Steel giant ArcelorMittal (MT) will shut down a blast furnace temporarily at its plant in Eisenhüttenstadt, Germany due to a drop in demand for steel. The move should help to support the declining prices of steel in the open market.
However, the move paints a worrying picture of the European flat steel sector. Steel production in Europe was at 14.579 million tons in July, down from 15.700 million in June, according to data from the World Steel Association.
The Chinese and global steel production fell slightly from the previous month but remained near record levels in July, which is generally a seasonally slower quarter despite concerns that oversupply and the economic slowdown may weigh on prices.
The plant will be temporarily shut until the demand situation supports a restart. ArcelorMittal’s Eisenhüttenstadt plant, has two blast furnaces, produces hot rolled, cold rolled and galvanized coil, as well as slab and bloom. The closure of blast furnace no. 1 reduces the mill's output by 500,000 tpy from its total capacity of 2.1 million tpy.
Earlier last month, ArcelorMittal formed a strategic partnership with China's Hunan Valin Group for the production of high-end steel products in China and iron ore purchases.
ArcelorMittal owns a stake in Valin Steel, the Shenzhen-listed unit of Valin Group. ArcelorMittal will help Valin Steel lower its production costs by sharing with the Chinese company its technical know-how.
The two companies will also move forward to explore the possibilities of establishing a long-term partnership to facilitate Valin Steel in purchasing iron ore, a key steelmaking ingredient, on the global market.
Major competitors of ArcelorMittal are United States Steel Corp. (X) and Tata Steel Limited.
We maintain our Outperform recommendation on ArcelorMittal with a Zacks #3 Rank (Hold) on the stock.
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