Q4 2020 ArcelorMittal SA Earnings Call
[music].
Daniel you might start.
Thank you.
Afternoon, and good morning, everybody. This is Daniel Fairclough from the Arcelormittal Investor Relations team. Thank you very much for joining us today to discuss the results for the fourth quarter of 2020.
Present on this call today, we have Mr. Mitchell Executive Chairman, we have a detriment youll see.
And we have generally now Christina CFO and we also have a head of mining Simon Wang Qi.
And the focus of today's call is to discuss the results for the fourth quarter and the strategic progress, we're making and also mental and this was covered in depth in a detailed presentation published alongside our results. This morning. So as usual the format of this call will be some opening remarks, followed directly by a Q&A session.
Such a we should be able to complete this call in about 45 minutes, if you'd like to join the queue to ask a question. Please press star one on your keypad.
If you could limit yourselves to one question and a follow up and that would be appreciated. So that we can get through as many questions as possible.
Without very brief opening I'll hand over to Mr. Mitchell.
Thank you Daniel.
Good day, everyone and thank you for joining us.
On this call.
He will discuss how our results for the fourth quarter 'twenty 'twenty and the strategic progress we have achieved.
'twenty 'twenty was of course, an exceptional year in many ways.
What was not exceptional was the response of Arcelormittal to the many challenges that we faced over the past 12 months.
It is all the organizations do you need to lead to respond quickly and effectively to changes and challenges.
Due to changes and challenges that often.
Good in our industry.
I'm immensely proud of all our people and what we achieve together in 2020.
We start 'twenty 'twenty, one in a position of strength.
Our markets have bounced back our balance sheet has never been as strong.
We have a more focused asset base with a defined growth plan and a clear. These two did you to drive our decarbonization goals.
Most importantly, after many years of deliveries in focus we are now in a strong position do you want to reward our shareholders consider consistently.
Returning capital is a clear priority of the new policy announced today.
I have decided this is the right moment for me to transition to a do determine.
The board and he must and endlessly agreed.
Italy is a natural and right choice for the company's Chief things you could do what I believe is the most prestigious tool company in the world.
I did and I have worked closely together since he joined the company in 1997.
And in recent years, we have been managing the company together with <unk>.
This transition will be one of continued T and it will be seamless.
I'd like to say a few words.
Sure. Thank you good morning, and good afternoon, everyone.
As you said, we have been working very closely together for many years and we will continue to do that.
Im personally very excited about what lies ahead.
Full of incredible people, a company with excellent knowledge and capabilities in a company with tremendous potential.
I'm also very proud of all our people in the character they have shown as we navigated the challenges of 2020.
Given the circumstances the company performed well.
As you heard we have a strong balance sheet, having paid down a lot of debt, we have reshaped our portfolio of assets, which gives us more focus and through the experiences of Covid, we have uncovered more efficient working practices.
Will underpin our competitive position going forward.
From this strong base, we are well placed to undertake the work that will be involved in ensuring that arcelormittal transition successfully to a low carbon future.
It is a great challenge, but also a great opportunity as it allows us to utilize the strength and breadth of our human and technology capital.
Our role is to lead this transition and this will undoubtedly be a critical driver of Arcelormittal strategy in the coming years and decades.
I believe we can do great things as a company.
Today, We also announced January no Kristina <unk> as our new CFO.
Welcome to <unk> well I think he has regularly attended our analyst calls for several years now and has also been meeting with many of our investors.
Jim I don't know I have been working closely together in his capacity as head of finance and he has been instrumental in the progress we have made to reshape our balance sheet.
<unk> has proven its capabilities with a track record of achievement and you really embodies the attributes we look for.
I will pause there now and hand back to Danielle to begin the Q&A session. Thank you.
Okay.
Thanks for that yes, thanks, Mr Mitchell.
So we have a good Q in front of us and we will take the first question. Please from <unk> at Morgan Stanley.
Please go ahead, yes, hi.
Danielle.
Congratulations on your new role you are now at the helm of the company that is probably in the best position. It has been since the merger of Arcelormittal back in 2006, but if I may ask you in your new CEO role, putting your CEO hat on what are the top three accomplished accomplishments that you plan to achieve in your first year in the role.
Okay Fantastic first of all thank you very much it's a real privilege and honor to be appointed the arcelormittal.
As you know Mr. Mitchell and I have been working very closely you watched us for many many years so the changes as evolutionary not revolutionary.
So I would think of continuity and more than anything, but clearly as the CEO will be managing and overseeing the performance and the development of our short and long term strategy to create value for all stakeholders.
There are.
Three areas to focus on.
Lot of this is captured in our presentation as well, but let me begin with the first clear leadership on sustainability.
As that is not only a license to operate but as I mentioned, it's an opportunity for us to demonstrate.
Capabilities as you know we have <unk>.
Indus capability.
