Welcome to ArcelorMittal Retail Shareholders. My name is John Andrews. It's a pleasure to have you all from around the world. I'm here in London with Michel Wurth, who is a director of the main board, and also we have Hetal Patel from Investor Relations. We can quiz Michel on all sorts of things about ArcelorMittal and your shareholdings. Michel, shareholders are always told that steel is a cyclical business. Where are we in the cycle at the moment?
First of all, hello John, hello shareholders. I think it's all the time pleasure to be with you and to have this dialogue because it's important, in particular for a cyclical industry, because it goes sometimes up and down, and then people are questioning, in contrast to other companies who are moving-
Indeed
...sideways. Where are we in the cycle? First of all, if I look first of all at steel consumption, we can still see that steel consumption is growing. It is growing at a little slower pace than it did so earlier, and we can see that in the so-called PMI index, which is, in fact, a forecast by the purchasers, which was at highest at the beginning of the year, and which was down, but it is still above 50.
It's still above 50.
Which means that demand is still growing.
Yeah. Now, you just had your third quarter results.
I think most analysts were pretty positive about them. How has the market reacted, though?
I think, we just came also back from the road shows, and we have seen a lot of investors. I would say that globally, the market is praising the achievements we have done in 2018 up to now. Up to now, we have generated $8.3 billion of EBITDA.
Prospects of fourth quarter are clearly also positive. Consensus is above $10 billion, it should be our best result since the last five years.
You mentioned five years. You are midway through a five-year plan, Action 2020. How well are you doing?
I think these excellent results have basically two causes.
First one is clearly the business cycle, which is positive and steel consumption is there. The second one is the own efforts done by the company. There, I would also say that these efforts can be described in two actions. The first ones was heavy restructurings we have done post-2008 crisis, where we adapted demand, where we decided to shut down some obsolete capacity. Then starting in 2016, the plan Action 2020, which is aimed to improve EBITDA by $3 billion per year on a recurring basis.
I would say as where we are today, more than halfway through, this is extremely positive. I think also that explains why our results were quite robust, especially if we compare them with some of our competitors.
If you take the Action 2020, if I remember correctly, the debt target is to get to $6 billion net debt by 2020, and at the moment, you're what? $10.3 billion, $10.5 billion debt. How realistic is the target?
I would say these are two different targets.
Action 2020 is a plan which has been built bottom up.
By people in charge of operations, they have committed to improve the results by $3 billion, which should generate additional free cash flow of $2 billion per year. That is from an operational point of view. The second target was a target which was set by the board of directors in terms when we were discussing capital allocation, we were saying that the optimal balance sheet structure of the group would be to have a net debt of $6 billion.
That was our primary target to be reached as soon as possible.
You haven't actually given a target date?
We have not given a target date because it's quite difficult. Also, there are some uncertainties.
First of, I give you one uncertainty. Since beginning of 2017, we have invested almost $6 billion in terms of working capital.
This is an investment.
It would be released if prices would go down, if raw material costs would go down. This is one of the elements. The other element is also that since 2017, we have increased a little bit investments because it was important to do so, and we have had the occasion to do some M&A, which are aimed to further strengthen the group, and there probably we will come back to them, but I want only to recall you Votorantim in Brazil, Ilva in Italy, and maybe soon also the Indian venture with Essar Steel.
Now, the Indian venture, that's with Nippon Steel, is a joint venture or?
Absolutely. That is a joint venture precisely because of the constraints of capital allocation and because we believe that from an industrial point of view, joining our forces with Nippon Steel and trying to enter in India the high-end market of flat steel for automotive or high-end industrial flat steels is a fantastic opportunity. We decided to do that together. That means that we will jointly manage this company a little bit like Calvert
In the U.S.
...in Alabama. Which means also that from an accounting point of view, it is very likely that this joint venture will be consolidated on an equity method. That means that we only consolidate our proportionate part in the equity and not the debt or the financials
Not off the balance sheet, in a sense.
Absolutely.
Yeah. If I remember correctly, basically the company was deciding not to go on an M&A spree, and yet Ilva and now Essar, was it an opportunity too good to resist?
