Steel's Surprising Comeback Is Far From Over, Arcelor Says

(Bloomberg) -- After years of bleak news from U.S. and European steelmakers, the industry is finally thriving again. ArcelorMittal, the largest producer, says it's more than just a blip.

“When things structurally improve they last longer than months,” Chief Financial Officer Aditya Mittal said in an interview in Paris. “It should be a multiyear phenomena.”

Steel prices and producers' shares are being buoyed by a rare combination of good news. Global demand is strong -- ArcelorMittal sees usage rising 3 percent this year -- and China, which has long been the cause of too much supply, is shutting plants to cut pollution. Nations have also strengthened trade defenses after China's so-called steel dumping became a political flashpoint.

Chinese exports have dropped to the lowest since 2014 as the nation, which makes half the world's steel, closed outdated mills to reduce overcapacity and clean up the environment. Officials have also directed further cuts be enforced over winter in some key areas.

Better demand and falling Chinese output prompted Credit Suisse Group AG in October to warn of a possible supply squeeze, something that was unthinkable just a few years ago. Liberum Capital Markets Ltd. expects Chinese shipments to drop sharply this winter and maybe move toward zero in the medium term.

Still, Mittal, who has repeatedly called for stronger protection from unfair exports, said it's too early to know whether Chinese capacity cuts will stick.

“You really have to look at China on an annual basis,” said Mittal, who is also head of the firm's European business and son of majority owner Lakshmi Mittal.

As the top steelmaker in both the U.S and Europe, Luxembourg-based ArcelorMittal has been well placed to ride the recovery. The stock more than doubled in 2016 and is up 20 percent this year, and the firm is forecast to report its biggest annual profit in half a decade. The company cut debt almost in half in the last five years, including raising $3 billion from shareholders in early 2016, and reduced costs by closing some plants.

That should put the company in good stead should there be a fresh downturn.

“Even if some of the other factors weaken, I think what will remain are improvements that we've made on both our operating business and on our balance sheet,” the CFO said.

Even during the downturn, the company kept making deals. It bought rival Thyssenkrupp AG's state of the art plant in Alabama and is awaiting European Commission approval to buy Europe's biggest steel plant in Italy.

More Deals

Deals are likely to continue, with ArcelorMittal looking at a joint venture in India, where the firm doesn't yet make any steel. It's also considering bids for two producers, Bhushan Steel Ltd. and Essar Steel, according to people familiar with the situation, who asked not to be identified because the matter is private.

“We continue to look for growth opportunities, but at the same time we remain very cognizant of our balance sheet as well,” Mittal said, declining to comment on any interest in Bhushan and Essar. “India is a growth market, it is a large country and it has good prospects for the steel business.”

Should the recovery continue, one big question is whether ArcelorMittal will resume dividends that it halted in 2015.

“On investment grade we have made significant progress, and in terms of dividends they will on the board agenda in February,” Mittal said. “Our focus remains to further deleverage our business and then begin significant dividend resumption.”

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin

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