Wednesday 11 May 2011, 11:26 AM
By Philip Blenkinsop
BRUSSELS (Reuters) - ArcelorMittal, the world's largest steelmaker, forecast strong prices and shipments that would propel earnings to a post-crisis high in the second quarter following a sharp rebound at the start of the year.
The group, which makes 6 to 7 percent of global steel, reported first-quarter earnings above expectations, after steel prices caught up with a spike in iron ore and coking coal costs and demand steadily grew from the auto and engineering sectors.
The Luxembourg-based company said core profit should be between $3 billion and $3.5 billion in the second quarter, the highest level since third quarter of 2008, just before the global steel sector went into freefall.
"As anticipated, we have seen a stronger start to the year, with an increase in both shipments and selling prices," Chief Executive Lakshmi Mittal said in a statement.
"This is expected to further improve in the second quarter as the underlying demand recovery continues. We remain confident that 2011 will be a stronger year than 2010."
ArcelorMittal said its blast furnaces would be running at 80 percent of capacity in the second quarter, up from 75 percent in the first three months.
Core profit (EBITDA) in the first quarter was $2.58 billion, higher than the $2.40 billion average forecast in a Reuters poll of 17 banks and brokers.
That represented a 39 percent improvement from the final three months of 2010, when a raw material price spike squeezed margins.
From mid-July to mid-November 2010, Metal Bulletin's MBIO index of Chinese iron ore prices rose some 37 percent, while steel prices in Europe dropped 7 percent.
From then until the end of March, steel prices have shot up 32 percent, while iron ore only made up 10 percent, according to Metal Bulletin, although this positive sector price trend reversed in April.
Many steel contracts for a given quarter are set during the previous three-month period, meaning that the pick-up of steel prices should influence first-quarter sector earnings, but only have a full impact from the second quarter.
Analysts are divided on what will happen in the second half of the year to the $500 billion steel sector, seen by many as a proxy for the global economy. The question is if there will be a repeat of last year's margin compression.
Bears point to a large price differential between Asia and other markets, a weak construction market, spare capacity and a further rise in ore and coal costs.
Bulls say inventory levels are healthy, demand is improving and Chinese prices should rise rather than Western prices fall.
Steel trader Kloeckner & Co also reports results on Wednesday, followed by German steelmaker Salzgitter on Thursday and peer ThyssenKrupp on Friday.
The latter, along with Austria's Voestalpine, have benefited from their exposure to the booming German car and engineering sectors. Voestalpine raised its full-year outlook in February after a forecast-beating quarter, and said only the construction sector was still lagging.
ArcelorMittal investors also gained an insight on Wednesday into the health of the company's growing mining assets, for which it provided separate results for the first time. The group mining production profitability would also improve in the second quarter from the first three months.
(Editing by Rex Merrifield, Sourced Reuters)
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