Welcome to ASSA MITRE 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 Wirth, who is 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. So where are we in the cycle at the moment?
Okay. So 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 cyclical industry because it goes sometimes up and down. And then people are questioning in contrast to other companies who are moving slightly.
So where are we in the cycle? First of all, if I look first of all in at steel consumption, we can still see that steel consumption is growing. It is growing at a little slower path than it did so earlier. And we can see that in the so called PMI index, which is in fact the forecast by the purchases, 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.
Yes. Now you just had your 3rd quarter results. And I think most analysts were pretty positive about them. How has the market reacted there?
I think so. We just came also back from roadshows and we have seen a lot of investors. I would say that globally, the market is praising the achievements we have done in 20 18 up to now. Up to now, we have generated €8,300,000,000 of EBITDA. Prospects of 4th quarter are clearly also positive.
Consensus is above EUR10 1,000,000,000 and it should be our best result since the last 5 years.
I mean, you mentioned 5 years. I mean, you are midway through a 5 year plan, Action 2020. How well are you doing?
I think these excellent results have basically 2 courses. First one is clearly the business cycle, which is positive and still consumption is there. And the second one is the own efforts done by the company. And there, I would also say that these efforts can be described in 2 actions. The first ones was heavy restructurings we have done post-two thousand and adapted demand, where we decided to shut down some obsolete capacity.
And then starting in 2016, the plan Action 2020, which is aimed to improve EBITDA by €3,000,000,000 per year on a recurring basis. And I would say as we are today, more than halfway through, So this is extremely positive. And I think also that explains why our results were quite robust, especially if we compare them with some of our competitors.
I mean, if you take the Action 2020, I mean, if I remember correctly, the debt target is to get to 6,000,000,000 net debt by 2020. And at the moment, you're what, moment, you're what, €10,300,000,000, €10,500,000,000
2 different targets. Action Plan 2020 is a plan which has been built bottom up by people in charge of operations, and they have committed to improve the results by €3,000,000,000 which should generate additional free cash flow of €2,000,000,000 per year. So that is from an operational point of view. And then the second target was a target which was set by the Board of Directors in terms when we were discussing capital allocation and we were saying that the optimal balance sheet structure of the group would be to have a net debt of €6,000,000,000 And that was our primary target to be reached as soon as possible.
So 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. 1st of all, I give you one uncertainty. Since beginning of 2017, we have almost invested or we have invested almost €6,000,000,000 in terms of working capital. So this is an investment, but it will be it would be released if prices would go down, if raw material costs would go down.
So this is one of the elements. The other element is also that since 2017, we have increased a little bit the investments because it was important to do so. And we have had the occasion to do some M and 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, Votoren team in Brazil, Quilva in Italy and maybe soon also the Indian venture with Essa Steel.
The Indian venture, that's with Nippon Steel, is it a joint venture?
Absolutely. That is a joint venture precisely because of the constraints of capital allocation and because we believe that from the industrial point of view, joining our forces with Nippon Steel and trying to enter in India as a high end market of flat steel for automotive or high end industrial, flat steels is a fantastic opportunity. And so we decided to do that together. That means that we will jointly manage this company a little bit like covered in Alabama, and 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 financial needs.
So it's the balance
sheet, I mean, absolutely. Yes. I mean, if I remember correctly, basically, the company was deciding not to go on an M and 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 and A. I think a well managed group like ArcelorMittal has to look at all opportunities. But what we said was that deleveraging and becoming investment grade hit the was a priority versus aggressive M and A. And the conclusion of that was that all M and A we have done up to now was done in a way that our balance sheet would not be jeopardized. And 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 3 major agents today, we are investment grade, which is also a great achievement.
Yes, absolutely. I mean, were you regarding India almost as a missing link? I mean, if you think of Asmitara as a giant corporation, I mean, you are everywhere in the world, except in a sense India. And India obviously is going to be the one of the big economies, not just now, but of the future. I had the impression you've been trying to get into India for a long time.
That is absolutely true. And for 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 2,006, 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 should come to the agenda.
And then we were saying ourselves we should look at this and basically because what is Essa? Essa is concentrated on flat, is well integrated with palletization plants so that they have a very good sourcing of raw materials, is well positioned. And 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. And on top of that, Essa has a strong customer base. And so at the end of the day, we were seeing that this might be extremely interesting.
