Morgan Stanley | The steel companies have historically done badly in recessions. Currently, with the risks of recession on the rise, margins at spot price continue to weaken and we have seen an important derating. It is likely that delays in prices support Q2 profits, but we see a significant slowdown from the next quarter. We still prefer carbon steel to stainless steel. ArcelorMittal (OW): we expect the company to generate…
After Moody’s downgraded ArcelorMittal’s debt rating by one notch yesterday, causing it to lose its “investment grade” status, the company has proposed a $2 billion capital increase via shares and mandatory convertible bonds. It will decide what proportion is covered by each of the two offers. Furthermore, it reserves the right, depending on demand, to increase the amount of $2 billion.
Banc Sabadell | The demand for steel in Europe (40% EBITDA) is somewhat weaker than expected (the expected recovery in car making has not happened), which means price rises are not expected. However, ArcelorMittal has showed that it is doing its homework in reducing cash outflows, given a tight financial situation, which could lead to announcements of improved shareholder remuneration in 2020.
The latest profit warning from Nucor for Q2 (1.20-1.25% vs consensus 1.48$) seems to confirm the weakening of tendencies in the steel sector in this period.
Íñigo Recio (GVC Gaesco) | The acquistion of the Italian company Ilva is a strategic operation for ArcelorMittal for the following reasons: 1)it did not have any industrial presence in Italy; 2)the deal means it can cope with steel imports in the Italian market – one of the principal access ports to Europe from non-community steel producing countries (mainly Asia) – and 3) it allows for greater steel prices discipline in Europe.