Daniel, you may go ahead.
Thank you. Good afternoon, everybody. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. I'm joined by Genuino Christino, who's our Group Head of Finance, and together we'd like to welcome you to this call to discuss the third quarter 2017 results. This morning we published our results alongside a full presentation with speaker notes and an accompanying Q&A document. Hopefully you've had a chance to review these documents. What I hope you take away from those documents is that this is our best third quarter shipment performance since 2008. It's another quarter with EBITDA around the $2 billion level, and with net income in excess of $1 billion. Market conditions continuing to improve, and you can see in our presentation that the PMI reading for the ArcelorMittal weighted PMI is above 55. It's the highest reading that we've had since 2010.
This supports a positive outlook for the fourth quarter, and then into 2018. With that introduction, we're ready to take your questions. Please do press star one if you'd like to join the queue. We'll take the first question, please, from Michael Shillaker at Credit Suisse.
A couple of questions, if I may. The first on Ilva. Can you give us a little bit more color, if possible, on any conversations you have had with the commission? Can you give us a bit of a thought process in terms of how you guys internally are reconciling the commission, which has clearly gone anti-dumping, suggesting that they understand this is a global market on one hand. On the other hand, opening a phase two investigation suggesting that steel is a local market, which does seem somewhat contradictory. From the conversations you've had internally with them, do you think it's a product line issue with Ilva, or is it something more significant involving the whole consolidation process of the Ilva entity? Is the first question. The second question, just on graphite electrodes. Obviously, it's been a big talking point across the reporting season.
Can you give us a sense of how you are fixed on electrodes, both for the arc furnaces but also for the integrated mills? A, have you secured your supply for 2018? B, could you talk a little bit about your pricing mechanisms? Is this primarily long-term contract that you will be buying on regarding pricing, and can you give us a bit more color on that? Also within that context, can you give us a little sense of the extent, cost per ton of steel that you expect the increase in electrodes for next year to incur for you? Then finally, just on Brazil. Obviously, it's been a market that in the past has been a great market for you. There's been a lot of data recently suggesting that maybe Brazil has turned a corner.
I guess this is sort of still yet to show through in numbers. Can you give us a little more color in terms of what you're seeing in the Brazilian market would be fantastic.
Thanks, Mike. I think I'll take the first couple of questions and then hand over to Genuino to update you on the Brazil situation. I think first of all, talking about Ilva and the news that we received on Wednesday, that the European Commission is moving to a phase II investigation. I'm certainly not in a position on a public forum like this to discuss the conversations that we've been having with the case team so far. I think everybody can read the press release that they made on Wednesday, and talk about some of the focus points in their investigation and what they're going to be digging into in more detail during this second phase.
I think you do, in your question, raise some interesting points regarding the way that the trade investigations have looked at the European market, and in fact, the global market when it comes to steel and imports and unfair trade. So far that hasn't been echoed in the way that the investigation or the way that the market has been defined for the Commission's investigation of the Ilva deal. Our perspective is that this is a positive deal for all stakeholders. If you look at our market share plus Ilva for Hot Rolled Coil, our share of the market is less than 30%. If you look at Galvanized Products, our share of the market is less than 40%. From our perspective, we're not really moving the needle here in terms of market concentration. What we will be doing is obviously revitalizing a very important steel asset in Europe.
We will be making it more competitive, we will be increasing its production, which from our perspective is important for all stakeholders. It's important for the employees at Ilva. It's important for the environmental and the surrounding community. Ultimately, it's going to be very important for the European customer base. Moving to the second question on electrodes. How we fixed, we're very well fixed, Mike. We've got annual contracts for our electrode supply. We've got good security into 2018. Obviously, the price of those electrodes is changing 2018 versus 2017. That's been something that we've been renegotiating in recent weeks. What you can be assured of is that we have security of supply.
