ArcelorMittal (MT, Financial) is optimistic about its outlook. North America looks solid, and Europe has not illustrated any signs of weaknesses in the business for the steel major. In fact, its order for the flat products in Europe is executing in 5% to 10% range above the last year’s levels. There’s also healthy visibility in the order books for automotive steel in the first quarter of 2015.
Witnessing growth across markets
ArcelorMittal is focused on seizing its demand recovery shares in its core markets. During the third quarter, its steel shipments increased 3.9% over the same period last year. The shipments for the European segment expanded 6% over the 2013 levels.
ArcelorMittal is also keen on regaining its margins back to standard levels. This is expected to be achieved through three key ways: first, operating leverage by enhanced shipments; second, optimizing its cost in Europe and the affect of Management Gains in progress on variable costs; and third, achieving operational improvements primarily in its ACIS business.
ArcelorMittal is expanding its core franchise businesses. It is a market leader in global automotive segment with the rising demand for steel being the material of choice for automotive.
Mining is another focus area for the steel major. It has increased its iron ore production base, and is witnessing considerable cost benefits. Marketable volumes in the quarter increased 6% compared to the third quarter of 2013, enabling to lower the cash costs by 13%.
Investing for growth
ArcelorMittal plans to invest continuously, both organically and inorganically till its target for achieving $15 billion worth of investments is accomplished.
There’s encouraging performance of the ACIS segment, particularly in Ukraine with solid performance in Kazakhstan. However, the performance in South Africa remained weak and is believed to be a key growth vertical, going forward.
For the entire year, ArcelorMittal estimates the general iron ore production costs per tonne to decline by 7%. Major cost reductions are forecasted to come from the market facing mines i.e. those which are market priced.
Looking at the auto franchise developments of ArcelorMittal, it introduced Fortiform in the quarter. This is an innovative range of cold-formable sophisticated high-strength steel that complements its current products range that includes the hot-formable Usibor. These steel offerings when combined are compelling light weighting solutions for its automotive customers.
For instance, 40% of the innovative Volvo XC-90 is hot-formed steel which offers it with not just the light weighting but the safety advantages of high-strength steel as well.
In the U.S., Chevrolet just introduced its toughnology model for the Silverado light truck in 2015. It demonstrates the widespread leverage and benefit of superior high-strength steel. ArcelorMittal is expected to continuously invest in its compelling R&D initiatives with continued investments in its capability of producing these products, increasingly demanded by the customers.
Considering the company’s M&A strategy, ArcelorMittal sold 50% of its interest in Gallatin which is a commodity hot-rolled coil producer in the U.S. at an extremely cost-effective and smart multiple.
Looking at the overall demand scenario in the U.S., there’s positive growth in all the key steel-consuming sectors, particularly machinery, auto and currently non-residential construction. The steel demand in U.S. has crossed the expectations for the start of the year, and ArcelorMittal has now raised its 2014 growth estimate to more than 8%.
However, the demand environment in China is disappointing with the oversupplied real estate market continuously lowering the steel demand.
But, other steel-consuming sectors in China benefited hugely, particularly auto with car assembly growing positively by 11% year-till-date.
Conclusion
Hence, driven by growth across its end markets, ArcelorMittal's performance should improve in the long run. Hence, investors should consider investing in this stock for long-term gains.
