ArcelorMittal SA (MT) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the ArcelorMittal results for first quarter 2008 conference call, hosted by Mr. Lakshmi Mittal, President of the Board and CEO. (OPERATOR INSTRUCTIONS). I will now hand you over to Mr. Lakshmi Mittal to begin today's conference.

Good day, everyone, and welcome to ArcelorMittal's first quarter 2008 results. Today on this desk I am joined by my GMB colleagues, Gonzalo Urquijo, Michel Wurth, Aditya Mittal, Christophe Cornier. Christophe Cornier is our new GMB member. We have other (inaudible) GMB members who are not here. They are (inaudible) and (inaudible).

As you will see, our agenda for today's call is on page 2.

First I will provide an overview of our first quarter, including safety and our investment plan progress; then we will discuss our outlook for the global steel market, followed by our quarter one results, (inaudible) highlights, and finally, our guidance for the second quarter.

We will begin with safety, which is of utmost importance for the Company. For the quarter our frequency rate remained stable. But, as mentioned last quarter, we had an unfortunate accident at our mine in Kazakhstan earlier this year, resulting in unacceptable fatalities. I will come back on that later, but we have reaffirmed our commitment and taking new initiatives.

Operationally, we are very pleased with our record first-quarter results of EBITDA of $5 billion, which was at the upper range of our guidance. We continued to invest in the Company, with $1 billion in CapEx in Q1, which is normal seasonal factor. We are still committed to our plan of $7 billion for 2008.

We also completed several M&A initiatives which were in line with our three-dimensional strategy. Some of the important M&A activities -- the acquisition of Acindar and AM Inox Brasil; that is (inaudible) Brazil; the acquisition of Unicon, a tubular products producer in Venezuela; we completed the strategic coking coal transactions in both Russia and South Africa. We will go into more details in our (inaudible) presentation.

During the quarter the Company continued to deliver on its commitments of high return to shareholders. We completed $2.1 billion in share buybacks, and we distributed $500 million in cash (inaudible). For the second quarter we expect EBITDA to be in excess of $6.5 billion.

As I mentioned earlier (inaudible) we had a tragic and unacceptable accident at our Abaiskaya mine in Kazakhstan. We had 30 fatalities following this. We have not only confirmed our investment (inaudible) but also decided to reinforce and accelerate safety measures. At this time $350 million investment plan is underway to modernize Kazakhstan mines, and $80 million will be spent on safety.

In the rest of the Group, our health and safety performance improved during the quarter, with particular improvements in Flat Carbon America and Stainless. We held our second annual health and safety day on the 6th of March, and are committed to strive for continuous improvement in this important area. Some of the important initiatives for this year is world-class (inaudible) prevention standards and the implementation of (inaudible) programs to (inaudible) loss. Safety remains a top priority for our company.

I'm very pleased to inform that as of March 31st we have captured $1.6 billion of synergies. This represents an excellent achievement, and this is ahead of our earlier target of December 2008. Hence, this will conclude our tracking of these synergies separate from our ongoing tracking of management gains. As time passes from the acquisition date, it becomes less meaningful to attribute improvements to synergies. Such improvements now are a part of just part of our ongoing effort.

Next we will discuss some of the projects we completed during the quarter, as well as those we expect will be completed by the end of 2008. During Q1, as I said, we spent $1 billion, and we are still committed to $7 billion of investment.

Investment cost -- I would like to highlight that. Before I give more details about our CapEx in Q1, I'd like to highlight that we are currently facing a strong inflation in steel investment, which is likely to lead an increase of our growth plan and (inaudible) CapEx. Investment costs are increasing between 30% to 100% due to (inaudible) and material cost increase. In some cases we will need to (inaudible) projects which could lead to some delay. We will update you progressively as we break ground, but it is also important to say that our overall growth plan remains fully valued as the terms are also rising with steel prices. There is no change in our growth plan strategy which we presented to the investor community a couple of weeks back.

Now, during Q1, we have completed several key projects. Just to come back on this, and on the contrary, we have found that some of the projects have become much more attractive than before in view of the changing scenario in the industry.

Coming back to some of the key projects which we completed in Q1, finally we restarted the blast furnace in Liege, giving us additional capacity of 1.2 million tons. We completed the revamping of (inaudible) in Dunkirk; completed the new coke battery facility in Poland, new steel service center in Poland of about 450,000 tons. Additional projects we expect to complete in 2008, which includes 300,000 tons of capacity increase in Argentina Acindar. We will complete our iron ore project in Mexico, and we will start in the second quarter our integrated blast furnace (inaudible) in Bosnia; that is the blast furnace of 1 million tons.

Next I would like to provide an update on our view of the (inaudible) landscape in general and for a few key regions, like China, US and Europe. Clearly, the environment in the beginning of this year has been particularly unique, with significant cost increases in raw materials, coupled with ongoing global steel supply constraints.

First (inaudible) coking coal (inaudible) freight costs have increased at unprecedented levels over the last six months. Second, despite the continued weak US economy and slowing down in Europe, the industry has continued to experience a balanced supply/demand situation as steel consumption continues to grow rapidly in the developing economies.

As you will see in the -- continuing on this raw material cost increase, I would just like to remind everyone that since 2005, coking coal has increased by more than five times, iron ore 3.6 times, oil 2.6 times, and scrap 2.2 times. This has a major impact on the costs of the steel production.

Following the latest increase in the raw materials, we estimate that from quarter four 2007, if we compare quarter four 2007 to second half 2008, a typical (inaudible) integrated producer who purchases most raw material under contract will see its cost of production increase by over $300 per ton. For a marginal integrated producer who buys most raw materials on the spot market, or a mini mill who is fully exposed to scrap, this cost increase reaches $500 per ton. This rapid rise in raw material cost is due to a tight supply/demand [equilibrium], but also in many cases with a high level of consolidation of supplies. In particular, these three companies control 70% of the (inaudible) trade in iron ore, and (inaudible) this could also become [two].

The developing -- next slide, just on China. I'll speak on China, which is always an important country to speak in the steel industry. China continued to drive the global steel market. Real demand has remained extremely strong during the first quarter, and even reaccelerated in March ahead of our expectations. The (inaudible) investment, which is a very important indicator, increased significantly by 29% in March. At the same time, the China steel capacity expansion in the last four months has slowed down, and it is only at 8.3%, which used to be up to 15% to 20% in 2007 in the same time period.

We are not overly concerned about this increase in the production because it still remains below underlying demand. Additionally, this was expected as Chinese mills are also trying to recover the volume losses which resulted from the exceptional winter conditions in February. Even though exports are also recovering, it is nothing dramatic since steel capacities are constrained and [garment] export taxes remain in place. This is very interesting to see that China's net exports in April 2008 were less than half of April 2007 levels.

