The conference is now being recorded.
May start, Daniel.
Thank you. Hi, good morning and good afternoon, everybody. Welcome to ArcelorMittal's first quarter 2019 analyst and investor call. This is Daniel Fairclough from the ArcelorMittal IR team, and I'm joined on this call today by Genuino Christino, who is the group head of finance. We're here to answer your questions on the results published this morning. If you would like to join the queue to ask a question, please do press star one on your telephone keypad. As usual, I'd like to remind you that this call is being recorded. Hopefully, everybody has had a chance to read our earnings statement published this morning, together with a Q&A document and a presentation with detailed speaker notes. The idea of this call is that we will answer your questions. Before we move to questions, I'd like to start with some brief opening remarks.
Firstly, as you can see from the numbers, market conditions in the first quarter of 2019 have been challenging. Demand in our core markets has been weak, and we can all see this weakness reflected in the indicators such as the Eurozone PMI and the year-on-year declines in auto production. This though has been further exacerbated by escalating imports into Europe, particularly for hot-rolled coil. Unlike in other regions such as China, this weaker supply-demand dynamic has constrained our ability to pass through higher raw material costs, and this has led to a price-cost squeeze and a significant deterioration in the results of our steel business. This is why we announced production cuts earlier this week. We can though take some encouragement that China has been able to increase spreads in recent months, reflecting the benefits of the structural supply-side reform that we've talked of previously.
In our presentation today, we do have a chart, I think it's on slide five, showing the unusually low hot-rolled coil price differential between Europe and China. As I say, it's unusually low. It's not unprecedented, but it is unusually low. What you will see from that chart is that when this type of environment occurs, this dislocation occurs, it doesn't or it isn't sustained for extended periods. Relative to steel, our mining segment fared better, delivering improved results despite seasonally lower shipments. This, of course, highlights the benefits of ArcelorMittal's vertical integration. On a positive note, we have seen this quarter a lower than normal seasonal investment in working capital, which I think reflects our focus on the structural release of the excess working capital accumulated in 2018. This will continue through the course of this year.
Q1 free cash flow was marginally positive, that, I think, reflects some of the improvement that we've made in recent periods, particularly on our cost of interest. If you normalize for the working capital effect, the working capital investment this quarter, reflect on our target to release working capital this year, we're implying a minimum $1.6 billion over the next three quarters, then hopefully you should be confident as we are that we can deliver healthy free cash flow in 2019 and demonstrate clear progress on debt reduction. These, together with the Action 2020 progress and improved shareholder returns, are our priority. With those brief remarks, we're ready to take your questions. We have a queue, the first question we're going to take is from Ephrem at Citi, please.
Hi, can you hear me? A quick question on the cash flow statement. You had a $300 million cash inflow from the FX hedge. Can you confirm that the temporary effect impact will reverse the coming quarters when the deal is completed? Thank you.
Hi, Ephrem. This is Genuino. Let me take this question. Yes, you're right. The impact of the hedging should reverse when that transaction close.
Thank you. Can I also have a quick follow-up question? Sorry. Just on the production cut that you've announced, the 3 million tons of production. Clearly, is that a capacity impact or is that an actual tons of shipments that you will be taking out of the market?
Sorry, Ephrem. Can you just repeat that question? Before you do so, I just wanted to go back to your previous question, and just highlight again one of the remarks that I made at the start of the conference call. If you look at the cash flow performance of the business this first quarter, I think it should give you encouragement. The free cash flow was slightly positive. I know it's only EUR 25 million, but at least it was slightly positive. Especially when you consider that we did make a seasonal investment of working capital of EUR 550 million.
Given that we're telling you today that you can expect us to at least release EUR 1.6 billion over the remaining 3 quarters of the year, given the run rate of cash flow excluding working capital investment in the first quarter, that should make you quite encouraged about the cash flow outlook and the debt reduction potential over the remainder of the year. Sorry, I wanted to come back to your question, but I didn't catch it.
Yeah. Sorry for not being clear earlier. The question was the 3 million tons of production cuts that you've announced, is that on the base of capacity or on the basis of shipments that you would be planning to make over a full year? Just want to see if there is a utilization rate haircut we need to take on that number.
