Q4 2021 ArcelorMittal SA Earnings Call
Welcome to the Aqua Metals Conference call the conference will stop soon.
[music].
Most of our Danielle.
Great. Thank you very much and good afternoon everybody.
The fact that the base outlook.
<unk> Investor Relations team and thank you very much for joining faithful at which is being hosted by Mr. Mitchell, Our executive President did ship.
So yes I.
Jimmy that Kristina the group's CFO .
Today's call is to discuss.
Yes.
The progress, we're making about the Mitchell this is <unk>.
And in depth detailed presentation published alongside our results on the website today.
So as usual and the format of this call it will be some opening remarks from Mr. Mitchell and I followed.
By a Q&A session.
We should be able to compete with coal about 45 minutes and before we begin I had some housekeeping items, especially if you would like to ask question. Please press star one to join the queue and secondly, I'd like to remind you that the disclaimers on the first slide of our presentation deck and finally I'd like to be bogie that this call is being recorded.
And so without having to you Mr. Mitchell.
Yes.
Okay.
Thank you.
Good day everyone.
Thank you for joining today's call.
I hope you are all keeping safe and well.
Could it be have reported a very strong set of results for 2021 .
<unk> is a good level of net income.
As a company we have achieved significant progress on many strategic fronts over the past 12 months.
Cost improvements.
And what I'm seeing our decarbonization plan and progressing the top of our investments to grow EBITDA.
At the same time, you had been able to return significant amounts of capital to shareholders.
The progress is good defined and it's down to the hard work commitment and dedication of all of our people.
Oh, you expect 'twenty to 'twenty two to be another strong year for our company and all our stakeholders.
Good.
Great. Thank you and welcome everyone. Good morning, good afternoon.
<unk> 21 has indeed been a very progressive year for our assortment, though however, I must acknowledge the one area, where we did not make the progress we wanted.
And that is safety.
Leadership is fully focused on improvement taking decisions on where we need to strengthen and intensify our very important efforts to achieve zero incidents.
We will continue to double down until we reach our goals.
In terms of financial performance full year, EBITDA was $19 $4 billion in net income a record 15 billion.
We delivered $6 4 billion of free cash flow for the year with $3 billion being generated in the fourth quarter alone.
Is it very strong numbers and I believe that we can post strong results in 2022 as well.
Okay.
At the start of the year, we set out four strategic priorities.
I'm pleased to say that we are delivering progress on all of these areas.
First we're leading the industry on decarbonization.
Second we are further improving our cost position.
Third we are investing for long term strategic growth and finally, we're consistently returning capital to our shareholders.
These are the strategic pillars on which we can grow our share about you.
Our capital allocation and return policies are delivering.
In 2021, we reduced the share count by almost 20%.
The buybacks and hence the impacts of our growth projects supported by the growing contributions from JV and associates and structurally lower net cost net interest cost.
These factors combined will drive higher earnings and create sustainable value for shareholders.
Looking ahead I see good prospects for 2022.
Demand continues to improve we have the support of higher annual contracts and we have our value plan, which should offset some of the impacts of cost inflation.
I fully expect 'twenty to 'twenty two to be another strong year of EBITDA and free cash flow generation and look forward to making further progress against our strategic priorities.
Thank you and we're now happy to take questions.
Okay.
Thanks, Chad Thanks, Mr. Mitchell and so we have a queue of questions. The first we will take from Alain at Morgan Stanley . Please go ahead.
Yes, hi, good afternoon, gentlemen, two questions from my side, Firstly is on capital allocation.
Cross your presentation, you have reiterated your capital allocation framework on capital returns you have to talk the talk and walk the walk them, but what about the M&A are you are you warming up to the idea of becoming more acquisitive again, what would you say to the skeptics a lot worried about the potential increase in an M&A risk.
The first question.
Sure. Thank you yeah. Thank you for the remarks I think we have walked the talk in terms of capital returns and you should expect the same going forward. If you look at the capital allocation strategy and policy that we have outlined 50% of free cash flow goes towards their shareholders. So really in terms of M&A.
They will focus on the other 50% are and what we do with that we obviously can continue to delever the balance sheet or we can also explore M&A opportunities.
I think for example, we could look at areas, which support our decarbonization journey.
