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 twenty eighteen results. At this stage, I'd like to inform everyone that this conference call is being recorded.
And this morning, alongside the results, we published a presentation with detailed speaker notes together with our Q and A document. So, hopefully, you've all had a good chance to review these documents. So our intention today is to have some brief remarks from Mr. Mittal and then move directly to your questions. So with that, I will hand over to Mr.
Mittal for his introductory remarks.
Thank you, Daniel. Good day, everyone. Thank you for joining to this call to discuss ArcelorMittal's results and strategic progress achieved in the first half twenty eighteen. I'm joined today by Adith Mittal, President, CFO and CEO of our European segment Simon Wandke, our Mining segment CEO Genvino, our Head of Finance and Daniel, Head of Investor 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 twenty eighteen 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 2 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 2 years, which has led to a higher industry capacity utilization rates and higher steel spreads.
Nevertheless, steel industry overcapacity 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 updates from all 3 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, and we have revised our 2018 apparent steel consumption forecast upwards by 0.5% 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. Supplies are deformed and supportive actions against unfair trade provides further support. I'm 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 acquisitive growth projects, including our $1,000,000,000 Mexican CapEx project, restart of our cold rolling mill and galvanizing expansion in Brazil, the recent acquisition of Otaruntim 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. Now we are happy to take questions.
Thanks, Mr. Mittal. So we will take the first question please from Mike Schulicha at Credit Suisse.
Thanks, Daniel. Two questions, and if I may. Firstly, on OVA, could we get some sense of your intentions? And 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?
And then 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? And could, if they wanted to, within that context, literally open the process up to a whole new sales process is my first question. And then the second question, I found your outlook statement really interesting because it does suggest a robust H2, but you also made a stronger comment that you believe that underlying industry fundamentals are sustainable.
And you're well meaning at €12,000,000,000 of EBITDA right now. We could argue that the equity is pricing in something like €6,500,000,000 to €7,000,000,000, which is quite a difference. So 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. But 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. Yes. Michael, thank you. Thank you for your question.
Let's talk about Ilva first. So as you know, we've been at it for the last 5 years. So 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, I mean, there's a binding agreement in place. The binding agreement is valid.
The company has certain funds today, but our understanding is that those funds have a time limit governed by confidentiality, so I don't want to be precise, but I don't believe those funds have that much of mileage or runway. And once those funds run out, you're absolutely right, the government would have to go to parliament to ask for more money and 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 find Arshoom Mittal 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. And clearly, they want a union agreement, which was never achieved. So that is still a pending item. And 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, but we should also recognize that IRVA's profitability has not improved significantly. Actually has not changed. It's losing money like it was in the past. Actually, all of our shipments are declining. So clearly, the attractiveness of that asset has not changed and our plan to improve it industrially, socially and environmentally is in our strong belief 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. I think let's begin with the supply side of things. So, 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, but 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 DUSON missions. So 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.
So then let's just move on to trade. I think we have structural trade measures in place which did not exist in the past. I'm not talking about structural, I'm talking about antidumping and anti subsidy cases. So that was a story that of 2017 and some of 2018. So this applies to our European business, it applies to our U.
S. Business and actions have also been taken in other geographies. More recently, we have seen 232 in the U. S. As well as safeguarding actions in Europe.
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 5 years and typically get extended by another five years. So that's another structural shift or change in the global steel industry. The third thing is demand patterns, right. So we're now seeing demand pick up in our core markets. So this is Brazil, CIS, but also in Europe.
And clearly as a company, we're well positioned to cater to that. NAFTA continues to grow. So the demand pattern remains promising and we don't see a significant change in the demand outlook into the medium term. And I think the last thing that changes or the last thing which is structural is our Sramittal. 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 ASUS 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.
And along with the industrial improvements we have made is the strengthening of our financial position. I think we have the strongest balance sheet since merger. Our net interest costs are now $600,000,000 per annum. So clearly, all of those factors support the changed environment that we're seeing today.
