Globe's top steel maker delivers an upbeat quarterly financial report

BRUSSELS - The world's No 1 steelmaker ArcelorMittal SA sees demand from China and the auto industry supporting second-half profits this year, along with more in-house ore and coal supplies.

In an upbeat quarterly statement that matched a mood set by Japan's Nippon Steel Corp, the maker of 6 to 7 percent of the world's supplies, raised its forecast for 2011 global steel consumption because of stronger demand from China and predicted a milder seasonal profit dip in the third quarter than a year previously.

Apparent steel consumption in China, not a main market for ArcelorMittal but influential in driving prices and demand, should increase by more than 8.5 percent this year, meaning global sector expansion would be 7 to 7.5 percent, the company said.

Higher steel prices and blast furnaces running at 78 percent of capacity helped drive core profit, or earnings before taxes, depreciation and amortization (EBITDA), to $3.41 billion in the second quarter. That's more than the market had expected and the highest level since before the 2008-2009 crisis.

It will then fall back to between $2.4 billion and $2.8 billion in the third quarter, the company said.

According to a Reuters poll, the market expected EBITDA of $3.25 billion in the second quarter and $2.65 billion in the third.

Chief Executive Lakshmi Mittal said the strong performance in the second quarter was underpinned by higher steel prices.

"Although the third quarter will experience some seasonal impact, we do not expect this to be as pronounced as last year, and overall the group's performance in the second half of 2011 should compare favorably with the second half of 2010."

The company said steel shipments and earnings for each ton in the second half of the year would be higher than a year earlier, when a sharp slowdown and margin squeeze drove ArcelorMittal into a fourth-quarter loss.

Relatively low levels of inventories could also help avoid a repeat of last year's poor second half, with reasonable prospects of some fourth-quarter pick-up.

Ingo-Martin Schachel, an analyst at Commerzbank AG, said the second-quarter performance was especially strong in the Americas and he believed ArcelorMittal could achieve the upper end of its third-quarter profit guidance.

"The qualitative statements for the second half are good and given that expectations going into results were (weak), the results will be perceived positively by the market," he said.

Demand typically dips in the third quarter, the northern hemisphere summer, but sector earnings also face pressure from record production in China, demand capped by tighter monetary policy there and debt problems in Europe and the United States.

South Korea's Pohang Iron and Steel Co, the world's No 3 steelmaker, warned last week of weakening demand growth and persistently high costs in the second half.

Two American steel producers AK Steel GmbH and US Steel Corp also warned of weakening steel prices in the current quarter and an uneven economic recovery.

However, on Wednesday, Nippon Steel, Japan's top steelmaker, forecast a rise in profits this year as a slow global rebound bolstered demand.

European hot-rolled steel cord prices rose 30 percent in the first quarter, while spot prices for Chinese iron ore imports increased by just 3 percent, according to Metal Bulletin.

However, during the April to June period, prices for the same products fell 12 percent and 3 percent respectively.

For ArcelorMittal, spot prices usually affect earnings with a three to four-month time lag, meaning tighter margins in the second quarter will be reflected in third-quarter figures.

Reuters