Q1 2021 ArcelorMittal SA Earnings Call
[music].
Okay.
Okay, Daniel you can start.
Thank you Eric.
Good day, everybody Hi, this is Daniel effect from the <unk> Investor Relations team. Thank you for joining this call today to discuss the results and progress we've achieved in the first quarter of 2021.
Present on this call today, we have a detrimental I'll CEO, we have Jimmy no Kristina CFO and we also have Simon Waikiki ahead of mining.
On our website. This morning, we published our results presentation with detailed speaker notes, so as usual and in order to be as efficient as possible at the intention today is just to have some opening remarks, and then move directly to the Q&A session. If you would like to answer ask a question sorry. Please do press star one on your telephone keypad.
Two joined the key finally, I would like to remind everyone that this call is being recorded and to draw your attention to the disclaimers on page two of the presentation and with that I will hand over the call to attention.
Thank you Daniel Good day, and welcome everyone and thank you for joining today's call.
Before we answer your questions I would like to begin as usual with a few remarks.
Submit until it has enjoyed a strong start to 2021 recording our strongest quarterly EBITDA in a decade.
The operational performance is a testament to all the hard work and resilience that our teams across our operations have demonstrated.
We came out of 2020 is stronger than ever.
Prime to support our customers as their end markets recover.
And we're very well positioned to maximize the opportunities that this recovery generates.
While our first quarter performance benefited from higher shipments and steel spreads there is much more to come given our order book and contract lags.
I'm encouraged by the still visibly low levels of steel inventories in the supply chain.
I am encouraged by the fact that China is looking to control the steel production and exports.
In recent quarters, we are consciously provided more information and updates on the performance of our key joint ventures.
Both <unk> minutes, India and caliber performed very well this quarter and the fact that our JV and associates line represents 20% of our net income shows how important these assets are both strategically and to our shareholders.
Combined our JV and associates and our equity Stakes in cliffs, and Ed EMEA are valued at more than $10 billion or 25% of our book equity.
Beyond the strong financial and cash flow performance. The company made further strides during the quarter on our decarbonization journey.
A milestone this quarter was the launch of X Cobb, which brings together all of our <unk> low and zero carbon products as well as green innovation projects.
We also detailed concept plans to significantly reduce <unk> mission and key jurisdictions.
Finally, I wanted to touch on our capital returns to shareholders.
All of the hard work, we have done in recent years to reposition the balance sheet and optimize our business means that we are in an excellent position to consistently generate and return cash to shareholders.
So with that brief opening Jamie and I will now happy to take any questions you may have.
Daniel should we begin the Q&A.
Yes. Thank you. So we have a queue of questions lined up and we will take the first question. Please from Alain.
At Morgan Stanley. Please go ahead.
Yes, hi, good afternoon, gentlemen, two questions from my side I'll start with the first one is around India, which which is an asset that is clearly exceeding all expectations.
I think 1.6 billion EBITDA from my conversations with investors. It seems that the market is not assigning anywhere close to what this asset is worse, how do you plan to unlock value from this asset going forward. That's my first question.
Okay. Thank you Ella.
First of all clearly we were seeing the COVID-19 environment and we've all seen the harrowing.
Just coming out of India, it's really.
Heartbreaking situation down there.
Our support is to our colleagues and I think they're doing a tremendous job not only keeping themselves safe, but their families running the business and also helping the communities I am not sure if you're aware, but our metal.
Supplying 210 tons of liquid oxygen a day, which can support up to 21000 patients and in record time very proud of the team we built a makeshift hospitals.
With 250 beds in 72 hours and we're growing that capability to 1000 beds.
So really the focus right now is is to take care of the community and the people around our facilities.
And obviously, our thoughts and prayers are that this situation dramatically improves in the near term.
In terms of the business I think you asked the question correctly. There is tremendous potential we continue to see areas that we can further improve the business.
Post post COVID-19, we would expect that demand would be restored and growth would be there are significant levels. Both in the medium and long term and we have growth plans both to zero, where we can do brownfield expansion, but as you know two months ago. We also signed an Mou to build there.
A greenfield site on the East coast of India, So clearly focused on improving the business, but also capturing the growth opportunities as they manifest.
Thank you and the second question is Cliff can you remind us when your lockup lockups and for the common shares and the preferred shares and what is your strategic thinking around the fifth of this investment in your portfolio.
Yes sure.
As you know we are the largest shareholder of clips, we're very happy with their performance.
The team is doing a great job there as well.
In terms of lockup and specifics I would refer to the 8-K filing of Cleveland cliffs.
Thank you.
Great. Thanks, a lot. So we'll take the next question please from Jack at Goldman Sachs.
Okay.
Quick question.
Something we're grappling with is just trying to understand.
The sort of true spare capacity in the European market, obviously, we've all seen the price backdrop.
No signs of.
High prices abating for the time being yet when we speak with most still produces.
Any idled capacity has returned and they're operating.
At or close to full capacity. So just interested if you can quantify from your perspective.
How you see the Europe European supply demand backdrop as it stands today.
Sure. Thank you.
We can't really comment on what others are doing with their capacity or the overall capacity structure of Europe, but if you look at Arcelormittal.
