ArcelorMittal remains cautious but sees signs of recovery after low Q2 shipments

London — World's largest steel producer ArcelorMittal remains cautious in its outlook, although it said core markets are showing signs of recovery from exceptionally low levels with the company considering "structural changes" in light of the disruptions caused by the coronavirus pandemic.

"The first six months of the year, and particularly the second quarter, have been one of the most difficult periods in the history of the company, with demand for steel considerably disrupted by the COVID-19 pandemic," ArcelorMittal Chairman and CEO Lakshmi Mittal said.

Total steel shipments in Q2 2020 fell by 23.7% compared with Q1 2020 to 14.8 million mt, on significant impact from effects of COVID-19 pandemic across all regions. The company reported lower steel shipments in NAFTA region, Europe, Brazil and ACIS. ArcelorMittal's NAFTA segment has production facilities in North America, including the United States, Canada and Mexico, while ACIS segment has production facilities in Asia and Africa, including Kazakhstan, Ukraine and South Africa.

Crude steel production in Q2 fell to 14.4 million mt from 21.1 million mt in Q1 2020, and 23.8 million mt in Q2 2019.

During the latter part of Q1 2020, and through Q2 2020, the global escalation of the COVID-19 pandemic and subsequent measures introduced by governments worldwide to contain it had a clear negative impact on economic activity and industrial supply chains in most parts of the world.

However, steel shipments are expected to improve in the third quarter from Q2 as lockdown measures eased in many jurisdictions, leading to an increase in automotive sales and production levels.

"There are now signs of activity picking up, especially in regions where lockdowns have ended, but clearly it is prudent to remain cautious about the outlook. Against this context, we are examining what structural changes might be required to ensure the company is well configured to prosper in the coming years as demand recovers," Mittal said.

In a conference call with reporters, Aditya Mittal, CEO of AM Europe as well as CFO and president of ArcelorMittal, did not disclose the details of the structural change but said that the company will provide details with its full year results.

He also underscored that production will only be brought back online in line with demand through the company's ability and flexibility to restart hot idled capacity as the recovery progresses.

ArcelorMittal's shipments for the second quarter of 2020 were slightly above expectations, with the company's mining operations less impacted. While the internal demand reduced, the operations were able to increase shipments to external third parties wherever possible. As a result, mining's share of EBITDA for the first half of 2020 increased to 41% from 31% in H1 2019.

ArcelorMittal sales in Q2 2020 were $11 billion, compared to $14.8 billion for Q1 2020 and $19.3 billion for 2Q 2019. Sales in Q2 fell 26.1% on the quarter primarily due to lower steel shipments offset in part by higher market-priced iron ore shipments and higher seaborne iron ore reference prices.

Regarding price spreads, Aditya Mittal said that "clearly when you look at the level of spreads eg the steel margin, they vary on a historical basis. In the past we have seen when the spreads are this low they do not last at this level for very long periods of time."