ArcelorMittal sees rosier steel outlook and limited virus impact
ARCELORMITTAL said it’s more optimistic on the outlook for steel demand this year and expects the effect of the coronavirus outbreak in China will only be felt in the short term.
The steel industry was hard hit in 2019 by slumping demand from automakers, trade wars and sluggish economies in Europe. While prices edged higher in the past two months, there’s concern the deadly virus will hurt consumption and throttle the industry’s nascent recovery.
“ArcelorMittal believes that there are signs that the real demand slowdown is beginning to stabilize,” the company said in its annual results statement. For now, “we believe the effect of the coronavirus will likely have a short-term negative demand impact in China and to a lesser degree elsewhere.”
Overall, ArcelorMittal expects global steel demand—a barometer of economic growth—to grow by 1 percent to 2 percent this year after expanding 1.1 percent in 2019.
“The supportive inventory environment means that we are more optimistic on the apparent demand outlook for 2020,” the company said.
Most of the impact on firstquarter demand from the coronavirus is expected to be recovered throughout the remainder of the year, ArcelorMittal said. Still, demand from China is seen weaker this year, between flat and 1 percent higher, from estimated growth of 3.2 percent.
Though ArcelorMittal has minimal exposure to China, it follows the country closely as demand there affects global steel sales and prices. The company was bearish on China’s demand a year ago and improved its forecasts three times during 2019, while cutting estimates for the US and Europe.
“Our perspective on the fundamentals of the Chinese steel market remains unchanged,” the company said Thursday.
ArcelorMittal, which responded to weaker demand last year by curbing production in the European Union and planning the sale
of up to $2 billion of assets, said earnings before interest, taxes, depreciation and amortization about halved in 2019, to $5.2 billion. Virus alarm
THE world’s largest steelmaker, however, has sounded the alarm about the outlook as the coronavirus crisis rips through Asia’s top economy, with China’s premier industry grouping warning of transport snarls, weaker demand, and a situation this quarter that “does not look optimistic.”
“Companies are facing restrictions in logistics and transport, trades have been muted, prices of raw materials and steel have slid, which is causing the market’s value to decline,” the China Iron & Steel Association said. The group, which represents the biggest suppliers, gave a green light for lower production, while flagging potential for stimulus-aided demand later in the year.
Commodities have been rocked by China’s health crisis, which has killed hundreds, sickened thousands, and hurt the outlook for raw material demand as company activities are suspended and transport barred. The country is the top buyer of iron ore from shippers including BHP Group, Rio Tinto Group and Vale SA. Conditions in China’s steel industry—which accounts for more than half global output—set the tone for producers and users around the world.
The virus’s impact on the steel industry will be concentrated in the first quarter, the association said in a statement. “Steelmakers should appropriately adjust production schedules based on orders, finances, ability to transport materials,” it said. The sector should “avoid malignant competition, manage traders, and strictly not sell at low prices and disrupt the market.”
Iron ore has slumped this year amid the health crisis, which has escalated during an annual, nationwide vacation when mills and steel users scale back operations. Given the outbreak, most of China’s provinces—including areas where steel production is concentrated—have extended the break.
Iron ore has sagged 15 percent in Singapore in 2020, and last traded at $78.62 a ton as most-active futures pared an intraday loss following a statement from China’s central government that it planned to halve tariffs on some US imports. Steel prices are also lower this year.
The steel association urged producers to analyze trends rationally, and flagged the possibility of an improving outlook in the second quarter on stimulus, according to the statement. The steel sector’s performance this year would still improve compared with last year, it said.
In 2019, China’s mills churned out almost 1 billion tons of steel, and they accounted for about 70 percent of global seaborne iron ore demand.
A few hours after the statement from the China mills’ grouping, Luxembourg-based producer ArcelorMittal struck an upbeat tone as it reported earnings. “We believe the effect of the coronavirus will likely have a short-term negative demand impact in China and to a lesser degree elsewhere,” it said.