China's domestic prices have increased, but we would expect more -- we would expect more increase in the coming months (inaudible) despite the price increase of more than $150 of flat products since the beginning of the year, the China steel industry is facing, in our opinion, a margin squeeze. Furthermore, iron ore benchmark prices have not yet been finalized, and we believe that this could put additional pressure on Chinese cost.

Now talking about the US market, supply constraint has also been evident in the US market. Despite the continuing weakness of the US economy and a further decline of underlying steel demand, steel prices have increased. One is a result of the drop in the imports, and second, there has been cost increase -- there has been a tremendous cost increase in the United States as well. And third, (inaudible) levels have continued to decline over the past 18 months, and reached their lowest absolute levels since ['97] in March. And we believe that inventory situations will remain low.

Talking about Europe, (inaudible) demand has slowed down in quarter one (inaudible) in the specific market, particularly in Southern Europe, Spain and Italy. (inaudible) demand has fallen by 4.3% as the destocking fees continued. Yet like in the US, the steel price has increased by more than EUR200 per ton due to strong supply constraints and raw material cost increase. Overall inventory has declined significantly and prices tend to increase.

Compared to carbon steel, stainless steel is not experiencing the same structural supply constraints, yet the stainless steel market has continued to recover over the quarter. Restocking has continued to take place, resulting in good (inaudible) demand levels (inaudible) stainless steel (inaudible) increases have remained reasonable. Last year we saw the volatility in the (inaudible) price. So fortunately, going forward, the industry will not be impacted -- at least we will not be impacted by volatility of the alloys, because now, as per our new contracts, all the changes in the nickel and [coal] prices will be passed on to the customer. Basically, we also see that the base price in the stainless steel industry is stable, and they have gone up slightly in the first quarter of this year.

With this, I will hand it over to Aditya, who will walk us through financial results and M&A and guidance.

Thank you. Good morning, and good afternoon as well. I will provide a quick overview and we will go through some detail into our income statement, balance sheet and cash flow.

As you heard earlier, we had a record first quarter. This was at the top end of our guidance. EBITDA increased by 4% versus the previous quarter to $5 billion. Nevertheless, our net income decreased to $2.4 billion; this was a decrease of 2.6%, primarily due to certain onetime items, and also because the tax rate was much higher in the first quarter compared to the fourth quarter of 2007.

During the quarter we also reported an operating cash flow of 2 billion compared to 6 billion in the previous quarter. As the price of raw materials and steel goes up, clearly, the value and use of our working capital has increased dramatically. I will talk about this in greater detail. Suffice to say we expect our net working capital to continue to rise.

In terms of days, clearly, the days conversion only increased by two days, so the majority of this increase had to do with the cost increases and the price increases we're seeing.

In terms of cash returned to shareholders, we returned 2.6 billion to the ArcelorMittal shareholders, $533 million of dividends paid, as well as 2.1 billion in share buybacks. We also paid 128 million to the shareholders of ArcelorMittal South Africa and Brazil; these are minority shareholder payments.

We also spent 1 billion in CapEx, as you heard earlier, 1.6 billion in M&A transactions, which I will describe later, as well as we had a $1.7 billion foreign exchange impact. All of these lead to a net debt increase to $4.9 billion. Very quickly, the foreign exchange impact has to do with the fact that the majority of our debt is in euros. And as we translate them back into dollars, because of the appreciation of the euro, we had a $1.7 billion increase. Nevertheless, our balance sheet remains strong. Our coverage ratio remains at 1.4 times, and we have just increased our liquidity, as well as we had rating upgrade.

Turning to the P&L, I will walk you through quickly a comparison between our first-quarter performance compared to the [fourth] quarter. Needless to say, on a year-on-year basis our performance has been excellent.

Our first-quarter revenue has been positively impacted by selling price improvements and increased volumes. Shipments in the first quarter are up almost 4.2% to 29.2 million tons, and revenues up 6.5% to $29.8 billion. EBITDA is also up, as I mentioned earlier, by about 4.2%. Depreciation in the quarter is at $1.1 billion; this compares to $1.2 billion in the previous quarter.

We had significant impairment costs in this quarter. $200 million related to the disposal of Sparrows Point, where we had a higher book value than the realized sales price. We also had a $95 million charge due to reduction of goodwill, which has resulted from the recognition of net operating losses, which were not previously recognized in purchase accounting, primarily due to a reorganization which occurred in Western Europe in the first quarter. This 95 offsets within the income statement, because the deferred tax rate with income tax expense would be lower by the same 95 million amount.

Going forward we expect our depreciation expense to gradually increase to $1.2 billion or higher, due to the increased CapEx as well as exchange rate impacts. Our net financing costs also increased quite dramatically during the quarter to $736 million as compared to 546 million for the fourth quarter 2007. This increase has resulted primarily from a [increase] in the value of financial instruments of $242 million on a mark-to-market basis. If you look at 2007, we had a gain of almost $400 million on these same instruments, so the Company is still net positive on these instruments, but there is still a loss of 242 million in this quarter.

In terms of interest expense and ForEx, it was largely flat compared to the previous quarter. We expect as our base borrowing levels increase next quarter, we would have higher interest expense of about 30 to $40 million.

As I mentioned earlier, our income tax expense was lower -- was higher -- excuse me -- compared to the previous quarter. And as a result, we had a net income or EPS decrease of about 5 to 6%.

Let me quickly turn to the cash flow. As I mentioned earlier, the big swing in cash flow from operating activities has to do with the fact of working capital; in the fourth quarter last year, we released $2 billion of cash from working capital, and in this quarter we consumed 2 billion. So that's a $4 billion swing compared to the previous quarter.

In terms of CapEx, you heard we spent $1 billion, and we reaffirmed our commitment to spend $7 billion during 2008 on capital expenditure. M&A transactions were $1.6 billion. We had ongoing asset disposals, primarily land-based transactions, which netted us $200 million. Next quarter we will have significant investments as well in M&A, primarily the (inaudible) transaction payout, which is $1.7 billion, as well as the Severstal coal mines, which is about $0.7 billion, to name a few.

Turning to the balance sheet, as you can see, our net working capital increased significantly on the balance sheet by $1.8 billion for receivables, $651 million for inventories, as well as (inaudible) payables. In terms of our investments, there's a significant increase in investments, again, reflecting the M&A deals that were done in the quarter. Overall, as I mentioned earlier, our net debt has increased, but the coverage level remains at 1.4 times to EBITDA.

With that quick overview of the financial statements and the quick highlights of the quarter, I'd like to turn it over to my colleagues so they can walk you through the divisional highlights. Michel?

Good morning, good afternoon to everyone. I am very happy to report for Flat Carbon Europe the second-best quarterly results since the beginning of the merger. Nevertheless, I would like to start with safety, where we had a slight deterioration compared to what we did in 2007, and this was followed up by an unprecedented action plan. For example, we took off in each of our plans one shift so that each of the workers (inaudible) our training in order to improve and to improve their behavioral - their behavior in terms of preventing accidents.

