ArcelorMittal SA (MT) 2008 Q2 法說會逐字稿

Welcome to second quarter 2008 and first half 2008 results conference call. My name is Sara and I will be your coordinator for today's conference. For the duration of the call you'll be on listen-only. However, at the end of the call you will have the opportunity to ask questions. (OPERATOR INSTRUCTIONS). I am now handing you over to Lakshmi Mittal, Chairman of the Board and CEO, to begin today's conference.

Thank you. Good day and welcome to ArcelorMittal's second quarter 2008 results. Today, I am joined by my GMB colleagues, Gonzalo Urquijo, Michel Wurth, Aditya Mittal, Christophe Cornier.

If you look at the agenda for today, we will provide you an overview of second quarter. We'll talk about safety, investment plan progress. We'll give you a view on the involvement of the steel market, details of the Q2 results, divisional highlights, M&A activities and guidance for the third quarter.

Before I begin, I wanted to comment on our strong second quarter performance. As you recall, when we provided guidance last quarter, we gave a minimum of $6.5b of EBITDA with no upside range. We exceeded our internal forecast for several reasons.

First, cost increases were only partially realized during the quarter, while price increases impacted earnings faster than we anticipated. Further, we had excellent results from all of our business units and we are also enjoying the full benefits of the synergies impact.

Clearly, ArcelorMittal is demonstrating the strength of its superior business model, based on our three-dimensional growth strategy. We have advantages compared to our competition along the value chain, and most notably with respect to our raw material integration, which is our key differentiating factor.

We will begin with safety, which remains a key focus for the Company. For the quarter, our frequency rate improved slightly and we continue to strive for continuous progress in this area.

Operationally, as I said, we are very pleased with our record second quarter result, which is up 60% as compared to Q1 '08.

We continue to invest in the Company, with $1.4b of CapEx in Q2. This amounts to a total investment of $2.4b in the first half of this year, although CapEx has been lower so far due to normal seasonal factors. And we are still committed to $7b for the year 2008. We have also completed several M&A activities, which are in line with our three-dimensional strategy and you will hear the details going forward.

For the second quarter, we are very happy to give you the expectation to exceed $8.5b of EBITDA.

We will discuss health and safety, our performance and investment plan progress now. Overall, as I said, our health and safety performance improved slightly during the quarter.

In early June, we signed a new and groundbreaking agreement with various unions, that is, European Metal, International Metal and USWA, representing our employees across the globe, aimed at further improving health and safety standards throughout the Company. This was the first agreement of its kind in the steel industry, which recognizes the vital role played by trade unions in improving health and safety.

Next, we will discuss some of the projects we completed during the second quarter, as well as those we expect will be completed by the end of 2008.

Before giving more details about our CapEx in Q2, I would like to highlight that we are currently facing very strong inflation in steel investment, which is likely to lead to an increase to our growth plan and greenfield CapEx. We are currently reviewing the situation and will update you soon.

Now, during quarter two, we have listed out all the projects which we have completed. In this slide you can see projects which we have completed in Q2 and projects which are going -- expected to be completed in Q3, like what we have completed is a new rolling mill in Rodange, start-up of the integrated plant in Bosnia, new rolling mill in Poland, a new bar mill in Kazakhstan.

And the additional projects which we -- the projects which we expect to complete in 2000 (sic) is revamping an electrical arc furnace in Luxemburg, start-up of a new DRI plant in South Africa, 2m ton Vulcan iron ore mine in Mexico and others.

Before looking at the steel market trends in the major geographic regions, I would first like to provide a few comments on the market concerns for the global economy.

The credit crunch, rising inflation and restrictive monetary policy may impact global steel demand. Developed world economies are likely to stagnate, but many emerging economies could also see their growth impacted. Global steel demand will grow, as per our estimates, only 3% to 5% in the coming years.

If we look at it -- we have done a -- tried to do a scenario planning, where we believe that -- where we try to portray that what could be -- if we take a very pessimistic view, what could be the demand growth. It comes out to be between 3% to 4%. And if we take a much more realistic scenario, it comes out about 5%. In our pessimistic scenario, we have even slowed down the growth of 13% in China to between 5% and 8%, and in emerging markets also reduced to 8% -- reduced to 5%. Even after doing all this scenario planning, we come to a 3% growth, in which case the global developed economy will reduce by 1%.

So, even if we take 3% to 5% growth in steel demand, it represents a real challenge for the steel industry, which is today running at full capacity. This means that, every 12 months, 50m to 70m tons of additional capacity will be needed. Considering rising costs and delays to get the steel engineering equipment, for example some of the equipments delivery is up to two -- the waiting list is more than two and half years, the steel market will remain structurally tight and constrained by supply.

In addition to structural supply constraints, rising steel input costs will not allow price declines. Marginal production cost for hot rolled coil, based on today's cost -- today's raw material cost, is about $1,000 per ton. And a reduction in raw material cost is very unlikely, since the iron ore market is already consolidated and coal market is already tight.

Overall, pricing dynamics remain very strong. Our contract negotiations with our long-term customers are going well and we anticipate a healthy increase to our overall contracts for the year 2009.

Now, looking more specifically at China, demand today remains robust. Fixed assets investment growth was up. For the second half we are more cautious but predict that the steel consumptions would continue to grow at a good rate. Fundamentally, the domestic economy remains strong, with record domestic consumption, low real interest rates and continuing infrastructure needs.

The steel production growth in China was up 11.5% in June but continues to lag demand growth, remaining well below growth rates of the last seven years. Underlying capacity expansion slowed down. Lumpy (inaudible) production cuts and electricity shortage should again cap supply growth in the second half.

In terms of inventory, after a seasonal peak of February, as anticipated, we are seeing a rapid reduction with a 27% decline in stocks between February and early July in 25 main cities. Exports rose in the second quarter because it was low in the first quarter. However, there was a slight unexpected decline in the month of June. And most exports are still directed towards Southeast Asia and Middle East, where the market has been strong.

Although domestic prices have increased by more than $230 per ton since the end of last year, prices remain below global prices. With the recent raw material settlements and overall inflation, we should expect more upward pressure on pricing in the second half of the year.

Now let me talk about US. While underlying and apparent demand are declining, with continued weakness expected in the second half of '08, steel prices have increased significantly. Further price increase has been announced for September. This increase reflects low inventory levels, both on an absolute basis and in terms of monthly consumption, due to a continuing decline in imports.

For the first five months of the year, imports were down by 11%. For the second half of the year, despite weak demand, we continue to believe that prices will remain strong as global capacity constraints will not allow import levels to change significantly.

Continuing, let us talk about Europe. Underlying steel demand is still growing, despite some weak markets like Spain, the UK and Ireland. Real demand growth during the second quarter was good, at 2.4% positive. For the second half, we anticipate some slowdown in demand. However, demand should remain in positive territory as markets are expected to remain solid for the new EU-12 nations and for the non-residential construction in Germany.