R&D, we are the technology leader, we have the most committed most diverse most passionate workforce in the steel industry on a global basis and together I do believe that we can create the right solutions as we have to decarbonize. The steel industry and this is not only process, but also product.
As you know we have begun investments on various technologies, whether it is the smart carbon root our innovative D awry and I believe we're the first company to actually book certified Green steel in the fourth quarter of 2020, so clearly.
It's an area, which is a threat, but also an opportunity for us. The second is we need to maintain and improve our cost position. This is at the heart of our DNA and I think this is how you will remain successful in the global steel industry.
Clearly, having the lowest cost position in each of the regions in which we operate.
Is what allows us to further develop our products further develop our strategy grow the business and create value through the chain.
Lastly, I would say our portfolio of assets.
It is now more focused and it presents a range of investment opportunities I'm not suggesting that we increased capex country. You will have seen our capex for 2020 on a scope adjusted basis matches, what we've done with the same scope in 2019.
The portfolio of assets that we have separate us from our peer group as it allows us to capture unique growth opportunities.
Whether this is Mexico or.
Liberia or.
Brazil, we have talked a lot about this in our presentation, but we have restarted our Liberian project for example, where more than half of the capital has already been invested.
In Brazil, the market is growing faster than we anticipated. So we started the <unk> project, which is more value added product in the market. We continue with the Hot strip Mill project in Mexico. As you know, we don't have a domestic presence in Mexico, It's a growing market, it's still importing flat steel and through this investment we can participate in all of that.
Just to give you a sense of numbers just these three projects is an incremental $1 5 billion capex.
And on normalized spreads and normalized pricing, our long term conservative forecast of iron ore, we expect them to generate more than $600 million of EBITDA.
So I hope it does give you gives you a sense of the three key priorities.
Clearly underpinning all of that is we need to reward our shareholders. We all in the company and we work very hard and together with our shareholder support.
We have achieved our balance sheet targets. We now have a strong foundation for a consistent capital returns to shareholders. I Hope you saw that this morning in terms of far.
Announcements, so maybe I'll just conclude right there and just.
<unk> I'm very excited with the next chapter.
Thank you.
Okay.
Thanks, a lot. So we will then move to the next question. Please.
Look at J P. Morgan.
Go ahead Mike.
Yeah.
Okay.
Hi, Rick.
Okay, Lucas just dropped off the conference.
Okay, So im sure Hell rejoin.
In which case, we will move directly to Exxon.
<unk> please.
Good afternoon. Thank you.
And now the COVID-19 or the other comments congratulations on the new role at the plant.
If I can answer that question.
If I can ask you a question with regards to the outlook for deleveraging and shareholder returns.
On past calls I believe you commented that deleveraging would essentially concluded about 7 billion subject to seasonality.
50% of free cash flow payout ratio is excellent to see but it doesn't leave a lot of cash on hand that will naturally drive further deleveraging just trying to better understand given your comment 7 billion is sufficient to ensure investment grade through cycle do you want net debt to fall Ferber.
Is there a new target, we should keep in mind for lower than that.
It is the case is there an opportunity for the free cash flow payout ratio to actually increase in future years.
Thank you.
Sure. Thank.
Thank you Seth.
Look at the capital return policy that we announced this morning as a very good starting point.
We've talked about.
Reinstating our base dividend at 30.
That's our intention is that that progressively increases.
Simultaneously, we have added a variable component of free cash flow as our share buyback on a combined basis thats about 60% of free cash flow we.
We have not articulated any further deleveraging target.
That is based on maintaining our investment grade metrics through the cycle $7 billion is the appropriate number.
Based on the work that we have done so the takeaway I would have from our release and our thought process is this is a very good starting point and based on the discussions we've had with our stakeholders shareholders as well as our board.
The feedback we have received.
So this is a good start and I'm sure in near future, we will be progressively increasing these payouts.
Okay cool thank you.
Okay.
Thanks Mitch.
So next question please from Jack at Goldman Sachs.
Yes, thanks, very much and yet where that kind of <unk>.
Congratulations.
My question is just you've talked about sustainability and decarbonization is obviously a key focus for the group.
And we see the carbon price, which has ticked up quite notably of late so I was just wondering.
Can you tell us what the cost of covering Mattel's carbon emissions was in 2020, and then the costs expected going forward.
Yes.
Thank you Jack.
In terms of your question.
We have not.
Disclosed.
The cost of emissions, but what I would suggest to you is that we are in line.
With the competitive situation in Europe, and there has been some discussion in the past or some analysts' estimates as to what roughly that is and that's in the ballpark in terms of moving forward or going forward.
A significant portion of our shortage is hedged.
So.
Not all of it but a significant portion so we would not expect to see a cost increase due to the price action.
That has happened.
It had been in the recent past.
I think it's also what's also important to underline is that we continue to make progress.
Decarbonize our process routes.
And we continue to improve.
Our emission standards and that also provide support.
The level of.
