Arcelor's Dolle Says Coal Prices to Rise Up to 80% Next Year
Nov. 26 (Bloomberg) -- Arcelor SA, the world's biggest steelmaker, may pay as much as 80 percent more for coal next year, Chief Executive Guy Dolle said, as mining companies boost prices that are already at records.
Prices for coal used in steelmaking may increase by between 60 percent and 80 percent, Dolle said in a Nov. 23 interview in Luxembourg. That equals a rise of at least $35 a ton. Arcelor buys about 13 million tons of coking coal a year from producers such as BHP Billiton, most of it at fixed annual prices.
``Coking coal will be the major problem for next year,'' the 62-year-old chief executive said. ``We will pay on average a little bit more than $100'' a ton.
Coking-coal prices have surged because of rising steel production led by China, which added output equal to the whole of South American supply in the first 10 months. Coal suppliers, including London-based Anglo American Plc and Zug, Switzerland- based Xstrata Plc, have struggled to keep up.
Arcelor, which makes the steel used in half of Europe's cars, expects to settle on coking-coal prices with suppliers in the next few weeks, Dolle said. He forecast an increase of at least 50 percent on Nov. 15, when the company reported record third-quarter profit of 629 million euros ($832 million). Arcelor paid about 20 percent more for coking coal this year.
Stalled Prices
The company doesn't expect to keep raising prices in the second half of next year because of an expected slowdown in economic growth in China, the world's biggest steel producer and consumer, Dolle said. The rising euro also may make Europe more attractive to steel exporters, boosting competition from imports.
Spot steel prices ``are not far from their maximum,'' Dolle said. ``But I don't anticipate any collapse in steel prices during the second half of next year.''
The fourth quarter will probably be this year's best quarter for profit, and earnings next year should be as good as this year, Dolle said. The company posted record profit of 631 million euros in the second quarter.
Arcelor has raised quarterly prices four times this year and plans another increase in the first quarter. Annual contract prices for steel in cars and packaging will increase between 20 percent and 50 percent in January.
Arcelor's shares have gained 24 percent this year, valuing the company at 10.6 billion euros ($14 billion). That's better than the 6.6 percent rise in France's CAC-40 Index.
Iron-Ore Costs
Arcelor also may pay more for iron ore in 2005, after this year's increase of almost 19 percent to a record, Dolle said. Prices may rise by 20 percent next year, to $30 a ton, Morgan Stanley estimated in a Nov. 15 report. Formal negotiations haven't begun yet.
Arcelor buys about 40 million tons of iron ore every year from companies such as Cia. Vale do Rio Doce.
The higher costs will be partly tempered by the dollar's decline against the euro. Arcelor buys most of its raw materials in dollars and sells most of its steel in euros. The euro has gained 4.9 percent against the dollar this year.
Overseas Expansion
The company also will benefit from the addition of Brazilian steelmaker Cia. Siderurgica de Tubarao to its accounts in October. Arcelor is trying to boost profits by expanding outside of Europe, seeking regions where costs are lower and steel demand is rising faster. The company has about 700 million euros a year to spend on acquisitions and other external growth, Dolle said.
The steelmaker expects to bid for a 49 percent stake in Turkey's Eregli Demir Celik Fabrikalari AS, which will be auctioned by the government in the first quarter of next year. The price may be about $1 billion, Dolle said.
Arcelor is also investing in Brazil, Russia and China. Chinese steel consumption will probably rise to as much as 350 kilos (770 pounds) per person within a decade, from 200 kilos now, Dolle said.
Arcelor was formed in 2002 from the merger of Usinor SA of France, Arbed SA of Luxembourg and Aceralia Corporacion Siderurgica SA of Spain. Dolle, who joined Usinor in 1980, was paid 832,500 euros last year.
To contact the reporter on this story:
Stuart Wallace in London swallace6@bloomberg.net.
To contact the editor on this story:
Stephen Farr at sfarr@bloomberg.net
Last Updated: November 25, 2004 19:02 EST
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