Please go ahead, Daniel.
Hi. Good afternoon, everybody. Welcome to ArcelorMittal's Q1 2018 analyst and investor call. This is Daniel Fairclough from ArcelorMittal investor relations team, and I'm joined on this call today by Genuino Christino, who's our head of finance. We're here to answer your questions on the results published this morning. If you'd like to ask a question, please do press star one on your telephone keypad. As usual, this call is being recorded. Hopefully, you've all had a chance to read our earnings statement, the Q&A document, and the presentation with speaker notes, which were all published on our website this morning. It's clear that results for the first quarter of 2018 were very encouraging. Indeed, this is the best start that we've had to a year since 2011. There's more to come.
The supply and demand fundamentals in the global steel market do remain very supportive, and our confidence in the outlook for the rest of 2018 has improved since the start of the year. With that brief opening, Genuino and I are now happy to take your questions, and we're going to answer them in the order that we receive them. We'll move to the first question, please, from Michael Shillaker at Credit Suisse.
Dan, thanks very much for taking my questions. Two questions, if I may. Firstly, on the concept that there is more to come, and looking into Q2 and then maybe into H2 as far as you can. On Q2, obviously we shall still see some very strong pricing tailwinds, especially from the lag in the U.S., and I guess some volume tailwinds all over. We can get some sense as to how strong the margin improvement could be, in Q2 relative to Q1. If we look into H2, and I know it's difficult, but I think last year you did give some form of guidance on H2 versus H1. We have a mix of obviously normal negative seasonality, potentially some positive demand drivers on one hand, and then I guess some positive pricing lag still feeding through on the other.
I wonder if you could give us some kind of feeling for how you would see H2 versus H1 against what we would look at as a normal backdrop of weaker H2 just driven by pure seasonality. Second question, regarding Ilva. Last year when you won the contest, I think you set out very clearly some plans for volume for the plant and similar. We now have all the remedies. I just wonder if you could help try and confirm, A, the total tonnage of up and downstream assets being disposed of in the remedies. I think the upstream is close to 4 million tons, but the downstream is not completely clear. Some help as to the profitability of those assets so we can actually work out what the net Ilva transaction effect is, would be perfect.
Very quick housekeeping question, which I guess everyone's going to want to know. Around $2 billion of working capital build in Q1. I just wonder if you could give us some guidance for what you expect for the full year, whether a lot of that will be released in the last part of the year. Thank you.
Thank you, Mike. This is Genuino. Let me address your first question on how we see business evolving to second quarter. I think you're absolutely right. We see all the key drivers moving in the right direction. Clearly we will see next quarter a pickup in shipments across all of our divisions. Prices, as you said, we will see a meaningful pickup in prices also in after just given by how prices, spot prices moved, in the second part of Q1 from late January. I would just point that also that in Brazil we'll see meaningful shipments pick up, but you should keep in mind that is primarily exports. There will be also some contribution from Votorantim. You should take that into account as well.
All in all, we would expect our margins, our EBIT per ton at group level to move in the right direction next quarter.
Thanks, Genuino. I'll take the question on Ilva and the remedy package. Michael, I think I can help you get a feel for this. Obviously, it is a confidential sales process, so I'm not in a position to go into too specific a detail. I think you've probably already done this. If you look at our fact book, you can get a good idea what the remedy package, in terms of the contribution to our production in 2017. It was approximately about 9% of our Europe production. Obviously, it's a package of assets which is predominantly located in Eastern Europe. Those assets are not operating at full capacity, so they are carrying a degree of fixed cost. The fixed cost per ton is slightly handicapped by that. Then there's the mix effect as well.
Predominantly, the mix of this business or the package of assets that we're looking to sell, is lower than the average levels of our Europe-wide business. Yes, it's about 9% of segment Europe production in 2018. The EBITDA per ton of that package of assets is lower than the comparable number for our Europe-wide business. Hopefully that gives you an idea. Genuino on-
Daniel, sorry, just before we go to working capital, can I get any comment on H2 versus H1, the seasonality versus the normal seasonality versus what you're seeing in terms of pricing lag and maybe better volumes in some areas?
