Our retail shareholders event, annual event for ArcelorMittal. It's a pleasure to be with, in a virtual sense rather than a real sense this year because of the COVID-19 virus, with Michel Wurth, member of the main board of ArcelorMittal, and we also have Hetal Patel from Investor Relations, who is ready to answer, to take in any questions that you put, and you make questions via the Q&A device on your screen at the bottom of the Zoom window. Michel, welcome. Very nice to see you.
Hello.
See you're looking well. I hope we're all well. Obviously, we are living through the worst pandemic in 101 years, 102 years. It's caused the greatest economic damage, I guess, since the Second World War to the global economy. I think in fact, ArcelorMittal has had pretty good results. Let's leave that aside for the moment. I mean, the company has, what, 191,000 employees. You're in 16, 18 countries, customers in all over the world, 160 odd countries. How have you coped as a company with your employees during this period?
Thank you for your warm welcome, John. I would also like to welcome all our participants to this conference. These are our dear shareholders, it's all the time a real pleasure to have the occasion to speak to them. First of all, I would like to think on them, and I hope also that all of them are very safe and healthy and did not suffer from this terrible pandemic, which is absolutely key and which has indeed, to come back to your question, be at the middle of our policy and of our efforts when it appeared first mainly in March in our main plants and in our main offices.
What we said is, and as we say it all the time for safety, we say it also for health, and we said this is our first priority, so that to help our people to come out. I would say, at the beginning of the pandemic, in many of the plants, we had even to make shutdowns, but it was also necessary from our customer point of view. The world at one time stopped. For example, give you simply one example for our European automotive clients, at the end of the first quarter, beginning of April, demand within three weeks, went down by 70%. All the books vanished. What we told to our people was safety first. We were immediately introducing our sanitary protocols. We were providing masks. We were imagining processes, how to behave.
In general, we can say that things happened quite well. When we look today at our statistics, we see that our people in our plants didn't get infected by the virus. As I say all the time for safety, it is safer to work in our plants than to drive your car. I can also tell it was safer to work in our plants in COVID periods than being outside our plants. Fortunately, it happened quite a lot with sometimes difficult, different situations from one country to the other, but it was also in some countries you get a better support than in others. First was health and safety, and then we needed to adapt to the situation in terms of cost, in terms of production.
As you know, ArcelorMittal, when there is a big turmoil coming, we are reacting very fast and very efficiently, and it was like that this time as well.
Did the reaction of the workforce vary from country to country? I mean, I'm thinking you've got some activity in China, but you also, of course, have a joint venture with Cleveland-Cliffs, Nippon Steel in the United States, Cleveland-Cliffs. My recollection of the news is that a lot of Americans are much more reluctant to recognize the virus and also wear masks than, for example, in France or Luxembourg or Germany or wherever.
Yes, I would say that our people working in the steel industry are disciplined people because we need to have a disciplined way how to proceed. From that point of view, I think it worked quite well. We had a little bit more difficulties in Mexico, for example. We were also suffering in Brazil because in Brazil, you know, as in the U.S., that policy was not so much emphasized on taking care of the situation. In general, it worked quite well.
That's very diplomatic, Michel.
I think that we are global citizens, and we need to adapt, and we have to take the political environment. We cannot change it and then try to do our best for the best of our different stakeholders and also our employees. From a production point of view, what happened, we tried immediately to take care to manage our fixed costs in the best possible way, to discuss with our stakeholders to take advantage of part-time unemployment schemes, which are government supported in the different jurisdictions. We had to adapt production in many of the production units in Q2, where we had a drop of production of 25%, 20%, 30% which was absolutely huge.
It was necessary, because otherwise you will build up inventory, you would have to spend a lot of money, and you are not sure that after the pandemic ends, that you are able to sell the product. You need to be extremely reactive, and I would say that was very successful. You mentioned before that we had good results. I would say we had decent results, but it was also thanks to the reactivity of our people and also of our senior management.
In thinking back to the Q3 results, they do look pretty good, despite the economic collapse of much of the world. How do you explain it?
How do we explain it? Basically, it explained it by because we took the right reactions. In fact, as from Q2 on, we were successful to almost what we call internally, to variabilize our fixed costs. That would mean that if production is down 25%.