On the supply side, the market is still constrained yet is stable, with production down less than 1% since the beginning of the year. Additionally, imports have been low. Inventories are also remaining low. Pricing in Europe is strong, as another price increase for September has recently been announced. We expect that low supply, combined with continued stability in inventories and imports, will support pricing.

Stainless steel, contrary to carbon steel, is not experiencing the same structural supply constraint and is facing a wait and see phase, primarily due to the decline in nickel prices and rising Asian imports in Europe.

In Europe, apparent demand improved in the second quarter but inventory increased from 50 days to 75 days, which remains reasonable, though, but due to strong production increases and imports. Between January and May, Asian steel imports in Europe increased by 80%, to represent 10% of the total demand of EU-27.

Real demand in stainless steel, which grew by 4% in first half, is expected to remain satisfactory. But base prices have started to decline and could continue to do so in the short and medium term.

With this, I hand it over to Aditya Mittal to walk you through the financial details.

Thank you. Good morning and good afternoon as well.

As you heard earlier, we reported record results this morning, both from a second quarter perspective as well as from a half-year perspective. If you look at our P&L, I will walk you through a comparison between our second quarter 2008 performance compared to our first quarter 2008 performance. Needless to say, compared to 2007 second quarter, our performance is also excellent.

Our EBITDA increased by 60% in Q2 versus Q1, to $8b. This is an increase of $97 per ton, to $270 per ton, primarily due to increased shipments, steel price, as well our mining diversification.

In terms of shipment, if you exclude Sparrows Point, in the first quarter we shipped 28.65m tons of steel and in the second quarter 29.6m tons of steel. This is an increase of about 1m tons or a 3% increase on a quarter-on-quarter basis.

Our depreciation increased to $1.3b, primarily due to capitalization, scope addition, as well as ForEx movements.

In terms of our income from equity investments and other income, clearly we had a record. It was $552m in the second quarter, primarily due to higher operating results at some of our key investments, as well as dividend income received from various investments.

Our net financing costs for the three months, for the second quarter, was $49m. And net interest expense increased to $444m, due to an increase in the average debt level. There were also $411m of gains related to the fair value of financial instruments. This reflects gains on the Erdemir transaction, C02 gains, as well as the bond interest swap. The effective tax rate decreased to 13.1%.

Our minority interests also increased, to $352m, primarily because of higher income from ArcelorMittal South Africa, Sonasid, as well as newly acquired companies with minority shareholders such as Rozak and Saar Ferngas. But this was offset by the acquisition of a minority interest in ArcelorMittal Inox Brazil, which we completed within the quarter.

Net income increased to $5.8b. On an EPS basis, this is a 150% increase compared to the previous quarter.

Turning to the cash flow, our cash flow from operating activities increased to $4.2b compared to $2b in the first quarter. This is a -- this improvement is despite a $3.4b increase in operating working capital. The increase in operating working capital is primarily due to price increases, both in steel and raw materials. As you can see, in terms of rotation days, we actually improved from 64 days to 63 days.

In terms of CapEx, you heard earlier we spent $1.4b and we are committed to spending $7b during 2008. During the quarter, we also returned approximately $1.1b to shareholders, half in terms of a cash dividend and the other half in term of a share buyback program.

We had a quarter in which we also spent significantly on investments. Excluding the proceeds from disposals, we spent $5.1b within the quarter. Primary aspects of this investment were the minority buyout in Acesita, ArcelorMittal Inox, which was about $1.8b, the Kemerovo coal mines in Russia, which was $718m, our purchase of Macarthur coal stake in Australia, which was about $600m, as well as Erdemir, which was about $870m, as well as the other coal deals including Coal of Africa and other US coal properties. We will get into more detail on some of these acquisitions later.

In terms of the balance sheet, let me just begin with liquidity. Our liquidity position improved by almost $2b within the quarter, to $15.8b. Our net debt also increased, to $3.3b. And as a result, at the end of June we had net debt of $30.7b.

Our net debt has increased primarily due to the investments, which we talked about earlier, increased working capital, dividends and share buybacks, offset by our strong earnings. During the quarter gearing increased by about 2%, to 46%, yet our net debt to EBITDA ratio declined to 1.2 times.

The other increases in the balance sheet, in terms of goodwill, PPE and investments, are primarily due to scope additions and investing activity.

This wraps our quick overview on the financial results. I will now request my GMB colleagues to get into more detail on each of their segments. Michel.

Thank you, Aditya. Good day to everyone.

I start with Flat Carbon Europe and first, as usual, with safety. And compared to the previous quarter, we have improved our frequency rate to 1.6, which is the best quarterly result we have achieved up to yet. And we have also improved our efforts in safety by launching a new program in FCE, which will focus on self-ownership and self-accountability in terms of safety.

Coming to operations, first in terms of volumes, we have increased our production by 409,000 tons of cold steel production, mainly due to the full restart of blast furnace 6 in Liege, which works well now, and to the restart also of blast furnace 1 in Fos-sur-Mer, which had been relined. As a consequence, shipments have been increased from 9.4m to 9.9m tons.

And European production last quarter was limited by a very tight raw material situation, which was lacking not only in volume but also to some extent in quality. But thanks to our activity of our purchasing department, this negative trend could be really limited.

The average steel selling price has increased from $897 per ton in Q1 to $1,081 in Q2. This increase was mostly led by industry prices, which were affected most by the good spot market conditions. Overall, we had a mix of 58% for spot sales and 42% of long-term contracts, the latter being much more prevalent for automotive appliances and packaging sales.

Looking at profitability, our overall EBITDA was very good last quarter, the best in the history of the Company, with $2.146b, an increase of $621m or 40%. Volume and price increases drove this EBITDA growth despite higher cost, as we have not seen the full scale of the raw material increases by using up stocks at old prices.

Now, the outlook for Q3 is dominated, first of all, by a strong cost increase because the full price increase of raw materials will impact cost. And we will start to see also the -- so there will be a negative price/cost squeeze. Also, we will see reduced volumes due to seasonal maintenance work and the closure of customer plants during August. And as stocks are still at reasonable levels and imports are limited, we expect the market to continue looking for volume as the first priority before price.

Average prices will increase. You remember we have announced an increase to EUR770 base price in September. And this -- and thanks to the continuous spot price increases and the result of our cost recovery program with contract customers, we foresee a partial offset of the cost increase. On balance, nevertheless, we forecast a reduction in earnings for Flat Europe in Q3.

Next is Steel Services and Solutions. There also, in terms of safety, we continue to improve our frequency rate, which is today at 3.3 for the second quarter. And what is good is that all our units had shown an improvement and mainly due to a very big management focus, in particular, on newly acquired companies.

