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 act as raw material for its Calvert facility.
ArcelorMittal’s profits down in Brazil
ArcelorMittal’s profits came down in 2Q15 in Brazil, as you can see in the chart above. Conditions remain challenging for ArcelorMittal in Brazil. Steel demand in Brazil has come down due to the slowdown in the Brazilian economy.
The Brazilian economy could continue to sag for the remaining part of 2015 as well. The slowdown in Brazil has also negatively affected automotive companies like Ford and General Motors. Both these companies reported lower volumes in their South America operations—led largely by the slowdown in Brazil.
Weakness in Brazilian real
The depreciation of the Brazilian real works to ArcelorMittal’s advantage. Almost half of ArcelorMittal’s volumes in Brazil come from exports. A weaker real has made ArcelorMittal’s exports competitive in the international market.
It’s important to note that the depreciation of Brazilian real also has a negative impact on ArcelorMittal’s profitability. Since ArcelorMittal reports its earnings in US dollar, its Brazilian operations’ profits translate into fewer dollars on account of the fall in real versus the US dollar.
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 affected the company’s 2Q15 financial performance.