Yeah
We were successfully reducing fixed cost by 25% in the same quarter. That was in the second quarter, was roughly 25%. In the third quarter, what we did there, we got some upswing in the market. We could take advantage of it, so we were reactive in production. Also we kept our fixed cost under control. The consequence of that was that the results were much more decent. What we saw also in Q3 was that the recovery was much more in the V form, differently from the crisis of 2008, where we had much more of a kind of health crisis, because the crisis was going much down. Now, as we presently speaking, we are seeing the second wave.
I can say, fortunately, the second wave is, I would say, not as strong in the industry sector, also with our customers, than it has been in, for example, in some service, industries B2C, like hotel, restaurants, retail shops and so on, which are even today in a much worse situation than we have been.
Presumably the key to the next year will be the vaccine. Assuming that vaccines work and that they're adopted, what does the future look like for ArcelorMittal?
Well, I think that would then be the good news. We are supporting, and maybe that I can even tell the people that Lakshmi Mittal himself privately made a big donation for the Oxford University-developed vaccine, because he saw the negative points of the COVID, and so he took some of his personal wealth in order to try to accelerate the movement. That is only, I think, a side remark. It is clear that once the vaccine is coming, it will help normalizing the world. The world will be different tomorrow. Also in terms of consumption pattern, that is absolutely true. I think what will be helpful is that during this pandemic, saving rates increased a lot.
What we can hope once the vaccine would be there, that people would maybe invest a little bit more in consumer durables. Consumer durables, I would say, are more steel intensive than other consumer goods. This should be good. That's the reason also why in general, we hope that after the sharp drop in production this year, we can have an increasing drop, which will not fully compensate what we have lost this year.
Yeah
We should definitely hope to be in a better shape next year. We see it already also now, because we foresee that after the rebound of Q3, we will have a rebound in Q4. We will produce more in Q4 than we have produced in Q3, and we hope that this movement can continue in 2021.
Presumably the biggest factor to help you would be a recovery of the automobile market.
Automotive is extremely important, and that is also Q3 and Q4 have really been pushed by the increase in automotive sector. There, technically, the effect has been twofold. In Q2, when the world stopped, automotive industry stopped to buy, what I explained to you, but also this full supply chain emptied from steel. Now that production resumes, so there is also a little bit an accelerated demand because inventories have to be rebuilt, and that is giving us an advantage in terms of stronger demand. We hope that this will continue also in next year. The other question which is important is now construction. The construction market went not down as much and as people need housing, and as governments want to support also infrastructure building, I think that should be okay.
What is lagging behind a little bit is more industrial goods than machinery also, because at this moment still, also our clients' industry doesn't really invest because they have been very careful in also spending money and preserving cash.
If you look at the whole world, what has happened in the last few weeks, of course, is a change of administration, eventually, coming into effect.
Yes
in the U.S. Does that mean an end to trade wars between the U.S. and China? If so, how does that impact ArcelorMittal? Are you actually, in a sense, immune to the Trump administration's economic policy?
I would not say that we are immune, but as we are a global steel producer, we are present in the different markets and hence, we could also take advantage of the different regions where we are producing. I would say the overall atmosphere was not very good due to all these trade wars, but it was at some time also necessary to tell also countries which have been extremely aggressive in exports because they have huge overcapacities, to tell these countries, "You need to stop," especially in the carbon world where we do not have a level playing field. From that point of view, I think free trade is one thing, but we should try to return to a world of fair trade. Fair trade is giving fair chances also to each of the geographies so that they can produce.
What we can hope is, also with the new administration in the U.S. and with the European Commission, that we should have a fairer trade regime, which would be helpful also to cover and to meet all the other challenges we have as an industry.
How do you achieve that? If I remember correctly, I think ArcelorMittal complains that roughly 20%-25% of European steel consumption is coming from countries which basically have quite an unfair cost advantage.
That is absolutely right. I think that the problem of not fair regulations on steel trade is the most difficult in Europe. You remember when Donald Trump introduced 232, there was the big fear in Europe that the exports which would no longer go to the U.S. would all be driven to Europe. In fact, that happened to some extent. We as a steel industry, we argued very strongly with the European Commission to introduce what we called safeguard measures. Safeguard measures were in fact to say, we were asking that part of imports should be limited to a certain degree of consumption.
