ArcelorMittal (MT) entered into initial discussions with BHP Billiton (BHP) to potentially combine their respective iron ore mining and infrastructure interests in Liberia and Guinea in a joint venture.

The iron ore interests of the two companies in Liberia and in Guinea are proximate and could be significantly more competitive if brought together in a combined operation. The parties will work together over the coming months to assess the merits of a partnership and will also work closely with the governments involved.

In response to the recent uncertain market conditions, steel makers had implemented cost reduction initiatives, through which companies have succeeded in offsetting some of the negative impact of weak market conditions. Although, the profits were low compared to the previous year, industry witnessed a substantial improvement on a sequential basis.

ArcelorMittal expects a surge in steel demand in the coming months largely due to the technical recovery that is happening as inventory de-stocking nears completion. Although the steel sector scenario remains unpredictable, we also expect a gradual sales recovery in the next couple of quarters. However, we do not expect demand to return to the levels of 2008 in the medium term.

A reversal of global economic activity triggered by the intensification of the credit crisis last September led steelmakers to stop operations at several plants, lay off staff and refinance debt. The U.S. steelmakers are still operating at almost half their capacity. According to the American Iron and Steel Institute, U.S. plant capacity is at 53.9%, below the 90.4% a year ago.

Global steel prices have fallen in some regions from their peak in mid-2008, as the recession has triggered a reduction in demand from sectors such as construction and automotives. We believe this will continue in the very near term.

Zacks Investment Research

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