By Philip Blenkinsop
BRUSSELS (Reuters UK) - ArcelorMittal (ISPA), the world's largest steelmaker, dampened recovery expectations on Wednesday with a muted forecast for the final three months after a return to profit in the third quarter.
The company's shares dropped as much as 6.4 percent to a three-month low of 22.94 euros shortly after the opening before trimming losses to trade down 2.1 percent at 23.97 at 9:44 a.m. British time. The DJ Stoxx European basic resources index was off 2.2 percent.
ArcelorMittal, with output some three times greater than nearest rival Nippon Steel and holding nearly 8 percent of the global market, said it expected its much-watched core profit (EBITDA) to be between $2.0 and $2.4 billion (1.46 billion pounds) in the fourth quarter.
The mid-point would be a near-40 percent improvement on the third quarter, but some 20 percent down on already depressed year-earlier levels and below the average analyst expectation of around $2.5 billion.
"I think the market may take the fourth quarter outlook as indicating potential downside risk for 2010 estimates," said Andrew Snowdowne, analyst at UBS in London, who has a 'Neutral' rating on the stock, now viewed as fairly valued after doubling from mid-March lows.
U.S. steelmakers U.S. Steel (X) and AK Steel (AKS) reported stronger-than-expected third-quarter results on Tuesday, but their shares fell as they reiterated their gloomy short-term views for the industry and the economy.
ArcelorMittal Chief Executive Lakshmi Mittal said on Wednesday the company had seen the first signs of recovery in July-September, with production set to rise to about 70 percent of capacity in the fourth quarter from 61 percent in the third amid higher average selling prices.
"We should continue to see further gradual improvement through 2010, although the operating environment remains challenging," he said in a statement.
The company turned a net profit of $903 million, albeit due to a tax credit of $899 million, after three straight loss-making quarters in which it suffered a near-collapse in the construction, machinery and car markets.
Sales were slightly above expectations, EBITDA (earnings before interest, tax, depreciation and amortisation) slightly below.
SPLIT MARKET
A reduction in inventories among key customers, which amplified the downturn for the steel sector, has finally come to an end, although the market is clearly split between a sluggish developed world and roaring emerging markets.
ArcelorMittal has said it does not expect markets to normalise in Europe and the United States in 2010. Chinese domestic demand is seen growing by more than 15 percent.
The World Steel Association forecast this month that global steel consumption would rebound by 9.2 percent in 2010 after a drop this year of 8.6 percent, a narrower decline than expected due to Chinese growth.
Japan's Nippon Steel reports first-half results on Thursday. South Korea's POSCO , the global number four, this month signalled a brighter outlook for the sector on improved global demand.
ArcelorMittal also said on Wednesday that its net debt had fallen to $21.6 billion at the end of September, down by $10.9 billion in 12 months.
It had also reduced costs by $2.2 billion over the past year, surpassing its $2 billion target for 2009.
The company faced scrutiny over debt driven up by acquisitions, notably the then Mittal Steel's 26 billion euro takeover of Arcelor in 2006.
Chief Financial Officer Aditya Mittal told a conference call that deleveraging was no longer the number one priority.
(Editing by Dale Hudson, Greg Mahlich, John Stonestreet)