The European Commission said, "No part of imports will be a certain volume, and this volume can grow by 5% per year." That was handicapping us quite a lot, especially in the pandemic as well, when you see that consumption goes down by 25% or 30%, and the absolute level could remain the same. That could be very dangerous. In the meantime, we have made some progress with the European Commission because they have developed country-specific imports to Europe so that we can at least partially limit some very aggressive imports we see, for example, from Turkey, which was by far the worst, but also for certain categories from Eastern European countries, Russia or Asia, or so on, who were simply trying to take some route.
Hence, we are pleading for maintaining this regime of safeguard measures, which is today sought to end by mid 2021, and we are today discussing with the European Commission so that this continues, so that we can continue to establish fair trade mechanisms.
Yeah. I understand what you're saying, but if you take the case of Turkey, presumably their cost advantage was helped by the near collapse at some times of the Turkish lira. When you get currency fluctuations, it must be terribly difficult to establish this level playing field.
Not so much because you have in the steel industry, you have a big part of your costs, which are in fact international costs. You see, raw material cost is in dollar-denominated basis of energy cost. If it's based on natural gas or on coal, or is by 80% or 90% indexed on the international pricing. When you go through the [uncertain], currency is helping you, but it was absolutely clear what was the reason of the aggressive imports from Turkey, is the fact that domestic market was shrinking and Turkish mills were saying, "Okay, can I have even a small contribution on my fixed costs so I export?" That was what it was going, and it nothing to do that their competitiveness would have increased.
I think in terms of quality, in terms of delivery or so on, they not match what we can do for our customers.
The culprit in the past has always been China. What is the situation now with China? Are they still dumping steel, or have inventories gone so low in China that things have actually changed?
I think there are two movements. The first one is that China, in fact, was the big surprise of international steel markets this year. In fact, China will see in 2020 its steel consumption going up by 7% or 8% compared to the year before, and that despite COVID-19. That means how aggressive China has managed COVID-19 and how little harm it had left to the economy. When COVID-19 was there, and in order to avoid negative growth, the Chinese authorities, local and national authorities, developed huge infrastructure plans, which explains the surge of steel consumption. Hence, there is not so much room for Chinese steel producers to export steel. I think that is the first element.
The second element was, remember, when we discussed that several years in a row in our yearly discussions, China had huge overcapacities, and it was these overcapacities which helped them then to dump steel exports to other countries. This needed to be stopped. That was the reason that in almost all of the big steel consuming markets, China had been punished with anti-dumping or countervailing duty programs, which are ongoing and which make it much more difficult today for China to import. The question is then, if we can stop China to do some unfair trade. Problem was Turkey came then back, or others came back, and so we have to fight everyone all the time, and that's the reason why we are so active on this side in the different countries.
You have a stimulus package, obviously, in China. I assume there will be one passed very quickly in the United States. What do you look forward to in terms of North America? You've sold ArcelorMittal USA, haven't you? You still have a joint venture with Nippon.
What is-
These are different things. I think that if you look at the state of infrastructure in America, there is absolutely a need to improve infrastructure and to launch big works to improve the situation. This is something which is ongoing. Donald Trump was speaking about it. Not very much was happening, but it is clear to all of us that one of the responses of COVID-19, not only in the U.S., but we have seen it in China and also with Greta. This is meant to try to bring back the economy, and it is focused mainly on investment, and that should, in the long run, be positive for steel consumption. Now, specifically, why did we sell our American units? I think there are some strategic thoughts which I like to explain to our shareholders because they might not really understand.
The most important one is, the solution we have found with Cleveland-Cliffs, who is the buyer of these steel mills, is in fact strategic. Our U.S. mills, in fact, had captive sources of iron ore, these captive sources are now eaten up so that they have no longer very much reserves. The question was, how can we establish this captive supply of coal and of ore in the long run? We didn't see a possibility because the only company in the U.S. which is long in iron ore is precisely Cleveland-Cliffs. Either the model would have been a bilateral monopoly, where you would fight on the price, because importing iron ore from Brazil or from elsewhere doesn't work because infrastructure is not there in the U.S. Either you would have a bilateral monopoly, or you have an integrated supply chain.
