ArcelorMittal SA (MT) 2008 Q3 法說會逐字稿

Forward-looking statements. This document may contain forward-looking information and statements about ArcelorMittal and its subsidiaries. These statements include financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services and statements regarding future performance. Forward-looking statements may be identified by the words believe, expect, anticipate, target or similar expressions. Although ArcelorMittal's management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of ArcelorMittal's securities are cautioned that forward-looking information and statements are subject to numerous risks and uncertainties, many of which are difficult to predict and generally beyond the control of ArcelorMittal that could cause actual results and developments to differ materially and adversely from those expressed in or implied or projected by the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the filings with the Luxembourg Stock Market Authority for the Financial Markets, Commission de Surveillance du Secteur Financier, and the United States Securities and Exchange Commission, SEC, made or to be made by ArcelorMittal including ArcelorMittal's annual report on Form 20-F for the year ended December 31, 2007 filed with the SEC. ArcelorMittal undertakes no obligation to publicly update the forward-looking statements whether as a result of new information, future events or otherwise.

Welcome to the results for the third-quarter and nine-months 2008 conference call. My name is Sarah, and I will be your coordinator for today's conference. (Operator Instructions).

I will now hand you over to your host, Lakshmi Mittal, CEO of ArcelorMittal, to begin today's conference.

Thank you. Good day to everyone, and welcome to ArcelorMittal's third-quarter 2008 results.

Today I'm joined by my GMB colleagues -- Gonzalo Urquijo, Aditya Mittal, Michel Wurthl, and Christophe Cornier. While we are on our conference call today, all of us know that it is a very historic day. We had the President-elect Obama elected by the vast majority of United States, and we are very positive here in our Company on this news, and we all hope that as economic agenda was on the top of the list of both the presidential candidates, I'm sure with the clear majority of President-elect Obama, we will see a lot of positive actions towards driving the economy.

However, coming back to our results today, today as shown in our brief introduction overview, we will review our health and safety performance, the steel market evolution, our industrial plan, our Q3 results, our financial plan, the performance of our dividends, and then we will conclude with our guidance.

Before going through the agenda, I would like to make a few comments about our performance, today's exceptional operating environment and the actions we are taking as a result.

First of all, we achieved a strong performance and record EBITDA in our third quarter. This performance reflects not only our unique business model, our three-dimensional strategy for customer geography products and value chain, but also our cost leadership within the industry. Our ability to maintain this cost advantage over the industry is essential in today's difficult market. Effectively we have been since Q3 facing a much more difficult economic environment. We are, therefore, taking a number of responsible actions to face the current challenges, which I will elaborate on in further details in a moment.

Lastly, we also maintain our dividend at $1.50 per share in 2009.

However, I begin with the key priority, safety. We are pleased to show improvement in our frequency rate, and I will go into details. Operationally, as mentioned, we're also very pleased with our third-quarter results as I said as compared to -- which is as compared to second-quarter '08. This takes EBITDA for the first nine months of the year to $21.7 billion, which is 49% higher than for the first nine months of 2007.

Our net debt at September 30, 2008 increased by $1.8 billion to $32.5 billion, primarily due to increased working capital, investments and share buybacks. However, our liquidity remains good at $12 billion, and our net debt to EBITDA ratio has reduced from 1.3 times in the second quarter to 1.2 times in the third quarter.

As mentioned earlier, to face the current economic environment, we're taking a number of initiatives. We're adapting our existing growth plan to market conditions and significantly reducing our growth CapEx. We're increasing our recently announced management gains planned target from $4 billion to $5 billion through additional SG&A savings. We're intensifying production cuts from 15% to up to 35% globally.

Finally, we're planning to increase our financial flexibility and to do so targeting to reduce net debt by $10 billion by end of 2009. This focus on financial flexibility will put us in a strong position to capture future opportunities when market conditions improve.

For the fourth quarter, as we voluntarily intensified production cuts, we expect EBITDA to be in the range of $2.5 billion to $3 billion, bringing our full-year estimated EBITDA to $24.2 billion to $24.7 billion as compared to $19.4 billion in 2007.

Finally, considering our ArcelorMittal initiatives in response to the current operating environment, the Board of Directors has recommended to maintain the Company's base dividend to $1.50 for 2009.

First, let's look at our health and safety results. Overall I'm pleased that our health and safety performance improved slightly though during the quarter to a frequency rate of 2.1 compared to 2.3 in Q2 2008.

I'm also pleased to report that with the exception of our AACIS segments where frequency rate remain flat in Q3, all other segments had improved performance, most particularly in the FCE and AM3S division with a combined reduction by 26%.

Now before looking at steel market trends in the EMEA geographic regions, I would like to provide two comments on the market concerns for the global economy.

Clearly the market has changed dramatically since we reported our second-quarter results. Unprecedented destocking is now occurring in most major regions. Yet all is not negative. Compared to the previous crisis, the steel industry is also in a much stronger position.

Before the recent supply adjustment to demand, the steel industry was not suffering any excess capacity, a situation really different from previous position.

In China, as I mentioned in my introduction, the current slowdown is not expected to continue. We need to remember that a Chinese government, which wanted to slowdown its economy, has done so by putting in place strong restrictions on credit. These credit restrictions proved to be very effective as we all know.

The good news is that now inflation is under control. Chinese authorities are refocusing on growth and are reopening credit.

Unlike the developed economies, they also have $2 trillion of reserves to use to stabilize the economy. Their recent decision to invest about $300 billion in their rail network confirms our relative optimism.

Beyond demand, the best news has been the rapid adjustment of supply. As demand fell, producers reacted quickly and reduced production. In this context we believe global destocking should be completed by the end of 2008 or early 2009 and that some signs of improvement should be visible soon.

Looking more closely at China, rail demand for steel is slowing down, but they are still growing. Industrial production, which is a significant indicator for rail demand, is drawing down, but was still up 11.4% year on year in September.

As mentioned, the supply site, there was historic reduction in steel production during September of 9% year on year due to the strong deterioration of the Chinese steel industry profitability. We believe production cuts could increase to 15% -- up to 20% by October/November.

