(News Bulletin 247) – The steelmaker is also penalized by the risk aversion in the market which weighs down cyclical stocks.

If the market suffers this Tuesday, with the CAC 40 down 1.36%, ArcelorMittal is taking the shock even harder. The steelmaker based in Luxembourg and member of the Parisian benchmark index lost 7.3% around 4:00 p.m., showing the biggest drop in the CAC 40.

The stock of the company born in 2006 from the takeover of Arcelor by the Indian Mittal suffers from a climate of general risk aversion, fueled by fears about inflation and interest rates. This trend penalizes cyclical stocks, such as steel producers.

But ArcelorMittal shares also suffered from a deterioration on the part of Deutsche Bank which revised its opinion to “keep” on the action, against “buy” previously while reducing its price target to 29 euros against 31 euros.

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Chinese demand still weak

The German bank argues that the steelmaker’s action benefited from share buyback programs, the resumption of the economic cycle, and the end of certain swords of Damocles. The group, for example, sold its assets in Kazakhstan, a country where an accident had tarnished its reputation, and did not acquire the American US Steel, ultimately bought by the Japanese Nippon Steel Corporation, even though the market feared this potential transaction.

But the establishment across the Rhine considers that the steelmaker’s stock market rebound is doomed to lose strength, while the economic situation is not that encouraging. “The demand rebound in many key markets remains weak as Chinese data remains weak and continues to weigh on steel and iron ore prices,” she explains.

As a result, Deutsche Bank lowered its gross operating profit (Ebitda) outlook for ArcelorMittal from 2024 to 2026, slashing its figures by 10% to 13%, depending on the year.

Certainly, the company has many projects likely to improve its growth in the coming years, such as the expansion of its iron mine in Liberia. But these projects will take time to produce their benefits, she judges.

The cash machine is running out of steam

“Add to this continued inflationary trends and increased spending needed for decarbonization, and this means we are likely to enter a phase where execution and budget risks are likely to increase, while the conversion (of results into) cash will fade,” argues the German bank.

And with less cash generated, ArcelorMittal will have less latitude to return cash to its shareholders and therefore carry out major share buyback programs as it has done in recent years. As a result, Deutsche Bank believes that these securities buybacks will fade in the coming months.

Last point: the German bank highlights the questions linked to the entry into the capital of the French manufacturer of seamless tubes Valllourec last month. ArcelorMittal bought Apollo’s stake in this company, taking 28.4% of the capital for 955 million euros.

“Even if we think that this is perhaps only the first step before the discovery of synergies and a possible increased commitment (from ArcelorMittal to the capital of Vallourec, Editor’s note), the moment and the context can bring investors to question the company’s approach to allocating capital to mergers and acquisitions,” Deutsche Bank said. In other words, this participation is enough to make investors doubtful.

Oddo BHF, for its part, feared in March that this investment in Vallourec would slow down buybacks of ArcelorMittal shares.