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European Steel Profits Look Grim as Arcelor Gets Ready to Report

European Steel Profits Look Grim as Arcelor Gets Ready to Report

News is brought to you by Mr. Shailesh Karia

Published on date 1st August 2019.

The pain rippling through European steel is increasingly apparent as smaller companies in the industry set the stage for ArcelorMittal’s results tomorrow. Germany’s Kloeckner & Co. SE and Luxembourg-based Aperam SA both reported declines in second-quarter earnings and warned that the third quarter will be even worse. The industry is dealing with slumping sales, especially to European automakers, and is struggling to compete against cheaper imports from overseas.

A surge in iron-ore prices is also making it more expensive to churn out steel, further cutting into earnings. ArcelorMittal, the world’s biggest steelmaker, will report its second-quarter results on Thursday, followed by Germany’s Thyssenkrupp AG next week.

ArcelorMittal is expected to post the lowest quarterly profit since 2016, reporting a 48% drop in earnings before interest, taxes, depreciation and amortization to $1.59 billion, according to analyst forecasts compiled by Bloomberg.

Difficult Market Steel production in EU has been contracting amid growth in U.S. and China Source: World Steel Association The drop is remarkable because early 2016 stands as one of the worst periods for the industry and a time when markets were flooded with cheap steel from China. ArcelorMittal said in June that the troubled European market was showing signs of bottoming out amid hopes that iron ore prices will stabilize later this year.

It’s unlikely that the third quarter will show any improvement for the EU’s steel market, said Sergey Donskoy, an analyst at Societe Generale SA. He said it’s possible that the fourth quarter could be better if auto demand rebounds.

Earnings Slump ArcelorMittal’s Ebitda has probably halved compared to 2Q 2018 Sources: ArcelorMittal, Bloomberg * First 2Q 2019 estimate shows Bloomberg consensus, lower figure is analysts` estimate published by ArcelorMittal

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