I would say that the group never said we won't look at M&A. I think a well-managed group like ArcelorMittal has to look at all opportunities. What we said was that de-leveraging and becoming investment grade was a priority versus aggressive M&A. The conclusion of that was that all M&A we have done up to now was done in a way that our balance sheet would not be jeopardized. I can see also as a conclusion, in the meantime, and while we were doing these operations, rating agencies were in fact upgrading us so that with the three major agencies today, we are investment grade, which is also a great achievement.
Yes, absolutely. Were you regarding India almost as a missing link in, if you think of ArcelorMittal as a giant corporation, you are everywhere in the world except, in a sense, India. India obviously is going to be one of the big economies, not just now, but of the future. I have the impression you've been trying to get into India for a long time.
That is absolutely true, and probably for our long-term shareholders, and I'm sure that today there are many who are there since a long time, because also some are part employees, so they know the story, and they know that since 2006, we were trying to go to India and we had several ideas to build greenfield plants, but it never made the calculations because it was too expensive and hence we couldn't realize. Now, there was a different momentum, and we were not masters of time, that it was just when it would come to the agenda. Then we were saying ourselves, we should look at this and basically, because what is Essar?
Essar is concentrated on flat, is well integrated with pelletization plants, so that they have a very good sourcing of raw materials, is well-positioned, there was a possibility to purchase this company, which was in a kind of insolvency procedure at the price, which was lower than a greenfield would have cost, on top of that, Essar has a strong customer base. So at the end of the day, we were seeing that this might be extremely interesting. Why is it so interesting? That is because India is the fastest growing steel market in the world. They have today a steel consumption of approximately 100 million. It is foreseen that in the next years this will double, and the Indian government by himself has a plan to expand the Indian steel industry to 300 million tons. That means three times the volume they have today.
Now ArcelorMittal being one of the four major players for flat steel, this is a great opportunity.
Talking about India will be a huge manufacturer of steel. Obviously already you have China as a huge manufacturer of steel. I remember, I think last year or the year before, you were saying that Europe should have reacted faster against Chinese steel dumping.
Now, of course, you have Donald Trump in the United States imposing tariffs on Europe, tariffs on China. We are in a different world. How do you view this new situation, this new environment?
That is a very good question. Maybe I come back one moment to India, because first of all, to explain to our shareholders, it's a big difference between China and India. In China, you might have 50 different steel producers, and in India, what I've explained, you have only four. The market is already-
Is already concentrated.
...concentrated. Barriers to enter the market are extremely high. So that in the future, these four will have, I would say also the obligation, the opportunity to try to meet this very fast-growing demand, hence this is very different. Concentration in China is not there. There is fierce competition. Prices are lower, margins are lower, and capacity. There were huge overcapacity in China. The consequence of that is that the Chinese producers have really dumped their steel throughout the world so that the whole world had to react. That was coming even before Mr. Trump was elected.
So that one year ago or so, you had almost in all the different jurisdictions, including in Europe, in the United States, in Australia, in Brazil, everywhere you had the anti-dumping and countervailing measures against China because China was not respecting the basic rules of fair trade. Second element was the United States. The United States were feeling that also the feeling in the United States was that the market was more liberalized than in many different jurisdictions, hence adverse conditions for local steel producers. That was on that basis that the Trump administration decided to go sharply on and to try to change the situation by introducing heavy duties on imports from many countries. This is something we have acknowledged. We have also to understand that ArcelorMittal itself is number 2 producer in the United States.
That helped also the group to move forward and to improve its results while we were improving our own footprint due to the Action 2020 we were just speaking before. Hence, we can say that this action globally is good for group results, even if some of our shipments from Europe, for example, or from Brazil or so, were a little bit coming under threat. The consequence also was that prices in the U.S. were going up quite a lot, and hence absorbing the import duties you had to pay if you want nevertheless, or if our customers want nevertheless to import steel products from elsewhere, which they cannot buy in the United States.
That's right. Before I turn to Hetal, just one thing. Following on with the tariffs against Chinese exports. If you've got a Chinese economy that is beginning to slow down from the extraordinary pace that it's enjoyed earlier, and even as China is reducing its capacity, presumably with the renminbi going down in value, there'll still be Chinese steel coming onto the market and in a sense being dumped again.
