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ArcelorMittal (MT)-Nippon Steel Wrap Up Essar Steel Buyout

Published 12/16/2019, 08:48 PM
Updated 07/09/2023, 06:31 AM

ArcelorMittal (NYSE:MT) has announced that the acquisition of Essar Steel India Limited (“ESIL”) has been completed. Per the terms of the buyout, the company formed a joint venture (JV) with Nippon Steel Corporation — ArcelorMittal Nippon Steel India Limited (AM/NS India) — through which the parties will own and operate ESIL. Notably, ArcelorMittal holds 60% of the newly formed JV and Nippon Steel owns the remaining 40%.

AM/NS India is the largest steel company in western India. The current level of annual crude steel production is 7.5 million tons per year. The JV also has iron ore pellet facilities in the east of India with annual capacity of 14 million tons.

ArcelorMittal has also stated that AM/NS India intends to boost finished steel shipments to 8.5 million tons over the medium term. This is likely to be achieved by initially completing the current capital expenditure projects along with infusing expertise and through commissioning of additional assets. The JV plans to improve product grades and quality to realize healthier margins.

Over the long term, the company aspires to boost finished steel shipments between 12 million and 15 million tons by adding new iron and steelmaking assets. This will enable AM/NS India to play an active role and benefit from the expected growth in the Indian steel industry.

ArcelorMittal’s shares have lost 15.4% in the past year compared with 5.8% decline of the industry.

ArcelorMittal revised expectations for global apparent steel consumption (ASC) growth for 2019. It now expects global ASC growth in the range of 0.5-1% compared with 0.5-1.5% rise projected earlier.

For the United States, the company expects a decline in ASC in the range of 0.5-1% compared with flat to 1% growth stated previously. In Europe, it anticipates ASC decline of up to 3% compared with 1-2% fall mentioned earlier. Automotive demand weakness and slowing construction are expected to hurt ASC in Europe.

For Brazil, the company expects rise in ASC of 0.5-1%, down from 1.5-2.5% growth stated earlier. For China, it expects overall ASC growth in the range of 1.5-2%, up from 0.5-1.5% mentioned previously. The company expects real estate demand to drive the upside in China.

Zacks Rank & Key Picks

ArcelorMittal currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Kirkland Lake Gold Ltd (TSX:KL) , Impala Platinum Holdings Ltd (OTC:IMPUY) and Polymetal International plc (OTC:AUCOY) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kirkland Lake Gold has an expected earnings growth rate of 100% for 2019. The company’s shares have surged 65.1% in the past year.

Impala Platinum Holdings has projected earnings growth rate of 255.2% for fiscal 2020. The company’s shares have skyrocketed 267% in a year.

Polymetal International has an estimated earnings growth rate of 40.5% for the current year. Its shares have returned 42.6% in the past year.

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