Cleveland-Cliffs, two years ago, when they were buying AK Steel, they were starting this integrated approach. It was also for that reason, Cleveland-Cliffs, who came, and we had these discussions about how can we do best. At the end of the day, we started to negotiate, and we thought that the outcome which was there was by far the best one because it gives a good chance to our mills in the U.S., which are quite high-cost mills because they are unionized. They are, to some extent, a little bit older. They might need a little bit also more CapEx in the future, but they would have a long-term secured supply.
When we were discussing, we were also seeing that Cleveland-Cliffs, in fact, was paying quite a decent price and a price which is not based on Q2 results, but which was really based on mid-cycle EBITDA multiples. On top of that, from ArcelorMittal's point of view, one of the advantage was also that in these mills, there are a lot of past liabilities in terms of pension liabilities or healthcare liabilities, because these companies a huge amount of number of employees, and all these liabilities passed over to Cliff. All in all, I would say a good industrial solution for the U.S. mills. For us, a good, let's say, market price, which is okay. The fact that it helped us to strengthen further our balance sheet with one of the outcomes out of this is that our objective of net debt of $7 billion has been-
I would strongly agree with that.
through that acquisition. From that point of view, I definitely believe that it is a win-win situation. For ArcelorMittal, the sacrifice is manageable because we remain quite strong in North America. First of all, we are the owners of Dofasco, and Dofasco is the best integrated mill in North America by no means. It's very efficient, really similar to our best European plants. We have acquired Calvert.
Calvert is the most modern finishing mill, I would say, in the Western world. Parallel to our investment in Calvert, you probably are aware, that we decided also to build in Calvert electric arc furnace with a capacity of 1.5 million tons. That roughly already one-third of the production of the raw steel will be produced in Calvert as well. The main coming then in the future from Mexico, which is also not far away and which can be easily shipped with high quality semis, and then the rest from Brazil. Hence, a big part of our automotive customer base and still a presence of, we remain a very strong competitor in the U.S. with a big market share for our key customers, and that in combination between Dofasco and Calvert. In all, I think a very good deal.
Excellent. You mentioned unions. In that case, it brings me to Ilva. What is happening with Ilva? Wasn't there a deadline yesterday that you gathered?
Yes. Unfortunately, the deadline has been postponed by 10 days. We have signed yesterday a paper-.
In very typically Italian.
Negotiations were not really finished. Unfortunately, it's a little bit too premature to tell you what the exact outcome is. What is important to know is that due to the difficulties we found in Ilva, and which had been much worsened also due to COVID, and I would say that has also increased social tensions. We made an agreement at the beginning of the year with the Italian government, where we said we need to de-risk this venture a little bit. We made an agreement in principle saying that we would change the industrial plan, making it even more greener than it was before, because there would be some DRI production in electric arc furnace and less blast furnaces.
Second, de-risking it by transforming what was still due to the Italian authorities for buying Ilva, that this would be transformed into equity inside Ilva, and hence, the Italian authorities or company designated by that would become our partners. Third, what we reached with that or in that agreement in principle, was that we wanted to have an alignment of interest between the Italian authorities and ArcelorMittal. In this agreement, I think it was in March or in May, there was one clause to say that if this agreement cannot be finalized in the final agreement, whereas the deadline was November 30th, then ArcelorMittal has the right to walk away. In the meantime, what we said, we want to negotiate in good faith in order to find this solution.
I would say what I hear from the market, and the negotiations are not finished, but both sides negotiated in good faith, and the fact that we said we need 10 days more to finalize the agreement is a positive sign. In these negotiations, you never know.
Do you expect the Italian government, the Italian state, to have a majority share?
I think it's too early. The importance for us is I think that ArcelorMittal will be the industrial operator. The other question is more a question of the country who will contribute what. As there is a need of additional resources, we have to see what these negotiations are going. I think it will be definitely a partnership model of the different stakeholders, because that will be the best point for the company to first of all, to come out of the crisis and to move forward.
Let me just ask Hetal Patel if there have been any questions from shareholders.
