ArcelorMittal, the world's largest steelmaker, forecast a rebound in demand and prices at the start of 2011, signalling an end to a margin squeeze which hit the global steel industry late last year.
The Luxembourg-based company, which makes 6-7 percent of the world's steel, said on Tuesday global steel consumption was set to grow by between 6.5 and 7 percent in 2011, about half the rate of last year, with the strongest expansion of some 10 percent in the United States.
The $500 billion steel sector, seen as a gauge for the broader economy, is benefiting from increasingly confident car firms, although construction, steel's other key market, is still struggling to pull clear of the crisis.
Chief Executive Lakshmi Mittal told a conference call there were signs US construction was turning a corner, although it was too early to say the same in Europe. Chief Financial Officer Aditya Mittal said 2011 should be better than 2010, even if the growth of demand is lower.
He said the second quarter should be stronger than the first, when ArcelorMittal's furnaces would run at 76 percent of capacity, compared with 69 percent at the end of 2010.
"There is some risk that in the second half of 2011 the strength that we are seeing in the first half will not repeat, but I still expect overall the year to be better," he said.
ArcelorMittal results mirror those already from US and Asian peers. World numbers three, four and five POSCO, Nippon Steel and JFE all suffered sharp falls in October-December earnings due to pricey raw materials and tepid demand. Nucor fell to a loss. Those firms that did provide an outlook have said the first quarter of 2011 should be better.
ArcelorMittal, whose production is more than double that of its nearest rival, said it expected core profit (EBITDA) to rise to between $2 billion and $2.5 billion in the first quarter after a slump to $1.85 billion in the final quarter of 2010.
The market had been expecting a first-quarter figure of $2.15 billion, according to a Reuters poll. ArcelorMittal shares were the among the strongest risers in the FTSEurofirst 300 index of top European shares, hitting a nine-month high of 28.55 euros, a gain of 4.8 percent.
UBS analyst Andrew Snowdowne expressed concern that the market might be too bullish for the second half of 2011. The global steel sector has been caught in a margin squeeze since the middle of 2010, when raw material costs began to steadily increase but steel prices dropped as activity slowed for the industry as a whole. ArcelorMittal made core profit per tonne of $88 in the last three months of 2010, a third lower than $132 per tonne in the second quarter.
Since mid-November, ore costs have risen by about 22 percent, but hot rolled coil steel prices in the United States are 49 percent higher, according to Platts. However the full impact of this reversal is only likely to be felt from the second quarter, as it typically takes four months for price changes to feed into ArcelorMittal's results. ArcelorMittal's north European rivals ThyssenKrupp and Voestalpine are running at near-capacity.
They have had more success raising prices for their higher grade steels to customers, benefiting from higher exposure to German carmakers and engineering firms. However, their shares are both up some 50 percent since mid-2010, while ArcelorMittal's have gained 32 percent. Were a broader recovery to take hold, ArcelorMittal has the potential to make gains given it has more spare capacity to use, analysts say.
Tuesday's figures were complicated by last month's spin-off of ArcelorMittal's stainless steel business, Aperam, which also reported its results for the first time. It also forecast volume and pricing improvements in the first quarter after a final quarter of 2010 just in profit.