Steel’s soaring profit not enough

The global recovery in steel demand is making an often-beleaguered industry profitable again, but investors are still not convinced.

The world’s largest producer, ArcelorMittal, posted its biggest quarterly profit in almost five years Friday and earnings increased at Thyssenkrupp. Yet both shares sank as ArcelorMittal tempered its outlook for the second quarter and said Chinese exports remain a concern; Thyssenkrupp predicted negative free cash flow.

Even after the strong start to the year, ArcelorMittal expects stable market conditions in the second quarter, after earlier predicting margins may expand. The company also reported increased net debt and negative free cash flow in the quarter.

“We would not expect that consensus estimates for 2017 will change significantly,” said Carsten Riek, an analyst at UBS Group in London. “Especially after market fears that oversupply and an increase in imports could put pressure on steel prices and margins in second half 2017.”

ArcelorMittal fell 8 percent, the biggest decline since June, and closed at 6.649 euros in Amsterdam. The stock hit a three-year high in February and is down 5.2 percent this year. Thyssenkrupp fell 4.1 percent to 21.36 euros.

Steelmakers have seen profit buoyed with metal prices at the highest in more than two years in key markets such as the U.S. and Europe. The rally was spurred by rising demand and a curb in record Chinese exports that had dented prices across the globe.

Still, the steel industry, which has never fully recovered from the global financial crisis and has become used to setbacks, is likely to proceed cautiously.

There are already signs that cooling prices in China are having an impact on global prices and ArcelorMittal said Friday that continued over-capacity in the global steel industry, especially in China, mean that the sector is still affected by “unfair imports” in many of its key markets.