In this context prices have declined, but it seems they might have reached bottom. After an unprecedented fall in electricity, prices are stabilizing, but some [commemorative] projects are increasing again. Some price increases have been registered too marginal in flaps and rebar pricing.

The US market -- now we move to the US market. It also continues to experience a weak demand with real demand expected to decline by 3% in 2008 after a 4% decline in 2007. With the economic crisis, further weakness is anticipated into 2009. However, the active production cut is taking place on what were already low levels of inventory; destocking is expected to be completed by end of this year or very early next year.

As mentioned previously, US producers began cutting production in September with additional cuts during the month of October. In fact, industry capacity [players] and rates are currently below 70%, and production cuts are over 20%.

The steel service center inventory has declined 3.2% during September, and despite lower apparent demand, inventory levels are in line with historical averages at 2.9 months. Imports were up 15% in September compared to August due to the wide gap between US and Chinese prices and a stronger dollar.

However, imports are still low in absolute terms, down 7% year-to-date. As you can see on the chart on the right-hand side, prices have declined significantly from the peak in Q2 due to destocking and weak demand.

Now we move to Europe, during the third quarter, real demand in Europe deteriorated rapidly as industrial production deteriorated, resulting in an apparent consumption decrease of 2% in [yield 27]. Real demand is expected to continue to decline, and destocking should result in an even greater decline in apparent demand in Q4.

As you can see on this chart on the left, production has remained fairly stable over the last several months and even an increase in September by 0.9%. However, it seemed that many producers have started to cut production to face market destocking. As levels of inventory were relatively high at the end of summer, production cuts may continue beyond Q4 2008, but we believe destocking should be complete at the beginning of 2009.

Now we move on to the stainless steel market, which was still growing in Q3 but short significant signs of weaknesses. Apparent demand was up sharply year on year at 42% due to a really low base in the third-quarter 2007, but was down 16% quarter two versus quarter two.

Production increased during the third quarter, up 21% in July year on year, but again due to a very favorable base effect. Inventories have increased as well and now well level average. Prices continue to decline as destocking starts up again, and no improvement in stainless steel is expected before next year.

As previously, I mentioned in this current economic environment we have decided to implement several initiatives aiming to strengthening and bringing further flexibility to the Company, and I will walk you through some of those initiatives.

First, in response to the global slowdown, you can see on the chart we have begun implementing production cuts in mid-September in order to accelerate inventory reduction. And there is a detail given here how much production cuts we have in the sales in Q4.

We expect that even with these voluntary production reductions, ArcelorMittal will retain its market positions in the regions in which we operate as we believe our production cuts are in line with market destocking.

On the right-hand side, we have shown our quarterly crude steel production. You can see that in the fourth quarter our production will be 19 million tonnes, which is expected to be approximately 9 million tonnes lower than the third quarter and 11 or more than 35% lower than in Q2. And, as a result of this, our capacity utilization will be approximately below 65% in the fourth quarter.

Our second initiative, we're increasing our management game plan target, which we announced in September in our investors conference call, investors conference meet, from $4 billion to $5 billion over the next five years.

Here we have increased our savings from SG&A by an additional $1 billion, and we expect that this $1 billion saving of SG&A should be captured within 2009.

Finally, we will adjust our growth plan to adapt to current market conditions and make sure that we will not create overcapacity in our markets. Near-term spending on our growth plan will be reduced and mainly limited to upstream and downstream projects which are not adding steel capacities.

However, beyond the current difficult market condition, we still believe in the strength of the underlying fundamentals of our industry and company. In particular, we're extremely well-positioned to benefit from the growth in the emerging markets where 70% of the world's steel is consumed.

Considering that the steel market should grow by 3% to 5% over the medium to long-term, we would again expense about 3% per year when the market improves.

However, I would like to hear -- after these initiatives, I would like to inform you about some of the investment programs which we have completed, though we have reduced our CapEx provision by more than 20% and planning only $5.5 billion for 2008 against our initial plan of $7.5 billion. However, we have still successfully completed several projects during the quarter like 300,000 in steel capacity increase in Argentina, upgrading of hot furnace in Luxembourg, the commissioning of two additional DRI clean in South Africa, a new galvanizing line and 2 million tonne iron ore project in Mexico.

So now further, Aditya will now go through the Q3 results in more detail and our financial plans.

Thank you. Good morning and good afternoon as well. I will highlight aspects of our income statement, cash flow balance sheet, as well as review our financial planning.

If you move to the P&L, I will walk you through primarily a comparison between our third-quarter 2008 performance compared to the second quarter of '08.

Our EBITDA increased by about 6.6% to $8.6 billion. On a part-time basis, we had $335 EBITDA per tonne, an increase of $65 primarily due to improved margins and steel price. Suffice to say, it was a record quarter.

Within the quarter we had also agreed a new four-year labor contract at ArcelorMittal USA with our union employees. We have concluded that under IFRS we're required to recognize a nonrecurring expense in the third quarter of approximately $1.6 billion, primarily related to vested postemployment health benefits. The additional cash flow related to these benefits as per the contract is expected to amount to $25 million per quarter or $100 million per year and substitute some of the profit shares we have for the VEBA contract earlier.

We also agreed to pay an additional $90 million signing bonus.

A significant portion of this accounting treatment is not required under you US GAAP but IFRS, and that is our nonrecurring, largely non-cash expense for the quarter.

Apart from that key charge in the quarter, the other main highlights are that we had a Forex loss in Brazil, which relates primarily to the functional currency translation of our net monetary assets and liabilities. We have certain MTM losses on certain (inaudible) transactions, which basically involve natural gas hedging, as well as straight hedging, which totaled $107 million for the quarter. Other than that, our tax rate remained around 15%, and as a result, net income decreased on a quarter-on-quarter basis by 34%. Clearly the main reason was the nonrecurring operating expense charge due to our new labor contract in the United States.

If we move to the cash flow, we generated significant amounts of EBITDA, but our free cash flow was primarily impacted by the deterioration in our operating working capital, which totaled $5.4 billion. This increase is partially due to seasonal slowdown, as well as reduction in demand, and the rotation days we increased our net operating working capital from 63 days to 82 days.