The same is true.
We are running all of our assets.
Clearly in Q1, not all of our asset where online the.
The biggest was obviously the Kent blast furnace, which was undergoing a re line to be language completed in Q1, and so you will see the full impact.
Again furnace in second quarter and beyond.
Other than that all assets running full.
And so your statements are appropriate.
Just.
Second question, if I may very keen to hear how you're thinking about working capital build through the remainder of the year given first quarter performance, but also given recovering volumes in prices where they are.
Generally no.
Yeah, Let me take this one this one project so.
You haven't seen I mean, we have invested about $1 6 billion.
<unk>.
We were quite pleased with that performance.
As we have been seeing.
It goes on and make sure that we retain some of the efficiencies that we have achieved.
In 2020 out of the one six.
I would say that's about a <unk>.
Definitely.
True seasonality is typically in quarter, one we increased shipments and that's what you see and then of course there is also a market element.
Prices have moved up not only all devices, but also raw material prices.
And then.
As we move forward and we think about that going forwards as we know it.
Don't provide a guidance for the year.
But I think it's fair.
To assume that given how.
The prices have been.
Involving recently during the quarter and then after the handle.
We will continue to see prices rising realized prices rising.
And it's also a fair assumption that we will continue to see some.
Movements in shipment.
As we move into quarter two so.
In Q2, we will continue to see an investment in working capital.
But at this point I would say most likely.
The level that we have.
In quarter one.
And then after that I think it's too early to comment we will wait to see how the.
Markets evolve.
Just following up on that do you think you'll be able to.
Yeah.
Or keep the working capital build.
At a lower level than what was seen in 2018.
Well, that's the focus that's focus I mean, we will of course, it's going to be dependent of course, what happens in the second half as we have been saying consistently.
But the focus is.
Thank the efficiencies.
And then I think then it's going to be your assumptions, how do you see the price in writing them closer into the second half.
That's right.
But the focus is of course too.
Keep that are very tight and make sure that we don't let go to simply the efficiencies that.
We achieved in 2020.
Okay. Thank you.
Okay.
Thanks, Jack So we'll move to the next question. Please from Bastian at Deutsche Bank go.
Great question.
Hi, yes, good afternoon gentlemen.
Two questions as well my first one is just on the on your capital allocation side I mean, clearly obviously, if we look at margins.
And margins have gotten way beyond where I think people could expect them to go probably when you last updated US also on capital returns and I guess, given the cash generation run rate, we're running at even post working capital investments.
Probably pretty well on track to be almost debt free by the end of this year.
So with all of that capital having become available how do you think about capital allocation are there any strategic projects, which have basically clogged up the again.
Hum.
And how do you think about the strategy side.
Sure. Thank you Bob.
Fundamentally there's no change in our capital allocation capital allocation remains the same.
We remain very focused on delivering consistent returns to shareholders.
Our capital return policy 50.
50% of free cash returned to shareholders in terms of Capex, we outlined some.
Low capex relative to the.
Amount of EBITDA, we can generate.
<unk> markets as well as taking advantage of our mining infrastructure.
That remains the focus.
So there is no fundamental change in how we are reviewing our capital.
Our capex priorities the same on the M&A the real focus is.
To ensure that we can supply our customer base.
And sure that reliability is much better in the second quarter relative to the first quarter, where we had reliability issues with some of our facilities.
And ensure that we get full.
Full benefits of the spreads that are today and to the bottom line.
Okay perfect. Thanks, I'll detail just a quick follow up on that and also on on Alan's question at the beginning.
If we look at India.
The business is running extremely well you've already earned your cash needs for the even at a lower run rate I guess you'd be very well positioned to capture a depth in the entity dawn by another billion or so.
So do you have any plans to potentially on bought the asset and also is there any contractual option in your contract framework within S, which would allow you to either buy out the stake whack at least increase the stake if you needed to or would it be just like a bilateral negotiation process.
Okay, great. So.
Drivers you had pointed out are absolutely correct.
The company is performing well is generating free cash net debt will come down.
Quite significantly as well.
It also came down last year.
Acquisition is doing well.
In terms of future prospects.
Changing the JV terms consolidating it it's all a bilateral discussion with Nippon at this point in time, that's not our focus our real focus is to grow the business clearly, we see tremendous potential of the business both of them based on the existing assets that we have but also in terms of future growth, whether it's at a zero or.
Or on the East coast of India.
Okay. Thanks correctly, thanks, Eddie thank.
Thank you.
We'll move to the next question now from Seth at Exane go ahead Sir.
Good morning.
In your prepared remarks, you touched on the increasingly tight outlook for steel in China I would think.
<unk> domestic production restrictions in export limitations as well.
As the largest ex Chinese steel producers, how do you think about your ability to respond to that we see lower Chinese steel exports.
Opportunity permitted to produce more ore to adjust your.
Your mix, so kind of domestic versus export tons of any of your key regions. How should we think about that medium term. Please.
Yeah.
Sure. Thank you.
In terms of China, what we saw was.
The reduction in some provinces because of the level of pollution or carbon emissions, Inc. A small increase in electric hog production.
And so.