Michael, on this point, as we did last year, if you recall, we will update you on the second half in the second quarter. We will not go beyond quarter two right now. I can only say that the order book and business remains strong, we will provide you more color on H2 in quarter two.
Okay.
In terms of your last question on WCR, I think we have deployed cash in quarter one, $1.9 billion. This is really a function of higher selling prices and volume. It's all good news. Looking to the second quarter, just based on how we see the business evolving, and we just talked about high shipments prices, we would expect further working capital deployment in second quarter. We will not be providing this year, Michael, as we did last year, a forecast for full year. We will see finally where we land at the end of the year. Everything seems to be pointing in, also, as I said, in the right direction. We will be updating you in terms of what we see in the business on a quarterly basis.
Okay. Thanks very much, guys.
Thanks a lot, Mike. We'll move to the next question from Alain at Morgan Stanley, please.
Yes. Good afternoon, gents. Two questions from my side. If I may go back to NAFTA, given the nature of your order books, I presume you have some visibility into Q3. Is it fair to assume that the spreads will still widen in Q3 versus Q1? That's the first question, and that's specifically on NAFTA. The second question is on Ilva. What are the remaining obstacles that you need to resolve from now until the end of June, to make sure that you close the deal by the end of June? Thank you.
Yes. In terms of NAFTA, clearly in quarter two we will see a meaningful expansion of our margins. We will not get into quarter three right now. Clearly, as I said, it's also true for NAFTA, the order book remains strong. Everything, demand is good. Let's go quarter by quarter. Quarter two will be good, and let's wait for quarter three.
Thank you.
Thank you. Thanks, Alain. On your question regarding Ilva, there's only so much I can say really on this topic. Obviously, it has been a long process. I think we announced our successful bid almost 12 months ago. It's great news that we've made headway with the acquisition. On Monday, you saw that we'd been granted clearance from the commission to go ahead. That's great news, but that is conditional on our commitment to dispose of that package of remedy assets, which we just discussed. That's something that we expect to complete by the end of the year. We don't have to sell those assets before we complete the transaction. That's the major milestone out of the way now. We're confident that we can push forward this quarter and complete the acquisition by the end of Q2.
Thank you.
Great. We'll move to the next question, please, from Seth at Jefferies.
Good afternoon. I have a couple of questions on the Brazilian business, please. In the first quarter, you seem to report nearly 12% year-over-year shipment growth. That's well above your target for around 7% growth for the full year. Can you just explain it? Are you expecting there'll be more challenging comps throughout the year, or risk of a deceleration after a uniquely strong first quarter? To follow up, when you think about that Brazilian business, can you comment on the current mix of domestic versus export sales and how you think that might change in the coming quarters as domestic demand recovers? Thank you.
Seth. Yeah, clearly we had a good performance in the domestic markets in Brazil. We saw a growth not only quarter-on-quarter, but also year-on-year in both of our businesses, long and flats. The demand was strong in quarter one in most of the segments in which we operate, be it construction industry and auto. It has been strong. In second quarter, as you know, we will have a higher mix of exports as we are back to the slabs exports business in full capacity, following the maintenance of the hot strip mill in quarter four. As demand grows, we would expect to be shifting more volumes from exports to domestic to protect our market share.
Can you give us a sense in terms of the current mix of domestic versus exports and how that could be in, say, 12 months' time, assuming a normal recovery in demand aligned with your full-year target?
Well, in quarter one, we were roughly 50/50. In 12 months' time, I think it's fair to take the apparent steel consumption that we have. We are forecasting growth of about 6%-7%, we are not updating that forecast right now. We should expect that we will keep our market share as the market grows.
Great. Thank you very much.
Thanks, Seth. We'll move to Navid at Cowen, please.
