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Mittal's Profit Plunges Largest Steel Maker Blames Global Glut

Posted on: Thursday, 11 August 2005, 09:01 CDT

Mittal Steel, the world's largest steel producer, said on Wednesday that profits were dropping because of a global steel glut, but predicted that the market would firm up by the end of the year. Net income for the three months ended June 30 was $1.1 billion, down 15 percent from a year earlier, Mittal said. Income per ton of steel is expected to drop by half in the third quarter, to $50 or $60 a ton, from $114, the company said. The higher cost of raw materials is also eating into profits. "The industry has been experiencing an inventory destocking in Europe," said the chairman and chief executive, Lakshmi Mittal. Conditions in the third quarter "remain difficult," he said, but economic indicators show demand and prices will improve. As recently as December of 2004, steel shortages in Japan were forcing carmakers to slow manufacturing, so some big users of steel responded by hoarding steel so they would not be caught short

. Now they are working their way through those inventories, driving down steel prices and demand around the world. Many analysts believe that there will be some improvement in the fourth quarter, and a rebound in profits and pricing in 2006. Mittal Steel, which became the industry's largest company when it bought International Steel Group last year, is still aggressively pursuing its growth plans, despite the softer pricing. Mittal has been a long- time believer that the industry should consolidate to two or three global players, and has said he planned to be the acquirer. China alone has more than 260 steel-producing companies, but is trying to merge them into two this year. Mittal Steel could expand its 8.5 percent stake in the Turkish state run plant, Erdemir, which is being privatized. The company is also interested in bidding on another privatization in the Ukraine and in building a new refinery in India. Mittal is 88 percent owned by the Mittal family, and Mittal's son, Aditya, is the chief financial officer. The company's total steel shipments during the second quarter were up 13 percent to 12.2 million tons, but that increase was thanks to the International Steel acquisition, which closed in April of this year. Without International Steel, total shipments would have dropped 14 percent, the company said. The world's No. 2 steel company, Luxembourg-based Arcelor, last month reported its highest quarterly profit ever, benefiting from higher prices from customers such as carmakers. "In Europe, Mittal needs to move up to the higher-value products," Imtiaz Ali, an analyst at Metal Bulletin Research in London, told Bloomberg News. "Arcelor has managed to post better results than its peers because of its product mix."

Source: International Herald Tribune

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