Maybe a double answer to this very valid question. First of one is that we have to acknowledge the Chinese have worked a lot on their capacity because we can see that with the shutdown of official production of 140 million tons, plus shutdown of more than 100 million tons of induction furnaces, which is quite a little bit almost black economy. This meant that 20% of installed capacity in China had been shut down, and that today, in an environment of quite high demand, there you are right, supply and demand was over the course of this year, quite balanced in China. What does that mean in the future? At least I think there is some indication that the Chinese wanted to tackle the product.
What we are saying is that in the case that the growth in China would go down, that steel consumption would go down, in such a case, there would be an additional need to cut additional capacities. Nevertheless, when we look at the figures today, and also what World Steel Association is saying, prospects for China are not so bad because we see an overall growth of 6.5%.
Yeah
What we see about the construction market in China today, there's still a lot of new construction activities going on. We believe that at least for the first half of next year, steel demand should be at worst stable.
Yeah
compared to last year. Not such a bad situation.
Hetal, do we have any questions from our shareholders?
Yes. Thanks, John. I think actually we do have a couple of questions around a similar theme, actually, on share price performance. I think first and foremost, why has the share price performance been so poor despite financial performance actually looking pretty healthy and prosperous, looking good? When can loyal patient shareholders expect a return on their investment? What is the company doing about this?
Okay, that's a big question, I must say. First of all, I think it's the company itself cannot have a direct influence of what's going on in the market. The share price is what the market gives, and we cannot change that.
It went up today, right? Because of the agreement in quotes between Xi and Trump.
What we can say basically is that our share price is quite volatile with respect to macro news on the global economy, on the U.S.-Chinese trade relationships, there's quite some volatility. I would separate that from the precise subject of value creation, because what I can testimony is that the board of directors and the management is totally concentrated on developing really a story of value creation, which had been, if we look it structurally, quite successful. Remember, beginning of 2016, we were announcing a rights issue, and we were announcing Action 2020 at the moment when the share price was EUR 2.5. We are today at EUR 20.
Yeah.
For those who have participated, quite a lot of value creation. Second, I think it's fair, in the meantime, it's right also that there had been a reverse splitting, there had been three shares had made out of one, but even three times EUR 2.5 is EUR 7.5 versus EUR 20, which is quite a good achievement. Second, I think it's fair to say that if we value the company in terms of multiples, we are not at the end of the story from a pure analysis point of view, and I can only testimony that the group is working with high priority to create value. How can we do that? First of all, by implementing the 2020 plan. Second, by continuing deleveraging, and you were mentioning before the level of $6 billion of net financial debt.
number 3, by saying once we reach this target, then there will be a much more massive cash flow back to the shareholders in terms of higher dividends and in terms of share buybacks.
I was going to ask you about dividends, because shareholders have been very, very patient, and they've just had the dividend on the last year's earnings.
What is the dividend strategy looking ahead?
The dividend strategy is to increase and really to pay much higher dividends once the debt target is done. Second, I would say it's fair to say that as we reintroduced dividend payments last year, and as the year is good, it is unlikely that there will be no dividend in 2019 for year 2018. Nevertheless, I would not expect that the dividend would spectacularly increase because the target is higher, clearly the company is very much focused on value creation.
Excellent. Hetal?
Yes. I've got a follow-up question actually on China. Going back to the topic, I think this question actually questions the reliability of statistics actually in China and questions, are you convinced that the capacity reductions have taken place? What steps are they taking to address the pollution in China?
Okay, these are two questions which are linked. First of all, we can testimony that real capacity has been shut down.
One of our invested companies had been forced to shut down a blast furnace, which was in operation and which was profitable. We know from our contacts in China that real capacity has been shut down. Second, we see it on the market, Chinese spreads, that means the price of finished goods minus the cost of raw materials you need to produce, has been significantly higher this year than it was the year before, which means that the supply and demand is much more balanced and that supply is tighter than it was before. Third, what we see now is that, as last year, the Chinese authorities have implemented a policy aiming to reduce production in polluting-
Yeah
areas during wintertime, because it is in wintertime when there is a lot of heating and there is a lot of particles going in the atmosphere. As people need to heat their houses, this means that steel polluting companies need to reduce their production. This is also going on. The system is this year a little bit different in the sense that the companies who are the dirtiest companies have to make more efforts, whereas last year, in certain areas, everyone had to cut production. This should also help to balance supply and demand better during wintertime.
ArcelorMittal has always been quite keen on reducing its own pollution. How is that working out?
