STOCKS NEWS EUROPE-ArcelorMittal's risk-reward profile compelling-DB

Deutsche Bank (Xetra: DBK.DE - news) believes steel demand in Europe has troughed after two years of falling output and a slow recovery is likely next year, offering ArcelorMittal (Other OTC: AMSYF - news) as the most compelling risk-reward profile.

"Although we do not believe this will be enough to absorb the capacity overhang for steel in Europe, the switch from 'decline' to 'growth' should have a meaningful impact on the supply chain and help to restore some of the margin lost since 2010-11," Deutsche Bank writes in a note.

It says ArcelorMittal's valuations are attractive, adding the company has repaired its balance sheet and has the ability to break even on cash flow at the low-point of the cycle.

The bank, which has a 'buy' rating for ArcelorMittal, raises its price target for the company to 15 euros from 14.50 euros. ArcelorMittal shares are up 0.9 percent at 11.86 euros.

Deutsche Bank forecasts a 3.1 percent and 2.9 percent steel production growth for Europe respectively in 2014 and 2015, saying "although this does not remove the overcapacity issue in Europe, it should still help support pricing power of steel mills from a very low level."

Reuters messaging rm://atul.prakash.thomsonreuters.com@reuters.net