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ArcelorMittal (NYSE:MT) is expected to report its Q1 earnings on May 11th. The company reported subdued results for 2010, which were indicative of the slow recovery in the global steel industry after the economic recession. Here we highlight a few key trends in order to guide investors through the earnings release. The largest steel manufacturer in the world, ArcelorMittal competes with other international steel giants like BaoSteel, Posco (NYSE:PKX), Nippon Steel and ThyssenKrupp.

Our price estimate for Arcelor Mittal stands at $40.67, roughly 10% above market price.

Steel prices have risen in the last quarter…

Steel prices have climbed by more than 10% in the first quarter of 2011 over the previous quarter. Based on data available from the London Metal Exchange, the average steel price over the period Oct-Dec 2010 was below $500 per tonne and reached $550 per tonne for the Jan-Mar 2011 period. [1]

As steel sales for ArcelorMittal are largely linked to long-term contracts, the company will not be able to enjoy the complete benefits of the 10% steel price increase. However, it would definitely see an improvement in the overall average realized price from the sale of its products. With the company’s long carbon steel shipments to Europe and America being its biggest source of value, the impact of an improvement in prices on this division in particular and on ArcelorMittal’s share value can be understood from the chart below

(Chart created by using Trefis' app)

… but rising iron ore prices will crimp profitability

However, iron ore prices also rose by more than 12% in this period over the last – increasing from around $160 per tonne to nearly $180 per tonne. [2] This likely put pressure on ArcelorMittal’s margins.

To add to this, the $260 million ArcelorMittal has to pay Cliffs Natural Resources (NYSE:CLF) as a settlement for their long-standing pricing dispute will likely also be reflected in this quarter’s earnings release and would further shrink the company’s profit numbers.

Notes:

  1. Steel Billet Prices, LME, May 3 2011
  2. Iron Ore Prices, IndexMundi, May 3 2011

Disclosure: No position

Source: ArcelorMittal Earnings Preview: Rising Ore Prices May Crimp Profitability