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ArcelorMittal's Record Q2...

Photo Credit :

Mittal speaks during a news conference in
Luxembourg. (Reuters/file)

World No. 1 steelmaker ArcelorMittal reported record second-quarter results, far above expectations on Wednesday as it managed to raise prices and offset raw material costs despite economic gloom.

"In contracts which have been renegotiated and closed, we have achieved significant (price) increases and we expect that trend to continue until the end of the year and in 2009," Chief Financial Officer Aditya Mittal told a conference call.

Mittal said the group's policy of buying mines and increasing its self-sufficiency in raw materials had also been key to boosting profits.

ArcelorMittal shares were up 7.9 percent at 57.60 euros at 1033 GMT, having hit 57.89 euros earlier, while the DJ Stoxx basic material index was up 3.45 percent. The stock was top gainer in the blue-chip DJ Stoxx 50 index.

"These new record-high results are far above what could be expected," said BHF Bank analyst Hermann Reith, adding that analysts had underestimated ArcelorMittal's ability to increase the steel prices charged to its customers.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were $8.05 billion against the average forecast in a Reuters poll of 10 analysts of $6.75 billion and a previous record of $5.32 billion in the year-ago quarter.

ArcelorMittal said it was upbeat for the near future as it saw demand for steel growing 3 to 5 percent in the short and medium term, with supply constraints keeping prices high.

The International Iron and Steel Institute said on July 17 order books of steel companies remained strong partly because the hard-hit housing sector is not steel intensive.

ArcelorMittal, roughly three times bigger than its closest rival Nippon Steel, had guided towards a second-quarter figure above $6.5 billion and now aims to exceed EBITDA of $8.5 billion in the third quarter.

"You will probably see many rating upgrades; there is a good pricing dynamic," said one analyst, explaining that the new profit target for the third quarter was much higher than expected.

Sales and net profit were $37.84 billion and $5.84 billion, while the Reuters poll of analysts gave averages of $34.65 billion and $3.97 billion, respectively.

"We continue to look for opportunities to further enhance our raw material self sufficiency," Chief Executive and main owner Lakshmi Mittal said in a statement, adding the company expected capital expenditure of $7 billion this year.

"We have a few investment ideas," his son Aditya said, declining to be more specific but pledging to pursue the strategy aggressively.

ArcelorMittal aims to raise its iron ore self-sufficiency to 75 percent by 2012 from 45 percent currently and has recently raised its coal self-sufficiency to 20 percent from 15 percent after buying mines in Russia and the US this year.

Analysts speculate on what will be ArcelorMittal's next move after press reports said it could consider fully buying Coal of Africa or Australian miner Macarthur Coal.

ArcelorMittal has pursued a bid for an iron ore unit put up for sale by Brazilian steelmaker CSN, sources close to the matter told Reuters last week, though they were unsure whether the firm was still in the final round of bidding."

Aditya Mittal declined to comment on that situation in a conference call.

Since its creation in 2006, ArcelorMittal has aggressively pursued consolidation, with a flurry of investments and acquisitions in developing countries such as Senegal, India, Russia and China as well as in mature economies.