Or areas like renewable where we're purely a we have such an advantage is as you know historically those are very strong iron ore business, which is a great business on a standalone basis, but also supports.
Steel or steel businesses are there theyre very good into your synergies there we could do something similar in the renewable side right because as we decarbonize.
Our energy requirements will only increase so you could make investments there well get into partnerships et cetera. So fundamentally the key message, though is capital allocation is not changing where we are focused on returning cash.
Cash to shareholders, 50% of free cash flow is designated for that and I mean, it's I think it's understood, but I would just reemphasize it.
We're very focused on retaining our investment grade balance sheet as well.
Thank you that's very clear and the second question is on the outlook you sounded quite upbeat on volumes and pricing given the contract resets in Europe and NAFTA, how should we think about the different moving parts for your Q1, EBITDA, especially where there is with respect to divulge EMS Isps and cost inflation. Thank you sure.
And then I'll hand, it over to Jim you know to take that.
Thank you and Hello, Yeah. So so let's talk about the moving parts for quarter one.
I would say that our the.
In fact that we have a we had a good.
Negotiation with our Oems contracts that will support prices.
As we're moving through a quarter, one just quickly to remind everyone about 70% of all construction Europe research.
From a general beginning of January so that will support prices. So we also have sizeable contracts reset being reset in NAFTA.
30% of all contracts in NAFTA, so looking at the group as a whole our expectation is our selling prices will be higher.
Then if we move to to volumes I was spectation is for volumes to be at group level are relatively stable slightly higher.
Given the fact that we got also the highest shipments.
In Q4.
And then on the flip side of course, you are not seeing cost pressure. So we have seen iron ore and coal prices rising.
And on the energy side I believe that in Europe , we have seen probably we had seemed to us of course, we have to be watchful.
Probably we have seemed to us.
Thank you.
Yeah.
Great. Thanks for that and so we'll move to the next question. Please from Seth at Exane go ahead Sir.
Good afternoon, and thank you for taking our questions.
I can start out with the question with regards to de Carbonization.
Michelle has certainly been a leader with regards to launching or de Carbonization plan and initial sales of Green steel already however, some of your peers within Europe had begun to accelerate around plans targeting multi cargos by 2030, rather than 50 50.
How does that position metallo ultimately is there a challenge is there a need to accelerate moving forward or do you feel comfortable with what's already been announced I'll start there. Please.
Sure. Thank you yeah, I have seen some of those announcements I won't comment directly on those announcements, but really on what we are doing now I. Appreciate your commentary on us being the first but obviously keeping the first test.
What's been surprising it's it's really in the long game, who has the best strategy.
Just high level very quickly I think we have a lot of advantages are attributes which are.
Which gave us a lot of confidence and give me a lot of confidence that we will succeed in terms of beating the decarbonization journey, our technology prowess security our commitment to R&D, which we have not cut.
In spite of all the volatility in the steel business, our globally diverse workforce as well as our size and scale.
In terms of our times, if if you look through what we have done we have announced a decal plans in Spain, Belgium, and France, and most recently in Europe .
And have done the same in Canada.
For example in Spain.
We are schedule to bring on.
The first net zero steel facility into style by 2025, we have also launched our ex card products. These are steel products, which we can sell and you can record under the greenhouse gas protocol zero carbon emissions the green steel certified and we have a recycled or renewable product wage.
Clearly, we need to grow that product range.
And we're doing that through the investments that we have have you when I look at the totality of our European operations and the totality of what we're trying to achieve I feel very comfortable that we're.
We are on the right track and we're doing the right things.
Okay. Thank you very much.
And if I can ask a follow up question with regard to capital allocation. Please.
Youre, 50% free cash flow payout ratio regarding recorded really phenomenal buyback scale over recent quarters. I think there are many investors are hoping to see a hike in that payout ratio going forward certainly as you approach and that cash buffer if somebody would have already been there were no big buybacks to date.
You already talked about M&A.
How do you think about the trade off of potentially using some of that excess capital for M&A as opposed to further expanding shareholder returns with a higher payout ratio. Thank you.
Thank you.
Fundamentally that could be short term conflict in that but not really a medium to long term contract what do I mean by that 19 purely M&A actions or activities, if we undertake them.
Should create shareholder value.
Right I think we have to review what they all understand the synergies how it furthers our strategy.
