ArcelorMittal Reports Third Quarter and Nine-Months 2013 Results
11/07/2013 - ArcelorMittal said, that after a weak first half, it saw third quarter performance improve year-on-year, positively impacted by its cost optimization efforts and the increased shipments from its mining expansion.
ArcelorMittal, the world’s largest steel company, announced results for the three and nine month periods ended 30 September 2013.
Highlights:
ArcelorMittal third quarter 2013 and nine-months 2013 results
ArcelorMittal, the world’s leading steel and mining company, announced results for the three month and nine month periods ended 30 September 2013.
Corporate responsibility and safety performance
Health and safety — Own personnel and contractors lost time injury frequency rate
Health and safety performance, based on own personnel figures and contractors lost time injury frequency (LTIF) rate, improved to 0.8x in the third quarter of 2013 (3Q 2013) as compared to 0.9x for the second quarter of 2013 (2Q 2013) and 1.0x for the third quarter of 2012 (“3Q 2012”). During 3Q 2013, improvements, particularly in the Mining segment, were offset by deterioration in the Flat Carbon Americas segment.
Health and safety performance improved to 0.9x in the first nine months of 2013 (“9M 2013”) as compared to 1.0x for the first nine months of 2012 (9M 2012), with improvements across the majority of segments.
Despite this encouraging performance in LTIF rate, there is still more work to be done. The company’s efforts to improve the group’s Health and Safety record will continue. While the LTIF target of 1.0x is maintained for 2013, the company is focused on further reducing the rate of severe injuries and fatality prevention.
Key corporate responsibility highlights for 3Q 2013
Analysis of results for the nine months ended 30 September 2013 versus results for the nine months ended 30 September 2012
ArcelorMittal’s net loss for 9M 2013 was US$1.3 billion, or US$(0.77) loss per share, as compared to net income for 9M 2012 of US$0.5 billion, or US$0.29 per share.
Total steel shipments for 9M 2013 were essentially flat at 63.4 million metric tonnes as compared with 63.8 million metric tonnes in 9M 2012.
Sales for 9M 2013 decreased by 8.2% to US$59.6 billion as compared with US$64.9 billion for 9M 2012 primarily due to lower average steel selling prices (-5.9%).
Depreciation of US$3.4 billion for 9M 2013 was comparable to US$3.5 billion in 9M 2012.
Impairment charges for 9M 2013 were US$140 million, including US$101 million for the costs associated with the discontinued iron ore project in Senegal[10] (Mining) and costs related to the closure of the organic coating and tin plate lines in Florange. Impairment charges for 9M 2012 totalled US$199 million, primarily related to the project to permanently close the liquid phase at Florange for US$130 million (Flat Carbon Europe), and the extended idling of the electric arc furnace and continuous caster at the Schifflange site in Luxembourg (Long Carbon Europe).
Restructuring charges for 9M 2013 were US$173 million, including US$137 million of costs incurred for the long term idling of the Florange liquid phase (including voluntary separation scheme costs, site rehabilitation/safeguarding costs, and take or pay obligations). Restructuring charges for 9M 2012 totaled US$395 million and consisted largely of costs associated with the implementation of Asset Optimization primarily impacting Flat Carbon Europe and Long Carbon Europe operations.
Operating income for 9M 2013 was US$1.2 billion as compared with operating income of US$2.1 billion for 9M 2012. Operating results for 9M 2013 were positively impacted by a US$47 million fair valuation gain relating to the acquisition of an additional ownership interest in DJ Galvanizing in Canada. In addition, operating income for 9M 2013 was positively impacted by US$92 million related to “Dynamic Delta Hedge” (DDH) income. The DDH income recorded in 1Q 2013 was the final instalment of such income. This gain on the unwinding of a currency hedge related to raw materials purchases was initially recorded in equity in 4Q 2008, and has now been fully recorded in the income statement. Operating results for 9M 2012 were positively impacted by changes to the employee benefit plans at ArcelorMittal Dofasco[ which led to curtailment gains of US$285 million and the Skyline Steel divestment which led to a gain of US$339 million, partially offset by US$72 million in charges related to one-time signing bonus and post-retirement benefit costs following entry into the new US labor contract. Operating results for 9M 2012 were also positively impacted by US$426 million of DDH income.
Income from equity method investments and other income in 9M 2013 was US$11 million, as compared to income of US$47 million in 9M 2012. Income earned during 9M 2013 was negatively impacted by a contingent consideration related to the Gonvarri Brasil acquisition in 2008 and weaker performance of European associates during the year. Income from equity method investments and other income for 9M 2012 included higher income earned from European associates offset in part by losses from Chinese investees.
Net interest expense (including interest expense and interest income) was US$1.4 billion for 9M 2013, comparable to 9M 2012. Net interest expense in 2013 has been positively impacted by lower gross debt due to the tender and repayment of bonds and privately placed notes totalling US$4 billion since the beginning of June 2013, offset in part by interest rate “step up” clauses in most of the company’s outstanding bonds, which were triggered by the company’s rating downgrades that occurred in the second half of 2012 and which resulted in interest expense of US$65 million in 9M 2013.
Foreign exchange and other net financing costs were higher in 9M 2013 at US$954 million as compared to costs of US$632 million for 9M 2012, primarily on account of foreign exchange losses.
ArcelorMittal recorded an income tax expense of US$191 million for 9M 2013, as compared to an income tax benefit of US$350 million for 9M 2012.
Gains attributable to non-controlling interests for 9M 2013 were US$59 million as compared with losses attributable to non-controlling interests for 9M 2012 of US$21 million, increasing primarily in ArcelorMittal Mines Canada after the disposal of 15% interest in 2013.
