Daniel, you can start.
Thank you. Good afternoon, everybody. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. Thank you very much for joining us on this call today to discuss the first half 2018 results. At this stage, I'd like to inform everyone that this conference call is being recorded. This morning, alongside the results, we published a presentation with detailed speaker notes together with our Q&A document. Hopefully, you've all had a good chance to review these documents. Our intention today, is to have some brief remarks from Mr. Mittal and move directly to your questions. If at any stage you would like to join the queue to ask a question, please do press star one on your telephone keypad. With that, I will hand over to Mr. Mittal for his introductory remarks.
Thank you, Daniel. Good day, everyone. Thank you for joining this call to discuss ArcelorMittal's results and strategic progress achieved in the first half 2018. I am joined today by Aditya Mittal, President, CFO, and CEO of our European segment, Simon Wandke, our mining segment CEO, Genuino, our Head of Finance, and Daniel, Head of Industry Relations. I want to start my remarks by commenting on our health and safety performance. Our lost time injury frequency rate for the first half of 2018 showed a 14% improvement on the corresponding period last year, and our rate is considerably below the World Steel Association average of one time. Nevertheless, we continue to prioritize further reducing the rate with a specific focus on eradicating serious injuries and eliminating fatalities. Our improved financial results, best since 2011, have been primarily driven by two aspects.
Firstly, the ongoing progress we are making with our Action 2020 strategic plan, which is delivering sustainable structural improvement across our business. Secondly, improved global steel demand and steel industry reform. There has been significant supply-side rationalization over the past two years, which has led to higher industry capacity utilization rates and higher steel spreads. Nevertheless, the steel industry over capacity is still a challenge that needs to be fully addressed. Turning to our balance sheet, I am pleased that we have achieved our financial priority of an investment-grade credit rating following the upgrades from all three rating agencies this year. Achieving this reflects the significant progress we have made in strengthening our balance sheet and improving our financial results in recent years. Looking ahead to the second half of the year, the signs are positive.
Steel demand is growing in each of our core markets. We have today revised our 2018 apparent steel consumption forecast upwards by half of 1% for the U.S. and full percentage point for Europe. Our order books, which provide us with good visibility, are strong and customer inventory levels are at or below normal levels. Supply side reform and supportive actions against unfair trade provides further support. I am also confident that we will continue to make progress with our own strategic growth initiatives. In addition to Action 2020, we have several organic and equitative growth projects, including our $1 billion Mexican CapEx project, restart of our cold rolling mill and galvanizing expansion in Brazil, the recent acquisition of Votorantim in Brazil, and our ongoing acquisition of Ilva. These are all exciting opportunities that will help us to deliver further sustainable long-term value creation. Thank you.
We are happy to take questions.
Thanks, Lakshmi Mittal. To remind everybody, if you would like to ask a question, please do press star one on your keypad. We will take the first question, please, from Michael Shillaker at Credit Suisse.
Thanks, Daniel. Two questions, if I may. Firstly, on Ilva, could we get some sense of your intentions? What is the risk that you are going to have to do a materially weaker deal than the one that was initially approved? Is there a point when you are simply just prepared to walk away? A kind of more technical issue, how long can the Italian government continue to run the asset? Is there any limit in relation to EU anti-subsidy or similar legislation which imposes a time limit on them running that asset? Could, if they wanted to, within that context, literally open the process up to a whole new sales process? Is my first question.
The second question, I found your outlook statement really interesting. It does suggest a robust H2. You also made a stronger comment that you believe that underlying industry fundamentals are sustainable. You're now trading at $12 billion of EBITDA right now. We could argue that the equity is pricing in something like 6.5-7 EBITDA, which is quite a difference. Can you give us your big picture view on global steel fundamentals? I know you've touched on some of them right now, including supply side discipline and similar. How do you feel about the cycle in a big picture view in terms of the sustainability, and why do you think the cycle is more sustainable than perhaps it was in the previous few years? Thank you very much.