Thanks for taking my questions. Just starting with the European segment, would you mind providing some more color on the strong growth in shipments there, maybe your expectations for the trajectory for the remainder of 2018? I'm just wondering if we should expect the kind of year-over-year shipment growth that we saw to be able to maintain throughout the year.
Well, yes. The shipment performance in Europe was good. What we saw also was a good performance of our long business. Primarily, I and H products . If you recall, last year we saw some weakness in some of those products, and we see some pickup in demand in long products in Europe. We will continue to see, we hope to see a progressive improvement in shipments also going to second quarters.
Thanks. For 2017, you mentioned that the apparent steel consumption in China came in above your expectations of 3.5%. Pretty much flat demand essentially is what you guys are forecasting for this year. Just want to see if you see the potential for China to surprise to the upside again in 2018, and if so, what you see as the potential likely driver of that. Thank you.
Hi. I'll take that question. I think, yeah, it's a good observation. Looking back 12 months ago, we were a little bit of an outlier in terms of our demand forecasts for China. We were pretty positive. The market was more neutral to negative. As you point out, we started this year with a forecasted fairly flat steel consumption in China. Zero growth, maybe minor contraction, maybe minor positive. I think so far this year, the indicators are pretty positive. They're quite broad-based as well, so construction activity has been good, manufacturing activity has been good, and even autos is holding up nicely. I think as we go through the remainder of the first half of the year, we'll be looking to make any appropriate changes to all of our demand forecasts.
I would flag at this stage that China would be one of the areas where there is upside risk.
Thanks.
Great. Thanks very much. I will move to Cedar at Bank of America, please.
Thanks very much. Two questions from me, guys. One question is, you are on a process of acquisitions, it seems, at the moment. We've had Votorantim Brazil, we've got Ilva, and we know that you're looking at Essar. Is there a level of net debt that you think about internally that you would not be willing to breach in order to do deals? I'm just trying to understand basically your capacity for further M&A. That's the first question. The second question is, do we have any further update on the dividend policy going forward? I know that you've said it's going to be a payout of free cash flow once you get to your net debt target. Has there been any elaboration on that? Can we start thinking about what that payout level could be? Thank you.
Okay. Thanks, Cedar. I think hopefully we've been pretty clear in our capital allocation policy that we announced alongside our Q4 full year results at the end of January. Our bias is firmly towards de-leveraging the business. We've been working very hard, really over the past 10 years, to reduce the level of debt on our balance sheet. If you go back to 2008, we entered the global financial crisis with in excess of $30 billion of net debt. We ended last year with just over $10 billion of net debt. It's dramatic progress. Following our results, we were upgraded back to investment grade by S&P, that was a major positive achievement for ArcelorMittal. We don't want to compromise that strength. Balance sheet strength, our investment-grade credit rating, that's very important to ArcelorMittal.
Given the progress that we've made, we are in a position to look at the opportunities to create value for the future. We've been fortunate in our ability to capitalize on the two major opportunities that have existed in our business over the past 18 months or so, which were Ilva in Europe and Votorantim in Brazil. We're now getting close to the end game with Ilva, we've obviously just this past quarter completed the acquisition of Votorantim. That's a significant positive, those two acquisitions will significantly strengthen our business in both of those geographies. Essar is a new opportunity for us, a new opportunity that's presented itself over the past six months because of the process that's ongoing in India. It's something that we've taken a strong look at. We've obviously got high expectations for the demand outlook for steel in India.
At the moment, we don't have an opportunity to really be a part of that demand growth. India is an opportunity for us to grow into that geography, and Essar is a very attractive opportunity to gain a foothold in that market. I think beyond that, we don't really have any comment on what the potential appetite for M&A would be. I would just go back to my initial comments that de-leveraging is our bias for capital allocation, balance sheet strength, and our investment-grade rating are a fundamental priority.
Okay. Then a payout of free cash flow. Has there been any sort of thoughts on elaborating on that, or do we have to wait until we get to $6 billion?