So the concept is not to do things, which would obviously reduce that I think that's a given.
In terms of increasing the payout, which I think that's the dialogue and the discussion we can have a we shouldn't have as our key stakeholders. So far we have not heard that feedback I think what we have done last year has been very impressive in terms of both our dividend policy the share buyback. The fact that when you get to the disposal of all patients in the U S. We return.
100% of those proceeds back to shareholders.
So in a nutshell, we feel very comfortable that our capital allocation strategy allows us to return value.
Value immediately to the share buyback program, but also preserves the options and the capability for us to continue to create long term shareholder value.
Great. Thank you very much.
Thanks Pat.
Move to the next question please from Tom at Barclays.
Yeah, Hi, guys. Thanks, very much for taking the question. Congrats I guess festival on what has been record earnings whenever I get Ya.
Just on the current Capex and let the half on strategic growth I mean, it seems like every quarter. There are some interesting new sort of growth projects that are coming online.
Recently sort of Ukraine environment. So just wondering if that's something we should expect for the next couple of quarters or are you quite happy with the existing portfolio of projects.
Okay.
Yeah. So first of all thank you.
Uh huh.
It's.
Been a long time since we've delivered such good results. So everyone's argument to this very pleased.
In terms of the specific strategic projects, we will update you as things develop.
As we move forward in terms of Decarbonization and also our product suite, where we want to have capability to supply to the new demands that are being created.
In terms of the new.
Energy infrastructure.
Uh huh.
We could have more updates in and develop a more projects, which could create both EBITDA and value for us as we move forward. So I would not say that this is the end of it.
I would say that the area to focus on is how interesting. These projects are.
Because if you look at the relative Capex for that relative EBITDA generation. These are all very strong projects, primarily focused on the emerging markets are adding value in terms of our product range I think value in terms of iron ore and and the reason why I see there very strong projects apart from the strategic reasons is also because the EBITDA.
Forecast that we have provided for in terms of iron ore are based on long term iron ore pricing, which we have not changed for many years and in terms of steel it's really based on the historical spreads between 2015 and in 2020.
And so to the extent that there is a structural shift in the steel industry. Then obviously the EBITDA performance of all of these facilities will improve or all of these projects has been improved so I think these are quite exciting.
It's not that they are already commenced so we should see the EBITDA benefit soon especially Mexico for example, where the first quarter was already shipped out in December of this year.
Okay. Thank you very clear and just another question. Please.
Close your eyes that line cut out a little bit you rank second question, but I I heard that Europeans.
Europeans he passed the worst and and you can see sort of I guess, it's the I S price assigned to pick up would.
Would you rule out that's Q1 EBITDA might be higher than Q4.
Joanna.
Yeah look I mean, as you know, we don't really provide that type of guidance. Tom I was just trying to.
Discuss the moving parts right. So we are of course very confident on Q1, but we believe that we're going to have a good quarter there.
And and I and I spoke already about the moving parts.
So I think that should give you an indication of what kind of EBITDA.
We expect in Q1.
Okay fair enough. Thanks, I'll turn it back.
Okay.
Great. Thanks, Tom.
I'll move to the next question from Patrick at Bank of America.
Hi, Good day, well done on the on the record results I just wanted to ask two questions. One the one and a half billion dollar value plan, which is in the results can you just maybe give us a little bit more color around what actions, you're taking I think I saw there some intended to offset some of the inflow.
<unk> re pressure youre, feeling so would be interesting to hear what actions you can take and then the second one is could you just maybe give us an operational update on India and the strategy there going forward, it's obviously doing very very well.
And just to get a sense of the trajectory that the business is on thank you very much.
Yeah.
Great. Thank you Patrick in.
In terms of the value plan as you correctly pointed out there's one in a billion dollars over the next three years and.
The focus area is really variable cost and improved operational reliability.
And variable cost is really improving consumption factors and the way, we can do it or efficiency factors and the way we can do it is through transferring knowledge.
We have facilities, which obviously do very well and there are areas in which we can improve.
Across the board and so this is a bottoms up plan, that's very clear which facilities.
These improvement potential.
And it's a cute accumulative Oh all of those plans, which we have presented operational reliability is just improving mill availability, so ensuring that the mills are available much more it's it's it's really focusing on.