The second thing that you should be assured of is that we'll be getting the best available price in the market, reflecting the strength of our buying power and the scale of our purchases in the market. In terms of the cost per ton impact, I can't really join those dots for you. I think yourself and a number of your peers have written on this topic in the last couple of months. I think you understand the intensity of electrodes, both in the EAF route and the integrated route. I think you've got a good handle on what the potential implication for cost per ton is. Clearly, it's more of an issue for the EAF route than the integrated route. We're very well-positioned, given that 80% of our steel is produced through the integrated route.
Looking into the near future, I think this should continue to be an ongoing support for steel pricing. I'll hand over to Genuino for the Brazil question.
Okay. Thank you, Daniel. Mike, yes. I think it's clear what I would like to point to you, we start to see the recovery in Brazil also showing our numbers right now. If you look at our shipments this quarter, it's pretty strong. We have been talking about the recovery in flat business in Brazil. If you see this quarter year-on-year, you see also now some recovery also in our long business. We need to be a little bit careful there because construction will continue to be down this year in Brazil. Most likely, we have seen the worst. I think our best case is for a second half in construction that will be relatively stable to first half, but in a positive momentum, hopefully going to 2018. I think we all know the growth is accelerating.
The GDP in Q4 should be good, the forecasts that we see for 2018 are also looking good. That's Brazil.
Okay, Genuino, thanks. Daniel, thanks a lot.
Thanks very much, Mike. We'll move to the next question, please, from Alain at Morgan Stanley.
Good afternoon, gentlemen. Two questions from my side, if I may. Firstly, on your working capital guidance for the year. You clearly listed your working capital guidance, if you look at the prices of raw materials, they've clearly come down. Should we interpret the increased working capital guidance as an upgrade for your outlook for both shipments and volumes versus what you thought was going to be the case in Q2? The second question is, the U.S. appears to be the only region that's out of sync in terms of margins across your portfolio. Now that we're halfway through Q4, how should we think about going into Q4 and Q1 next year? Should we expect the price cost differential to reverse? Thank you.
Let me take the first question on the working capital. I think we have been clear that our guidance is really based on prices that we see at the time we are preparing our release. If you see, when we were here releasing quarter two results in end of July, since then we have seen steel prices rising. As we all know, prices in July, they were relatively soft, and then since then we have seen prices recovering. It's also clear if you look at our shipments now, clearly we're going to be at the top. In most regions, we're going to be at the top of our apparent steel consumption forecast. It's really a function of the evolution of prices, and I would say also our confidence in achieving better shipments is also higher.
Thank you.
Thanks, Gianrino. I'll just take the question on outlook for our NAFTA business in Q4. I think if you look at our steel business as a whole, the momentum is positive heading into the fourth quarter, with the exception of the U.S. You've seen a rising spread environment over the past three months, and that will be a support for our business in Europe, it'll be a support for our business in Brazil, and it'll be a support for our business in ACIS, Q4 versus Q3. The exception to that trend has been the U.S., where you've seen actually a little bit of price deterioration in the U.S. market towards the end of September. Overall pricing is a lot more stable Q4 versus Q3 than the other segments. On top of that, you've obviously got the normal seasonal effects in NAFTA, where you've got the two holidays.
We've got the upcoming Thanksgiving holiday, and then Christmas, which normally means that NAFTA volumes in Q4 are a shade below the Q3 levels. Those two factors combined should be something that you're factoring into your Q4 estimates.
Great. Yeah. Thank you.
Great. Thanks, Alain. We'll move to the next question from Yannis at RBC.
Thanks very much, and good afternoon. Two questions from my side. First, on the guidance. You guided to H2 shipments at or above the H1 levels. Looking forward, should we expect Q1 2018 shipments to be up sequentially in line with the typical seasonality? Secondly, on China. You flagged earlier this year some downside risks to Chinese steel spreads, but they have actually been very resilient, north of $200 per ton and above your indicated range of $130-$170. How do you see this developing in the next three to four months, especially on the back of the winter production curbs that China says is targeting? Thank you.