Yeah. I think the thing to recognize is that, in the case of Krakow and in the case of Asturias, these operations have been running in the first quarter and in the second quarter. This is capacity and production that we're taking out of the market. The other element of the 3 million tons is the slowdown in the ramp-up at Taranto. Obviously, we were anticipating achieving a 6 million ton run rate in the second half of the year. We are going to slow down on that pace of ramp-up. The overall effect is a 3 million ton annualized reduction in supply to the market. It does incorporate, as I say, a slowdown in Taranto and cuts in Spain and Poland.
I think the main takeaway to have on this topic is really the tons that we're taking out of the market in the first quarter, those tons had a zero or negative contribution margin. The price in the market was only covering the variable costs, and there was no absorption of fixed costs on those tons. If you think about where we are today, taking those tons out of the market has zero EBITDA effect. Then the opportunity for us to attack the fixed costs of those tons in the coming months, that's the opportunity for us to improve the EBITDA relative to us not having taken action at this time. Hopefully that makes sense to you.
Thanks, Daniel.
Great. Thanks, Ephrem. We'll move to the next question, please, from Jason at Bank of America.
Hi. I've got two questions. Firstly, on Ilva, with the delay in the ramp-up, does that impact any of the realization of the synergies that you are targeting at that asset? Secondly, your cash needs of the business at EUR 6.4 billion. I do appreciate that you have the potential to see working capital unwind in the second half or the remainder of the year, and that will support free cash flow. Ultimately, in the first quarter, you didn't generate much free cash. Is there any scope to see the cash needs of the business, particularly on the CapEx side, dialed down from that EUR 6.4 billion, or is there no real headroom to shrink cash requirements elsewhere? Thank you.
Okay, Jason. Let me address your first question on synergies in Ilva. We are making good progress. I'm not so sure that you've attended our presentation in Toronto, but we are clearly making good progress, particularly in some areas like procurement, commercial, as we have these activities now as part of our European platforms. Clearly, as we slow down our production with the ramp-up, that will have an impact. That will be some delay, but we remain optimistic that we should be able to capture the synergies that we have announced initially. In terms of the cash needs, Jason, at this point, we are not updating the cash needs or forecasts. Typically, we do it in quarter two, but at this point, as you know, the CapEx that we have increased, that we have from last year, the projects for Ilva, that will continue.
We have also the Mexico project and some carryover from 2018. We believe that those projects, they will be important for the company, we are not at this point revising them. Some of the other aspects of the cash needs, such as taxes. They still take into account the level of profitability that we enjoyed in 2018. To the extent that you have a lower number for this year, then of course, we have to adjust for that.
Thanks.
Thanks, Jason. We'll move to the next question, please, from [Ioannis] at Macquarie.
Hello. Thanks for taking my questions. The first one is on the sequential EBITDA bridge and how we should think about it. Any color you can provide on the volume development Q2 across the different divisions? Also any color on the spread development, especially for the divisions that you have some level of iron ore integration. I'll stop there for the first question. Thank you.
Thank you, Yannis. In terms of, let's start with shipments. We would expect our shipment performance year-on-year to improve considerably, given that we don't expect the operational issues that we faced last year, particularly in Europe and Asia. On top of that, we continue to ramp up Ilva to the 5 million tons. If you look on a quarter-on-quarter basis, what we have is we have Kazakhstan then running at normal levels following the explosions that we had in quarter 4 of last year and the ramp-up in quarter 1. We will see production back to normal levels in Kazakhstan in quarter 2. Also we will have Mexico running at normal levels as well.
The blast furnace in Mexico, the reline was completed at the end of February, so we will have the full impact of that now in quarter 2. CIS, we will see a significant improvement in terms of shipments, and we also expect normal seasonal pickup in shipments in Europe. In terms of prices, we have seen international prices, particularly Chinese prices, improving in the first quarter. That will clearly benefit some of our parts of our business. In particular the CIS and also in part our Brazilian business, exports of slabs and to some extent also the domestic flat business. Then, of course, you know where prices are in Europe. Danny already mentioned that prices, the environment in Europe in particular is challenging. In U.S., prices did stabilize during the first quarter, and that's where we are.
