Posted on 12 Nov 2021
ArcelorMittal remains "very confident" about the fourth quarter and "constructive" on market prospects for 2022 even though the situation in the automotive industry, beset by supply chain difficulties, may improve only from the second half of the year, CFO Genuino Christino told analysts Nov. 11.
"We had a very strong Q3 and Q4 should also be a strong for us: we expect shipments to be better and realized selling prices in Europe and NAFTA should also improve due to lags," Christino said on a call to discuss the company's Q3 results.
ArcelorMittal had experienced some mill production losses in Q3 due to bottlenecks at some operations in the CIS and in the European Union, compounded by flooding in July in Europe.
"We don't expect this to reoccur ... we expect to do better in Q4 than Q3. Production bottlenecks are expected to reverse and we see improvement in all regions," Christino told the analysts.
However, the major steelmaker recognizes it does currently face headwinds with some prices softening which may impact the CIS and Brazil operations, coupled with continuing high raw materials costs and escalating energy costs, he said.
"We're seeing a normalization of inventories, which are being replenished in Europe, NAFTA and Brazil. In Europe we don't see issues with the demand: we're booking well into 2022 now.... We are on a path to normalization."
Close to 20% of ArcelorMittal's steel products shipments -- which totalled 14.6 million mt in Q3, down from 16.1 million mt in Q2 -- are on annual contracts, Christino said. Of this portion, 60% goes to Europe, 30% to NAFTA and 10% to Brasil, he said. Around two thirds of the contracts in Europe will reset from Jan. 1, he said.
The company experienced some order cancelations late in Q3 when it was unable to redirect this production but is now selling quite normally, he said.
The situation regarding automotive sector demand will nonetheless depend on "how they manage to solve their issues," and no real improvement is expected in this segment in the current quarter, Christino said. Automakers worldwide have reduced vehicle output due to a tightness of semiconductors since the 2020 COVID-19 related markets slump. More recently, auto production has also been impacted by a power squeeze in China which has limited Chinese magnesium production and exports: the European Union is reportedly 95% dependent on magnesium supplies from China.
ArcelorMittal Nov. 11 reported Q3 net profit of $4.6 billion, up from Q2's $4 billion, and its strongest quarterly performance since 2008, on steel prices at multi-year highs for several months as demand in some segments, particularly construction, recovered more rapidly than supply capability after the 2020 COVID-19 related market slump. Its Q3 crude steel production fell 3.4% from Q2 levels, to 17.2 million mt, and flat year on year.
Even while prices for most steel products have in recent weeks slipped from their Q3 levels, partly due to seasonal factors, they are typically still markedly higher than a year ago.
ArcelorMittal welcomes the decision by the US to remove Section 232 tariffs on imports of steel products from the EU, which has been reciprocated by some trade liberalization in the EU. The Section 232 tariffs -- of 25% on steel and imposed in March 2018 -- will be replaced by a tariff rate quota system for EU steel products, effective Jan 1, 2022.
"This is a move in the right direction: we are a major player in both markets and it should be positive for us," Christino said. "With the quotas the level of exports from Europe should return to what we saw before Section 232 - this is the idea of quotas – this should keep the EU market tighter and displace other imports which are paying tariffs into the US."
The infrastructure bill being approved in the US, which foresees more than $1 trillion investments in incremental stages should also be "extremely positive for industry in the US," he said. "It should add an extra level of demand in the US and as the market becomes tighter we also benefit."
Source:Platts
