Steelmakers see gradual recovery as they post losses

The world's top steelmakers posted quarterly losses and warned the industry's return to growth from the bottom of the economic slump would be gradual, with China leading the recovery while the West lags.

The steel companies in the UAE are also facing the heat as demand for steel has dropped significantly. Although production levels at the UAE facilities have not changed companies were not willing to reveal their financial figures.

A senior official of a UAE- based steel facility yesterday told Emirates Business that the earnings had definitely dropped compared to 2008. "But I am not allowed to discuss the exact financial details," said the official.

Another official said prices are expected to marginally increase during the second half of 2009.

"We are experiencing a relative stability in prices during the last two months. I am expecting it to increase during the latter part of the year. But we can never predict how the market is going to react," said the official.

Meanwhile, Emirates Steel Industries (ESI) – which is embarking upon a Dh6bn phase two expansion of its UAE plant – is reported to be asking banks to extend a $700 million short-term loan by a further nine months and has delayed plans to raise a long-term loan of up to $2 billion (Dh7.2bn).

ESI's new expansion will increase capacity to three million tonnes a year by 2011 and will further boost its capacity to 6.5 million tonnes annually by 2013-14 through capacity expansions and acquisitions. The company recently completed phase one of its expansion plans, at a cost of Dh3bn.

Oman-based Al Jazeera Steel Products, manufacturer of galvanised pipes, posted a first-half loss of RO2.1 million (Dh20.20m, $5.5m) versus a profit of RO6.3m in the year-earlier period.

Saudi-based National Metal manufacturing and Casting Company, which is into manufacturing steel wires and wire-related products, saw profits fall from SR40m (Dh39.23m) in 2008 to just SR3.2m during the first six months of this year.

The company's revenue for 2008 was about SR500m. For the first six months of 2009, the company's revenue was just SR162m.

Meanwhile, global leader ArcelorMittal forecast no return to pre-crisis activity levels before 2011 as both the company and second-ranked Nippon Steel saw weak demand and inventory writedowns hit earnings.

"We were at a very low level of economic performance... (so) to reach the pre-crisis level it will not be before 2011," ArcelorMittal CEO Lakshmi Mittal told a conference call.

Japan's Nippon Steel said yesterday its loss in the six months to September would be worse than expected, while its bigger rival forecast only a slow pick-up over the rest of 2009 with output in developed countries below two-thirds of capacity through the third quarter.

The steel industry is seen as a broad gauge of an economy's strength, and demand for the metal has tumbled along with activity in the key automotive and construction sectors.

Cash-strapped customers have also tended to run down stocks rather than buy fresh steel, though that process appears to be ending.

The turnaround is being led by China, where the government is spending $585bn on stimulus measures focused on infrastructure.

Mittal said he expects demand for steel in China to rise 10 per cent this year, and his company said its mills in the country have already ramped back up to near full capacity.

By contrast, demand will dip 15-20 per cent elsewhere, and probably more than that in Europe and the United States, he said.

Prospects for production growth in China received a boost with news of progress in fraught negotiations over pricing of iron ore, the raw material from which steel is made.

Leading miner BHP Billiton said it had agreed with more customers, including some in China, to match a benchmark 33 cut in ore prices. Many steelmakers in China have been holding out for bigger cuts.

ArcelorMittal is continuing to buy its ore at the benchmark contract price rather than on the spot market, said Mittal.

ArcelorMittal's earnings before interest, tax, depreciation and amortisation (Ebitda) slid 85 per cent in the second quarter to $1.22bn, beating analysts' forecasts, as it made a net loss of $792m, its third straight quarterly loss.

"We are expecting the first half will be the bottom of the cycle," said Aditya Mittal, Chief Financial Officer, ArcelorMittal.

Rabo Securities analyst Frank Claassen described the firm's outlook as "meagre". "There is recovery, but it is not as fast and as great as expected," he said.

Nippon Steel's loss for April-June was $600m, as it widened its forecast for its April-September loss by 10 billion yen (Dh38.75m) and warned uncertainties in the market placed its full-year forecast of breakeven under threat. Its results contrasted with Japanese peer JFE Holdings, which generates 40 per cent of its sales through exports, and which forecast on Tuesday it would post a profit this year as its core steel business recovers.

ArcelorMittal said it is considering options for its operations in stainless steel – a sector dogged by overcapacity and viewed as ripe for consolidation. Acquisitions or a joint venture were possible, said CFO Mittal.

Spain's Acerinox, a leading stainless steel manufacturer, could be hit by fresh writedowns when it reports what is expected to be a first-quarter net loss later yesterday, said analysts.

Tata Steel, India's biggest producer, reported a worse-than-expected 47 per cent drop in first-quarter profit on lower prices.

Net income, excluding contribution from UK unit Corus, fell to Rs7.9 billion ($163m) in the three months ended June 30 from Rs14.9bn a year earlier, the Mumbai-based company said yesterday in a statement. The median estimate of five analysts in a Bloomberg survey was Rs9.45bn. Sales fell 10 percent to Rs55.5bn.

Indian steel prices almost halved from a record in June last year, lowering profit at domestic producers. Demand is starting to recover, aided by government stimulus packages in nations including China and India that are boosting investment in roads, ports, bridges and other public works.

Tata Steel shares, which more than doubled this year on expectation that the government's infrastructure spending will spur sales, fell 6.1 per cent to Rs442.35 at the close of trading in Mumbai. The benchmark Sensitive Index fell one per cent.(With inputs from agencies)

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