Regarding volumes, steel shipments in Q2 were 5.7m tons, 4% higher than in Q1. This increase is mainly due to scope changes, mainly due to the integration of Rozak, a Turkish steel stockholding company in which we acquired a majority stake at the end of 2007 and whose integration is going well. At constant scope, volumes actually decreased from 5.5m to 5.3m in Q2, due to limited availability of material for export by ArcelorMittal International. This, by the way, is good news because it shows that domestic markets are very strong and which is mainly -- which is helping to optimize our results.

EBITDA increased from $205m in Q1 to $342m in Q2. Besides the contribution of organic growth and acquisitions, this increase is mainly due to the improved gross margins, largely thanks -- largely, but not entirely, thanks to windfall gains caused by the rising value of inventories.

As guidance for next quarter, activity will be lower due to seasonal effects. But steel selling prices are expected to continue to increase for all business units, which should lead to a sustained level of gross margins and hence a stable outlook in terms of results.

Gonzalo, I think it's up to you.

Thank you, Michel. Good afternoon and good morning to all of you.

I'll start with Long Carbon. And first, as always, I start with safety. With safety, that's our top priority and we have been working very hard on safety. I have good news and bad news. The good news is that our safety figures have improved. But we've had a very hard and tough situation. We've had six fatalities - three in the Americas, two in Europe and one in North Africa. This is disappointing and unacceptable.

On the other hand, we continue working. I'll give you the frequency ratios. We've improved from 4 to 2 in Americas. We've improved also in Europe. And in tubes we've gone down from 5 to 2. So, we are working very hard, focusing on railways, on heights, on explosions, on high voltage, and we will continue working very hard.

In terms of industrial performance, I can say the following. Q2 versus Q1, in terms of production, the production has been about 400,000 tons higher. In terms of shipments, as you can see, we've achieved 8.1m tons in shipments, which is also better. This has been basically due to the Spanish, Polish and Moroccan mills.

On the other hand, in terms of results and prices, you can see there we have increased prices by $200. Why? Basically, two reasons. On one hand, we've seen a strong demand and on the other hand the enormous increase in raw materials. For example, in scrap we have consumed, in Q2, 5m tons. The impact of the increases in scrap has been more than $600m. But it's not only scrap. Every single input has increased. We go to ferrous, we go to electricity, we go -- every input has been increasing.

Fortunately, we've been able and we've worked very hard with our customers in order to push those prices up. That has given us an EBITDA which is record $2.1b and is up 51%. Clearly, this has given us an EBITDA margin of 21.6%.

Now, if we look at the outlook for the third quarter, we expect to maintain a strong sales and performance in 2003 (sic). Cost increases, we believe, have reached their maximum but we will see the full price increases in the third quarter. So we can therefore expect for a better result in Q3 than in Q2.

If you bear with me once more, I will talk of Stainless Steel, even though the situation here is somewhat different. We've worked very hard on safety. We have good frequency ratios, no fatalities. And especially we have good news; we've worked very hard on subcontractors and we've passed from a 3 frequency rate to a 2.2.

Now, if we go to operating performance, our steel production has been flat in stainless and our shipments, as you can see, have increased by 9.5% between Q1 and Q2. Why? It's been mainly due to the recovery in Europe.

Now, overall, the results are $390m of EBITDA, which is a 50% increase. Why? Various reasons. We've seen that apparent demand was good, number one. Number two, the distribution, which started the year with a low stock, have increased their stock. I believe now they are between 75 and 80 days, which is an adequate level. On the other hand, we have increased the base price for austenitics, clearly. Additionally to that, we've had a very good performance in Brazil and in electrical steel in Brazil.

Now, if we go to the outlook for third quarter, or even the second part of the year for stainless, I'm clearly not in the same situation as in long. We are less optimistic. Clearly, there has been a drop in nickel. Today, the reference we had was around $18,000. So, that will lead customers not want to buy in advance but hold their buying, if possible, in order to get the lower price of nickel.

Second, the distribution has already -- that level we were talking about, referring before of number of days in inventory, and we don't believe they will increase at this stage their inventory. And third, and very important, we've seen imports in Europe in the last two months.

So, we are not optimistic on the results for stainless in Europe. And we believe there will be decreases of the base price of between EUR100 and EUR200 a ton. For Brazil operations, for stainless and for electrical steel, we do forecast good results for Q3.

Thank you very much. Christophe, I believe the floor is yours.

Thank you, Gonzalo.

So, Asia, Africa and CIS. So, in this, I'll start by safety. So, in this segment safety remains an issue, especially in the mine -- in the coal mine in Kazakhstan, so we are working a lot on that point. But there are some positive outputs. I would like just to give an example, which is Saldanha in South Africa, where there was no injury in the first half of the year, in spite of a Corex relining, which is a complex operation.

For coal mine in Kazakhstan, I just would like to say that we have significant spending in process and we have orders for more than $200m of equipment. And we plan to spend $160m for the year.

So, operation, we have produced slightly more than Q1, which is below our objective. Why is that? Because we got some difficulties. First, power shortage continues in South Africa and we had also a power problem in Kazakhstan. Then we had a blast furnace relining in South Africa, a Corex relining. And a lot of logistic issue in Ukraine and Kazakhstan, mainly due to the lack of [vehicles], so we are trying to solve that issue now.

We think that next quarter, or this third quarter, should be better from a production point of view. The positive point is price. In this segment, there are no long-term contracts and you have the full impact of price increases. And then we are capable to increase quite a lot the selling price, as you'll see on the chart.

And all together, this gives quite an increase of EBITDA, more than $1.3b, particularly the double of the first quarter. For the third quarter, we think that volume will be higher, steel price will continue to be good and we expect a further improvement of EBITDA.

Thank you, Christophe.

Let me now discuss Flat Carbon Americas. In terms of our safety performance, our frequency rate was about 3.7 a year ago and now it's down to 2.2. The severity rate, which was 0.26, is down to 0.06. So, clearly, this is a significant improvement, resulting in dramatic reductions in both the frequency and severity rates.

Nevertheless, we experienced two fatalities in Flat Carbon Americas this quarter, which is completely unacceptable. There is -- whenever we do our fatality analysis, there is no one reason or one action that we can point to that we could have taken to prevent it. But we continue to remain extremely focused. We are embarking on a five-year health and safety business plan, which I think is unique for the steel industry, to further improve on our safety performance on a global basis.

Let me now turn to our operating performance. In terms of overall results, we have delivered a relatively good quarter. Production for the quarter was slightly higher, at 7.46m tons. This is an increase of about 255,000 tons compared to the first quarter. I am excluding the divestiture of Sparrows Point, which occurred in the middle of the quarter.

Primarily, production was higher due to increased production in our US operations. We had record productivity levels in Burns Harbor. And in the US, we increased production by about 355,000 tons, quarter on quarter.