Yeah. Thank you, John. I think there is a couple, actually. Why don't we stay on the theme of Europe? I think first and foremost, you're restarting some capacity in Europe. However, is there a mismatch between the restarts and the current demand levels? Secondly, in regards to the restructuring cost programs that you announced, you've recently announced the closure at Kraków in Poland, and are ArcelorMittal any plans to close further blast furnaces in Europe?
Okay. Yeah, these are very right questions. First of all, in terms of restarting capacity, I think that our aim definitely is to be very reactive, and as soon as we see the market move, to be able to stop capacity or to bring back capacity. What we have seen is that we have presently taken decision to restart some of the blast furnaces. Most recent one will be in Italy, for example, in January, there will be the third blast furnace in Ilva, which will be restarted, we have restarted the blast furnace in Bremen. We have restarted a blast furnace in Dunkirk. We are operating today the three blast furnaces in Tubarão. We are operating the two blast furnaces in Fos and in Asturias.
We have brought back some capacities, but we are today, I would say, tight, but we are producing enough, but not too much steel in order to serve our customers. We have seen that very well in the third quarter with the results, which were decent, and we foresee the same in the third quarter. Now, we will continue to monitor that extremely precisely. There is still some capacity which we stopped. In particular, we have one big relining in Ghent, which will be restarted because Ghent is a very competitive plant, but unfortunately, from time to time, you have to restart. That is in the 110 days full stop of one blast furnace, which is currently and which explains also why we had to restart so many other plants.
In this context, you mentioned also the decision to close the Krakow blast furnace. What you have to know is the steel shop and the one blast furnace in Krakow was in fact a relatively high cost unit. What we need, and in particular, what becomes obvious in crisis times when we see it like that, is that if you have high cost units, you cannot work profitably. There is a chance in Poland because 30 km from Krakow away, we have the plant in Katowice, and there we have a very powerful liquid phase. In fact, it is possible to transfer production there to produce it at a much lower cost, including the handling cost, to bring the semis to Krakow, so that at the end of the day, we will improve profitability.
In terms of market share, we will absolutely keep. In terms of volume in Poland also, we keep it, but we can have the same production with less production units, and hence, we are working in a more productive way than it would be otherwise the way. I can also reassure the question of this shareholder. We do not have now a plan to systematically further do shutdowns. What we have as a plan is to see, we are looking at our asset base regularly and normally this passes in the third, fourth quarter when we are preparing our budget for next year and looking at our strategic developments. We are looking, we are making a portfolio analysis and take decisions. What we have learned also from the 2008 crisis is that you need to match capacity to final demand.
This has made ArcelorMittal much more competitive, and this is what we are working now, and in particular, now in the budget process, which is discussed now with the different units. We did not say make us proposals to close assets, but we asked another question. We were asking, in fact, our CEOs and our management teams, what did we learn from COVID? From COVID, we learned to take out a lot of fixed costs. We say, isn't that an opportunity to take out a part of fixed costs in the long run. For example, to make some processes leaner, to make organization less complex, and that is what is going on now. I do not have yet the final results of this exercise, but there will be some good ideas.
I think that we will make much more disclosures on that when we are speaking about the 2020 results and presenting 2020 results in beginning of February, and then also give some hints and some guidance for year 2021.
The cost-cutting has obviously helped you get to the $7 billion net debt target, which is rather impressive. Also, there was a $500 million share buyback. Is this a change of policy by ArcelorMittal that will last, in which you concentrate more and more on shareholder returns?
Yes, that was what we have said. I think that the objective to reach $7 billion of net debt had in fact been fixed, I think, as early as 2016. We had said, this is our goal, and we worked very hard in order to reach it. The road which we have used since, the efforts have been tremendous. Simply to recall, maybe that you don't have this in mind, but when we entered the crisis of 2008, ArcelorMittal had a net debt of $32 billion. That was 1st of October 2008. Now we are 12 years later, we have brought down this debt from $32 billion to $7 billion. A tremendous effort.
Yeah.
A tremendous effort for everyone. First of all, I would like to give tribute to all of our people, our management, because it is their lot of efforts. To all other stakeholders, also our shareholders. They accepted that from time to time, there was no dividend payment. They were asked two or three times even to make a capital increase, all that contributed. Then we made some portfolio optimization by selling some assets. All this together helped us to reach this objective. Now we have it, and that was also the reason why we said we need now also to honor this and to give some money back to our shareholders.
