ArcelorMittal, the world's largest steelmaker, slumped more than expected in the first three months and unveiled a share issue plan, depressing its stock despite a forecast of a second-quarter pick-up. The company's shares yo-yoed in early trading but by 1150 GMT were down 8.95 percent at 17.00 euros, extending a 6 percent drop on Tuesday, against a 0.8 percent gain in the DJ Stoxx European basic resources index.
The much-watched EBITDA (earnings before interest, tax, depreciation and amortisation) dropped 82 percent to $883 million in the January-March period, compared with the average $1.0 billion in a Reuters poll of 11 analysts. However, this also included a $503 million gain from unwinding a hedge for raw materials purchases.
ArcelorMittal had forecast a figure of about $1 billion, with a 15 percent variation, due to final quarter price cuts of up to 40 percent and nearly halved output as key auto and construction markets fell into crisis. It forecast production would remain at around 50 percent of capacity in the second quarter.
The company later unveiled plans to offer about $3 billion of shares and convertible senior notes in a bid to accelerate debt reduction and strengthen its balance sheet. Net debt crept up to $26.7 billion in the quarter from $26.5 billion at the end of 2008. It has a $22.5 billion debt target by year end and had calmed market nerves after the fourth quarter with a $6 billion cut.
"This is big news from this morning and raises questions about whether they will meet their debt covenants," said a London-based analyst who declined to be named. The World Steel Association forecast on Monday that steel demand would tumble 15 percent in 2009, its steepest fall since World War Two, and one exacerbated by consumer destocking. US auto sales slid 37 percent in March and home sales a month-on-month 0.6 percent.
ArcelorMittal's slump mirrors that of rivals. On Tuesday, China's top steelmaker Baosteel reported a 98 percent drop in first-quarter net profit and world No 2 Nippon Steel forecast zero profit this financial year. Economists believe the first quarter may have been as bad, or even worse, than the wretched fourth quarter of 2008. ArcelorMittal forecast core profit in the second quarter would recover to some $1.2 billion to $1.5 billion. It had previously seen the first quarter as the low point in terms of profitability.
It made a net loss in the first quarter of $1.1 billion due in part to $1.2 billion of pretax exceptional charges, mainly for writing down inventories. In the fourth quarter, this figure had been $4.4 billion. It also said it saw potential for price increases during the second and third quarters across major markets and products, although in a presentation it said that it expected a lower average steel price.