Shipments were also higher, excluding Sparrows, by about 100,000 tons, compared to the first quarter which was 7.13m tons.

Prices for the quarter increased by an average of approximately $135, to $881 per ton. Clearly, the increase, judging where the marketplace is, is very muted. And this has to do with the fact that there is significant contract exposure in FCA and also that there are some spot index contracts. And the benefits of that come through in the third quarter and not entirely in the second quarter. FCA has performed well in terms of cost performance, with a steel cost increase of about $70.

So, price increases, higher shipments resulted in 31% increase in EBITDA for the quarter, at $1.7b versus $1.3b in the first quarter.

In terms of guidance for the third quarter, we expect performance within FCA to be significantly better than the second quarter, again based on continuing operational improvements, higher prices and increased shipments.

Let me now conclude the presentation with a quick overview on M&A transactions, as well as guidance.

As you heard earlier, during the quarter we completed $5.1b in transactions. In terms of geography, we expanded in Brazil through the Acesita transaction, as well as in Turkey, where we acquired a further 11% in Erdemir. In terms of products, we acquired a pipe producer in Venezuela, Unicon, as well as Bayou in the United States, which increased our structural exposure in North America.

Our value chain was where most of the activity was. We completed the acquisition of three coal mines in Russia. We have made an investment as well as an off-take agreement in Coal of Africa, as well as acquired 19.9% stake in Macarthur, a leading PCI producer in Australia. We also acquired two coal mines, metallurgical coal mines in the United States, Mid Vol and Concept, which are next to each other.

If you look at our coke self-sufficiency, excluding minority equity, at the beginning of the year it was 10%, based on capacity. And excluding minority equity, we have doubled that to 20% by the end of this quarter. So, clearly we are making progress. We are also making progress in achieving our goal of 75% self-sufficiency in iron ore, as our greenfield and brownfield projects -- by 2014, as our greenfield and brownfield projects are on-stream.

So, clearly, there has been some success on all three fronts of our multi-dimensional growth strategy.

In terms of our guidance, I will not go through the segment guidance as that has already been done. Suffice to say that, despite an uncertain global economy, the steel industry continues to be healthy due to continued demand growth and a global constraint of steel.

You heard earlier from our Chairman and CEO on our prognosis for the short to medium term. And clearly, we believe that ArcelorMittal is well-positioned to benefit from the strong global demand, on account of our global diversified and integrated business model. Our financial health also enables us to continue to identify opportunities for maximizing growth potential, as well as investing back into our business to meet the growing demand for steel.

For the third quarter, we are expecting EBITDA to exceed $8.5b, which means that 2008 will be another record year for ArcelorMittal.

Thank you very much and we are now happy to take any questions you might have.

We have a question from the line of Dave Martin from Deutsche Bank. Go ahead, please.

Yes, thank you. I wanted to come back to your comments about your investments in coal assets in the quarter. I believe your self-integration, as you said, is now up to about 20%. I was wondering if you could give us a sense of what that integration level could reach, with the growth plans you have for the assets you've invested in.

And secondly, do you envisage the Company or would like to see the Company grow this coal integration even further?

Yes. As we have said, that we would like to continuously strengthen our vertical integration strategy. Today, we are at 20% into vertically integrated. That means captive supplies. We are looking at opportunities of growing our coal production with the existing assets. And also we will continue to look for opportunities to acquire because our existing capacities, even if they are expanded, cannot meet our full requirement.

We are not very ambitious on our coal capacities. We hope that in the next six to seven years, if we are able to meet up to 40% to 50% of our requirement, either through acquisition or through our internal expansion, we will be very satisfied.

Okay. And then, secondly, I just wanted to get an update on India. I know earlier in the quarter you announced that you had received a concession, an iron ore concession, to develop one of your projects there. This concession would represent how much of total concessions needed to go forward?

This concession what we have received is a very small concession in terms of our total requirement. This is less than 100m ton. But this only shows the future direction of the concessions. What does it mean by this -- what I mean by saying this, that at least the government have started moving forward in terms of allocating concessions to the new projects.

So, we have got a couple of more applications pending and under discussions with the Indian government and Indian authorities. Hopefully that, based on this concession, we will get more concessions in the future in Orissa state also and Jharkhand state also.

At the same time as we reported last time, we got some concessions on the thermal coal. And we expect that more progress we will make during this year in terms of allocation of land. We have been given some land allocations but it is -- only the allocation is not enough. We have to discuss with the local communities and the local habitants living in those areas for rehab program. We have to discuss with them, we are in dialogue with them for future employment of those families. We are working along with some NGOs. We are working on several initiatives, on education, the training centers. All those actions are in place at the same time.

On the engineering front, we have already started working on the technology and the process and the products. We are in the process of market survey.

So all those fronts we are making some progress. But till we have clear allocation of the land, which means not the allocation but the position of the land, we have the allocation of the mines and iron ore mines and the -- some of the infrastructure things like water and other things, then only we will start making the real progress on the ground.

Okay. Thank you and congratulations.

Thank you.

The next question comes from the line of Michael Shillaker from Credit Suisse. Go ahead, please.

Yes. Hi, good afternoon, and well done on an excellent set of numbers. I've just got three questions, if I may. The first question, can you give me a sense of where you are in the contract renegotiation process? And given the type of numbers that you are now throwing off, isn't there a risk that you try and renegotiate contracts and your customers turn around and say, 'Look, you guys are just simply making far too much money. We are not going to do this.'?

The second question on stainless. Every time, I think, I look at the stainless sector, it increasingly reminds me of the paper sector. I think, no matter how much consolidation the stainless industry has, it's still going to be a chronically oversupplied industry, just like the paper sector. Are you absolutely still convinced that you want to partake proactively in the consolidation of this business?

And the third question is regarding your forecast for demand. Do you also, therefore, think that global production growth is going to slow, because global production growth is currently running at around 5.5% to 6%? If you think demand is going from 3% to 5%, then it suggests actually the steel industry is running into oversupply. Thanks very much.

Okay. Hello, Michael. I am pleased to speak to you about automotive. Maybe that before giving you some more guidance, first of all what is the problem. If we look today at the spot price and we compare it with the average contract prices, base prices of automotive, we see almost a difference of up to $500 per ton.

Second, the other image would be to see base price of hot rolled coil for automotive business today is very close to the scrap price. And hence, when we go and speak to the automotive industry, they recognize that there is a problem. And what we are telling them is to say the problem is not whether we should deliver you or not, but how can we work together in order to optimize the use of steel solutions in the car of tomorrow.

And what we want to do then is to say, if we are doing that, we want to give you more value but we need to find the pricing which is a fair pricing, as it has been in the past, where on average over the cycle the price of contract was at least equal or slightly higher than the one of the spot market prices. And this is what we are doing together. And we have had some very good success and I was very pleased about the discussions and the results we have obtained already together.