Analysis of results for 3Q 2013 versus 2Q 2013 and 3Q 2012
ArcelorMittal recorded a net loss for 3Q 2013 of US$0.2 billion, or US$(0.12) loss per share, as compared to a net loss of US$0.8 billion, or US$(0.44) loss per share for 2Q 2013, and net loss of US$0.7 billion, or US$(0.42) loss per share, for 3Q 2012.
Total steel shipments for 3Q 2013 were 21.1 million metric tonnes as compared with 21.3 million metric tonnes for 2Q 2013 and 19.9 million metric tonnes for 3Q 2012.
Sales for 3Q 2013 decreased by 2.7% to US$19.6 billion as compared with US$20.2 billion for 2Q 2013, and were 0.4% lower than US$19.7 billion for 3Q 2012. Sales were lower in 3Q 2013 as compared to 2Q 2013 primarily due to lower average steel selling prices (-3.4%) and marginally lower steel volumes (-0.9%).
Depreciation amounted to US$1.1 billion for 3Q 2013, comparable to 2Q 2013 and lower than US$1.2 billion for 3Q 2012.
Impairment charges for 3Q 2013 were US$101 million related to the costs associated with the discontinued iron ore project in Senegal. Impairment charges for 2Q 2013 were US$39 million primarily related to the closure of the organic coating and tin plate lines in Florange. Impairment charges for 3Q 2012 totaled US$130 million, primarily related to the long term idling of the liquid phase at Florange.
Restructuring charges for 3Q 2013 were nil. Restructuring charges for Q2 2013 of US$173 million including US$137 million of costs for the long term idling of the Florange liquid phase (including voluntary separation scheme costs, site rehabilitation/safeguarding costs, and take or pay obligations). Restructuring charges for 3Q 2012 of US$98 million consisted primarily of costs associated with the closure of two blast furnaces, sinter plant, steel shop and continuous casters in Liege (Flat Carbon Europe).
Operating income for 3Q 2013 was US$477 million as compared with operating income of US$352 million for 2Q 2013 and operating income of US$55 million for 3Q 2012. Operating results for 3Q 2012 were positively impacted by US$131 million of DDH income partially offset by a US$72 million charge related to a one-time signing bonus and postretirement benefit costs following entry into a new U.S. labor contract.
Income from equity method investments and other income in 3Q 2013 was US$53 million as compared to a loss of US$24 million in 2Q 2013 and a loss of US$56 million in 3Q 2012. During the third quarter of 2013, income from equity method investments and other income benefitted from stronger performance by Chinese investees (including the gain on disposal of 5% stake in Hunan Valin as part of share swap arrangement with Valin Group). Losses incurred during 2Q 2013 related primarily to a contingent consideration from the Gonvarri Brasil acquisition in 2008.
Net interest expense (including interest expense and interest income) in 3Q 2013 was US$409 million, as compared to US$471 million for 2Q 2013 and US$479 million for 3Q 2012. Net interest was lower in 3Q 2013 as compared to 2Q 2013, primarily due to the above-mentioned bond and loan repayments.
Foreign exchange and other net financing costs were US$269 million for 3Q 2013 as compared to US$530 million for 2Q 2013 and US$148 million for 3Q 2012. Foreign exchange and other net financing costs in 3Q 2013 were impacted by 0.6% devaluation of the Brazilian Real versus USD, leading to a loss of US$10 million, as compared to a 9% devaluation in the 2Q 2013 which resulted in a US$180 million loss.
ArcelorMittal recorded an income tax benefit of US$5 million for Q3 2013, as compared to an income tax expense of US$99 million for 2Q 2013 and an income tax expense of US$44 million for 3Q 2012.
Gains attributable to non-controlling interests for 3Q 2013 were US$50 million as compared with gains of US$8 million for 2Q 2013 and losses of US$20 million for 3Q 2012.
Capital expenditure projects
The following tables summarize the company’s principal growth and optimization projects involving significant capital expenditures.
Completed projects in most recent quarters
Ongoing projects
Joint Venture projects
Analysis of segment operations
Flat Carbon Americas
Flat Carbon Americas crude steel production increased by 13.5% to 6.3 million tonnes in 3Q 2013 as compared to 5.6 million tonnes in 2Q 2013, driven primarily by a significant improvement in Flat USA following resolution of labor issues at Burns Harbor and operational incidents at Indiana Harbor East and West that impacted output in 2Q 2013.
Steel shipments in 3Q 2013 were 5.8 million tonnes, an increase of 6.5% as compared to 5.4 million tonnes in 2Q 2013, primarily driven by higher shipment volumes in North America
Sales in the Flat Carbon Americas segment were US$4.9 billion in 3Q 2013, an increase of 2.8% as compared to US$4.8 billion in 2Q 2013. The increase in sales was due to higher shipments, offset in part by lower average steel selling prices (-3.2%), in particular in Mexico and South America (impacted by forex).
EBITDA in 3Q 2013 increased 86.7% to US$547 million as compared to US$293 million in 2Q 2013. EBITDA was positively impacted in 3Q 2013 by higher volumes and positive price-cost effect, and a recovery from the operational incidents in Flat Carbon USA as described above.
Flat Carbon Europe
Flat Carbon Europe crude steel production decreased by 0.6% to 7.4 million tonnes in 3Q 2013 as compared to 7.5 million tonnes in 2Q 2013.
Steel shipments in 3Q 2013 were 6.6 million tonnes, a decrease of 6.9% as compared to 7.1 million tonnes in 2Q 2013, due to normal seasonal demand patterns.
Sales in the Flat Carbon Europe segment decreased to US$6.3 billion in 3Q 2013 as compared to US$6.9 billion in 2Q 2013, due to lower steel shipment volumes and lower average steel selling prices (-3.3%).