In terms of production we had quite a high increase in production, which was partly due to a change of [scope], as mentioned on the slide, but also due to much lower production in Q4, where the market was (inaudible) it was in Q1. Q1 was a strong market mainly because of what Mr. Mittal explained before, in terms of sharp drop in imports to Europe, and thus we were facing -- our clients were facing us with very strong demand.

In terms of production, the start-up of the blast furnace (inaudible) will give us -- gave us (inaudible) on 100,000 tons more capacity, which is good. And also in Q1 we had the end of the realigning of the one blast furnace in (inaudible) that we will come with higher production staffing in Q2. All this helped us also to increase our shipments plus 4.7% on a comparable basis. Automotive shipments were slightly down, but in line with global automotive activity in Europe, where the industry and steel service center clients were increasing their sales.

In terms of mix, we had a slight change. We sold some slabs from Poland. We sold more hot-rolled coil, but also more hot-dipped galvanized due to the reduction in imports, mainly from China. The result -- the consequence on the results, which are much stronger, were then mainly volume-driven, because in terms of prices, we had the slight positive price increase in dollar terms, but a slight negative trend in euros due to the more [significant] situation at the end of last year, when we did most of our [sales] for the quarters.

Now in terms of outlook in Q2, we foresee a strong quarter. Remember that normally in Europe, quarter three in terms of activity is by far the strongest, so we foresee stronger production and also stronger shipments, and we see also the first positive effects of the price announcements we had to do for Q2 and which we announced also now for Q3.

This being said, I would say that Europe faces two big challenges now for the next -- for the next quarters up to the end of the year. The first one is raw material availability, prices, quantity and quality. Because you know that Europe mainly is fully dependent on outside sales of raw materials. So we are suffering. We are trying to do our best so that we can solve -- that we can deliver our customers as requested. We are increasing our scrap use in the converters in order to maximize production, but it will be tough. And fortunately also we can count on some slab supplies from our mills in Latin America.

In terms of the second, the second big challenge is the price cost squeeze we have, because you know that with these huge cost increases we will have on the raw material side, we have the price cost squeeze on all our contract business, which is more important, and the reason why we are today discussing with all our contract customers in order to explain them the exceptional situation, and to ask them partnership relation in terms of introducing partial compensation of the incredible cost increases we have. I would say that with these discussions ongoing, obviously, I cannot name specific details. But, I must say that also our customers, especially the long-term partners, as we consider our big customers, they have some good understanding of this situation. And obviously, our ability to deliver them with the right quantities and the right qualities depends also on these discussions.

Next slide, maybe, steel services and solutions. That is our distribution arm. In terms of scope, there has been a change from the first of January (inaudible) in the sense that our (inaudible) activities are now included in this segment. In terms of volumes, that represents roughly 200,000 tons.

If we compare in terms of safety, this segment was improving their results in the first quarter compared to 2007. In terms of shipments, we are on a comparable basis almost flat with Q4. Compared to Q1 '07, you see a big difference, and this big difference is in fact the consequence that the activities from -- the export activities from the worldwide mills are now sold to end customers on a resale basis from AM3S, and this represents roughly a tonnage of 1.75 million. And if you deduct then, you can find that shipments have been globally okay.

The selling price for the segment was positive at the distribution side, because we were (inaudible) day-to-day sales (inaudible) was slightly negative for the steel service center activities (inaudible) globally the margins were quite similar from one quarter to the other. For Q2 we see also in that division an increase compared to Q1. I would say it is mainly inventory driven. We have, obviously, in distribution some inventory, which is at lower cost as the cost of supply for distribution now we get from our mills, and so this will turn out in a positive margin distribution.

That ends my presentation, and I give the floor to Gonzalo.

Thank you, Michel. Good morning to all, and good afternoon. I'll start with the Long Carbon sector. Start with safety. Safety -- we've had three fatal accidents -- two in Argentina, one in Poland. But I have to say on the frequency rate and severity rate, we are improving and working very hard. Now our priorities are in safety, falling from heights, railyard accidents, isolating energy and handling materials, especially beams, where we've had a lot of accidents. So those are our four priorities in the long area.

My second point is scope. We have changed the scope. Now in long we've included tubular products, Sonasid, Annaba and Zenica. Why? Due to the change in management. And on the other hand, we thought that the North African plants are very linked to South European (inaudible) we have the Mediterranean basis, especially for commercial and production reasons. So that is the new scope.

From the point of view of shipments, comparing Q4 and Q1 in production and shipments, we see practically in production 925,000 tons more. 60% of it is scope, and the other is increase. Two comments. We did have a fire in Algeria and we lost 125,000 tons, and also due to the accident in Argentina.

Now, for shipments, we are 1.4 million tons higher. 1 million is due to the scope, and the rest is (inaudible) 434,000. 50% of it is in Europe and the other 50% is in the Americas. What is very important here is prices and raw materials. We have been able to increase prices in first (inaudible) in Americas or in Europe. But above all, we have seen an enormous increase in raw materials. Mr. Mittal was talking before (inaudible) the coke, iron ore, and I will focus a bit on scrap.

We're a very important scrap consumer, 4.5 million tons approximately in the first quarter. And we've seen scrap in Europe go from EUR226 in December to around 430 that it can be today. Additionally to that, in Long Carbon America, we have seen around from 350 to above 700. So we've seen enormous increases in scrap. And at the end what we've been doing is explaining this to our customers, and transferring this cost increase to our customers.

From an EBITDA point of view, we've done EUR1.4 billion. It's compared to 1.2 in the last quarter, in quarter four; it's 142 in scope, and the other one is 57 million. It's basically due to Mexico, who is performing very well in terms of production, market share and prices.

The outlook for the next quarter is following. Production, I think, will do more in production, and as we won't have these accidents we should be better in production. Second and very important point will be the increase in raw materials. At the end we want to maintain our margins. Long Carbon sector is (inaudible) stability. It gives I would say practically a constant margin. We want to continue doing that. So this increase in raw materials, we have surcharges in many products, and in the other ones we are very close to our customers in order to maintain our margins, but on the other hand, to be close to our customers and explain what is the real situation in the raw materials. At the end, it's these increases in raw materials we have to (inaudible) extremely close to our customers to deliver good quality in time at the end in order to improve everybody's balance sheet. That is for long.

If we go to stainless steel, I'll start with safety. As Mr. Mittal said, we have improved in frequency rate and gravity rate. Our action plans are (inaudible) and we're doing an enormous work with subcontractors. Third point in safety, we're sharing best practices with [AMCS] on all the distribution activities and integrated steel service centers.

Second point would be production. Where are we in production? 656,000 tons versus 559. We have increased in productions and in shipments. It is linked one and the other. Why? Because there has been a market recovery. Now, if we compare it to Q4, the market has performed better on one hand. We're far away from the enormous destocking we saw in Q3. And I think a very important point is we have seen nickel price stability. This is very important for the sales in stainless steel. Because as you see enormous volatility there, at the end, people tend to stop their purchases in function of this. So this trend has improved very much.