I think we are just deducting right I mean, I think we are not.
Absolutely clear as to what is the the Chinese steel industry focus of our plan.
It seems logical to assume that they don't want to incentivize steel production due to the whole agenda of decarbonization Simon.
Simultaneously they remove the rebate on exports are they made exports of steel less attractive. So when you combine the two I think the impact is not so much in terms of tonnage and what share we can acquire and how we change our operating footprint, but it's fundamentally on ex China.
I export China steel spreads.
And clearly Chinese steel spreads.
Ben.
The final decider of what is pricing globally and to the extent that improves that's a positive for all of our businesses.
Thank you very much and just one follow up please with regards to your Brazilian business, obviously, it seems like Theres a strong inflection both in the domestic steel demand and also profitability for this operation could you. Please give us a little bit of an update on what you're seeing in the domestic economy. Obviously, despite continued COVID-19 headwinds, what's driving the current strength and how can we expect profitable.
Progress going into later quarters of this year.
Sure Jimmy do you want to take this one.
Yes, I can take this one and so yeah.
Yeah, So I think it's.
Right I mean, very pleased with the performance of Brazil. This quarter's strong performance.
So we have increase.
I was quite significantly domestically so the demand the domestic than it has been.
Quite strong because that should be a surprise.
But we are not really viewing after our apparent steel consumption forecast for 2021, but I think at this point, it's probably fair to say that so we want to be at the high end of that range or even less.
We will update that.
As we come for second quarter, but we are seeing a nice very nice recovery over there.
Let me emphasize that job to make sure that the opportunities so everything seems to be pointing to a very strong year for Brazil.
And this is despite of course I mean.
COVID-19 situations.
Requires caution I mean infect.
Infection rates too high.
But more recently, we haven't seen it.
So it's a good sign.
So we'll see how it progresses.
Can you just give a bit of color on your current Mexican and Brazil, and how you are trying to optimize domestic versus export sales places to maximize margins.
Yeah, I think the long business that typically also export.
Which exports to to Dubai.
As much as we can as the domestic market.
Demand in groups.
And the same with our rebel flipped upside business.
So, especially on <unk>.
So the flat business in Q1.
We have a lower rate of exports. So we had about 40% and typically you would see more like a 56%.
So there is a better mix in terms of domestic exports also this quarter.
Okay. Thank you very much.
Thanks, Seth So we'll take the next question please from <unk> at Jefferies.
Please go ahead.
Hi, it's Alan.
Following up on <unk> question around capital allocation, if theres no change in thinking around Capex or M&A, what do you expect to do with the portion of free cash flow.
By backwards.
It looks like it'll be quite material for the year, our special dividend on the table, considering you're already below your net debt target and seasonal working capital investments now behind us.
Yeah, I've actually looked at that.
Those are all the wonderful questions and wonderful points and I think it's very fortunate that we are at this point in time in junior and the cycle clearly all the hard work that we've put in to create a strong balance sheet is paying dividends and I mean that literally in productivity as well.
And I think we just announced our capital allocation policy.
Were half of that cash is returned to shareholders and the other half is kept by the business.
I reiterate no change in terms of Capex or acquisitions. So these are issues that we will address as the quarters progress and is the closest.
Okay.
Okay.
India can you remind us the time would you expect to achieve the debottlenecking to $8 6 million currently and when you might be able to make a firm decision around that more medium term extension or the potential new greenfield facility.
Sure.
The $8 6 million ton debottlenecking.
Should be achieved in 2023.
So we will have a ramp up next year already but the full output of <unk>.
Of $8 six is expected for 2023 and two.
Most of the brownfield expansion, we would hope to to make an announcement.
Before the end of this year.
In terms of Greenfield clearly the work is ongoing and that has a longer gestation.
But we would like to announce our plans on how we want to grow this euro facility.
Before the end of this year.
Okay. Thank you.
Thanks, Sarah several maybe to the next question. Please from Patrick at Bank of America. Please go ahead.
Yeah.
Hey, Good day. Thank you very much for the opportunity I think just before I ask a question. Thank you very much for the increased disclosure on the JV I think step one to two realizing some value for them in the business.
So thank you very much very helpful.
I wanted to ask two questions.
Can you give us a bit more detail about how to think about the lagged pricing kind of going into the rest of the year.
I mean, if your order book and you will lead times are out.
Almost the end of the year.
You should have a pretty good idea of what of what prices are going to be I mean, how much of it is being settled on a kind of annual basis and the price isn't going to change.
How much is lagged from from Q1 into Q2 and Q3.
And then the second question is just around X called.
How should we think about the volumes coming out and what the potential volumes are and is this is this going to be a premium product.
Do you think.
Realizing a premium above above kind of.
Other non.
And.
Low carbon steels, thanks very much.
Sure I'll take the X carbon and then I'll get Jim to.
To address contract lags.
In terms of ex carb.
I look at it.
<unk> the improvements, we're making in our business.
To reduce our carbon footprint with two products right Green steel certificates.
Which is basically net zero steel.
And the second is recycled and renewable ex carb.
Both of these products are getting a lot of traction in terms of interest a lot of customers from various segments are speaking to us.