EBITDA in 3Q 2013 decreased 43.4% to US$193 million as compared to US$341 million in 2Q 2013. Steel margins were negatively impacted in 3Q 2013 by lower volumes and to a lesser extent a negative price-cost effect (mitigated by management and asset optimization gains).
Long Carbon Americas and Europe
Long Carbon Americas and Europe crude steel production increased by 0.5% to 5.8 million tonnes in 3Q 2013, as compared to 5.7 million tonnes in 2Q 2013.
Steel shipments in 3Q 2013 were 5.6 million tonnes, a decrease of 3.0% as compared to 5.8 million tonnes in 2Q 2013, primarily due to lower volumes in Europe (seasonal impact).
Sales in the Long Carbon Americas and Europe segment decreased 5.3% to US$5.1 billion in 3Q 2013 as compared to US$5.4 billion in 2Q 2013. Sales were negatively impacted by lower volumes and lower average steel selling prices (-3.3%) particularly across the Long Carbon Americas (impacted by forex) and Tubular businesses.
EBITDA in 3Q 2013 was US$463 million, a decline of 16.7% as compared to US$556 million in 2Q 2013, primarily driven by lower volumes and lower average steel selling prices discussed above.
Asia Africa and CIS (AACIS)
AACIS crude steel production was 3.7 million tonnes in 3Q 2013, an increase of 0.8% as compared to 2Q 2013.
Steel shipments in 3Q 2013 amounted to 3.2 million tonnes, an increase of 4.1% as compared to 3.1 million tonnes in 2Q 2013 primarily due to higher steel shipment volumes in South Africa.
Sales in the AACIS segment were flat at US$2.1 billion in 3Q 2013 as compared to 2Q 2013, as higher steel volumes were offset by lower average steel selling prices (-3.2%).
EBITDA in 3Q 2013 declined 12.5% to US$105 million as compared to US$120 million in 2Q 2013 due to the impact of a price/cost squeeze.
Distribution Solutions
Shipments in the Distribution Solutions segment in 3Q 2013 were 4.0 million tonnes, a decrease of 1.3% as compared to 2Q 2013.
Sales in 3Q 2013 were US$3.4 billion, lower as compared to US$3.6 billion for 2Q 2013, due primarily to lower average steel selling prices (-3.3%) and lower steel shipment volumes.
EBITDA in 3Q 2013 was US$16 million as compared to US$29 million in 2Q 2013, primarily driven by lower volumes.
Mining
(a) Own iron ore and coal production not including strategic long-term contracts
(b) Iron ore and coal shipments of market-priced based materials include the company’s own mines, and share of production at other mines, and exclude supplies under strategic long-term contracts
Own iron ore production (not including supplies under strategic long-term contracts) in 3Q 2013 was 14.9 million metric tonnes, essentially flat compared to 15.0 million metric tonnes for 2Q 2013.
Shipments at market price increased 15.3% to 9.4 million tonnes in 3Q 2013 as compared to 8.2 million tonnes in 2Q 2013, primarily due to higher shipments from the Canadian operations. Shipments at market price in 3Q 2013 were 32.0% higher than 3Q 2012.
Own coal production (not including supplies under strategic long-term contracts) in 3Q 2013 was 2.0 million metric tonnes, representing an increase of 3.0% as compared to 2Q 2013.
EBITDA for 3Q 2013 was US$533 million, 23% higher as compared to US$432 million in 2Q 2013. EBITDA was positively impacted by higher volumes as well as higher seaborne market prices, partially offset by a portion of iron ore shipments from Canada and Mexico that reference quarter-lagged prices which were lower in 3Q 2013 than 2Q 2013.
Operating performance for 3Q 2013 was impacted by US$101 million impairment related to costs associated with the discontinued iron ore project in Senegal10.
Asset Optimization
The essential components of Asset Optimization have been announced. The company confirms that the Asset Optimization introduced in 4Q 2011 is expected to deliver annualized savings of US$1 billion, the full impact of which should be seen in 2014.
Recent developments
Outlook and guidance
In line with our guidance framework, underlying profitability is still expected to improve in 2013, driven by three factors:
a) a 1-2% increase in steel shipments;
b) an approximate 20% increase in marketable iron ore shipments; and
c) the benefits realized from Asset Optimization and Management Gains initiatives.
The company still expects 2013 EBITDA to be greater than US$6.5 billion.
Due to improved operating cash flows and proceeds from already announced disposals, net debt is expected to decrease in 4Q 2013 to approximately US$17 billion; the US$15 billion medium term net debt target is unchanged.
2013 capital expenditure is still expected to be approximately US$3.7 billion.
Highlights:
- Health and safety performance improved in 3Q 2013 with a LTIF rate of 0.8x as compared to 0.9x in 2Q 2013
- EBITDA of US$1.7 billion in 3Q 2013, 24% higher than underlying EBITDA in 3Q 2012
- Steel shipments of 21.1 million tonnes in 3Q 2013, an increase of 6% as compared to 3Q 2012
- 3Q 2013 own iron ore production of 14.9 million tonnes, up 4.5% YoY; 9.4 million tonnes shipped and reported at market price , up 32% YoY
- As anticipated, net debt increased from US$16.2 billion as of 30 June 2013 to US$17.8 billion as of 30 September 2013, largely driven by investment in operating working capital (US$0.8 billion) and dividends paid (US$0.4 billion)
- Net interest expense reduced by US$62 million (13%) in 3Q 2013 as compared to 2Q 2013 primarily due to lower gross debt
- US$0.8 billion annualized management gains achieved during 9M 2013, in line with plan to achieve US$3 billion of cost improvement by the end of 2015
- The ramp-up of expanded capacity at AMMC remains on track to achieve a run-rate of 24 million tonnes by year-end 2013
- Resolution of long-term Kumba dispute: Sishen iron ore supply agreement secured on cost-plus terms
- Investment plan to double capacity at ArcelorMittal Annaba following stake dilution to 49% (from 70%)
- Selective steel capital expenditure projects restarted to support development of franchise businesses
- In line with our guidance framework, underlying profitability is still expected to improve in 2013, driven by three factors: a) a 1-2% increase in steel shipments; b) an approximate 20% increase in marketable iron ore shipments; and c) the benefits realized from Asset Optimization and Management Gains initiatives
- The company still expects 2013 EBITDA to be greater than US$6.5 billion
- Due to improved operating cash flows and proceeds from already announced disposals , net debt is expected to decrease in 4Q 2013 to approximately US$17 billion; the US$15 billion medium term net debt target is unchanged
- 2013 capital expenditure is still expected to be approximately US$3.7 billion
ArcelorMittal third quarter 2013 and nine-months 2013 results
ArcelorMittal, the world’s leading steel and mining company, announced results for the three month and nine month periods ended 30 September 2013.