I'm going to take the first one, Yannis. I think we're not going to be really getting to 2018 guidance. The idea is to talk about it as we release our Q4 numbers, Yannis, you will have to wait a little bit for 2018.
Just on the China question, I think we are seeing signs of progress in China. That's clear. We can see the evidence of that in the reduced export levels. Domestic activity has been better than anybody had really anticipated early in the year. I think we still need to be watchful that any moderation in demand is matched by further capacity reductions, so that this improved market situation that you talk about, these spread levels, which are above the sort of historical range, that any reduction in demand would need to be met by further capacity reductions for that to be sustained.
It is important that we sustain in China high levels of spread in order for the government to achieve its objective of reducing the leverage that these heavy industries currently have.
That's great. Maybe just a quick follow-up on China. You flagged that for most regions you are towards the top end of your demand growth range. Any indications on machinery and construction growth in 2017?
I think those have been the two strongest areas of the market. You've seen strong growth in auto, you've seen strong growth in machinery. Actually, construction was strong in the first half, but it's a little bit weaker in the second half. For the full year, construction is not significantly up relative to 2016. The real engine driving the higher overall demand 2017 versus 2016 is those two important segments of autos and machinery.
Thank you.
Thank you. Thanks, Alain. We'll move to the next question from Seth at Jefferies.
Good afternoon, thanks for taking my questions. I have a couple of questions on your NAFTA business, please. In the third quarter, your margins came in quite a bit below our own forecast. I think that of consensus as well. Can you perhaps give us a better understanding from the headwinds that weighed on your Q3 realized margins, and also confirm the contribution of Calvert? Second, going into Q4, you flagged a seasonal headwind on the demand side, but what should we expect in terms of production? I understand that you have perhaps two blast furnace outages, both at Burns Harbor and Indiana Harbor. What impact will that have on volumes or cost? Last, on price, you did flag earlier that the U.S. steel prices have lagged other regions year to date.
Why do you think that is, and are there reasons to believe that could inflect in 2018? Thank you.
Seth, let me take the first question on NAFTA. NAFTA, it's really a function of, as Daniel has already said, U.S. prices are lagging international prices. When you look also at order book and our realized price, when you take into account the lag, you see that our prices came down. They are lower. On top of that, you have higher costs simply because in U.S., the timing is a little bit different. As you know, for instance, certain contracts, they really kicked in at the beginning of the year. This is true for coal. As you also know, during the first quarter, the delivery of iron ore doesn't happen because of the lakes freezing. There is a little bit of a delay in getting all the cost in the system.
That's why you see this cost increase in NAFTA in quarter three.
Thanks, Genuino. In terms of your concern on outages in Q4, I'm not sure where you got that information from, Seth, but I can confirm that there's no planned downtime that we're having in the fourth quarter. In terms of your Calvert question as well, I think we've sort of preempted that you might have some questions around Calvert's performance. What I can tell you is that it was actually very strong in the third quarter. We had two months worth of record production, and the hot-strip mill was consistently operating at utilization rate in the high 90s% level. You shouldn't have any concern there about Calvert's performance. The hot-strip mill is running very well. Just finally, your question on pricing.
It's obviously not something that I can talk specifically about, but I think it's interesting what we observed during Q3, which was a rise in global spread environment, but you weren't seeing that in the U.S. market. You did have some weakness in scrap, and typically what happens in a weaker scrap environment is you do see the buyers of steel kind of sit on their hands, adopt a wait-and-see approach to see where pricing can settle before starting to place orders. You've seen U.S. pricing drift in contrast to a rise in global environment. Now you see U.S. pricing sort of out of kilter with that global price dynamic. How long that can last?
Not something that I could suggest on the call, but it is interesting to see that today, U.S. pricing does look out of line with those global trends that we've observed over the past couple of months.