And we're able to sell these products.
With the premium relative to other products I think it's still early days, though as to has to this marketplace and what the premiums would be but it does demonstrate that there is customer interest and therefore as we begin our commence our decarbonization journey as we further intensify. It there is also a marketplace, which can all.
To reward US next year clearly the level of product that we will have it will grow.
And again it supports our overall franchise is meeting steel company being able to cater to all of our customer requirements.
Jean Reno.
Yes, that's right.
To respond to your question we have to go through.
These segments, but because they are different so starting with the easy one.
Yes.
Our business is motor sports and small export oriented.
So the <unk> will be relatively short.
60 days maximum so we.
We tend to see them.
C.
The prices are going through.
The results are much weaker.
There was also Quaker also so no flip.
Some contracts yearly contracts with automotive, but overall in a good picture of the not so significant.
So I would say that Brazil also relatively short term.
We will also be.
To two two months.
And then when you move to Europe. So then you have all that business.
40% yearly contracts with Oems.
We've deferred negotiations during the year. So do you have different dates it gets a little bit more complicated than that.
<unk> parties.
But typically we would see two months now with the tightness on the markets you have to take a little bit longer.
And after following the.
Well, let's see.
Our contract business has just come down a bit so it's more in the range of 30%.
And then the remaining you have to take into account the legs as well.
Thanks.
Spartan Index. So you can take at least three months yeah.
As long as the reference.
Okay. Thank you very much thanks.
Thanks, Patrick as we will move to the next question. Please from Christian at Socgen.
Thank you. Thank you very much.
Before I start to them.
Some both for your efforts in India.
Hum.
She can make her a in India.
Provides a little skewed towards doing that thank you.
So he's a great effort for thank.
Thank you for that.
I wanted to ask you on the on capacity I think there was a question earlier.
Well you highlighted that in Q1.
Only partially included but you've had a good Q.
Q2, and the rest of the year.
We think backing of who don't or we take out what's a million tons per quarter from Israel and the rest of your system from which was and he's really operate things, there's nothing which we all are ignoring which is coming online in the next few months.
Yeah, Yeah fundamentally thats absolutely correct.
There's a small ramp up that is happening in our facility in Spain in style.
And that's an electric minimill and as we ramp up it helps that facility because clearly that's part of our decarbonization journey.
And so we're working on diabetic debottlenecking and further.
Enhancing its capacity base. So there may be an impact of <unk> as well.
But obviously the impact of <unk> is much smaller than the impact of Kent.
Yes, and in Brazil, but everything else is on food capacity you're operating.
Yeah. So they are all operating at full capacities, but we did have operational issues right in the first quarter in <unk> as well.
Both in South Africa, as well as in Kazakhstan.
So those are those issues go.
Go away in the second quarter, and so you would have a natural increase in the level of production.
Same applies to dofasco in Canada, and our NAFTA segment.
In Q1.
Okay I'm sorry.
So assume its about a million ton or with the code for quarter for me, it's about Cleveland.
Generally though.
So Christian so the level of production have you Uh huh.
In Q1 that are close to.
100, <unk>. So that's the number you should take into account.
Okay, Great and my last question is.
There's a couple of them right.
That's just a 50 euros.
She was claim being is this going to have an impact on your Q2 and you know if they're going to have profitability should we take that into account until.
From extra Oslo.
Well I think.
Yeah, I think it's it's a it's so as we see prices rise and we have discussed before accretion so.
Have oh, we have protected all hedged part of all our exposure so to some extent.
Protected at least we have picks albrightsville part of part of it.
All of the exposure.
Right and then to the extent that prices rise then yes, I think we have to assume that there would be some impact in all resolved.
As we move forward.
Yeah.
Great. Thanks very much.
Okay.
Thanks, So we'll move to the next question. Please from Carsten at Credit Suisse. Please go ahead.
Thank you very much one question for me on Decarbonization when would we see actually the announcement of sizable capex commitments.
Transformation to Green steel in Europe in particular.
Is that still a few years out until you get the agreement and political help from the respective governmental bodies.
That's the first one and the second one.
On India, because as you pointed out correctly the situation there is quite serious.
It is developed quite well in.
And in the recent quarter, but with the current COVID-19 situation deteriorate. The performance short term at least domestically and would you consider in such a case exporting thank.
Thank you.
Sure in terms of our Capex costs in Europe.
I think I would just make two general comments. The first is that as we had been.
Getting deeper into analysis and examining all the plans and the technologies that we have been in Arcelormittal.
And as we engage more with government and redevelop our ideas are.
I'm encouraged that we can make this transition economically.
Thank you.
Secondly, I think by June and we will provide our second quarter results.
Much more disclosure as to what is this level of Capex and what are we thinking.
Till 2030 in terms of our decarbonization journey.
And it would be an appropriate time to discuss within that how much are we expecting governments to support you are aware that the funding mechanisms that are in place in Europe, such as the <unk> funding.
<unk> suggests that up to 60% of our decarbonization.
Decarbonization, Capex, which is the hydrogen link can be funded there are contract for difference structures in Europe in place. So I think when you look at the whole combination and ensuring that there is a level playing field.
Okay.