Corporate responsibility and safety performance
Health and safety — Own personnel and contractors lost time injury frequency rate
Health and safety performance, based on own personnel figures and contractors lost time injury frequency (LTIF) rate, improved to 0.8x in the third quarter of 2013 (3Q 2013) as compared to 0.9x for the second quarter of 2013 (2Q 2013) and 1.0x for the third quarter of 2012 (“3Q 2012”). During 3Q 2013, improvements, particularly in the Mining segment, were offset by deterioration in the Flat Carbon Americas segment.
Health and safety performance improved to 0.9x in the first nine months of 2013 (“9M 2013”) as compared to 1.0x for the first nine months of 2012 (9M 2012), with improvements across the majority of segments.
Despite this encouraging performance in LTIF rate, there is still more work to be done. The company’s efforts to improve the group’s Health and Safety record will continue. While the LTIF target of 1.0x is maintained for 2013, the company is focused on further reducing the rate of severe injuries and fatality prevention.
Key corporate responsibility highlights for 3Q 2013
- ArcelorMittal has maintained its membership in the Dow Jones Sustainability Index Europe.
- ArcelorMittal is featured in the United Nations Global Compact (UNGC) publication called Responsible Business Advancing Peace, released on 20 September 2013 at the UNGC Leaders’ Summit in New York. In a dedicated case study, the publication highlights ArcelorMittal Liberia’s good practice in the area of stakeholder engagement and on how significant improvements were achieved in only a few years.
- At the recent health and safety session of the World Steel Association (WSA) gathering, it was mentioned that across the WSA members, 114 out of 176 sites having a lost time injury frequency rate of less than 1, belong to ArcelorMittal.
Analysis of results for the nine months ended 30 September 2013 versus results for the nine months ended 30 September 2012
ArcelorMittal’s net loss for 9M 2013 was US$1.3 billion, or US$(0.77) loss per share, as compared to net income for 9M 2012 of US$0.5 billion, or US$0.29 per share.
Total steel shipments for 9M 2013 were essentially flat at 63.4 million metric tonnes as compared with 63.8 million metric tonnes in 9M 2012.
Sales for 9M 2013 decreased by 8.2% to US$59.6 billion as compared with US$64.9 billion for 9M 2012 primarily due to lower average steel selling prices (-5.9%).
Depreciation of US$3.4 billion for 9M 2013 was comparable to US$3.5 billion in 9M 2012.
Impairment charges for 9M 2013 were US$140 million, including US$101 million for the costs associated with the discontinued iron ore project in Senegal[10] (Mining) and costs related to the closure of the organic coating and tin plate lines in Florange. Impairment charges for 9M 2012 totalled US$199 million, primarily related to the project to permanently close the liquid phase at Florange for US$130 million (Flat Carbon Europe), and the extended idling of the electric arc furnace and continuous caster at the Schifflange site in Luxembourg (Long Carbon Europe).
Restructuring charges for 9M 2013 were US$173 million, including US$137 million of costs incurred for the long term idling of the Florange liquid phase (including voluntary separation scheme costs, site rehabilitation/safeguarding costs, and take or pay obligations). Restructuring charges for 9M 2012 totaled US$395 million and consisted largely of costs associated with the implementation of Asset Optimization primarily impacting Flat Carbon Europe and Long Carbon Europe operations.
Operating income for 9M 2013 was US$1.2 billion as compared with operating income of US$2.1 billion for 9M 2012. Operating results for 9M 2013 were positively impacted by a US$47 million fair valuation gain relating to the acquisition of an additional ownership interest in DJ Galvanizing in Canada. In addition, operating income for 9M 2013 was positively impacted by US$92 million related to “Dynamic Delta Hedge” (DDH) income. The DDH income recorded in 1Q 2013 was the final instalment of such income. This gain on the unwinding of a currency hedge related to raw materials purchases was initially recorded in equity in 4Q 2008, and has now been fully recorded in the income statement. Operating results for 9M 2012 were positively impacted by changes to the employee benefit plans at ArcelorMittal Dofasco[ which led to curtailment gains of US$285 million and the Skyline Steel divestment which led to a gain of US$339 million, partially offset by US$72 million in charges related to one-time signing bonus and post-retirement benefit costs following entry into the new US labor contract. Operating results for 9M 2012 were also positively impacted by US$426 million of DDH income.
Income from equity method investments and other income in 9M 2013 was US$11 million, as compared to income of US$47 million in 9M 2012. Income earned during 9M 2013 was negatively impacted by a contingent consideration related to the Gonvarri Brasil acquisition in 2008 and weaker performance of European associates during the year. Income from equity method investments and other income for 9M 2012 included higher income earned from European associates offset in part by losses from Chinese investees.
