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Can ArcelorMittal Deliver Its 2015 Earnings Guidance?

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ArcelorMittal’s 2015 EBITDA guidance

In the previous parts of this series, we’ve analyzed ArcelorMittal’s (MT) 2Q15 financial results. Now, we’ll explore the company’s outlook. ArcelorMittal expects to post EBITDA (earnings before interest, taxes, depreciation, and amortization) of $6 billion to $7 billion in 2015. So far, in the first half of 2015, ArcelorMittal has posted EBITDA of $2.78 billion.

ArcelorMittal expects its performance to improve in the second half of 2015. Other steel companies, including Nucor (NUE) and Steel Dynamics (STLD), also expect to post higher profits in the remaining half of the year.

Currently, Nucor forms 5.23% of the SPDR S&P Metals and Mining ETF (XME) and 2.65% of the Materials Select Sector SPDR ETF (XLB).

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Four drivers of H2 performance

ArcelorMittal expects four factors to drive its earnings in the second half of 2015. You can see them in the chart above. Let’s analyze these factors in detail.

  • Inventory restocking in the United States
    • There is a broad consensus in markets that metal service centers like Reliance Steel & Aluminum (RS) should go for inventory restocking in the coming months. Service center inventory has been on a steady decline this year. Higher steel demand from service centers in the coming months would bode well for steel companies in the United States.
  • Calvert operations
    • ArcelorMittal’s Calvert plant had an inventory of high-cost iron ore slabs. According to MT, it “is no longer disadvantaged by high-cost slabs.” As more low-cost slabs flow into MT’s inventory at Calvert, its unit production costs could come down. This would add to the firm’s profits.
  • Cost reduction efforts across operations
  • Higher volumes in mining operations are expected to offset falling iron ore prices.

However, there are several challenges that MT could face in delivering its EBITDA guidance. We’ll discuss these challenges in the next part of this series.

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