ArcelorMittal, the world's No. 1 steelmaker, reported second-quarter results far above analysts' expectations on Wednesday as it managed to pass on rising raw material costs despite the growing economic gloom.
"These new record-high results are far above what could be expected," said BHF Bank analyst Hermann Reith, adding that the analyst community had underestimated ArcelorMittal's ability to increase prices throughout its different business areas.
Earnings before interest, tax, depreciation and amortization (EBITDA) were $8.05 billion against the average forecast in a Reuters poll of 10 analysts of $6.75 billion.
The company, 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 achieve EBITDA exceeding $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.
The high core profit target for the third quarter is probably due to the fact that ArcelorMittal managed to renegotiate long term contracts upwards, analysts said.
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.
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.
"Our financial strength enables us to continue to invest heavily in the development of the business," Chief Executive and main owner Lakshmi Mittal said in a statement, adding the company expected capital expenditure of $7 billion this year.
"We continue to look for opportunities to further enhance our raw material self sufficiency," Mittal added.
ArcelorMittal has already heavily invested to increase its self-sufficiency in iron ore and coal to hedge itself against the rise of raw material prices and ongoing consolidation in that sector.
It said the good results of the second quarter partially reflected its decision to invest in mining.