IGI Logo

ArcelorMittal’s (MT) Q1CY23 performance was ahead of the street’s expectations on all parameters. Key points: 1) end of destocking in key markets resulted in higher shipments; 2) EBITDA/te rebounded 26% QoQ from a cyclical low of US$100; 3) energy costs have reduced considerably from H2CY22 highs; 4) AM/NS India performance improved QoQ led by higher volumes and steel prices. Going ahead, management remains optimistic of the apparent demand outlook as the destocking phase ended in Q1CY23, inventories are lower than normal and restocking has not yet occurred. Management has retained its guidance (provided in Feb’23) for world (ex-China) apparent steel consumption growth at 2-3% YoY with MT’s own steel shipments to rise 5% YoY. Furthermore, management expressed confidence that the second quarter is likely to witness further sequential improvement in profitability. We remain positive on the ferrous space with BUY on JSPL (TP: Rs750) and Shyam Metalics (TP: Rs570), and ADD on Tata Steel (TP: Rs125). MT is NOT RATED.

* EBITDA rebounds: MT’s EBITDA at US$1.8bn (down 64% YoY, up 45% QoQ) surpassed consensus estimates of US$1.6bn. Key points: 1) Steel shipments rose 21.6% QoQ in NAFTA, 14% QoQ in Europe and 11.3% QoQ in Brazil. 2) Despite being impacted by the Ukraine war, ACIS shipments also rose 12.7% QoQ. 3) Realisation was down by US$30-50/te QoQ in all the divisions except ACIS. 4) EBITDA/te rose 26% QoQ to US$126/te from the cyclical low of Q4CY22. 5) In Europe, the company has gradually restarted previously curtailed production during the quarter to meet demand. However, the two furnaces impacted by the fire in Europe are unlikely to return to the normal level of production before Jun’23. 6) Raw material cost still remains high though energy costs are substantially off the peaks witnessed in H1FY22. Going ahead, management expressed confidence that the improvement in market conditions is yet not fully reflected in the results owing to pricing lags, and that profitability is expected to rise further in Q2CY23.

* Performance of AM/NS India also improves: AM/NS India’s EBITDA rose 2x QoQ at US$341mn and shipments rose 15% QoQ (5.7% YoY) at 1.8mnte. AM/NS shipments were also aided by increased supply to Europe to meet demand arising from temporary closure of two furnaces in Spain and France since Mar’23. Taking cues from AM/NS India results, we expect domestic flat players also to report better performance QoQ.

* Outlook: TSE’s losses likely to contract as the operating environment may improve further in Europe. Taking cues from MT’s Q1CY23 result and commentary, we believe spreads in Europe are likely to improve as raw material prices have come off lately and demand is likely to get support from low level of inventory. We find MT management’s commentary similar to another European player, SSAB. SSAB’s management also mentioned that raw material procurement price has fallen 15-17% QoQ and should be reflected in Q2CY23. Besides, they expressed confidence that both shipments and realisation in Europe in Q2CY23 are likely to be slightly higher QoQ. We remain positive on the ferrous space. Maintain BUY on JSPL (TP: Rs750) and Shyam Metalics (TP: Rs570), and ADD on Tata Steel (TP: Rs125). MT is NOT RATED.

To Read Complete Report & Disclaimer Click Here

or More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7 SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer