Daniel, you can start now. Thank you. Good afternoon and good morning, everybody. This is Daniel Fairclough from the Oslo Investor Relations team. Thank you very much for joining us today on our conference call to discuss the full year 2016 results.
First, I'd like to remind you that this is a call being recorded and we're going to have a brief presentation from Mr. Mittal and this year followed by a Q and A session. The idea is that the whole call should last about an hour. We've already provided the speaker notes alongside the presentation this morning, so hopefully everybody's had an opportunity to review that. So I'd like to ask Mr.
Mittel to start with some opening remarks. Thank you.
Thank you, Daniel. Good day to everyone, and welcome to ArcelorMittal 4th quarter and full year 2016 results call. I'm joined on this call today by Ajit Mittal, Group CFO and CEO of Europe as well as Simon Wonk, EVP Mining Genuino Cristino, who is our Head of Finance and Daniel. Before we move to the full year results, I would like to make some brief introductory remarks. As usual, I will start by commenting on our health and safety performance.
Our lost time injury frequency rate for the year 2016 was 0.82x, stable when compared to 2015 rate. This compares favorably with the average World Steel Association rate of 1.2 times against ours 0.82 times. Nevertheless, we are focused on making it 0. Turning to results, 2016 was a very important year for ArcelorMittal as we have made significant progress in our financial objectives. EBITDA increased by 20% to $6,300,000,000 A key driver of this improvement is our Action 2020 plan, which delivered a $900,000,000 contribution.
Importantly, all segments made positive contributions. In the U. S, our footprint optimization is nearly complete and the ramp up of activity at Calvert is progressing well. In Europe, our transformation program is ongoing. We have centralized key functions to deliver efficiency improvements and boosting the reliability and productivity of our operations.
There is similar progress in Brazil where our value plan is generating efficiency gains and structural cost improvement. In ACIS, our operational performance in terms of liability is better and we achieved record quarterly production volumes in Kazakhstan and Ukraine during the year. And finally, our mining business has delivered on its target of reducing cash costs by 10%. Ensuring we were free cash flow positive was a key priority for 2016. We achieved this in spite of a $1,000,000,000 investment in working capital.
Ignoring the $400,000,000 investment in premiums paid to repay debt early, our free cash flow would have been more like $700,000,000 in 2016. Together with the actions taken at the start of the year, this free cash generation has enabled ArcelorMittal to reduce net debt to $11,100,000,000 This represents a 1.8 times multiple of our EBITDA compared to 3 times a year ago. Looking ahead, the trends in our business are positive. We are forecasting demand in our core markets to grow and I would expect our shipments to also grow. There are some good opportunities in front of us to grow EBITDA and returns by improving our high added value mix, improving processes and investing to reduce cost.
So we plan to increase our development CapEx in 2017. To conclude, ArcelorMittal made good progress in 2016 and we start 2017 with the strong momentum in our business and the markets in which we operate. The entire organization is engaged and aligned with our Action 2020 plan, and I expect to see further progress this year on cost optimization, mix improvement and volume growth. With this, I give you back to Daniel for questions. Thank you, Mr.
Mittal.
If you could ask everybody to limit themselves in the first instance to just two questions, that will be appreciated so that we can get through as many people as possible. And so with that, we will take the first question from Mike Schillicker at Credit Suisse, please.
Yes. Thanks very much for taking my questions.
So, first of all, on guidance, I understand your reticence to give any formal guidance. But given the speed of movement in raw material prices, steel prices towards the end of last year and this year and into this year and also obviously lag effects and similar. Can you give us some help in terms of the trajectory of earnings from Q4 to Q1 and into Q2? And given lead times, I suspect you at least have some feeling now for how Q2 is shaping up. And then my second question more on the U.
S. Market. U. S. Steel produced, I think we're talking about something around $25 a ton increase in met coal contract this year.
Is that something that you recognize? And could you also give us some degree of sense of how you got on in the auto and similar contract negotiations in the U. S. Market?
Great. Thank you, Michael. So yes, I can probably help provide some flavor around how this company will perform over the next 6 months. When I look at Q4 versus Q1, clearly, we will have volume increase. If you saw the level of volumes we had in Q4, they were quite low.
And so there will be a positive pickup in terms of volumes. When I look at price cost impacts, I think you're right, steel prices improved so did the cost of raw materials. So I expect a neutral price cost impact going into Q1. In terms In terms of coal in the U. S, I think our contracts are in line with the average of the industry.
In terms of auto, we see that we had managed to maintain spreads in our contract business, I. E. The cost of raw materials has been passed through.
Okay. All right. Thank you.
Okay. We'll take the next question from Jason of Bank of America, please.
On one of your slides here, you say that the investment grade credit rating is a key objective and deleveraging therefore is the near term priority. Could you give us some color on your discussions with the rating agencies and the path from here to there? And I guess with that, to the extent that you achieve an investment grade rating, is that when we should start to think about the dividend turning back Aditya?
Yes, I think basically you're right. So in terms of discussions with the rating agencies, I can't get into specifics as you can imagine those discussions are confidential. The other thing I would just add is that if you look through our commentary, what we say is investment grade metrics, not necessarily achieving an investment grade credit. And therefore, what I'm suggesting to you is that to the extent that we achieve investment grade metrics, you would expect a resumption in dividends. What is investment grade metrics?
I think fundamentally we're not far. So to the extent that market conditions stay as they are, I would expect dividends to resume in 2018. Clearly, that's the decision of the Board. I'm not necessarily sitting here and saying that is a foregone conclusion. But based on what we see in the market, based on the trends that we're seeing in the business, I think that's a reasonable assumption to make.
Okay. Thank you very much.
Thanks, Jason. So, we'll move on to Alan at Morgan Stanley, please.
Yes. Good afternoon, ladies and gentlemen. Just do you mind giving us some insight into your iron ore strategy? If prices were to stay where they are at the moment, can you unlock some additional growth projects to bring them back to the market? And the second question is on your latent steel capacity as well.
Again, if the spreads were to be sustained, how should we think about you bringing back more capacity to the market? Thank you.
Thanks, Elaine. Firstly, on iron ore. We've actually given guidance around an approximate 10% increase in shipments volume in 2017 from 'sixteen. That's driven by a number of factors. We've got Mexico Vulcan, which you remember was suspended in Q4 'fifteen.
That's been revised. We've looked at the mine plan. We see there's an opportunity to bring it back on again at around a 2,000,000 tonne rate this year. Liberia, we are looking very final numbers around the potential to approve the Gangra project that would take us back up potentially to 5,000,000 tonnes a year in CAL18. So what I'm sort of describing is efforts around organic, the brownfield.
And I think it comes back to a potential around the 10%. Maybe you can do more, but it's not to us necessarily a volume issue here. It's not upstream base growth. It's more around brownfield growth. Price, nice to have, but more focus in our business is around what the controllables are.
Cost, quality, our asset utilization, asset reliability, these are the key focus points for 2017, maximize the tonnes from our existing investments.
The we do have some latent capacity, but the way to think about how we will perform as a business is to look at the growth we expect in our core markets and that's the right proxy. Yes, there may be some shifts because of our higher exposure in auto, but fundamentally I would expect positive growth in our core markets and that trend will continue. When I look at 2016, we did very well in terms of Action 2020. We reduced our cost, improved our mix and increased our efficiency, but we did not really grow volume. And as you know, Action 2020, a significant portion of the gains is coming from volume growth.
So I would expect that to be an area of growth in 2017 and beyond.
Thank you.
Great. Thanks, Alain. So we'll move to the next question please from Ioannis at RBC.
Thanks very much. Two questions from my side. First on ACES, shipments were relatively weak quarter over quarter in Q4 and I think probably weaker than you previously guided. And seasonality is normally in the range of down 4% to 6%. So could you give a bit of guidance, an indication what was the what were the main issues there and what you see for 2017?
And secondly, on working capital, you haven't provided guidance, I guess, given the volatility in steel and raw material prices. But if we were to take a spot scenario into end of the year, what sort of working capital assumptions should we build into our numbers? Thank you.
Okay, great. So let me just start with working capital. As you saw in 2016, we invested $1,000,000,000 in terms of working capital. To the extent that market trends continue, I would expect a similar number for 2017. So what do I mean by market trends?
I mean increased level of shipments, improvement in steel pricing and clearly that implies an investment both in inventories as well as receivables. In terms of ASES, you're right. Fundamentally, shipments were slightly weaker Q4 versus Q3. I would not read much into that. As you know, year on year, ASUS is about or CIS business is up about 700,000 tonnes.
So we set record production quarters both in Ukraine as well as in Kazakhstan. Kazakhstan is up about 450, Ukraine is up about 250. So these are very strong numbers year on year. I think our turnaround plan, Action 2020 plan in the CIS region is proceeding well. Secondly, in terms of 2017, we are forecasting a return to neutral levels of growth in the CIS region compared to negative in 2016.
So that should also be supportive of our shipment performance in the CIS division.
Thank you very much.
Thanks, Janis. So we'll move to the next question please from Seth at Jefferies.
Good afternoon. The question on the Brazilian business. You're pointing to, I think, a 3% to 4% demand recovery this year. Can you speak to the confidence in that and any initial signs of pickup in your order book to date? Also, do you expect pricing and also profitability to increase in tandem with sales volumes or would we see a lag for pricing as perhaps inventories are drawn down or excess capacity is consumed?
Thank you.
Sure. In terms of Brazil, the good news is that we are forecasting a mild recovery. This is basically because of improved confidence. We expect construction to remain stable, but recovery in auto. The bad news is that we don't see it in our business today, but that doesn't detract away from our confidence.
What we do see in our business is improved pricing. So I think coming back to the end of your question, I do expect pricing to improve as volumes improve in our Brazilian business.
Thank you. Just a follow-up, is there any structural reason to think that margins in Brazil could not return roughly towards where they were in years even past the financial crisis? Thank you.
In terms of structural reasons, I think it really depends on our outlook on China. China is depressing global steel markets and what we need to see is a reduction of Chinese global overcapacity I. E. Their steel capacity utilization should be in excess of 80% to 85%. Today, they're running at 73%.
China has made some progress in 2016. They have announced officially they have reduced 65,000,000 tonnes of steel. Their plan is 150,000,000 tonnes. We still think they need to do more and they need to do more faster. But clearly, if you see a normalized steel industry in China, then you would you could expect to see structurally much higher profitability in our global businesses, but also in Brazil.
Thank you.
Thanks, Seth. So we'll take the next question from Alessandro at Berenberg.
Good afternoon, gentlemen. The first question related to the impact that the energy price is having on the Russia market, which clearly is an important market in terms of competitiveness for your ASES division. The ruble is appreciated significantly while you're selling quite a significant amount of steel from Kazakhstan. Then you have Ukraine that is competing with Russia and then indirectly also South Africa, I guess. What's basically is your outlook in terms of pricing utilization rates, recovery of demand in Russia in the midterm?
The second one is related to Ilva. I mean, there's been an update that the final bids for Ilva should be submitted by the end of February. And I was wondering, if we take a look at snapshot of the currency price environment, how basically your interest is whether the strategic potential of the company has increased relative to last year when we start to speak slightly after the capital increase? Thank you very much.
Yes, I'll talk about Ilva and I'm going to get Genvino to answer the first question. So in terms of Ilva, I think our strategic interest is the same as it was last year. We are the preferred bidder from our perspective obviously because we have the technology, we have the capability, we have done very well in terms of improving our global health and safety standards. We have very strong records in terms of our environmental record and same on our corporate social development. And therefore, we bring a lot to the table.
As all of you know, we have been very successful in turning around facilities. So for those reasons, our technology capability, turnaround expertise, our social environmental credentials, we believe we are the best bidder. At this point in time, I think bids are expected in the next few weeks, perhaps 1st March or end of February. While conscious of our strategic interest, we're also cognizant that we want to keep on strengthening our balance sheet and improving our credit metrics. So any strategic action we make for our SORMittal will have all of those considerations.
Maybe in terms of ASYS, just very quickly, we are still seeing neutral growth in the CIS region from negative growth of 3.5% to 4%. Yes, and so that's actually positive when you look at the CIS market. So that should have a positive impact on our business in 2017. Going forward, the other thing that is happening in our CIS business is that we continue to make operational improvements, so that would result in shipment increase. And also recognize that the CIS business has a lot of export exposure.
So to the extent that our end markets are weak, we had the ability to export some of that product. So in 2016, for example, we increased shipment by 700,000 tons, even though the CIS market was negative 3.5% to 4%.
Thanks, Edith. Just a follow-up
on Ilva. I mean, the timing for the Italian authorities to decide about the winning bid is about 30 days after the final bid, right?
So, Alessandro, we have a confidentiality agreement. So I would not want to be categorical on that. But I think they have flexibility to decide when they have decided the process is closed. So I don't think it is that black or white.
Fair enough. Thank you very much. Have a good day.
Thank you. Thanks, Alessandro. So we'll take the next question from Luc at Exane, please.
Hi, gentlemen. Could you help us maybe understand what are your projection in terms of working capital requirement dynamics given the volatility the industry is facing in terms of cost, price, etcetera, Just looking at Q1 and what could be your best expectations for build up for the full year? Thank you. That would be my first question.
Okay, great. So as you know, in Q1, we invest quite a lot in working capital. I would not expect Q1 of 2017 to be any different. What I did say earlier on in the call was that if market conditions remain as they are, I would expect $1,000,000,000 build in working capital and this is primarily inventory and receivables. Shipment volumes are higher and steel prices are higher.
So overall, maybe marginally higher in Q1 2017 compared to Q1 2016 16 would be the build for working capital. But for the whole year, I think in line with what we saw in 2016.
Thank you. And final question would be related to CapEx. As you're starting to put some development CapEx back in 2017, could you maybe elaborate a bit more as to what are your plans when it comes to steel operations and what would be project you would reactivate in iron ore, talking Liberia in particular, but maybe
you have other ideas? Thank you. Sure.
So a few comments. So fundamentally, we are increasing developmental CapEx by about $500,000,000 $400,000,000 year on year. Out of that $400,000,000 is in mining, dollars 300,000,000 in steel and there's 100 $1,000,000 more in maintenance CapEx. So where is this money going? So $300,000 in steel is quite easy to explain.
You can look at our earnings release and some of the projects we are commissioning in 2017. So it's about 400,000 tonnes of advanced high strength steels, which are which we're increasing our capability to produce. We also have, if you go through the slides on page 23, a phenomenal presentation on JVD technology. This technology is world first. No other steel company in the world has this.
It's a combination of years of scientific research and it's literally a new way to galvanize steel. So it's a new vapor coating technology for galvanized product. The other area where this is going is also in growth in our Eastern business in Europe. So we are growing HRC and hot dip capacity in Poland as those markets continue to grow. So that is some of where the additional 300,000,000 dollars developmental CapEx is going.
All of this is EBITDA accretive. In terms of mining, I think Simon talked about it, but or maybe Simon, why don't you go ahead and describe it?
Yes, sure, Aditya. Look, yes, I mean, you mentioned Liberia specifically. The plan this year is to grow tonnage subject to final approval of the Ganga project. Ganga might seem like a new word to you, but it's always been in the long run plans to develop that in Liberia. You recall, we had Phase 2, which was put on ice with Ebola and further price decreases back 2 or 3 years ago.
We're now into a staged approach of judicial spending of capital where we think it's going to provide the highest returns, the quickest returns. Ganga is an interesting ore body. It gives us a DSO product potential extension. It would see us at strength go back to a 5,000,000 tonne rate at plan in 2018. And if it's approved, as I mentioned, we would see an additional 1,000,000 tonnes in 2017.
It's a lower strip ratio. It's a higher quality FE product. It has higher value in the market, and we see that as a positive and look forward potentially being approved. Is that your question, Luke? Did that get to the point?
Yes. Thank you.
Thanks, Liq. So, we'll move on to Rojas at Kepler, please.
All right. Thanks for taking the question. Maybe a few follow ups on mining. First, Sandeep, can you talk a bit about your ideas how to reduce the cash cost further in 'seventeen? Or was it largely where we ended up last year?
Then apparently, there have been some issues in terms of operations in mining in Q4 and also in previous quarters. What are the key measures to get it under control? I think in Canada, there's also some shipping problems. In terms of the multiyear outlook for mining, I guess, you guided for 2017. What are the other areas where you might add volumes beyond what you talked about, Liberia?
I think in the past, you had ideas to get Canada up to 28,000,000 tonnes or higher. Any update would be appreciated. And maybe one question on the €5,000,000,000 of cash requirements. What is the visibility that this can be a sustainable figure beyond 2017 as markets continue to get better and you might want to harvest some of that opportunities? That's it.
So I'll have a go at the mining ones first. I guess in terms of cash costs, we've not provided any guidance this year. I think consistent with the fact, and I'll use percentages, at our bigger operations like AMMC in Canada, we've seen around 50% cost reduction since 2013. You're now moving into the tougher to get stuff and that's no rocket science. So where our efforts now lie in cost reduction around productivity, asset reliability, asset utilization, R and D.
We're starting investing this year in autonomous drills, so driverless drills program in Canada. It's those kind of things which touch on the Action 2020 program, which will see the main efforts in mining going forward from today. Of course, there's still wholesale cost reduction to be done in a number of mines, not everybody's at the same maturity as AMMC, but we've got to get a lot smarter at how we're going to take the money out. And we really are spending a lot of time on the R and D side to work out what we can do differently. In Action 2020, we have around 25 projects in our pipeline in mining and the vast majority of those are sort of step outs.
They're structural, they're sustainable as we've described before. And they will lead to some volume, hopefully, but also they give us better competitive position. Some of those are around product design. Many of those are around cost as well. In terms of volume, we've talked in the past about Canada.
I think people talk publicly about going to 30,000,000 tons. It's a magic number. It's nothing specific, but a end to end debottlenecking project is underway. We've that's become one of our Action 2020 projects in mining. It starts right up at the ore bodies.
This year, you'll see we're investing bit of money in Fire Lake, which is about smoothing out our waste strip FE and inputs to the concentrate across the mining complex in Canada and Quebec. And that is the starting point to potentially an overhaul of the AM and C asset, which would give you hopefully lower cost and higher volumes. It's organic, but it's being smarter with what we're doing with regard to spending money. Other areas, I mean, I mentioned Mexico earlier, turning on Vulcan again after being suspended in 2015, plan this year to have a couple of 1,000,000 tonnes extra. Life of that question, don't know.
We'll be doing mine evaluation as we start up Volkett again this year, motivated by higher prices and a change in the mine plan. Liberia, I've just talked about that on an earlier question that is a potential source of additional tonnes from last year, but effectively going back to what we were producing 3 years ago with a target of around 5,000,000 tonnes of DSO. So I would describe it as not a massive volume story. It's an organic volume story potentially, but about being repositioning our products even lower on the cost curve. It's a steady progress job.
Ross, your last question was around, I think, AMMC Q4 and tonnages, etcetera. We had weather related issues. We had quite severe storms. I mean, it's winter. That's quite obvious.
And everybody says we have winter every year. But this was more than that. We had very high tides. We had ingress of water over the Berths area into the grounds of property on the port. So we actually lost about 6 days in Q4, the back end of Q4.
They're one off events and those days unfortunately were lost. So we saw a reduction, commensurate reduction in shipments in Q4. I think elsewhere, there is a big theme on asset reliability, asset utilization. You'll see in the old charts in our organizations today that wasn't there 2 years ago, asset reliability managers and staff sitting under maintenance, maintenance reporting into a very high level in the organization to the CEO. That is a big change that we're undergoing right now to make sure that we switch those assets to maximum shareholder value.
Great. Thank you very much, Simon. So in terms of your question on cash requirements going forward, I think $5,000,000,000 is a good ballpark number. The reason why I get comfortable with it is because I expect our interest expense to also decline over the medium term. And I think we can use some of those funds if it creates value to redeploy in terms of CapEx.
So I'm not forecasting when I look out dramatic increases in CapEx from these approximate levels.
Okay. That's very helpful. Thank you.
Thanks. We'll take the next question then from Brett at Loop Capital.
Hey, guys. Two questions. First off, I was wondering if you have any of the different sources in terms of outlooks for iron ore. Do you guys see a forthcoming supply surplus, a balance? Kind of what's your take on the global outlook for the iron ore supply and demand dynamics?
And then also, it seems globally like the 30% folks had forecast a couple of years ago in aluminum usage and exposed automotive doesn't seem to be materializing. As you guys sort of talk to the platforms around the world that you guys serve from an automotive standpoint. Is that realistic? Or is that probably something that's being over trumpeted by the aluminum folks? So, two questions.
Yes. Thanks, Brett. So, just on the iron ore one, I mean, we're a buyer and a seller. We don't give price forecasts for you, obviously. But as I said a little earlier, I think personally, three things I watch very closely is Chinese profitability of the Chinese mills domestic production and align that with the CFR price.
There's a reasonable correlation over time amongst those three things. So I think that a big unknown is going to be what's going to happen with regard to 2017 domestic production of iron ore in China. That will be important. On the seaborne side, I think over the next 2.5, 3 years, we see 100,000,000 tonnes, 120,000,000 tonnes potentially coming onto the market. So then it always comes back to the China question, what's China going to do in terms of capacity utilization and consumption price.
But for our way of thinking at the moment, we're in some sort of equilibrium as such at this very point, nice big price today, but that's an observation. It's not a factual statement that it's going to stay there.
And then the aluminum question?
Yes, sure. So in terms of aluminum, I think I don't know if you heard my prior statements on the new technology that we have deployed JVD. So we are jetgal, jetzinc.
I get the point is that
we also announced 2 new products, Usaboard 2,000 and Ductiboard 1,000 this year. All of this just demonstrates the leadership that we have in creating new technologies and new solutions for the automotive universe. And I think you're right that I don't see aluminum having that CAGR. I think, yes, they did make progress with 1 or 2 vehicle platforms, but we are catching up and we are demonstrating that we can provide the automotive industry with new steel solutions, which achieves their light weighting targets. The other macro thing on this whole auto business and aluminum versus steel, I think is the fact that we may see in the U.
S. Actually some of the standards relaxed. So the pressure to lightweight may also decline. Great. Thank you.
Thanks, Brett. So we'll take the next question please from Carsten at UBS.
Just one question left from my side. How do you actually see the global supply and demand balance playing out this year? Because so far over the last 3 months, we have seen quite a bit of volume response to the margin expansion in the steel industry, way more than you suggested the consumption will be actually in 2017. Is there a threat in your opinion or is there a concern that the industry is overdo it again and the margin expansion which we have seen so far might disappear later in the year?
So, in terms of our core markets, let's look at Europe and NAFTA, we have not really seen new supply come on stream. I've not seen any significant announcements of new blast furnaces being relit. I think in NAFTA, the exception obviously is Big River and that will have an impact, but I think we can almost see that impact already in the marketplace. In Brazil, there has been 1 blast furnace relight of a competitor of ours. But from what I understand that some of those tonnages will be absorbed by the growth in the Brazilian market and some of it will be exported.
Globally though, this problem still persists. We still have significant overcapacity, which is best demonstrated by China. And therefore, even though they have cut 65,000,000 tonnes of capacity in 2016, they need to do more. And that's we're very focused on finding a comprehensive trade solution. What does that mean?
That means in the U. S, we need to enforce the trade actions that have been decided upon and in Europe there are a few more critical trade cases which should be decided upon this year. And going forward on the medium term basis, both in the U. S. And in Europe, we need a comprehensive solution, which means a better understanding of the subsidies and overcapacity in the Chinese steel industry and how that can be rectified and fixed in the medium
So, not concerned about the higher utilization you see across the verticals, even in Europe, we see right now that everybody is talking about volume increases out of the existing capacity?
I'm not saying I'm not concerned. I guess clearly the visibility that we have is still the first half, which looks favorable. We don't have that much visibility into the second half. Yes, clearly there's a lot of volume and that would put pressure on spreads, but spreads are quite strong right now. The other thing I guess the only comment I was making is that maybe utilization rates increase, but we don't see that much of capacity being re lit.
Okay, understood. Thank you very much.
Thank you.
Thanks. We'll take the
like they're coming in the U. S, how much of your Canadian produced steel ends up in the U. S, which could be subject to this border tax?
So quite a lot, more than a 1,000,000 tons. But I think it's very premature to talk about this border tax. I think there's not even an actual draft in front of Congress. Right now, it's an idea. And I think it will take about 1 to 2 years to get actually enacted.
Fundamentally though, we are well positioned because we don't supply to the U. S. Market from an import basis, right? We fundamentally produce steel in the U. S.
And that is what we are about as a company. And so to the extent that we favor American producers, that's good news for us for Omidto.
Can you make Doctor grade pellets at your Quebec mine?
Yes, Chuck, we do. We have about 2,500,000 to 3,000,000 tonnes, a little higher capacity potential, and we do make that as a core product today for ourselves.
That being the case, does it make any sense for CLIF to ship Doctor pellets from the Northshore mine in Minnesota to service your Quebec Doctor plants?
