ArcelorMittal reported bumper profits driven by resurgent steel demand and ever-tightening trade protections in its biggest markets.
The world’s largest steelmaker reported its highest quarterly profit in seven years and said it expects global demand to grow faster than it previously expected.
For years, ArcelorMittal has been decrying unfair trade conditions in its key markets of Europe and the US But President Donald Trump’s tariffs have slammed the door shut on cheap imports, leading to the highest prices in years, and Europe is increasingly protecting its domestic producers. At the same time, Chinese exports are falling and steel demand in almost every major market is forecast to rise this year.
“The outlook for the second half of the year is encouraging as we anticipate current favorable market conditions continuing,” Lakshmi Mittal, ArcelorMittal’s chief executive officer, said in a statement. “We believe improvements in underlying industry fundamentals are sustainable, although there is still more to be done to thoroughly address the issue of global overcapacity.”
ArcelorMittal increased its forecasts for steel demand, saying it expects global consumption to rise as much as 3% in 2018, up from its earlier forecast of as much as 2.5%. Demand in the US and Europe could grow as much as 3%, higher than its last forecast in May. It also upgraded its outlook for China.
That strong demand, along with Trump’s strategy of a 25% tariff on steel imports to the US, 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 amortization was $3.07 billion, up from $2.11 billion a year earlier. That exceeded the $2.94 billion average analyst estimate. Net income rose 41% to $1.87 billion.
ArcelorMittal is also looking to grow. The European Union has approved its 1.8 billion euro ($2.1 billion) bid for Italy’s Ilva SpA, Europe’s biggest steel plant. The company is also trying to buy Essar Steel India in India.
Still, the company is dealing with significant debt. Borrowings fell to $10.5 billion by the end of the first half, well short of its $6 billion goal. The company has said that it needs to reach debt targets before increasing dividends.
© 2018 Bloomberg L.P