I think we really have to wait. This is obviously a question that we were asked last quarter, following the announcement of the capital allocation policy and the resumption of our base dividend. The intention is that when we do hit $6 billion of net debt, that there will be a more material increase in our returns to shareholders. It will be a function of free cash flow. It will be up to the board at that time to determine how much of free cash flow is allocated to returns to shareholders.
Okay. Thank you.
Thanks, Cedar. We'll move to the next question from Brett at TS.
Yeah. I think you guys have answered a lot of the geography questions and that sort of thing. Can you talk a little bit about where you see yourself going longer term, vis-à-vis EAFs versus blast furnaces? This is a harder one, obviously. Unions versus non-union. It seems like over the course of time as the steel industry gets more mature, there's gonna be more scrap out there and there may be some opportunities for you guys to somewhat shift your mix.
Thanks, Brett. I think it's an interesting fundamental question. If you look at our global operations, we clearly have a bias towards the blast furnace route. For us, when it comes to producing high quality steels for the most demanding applications, the best route for that is through the integrated route. I think at this stage, we don't have any plans to change that strategy.
The other sort of threat, again, from a big picture perspective, is alternative materials. Whether it's composites or plastics or aluminum or anything else like that. Obviously, and I'm asking the question from the United States, where our CAFE standards have been relaxed recently, and it seems like less of an issue, but is there a competitive assessment at this point as to whether or not you guys can hold ground against some of these competitive products?
Yeah, I think it's a good question. I'm glad you asked it, because I think the results are there for all to see, that the work that we put into R&D, into product and solution development, in recent years, has allowed ArcelorMittal and to some degree, the industry, to have a very, very competitive offering against these alternative materials. As a result, the rate of uptake by the materials that you mentioned by automotive makers has been towards the lower end of market expectations. We have a strong product offering. It continues to evolve. We continue to fund R&D very significantly. As a result, the solutions that we're offering will continue to be very competitive. As a result, we do expect steel to be the material of choice for the automotive industry.
Thanks very much, guys. Good answers.
Great. Thanks, Brett. We'll move to Luc at Exane.
Hi, gentlemen. A lot of the questions I had have been answered, obviously. I had one left on Votorantim. Would it be possible maybe to provide a bit more disclosure or help us a bit understand how Votorantim gets compensated for the addition of its business and how it will be accounted for from Q2? Thank you.
Luc, let me walk you through the transaction. The transaction closed on 1st of April. It's effective, we will be consolidating fully Votorantim Siderurgia from second quarter onwards. The transaction combines the number 2 and the number 3 long player in Brazil. That means that we are basically increasing our business, our long business in Brazil by about 30%. We do expect to capture synergies of about $110 million. We believe that we will be able to capture those synergies relatively fast. By the end of the year, we should be at a relatively high run rate. I would say mostly 80%, 85% of the synergies captured by the end of the year. It's important to observe that Votorantim is coming from a negative run rate in terms of EBITDA, from 2007, with improvement in 2018, that has improved.
We hope that by the end of the year, we will be able to bring the performance of these assets pretty much in line with our own assets. In terms of consideration, we are taking debt right now. We are buying this business, and it comes with debt of about $230 million. Votor will have an out based on 15% of part of our long business that can be exercised from mid of 2019 up to 2022. There is also debt associated with this transaction. There is about $2 billion, $1.8 billion linked to this transaction, which means that the earn-out to have value, we will need to first cross this hurdle.
Today, just to put it simply, the value of this option is very low to the extent that we capture the synergies and to the extent that the business in Brazil improves, then we believe that this option can be worth up to $300 million-$350 million. In total, if you combine that with the debt, then we are looking at $550 million-$600 million.
Thank you. Would it be possible on the Essar potential acquisition to have a bit more clarity on the timetable, please?