That is really what we can start from now on, and which means that also, in February, we will make an announcement on how this policy will be seen in terms of dividend policy, in terms of buyback policy. We see that today, with our benefit of $ 7 billion, we are capable of generating free cash flow throughout the cycle.
Yeah.
We have in parallel reduced the cash we need to run the, sustainably, the business. There will be free cash flow available, and we will discuss, and we are discussing presently with our shareholders what is the best way to give them a significant part of this cash back so that they can get some fruits of the efforts which have been done.
You mentioned the word sustainable. Sustainability, of course, is a big project for ArcelorMittal in particular, for the company in general. You have a target of being carbon neutral by 2050 and reducing it by 30% by 2030, just 10 years from now. How are we going to do this?
First of all, I would like to explain that this is really a strategic objective. The target of 2050, in fact, is aligned on the objectives which are set in the Paris Agreement. Why are we doing it? Because we believe that if we as ArcelorMittal in particular, but also in general, if the steel industry can become carbon neutral, then our industry has a huge positive future. Why is that? Because look what you can do with steel in infrastructure, in transport, in everyday life. As steel can be recycled through the scrap route all the time, and if we can also then make the primary steel making CO2-free, then we will be part of a circular economy.
Yeah.
Hence we told ourselves, this is something strategically we should reach. The question comes: what do we have to do in order to reach it? Second question is, what other stakeholders and in particular policymakers, the EU Commission, governments need to do so that it can be reached in the prospect of the Paris Agreement? From ourselves, it's mainly, first of all, it's a strategic decision, and then it's trying to find out what are the right technologies which can help you to reach this way. It is in that respect that we are developing now a certain number of technologies, which are, by the way, described in our Climate Action Report, where our shareholders can look at on our website, where we say what we can do as a company.
With this portfolio of technologies, we believe that indeed, that we can reach the 30% reduction by 2030, and in the long run, to become carbon neutral in the long run. Nevertheless, we say our efforts is fine, but in order to be able to reach it, we need to have a level playing field, because these technologies, and we can go on later on a little bit, I can describe what the routes are. These technologies are generally more costly than the traditional way to produce steel. Hence we say the best would be to have an universal price of carbon, which would be the same for everyone. As we are technology leaders, we would be the big winners. That's not the case. We see the European Union in particular moving first.
We are telling we need in Europe, for example, a carbon border tax, which means that.
Carbon, yeah.
If steel and CO2, steel with CO2 content is imported in Europe, it should pay a tax for the value of CO2 it contains. Second, we think that we need some support in funding some of these investments. In a similar way than governments were, for example, helping to finance renewable energy schemes, because the cost was, at the beginning, higher than in old gas power works. We say also that at the beginning, we probably need these types of compensations for the steel products, which are green steel products. It is that what we are precisely discussing, and we are saying we are committed to. This is our vision, but we want that policymakers, the EU Commissioner or so, is also helping with different instruments so that we can all together reach the objectives of the Paris Agreement.
Are you encouraged? If you look at China now, China's set a target of, I think, 2060 for carbon neutrality, which would be a big game changer. I think even Greta might be applauding China as well as ArcelorMittal. Do you see the general political climate changing in terms of sustainability and climate change?
I think this is a trend which is extremely powerful. In terms of China did not say how they would like to reach it. I think there is a difference between China today and what ArcelorMittal is saying, that we are trying to trace a way how we want to achieve it and what is necessary. If China is serious with this objective, I think it will be absolutely a great news. It means also that in the future, the Chinese steel industry will be a strong competitor. We do not fear strong competition, provided that it is fair competition, because we believe that in the steel industry, as well in technology as in the steel products, we are really a technological leader. Thanks to our R&D people, thanks to the imagination of the people, thanks to the cooperation with our big customers.
From that point of view, we do not fear competition. I think it should even accelerate, but it should be the same rules for everyone.
Are you assuming also that there will have to be technological innovation of a huge sort, with hydrogen, for example?
Absolutely. Basically, to tell you, there are two avenues how to reach these goals. The first one is indeed hydrogen, because in fact today you need coal to extract the oxide, which is in the iron ore, and then you emit CO2. If you use hydrogen, then you use hydrogen as absorbing the oxygen and you emit H2O. That means water, and that is CO2-free. In order to make this way, what do you need? First of all, you need huge amounts of hydrogen, which has to be fabricated through green energy.
