ArcelorMittal expected to cut steel output

ArcelorMittal is likely to have to make permanent cuts of up to 10 per cent in its steelmaking capacity as the industry reels from the impact of the worst global recession in decades, industry observers have warned.

Such a move would be a setback for Lakshmi Mittal, who in the past 10 years has built the company into the world's biggest steelmaker through acquisitions.

The company has slashed output in recent months by nearly 50 per cent through the temporary closures of steel plants and by putting tens of thousands of its 300,000 workers on short-time working.

ArcelorMittal says it is not contemplating permanent shut-downs or divestments. But others in the steel industry think it may be pushed into taking such action.

Mr Mittal - chairman and main shareholder of the company - is expected to provide further details on strategy when he presents ArcelorMittal's first-quarter results on Wednesday. The company said: "We have no current plans to permanently close any of our facilities. As we have made frequently clear to stakeholders, all suspension of production is temporary and will be reviewed on a continual basis."

Among the most gloomy steel observers is Bruno Bolfo, chairman and owner of Duferco, a Switzerland-based company that is the world's biggest steel trader.

He is projecting a 15 per cent year-on-year fall in world demand in 2009 - with declines in the US and Europe of as much as 25 per cent. Mr Mittal's most recent projection is that world steel demand will fall 10 per cent. Even this level of decline would make the drop in steel demand in 2009 the worst for 60 years.

"There will be no recovery [in steel] in 2009," Mr Bolfo said. "I can see overcapacity in the industry for the next five years. If I was Mr Mittal I'd be looking at cutting back on my plant network."

Matthias Hellstern, an analyst at the Moody's credit rating agency, said ArcelorMittal was "likely to come under some pressure to reduce its capacity on a permanent basis, possibly through the closure of some of its higher-cost plants".

While neither Mr Bolfo nor Mr Hellstern put a figure on how much capacity Mr Mittal might be forced to cut, Peter Fish, managing director of steel analysts Meps, said a reduction of 5 to 10 per cent might be sensible.

Copyright: The Financial Times Limited 2009