Okay. Thank you for that. And 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?
So, Michael, I wouldn't give a precise guidance. So, I will talk about some of the effects. So, the seasonality is normally in terms of volumes. So 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.
So 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, positive lag effect. As you know, 232 started in the second quarter, but the full impact has not yet hit our results.
So this is just the quarterly contracts. This is just the fact that we have long lead time. So some of that lag effect will hit Q3. The other lag that is embedded in 232 which is not really a second half phenomena but more a going forward phenomena is our contract business, right? So automotive as you know is an animal business and automotive contracts have not yet reset.
Okay. All right. Very clear answer. Thank you very much.
Great. Thanks, Mike. So we'll move to the next question from Alain at Morgan Stanley.
Yes. Good afternoon, gentlemen. My first question is basically on 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 invested $3,100,000,000 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 will be very helpful. Thank you. [SPEAKER PIERRE
YVES LESAICHERRE:] Sure. So in terms of Europe, roughly the impact is about 200,000 tonnes. You have a forecast or you can estimate the profitability and the fixed cost impact of that on our tonnage and come with the numerical number. In Ukraine, the number is larger. It's about 600,000 to 800,000 tonnes, 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. But some of it should come back. And in Ukraine, the profitability, including the fixed cost contribution, is not as high as in Europe. So you can take a smaller number in terms of the contribution per tonne 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.
So 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.
We'll move to the next question from Ioannis at Macquarie.
Just a few questions from my side. First on Essar Steel, and 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 at Hesser Steel, would you consider raising your initial bid materially to win the asset? And 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? And the second question is on Brazil, which was particularly strong in Q2. And 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 voter anti mint shipments?
Thank you.
So thank you for your question. As you know, SR is a life situation. So I think at this point in time to speculate on what we may or may not do is not appropriate. I think our Sumit 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, this is not the only slurry pipeline. There are 2 actually, one in Wai Sai, one in Paradeep.
But it is not as clear as you have mentioned. I think there are still it's a dispute whether the ownership is actually owned by a 3rd party or owned by SR Steel. So as it's a legal matter, I will not get into further detail. But clearly, we are cognizant of the opportunities and risks associated with the slurry pipeline. In terms of Brazil, Q2 to Q3, I mean, first of all, Q2 is good performance.
It's not primarily of voter. Actually, voter contribution is almost nil in our 2nd quarter performance. Voter contribution will actually hit in the 4th quarter. And Q2 to Q3, I think the trends we have seen in the Q2 should continue to the Q3.
Yes. Thanks very much. And maybe a quick follow-up. Just looking at your business and your growth strategy, assuming everything goes ahead with Ilva and Estersteel, would you consider additional M and A in the next 1 to 2 years? Or would you rather focus on turning around those newly acquired assets and further reducing your gearing?
So, 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 SR, I think the interesting announcement we have made this morning is also our expansion of our core rolling mill complex in Brazil. This is Vega. So we are seeing demand growth come back, especially in automotive and other segments of the Brazilian market and hence are growing our finishing capacity by 700,000 tonnes.
This is primarily galvanized, but there's also some core road growth as well.
Thanks very much.
Thanks, Jalev. So we'll take the next question please from Seth at Jefferies.
A couple of questions on the U. S. Business, please. I'm particularly to better understand Calvert in the current environment. Given that this is a JV equity account, you just remind us how we should consider the role of Calvert in propelling the towers' vault tire, 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 the 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? And then lastly, utilization rate of 88%, I think, was reported, actually seems a bit low, I suppose, for slab converter in the U. S. Given how strong the market is. Is there further upside for Calvert volumes into H2?
Thank you.
Okay. So let's talk about the big picture on Calvert and then try and narrow it down and begin to answer some of your questions. So Calvert roughly buys about 4,000,000 tonnes of slabs. 1,000,000 tonnes comes from Ternium in Brazil, which is an HRC linked pricing. So 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. In terms of 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. And 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 our Sarminto, right? So Nippon Steel is an equity partner.
