Shares in ArcelorMittal (MT), the world's largest steelmaker, fell 5% Tuesday after the company disappointed the market by forecasting a lower fourth quarter outlook due to an expected drop in steel prices and still weak demand.

Analysts said the outlook doesn't bode well for steelmakers and their ability to make money in the still challenging demand environment.

ArcelorMittal also said it failed to push through price rises aimed at countering the overall rise in steelmaking ingredients such as iron ore and coking coal experienced this year, and now expects steel prices to remain stable or decline marginally in the final months of 2010.

As a result, it doesn't plan to increase output during the remainder of the year.

"Our outlook for the fourth quarter remains cautious as the expected higher input prices continue to work through the business and demand remains muted, though with some regional differences," said chief executive Lakshmi Mittal.

The company declined to give an outlook for 2011.

ArcelorMittal posted a higher net profit on the year in the third quarter and its closely watched earnings before interest, taxes, depreciation and amortization, or Ebitda, while lower on the quarter, was in line with analyst forecasts.

The Luxembourg-based steelmaker posted a net profit of $1.35 billion in the three months to Sept. 30 and Ebitda of $2.27 billion.

It forecasts fourth quarter Ebitda between $1.5 billion and $1.9 billion.

"The guidance for the fourth quarter is disappointing," said Hermann Reith, a steel analyst at BHF Bank in Frankfurt. "A significant margin squeeze is expected," Reith added.

ArcelorMittal chief financial officer Aditya Mittal said the company forecasts global steel demand in 2011 to rise 6% on the year but sees little demand growth in the final months of 2010.

"Guidance is pretty poor," said MF Global analyst Charlie Dove-Edwin. "2011 raw material costs may come down and bring steel prices with them, and it will be hard for steel companies to make money."

ArcelorMittal plans to produce 50 million tons of its own iron ore by the end of 2010, 10 million tons more than in 2009.

Analysts said while integration of raw materials at the steelmaker insulated the company somewhat from the record high iron ore price hit in April, a forecast drop of around 10% in input costs in the final months of 2010 won't be fully felt because of that integration.

As of 0726 GMT ArcelorMittal shares, listed on Euronext Netherlands, were trading down 4.88% Monday at EUR23.80.

-By Devon Maylie, Dow Jones Newswires; +44 (0)20 7842 9483; devon.maylie@dowjones.com
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