Tempered

ArcelorMittal: ArcelorMittal is firmly out of crisis mode. The world’s largest steelmaker, led by billionaire industrialist Lakshmi Mittal, delivered an unexpected return to profitability in the third quarter – after nine months of consecutive losses. Arcelor is nevertheless right to be rein in shareholders’ expectations.

The steelmaker’s priorities are shifting. Reducing debt is no longer at the top of agenda. Indeed, Arcelor has meet its debt-reduction target ahead of schedule. Refinancings and covenant renegotiations have extended the steelmaker’s debt-maturity profile. Some $10.2 billion of borrowings have been repaid in the last twelve months. Debt is now 1.3 times its ebitda, and safely within the group’s 25-40 per cent gearing range.

The focus is now on sensible spending. Arcelor expects to increase capital expenditure to $4bn-$5bn next year, up from $3bn in 2009 as it re-starts projects in Brazil, India and South America. Acquisitions are also tentatively back on the agenda. The recent purchase of a small processing facility in India was the steelmaker’s first new investment in over a year.

Arcelor’s operational recovery is accompanied by a broader pick-up in the steel industry. The World Steel Association earlier this month revised its outlook, predicting global volumes would decline only 8.6 per cent this year, against a previous forecast of 15 per cent, and rebound by 10 per cent next year. Arcelor expects to be operating at 70 per cent capacity in the fourth quarter.

It may sound like a return to business as usual. But investors were disappointed when Arcelor issued a muted outlook alongside the results.

Mittal is right not to sound too triumphant. Demand trends remain mixed. Emerging-market demand for steel has recovered quickly and is expected to be up 15 per cent in China in 2009. ArcelorMittal expects the trend will continue, but the WSA forecasts this will slow to 5 per cent in 2010. And in the US and Europe, demand continues to be driven by restocking of inventories rather than an increase in actual sales. For his part, Mittal says he doesn’t expect a full recovery until 2011. That may sound a little too cautious. But investors can hardly argue with the general sentiment.