Thanks very much. Another question on Brazil. It was interesting to see shipments being strong. I was looking at the year-over-year shipments, and both flat and long were pretty strong. I guess long is partly due to Votorantim. If you can provide a bit of color on the underlying long shipment development, that'd be useful. Also on flat steel, you were pretty strong in Q1, and I'm just wondering, at the same time, you cut your demand forecast for the year. How do I reconcile the two?
Yeah. Let's talk about the shipment performance in Brazil. What happened there is that in Q4 of 2017, we had a significant destocking in Brazil. Traditionally, we stop some of the hot strip mill for maintenance. You have holidays. We tend to then export more, so we have the destocking. In quarter one of 2018, traditionally then we restock, so we have less shipments, we cut exports. This time around, quarter four of 2018, we didn't have the destocking effect as much. As a result, in quarter one of 2019 we could ship more. On top of that, the production is also higher year-on-year. In long's you're right, I think most of the impact is coming from the integration of Votorantim.
Okay, great. Thanks. Just a quick follow-up for you on January adjustment depreciation. You're guiding to $3.1 billion for the year, but if I look at the Q1 run rate, it's closer to $2.9 billion, and I was expecting that IFRS 16 is fully reflected in Q1. How do we get from $2.9 to $3.1 billion for the year? Thank you.
Yeah. When we provide this guidance, Yannis, we have taken into account effects. Also traditionally in quarter four, you have some higher depreciation because it's typically when you have your year-end adjustments. When you transfer some of your assets under construction to operations, so that's factoring these impacts. We believe that the guidance, it's a good proxy for the number.
Great. Thank you.
Thanks, Yannis. We'll move to the next question, please, from Christian at SocGen.
Yes. Thank you. A quick one on your cost of operation in NAFTA. If you exclude the cost of raw material, in the first quarter, in our calculation, it looks like we've had another sizable increase in underlying costs. Could you perhaps highlight what the cost conditions are at the moment and what may be impacting this in the first quarter, which may be not recurring?
Yeah. In NAFTA the costs, you have some increase because of coal. The costs went up in as you know, coking coal was higher in quarter four. Iron ore also went up. There is a catch-up impact. There is a lag impact flowing through our results in quarter one. Other than that, there is nothing exceptional. Other than, of course, the impacts that we highlight coming from Burns Harbor.
Sorry, impact from what, sorry?
Burns Harbor.
Okay. The increase in your price seems to be even outside your cost of coking coal and iron ore. That would be the only other impact you would be seeing in your first quarter in NAFTA.
Yeah. In quarter four, if you see in quarter one and after, clearly if I walk you through the bridge, you will see that the main impact is really coming from prices. Right? The cost increases are modest, primarily linked to the points that I have highlighted. Then you have also a positive coming from volumes. That walks you through from Q4 to Q1.
Okay. My second question is on your $150 million impairment in Europe, which I gather we should be adjusting the potential value of the assets you're selling to Liberty Steel. Is that the case? Also, what's the timing on that sale of these European assets? Should we still include them in our estimate in Q2 and in Q3?
Yeah. To the first point of your question, you're right. The impairments reflect a reduction of the expected proceeds. As we discussed last quarter, this is a negotiation among three parties. In terms of timing, we would expect the transaction to close in the second quarter.
Okay. Can you give us an idea about the amount we're looking at in the end? We will meet $3 million?
Well, you have the book values in our 20F for about $1.1 billion. If you deduct the impairments now for about $150 million, you're going to be in the right ballpark.
Okay. Thank you very much.
Thanks, Christian. We'll move to Alain at Morgan Stanley, please.
Yes, good afternoon. Just one question from my side is on your outlook on demand appears to have deteriorated in the last three months. However, you have not changed your working capital release guidance, which stayed at EUR 1 billion. How do you reconcile those two facts, given that falling prices should mechanically lead to a much larger working capital cash inflow? Thank you.
