Global nickel and manganese miner Eramet sees breakeven in H2

French headquartered nickel and manganese mining major, Eramet is looking for a better second half operating profit and expects to achieve breakeven after loss seen in previous half.

PARIS (Reuters) - 

French nickel and manganese group Eramet (ERMT.PA: Quote) raised its outlook for second-half operating profit to breakeven on Wednesday, a day when recurring doubts over demand for metals hammered stocks in the sector.

Shares in Eramet, the world's sixth-largest nickel producer, plunged more than 5 percent as the DJ Stoxx Basic Resources index of metal and mining stocks fell about 4 percent.

"The correction in the (Eramet) share price is more to do with the overall correction on the metals and mining sector rather than anything in particular that was in the Q3 release," said Oddo Securities analyst Luc Pez.

The share retreat was fuelled by doubts about the prospects for demand after worse-than-expected U.S. consumer data on Tuesday, plus cautious outlooks from steelmakers such as ArcelorMittal (ISPA.AS: Quote).

Eramet raised its second-half guidance from a previous outlook for an operating loss and posted third-quarter sales at 637 million euros, above Oddo's forecast of 550 million.

Nomura analysts also said Eramet's performance beat their estimates, notably in manganese revenue, but they remained cautious about growth prospects, reiterating their "neutral" rating following a downgrade from "buy" a day earlier.

At 1236 GMT, Eramet shares were down 5.45 percent at 228.20 euros, still up nearly 75 percent so far this year but down 61 percent from a year ago.

CAUTIOUS DEMAND OUTLOOK

The group's third-quarter sales were down 40 percent on the year but up slightly on the prior quarter, with Eramet citing an improvement in nickel and manganese markets from low first-half levels, supported by governments' economic stimulus efforts and stock adjustments.

Nomura said a boost to manganese activity may be temporary.

"The company chose to produce a little more and took advantage of the situation when other manganese producers such as BHP Billiton (BHP.AX: Quote) were probably trying to defend prices by cutting production more aggressively," it said in a note.

"This helps the near-term profitability of Eramet, but makes little impact on our long-term NPV of the company."

Eramet itself remained cautious on the outlook for its markets, saying it would continue to adjust output to demand.

"Prospects for the recovery of the global economy remain uncertain ... especially outside China," Chairman and Chief Executive Patrick Buffet said in a statement.

The company, which made an operating loss of 223 million euros in its first half, has been hit by a drop in metal prices and demand since a global downturn began in late 2008.

It reiterated targets to cut costs by 140 million euros this year and reduce industrial investment to 336 million euros.

Manganese sales were 324 million euros, down 50 percent against a year-earlier period marked by high prices, but up 17 percent quarter-on-quarter due to a sharp increase in shipments.

To reflect increased demand, Eramet raised its manganese ore output during the quarter to two-thirds of capacity, up from one-third in the first half of the year.

Sales at the nickel branch were 155 million euros, down 7 percent year-on-year and flat on the previous quarter.

Demand for nickel improved during the second and third quarters in view of a pick-up in stainless steel production from very low levels at the start of the year, Eramet said.

The group's nickel output reached 38,700 tonnes in the first nine months of the year, representing about 80 percent of capacity and in line with Eramet's target for 2009.

Eramet's alloys branch posted sales of 157 million euros, down 36 percent on the year and 21 percent on the previous quarter, with steel tools and aeronautics particularly affected.

(Additional reporting by Caroline Jacobs and Blaise Robinson, editing by Will Waterman) ($1=.6718 Euro)

© Thomson Reuters 2009. All rights reserved.

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