So, what did we do? First of all, we had some contracts which came to an end by mid-year and which have been successfully renegotiated; two big contracts. Second, we have had renegotiation discussions with the automotive industry and we have had conclusive discussions with major OEMs. And we have concluded also with a lot of subcontractors, who also explain what the situation is.

So, what we can say is that we have done a lot -- a big part of the game. What we have done also was to tell them that we were ready to reopen the contract and eventually extend them over a couple -- over one quarter longer also next year, so that everyone would [sign back] himself, and that we would get a partly price -- a cost recovery of what we have to fill.

So, overall, there will be a positive impact. We are not at the end of all of our contracts. In particular, discussions with packaging have been a little bit more difficult. But we are ongoing and we are happy with the results and also with the new spirit we are building up with our automotive customers.

Michael, on your analogy about paper, I would say the biggest factor in the steel industry in consolidation remaining is in China. And that is the most important event which should create a long-term sustainability in the steel industry. All the Chinese government have taken a lot of steps towards domestic consolidation. We are hearing at least three to four companies coming out with saying that they will consolidate to 50m to 80m tons in the next three to five years' time. That will be the remaining chapter of consolidation. Apart from this, there could be a few here and there, some more deals. But basic consolidation which is needed is in China and if that happens, I think we have completed the consolidation story in the steel industry.

But more importantly, the steel industry is not only healthy and strong due to -- only due to consolidation. Consolidation has played its role. More important is the supply constraint and demand growth, and we are seeing the demand is continuously growing. Don't -- we do not forget that this century we are seeing the industrialization of 1.5b people. In the last century, we saw only 250m people. So, this new industrialization will continue to generate demand for the steel industry. Clearly, we are seeing there is a strong need for infrastructure build in every country, whether it is a growth or growing country.

So there is a new dimension to the whole steel industry growth. And we believe that the demand will continue to remain strong and once the -- as the Chinese steel industry is consolidating, we are moving in the right direction in terms of consolidation and sustainability.

On the project side, clearly, the demand slowdown -- we have tried to say -- present a very pessimistic scenario, where we are forecasting a 3% growth. Clearly, the demand slows down. A lot of projects which are only the marginal producers will delay their projects or defer their projects. At the same time, today we look at the supply of equipment situation, which is very tight. Some of the equipment deliveries are more than two and a half to three years' time. There is a cost overrun. There is delays in various greenfield projects. So, I really do not believe that all the greenfield projects will come as they are being announced and within their timeframe.

So, opportunity for us is in the brownfield expansion, for a company like ArcelorMittal who have announced their brownfield expansion. And they are at a very low investment cost. So I think that explains your question.

Yes. Thanks. But I think you can probably argue that 3% is a very -- is a pretty pessimistic view of global demand growth, anyway. So I think you can argue that it could be substantially higher than that.

But the -- I didn't really get the point on stainless. My point on stainless is it's not carbon steel. We understand that carbon steel has become supply constrained, given demand. But stainless is arguably a lot later cycle and it could take -- and given that the Chinese growth in stainless steel production has been massive relative to carbon recently, it's very difficult to pull out a positive structural argument, even in the next five, potentially 10, years for stainless steel.

And therefore, it doesn't seem to be the type of business that fits your business model and are you absolutely sure you want to be proactive in consolidating this sector? Because like the paper sector, people tried to consolidate it, but it didn't matter because there's too much capacity so there's still no pricing power. And that's the risk in stainless, I think. All right?

Gonzalo?

Thank you, Mr. Mittal. Various things. As you see, stainless is very important for us, is strategic. And Michael, as you have seen, there have been enormous efforts. And you've seen our results and when you benchmark them, like you do always, you see how much progress we've done. And I think there's two things. The European investment in Belgium of the new electric shop has been a success. On the other hand, Brazil is a real jewel in terms of stainless and of electrical steel.

But if we go to your specific issue of consolidation, I think I'll link it with what Mr. Mittal said before. Two things. One, we need consolidation, I believe, in Europe. In Europe, there's four major players and this needs a consolidation. Additionally, we see many of our competitors are doing more than 50% of their results outside of Europe. So, clearly, Europe needs consolidation and we need to follow the carbon steel model, on one hand.

But if we go to worldwide approach, I fully agree and I endorse what Mr. Mittal said for the carbon steel. We also need consolidation and China will be a key factor. How much is that? Out of 28m tons, it's what, it's 7m, 8m tons. So it's a very important part of the stainless steel production. And there also we'll need consolidation. We need a global leader and for the stainless steel that will be Europe. And we'll have to become a global player and also in China.

So, clearly, we do believe in this consolidation and a leader in this market. If not, we'll continue with the situation we've been living in the last years.

Okay. All right. Thanks very much.

Thank you. Michael, I just had one last point, just to conclude that production growth is different from capacity growth and what we are seeing is that capacity growth will be very difficult. And some of the production growth we've seen in the past, such as de-bottlenecking and all of that, is coming to an end. So, really, we need to see what will the capacity growth be in the medium term.

Okay. Great. Thanks.

Thanks.

The next question comes from the line of Andrew Keen from Sanford Bernstein. Go ahead, please.

Good afternoon. I've just got a couple of specific questions on the quarter. In terms of the raw material costs, you mentioned that there's still more to come because you're running down stocks of raw materials. Have all of the raw material price contracts also come into effect? I gather iron ore came in at the start of Q2, but are all of your coking coal prices now in effect and you're just running down stocks, or might we see a little bit more of coking contract come into effect in Q3 and Q4?

I've also got a question on page 11 of your release. You mentioned you've entered into a hedging transaction for raw materials in flat carbon in Europe. I gather that's a currency hedge. Just wondering if you could provide any more detail regarding that or what you're trying to achieve with that. Thanks.

Sure. In terms of the raw material side, fundamentally, all contracts for 2008 are priced in and the only impact is any inventory impact that we might have and that would play out in the third quarter. So, third quarter would be representative of all raw material cost increases for the Company, based on '08 contracts. Clearly, there are certain contracts which we entered into in terms of coking coal, which are -- which we entered into at the end of '07 which are below the market today and some of those were reset, obviously, in '09. But as far as '08 is concerned, it's fully reflected in the third quarter.

In terms of the hedging transaction, as you know, in Europe we buy significant raw materials, iron ore and coal. And we have entered into a multi-year hedge. The total amount is $20b. Historically, the hedge used to be 18 months. We extended the hedge to about four years. And we believe this is -- obviously the exposure is capped. It's a mixture of forwards and options, which caps our exposure. And the idea is really to hedge the cost of raw materials in case there's a strengthening of the US dollar in the next four years vis-a-vis the competitive landscape in Europe.

Okay. Just one follow-up on that. Have you used collars around that hedge as well to fund that or have you paid for the hedge?