Preventive maintenance practices versus reactive maintenance practices and the combination of the two is it prime generation I'll just value part is different than what we did in 'twenty 'twenty 'twenty to 'twenty, one where you've got a fixed cost plan, which if you remember included a footprint optimization. So this is a coke oven suraj.
So donna.
As well as Krakow in Poland, and we improved employee productivity by 8% reduced SG&A. So this is much more focused on variable costs operational reliability and because its variable cost should offset some of these impacts.
In terms of operational update and then yeah, I think you're absolutely right.
Off to a very very strong site start it has done very well.
Since our acquisitions, we're very proud of the team there and what we have achieved record results both production and shipments are in 2021 and it has excellent growth characteristics inherently. This facility has low cost has a very good strategic base because the iron ore.
Or is coming from the east by a slurry pipelines to the east coast, where we own pelletizing facilities.
Supportive to the West Coast, where we have a coastal facility where the market is and then obviously converted into steel.
In the short term our growth plans are twofold.
Primarily its automotive downstream.
So we have a project to set up a new cold rolling facility galvanizing lines to.
To address the market in terms of automotive demand and the second district span the facility on the West Coast, where she says zero site.
We have a plan underway or a project underway, which hopefully we should be announcing soon this year in which we can take that facility from 8 million to 14 million tons and clearly as it's an expansion it's a brownfield facility.
That would bring down its cost so from a cost competitiveness perspective, I think it would be world class and clearly located just to the growing market.
And India moving forward there are other growth plans, but I think this is the main takeaway for today.
Thank you.
Thanks, Patrick.
Moving to the next question please from Alan at Jefferies.
Thanks, and good afternoon.
One regarding the carbon price in the presentation deck, you highlighted some hedges at very low price levels, but that none of them are actually used in 2021, where you fully covered by your free allowances in the last year or was this a strategic decision to hold onto them until later when perhaps the carbon price continues to rise.
Yeah. So let me take this one yeah. So that was a decision strategic decision not to draw from our hedging position.
So as you have seen in our slides so.
We have and we have historically done that so we have beauty.
Sizable position.
That take us through the first scan take us through the first half of Oh tasteful.
And in 2021, we felt that there was no need to draw from that so we are carrying debt position untouched.
For future years.
Thank you and then.
Topic My second question, but we're now about two weeks away from the deadline in Brazil for the removal of all the upstream tailings dams can you and there's been several articles out there speculating that perhaps not all mines.
Typically are similar timelines.
But we will not meet the deadline can you give us a progress update on where you are for that.
Yeah. So so I can't I can't speak school for so long to get to what we are doing I'm not going to comment on what the orders are doing but clearly you have seen.
Books, we have already provided for 14 dismantling all the Oh, Dan the one thing <unk> done that we have in Brazil that is what's.
That is part of this plan so it's progressing it's progressing well.
And we actually bought the license, it's already which we stopped.
The expansion of the project at Cerro Zoom, So I would say from our side everything is progressing quite well.
Okay. Thank you.
Thanks Alan.
So we'll move to the next question now from Luc at J P. Morgan go ahead Lee.
Hi, I suppose more broadly just on your garden.
We see a lot of your peers give a bit more granular quarter ahead, all year ahead garden.
Literally just now one of your peers is coming out with next year's guidance.
Trying to get an understanding of why or what's holding you back from providing more quantitative guidance to the market that would be my first question.
Okay sure.
As you know this is something that we have stopped many many years ago, providing very specific guidance. So we believe that by now you guys understand very well the company understand the drivers.
So we feel that there is no need for such specific guidance. So what we try to do it every quarter as you know we tried to walk you through some of the moving parts for the next quarter right and I think we have done that to the extent that you guys would like to get into more level of detail by segment I'm happy to do it as well.
So we talked about shipments being at group level stable to slightly higher so where we are seeing we have seen basically shipments as Steve but all in all the segments with the exception of NAFTA, where we would expect shipments to be potentially slightly better.
He called me up from from D. A.
The seasonality of Q4, plus some of the slowdown that we saw in Q4.
And then in terms of prices, we talked about prices being significantly high in Europe are helping to offset declines in.
In places such as not in Brazil, So overall at group level prices to be higher.
And then costs.
I always spectation as that causes will.
We will continue to rise.
