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In its Q1CY12 commentary, ArcelorMittal has marginally toned down its global apparent steel consumption growth estimate for 2012 to 4.0-4.5% from 4.5-5.0% estimated in Q4CY11. It, however, maintained its previous quarter view of end of de-stocking, improvement in global economic indicators and continued risk in Europe. In Q2CY12, it expects shipments to remain flat (YoY and QoQ) and profitability to improve QoQ. Adjusted EBITDA/t of its European flat steel business reported a loss of USD4 from a loss of USD22 in Q4CY11 on back of 21% QoQ increase in shipments. For Tata Steel Europe (TSE), we have assumed 4% volume growth and EBITDA/t of USD7 (for Q1CY12) from a loss of USD1 in Q4CY11. Considering ArcelorMittal numbers, TSE estimates look achievable.
European business: EBITDA/t improves QoQ
European flats segment’s adjusted EBITDA/t was negative USD4 while longs did better with a positive EBITDA/t of USD31, leading to blended EBITDA/t of USD6, up from negative USD9 in Q4CY11. For TSE, we have estimated EBITDA/t at USD7 for Q1CY12, up from negative USD1 in Q4CY11. Total volumes for ArcelorMittal’s European business surged ~14.6% QoQ while for TSE we have assumed a volume increase of 4% QoQ.
CY12 global steel consumption estimate toned down to 4.5-5.0%
The company has marginally toned down its global apparent steel consumption growth estimate for 2012 to 4.0-4.5% from 4.5-5.0% estimated in Q4CY11. While it continues to believe that growth in China will be 5% plus, it now estimates demand in Europe to decline 1-2% compared to flat growth earlier. Demand growth estimate for RoW (rest of the world) too has been toned down to 4.5%-5.0% from 5.7% estimated in Q4CY11.
Q1CY12 EBITDA above consensus estimate
While revenue at USD22.7bn was in line with consensus, EBITDA at USD1.9bn was 19% above consensus led by increase in volume and lower costs. Total steel shipments in Q1CY12 were 22.2mt, up 7.8% QoQ, driven by improved sentiment and end of destocking.
Outlook: Profitability to improve in Q2CY12
Global lead indicators remain supportive of mild recovery outside Europe. While US is showing encouraging signs of revival, recession in Europe is likely in H1CY12 with extension of austerity measures and uncertainty over the debt crisis. ArcelorMittal expects steel shipment in Q2 to remain flat QoQ while EBITDA is expected to improve ~10% QoQ.
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