ArcelorMittal, the world’s largest steelmaker and Japan’s Nippon Steel Corp. have entered into a definitive agreement to build an electric arc furnace in the US by the first half of 2023, at an investment of $775 million.
According to the agreement, the electric arc furnace (EAF) will have a capacity of 1.5 million metric tons per year and will be manufactured at ArcelorMittal’s (MT) and Nippon Steel’s joint venture AM/NS Calvert in Alabama. The furnace will be used for the production and sale of hot-rolled, cold-rolled, and coated steel sheets.
Calvert currently produces steel sheet products by processing semi-finished products (slabs) procured from domestic and overseas suppliers.
“With the newly-built EAF, Calvert will be able to manufacture by itself part of slabs necessary to produce its steel sheet products and will strive for further strengthening its competitiveness through advantages of the self-manufacture, such as shortening lead time in slab procurement, improving its productivity through utilization of self-manufactured high temperature slabs, and increasing the domestic procurement ratio of slabs,” Nippon Steel said in a statement. “In addition, the EAF will produce slabs for automotive flat products, including Gen3 advanced high-tensile steel sheets.”
The investment comes after ArcelorMittal in September sold ArcelorMittal USA LLC and its subsidiaries for about $1.4 billion to Cleveland-Cliffs.
Shares of ArcelorMittal spiked 35% over the past month and are now up 31% since the start of the year. The stock scores a bullish Strong Buy analyst consensus based on 5 Buys versus only 1 Hold. The average price target stands at $24.68 and implies upside potential of about 7% to current levels over the coming year.
Meanwhile, Societe Generale analyst Christian Georges last week upgraded the stock’s rating to Buy from Hold, citing a “perfect storm” of positive factors coming together.
Georges complemented ArcelorMittal’s successful deleveraging and derisking efforts, which he believes come at a good time as steel and iron ore prices are rising, which in turn should support earnings recovery.
The analyst assigned a Street-high price target of $39.75, which would translate into a 73% gain, should it be met. (See MT stock analysis on TipRanks)
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