Morningstar | ArcelorMittals Reports Strong 3Q Results and Announces Completion of ILVA Acquisition
ArcelorMittal issued robust third-quarter profits, as EBITDA rose 42% year on year to $2.7 billion. Operating margins for every reporting segment other than Europe came in above 10% in the quarter. Having updated our valuation model, our fair value estimates are unchanged at $20 and EUR 17 per share. Our long-term negative outlook for the company is unchanged, as we expect profitability for both the company's steelmaking and mining operations to contract in the years to come. Our no-moat rating also remains intact.Given our full-year adjusted EBITDA forecast of $10.6 billion, ArcelorMittal will achieve its 2020 EBITDA target of $8.2 billion well ahead of schedule. However, we forecast EBITDA will fall to $7.1 billion by 2020 and to just below $6 billion at a midcycle level by 2022, as we believe current market conditions will ultimately represent a cyclical peak. In short, our negative outlook for the global steel industry (as well as the iron ore and met coal industries) is predicated upon our below-consensus forecasts for Chinese fixed asset investment and our view that global overcapacity will prove persistent. The rise of protectionist steel trade policies around the globe will also slow the rate at which overcapacity is addressed.
On the same day it provided third-quarter earnings results, ArcelorMittal also announced that it had legally completed its acquisition of ILVA, the largest single-site steelmaking facility in Europe. With a current production capacity of 6 million metric tons per year, ILVA should immediately boost current steel production capacity for the Europe segment by roughly 10%. ArcelorMittal plans to further increase capacity to 8.5 Mtpy by 2020 and 9.5 Mtpy by 2023. With the deal having closed, our forecasts for ArcelorMittal now include contributions from ILVA. Although the newly acquired assets have been loss-making, ArcelorMittal's investment program should restore positive EBITDA by year-end 2020.
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