Yeah.
This is a huge amount and probably not achievable in the level of 2030. Second, you need to replace the blast furnace and the traditional way how you produce steel and to substitute it with a kind of DRI production, which is produced based on oxygen. We are piloting this technology in our plant in Hamburg because ArcelorMittal is the sole European producer who owns the DRI unit in Hamburg. We believe this cannot be the only solution, at least at the horizon of 10 or 15 years, because CapEx is too expensive and energy is not available. We are working on the second avenue of different technologies. This is what we call Smart Carbon technologies.
Some of it is, for example, to see, to extract CO2 and to transform this CO2 into a product which is substituting fossil energy. For example, we have such a plant in Ghent, where we produce bioethanol.
which is combination of CO2 and a kind of special enzymes. This product can be used in the chemical industry or as a fuel for engines. This is a good way, and hence you do not use oil for this production. Other thing would be to substitute coal with, for example, biomass.
Do you think you'll get to a point where ArcelorMittal's iron ore mining sector becomes less important?
I don't think so. There's a question of iron ore sector is that as strong as steel consumption is growing, there is not enough scrap availability. Today, available scrap is recycled by more than 90% on the global world. We are consuming today the scrap which, the steel which had been produced on average in the 1970s or 1980s. At that moment, global steel production was 700 million tons. It's today 2 billion.
Yeah.
That's the reason why today in our, the use of scrap in the global steel industry is only 30%. This needs to climb up. As long as you have a positive growth of steel consumption, you need to have iron ore mines to produce. I think that we are extremely happy as ArcelorMittal to be owners of very competitive mines because it makes us, it gives us a longer value chain. Especially in times like today where the iron ore price is very high, it helps us definitely to have better financial results as those competitors.
You're now expanding the plant in Liberia.
We are expanding the plant in Liberia because the project is absolutely attractive. Liberian iron ore reserves are low iron ore, and I would say of low quality. What we are doing is building, investing in what we call, in technical jargon, a beneficiation plant. The beneficiation plant is in fact to transform this poor iron ore into high-grade, high quality iron ore, which sells with a premium on the market. We are doing. In fact, we are finishing an investment which had been started seven or eight years earlier, and which had to be stopped at the moment when in Liberia as well as Ebola pandemic, and when everyone had to leave the company. This is now relatively small investment for a huge project, and that is what we are starting. It should be highly compelling indeed.
Even with iron ore prices, which will be much lower than the ones we have today.
We don't have much time left, so let me just ask Hetal for more questions.
Yeah. Thank you, John. I think we've got two more questions actually from participants. First of all, India. ArcelorMittal, India, how are those assets performing today with the COVID pandemic? Can you give us an update on your growth plans and timelines and any further funding required to grow those plans?
You remember, I think it's good to speak, to say a word about India because today the Indian steel market is probably the market which will grow the most over the next decade. Some people say it will even more than double from the present 100 million tons of capacity. It is a market contrary to China, which is already quite consolidated because basically you have four big producers of flat steel, which is JSW, Tata, SAIL, and now ArcelorMittal AM/NS India, so former Essar Steel. From that point of view, this was absolutely a strategic move and definitely not an emotional investment made by Arcelor Mittal.
I think the fact that it was done together with Nippon Steel is good in terms of technology, in terms of support, and in fact, the Essar acquisition had been structured in such a way that it is self-financed with the equity which had been put in by the two shareholders. First of all went extremely well. I would say from the economic results are excellent. Today we are running full in India. We are at a run rate of $ 700 million of EBITDA per year or more than $ 700 million for the total production of 7.5 million tons. There is a potential to increase production further in the next run.
The first increase and the first growth we will do is that we will increase the pellet production to 20 million tons by the end already of next year because we have very good iron ore also where we can produce pellets, which is quite a [uncertain] . We are evaluating today the possibility how we can grow probably with small brownfield investments we can improve, we can increase by 1 million or 1.5 million . The long-term vision would be to double or even more to double the production of AM/NS India in order to remain one of the big players and to have at least 10% of market share in the Indian steel market.