Just to tell you one figure, we are doing now approximately 65% of our (inaudible) 35 (inaudible) if we compare it to August where we were doing 50/50. On the other hand, we have to say (inaudible) prices. We have changed the charge on extra alloy in Europe. Before it was done in month minus two, minus three; now we've changed this to month minus one. This has also contributed to stabilizing this area of activity. As we said before, the base price -- we have recovered from the low August that was between 600 and 700 in Europe, for example, euros-based price; we have recovered an enormous very important amount of this. We have seen the market of austenitics is good, pressure in (inaudible). Why? We have seen other producers that have come in and import us.

Last but not least, I referred to nickel. What can I say nickel? Basically, as I said before, we see stabilization between in Q1 around 29,000 or $28,900, compared to Q4 it was just about 29,000. Yesterday now it's gone down recently. It's been around -- this morning around 26,800, but it is important that we've seen stability.

Another important issue in our raw materials has been chromium. Chromium is the next challenge for us. There's been, as you know, electricity shortage in South Africa, which produces 40% of the world chromium production. Prices, I'll just give you a reference. One year ago it was $1 per pound. Now in December it was 1.8, and as of today was around $2.90. So that is becoming a real issue that we're monitoring very closely.

If we go to the EBITDA, we've done 259 million [if] compared to the previous quarter of 190. The basic point of this has been the base price recovery that has been very important. I go a bit to the stocks, stocks now (inaudible) to low level -- believe that in the market they're around 70 days, ArcelorMittal has lower stocks, and if compared to the high moment, we were at 120 days in August in the market.

For the outlook, we see that there has been a recovery of base price. We hope that will continue in that one in that sense. It is important to see that the nickel -- there's not a lot of volatility. In any case, if it goes down somewhat, it will never be the decreases we saw last year from 54,000 to 29,000. So we are comfortable with that, and we have a positive outlook for the second quarter.

Thank you very much. Christophe, I believe the [word] is yours.

Thank you. Asia Africa and CIS. (inaudible) from the figures, the bridge put in Q4 and Q1 because there was a lot of scope change that I detail in the bottom of the page, mainly (inaudible). If you look to a constant scope, volume was particularly stable between Q4 and Q1, and EBITDA is slightly increasing, only 2% in Q1 versus Q4. This division compared to the other one as (inaudible) the first one is to be Asia integrated in terms of raw material. It was a lot of (inaudible) and the other (inaudible) very limited volume in terms of contract. So we are mainly on the spot business, so we don't (inaudible). But nevertheless, even with this (inaudible), we have always (inaudible) when you see a price increase in the market, you don't see it in your results before (inaudible) second quarter will be much better than Q1 for this division.

For the rest we had some (inaudible) problem in blast furnace in South Africa and (inaudible). And in addition, (inaudible) problem as you know in South Africa. For blast furnace (inaudible) solve the issue thanks to a very strong support we got from the rest of the Group that is mainly Flat Carbon Europe. So I see Q2 will be definitely much better.

Thank you, Christophe. Let me talk about Flat Carbon Americas. Let me begin with safety. We have a mixed picture. If you look at our frequency rate it was 4.2 a year ago, and now it's down to 2.6. Severity rate, which was 0.21, is down to 0.06. So a significant improvement, almost halving the frequency and severity rates. Nevertheless, we experienced four fatalities in FCA; that remains in an area which is unacceptable. We're very focused on improving that, and we look forward to a better year on that picture.

Let me now turn to our operating performance. In terms of our overall results, clearly, we have delivered a strong quarter in spite of the difficult economic conditions in North America. As all of you are aware, the difficult economic conditions in North America have not translated into difficult conditions for the steel industry; rather the contrary.

In terms of our revenue, (inaudible) $6.4 billion in sales, which is a 4.5% increase over the previous quarter due to higher shipments in the region and higher average selling prices. On a comparable basis, shipments increased by almost 0.5 million tons, primarily due to better market conditions. All of this is basically North America, Dofasco, as well as AMUSA, and then some increase at operations in Brazil and Mexico.

In terms of EBITDA, clearly, due to significant shipment increase, as well as improved prices, EBITDA is 26% higher this quarter at 1.3 billion versus $1 billion in the fourth quarter. This increase, as I mentioned earlier, is due to strong sales performance (inaudible) as well as -- which has offset the cost pressures, but also the benefits of (inaudible) integration.

In terms of guidance, for the second quarter, we expect performance to be significantly better than the first quarter, again, based on stronger sales performance offset by cost pressures, and again, the benefits of upstream integration.

With that completion of our divisional results highlights, I want to just talk about M&A transactions, and then provide guidance for the whole company.

A lot of this is self-explanatory. But very simply, in terms of geography, we had significant transactions in terms of we completed the mandatory offer for China Oriental, we increased our stake in (inaudible), as well as completed the Acindar transaction, as well as a long product facility in Costa Rica. So we are expanding geographically, primarily in the developing or growing markets, which clearly has been a successful strategy.

In terms of products, there were two significant transactions. Unicon, which is a 0.5 million ton tubular product, high-quality tubular product in Venezuela, as well as Galvex, which is a galvanizing line in Europe, basically in Estonia, were done in this quarter, or have been done so far.

Mining. Clearly, that is an area where there is tremendous activity on a global basis. And as you heard earlier, we acquired a coal mine from Servestal, three coal mines, actually, and also acquired a [60]% ownership stake in Coal of Africa with an offtake agreement. So, clearly, we are expanding geographically on a product basis as well as on the value chain in terms of our M&A strategy.

In terms of guidance, I will not walk you through the specific guidance of each of the divisions. As you can see, all of the segments have improved expectations for the second quarter -- some more, some less than the others.

In terms of ArcelorMittal globally, I will leave you with three thoughts. Firstly, clearly, we benefit from the fact that we are a diversified global steel business. Number two, we benefit from the fact that we have significant raw material integration. And thirdly, we're focused on growth, whether it is M&A growth, or brownfield, or greenfield.

The guidance for the next quarter is we expect our EBITDA to exceed $6.5 billion. The other important message on this page is that we expect a lower tax rate for the full year of between 15 to 20%. Post the merger, there were sort of merger-related activities, and we believe, at least for this year, and perhaps for a few years henceforth, due to lower tax jurisdiction and higher NOLs, we have (inaudible) reduced our tax rate to between 15 to 20%.

So, clearly, that concludes our presentation. I would now like to open the floor to questions. Thank you.

(OPERATOR INSTRUCTIONS). Michael Gambardella, JPMorgan.

In terms of your comments about the increasing capital expenditures to develop some of your projects, could you give us some color on how much you expect these capital expenditures to rise, especially in India?

