ArcelorMittal signals uptrend on turnaround plan
Following the news of the sale of Scunthorpe division of Tata steel (UK) to Greybull Capital, the share price of ArcelorMittal (MT) increased about 20% or $1 in a week to end at $5.50 on Friday. A close look at the fundamentals of Arcelor will reveal that the uptrend has just now started and as a trader, it would be wise to take a long position.
ArcelorMittal is an integrated steel manufacturer. This means that the company has less dependence on external supply sources of coal and iron ore. Thus, when the price of coal and iron ore is rising, the company will not be affected. On the other hand, a steep decline in the price of coal and iron will have no positive effects on the company.
So, when the price of iron ore touched a low of $41.25 per ton, the company was not able to take advantage of the low price. This resulted in a fall in the share price. Now, the price of iron ore, much to the surprise of analysts, has gone up. The iron ore, which recently spiked to $64 per ton, is currently trading at $58 per ton. This has revived the fortunes of the company.
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One of the reasons for the poor fourth-quarter results of ArcelorMittal was due to the large quantum of steel imports from China. However, both USA and Europe have started taking precautionary actions against dumping of steel by raising the import duty.
ArcelorMittal is expected to realize the positive effect of such an action. The recent announcement from Beijing to cut production capacity, to the tune of 100 to 150 million tons in the next five years, is also expected to have a positive impact on ArcelorMittal.
In 2016, the company expects the steel demand to grow between 3% and 4% in the USA. ArcelorMittal expects the demand to come from restocking activity in the USA.
The company also expects the demand in Europe to increase up to 1% in 2016.
The Luxembourg based company also anticipates the fiscal 2016 EBITDA to be $4.5 billion. The guidance was given without any further expectation of increase in the price of steel or raw materials. The optimistic analysts, however, anticipate the EBITDA to be $5.4 billion. The company also expects to reduce the debt by $4 billion in 2016. This would ultimately bring the debt down to $12 billion. The company has also announced plans to increase per ton profitability from $62, as of now, to $85 in 2020.
Fundamentally, all these factors are expected to result in an increase in the share price in the weeks ahead.
Technically, the stock has firm support at $4.50. As the chart reveals, the next major resistance is at 9.50 levels. The RSI, with a reading above 50 and through an upward inclination, points to a further uptrend in price.
Thus, a binary options trader should consider purchasing a one touch call option contract with a strike price of $7 or lower. An expiry date in the third week of May would complement the trade.
