By Stuart Burns
ArcelorMittal's (MT) Chairman and CEO Lakshmi Mittal voiced cautious optimism about the coming year for the global steel industry, according to an FT article. This is even as another report underlines the extent to which investors disagree with his prospects for the world's largest steel company. ArcelorMittal's share price has fallen 80% in the last five years, as the one-time darling of the stock market has been ravaged by the debt crisis, the ensuing collapse in developed world steel demand, and a rapid rise in raw material input prices. Mittal's share price has underperformed even compared to its European competitors.
The firm announced a US$3.7 billion loss for 2012 as it is forced to make a massive impairment charge of $4.3 billion in the fourth quarter due to difficulties in its European operations and a collapse in demand. Even without the impairment charge, Arcelor's 2012 results would have been similar to 2011, a puny sub-$1 billion profit on $93.9 billion turnover. The posted number for 2011 was $2.3 billion, but it included a one-off gain of $1.4 billion, so the real net position was less than $1 billion.
The firm is predicting 2013 will be "better than 2012" and, indeed, net debt should be down from an eye-watering $22 billion at the end of 2012 to a slightly less substantial $17 billion in six months' time -- but only by selling assets, such as a stake in its Canadian iron ore business, and raising $4 billion of capital last month has debt been reduced.
To What End?
With sales still deeply depressed in Europe and margins under pressure, it's questionable whether the plant closures announced so far will have sufficient impact to raise profitability significantly. ArcelorMittal as a company is not under threat, but as with other European-centric majors such as ThyssenKrupp, it is finding life hard going.
Major restructuring in Europe is hampered by political interference as governments fight to keep jobs and production facilities alive. As such, the share price is unlikely to see much upside until the European market improves, regardless of what claims the company makes about progress in improving capacity utilization. Capacity utilization applies to operating plants, not those idled yet still costing money on the books.