ArcelorMittal cashes in on increased steel demand — and Trump’s tariffs
London — ArcelorMittal was already enjoying its best run in years as the world’s biggest steel maker cashed in on resurgent demand and a sharp fall in Chinese exports. Then along came US President Donald Trump and business got even better.
For years, the Luxembourg-based producer has been decrying unfair trade conditions in its key markets of Europe and the US. Now, US tariffs have slammed the door shut on cheap steel imports, leading to the highest prices in years. This has built on an already tightening market as China closes surplus plants and demand booms across the globe.
The impact on ArcelorMittal, which has struggled for years in a pressurised industry, are clear to see. The company reported its highest quarterly profit in seven years on Wednesday and said it expects global demand to grow faster than previously expected, both overall and in its most important markets.
"We have a strong US exposure, clearly we are a net beneficiary of the trade actions," said CFO Aditya Mittal. "It’s great to see the two things come together, the improvements we have made as a company as well as the improvements in the market."
Trump made protecting the domestic steel industry one of his cornerstone election promises after the country’s producers were bruised by cheap imports, predominantly from China, which produces more of the metal than it needs. Earlier this year, using a Cold War-era law, his administration added a 25% tariff to steel imports.
ArcelorMittal increased its forecasts for steel demand, saying it expects global consumption to rise as much as 3% in 2018, up from an earlier forecast of as much as 2.5%. It also upgraded its outlook for China.
This strong demand, along with Trump’s tariffs, has driven up prices. ArcelorMittal reported big increases in its average selling price in both North America and Europe, and also shipped 1.8% more steel in the quarter. The good macro-news is being turned into profits. ArcelorMittal’s second-quarter earnings before interest, taxes, depreciation and amortisation (ebitda) was $3.07bn, up from $2.11bn a year earlier, beating analyst expectations.
While there remains the risk that key customers, such as vehicle and appliance makers will be harmed by escalating trade tensions, the benefits from the tariffs outweigh those concerns for now. "We don’t believe tariffs are impacting the level of trade that takes global GDP to negative territory," said Aditya Mittal. "Clearly, this is a risk, but perhaps we just need to appreciate a bit more the improvements that have occurred and the size of this risk."
ArcelorMittal is also looking to grow. The EU has approved its €1.8bn bid for Italy’s Ilva, Europe’s biggest steel plant, and expects to complete the deal in September. The company is also trying to buy Essar Steel India. Still, the company is dealing with significant debt. Borrowings fell to $10.5bn by the end of the first half, well short of its $6bn goal. The company has said that it needs to reach debt targets before increasing dividends.
Christian Georges, an analyst at Société Générale, said the company could almost achieve the target by the end of the year, which would lead to a re-rating of the shares. "The outlook for the second half of the year is encouraging as we anticipate current favourable market conditions continuing."