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● ArcelorMittal (AM): CY2Q EBITDA of US$3.2 bn was 2% lower
than consensus but 4% higher than CS. EU EBITDA/t rose ~$20
q/q. CY3Q EBITDA guidance of $US2.6 bn was above CS but in
line with consensus.
● Despite high RM costs hitting the P&L in 2H, AM was positive due
to: (1) low inventories; (2) a sharp fall in price differential with
respect to imports (from US$200/t levels) and (3) increase in ore
and coal output. AM guided to a YoY increase in 2H11 EBITDA/t.
Note that 2H10 EBITDA/t was US$97 vs US$135 in 1H11,
indicating a possible HoH fall.
● AM’s strong Jun-11 suggests there could be upside to our Jun-11
forecasts for Tata Europe (US$40/t EBITDA). That said, guidance
of a 20% fall in 3Q EBITDA and an HoH fall in 2H EBITDA/t are
broadly in line. In the US, both AKS and X gave weak 3Q
guidance, mainly on account of high RM costs with falling ASPs.
● Tata could also see a rise in working capital (AM saw a US$2.8 bn
increase QoQ)—a likely reason why Tata does not expect
deleveraging despite asset sales. Our sell on Indian steel names
is due to a structural gap between domestic demand and supply
Three steel companies gave 3Q/2H11 guidance this week:
ArcelorMittal (AM), US Steel (X) and AK Steel (AKS). We believe they
provide important insights for the industry. Following are the key
takeaways.
ArcelorMittal: 2Q saw improvement; in line 3Q guidance
EBITDA for June-11 was US$3.2 bn (ex non cash gain), 2.3% lower
than consensus but 4% higher than CS estimates.
European Flat division saw an improved performance: ASP increased
US$100/t QoQ, offset partly by lower shipments (down 3% QoQ) and
rising RM prices. EBITDA/t increased by US$14/t QoQ. Production
increased by 3%, implying build-up of inventory. European Longs
volumes were up 4% QoQ and EBITDA/t increased by US$25 (Figure 1).
Overall, working capital increased by US$2.8 bn on higher prices and
volumes; AM expects it to remain stable.
For the Sep-11 quarter, guidance is for US$2.4–2.8 bn (mid-point
US$2.6 bn), higher than CS (US$2.3–2.7 bn), but in line with
consensus (mid-point US$2.6 bn).
Outlook improving, but 2H EBITDA/t likely to be below 1H
Despite flagging weak construction demand in the US and EU, AM
sounded positive—flagging low inventories in most geographies and a
low price differential to imports in US/EU now compared to three
months back (when it was almost $200/t). Elevated RM prices should
hit the P&L in 2H. Nevertheless, helped by a 10% YoY increase in iron
ore mining and a 20% increase in coal mining, AM guided for a YoY
increase in 2H11 EBITDA/t; note that 2H10 was US$97/t vs US$117/t
in 1Q and US$154/t in 2Q.
X & AKS hurt by rising raw material costs; weak guidance
For U.S. Steel, European performance was disappointing as higher prices
early in the quarter were more than offset by higher RM costs and
significantly lower shipments. They flagged that increased supply (both
higher production and more low priced imports) could drive down spot
prices later in the quarter—3Q guidance was therefore weak. This was
worsened by weakening demand, particularly in Southern Europe.
Guidance for Europe was for a decline in ASP, some improvement in
demand late in the quarter and similar raw material prices compared
to 2Q11. Also X’s management seems inclined to produce more
through the DRI route, now cheaper than the BF route, a trend which
is showing up in global steel production as well.
Implications for Tata Steel
While there is usually no direct correlation between AM's European
results and Tata Steel Europe, our current 1Q FY12 forecast
EBITDA/t of US$40 could have upside. That said, guidance of a 20%
fall in 3Q EBITDA and potential HoH fall in EBITDA/t are broadly in
line. A possible increase in working capital for Tata is perhaps the
reason management has not been talking of deleveraging despite
significant asset sales
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● ArcelorMittal (AM): CY2Q EBITDA of US$3.2 bn was 2% lower
than consensus but 4% higher than CS. EU EBITDA/t rose ~$20
q/q. CY3Q EBITDA guidance of $US2.6 bn was above CS but in
line with consensus.
