Aperam To Focus On Profitability, Not Volume

Stainless-steel maker Aperam (056997440.LU) is focused on improving profits rather than increasing volumes, as it aims to convince investors it can become profitable independent of volatile nickel prices, its new chief executive said Tuesday.

"In the current market environment, our strategy focuses on cost reduction and product improvement and not on increasing production capacity. I think this is the biggest difference with our competitors," said Philippe Darmayan, who replaced Bernard Fontana in December.

The European stainless steel market has been troubled by overcapacity and fierce competition. However, the EUR2.7 billion takeover of Inoxum, German steel company ThyssenKrupp's (TKA.XE) stainless steel division, by Finnish Outokumpu (OUT1V.HE) helped ease concerns.

The European market for stainless steel is now dominated by three players--Outokumpu, Aperam and Spain's Acerinox (ACX.MC).

Aperam operates in more than 30 countries and has six main plants located in France, Belgium and Brazil. The flat stainless-steel capacity in Brazil and Europe is 2.5 million metric tons. Last year, Aperam shipped a total 1.749 million tons and had revenues of $6.3 billion.

"We felt that [Inoxum] didn't fit with our strategy of focusing on cost control and reduction of overcapacity in order to become profitable," Darmayan said, explaining why Aperam didn't mull a deal.

But Darmayan expects Aperam to benefit from the merger, which could help reduce overcapacity, adding however that any improvement in Aperam's results depends more on its efforts to cut costs by $350 million by 2013. In 2011, costs were reduced by $176 million.

Aperam, which listed in Amsterdam in January 2011 after being spun-off by former parent ArcelorMittal (MT.AE), earlier this month said it extended its net loss in the fourth quarter 2011 to $46 million, from $41 million in the third quarter. Sales fell to $1.44 billion from $1.52 billion.

The results were primarily affected by the decline in the price of nickel, a key ingredient in making stainless steel. A fall in the price of nickel makes stainless-steel buyers anticipate consequent declines in the price of stainless steel, and so defer purchases.

Nickel prices began to rise in December after declining in the third and fourth quarters 2011, helping restore demand, Darmayan said. He also said Aperam's available production capacity will be fully used in March and April, but sustaining that would depend on the nickel price.

The Luxembourg-based company is targeting a net profit for 2012, but remains cautious as ongoing volatility makes it hard to predict if it will meet its target.

Aperam was listed at EUR28 a share, but the price had dropped to EUR10.90 at the end of 2011. Since then the stock recovered to around EUR15, in part because of the merger between Outokumpu and Inoxum.

Darmayan believes his company's stock is undervalued.

"With the consolidation we feel there is much more interest from investors, but we have to make Aperam better known and show that we can be profitable in the stainless steel market and are able to withstand volatility in nickel prices," he said.

-By Levien de Feijter; Dow Jones Newswires; +31-20-5715200; levien.defeijter@dowjones.com

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