ArcelorMittal, the world's largest steelmaker, on Wednesday doubled its fourth-quarter output cut to 30 percent as the global financial crisis undercuts demand, sending its share price plunging.
Third-quarter results far below analyst forecasts drove the message home that the once booming industry faces difficult times ahead which will test all of head Lakshmi Mittal's business skills and the rationale of going for unprecedented scale and reach. In midday trade, ArcelorMittal shares were down more than 15 percent in a Paris market off 1.97 percent.
The steel industry is a leading indicator of the economic cycle, on the way up but also on the way down. In the last few years the price of steel has risen sharply on strong global growth and huge demand from emerging economies, especially China.
Company finance director Aditya Mittal said the group would cut output by 30 percent in the fourth quarter instead of the 15 percent announced previously owing to a slump in demand as the global economy turns sharply downwards. The production cut is an average, with some centres such as France and Belgium seeing reductions of 50 percent because the situation in Europe is "more difficult."
Asked why the company had had to take wider measures, Aditya Mittal told a conference call "that things had got worse in the past three weeks." The new steps being taken would allow ArcelorMittal to adjust output as customers reduced their stocks, a process that will likely continue into early 2009."
After that, "demand should pick up again and we will be able to reduce the production cutbacks," he said, adding that the overall economic situation "will stabilise in 2009." "It is not clear (yet)" when the economic slowdown will come to an end, Aditya Mittal added. "We are optimistic about the industry outlook in the medium term but it is appropriate to pause our growth strategy until the economic prospects settle," Lakshmi Mittal said in a company statement.
The cutbacks were "temporary" and ArcelorMittal does not "expect any permanent closure of installations in Europe" given an expected recovery in 2009, board member Michel Wurth said. Last month, the company warned that "in the face of a fall in demand we are in the process of reducing production, which could reach as much as 15 percent."
It then shut down furnaces at about a dozen European sites, citing a fall in demand from automakers whose sales have been savaged as consumers cut back on spending in the face of the global credit crunch. Wurth said on Wednesday that although ArcelorMittal was putting back some of its capital spending in Europe as elsewhere, it had not changed its long-term plans, a point made by other company officials.
The Financial Times reported that in India the company would delay capital investment worth 20 billion dollars from 2009 to 2012, with Lakshmi Mittal acknowledging that there had to be some delays. Meanwhile ArcelorMittal reported that its three months to September net profit rose 29 percent from a year earlier to 3.8 billion dollars (2.5 billion euros), short of analyst forecasts for around 5.7 billion dollars.
The group said it was raising its target for cost savings over the next five years by one billion dollars to 5.0 billion dollars, adjusting growth plans to take account of market conditions. The group was formed in a controversial take-over by Mittal Steel of European and global giant Arcelor, a bigger company. The take-over was completed just as global steel prices began to rise sharply, driven by the booming economies of first China and then India which are now showing distinct signs of a slowdown.