We are still working on the project. We have not made a lot of progress in terms of land acquisition which we expected. But, however, we are ahead of (inaudible) to give you things that we have made good progress, but we are not happy with the progress that we have achieved, and we are working on the project specifications, we are in discussions with the state governments on some of the infrastructures. So still we have not completed the feasibility report in the sense to give you the project cost. But definitely it is clear that project cost which we were expecting before will rise significantly when we come to finalize the project.

It is very important for us to understand the new cost environment in terms of steel prices, in terms of prices of all the (inaudible), delays by the contractors, and also delays by the equipment suppliers. So we are working in a situation where there is a tight situation in terms of supplier (inaudible) as well. (inaudible) when the project will -- when we (inaudible) before that we will give you the idea of our project costs, and definitely we will evaluate that there is a very attractive return on the investments that we make. This applies to all the projects what we want to implement. We believe that in the new environment we have to accept that there will be cost increases, there could be slight delays, so some of the projects will warrant renewing of the projects so that we can shorten the delays. But at the same time, the viability of the project is very important to us. And we still believe (inaudible) from a helicopter's view that all the projects what we have announced so far have a strong viability, and have a strong return on investment so far.

In terms of your competitor projects, projects by some of your competitors, do you sense your raw scale and size of your balance sheet gives you a significant advantage in some of these projects versus your competitors? And are you hearing of any of your competitors maybe dropping away from some of their projects?

There are not many projects coming in the world at this time, except China and India. We are not seeing many greenfield projects -- China, India, and a few projects we are hearing in Brazil, and some -- these are the greenfield projects. And on the brownfield, we are seeing projects coming up in Russia and CIS countries, also some brownfield expansion in China, but I have not heard that in view of the cost increase or the delays, any competition -- any competitor has announced (inaudible) projects. Because the steel environment has clearly changed. Now, some of the projects which were perhaps (technical difficulty) could come back on the table because the prices have increased, and thus there is a supply constraint situation on a global basis. Even if we take a very conservative growth rate of 3 to 4%, we need $500 million of (inaudible). So taking into all this account, I believe that though the costs have gone up, still the new projects will be viable if they are put into the right countries with the right infrastructure and the right technology.

Last question. How successful have you been on pushing through the $250 per ton surcharge?

Michael, it's not a surcharge, first of all; it's a cost recovery. And it's a partial cost recovery, because clearly the costs have escalated beyond $250. We have been successful in certain segments of the market, and in certain segments of the market the discussion is ongoing.

Thank you.

Michael Shillaker, Credit Suisse.

My first question, I guess, is for Michel Wurth. I understand your reluctant to talk about individual contract users, but can you give us a sense of where you are in the negotiations in terms of what your feeling is of your chances of success on contract renegotiation? What kind of increase are you looking for? Are you looking for the euro equivalent of the $250 in the US and the timing of implementation?

The second question I've got is basically what can we read into your open-ended guidance? You normally give a guidance of between 200 and 300 million of EBITDA. Is it just simply the market is moving so fast at the moment that you don't want to give the upper end? And my final question, are you hearing anything across your competitive landscape that shortages of especially coal and scrap are curtailing steel production? Thanks.

Michael, hello. First of all, for your questions about contracts, I think that with all the information we have today, we can see that on the -- compared -- the spot prices compared to let's say contract price basis, on average we can see that there is today a price difference of roughly EUR200. And you can understand that this is unsustainable, and this is even more unsustainable as the risk continues (inaudible) market dynamics which is going (inaudible) has been very well explained also by Mr. Mittal when he walked you through the different market segments. So, where are we? We are trying very with a lot of (inaudible) to try to explain this to our customers, and to say because in fact contract customers are those who get the highest-quality products, who get the best service, who get the best availability, and so it cannot be that on average, contract prices should be priced below spot prices. And as the steel environment has become different, we want to explain them. In fact, what we are doing is, obviously, we have contracts, and we know what is a legally binding contract, but we want to explain them. And we tell them that by definition, a contract is concluded with long lasting partners. And we are facing exceptional difficulties. We are trying what has been done successfully in the United States to get partial compensation for the cost increases we are facing. And this is a discussion we are (inaudible). Now the question is the customers are responding differently. Some might say can you give us then a certain volume certainty over longer-term, or a new (inaudible) pricing over a new period (inaudible) we are understanding. So I would say it is too early to say what will be the absolute outcome. But what I can say is that people understand that the situation is unsustainable, and either there should be a smooth change now in the second half of the year, or there will be more dramatic change by next year.

(multiple speakers)

In terms of guidance, Michael, you ask a good question. I think we all recognize that we live in unprecedented times. We have significant cost increases, and there are certain price increases which are also occurring in our industry, and it is difficult to predict the inflection point. We are comfortable that we will be above $6.5 billion. But, because of the volatility of all of these prices, we find it difficult to narrow it to a range. So that's why.

Thank you. The final question on the shortages of raw materials.

There has been -- in the first quarter there has been supply constraint in coal, and there has also been delaying supply of iron ore. And there have been force majeure declared by some of the coal companies in Australia. (inaudible) is definitely -- is also in the tight situation this time. We see last week or ten days back (inaudible) option price (inaudible) $135. It is now around $700. So, I do not see that there is a shortage at this time. But, there is definitely a tightness in the supply side, which is leading to such a cost increase in scrap.

Thanks very much. Well done.

Vincent Lepine, Exane BNP.

I have three questions, if I may. First of all, I just wanted to ask you whether you could tell us again why in your view Chinese prices have not moved up as fast as what we've seen in other parts of the world so far. (inaudible) expect them to move higher in the next few months. But why hasn't it been the case so far?

The second question is you mentioned that you expect non-integrated steel makers (inaudible) their raw materials on long-term contracts, you expect these guys to see their costs increase by about $300 per ton. I was wondering if you could quantify the cost advantage that you have thanks to your own levels of vertical integration, and also the long-term contracts that you have with some iron ore players.

And then, out of the cost increase, how much would you say you've already incurred in Q1? Obviously, I understand coal and iron ore is mostly going to impact earnings from Q2 or Q3. But in terms of the scrap, manganese and possibly (inaudible) we may have (inaudible) in Q1. And the last thing is more of a modeling question. I seem to remember that within Flat Europe, you had some sales of coke in the past which may have been intergroup. I'm wondering whether in the current situation you actually still have this.

I will answer this question, then Aditya will take it over. It's very difficult to say why the domestic prices have not gone up. I think there have been a lot of changes in the Chinese environment in the first quarter. The new export duties have come in. There has been still the ongoing contracts. Ongoing raw material available on the old pricing is still continuing, and there has been very (inaudible). I think at the same time, they have not yet completely realized the impact of the cost increase. I believe that now they will see (inaudible) any steel company will see the cost increase impact on their bottom line. And at the same time, (inaudible) has been -- the supply has been surplus, but clearly now we can see that they're just supply constrained; there is a cost increase impacting. So, hopefully -- I do not know what the Chinese will decide, but this is a case to be studied by them.

