ArcelorMittal downgraded CY12 global steel demand growth estimate 50bps in its Q2CY12 commentary, but believes that global economic activity has bottomed out and should improve going forward. The company also expects restocking in Europe in Q4CY12 leading to increase in steel prices. Chinese steel demand is expected to grow ~5% YoY in CY12E and the company does not perceive a threat of Chinese dumping. ArcelorMittal’s European business posted strong sequential improvement in EBITDA margin inspite of ~7% QoQ decline in shipments. In comparison, we are assuming more conservative numbers for Tata Steel Europe (TSE).
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European business: EBITDA/t improves QoQ
Blended EBITDA/t (adjusted) for European business was USD40 in Q2CY12, up from USD6 in Q1CY12, led by improvement in realisation and reduction in raw material costs. Inspite of the ~7% QoQ decline in shipments, total EBITDA (adjusted) increased to USD393mn in Q2CY12 from USD67mn in Q1CY12. For TSE, we have estimated EBITDA/t at USD14 for Q2CY12, up from USD8 in Q1CY12 with QoQ decline in volume of ~10%. Considering the ArcelorMittal numbers, we believe our TSE estimates for Q2CY12 are likely to be met.
CY12 global steel demand growth estimate toned down to 3.5-4.0%
The company has further toned down its global apparent steel consumption growth estimate for 2012 to 3.5-4.0% from 4.0-4.5% estimated in Q1CY12. While it continues to believe that growth in China will be ~5% for CY12E, it downgraded European demand growth estimates from -1% to -2% to -3% to -5%. RoW (rest of the world) demand estimate was also cut 50bps.
Q2CY12 EBITDA above consensus estimate led by one offs
While revenue at USD22.5bn was in line with consensus, EBITDA at USD2.4bn was 14% above consensus estimate led by positive impactof divestment proceeds of USD0.3bn. Total steel shipments in Q2CY12 were 21.7mt, down 2.3% QoQ, led by end of restocking and soft end-user demand.
Outlook: Bottoming out of activity
ArcelorMittal believes lead indicators have bottomed out and activity should improve going forward. The company expects steel shipments to seasonally decline in H2CY12, but EBITDA/t to remain stable.
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