Okay, Mike. Sorry, there's a lot of echo here. Yeah. Michael, thank you for your question. Let's talk about Ilva first. As you know, we've been at it for the last five years. We believe we have a lot to offer to this asset in terms of our turnaround capability, environmental and social capabilities as well. In terms of walk away, there's a binding agreement in place. The binding agreement is valid. The company has certain funds today. Our understanding is that those funds have a time limit. I'm governed by confidentiality. I don't want to be precise, but I don't believe those funds have that much mileage or runway.
Once those funds run out, you're absolutely right, the government would have to go to Parliament to ask for more money. That would trigger a whole question on state aid and subsidies, which, as you know, in the steel industry in Europe, is not allowed. I don't think that timeframe allows them to reopen the process. I think the discussion is really on whether you close the asset or whether you fund ArcelorMittal as the new owner. In terms of our capabilities and what is being discussed, I think the issues that are being discussed are in terms of environmental. The new government in Italy clearly wants a stronger environmental plan.
We have submitted a stronger environmental plan, which has been discussed with key stakeholders. Clearly they want a union agreement, which was never achieved. That is still a pending item. We expect to make progress on that during August, September. In terms of bid values and stuff like that, the global steel industry has improved, as you can see in our results. We should also recognize that Ilva's profitability has not improved significantly. Actually, it has not changed. It's losing money like it was in the past. Actually, Ilva shipments are declining. Clearly, the attractiveness of that asset has not really changed, and our plan to improve it industrially, socially, and environmentally is strongly the best one available and will really allow Ilva to be repositioned as Europe's premier steel facility.
In terms of global steel market, I think a lot of the factors are captured in our presentation and our commentary, but I will just walk you through some of them. Let's begin with the supply side of things. There has been supply reform. The supply reform is evidenced most pronounced in China, where there has been a structural reduction of capacity, and as a result, you see demand-supply balance is much better. Capacity utilization is much higher. That's structural. That capacity is not coming back. On top of it, China has announced blue sky scenario or blue sky planning, which implies that the Chinese steel industry have to dramatically reduce their SOx, NOx, and dust emissions, which means more CapEx and more OpEx for Chinese facilities.
Also means that some of the winter closures that have been impacting the Chinese steel industry could last a bit longer because the blue sky scenarios or blue sky plan implies that you can't really operate some of these facilities which have much higher SOx, NOx or dust emissions. The supply story is good in China. Obviously, the story is not complete because they're still exporting steel and there's still some market-distorting impacts, and therefore, trade action is relevant on a global basis. Let's just move on to trade. We have structural trade measures in place which did not exist in the past. I'm not talking about structural, I'm talking about anti-dumping and anti-subsidy cases. That was a story of 2017 and some of 2018.
This applies to our European business, it applies to our U.S. business, certain actions have also been taken in other geographies. More recently, we have seen Section 232 in the U.S., as well as safeguarding actions in Europe. Section 232 and safeguarding, you can question the timing and how long they would last, but the anti-dumping measures and anti-subsidy measures typically last five years and typically get extended by another five years. It's another structural shift or change in the global steel industry. The third thing is demand patterns, right? We're now seeing demand pick up in our core markets. This is Brazil, CIS, but also in Europe. Clearly, as a company, we're well-positioned to cater to that. NAFTA continues to grow. The demand pattern remains promising, and we don't see a significant change in the demand outlook into the medium term.
The last thing that changes or the last thing which is structural is ArcelorMittal. This is the improvements we have made as a company in terms of our footprint, whether it is Europe or North America, the improvements we're doing in Brazil, the improvements we have made in the ACIS business, the cost reductions that have taken place in our mining business, and I can go on and on and on, but you get a flavor of that. Along with the industrial improvements we have made is the strengthening of our financial position. We have the strongest balance sheet since merger. Our net interest costs are now $600 million per annum. Clearly all of those factors support the changed environment that we're seeing today.
Okay. Thank you for that. Just a quick follow-up. On H2, given the guidance that you gave, is it reasonable to assume that we would expect H2 normal seasonality versus H1 run rate, or would you, given some pricing lags and similar, actually suggest that it could be better than just normal seasonality in the second half versus first half?
