RPT-PREVIEW-European steel Q3 margins squeezed, wary on Q4

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* ArcelorMittal Q3 Oct. 26, ThyssenKrupp Nov. 30

* Salzgitter Nov. 12, Severstal Nov. 16

* Margin pressure: raw materials up as steel prices stagnate

By Philip Blenkinsop and Eric Onstad
BRUSSELS/LONDON, Oct 25 (BestGrowthStock) – Market leader
ArcelorMittal (ISPA.AS: ) and other European steelmakers should
show in coming weeks whether a poor third quarter marked the
start of a prolonged slowdown or just a brief soft patch.

The $500 billion global steel industry, a bellwether for the
broader economy, experienced a sharp rebound in the second
quarter due to a faster-than-expected automotive sector recovery
and booming demand in China.

Since then both have cooled, steel prices are sluggish and
iron ore costs have risen, squeezing margins for steelmakers.

“Steel demand… appears to be reasonably strong in the
fourth quarter,” said analyst Thorsten Zimmermann at HSBC in
London. “However, stagnant steel prices are spoiling the party.”

Zimmerman has cut steel price estimates for the fourth
quarter by 9 percent and for the first quarter by 5 percent.

The steel futures contract on the London Metal Exchange
(FMD3=LX: ) has gained 18 percent so far this year, but is also 21
percent off a peak hit in April.

World number three POSCO (005490.KS: ) of South Korea set a
negative tone for the sector this month when it cut its 2010
forecasts after quarterly earnings missed expectations.

The biggest U.S. steel producer, Nucor Corp (NUE.N: ), posted
lower-than-expected profit last week and warned of a slowdown.

Export-dependent Asian mills face a sputtering recovery in
the United States and a cloudy outlook in Europe.

In Europe, demand is healthy in northern countries such as
Germany and in the auto industry and increasingly engineering,
but is subdued in the south and in construction.

The World Steel Association forecast this month that the
growth of global steel demand would ease to 5.3 percent next
year after a 13.1 percent rise this year and a 6.6 percent
contraction in 2009. [ID:nTOE693033]
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a spreadsheet comparing European steel firms:



Investors are prepared for weaker third-quarter profit (Read more your timing to make a profit.)s when
ArcelorMittal (MT.N: ) reports on Oct. 26 after it forecast in
July that its much-watched core profit (EBITDA) would fall
between 17 and 30 percent from the second quarter because of
reduced shipments and higher raw materials costs.

The big question is what will happen in the last three
months of the year.

Analysts polled by Reuters expect only a 7 percent rebound
in core profit, with only slightly higher shipments and margins
still squeezed. [ID:nLDE69L03D]

“Mittal is not immune to softening steel prices and
investors should expect a relatively muted Q4 outlook,” Nomura
analyst Jeff Largey said in a note. “The positive effects of
higher production levels will not be able to compensate for
input cost pressure and softening steel prices.”


ArcelorMittal’s European competitors, such as Germany’s
largest steelmaker ThyssenKrupp (TKAG.DE: ), are far less exposed
to sluggish southern and eastern Europe.

They also produce more flat steel used principally for cars
and relatively less long steel, used mainly in construction.

ThyssenKrupp, which posts results on Nov. 30 for its fiscal
year to the end of September, is due to perform relatively well
after its CEO told a newspaper it would post pretax profit of
around 1 billion euros ($1.39 billion). [ID:nLDE6950HL]

It is expected to post pre-tax profit of 912 million euros
after a loss of 2.4 billion the previous year, according to
Thomson Reuters I/B/E/S, based on estimates from 25 analysts.

“For Thyssen I think the margin squeeze will be very
moderate, they will continue to perform very strongly. The point
here is exposure to Germany, the automobile industry and also
contract business,” said analyst Alexander Haissl at Cheuvreux
in Frankfurt.

Germany’s No. 2, Salzgitter (SZGG.DE: ), issues third-quarter
numbers on Nov. 12. Its finance chief told a newspaper that it
expected a sequential rise in third-quarter sales at key units
after passing on swings in raw-material prices. [ID:nLDE69805A]

It is expected to report a pretax quarterly profit of 44.1
million euros after a loss of 66.1 million euros last year, five
analysts surveyed by Thomson Reuters’ I/B/E/S showed.

Austrian specialist steelmaker Voestalpine (VOES.VI: )
reports fiscal second-quarter numbers on Nov. 18.

It is expected to report earnings before interest and tax of
198.7 million euros, up from 70.4 milllion a year ago, according
to I/B/E/S, based on four analysts’ forecasts.


Russia’s largest steelmaker, Severstal (CHMF.MM: ), which
publishes third-quarter figures on Nov. 16, said last month it
expects third-quarter results to weaken compared to the second
quarter due to lower prices. [ID:nLDE6851F2]

Number three producer Magnitogorsk Iron & Steel Works
(MAGN.MM: ) also said last month that its third-quarter profit (Read more your timing to make a profit.)s
could decline versus the second quarter because of volatile
prices. [ID:nLDE68F1DR]

The country’s No. 2, Evraz (HK1q.L: ), which reports on Nov.
15, raised its third-quarter core earnings guidance by up to 25
percent thanks to higher pricing of domestic construction
products and shorter-than-expected downtime at its mills.
(Additional reporting by Sylvia Westall in Vienna, Alfred
Kueppers in Moscow and Brenda Goh in London; Editing by Michael

RPT-PREVIEW-European steel Q3 margins squeezed, wary on Q4