ArcelorMittal’s 2Q15 profit
ArcelorMittal’s 2Q15 steel shipments increased 3.4% year-over-year. However, its revenues declined more than 18% over this period. The falling revenues are due to lower average steel prices. Steel prices have plunged sharply over the last nine or so months. This has pressured earnings for steel companies including ArcelorMittal and Gerdau (GGB).
You can read more about the recent trend in steel prices in our monthly steel indicator series.
Profits flat compared to 1Q15
ArcelorMittal’s’ earnings in 2Q15 fell sharply compared to last year. However, its earnings in 2Q15 were almost flat compared to 1Q15. You can see this result in the chart above.
ArcelorMittal’s per-ton EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2Q15 was similar to 1Q15. This is despite the fact that MT’s average steel selling prices came down more than 5% over this period.
Higher utilization rates
Higher steel shipments boosted ArcelorMittal’s capacity utilization ratio. The company was able to offset lower steel selling prices by operating at higher utilization rates at its plants. In simple terms, the capacity utilization ratio refers to the actual production compared to the maximum production possible using existing plants. Running the plants at higher utilization rates leads to lower fixed costs per unit of production.
Steel Dynamics (STLD) had a capacity utilization ratio of 87% in 2Q15. This compares favorably with an industry-wide utilization ratio of ~74% in the United States. Together, Steel Dynamics and Reliance Steel & Aluminum (RS) form ~10.8% of the SPDR S&P Metals and Mining ETF (XME).
ArcelorMittal’s performance in Europe (VGK) improved significantly in 2Q15. We’ll discuss this in the next part of this series.