Clearly a lot of work needs to be done, but you can imagine that the transition can be done economically.
Uh huh.
In terms of India as you correctly point out, it's a very difficult situation heartbreak.
And purely all of our support as to all of our employees and the communities in which we operate.
So far we have not seen any impact.
But but I think we need to be watchful, let's wait and see as.
As you point out the facilities are coastal and therefore, we do have the ability to export.
Let us hope that the country can.
Make tremendous progress in reducing the spread of infection.
Okay. Thank you that's helpful.
Thanks, So we'll move to the next question from Luke at Jpmorgan.
Hi, Thanks for taking my questions. Firstly, just on <unk> can you breakout how much of the contribution within Europe was from a well from an EBITDA point of view.
So look I mean, it's.
You can assume that it's marginally in Q1.
So.
That's right.
Yes.
And then it was below the average EBITDA per tonne or it was.
Zero.
Have you been though I think margin loan so can I assume that it's marginal.
Yeah.
And then.
Just a follow up with you all but there's obviously the first stage of the deal with the government has been down but the final tranche I suppose is fairly next year, there's a couple of conditions precedent set out.
Fun lives that can you just remind me exactly sort of what they are I think he broke them out in the court, but maybe more so what the critical path is and what risk you see.
So then maybe not happening or not happening within the timeframe by by May next year.
Okay.
Sure.
So yes it.
It's basically environmental approvals and the removal of the criminal seizure right to put it very simply so it's a judicial process that just running.
If if we don't get these approvals then you are right. This transaction reverses, but so does the whole acquisition.
And as a result, we are in line to receive the monies that we have invested in the asset.
So it does not mean that it's.
It's not just a condition precedent to this investment it's a condition precedent to the full acquisition as well and that's why if you remember our original you historically it was considered a lease asset until all of these condition precedents were met.
So we're happy to sit with you and provide you more details offline.
If you're interested but the big picture is there's a public private partnership in place today.
The focus of the government to focus of us is to make it over.
Viable both from an environmental perspective, a social perspective, and economic perspective, and clear to everyone is working to ensure that his condition precedents are met.
They're not met there is a criminal seizure that exists on the steel facility. So then the whole viability of that the steel facility comes into question and all the transactions reverse.
Okay, that's very clear and.
Second question just on on on all at once so it's it's Simon.
The interested to say or an update on light beer and the potential expansion there and is there any opportunity to maybe fast track that just given how strong current prices are at the moment and then I suppose a follow up given the water.
Gaston around decarbonization.
Is there any.
Discussion or consideration of potentially adding on at Cri facility <unk> could it be used to import into the European market.
Thanks Luke.
Yeah. Good question look I'll start with the where we're at right today with Liberia. Clearly this is really now a construction project. If you will because I think you recall.
Vast majority, 85% of procurement was done 60 tenants civil.
80% of engineering, we have.
The plant the bids and change too wet to dry tailings, but essentially we've started work on the ground in terms of understanding the status of the construction materials like concrete testing did.
<unk> engineering getting ready for award et cetera.
A lot of activity will start to happen later this year. So the plan is.
Get going on the ground understand the condition of what's been sitting around for about six years.
<unk>.
On the fast track yes.
And we have to be careful about this as well there is a potential always too to compress the schedule, but at the same time, we have to be aware that we do have certain risks with regard to equipment thats been sitting around now relatively comfortable with the care and maintenance program has been good and so fast striking is on.
Is on the table and we'll just work through that over the coming months.
Look on the broader question.
So it really help thing.
I think this company, particularly given our very strong R&D routes.
And the value in use and you know about 90% of Aero I know it was actually a beneficiary.
Do that because we were off to a low impurity high quality materials.
And so we've also been working in the background for a few years now.
What else can we do across the mining sequence to upgrade materials into that segment.
Segment, and I think the world has now caught up with the value in use or value over volume that's been in this company for many years.
We're now ready with a few projects are just reaching the stage of potential investment decision. This year, which are what I would call Dr pellets seats.
We've also got I think this is a good opportunity with the size of the resorts in Liberia.
Of course I'm in seating, Quebec also where were already producing the pellets is a great foundation for potential growth good Dr pellets into the group.
And to <unk>.
Yes.
I think the opportunities are there we've got good projects delineated in the mining sequence and into the Pelletizing and that's something that's on our plate for calendar 'twenty one like.
Thanks, a lot.
Thanks, Mike So we'll move to the next question. Please from grant at Bloomberg Intelligence. Please go ahead.
Hi, good afternoon, thanks for taking my questions.
I have two the first one is just around NAFTA and back to the sort of capacity question.
So would you given you had some issues in the first quarter would you be able to give us some sort of a rough idea of what your current capacity would be and then just a follow up on in terms of how the mix might change I think in the quarter. It was roughly 30% long, 70% flat is that indicative of how it's going forward.
And then the second question is I'm just curious on the on the cash flow statement. There was a line called.
Other investment proceeds.
Somewhere above $800 million I'm, just curious to know what that refers to all walk that's cool thanks very much.
Okay.
Let me take your questions.
So basic.
We disclose all of them.
Our production levels for we'll call that so running who so your run rate of 5 million tons.