India could be the real jewel in the crown, couldn't it, if you've got 6% annual growth every year? I mean.
I would not say the jewel, but one of the jewels of the crown definitely good. If I can make a comparison with another emerging market where we have done very good experience, which was Brazil, in fact.
No.
Brazil has huge comparative advantages for making steel. India as well, because it has iron ore, it has a growing market. It is almost going to become industrialized. More and more sophisticated steels. We can bring all our know-how here and there, beat competition in terms of quality of steel. The overall perspectives are extremely good, and that's the reason why we are so excited about the Indian venture, which will definitely be in the future one of the elements of growth of the group.
We haven't mentioned the CIS countries. What are the prospects there? They seem to be much weaker than India and Brazil, for example.
I would distinguish. CIS is in fact two continents. It's one side, Africa, and then it is the other side, our plant in Temirtau and in Ukraine. If I look at the present situation, I would say that South Africa is much more problematic than the CIS countries because South Africa was lacking competitiveness. In fact, there is a problem. Steel consumption is going down. There is no competitiveness to export from South Africa. Hence, we are really in a restructuring mode, and we have suffered quite a lot in order to do our best. Things are improving a little bit. It's not from a global point of view, you can say that the evolution in South Africa was not as positive as in many other geographies. Regarding CIS countries, there we have the advantage of having captive mines.
We are producing the full range of products in Kazakhstan, and we are producing mainly long products and semi-finished products in Ukraine. Fortunately, we are not in the Donbas region, so we did not suffer so much from the civil war and the events in Ukraine. I would say that with a very high I don't know, prices we see today in the world. We are producing at very competitive cost in Ukraine, but also to some extent in Kazakhstan, which is further away, and we are competing there well with Russian producers because our overall cost situation is quite good. From that point of view, I would say good improvement. Now, they have suffered a little bit more. Last year, they have suffered from the COVID as well, but they are developing now satisfactory.
Michel, we only have a couple of minutes left, and I think the horizon is looking actually pretty good. Presumably, there can still be some dark clouds. What are the risks that you see ahead that somehow ArcelorMittal will have to confront?
We say the horizon is good, but we have to understand that 2020 will be a year with very low EBITDA because we will be historically low. It will be the lowest EBITDA level over the last 10 years. We are in a very dark situation. Now, starting from this, we are making good progress. You're absolutely right. Demand is going up. Recently also, transformation margins have gone up. Indeed, my comments have been quite positive because also I think that ArcelorMittal today is in a position of strength in terms of competitiveness. We have done our homework in the 2010 to 2015 when we made all the heavy restructurings. We have had the 2020 Plan to reduce cost. We have made strategic moves. We have reduced very much our cost of capital. We have reduced interest payments. We have reduced our net debt.
From that point of view, we are today, I would say our equilibrium level is much lower than it has been before, and that is what makes us really stable, that we are positive and we are able today, as we have shown in Q3, to deliver free cash flow even if the overall market situation is very bad. That gives us some good insight of optimism and also, I think, a positive message to our shareholders that we can deliver results and that we can deliver cash and dividends or buybacks while we will continue to invest to be a good employer and to continue to try to make this business sustainable.
Michel, that is a perfect note to end on. We've had our hour. Thank you very, very much for all your help, and thank you also to Hetal and the people behind the scenes for their help. I want to wish you all a very good festive season. Also I'd like to thank our viewers for tuning in, and I'd like to wish them good health and a very good end to this year. It's been a dreadful year in many respects, but not, I think, for ArcelorMittal's shareholdings. Let us hope that things continue to do well, and I wish you all a very, very good Christmas and New Year. Thank you very much.
Okay. Thank you as well, John. I think it was great to have this session with you. I think you said it very well for our listeners as well. We wish them all the best, and I think that we could pass them the message that we try to take care of the company, of our people, of all of the stakeholders in very tough times. Everyone has done a marvelous job, I would say, and continues to do so. I think that from that point of view, the prospects are positive. I want to join you by wishing to all of our people, all our shareholders, all the best for year-end. First of all, a good health, and second, rapidly a vaccine, and third, and a very, very good and prosperous New Year 2021. Thank you.
Thank you very much, everyone.
Thank you very much.