Yes. I would say even that if we look at the big challenges for the steel industry in the long run, it is definitively that we need to tackle the CO2 issue. In the traditional way how to produce steel, you emit roughly two tons per ton of primary steel you are producing, which is huge. On the other hand, you have not to forget that once the steel is produced, it is endlessly recyclable-
You can recycle, yeah
which makes that steel is the material of choice in the long run, in the climate change context. What we need to do now is to work in order to limit the emission of CO2 in the primary steel production, and that's what we are doing, first of all, in terms of research and development. We have a full program. Second, we have launched a very interesting initiative together with a U.S. startup company. We have decided to build a plant which can transform blast furnace gas, which is full of CO2, into biofuel, which is produced due to proprietary enzymes.
This plant is precisely now on the way to be built. We have signed, and erection is ongoing. This plant should be operational in 2020. It would be a big pilot if I would say, I think its annual production is the equivalent of 500 or 700 flights from London to New York, so it's already quite significant. If that would work, I think it would be really a major step forward in making primary steel production more environmentally friendly.
Are you alone in this effort or is it general across the steel sector? Obviously, ArcelorMittal is the world's biggest steel company, are your competitors doing the same sort of R&D effort, or are you actually forging an individual path here?
I do not know exactly what all of our competitors are doing. What I know is that even in some European research programs, we are even collaborating. What I can also read is that some other competitors are working also on different elements. What we can say is that basically Japanese and steel producers seem to be the most advanced, and among them, I would say that our LanzaTech project, which I was just describing, is one of the most advanced we know from the industry. There are two other elements which are important. The first one is that we ourselves have, in many jurisdictions, electric arc furnaces where we use electricity to melt scrap, which is so very clean steel, in particular in long steel. The third direction we are working is to make environmentally friendly products.
I come to particular what we do for our customers. We are the champions of producing steel for the automotive industry, making cars lighter, making cars safer, and contributing through that to reduce the weight and to reduce the carbon footprint.
I just bought a new car, and it probably has some of your steel in it.
I hope so.
I have a feeling that not enough people are buying cars these days. Most people say that the automotive sector is actually in a sort of decline at the moment.
I think we had a shock that there will be new regulations starting from January 1st on, and cars produced, let's say, models produced in 2018 under the 2018 brands do not comply fully with the new norms. Hence you had a disruption in the market. Consumers were uncertain. Car producers are having to sell off their old models, and hence I think that is really what is going on. On the other hand, the economy is doing well, which means that structurally, demand for cars in China, in Europe, in the U.S. is at a high level. So I would not be too much worried from a structural point of view, even if car producers obviously have a problem now over Q3, Q4, and maybe beginning of next year.
Well, and also, of course, in the United States with General Motors just now closing plants, to the dismay of President Trump.
Yeah, I think there, the aim is more to regain competitiveness and to change the company because they say also that a big part of the future of cars is electro-mobility.
Yeah.
Hence they need to adapt.
The problem for ArcelorMittal, this is essentially a temporary problem that will sort itself out because after all, the automotive sector is, I guess, what, 20% of your steel shipments?
Globally, it's a little bit less. I would say it's 17%, if I remember well the figure, but it is more in Europe.
Yeah.
It is a little bit more in the U.S. ArcelorMittal is changing. For example, we have also now made a new generation of electrical steels for the rotor. We have other solutions we offer to our producers, to our customers for designing their new cars. Even if I look at the technical information given by a company like Tesla today, the Tesla Model 3 is today also partially built in steel so that we are confident that steel is the right material also for the future models of cars.
Hetal, any more questions from our shareholders?
Sure. I think, just staying on the theme of the macro, can we get a sense of what the 2019 global steel demand forecasts are looking like? In particular, do we see any concerns of a recession in Europe? Can you give an update on Brazil post the elections?
Okay, first of all, we are just in the middle of our budget procedure, we have not finalized the budget. It will be discussed now in December, in next week or the week after. What we can say today, what I was saying today was that the PMIs globally are positive, the latest forecast of the World Steel Association is that steel consumption should grow in 2019, but at the lower pace. Let's say in 2018, growth ex China is roughly 3%. It could be 1% or 1.5%, something between 1% and 1.5% next year. That was what was really known, we are not speaking about a recession. We need to be cautious. I would say that indeed there has been politics are not so stable over these times.
