Mittal Steel 2Q net profit down, predicts tougher period ahead |
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Thu, 11 Aug 2005 11:05
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LONDON: Mittal Steel, the world's biggest steel maker, reported an 18 per cent fall in the second quarter operating profit even as the company disclosed it expects a bigger fall in third-quarter profit. The Rotterdam-based steel maker, 88 per cent owned by the India-born Lakshmi Mittal and his family, said it is not worried as with production cuts having steadied prices, there will be higher demand beginning the fourth quarter.
The company attributed the reason for its weak second quarter performance to higher costs for raw materials, higher energy costs, production cuts and customers making use of the excess stocks.
The company's operating income fell to $1.39 billion for the quarter ending 30 June compared with $1.69 for the same period last year and $1.72 billion in the first quarter of the current fiscal. The net income was pegged at $1.09 billion, down from $1.15 billion in the first quarter and $1.28 billion in the same period last year.
The company had shipped 12.2 million tonnes of steel, which is up 17 per cent, while the cost of goods sold per ton was up 14 per cent. The operating income per ton is expected to drop $50 to $60 in the third quarter from $114 in the second. Third quarter is considered the weakest for the steel industry.
Steel prices were on the rise in the last three years because of demand from China. But of late, there has been decline to the extent of 30 per cent, mainly because of increased production, mostly in China.
The company's chairman and CEO Lakshmi Mittal said he does not believe China gaining any formidable position in international steel markets. The country's steel production has started stagnating, he said in a statement, adding "China could never be a net exporter on a long-term basis."
Mittal said: "The industry has been experiencing inventory destocking in Europe and the US, as a result of which demand and prices have softened. The industry response to this has been positive, with various producers cutting production, including Mittal Steel. Looking ahead to the third quarter, we are expecting conditions to remain difficult but key economic indicators are showing an encouraging signal for real steel demand prospects and prices are expected to improve in the short term."
Mittal, based in London and who is world's third richest man and who donated 2 million pounds to the Labour Party, is expected to receive a $60 million dividend from his company this quarter at $0.10 a share each quarter.
Aditya Mittal, Lakshmi Mittal's son, and the company's finance director, said: "We are encouraging all steel companies to consolidate. The second-quarter results demonstrate how consolidation has helped but we are far from the end of the process."
The company is set to implement a production cut to the extent of one million metric tonnes in the third quarter. It operates plants in 14 countries and employs 160,000 people worldwide.
Mittal Steel became the No 1 steel maker after it acquired International Steel Group of the U.S. for $4.5 billion in April this year.
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