Thank you. Just one follow-up on that last point. You, just a few weeks ago, announced a price hike. Can you comment at all about the reception amongst your customers to that, I think, $40 price hike?
Thanks. All I can just point to is if you look at the latest CRU print, it does show that last week the price was above the level that it was a couple of weeks ago. That would be an indication to you that the price increase has had some traction in the market.
Thank you very much.
Great. Thanks. We'll take the next question, please, from Luc at Exane.
Hi, guys. Thanks for taking my call. Two questions, if I may. First of all, on NAFTA contribution, in Q3, could you be a bit more specific as to what was the contribution of Calvert and if there was any specifics there? That would be my first question. Second question, looking at 2018, would it be possible for you to frame a bit the cash needs for your business, looking at ex working capital requirement, including Ilva, and what would be your best guess when it comes to working capital requirement next year? Thank you.
Thanks. I'll let Genuino come back to the question on Calvert. Looking ahead to 2018, the cash needs of the business. Obviously in our Q&A document, we did reference that CapEx next year will be going up. We announced the very important project in Mexico last month. That is something that will be leading to a higher CapEx requirement in 2018. In addition, hopefully we'll be starting our CapEx at Ilva as well. Those are two clear examples of a requirement for higher CapEx 2018 versus 2017. The other cash needs of the business though, I think they will be quite consistent. In aggregate, if you look at interest tax and the other cash needs of the business, they should be quite stable year on year. For example, lower interest, but hopefully higher taxes.
That hopefully gives you a good idea on the cash needs of the business. That obviously excludes working capital, and that's really something I think for you to determine. In a stable environment, there isn't going to be a need for us to further invest in working capital. If you believe that the fundamentals can improve 2018 versus 2017, then there could be a further investment in working capital. That's something obviously we'll be able to give more clarity on with the full year results in February.
Of our units. What I would just say is that, as Daniel has already said, we were quite pleased with the performance of Calvert in quarter three. We actually had two months of records in our hot-strip mill. It's progressing well. We were running at high levels of utilization. There is not much more to say about Calvert right now.
Okay. Thanks, Luc. I think we'll move to the next question from Rochus at Kepler.
Yes. Hi, guys. Thanks for taking my questions. Can you talk a little bit about how you assess the residual risk for your working capital guidance? I think it went up two times this year already. Is this revision still meaning you are on track to have investment-grade metrics by the end of the year, which was your previous expectation? Can you share with us how ArcelorMittal is defining those investment-grade metrics? In terms of your working capital relief, can you get more specific where this is coming from? Is this more or less the rollover of iron ore coal prices, the lower prices on that side? Is it incrementally better volumes you might anticipate for the first quarter? Sorry to ask again on Calvert. It all sounds very good.
If I remember what Outokumpu was saying on its call, apparently had issues in U.S. because of the toll rolling agreement with you guys. Was that issue entirely effective only on Outokumpu's side and not disturbing your own performance? Maybe finally on mining. I think your reference to some issues you had in the Ukraine. Anything which is offering a catch-up effect in the first quarter? Because otherwise your guidance looks a bit high, requiring a further increase in your shipments, which is normally unusual based on seasonalities.
Thanks, Rochus. I'll take the Calvert question first of all, because I think it's not appropriate for us to talk directly to the comments that Outokumpu made on their call last month. I think the important message that I have for you is what we've just said in the past couple of questions, which is the performance of ArcelorMittal Calvert in Q3 was very strong. There were no issues at the hot-strip mill. It performed very well. We had two months of production records. For the third quarter as a whole, the rolling mill was operating at high 90s utilization rates. Hopefully that addresses that issue. I'll let Genuino talk about the working capital and the impact that that could have on our pursuit of investment-grade metrics.
