ArcelorMittal Narrows Losses, Cautions on China

LONDON—ArcelorMittal narrowed its net loss in the first quarter and forecast improved earnings to come as steel prices begin to recover, but cautioned that excess steel capacity in China still remains a concern.

The Luxembourg-based steelmaker, the world's largest by production accounting for some 6% of global steel output, reported a net loss of $416 million in the three months ended March 31, 2016, compared with a $728 million net loss in the same period a year earlier. The narrower net loss stemmed in part from a swing to a small foreign exchange gain last quarter compared with a foreign exchange and net financing loss of $756 million in the same quarter a year earlier.

Still, the steelmaker incurred a net loss due to a 22% drop in revenue to $13.4 billion as a result of lower steel and iron ore prices as well as lower steel and iron ore shipments. This caused its keenly watched earnings before interest, taxes, depreciation and amortization, or Ebitda, to drop 33% to $927 million.

"Our results for the first quarter reflect the very tough operating conditions in the second half of 2015," said Chief Executive Lakshmi Mittal. "Since that time we have seen a recovery in spreads in our core markets to more sustainable levels, which is expected to result in improved results in the coming quarters," he said. Mr. Mittal, however, cautioned that the global steel market remains fragile given excess steel capacity in China. He urged governments to remain vigilant about unfair trade.

Steelmakers have been hammered globally by an onslaught of cheap steel exports from China, the world's largest steel producer. China produced more steel than all the other countries combined last year even as steel demand slackened at home. The wave of cheap Chinese steel shipments prompted European Union and U.S. governments to slap import tariffs to protect their steelmakers, but not quickly enough in the EU to stem the bleeding.

ArcelorMittal earlier this year raised €2.8 billion, or $3.2 billion, through a rights issue to strengthen its balance sheet given a protracted steel price rout globally. Other steelmakers such as Sweden's SSAB AB followed suit.

ArcelorMittal's shares rallied after the rights issue was announced and are up 55% so far this year, buoyed by a pickup in steel prices in its key U.S. and European markets as well as China.

The company expects the impact of rising steel prices to be fully reflected in its earnings in the second half of the year but kept this year's Ebitda guidance of more than $4.5 billion unchanged.

Jefferies analyst Seth Rosenfeld said he was "slightly surprised" that ArcelorMittal didn't raise its guidance, although he noted that ArcelorMittal doesn't necessarily need to revise the guidance since it is open-ended.

Write to Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

May 06, 2016 03:35 ET (07:35 GMT)

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