Emission allowances are reducing progressively year on year.
Thank you Rod, perhaps just one follow up if I can which is.
Overseas.
Now disposed of the am USA assets.
You've announced the fixed cost reduction.
This morning, and I'm, just wondering kind of in a more normalized demand environment. If you would think that margins can exceed.
Peaks in 17 18 or weather.
Perhaps some of these.
The considerations would would likely.
Sort of diminish that likelihood.
Okay.
Okay.
So if you look at the market today clearly it's ahead of.
Where we were in 17 18.
In terms of what are the drivers of this.
<unk>.
It's the fact that real demand has come back.
You can see this across the board post the summer Lockdown.
We see that in all the regions in which we operate on top of it we have had significant stimulus support and.
And clearly, we see new demand patterns that should emerge.
As the energy sector continues to Decarbonize.
And Thats whats driving real demand and we see this underlying recovery of real demand continuing into the second half.
In terms of the cost of carbon and the impact on margins as I mentioned earlier. It is not that significant clearly these costs will continue to increase.
And therefore with our capabilities as a company both on the technology side and on the process and product side and regulatory support I believe that we can.
Turn the threat into an opportunity.
Yes.
Thank you very much.
Thanks Chuck.
We'll move to the next question. Please from Jason at Bank of America.
Yep.
Good afternoon, everybody and congrats too.
Well done.
Just a quick question for you on your JV.
And I was just wondering if you think that you are getting value for your jv's.
In the share price and what would it take to bring these assets.
Into the P&L as part of the group EBITDA and particularly here I guess I'm focused on MSR, given the way that business is growing in importance.
But first of all thank you Jason.
Youre right. This is an important question that you raised.
This is a discussion that we continue to have with our stakeholders and we will engage with you and others to better present the results and.
Figure out what is the best way to also.
Presented in terms of EBITDA.
Maybe.
Take a moment and just provide everyone with an update there is a lot of information.
In the Investor presentation that we issued this morning.
But the company performed well in 2020 production records in the fourth quarter.
Almost across the value chain in the month of December were very proud and appreciative of the hard work. The management team has done there the company was positive EBITDA and positive free cash.
Through every quarter of 2020, we are in the process of commissioning a pellet plant 6 million ton pellet plant and the second in the first half of this year, bringing our total capacity to 20 million tonnes and focused on Debottlenecking. This operation to $8 5 million tons, and then focusing on further growth I think one action that we will.
Take this year, which will support your question is we will be inviting post.
Yes.
I mean, COVID-19 travel rules are relaxed.
To visit the facility and see firsthand.
What is the quality of the assets that we have the quarter to the people and exactly what is the strategy and perhaps those that visit we can continue these discussions and figure out is there a better way to present.
As part of our financial presentation.
Okay. Thanks for that.
Forward to that truck should be pretty exciting.
Yeah me too.
We all need to start traveling now.
Okay.
Great. Thanks, Adam So we will move to the next question. Please from Alan at Jefferies. Please go ahead.
Thanks, Ed and good afternoon, and congratulations broker Chad I was just wondering if you could talk about the tightness, we're seeing in the European market right now.
How far into the second quarter are your lead times and how long do you think this market environment.
Is there an environment, where there's tightness goes.
The summit.
Yes.
Thank you so the the.
The demand situation is actually driven by real demand.
And as I mentioned earlier.
So real demand come back stronger than any of us had forecasted.
Driven by consumer sentiment, but also by stimulus funds and we see we see that situation continuing.
Into the second half I mean underlying demand levels remain healthy clearly, we should not underestimate risks.
We're still in a situation where there is a global pandemic that could be mutations or the rate of vaccine deployment could disappoint.
But assuming those risks don't manifest then I would expect that demand levels would remain healthy into 2021, and perhaps even into 2022.
Yes.
Thank you very much.
Okay.
Thanks, Alan So we'll take the next question please from Phil at Keybanc.
Hey, thanks very much.
John the auto and packaging contracts in Europe, and North America should we expect those to be gross profit.
Accretive to 2021 against current iron ore prices, what do we need to see some easing in those raw materials.
Yes.
Sure, so overall automotive and packaging.
In the aggregate positive relative to 2020.
And.
Yes.
Yes, and so I hope I've answered your question.
Yes, it does.
Secondarily.
Not working capital expectation for the year.
Clearly theres a theres a build given the.
The volume and pricing.
<unk> do you have what's the what's a reasonable way to think about how much.
Build we could see this.
This year on the numbers.
Jamie I don't really we would take that up yes.
Yes.
I can.
So I think it's important to start by saying that we have of course.
Efficiency targets, achieving 2020, I think we did a very good job in that she does.
<unk> is to make sure that we retain those gains in 2021 and beyond.
I think it's also important to acknowledge that we exit 2020.
Market conditions that reasonable level in terms of raw material prices et cetera.
