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ArcelorMittal upgrades steel demand growth outlook, CEO highlights role of renewables

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ArcelorMittal upgrades steel demand growth outlook, CEO highlights role of renewables

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CEO sees greater sector sustainability over next decade

ASC guidance reduced slightly for India

China policies seen as important market factor

Leading steelmaker ArcelorMittal has upgraded its global apparent steel consumption (ASC) forecast for 2021 to between +7.5% and +8.5% above 2020 demand levels, following a strong first half, the company said in its Q2 results statement on July 29. This compares to a previous growth estimate of +4.5% to +5.5% for this year.

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The demand growth is partly driven by decarbonization, CEO Aditya Mittal said on a call with reporters. "As the world moves to cleaner energy infrastructure, it needs to rebuild that infrastructure with new windtowers, solar farms, maybe pipelines etc, and that will require steel." The stimulus monies put up by various governments worldwide is partly infrastructure-based and this supports steel. At the same time, there is probably limited interest in growing steel capacity as there's more interest in decarbonizing existing capacity, he said.

"These factors may point to an improved sustainability of the global steel industry over the next 10 years," Mittal said.

While steel is cyclical, this cycle is different from other recent cycles experienced by the sector due to policy changes in China and "new avenues or pockets of demand" in decarbonization infrastructure, coupled with significant levels of government stimulus, according to Mittal. This upturn is different from others seen in the last five-10 years, he said.

'Good' balance in global markets

ArcelorMittal continues to see good steel supply and demand balance in global markets today, he said. "Markets remain robust... we can see tremendous growth..., this is real demand growth, there remains limited inventory in the system," Mittal said.

A year ago, the European and South African markets had been impacted by weak demand and operating restrictions in Q2 2020 due to the COVID-19 pandemic, while Indian markets continued to be impacted by the pandemic in Q2 this year, ArcelorMittal noted.

"Looking forward, we see the demand outlook further improving into the second half and have therefore upgraded our steel consumption forecasts for the year," the CEO said. Economic activity has progressively improved during Q2 2021, accelerating a recovery in the global steel environment since the second half of 2020, with a favorable supply-demand balance and a low inventory environment, the company said. This had followed a period of prolonged destocking, supporting increased utilization levels and healthy steel spreads, it said.

The company added that its Q3 outlook had been boosted by expectations that ongoing policy changes in China to curb inflation, while shifting focus to decarbonization, can have lasting positive impacts on the global steel industry outside of China.

"This improvement feeds through to the Company's revenues with a lag due to order lead times. As a result, the improvement in steel spreads has not yet been fully reflected in the company's financial performance," the results statement said.

Rising steel spreads since H2 2020 reflect a tight supply-demand balance and Q3 2021 seasonality is expected to be less pronounced than normal, it said.

In the US, ArcelorMittal expects apparent steel consumption to grow within a range of +16% to +18% in 2021, up from previous guidance of +10.0% to +12.0%, with stronger consumption in flat and long products offset in part by weak pipe and tubes demand, the company said.

In Europe, ASC is expected to grow by +13% to +15% in 2021, up from previous guidance of +7.5% to +9.5%, with strong manufacturing -- especially machinery and electrical appliances and residential construction -- all back to at least pre-crisis levels, with the automotive sector recovering from low levels, even with output still limited by shortages in semi-conductors, it said.

In Brazil, ArcelorMittal expects ASC to continue to expand in 2021 with growth expected in the range of +21% to +23%, up significantly from previous guidance of +6.0% to +8.0%, supported by ongoing construction demand and recovery in the end markets for flat steel. In the CIS, ASC growth in 2021 is seen recovering to within a range of +4% to +6%, unchanged from the previous guidance.

In India, ASC growth in 2021 is expected to recover to within a range of +15% to +17%, slightly lower than the previous guidance of +16% to +18%. Overall world ex-China ASC is expected to grow between +12% to +13%, up from the previous guidance of +8.5% to +9.5%.

In China, overall demand is expected to continue to grow in 2021 to +3% to +5%, supported by ongoing stimulus, up from the previous guidance of +1.0% to +3.0%.

As regards world steel trade, Mittal said on the call that in the medium term, the role of China -- a major exporter over the past decade -- is changing. In H1 2021, China removed its steel export tax rebate which means it is no longer incentivizing steel exports. "There's a shift in the approach of the Chinese steel industry in how much the industry should export... our belief is that it's also driven by the decarbonization discussion we're all having, because there's less incentive to create carbon emissions in China and then export the steel," he said. Russia has an export tax on steel, he added.