Why the franchise business could put ArcelorMittal back on track

By

Nov. 27 2019, Updated 3:36 p.m. ET

ArcelorMittal’s franchise business 

In the last part in this series, we analyzed the issues that ArcelorMittal (MT) is facing in its mining operations. While iron ore is mainly a commodity business, steel companies have been producing specialized varieties of steel to gain a competitive advantage.

Recently, AK Steel (AKS) developed a new stainless steel product. It doesn’t include nickel. US Steel Corp. (X) wants to focus more on these products in the second phase of “Carnegie Way.” MT classifies these specialized steel products as its franchise business. Let’s learn more about ArcelorMittal’s franchise business.

auto franchise business

Article continues below advertisement

ArcelorMittal wants to grow its franchise business

The previous chart shows the developments in ArcelorMittal’s auto franchise business. MT is the leading supplier to automotive companies. To comply with the new federal emission standards, auto companies had to increase their vehicles’ fuel economy. This can be achieved through lightweighting vehicles.

New steel varieties will help in lightweighting

To achieve the vehicle lightweighting, automotive companies prefer aluminum. As a result, automotive companies used more aluminum. This threatens steel companies. Globally, around a quarter of steel is consumed by automotive companies.

MT invests a substantial amount of money to produce high-strength steel products that weigh less. It launched a new product called Fortiform. It will enhance its product portfolio. This product will help MT meet its automotive customers’ lightweighting needs.

China is the largest automotive market globally. In the next part of the series, we’ll analyze how MT plans to cater to this market.

Please be aware that steel industry can also be assessed through the SPDR S&P Metals and Mining ETF (XME). Currently, Steel Dynamics (STLD) is among XME’s top ten holdings.

Advertisement

More From Market Realist