In terms of your cost increases, I think there are three types of companies and they have different cost increases. Fundamentally, the integrated producer, which has spot ore and -- sorry -- contract ore and contract coal, based on the new prices, scrap (inaudible) cost increase of about $300 per metric ton. If you look at the mini-mill today, scrap is up $400 from the fourth quarter of last year; you add the yield factor to the US scrap prices. And energy costs, we're looking at $500. A marginal integrated producer, depending on -- assuming they have no contract exposure, has to buy coke in the marketplace and iron ore. Depending on where they're located, they're also looking at prices of -- cost increases of 400 to $500.

So, clearly, there is a significant cost pressure environment which is occurring in the steel industry, and the impact is different for different companies. The companies which have long-term ore and long-term coke contracts, coal contracts, are also impacted by the fact that they also have their own long-term sales contracts (inaudible) to the automotive and other sectors, such as (inaudible).

In terms of ArcelorMittal, your specific question, the iron ore benefit is about $30 if we're forecasting on all of our tonnage, which translates into about $5 billion of value on an ongoing basis compared to last year. That is structural. There are some nonstructural benefits, which have to do with certain coking coal contracts which were entered into last year, which will, obviously, expire towards the end of this year.

Can I ask a follow-up on this one? I seem to remember that two years ago or so, when I think we were asking you the same questions in terms of the benefit of vertical integration in iron ore, you were already quoting a benefit of $30 per ton. Given that the market price of iron ore has increased along the way, I'm just a bit surprised that you still quantified this advantage at $30 per ton. Of course your costs are increasing, but I would have been expecting a bit less (multiple speakers)

I think we're saying the same thing, but we understand each other differently. It's not -- we don't have an advantage of $30 per ton of iron ore; we have a $30 advantage across our product -- across all of our shipments, which, translated into iron ore, you would almost say it's worth $100 per ton.

Okay.

I said $30 per ton of shipments simply because you were talking about cost increases for the whole steel (multiple speakers). The numbers that you heard from me 18 months ago are valid, and the numbers you hear from us today are also valid.

In terms of the scrap and manganese cost increases possibly you've already felt in Q1, [has it been] the case? I'm just trying to assess how much of the total cost increase that you're talking about, mostly for the second half, how much of that -- and I'm sure it's a minor portion -- was already included in the Q1 numbers?

It's a good question. I don't have a very specific breakdown. The cost increases are $46 in the first quarter compared to the fourth quarter. Some of this has to do with manganese and (inaudible) alloys, but that's not significant. I think more of it has to do with increases in energy prices and scrap again to move up. We already saw some of that impact.

I just had a last question on the sales of coke. I think you in the past (inaudible) parts of the group, or possibly actually to outside parties. Is that still going on? Or given the shortage of coal at the moment, that's not quite the case anymore?

I think we can (inaudible). We look globally at the group. I think we are roughly 88% self-sufficient globally in coke production. So that means that indeed also in some regions we are selling coke to outside customers, but at market price, as we are also having (inaudible) contracts for buying coke. And from that point of view, the only thing which is globally relevant is the 88% self-sufficiency. Now (inaudible) that in Poland we are selling some coke to outside customers. This should be -- this is not a very significant number. It is roughly 300,000 tons which goes outside and which has been contracted -- yearly contracts. Obviously, we might eventually reconsider this next year.

[Paul Richard], Merrill Lynch.

I think one of the more fragile components of demand for you is the automotive space. Can you quantify how much of your production goes into the auto industry? Clearly, as you face increasing raw material costs, and pass those costs on, your customers will try to do the same. But it's just increasingly difficult for them. How much do you sell into autos? What is the term of the contracts? How much pushback are you getting? And are you concerned you might be hitting a point where demand could begin to fall off more dramatically?

Concerning automotive, I think globally we are selling to the automotive [16] million tons of steel. This is for (inaudible) this comprises OEM direct supplies as tier 1 subcontractors. Mostly or most of these contracts are one-year programs. Most of this, I would say 80%, or 75% are January to December contracts; other ones are March to March, or even -- and some others even June to June. So, that is the situation. And I think that before I give you an average that we compare to date on the comparable basis, average automotive prices to spot market prices, we have a difference of roughly EUR200 per ton.

Have you been working to implement any sort of surcharges, or any charges outside of those contracts?

(inaudible) was what I was explaining before when responding to a previous question. We are in contact with all our customers. We are explaining them. We are asking them for understanding the situation, and we would like to have at least partial cost recovery in the second half of the year. And what we are telling them is if we cannot do that, then (inaudible) 2008 will be extremely difficult. Because if you have the choice to sell steel to the spot markets at 200 or EUR250 higher, or 350, or 350 or $400 higher, then giving the best possible service and highest quality to automotive customers, then you have -- obviously, they have a problem and we have a problem. And as these relationships are very long-term relationships, I think that at the end when we have explained each other we will come to a reasonable solution.

Secondly, where is your comfort zone on leverage? Granted your ratios right now are certainly under control, but your gross amount of debt is very large. And in such uncertain economic times, wouldn't the prudent thing to do would be to simply take some of that very powerful free cash flow that you're generating and pay down debt significantly?

That could be one strategy. Alternatively, we still believe that our debt levels are low. I don't believe the gross debt is that significant. It's 35 now versus 27 (inaudible) net debt. The key is what we believe is sustainable cash flow this business, and how we believe we should deploy our capital effectively.

We have previously guided that we're comfortable to have a coverage ratio of 1.8 times. We still have some headroom to increase our net debt levels. As we see opportunities on a global basis, we want to be able to react and respond and invest appropriately.

I accept that there are -- these are times of global economic uncertainty. Nevertheless, from where we are sitting, the indicators for our business are very positive. They almost seem contrary to perhaps the news that we're seeing in the United States. Primarily the indicators are contrary because there is rapid industrialization occurring outside the United States in Russia, India, Brazil, China and other parts, which is fueling demand for steel. So from where we sit we're very comfortable, and we're also prepared to increase our net debt levels as long as we find the appropriate avenues to invest our capital. If we don't have the appropriate avenues to invest our capital, clearly, we will bring down our debt levels.

Have you given guidance on further share repurchase programs?

We have a share repurchase program. The share repurchase program for this year as part of a dividend is complete. We have a share repurchase program which we announced in December of last year that's a two-year program of about 44 million shares. Out of that, we have purchased some shares, and as a result we have about 25 million shares, roughly, to still buy in the next two years. And that is roughly what remains outstanding as far as the Company is concerned. And there's no specific guidance as to when we would do that, whether it would be in the next quarter or towards the end of the two years.

Thank you.

(inaudible), (inaudible).

This is (inaudible) from (inaudible). I have a couple of questions, if I may. My first one -- you are announcing a significant increase in Q3 prices for flat steel products in Europe. What about the US? Also, how do you see these new price changes impacting (inaudible) US and Europe? My second question -- I was wondering if you could detail the [elimination] at the EBITDA level. And finally, on your flat carbon businesses, I'm wondering if you could explain your huge (inaudible) increase on a sequential basis, given for example in the Flat Carbon Americas division, (inaudible) your average steel selling price increased by 2% and your volume by 4%, while the EBITDA pattern rose by 21%. What was the additional input cost saving there? Thank you.

A lot of excellent questions. Let me try and first handle the US price environment, and then my colleagues can support me on other areas. In terms of the US, I think the price increase has actually been larger than what we have seen in Europe. Steel prices have increased by more than $500 in the United States for flat steel from the beginning of the year. There's some news that there's some more increases for July, August, which are in the make -- which are in the process. So, clearly, the prices have increased quite substantially in North America.

In terms of your specific question on Flat Carbon Americas, as to why EBITDA has increased so significantly compared to prices and shipments, clearly, shipments have been a big driver. Because as we increase shipments, we reduce our fixed cost per ton, which is very significant in our American businesses. (inaudible) prices have helped. We've also benefited from the fact that our cost containment has been quite good, primarily, or partially because of the fact that we have long-term contracts in terms of iron ore, coking coal, and we're vertically integrated also partially in Mexico.

So those are the reasons why (inaudible) performance has increased by 23% quarter on quarter. In terms of the gap that exists -- you call it gap, we call it others -- it primarily has to do with corporate charges and certain provisions that we take. If you look at the number compared to last year, 2007, it's very similar. I think last year it was 359, and this quarter it's 327.

Imports. (multiple speakers) the question on imports was, at these price levels, why are we not seeing more imports/

I think for a couple of things. One, that China has imposed export taxes. So has India also imposed export taxes the day before yesterday, or last week. And at the same time, the demand in these markets has continued to be strong, and they have to meet their domestic demand. Domestic demand in Russia and all these countries have also gone up. So we believe that the environment in these growth markets domestically are strong, and the garment policy not to increase exports have reduced the -- not to increase exports have reduced the import levels in different countries.

Secondly, the prices in the United States so far have not been very attractive. (inaudible) the prices have gone up by $500 per ton, but they are at a very low level comparing with the cost and comparing with the other regions of the world. So these markets have not been attractive for imports. And we believe that going forward, the imports will not increase much. As far as China is concerned, they have indicated that they will export 20 million tons less than last year. And at the same time, their export destinations will change, will move from Europe and America to Southeast Asian markets and some of the growth markets like Middle East, where they see that it is much more attractive to export than exporting to European markets as well as in US markets, because prices in these markets are much more attractive than in Europe and the US.

Final question on the elimination, the (inaudible) 300 million. What is your expectation going forward, basically, considering the EBITDA guidance of $6.5 billion for Q2?

In terms of the eliminations, as I said earlier, these are the headquarter expenses and global provisions for litigation and other issues. We are not really giving guidance on a quarterly basis. I expect it to be between 200 to $300 million in the second quarter.

Thank you.

Johan Rode, Citigroup.

Three quick questions on the markets. Related to the price increases, do you now believe that the initiatives that you've put in the market are sufficient to recover the costs that you alluded to before? And secondly, perhaps just focusing back on these imports from China, these price increases clearly makes the differential between these markets quite dramatic. What is the transportation cost between European and Chinese markets? Do you perhaps still see some scope to those producers to ship product into these markets?

Along with that, the supply constraint you're referring to, can you perhaps give guidance on where you see global utilization rates, and the potential for producers to produce semi-finished products and role that into finished product prices at current prices. And do you think the pressure on that price differential can be alleviated in these price increases you announced, and therefore, also be to improve supply constraints at the back-end of this year?

Finally, just on the CapEx, you've given us a guidance of 7 billion for the full year; you've only done 900 million. You've talked about the investment cost increases. Is this a revision of the CapEx plans for this year, really, or do you think we will see -- continue to see a big step up still into the second half of this year? How can we structure it within the quarters?

Let me address CapEx. In terms of the CapEx, clearly, we have (inaudible) in the previous quarter (inaudible) seasonal factors. The 7 billion estimate was given in the previous quarter; this is not unexpected as far as we are concerned. I think the CapEx cost increase that we discussed is a separate issue. It's -- it does not really have that much of an impact on 2008, simply because these are contractual commitments and we expect this amount of cash out the door.

Going forward for the new projects that we have not yet signed which we're negotiating with suppliers today, clearly, there we're seeing significant cost increases as they begin to factor in new oil prices, new steel prices, new freight costs, etcetera, etcetera.

Just to follow-up, we can see a step up in the third and fourth quarter as you do maintenance (inaudible) (multiple speakers)

Absolutely. You should be seeing that even in the second quarter. I expect us to be closer to doubling (technical difficulty) second quarter be 2 billion, and then we are at the run rate you would expect.

The Chinese domestic price to (inaudible) price for any American [import], we have to add [internal] output cost, and then the export duties, and then the (inaudible). We believe it is about 250 to $225 per ton additional cost from the domestic price. Plus they have not yet -- the domestic price, in our opinion, is not fully reflecting the cost increase, which I think will start coming in from the second quarter of this year. So this clearly shows that there is a difference in the domestic side and the prices in America, or in Europe.

At the same time, we also see the supply constraint within China. Their production growth has slowed down in the first quarter of this year. Now the production growth is between 8 and 8.5%, which used to be 15% to 20% in the previous -- in the last year in the same quarter. That means there is a production slowdown.

Third point, that the Chinese government does not want to encourage exports at this time. So we believe that there is a difficulty in exporting large volume from China to any of the European and American destinations. That's why they are shifting more to nearby posts, to take advantage of the growth in these markets and save on the cost.

On the global utilization rate, I believe that European industry and American -- American industry and European industry are ramping up their volume, and they're working at a fairly good level. But, if the markets (inaudible) strong, I'm sure that there is an opportunity here for these (inaudible) to grow volume. It is very difficult to say what is the utilization rate; it depends on different companies. But, I believe that they are at a good utilization rate, but there are possibilities to increase.

Semi-finished prices today reflect the strength of the finished product. And clearly, that shows that finished goods prices will have to be in line to compensate the cost of transformation that they receive the semi-finished product. (inaudible) really we are seeing that finished goods price will reflect the cost increase of the semi-finished products.

(inaudible) understanding of the situation that you have also in terms of cost to distinguish between average cost and marginal cost. Because basically the question you are asking is what would be the extra cost which occurs if you want to produce one ton more. And if you start from the hypothesis that you have to buy on the spot market iron ore, then you have to try to get coal or coke under for $600 a ton, for example. If you add that you want to buy scrap, then you can realize that the margin tons is extremely expensive, and you could also say that the marginal cost today -- for the marginal cost prices today do not match marginal cost (inaudible). If you are in a situation where you have, let's say, yearly contracts of iron ore, yearly contracts of coal as they have been negotiated in the benchmark, then you could say that for spot markets today, costs -- the costs as they have been announced for quarter three more or less are matched by the price increase.