Thanks, Luc. It's another difficult topic for us to comment on. The reason being that this is still a competitive process, still a competitive bidding stage, and under the terms of that process, the details of our offer and everything around the process are confidential. We can't really comment further on today's call. All I can reiterate, though, is that Essar is a very strategic opportunity for ArcelorMittal to establish a meaningful operation and an operating presence in what we expect to be a high growth Indian steel market. Together with our partner, Nippon Steel, we do believe that we're the most credible bidder to restore Essar and its fortunes and realize its full potential against that positive backdrop.
What are the next, let's say, step in the process, which is a bit messy from what I see.
There are a lot of moving parts, Luc, on this process. I think I can direct you to the press, and you can see some commentary on the process. That commentary doesn't come from us, and as a result, I can't add anything more at this stage. Once there is something more certain, more concrete, then we'll update you at that stage.
Okay. Thank you. Cheers.
Thanks very much. We'll move to Rochus at Kepler, please.
Yes, thanks, guys, for taking the question. Maybe as a follow-up on Ilva, can you guys give us a bit of an update on what we shall expect in terms of the second half EBITDA for Ilva? Usually, the summer is always the bigger time in Italy, so it's still reasonable to think it could be kind of a neutral or zero contribution. In terms of the remedy assets, as far as I understand, you don't have to sell those before you consolidate the asset. Can you give us a sense what the timeframe is for selling onwards this agreed disposals? That's the first question, maybe, and a few more to come.
Okay, sure. I'll address that question. In terms of the remedy package, as I mentioned just earlier, we would expect to complete the sale of that package by the end of the year. You should expect some ongoing contribution to EBITDA whilst those assets are held for sale. In terms of the Ilva contribution in the second half of the year, obviously, I'll take you back to the comments that we made 12 months ago, which were that we expect Ilva to have a positive contribution to our EBITDA in the first 12 months of ownership and to be free cash flow positive in year three. I don't think there's anything since then to suggest that that shouldn't still be the case. Obviously, we will know more, though, once we take ownership of the assets.
Okay, fair enough. The other question is, you were referencing in the release today on this EUR 146 million provision on a certain litigation case. Can you give us a bit more color? What exactly is that referring to?
Okay, let me address this question. This is related to an old case. We are in the process of negotiating this settlement. We have not yet signed the settlement, we feel that it would not be appropriate to disclose the nature until this is done. As soon as we have the agreement signed, we will be in a position to talk more about the nature of this charge.
Okay, understood. Maybe on Brazil, maybe a few things I maybe missed at. Brazil shipments on the flat side were down nearly 30% quarter-over-quarter in the first quarter. Maybe any comment why that has been down so much? Secondly, when I look at the changes in market prices there, in my view, it doesn't really reflect the steep increase you have been showing in terms of the realized average revenue per ton. Maybe any comment on that?
Yeah. Let me address the shipments issue first. As we have every year in Brazil, this is something that happens in our flat business. In quarter 4, traditionally we stop our hot strip mill for maintenance. When we do that, we destock, we sell more slabs, we export more slabs. In quarter 1, we bring back the hot strip mill, we have to replenish the slab inventory. That's why you have the reduction there. In terms of prices, perhaps as you know, we have also lags in our business, it's primarily the export business. The slabs, HRC, that we export out of Brazil, you need to take into account at least 2 months lag. That's why we are also guiding for higher prices in the second quarter.
Our exports have not yet fully captured also the price increases that we have seen in the marketplace.
Okay. I think this is helpful. Maybe a final one on working capital. I think you gave a guidance indication last year. What is so materially different in terms of the visibility in the market that you're not in a position to give us a full year indication at this point in time?
There is nothing really different. It's just that we have moved away from providing quantitative guidance. We had an exception last year for working capital, this year we have decided to go back to our policy, which is not to provide quantitative guidance. Other than that, there is nothing really different in terms of being able to provide.
Great. Okay. Thanks for that.
Thanks, Rochus. We'll take the next question, please, from Yannis at Macquarie.
