ArcelorMittal production cut by a third

10:19, 06 November 2008
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As downturn hits demand

The fires are going out at European blast furnaces as ArcelorMittal cuts steel production by a third in the face of mounting distress among car manufacturers and the building sector, according to Times Online.

The world’s biggest steelmaker said yesterday that it would double the scale of production cuts announced last month in response to rapid destocking by its customers. In an attempt to preserve cash, the company is deferring expansion plans and slashing its capital expenditure.

Lakshmi Mittal, the chief executive, said the destocking in the steel sector was unprecedented. ArcelorMittal will rein in its production by nine million tonnes, which Mr Mittal said was equal to China’s net exports in a year. The biggest impact is likely to be felt in Europe where the company is shutting down one blast furnace in each of its European production units.

The grim tidings and a forecast that operating earnings in the fourth quarter would fall to between $2.5 billion (£1.57 billion) and $3 billion from $8.6 billion in the third quarter sent the company’s stock tumbling 16 per cent. Rival steel producers felt the impact of the retrenchment at ArcelorMittal and shares in ThyssenKrupp and Salzgitter both declined by 7 per cent.

The output curb is the biggest cut-back in a rapid retreat by steel exporters that began in Russia and Eastern Europe in October. Reductions in steel production at plants in Ukraine and a production cut at Severstal of Russia were followed by announcements from Tata in India, Baosteel in China and Nippon Steel of Japan.

ArcelorMittal had announced a 15 per cent cut in its output in October, but Aditya Mittal, the chief financial officer, said that “things have worsened in the last three weeks”. Cuts in production in Europe, North America and emerging markets will range between 30 and 35 per cent.

Capital expenditure will be cut by $1 billion to $4.5 billion next year and the slowdown is expected to release cash from working capital as the firm reduces inventory. Mr Mittal said that a $4.5 billion increase in working capital in the third quarter would be released over the next six months helping to bring down debt by $10 billion over the course of next year. It will maintain the basic dividend of $1.50 per share next year.

Mr Mittal insisted that the cuts in spending did not mean the cancellation of expansion projects, merely the delay in their implementation. He said that he was confident that demand would resume in the emerging markets, notably in China, whose Government was planning to spend $300 billion on rail infrastructure.

Arcelor Mittal’s net income for the third quarter stood at $3.8 billion, up 29 per cent from the previous year’s third quarter.

Times Online

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