ArcelorMittal has traded roughly flat this year, underperforming the broader indices amid mixed signals in the steel sector. Steel prices have softened a bit this year, amid easing supply chain issues and lower commodity price inflation following the Fed’s rate hikes over the past year. Moreover, the company’s Q1 2023 results were weaker than expected as the company witnessed price erosion and weaker year-over-year shipments due to maintenance at two of the company’s furnaces in Europe. While revenue was down by almost 15% versus last year to $18.5 billion, net profit declined by roughly 75% to $1.1 billion. Total steel shipments stood at 14.5 million metric tons, marking a decline of almost 6% versus last year. So what’s the outlook like for ArcelorMittal?
Although we believe that steel prices are likely to remain below average levels seen in early 2022 when the start of the Ukraine war bolstered prices, there are some trends that could help ArcelorMittal. Firstly, ArcelorMittal expects its steel shipments, excluding China, to rise by 5% this year. While this will be partly driven by growing consumption it will also be driven by restocking as inventory levels have been below average across the industry. Production costs are likely to trend a bit lower, as energy prices cool off, particularly in Europe, with natural gas prices coming in at around pre-Ukraine war levels. Moreover, the macro-environment also doesn’t appear to be as bad as previously feared. The U.S. Fed has also eased the pace of its interest rate hikes given slowing inflation. This could also bode well for the broader economy and commodity players such as ArcelorMittal. Automotive sales are also likely to pick up in 2023, driven by higher semiconductor supply and this could also benefit ArcelorMittal’s flat-rolled product line.
We remain positive on U.S. ArcelorMittal stock with a $31 price estimate, which is 10% ahead of the current market price. The company has cut its debt, with net debt declining from about $10 billion in 2018 to about $5 billion at the end of the last quarter, which should be manageable even in the current rising interest rate environment. The stock also trades at just about 5x consensus 2023 earnings, which is attractive in our view, even when considering the cyclical nature of the steel sector. See our analysis of ArcelorMittal Valuation: Is MT Stock Expensive Or Cheap? for a closer look at what’s driving our price estimate.
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