The world's top steel maker, Mittal, more than doubled its first-quarter net profit, reaping the benefit of high steel prices, but forecast lower operating income due to a surge in raw material costs. Mittal Steel, which became the top steel producer after completing its $4.5 billion acquisition of US International Steel Group last week, said first-quarter net income was $1.1 billion, while revenues jumped 55 percent to $6.4 billion. Mittal's share price rose as much as 5.7 percent in Amsterdam after the report, although the stock is more actively traded on the New York Stock Exchange.
Mittal forecast second-quarter operating income would fall by $25 to $30 per ton as costs rise.
"Due to the increase in the cost of key inputs, such as iron ore, electricity, natural gas and transportation, cost of goods sold per ton during the first quarter was higher by 5 percent to the fourth quarter of 2004 and 39 percent compared to the first quarter of 2004," it said.
The company did not give other forecasts for 2005. Some analysts said Mittal's second-quarter results will benefit from including ISG for the first time, helping offset the impact of slowing global demand.
"There will be some margin squeeze for Mittal in the second quarter but I actually expect its net profit to increase due to the consolidation of ISG," said HSBC analyst Julien Onillon.
Steel analysts and companies forecast steel prices to fall and demand to slow from last year's record levels, which were driven mainly by China's rapid economic growth. Some companies are already cutting output to offset the expected impact.
But Onillon said he expected steel industry profits, which reached record levels last year, to remain high.
"We think the decline in prices is manageable as we start from a very high level," he said.
Mittal's first-quarter shipments increased 3 percent to 10.4 million tons. Shipments stood at 14.3 million tons, including ISG on a pro forma basis, it said.
Mittal Steel was born in December when its owner, Indian-born steel magnate Lakshmi Mittal, merged his companies LNM Holdings and Dutch-based Ispat International NV.
It has emerged as one of the biggest consolidators in the fragmented steel sector by picking up underperforming assets worldwide and turning them around. It has surpassed Europe's Arcelor as the biggest steel producer.
Mittal's $18.5 billion market capitalisation dwarfs the largest US steelmakers Nucor Corp and US Steel Corp.
At 0855 GMT, the shares had gained 4.1 percent at 22.40 euros in Amsterdam.
"The shares are still rather cheap in terms of price-earnings ratios. You pay less than five times its profit per share, which makes them attractive," said trader Jan-Paul Raterink at Dutch broker Delta Lloyd Securities.