ArcelorMittal Is Losing The Margin War–Here's Why

Forbes

16-05-2025

CGT unionists and employees participate in a rally outside ArcelorMittal headquarters to put ... More pressure on the French management of the steelmaker, which plans to cut more than 600 jobs in Saint-Denis near Paris, on May 13, 2025. (Photo by Jerome Gilles/NurPhoto via Getty Images)
ArcelorMittal (NYSE:MT) stock has been on a roll, increasing over 16% in just the last month after posting better-than-expected results for Q1 of 2025 and a positive outlook for the year. However, despite the recent optimism, there's one key problem that might catch investors off guard. ArcelorMittal's net income margin is quite low in comparison to both the industry and the sector.
As of Q1 FY 2025, the most recently reported quarter, ArcelorMittal's net income margin, which indicates the accounting profit realized after accounting for operating expenses, non-operating expenses, interest, and taxes, was only 5.4%, up from -2.6% in Q4 FY 2024 and down from 5.7% in Q1 FY 2024. What about operating margins? It was 5.6% for the previous quarter. That's significantly lower than that of industry peers. For comparison, Barrick Gold Corp, another company in the metals and mining sector, achieved gross margins around 17.5% and net margins of approximately 17.4%. Kinross Gold Corporation's gross margins were quite high at 26.4%, with net margins exceeding 24%. Diluted EPS fell to $1.04 in Q1 FY 2025, down from $1.16 in the same quarter a year earlier. See: Buy Or Sell MT Stock?
ArcelorMittal's margins are influenced by its global operations, especially in Europe, where energy and environmental expenses are elevated. Additionally, the recovery in demand has been sluggish. This contrasts with U.S.-focused companies such as Nucor and Steel Dynamics, which enjoy stronger domestic demand, reduced energy costs, and favorable trade protections.
ArcelorMittal has significant exposure to international and emerging markets, where steel prices face less protection from tariffs or trade restrictions. In comparison, U.S. producers like Nucor and Steel Dynamics benefit from insulation in the domestic market along with higher average realized steel prices. Consequently, ArcelorMittal confronts price pressures without corresponding pricing power.
ArcelorMittal employs a blast furnace (BOF) model at many facilities, which incurs higher fixed and variable costs (particularly with fluctuating input prices like iron ore or coal). This approach is less flexible compared to Electric Arc Furnace (EAF) operations used by competitors like Nucor and Steel Dynamics. When volumes or prices decline, fixed costs become burdensome, pressuring margins.
The company has recognized asset impairments and restructuring charges, especially in Europe and certain legacy operations. These non-operational losses diminish net income margins even if operating cash flow remains steady.
Investors should exercise caution when considering an investment in MT stock. As mentioned, both operating and net income margins are structurally lower than those of U.S. peers, suggesting reduced capital efficiency and profitability. Additionally, slow construction and automotive demand in Europe constrain near-term growth. Finally, steel is highly cyclical and susceptible to macroeconomic shocks, particularly from China (demand, exports) or global trade policy.
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