ArcelorMittal posts $1 billion loss in Q4 but cautiously optimistic over upcoming steel demand

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In this Oct. 30, 2008 file photo, provided by ArcelorMittal, shows workers at the Fos-sur-Mer plant in southern France. THE CANADIAN PRESS/AP, Arcelor - Sept Lieux

BRUSSELS - Steel maker ArcelorMittal was cautiously optimistic about its near-term prospects even after it reported a heavy fourth quarter loss generated by a deteriorating European economy and big tax and restructuring charges.

The Luxembourg-based company said Tuesday that it posted a $1 billion net loss in the three months to end-December, compared to a $780 million loss a year earlier, even though sales spiked 8.5 per cent at $22.45 billion.

The loss was mostly due to $1.3 billion in charges for deferred taxes, restructuring and impairments, though mounting worries over Europe's economy in the wake of a crippling debt crisis hit demand levels too.

"The progressive recovery that we have been experiencing was impacted in the second half of the year by the growing uncertainty over the economic situation in Europe, which particularly affected sentiment and performance in the fourth quarter," Chief Executive Lakshmi N. Mittal said in the earnings statement.

However, the company said economic sentiment had improved in the first weeks of the new year, particularly in the U.S., and was optimistic about sales and earnings in the first half.

That helped the company's share price open around 1.7 per cent higher at €16.45.

ArcelorMittal is particularly vulnerable to changes in economic sentiment, since much of the steel it makes is used in expensive items like cars, home appliances or buildings.

Concerns over how the debt crisis in the eurozone would affect the overall economy contributed to steel prices dropping 6.2 per cent compared to the third quarter, while shipments fell 2.5 per cent as buyers in Europe used up existing stock, the company said.

"Looking ahead to 2012, the situation in Europe remains a live concern," Lakshmi N. Mittal said.

However, Chief Financial Officer Aditya Mittal said the company had seen sales and prices improve in the early weeks of this year compared with the end of 2011.

"Sentiment in Europe, which was crisis in Q4, is now a recessionary environment," Aditya Mittal told reporters in a conference call.

ArcelorMittal expects results in the first half of this year to be better than the second half of 2011, but behind those of a year ago.

The company is benefiting from its presence around the world, which helps buffer the worsening situation in the eurozone, where steep spending cuts in some countries and concerns over the future of the euro have depressed growth.

For the full year of 2012, ArcelorMittal sees steel demand increase 4.6 per cent worldwide, despite a 1.3 per cent drop in Europe.

Aditya Mittal said the beginning of this year had brought improvements in demand in the U.S., where unemployment has fallen in recent months. Car production was particularly strong, while construction was still limping behind, he added.

In China, tighter monetary policy had depressed demand almost 10 per cent from the summer, the CFO said, but 2012 demand is still expected to see a 5.2 per cent rise.

Alexander Haissl, an analyst at CA Cheuvreux, said ArcelorMittal's earnings were "bang in line with expectations."

"The situation is not as nasty as many in the market had feared," Haissl said, adding that sales should be particularly strong in the second quarter, as buys replenish their steel stocks.

The company also increased production of both iron ore and coal — two key ingredients for steel — by 10 per cent and 20 per cent respectively. It has been building up its own iron ore and coal production to become more independent from price changes in those two products.

ArcelorMittal is the world largest steel maker by sales, responsible for about 6 per cent of global steel output.