Yes. I think there's enough capacity. But also, I'm sure it's commercial interest as well. There's different commercial terms available, and also shipping rates will apply. There'll be quite differences in the reasons why rather than just bold tonnes.
So we'll take the next question please from Phil at KeyBanc.
Thanks very much. The 8% decline in NAFTA sheet shipments in the Q4 was somewhat below your larger peers. Was this related to anything in particular in terms of automotive adjustments or any production complications? And then also what type of snapback should we expect in the Q1?
Yes. This was basically operational reliability issues that we faced.
We are
in the process of addressing that and expect a stronger Q1. This was not when you look at NASH that was basically our AM USA operations. Generally both. Okay. Does that comment applies to both?
I appreciate it. Thanks very much.
Sure.
Thanks, Phil. So we'll move on to the next question please from Roger at JPMorgan.
Hi, good afternoon, gentlemen. I just wanted to clarify your comment on the net working capital. You said that net working capital would be at a similar if the current conditions are sustained, that there'd be a similar level to 2016. Did you mean a similar investment in networking capital or that networking capital would be flat? And if you mean a similar $1,000,000,000 investment in networking capital, how much of that is already baked into the $5,000,000,000 of breakeven guidance?
And then the other question I have was just on the maintenance of the contract spreads that you just talked about in the last question. In theory, could that mean because you got a certain amount of spot coking coal exposure in Europe. Could that mean that you have locked in good prices for the first half or the whole of 2017 in Europe? And if coking coal falls from here, you get the benefit of that in your profitability? Is that essentially how you'd see it playing out?
Or does the contract coking coal is going to fall a little bit further from here?
Okay, great. So in terms of your first question, this is an investment in working capital of $1,000,000,000 just like what we did in 2016. So the number in 2017 of working capital would be higher at the end of the year than 2016. In terms of cash requirements, so in cash requirements, we exclude working capital. So cash requirements is basically CapEx, interest expense, pensions and all the cash required for the business.
Normally, if you're investing in working capital, it implies that spreads are improving, prices are improving, volumes are improving. So normally EBITDA easily covers the working capital investment. In terms of the contract business, I think the statement that I made is accurate. More or less margins are maintained. I think clearly when you enter into a semi annual or annual contract, your customer is not going to accept a $300 price for a cooking coal as an example.
They're going to agree or negotiate a price for the full year, which would be lower than that. And so that's what these contracts reflect. To the extent that coking coal ends up significantly lower than that expectation, yes, there may be some pickup. But broadly speaking, I expect these contracts to be neutral.
Okay. Thanks very much.
Thanks, Roger. So we'll move to the last and final question, which will come from Bastian at Deutsche Bank.
Yes. Good afternoon, gentlemen. I just have one very quick follow-up and that is on over. Given the strong dynamic which we've had in the steel markets, I would be surprised if this had not any impact on the appetite for also the 2 involved bidding joint ventures to own the asset. And for the reason, probably that has increased, I guess, the willingness to pay maybe a higher price.
Could you please give us some sense whether you have lifted your value assessment for the asset versus just 9 to 12 months ago? I understand the strategic value is exactly the same, but obviously the market conditions have changed to some extent. Thank you.
Yes, I think at this point in time, it's difficult to be very prescriptive on that. We clearly are in a competitive bidding process. Bids are due in the next few weeks. I can just reiterate the statements I made that we believe we are the best bidder for EILVA for a number of reasons. And number 2, we remain conscious of ensuring that we continue to delever and strengthen our balance sheet.
Okay. Thank you.
Sure. Thank you.
Thanks. We do actually have one further question, which is in the queue, and that's from Sergey at SocGen.
Yes. Thank you very much. A very quick question. If you could give some color on what sort of help to demand in North America you expect this year from stronger activity in the oil and gas industry?
We do see some pickup in the oil and gas industry this year versus 2016 since the prices have recovered and we are seeing some pickup, the prices have strengthened and we hope that this particular product continues to grow in demand.
Is it possible to put any number on it?
Number on this would be, I would guess, between 4% to 5%, we are seeing no automotive, machinery, construction. Double digits. This is what our guess, 10% to 12%. Being no other question, I'd like to thank everyone for participating in this call and it's clear that we have made good progress in 2016 and we are starting 2017 with a much better situation than we began 2016. The trends are positive and we are delivering.
I look forward to reviewing the first half performance with you in July. All the best. Thank you.