ArcelorMittal’s Wall Street performance
In the previous parts of this series, we analyzed ArcelorMittal’s (MT) third quarter financial performance. We also discussed MT’s strategic priorities. In this part of the series, we’ll look at the factors that can guide its share market performance. As discussed previously, MT was behind other steel companies on Wall Street.
Stability in iron ore prices is important for ArcelorMittal
As we saw previously, MT’s mining business was hit hard by decreased iron ore prices. This takes away the improvement in the steel business. Stability in iron ore prices is a key driver for MT.
Please be aware that steel prices are also somewhat related to iron ore prices. If iron ore prices fall more, it could lead to lower steel prices. The previous chart shows the hot-rolled coil steel prices in the US. As you can see, the prices were stable—despite the fall in iron ore prices. A slide in steel prices can have a cascading impact on MT.
Improving steel markets
Steel demand has been strong in MT’s key markets. As discussed previously, Europe and North America account for ~75% of MT’s revenues. With the improving steel demand in these markets, MT’s steel plants would start operating at higher utilization rates. Due to the high fixed-cost nature of the steel industry, this could have a positive impact on the profit margins.
Companies, like Nucor (NUE) and Steel Dynamics (STLD), have high capacity utilization rates. This is one reason why these companies have high profitability. The higher capacity utilization ratio was one reason behind the US Steel’s (X) improved profitability in the third quarter.
US Steel closed several steel plants under its Carnegie Way program. The capacity utilization ratio improved at its operational plants. Currently, US Steel is part of the SPDR S&P Metals and Mining ETF (XME).
ArcelorMittal is also working on a cost-reduction program. In the next part of the series, we’ll analyze how the program can be a key driver for the company.