In terms of CapEx, we spent $1.8 billion, which is higher compared to the previous quarter by $400 million. As described earlier, we are going to reassess our CapEx program on a going forward basis. We expect fourth-quarter CapEx to be about $1.5 billion, I think, instead of $3 billion previously forecast. I think the significant reduction in CapEx is appropriate for the situation but also demonstrates the significant flexibility that we have as ArcelorMittal adapts to this new environment.

During the quarter $2.3 billion was returned to shareholders, and we spent $2.5 billion in M&A transactions, including London Mining, Bayou Steel, as well as Kalagadi, among others, Kalagadi Manganese in South Africa among others.

In terms of the balance sheet, as you heard earlier, our net debt increased by $1.8 billion to $32.5 billion. During the quarter our gearing increased to 49%, yet our net debt to EBITDA ratio declined to 1.2 times. This is net debt to the last 12 months EBITDA declined to 1.2 times as compared to 1.3 times in the second quarter.

Normally that would conclude the main highlights of my financial presentation, but we do not live in a normal environment. Hence I will briefly review our liquidity, balance sheet position, our ability to generate cash and our debt reduction plan. Needless to say on all of these aspects, ArcelorMittal has a very strong and enviable position.

Liquidity is $12 billion, and out of this, only $600 million of lines is expiring in the next 12 months. In my perspective our short-term debt during the fourth quarter is actually only $1.7 billion. You would expect normal rollover on the commercial paper and the other short-term debts.

In terms of our gross debt maturity, as you can see from the slide, our maturity profile is fairly lumpy. Nevertheless, we expect the first three financing requirements not to occur before 2010.

In terms of rating agencies, we were upgraded by all three rating agencies in the last 12 months, including one post-Lehman. We're not subject to any material adverse change clause in any of our bank facilities or credit line agreements and have only one financial covenant in our bank-owned documents. That is net debt to LTM EBITDA cannot be greater than 3.5 times.

Fundamentally we believe we have a strong financial position. Nevertheless, as you heard earlier, to increase our financial flexibility, to be positioned either for increase in CapEx or other M&A transactions or share buybacks, we have decided to reduce our net debt by $10 billion.

So let me talk about how we will achieve that. First, we believe we have a unique ability to generate free cash flow due to our strong cost position. As already mentioned, over the last three years, we have succeeded to achieve clear cost leadership within the industry due to our merger synergies, as well as our vertical integration. In the third quarter, we believe our cost advantage versus the industry was roughly $80 per tonne. As we intensify our management gains program and as you heard earlier, our further reductions in SG&A, we should maintain this advantage over our competition in 2009.

Equally important, we have a very strong record of free cash flow generation. Despite strong working capital requirements and intensive capital expenditures, we have generated free cash flow for all 11 last quarters, and over the same period, we have also been able to convert an average of about 40% of our EBITDA into free cash flow, which I believe is a very strong number.

In addition to our free cash flow, we also have significant potential for working capital relief. On this slide you can see how on the left-hand side how our working capital requirement represents almost 80% over net debt.

Furthermore, on the right-hand side, we have a sum total of working capital increases over the last two years, and this number is $8.5 billion. Moreover, just in 2008, we spent $10 billion in working capital requirements and, as you know, in the third quarter itself $5.4 billion. This rise clearly reflects a strong increase in raw materials and steel prices but also a significant increase of our inventory levels.

Our steel prices and raw material costs ease, as well as we actively cut production. We expect the $5.4 billion increase in working capital to reverse in the fourth quarter of 2008, as well as in first quarter of 2009.

So lastly, beyond our strong cash flow ability, our good cost performance and our potential to release working capital, a number of other factors will also enable us to increase our financial flexibility for new opportunities in the metals and mining industry.

First, as mentioned in our industrial plan, we intend to reduce our CapEx spending to $4.5 billion in 2009 as we adapt our growth plan to market conditions.

Importantly, we're still investing in growth and have zero cutbacks on safety and maintenance CapEx spend. Our maintenance CapEx, as you can see from this slide, has increased but is $3 billion, and in 2009 we are forecasting $1.5 billion of capital expenditure on growth projects.

Secondly, we have less than $600 million of outstanding M&A commitments. Thirdly, we're also maintaining our base dividend and not increasing it. And finally, our exceptional buyback program is basically completed, and we only intend to implement our annual buyback program once our debt target has been achieved.

As a result of all of these initiatives, we believe we reduced our net debt by $10 billion by year-end 2009 and positioned the Company with significantly greater financial flexibility to avail the new opportunities.

With that, I'm going to turn it over to my colleagues of the GMB to talk about more detail of their individual segments. Michel?

Thank you. Good day to everyone. So I start first with Flat Carbon Europe and as usual with safety. What I can report is that we have continuously improved our frequency rate over the last quarters to 1.5 in quarter three, which is the best target we have ever reached. But in spite of this, I'm very sorry to say that we have had fatalities last quarter of which -- in Romania and in Belgium. This illustrates that we must not rest until we have engaged with and touched all of our employees and subcontractors promoting awareness of risk and fighting complacency. This will be a very important part of the journey to zero and group initiative we have started all over in order to further enhance safety and health in the workplace.

Coming to operations, first in terms of volumes, our shipments have decreased from 9.9 to 8.2 million tonnes, which is due mainly to reduced production as our plans underwent seasonal maintenance work and many European customers closed down their operations during the summer holidays.

The average steel selling price has increased from $1081 per tonne to $1125 in Q3. This increase was mostly led by good spot market conditions, but is to a lesser extent also the result of our cost recovery program with contract customers, which has been quite successful, and as I recall you, the contract customers make up approximately 40% of our volume in FCE, mostly in the field of automotive packaging and appliance products.

Looking at profitability, our EBITDA in quarter three was $1.8 billion, which corresponds to a 15% decrease compared to the really excellent results of $2.1 billion, which is in the previous quarter.