We have entered into a combination of forwards and puts, put options, so there is a collar mechanism as such. And there has been a cost to the Company for the put options that we entered into.

Okay. Thank you.

Thank you.

The next question comes from the line of Andrew Snowdowne from UBS. Go ahead, please.

Hi. A couple of simple questions, if I may. I wonder if you could clarify for us the build in net working capital. On page 10 of the release, it's suggesting net working capital going from $19b to $23.3b. By my math that's $4.3b and on your slide you're talking about $3.4b.

And in line with that, I guess some of it's answered in the previous question, the impact of forward purchases of raw materials. Are we seeing some of that reflected in the build in net working capital and to what extent did that contribute to the result?

The next question would be a simple one on stainless base prices. Gonzalez did mention a EUR100 to EUR200 per ton fall expected. I was wondering if you could quantify off which base are we talking.

And then the final point. Given your guidance of EBITDA for the quarter of greater than $6.5b EBITDA, were you surprised with the strong number or were you just intentionally very conservative on that number? Where were the surprises? Is it really a pricing effect? And then, given that, what are the risks in terms of your Q3 guidance? Thank you very much.

Okay. In terms of the working capital, the working capital change is $4.3b. On the cash flow it's $3.4b. And the difference is that we recorded the $1b dividend payable. So we had the AGM in the second quarter. And that gets -- that flows through our operating working capital and hence on the cash flow you see $3.4b. So the correct number for working capital is $4.3b, as is in the release. And as I mentioned earlier, what you're seeing is price increases in raw materials as well as finished goods, in spite of improvement in rotation days.

There are really no forward purchases of raw materials. As you can see, our inventory has not increased on a per-day basis and neither has it increased for raw material inventory. So, these are the results.

In terms of were we surprised -- go ahead.

Yes. We are -- clearly, we are surprised for the -- our Q2 results. We were not expecting the sales price -- sale prices to come in as quickly as we thought so. And the cost in the first -- we also did not get the full cost impact in the second quarter. So, clearly, there was a difference between the timing. The full cost did not come in the second quarter and the sales price has come in in the second quarter itself.

And going forward, for the Q3, as Aditya said just now, that the full impact will come in the Q3 on the cost side. And the sales prices have already been announced. Some price increases have been announced for the Q3. But we still do not know the full impact. That's why we are saying that minimum $8.5b.

Great. Thank you. Just one outstanding, the base price for stainless steel. We're talking about EUR100 to EUR200 per ton fall. I'm just wondering whether you could quantify off which base you were talking.

Okay. First, we've been prudent there. We're saying that's between EUR100 and EUR200. That is what we're seeing now in the market for September. That would be my first comment. Of course, we are talking of austenitics in this case. That's where people are holding the most. And it will be between the -- it's between that EUR100 and EUR200 for that base price for European prices. This is what the prices we see as of today but this may change during the next weeks. Okay?

Excellent. Thank you very much.

Thank you.

The next question comes from the line of Sylvain Brunet from BNP Paribas. Go ahead, please.

Good afternoon and well done on the numbers. The first question on cost and just turning onto fixed cost inflation, just to check with you if you would agree to say that this inflation has now peaked.

Second question, maybe to Mr. Mittal, on your view on Turkey. You've increased your level of collaboration there, both, let's say, two distribution centers and the recent move in Erdemir. Do you think that Turkey is definitely strategic for the Group now and do you see the market opening up there?

A follow-up question on China, if I may, just to see if you would agree and give any credit to the scenario of closures of outdated capacity after the Olympics, please. Thanks.

I will answer this Turkey, Erdemir. We clearly see Turkey as an important strategic player of [briquette]. And we have announced another project in Turkey with our joint venture partner for the hot strip mill. At the same time, we had invested -- both the companies Arcelor and Mittal have invested in Erdemir much before the merger to some extent. And as we have the merger, we can clearly see the importance of Turkey.

Though we do not have a clear view on our participation in Erdemir, we believe that this significant shareholding of 24.9% is a shareholding worth investing. And at any time, whenever there would be an opportunity either in increasing our shareholding in Erdemir or working together with the OER management, we will explore this.

Chinese closing down of capacity, in the beginning of this year we heard that 20m tons of capacity will be closed and I believe that they are on the way to do it. In any case, during Olympics they have shut down more than 50, 60 companies. I believe we do not have any sense at this time how many of them will reopen after the Olympics. But at least we have seen that some activities are there in terms of closing down the capacities in China.

On fixed assets?

Yes. What do you mean by fixed cost inflation?

Just relating to costs which would not be related to raw material increases, which we can quantify easily. So I'm thinking energy, I'm thinking wages, I'm thinking other fixed costs.

Well, fixed cost inflation has not been that high but I don't see it reducing as well. Clearly, there is wage pressure on a global basis. Oil has eased this week but there are other energy sources which might increase, such as natural gas or others. So I don't see a dramatic change in the fixed cost inflation that is impacting our business.

Okay. Fine. Thank you.

Thank you.

The next question comes from the line of Tony Rizzuto from Dahlman, Rose & Co. Go ahead, please.

Thank you very much. I've got a couple of questions. First, in your pessimistic scenario on global growth in demand, I'm wondering what level of GDP growth or industrial production growth in China you're assuming in there, because there's been a lot of crosscurrents recently, obviously, with data points there. I'm just wondering how you're thinking about that.

What we have thought, that China would slow from 13% growth in 2000 to between 5% and 8%. And we have assumed 5% growth in other emerging markets, against 12.7% in 2007. And we have assumed 1% negative growth in the developed markets. To sum up, this is about 3% growth in the global market.

Okay. And as far as the other questions I had, just to move over to metallurgical coal, I was wondering what percentage -- should we assume that relatively all of your met coal contracts are due to reset in '09 or is there a certain -- a lower percentage than that?

I think out of 50m tons of our approximate consumption, 16 -- I think most of them will come for the renegotiation in 2009. Aditya?

Yes. We have -- out of the 50m or 54m, let's subtract the 10m tons that we have of our own in '09, so there's a net number of 45m. Out of that, virtually all of that will reset in 2009. And out of the 45m, we have a cost advantage this year on about 12m to 14m tons of that. So some of that, in case the price level stays the same in '09, clearly would reset.

Okay. And the final question is what is your sense of China's metallurgical coal balance? Are they likely to remain self-sufficient, as far as you guys can tell?

Two things we have noticed. One, that at some ports China has started importing metallurgical coal. We assume that the reason being that the Chinese coal quality is deteriorating, so they need to import to blend to improve the quality mix. And secondly, we are seeing -- we have no idea yet but we believe that their progress in mining is not so -- as much as they expected, because they have also slowed down some of the mining operations in view of the accidents in China in the underground mining. So that is why we see the supply constraint.

