London: ArcelorMittal, the world’s largest steelmaker, has said it expects iron and steel prices to remain under pressure throughout this calendar year.
Billionaire Lakshmi Mittal-led ArcelorMittal reported a net loss of $7.9 billion in 2015 mostly because of a $4.8 billion write-down on iron ore mining business and a $1.3 billion charge on inventory due to the global steel price plunge.
The firm said steel and iron ore prices have been under pressure in recent periods and particularly in 2015, with both reaching “historical lows in 2015” – a development that has had a pronounced “negative effect” on its operations, in the form of significant declines in revenues and operating income.
On outlook for 2016, the company said, “Management currently considers it likely that while stabilisation is possible, steel prices will remain on the low side at least through 2016, given expectations regarding economic conditions and demand.”
“Management expects iron ore prices to continue to remain under pressure in 2016 due to the supply/demand dynamics…”
Steel and iron ore prices are sensitive to trends in cyclical industries, such as the automotive, construction, appliance, machinery, equipment and transportation industries, which are significant markets for ArcelorMittal’s products, the Luxembourg-based firm said in a regulatory filing.
Explaining volatility in iron ore prices, ArcelorMittal said spot prices of the ore fluctuated between a peak of $160 per tonne (Platts index, CFR China, 62 per cent Fe) in mid-February to $110 a tonne at the end of May in 2013.
It culminated in a historical low of $44.50 per tonne in early July 2015 then recovered to $59.25 a tonne at the beginning of September 2015, before demonstrating further volatility and surpassing the historical low at the end of December 2015 at $38.50 per tonne, it added.
Similarly, steel prices too demonstrated significant volatility in 2013, ranging from a high of $690 per tonne to a low of $586 per tonne (SteelFirst, EU domestic HRC ex-works Northern Europe).
In the first half of 2014, steel prices rose steadily, continuing an upward trend beginning mid-2013. However, the second half of 2014 and the full year 2015 saw substantial decreases in steel prices, which dropped to $353 per tonne at the end of 2015, exceeding the historical lows, it said.
To bring the company out of the rut, ArcelorMittal said it will raise $3 billion from investors and sell $1 billion stake in Spanish auto parts maker Gestamp.
The world’s largest steelmaker outlined a plan to reduce its $15.7 billion net debt by nearly a quarter.
Mr Mittal, who owns about 37 per cent of ArcelorMittal, will maintain his stake and will sign up to its entitlement of the share issue, worth about $1.1 billion.
Continuing to suffer from China’s overcapacity that drove down world prices, the firm posted net sales of $63.58 billion in 2015 as against $72.28 billion in 2014.