ArcelorMittal Has a New Plan to Cut Debt

ArcelorMittal (NYSE:MT) on Wednesday proposed cutting its annual dividend as it prepares for a net loss in the third quarter due to shrinking steel demand. The company’s board of directors has proposed slashing the dividend by nearly three quarters to $0.20 per share in 2013, from $0.75 this year.

“The already fragile global economy was further impacted in the third quarter of 2012 by the slowdown in China. This resulted in very challenging operating conditions for ArcelorMittal, which are expected to continue in the fourth quarter,” said company chairman and CEO Lakshmi Mittal. “Against this backdrop, the company is focused on delivering its plan of asset optimization, net debt reduction and productivity and efficiency improvements.”

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The world’s largest steelmaker by volume, ArcelorMittal accounts for roughly 6 percent of global output. But with countries around the world facing economic uncertainties, building has slowed — particularly in Europe and the U.S., but also in China — and steel demand has declined as a result.

Prices for hot-rolled steel coil, a benchmark product used in vehicles and builders, averaged $624 a ton in the third quarter, down from $764 a year earlier, according to Steel Business Briefing’s global price index. Prices for iron ore, which is used to make the metal and which ArcelorMittal mines, have declined 30 percent in the year.

ArcelorMittal has responded to weakening demand by temporarily idling steel-production plants and proposing the permanent closure of four blast furnaces in Europe. The steelmaker is also selling non-core assets in order to pay down its debt and shore up its balance sheet.

Standard & Poor’s in August cut ArcelorMittal’s debt rating to junk, citing a weakening steel industry and uncertainty over the company’s plans to lower borrowings. Moody’s Investors Service said it would follow suit if ArcelorMittal did not reduce its debt by about $5 billion before year’s end.

Excluding proceeds from any further asset sales, net debt at the end of the year will be about $22 billion. The company’s plan to lower its dividend is just one in a series of measures being taken to help deleverage.

In May, ArcelorMittal agreed to sell Skyline Steel LLC to Nucor Corp. (NYSE:NUE) for about $605 million. In July, the company announced it was selling 48 percent of engineering company Paul Wurth Group to SMS Holding GmbH for 300 million euros. The steelmaker is also considering divesting a stake of about 30 percent in its Canadian iron-ore unit, according to a Washington Post report.

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