And why is it so interesting? That is because India is the 1st growing steel market in the world. They have today a steel consumption of approximately €100,000,000 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 1,000,000 tonnes. That means 3 times the volume they have today.
And now, at Cerro L'Amiter being one of the 4 major players for flat steel, this is a great opportunity.
I mean, talking about India will be a huge manufacturer of steel. I mean, 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, and we are in a different world. How do you view this new situation, this new environment?
That is a very good question. But 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 have explained, you have only 4. So the market is
already concentrated.
It's already concentrated. Yes. Barriers to entry to enter the market are extremely high. And so that in the future, these 4 will have, I would say, also the obligation, but the opportunity to try to meet this very fast growing demand, and hence, this is very different. Concentration in China is not there.
There is fierce competition. Prices are lower. Margins are lower and when and capacity and there were huge overcapacity in China. And 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. And that was coming even before Mr.
Trump was elected. And so that 1 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 anti dumping and countervailing matters against China because China was not respecting the basic rules of fair trade. Now second element was the United States. And 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 and hence adverse conditions for local tea producers. And that was on that basis that the Trump administration decided then to go sharply on and to try to change the situation by introducing heavy duties on imports from many countries.
Now this is something we have acknowledged. We have also to understand that Darsla Metals itself is number 2 producer in the United States. So that helped also the group to move forward and to improve its results while we were improving our own footprint due to the planned 2020 we were just speaking before. And 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. But 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 nevertheless or if our customers want nevertheless to import products still from elsewhere, which they cannot buy in the United States.
Just one and before I turn to Hetal, just one thing. Following on with the tariffs against Chinese exports, I mean, 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 double answer to this very valid question. First of all is that we have to acknowledge the Chinese have worked a lot on their capacity because we can see that with the closure of the shutdown of official production of 140,000,000 tonnes, plus shutdown of more than 100,000,000 tonnes 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. Now what does that mean in the future? At least I think there is some indication that the Chinese wanted to tackle the product. And what we are saying is that in the case that China 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 work to cut additional capacities. Nevertheless, when we look at the figures today and also what Wartsila Association is saying, prospects for China are not so bad because we've seen overall growth of 6.5 percent. And what we see about the construction market in China today, there's still new a lot of new construction activities going on. We believe that at least for the first half of next year, still demand should be at worst stable compared to last year. So not such a bad situation.
Hedgehog, do we have any questions from our shareholders?
Thanks, John. I think actually we do have a couple of questions around the similar theme actually on share price performance. I think 1st 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? And what is the company doing about this?
Okay. So that's a big question. I must say, first of all, I think it's a company itself cannot have a direct influence of what's going on in the market. So the share price is what the market gives and we cannot change it. And it
went up to date, right, because of the agreement in quotes between
C and A. 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 and so there is quite some volatility. But 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 at structurally, quite successful. Because remember, beginning of 2016, we were announcing a rights issue and we were announcing plan 2020 at the moment when the share price was €2,500,000 We are today at €20,000,000 So for those who have participated, quite a lot of value creation.
2nd, I think it's fair, in the meantime, it's right also that there had been a reverse splitting. So there had been 3 shares had made out of 1, but even 3 times 2.5 is 7.5 versus 20, which is quite a good achievement. 2nd, 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 a high priority to create value. How can we do that?
First of all, by implementing the 2020 plan. 2nd, by continuing deleveraging. And you were mentioning before the level of €6,000,000,000 of net financial debt and 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 a dividend on the last year's earnings. What is the dividend strategy looking ahead?
So the dividend strategy is to increase and really to pay higher much higher dividends once the debt target is done. 2nd, 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 do I would not expect that the dividend would spectacularly increase because the leverage target is higher. But clearly, the company is very much focused on value creation. Hetal.
Yes. So 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 2 questions we Richard. So first of all, we can testimony that real capacity has been shut down because one of our which was profitable. And we know from our context in China that real capacity has been shut down. 2nd, 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.