So this is important to keep in mind. This fundamentally our working capital position will be determined by the changes we've seen in quarter four of 2021, I guess quarter four of 2020.
Of course, we believe that our volumes will continue to increase production and shipments.
Our apparent steel consumption forecast for the year.
And additionally.
Our selling prices in Q4, it still does not reflect the current market prices that we will see in Q1 and Q2, so that has to be taken into account as well.
I guess.
So our expectation is for 2021 to see investments in working capital.
As long as we can retain always sufficiency gains as we discussed we've been unexpected to be.
Auto proportional upsides.
Sure.
Thanks very much.
Okay.
Thanks, Phil Src next and unless we have Alan. Please go ahead. Please.
Okay.
Alright, Thanks for question already.
Actually I had one about the green steel products and I. Appreciate it's early days, but some of those only coming out in December.
But.
<unk> standpoint, keeping saying are you able to achieve premium pricing level for these products and how do you see the market eventually maturing feeds.
One where it's a simple premium above their <unk> intense equivalents or does it become a <unk>.
Let me separate market with its own supply and demand fundamentals.
Yeah, I think it's a great great question and we don't have all the answers.
As you mentioned, it's early days.
I think the two key takeaways are that look we have a product out there which is accepted by the market as certified by a third party auditor. It is accepted by the U N.
Global how submission protocols, so thats excellent achievement and we continue to we'll continue to grow that product offering and number two we did receive better margins on that product all in so it's off to a good start.
Okay. Thank you.
Okay.
Thanks, Alex I will let taking the next question please from Christian etcetera.
Same thing here.
Congratulations.
Sure Jim.
Just on Greenstein, just to follow up could you remind us what kind of where do you expect to be able to produce food.
In the next two three years.
I missed that one.
Coming out of Germany, or are you able to achieve future out of euro.
In Quebec for instance.
Yes, so first of all thank you. Thank you Christian.
<unk> 601000 tonnes, a certified green steel by 2022, and this is primarily a western west Europe offering at this point in time, we are examining what we can do in other regions in other markets as we speak.
Okay, Okay, Thanks, and follow up on it on a different subject.
Percent of free cash flow would sure.
It would be used to do share buyback.
So now you're aware, where your share price increases materially.
Perhaps a share buyback are impacted.
That's obvious.
Would you consider.
Changing is that for a dividend payment or reducing back on increasing the dividend instead, though all you said shortly are you committed to buy back.
Yes. Thank.
Thank you for the question, we're not committed.
To the buyback in that sense, we remain flexible the intent is to return capital to shareholders clearly in a buyback shareholders can also participate by selling down their stake proportionately as well.
But this remains a live discussion and we're happy to engage in.
And fine tuned the plan, but the fundamental takeaway should be that there is a progressive base dividend.
But the word progressive.
We are signaling that it should increase in time and on top of that the remaining cash flow, 50% would be returned to shareholders.
Great. Thank you thank.
Thank you.
Thanks Christian So we'll move to the next question. Please from Carsten at Credit Suisse.
Thank you very much.
First of all congrats.
To the euro.
I have a question on the 1 billion fixed cost reduction plan.
As shown on slide 11.
Just to clarify all the closures and crocco flow wrong and.
Don up part of the 1 billion fixed cost reduction plan or does it just opens the opportunity to reduce fixed cost and other plants.
Thank you I'm not herbison clear on your question, so I'll try and answer it but let me know if I haven't fully done so so the footprint optimization and Krakow and neuron Gen. Silvana are part of our $1 billion fixed cost reduction plan, it's not the <unk>.
Only part it's not the only part of the cost reduction plan. There are other productivity improvements that we're making across the board they're all learnings from.
The COVID-19.
Crisis and at the same time, we're improving our cost in terms of how we maintain and repair facilities and then clearly there is significant SG&A savings as well.
Okay, no that answers that already there'll be cost reductions you had the lower <unk>.
Lower numbers of employees et cetera, et cetera, and crackle for the launch and blood donor.
Thanks, you contribute it to the $1 billion.
Wanted to see whether there is a.
Because the EBITDA was missing from that.
Facilities too I would guess.
After the closure good. Thank you very much that is my question I'll get back into line. Thank you very much.
Sure Carsten just to add.
Something to your comment.
I would not get too focused on the EBITDA missing from these facilities. This is a bit like the asset optimization plan.
So the contribution is really the cost saving the volumes that we would lose from the crocco primary are being supported or supplanted by the volumes coming from.
Our facility, which is next door DG facility.
Amping up our capability at DG. There's also small investment there where we are debottlenecking. The caster. So the concept is that we have the same throughput to the market.
But with a lower asset intensity. So the saving here is cost is one clearly which is most important but we also save on ongoing working capital.
Because working capital is just at one primary facility and we also save on Capex, because we no longer have to support two primary facilities for the same throughput and the same applies to the Coke battery.
Applies to Savannah, where.
Lot of the production is shifted to Vanderbilt Park.