Michael, I wouldn't give a precise guidance. I will talk about some of the effects. The seasonality is normal in terms of volumes. I think they will be less pronounced. The seasonality in terms of volumes will be less pronounced even in Europe, primarily because in Europe, in the second quarter, we did not perform or ship as much steel due to flooding in Asturias or in Spain, as well as the railway strikes that occurred in France. There's some catch-up of shipments that are occurring in the second half, and that's why the seasonality is less pronounced. Rest of the market, seasonality is similar. There will be some catch-up of shipments in Ukraine as we suffered in the first half of this year. Apart from that, there is some lag effect that we should see in our NAFTA business. A positive lag effect.
As you know, 2-3-2 started in the second quarter, the full impact has not yet hit our results. This is just the quarterly contracts. This is just the fact that we have long lead times, some of that lag effect will hit third quarter. The other lag that is embedded in 2-3-2, which is not really a second half phenomena, more a going forward phenomena, is our contract business. Right? Automotive, as you know, is an annual business, and automotive contracts have not yet reset.
Okay. All right. Great answer. Thank you very much.
Great. Thanks, Mike. We'll move to the next question from Alain at Morgan Stanley.
Yes. Good afternoon, gentlemen. My first question is basically a follow-up on the previous question, is on the issues that you have faced during Q2. Clearly, your EBITDA includes some negatives there on the flooding in Spain, the strike in France, and some operating issues and challenges in Ukraine. Are you able to put a bit numbers behind those issues just to be able to quantify the financial impact so that we can reassess the upside in H2? The second question is on working capital. You've invested $3.1 billion year-to-date. If prices stay on the current levels, how much do you think is a realistic release into H2? Without being too precise, I guess if you can give us a range, that would be very helpful. Thank you.
Sure. In terms of Europe, roughly the impact is about 200,000 tons. You have a forecast, or you can estimate the profitability and the fixed cost impact of that on our tonnage and come with a numerical number. In Ukraine, the number is larger. It's about 600 to 800,000 tons, but not all of it will be recovered in the second half. Some of those operational issues are going to continue to impact shipments into the second half. Some of it should come back. In Ukraine, the profitability, including the fixed cost contribution, is not as high as in Europe. You can take a smaller number in terms of the contribution per ton, and then you get a fair assessment of what happened in the second quarter.
In terms of working capital, look, if market conditions remain stable, then I expect working capital to be stable as well. I don't expect overall a release in the second half versus the first half. There could be investment in Q3 and some release in Q4, so quarterly variances, but not on a half-yearly basis.
Thank you.
Thanks, Alain. We'll move to the next question from Yannis at Macquarie.
Good afternoon, gentlemen. Just a few questions from my side. First, on Essar Steel, my question here is twofold. We've seen fairly high transaction multiples for some of the other Indian assets. Given your strong balance sheet and expansion potential of Essar Steel, would you consider raising your initial bid materially, to win the asset? Within that question, I believe that the slurry pipelines, which are a key element of the iron ore sourcing strategy, are majority owned by a third party. Is your bid predicated on taking full ownership of the pipelines? The second question is on Brazil, which was particularly strong in Q2. I would like to ask for some visibility on the Q2 versus Q3 bridge.
That would be very useful because, yes, volumes will probably stay strong and Voto is sequentially better, but is there a reason to expect that you may get some price cost pressure in Q3 that would potentially offset the positive benefits from Votorantim and shipments? Thank you.
Thank you for your question. As you know, Essar is a live situation. I think at this point in time, to speculate on what we may or may not do is not appropriate. ArcelorMittal will pay fair value. Clearly, we have a lot of experience. We bring a lot to the table. We have done this before, and we know how to balance growth as well as shareholder value creation. In terms of the slurry pipeline, that's not the only slurry pipeline. There are two actually, one in Vizag, one in Paradip. It is not as clear as you have mentioned. I think there still is a dispute whether the ownership is actually owned by a third party or owned by Essar Steel. As it's a legal matter, I will not get into further detail.