And third, what we see now is that as last year, the Chinese authorities have implemented a policy aiming to reduce production in polluting 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. And so as people need to heat their houses, this means that polluting steel polluting companies need to reduce their production. And this is also going on. The system is this year a little bit different in the sense that the companies were the dirtiest companies have to make more efforts, whereas last year in certain areas, everyone had to cut production. But this should also help to balance supply and demand better during wintertime.
I mean, Astra Metale has always been quite keen on reducing its own pollution. How is that working on? So
big challenges for the steel industry in the long run, it is definitely that we need to tackle the CO2 issue. In the traditional way, how to produce steel, you emit roughly 2 tonnes per tonne of steel of primary steel you are producing, which is huge. On the other hand, you have not to forget that once this steel is produced, it is endlessly recyclable, which makes that steel is the material of choice in the long run, in the climate change context. And 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 are doing, 1st of all, in terms of research and development.
So we have a full program. And then second, we have launched a very interesting initiative together with a startup company, 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. And this plant is precisely now on the way to be built. So we have signed and erection is ongoing. And this plant should be operational in 2020. And 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. And if that would work, I think it would be really a major step forward in making primary steel production more environmentally, frankly.
Are you alone in this effort? Or is it general across the steel sector? I mean, obviously, ArcelorMittal is the world's biggest steel company. But I mean, are others are your competitors doing the same sort of R and D effort? Or are you actually forging an individual path here?
So I do not know exactly what all of our competitors are doing. What I know is that even in certain 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 have we know from the industry.
And then on top of them, there are 2 other elements which are important. The first one is that we ourselves, we 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. And then the 3rd direction we are working is to make environmentally friendly products. And then I come to particular what we do for our customers. We are the champions of steel of producing steel for the automotive industry, making cars lighter, making cars safer and contributing through that to limit the use of to reduce the weight and to reduce the carbon footprint.
Well, I've just bought a new car, and it probably has some of your steel in it.
I hope so.
But 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 are now we had a shock that there will be new regulations starting cars produced, let's say, models produced in 2018 under the 2018 brands do not comply fully with the norm with the new norms. And hence, you had a disruption in the market. Consumers were uncertain. Car producers 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 forecast in China, in Europe, in U. S. Is at the high level. And 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, that's to the dismay of President Trump.
Yes, but I think there's a theme is more to regain competitiveness and to change the company because they say also that a big part of the future of cars is electromobility, and hence they need to adapt.
So the problem for us, Mattan, this is essentially a temporary problem. It will sort itself out because after all, the automotive sector is, I guess, what, 20% of your steel?
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. It is a little bit more in the U. S.
And also, Ursula Mittal 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. And even if I look at the technical information given by a company like Tesla today, the Tesla 3 model 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 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 over a recession in Europe? And can you give an update on Brazil post the elections?
Okay. So first of all, so we are just in the middle of our budget procedure. So 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 PMI is globally positive.
And the latest forecast of the World Steel Association is that steel consumption should grow in 2019. But at the lower part, 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, but we are not speaking about a recession. Now we need to be cautious.
I would say that indeed there has been politics not so stable over these times. Psychology is all the time playing. But fundamentally, the economy is still at a quite dynamic path. Now Brazil, second part of the question is that Brazil had a very strong crisis in 2016, 2015, 2016, basically more than 20% real steel consumption decrease. And Brazil is coming out as far as what we understand is that the new administration will be will have a much more liberal approach and wants 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. And I would say that it's beneficial for the steel industry in the longer run. And that's the reason why globally we are quite confident about Brazil. And that's the reason also why we have invested in Brazil.
We have invested in a new continuous galvanizing line in we are investing in Vega and Vega do Sul, so in our flat division. And we have actively participated in consolidation by merging our long steel business with Vodoro and Tim, which was the number 3. So marrying the number 2 and the number 3 makes a new number 1, which is extremely performing now.
I mean, moving geographically a little more to the north, what has been the impact or 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. Now what is a little bit negative still today is that steel tariffs have not yet been abandoned. They have been introduced with Mexico and particularly with Canada in at the beginning when President Trump decided to introduce tariffs. Now we have a North American new trade agreement, but we have and I would hope that at least between Canada and the U. S, because there is so much interference in the economy, it would make good sense to release these tariffs and to make the market the movement of steel free again.