Okay that helps thanks for the explanation.
Sure.
Thanks, So maybe so next question please from Myles at UBS.
Right.
Just maybe first of all on Capex.
$3 billion.
In 2021, how should we think about that for the medium time and again.
Alongside your Decarbonization plan.
We can yes.
See capex stay around that level.
For the next 510 years or are we going to have to see some material increase come through is as you look to decarbonize the business.
So that's an excellent question.
Thank <unk>.
Mentally our capex level is $2 8 billion for 2021.
And this is in line or slightly.
In line with our depreciation forecast for 2021 and includes all of the strategic Capex investments we are making.
Some of it is de carbonization, but also.
The stuff, we're doing in Mexico, Brazil in Liberia.
In terms of going forward.
Good.
<unk> little bit in the sense that in June of this year, we're issuing.
Our carbon report.
And then the carbon report, we will provide more granularity as to what our.
Capex requirements would be to Decarbonize, our asset base.
2013 with specific capex numbers, but fundamentally.
Uh huh.
We arent expecting that the capex levels will materially increase this should be around the $3 billion ballpark plus or minus as you suggested.
And then maybe just on the M&A front.
There's various transactions gang, hoping talk around in Europe.
Do you think there are any sort of compelling opportunities for yourselves to.
Get involved.
Well in Europe or elsewhere.
So as you know we've done a lot of work to do.
To delever the balance sheet, we have achieved our targets at this point in time, our focus is.
To look at the opportunities we have on an inorganic basis. We also made a huge.
Acquisition and step forward in India, our focus is to grow that business.
And there is tremendous growth opportunities there and some of the emerging markets in which we operate I would say southern United States as an area of growth for US, we announced there at Calvert plus Mexico, Brazil.
And of course, we have a lot of infrastructure and mining. So just leveraging that I think those are the areas, which are our growth priorities and simultaneously clearly the focus is how we decarbonize.
Whereas I mentioned earlier, we see threats, but also opportunities.
So no M&A is a.
A message.
Yeah, I would never rule it out, but that's not the focus.
Okay. Thank you.
Thank you.
Okay. Thanks miles one way to next question. Please from <unk> at Citi.
Thanks Kim.
Can I just follow up on the capital return policy.
What would be the policy on disposal of assets and four stakes.
Like the ones in China et cetera.
That also.
It should be kind of lead from the the cat the buyback announcement on the cliff stake sale that that would be the policy is to use that cash for.
For buybacks in addition to that 50%.
After after our free cash to be used for buybacks.
Yes, that's the question.
Sure. Thank you.
So first of all.
I just wanted to make sure we differentiate between the capital return policy.
And asset optimization.
Capital return policy is quite simple progressive base dividend after that whatever free cash flow is remaining 50% to be returned to shareholders and that continues in terms of the asset optimization. Clearly you saw that we received cash proceeds from Cleveland cliffs in the second half of last year, and we use that to buyback our shares.
We also sold down our stake in <unk>.
Cleveland cliffs at beginning of this week and we're using those proceeds to buyback our shares.
We have as I mentioned earlier, we have hit our deleveraging target so to the extent that through asset optimization, we have net proceeds and net excess cash proceeds.
I think it's fair to assume that we would figure out the most optimum efficient way to return that to shareholders.
Thank you.
Thanks, a lot for us.
So we will move to the next question please from brokers.
Okay got it.
Yes, thanks for taking my questions and congrats again to what T J and Jimmy no.
The question I have is on the.
Police business.
So obviously this is now part of your.
Assets held for sale.
Talk about what the ideas for this.
And in this context, what it also then.
Can be applied for detailing his take on which you have.
Don on impairment in Q4.
Yes.
I would not read.
Make those conclusions.
Uh huh.
We looked at these businesses and clearly the plate market has not recovered will be around.
And then testing.
And those were the impacts so I would not read into our disposal strategy linked to our impairment strategy, but how virginia to provide more details.
I think that's it.
It's quite well I think our business is part of it is really dependent on oil and gas projects.
We believe just wanted to take a little while to recover.
And then once we put that into our impairment models then.
In fact the.
Yes, and Thats why you had the impairment then.
The same would apply to the bank also.
I would just say that it was our own assumption. So it doesn't mean that the company is recording I think been more COVID-19, but that's our own.
The use of this situation.
Okay.
And then.
A follow up on ilva.
So.
By mid of the quarter.
Italian government will join as a shareholder and it will be then run.
50 50 JV.
How shall we think about the cash needs or the cash needs to inject into the JV from your side I think going forward how long do you think the planned investment too.
To step up the environmental.
Hum installations and to.
Implement the industrial plan and to cover the future cash needs.
These be covered by the <unk>.
But the new capital structure as of as of this quarter and in this context.
Are you thinking about the DIY project, which I'll be linked to the electric arc furnace installation in Toronto, how much would you be available as a partner owner of that asset.
Sure.