Psychology is all the time playing, fundamentally, the economy is still at a quite dynamic path. Brazil. Second part of the question is that Brazil had a very strong crisis in 2015, 2016. Basically, more than 20% real steel consumption decrease. Brazil is coming out. As far as what we understand is that the new administration will have a much more liberal approach and want to free up the economy, which was traditionally quite regulated.
That might have a certain shock at the beginning, but in the medium term, it will definitely make the Brazilian economy more resilient, more competitive from an international point of view. I would say that is beneficial for the steel industry in the longer run. That's the reason why globally we are quite confident about Brazil. That's the reason also why we have invested in Brazil.
We have invested in a new continuous galvanizing line. We are investing in Vega and Vega do Sul, so in our flat division. We have actively participated in consolidation by merging our long steel business with Votorantim, which was the number three. Marrying the number two and the number three makes a new number one-
Yes
which is extremely performing now.
Moving geographically a little more to the north, what has been the impact or what will be the impact of the renegotiation of NAFTA, so it's now USMCA?
I think from my point of view, the good news is that there had been an agreement. What is a little bit negative still today is that steel tariffs have not yet been abandoned. They had been introduced with Mexico and particularly with Canada.
Yeah
at the beginning when President Trump decided to introduce the tariffs. We have a North American new trade agreement, we have, and I would hope that at least between Canada and the U.S. because there are so much interference in the economy, it would make good sense to release these tariffs and to make the market, the movement of steel freer again.
You're optimistic about that?
I'm not in the cabinet of Mr. Trump. I would say that economically it would make sense, and I hope that everyone will be realistic in the coming months.
There is an ArcelorMittal in the cabinet, right? Wilbur Ross, the Commerce Secretary, he came from ArcelorMittal.
He came from us.
Yes.
You know that good governance is that once he was nominated, he resigned. Since then there's Chinese walls, and so I don't know what Wilbur is really thinking about it.
Hetal.
Yes. We move tack now to a question on CapEx. What is the plan for CapEx going forward given the age of the assets? Can you give an update on the spend anticipated at Ilva?
Okay, in terms of CapEx we have for this year, 2018, was CapEx of $3.7 billion. We can see that in order to maintain our installations in good shape, we need $2.2 billion, $2.3 billion, $2.4 billion. Going to $3.7 billion means that we are not only maintaining our assets in good shape, but also investing in growth and investing in new technical futures. I think that is futures, and that is very promising. Now, this will continue in particular as we have decided, for example, to build a new hot strip mill in Mexico-
precisely in order to be fully integrated and not use simply Mexico as a slab producer.
Yeah.
That is a very nice project. On the second, it is true also that with Ilva, our investment, our CapEx budget will go up.
That's also because of potentially notional 12 million tons of new capacity will join the group, which was a little bit lacking investments, which needs to in specific effort over the next four years for environmental-
investments. At the end of this journey, Ilva should be a fantastic opportunity.
You had to sell some assets for the Ilva acquisition, is that right?
That is absolutely right.
Yeah.
We have an agreement with Liberty Steel to sell these assets to them. The European Commission needs to make the analysis whether this responds to the criteria they have set, and then we proceed to close these sales of assets by the first quarter of next year. Needless to say, hadn't we be obliged to sell these assets, we wouldn't have sold them. That's the case. On the other hand, we have to see that for Ilva joining the group is a very nice.
It's a good thing.
opportunity.
Yes. Going back to the question from one of the shareholders about the outlook, the economic outlook in 2019. That will be actually, I think, 10 years of continuous growth for the United States economy. When you have that length of growth, duration of growth, everybody starts thinking, "Well, maybe there will be a cliff edge and things will go to pieces. There'll be a recession." I presume you have to factor in that risk.
You're absolutely right. The economy is not straight. You have seen that in the United States today, in order to avoid overheating, there is a tendency to, by the Fed, to raise.
Fed has raised the interest rates now.
interest rates. On the other hand, you had these massive decreases of tax rates, which gave additional firepower to consumers and also to companies. We have to see how this is going. What we can see is today that the U.S. economy continues to create jobs. Second, continues to grow and is even growing at a faster pace than Europe is doing so. When does this slowdown of the economy is coming? I would say technically you are absolutely right. We are coming at the top of the cycle. We have now to see how this will evolve, whether it will be a slowdown, whether it will be a little bit negative, how strong it is. You are right, we need to factor in this. How do you factor in this?
