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Europe’s Stagnant Industrial Production Impacts ArcelorMittal

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Industrial production in Europe

Previously, we analyzed housing permits and vehicle sales. In this part of the series, we’ll look at latest industrial production data in Europe. ArcelorMittal (MT) gets almost half of its revenue from Europe. U.S. Steel Corp. (X) also has major operations in Europe.

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Stagnant industrial production

The above chart shows the latest trend in industrial production in the Eurozone. As you can see, the industrial production has been stagnant for several quarters now. The slowdown in Europe also impacts mining giants like Rio Tinto (RIO) and BHP Billiton (BHP).

However, the manufacturing PMI (purchasing managers’ index) in the EU (European Union) held above 50 for several months. A PMI below 50 indicates a slowdown in manufacturing activity.

A full-blown recession?

For most of 2014, the EU’s economic growth stagnated near zero. The economic downturn in Europe could extend into 2015 as well. Some analysts believe that the EU might even enter into a full-blown recession this year. This would be a big negative for the global steel industry.

There are rumors that Greece might pull out from the Eurozone. This would be a big blow to the fragile economic recovery in that region. Companies with significant exposure to Europe will be severely impacted by a slowdown in Europe. ArcelorMittal (MT) has significant exposure to Europe. Its share price has been stagnant on Wall Street for several quarters.

The SPDR S&P Metals and Mining ETF (XME) could be an alternative way to play the steel sector. XME has ~35% invested in steel companies. AK Steel (AKS) and Nucor (NUE) form 3.06% and 3.23% of XME, respectively.

You can also visit our Steel page to learn more about the steel industry.

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