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ArcelorMittal’s (MT) Q2CY23 EBITDA of USD 2.6bn (down 50% YoY, up 43% QoQ) surpassed street estimates by 9%. Key points: 1) Positive price-cost spread offset the impact of lower volumes; 2) steel spreads, aided by lower inventories, remained higher than the historical average; 3) CY23 steel consumption growth estimates have been reduced for the Western world, but maintained for India at 6-8% YoY; 4) plans are afoot to increase the capacity of AMNS India by ~2x to 15mtpa in the medium term. Taking cue from MT’s Q2FY23 performance and commentary, we believe major Indian steel producers are set to gain from the robust demand growth potential. We remain positive on the ferrous space with JSPL (BUY; TP: INR 750), Shyam Metalics (BUY; TP: INR 570) and Tata Steel (ADD; TP: 135) as our key picks.

Performance surpasses street estimates despite lower shipments

MT’s Q2CY23 performance was ahead of street estimates as positive pricecost spread mitigated the adverse impact of lower volume. Key points: 1) shipments dipped 8.7% YoY in Europe. However, higher ACIS shipments and consolidation of ArcelorMittal Pecem restricted the overall decline to a mere 1.2% YoY at 14.2mte; 2) EBITDA/te was up 45.5% YoY (down 48.9% YoY) at USD 183 due to positive price-cost spread across regions. Europe EBITDA/te improved 36.6% QoQ to USD 119/te – highest since Q3CY22; 3) steel realisations benefitted from lagged prices; and 4) AMNS EBITDA/te rose 53% YoY to USD 335/te, benefitting from higher steel shipments and lower costs. Management has firm growth plans in India as it believes that, of the additional 300mnte global steel consumption (ex-China) in the next decade, India is going to account for 100mnte. Besides, MT management has retained its near-term (CY23) consumption growth forecast at 6-8% YoY for India.

Solid capacity expansion plans in India

At AMNS India, management expects to achieve the rated capacity of 8.6mtpa by end-2024. In medium term, it expects AMNS India capacity to grow to ~15mtpa in H1CY26 in Hazira (phase 1A) including automotive downstream capacity and enhancements to iron ore operations. Company estimates total capex at USD 7.4bn, of which USD 5.6bn and USD 1bn are expected to be spent for upstream and downstream projects respectively. Company intends to commission the CGL4 line in Q3CY23 and launch Magnelis products in India, which will be used for renewables and solar product markets.

Phase 1A programme includes a CRM2 complex and galvanizing and annealing line, 2 blast furnaces, steel shop, HSM, ancillary equipment and raw material handling equipment. Company expects the start of first blast furnace in CY25 while the second one is likely to commence operations in CY26. Also, the capacity of the first blast furnace is expected to be enhanced from 2mtpa to 2mtpa. Besides, there are further options to potentially grow to 20mtpa (phase 1B).

In addition to the expansion at Hazira, the company has plans to commence a long products facility at Paradeep (7mtpa) and a greenfield flat steel plant at Kendrapara, Odisha (14mtpa).

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