So youre right that we intend to consummate this transaction.
In the middle of this quarter so fairly soon.
As you mentioned, it's a public private partnership.
The business plan that has been joined he made.
With NV Italia and Arcelormittal contemplates that.
Ilva as a standalone entity.
We will have the funds, which are sufficient to fund its environmental capex as well as its industrial Capex and that's a multiyear plan.
That has been agreed.
The intention is that is.
Another consortium and clearly.
Hey, good luck enjoined that construction, but another consortium would be building the DRA facility, which will be supplying the DRA at a predetermined price and obligations to build in EES and completed environmental investments and obviously.
Refurbish blast furnace number five so those are the key tenants of the industrial and the strategic plan.
Vis video of our project.
Okay.
Can you comment for the TRA project could be of interest for US Let me call.
Yes, I think at this point in time, it's too premature to comment materially.
We'll be working through our ownership slashed partnership in Nova.
On on how that DIY project is commissioned what are the technologies that deploys and what is the best way to add a best Opex cost for you without going forward.
Alright excellent. Thank you very much.
Thanks, a lot guys.
Move to the next question. Please from grant at Bloomberg Intelligence.
Alright.
Thank you congratulations with nature.
Just a follow up question on your outlook.
That's good.
Consumption in Europe, going up sort of $7, 5% to 95%.
I'm trying to contrast, your fairly bullish remarks on steel demand.
The outlook in the second half of the year with some of you.
In Europe.
Probably a little bit more cautious.
What is your sort of actual.
Outlook or how much visibility do you have looking out into the second half in terms of order books et cetera.
Thank you.
Good question I think we are receiving lots of inquiries into the third quarter of this year.
So we do have some visibility.
And.
We are in the midst of deciding whether we book those inquiries into the third quarter.
I would characterize our outlook based on what we're seeing in terms of demand.
We see.
Good levels of real demand.
Across the board and in terms of inventory levels. If you look at inventory levels, they still remain low.
And so the full restock is also not complete and that perhaps is the reason why we're more constructive in terms of the real demand levels.
Great. Thank you and then perhaps just.
A small follow up in terms of.
In terms of the Green recovery plan in Europe, what are you actually seeing any sort of.
Tangible evidence of <unk>.
Projects will demand coming through on that sort of basis.
We had been supplying to the renewable sector.
So in terms of <unk>.
Growth.
As we were expecting so there's nothing which is divergent into 'twenty and 'twenty one relative to 2020.
The interest that we have seen in certified Green steel as it is clearly very supportive and we have seen a lot of interest in that product.
Great. Thank you very much.
Thank you guys.
Okay.
The next question please from Luc.
At J P. Morgan.
Hi, I apologize about four and congratulation Covid, Sharon I might not.
Two questions if I might just firstly on.
On the EBITDA contribution from <unk> and flat steel asset folks Chris can you just give an indication of what the contribution was from them in Q4 and 2020.
Sure.
Jamie No would you like to take that.
No I cannot.
Uh huh.
Well.
It was.
Q4 kind of a breakeven or slightly positive.
No.
Not really add too much.
And the same for Ami USA it was marginally positive into Q4.
Okay.
Alright, and then secondly, just on European shipments you talked about restarting mid February.
Remind us how much additional capacity that's kind of sad.
And then just in terms of shipment.
For Q1 is it realistic to expect output could potentially be flat quarter on quarter in Europe, even with Banque.
Bank de consolidated and coming out of the controller.
Number.
So we we haven't provided such specific guidance by region.
I think the important thing to take away from the <unk> line.
Is that we all build inventory ahead of a re line. So the impact on finished steel is not that significant sure. There is some impact but not as significant as the total size of the total volume of that furnace.
Clearly shipments into Q1 relative to fourth quarter.
Creasing across the board.
We see real and apparent demand come back.
Okay. Thank you.
Thanks very much.
So we'll take a follow up now from Exxon.
Excellent.
Thank you for taking my follow up.
Just with regards to your profitability in North America, following disposal and USA.
I think to your last comment there and you'll see with just moderately positive in Q4, as I guess a bit surprising.
In light of the higher properly reported for the entirety of NAFTA can you just touch on on a go forward basis, how we should think about the profitability of the new am naphtha business versus prior at any scale of margin uplift, we should expect maybe a comparable pricing environment.
And if I can just throw in a second question your comment earlier on potentially expanding talbert. If you can walk through what would potentially drive that decision and over what timeline. Thank you.
Sure.
I'll talk about California, and Oregon.
To answer the first question in terms of.
Calvert, we have taken the decision to build a one 5 million ton EES.
And caster.
There is a good description in our Investor presentation, we have submitted all the required documents for environmental permitting the equipment manufacturer selection is ongoing and the preconstruction activities are already underway.
There's a lot of benefits.
From the CES.
Clearly supports our made in America or buy American initiative.
It helps in the automotive business as well and the idea is to produce gen. Three steels at.
