Shares of ArcelorMittal MT slipped to a 52-week low of $4.12 yesterday, before eventually closing marginally higher at $4.17. The steel giant’s shares have plummeted roughly 62% so far this year and 65% year over year. Also, the stock is down around 22.5% over a month.
What’s Pulling MT Down?
Slower economic growth in China and increased cheap steel exports from the country, resulting in massive excess steel capacity, are posing serious concerns. Accelerated steel exports from the country amid waning domestic demand and a slowing economy have been hurting steel prices, as witnessed in the third quarter of 2015. China’s steel exports increased roughly 22% year over year to 101.7 million tons in the first eleven months of 2015, per the General Administration of Customs.
The oversupply in the steel industry together with the Chinese slowdown has adversely affected prices, and might lead to further price declines. Moreover, lower iron ore pricing is expected to continue hurting ArcelorMittal’s mining business in 2015. Seaborne iron ore prices tumbled around 44% during the first nine months of the year, denting the company's sales in the process.
The steel industry is affected by global production capacity and fluctuations in steel imports/exports and tariffs. Demand and pricing for steel remain weak. The world economy is still feeble and challenging conditions persist in Europe and emerging markets. Moreover, there is a demand-supply gap in the U.S.
Moreover, the company cut its profit forecast for 2015 in its third-quarter earnings call, factoring in the weak operating conditions. Considering the challenging economic environment, the company’s board also proposed a suspension of its dividend for 2015, subject to shareholders’ approval at the annual general meeting in May 2016.
ArcelorMittal is a Zacks Rank #4 (Sell) stock.
Stocks to Consider
Better-ranked companies in the basic materials sector include Grupo Simec S.A.B. de C.V. SIM, Harmony Gold Mining Company Limited HMY and Richmont Mines Inc. RIC, all carrying a Zacks Rank #2 (Buy).
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