Sure.
There's also Ronnie.
Quite well defined school in Mexico. So we pointed out some operational issues linked to the weather disruptions that we faced.
That's Mexico receives a lot of gas from the U S.
But other than that the business is running are running well so the business running.
Uh huh.
In terms of the mix.
Ah you're right so going to the.
Disposal of them you will see the mix changed a little bit. So we were more 80 20 now more like Oh.
<unk> 17, 30% floating loans.
The mix.
And then to the cash flow question there to basically.
And you can see some more information and Melanie was renewed as well one is of course.
Disposal of the <unk>.
40 million shares that we sold for cliffs.
And Oh.
Uh huh.
The.
Short term investments that we made at the time of the disposal also.
Well, Jimmy was saying that he says.
I granted.
Did that cover your.
Good question.
Yes.
Sorry, I just right at the end of.
So yeah I would just add a grant that are in a.
The proceeds were the cliff shares that we then used to buyback our own.
It was the TSA or unwind that was an investment in the fourth quarter again related to the sale of am USA I think just overall in NAFTA. The key point I would make is under 70 30 or long flat I think that excludes California, right and if you adjust for California, you will see that we have much.
More flat shipments.
Into the NAFTA market.
And also when you look at the profitability numbers for NAFTA Q1, there are operational issues, Mexico, we highlight but also the fast food into so well either should normalize into Q2 plus.
Plus if you look at the overall franchise that we have in NAFTA.
And then we should also look towards Calvert performance.
Got it thank you very much.
Sure.
Okay.
Thanks, Brian So we'll move to the next question from Myles at UBS go ahead Mark.
Great. Thank you could you just provide a bit more color around your order book, how theyre looking further out but also has there been any impact from the chip shortage. Yeah. We've seen some curtailments will tell palms.
Europe and U S is that starting to be visible and yield Bruce Smith.
Sure.
So in terms of.
The overall demand situation clearly is as we mentioned in our room as I mentioned in my remarks.
Visibly we don't see any inventory buildup, so inventory through the supply chain remains low.
Our order books continue to lengthen.
They remains demand into the end of the year as well, we're obviously not taking orders into Q4, but order books remain.
Quite long abnormally long I would say because we have had everybody in the industry has had a difficult time and matching the demand requirements of service is also down.
In terms of automotive.
It does not so appreciable at this point in time, but clearly.
When we look at the ongoing forecasts for automotive poll, it's lower than what we would have anticipated, perhaps three or four months ago.
And then onto the margin is positive because clearly all of these automotive contracts were agreed at different periods in time, but not.
And are not reflective of today's spot.
Pricing.
To the extent that there is less pool that we can transfer those tonnages into the spot.
Spot markets.
Okay.
Just going back to your.
The emissions question earlier.
More proportionately emissions and knocked a couple of deposit reallocation of your I mean, how big is that exposure.
Hi.
But we have been discussing openly and but I'm sure you have a good indication I mean, everybody is really short.
Right. So so you have the benchmarks.
So what we tried to do is to make sure that a we can fix our cost.
To some extent and that's what we have been doing now for quite some time.
Yeah.
I'm not really clear on this particular question.
You probably have seen that it's somewhat speculation about the certificates. So we have been a little bit more kit.
Was around it and we don't want to incentive at that.
So that's but do we feel we showed up we.
So good with our position at this point sometime.
Okay.
Very last question.
Your opinion safeguards and how concerned are you that these may be lifted in June.
Sure.
The safeguard is designed to safeguard right.
From a surge of inputs and that risk remains.
The safeguards were put in place when section two <unk> was put in place in the United States section two <unk> two remains in place in the United States. So the logic of safeguard is still there.
So clearly this remains a discussion but fundamentally.
The aspect that we need to safeguard from the surge of imports is present today.
Okay. That's helpful. Thank you. Thank you.
Thanks, Myles So we'll move to the next question. Please from brokers at Kepler go ahead Ross.
Yes, thanks for taking the question.
I have a question on your.
P R ice strategy.
Can you share what you initial thinking is today where to put these DRA facilities for all those closer to the mine or the the pellet plant for the hot charging.
You and I was thinking more about the proximity to the steel blend, which I could refer from your.
Ideas and projects now in Germany, and France.
Secondly in this regard is so.
Do you intend to cover all the DRA needs internally in the future maybe more color on that would be appreciated and then I have another one.
Sure. Thank.
Thank you for the question.
As you know we are the world's largest producer of D. Awry right. So we produced here in almost every continent.
This planet.
We have tremendous capability, we have both technologies within <unk>, whether it is the <unk> or the matrix technology and on top of it. We are the first company in the world, which is experimenting in Hamburg, Germany with injecting hydrogen into July facilities, we own.
<unk> facilities, which are linked to our our steel plants in terms of how charging et cetera et cetera.
We start from a position of relative strength and relative knowledge.
Your inference is correct at this point in time, we are evaluating whether the economic case, along with funding support and contract for differences there to setup DRA facilities, along our plants in Europe.
Cause because there are obviously some benefits in doing that as we develop our strategy more and we outline exactly what we're doing I think that will be the time.