At Calvert, we can hook charge. So there are some cost advantages as well.
We also have the option to add further capacity.
This will literally be doubling in just duplicating the asset base.
And the Capex intensity would be much lower almost half of the first.
And this would also be very attractive as we become.
Even more nimble and have shorter lead times.
And address the market. This obviously is not an increase of shipments in the marketplace because.
Calvert is already maximizing its finishing output, but this really is a pressure on us trying to supply slabs into Calvert.
Whether it's the contract that we have at Cleveland cliffs or from our Mexican operations as they ramp up their hot strip mill. So I hope that provides you with a perspective of some of our thoughts vis vis Calvert.
I'll get James.
To talk about NAFTA.
Yeah.
So mark Thank you forward I believe that.
The key driver there as you can see I didn't really catch them much.
Selling price right.
A very small increase quarter on quarter and prices.
Clearly thats because of.
The bad.
Our quarterly contracts not benefit at all in quarter four.
Also the spot orders also.
The bank also didn't benefit so much.
We are really looking to.
To show a significant improvement in terms of prices of course since we're moving through.
Quarter one.
The deconsolidation of <unk> USA on Silicon USA will translate into a higher levels of thoughtful.
Tom for that segment.
Our expectation.
Yes.
So I would summarize it.
Are you able to give us any sense of the range of uplift in EBITDA per ton.
On a like for like.
No I will not get into that level of detail.
That's.
Okay. Thank you.
Okay.
Just to add to <unk> comment I think based on what we said previously you can work it out so you have the.
The shipments dropped to 30 million tons through the cycle.
$101 million of each.
EBITDA contribution to the segment.
So if you strip that out from from the average of the prior cycle.
I think you will see that.
It's comfortably less than half EBITDAR over the segment comfortably more than half of the shipments of the segment.
Therefore.
The remaining basket of business you will see.
Through that cycle, a step up in the EBITDA per ton.
Very clear thank you.
Great. Thanks, So we'll take another follow up from Jason at Bank of America.
Jason is not out of the queue anymore.
Thanks, operator so.
Perhaps carsten at credit Suisse, a followup from him.
Yeah of course I have one question on the iron ore segment.
We have seen a quite significant increase of almost 1 million tonnes of marketable iron ore quarter on quarter.
Can we assume that this would be the new run rate or did you sell out of inventories in the current in the last quarter.
And shipment with moderate to more normal levels going forward.
Thanks, Carsten, Thanks, Carsten Simon speaking.
Simon.
You need to look at that in the sense of.
Q3.
Q4 together so.
The main increase that we saw in Q4 was a really solid quarter across the board, but particularly in Liberia in Canada.
Library was close coming out of the wet season from Q3. So you do see a tick up in Q4, but we had a particularly strong business run through the Q3, so no not really building stocks as you're intimating just solid performance, Canada, the same IMC and Quebec had a very strong quarter.
Again that being some delays in.
Covid related.
Contractor activities.
Maintenance in Q2.
In Q4, we had a strong run at production and so overall, we saw a big a big number of $10 six in terms of Q1.
Looking forward on your question I mean Q1 is of course the seasonally.
The endpoint typically with the weather in the northern Hemisphere.
So youll, probably see that come back a bit but.
Now our goal is to run our assets full at this point in time.
Perfect. Thank you very much.
Okay.
Thanks, Pat I think we're going to make time for three more questions. The first of which will take care from Myles at UBS.
Great. Thanks.
Just just to clarify with you will see intention with the remaining clip stake I mean are you.
It kind of feels like its non call.
There's a bit of a lockup I believe that.
If you want to sell it.
Three or four months time.
Are you likely do you think about Apple cycle returns.
We've seen it twice already so I assume the answer is probably yes, that's what we want to just clarify them on.
Sorry, I missed the second half of your question.
So.
Any proceeds from disposals the D J.
We'll do decide to return those immediately.
Would you wait till quarterly results to decide what to do with the proceeds.
Okay.
Look.
I'll just answer Chris first in terms of.
The equity sale that was completed.
The early part of this week I think Chris was looking at how they can strengthen their balance sheet to delever their balance sheet.
And.
They were contemplating an offering and we thought this was a good opportunity to piggyback with.
Their activities so other than that there's nothing more to add vis vis our stake at Cleveland cliffs.
In terms of our overall strategy.
As I mentioned earlier.
The intention we have achieved our net debt targets.
Our capital return policy to shareholders.
In case, we do.
<unk> Stakes in other interests that we have.
And then clearly we would examine.
Uh huh.
What to do with that cash the intention was not to just continue to de lever, but if there is no. Good use for that cash then clearly.
We'd be wanting to returning to shareholders.
I also mentioned earlier that the focus is not M&A. The focus is to grow the business, we have great opportunities within the company within our Capex envelope.
And we and Thats really the focus areas.
Okay. Thank you.