With the exception, maybe NAFTA, where that should not be so significant in Q1.
And so that's really the all the moving parts look for Q1.
Okay, let's not forget and let's not forget also that.
We should see some upsets also some higher results in our mining division of course.
Yeah, Okay, that's actually.
My next question is actually on I know you.
Given the.
The sort of shipment indication that steel.
I haven't really talked about.
I know and I think I mean in the not too distant parts used to give a market price shipments can you maybe talk to how you're thinking about.
That yeah, and then just more broadly on seaborne iron ore and the division there's been some operational issues in Liberia.
Some headlines around some potential negotiations with unions.
In Canada can you maybe talk.
To that and then just sort of.
Broadly on pricing given the price level that way he out that way that we're seeing at the moment any indication on what you're hearing from the market from sort of a thought yeah.
Marketing and marketing side, and how you see that potentially progressing over the midterm.
Yeah. So look I mean, a lot of questions. So let me start with I don't know so yes, you're absolutely right. So 2021 was not a great deal for us in terms of volumes.
Volumes. So we had the impact of course of the strike.
<unk>, Canada, and we have a couple of incidents also in Liberia.
So in total we lost close to 3 million tonnes of shipments because of these events.
All expectations is that they will not reoccur in 2022.
So it's always a big fish in is to do better there in terms of in terms of production and shipments.
So in terms of the striking in Canada, you're right. So unfortunately.
Right.
We have not only strike going on.
For now the impact is.
Uh huh.
I meant it because we of course can still operate part of the plan with non unionized people. So we are drawing strong from inventories and then it's going to be a function of how long does strides less.
So it's a little bit early to talk about potential impacts of the strike.
And and for quarter one.
But I would not really expect that should be very very material.
In terms of prices.
As you know, we don't really comment much on prices, but I would say, though that if you look at indexes.
Clearly the costs. The fact that we have pressure on costs, but also to some extent supporting pricing. So you start to see index price you look at the index prices in Iraq.
Black Sea, China, all moving up.
Which is of course, a very good.
Indication.
The only exception of course being U S where prices continued true Blue can't index prices continued to decline and that to some extent it's to be expected but.
<unk> remained quite strong P. M is quite strong.
So we are looking at a very good real steel consumption.
<unk> for the year. So there are also reasons to believe that the market will find.
Your balance and then the fundamentals will prevail.
Okay. Thanks, I'll step back thank you.
Great. Thanks Luc so.
Let's move to the next question. Please from Carsten at Credit Suisse.
Thank you very much two questions from my side. The first one is on the one 5 billion value plan could.
Could you give us a breakdown about the factors contributing E commercial.
Operational factors versus other factors.
And what area do you see the most value to be lifted.
In the steel area and the mining maybe you can give a little bit of color. There. That's the first one.
Yeah. So.
So I didn't already provided some some color on that I would say that really the biggest sponsors recently on account of a variable variable cost a bit also on fixed cost.
And less so on commercial.
And we have hundreds of initiatives here colson.
So it's really a very detailed plan coming from the units.
It's part of our budget and the strategy cycles.
I would say you also have a good contribution coming from <unk>.
<unk>, which.
Which is of course part of the variable cost improvement plans.
So huge as it did just said, it's it's it's difficult to be very specific giving the granularity volume of initiatives that are that we have I.
I would say that also that always speculation.
Are we going to see this flowing through our results.
Almost equally throughout the next three years.
A little bit more this year.
But you guys can achieve them.
One third one third one third roughly.
That's I hope that helps us well with your models.
Good. Thank you very much. The second question is on the Ukraine operations, we have seen that the tensions here all rising with Russia on a political base.
Any risk from a volume and or other cost perspective, and did you already to take any measures in order to mitigate any risk here.
Yeah.
Yes. Thank you a question maybe I'll take that question.
We were very focused on protecting and ensuring the safety of our people and assets.
We have contingency plans in place.
In case.
Crisis escalates.
What we should be doing with their operations and more importantly, the people who are there.
In terms of the operations I think the operations are running normally we don't see any supply chain disruption either.
And if you go back into 2014.
When when there was Ah another crisis in Ukraine, we had some disruption, but a relatively minimal and we were able to restore supply chains and work through that.
Disruption in 2014 are.
Clearly the focus or the hope is that the crisis does not escalate.
