Debt to overshadow earnings for steelmaker ArcelorMittal

ARCELORMITTAL-RESULTS:Debt to overshadow earnings for steelmaker ArcelorMittal

Debt and efforts to reduce it will be the preoccupation of investors when ArcelorMittal , the world's largest steelmaker, reports third-quarter earnings on Wednesday.

A disappointing second quarter prompted ratings agency Standard & Poor's to cut the steelmaker's debt to junk status in August and Moody's to cut its outlook to negative.

The latter has said that ArcelorMittal must cut net debt by $5 billion by early 2013 to avoid a downgrade.

Low spot prices for raw materials, principally iron ore, and thin demand and weak steel markets, particularly in Europe, mean that the company is expected to report its lowest core profit for three years - of $1.33 billion, according to a Reuters poll.

Expectations for the fourth quarter are little better at $1.44 billion, implying that analysts' previous full-year estimates of $7.34 billion may be need to be cut.

European steel demand remains about 25 percent below pre-crisis levels, prompting ArcelorMittal to close blast furnaces in Belgium and France. But laying off workers will not be cheap.

ArcelorMittal may also feel compelled to bid for the Steel Americas assets put up for sale by ThyssenKrupp to stop them from going to a price-cutting competitor.

In the absence of rising cashflow and large one-off costs, the company may consider cutting its dividend or even a rights issue, but the main push appears to be an acceleration of asset sales.

It has already sold non-core businesses, including its stake in Australian coal miner Macarthur Coal and in Turkish steelmaker Erdemir.

However, it has also begun exploring the possible sale of a minority stake in a core business, its two open-pit mines in Quebec, Canada, which together make up 40 percent of Canada's iron ore production.