JPMorgan turns bullish on European steel, upgrading ArcelorMittal on pullback

J.P. Morgan has upgraded ArcelorMittal to overweight from neutral and raised its price target to €70, citing a 17% decline in the stock price since September as an attractive entry point. The broker anticipates the stock to outperform the average return of the companies it covers.

The downgrade of third-quarter earnings forecasts by approximately 10% to around $2 billion is attributed to cost inflation and operational disruptions in North America, which J.P. Morgan believes reduces the bar for results. Analysts now project earnings before interest, tax, depreciation, and amortisation (EBITDA) of about $2.4 billion for the fourth quarter, rising to $11.1 billion in 2027 and $11.9 billion in 2028, reflecting about 37% and 47% growth respectively. Notably, the 2027 figure is about 5% above consensus estimates.

European steel shares have decreased around 15% from their September highs due to increased raw material and energy costs, despite hot-rolled coil prices rising by about 10% since July following a 48% drop in EU imports under the new quota system. J.P. Morgan anticipates cautious management guidance but forecasts average sector EBITDA growth of around 35% in 2027 and 50% in 2028. They have also raised their fourth-quarter coil forecast to €750 per tonne from €725.

Additionally, J.P. Morgan has maintained overweight ratings on Salzgitter, voestalpine, Aperam, and Outokumpu, while keeping neutral ratings on Acerinox, ThyssenKrupp, and SSAB. The analysis highlights stainless steel's lagging performance compared to carbon steel due to weaker demand and sensitivity to electricity costs. The firm has cut Aperam's fourth-quarter EBITDA forecast by approximately 5%, indicating higher power prices that could cost the company €20 million per quarter.

Salzgitter is perceived as highly exposed to rising steel prices, whereas voestalpine is viewed as undervalued.