Perfect that's very clear thank you very much.
Okay.
Thanks, Scott So we'll move to the next question please from Phil.
Keybanc go ahead Phil.
Thanks very much.
You mentioned earlier, the Mexican Hot strip mill put out its first coil and in recent days I realize there's a ramp here but.
How much incremental sheet volume should we expect in NAFTA from this from this project, perhaps this year and then also next year.
Yeah, Let me take this one yeah. So.
The ramp up is progressing.
And I would say is progressing well too.
Always spectation is that we'll start to see a more meaningful contribution towards the second half.
Spectation is that in the second half we should be reaching.
Anything close to 60% to 70% run rate.
By the end of the year.
And then and hopefully we can close that reached full capacity.
At some point you know second half of 2012.
The 23.
So I would expect by the end of 2023, we shouldnt be really running full.
Neil.
We clearly expect good progress this year, that's the targets that's what everybody's focused on right now so.
So some we will see already a good contribution this year and then more in 2023.
And that generally you know is when you were talking about the 60% to 70% of capacity that's.
That's relative to two and a half million.
Millions of tonnes.
Alright Yep.
Yep.
Okay I was just.
We had a meter ship presentation earlier.
This afternoon, and we showed them the whole video.
The Mexican Hot strip mill and it was very impressive it is.
An excellent mill.
It was very nice to see that after such a long time, we had built a brownfield facility.
And it has very good quality characteristics as well.
And as Jim mentioned, the ramp up is progressing well.
Okay.
Thanks, So much and then in terms of a follow up.
Section 232 was was brought down for the most part against the U S. A few months ago, what is what does that mean.
For you all in terms of.
You know any shift in potential trade flows or you know.
How you're planning for the business this year. Thank you.
Yeah.
I mean, we do.
Don't believe really that this is going to change fundamentally all flows I mean, typically we have been already exporting to.
The U S from our European operations niche products.
The big.
Sections.
So that will continue.
So.
I don't believe that that's going to fundamentally change close for us.
Thank you.
Okay.
Thanks, Phil So move to the next question, please and we'll take that from Ephraim at Citi. Please go ahead.
Thanks, most of my questions have been answer for one very specific one apologies for this.
And the Capex Slide you said it'd.
The Capex is Honda.
Reconsideration for school penetration effects.
Subsequent to that one.
I mean that basically you will be building the relying for the 30 million ton eventual capacity because I think the point 8 billion was already for the 15 million tons of capacity by 2023.
And secondly, there's been some confusion in the market better than the liners.
Simply put off low use or does it also for open access to others like the NIM by project and.
In the neighboring countries.
So can you clarify if.
As part of the increase Capex, you will get exclusive access to that relying for the 30 million tons.
Yeah.
Thank you for the question fundamentally you're right.
Let me just provide you a little bit more detail.
We have spent $500 million so far on the rail line.
For the first phase, which is a 5 million tonnes. So we brought it up and it has some capability to the expanded so the incremental capex is not so great to bring it to 15 million tons.
We retained the.
Operator ship right.
Right.
So we are great.
The line for all practical purposes.
Beyond us beyond us beyond 30 million tons.
We have the ability to bring in a third party cargo on the line.
Or are we having multi use your agreement beyond our 30 million tons and in terms of the so for all practical purposes, we have a clear line of sight to shipping 30 million tons through our realigned and then to the extent that there is additional capacity or additional.
Iron ore in the market than others can also utilize the line, but it would have to either invest the capital.
Or be with us how to invest that capital. We obviously are not investing capital to cater to took parking requirements and all of this discussion obviously, we retain operator ship right.
The so I hope that solves the confusion.
In terms of the Capex, it's much more about the ore body.
And how we modify the concentrator design to get a higher quality output and so we will update you as we do that.
And we just wanted to flag it today.
So that you're aware that the project certain aspects of the project are still being finalized.
[laughter] key August focuses is to get the highest quality product.
And we think that that makes a lot of sense not only the short term and the long term because as you decarbonize, you get higher and higher quality products.
Thanks, I'm sorry, one more question that popped up in my mind.
The investments that you mentioned earlier on Decarbonization, you did mentioned electricity capacity generation.
What's your thinking about sort of the cost of capital of Arcelormittal investing in.