Thanks very much. Just two questions from my side. The first on the divestment package for Ilva. As you already mentioned, Galati and Ostrava are running at low utilization rates. If the new owner of these assets ramps up volumes, do you think domestic demand in Europe will be able to absorb the increased supply? Is there a risk that we're fixing one problem in Southern Europe and potentially creating another one in Eastern Europe? The second question on China. We've seen recent data suggesting the significant ramp up in output through to April. Looking at the numbers, looks like we're close to record output levels again, despite the capacity reduction we've seen since early 2016. Do you think China is close to full effective output now, or is there potential for further volume growth?
Related to this, have you seen net capacity addition in 2018, either due to new EAF capacity or any potential restarts of induction furnaces? Thank you.
Great. Thanks, Ioannis. I think in terms of the divestment package, that's going to be a function of how the market evolves in the coming periods and how the new owner of those assets chooses to operate them. Not something for us to comment at this stage. Obviously, we would have preferred not to have had to sell those assets. For us, it's more important for us to acquire Ilva, and that's very strategic to us. It's something that we very much wanted to do. At the end of the day, in order to advance that opportunity positively, we were prepared to reach agreement to sell this package of assets. In terms of China, I think you need to just be a little bit careful on the production statistics so far this year.
Obviously, in the first three months of the year, there has been an increase in production. Don't forget that Q1 of 2017, you still had the effect of unreported production from the shadow industry, the induction furnaces. On a like for like comparison, I don't think that the increase in production is as significant as the headline statistics suggest. We don't think that there is net capacity being added in 2018. There is certainly no restart of the induction furnace capacity. Some of the operators of that capacity have been able to use their EAF licenses to switch from induction capacity back into EAF. For us, that change is still less than the 20 million-25 million tons that is due to be taken out in terms of capacity closures in order to hit the government objectives in 2018.
As a result, we do see overall capacity continuing to come down, obviously more moderately than we saw in the past couple of years, but it's still progress in the right direction. As a result, capacity utilization continues to go up. It is now at high levels. You can argue though that there is still too much capacity in China because they're still exporting a fairly substantial amount of steel. That's something that we need to continue to keep an eye on, that China needs to continue to address, and we will continue to monitor that and the impact that it has on our core markets. Is that helpful?
Yes, it is. Thank you very much.
Great. We'll take the next question, please, from Christian at SocGen.
Yes, thanks. Just a couple of questions. First, on Essar. I heard what you just said earlier. I'm just wondering, I think I read that Aditya highlighted a potential bid in the order of $6 billion for Essar as a whole. I'm not sure if it's something you can confirm. More critically, I was wondering if you could confirm that the operation with the JV with Nippon would be treated as an associate, and that there would be no impact on your net debt, is the first question. The second one on ACIS. In terms of headwinds in Q2, we're looking at a higher exchange rate in South Africa. I don't know to what extent Iran is an issue for Kazakhstan. Can you highlight if you see any headwinds which are building up for ACIS at all? Thank you.
Let me address first the JV. The intention is that if we are successful here, that the JV would be jointly controlled by ArcelorMittal and Nippon, and then as such, it would be treated as an associate. It would not be consolidated on a line-by-line basis. That's still early days, but that's the principle of the JV. Regarding the question on South Africa, you're absolutely right. We have seen a strengthening of the rand, which initially is a negative for our business in South Africa. We have seen now in quarter 2 some reversal of that trend, which should help. Volumes are increasing. You can also see their own release. You will see that given the strength of the international markets, they were able to export more out of South Africa. That is, to some extent, offsetting some of the weakness that we see domestically.
On SR, as Danny already said, we're not going to be commenting on the bid terms. It's confidential.
Okay, thanks.
Thanks, Christian. We'll take the next question, please, from Bastian at Deutsche Bank.
Yes, good afternoon, gentlemen. I've got two questions left. Firstly, could you please quantify the shipment impact from the maintenance in Ukraine and also any additional cost component baked into EBITDA besides the lost volumes? My second question is again, a follow-up on the financial implications from Votorantim. You mentioned the $200 million net debt you will be absorbing. Is this already net of the proceeds which you received from the divestments of the remedy assets, which I think you finalized already? Or is there any additional offset to the net debt from the sale? Thank you.
