ArcelorMittal reported reasonable Q1 2012 numbers, but we remain concerned about the outlook and the pricing environment for steel in Europe/America in particular. We expect Q2 2012 EBITDA of $2.3bn (taking H1 EBITDA to $4.2bn versus guidance of $4.1bn), but we have taken a more negative stance on H2 2012. In particular, we have reduced our pricing forecast for both Flat Carbon Europe and America as well as Long Carbon, where we now expect prices to be higher sequentially in Q2 (quarter lag means higher spot HRC prices in Q1 CY2012, reflected in Q2 2012 for ArcelorMittal) and then to soften in Q3 and Q4. Mining EBITDA should be better sequentially in Q2 (margins seasonally weak in Q1), although the falling iron ore price will not help. For H2 2012, we are now forecasting $4.3bn (previously $4.8bn), essentially flat with H1. However, the risk to this number remains to the downside. We expect steel prices to fall 2% sequentially in H2; a 4% decline would mean that H2 EBITDA would be $3.6bn (EBITDA $7.6bn FY2012). We currently forecast EBITDA of $9.3bn for FY 2013, although here again the risk is to the downside.
ArcelorMittal is down 15% in the past month and 50% in the past year but is not massively compelling, trading on 6.7x 2012 and 6.0x 2013 EV/EBITDA (including pension). We expect net debt to be $23bn at end-2012 with net debt/EBITDA at 2.7x. This is not a big concern just yet; however, if earnings continue to slide, its finances could come back into focus. We are monitoring the stock closely but, until we see steel prices firming up, we see no reason to own the name. We reiterate our 'underperform' rating.
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