ArcelorMittal sees weak last quarter as coal spike hits margins

By Robert-Jan Bartunek

BRUSSELS (Reuters) - ArcelorMittal (ISPA.AS) warned of slower earnings this quarter citing higher coal prices and lower U.S. steel prices after the world's largest steel producer missed core third-quarter profit expectations on Tuesday.

ArcelorMittal shares, which have risen by about a quarter since September, were down some 4 percent in early trade.

"We're all surprised by the rapid and unexpected rise of coking coal," Chief Financial Officer Aditya Mittal told a conference call.

Mittal said coal prices have risen due to some U.S. mines stopping operations and a cap on production imposed by the Chinese government as part of a shift to clean power.

Prices for Australian premium hard coking coal (.PHCC-AUS=SI) have surged to $250 per tonne from around $75 in February.

Core earnings before interest, taxes, depreciation and amortisation (EBITDA) for the third quarter rose 40 percent to $1.90 billion (1.52 billion pounds) but missed the $1.97 billion expected by 11 analysts polled by Reuters.

Mittal has forecast a fall in core profit this year to above $4.5 billion from $5.2 billion in 2015.

ArcelorMittal increased its forecast for working capital to $1 billion from $500 million previously, adding it still expected to have positive cash flow for the year.

It said average prices for steel rose 7.4 percent in the third quarter, mainly driven by better prices in North America, Brazil and Europe.

ArcelorMittal also slightly improved its market outlook for China, where it now expects some growth in steel consumption.

Chinese prices for reinforcing bars used in construction (SRBcv1) rose this month to their highest level since September 2014 amid tightening supply.

Overcapacity in the Chinese steel sector has led to a surge in exports which steelmakers in Europe and the United States have sought to counteract by lobbying for anti-dumping duties.

Last week, China's Baosteel Group said it would cut steel production capacity by 11 million tonnes over 2016 and 2017, more than it had previously indicated.

Despite these announcements, Mittal said Chinese exports had so far not decreased and said China was not doing enough to lower exports.

"There is some progress but not enough. China imposed production limitations on the coal industry. They have the tools but are not acting as aggressively in the steel business," CFO Mittal said.

(Reporting by Robert-Jan Bartunek; editing by Philip Blenkinsop and Jason Neely)