● Despite high RM costs hitting the P&L in 2H, AM was positive due
to: (1) low inventories; (2) a sharp fall in price differential with
respect to imports (from US$200/t levels) and (3) increase in ore
and coal output. AM guided to a YoY increase in 2H11 EBITDA/t.
Note that 2H10 EBITDA/t was US$97 vs US$135 in 1H11,
indicating a possible HoH fall.
● AM’s strong Jun-11 suggests there could be upside to our Jun-11
forecasts for Tata Europe (US$40/t EBITDA). That said, guidance
of a 20% fall in 3Q EBITDA and an HoH fall in 2H EBITDA/t are
broadly in line. In the US, both AKS and X gave weak 3Q
guidance, mainly on account of high RM costs with falling ASPs.
● Tata could also see a rise in working capital (AM saw a US$2.8 bn
increase QoQ)—a likely reason why Tata does not expect
deleveraging despite asset sales. Our sell on Indian steel names
is due to a structural gap between domestic demand and supply
Three steel companies gave 3Q/2H11 guidance this week:
ArcelorMittal (AM), US Steel (X) and AK Steel (AKS). We believe they
provide important insights for the industry. Following are the key
takeaways.
ArcelorMittal: 2Q saw improvement; in line 3Q guidance
EBITDA for June-11 was US$3.2 bn (ex non cash gain), 2.3% lower
than consensus but 4% higher than CS estimates.
European Flat division saw an improved performance: ASP increased
US$100/t QoQ, offset partly by lower shipments (down 3% QoQ) and
rising RM prices. EBITDA/t increased by US$14/t QoQ. Production
increased by 3%, implying build-up of inventory. European Longs
volumes were up 4% QoQ and EBITDA/t increased by US$25 (Figure 1).
Overall, working capital increased by US$2.8 bn on higher prices and
volumes; AM expects it to remain stable.
For the Sep-11 quarter, guidance is for US$2.4–2.8 bn (mid-point
US$2.6 bn), higher than CS (US$2.3–2.7 bn), but in line with
consensus (mid-point US$2.6 bn).
Outlook improving, but 2H EBITDA/t likely to be below 1H
Despite flagging weak construction demand in the US and EU, AM
sounded positive—flagging low inventories in most geographies and a
low price differential to imports in US/EU now compared to three
months back (when it was almost $200/t). Elevated RM prices should
hit the P&L in 2H. Nevertheless, helped by a 10% YoY increase in iron
ore mining and a 20% increase in coal mining, AM guided for a YoY
increase in 2H11 EBITDA/t; note that 2H10 was US$97/t vs US$117/t
in 1Q and US$154/t in 2Q.
X & AKS hurt by rising raw material costs; weak guidance
For U.S. Steel, European performance was disappointing as higher prices
early in the quarter were more than offset by higher RM costs and
significantly lower shipments. They flagged that increased supply (both
higher production and more low priced imports) could drive down spot
prices later in the quarter—3Q guidance was therefore weak. This was
worsened by weakening demand, particularly in Southern Europe.
Guidance for Europe was for a decline in ASP, some improvement in
demand late in the quarter and similar raw material prices compared
to 2Q11. Also X’s management seems inclined to produce more
through the DRI route, now cheaper than the BF route, a trend which
is showing up in global steel production as well.
Implications for Tata Steel
While there is usually no direct correlation between AM's European
results and Tata Steel Europe, our current 1Q FY12 forecast
EBITDA/t of US$40 could have upside. That said, guidance of a 20%
fall in 3Q EBITDA and potential HoH fall in EBITDA/t are broadly in
line. A possible increase in working capital for Tata is perhaps the
reason management has not been talking of deleveraging despite
significant asset sales
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