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Giant trucks carry iron ore in this May 20, 2011file phot in Fermont, Que. (Jacques Boissinot/The Canadian Pres)
Giant trucks carry iron ore in this May 20, 2011file phot in Fermont, Que. (Jacques Boissinot/The Canadian Pres)

ArcelorMittal sees China, autos supporting profits Add to ...

The world's number one steel maker ArcelorMittal sees demand from China and the auto industry along with more in-house ore and coal supplies supporting second half profits this year.

In an upbeat quarterly statement that matched a mood set by Japan's Nippon Steel , the maker of six to seven per cent of world supplies raised its forecast for 2011 global steel consumption due to stronger demand from China and predicted a milder seasonal profit dip in the third quarter than a year ago.

Apparent steel consumption in China, not a main market for ArcelorMittal but influential in driving prices and demand, should increase by more than 8.5 per cent this year, meaning global sector expansion would be seven to 7.5 percent, the company said.

Higher steel prices and blast furnaces running at 78 per cent of capacity helped drive core profit to $3.41-billion (U.S.) in the second quarter, more than the market had expected and the highest level since before the 2008-2009 crisis.

It would then fall back to between $2.4-billion and $2.8-billion in the third quarter, the company said.

According to a Reuters poll, the market expected core profit of $3.25-billion in the second quarter and $2.65-billion in the third.

Chief executive Lakshmi Mittal said the strong performance in the second quarter was underpinned by higher steel prices.

"Although the third quarter will experience some seasonal impact, we do not expect this to be as pronounced as last year, and overall the group's performance in the second half of 2011 should compare favorably with the second half of 2010."

The company said steel shipments and earnings per tonne in the second half of the year would be higher than in a year earlier, when a sharp slowdown and margin squeeze drove ArcelorMittal into a final quarter loss.

Relatively low levels of inventories could also help avoid a repeat of last year's poor second half, with reasonable prospects of some fourth-quarter pick-up.

ArcelorMittal shares were up 1.6 per cent at 07:55 GMT, making them among the strongest in the FTSEurofirst 300 index of leading European stocks.

Ingo-Martin Schachel, analyst at Commerzbank, said the second-quarter performance was especially strong in the Americas and he believed ArcelorMittal could achieve the upper end of its third-quarter profit guidance.

"The qualitative statements for the second half are good and given that expectations going into results were [weak] the results will be perceived positively by the market," he said.

Demand typically dips in the third quarter, the northern hemisphere summer, but sector earnings also face pressure from record production in China and demand capped by tighter monetary policy there and debt problems in Europe and the United States.

South Korea's POSCO , the world's number three steel maker, warned last week of weakening demand growth and persistently high costs in the second half.

Two American steel producers AK Steel and U.S. Steel Corp also warned of weakening steel prices in the current quarter and an uneven economic recovery.

However, Nippon Steel , Japan's top steel maker, forecast on Wednesday a rise in profits this year as a slow global rebound bolstered demand.

European hot rolled steel cord prices rose 30 per cent in the first quarter, while spot prices for Chinese iron ore imports increased by just three per cent, according to Metal Bulletin.

However, during the April to June period, prices for the same products fell 12 per cent and three per cent respectively.

For ArcelorMittal, spot prices usually affect earnings with a three to four month time lag, meaning tighter margins in the second quarter will be reflected in third-quarter figures.

Steel makers have profited from booming auto and engineering sectors, but there is little sign of recovery among the other main customers in construction, a market where ArcelorMittal is more exposed than rivals.

ArcelorMittal should benefit from its increasing exposure to iron ore and coal mining, for which it is providing separate earnings figures from this year, particularly after disruptions in Brazil and Canada in the first quarter.

The company said it should achieve volume growth of 10 per cent for iron ore and 20 per cent for coking coal, with higher prices and stable costs.

ArcelorMittal announced earlier this month it was bidding $5-billion, together with Peabody Energy , for Australia's Macarthur Coal and should give analysts more information on its plans for the asset.

With files from Clara Ferreira-Marques in London

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