Arcelormittal Case Study

• Despite weakness in the steel market, MT has been able to improve its bottom line performance, indicating that it is moving in the right direction in a difficult environment.
• MT has a share of 16.7% in the auto market, which will be a growth driver for it due to increasing auto sales across the globe.
• MT is improving its infrastructure base by expanding mine capacity in Canada and relining the blast furnace in Krakow, apart from reducing its cost base by 40% in two years.
• MT is cheap as compared to the overall industry since its price-to-sales ratio is half of its peers, which is another reason why investors should buy it.
ArcelorMittal: Buy This Beaten-Down Stock
ArcelorMittal (MT) has lost around half of its market capitalization
and better consumer confidence will lead to better automotive demand going forward. Hence, it won’t be surprising to see that ArcelorMittal will witness an increase in its addressable market as automotive sales increase. More importantly, growth in the auto market won’t be restricted to just the U.S., with the European Union also anticipated to deliver strong growth.
Lower fuel prices have bolstered consumer demand in Europe, while a weaker euro is supporting exports. ArcelorMittal is confident that underlying demand will eventually increase on account of the recent strength of auto sales and a rebound in business confidence, which will in turn support future investment. As a result, ArcelorMittal has maintained its demand forecast for the region, which is expected to increase in the range of 1.5% to 2.5%. Source: ArcelorMittal
Additionally, ArcelorMittal is also targeting emerging economies as well, where automotive growth is anticipated to remain strong going forward. If we look at the chart given below, it will become evident that automotive growth in emerging markets such as BRICS nations and China will grow at a robust clip in the coming years.
Of course, there is certain weakness in China and Brazil at the moment, but stimulus measures undertaken by the governments could propel growth once again going forward and help ArcelorMittal improve. Source:
For instance, in order to benefit from the rapidly growing automotive market in India, it has signed a memorandum of understanding with the Steel Authority of India Limited to study the feasibility of an automotive steel joint venture.
On the other hand, the company has made progress at its Canadian mines following a capacity expansion, which will enable it to move its operation toward 30 million tons per annum in the country with minimal capital expenditure. Moreover, with a reduction in the bottleneck in its operations and better cost efficiencies, ArcelorMittal hopes to achieve 40% lower cash costs in 2015 compared to where it was two years back. In fact, management cites that there is further potential for the costs to move below $30 per ton going forward, which will allow it to bolster the margin performance.
In addition, ArcelorMittal will invest around PLN 200 million in its Krakow-based plant for the relining of the blast furnace 05, which is coming to the end of its life cycle in mid 2016. Once the relining is complete, it will increase Krakow's hot-rolling mill capacity by 900,000 tons per annum, while the hot dip galvanizing capacity will increase by 400,000 tons per annum. Thus, it is evident that ArcelorMittal is taking the right steps to address the opportunity in the end