ArcelorMittal, Announcing Loss, Indicates No Further Plant Closures in Europe
By STANLEY REED
LONDON — ArcelorMittal, the world’s largest steel company, appeared to draw the line on additional European plant closures Wednesday, even as it announced a $4 billion net loss for the fourth quarter of 2012 and a $3.7 billion net loss for the year.
But the company’s results also highlighted just how bad operating conditions in Europe have been. A key reason for the losses was $5 billion in write-downs, almost all of it on its European businesses.
ArcelorMittal continues to be badly hurt by its operations in Europe, where it employs 98,000 people and where demand for steel has dropped by 30 percent since 2007, including a 9 percent decline in 2012. The company reported a $2.9 billion operating loss for the quarter in its European unit which supplies the beleaguered automobile industry.
Lakshmi N. Mittal, the company’s chairman and chief executive, said during a conference call with analysts Wednesday that he expected steel shipments to increase this year by 2 percent to 3 percent. That, he said, was because of growing demand for steel in China, Brazil and the United States, where the oil and gas industry, as well as auto and heavy equipment makers, were proving strong markets for ArcelorMittal’s products.
Unlike in Europe, he said that U.S. “businesses are getting loans.” He added that he expected Europe to remain in recession this year, but that this would be “far less severe than in 2012.”
Although ArcelorMittal is bidding on a steel plant being sold to the German steel maker ThyssenKrupp in Alabama, the company is mainly focusing on its new investments in mining, which has been more profitable than steel making of late, recording $1.2 billion in operating profit and a 22 percent operating margin last year.
The company announced Wednesday that the board had approved a big expansion and modernization of its iron ore mine in Liberia, part of a $4 billion effort to nearly double global iron ore production. The company’s iron ore output is likely to rise by 20 percent in 2013 as enlargement of its Canadian mines is completed, the company said.
Mr. Mittal said 2012 had turned out worse than expected, particularly in Europe and China, taking the industry by surprise.
“Production was not adjusted quickly enough, leading to oversupply and weak pricing,” he said, adding that steel prices were down 8.2 percent in 2012 from 2011.
Mr. Mittal created his company through a long series of acquisitions that culminated in an epic takeover battle for Arcelor, based in Luxembourg, in 2006. At the time it looked as if he had succeeded in achieving sufficient consolidation of the fragmented industry to make it highly profitable.
But conditions have been brutal since the financial crisis hit in 2008, with steel demand shrinking in Europe and North America, where ArcelorMittal has much of its operations. A large portion of the write-downs last year were noncash good will on European units acquired through the Arcelor merger.
The weak European economy “led to a downward revision of cash flow expectations” from these businesses, the company said.
Jeff Largey, an analyst at Macquarie Securities in London, wrote in a recent research note that the company made close to $43 billion in investments, including takeovers, from 2006 through 2011, whereas the company’s market value is now only about $28 billion. He said those figures raised questions about whether ArcelorMittal “will be able to generate shareholder value gains and sufficient returns from its investment projects.”
He also said that they raised “the question of whether the steel industry is capable of generating shareholder value” over the long term.
Mr. Largey wrote in an e-mail on Wednesday that he saw “a modest uplift in earnings for 2013” for ArcelorMittal, but that the steel industry remained hampered by “overcapacity and lackluster real demand, particularly in Europe.”
The difficult economic conditions have forced Mr. Mittal to take a knife to his operations, especially in Europe, where the company produces about 45 percent of its steel. ArcelorMittal previously announced the long-term idling of blast furnaces at Florange, France, various facilities in Liège, Belgium, and electric arc mills in Spain and Luxembourg as part of what it called its “asset optimization” program, which is designed to achieve $1 billion in annual savings.
The idlings and closures led to tensions with labor unions and a showdown with the government of President François Hollande of France over the closure at Florange, which employs 2,000 workers. The French government threatened to nationalize the facility before ArcelorMittal agreed to invest €180 million, or $234 million, in the site, though it indicated that the two blast furnaces would remain closed.
“We have had to deal with the negative reactions of many stakeholders during implementation, but steps we have taken have been essential, “ Mr. Mittal said Wednesday.
Aditya Mittal, the company’s chief financial officer and Mr. Mittal’s son, said ArcelorMittal did not “expect any further restructuring in Europe.” There will be further financial charges as the reorganization progresses, Aditya Mittal said.
Despite the company’s struggles, which have included downgrades of its debt to junk status, ArcelorMittal is still able to raise money in the markets. Last month it raised $4 billion through an offering of shares and convertible notes in an effort to reduce net debt, which it forecast would be $17 billion in June, down from $21.8 billion at the end of the year.
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