To get into more detailed discussions and typically what we would like to do is announced the project and then explain the rationale versus explaining the rationale before we announced the project.
Okay that makes sense maybe on these Hamburg.
Pilot.
Just can you clarify whether that pilot.
Started operations.
What do you think is the kind of timeframe you'll need on such a pilot in order to have a complete or a good picture about the.
Due to performance metrics and would you need to do to make sure that these.
Hydrogen based production.
Looking to where you'd like it.
Yes, so the pilot is running.
And the hydrogen into DRAM is working.
Clearly there are some other aspects to sort out and as we take it to steam making but those are all aspects of the research that we're doing I think we are in the process of examining.
How we can expand it to a demonstrator plant so our growth from the pilot to a demonstrator plant.
And that may be an announcement that we make in 2021, and we will keep you briefed.
Okay, very good and maybe allow me and last one on your.
<unk> announced reporting changes today, so you're changing the way you report your marketable iron ores, where you will only.
So the Canadian Libertarian operations as a separate mining segment, if I got to correctly can you give us some color what you expect in terms of operational improvement from shifting the risk back to the steel plants.
Yeah.
[laughter].
Okay.
I think this is a reflection of how we're managing the business.
Clearly as.
As we have streamlined the organization there is much more regional or national responsibility and we find that having one unified organization in the countries in which we are doing.
Both steel and mining is better for various reasons and as we have made those changes we want to reflect it and how.
Our segmentation right, we should reflect how we run the business and how we report our results.
The mining team will still be intimately involved in providing technical assistance because they have the capability and expertise in terms of mine.
Mine plan and showing that the safety audit safety plans are done properly tailing dams support ensuring that the same innovation technologies R&D capability that we are developing four mines. Generally is also transfer of all of these captive assets.
So so the technical support assistance from the mining group will continue but the day to day operational management, ensuring that we maximize synergies.
The complexity in the organization.
Have synergies in terms of capex by our procurement by or discussions with stakeholders as what we would achieve.
Oh, okay, great. Thanks for the color on that.
Sure.
Thanks, Rochus. So we'll move to the next question please from Phil at Keybanc.
Hey.
Thanks very much.
Coking coal pricing coming out of Australia, right now is really weak, but the rest of world pricing.
It looks firm to rising so their spreads between the Aussie coal in rest of the world coal pricing is getting large.
Which historically is unusual.
So I'm trying to calibrate your costs on the coal side should we peg your costs more off of the Aussie levels or more off of a kind of a 50 50 blend of what we're seeing across the rest of the world because you've.
You are a big buyer and we've got a unusual situation obviously.
Sure.
Most of the coal by that we do is based on a seaborne and Simon is on the call. So he can further elaborate on what he is seeing in terms of the coal business and.
What is the impact on Arcelormittal.
Yeah, So Phil.
My mind me skewed of course towards the striking.
Stride Index I mean, you know the.
The Detroit situation at the moment with Australia, and China is causing that a two speed world basically you've got a very high CFR, China arrival process to allow the $200 today and you have Australia coal, which is pegged on the index today at about 100, 910, theres not moving into China, and there's still ship stuck in ports.
That Tuesday will is available to us for Mitchell and Arcelormittal can take advantage of the lower end of that spectrum and that's.
The company does.
Thanks for all that color.
Thanks, Phil So we've got time for maybe two or three more questions before we reached the hour Mark as we will move to the first of those from Andreas at UBS go ahead.
Thank you very much.
My question just a quick update if you could on your operations in Mexico, and the U S. In terms of Calvert and what Youre doing in the mix.
In Mexico, as well in terms of ramp ups.
Referring to that as well you. Obviously mentioned you have a little bit of upsides upside potential in the U S. On your current mills.
You are getting.
Any sort of thoughts on what youre going to do that just given that prices are quite strong and supply is obviously under pressure in the U S. Thank you those are my two questions.
Yeah, that's right.
Andreas maybe potential radio on it so so we had some operational issues.
In Mexico right.
So we are so we are back on track. So we lost some some production.
We should.
Get back now, it's removing two quarter true and and of course, we also had some some also some operational issues that we shouldn't be the cool spring.
Vision is for production to them to increase as we move through corporate <unk>.
And so should shipments.
And then I mean, we talked about college as well some running antibody.
Randy.
5 million tons, so close to full capacity.
So we are operating.
The students in school.
No.
Of course to take advantage of what's a very strong market conditions that we see.
Okay.
The upside potential in the U S at any sort of thoughts though.
Well I think the upsides will come as we can as we produce more.
And an increase of all the increase of our shipments.
That's exactly what that's your point Oh, Andreas maybe I did not understand your question properly.
No I just told you had a little bit of a capacity upsides potential in the U S.
Beyond.
Just one on the on the flip side clearly not.
So you're running a runny all facilities.
Got it. Thank you very much I appreciate that.
Thanks, a lot.
Move to I think the penultimate question from at.
Got it.
Yes, good afternoon, and thanks for taking my question.
Our first one.
Do you see a risk of demand destruction because of the.
The high prices.
Real threats and.
Second question could you investigate the possibility to Debottleneck AMC see beyond the $26 5 million tons nameplate capacity.
