ArcelorMittal - Q4 2012
ArcelorMittal is the world's largest steel company with the company producing 91.9mnt (million tonnes) of steel in 2011. Nevertheless, the company still operates below its production capacity of 125mntpa (million tonnes per annum). In comparison, the world's second largest company, China's Baosteel, produced only 37mnt. ArcelorMittal produces a wide range of finished and semi-finished products including flat products such as sheet and plate, long products such as bars and rods, and stainless steel products. The company operates in five segments: Flat Carbon Americas, Flat Carbon Europe, Long Carbon Americas and Europe, Asia, Africa and CIS, and Distribution Solutions.
- The company has a small exposure to China with the country accounting for only 1.4% of total 2011 sales. Given our negative view on the Chinese property sector, this is a strength relative to its peers.
- The company is a large iron ore and coking coal miner with 2011 production of 54mnt and 8.4mnt, respectively. It is therefore hedged against input price spikes on top of being able to sustain a cheaper and more reliable source of raw materials. The company remains on track to become a 100mntpa (million tonnes per annum) iron ore miner by 2015 with Arcelor's Liberian iron ore assets set to be the main driver of iron ore production.
- The company has a large portfolio of non-core assets that could be difficult to offload as global demand remains weak. Net income decreased from US$2.9bn in 2010 to US$2.3bn in 2011 mainly due to US$1.3bn of non-recurring charges.
- The company expects 2012 steel consumption levels in the developed world to still be significantly below pre-crisis 2007 levels. Given the large exposure of its sales to developed countries, this could be a drag on growth.
- The company expects steel use in the developing world to be 40% or more above pre-crisis levels. The World Steel Association estimates that developing economies will account for 73% of world steel demand in 2012, compared with 61% in 2007. This could provide opportunities for growth as the developed market stagnates.
- Steel demand from developing countries will continue to grow given investment in power and transport infrastructure as well as rapid urbanization.
- As the company has a very strong developed-market focus, a more severe than expected deterioration in steel demand in Europe and North America would be detrimental.
- China's focus on 'higher quality growth' and away from a reliance on fixed asset investments could have negative implications for the company's long segment.
- Elevated iron ore and coal prices, driven largely by ballooning demand from China, have significantly altered the balance of steelmaking costs. In 2003, raw material costs represented 40% of HRC manufacturing costs. In 2011, the equivalent figure was 65%.
ArcelorMittal has temporarily suspended its steel capex growth plans and has chosen instead to focus on investing in its mining assets. Its mines are low-cost, comparable to the mines of major miners and profitable too, with the mining segment having contributed to 30% of 2011 EBITDA. The company is currently the world's fourth-largest iron ore miner with 2011 production of 54mnt and has plans to increase production to around 100mnt by 2015.
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|Table: ArcelorMittal - Key Financial Data|
|- % change y-o-y||na||109.3||78.7||18.7||-51.2||27.9||20.4|
|- % change y-o-y||na||69||97||26||-85||119||19|
|Net Income, US$bn||3.3||5.2||10.4||9.4||.2||2.9||2.3|
|- % change y-o-y||na||59||98||-9||-98||1,757||-22|
|Profit margin, %||11.7||8.9||9.9||7.5||0.3||3.7||2.4|
|Debt to EBITDA||1.4||2.7||1.6||1.4||6.8||3.2||2.8|
|na = not available. Source: BMI, Bloomberg|