ArcelorMittal works hard for a healthier financial position

ArcelorMittal works hard for a healthier financial position

14 October 2020Reading time: 3 minutes

The first half-year results clearly show that ArcelorMittal is still suffering from the ailing steel market. The steel company expects a careful recovery in steel demand in the second half of this year but is nevertheless forced to take measures to strengthen its financial positions. For example, ArcelorMittal wants to reduce its debt position and sell company activities.

On July 30, ArcelorMittal presented its first half-year figures for 2020. The results were not very positive. Compared to the first half-year of 2019, sales fell down 32.87 percent to USD 25.82 billion. The loss for the first half was USD 606 million, while the first 6 months of 2019 ended with a profit of USD 611 million. The EBITDA halved to USD 1.674 billion on an annual basis. The steel production in the first half-year declined with 25 percent, while also the steel shipments plummeted with 23 percent. Mining production and shipping of iron ore remained somewhat unchanged from last year with a decrease of 3 and 6.8 percent.

Declining steel demand

The disappointing figures are the direct result of the long-term declining demand for steel. In 2019 the global demand for steel was already under pressure due to the trade war between China and the United States and also because of the ailing car industry. The global outbreak of the Covid-19 pandemic at the beginning of this year has put even more pressure on the steel market. Especially the worldwide lockdown further reduced both demand for and production of steel. Now that these lockdowns have been partly eased, the toughest period seems to be over, according to ArcelorMittal. In China, the steel company foresees a cautious recovery of the steel market in the second half of this year. At the same time, the company emphasizes that any form of recovery is still extremely vulnerable.

Just like ArcelorMittal, the same effects from the weak steel market are noticeable with the most important European competitors. For example, Tata Steel has to slim down significantly at which 850 jobs will be lost. Competitor Salzgitter recorded a loss of EUR 101 million in the second quarter of this year, while sales decreased with 31.83% to EUR 1.52 billion.

Selling US operations

In the first half-year, the company managed to reduce its debt position to USD 7.8 billion, which is the lowest level since the ArcelorMittal merge. For now it remains uncertain when the steel market will recover. Therefor ArcelorMittal has decided to reduce its losses and strengthen its financial position by cost reductions. The steel manufacturer has not yet given any further details about this.

On September 28, ArcelorMittal sold its American operations to Cleveland-Cliffs for a total of USD 1.4 billion, of which USD 505 million in cash, USD 500 million in Cleveland-Cliff shares and USD 58 million in preferred shares without voting rights. With the sale of the factories in the US, the steel company wants to further pay off its debts and start a share buyback program.

Stock price development

After the announcement of the sale of the US activities, the share price rose by 10 percent the same day. Year on year the stock price of ArcelorMittal still remains 2.9 percent lower and is now (02-10-2020) at EUR 11.51. A share buyback program could possibly support the stock price in the coming period.

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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22/10/2020 17:55:27