Thank you, Bastian. These are good questions. First, Ukraine. In quarter one, because of the maintenance in our BF9, there is an impact of about 200 KT. Not so much in EBITDA. Most of the expenses were capitalized as capital expenses. In the second quarter, because of unplanned maintenance, we will also have a similar impact, about 200 KT as well. In Votorantim, you're right. The $230 million, this is gross. We have proceeds for about $85 million to be received from the disposal.
Okay. Very clear. Thank you.
Great. Thanks, Bastian. We'll move to the next question from Kevin at Goldman Sachs.
Good afternoon. Most of my questions have been answered. Could you quickly run through your different regions and tell us a little bit about how lead times are looking in the different markets, and if there have been any big changes versus where you were a month ago?
I can do. I just need to pull up that information, if you give me a second. If I look at lead times, in general, they are extending. I think it's pretty clear in most of the regions that we're now seeing a lengthier order book than we were seeing just a quarter ago. Indeed, if I compare it to the same period of last year in a region such as Europe, the order book is longer than where we were 12 months ago. All indicative of a positive operating backdrop, which you will note from these results and the outlook comments from Lakshmi Mittal in his quote. Business conditions are positive, demand is growing, and that's reflected in the strength of our order book.
Perfect. Thank you. Maybe also, have you seen any change in import trends in any of the other regions after the U.S. imposed the Section 232?
Yeah, it's a very good question because it's something that we're obviously paying very close attention to. It's important that governments globally take the appropriate steps to protect domestic industry from unfair trade. The U.S. is doing that through Section 232 which we clearly feel is a positive for our business in that region. There were some concerns on the potential implications for the other areas of our portfolio, but I think the advancing negotiations with some of our key countries, particularly Brazil and Europe, are pointing towards the necessary steps to make sure that for ArcelorMittal as a whole, Section 232 is a positive. That probably does require Europe to take action against the ongoing increases in imports that we're seeing, and a particular surge in imports last month.
It's very appropriate that Europe has launched its own investigations to safeguard the European industry, and we look forward to seeing some progress there and some news flow towards the end of the second quarter.
Okay. Thank you very much.
Great. I think we'll move to our last question actually, which is from Phil at KeyBank.
Hey, thanks very much. Good morning. I have a question on NAFTA. Crude steel production there was down about 6% year-over-year in the first quarter. Can you just help us understand a bit why that was the case? Hello?
Sorry, my mic was on mute here, Phil. I was just saying that in fourth quarter 2017, we had very strong production figures. We were running at very high levels of capacity. In quarter four and quarter one, we had some moderation of inventories. There is nothing unusual here. We will be ramping up as we can in quarter two.
On the Calvert side, Daniel, has 232 changed anything in terms of the long-term slab sourcing strategy for that facility?
Not as yet, no. I think we've seen, as I was trying to allude to in my previous response, some encouraging developments on the negotiations there. Nothing has been confirmed as yet, I think the slab supply arrangements that we currently have should be protected. That being said, at the end of the day, we do have some degree of flexibility should that situation change.
Lastly here, if I could, in terms of NAFTA as well, I think this is a union labor contract renegotiation year for the USW. When should we think that those conversations are going to be taking place, and do you think that there's any opportunity for those to be settled early this year? Thank you.
Well, I think it's early days to comment. You're right, we will have the negotiations this year, but I think it's too premature to comment on any outcome right now. Thank you.
Thank you.
Thanks very much, Phil. I think that concludes our Q&A session. Thank you very much for everybody's interest and attention today. I think we will be seeing and meeting with a lot of you guys in the coming days and weeks. It's a very busy period for conferences, et cetera. We look forward to seeing you then, and of course, we will be updating you guys on the strategic progress and the results for the first half at the end of July. Thank you very much.