Clearly, we are cognizant of the opportunities and risks associated with the slurry pipeline. In terms of Brazil, Q2 to Q3, first of all, Q2 is good performance. It's not primarily because of Voto. Actually, Voto contribution is almost nil in our second quarter performance. Voto contribution will actually hit in the fourth quarter. Q2 to Q3, I think the trends we have seen in the second quarter should continue to the third quarter.
Yeah. Thanks very much. Maybe a quick follow-up. Just looking at your business and your growth strategy. Assuming everything goes ahead with Ilva and Essar Steel, would you consider additional M&A in the next one to two years, or would you rather focus on turning around those newly acquired assets and further reducing your gearing?
Look, we're very focused on continuing to deleverage, and to the extent that we can grow and continue to deleverage, that remains our stated strategy. I think apart from Ilva and Essar, I think the interesting announcement we have made this morning is also our expansion of our cold rolling mill complex in Brazil. This is Vega. We are seeing demand growth come back, especially in automotive and other segments of the Brazilian market. Hence are growing our finishing capacity by 700,000 tons. This is primarily galvanized, but there's also some cold rolled growth as well.
Thanks very much.
Thanks, Yannis. We'll take the next question, please, from Seth at Jefferies.
Good afternoon. A couple of questions on the U.S. business, please, in particular to better understand Calvert in the current environment. Given that this is a JV equity account, can you just remind us how we should consider the role of Calvert, in propelling Mittal results higher, in particular with regard to the slab supply contract, how we should expect this business to be positioned going forward? Secondly, on Calvert, can you just walk us through from a slab supply side, what the impact is of Section 232 tariffs against Mexico, whether you're able to pass on some of that cost to your JV partner? Lastly, utilization rate at 88%, I think was reported. Actually seems a bit low, I suppose, for a slab converter in the U.S., given how strong the market is. Is there further upside for Calvert volumes into H2? Thank you.
Okay. Let's talk about the big picture on Calvert and then try and narrow it down and begin to answer some of your questions. Calvert roughly buys about 4 million tons of slabs. 1 million tons comes from Ternium in Brazil, which is an HRC-linked pricing. That pricing completely reflects its HRC prices in the U.S., minus a certain dollar amount, and so it completely reflects the changes in the U.S. marketplace. We also supply slabs coming in from our U.S. facilities, and the rest of these slabs come from our other Brazilian facility, which also has a quota arrangement with Calvert. For our Mexican slabs, we do partially a maquila-based transaction where we buy the slabs, but then we export the hot band into Mexico. All those costs and gains accrue to ArcelorMittal, right? Nippon Steel is an equity partner.
They get an equity rate of return based on the utilization rate of Calvert. The rest of the gains that you see in Calvert, some of it is also captured in our Mexican business as they get higher pricing for the slabs, and some of it is captured in our Brazilian business as well. The rest of the gains are embedded in the NAFTA EBITDA of Calvert. In terms of the utilization rate, you're right. Q2 was slightly lower, and that's why first half, perhaps, you're looking at a lower number. This has to do with the six-day planned outage that we had. In Q3, our utilization rate going into the second half should improve. When we look at the utilization rates, this is a hot strip mill utilization rate. This doesn't mean that the galvanizing lines and stuff like that are not running full.
To get utilization rates in hot strip mill at 100%, that's unheard of. That's perhaps the way we report utilization rates versus the actual reality of what is happening to that finishing facility. I think I answered. Yeah. That's on Calvert. Thank you.
That's great. If I can just ask one follow-up question with regards to the U.S. business. I think you touched on earlier having strong visibility with your order backlog. Given the current strength of U.S. steel prices, can you just give us any soft commentary on what you're hearing from your customers in response to high prices? Is sticker shock beginning to weigh on apparent demand? Are you seeing any resumption of import competition, for spot sales in the U.S., or should we expect status quo going into H2?
