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Which ArcelorMittal Segment Could See an Earnings Surprise?

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ArcelorMittal’s 2Q17

ArcelorMittal (MT) is scheduled to release its 2Q17 earnings on July 27. In this article, we’ll see how its different business segments could fare in the quarter. ArcelorMittal has five business segments: NAFTA (North American Free Trade Agreement), Europe, Brazil, ACIS (Africa and Commonwealth of Independent States), and Mining.

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Europe

Europe is ArcelorMittal’s biggest market, and the company gets ~50% of its revenues from Europe. Now, steel prices have weakened somewhat in Europe in 2Q17. Furthermore, we could see some impact of coking coal prices in ArcelorMittal’s 2Q17 earnings. According to ArcelorMittal, the company uses ~35 million metric tons of coking coal per year. Of this, roughly 6 million–7 million metric tons come from its captive mines. ArcelorMittal buys 5 million metric tons of coking coal under annual contracts in the United States, and the remaining 24 million metric tons of coal are almost evenly distributed between spot and quarterly pricing.

Now, seaborne coking coal prices averaged higher in 2Q17 as compared to the sequential quarter. This could impact ArcelorMittal’s spot coal purchases. However, the 2Q17 quarterly coking coal contracts might have been settled at lower rates looking at leading coal producers’ average selling price guidance.

NAFTA

In NAFTA, coal might not have much impact on a sequential basis as annual contracts are the norm in the United States. Other steel companies like AK Steel (AKS) and U.S. Steel (X) also buy coal under annual contracts in the US. However, like in Europe, US flat steel prices also weakened in 2Q17.

Meanwhile, the company’s mining segment could be the biggest drag on ArcelorMittal’s 2Q17 earnings. We saw a sharp deterioration in iron ore prices in 2Q17. ArcelorMittal’s mining segment could report a sharp decline in its 2Q17 profitability on lower iron ore prices (CLF) (RIO).

In the next article, we’ll see what analysts are projecting for ArcelorMittal’s 2Q17 cash flows.

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