Right. Okay. In terms of the working capital, I think when you look at what we have deployed this year so far, $3.5 billion, most of it almost the entirety is really a price function. It's a function of prices, higher steel selling prices, and higher raw material prices since end of last year. There is only a very minor increase in metal stock, which is a function of the strong market environment that we have been enjoying so far. We are not really concerned about that. Looking to Q4 in our guidance, that our guidance basically implies a release of $1.5 billion, and that's really a function then of volumes not so much prices. Prices, as I said, is really based on what we see today. We are not forecasting what is going to happen in terms of prices for end of the year.
As you know, in the last few weeks of the year, they are generally weaker if when you compare with September. You can expect that the last few weeks of December, we will be shipping less as a result, so the working capital needs will come down. At the same time, as we typically do, there is also as part of the seasonality in our working capital, metal stock will also come down a little bit. It's really primarily a function of volume for year end. What it does to our investment-grade metrics, I think we should not disconnect the working capital with the higher profitability. As you can see, our EBITDA is also going well in the right direction. Cash needs under control. We're going to be deleveraging further this year. All pointing to the right direction.
I don't believe that we gave guidance in terms of timing to achieve investment-grade metrics. This will come naturally as we continue to focus on deleveraging.
Thanks, Gianrino. I'll just take up the question on mining shipments. We did obviously have a good quarter, actually, for the third quarter in terms of our mining shipments. Overall, we were up 8% year-on-year, our market price shipments, which is obviously what we guide to, that was up 12% year-on-year. For the nine months as a whole, we're running at 7% year-on-year. There was some unplanned maintenance impacts during Q3, both in Canada and in Ukraine. I think those are largely resolved. We should see a better shipment performance in the fourth quarter. Obviously, that will help push us on towards that guidance that we gave at the start of the year for a 10% increase in market price shipments, which is still our guidance.
Okay, very good. Maybe, Daniel, one word on the Mexican CapEx. I think you mentioned that this is clearly one driver to increase CapEx. Can you disclose us a rough split how the $1 billion break out into the years ahead? Is that possible?
It is an important project for us. Just to give everybody some perspective, obviously, this is a great opportunity for us to go downstream into value-added products, capitalize on the strength of our primary business and our low-cost slab production in Mexico, take advantage of what is a high-growth market, heavily dependent on imports for value-added steel. It is a high-return project, further benefiting from the investment being in the new special economic zone at Lázaro Cárdenas, and the fact that therefore we will be enjoying 100% rebate on taxes for the first 10 years and then a 50% rebate for the following five years. In terms of the CapEx, I can't at this stage be too specific on the detail. What I would just encourage you to do is see it as a three-year project and just split it equally across those three years.
We might be in a position in February to give you a more specific steer.
Okay, very good. Thank you very much.
Great. Thanks. We'll take the next question from Carsten at UBS.
Thank you very much. Just two questions. One is on Brazil and one is on the tax rate. With regard to Brazil, how much was the performance in Brazil actually impacted from the weaker environment we have seen in the U.S. as you have significant flat steel shipments into North America? And second, could you remind me in Brazil about the utilization rate of your long steel businesses? Because it looked like most of the shipments turnaround was actually in long steels, but I might be wrong here. On the tax rate, we have seen a very low tax rate in the third quarter from only around 6%. I guess that is not sustainable. Can we actually expect that the fourth quarter would see a tax rate of around 15% or more normalized one? Or do you expect a similar low tax rate in the fourth quarter?
Thank you very much.
Carsten, let me address the tax rate first. You're right that our effective tax rate was low in quarter three. This is really primarily the result of some deferred tax assets that we recorded during the quarter, giving some improved profitability in some countries where we operate, and we still have tax losses not fully recognized. This is true for Luxembourg, true for Brazil, for Mexico. That's basically why you see lower deferred income tax charge in this quarter. Our guidance has always been and continue to be that our effective tax rate should be in the range of 15%-20%. That guidance remains good also for 2017. I would really encourage you, the way to think about it really is as part of our cash needs. The $4.6 billion that we have been guiding, that includes also the taxes.