If you look at apparent steel demand in the U.S., we're not seeing any change into the second half. Demand elasticity is quite high normally in the steel business. Clearly, on a medium-term, there should be a normalization of that as some supply is brought on in the U.S. steel industry. There could be certain exemptions granted for Canada and Mexico. I think there'd be normalization, which would reflect a more reasonable margin for the U.S. steel industry reflecting their cost position. At this point in time, in terms of what we're seeing, in terms of the ground reality, apparent steel demand is good, and we're able to pass on the price increases in our U.S. business.
Great. Thank you.
Is that okay, Seth?
Yes, thank you very much.
Thanks, Seth. We'll move to the next question from Rochus at Kepler, please.
Yes. Hi there. Most of my questions are answered already. Two small things. The one is, in Brazil, in your flat business, that was just 6%-7% up quarter-on-quarter in the second quarter after this stance-related decline of nearly 30% in the first quarter. I was just wondering whether this recovery wasn't more pronounced, and shall we expect this to fully recur then in the third quarter? Maybe you can shed a bit more light on that one. The other question is, regarding your sale of this 50% stake in Macsteel, when are you expecting to book the currency gain, and when you expect the cash flow from that?
In terms of Macsteel, it's a second half event, could be Q3, Q4, and exactly when the cash arises, when we would book the currency gain. I would not necessarily factor it into Q3. I think it could be Q4. Perhaps it happens earlier, but Q4 is a realistic target. In terms of Brazil, some of that recovery you should see into the second half. There has been no impairment in our ability to produce steel there.
Okay. I think the comments you made on the volume loss in the second quarter, the amount of 600,000 tons, 600,000-800,000 tons, was that a quarterly figure or the first half figure?
That's a first half number.
Okay. The 200,000 Europe is the quarter?
That's right.
Okay, cool. Thank you very much. Thanks for clarification.
Sure.
Thanks, Rochus. We'll move to next question from Cedar at Merrill Lynch.
Thanks very much. Hi, guys. I've just got a question on realized pricing in Brazil. I see in the quarter that your gap on your realized price versus a benchmark price opened up a little bit, and I assume that's because Voto is more exposed to the export market, and so generally realizing a lower price per ton. I just want to understand, going into the third quarter, should we expect an incremental increase in your difference between realized pricing and benchmark domestic pricing, or would you say that the gap has opened up in Q2 and going forward, there's no potential deterioration in mix, essentially, with more export tons? Thank you.
I don't really have the number, Cedar. We can come back. I don't see any structural change. I would think that to the extent that we are exporting more into Q2, that phenomena will continue into the second half, till we see a more pronounced recovery in the flat business in Brazil. The recovery that we have seen into Q2 continues. We're producing more, and also we're getting better pricing for export markets, such as slabs into the U.S. I would not forecast any change of that nature into Q3, Q4.
Okay. A follow-up question on tax. Can you just give us a bit of color on the difference between cash taxes and income taxes for the full year? I see you had a big deferred tax asset coming through in Q2, but obviously that's not filtering through into your cash tax costs. Thanks.
Cedar, I think, another way to look at it is to just focus on our current tax, which would provide you with roughly what is our cash taxes. If you would see our guidance, we have increased our cash taxes for the year by $300 million. That's assuming that our cash tax rate is about 15%. That's the previous guidance we have provided you. The reason why we come up with $300 million, and I'm preempting the next question, which is that's just based on the consensus EBITDA change for 2018 versus what it was at the beginning of the year.
Perfect. Thank you.
Great. Thanks, Cedar. We'll move to Bastian at Deutsche Bank.
Yes. Good afternoon, gentlemen. I just have one last question left, and that one is on the sale of the Ilva/Remedy assets. Without giving any details, are you generally happy with the level of interest you're seeing, as well as with the quality of the bids? Also, can you give us maybe a bit of color on how the process actually works? Is there a scenario where you may have sold the assets, but the Ilva deal could potentially fall apart? Thank you.
