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ArcelorMittal Feels the Heat in 1Q15 as Brazil’s Economy Slows

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ACIS operations

ArcelorMittal (MT) consolidates its African and Commonwealth of Independent States (or CIS) operations under one reporting segment. In Africa, the company’s operations mainly focus on South Africa, while in CIS countries, the company is exposed to countries like Kazakhstan, Ukraine, and Russia (RSX). This segment has been vulnerable to the crisis in Ukraine. However, despite these challenges, the segment posted a year-over-year (or YOY) increase of 22% in its earnings before interest, taxes, depreciation, and amortization (or EBITDA).

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ArcelorMittal Brazil

Brazil (EWZ) accounts for ~12% of ArcelorMittal’s (MT) revenues. ArcelorMittal also uses Brazil as an export hub. It exports steel slabs from its Brazilian operations to its facility in Calvert, Alabama. These steel slabs are a raw material for the company’s Calvert facility. Gerdau (GGB) is another leading steel company in Brazil. GGB is also a leading supplier of rebars in the United States. Rebars find use in the non-residential construction industry.

Profits are down

The chart above shows the financial performance of ArcelorMittal’s Brazil segment. The segment posted EBITDA of $377 million in 1Q15, a year-over-year decline of 12.5%. However, steel shipments increased 16% over this period. The higher shipments are mainly due to the restarting of one of MT’s blast furnaces. The blast furnace resumed production in 3Q 2014.

Overall, conditions remain challenging for ArcelorMittal in Brazil. Steel demand has come down due to a slowdown in the Brazilian economy. On the export side, there’s a lot of competition, as Chinese steel has flooded international markets.

Vale (VALE) supplies iron ore to MT’s steel plants in Brazil. ArcelorMittal has its own iron ore mines too. In the next part of this series, we’ll discuss how mining operations affect ArcelorMittal’s financial performance.

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