MT Arcelor Mittal New

By John W. Miller and Alex MacDonald 

LONDON--The world's biggest steelmaker said Friday that U.S. and European markets are stabilizing after record Chinese exports last year caused prices to plummet around the globe.

"It's recovery with a pinch-of-salt concern about Chinese overcapacity," Lakshmi Mittal, chief executive of ArcelorMittal, said in an interview.

The Luxembourg-based steelmaker, the world's largest by production accounting for some 6% of global steel output, posted a net loss of $416 million in the first quarter, compared with a $728 million net loss in the same period a year earlier, missing analysts' forecasts.

Revenue fell 22% to $13.4 billion, as a result of lower steel and iron-ore prices as well as lower steel and iron-ore shipments.

The steel industry has been cyclical since its creation in the 19th century, but the latest downturn has been particularly pernicious because of China. The country now accounts for half the world's annual production of 1.6 billion metric tons of steel, and it has been on an export binge. China last year set a record, shipping out 100.4 million tons of the metal, more than the U.S. produced annually during World War II. Last year, only Japan made more steel than China exported.

As a result, prices fell almost everywhere. "China's dumping steel and overcapacity has clearly influenced prices," Mr. Mittal said. "We always believed those price levels were not sustainable."

The wave of low-cost shipments coming out of China prompted European Union and U.S. governments to impose import tariffs to protect their steelmakers. Imports are now falling back in the U.S. and EU. That along, with falling inventories and strengthening demand, has helped prices to recover. In the U.S., the benchmark hot-rolled coil index has now risen 45% to $548 since Jan. 1, after declining by a third in 2015.

Inventories in the U.S. are now below the historical average, said Jim Baske, executive vice president for North America. Demand in the automotive sector is still strong, and there is been a moderate pickup in construction, he added.

Chinese steel officials have said they need to eliminate 200 million tons of overcapacity. Mr. Mittal said he thought China had become much more serous about cutting capacity.

Mr. Mittal cautioned that the global steel market remains fragile given excess steel capacity in China. He urged governments to remain vigilant about unfair trade, and not to grant China market economy status, which would make it harder to impose tariffs on Chinese imports.

The company's mining business has also suffered from the downturn. Its iron-ore production fell to 14.1 million tons during the first quarter, down 9.1% from a year earlier.

The narrower net loss stemmed in part from a small foreign-exchange gain last quarter compared with a foreign-exchange and net financing loss of $756 million in the same quarter a year before.

ArcelorMittal earlier this year raised EUR2.8 billion ($3.2 billion) through a rights issue to strengthen its balance sheet given a protracted steel price rout globally. Other steelmakers such as Sweden's SSAB AB followed suit.

ArcelorMittal's shares have subsequently rallied after the rights issue was announced and are up nearly 50% so far this year, buoyed by a pickup in steel prices in its key U.S. and European markets as well as China.

The steelmaker expects the impact of rising steel prices to be fully reflected in its earnings in the second half of the year. The company kept its 2016 earnings before interest, taxes, depreciation and amortization forecast at over $4.5 billion.

Jefferies analyst Seth Rosenfeld said he was slightly surprised that ArcelorMittal didn't raise its guidance although he noted the company doesn't necessarily need to revise the guidance since it is open-ended.

Net debt also rose to $17.3 billion as of the end of March, compared with $15.7 billion at the end of December, because of seasonal working capital adjustments.

Net debt is forecast to have dropped to $13.3 billion after taking into account the proceeds from its $3.2 billion rights issue in April and the roughly $1 billion sale of its 35% stake in Spanish autoparts manufacturer Gestamp Automoción, the company said.

Write to John W. Miller at john.miller@wsj.com and Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

May 06, 2016 08:47 ET (12:47 GMT)

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