Net interest expense (including interest expense and interest income) was US$1.4 billion for 9M 2013, comparable to 9M 2012. Net interest expense in 2013 has been positively impacted by lower gross debt due to the tender and repayment of bonds and privately placed notes totalling US$4 billion since the beginning of June 2013, offset in part by interest rate “step up” clauses in most of the company’s outstanding bonds, which were triggered by the company’s rating downgrades that occurred in the second half of 2012 and which resulted in interest expense of US$65 million in 9M 2013.
Foreign exchange and other net financing costs were higher in 9M 2013 at US$954 million as compared to costs of US$632 million for 9M 2012, primarily on account of foreign exchange losses.
ArcelorMittal recorded an income tax expense of US$191 million for 9M 2013, as compared to an income tax benefit of US$350 million for 9M 2012.
Gains attributable to non-controlling interests for 9M 2013 were US$59 million as compared with losses attributable to non-controlling interests for 9M 2012 of US$21 million, increasing primarily in ArcelorMittal Mines Canada after the disposal of 15% interest in 2013.
Analysis of results for 3Q 2013 versus 2Q 2013 and 3Q 2012
ArcelorMittal recorded a net loss for 3Q 2013 of US$0.2 billion, or US$(0.12) loss per share, as compared to a net loss of US$0.8 billion, or US$(0.44) loss per share for 2Q 2013, and net loss of US$0.7 billion, or US$(0.42) loss per share, for 3Q 2012.
Total steel shipments for 3Q 2013 were 21.1 million metric tonnes as compared with 21.3 million metric tonnes for 2Q 2013 and 19.9 million metric tonnes for 3Q 2012.
Sales for 3Q 2013 decreased by 2.7% to US$19.6 billion as compared with US$20.2 billion for 2Q 2013, and were 0.4% lower than US$19.7 billion for 3Q 2012. Sales were lower in 3Q 2013 as compared to 2Q 2013 primarily due to lower average steel selling prices (-3.4%) and marginally lower steel volumes (-0.9%).
Depreciation amounted to US$1.1 billion for 3Q 2013, comparable to 2Q 2013 and lower than US$1.2 billion for 3Q 2012.
Impairment charges for 3Q 2013 were US$101 million related to the costs associated with the discontinued iron ore project in Senegal. Impairment charges for 2Q 2013 were US$39 million primarily related to the closure of the organic coating and tin plate lines in Florange. Impairment charges for 3Q 2012 totaled US$130 million, primarily related to the long term idling of the liquid phase at Florange.
Restructuring charges for 3Q 2013 were nil. Restructuring charges for Q2 2013 of US$173 million including US$137 million of costs for the long term idling of the Florange liquid phase (including voluntary separation scheme costs, site rehabilitation/safeguarding costs, and take or pay obligations). Restructuring charges for 3Q 2012 of US$98 million consisted primarily of costs associated with the closure of two blast furnaces, sinter plant, steel shop and continuous casters in Liege (Flat Carbon Europe).
Operating income for 3Q 2013 was US$477 million as compared with operating income of US$352 million for 2Q 2013 and operating income of US$55 million for 3Q 2012. Operating results for 3Q 2012 were positively impacted by US$131 million of DDH income partially offset by a US$72 million charge related to a one-time signing bonus and postretirement benefit costs following entry into a new U.S. labor contract.
Income from equity method investments and other income in 3Q 2013 was US$53 million as compared to a loss of US$24 million in 2Q 2013 and a loss of US$56 million in 3Q 2012. During the third quarter of 2013, income from equity method investments and other income benefitted from stronger performance by Chinese investees (including the gain on disposal of 5% stake in Hunan Valin as part of share swap arrangement with Valin Group). Losses incurred during 2Q 2013 related primarily to a contingent consideration from the Gonvarri Brasil acquisition in 2008.
Net interest expense (including interest expense and interest income) in 3Q 2013 was US$409 million, as compared to US$471 million for 2Q 2013 and US$479 million for 3Q 2012. Net interest was lower in 3Q 2013 as compared to 2Q 2013, primarily due to the above-mentioned bond and loan repayments.
Foreign exchange and other net financing costs were US$269 million for 3Q 2013 as compared to US$530 million for 2Q 2013 and US$148 million for 3Q 2012. Foreign exchange and other net financing costs in 3Q 2013 were impacted by 0.6% devaluation of the Brazilian Real versus USD, leading to a loss of US$10 million, as compared to a 9% devaluation in the 2Q 2013 which resulted in a US$180 million loss.
ArcelorMittal recorded an income tax benefit of US$5 million for Q3 2013, as compared to an income tax expense of US$99 million for 2Q 2013 and an income tax expense of US$44 million for 3Q 2012.
Gains attributable to non-controlling interests for 3Q 2013 were US$50 million as compared with gains of US$8 million for 2Q 2013 and losses of US$20 million for 3Q 2012.
Capital expenditure projects
The following tables summarize the company’s principal growth and optimization projects involving significant capital expenditures.
