ArcelorMittal, the world’s biggest producer, with output more than double that of its nearest rival, said a seasonal drop in activity and higher raw material costs would also push down third-quarter earnings. “Looking ahead to Q3, the summer slowdown in Europe as well as a relative economic slowdown in China is putting a constraint on steel prices while raw material costs continue to rise,” Chief Financial Officer Aditya Mittal told a conference call.
The $500 billion global steel industry serves as a broad gauge for the overall economy, as it supplies the key construction and autos sectors. Steep price declines in China are forcing steelmakers to cut output, and the market could slide into deeper oversupply as Beijing tightens policy and moves to curb exports.
Xu Lejiang, chairman of Baosteel, China’s biggest listed steelmaker, said in June China’s steel industry faces its toughest time of the year this quarter, citing high iron ore prices and sluggish steel demand. The destocking in China, however, appeared to be temporary and the fundamentals of that market were solid, ArcelorMittal said in a presentation.
Analyst Ingo-Martin Schachel at Commerzbank in Frankfurt said the steel sector was clouded by uncertainty. “The concern is still there but it is always hard to make a prediction for more than three months. The destocking is slowing down so it could be temporary. I tend to agree with the statement [that the slowdown in China is temporary].”
ArcelorMittal also said it was considering spinning off its stainless steel division to shareholders. The group said its much-watched core profit (EBITDA) would fall to between $2.1 billion and $2.5 billion in the third quarter, the mid-point being 23 percent below the second-quarter number and worse than analysts had been expecting.
The firm posted a 59 percent quarter-on-quarter jump in core profit to $3.0 billion, in line with expectations.