Do you believe that this is a good way to do the pricing? Clearly, there is a quicker way to recover the margins, but it opens up to perhaps a slight over-ordering of orders if prices are not increasing in the fourth quarter, and could lead to some destocking in that period? Or do you think that is not a threat?

Today's stocks globally are very low to [maximum normal]. In fact, you have also to say that a lot of customers, they are constrained sometimes with credit lines because (inaudible) material it becomes more expensive as -- payment terms as they (inaudible). And if you look at the global credit situation, which is quite tight, we see today that in fact most of the end customers, nobody is really speculating but is trying to rely on stable supply from good suppliers, as we are.

Thank you very much.

(inaudible), (inaudible).

Can you share your thoughts on the reasons behind this massive increase in the scrap price in the US? Is this only related, or mostly related, to some tightness of supply? Or is this also related to the fact that maybe US car producers might seek some compensation for higher costs by putting pressure on the scrap market, which then ultimately becomes kind of a cost spiral? When scrap goes up, then steel price goes up, and then vice versa; the scrap goes up again. Could you maybe comment on that? Could you give us a rough sense about the percentage of your business in long which is covered by scrap surcharges in Europe and the Americas?

Yes. (technical difficulty) we can speak of US, but I would like to globalize it. We've seen an enormous pressure worldwide on the scrap market. We've seen it in US, we've seen it in Europe, and in other countries. There's been an enormous demand. Why? There was demand for scrap because at the end there's demand for steel products that are produced with scrap on one hand.

Additionally to that, I would also tell you that we've seen that the integrated mills have also been using more scrap. At the end in the integrated process, you can use 15, 18%, and we see that they are using now up to 25% in scrap. So that has been a very important element also.

Coming back to your US question, we've seen movement of scrap outside of the US, on one hand to the export. But additionally, there has been in US a lot of demand of scrap because there has been some products that were imported into US; now they have been produced locally, and that has made the scrap increase. But, if we see it worldwide, you can go in Northern America, in Mexico last week, in South America -- scrap has increased everywhere due to this demand in steel.

I would also want to link it -- I spoke of integrated [look] to the other raw materials. Scrap is also a buffer zone with other. When you see iron ore prices going up so much, when you see coke going up so much, at the end it has an impact also on scrap. Because you can use more scrap, as I said before, in this process, and at the end you have -- it pollutes all the raw materials. And at the end, we have all been producing a lot, and a lot of demand for construction related activities, which have used basically in many (inaudible) the majority have been using scrap.

You had then another question. What are related products to scrap? Where do -- for example, in Europe, I can talk of rebar; I can talk of beams, chippers. And in North America, we also have products related to scrap that is the same ones (inaudible) has that are related, like wire rods, we have rebar also related to scrap. So those do have a scrap surcharge. It's not all of them, but an important amount. That is for North America and some products for Europe. For example, in Europe, we have wire rod that is not related to scrap. Although I have to tell you there is a clear correlation. I would say the majority of the long products are impacted by the scrap increases, and they follow that pattern.

Can you give us any idea in terms of the percentage of your business in Europe and North America which is covered by scrap surcharges? And maybe can you also comment on the ability for those products, which are not covered by surcharges, how -- is there the same kind of pricing power to push through the scrap price inflation to the end customer?

I'll start with your second question. The answer is yes. In some of the products that are not directly linked to scrap surcharge, we have put that increase in scrap. But may I -- it's not only scrap, because scrap has increased very much. You take into consideration the yield; you have to take into consideration [ferrous]; all other products we are using that have also faced an enormous increase. But if you want an exact percentage, it is beams that will go in the European -- I think you're talking a bit less, at least 50% can be related to scrap. And in North America, the majority of our North American products are related to scrap. But it's not like that in the Central America or South American products.

This was very helpful.

(multiple speakers) we have been translating this. Even though it doesn't have a surcharge, we have been pushing this with the other products. And as you can see, we have a very good figure. That is our margins have not moved. So we have been able to push this cost increase in the other products also. Okay?

Excellent.

Sylvain Brunet, Exane.

Well done on the numbers. I just wanted to get more clarity on the figures, if you could give us the split between Western Europe and Eastern Europe, if I'm talking flat carbon at (inaudible) level. If you could please do the same thing and give us the number for [CFC]. That was my first question. Second, on cost, how much fixed cost inflation you've incurred already in Q1. And lastly, I just wanted to get your feel on whether or not you would agree with our -- the visibility we have on the profitability of the small mills in China. Our assessment was that the EBITDA in the first quarter was barely $40 per ton, so there was no choice but to increase prices or to disappear.

I am looking at the exact numbers; in fact, I will give it in one moment to you basically. But I would like to say that from an organizational point of view, we have now decided to stop making separation between east and west, because the European market is one. (inaudible) integration phase we have started to try to do the most (inaudible) best practices between one and the other. And in our new organization (inaudible) you have seen the success of Christophe for Flat Carbon Europe is now responsible for the whole segment going from (inaudible) up to (inaudible) or north, south, east, everything.

This being said, in Flat Carbon Western Europe, in terms of margins in Q4, we have had (inaudible) out of -- we have had EUR1.3 billion of EBITDA in Western Europe in Q1, and EUR107 in Eastern Europe. We have to see that Eastern Europe has been especially penalized because we have had in the -- at the end of last of quarter four, we had a very low order book, and we decided then to increase production by (inaudible) and we have (inaudible) in Eastern Europe for slabs, and also for hot-rolled coil into Turkey at very bad prices.

(multiple speakers)

Since you ask me that question every quarter, I have made life easier for you (multiple speakers) the [CST] numbers are actually now separately listed. If you look at appendix 2, South America under Flat Carbon Americas is basically CST.

(technical difficulty)

Okay? So, that's $484 million for the second quarter. Just on your question on Flat Eastern Europe, you have to recognize that a significant portion of profitability is also captured in long numbers.

I didn't understand your question on cost inflation (multiple speakers)

Fixed costs basically. (inaudible) asked about variable costs before, and I was querying about fixed cost inflation in the first quarter.

We have seen some -- we have reduced our -- some of the fixed cost in first quarter. But if you look at the numbers, they have increased because of the currency translation from -- because euro to dollar. (inaudible) you can see that has increased. But if you take the old currency basis, our fixed costs in the first quarter decreased by $55 million.

The second point on your China, you're correct. You're right that in the first quarter, Chinese mills have a very low profitability. And at that price level, some of the mills who are marginal producers even made losses. And at the same time in the first quarter the pricing for the cost increase impact has not come yet, so there is a cost squeeze on the Chinese producers.

Thanks very much.

That was our final question. I will now hand you back to your host to conclude today's conference. Thank you.

Thank you very much for participating in this call, and I'd like to thank on behalf of all my GMB colleagues and my management team, and look forward to talking to you soon.

Thank you for joining today's call. You may now disconnect your handset.