Alain, what we discussed last quarter was that we overspent in working capital last quarter. We said we have about EUR 1 billion to be released. We never said that that's the absolute number that you're going to see at the end of the year. Of course, there are other factors that will impact at the end of the year the working capital release. I guess what we are seeing right now is that given that where we are right now, we would expect given that we have invested about EUR 600 million in quarter one, we would expect that to reverse and on top of that, we would expect EUR 1 billion to come through. That's the minimum that we see right now.
Okay. Thank you.
Thanks, Alain. We'll move to Sylvain at Exane please.
Good afternoon, gentlemen. Just three quick ones. First one on the cycle. If we're talking production cuts here, obviously suggest you've been surprised by the weakness in Europe. Trying to get a bit more color on your interpretation of that weakness, which seems to be very much led by Germany. Is it an inventory cycle there? Is there more worrying signs on some end markets, not just autos that you guys are witnessing already? What in your mind do we need to see happen for the whole situation to stabilize on the steel price? My second question is regarding to TRQs. Quotas are going to reset over summer. What is your expectation of potential risk on long product prices there, given they'll be included?
Lastly, I know you haven't given a firm timeline on the reduction of debt towards $7 billion, whatever the timeline was with this new weakness in Europe, would you say that whatever timeline you had in mind is unchanged, or is it a bit postponed now? Thank you.
Thanks, Sylvain. We'll start with your first question on really what's going on in the European market. I think you will note today that we have reduced our demand forecast for the year. At the start of the year, we were anticipating about a 1% or up to 1% growth in the market. We're now anticipating up to a 1% contraction in European demand in 2019. What's going on in terms of end markets? We can all see the weakness in automotive and that continues through the first half of this year. The better end market is construction. That continues to do quite well in Europe. General industry, general manufacturing is somewhere between those two markets.
From a flat steel perspective, overall demand outside of automotive just isn't strong enough to absorb the tons that would have been going to the automotive market, especially when you consider the additional tons coming into Europe through imports. The numbers are quite striking. If you look at hot-rolled coil imports so far this year, the run rate of imports is about 1.5 million tons. Imports are up about 16%. The major source of the additional imports really is Turkey. They account for the full uplift of HRC imports that the market has been facing in the first three months of this year.
It is a combination of slightly weaker than anticipated demand, but the additional supply effect of imports, which has weakened the overall supply-demand equilibrium, and that's why, as I said in the opening remarks, that we really struggled in Europe to pass through the increase in raw material costs, which other markets like China have been much more successful in achieving. What needs to change? Obviously, it would be helpful if the demand environment were to improve. I think a lot of commentators out there are anticipating that things should improve in the second half of the year, led by autos. Clearly, if that comes to pass, that would help the supply-demand situation. If exports to Europe, i.e., imports into the European region, were to decline, that would also be helpful.
If you look at the run rate of imports in the first three months relative to the quota levels for the next three quarters, it does suggest that the level of imports should come down. Somewhat, that's dependent on your second question around what happens to the escalation of those quotas in July. The third factor is domestic supply. Obviously we've done our bit just this week by removing 3 million tons of capacity and production from the market. Ultimately, the market environment is going to be dictated by the supply-demand situation. There are three different moving factors there. I think we can be hopeful on demand. We can expect imports to come down because of the quotas. Obviously, as I say, we've done our bit from a domestic supply standpoint to improve the situation as much as we can.
In terms of the Tariff-rate quotas, it's not an automatic 5% increase in the quota levels. This is still something that needs to be determined. There is flexibility there, and there are going to be discussions between all of the various different stakeholders, between the commission and the various different stakeholders as to what is deemed appropriate to escalate those quotas in July. Clearly, the thrust of our argument today is focused on HRC, where, given the demand environment, it's very difficult to generate any argument to suggest that the quotas should be increased in July. Hopefully the commission sees the sense and the logic of those arguments in their forthcoming discussions. The final question just on the timing. I think, obviously we haven't set out externally the anticipated pace at which we achieve our net debt target.