Thanks for the question. Yes, there's good interest in all assets. We see that we have three packages. One is our Western European downstream cold rolled and galv assets. The other is Ostrava. The third is Galati in Romania. For all three packages, we see a lot of interest, and that process is moving along nicely. In short answer, no Ilva, no Remedy. If there is Ilva transaction, which we expect to close, then we expect to do the remedies. In the unlikely event that we don't succeed in Ilva, clearly there would be no remedies.
Okay. It's a conditional sale process.
Sorry, we didn't hear that. Just speak up again, please.
It's a conditional sale process, so basically, kind of the contract framework says that you only basically need to sell if the Ilva deal goes ahead.
Yeah, exactly. It would be conditional on the Ilva deal closing.
Okay. Very clear. Thank you.
Great. Thanks, Bastian. We'll move to Christian at Soc Gen.
Yes, thank you. Good afternoon. I only have one question. I think you're highlighting that you're looking at increasing shareholder returns when you reach your net debt target of $6 billion. I think in the statement you highlight that you now have investment grades on all the three main credit agencies, and you're looking at a favorable outlook for the sector. When it comes to the end of the year, early next year, when you're going to make a judgment on dividend payments, is that $6 billion net debt need to be achieved, or will you make a judgment on the outlook for the subsequent quarters to make a judgment on whether or not the dividend increases?
Thank you for the question. Look, our stated policy is very clear that we arrive at net debt of $6 billion, then we should have a material increase in returns to shareholders. The reason why the $6 billion is important, it's nice to see that all the rating agencies have upgraded us, the reason why the $6 billion is important is because that demonstrates that we would have an investment rating through the cycle, because what it achieves is that our net debt matches trough EBITDA. At any point in the cycle, we would not expect net debt to EBITDA to be in excess of one time. That's why the $6 billion number becomes an absolute target.
Clearly, these discussions we have with the board on an annual basis, we will have discussions with the board as well, I think it is safe to expect that dividends would materially increase only when we achieve the $6 billion net debt target.
Okay, thank you.
Great. Thanks, Christian. We'll move to Phil Gibbs at KeyBanc, please.
Hey, thanks for taking my questions. First question was just on the pricing in Europe. It looked to hold up really well sequentially, which defied what we saw, at least in the Northern European spot market. Was there any contract resets in the quarter, maybe six or 12-month deals that helped to hold that pricing realization up versus the first quarter?
No significant contract resets in Q2. We believe this reflects the market reality.
Okay. You think there's more stable pricing in the European markets than the indexes would show?
Yeah. Our results reflect that. There's no change in terms of the contract being reset in the second quarter. There could be some changes in terms of exports versus reorientation into the domestic markets. Our Euro prices are up quarter-on-quarter.
Thank you. Then just in terms of a follow-up, when I think about Dofasco and your NAFTA business, I know a lot of the Dofasco tons going to the U.S., some of them in the automotive market, and how are you thinking about the business in the short term, just with the tariffs into the U.S. from Canada, and how are you dealing with those situations with your customers?
Our Canadian business at Dofasco is respecting our automotive contracts. I know I'm not fully answering your question, but I think that's an appropriate remark for me to make, and to get into more detail is inappropriate.
Thank you.
All right. Thanks, Phil. We'll move to Luc at Exane, please.
Hi, gentlemen. Two questions left. First of all, with regards to the conditions in the U.S. market, can you discuss a bit more the spreads, and do your comments with regards to the healthiness of the spreads also do apply to the U.S.? I'm particularly looking at the HRC spread, or lack of spread, I would say, relative to more premium products in the U.S. market. How do you judge that sustainable over H2 over time? That would be my first question.
Yeah. In terms of the spread environment, market environment, demand environment, our common supply to the North American market, including the U.S. as well. The price change in HR is clearly greater than the price change in cold rolled and galv. That's just a function of demand-supply balance and the way that the 25% impacts more of the downstream products. You see, what you have to appreciate is that the margins in the U.S. for downstream products were higher than the global margin for downstream product. You see some of that correct itself based on how the 25% duties impact those product ranges.