Green electricity versus the cost of capital for the removal of the companies, which feels like very low single digit percentage no cost of capital, while you'll probably 10% to 15%.
Do you think it's sort of why is on your part to use your balance sheet.
Shouldn't you be exclusively kind of forcing it from others with a lower cost of capital.
Yeah, I think that's a fair point I think to the.
When Theres a project to be discussed anything we should engage more constructively on those points, but fundamentally I think we bring value to our project.
Because we provide a tier a power purchase agreement.
That's important because it creates a baseload.
I think we can also create these facilities mature in close proximity to some of our steel assets and obviously, we are very cognizant of our cost of capital then we will ensure that these projects exceed that.
Thank you.
Thanks, everyone.
We'll move now to Bastian at Deutsche Bank.
Good afternoon, and I only have a quick follow up actually on capital allocation, if that's the right.
Can you talk about M&A and sort of strategic targets, if I remember correctly that if you versus what was on the slide the slide slide deck at least a year earlier.
Anything which is on your immediate radar and my reading simply too much into it maybe.
Maybe could you also specify a little bit whether you're referring to smaller bolt on type of deals or whether you keep the freedom to go larger say, maybe $3 billion plus type of targets. Thank you.
Sure.
Thank you both and I think I've answered this in the beginning of the call so but at the risk of it.
Repeating my my points I will go through it again.
Fundamentally what we highlighted is that.
We are very focused on allocating 50% of our free cash to shareholders and we did that quite well.
In a very well I should say 2021 and that remains a focus as we go forward Oh, we have the choice and the other 50% whether to continue to Delever.
Or do you use it to oh to use that capital and do M&A.
In terms of the targets that I talked about it.
It could be things, which which further our D car of agenda it could be on the renewables space, Hence <unk> question earlier.
But within all of that I think what is most important to remember is we remain very focused on maintaining our strong balance sheet, our investment grade credit rating and our credit ratios. So I think that kind of gives you a flavor of how we're thinking about it. Obviously, we were very focused on returns to shareholders and maintaining our strong balance sheet and to the extent in between.
That we can do a successful and value creating M&A.
Explore that.
Okay perfect. Thanks for clarifying again, and then generally know maybe one for you just had we seen the worst in your cost inflation now.
Remember correctly I think last quarter, you put out a number of $500 million of cost inflation, mostly for Europe , I think a little bit for Acis is there a cost number you could give us for energy cost inflation, all tech coking coal for the first quarter as well please.
Oh, Hi bus or not I don't think I'm going to get into this level of detail about shown on cold I mean, you guys know very well that our Europe . We are buying all of our needs. So called needs you guys do where prices are so I don't think that should be got a challenge for you.
Did you come up with your estimates I was of course for natural gas power that is a little bit more challenging from outside someone outside that you come up with.
Estimates and that's why we tried to help.
And as I said I think most of the costs in terms of energy and then Jen mean, we'd be a gas.
<unk> power.
It's kind of already reflected in our Q4 results so moving to quarter one.
I don't really expect any significant increase in terms of costs vision on what we're seeing today.
For gas and power, but of course cool as we know it's going to be higher.
Okay perfect that was exactly what I was looking for I think everyone can see cool so all of us.
After electricity and gas, but thanks for taking that.
Okay. Thank you.
Great. Thanks, Bastian I think we can make room for maybe two more questions. So we'll take the first from Myles at UBS.
Great. Thank you just a couple.
Couple of quick questions could you give us a sense of order books and in countries that do not relate to two to three months ago.
Hi, Myles so what books continue to be good actually.
I mean, and you look in Europe .
So demand Rio demand continues to be continuously being strong good solid order books.
<unk> quite quite healthy.
Delivery times have come down I mean of course, not as extended as they were at some point in 2021.
The order book continues to be good we have basic.
Basically completed a four.
For quarter, one and we are now booking quarter chew.
So the demand continues to be to be strong even in Brazil.
We do we expect to see also very stable also domestic.
Domestic shipments despite the negative apparent steel consumption that we.
Published today Spectation is that we're not going to see such a decline.
Message shipments because we do expect that imports that hit Brazil also towards the end of last year. We will also come down so we don't expect to see.
A drop there.
So I would say overall, it's a it's a it's a good picture.
Okay.
And then just a second question thinking about China.
