Posted on 04 Aug 2010
Leading global steelmakers ArcelorMittal and Nippon Steel Corp became the latest companies to warn slowing growth in China could hit profits, even as both posted strong quarterly earnings.
ArcelorMittal, the world's biggest producer, with output more than double that of its nearest rival, said a seasonal drop in activity and higher raw material costs would also push down third-quarter earnings.
"Looking ahead to Q3, the summer slowdown in Europe as well as a relative economic slowdown in China is putting a constraint on steel prices while raw material costs continue to rise," Chief Financial Officer Aditya Mittal told a conference call.
The $500 billion global steel industry serves as a broad gauge for the overall economy, as it supplies the key construction and autos sectors.
Steep price declines in China are forcing steelmakers to cut output, and the market could slide into deeper oversupply as Beijing tightens policy and moves to curb exports.
Xu Lejiang, chairman of Baosteel, China's biggest listed steelmaker, said in June China's steel industry faces its toughest time of the year this quarter, citing high iron ore prices and sluggish steel demand.
The destocking in China, however, appeared to be temporary and the fundamentals of that market were solid, ArcelorMittal said in a presentation.
Analyst Ingo-Martin Schachel at Commerzbank in Frankfurt said the steel sector was clouded by uncertainty.
"The concern is still there but it is always hard to make a prediction for more than three months. The destocking is slowing down so it could be temporary. I tend to agree with the statement (that the slowdown in China is temporary)."
ArcelorMittal also said it was considering spinning off its stainless steel division to shareholders.
The group said its much-watched core profit (EBITDA) would fall to between $2.1 billion and $2.5 billion in the third quarter, the mid-point being 23 percent below the second-quarter number and worse than analysts had been expecting.
The market had, on average, forecast a figure of $2.6 billion euros, based on a Reuters poll of 12 analysts.
The firm posted a 59 percent quarter-on-quarter jump in core profit to $3.0 billion, in line with expectations.
NIPPON CAUTIOUS
Japan's Nippon Steel, the world No. 4 steelmaker, reported improved earnings for the fifth straight quarter, posting 61.9 billion yen ($705 million) in April-June recurring profit -- before tax and one-offs -- reversing a 56.7 billion yen loss a year earlier.
Sales surged 30 percent to 970.6 billion yen.
It was cautious about the future, however, forecasting a full-year profit of 250 billion yen, versus a consensus for around 316 billion yen in a poll of 17 analysts by Thomson Reuters I/B/E/S.
Nippon also said it would form a technical alliance with Australia's BlueScope Steel Ltd for coated steel products for the building and construction markets, its latest move to boost sales overseas.
Facing weak domestic demand, Japanese mills are expanding overseas. Rival JFE Holdings Inc said on Tuesday it would spend $1 billion on a near-15 percent stake in India's third-ranked JSW Steel Ltd.
Shares of Nippon Steel, which have lost about a fifth of their value since early April, closed 3.7 percent higher at 306 yen after the results. JFE was up 5.5 percent and the Nikkei average ended 2.7 percent higher.
South Korean rival POSCO, the world's No.3 steelmaker, earlier this month posted its second-best quarterly earnings, but warned second-half profit would fall 30 percent as steel prices crumble on weak Chinese demand.