This was driven mainly by lower volumes as I have just explained, and consequently our EBITDA margin remains stable at $222 per tonne, which was quite remarkable despite of the lower shipments. The price cost piece has hence been fairly neutral to Flat Carbon Europe last quarter as we were able to offset our increasing costs caused by the increasing average value of our raw material inventories as we used up material purchased at old prices with increase in selling prices.

Now looking to Q4, I have to say that we have seen earlier in the presentation that we are cutting production across all segments of the group. In fact, we have decided to close at least one blast furnace in each of our plants, leading a reduction of production of up to 35%, which will, of course, have a significant impact on our projected earnings.

In addition, we expect an unfavorable price cost squeeze evolution so that we foresee a significant reduction in profitability in quarter four, which is mainly due to the fact that, as we produce less tonnes, there is a much lower contribution to fixed costs, which we do not succeed in bringing down at the same proportion.

Next slide, I would like now to come to Steel Services and Solutions. Starting again with safety, we continue to improve strongly our frequency rate, which is down by more than 30% to 2.9 from the second quarter. Nevertheless, we had one fatality in distribution in Belgium, and as I said some moments ago, we need to maintain continuous management focus on safety, and we must not let complacency creep in on lower and lower people's risk awareness.

Moving now to operations. Steel shipments in quarter three were 4.3 million tonnes, which was 1.4 million tonnes below quarter two. The volumes were influenced by seasonality as August is traditionally a very low activity month. Moreover, ArcelorMittal International, which is our export sales organization, decreased its steel shipments by 0.5 million tonnes as volumes available for export decreased.

Steel selling prices continued to increase for all businesses and reached $1361 per tonne in Q3, $171 above quarter, thus giving us good margins. Intense EBITDA increased from $342 million in quarter two to $390 million in quarter three. Gross margins improved further in quarter three, helped I must say by windfall gains.

This explains then due to our inventory increase of our cost of goods sold, according to the weighted average valuation, was lower than the increase of our selling prices. Moreover, quarter two results were negatively impacted by some provisions for restructuring and claims.

Let me now say a few words about acquisitions because during quarter three we have acquired 70% share of Manchester Tubos e Perfiladosin S.A., a Brazilian steel processor and distributor located in Contagem in Minas Gerais. This new acquisition will reinforce ArcelorMittal's downstream position in Brazil, following our recent acquisition of a 50% stake in Gonvarri Brasil, and we will widen its profit offering in the Brazilian distribution segment and enhance our leadership in this very important and profitable market.

As guidance for next quarter and in line with the other segments in the group, activity will be lower, resulting in reduced earnings in the loss last quarter of 2008. The main market impacting AM3S activities is construction in European countries. You know that construction is almost dead in Spain and UK and quite low also in France and growing in Germany. And also, the positive windfall profits we have seen in Q3 is likely to be reversed in Q4.

I now hand over to Gonzalo who will comment and share the results of Long.

Thank you very much. Good morning and good afternoon to everybody. I will start as always by health and safety.

It is our first priority, and unfortunately I have to report three fatalities. One in Argentina, one in Luxembourg and one in the Czech Republic. This is unacceptable for us, and we are working very hard towards zero accidents.

But, on the other hand, we have good news, and the good news is that one year ago our frequency rate was 4.9, and as of today, it is 3.4. So we're improving, and we're confident, and we will continue working as that is our number one priority.

In terms of shipments, you see our shipments have been 6.7 in Q3. It is a reduction of 17%. Why? Basically for the following reasons.

On the one hand, we have seasonality. Europe is impacted by the month of August and North America. Historically the third quarter we have less sales. On the other hand, in September we have the first signs of the market slowdowns, and customers started refraining themselves. And, last but not least, very important was the scrap decrease, which I will comment later, which has also refrained our customers.

In terms of production, they were aligned with what I said with the shipments. That is we have adapted to the market conditions.

Sales price, you see $1258 as an average. It is 16% more. Why? Because we have been able to increase the prices and we had backlog. So we have done an EBITDA margin of $338.

Now if we -- I just want to spend 30 seconds with you on scrap, and that is one of our most important raw materials. 55% of our production is based on the Electric Arc Furnace route, and if you recall, at the beginning of the quarter, scrap in the US for the number one bundles was around $800. At the end of the quarter, it was $200, and today it is much lower than that. If we go to Europe, the scrap at the beginning of the quarter was EUR440. At the end of the quarter, EUR200, and as of today, it is a closer to EUR125. So we have seen an enormous decrease of scrap.

In terms of EBITDA, we have done $2258 [million]. It is practically a 6% decrease. That is through the increase of prices, we have been able to offset the decrease in volumes on one hand and the other hand, the increase we have had during the quarter of the raw materials.

If we do the guidance for the fourth quarter, we expect in the fourth quarter a drop in volumes due to the slowdown in the markets. A decrease in prices. It will be partially offset with a decrease of raw materials, especially scrap I'm referring to, even though we will have a stock effect and we will not see that full decrease of scrap until the first-quarter 2009.

If you bear with me once more, we will go to stainless steel, the next slide, please.

Safety performance, we keep working hard on safety. No fatal accidents, and I am glad to report here that frequency rate has gone down from 2.6 to 1.9 in Q3. And if we go to subcontractors, it went down from 3 to the frequency rate.

We will keep working hard and especially in some of the plants we had in Belgium where we had some major issues in safety, and we have seen an important progress.

In terms of operating performance, you see our shipments. Our shipments were down to practically 500,000 tonnes. Why? A bit less than that. It a 16% decrease. Why? It is clearly the seasonality, especially in Europe on one hand. It is also due to the summer holidays. It has also been to a lesser extent in Brazil we've shipped less because we have passed electrical steel. We have done more electrical steel than stainless because the margins were better there. And very important also, we have adapted to the market conditions. That is destocking, and also nickel prices decreased, which has refrained our customers and pushed them to destock.

In terms of average price, so you practically get an 8% decrease. That is impacted by the raw material on one hand. But, on the other hand, I have to announce that we have had a -- our base price has decreased. An example in Europe. Austenitics has gone down at least EUR100, and ferritics has also decreased, although somewhat less.