I think, clearly the weaker EBITDA environment does have an impact on our free cash flow generation. As we talked about earlier in this call, both myself and Genuino are trying to highlight to you that there is a lot of benefit within the balance sheet from the working capital investment that we've made in the past couple of years. That's our opportunity to deliver healthy levels of free cash flow this year, even though EBITDA is going to be weaker.
Thanks so much.
Great. Thank you. We will take the next question please from Phil at KeyBanc.
Yeah, thanks very much. Danny, where do we stand on Essar and what are we looking for in terms of updates or signposts, either from you all or the market?
Yeah. Thanks, Phil. It's pretty simple. Our resolution plan for Essar has been approved by the NCLT. What we're now waiting for is the final NCLAT ruling on how the funds are going to be dispersed between the financial and operating creditors. This is not an issue for ArcelorMittal, but rather issue for the committee of creditors. Once the NCLAT makes its ruling, which is anticipated fairly soon, we're ready to proceed. We would expect to conclude the acquisition during the course of the second quarter or Q3 at the latest.
Is there any further concessions or caveats that you may have to make, depending on the ruling? Or do you feel like you've taken care of all of those issues?
Yeah, that's the important point to take away here, that our resolution plan has been approved. This really is a discussion between the committee of creditors and the NCLAT about how the payment from ArcelorMittal is going to be distributed between the financial and operating creditors. There's no requirement or room for us to make further concessions.
Okay. Just a second question, if I could, on Calvert within the U.S. Are you all still pursuing an exemption there? Has anything come down in terms of a denial? Because we've seen obviously lots of denials in the last two to call it six weeks in the marketplace. Was just curious about the standing of that request. Thanks.
No, we don't have any problems there. We've got the source of slab coming from Brazil, and that's exempted from the tariffs. Okay, sorry. I think I misinterpreted your question. There's no progress update on the exemption request.
Thanks, Daniel.
We'll move to the next question, please, from Luke at JPMorgan.
Hi, guys. Just to follow up on the Ilva curtailments from earlier this week. Just trying to connect the decision from the site trip that 6 million tons was the key to getting the returns above the cost of capital, and at that level, it was resilient to market conditions. Obviously, we can all see it's a tough market in Southern Europe, raw material prices, et cetera. Given the potential through the cycle value creation from Ilva, were there not other assets that would have had less valuation impact? Has something changed in the outlook for that asset? Just to follow up more generally, do you expect other market players to follow your lead on curtailments? To what extent is this just going to be a function of lost market share in HRC?
Great, thanks. I'll take those two questions. Maybe just starting with your question on what our peers might do or may or may not do, and the impact on market share. The first important takeaway that you should have is that domestic producers in Europe have already lost market share. Imports are up, and they've taken market share away from the domestic players. Our relative market share versus the rest of the domestic producers is unchanged, and it will not change. We will continue to maintain our share of domestic production. The second point, or your first question on our plans for Ilva and the strategic opportunity and the competitiveness of that asset going forward.
You're absolutely right that it's important for Ilva to achieve high rates of production in order to achieve its full opportunity as a low-cost operator within the European system, and therefore, an asset with good levels of profitability equal to that of the rest of our European asset base. That hasn't changed. All of the structural opportunities and advantages that you saw and witnessed on the site visit, they're absolutely still in place. This is a large-scale, coastal, Japanese-style facility. Good access to raw materials. This is going to be a very competitive low-cost facility. The reality is that it would be irresponsible of us to increase output from that facility into a market that can't take that demand. If we go ahead and increase the production at Taranto as per the previous plan, we're just going to be further exacerbating the situation.
The disciplined step for us to take is to slow that ramp-up down, take capacity out of the market from other areas of our portfolio, make sure that our level of production is appropriate to the level of demand. At such a time as that demand environment improves, we're going to be ready to increase the level of output from Taranto and ramp it up to that 6 million tonne rate that we talked about on the site visit. Does that help?
Yeah, very clear. A follow-up question, if I may, just on the carbon border adjustment, which you talked about again on the Monday announcements. Can you just give a bit more color on what exactly you would expect or hope for around that, and maybe the timeframe that this could realistically be implemented in Europe? Thanks.
