ArcelorMittal performance confirms prolonged steel industry difficulties: Moody’s

ArcelorMittal’s second-quarter results confirm that the currently-challenging environment in the global steel industry will persist for longer than anticipated, and the European steel outlook has worsened. This is according to Moody’s.

In response to the more challenging market environment, including depressed steel prices and costlier feedstock, ArcelorMittal had to adjust its assumptions for future cash flows of its US operations. This resulted in a $600 million impairment for ArcelorMittal USA in the second quarter.

“While we understand that measures have been taken by management to avoid additional impairments, visibility on improving operating conditions and sustainably recovering steel prices is currently very limited, not only in the US,” the credit rating agency says in a report sent to Kallanish.

Falling steel prices coupled with higher iron ore prices adversely impacted the group’s steel-only Ebitda/tonne, which fell to $43/tonne in Q2 from $56/t in Q1 and $127/t in Q2 2018. The sharpest margin deterioration was recorded in the group’s key regions of NAFTA and Europe.

Moody’s now projects ArcelorMittal’s consolidated Moody’s-adjusted Ebitda for full-year 2019 to fall below $6.5 billion. This implies a Moody’s-adjusted leverage ratio of around 3.5x gross debt/Ebitda at year-end 2019, which would exceed its 3x maximum guidance for the assigned Baa3 rating. However, the steelmaker has healthy cash flow generation and liquidity, and has identified non-core assets for disposal valued up to $2 billion.