ArcelorMittal Returns to Profitability Gets High Marks for Rightsizing

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Much to the delight of not only its executives and employees but both the global steel sector and even stock markets, the Luxembourg-based steel giant ArcelorMittal has posted its first annual profit in more than five years, registering the biggest jump in earnings in the same period.

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The world’s largest steelmaker by output swung from a $7.9 billion net loss in 2015 to a net profit of $1.8 billion last year.

The steel giant also declared a net income of $403 million or 13 cents per share in fourth-quarter 2016, as against a net loss of around US $6.7 billion a year ago.

The upswing is partly due to an uptick in steel prices, worldwide and partly to cost-cutting measures. ArcelorMittal also got some help from a one-off boost of  $832 million from a major labor contract for its U.S. operations.

Chairman and CEO Lakshmi N. Mittal said in a statement that “2016 was a year of progress for ArcelorMittal, characterized by improving market conditions, a strong contribution from our Action 2020 programme and steps from governments to address unfair trade. As a result, EBITDA was comfortably in excess of initial expectations and, furthermore, we have delivered on our commitment to prioritize debt reduction, significantly strengthening our balance sheet and ending the year with the lowest level of net debt since the creation of the company.”

Rightsizing a Global Giant

ArcelorMittal’s loss in 2015 was due to some heavy writedowns on the value of its iron ore and coal mining businesses, and the crash of global steel prices. ArcelorMittal was still able to take action to take to utilize writedowns and reduce debt.

With the steel major talking of “positive prospects” in 2017, analysts and global markets have largely given ArcelorMittal a post-result thumbs up, acknowledging that it’s better equipped to succeed in a higher-priced global steel environment because of the right-sizing actions it took while prices were low.

Goldman-Sachs even said that shares in the world’s biggest steelmaker should forge ahead this year boosted by resurgent demand, higher prices and new protections for western markets in its analysis.

A Goldman analysis team led by Eugene King said it saw the steel company as well positioned to benefit from higher-for-longer steel prices and expects earnings growth in 2017. The report added it saw limited downside risk from low-cost imports as the typical forces driving the boost/burst cycles in steel had been reshuffled.

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In South Africa, where ArcelorMittal SA’s share price has nearly tripled over the past year, a report released by BMI Research said the company was likely to continue its rebound in 2017. The agency also forecast that the steel major’s earnings would continue to improve throughout 2017 as iron ore prices gradually declined combined with growth in SA’s GDP.

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