Shares of steel giant ArcelorMittal MT touched a new 52-week low of $7.46 yesterday, before eventually closing marginally higher at $7.53.
ArcelorMittal’s shares have plunged around 16.5% in the past one month. Also, the stock has lost roughly 30% so far this year.
Factors to Consider
ArcelorMitta recorded higher profit of $179 million or 10 cents per share in second-quarter 2015, compared to a profit of $52 million or 3 cents per share recorded a year ago. However, the company’s revenues slumped 18.4% year over year to $16.9 billion in the second quarter. Revenues were dragged down overall as well as across the segments by lower average steel selling prices. Decline in iron ore references prices also weighed on sales in the quarter.
The steel industry is affected by increased global production capacity. Demand and pricing for steel remain soft. The world economy is still weak, and challenging conditions persist in Europe and the emerging markets. Moreover, there is a demand-supply gap in the U.S.
The slowdown in China is also affecting steel demand in that country. Soft construction activity in the Europe remains another concern. In Brazil, steel consumption is expected to decline in 2015 due to recessionary conditions. Also, weakness in key end markets may hinder ArcelorMittal’s earnings potential.
Rising Chinese steel exports is another concern. Steel exports from China jumped around 21% to 9.73 million metric tons in Jul 2015, driven by massive overcapacity. China’s move to devaluate its currency in a bid to lift up its sluggish economy has further triggered fears of accelerated steel exports from the country into overseas markets including Europe and North America which are ArcelorMittal’s key markets.
ArcelorMittal’s European business also remains under pressure due to lower average steel selling prices. Steel demand in Europe is still well below pre-crisis levels. The recovery in the demand environment is anticipated to be sluggish in the region in the near term. Moreover, lower iron ore pricing is hurting the company’s mining business. Seaborne iron ore prices tumbled around 46% during first-half 2015, unfavorably impacting the company's sales in the process.
Further, ArcelorMittal is saddled with heavy debt of about $18 billion as of the end of the second quarter.
Zacks Rank
ArcelorMittal currently carries a Zacks Rank #3 (Hold).
Better-ranked companies in the basic materials sector include Pretium Resources Inc. PVG, ThyssenKrupp AG TYEKF and Commercial Metals Company CMC, each carrying a Zacks Rank #2 (Buy).
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