That is not changing also. In terms of Brazil, you're right. Most of our exports are linked to slab prices, are linked to the international price, evolution of international prices. If you also look on a two-month lag, you will see that there is a decline in prices quarter-on-quarter when you apply the lag, and that, of course, impacted the profitability of our Brazilian operations this quarter.
Do you have any more quantitative number? Just saying, by how much roughly, or do I just have to assume some numbers?
You know that we export roughly 6% of our flat shipments, they are exported.
You have the international prices, so you can do the math.
Okay. Yeah, no, fine.
Great. Thanks, Carsten.
Utilization rates on the long steel business?
Oh, yeah. Sorry, Carsten.
Yeah, we don't really talk about utilization rates there. I think they have been slightly up this quarter, I would say. I don't believe, Daniel, that we are disclosing our utilization rates of our facilities.
Okay. Thank you.
Hopefully that's good for you. We'll move to the next question from Novid at Cowen.
Daniel, thanks for taking my questions. The first one is on NAFTA. The sequential increase in shipments, I just wanted to see if you guys could speak more to the demand in Mexico maybe relative to the U.S. and what you guys are seeing there that maybe you're not seeing in the U.S. The second question just has to do with your cash costs for the mining segment. It looks like they've been kind of rising. I'm not sure if it's related to kind of the unplanned maintenance that you'd mentioned earlier, but just wanted to see if you could give some color to that as well as maybe expectations going forward. Thanks.
Sure. I'll address the cash cost on mining and let Genuino come back on Mexico. I think you're right. There is obviously a cost impact from unplanned maintenance. It does impact production and shipments and therefore fixed cost absorption. You did see a little bit of that effect in Q3. As we were saying on the earlier question, those unplanned maintenance, that's largely behind us now. You should see an improved cost performance as well as improved volumes in Q4. Looking forward, obviously our focus is really on two things in mining. It's product quality and making sure that our operating costs remain very competitive. Product quality, I think we've continued to make good strides. In terms of cost competitiveness, there is inflation in the system.
What we're working hard to do is the necessary efficiency gains to make sure that we can offset those inflationary cost pressures. At the end of the day, that number that we consistently talk about of a $40 breakeven price that's delivered 62% China, that we stick to that number, that's exactly what we're doing.
In terms of Mexico, I think the economy is doing well. We are seeing the appearance of consumption in Mexico also growing. We should also remember that in Q2, we had some maintenance in some of our facilities in Mexico. As a result, you see some higher shipments also this quarter. We have also seen a pickup in demand in longs, particularly in longs in Mexico, to some extent into domestic markets, but also giving the strength of the international markets for long products that also open up some opportunities for us to export volumes out of Mexico.
Thanks.
Great, thanks, Novid. We'll move to the next question from Sida at Bank of America.
Thanks, Daniel. Just one more question from me. Can you talk about the outlook for the CIS business in the fourth quarter? I ask because if you look at the spot price of Black Sea HRC, it's come down by about $60 per ton from the peak.
The iron ore price has also fallen, but not as much as that fall in the steel price. I'm just wondering if you can talk about how you think margins shape up for that division in the fourth quarter. Is there maybe a mix advantage, where you're not actually seeing your realized pricing falling as much as that Black Sea price? Thanks.
Yeah, thanks, Sida. I don't think we want to get too specific on the segment by segment guidance. I think I mentioned earlier that the general trends in our steel business are favorable. With the only exception to that being in NAFTA, where things have been a little bit more stable. By implication, we do see positive trends Q3 into Q4 in our ACIS business. Hopefully that gives you the necessary confidence that results there should improve sequentially.
Okay. Thank you.
Great. We'll move to the next question from Phil at KeyBanc.
Thanks very much. Daniel, question on the coal contracts for NAFTA next year. Should we anticipate some upward cost revisions there next year?
It's not something that we can comment on at this stage.
