On Nov 26, we reiterated our Neutral recommendation on steel
). While we are impressed by growth opportunities arising from
emerging markets and the company's efforts to cut debt and reduce
costs, we remain on the sidelines considering weak steel industry
fundamentals and the tough pricing environment.
ArcelorMittal posted narrower loss in the third quarter of 2013,
reported on Nov 7, helped by its cost reduction measures.
Adjusted loss was below the Zacks Consensus Estimate. Revenues
fell modestly but beat expectations. Shipments rose on a year
over year basis in the quarter.
ArcelorMittal, a Zacks Rank #3 (Hold) stock, is expanding its
steel-making capacity and raw materials self-sufficiency through
a combination of brownfield growth, new greenfield projects and
acquisition opportunities, mainly in emerging markets.
ArcelorMittal is also highly focused on reducing debt, lowering
costs and improving efficiency. The company maintains its $15
billion medium-term net debt target. On the cost-saving front,
ArcelorMittal is progressing with a new $3 billion cost
optimization program that mostly focuses on variable cost
reductions in its plants.
We are also encouraged by the company's expansion initiatives in
the mining segment. ArcelorMittal is progressing with its mining
growth projects and is on track to boost iron ore production
capacity in its own mines to 84 million tons by 2015 from 56
million tons in 2012. A second phase expansion in its operations
in Liberia is currently underway.
However, ArcelorMittal remains affected by the challenging
economic conditions in Europe. It is also exposed to volatility
in steel pricing and tough competition.
Increased domestic imports, production ramp ups by peers and
increased Chinese production have led to oversupply in the
industry, which in turn, is causing a decline in steel prices.
The effect of price declines was witnessed across all segments in
the third quarter.
Moreover, demand for steel remains weak. Steel demand is
currently roughly 30% below pre-crisis levels in Europe.
ArcelorMittal has closed some its operations in the region, given
slack demand and the weak European economy. In addition, effects
of sequestration and the recent government shutdown are impacting
demand in the U.S.
Other Stocks to Consider
Other companies in the steel and related industries with
favorable Zacks Rank are
Companhia Siderurgica Nacional
United States Steel Corp.
). While both Companhia Siderurgica and NSK hold a Zacks Rank #1
(Strong Buy), United States Steel retains a Zacks Rank #2
ARCELOR MITTAL (MT): Free Stock Analysis
NSK LTD -UN ADR (NPSKY): Get Free Report
CIA SIDERUR-ADR (SID): Free Stock Analysis
UTD STATES STL (X): Free Stock Analysis
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