ArcelorMittal expects global steel consumption to contract this year as the war in Ukraine and Covid-19 restrictions in China slow the rebound from the pandemic.
The world’s second-largest steelmaker predicted demand for the metal would fall as much as 1 per cent this year.
The forecast compares with a previous expectation for slight growth of up to 1 per cent before Russia’s invasion.
“Our first quarter performance was overshadowed by the war in Ukraine,” chief executive Aditya Mittal said in a statement as the company’s first-quarter earnings beat forecasts.
“Notwithstanding this backdrop, further aggravated by rising inflationary pressures across the world, ArcelorMittal produced a strong first-quarter performance,” Mittal added, although warning the group was now “anticipating apparent steel consumption to contract slightly this year compared with 2021”.
The company said it expected demand in Ukraine and Russia to dip sharply, while rising inflationary pressures in Europe would also curb demand in the region.
Chinese demand would contract at the bottom end of the company’s previous forecast given what it said was the “temporary economic weakness caused by Covid-19 restrictions”.
Genuino Christino, ArcelorMittal chief financial officer, said the situation in China was “quite bad” with data showing that steel prices in the country were “quite low” and the profitability of the mills also low. “That reflects the demand situation there today with large parts of the country under lockdowns,” he said.
However, he noted that despite often being bearish on China in the past, the country had “proved us wrong”. Much would depend on how quickly Beijing could progress investments, including in infrastructure projects.
The demand outlook has also been hit in Ukraine where ArcelorMittal is one of the largest steel producers with a big facility at Kryvyi Rih in the south. The country is a big exporter of steel to Europe and the conflict has severely disrupted production and supplies.
Both ArcelorMittal and Metinvest, Ukraine’s largest producer, which owns the besieged Mariupol steelworks, temporarily suspended operations in the immediate aftermath of Russia’s incursion.
ArcelorMittal said on Thursday that it had now restarted operating one of three of its blast furnaces at Kryvyi Rih. It said production of iron ore is running at about 50 to 60 per cent capacity.
It expects demand in the Commonwealth of Independent States (CIS) region, which includes Ukraine and Russia and other former Soviet states Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan, to contract by more than 10 per cent, down from a previous range of between zero and 2 per cent growth.
The gloomier forecast was echoed by Eurofer, the European trade body, which warned that soaring energy prices, ongoing disruptions in global supply chains and the war in Ukraine were “set to weigh heavily on the outlook for 2022”.
“The evolution of the steel market for 2022 and 2023 remains subject to a high level of uncertainty, which is likely to continue to undermine demand from steel-using sectors,” said Axel Eggert, director-general.
Despite the uncertainties, ArcelorMittal reported a strong start to the year. It said earnings before interest, tax, depreciation and amortisation were $5.08bn, against the average forecast of $4.57bn.
It also announced a second $1bn share buyback programme for 2022.
Steel shipments for the period fell 2.7 per cent to 15mn tonnes compared with the fourth quarter last year, largely owing to the impact of the war in Ukraine, the company said.
The group’s shares rose 3 per cent to €27.82 by late morning in Amsterdam trading.
Source: Economy - ft.com