Fair enough. On your auto contracts for 2018 and NAFTA, would you anticipate those to be spread accretive?
Thanks. Yeah. Both these topics are very confidential in nature in terms of those negotiations. I think our focus on our auto business is just really to continue to develop our products, develop the solutions that we're providing to the auto OEMs, and getting appropriately rewarded for the solutions that we're providing.
Okay. My last question is just on the Mexico investments and with some of the upgrades you're likely gonna make to Lázaro and steel making output, maybe improvements to the caster. Are you planning on long-term to renew the slab agreement with CSA? Was that something that's likely going to lapse now that it's been effectively changed hands? Thanks.
Yeah, I wouldn't want to comment on that either. Sorry, Phil, you asked three questions there that are topics that we're just not really able to address in this public forum.
Thank you.
Okay. We'll move to the next question from Christian at SocGen.
Yes. Thanks. I wanted to go back on ACIS. Just not as much to get a view on where prices are going in each location, South Africa, I think we get some benefits from market protection a few months ago. Is that already within your performance there, or do you think there's more benefit to come, perhaps in the fourth quarter and into next year? Also looking at Ukraine and Kazakhstan, are you seeing some specific developments which are either favorable or headwind at present? Thanks.
Let me address the South Africa question. Yes, you're right. We have, since August, the safeguards in place. That should definitely help. Market conditions in South Africa remain relatively weak. It's probably one of the few places where we have large operations where PMIs are still below the 50 mark. I think the company has put out a release today. They don't disclose the financial results on a quarterly basis, I cannot talk much more than what they have already disclosed. Market conditions were difficult, but I would point to the safeguards in place, as you rightly said. Then another important factor for South Africa is also, and we talked about it in our second quarter, the rand. Then we have seen more recently a depreciation of the rand from 14.2.
That is clearly helpful to South Africa, and then we will see how sustainable that is. It should be helpful.
On Kazakhstan and Ukraine, is there any specifics out there which you may want to highlight as far as conditions are concerned?
Sorry, I could not hear your second question. Can you repeat that for me?
Yeah. I was saying on Ukraine and Kazakhstan, are there any specific condition out there? I know Kazakhstan was getting more and more open to Iran. Are you getting some support from markets from either of those locations?
Well, what I would say about Kazakhstan is that the entity is doing very well. I think we also have record productions in Kazakhstan, and shipments are also rising. That unit is doing very well. I'm not gonna comment exactly on the markets that we are shipping to. But clearly Iran is one of our markets. We don't have any issues there. Yeah, everything seems to be moving in the right direction.
Thank you.
Thanks, Christian. We'll move to the last question from Bastian at Deutsche Bank, please.
Yes. Good afternoon, gents. I just have one quick question left, and that is following up on NAFTA again on a slightly higher level. I understand your comments earlier and what has been the driver in the last quarter, but if we look at price cost spreads in the U.S., the level we see today is at or above the average of the last six quarters. Given that we have such a large timeframe, that's obviously smoothing out a whole lot of raw material and steel price volatility. However, if we look at the margin in NAFTA, we obviously now fell back to below $70 per ton, EBITDA, where the average for the period is closer to 90. I still struggle to solve the equation.
Could you please clarify, is there any other reason for this disconnect, or is there anything else which we are missing which has been going against you? Because the price cost spreads do not really seem to be the driver looking at this at a longer timeframe. Thank you.
No, I would just say that there is nothing really specific to comment other than what we have already discussed. We have seen costs continue to rise this quarter as a result of some of our contracts, coal contracts. I don't know. Other than that, there is nothing exceptional to highlight.
Okay. Thank you.
Thanks, Bastian. I don't believe there are any more questions. I'd like to thank everyone for your interest. As I said at the start of the call, I think market conditions continue to improve. This does support a positive outlook for the fourth quarter and into 2018. We look forward to updating you on our progress in February, the progress that we've made in 2017, together with a more detailed outlook for the year ahead. All the best.