Completed projects in most recent quarters
| Segment | Site | Project | Capacity / particulars | Actual completion |
| Mining | Andrade Mines (Brazil) | Andrade expansion | Increase iron ore production to 3.5 million tonnes per year | 4Q 2012 |
| Mining | ArcelorMittal Mines Canada | Replacement of spirals for enrichment | Increase iron ore production by 0.8 million tonnes per year | 1Q 2013 |
| Mining | ArcelorMittal Mines Canada | Expansion project | Increase concentrator capacity by 8 million tonnes per year (16 to 24 million tonnes per year) | 2Q 2013(e) |
Ongoing projects
| Segment | Site | Project | Capacity / particulars | Forecasted completion |
| Mining | Liberia mines | Phase 2 expansion project | Increase production capacity to 15 million tonnes per year (iron ore premium sinter feed concentrate) | 2015(b) |
| Mining | Baffinland | Early revenue phase | Production capacity 3.5 million tonnes per year (iron ore) | 2015(c) |
| FCA | ArcelorMittal Dofasco (Canada) | Construction of a heavy gauge Galvanizing line#6 to optimize Galvanizing operations | Optimize cost and increase shipment of galvanized products by 0.3 million tonnes per year | 2015(f) |
| FCA | ArcelorMittal Vega Do Sul (Brazil) | Expansion project | Increase hot dipped galvanizing (HDG) capacity by 0.6 million tonnes per year and cold rolling (CR) capacity by 0.7 million tonnes per year | On hold |
| LCA | Monlevade (Brazil) | Wire rod production expansion | Increase in capacity of finished products by 1.1 million tonnes per year | 2015 |
| LCA | Juiz de Fora (Brazil) | Rebar and meltshop expansion |
Increase in rebar capacity by 0.4 million tonnes per year; Increase in meltshop capacity by 0.2 million tonnes per year |
2015 |
| LCA | Monlevade (Brazil) | Sinter plant, blast furnace and meltshop |
Increase in liquid steel capacity by 1.2 million tonnes per year; Sinter feed capacity of 2.3 million tonnes per year |
On hold |
| LCA | Acindar ( Argentina) | New rolling mill | Increase in rolling capacity by 0.4 million tonnes per year for bars for civil construction | 2016 |
Joint Venture projects
| Segment | Site | Project | Capacity / particulars | Forecasted completion |
| China | Hunan Province | VAMA auto steel JV | Capacity of 1.5 million tonne pickling line, 0.9 million tonne continuous annealing line and 0.5 million tonnes of hot dipped galvanizing auto steel | 2H 2014 |
Analysis of segment operations
Flat Carbon Americas
| (Millions of US$) unless otherwise shown | 3Q 13 | 2Q 13 | 3Q 12 | 9M 13 | 9M 12 |
| Sales | 4,921 | 4,788 | 4,840 | 14,568 | 15,469 |
| EBITDA | 547 | 293 | 326 | 1,283 | 1,646 |
| Operating income | 321 | 61 | 90 | 582 | 951 |
| Crude steel production (Kt) | 6,343 | 5,589 | 5,726 | 18,129 | 17,989 |
| Steel shipments (Kt) | 5,759 | 5,407 | 5,351 | 16,725 | 16,758 |
| Average steel selling price (USUS$/t) | 804 | 831 | 850 | 818 | 873 |
| EBITDA/tonne (USUS$/t) | 95 | 54 | 61 | 77 | 98 |
| Operating income /tonne (USUS$/t) | 56 | 11 | 17 | 35 | 57 |
Steel shipments in 3Q 2013 were 5.8 million tonnes, an increase of 6.5% as compared to 5.4 million tonnes in 2Q 2013, primarily driven by higher shipment volumes in North America
Sales in the Flat Carbon Americas segment were US$4.9 billion in 3Q 2013, an increase of 2.8% as compared to US$4.8 billion in 2Q 2013. The increase in sales was due to higher shipments, offset in part by lower average steel selling prices (-3.2%), in particular in Mexico and South America (impacted by forex).
EBITDA in 3Q 2013 increased 86.7% to US$547 million as compared to US$293 million in 2Q 2013. EBITDA was positively impacted in 3Q 2013 by higher volumes and positive price-cost effect, and a recovery from the operational incidents in Flat Carbon USA as described above.
Flat Carbon Europe
| (Millions of US$) unless otherwise shown | 3Q 13 | 2Q 13 | 3Q 12 | 9M 13 | 9M 12 |
| Sales | 6,334 | 6,903 | 6,108 | 20,071 | 21,050 |
| EBITDA | 193 | 341 | 191 | 834 | 705 |
| Operating loss | (174) | (198) | (385) | (431) | (820) |
| Crude steel production (Kt) | 7,439 | 7,481 | 6,718 | 22,199 | 21,043 |
| Steel shipments (Kt) | 6,579 | 7,065 | 5,837 | 20,534 | 20,069 |
| Average steel selling price (USUS$/t) | 803 | 830 | 856 | 821 | 867 |
| EBITDA/tonne (USUS$/t) | 29 | 48 | 33 | 41 | 35 |
| Operating loss /tonne (USUS$/t) | (26) | (28) | (66) | (21) | (41) |
Flat Carbon Europe crude steel production decreased by 0.6% to 7.4 million tonnes in 3Q 2013 as compared to 7.5 million tonnes in 2Q 2013.
Steel shipments in 3Q 2013 were 6.6 million tonnes, a decrease of 6.9% as compared to 7.1 million tonnes in 2Q 2013, due to normal seasonal demand patterns.
Sales in the Flat Carbon Europe segment decreased to US$6.3 billion in 3Q 2013 as compared to US$6.9 billion in 2Q 2013, due to lower steel shipment volumes and lower average steel selling prices (-3.3%).
EBITDA in 3Q 2013 decreased 43.4% to US$193 million as compared to US$341 million in 2Q 2013. Steel margins were negatively impacted in 3Q 2013 by lower volumes and to a lesser extent a negative price-cost effect (mitigated by management and asset optimization gains).