So you're optimistic about that?
I'm not in the cabinet of Mr.
Poe, but
I would say that economically, it would make sense. And I hope that everyone will be realistic in the future.
Yes, I wasn't answering Michelle in the cabinet, right? Wilbur Ross, the Commerce Secretary. He came from us.
He came from us, but you know his good covenants is that once he was nominated to resign and since then there is Chinese votes. And so I don't know what Wilbur is really thinking about it.
Yes. So we've moved 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. So in terms of CapEx, we have for this year 2018 was CapEx of €3,700,000,000 We can see that in order to maintain our installations in good shape, we need €2,200,000,000 €2,300,000,000 €2,400,000,000 And so going to €3,700,000,000 means that we are not only maintaining our assets in good shape, but also investing in growth and investing in new technical futures. And I think that is futures and that is very, very promising. Now this will continue in particular as we have decided, for example, to build a new hot precisely in order to be fully integrated and not use simply Mexico as a slab producer. So that is a very nice project.
And on the second, it is true also that with Ilva, our investment, our CapEx budget will go up, but that's also because potentially notional 12,000,000 tonnes of new capacity will join the group, which was a little bit lacking investments, which needs to a specific effort over the next 4 years for Envionmental Investments. But at the end of this journey, Iver should be a fantastic And
you have to sell some assets for the Ilva acquisition, is that right?
That is absolutely right. So we have had an agreement with Liberty Steel to sell these assets to them. Now the European Commission needs to make the analysis whether this response to the criteria they have set. And then we proceed to close these sales of assets by the Q1 of next year. Needless to say, and we be obliged to sell these assets, we wouldn't have sold them, but that's the case.
On the other hand, we have to see that for Invent Trainings Group is a very nice opportunity. Yes.
And going back to the question from one of the shareholders about the outlook, the economic outlook in 2019. I mean, that will be actually, I think, 10 years of continuous growth for the United States economy. And 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 will be recession. I mean, I presume you have to factor in that risk.
You're absolutely right. The economy is not straight. And you have seen that in the United States today, in order to avoid overheating, there is a tendency to by the fact
to raise Yes, raising interest rates.
On the other hand, you had these massive decreases of tax rates, which gave additional firepower to consumers and also to companies. And so we have to see how this is going. What we can see is today that the U. S. Economy continues to create jobs.
And second, it continues to grow and is even growing at a faster pace than Europe is doing so. So when does this slowdown of the economy is coming? I would say, technically, you're absolutely right. We are coming at 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.
But you are right, we need to factor in this. And how do you factor in this? That is to work on improving your own competitiveness and that's what we are doing with 2020.
And I mean, 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's not bad, but not exactly something to write home about.
That is clear. 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 in you have question marks in Italy. You have question marks in France now.
You have politically uncertainty about Germany. All this is not helping, let's say, the Brexit. And so this is not helping expectations. But fundamentally, Europe had made progress. But we have now these headwinds, which we have to count to take into consideration.
Hetal?
Yes. So actually going back to the topic of Ilva actually, it's a question that's come from the Association of Employee Shareholders, Marcelin Mittel. What was the criteria for selecting which existing plants were to be divested under the Ilva takeover? And as a follow-up, can you give any views on European consolidation with respect to Tata and Teekay merger?
Okay. So the question of divestiture was in fact a dialogue with European Commission. And the Commission was quite tough, I must say, to say, okay, if you want to buy Ilva, you have to divest. And what they said even is that we needed to divest in upstream capacity, in steelmaking capacities and in downstream capacities and in particular also cover product categories, which are also produced by Ilva. And the view of the commission was to see you need to help to emerge so that a new strong competitor would emerge.
Instead of the commission could have taken another position by saying, okay, this is great, Aslam. We need to have industrial champions in Europe in order to fight and to be competitive worldwide. So that was not the attitude of the commission. And so 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 a flat and long producer integrated Galati, which is the same and also on the Black Sea and with the possibility to go to the Mediterranean and being competitor of Ilva and then having a downstream also sales in there, I think about what is going on in Liege, in the Luxembourg, 4 galvanizing lines, plus Italian, the Magona, La Magona covering, which makes a lot of efforts.
