ArcelorMittal Earnings Double on Strong Pricing

Steel giant reports strong 2Q, says steel prices are less likely to trend down despite slowing economies.

Min Ye 31 July, 2008 | 2:23PM
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ArcelorMittal reported strong second-quarter results yesterday with earnings per share more than doubling compared with first-quarter numbers. Higher volume and rising steel prices helped lift earnings. Sales went up 27% compared with the first quarter, with 2% volume increase and the rest coming from price increases. The company's operating margin expanded by 40% on first-quarter levels, as higher selling prices more than offset raw material cost inflation. Second-quarter EBITDA of $8 billion is much higher than the $6.5 billion the company forecasted earlier. Management expects third-quarter EBITDA to exceed $8.5 billion.

On the earnings call, CEO Lakshmi Mittal commented on global steel demand outlook given the current credit crunch, worldwide inflationary pressure, and possible glo

bal economic slowdown. Mr. Mittal expected steel demand to grow at 3% per year in his "pessimistic scenario," which assumes a 5% gross domestic product growth in China and other emerging-market countries and negative 1% GDP growth in the developed world. Nevertheless, he commented that steel prices are less likely to trend down due to production capacity constraints and higher input costs. Going forward, ArcelorMittal will be focusing more on backward integration into iron ore and coal resources rather than expanding steel production capacity. We expect to see stabilizing volume and more margin expansion down the road.

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Min Ye  Min Ye is a stock analyst at Morningstar.

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