In terms of EBITDA, it is practically $250 million. It is a decrease of 36%. Clearly that was not due to Brazil. Brazil's third-quarter performance is even better than in the second quarter. It is due to Europe.

Why? As we saw before, we have had a decline on one hand on the shipments. We have a decline on the base prices. All our customers are on one hand destocking and a wait and see situation, especially with the nickel volatility we have had. As you know, the nickel in the first quarter was 28,000, 25 in average, and third quarter 18, and today we're up 12,000. So this has, as I said before, refrained our customers.

Additionally to that, we have seen imports, and in the last quarter, imports were around 20%. So clearly that has impacted our volumes.

In terms of the guidance for Q4 and positive in Q4 for Brazil, but Europe the situation will worsen even more, and I see an important drop of activity in the European installation. So clearly I'm not optimistic with the results.

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

Thank you very much. So for our frequency segment, I start by safety. Our frequency ratio is stable at 1.1, which is not a bad figure, but the lack of improvement is a concern. Also, we had four fatalities during this quarter, two in South Africa and two in Kazakhstan. So this remains a point of greater attention from the management.

For operations, operations wee not that good a quarter. Rail operations down 3% compared to Q2 for first, technical issues, and second, market issue. Our first technical issue we had in July and August, and in Ukraine a lot of problems in quality and quantity of coal for our (inaudible) plant, and in the Ukraine we had -- and in September we had decreases in our book of orders. And then we had the power failures in the beginning of July that damaged rightly two blast furnaces, and this was fixed in August. But then in September again, the market was down. Our operation was slightly better in South Africa.

Our operation position is down 3%, but shipments are down 14%, which shows the lack of market. The good point is the selling price, which are up 25%, and overall our EBITDA moved from 1.3 billion to 1.6 billion in Q3.

In terms of guidance for Q4, Q4 is going to be a much lower result quarter, mainly due to the market. We continue to have a lot of difficulty to sell in the export market of all you need from South Africa, Ukraine and Kazakhstan, and what [is apparent] since the beginning of October is that also the CIS market is today very difficult due to the lack of credit. Our customers, of course, want to liquidate inventory, but they have some need. But there is a very severe credit crunch in Russia. And in the Ukraine, you know that the country is going through a lot of financial difficulty. Thank you.

Thank you. I will talk about Flat Carbon Americas and then conclude with our guidance for the fourth quarter.

First, let me address our performance on safety. We continue to see a positive trend in aggregate safety rates at all the best tier units, and our frequency rate came down to 1.9 versus almost 4 a year ago, and our severity rate is down to 0.08 versus 0.22 a year ago. Health and safety clearly remains our number one priority at FCA.

In terms of our operating results, Flat Carbon Americas had its best quarter ever. In the third quarter, we performed well on all fronts -- operations, costs, sales, profitability, as well as operating free cash flow.

As you are all aware, the quarter saw record spot prices for steel, and the United States and Canada markets were strong, as well as the global flat market for Mexican and Brazilian operations, as well as steel demand in South America in general.

On the cost side, we had good cost containment at FCA, and costs were only up $100 in the quarter, and steel prices were up almost $250, and that is why the dramatic increase in profitability.

In terms of Q4, we have already made significant cutbacks in our production to match market demand. In the United States and Canada, we have cut back by about 40%, in Mexico by about 50%, and in Brazil by about 30% to adjust to this market.

We're also taking appropriate actions to reduce our costs and retain a strong focus on serving our customers. In all cases these actions are being undertaken with a view toward strengthening our Company in order to be even better positioned to implement our growth strategy as the world economy recovers.

We are also continuing at full speed with some of our key strategic investments such as the expansion of the Hot Strip Mill in Tubarao in Brazil, which will be commissioned in the first quarter of next year.

Nevertheless, we expect shipments and profits to be significantly lower in the fourth quarter than in the third quarter due to the production cutbacks.

With that backdrop, let me review ArcelorMittal's guidance. Clearly the situation has worsened over the last few weeks, and initially we had expected a voluntary production cutback of 15% to supplies. We have now voluntarily increased that to 35% as the destocking phenomenon on a global basis is much more significant than any of us anticipated. And, as a result, our guidance for the fourth quarter is between 2.5 to $3 billion.

Our CapEx estimate, as you heard earlier, is $1.5 billion, and we also expect to generate free cash flow in the fourth quarter. Despite the negative impact of our fourth-quarter results, we believe our production cuts will ultimately be very positive for the global steel industry as it permits the acceleration of inventory reduction, working capital reduction and positions us well in terms of the supply/demand equilibrium for 2009.

Furthermore, we believe our industrial and financial plan will reinforce ArcelorMittal's leadership and put our company in an ideal position to capture opportunities once the market recovers.

Also, the long-term fundamentals of the steel industry remain strong, driven by consolidation, but also driven by the requirement and the need for industrialization in various emerging economies. We remain ideally positioned to benefit from a recovery of global demand on account of our diversified and integrated business model.

With that, we would like to take any questions you might have. Thank you.

(Operator Instructions). Michael Shillaker, Credit Suisse.

Three questions if I can. Firstly, just on the $7 billion of refinancing in Q4, I think you touched on that, but can you give us a little bit more color on exactly where you're with that, how far you are down the road, and the types of rates that you are experiencing where you are refinancing?

The second question, just can you remind us, on the restricted cash, how much of the cash is restricted, and exactly what is the restriction in terms of using that?

The third question, on receivables, are your receivables fully insured just in case your end users are having problems literally paying these?

And I guess the final question, do you anticipate given where you are at the moment -- it is tough I know -- but the level of production cuts that you are taking in Q4, do you anticipate that rolling over into Q1?

Thank you, Michael. Let me try and address the first few questions, and then some of us can comment on the production cuts.

In terms of the debt view in the fourth quarter, there is only really $1.7 billion of debt which is due in the fourth quarter. The rest is short-term debt by nature, i.e. it matures, but we would expect them to rollover. There is the commercial paper where the increase in cost has been marginal. Clearly the availability is not as strong as it was, but there is still some availability, and every week we're still being able to refinance or rollover our commercial paper.