Nevertheless, on the other hand, from an accelerometer point of view, Ilva has the advantage as being one big site. We have 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 2nd most important steel market in Europe, much more steel consumed in Italy than in the U. K. Or in Why is that? But you have all these Northern Italian In Brazil.
The branch, all these but you have there a lot of companies producing machinery, steel furniture, a lot of metal processing activities. And that means that the Italian market, the tube makers, is 17,000,000 tonnes, whereas French or the British market is more in the range of 8,000,000 to 10,000,000 tonnes. So it's really a very it makes a lot of difference and that is very good. And 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. And so 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.
And you said that the commission was tough. Just think that they were too tough, because I mean, presume they could say, well, you know, you talk about being a European champion, we're already a champion.
Yes, but we want to be the world champion. And so that is By the world, please. That is absolutely right. So being too tough or not, this is a political appreciation. If I say tough, it's that they made us a life a little bit difficult, but we had to go through.
But 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 us, Lomita. So from that point of view, you are a little bit sad. But on the other hand, this is economic life and now we go through and we put all the efforts looking forward in making it, Ilva, a great company.
We've talked a lot obviously about steel. But I mean, you're a huge miner as well. What's happening with the coal production and mining in general?
So our main mining activity is in iron ore. So we are producing more than 50,000,000 tonnes of iron ore, which is roughly half of our needs. So from an economic point of view, you can do you can could say this is quite a good hedge, I would say, under the conditions that you are competitive. And that's the reason why we focus more on being competitive, of being a low cost producer and high quality ore producer than of growing into the iron ore business. And that is what we have done quite successfully with our Canadian mines, which are doing well.
And we can say today that the average cost of our cash cost of our iron ore mines are much lower than the seaborne market price. And hence, we are making also additional EBITDA on this activity. This is also generating free cash flow. So from that point of view, it's not a bad business. From coal, it's a little bit different in the sense that we are only producing 10,000,000 tonnes or so.
So it's much lower. And this is mainly in the CIS countries where we consume also most of our coal.
Well, I mean, if you we've talked about the States and China, but what is happening in the CIS countries? How you're in Kazakhstan?
Yes. And in Ukraine.
Ukraine, which obviously has political problems on 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 1 together also because Kazakhstan is mainly flat steel and is very much almost on the oral country, whereas Ukraine is mostly 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, so in order to work. But we can say that the situation is under control. We have invested in Ukraine in order to improve there also the technical situation mainly by having coal injection in order to reduce the cost of pig iron, to have continuous castors instead of the open pit technology.
And so 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. And 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.
Hetar?
Yes. Thanks, John. We have one more question actually on M and A. You have recently gone back on the M and A trail by acquiring assets in Brazil, India and Europe. Are there any other projects or acquisitions that you are considering today?
So the answer is very simple. I would not say that we have strategically decided to go back to M and A activities 2 years ago. These were opportunities where we believed that they would be very compelling for the group. And we were structuring these activities in such a way that it would not jeopardize our main priority, which is strengthening our balance sheet. And so but once again, and I think that's one of the characteristics of so it's not yes or no, but it is all the time looking is that in the best interest of the company and its shareholders and then we move forward.
And I would say also for the moment up to the point when we have hit the €6,000,000,000 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. And if there is a good opportunity, which can help generate additional EBITDA, which has a strong return and which meets the group criteria in terms of profitability, we will try to do them in an intelligent way, not jeopardizing the balance sheet.
I mean, 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 is the market for products like steel was not the best one over the full years, and you had many stocks which were suffering quite a lot and even much worse than what ArcelorMittal was doing. I would say there is some uncertainty about the macro environment and a company like ArcelorMittal is quite a proxy of what are the perceptions of the state of the world economy. And when FMRI is saying that they foresee global growth going down, that hits our stock and it hits it more than
Do you think IMF has been too pessimistic?
No, I don't. I think that the market is the market. I cannot change it. The only thing what I can say, if you make the valuation today with 2018 results, then the stock is indeed very cheap. Yes.
And you have to take into account a lower a much lower EBITDA if you want to justify the share price as it is today. Now it's up to us now to try to be resilient, to take all the opportunities and to make sure that the worst won't happen. And that is what we are doing. I think we look at the long way since over the last 5, 6, 7 years. This way is a tremendous way and this company is much stronger than it was before.
