Library picture taken outside of ArcelorMittal’s production facility in Asturias, Spain, on 11 October 2011. It is one of the sites mentioned in a downbeat Moody’s report on the steelmaker issued this week. Photo credit: Pedro Menéndez via Flickr (CC BY-NC-ND 2.0)
The credit ratings agency Moody’s has warned that ArcelorMittal’s European production cuts are a sign that the steelmaker’s bottom line will come under increased pressure over the next year and half.
On 6 May, ArcelorMittal said it would cut 3m tonnes of capacity by temporarily shutting production at its site in Kraków, Poland and by reducing production at its Asturias, Spain facility.
Then on 22 May, ArcelorMittal announced 1.2m tonnes in further production cuts at facilities in Dunkirk, France and Bremen, Germany, and said that maintenance shutdowns at the Asturias and Bremen sites, previously planned for later this year, would be “extended”.
The world’s largest steelmaker cited weak demand, increased competition from imports and higher costs for the moves.
“Although we positively recognize Arcelor’s proactive measure to adjust capacity to cooling market demand, the announcements are credit negative as they highlight the swiftly deteriorated operating environment in the European steel industry, which has been facing slowing demand from key steel-using end markets (especially automotive) since late 2018.”
The Moody’s report also stated:
“While we understand that the planned capacity reductions should be only temporary and re-aligned if and when market conditions allow, we expect the demand weakness to have a negative impact on Arcelor’s European shipments and earning this year.”
While Moody’s did not downgrade ArcelorMittal’s credit rating (which would raise the indebted steelmaker’s borrowing costs), Moody’s warned:
“Nevertheless, given the deteriorated market conditions in Europe and our bleak outlook for the next 12-18 months, a protracted or more severe industry downturn could weaken the group’s rating positioning.”
As of this writing, ArcelorMittal did not return Delano’s message seeking comment.