The other debts are very short-term debts. They are small pieces on a global basis at some of our smaller subsidiaries. They are basically asset-backed on inventory or working capital lines, and we do not expect a significant increase in cost in any of that. So the $1.7 billion of debt, which is due in the fourth quarter, we intend to repay that.

In terms of restricted cash, I'm not sure what you mean by exactly restricted cash. In my view that's less than $400 million on a global basis, and that has to do with a company that we controlled but has some cash which is restricted because we cannot dividend up that cash. The rest of the cash is freely available for us to deploy at the holding company as we deem appropriate.

In terms of what cash is required to continue the business, we expect that at all times we intend to keep at least a 1% to a 1.5% of our global sales as spare cash just in case there's a sudden change in payment terms from either on the receivables side or on the payables side. But that is predominantly it.

In terms of receivables, we have global insurance policies. They do not impact all of our businesses.

So very quickly, in terms of our export businesses, these are letters of credit, so they are basically secured. And, as Christophe explained earlier, that is one of the reasons why it has been difficult to do business in the CIS as customers are not able to open letters of credit.

Now in Europe, all of our receivables are predominantly covered by an insurance policy. We do not have the same coverage in the United States, but we have very strong credit controls. We have a credit committee. We review every single credit, and we're very comfortable with our receivable book in that now we have structured the management of that.

In terms of level of production --

A couple of things have to happen, Michael, that, first of all, we're continuously monitoring the inventory levels. We are continuously looking at the destocking taking place. And based on this destocking, we will decide whether to increase volume in the first quarter.

Similarly, in some other markets where the customers are having financial difficulties where we're not supplying, we have cut the production, and we believe that all these majors which are being announced for the banks and the financial markets and plus also economic stimulus packages, which are coming, which are being announced by the various comments, we believe that some of the markets which are closed today will start opening up gradually in the next 45 days to 60 days, and then slowly they will generate demand.

As you see in China, they have announced production cuts, but we believe that destocking is taking place there also, and they will also start generating some domestic demand very soon because of all the stimulus programs and packages being announced by the Chinese government.

So a couple of things which I said. One is the financial markets to start lending to the customers and customers start buying materials in some markets, and in some markets like mature markets, if their destocking comes to a minimum level, they will have to start buying materials. And third, this economic stimulus package, which will start becoming effective, we will start seeing some demand, new demand generation in some markets.

Okay. (multiple speakers) No, I think the discipline you are showing is arguably a step change for this industry, so well done and thanks very much for the answers.

Vincent Lepine, Exane BNP Paribas.

I had a few questions if I may. You mentioned the production cuts for Q4. I was wondering if you could try to quantify the expected drop in shipments this time again and not just with production cuts?

Also, in terms of the annual contracts, I was wondering if you could also tell us exactly what percentage of these contracts saw their price increase in July thus for the US and the European part of the business?

On the working capital, I find you a little bit cautious on the I guess cash flow generation in Q4 when you say you expect it to be positive even when you see the results will be much weaker, but I would expect out of the $5.4 billion of working capital increasing in Q3, maybe half of that should be released in Q4, and with the lower CapEx, I guess on my simple calculations, the free cash flow should be actually pretty good, not just compared with Q3 but perhaps also with Q1 and Q2.

And then lastly, in terms of the goodwill, I was just wondering on some of your recent acquisitions when the goodwill impairment tests performed again at the end of this year, do you anticipate any need to do some impairments?

And I forgot also a fifth question. On the pension deficit, we will see how things develop until the year-end, but do you anticipate any need to have to make extraordinary contributions to fill any bigger deficit there?

Okay. So we will try and take your questions one by one. In terms of the pension deficit, we do not expect any significant pension deficits in the medium-term. Yes, you're right that to some degree there has been a deterioration in asset value, but do recognize that there has been an increase in interest rates, and the liability has also declined.

Furthermore, there is a smoothing that occurs in pension funds in which basically you take an average of the deficit over a period in time, and so that mitigates volatility as well. The next measurement date would be only in September of 2009, and I would expect that the amount would not be that significant.

In terms of goodwill impairment, we're not seeing any such issue on a global basis of any goodwill being impaired. In terms of shipments, shipments will be approximately down -- I'm trying to do the math in my head -- by about 6 million tonnes, and I guess that is a bit less than the production cut. So theoretically that goes back to your original question on working capital relief. I do agree with you that we should have healthy working capital relief in the fourth quarter, which should create strong operating free cash flow, along with a CapEx reduction.

I will, though, caution the shipment number a little bit. It could be a bit lower. We still have -- we are still in the beginning of November, and it could be deferrals of orders or certain cancellations. We saw that trend over the last two weeks. When though we had an orderbook, there were certain cancellations for November and December deliveries.

And, therefore, our production cuts is in response to what we believe is the true destocking required and was the true change in demand has been in the fourth quarter. So I caution that a bit, but at this point in time, that is what our forecast is.

I think there was a question on shipments in Europe. So --

In terms of contracts, yes, what we can see is that most of our contracts today have been negotiated and that as well in the US and Europe, and they have been negotiated basically at all prior prices than we have had last year, and basically all the cost increases we have had in automotive in 2008 have been integrated into new prices for packaging. It is even better because we were successful in integrating cost increases as well of 2007 and of 2008. But you remember packaging was particularly bad.

And hence, we can say that for next year it is clear that contract prices will be healthier and higher than they have been in 2008 with volumes which will go down in global -- for automotive because we will be in line with a reduction of production we see today. Maybe 10% or 15% lower depending on the final activity.

I would say in packaging, activity is quite good, and we are very pleased about the relationship and the work we have done with the packaging industry restoring a healthy profitability and keeping up the possibility to remain in this business.

Last but not least, in appliances I think also the market is going down a bit, but we're working and trying to apply the same kind of customer relationship we have developed in automotive. That means adding some R&D, trying to optimize our supply so that we make good value proposals to the industry and let's say also some profitability for ourselves.

