ArcelorMittal To Invest $1 Billion At Mexican Operations

ArcelorMittal (NYSE:MT) recently announced a three-year investment program of roughly $1 billion at its Mexican operations, which will be focused on constructing the company’s downstream capabilities, modernizing existing asset base and sustaining the competitiveness of its mining operations.

ArcelorMittal Mexico currently produces 4 million tons of steel per annum and this program will enable it to realize its full productive capacity of 5.3 million tons. It will also address the expected increase in demand from domestic customers and considerably improve the proportion of higher-value added products in product mix, in line with the company’s Action 2020 strategic plan.

The primary investment consists of building a new hot strip mill, which is likely to take three years to complete. This will allow ArcelorMittal Mexico to produce 2.5 million tons of flat rolled steel, which will be supplied to customers of domestic non-auto and general industry.

The company will also make additional investments at Lazaro Cardenas, primary steelmaking operations base of ArcelorMittal Mexico, to improve the productivity and quality of the asset base, with further investment in the group’s mining operations in Mexico.

According to the company, the latest investment program is geared toward improving the quality and efficiency of operations. It will enable the company to increase the proportion of finished steel products and optimize the asset base for domestic customers.

Shares of ArcelorMittal have moved up 14.6% in the last three months, outperforming the industry’s 6.7% growth.

ArcelorMittal continues to focus on shifting to high added value products and expanding its automotive steel line of products. The company is expanding its global portfolio of automotive steels by launching a new generation of advanced high strength steel. It is also planning to expand its family of third-generation advanced high strength steel. These products will enable the company to meet customer requirements via a strong technical and product portfolio.

The company also remains on track with its cost-reduction actions under its Action 2020 program, which includes plans to optimize costs and increase steel shipment volumes, along with improving the portfolio of high added value products.

Moreover, the planned acquisition of Ilva S.p.A. in Italy will provide growth opportunity for the company in Europe. Ilva is expected to be a good investment without compromising on the strength of the company’s balance sheet. The deal is expected to create synergies of €310 million by 2020, excluding impact from volume improvements and fixed cost reductions.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the basic materials space are Sociedad Quimica y Minera de Chile S.A. (NYSE:SQM) , The Chemours Company (NYSE:CC) and FMC Corporation (NYSE:FMC) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Sociedad Quimica has an expected long-term earnings growth rate of 32.5%.

Chemours has an expected long-term earnings growth rate of 15.5%.

FMC Corporation has an expected long-term earnings growth rate of 11.3%.

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