Wednesday, July 30, 2008

ArcelorMittal profits soars past forecasts- Is it time to give steel users a break?

ArcelorMittal, the world’s number one steelmaker, reported second-quarter results far above analysts’ expectations on Wednesday as it managed to pass on rising raw material costs despite the growing economic gloom.

”These new record-high results are far above what could be expected,” said BHF Bank analyst Hermann Reith, adding that the analyst community had underestimated ArcelorMittal’s ability to increase prices throughout its different business areas.

Earnings before interest, tax, depreciation and amortisation (ebitda) were $8.05bn against the average forecast in a Reuters poll of 10 analysts of $6.75bn.

The company, roughly three times bigger than its closest rival Nippon Steel, had guided towards a second-quarter figure above $6.5bn and now aims to achieve ebitda exceeding $8.5bn in the third quarter.

”You will probably see many rating upgrades, there is a good pricing dynamic,” said one analyst, explaining that the new profit target for the third quarter was much higher than expected.

The high core profit target for the third quarter is probably due to the fact that ArcelorMittal managed to renegotiate long term contracts upwards, analysts said.

Sales and net profit were $37.84bn and $5.84bn while the Reuters poll of analysts gave averages of $34.65bn and $3.97bn, respectively.

Recently United States Steel have reported profits doubling, Posco are forecasting higher profits and the steelmakers are having a good time. It was always clear that steel prices had to rise to cover increasing costs, but their customers are paying the price. You can only squeeze your customers so far, and many steel consuming companies are struggling to keep going, let alone make a profit. It's perhaps time to give steel users a breathing space and some stability, or they may not be around for to long. It will not be so easy for the steelmakers to make a profit next year if they have no customers left.

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