Long Carbon Americas and Europe
| (Millions of US$) unless otherwise shown | 3Q 13 | 2Q 13 | 3Q 12[2] | 9M 13 | 9M 12[2] |
| Sales | 5,133 | 5,420 | 5,189 | 15,656 | 16,650 |
| EBITDA | 463 | 556 | 340 | 1,438 | 1,363 |
| Operating income | 251 | 329 | 113 | 765 | 578 |
| Crude steel production (Kt) | 5,771 | 5,742 | 5,713 | 17,235 | 17,383 |
| Steel shipments (Kt) | 5,599 | 5,772 | 5,508 | 16,765 | 17,085 |
| Average steel selling price (USUS$/t) | 820 | 848 | 861 | 842 | 886 |
| EBITDA/tonne (USUS$/t) | 83 | 96 | 62 | 86 | 80 |
| Operating income /tonne (USUS$/t) | 45 | 57 | 21 | 46 | 34 |
Long Carbon Americas and Europe crude steel production increased by 0.5% to 5.8 million tonnes in 3Q 2013, as compared to 5.7 million tonnes in 2Q 2013.
Steel shipments in 3Q 2013 were 5.6 million tonnes, a decrease of 3.0% as compared to 5.8 million tonnes in 2Q 2013, primarily due to lower volumes in Europe (seasonal impact).
Sales in the Long Carbon Americas and Europe segment decreased 5.3% to US$5.1 billion in 3Q 2013 as compared to US$5.4 billion in 2Q 2013. Sales were negatively impacted by lower volumes and lower average steel selling prices (-3.3%) particularly across the Long Carbon Americas (impacted by forex) and Tubular businesses.
EBITDA in 3Q 2013 was US$463 million, a decline of 16.7% as compared to US$556 million in 2Q 2013, primarily driven by lower volumes and lower average steel selling prices discussed above.
Asia Africa and CIS (AACIS)
| (Millions of US$) unless otherwise shown | 3Q 13 | 2Q 13 | 3Q 12[2] | 9M 13 | 9M 12[2] |
| Sales | 2,112 | 2,115 | 2,457 | 6,356 | 7,921 |
| EBITDA | 105 | 120 | 72 | 244 | 357 |
| Operating loss | (28) | (33) | (84) | (178) | (115) |
| Crude steel production (Kt) | 3,710 | 3,681 | 3,721 | 10,636 | 11,027 |
| Steel shipments (Kt) | 3,187 | 3,062 | 3,178 | 9,353 | 9,852 |
| Average steel selling price (USUS$/t) | 603 | 623 | 658 | 615 | 684 |
| EBITDA/tonne (USUS$/t) | 33 | 39 | 23 | 26 | 36 |
| Operating loss /tonne (USUS$/t) | (9) | (11) | (26) | (19) | (12) |
AACIS crude steel production was 3.7 million tonnes in 3Q 2013, an increase of 0.8% as compared to 2Q 2013.
Steel shipments in 3Q 2013 amounted to 3.2 million tonnes, an increase of 4.1% as compared to 3.1 million tonnes in 2Q 2013 primarily due to higher steel shipment volumes in South Africa.
Sales in the AACIS segment were flat at US$2.1 billion in 3Q 2013 as compared to 2Q 2013, as higher steel volumes were offset by lower average steel selling prices (-3.2%).
EBITDA in 3Q 2013 declined 12.5% to US$105 million as compared to US$120 million in 2Q 2013 due to the impact of a price/cost squeeze.
Distribution Solutions
| (Millions of US$) unless otherwise shown | 3Q 13 | 2Q 13 | 3Q 12[2] | 9M 13 | 9M 12[2] |
| Sales | 3,425 | 3,597 | 3,716 | 10,575 | 12,439 |
| EBITDA | 16 | 29 | 11 | 60 | 431 |
| Operating income / (loss) | (15) | (12) | (32) | (43) | 289 |
| Steel shipments (Kt) | 3,956 | 4,008 | 4,118 | 12,027 | 13,230 |
| Average steel selling price (USUS$/t) | 843 | 872 | 869 | 856 | 904 |
Shipments in the Distribution Solutions segment in 3Q 2013 were 4.0 million tonnes, a decrease of 1.3% as compared to 2Q 2013.
Sales in 3Q 2013 were US$3.4 billion, lower as compared to US$3.6 billion for 2Q 2013, due primarily to lower average steel selling prices (-3.3%) and lower steel shipment volumes.
EBITDA in 3Q 2013 was US$16 million as compared to US$29 million in 2Q 2013, primarily driven by lower volumes.
Mining
| (Millions of US$) unless otherwise shown | 3Q 13 | 2Q 13 | 3Q 12[2] | 9M 13 | 9M 12[2] |
| Sales[15] | 1,595 | 1,351 | 1,314 | 4,145 | 4,214 |
| EBITDA | 533 | 432 | 396 | 1,398 | 1,428 |
| Operating income | 280 | 286 | 255 | 852 | 1,023 |
| Own iron ore production(a) (million tonnes) | 14.9 | 15.0 | 14.3 | 43.0 | 41.9 |
| Iron ore shipped externally and internally and reported at market price(b) (million tonnes) | 9.4 | 8.2 | 7.1 | 24.9 | 22.1 |
| Own coal production(a) (million tonnes) | 2.0 | 2.0 | 2.0 | 6.1 | 6.2 |
| Coal shipped externally and internally and reported at market price(b) (million tonnes) | 1.3 | 1.1 | 1.2 | 3.7 | 3.8 |
(a) Own iron ore and coal production not including strategic long-term contracts
(b) Iron ore and coal shipments of market-priced based materials include the company’s own mines, and share of production at other mines, and exclude supplies under strategic long-term contracts
Own iron ore production (not including supplies under strategic long-term contracts) in 3Q 2013 was 14.9 million metric tonnes, essentially flat compared to 15.0 million metric tonnes for 2Q 2013.
Shipments at market price increased 15.3% to 9.4 million tonnes in 3Q 2013 as compared to 8.2 million tonnes in 2Q 2013, primarily due to higher shipments from the Canadian operations. Shipments at market price in 3Q 2013 were 32.0% higher than 3Q 2012.