Yeah, thanks. I think conceptually, it should be quite straightforward. As we all know, there is a cost of producing carbon in Europe, which is a cost that the importers into Europe do not face. It's a simple concept and ask that at the border, there is an equalization so that the importers of steel into Europe face the same cost of carbon that the domestic producers in Europe also face. In terms of the speed of implementation, that's not something that I'm in a position to talk about at this stage. I think there has been headway that we've been making as an industry, and it's not just steel that's asking for this. There are other industries such as aluminum, which are also pursuing the same objectives, a level playing field of domestic tonnes or cost of carbon per domestic tonnes versus the imported tonne.
From our perspective, clearly, the sooner that such an instrument could be put in place, the better. We'll have to wait for some more developments before we can comment on that more specifically.
Thank you.
Great, thanks. We'll move to the next question, please, from Alain at Jefferies.
Thanks. I just had a couple questions on volumes, the first is a bit of a follow-up to what Yannis was asking earlier. If we think about sequential volumes in Europe into Q2, we take the 3 million tons annualized, that works out to about 500,000 tons for a two-month period. Should we quite simply think about 500,000 tons lower quarter-on-quarter for shipments there? Is there actual, any real underlying demand that could leave us flat up from a shipment basis quarter-on-quarter? Then secondly, in the mining division, I believe the guidance for the full year is still for flat this year year-on-year, but obviously it was a bit of a weaker Q1.
Will there be a significant step-up in volumes and then a flat lining thereafter, or will it be a case of slowly improving production throughout the remainder of the year?
Let me take your question. In terms of the volumes in Europe, as I said earlier, I would expect the traditional seasonality in quarter two. Traditionally, quarter two is our stronger quarter. We would expect that to be the case also this year. I also said earlier that we continue to ramp up Ilva from the 4.5 million to 5 million tons. We will continue. We'll see an improvement in shipments coming from Ilva. The way we think about it is globally, looking at the year as a whole, it's relatively simple. You have our market share, we're going to be adding Ilva. Of course, you have to discount the remedies, and then you have the impact coming from the appearance to consumption that you have all forecast.
Of course, you have to take into account that in the first half, we still have the shipments from remedies, that's in a nutshell how you should think about evolution of our shipments in Europe year-on-year. Clearly, we're going to be protecting or maintaining our market share vis-a-vis the domestic players. In terms of the mining division, in quarter one is typically we have some seasonality. If you look on a year-on-year basis, you will see that our marketable shipments, it's stable, marginally up. That is just seasonal. We remain confident that overall volumes for the year should be relatively stable.
What about if I think about that sequentially through the remainder of the year? Is that a step up, then a flat lining, or is it slowly improvement?
You will see an improvement in quarter 2 in line with the seasonality that you will see in prior years.
All right. Thank you.
Thanks, Alain. We'll move to the next question, please, from Myles at UBS.
Thanks. Just following up on a couple of those. With the cut-outs, 3 million tons, do you have any confidence that your competitors will follow? Do you think prices margins are so thin for the marginal players that you will see others follow, and this could become a more meaningful move? The discussions around the quotas, the escalation. When are they taking place? Are they taking place now up till the first of July, or could it take a bit longer and is kind of retrospective adjustment to what imports can be in Europe?
Yes. I think in terms of the discussions around the escalation that is taking place in the coming weeks in order to make a decision as to what should and will happen in terms of any escalation on the first of July. I do not think we anticipate that it would drag into the third quarter and therefore require any sort of backdating. I think it will be resolved during this current quarter. In terms of our approach to managing capacity relative to demand in Europe, as I hopefully made the point previously, our intention here is not to allow our market share to go down. Our market share of domestic production in Europe will be maintained. The question really is the level of demand for our tons, given the weak economic environment, which has been deteriorated further from a steel perspective due to the very high levels of imports.
The right decision for us is to take those tons out of the market. What makes sense for our peers, I cannot comment on, but I reiterate that we will not be allowing our market share of domestic production to decline.
Okay. Thanks.
Great. Thanks for that, and we will move to maybe the last question. Oh, no. Is this the last question? One more after this. We will move to the next question from Bastian at Deutsche Bank.
