Industryweek 5922 Arcelormittal

ArcelorMittal Cutting Production in Europe, for 2nd Time

May 29, 2019
The cuts could affect up to 10% of the company's steel output in the EU.

ArcelorMittal fell the most in two years after announcing that it’s further cutting steel production across its European plants to cope with weak demand and rising imports.

The world’s largest steelmaker will reduce primary production in France, Germany and Spain, according to a statement on Wednesday. It’s the second time this month ArcelorMittal has announced output cuts. In total, it could affect up to 10% of the company’s steel production from the European Union.

The shares lost as much as 7.3%, the biggest intraday drop since May 2017. The stock traded at 13.55 euros as of 2:47 p.m. in Amsterdam. Steelmakers Thyssenkrupp AG, Voestalpine AG and Kloeckner & Co. lost more than 2%.

The reductions are needed to balance the market in Europe, said analysts at Jefferies International Ltd.

“This is again a hard decision for us to have taken, but given the level of weakness in the market, we feel it is the prudent course of action," said Geert van Poelvoorde, the chief executive officer for the company’s flat products division in Europe. "This will be a temporary measure that will be reversed when market conditions improve."

European steelmakers have been hit by a slump in demand from Germany’s auto industry and competition from cheap imports. That’s also making it hard for them to pass on higher prices for iron ore, a key steelmaking ingredient, that are being stoked by mine closures in Brazil. Earlier this month, regional lobby group Eurofer warned the industry is on the cusp of a crisis.

As domestic demand falls, imports are compounding the challenges for European steelmakers. While the U.S. has been very aggressive in shutting out foreign steel—using a Cold War-era law—Europe has been slower to respond. It’s now put in place safeguard measures, designed to cap flows, but the industry says more needs to be done.

More details on the cuts:

The two announcements this month could affect an estimated 4 million to 4.5 million tons of steel on an annualized basis, the company said. Those are preliminary numbers. The majority of the cuts are scheduled to happen at the end of 2019, meaning “we remain flexible and can adapt according to how the market evolves,” a spokesman said. Last year, ArcelorMittal produced 44.7 million tons of steel in Europe, almost half of its global production.

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