labrador Trough
iron ore mining and infrastructure assets and will enter into
long-term iron ore supply agreements. The transaction closed in May
2013. The consortium acquired a 3.95% interest in the joint venture
for a total consideration of $290 million in cash, which increased
its stake to 15% in the joint venture. AMMC now retains 85% stake
in the joint venture. The joint venture is consistent with
ArcelorMittal's strategy of establishing strategic relationships
with key customers and expand its mining business.
ArcelorMittal, in October 2013, announced that it has signed a
strategic agreement with Algerian company Sider. The deal includes
an investment plan of $763 million for the steel complex at Annaba
and mines in Ouenza and Boukhadra. It also includes plans of
selling part of the company's stake in two steel joint ventures in
Annaba and Tebessa to state-owned Sider.
Per the agreement, ArcelorMittal will reduce its stake in both
ArcelorMittal Annaba and ArcelorMittal Tebessa to 49%, with the
state of Algeria owning the remaining 51%. ArcelorMittal's
investment project plan includes more than doubling the Annaba
steel plant's annual production capacity from 1 million ton to 2.2
million tons by 2017. The company stated that the plan will be
funded by equity contributions from shareholders and bank
ArcelorMittal plans to build a rolling mill for rebar and wire
rod with a production capacity of 1 million tons. Also, the
investment will ensure a long term future for steel making in
Annaba and mining in Tebessa. Through this investment,
ArcelorMittal Annaba will be able to cater to the increased
domestic demand for steel products in Algeria and support the
government to become self sufficient in steel.
In November 2013, ArcelorMittal entered into a 50-50 joint
venture with Nippon Steel & Sumitomo Metal Corporation to buy
100% of ThyssenKrupp Steel USA (TK Steel USA) from ThyssenKrupp for
$1,550 million. Calvert, Alabama-based TK Steel USA is a steel
processing plant that holds a total capacity of 5.3 million tons
including hot rolling, cold rolling, coating and finishing lines.
The plant represents the most modern finishing facility in the
world. The acquisition was closed in February 2014.
ArcelorMittal (MT): Read the Full Research
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