(Bloomberg) — ArcelorMittal SA boosted its guidance for global steel demand after a record-breaking price rally yielded the company’s best quarter since 2008.
Steel has surged over the past 12 months, joining a wider commodities boom as producers struggled to meet an unexpectedly strong rebound in demand from the construction and manufacturing industries. After a decade of plant shutdowns and job cuts in Europe’s steel industry, demand from the infrastructure and renewable energy sectors is creating optimism about the future, said ArcelorMittal Chief Executive Officer Aditya Mittal.
“Looking forward, we see the demand outlook further improving into the second half and have therefore upgraded our steel consumption forecasts for the year,” Mittal said Thursday in a statement.
The biggest steelmaker outside of China now expects 2021 steel demand — a key barometer of economic growth — to increase by 7.5% to 8.5% from last year. In May, the company projected demand to be at or above the upper end of its initial 4.5% to 5.5% forecast, following a contraction in 2020.
A stronger performance allowed ArcelorMittal to boost shareholder returns. It announced a new $2.2 billion share buyback program, in part funded by the sale of its U.S. operations in 2020, adding to the $2.8 billion returned to shareholders since September 2020.
“We assume that the magnitude of earnings improvement, and earnings surprise, of ArcelorMittal has once again exceeded peers’,” said Ingo Schachel, head of equity research at Commerzbank AG. “The strong cash conversion and consistent cash allocation is impressive.”
Second-quarter earnings before interest, taxes, depreciation and amortization were $5.1 billion, ArcelorMittal said. That beat analysts’ estimates.
ArcelorMittal rose as much as 5.2% in Amsterdam to the highest since May 2018, before trading up 3.6% as of 10:40 a.m. local time. The steelmaker’s shares have climbed 56% this year.
Supply curbs and cuts to export subsidies in China, producer of more than half the world’s steel, have raised hopes that global overcapacity issues that have plagued Western steel producers may be less severe in the future.
“They are no longer incentivizing exports,” said Mittal said on a call with reporters. “There are certain trends which have been different to the last 10 years which point to a more sustainable steel industry.”
Still, the steel business’s bumper profits and shareholder returns may not last. The industry — responsible for about 7% of carbon emissions globally — faces an expensive road to net-zero emissions.
ArcelorMittal set new emissions targets for 2030. That includes cutting carbon emissions by 25% across the group, while the goal for its European business was increased to 35%. That will cost an estimated $10 billion, the company said.
The steelmaker will seek government support for that transformation. It recently signed a memorandum of understanding with the Spanish government to support half the cost of a $1 billion upgrade to create a green steel plant in the north of the country.
“There are limited incentives for steel industry players to actually make these investments,” said Mittal, who took the top job from his father Lakshmi at the start of the year. “Without government support, it’s very difficult to actually motivate these changes.”
What Bloomberg Intelligence Says
“ArcelorMittal’s $2.2 billion buyback announcement, its consensus-beating earnings, and the more bullish outlook for this year’s global steel consumption may be enough to convince the market that the steel cycle has staying power. The combination may also signal the business’s cash flow generation potential, which may be enough to help drag its shares off their rock-bottom valuation.”
— Grant Sporre, BI metals and metals analyst
Click here to read the full research note
(Updates with CEO comment in penultimate paragraph)
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