Sure so in terms of demand destruction.
Steve has very low elasticity.
So we did not see that in our end segments.
You'll see a robust demand.
All of the segments.
Virtually all geographies.
Period.
Prices were to last into the long run than people would examine what other cost saving measures or how do they reduce the steel intensity, but if you look at the material universe.
Steel as it is I mean, obviously, maybe we're all biased, but it's a fantastic material.
Because not only for value per ton in the quality and characteristics that you get.
It also has amongst all the materials today, the lowest carbon footprint per tonne. So.
You already begin with immaterial, which is on the right side of Decarbonization and as you know it's infinitely recyclable.
So clearly when we look at how demand will evolve for steel.
We see.
See some support in terms of the stimulus investments infrastructure spend I think clean energy infrastructure spend that is also coming.
I know I digressed into longer term demand picture for steel, but in a nutshell elasticity is very limited to medium to long term prospects remain more favorable than perhaps a few years ago. Simon why don't you answer the AMC capacity capability.
Thanks Helane.
Actually today.
Number is 24 million tons of installed capacity and IMC, Quebec.
But that's across.
Across the course pellets in concentrate.
There is definitely a work underway I mean, if you look at the total value chain from mine rail port the ultimate bottleneck probably at the port.
Somewhere around 30 31 million tons, we believe and so we've got a number of programs that we're looking at.
Which are around de bottlenecking.
To mine <unk>.
More additional volumes to get high yield through concentration circuits et cetera.
More efficient grinding Boston concentration as well those projects. Some of those are kicked off and others will be part of a potential capital programs.
All lines that are basically using that full value chain up to the the limiting capacity as we see it today so that they are in the pipeline.
Okay sure Manitex.
Okay.
Great. Thank you. So I think we've got time to squeeze in one last question, which will take from Andrew at UBS. Please go ahead.
I'll just add just a couple from me I.
Just following on on the one off impact on NAFTA base from Beach, Texas ratio. So just wondering can you quantify that and then just secondly, just on the market.
As you said in Europe, you're running close to 100% suites demands.
Seem to be back to a quote unquote normal levels yet.
With total that restocking is the main reason that saw a lot of this pickup but listening, but his stocks in Germany. For example, the visible based rehab is down.
<unk>.
What's your view of what's actually going on here I mean, what is where is the.
But what's the market rebalance itself.
[noise] shortage for imports issue or.
How do you actually see it in Europe and India.
How does the market rebalance itself from now.
Given the high price levels since it.
Yeah.
Exports coming out of India or is it maybe some large export numbers were seeing coming out of China or something okay. They've got gets choked off thoughts.
It was pretty high and when when do you see the market returning to balance in York and buildup.
Yeah.
Sure, let's let's do the first question on Texas.
You can provide.
Yeah Andrew.
So.
We estimate the number should be closed at the EBITDA level.
It should be close to $30 million.
Okay, Great Alright.
Yeah.
Alright.
Yes. Thank you.
Andrew look Uh huh.
Overall this is not just the euro phenomena right. This is <unk>.
We're seeing globally. So if you look at the Chinese domestic market.
Spreads are up if you if you look at the.
The U S. If you look at Europe, if you look at Brazil, If you look at India all of the markets, which are significant.
See if that spreads are up and in all of these markets demand is up.
So.
So we see the same trends visit below our levels of inventory are.
Strong order books, and a macro environment, which at this point in time is constructive.
And I think that's that's that's the takeaway I think it's hard to project into the future.
How long this will last.
When will the inventory restock be completed.
As you are aware the inventory destock started in 2019 continued into 'twenty.
'twenty.
Overall on the macro when you move beyond this on the medium to longer term I think that's the more interesting discussion I think clearly we at Arcelormittal are very focused on our four key priorities, which are sustainable development. We think we can really make a difference and we have leadership capability in <unk>.
<unk> at a more cost effective whether it's capex or opex than our competitors.
We have a lot of interesting projects in which we can grow our franchise businesses, whether it's <unk>.
<unk>, India, or Calvert or looking at opportunities in Brazil, or expanding our Liberia business.
If you look at cost I think we did a great job last year on variable lighting, our costs, reducing our cost base. So the cost focus clearly remains and we have a strong balance sheet, which allows us to provide consistent returns in terms of the steel industrial on a medium term basis, what we're seeing is and we have to be.
I understand all of us the changes that are happening in the Chinese steel industry, both on our production and <unk>.
Demand perspective, but also the fact that they have reduced incentive to export.
Then I spoke a lot about changes in demand pattern not so visible today, but we can see that this is happening do you just stimulus due to infrastructure spend.
And due to all the green energy infrastructure investments that are coming up whether it is solar or wind.
All of these are our steel intensive.
So that provides you with an overview of what we are seeing at this point in time.
It's also a good conclusion to the call I believe so.
So I don't know Daniel if you would like to say anything else.
Thank you I didn't hear that.
It.
It does bring things to to it to a close.
Okay Fantastic. So thank you everyone for your questions and continued interest and I wish you and your families. The best of health and stay safe and we will speak soon.
Thank you.
Yeah.
[music].