Weak demand forces ArcelorMittal to cut production in Europe

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Renta 4 | Arcelor Mittal (MTS) has announced that it will reduce its production in Europe (50% of the total in Q119) due to demand conditions in the market.

Arcelor will cut production in two factories in France and German (Dunkirk and Eisenhüttenstadt, respectively), cut production in Bremen (Germany in Q419 through extending the anticipated maintenance close down of the steelworks, and will also extended the maintenance close down in Asturias expected in Q419.

Production in these factories is expected to recover once demand conditions improve. Negative news, even if partly expected. MYS had already announced at the beginning of May that it would stop production in the factory in Krakow and that it would reduce that in Asturias. In addition, as we saw in Q119 results, steel prices fell in Europe -5.4% and EBITDA/tn collapsed -58% compared to Q418, affected by the strong increase in imports.

In our opinion, the results in Europe will continue to be penalised by weak demand conditions in a market in which the approval of final safeguard measures, approved 1 February, will not begin to support the low price environment for several months, as steel purchase contracts are renewed. The elevated exposure of Arcelor Mittal to Europe (2019 R4e sales 55% and EBITDA 37%) currently amounts to a significant brake on the group´s development.

We are downgrading our forecasts, which already imply a significant fall in EBITDA in 2019 compared to 2018 (R4e -18%). In our opinion, MTS shares will be heavily penalised for being a company very exposed to the cycle in a sector very punished by a trade war which we believe will be extended. Objective Price under revision (before 32€). Overweight.