As it did last week or so easing some of the green policies and we're seeing I would say a little bit of a pickup in exports of steel from China. I mean, how concerned should we be about that China is going to start dumping significant volumes into the export markets and obviously having.
Around the world.
I think I was on mute sorry.
That's helpful.
Yeah look I think a fundamentally that risk always exists.
Yeah.
Alright can you hear me.
Yeah, Yeah, okay. Okay. Good so I was just saying that fundamentally that that risk always exists.
But a few things have changed the export rebate.
V. A T has gone away from China. So there's less of an incentive to export I think clearly theres been a lot of trade action that has been put in place and then thirdly, if you if you read.
And if you read the tea leaves in China, I think the perspective is that we should not be an export powerhouse for steel primarily because anyway, we're just adding to the CEO to problem and we're not really resolved at dania.
So I think any surge in exports I think there would be a reaction maybe not continuously but overtime and I think that should provide a structural support as we look forward not only this year, but for the years to come.
Our view on China is perhaps a more bearish than others.
Where we see maybe no growth or negative growth in terms of apparent steel consumption. We've been doing that for the last few years and every time, we publish something six months later, China surprises on the upside.
But anyway I think those are the key data points or things to think about.
When you think about that issue.
Well thank you.
Okay.
Sorry, I was on mute that so we can move it to the last question. Please and we'll take that from John Tumazos.
Thank you very much.
Congratulations on your different de carbonization efforts.
As you start the <unk>.
<unk> coal fired glass furnace.
Potentially converting to hydrogen or other.
Other fuels.
The coke houses stability function, where it bears weight.
Which helps to regulate the gas flow.
Within the furnace.
With hydrogen or other substitute fuels.
How does the.
Complement the load bearing former function of the coke.
To regulate the gas flow within the furnace.
Thank you John Great question.
I think it's very difficult I think fundamentally that's very very difficult.
And therefore, if you if you look at our announcements we are really focused on direct reduction iron is a technology to your I O H b.
Some of the plants in the U S are producing where are the shaft is different and fundamentally you're not relying on that burden.
But you're relying on natural gas so globally today, we produce about 9 million tons of metallics through the <unk> route and it uses natural gas.
Switching a derived facilities from natural gas to hydrogen as possible we.
We actually have a pilot in Hamburg, Germany, where we're gonna Bill.
<unk> hundred thousand tonne do you ever I facility, which will be using hydrogen exclusively and we feel that we can retrofit or make modifications to existing dia right blocks. So to the extent that you have a blast furnace like we have in some of our integrated sites as well as in Canada.
Our first option is really two erected derived plant.
Get the metallic spread it into an ETF and then use renewable power to melt. It. So that's fundamentally our strategy we call. It the innovative derived route because natural gas as a transition fuel and when hydrogen becomes cost effective you can use it you can inject hydrogen.
Nevertheless, there is a lot of work going on in terms of blast furnace technology.
Exactly trying to address the question that you pose and I think there could be a combination when yes, you're still continuing to use use coke.
Do you increase the level of hydrogen or other gases oxygen.
But at the same time, you capture the CEO two coming out.
And that CCU in Ccs technology, that's what we call the smart carbon route we actually have a a big pilot a big plant now no longer a pilot, where we spent 180 million euros in Belgium, again, which does exactly that that captures the seo to from the furnace, it has microbes or bacteria, which ear.
It's up to C O two and converts it into a bio ethanol product.
And obviously the EBITDA is not is generated not only because of the CEO to saving but because of the value of the bioethanol that is generated.
Look it's D. Cob is going to be a long journey, there will be technology evolution of new things that get that get developed.
I think we're looking at various options. We're also looking at just <unk>. So you have the innovative do your railroad you had the smart carbon root electrolysis and I think finally based on geography based on the plant you will figure out what is the most optimum solution for that site.
And I don't know if I've answered the question, but I think that's how we're looking at it that arcelormittal.
Thank you I admire the scientific progress you're making in attempting to make.
Great. Thank you.
Thank you.
Okay. Daniel just told me that this is the end of the call. So thank you everyone for all your questions I think we covered a lot of ground on the call. Today, obviously all of US are here to the extent that you seek any further clarifications with that we'll conclude the call stay safe and keep those around you as well. Thank you.
Very much.
Yeah.