I just wanted to come back on goodwill impairment. Yes, there will be no goodwill impairment the way we think about it. What you see in our income statement in the third quarter of $60 million, there will be another charge, slightly higher or a similar amount in the fourth quarter. But that is not goodwill impairment in the classical way. That is because we are increasing our deferred tax asset in ArcelorMittal Brasil, and that is the result of the minority buyout. And as we increase the deferred tax asset, we have to reduce our goodwill. And through the income statement, that nets off. So we have the impairment charge, but we get that back as a positive in the income tax expense line.

So on a net income basis, that has no impact, and that is what I mean by on a going forward basis on the goodwill impairment.

Okay. Can I just clarify something on the annual contracts? Should we, therefore, expect that there's no remaining volumes even in the US or in Europe where we should expect prices in Q1 to increase versus H2, i.e. all the price increases that you were targeting already reflected in the Q3 or at least now Q3/Q4 numbers?

I would say even a slight majority of our contract shipments for H1 in 2009 will be at higher prices than last time. And basically what we can see is that with the cost -- with the past cost recovery program, we have had less for 2008. We had been partly successful, and hence I would say the contract terms with the customers vary a little bit more than they varied in the past.

We have also succeeded in changing the terms of some of our contracts, which are due partly for reviewing the pricing at the end of quarter two. And from that point of view, the situation is much more regular. And last but not least, for some of our contracts, we have even indexed costs -- we have indexed price on the cost evolution of certain raw materials.

But on average there's absolutely no doubt that we're quite pleased that total cost increase has been more than compensated on the one hand side, and the second we're quite pleased with the results of our negotiations.

Michael Gambardella, JPMorgan.

I have three questions. One, with the sharp drop in shipping costs, are you looking to lock in any shipping contracts longer-term for your raw materials?

Michael, do you want to give us the three questions and then --

Okay. And then --

(multiple speakers) -- answer one by one as you wish.

Okay. No, I will give you all three. And then what does the orderbook for slabs look like for the first-quarter '09 versus your shipment of slabs in the first-quarter '08?

And the last question, what is the Company's global annual scrap purchases and annual iron ore purchases?

So you want to start on freight?

Yes, the shipping contracts we have been having these forward contracts. Normally we have 70% of our business hails to the forward contracts, and this year, particularly '08, has been a good year for us. Based on mark-to-market, our shipping department has made savings of up to $700 million to $800 million. And if we mark-to-market 2009 based on our hedging program this year, we believe that there could be -- we could be in a disadvantaged position up to $300 million or $400 million. But it is only held up to 70%, so still we have 30% open position where we believe that we can take advantage of today's market conditions.

In terms of the orderbook slabs, it is a bit early to speak about it. At this point in time, we're focused on filling up our orderbook for the fourth quarter, and there are certain customers with whom we have orders for the fourth quarter who are moving it into the first quarter.

So it is really premature to say what our orderbook is for the first quarter because it's not really opened or -- nor is it populated.

I will answer the iron ore question, and then Gonzalo can talk a little bit more about scrap. I think your question was, what is our global buy on iron ore? It's about 106 million tonnes linked to the benchmark price. These are '08 numbers. Clearly '09 may be different based on the fact that roughly 41 million tonnes is coming from our captives.

Clearly, as we have increased our vertical integration in 2009, our outset purchases shrink as well.

In terms of that bench -- rough $100 million, about two-thirds is on a seaborne basis and one-third is domestic. In the one-third domestic, I'm including the 11 million tonnes from [CLIS], and the remainder is coming really from CIS supply sources. So that is the global iron ore buy.

Thank you. As referred to scrap, we have two things. We consume scrap in the Electric Arc Furnace route, and on the other hand, we consume scrap also in the blast furnace route. The total consumption for the year is approximately from 35 tonnes to 40 million tonnes, and it also depends because flat can use more or less scrap.

Now part of it is internal sourcing that we produce our own scrap. That is around 10 million tonnes, and the rest is outside purchase of our scrap. Thank you.

Okay. Do you have any take-or-pay contracts for any of the raw materials for next year?

We do not have take-or-pay contracts. We have theoretical requirements contracts, and these are the typical benchmark contracts that we have on iron ore, as well as on coking coal.

What if you go below the minimums that they specify?

No, it is requirements, so it is based on our production level. And fundamentally it will run until -- it expires in April/May, and there is an adjustment. If you go below that, then clearly we may have to sit down with them and discuss what are the solutions to such a situation.

But if your question is, are we buying iron ore and coking coal as we cut our production by 35%, the answer is no. Are we buying scrap as we cut our production by 35%? The answer is no. The exception to that is one strategic supply contract that we have in North America, and we're able to divert some of the other tonnages that we have in North America. For example, we have QCM ore, and Dofasco historically has been supplied by QCM to our other facilities.

So on an overall basis, we do not have take-or-pay issues. Clearly we have price issues. As the market changes, we have to be responsive to that.

Luc Pez, Oddo.

A few questions if I may. Could you please be a bit more precise with regards to the auto contracts starting to come back on this one? Just so I have a clear understanding of to what extent there is a full recovery, actually of the cost base on the one hand?

The second question is with regards to the $1.7 billion non-recurring items you have been posting over the quarter. I would like to be sure I am understanding this correctly, and actually to what extent this is offsetting the postemployment benefits that you do have in the US, which are of an amount of $1.6 billion if I am not wrong. Thank you.

Okay. I will start with the auto contracts, so the clear understanding is that we have a full cost recovery of the costs we have incurred, and from that point of view, I think the situation is extremely clear.

Correct answer. In terms of our liability in the US, I'm not sure what your question is. The liability has to do with an accounting recognition that we will continue to pay health care benefits for active employees when they retire and also contribute to VEBA fund for existing retirees.

In the original contract that we had in 2003, we had said that we were not obligated as a company to continue to pay health care for active employees when they retire. And on that basis, the liability was not recognized. As now a pattern has been set in which in two subsequent contract negotiations, we have taken care of active retirees. It was appropriate to recognize the liability, and that specifically -- it is clearly the requirements are more stringent under IFRS than under other accounting standards.

Does that answer the question?

Yes, thank you.

[Efraim Raffioli], Morgan Stanley.

Just two follow-up questions. Most of my questions have been answered.

