ArcelorMittal , the world's biggest steelmaker, is to write down the value of its European business by $4.3 billion, underscoring gloom about prospects for the region's recession-hit manufacturers.
The group, formed in 2006 when India-born Lakshmi Mittal's steel business bought European peer Arcelor for $33 billion, said on Friday demand had fallen about 8 percent in Europe this year and there was no sign of a quick recovery.
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As a result, it will write down the goodwill - the value of intangible assets such as brands rather than physical assets such as machinery - of its European operations by 87 percent.
"It is negative, but it should not really be a big surprise that the book value of its European business was too high," said a London-based analyst who asked not to be named.
ArcelorMittal shares were down 2.7 percent at 12.85 euros at 8 a.m. ET, one of the biggest falls by a European blue-chip stock <.FTEU3> and reversing gains made earlier this week.
Credit agency Fitch cut ArcelorMittal's long-term issuer default rating to BB+, just below investment grade, due to the challenging outlook for Western European steel markets in 2013.
The $500-billion-a-year steel industry, a gauge of the global economy, has slowed sharply this year as a moderation in China's economic growth has compounded weak demand from austerity-ravaged Europe.
The World Steel Association in October forecast steel demand would rise 2.1 percent in 2012, down from 6.2 percent in 2011. It had forecast 3.6 percent growth in April.
Last month, Moody's cut the company's senior unsecured notes to Ba1 from Baa3, joining Standard & Poor's in rating ArcelorMittal one notch below investment grade.
Other steelmakers are hurting too. Earlier this month, Germany group ThyssenKrupp posted a full-year net loss of 4.7 billion euros ($6.2 billion).
Europe is a particular weak point, as austerity drives aimed at tackling a sovereign debt crisis have cut demand for cars and construction - steel's largest markets. Euro zone manufacturing has contracted for 17 straight months.
ArcelorMittal, which makes about 6-7 percent of the world's steel, said demand in Europe had fallen 29 percent since 2007 when the financial crisis started.
It highlighted better trends in the United States where, it said, demand was up 8 percent this year and is now 10 percent lower than in 2007.
ArcelorMittal, whose output is more than double that of its nearest rival, has already announced the closure of blast furnaces in Belgium and France, with other operations temporarily idled due to overcapacity.
The write-down represents over a third of ArcelorMittal's overall goodwill of $12.5 billion as of end-2012. The group, around 40-percent owned by the Mittal family, took on $6.6 billion goodwill when it bought Arcelor.
It said the write-down would be a non-cash charge in fourth-quarter results and would not affect net debt or core profit.
Before the write-down, analysts had, on average, forecast the group would make $529.5 million net profit this year, and $7.1 billion core profit, according to StarMine.
(Additional reporting by Philip Blenkinsop; Editing by Mark Potter and Dan Lalor)