I mean, clearly, the you've convinced the rating Were you surprised to get to investment grade earlier than you'd expected? Or I mean, or do you think it should have had investment grade earlier?
I think we already 1 year ago, we were saying that if we look at the metrics, which are used by the rating agencies and which differ a little bit from 1, but probably it is the same. We were saying that we are confident that we would match the metrics. Now what was nice and that shows probably also the good dialogue we had with these people is that they acknowledge what we have done and they came to the same conclusion than ourselves. And hence, we don't see upgrade. And 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.
But the conclusion is probably that the rating agencies believes that Ursula Mittal is in a position to be also cash flow generating even if the business cycle is going to be very That is excellent news.
And it should be very encouraging for retail shareholders.
Absolutely. I
mean, they have a choice between tech stocks, which obviously are always very hot, on the other hand, they're very expensive.
Yes. And if you look at free cash flow generation and if you look at multiples of EBITDA, if you make this kind of valuation, then there is no comparison possible.
Hector, 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 Arsenal Metal doing to ensure that they protect their margins, not just for now, but for the next 10 years?
Okay. So maybe that I start answering looking back 20 years ago when the first Audi A8 was built 100% out of aluminum. And Audi was saying, this is a change and this is a change of paradigm how you build a car. And in 2018, beginning of this year, there was a new 8 model of audio, which is a flagship model, which came out to the market. And the result was that there is a strong path of steel in the structure of the car.
And the Chief Designer of Audi has saying, in the future, no one car will be milled without high strength steels. And 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 a 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. And that was at that time when we today our flagship program is called S in Motion.
So Aldi should be grateful to you?
I don't know, no. But we don't know. I think that it's for me one of the exact words exactly at that moment when we decided, we believe in this. And so we will put a lot of efforts and we will demonstrate. And since then, you would build today a car with the steels which existed when we started this exercise.
The car would be 20% heavier than it is today. So that is our contribution. That is huge.
What about composites? I mean, if you look at modern aircraft, increasingly they're using composite materials, which presumably mean less weight, etcetera, and less steel, less
I would say also that in the future, there will not be one material. It's not black and white, but 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. And so you have 1 piece
and
you have 2, 3 or 4 different grades of steel in these pieces and this is welded together because one of the good features of steel is precise that you can weld it quite a lot. So you have also sometimes steel which is combined with other material. The advantage of the big advantage of steel is that there are 2. First one, it is much cheaper. And second, its environmental footprint, it's generally much stronger.
I'll give you there also an example. I was saying before that producing 1 tonne of steel is 2 tonnes of CO2. For aluminum, it's more than 10. So that is what we need to tell people. And so steel is an environmentally friendly product.
We're running out of time, but one, we talked obviously about the automotive sector. What about construction, which how do you see the construction sector worldwide? Just presuming this is a big user of steel.
You're absolutely right. And the great news in 2018 was that for the construction sector, we were now adopting a similar philosophy then for Ess in Motion. And we were developing a research program, which has been translated into a range of steel solutions for the construction, which is called steel intelligence, intelligent steel for the steel construction, making showing that it is better to build in steel versus other material, speak concrete, better environmental footprint, more rapid, fully cradle to cradle. So you build it and you can de build it in order and you can reuse the steel. And so that is really what we have launched today.
And maybe that you have seen that we have also decided to be new headquarters in Luxembourg. So and it will be built exactly with these recipes. So it's exactly the same philosophy then for still in motion automotive, and we're extremely positive that this might be the big picture for the future.
We have, I think, just 2 minutes left. And let 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 and D. And we have in our favor the future of steel.
And 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. And I think that's the reason why this is now also part of our strategy in order to overcome that and to make steel
The challenges then will be basically climate change, pollution?
Climate change, absolutely. And 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, and I hope you have a terrific day.
Okay. Thank you so much.
Thank you, John, as well. And thank you to all our shareholders. So we should continue to be in dialogue. You know that we have an Investor Relations app. So 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 and then hopefully that next time we can have another dialogue and respond to the questions of our shareholders.
Thank you. Bye bye. Thank you.