At the same time, we have also noticed that China has reduced their met coke exports. So we are clearly seeing two, three signals. It is very hard at this time to make a judgment but clearly conclusion for us is that the Chinese met coal and coke supply will remain tight.

So, if I could just rephrase, it's a combination of safety concerns, we're seeing in a lot of the mining there concerns, lower ore grades which we're seeing and those are the major factors impacting?

And imports. We have seen some imports of metallurgical coal in some ports.

Okay. Great. Thank you very much, gentlemen.

Thank you.

The next question comes from the line of Kartik Swaminathan from Cazenove. Go ahead, please.

Good afternoon, gentlemen. Kartik Swaminathan calling from Cazenove in London. I just had one question, to request some clarification --

We cannot hear. Can you please speak louder, please?

(Technical difficulty).

We cannot hear.

Hello?

Yes, that's better.

Can you hear me now?

Yes.

Excellent. Sorry about that. Kartik Swaminathan calling from London and Cazenove. I was wondering whether your $8.5b of EBITDA guidance actually excludes any kind of upside from ongoing automotive contract negotiations.

Yes, it does. It excludes any upside from ongoing automotive contract negotiations.

Okay. Is there any kind of specifics that you'd like to get into on the magnitude of potential increases that we could see in H2 or --?

I think a lot of it is in the public domain, as to what we are doing in terms of negotiation. It may be a bit premature to speculate on that. But clearly, some of the discussions are focused on immediate relief right now, some of the discussions are focused on a combination of when these contracts expire and additional relief or extra relief in 2009. So, at this point in time, when we are in the midst of automotive negotiations, it's premature to speculate.

Suffice to say, though, that there is a significant difference between the market price of steel and some of these contracts. The automotive customers recognize that and these discussions are constructive. And regardless of our profitability this morning, I don't think that would have any impact -- any negative impact on these discussions.

That's great. Thank you very much.

Thank you.

The next question comes from the line of Michael Gambardella from JP Morgan. Go ahead, please.

Yes, good afternoon. I have a question on these fixed price contracts. First of all, why do you still have them? And do you think there's an opportunity or do you think it is an opportunity to get rid of the fixed price contracts next year and use some type of reference contract or index contract that would be closer to a spot market?

And then, the head of your US operations was quoted in a Bloomberg story about a month or so ago that you only achieved about half of the surcharge that you had looked for in early May. First of all, why would he even say that? And second of all, could you give us an update on that $250 per ton effort?

Sure. Michael, I think it was an inappropriate article that appeared and did not really reflect the Company's position. There has been quite a lot of press after that. We made some comments for the Wall Street Journal. But fundamentally, we are on track with some of our customers to achieve a cost recovery, as we call it, surcharge, during the second half of the year.

In terms of whether we have a fixed price contract or not, I think it's a mutual discussion. I don't believe we can decide that unilaterally. We see some value as well in the fixed price contract and so do our customers. And that is the basis in which we are proceeding forward.

What's the benefit that you see for having a fixed price contract over a year?

I think basically it's first of all what the customer wants. Normally, you have to take into account the wishes of the customers and it is our understanding that lots of the contract customers want to have a view on their price evolution. For example, for the packaging, it's quite normal because they also have yearly contracts. So it's really something back-to-back. This is fine, provided that you have the better view on when, for example, you start contracting.

And from that point of view, one of the points of discussions we are having today with our automotive customers is to say that starting a new contract January 1 might not be the best moment because there is uncertainty about overall markets, about costs. But if you would extend that to April 1 or July 1, it is much easier and you can take the risk of a longer-term contract.

Second, I think also what you are looking -- if you have long-term contracts it gives you some kind of stability versus spot markets. And if you are a big company, to have some kind of exposure also of longer-term contracts which could sometimes be higher than spot market price or sometimes lower, this is something which is contributing to calibrate your results. And I think also that has some benefit.

If the situation would be as it has been in 2008, 2007 and 2006, that on a consistent basis contract prices are below spot prices, then obviously we have a problem and this is exactly the point what we are explaining to our customers. Because these customers where we are speaking, don't forget they get the best service, they get the best product, they get the most value of it. And what we are really discussing with them is really how to establish long-term relationship, eventually also volume -- longer-term volume contracts, so that everyone can really know on what to work, commitments to do extra research, trying to improve even our offer, in order to get the best value and to tell to these customers, basically, we should work together and not fight simply to know whether the price should be below spot price also, because that is not optimizing also the value of these contract parties.

But in the past, when spot market prices were weak, contract customers would come back to you and others and demand decreases in the contract prices and get them. Why don't you just reference the C1 price of iron ore and met coal in your contracts?

You have to be two parties to conclude the contract. I think that's part of the truth.

Also, Michael, I believe we like the fact that there's a yearly contract on coking coal and a yearly contract on iron ore. And therefore, the issue really is timing differences. And if we can marry the timing differences, I think we're in a stronger position as a company.

Okay. Thank you.

Thank you.

The next question comes from the line of Vincent Lepine from BNP Paribas. Go ahead, please.

Good afternoon, gentlemen, and congratulations on the good results. I had two questions, please. First of all, on scrap prices, I guess in the US but also globally, it would seem that the latest price increases were partly driven, at least, by the continued strength in scrap prices, particularly for bundled or [bushleen] scrap in the US. So I was wondering if you could share your outlook on that with us.

And the second question is you had mentioned back at the time of Q1 results that you'd be willing, on a case-by-case basis, to extend credit lines to some clients, should the banks not lend them enough money. Obviously, just looking at your working capital, it's difficult to see the impact, given it's reduced when you express it as a percentage of sales. But I was wondering if you could give us some qualitative color as to the extent of the extra credit, if any, that you've given to clients during Q2.

Yes. I'll ask Gonzalo to answer the question on scrap. In terms of credit, Vincent, we have thought about extending credit to our customer base. There was not a significant requirement of doing such a thing and as a result our cash conversion cycle improved. So I do not expect anything to change in the third quarter or fourth quarter, i.e. I do not expect that we'll be investing further in our receivables. So, fundamentally, the credit situation of our end customer base is not -- is stronger than we expected, I would say.

With respect to scrap, two comments. I think we've seen, first in Europe, scrap started the year around EUR220 and it's doubled to around EUR440 in the first six months. And there we've had a difference versus the US. Why? The increase has been very important, like in the US, but we haven't had a complete separation, like we've had in the US, with respect to qualities of scrap, the high quality, the bushleens and bundles versus the other qualities of scrap.

As you have seen, in the US we've had a complete difference. Some of the lower quality scraps have increased $200 -- between $200 and $300, and the high quality scraps have increased $500, clearly. So if you allow me, we've seen a complete divorce here between one scrap and the other.

Why? We believe it is, first, in the US you have a lot of scrap melters that are using this scrap for flat products, apart from long. So they do need a higher quality scrap. That is clear, on one hand. Now, where do we see scrap? Well, you've seen the last prices in US and the high quality has continued increasing. Not so the lower quality. In Europe now, we're seeing it more flat at this stage. However, we believe that scrap will continue strong.