That is to work on improving your own competitiveness, and that is what we are doing with 2020.
If you take Europe in particular, I think most people say that European GDP growth next year will be about 1.7%, which is, I suppose it is not bad, but it is not exactly something to write home about.
That is clear. In our forecast, Europe will grow less next year than what it was this year. Personally, I believe that it's a little bit a pity because everything was so positive, and it is now this political turmoil sometimes, and you have question marks in Italy, you have question marks in France now. You have political uncertainty about Germany. All this is not helping, let's say, to improve-
We're sitting in London, and we have Brexit
the Brexit. This is not helping expectations. Fundamentally, Europe had made progress, but we have now these headwinds, which we have to take into consideration.
Hetal then.
Yes. Going back to the topic of Ilva. It's a question that's come from the Association of Employee Shareholders, ArcelorMittal. What was the criteria for selecting which existing plants were to be divested under the Ilva takeover? As a follow-up, can you give any views on European consolidation with respect to Tata Steel and TK merger?
Okay. The question of divestiture was in fact a dialogue with the European Commission. The commission was quite tough, I must say, to say, "Okay, if you want to buy Ilva, you have to divest." What they said even is that we needed to divest in upstream capacity, in steel making capacities and in downstream capacities, in particular, also cover product categories which are also produced by Ilva. The view of the commission was you need to help so that a new strong competitor would emerge.
Yeah.
Instead, the commission could have taken another position by saying, "Okay, this is great, Arcelor. We need to have industrial champions in Europe-
Yeah
in order to fight and to be competitive worldwide." That was not the attitude of the commission. We needed to take that into account and out of this analysis and in dialogue, at the end of the day, we had to decide to put on sale Ostrava, which is in flat steel and long steel producer integrated, Galati, which is the same, also on the Black Sea, with the possibility to go to the Mediterranean and being competitor of Ilva, then having a downstream also sales. There I think about what is going on in Liege, in Luxembourg for galvanizing lines, plus Italian, LIBERTY Magona, which makes a lot of efforts.
Nevertheless, on the other hand, from an ArcelorMittal point of view, Ilva has the advantage as being one big site where a lot of efforts need to be done to restructure, but then we will be a strong player in the Italian market, which is very compelling because Italy is the second most important steel market in Europe. Much more steel consumed in Italy than in the U.K. or in France, for example.
Oh, really?
Oh, yes. We have 17-
Why is that?
You have all these northern Italian-
Machinery.
all these. You have there a lot of companies producing machinery, steel furniture, a lot of metal processing activities. That means that the Italian market tube makers is 17 million tons, whereas the French or the British market is more in the range of 8-10 million tons. It makes a lot of difference, and that is very good. Moreover, what is interesting also with Ilva was that in the past, Ilva was not a reliable producer and was not the highest quality producers. It is quite clear that our team who is now there has one strategic vision that is transforming Ilva into a quality producer, delivering good service, so delivering just in time in order to regain the position of being the major supplier of quality steel in Italy.
You said that the Commission was tough. Do you think they were too tough? I presume they could say, "Well, you talk about being a European champion. We're already a champion.
Yes, but we want to be the world champion. that is.
Well, you're the world's biggest steel producer.
that is absolutely right. Being too tough or not, this is a political appreciation. If I say tough, it's that they made us life a little bit difficult, but we had to go through.
Yeah.
At the end of the day, obviously it's sad for some of these companies which have to leave the group, and where employees would have loved to continue to be with ArcelorMittal. From that point of view, you're a little bit sad. On the other hand, this is economic life, and now we go through, and we put all the efforts looking forward and making it, Ilva, a great company.
We've talked a lot obviously about steel. You're a huge miner as well. What's happening with the coal production and mining in general?
Our main mining activity is in iron ore. We are producing more than 50 million tons of iron ore, which is roughly half of our needs.
From an economic point of view, you could say this is quite a good hedge.
Yeah.
I would say under the condition that you are competitive. That's the reason why we focus more on being competitive, of being a low-cost producer and a high-quality ore producer, than of growing into the iron ore business. That is what we have done quite successfully with our Canadian mines, which are doing well. We can say today that the average cash cost of our iron ore mines are much lower than the seaborne market price. Hence we are making also additional EBITDA on this activity.
