EUR 850.00 For Business Accounts Only

Morningstar | With the Cyclical Peak of 2018 Behind It, ArcelorMittal Will Refocus on Cost Reductions

As the largest steelmaker in the world, ArcelorMittal relies primarily on blast furnaces to produce steel, with just shy of 20% of its production coming from electric arc furnaces. During periods of high steel demand, blast furnaces allow for low per-unit operating costs as fixed costs are spread across large production volumes. However, electric arc furnaces allow for greater flexibility when production volumes change, and they are less energy- and labor-intensive.ArcelorMittal generates roughly half of its sales in Europe, one third from North and South America combined, and the balance from South Africa, Eastern Europe, and its global mining operations. Sliced differently, the company derives roughly 60% of its sales from developed markets and 40% from emerging markets. It also boasts significant end-market diversification, as it is leveraged to a wide variety of industries, including construction, automotive, energy, transportation, packaging, and appliances. Management's key stated strategic initiative involves a significant buildout of iron ore production capacity in order to increase raw material self-sufficiency and become a larger player in the seaborne spot market. However, the company's steel capacity is set to rise as well via the acquisition of Italian steelmaker ILVA and the proposed acquisition of Indian steelmaker ESIL.Roughly one third of ArcelorMittal's iron ore shipments and half of its coal shipments are transacted internally at cost-plus pricing rather than market pricing, which helps support the profitability of its steelmaking segments. Since 2009, the company's self-sufficiency in iron ore has increased significantly. Although lower seaborne iron ore prices have weighed on the mining segment's profits at times, ArcelorMittal ships the majority of its iron ore to its own steel mills (some at cost-plus pricing and some at market prices).