Will Falling Steel Production in Europe Affect ArcelorMittal?

Europe steel production

ArcelorMittal (MT) is the leading steel supplier in Europe. The company gets almost half of its revenues from Europe. Thus, MT investors should keep an eye on European steel industry indicators. In this part of the series, we’ll look at February steel production in the European Union (or EU).

Will Falling Steel Production in Europe Affect ArcelorMittal?

Steel production falls

In February, ~13 million metric tons of steel was produced in the EU, a year-over-year decline of 6.3%. Notably, the EU saw the biggest decline in steel production in February as compared to other major steel-producing countries. While the US has taken some decisive steps against steel imports, Europe has been slow in taking action against Chinese steel imports. This is evident in the region’s steel production data. While US steel production has risen in the last couple of months, European steel production has been falling as can be seen in the graph above.

Falling steel production in Europe negatively impacts MT. U.S. Steel (X) also gets a significant part of its revenue from Europe. However, AK Steel (AKS) and Nucor (NUE) get most of their revenue from the US market (DIA).

Demand growth

In its 4Q15 earnings conference call, ArcelorMittal said that it expects the underlying steel demand in Europe to grow by 0%–1% in 2016. However, MT is also cautious about higher steel inventories, especially in Southern Europe, as a result of high levels of steel imports in 4Q15.

Note that inventory buildup as a result of more imports hampered the US steel industry in the second half of 2015. Steel buyers including metal service centers went about destocking the excess inventory that negatively impacted steel companies’ shipments last year. However, we might have reached the low point in this inventory destocking activity. You can explore more about this in our series, Are Steel Industry Indicators Showing Strength in 2016?

Let’s now look at the trend in Chinese steel production in the next part of the series.