Yeah.
This is also generating free cash flow. From that point of view, it's not a bad business. From coal, it's a little bit different.
In the sense there we are only producing 10 million tons or so. It's much lower. This is mainly in the CIS countries-
Yeah
where we consume also most of our coal.
We've talked about the States and China. What is happening in the CIS countries? You're in Kazakhstan, you're in-
Yes. In Ukraine
Ukraine.
Which obviously has political problems of its own as well.
What's the situation for ArcelorMittal?
I would say that, first of all, the two countries are different, and you cannot bring them one together also because Kazakhstan is mainly flat steel.
Yeah.
It's very much almost on the Ural country, whereas Ukraine is almost
The western
on the Black Sea, and fortunately, we are not in the war zone in Ukraine, which is good. We are suffering a little bit also sometimes from a technical point of view or getting limestone in order to work, but we can say that the situation is under control. We have invested in Ukraine in order to improve also the technical situation, mainly by having pulverized coal injection in order to reduce the cost of pig iron, to have continuous casters instead of the open hearth technology. This is working, sometimes with ups and down and with problems. We had some technical problems this year. Kazakhstan is more orientated towards the Russian market.
We can say that this market is structurally okay, and we are quite competitive in Kazakhstan because we are fully integrated with our own coal mines and our own iron ore mines.
Hetal?
Thanks, John. We have one more question, actually, on M&A. You have recently gone back on the M&A trail by acquiring assets in Brazil, India, and Europe. Are there any other projects or acquisitions that you're considering today?
The answer is very simple. I would not say that we have strategically decided to go back to M&A activities two years ago. These were opportunities where we believed that they would be very compelling for the group, we were structuring these activities in such a way that it would not jeopardize our main priority, which is strengthening our balance sheet. Once again, I think that's one of the characteristics of Arcelor, it's not yes or no, it is all the time looking is that in the best interest of the company and its shareholders, we move forward. I would say also, for the moment, up to the point when we have hit the 6 billion net debt target, we will continue to have this approach, priority to deleveraging, but not with closed eyes.
We will continue to have open eyes, if there is a good opportunity which can help generate additional EBITDA, which has a strong return, which meets the group criteria in terms of profitability, we will try to do them in an intelligent way, not jeopardizing the balance sheet.
Going back to the share price. It should actually, I'm sure you would say, be higher than it is. Why is the market not appreciating what actually have been pretty good results?
I would say that the market for steel products like steel was not the best one over the full years, you had many stocks which were suffering quite a lot, even much worse than what ArcelorMittal was doing. I would say there is some uncertainty about the macro environment, a company like ArcelorMittal is quite the proxy of what are the perceptions of the state of the world economy.
Yeah.
When IMF is saying that they foresee global growth going down, that hits our stock.
Yeah.
It hits it more than normal.
Do you think the IMF is being too pessimistic?
No, I don't. I think that the market is the market.
Yeah.
I cannot change it. The only thing what I can say, if you make the valuation today with the 2018 results, the stock is indeed very cheap.
Yes.
You have to take into account a much lower EBITDA if you want to justify the share price as it is today.
It's up to us now to try to be resilient.
To take all the opportunities, to make sure that the worst won't happen, that is what we are doing. I think if we look at the long way since over the last five, six, seven years, this way is a tremendous way this company is much stronger than it was before.
I mean, clearly you've convinced the rating agencies to get to investment grade. Were you surprised to get to investment grade earlier than you'd expected, or do you think you should've had investment grade earlier?
I think we already one year ago, we were saying that if we look at the metrics which are used by the rating agencies, which differ a little bit from one, probably it is the same. We were saying that we are confident that we would match-
Yeah
The metrics. What was nice, that shows probably also the good dialogue we had with these people, is that they acknowledge what we have done, they came to the same conclusion than ourselves, hence we got the upgrade. What is even very good is also that this upgrade to be investment grade is with stable outlook-
despite the fact that the macro environment may not be exactly as bright as it was before. The conclusion is probably that the rating agencies believe that ArcelorMittal is in a position to be also cash flow generating.
Yeah
even if the business cycle is going down.
It should be very.
That is excellent news.
It should be very encouraging for retail shareholders.
Absolutely.
If they have a choice between tech stocks, which are obviously always very hot, on the other hand, they're very expensive.