They get an equity rate of return based on the utilization rate of Calvert. So, the rest of the gains that you see in Calvert are 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. But this has to do with the 6 day planned outage that we had.
And in Q3, our utilization rate or into the second half should improve. And when we look at the utilization rates, this is a hot strip mill utilization rate. So, 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. So that's perhaps the way we report utilization rates versus the actual reality of what is happening to that finishing facility.
So I think I answered yes, so 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.
But 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?
So if you look at apparent steel demand in the U. S, we're not seeing any change into the second half. I mean, demand elasticity is quite high normally in the steel business. Clearly, on a medium term, there should be a normalization of that as some suppliers brought on in the U. S.
Steel industry. And there could be certain exemptions granted for Canada and Mexico. Cost position, So 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.
So we'll move to the next question from Rojas 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 standstill related decline of nearly 30% in the 1st quarter.
So I was just wondering whether this recovery wasn't more pronounced. And shall we expect this to fully recur then in the Q3? Maybe you can shed a bit more light on that one. The other question is regarding your sale of this 50% stake in Max Steel. When are you expecting to book the currency gain?
And when you expect the cash flow from that?
So in terms of MAX deal, it's a second half event, could be Q3, Q4. And exactly when the cash arises when we would book the currency gain. So 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 the recovery you see into the second half. So there has been no impairment in our ability to produce steel there.
Okay. And I think the comments you made on the volume loss in the Q2, the amount of 600,000 tonnes 600,000 to 800,000 tonnes, was that a quarterly figure or the first half figure?
Yes, that's a first half number.
Okay. And the 200 ks Europe is the quarter?
That's right.
Okay. Thank you very much. Thanks for clarification.
Sure. Thanks, Rocha. So, we'll move to our next question from Sida at Merrill Lynch.
Thanks very much. Hi, guys. I 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 Q3, 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.
So I don't really have the number. Cedar, we can come back. I don't see any structural change. So 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. So 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. So I will not forecast any change of that nature into Q3, Q4.
Okay. And then 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? So I see you had a big deferred tax asset coming through in Q2 that obviously that's not filtering through into your cash tax costs. Thanks.
So, 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. And if you would see our guidance, we have increased our cash taxes for the year by $300,000,000 That's assuming that our cash tax rate is about 15%. That's the previous guidance we have provided you. And the reason why we come up with $300,000,000 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, Sita. So we'll move to Bastian at Deutsche Bank.
Hi, good afternoon gentlemen. I just have one last question left and that one is on the sale of the IRSA Remedy assets. Without giving any details, are you happy with the level of interest you're seeing as well as with the quality of the bids? And also can you give us maybe a bit of color on how the process actually works? Is there a scenario where you may have to have sold the assets, but the ILSO deal could potentially fall apart?
Thank you.
Thanks for the question. Yes, there's good interest in all assets. So we see that we have 3 packages. 1 is our Western European downstream coal rolled and Galv assets. The other is Ostrava.
The third is Galati in Romania. And for all three packages, we see a lot of interest and that process is moving along nicely. I mean short answer no Ilva nor Remedi. So there is Ilva transaction which we expect to close and we expect to do the remedies. But in the unlikely event that we don't succeed in NIMA, clearly there would be no remedies.
Okay. So it's a conditional sale process?
Sorry, we didn't have that. Just speak up again, please.
Okay. So it's conditional sale process. So basically, kind of the contract framework says basically that you only basically need to sell when if the IRSA deal goes ahead?
Yes, exactly. It would be conditional on the Ilva deal closing.
Okay. Very clear. Thank you.
Great. Thanks, Bastian. So, we'll move to Christian at SocGen.
