ArcelorMittal’s major challenges
ArcelorMittal (MT) has operations on a global scale. It manufactures and sells its steel in many countries throughout the world. Its competitors include not only the other producers in the markets it operates, but also major steel countries that export globally.
China used to be a net steel importer in 2000. Since then it has increased its steel production capacities. With a rising economy, most of the steel consumed was only getting absorbed in the local market. The global economy got used to the double digit growth in the Chinese economy. With a visible slowdown, China now faces the challenge of managing the capacities it had installed to fuel its ever growing demand for steel. This excess steel finds its way into international markets. Incidentally, China is the world’s largest exporter of steel and often dictates the price of steel globally.
As the previous graph shows, Chinese export numbers have been on an uptrend with the imports being more or less stable. The result has been a glut of steel in international markets. This oversupply has been a major factor in stagnant steel prices globally in spite of the increase in demand. This has negatively impacted companies and exchange-traded funds (or ETF’s) like United States Steel Corporation (X), Nucor Corporation (NUE), Reliance Steel & Aluminum (RS), and the SPDR S&P Metals and Mining ETF (XME).
Exposure to emerging markets
Doing business in emerging economies has its own nuances. ArcelorMittal has exposure to some of these markets. It had to face problems in some of these operations. Its multi-billion dollar plant, which was going to be located in India, has been fraught with social-political problems. In the next sections in this series, we’ll discuss how ArcelorMittal also faces problems in some mining assets. To grow in the present global scenario, exposure to these markets is more of a necessity than a choice. This presents both an opportunity as well as a challenge to investors in ArcelorMittal.