ArcelorMittal’s Key Risks in 2H15: Investor Must-Knows


Nov. 20 2020, Updated 4:37 p.m. ET

Key risks for ArcelorMittal

In the previous part of this series, we noted that ArcelorMittal (MT) has recorded EBITDA (earnings before interest, taxes, depreciation, and amortization) of $6 billion to $7 billion in 2015. We’ve also seen what factors could work in ArcelorMittal’s favor in delivering its EBITDA guidance. However, ArcelorMittal faces certain macro risks. We’ll discuss these risks in this part of our series.

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China’s slowdown

China’s slowdown has turned out be much worse than analysts expected. Chinese steel exports have surged in recent months, as the country’s domestic steel demand has slowed down. Chinese steel exports remain elevated despite friction with several of China’s trading partners, including the United States. You can see this trend in the chart above.

Chinese (FXI)(MCHI) steel exports negatively affect MT in its major end markets, including North America and Europe. Steel companies are expecting Chinese steel exports to come down in the coming months. However, if Chinese steel exports remain elevated, steel companies, including MT, could find it tough to deliver their earnings guidance.

Greece situation

As Europe is the biggest market for ArcelorMittal, it’s exposed to any uncertainty surrounding that region. Any jolt to the fragile economic recovery in Europe would be negative for ArcelorMittal.

Falling iron ore prices

Falling iron ore prices have dented the earnings of MT’s mining segment. Iron ore prices could drop further in the coming months if demand from China doesn’t pick up.

Lower iron ore prices work to the advantage of Chinese steel mills, most of which import their iron ore requirements. However, for integrated steel companies like MT, falling iron ore prices pose a big challenge.

The earnings of iron ore miners including Rio Tinto (RIO) and BHP Billiton (BHP) have also been hit by the steep fall in iron ore prices.

Please visit Market Realist’s steel page to learn more about the industry.


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