ArcelorMittal At a Crossroads, Issues Stock to Pay Down Debt

by Sohrab Darabshaw on MARCH 17, 2016

One of the world’s biggest steel makers,ArcelorMittal, is at a crossroads. Created by the takeover of Western European steelmakerArcelor by Indian-owned multinational Mittal Steel in 2006, the Luxembourg-headquartered business has been facing tough times since recently, much of it because of external factors such as collapsing economies, but some of the pain is certainly of its own making.

ArcelorMittal is at a turning point. It initiated a series of steps which management hopes will turn a corner and help it survive this period of global instability, especially in the  steel sector.

Cheap imports are hurting ArcelorMittal as much as any steelmaker as almost all of the markets the steel giant operates in are suffering price falls due to the imports.

Shareholders met in Luxembourg and by an overwhelming majority, passed a stock issuance for a capital increase of $3 billion.

Stock Sold to Pay Down Debt

The fundraising is part of an overall plan unveiled in February 4 by ArcelorMittal. For now, though, it has too much debt on its records. At the end of 2015, ArcelorMittal’s total debt was $19.8 billion. The debt rate had reached 57% by December 31, compared to 35% a year ago.

Except for India and China, global steel purchasing — on the national level — is down in the last few years. Cheap Chinese imports are hurting the markets that ArcelorMittal competes in as much as any. If a further market deterioration was to take place, ArcelorMittal would be looking at a bleak future, hence the rush to raise funds and retire debts, some analysts.

Cost cutting is the second option.ArcelorMittal has been forced to shut down its plants since mid-2015. The one at Point Lisas, central Trinidad, is just the latest to be closed by the global steel giant.

The company operates in 60 countries, has industrial operations in 19 and produces approximately 10% of the world’s steel.

Just weeks before the Point Lisas closure, ArcelorMittal announced plans to shut another of its plants in Spain, because of “extremely adverse” market conditions in Europe.

Late last year, ArcelorMittal SA (AMSA), the South African arm of the comapny, had received a bailout from the country’s government to prevent plant closures in two South African towns where the entire economy was dependent on that industry.

This month, a strike at a plant in western Mexico created production losses of about 10,000 mt per per day. Arcelor is a big player in the Mexican market, but overall, steel consumption there has slowed down because of market conditions.

Price Hikes

Surprisingly, one of the many steps in the walk back to stability ArcelorMittal decided to take was making ArcelorMittal SA increase the price of its steel products this April.

“The global economic developments and the sustainability of the steel industry are among the factors which led the company to increase prices following its monthly price review,” the steelmaker said in a statement.

The company said it would increase the prices of hot-rolled coil by 8% on average and plate 11%, among other products.

If the higher-ups at ArcelorMittal had a crystal ball, they could foresee whether all these measures will bear fruit in the coming year. For the lack of one, they need to keep their fingers crossed and hope that they meet with success in raising capital in today’s difficult economic times to help the steel major get through this cash crisis.