Thanks, Paul So we'll move to a further fallout from Christian at Socgen.
Yes. Thank you.
Very quick one on the on what we're seeing in China at present.
In particular the bogo.
Seemingly consolidating.
<unk>.
The Chinese corporates world.
And then sometime with things like from a sorry.
So it is about continuing to take out capacity. So you just your impression that we are having a step change.
And the position of China.
That's great to explore deflation.
And are we going to see more imports into China and for children.
The relevant factor to consider.
I think those are all.
Questions can be answered I think they're all good indicators of results. So.
Interesting commentary.
The VAT rebate that they may be reducing the rebate, so making exports marginally less attractive, but I think it's too early to conclude on what the demand supply balance in China would be and how that would shape up.
Clearly consolidation is good.
And that is one of the areas that the Chinese steel industry was very different from the rest of the word because in other markets. There is a higher level of consolidation and what we have seen in <unk> in China and as you mentioned, Bob is leading that process, but I expect other steel companies to also do the same.
It will also be interesting to see.
Uh huh.
<unk>.
What what the impact.
Decarbonization is on the Chinese steel industry.
Because that will also shift capacity or the type of process that is deployed.
And what impact that has on the overall supply of steel in the Chinese industry.
Nevertheless, I would always remain cautious given the history of exports coming out of China.
Okay, great. Thanks.
Yeah.
Thanks, Christian So we'll move to a further follow up from.
Bastian at Deutsche Please.
Hi, Yes, good afternoon, gentlemen, Amanda Tien Tsin, we know also congratulations from my side.
I just have a very quick follow up on Joe's question earlier on the European production network and could you. Please help us to reconcile how much capacity you brought back to production on a net basis since the beginning of the year not sure if I kept track correctly, but from what I understand you brought back then.
And then one blast furnace desilva with I think four to 5 million tons of new.
Capacity all in and then secondly are there still any blast furnaces, which you keep it offline after idling them in response to Covid last year.
Any large maintenance breaks coming up here at the European network before the year end. Thank you.
Alright, sorry about that so in terms of oil production. So we have.
So in Europe.
We brought back capacity during quarter four.
And now we expect to restart.
And again.
Points now infill.
We have also restarted we also operates at you about knowledge three blast furnaces, and so and then we're going to be running all of our tools.
Paul.
There is no more blast furnaces to me.
Brought back up.
And again as we said Oh yeah.
This extra production because we do intend to reach labs. So we continue to.
<unk> operates our finishing with synergy.
So the production that we will replace it.
We have been we have been consuming.
Okay perfect. Thank you in terms of any maintenance breaks which are potentially coming up to state anything larger on your schedule.
Not for quarter one.
And for the rest of the European network.
Well.
I don't believe we have anything I wouldn't need to double check.
But.
We're all looking at each other here so [laughter].
I don't think nothing that comes online that is of significance.
Okay. Okay. That's perfect. Thanks, so much.
Okay.
Thanks, Bastian. So we have one final question.
And it's from J P. Morgan.
Hi, Thanks, a lot for the follow up question.
My question's just on the comment earlier around China and scrap SKU.
A big mess in the scrap market.
Backend Laclede Darren Ltvs.
It's Colin.
The activation of scrap import in China.
If you have any thoughts on all of them.
Scrap and maybe over the medium term given your environmental drive probably likely include the mood towards electric arc furnace.
And whether you see any risks from scrap availability.
Scrap pricing.
Beating your you'll move towards yeah, yeah.
Thanks.
Okay great.
I think we know you don't comment on specific price action of specific products, either on a regional or a global basis.
But maybe just to provide some context.
Uh huh.
As I said earlier, it's a bit hard to read all the actions in China, let us see.
Buyers, there and what impact it has on an era of technology and scrap, but what I would add is that on a global basis. If you look at the steel industry. Two thirds of steel is coming from pure iron ore and one third from <unk>.
Scrap so fundamentally there is no way to satisfy demand if you just rely on scrap.
And that is why there is a lot of discussion on DIY route where you basically use a different energy sources, but.
You create derived from iron and that you can feed into an electric furnace or you deploy smart carbon technologies.
In which you reduce the carbon emissions coming out of blast furnaces today.
And so at.
At the end of the day, if you really want to Decarbonize. The steel business you need to find a solution for primary steel as well just because there's not that much of scrap around.
Thank you.
Okay.
Great. Thanks, Mike.
Mr. Mitchell I didn't hear that.
Finalizes the Q&A session. So how about you for any closing remarks.
Thank you everyone and thank you Daniel.
Thank you everyone for joining this call.
We'll solve it is a pleasure to talk to you listen to our questions and see your reaction and reflection on our performance.
A lot of juice from what your opinions.
Discussing.
And we will work on those things.
Looking forward to speaking to you next quarter, Thank you ever get to you.
Great. Thank you very much guys talk to you next quarter.
Yeah.
Thank you.
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