Mm-hmm. Yes, if you look at free cash flow generation, if you look at the multiples of EBITDA, if you make this kind of valuation, there is no comparison possible.
Yeah. Hetal, more questions?
Actually, just got one final more question on going back to the subject of automotive steel. Are we concerned about the future of steel versus aluminum battle? What innovations are ArcelorMittal doing to ensure that they protect their margins, not just for now, but for the next 10 years?
Okay. Maybe that I start answering looking back 20 years ago, when the first Audi A8 was built 100% out of aluminum. Audi was saying this is the change of paradigm, how you build a car. In 2018, beginning of this year, there was a new A8 model of Audi, which is a flagship model, which came out to the market, and the result was that there is a strong part of steel in the structure of the car.
The chief designer of Audi is saying, "In the future, no one car will be built without high-strength steels." That was basically the result of the efforts and the research we have done as a leader, and where some other competitors have also followed, in order to demonstrate to the car producers that steel is the material of choice to produce light, safe, and cheap cars, if I can say.
Weren't you at one point in your career directing the research and development?
Absolutely, that was at that time when we, today our flagship program is called S-in motion.
Audi should be grateful to you.
I don't know. No. No, I think that it's for me, that was exactly at that moment when we decided we believe in this, we will put a lot of efforts, we will demonstrate. Since then, you would build today.
with the steels which existed when we started this exercise. The car would be 20% heavier than it is today. That is our contribution. That is huge.
What about composites, though? If you look at modern aircraft, increasingly they're using composite materials, which presumably mean less weight, et cetera, and less steel.
I would say also that in the future there will not be one material. It's not black and white.
It is to try to find the right engineering solution, and that's what we are doing. Also, for example, we are making blanks.
Which are tailor-welded with different steel components. You have one piece and you have two, three, or four different grades of steel in these pieces, and this is welded together because one of the good features of steel is precisely that you can weld it quite a lot. You have also sometimes steel which is combined with other material. The big advantage of steel is that, two. First one, it is much cheaper.
Second, its environmental footprint.
It's generally much stronger. Give you there also an example. I was saying before that producing one ton of steel is two tons of CO2. For aluminum, it's more than 10.
Wow.
That is what we need to tell people. Steel is an environmentally friendly product.
We're running out of time, we talked obviously about the automotive sector. What about construction? How do you see the construction sector worldwide? Presumably this is a big user of steel.
You're absolutely right. The great news in 2018 was that for the construction sector, we were now adopting a similar philosophy than for S-in motion. We were developing a research program which has been translated into a range of steel solutions for the construction, which is called Steligence, so intelligent steel for the steel construction, showing that it is better to build in steel versus other material, speak concrete, better environmental footprint, more rapid, fully cradle to cradle. You build it and you can de-build it, and you can reuse the steel. That is really what we have launched today. Maybe that you have seen that we have also decided to build new headquarters in Luxembourg. It will be built exactly with this recipe. It's exactly the same philosophy than for S-in motion for automotive.
We are extremely positive that this might be the big picture for the future.
We have, I think, just two minutes left. We've talked about 2020, Michel. Let's go a bit beyond that. Where do you see ArcelorMittal in 10 years' time?
Personally, I'm quite optimistic because I think that the homework is done.
We are a truly global company. I think that we have an extremely motivated workforce. We have a powerhouse in terms of R&D, and we have in our favor the future of steel. I think that during our discussions, we have shown that for many applications, we see that really steel is the material of the future, provided that we can demonstrate that we can contribute to solve the carbon issue. I think that's the reason why this is now also part of our strategy in order to overcome that and to make steel production-
The challenges then will be basically climate change, pollution.
Climate change, absolutely. Then to make sure that steel will be part of the solution and not part of the problem.
I think that's a very positive note in which to end. Thank you very much to all our retail shareholders for their questions. Thank you, Hetal, for transmitting them to us. Michel, many thanks again. Very, very good. I hope you have a terrific day.
Okay.
Thank you so much.
Thank you, John, as well. Thank you to all our shareholders, so we should continue to be in dialogue. You know that we have an investor relation app. Look at this because all new presentations are there. There's a lot of very good presentations, and that will help you to make you up to date with what's going on in the company. Hopefully that next time we can have another dialogue and respond to the questions of our shareholders.
Thank you.
Bye-bye.
Thank you.