Good afternoon, gentlemen. I've got two questions on the remedy assets. Could you please update us on the performance of the remedy assets? Have they been contributing EBITDA in the first quarter? They're expected to be profitable in the second quarter. Secondly, I understand that the $150 million impairment you took was related to emission credits, which you have now handed over to Liberty Steel. Can you please explain again what has happened there? Is this a pure cash equivalent? Basically, this actually suggests that he has either been taking the view that the price was too high, or have they basically been forcing you to strengthen the balance sheet of the assets financially before you hand them over to Liberty Steel? Maybe also related to that, can you maybe let us know how much of the cash we will get in the second quarter?
When the residual amount will be booked and whether this is conditional to any other moving parts? Thank you.
I'll take the first question certainly on this topic. As you know, it's not our policy to talk about specific unit-level performance, and certainly not in this circumstance, given the confidential nature of the process. I'll then hand over to Genuino.
Yeah. Bastian. We are not yet in a position to speak openly about the exact terms of the transaction, even though we know that there was a press release. But clearly, the $150 million is just a change in the consideration. The additional impairment that we are taking now for $150 million is linked to the fact that the consideration will be reduced vis-a-vis our expectations in the previous quarter.
Okay. You can't give us exactly the number which we can expect then in the second quarter, I suspect.
Essentially we should be receiving a substantial amount up front, and there will be also a deferred consideration.
Can you at least tell us whether you expect the rest to be booked in this business here?
I cannot comment right now, Bastian.
Okay. No problem. Just one follow-up on Brazil. Do you see any constraints from iron ore? Are your operations receiving enough raw material to keep up production?
Yeah, absolutely. Operations remain stable. We had a good performance in Brazil. So far, we have no shortage of materials in Brazil.
Okay, perfect. Thank you.
Great. Thanks, Bastian. For our last question, we're going to go back to Yannis at Macquarie.
That's great. Thanks very much. Just a couple of follow-ups from me. The first, again, just on what Bastian was asking about. My understanding was that when you took the impairment in Q4 for the remedy package, book value was closer to $900 million. So the $150 million that you announced today is incremental. Is that right or am I missing something?
No, I think the numbers are the same. Maybe there was some confusion about dollars, euros. In Q4, the numbers were roughly $1.1 billion. Now you take another $150 million impairment. We are down to $1 billion or slightly below $1 billion. That's the math. You can see that very clearly in our 20-F. In terms of-- maybe I can elaborate a little bit more on the impairment, on the reason of the impairment. I think this is public in any case. As part of the negotiation, we were expecting to receive some excess CO2 credits, which now following the final negotiations with the commission, will stay in the companies. That's why this money that we were expecting to receive, we're not going to receive anymore. As a result, you have this extra impairment now in quarter one.
That's clear. Thanks very much. Just a quick follow-up for Daniel. You talked about maintaining your relative market share in the European flat steel segment. Are you referring just to the spot market or to the overall flat steel market? Because I guess taking 3 million tons out of the spot market where you are the biggest player probably has a pretty meaningful impact in terms of market share.
Yeah. Before I answer that question, I just want to make an additional supplementary point to what Genuino was just talking about. He said that we will receive a substantial part of the consideration for the asset sale to Liberty up front, and that there will be an element deferred. It's not long-term deferred. That would still be, I think, what you could consider as in the short term. Maybe not this calendar year, but it wouldn't be deferred over a long period of time. To come to your market share question, I really don't want to embellish further on the point that I made previously. I think it's just clear that from our perspective, we will adjust our rate of production as we address the available demand.
It would not be at the expense of losing market share, whether that be of the spot market or of the total flat steel market. Here I'm talking about the share of domestic output or production, which is obviously the apparent steel consumption less any change in imports.
That's clear. Thanks very much.
Great. I don't think there are any further questions. On behalf of Genuino and myself, I'd like to thank everybody for joining us on the call today. I think we're due to see many of you in the coming days and weeks at the various events and conferences that we're going to be attending. Thank you very much for your continued interest.