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 $6,000,000,000 I think in the statement, you highlight that you now have investment grade on all the 3 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 get to make a judgment on dividend payments, Is that $6,000,000,000 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? [SPEAKER
PIERRE YVES LESAICHERRE:] So thank you for the question. Look, our stated policy is very clear that we arrive at net debt of $6,000,000,000 and then we should have a material increase in returns to shareholders. The reason why the $6,000,000,000 is important and it's nice to see that all the rating agencies have upgraded us, but the reason why the $6,000,000,000 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. So at any point in the cycle, we will not expect net debt to EBITDA to be in excess of one time. And that's why the $6,000,000,000 number becomes an absolute target.
Clearly these discussions we have with the Board on an annual basis and we will have discussions with the Board as well. But I think it is safe to expect that dividends would materially increase only when we achieve the $6,000,000,000 net debt target.
Okay. Thank you.
Great. Thanks, Christian. So 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 6 or 12 month deals that help to hold that pricing realization up versus the Q1?
No significant contract resets in Q2. So we believe this reflects the market reality.
Okay. So you think there's more stable pricing in the European markets than the index as it would show?
Yes. I mean, our results reflect that. So, yes, there's no change in terms of the contract being reset in the Q2. There could be some changes in terms of exports versus reorientation into the domestic markets. But our euro prices are up quarter on quarter.
Thank you. And then just in terms of a follow-up, when I think about the Difasco and your NAFTA business, I know a lot of the DAFASCO tons go into 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 your customers how are you dealing with those situations with your customers?
So our Canadian business at Difasco is respecting our automotive contracts. So I mean, 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. So, we'll move to Luc at Exane please.
Hi, gentlemen. Two questions left. So, first of all, with regards to 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? And I'm particularly looking at HRT spread or lack of spread, I would say, relating 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.
Yes. So in terms of the spread environment, market environment, demand environment, are 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 core rolled and Galves.
That's just a function of demand supply balance and the way 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. So you see some of that correct itself based on how the 25% duties impact those product ranges.
Okay. 2nd question would be related to the European safeguard. Some of your peers I mean, some of the reaction of your peers have been pretty contrasted. So I'm 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 training, sorry. What is your view towards that?
And would you what would you wish for the definitive measures to be enforced? Thank you.
So not to make a joke out of it, but I think our peers are right. So 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 Europe's from as exports from Europe the U. S. Could get redirected to the European marketplace.
So 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.
So 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 and that risk is present. Today, we have not seen that risk manifest itself, but that risk is present. So I mean but
still overall
the glass is half full. It's an excellent development in your to safeguard provisional measures put in place, but we clearly need to be focused on achieving final measures.
Thank you. Thanks, Luke. So, I think we've addressed most people's questions. So, we're going to have the opportunity now to circle back with Bastian at Deutsche Bank.
Yes. So just one quick follow-up, just on the outlook which you've been providing for the next quarter. So if you just go through the different businesses, we have less volume seasonality in Europe, but auto contracts also recover a little bit. This is a very high spot margin, then we probably kind of get some improvement from Brazil because of Woodrow. And Tim, you mentioned the positive price like naphtha and then ACS is recovering part of the volume loss.
Is there anything else on the negative side which we are missing here? Because I guess just adding all of that up I kind of struggle to see what other than the seasonality in Europe should be driving any sequential weakness in the Q3?
So I appreciate the question, but 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. So 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. So 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. As is yes, there's some recovery in terms of volumes. So the rest of the so 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, but probably I'm wrong there.
If they roll over, how does it change EBITDA? That's what I did not appreciate maybe. So anyway, enough said on this topic. Thank you. Okay.
Thank you.
So we have one more question, Mr. Mittel, 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 are sticking up so well and raw materials did go down in the last months. I suppose that could give you a good impulse in your spread, steel spreads for the 2nd semester. I'm not sure if that's correct. And I would like to have a little bit more color on that side.
So I think that's a very good question. I think there is some raw material positive lag, especially when it comes to iron ore, but we're also seeing consumable prices rise, right? So 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. So I don't see the cost being very different first half versus second half.
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, and 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 and I wish you a safe and happy summer.
Thank you.