Own coal production (not including supplies under strategic long-term contracts) in 3Q 2013 was 2.0 million metric tonnes, representing an increase of 3.0% as compared to 2Q 2013.
EBITDA for 3Q 2013 was US$533 million, 23% higher as compared to US$432 million in 2Q 2013. EBITDA was positively impacted by higher volumes as well as higher seaborne market prices, partially offset by a portion of iron ore shipments from Canada and Mexico that reference quarter-lagged prices which were lower in 3Q 2013 than 2Q 2013.
Operating performance for 3Q 2013 was impacted by US$101 million impairment related to costs associated with the discontinued iron ore project in Senegal10.
Asset Optimization
The essential components of Asset Optimization have been announced. The company confirms that the Asset Optimization introduced in 4Q 2011 is expected to deliver annualized savings of US$1 billion, the full impact of which should be seen in 2014.
Recent developments
- On 30 September 2013, a five-year agreement on the industrial plan for downstream activities at ArcelorMittal Liège was agreed and finalized with the unions. This followed eight months of intense negotiations with the Walloon government and other stakeholders. The agreement confirms that six lines will be maintained: five strategic lines and the hot-dip galvanizing line number five. The remaining cold phase lines and the liquid phase assets will be mothballed (except for blast furnace number six, which will be dismantled). ArcelorMittal has also confirmed its commitment to an investment program of €138 million. In addition, ArcelorMittal has confirmed that research and development work will continue in Liège. As a result of the industrial plan agreement, social plan negotiations began on 7 October 2013 for a period of 30 days, including an option for a 30-day extension period if an agreement is not reached within the first negotiation period.
- On 5 October 2013 ArcelorMittal and Sider, an Algerian state-owned company, finalized a strategic agreement including an investment plan of US$763 million for the steel complex at Annaba and the mines in Ouenza and Boukhadra. The plan includes a project to more than double the plant’s production capacity from 1 million to 2.2 million tons per year by 2017. In return for the Group’s ownership dilution (from 70% to 49%) the Government of Algeria offered various incentives, including low-cost local bank financing. The investment plan will be funded by equity contributions from shareholders and bank financing.
- In 2007, ArcelorMittal Holdings AG entered into an agreement with the State of Senegal relating to an integrated iron ore mining and related infrastructure project. The company announced at the time that implementation of the project would entail an aggregate investment of US$2.2 billion. Project implementation did not follow the originally anticipated schedule after initial phase studies and related investments. The company engaged in discussions with the State of Senegal about the project over a long period. In early 2011, the parties engaged in a conciliation procedure, as provided for under their agreement, in an attempt to reach a mutually acceptable outcome. Following the unsuccessful completion of this procedure, in May 2011, the State of Senegal commenced arbitration before the Court of Arbitration of the International Chamber of Commerce, claiming breach of contract and provisionally estimating damages of US$750 million. In September 2013, the arbitral Tribunal issued its first award and decided that Senegal is entitled to terminate the 2007 agreements. The Tribunal also indicated that a new arbitration phase will be held to decide upon the liability of ArcelorMittal as well as the amount of any damages which could be awarded to Senegal. ArcelorMittal will vigorously defend against any claims made for damages in the second phase of the arbitration. It is now considered improbable that the project will be implemented and ArcelorMittal has impaired the entire amount of the investment made up to 30 September 2013.
- On 8 October 2013, ArcelorMittal announced the sale of 233,169,183 shares in Ereğli Demir ve Çelik Fabrikaları T.A.Ş. (Erdemir) by way of a single accelerated bookbuilt offering to institutional investors. The sale generated proceeds of approximately US$267 million. Prior to the sale, ArcelorMittal owned 655,969,154 Shares in Erdemir, representing approximately 18.74% of Erdemir’s share capital. Following completion of the sale, ArcelorMittal holds approximately 12.08% of Erdemir’s share capital. ArcelorMittal has agreed to a 180-day lock-up period on its remaining stake in Erdemir. The transaction is cash positive, however there is an accounting loss of approximately US$57 million to be booked in the fourth quarter of 2013.
- On 5 November 2013, ArcelorMittal announced that its 51% subsidiary, ArcelorMittal South Africa, has reached an agreement with Sishen Iron Ore company Ltd (SIOC), a subsidiary of Kumba, relating to the long-term supply of iron ore. The agreement, which will become effective from January 1, 2014, allows ArcelorMittal South Africa to purchase up to 6.25 million tonnes a year of iron ore from SIOC, complying with agreed specifications and lump-fine ratios. The price of iron ore sold to ArcelorMittal South Africa by SIOC will be determined with reference to the cost (including capital costs) associated with the production of iron ore from the DMS Plant at the Sishen Mine plus a margin of 20%, subject to a ceiling price equal to the Sishen Export Parity Price at the mine gate. While all prices will be referenced to Sishen Mine costs (plus 20%) there is an agreed price for pre-determined quantities of iron ore for the first two years of the agreement. This volume of 6.25 million tonnes a year of iron ore includes any volumes delivered by SIOC to ArcelorMittal from the Thabazimbi mine, the operational and financial risks of which will pass from ArcelorMittal to Kumba under the terms of this agreement. The agreement settles various disputes between the parties.
Outlook and guidance
In line with our guidance framework, underlying profitability is still expected to improve in 2013, driven by three factors:
a) a 1-2% increase in steel shipments;
b) an approximate 20% increase in marketable iron ore shipments; and
c) the benefits realized from Asset Optimization and Management Gains initiatives.
The company still expects 2013 EBITDA to be greater than US$6.5 billion.
Due to improved operating cash flows and proceeds from already announced disposals, net debt is expected to decrease in 4Q 2013 to approximately US$17 billion; the US$15 billion medium term net debt target is unchanged.
2013 capital expenditure is still expected to be approximately US$3.7 billion.