Okay. Second question would be related to the European safeguard. Some of the reaction of your peers have been pretty contrasted. Some saying that the provisional safeguards and the TRQ system would be efficient to curb import pressure in H2. Some of your peers being less, let's say, optimistic and seeing risk of front-running. What is your view towards that? What would you wish for the definitive measures to be enforced? Thank you.
Not to make a joke out of it, but I think our peers are right. The glass is half full. I think clearly getting safeguard is important, because otherwise the risk of a surge of imports into Europe is prevalent, as exports from the U.S. could get redirected to the European marketplace. Getting safeguard duties was critical. It's very good news that it has been achieved. It's provisional today. It needs to be final. Already you saw that in the first half of this year, imports were trending higher than the first half of last year. In that sense, absolutely right. Clearly, the fact that it's a 200-day provisional measure and that there is no monthly or quarterly limit, can create the risk that you have a surge for a temporary period in this 200-day period. That risk is present.
Today we have not seen that risk manifest itself, but that risk is present. Still, overall, the glass is half full. It's an excellent development in Europe to have the safeguard provisional measures put in place, but we clearly need to be focused on achieving final measures.
Thank you.
Thanks, Luc. I think we've addressed most people's questions, we're going to have the opportunity now just to circle back with Bastian at Deutsche Bank.
Yes. Just one quick follow-up just on the outlook, which you've been providing for the next quarter. If you just go through the different businesses, we have less volume seasonality in Europe, auto contracts are still probably recover a little bit the very high spot margin, we probably going to get some improvement from Brazil because of Votorantim. You mentioned the positive price like in NAFTA and ACIS obviously recovering part of the volume loss. Is there anything else on the negative side which we are missing here? I guess just adding all of that up, I'd kind of struggle to see what, other than the seasonality in Europe, should be driving any sequential weakness in the third quarter.
I appreciate the question, I don't want to get into so much of detail on quarterly performance. I'm happy to talk about some of the impacts we're seeing in the first half of this year versus the second half. Just to recap, I think you captured everything. Europe seasonally will have lower volumes in the second half. I do not really understand your comment on automotive into Europe. Normally the automotive contracts are a Q4 event which will impact 2019. In terms of automotive, both in Europe and in NAFTA, we don't see the impact. In terms of NAFTA, we do see some spot market lag benefits into Q3, and Voto is a Q4 event. ACIS, yes, there's some recovery in terms of volumes. Those are my remarks or highlights for first half versus second half.
Okay, thank you. Sorry, I thought you had some auto contracts in Europe as well, which would roll over at the beginning of July. Probably I'm wrong there.
No. If they roll over, how does it change EBITDA? That's what I do not appreciate, maybe. Anyway, enough said on this topic. Thank you.
Okay. Thank you.
Thanks. We have one more question, Mr. Mittal, which is from Francisco at Banco Sabadell.
Yes, hello. Good afternoon. I have a question on raw materials lag onto your cost side. You've spoken about price lag, but as steel prices has ticking up so well and raw materials did go down in the last months, I suppose that could give you a good impulse in your steel spreads for the second semester. I'm not sure if that's correct. I would like to have a little more color on that side.
I think that's a very good question. I think there is some raw material positive lag, especially when it comes to iron ore. We're also seeing consumable prices rise. Right? When I look at consumables, I'm not just talking about the usual culprits, which is electrodes, ferroalloys and things like that, but also electricity and energy, which is moving upwards in the second half versus the first half. I don't see the cost being very different first half versus second half.
Okay, thank you.
There'll be no other question. I'd like to thank you all for your attention and interest. It is clear from the discussion on this call today that we remain on the right path to deliver sustainable long-term value for our shareholders. Our strategy is delivering. The industry backdrop has structurally improved. Our market trends are positive. I believe ArcelorMittal has never been in a financially stronger position than we enjoy today. We remain committed to providing our customers with the solutions they demand and are focused on capitalizing on the opportunities that will help us to deliver further sustainable long-term value creation for our shareholders. Thank you once again. I wish you a safe and happy summer. Thank you.