Why? Because many of the emerging economies have a lot of electric arc furnaces, on one hand. In US, you will continue demanding. And also, there's been a demand of the flat producers of scrap that were consuming in their process maybe 15% of scrap and maybe they've increased to 20% or 25% of scrap. So that has put additional pressure in the scrap market. So, maybe we can see some adjustments but we continue seeing the scrap market strong.

Thank you.

Gonzalo, if you allow, I would even add that in the medium-term perspective we will foresee higher scrap prices. Why then? Because scrap is indeed, as you've said it, a substitute to -- for pig iron. And if raw materials are scarce, obviously you try to have higher scrap input what -- and that's the reason also why for the high quality scraps there have been a lot of integrated users of scrap which have high demand.

Second element why scrap will continue to be highly priced is that scrap is basically CO2 free, because you don't need coal to melt scrap. You put it in your converter, you have the heat and that improves your CO2 balance. And as the CO2 pressure will continue, that will mean that scrap prices will continue to be firm.

Thank you.

The next question comes from the line of Rochus Brauneiser from Landsbanki. Go ahead, please.

Yes. Hi, good afternoon. It's Rochus Brauneiser from Landsbanki Kepler. Three questions, if I may. On the long carbon business, when I remember back in May, I think Gonzalo sounded a bit conservative on the margin outlook because of the rise in the scrap. And knowing that the selling prices are somewhat linked to your production costs or to the scrap price, I was really surprised to see the significant improvement in profitability and the profit put on. It would be great to get some more light behind this improvement in the profitability.

Maybe back to the auto contracts, could you give us any sense whether there was a higher acceptance in the US or in Europe, in terms of the contract business to adjust prices during the second half of 2008?

And maybe finally, on stainless again, given the cautious outlook for the second half of '08 also in terms of the base prices, any idea where base prices might end up during 2009, as the structural picture is probably not changing at all? Thank you.

Okay. So, let's start with the last one. I would like to be prudent on the base prices. Now, there's pressure to push those base prices lower but I wouldn't want to venture myself now to where do we see them by the end of the year. So I would want to be prudent. And my only point there is we have seen a decrease of those base prices. Okay? That is on that one.

But if I go to the long carbon and you thought I was conservative in May, I hope you don't think I'm too optimistic today. But look, we've had various issues, I would say. First, look, to be honest, we not only have scrap but scrap is -- I'll give you now in figures - 50% of our production in long is scrap, 35% is integrated and 10% is DRI. So I'm also impacted by DRI and by the integrated [route]. That would be my first comment.

Second, in scrap. What was the issue when we were in May? In May we had seen the biggest increases of scrap for the last 15 years. Never scrap has increased so much and in such a short period of time. So we were concerned if really we could push prices. What was going to be faster, the increase of raw materials and inputs or the increase of prices? Were we really going to be able to push prices up so fast?

The reality, as you have seen, our EBITDA margin has improved. We've improved the prices $200. So we have been able to transfer this to our customers. But I insist, it's not only scrap, as that is 55%, the rest is DRI and the integrated route, which has also had an important contribution.

And last but not least, synergies are there and we've made a tremendous effort -- industrial effort of optimization in our plants and industrial excellence and improvements. Okay?

Okay. Then, concerning the automotive contracts, I think the situation was very different in the US and in Europe because in the US we had much more new contracts which had to be renewed because they came to an end, and obviously we started negotiations and we got very significant price increases, whereas in Europe we had almost no new contracts starting from July 1 and from that point of view we had to reopen the negotiations. But looking at the European situation, I must say that we are quite pleased. We are not yet at an end with all of them because some of the negotiations are continuing now. I would say we have a significant part of positive negotiations also in Europe and in particular also with subcontractors.

So does that mean that you've concluded the negotiations with the majority of your European automotive customers and supply customers?

We are close to, because we have -- we wanted -- July 31 was a very good deadline to finish the negotiations, so we are close to do what you have said, yes.

Okay. Fantastic. Thank you.

Can I just make two data points which I think are relevant for today's call? There has been a lot of questions on automotive. I just want to remind everyone that in terms of our total shipments, only 15% is automotive. So, 85% of the business is non-automotive. And secondly, a lot of questions on scrap. And Gonzalo alluded to this, we have a lot of DRI capability. And when we look at our scrap self-sufficiency, not only the logistics chain but actually scrap generation, we believe we are 44% self-sufficient because of our flat businesses are generating scrap and we have about 12m tons of DRI globally. So we are very well-integrated, not only in iron ore, coal, coke, coking coal but also in scrap.

Thank you.

Our next question comes from the line of Eliot Glazer from DuPasquier. Go ahead, please.

Yes. In one of the many excellent ArcelorMittal press releases, you indicated that you had successfully completed labor negotiations with major unions in the United States and in Europe. Of course, in the United States most labor contracts expire September 1. So, number one, is this true? Have you completed successfully labor negotiations in the United States? And two, we can assume you've had to increase costs in healthcare, pension and in hourly wages. Can you give us any indication of how much that is up?

Well, thank you for your kind comments on our press release. I'm sure the whole team here appreciates that. In terms of our union negotiations, we are in the midst of discussions in the United States. Our press release is alluding to the fact that we have signed a global health and safety pact with the unions, including United Steelworkers. This excludes -- this agreement excludes the items you spoke about - wages, pension, retiree healthcare, etc., which we are discussing with them. Clearly, the partnership we have with United Steelworkers is very important and we expect to complete these negotiations before September 1.

I'd like to ask a follow-up question, please.

Yes, go ahead.

In the United States, up until the last three or four years, average selling prices of steel were down and steel earnings were really not that robust. As a result, over the last 15 years, the American steel unions have had to give givebacks and suffer retrogression and have much reduced healthcare, of course especially but also pensions. Is it likely that the steel union will be seeking, in this negotiation, to get some of those retrogressions and givebacks back as well as make some progress, because of the current inflation in the United States?

I think the steelworkers have fundamentally been instrumental in the health of the steel industry in the United States. Led by Leo Gerard, they have focused on consolidating the industry and, number two, on creating a very strong partnership with key industry players, we being one of them.

And in terms of their partnership, they're very focused on creating a healthy steel industry in the United States and focused on productivity improvements, focused on appropriate benefits and wages. I expect that these discussions will be constructive and I do not foresee or forecast anything which would impinge on or impact negatively the sustainability of our operations in the United States.

Thank you.

Thank you.

Ladies and gentlemen, I'm now handing back to Mr. Mittal to round up today's conference call.

Thank you for participating in this conference call and look forward to talking to you for the third quarter results. Thank you. Have a good day.

Thank you for attending today's conference. You may now replace your handset.