One, on the plan to reduce debt by around $10 billion, and your CapEx implied within that a $4.5 billion and $1.5 billion of growth CapEx. Does that include any acquisitions or minority buyouts, or are those acquisitions and minority buyouts off the table until you meet that $10 billion debt reduction requirement?

As a corollary to that, also in terms of the dividend payout ratio, you have said 30% to net income to shareholders and additional buybacks. So I assume that that is across the cycle and not next year.

And the second question is on the production cuts. Just looking through the production cuts, the more it has been across the table, but the bigger production cuts have actually been the areas where you have higher EBITDA per tonne. It seems counterintuitive that we have to take down production the more they are profitable. Can you provide some color on that?

Let me begin with our overall prioritization of capital. The main reason why we intend to reduce our net debt is to increase the financial flexibility. Our target is to achieve it by year-end 2009. To the extent that we see short-term very attractive opportunities, whether it's an M&A deal or a minority buyout and we can still achieve our target by year-end, we will look at that. But clearly the overarching priority is to reduce our debt by $10 billion so that we increase our flexibility as the cycle turns.

And the same applies to our additional buyback. At this point in time, we want to focus on maximizing our financial flexibility to take advantage of opportunities whether it may be at the end of the day we decided to do the share buyback, but we want to be able to maximize that.

In terms of the production cuts, I will get Christophe to comment on why in AACIS we have to cut production.

In the AACIS, we have two problems. We have already explained the first one, that the export markets are very low. This is mainly due to inventory problems. If you take Dubai for instance, you will have something like five months stock of rebar in Dubai. So then the purchase will come back when the stock will be down.

But the main problem is a lack of credit in CIS. Most of them somehow just can not permit our credit, and we do not want to sell an open debt, and you are back to the credit insurance question. We do not want to take any risk in terms of a customer credit. And then we would prefer not to take order and wait for the customer to recover to open up our credit. (inaudible) month has been putting a lot of the money in the system so at one stage all of this money will finish in the pocket of customers, and they will recover to higher points of credit. But when, we do not know.

As a follow-up, I mean it was not just AACIS, but also in the other regions and the lowest production cuts is in the long products division, we just got the lower EBITDA per tonne, so it is kind of across the board. So is that kind of -- is the most profitable parts of the business, i.e. the spot market business that is actually weakening? Is that the rationale?

I would like to comment that it is not completely correct. In the top of the cycle, the spot market is very export-oriented. It is based at (inaudible) of our book of order, but in the down part of the cycle, I mean our alternative packaging and (inaudible) are down. So we have to look to all the story.

Yes, I mean eventually the more spot-oriented markets have the production cuts is not because you're in a downcycle?

That I think is the critical point that clearly the spot markets are suffering more than some of our OEM and contract customers, and that is AACIS. So it is not the production service on profitability but actually based on market reality.

And in theory, you should be able to kind of produce in one place and then reorder to the market that it requires. So is that not feasible under the current [doubt] environment or shipping environment?

I do think that in Long, for example, there are various issues I want. For example, rebars at some point in time there was a very profitable product. But you've seen, for example, in Europe it has fallen from EUR800 to EUR300 and whatever -- EUR50 in the South of Europe. So we have an enormous decrease of some of these spot products on one hand.

Second, we are rerouting some of these products because we have got scrap at EUR125 in Europe. It is very efficient to produce through the Electric Arc Furnace route on the other hand. So we are optimizing that also. And many of these spot market products have really fallen.

It is different in some of the Long products. Maybe sheet buys, maybe rails, maybe heavy beams, etc. But for other commodities, let's say, we've had a tremendous fall because also basically they have been following the scrap market.

I also want to just add one comment. The highest EBITDA profitability does not necessarily mean the lowest cost. How do I say that?

Our businesses in Europe and in the Americas have had significant in 2008 contract business at lower than the spot price. So that is a revenue can also impact EBITDA. And, as you go through the cycle and we look at the cost base, we still believe we are low cost on a global basis and also low cost in the Americas and Europe versus competition from other parts of the world.

Michelle Applebaum, MAR.

First of all, great rundown and congratulations on all the tough steps you're taking in this sector. Can you give me some macroperspective from all your experience and years in the industry on how the production cuts look globally this cycle versus prior cycles in your mind?

We believe that this production cut in this cycle has been very swift versus the cycles which we have seen in the past. In this cycle we have seen even in September we were hoping that the market will continue to be steady and strong. But come October when we see a sudden meltdown of the financial markets, this has been in the last six weeks, and within very quickly and very swiftly ArcelorMittal has announced and adjusted productions for the demand.

So this kind of speed I have not experienced before, and I'm very pleased with this ArcelorMittal merger where in spite of a large organization, I am able to see the full alignment of the top management and our employees to the market. And this has been a good experience for me personally that I could see that organization could move very swiftly to adjust production to demand, which I think over the last cycle it would have taken four to five months, and in this cycle we could move in four to five weeks.

Okay. Can I ask a second question? I have been kind of stunned by the production cuts in China. They had cut production ahead of the Olympics, so you could argue they were ahead of the rest of the world. But then since the Olympics, they have actually cut production quite extensively, and we have not seen any movement there towards the kind of supported behavior or subsidy kind of export rebate, taxes, that kind of thing. Do you think that is going to persist? Do you think there's pressure in the country, or do you think that this latest route is potentially a silver lining that Beijing can capitalize on to affect the kind of industrial engineering and the permanent closures of the backwards polluting capacity they keep talking about?

I hope you are right in your assumption that this is an opportunity for the Chinese government to look at permanently closing some marginal facilities in the polluting companies. And we see some signs that those who are marginal producers have completely shut down their facilities. Not only they have cut production, but we hear from our business partners in China and one of our -- Gonzalo just visited China last week, and he comes back with the news that some of the smaller companies have just shut down.

So maybe I hope that this is a great opportunity for the Chinese government to reengineer the whole industrial landscape of the steel industry.

At the same time, the Chinese government has been very quick enough to announce interest rate cut in succession in three weeks, three times, which is really rare. And at the same time, they are starting to announce a stimulus package like rail refurbishments or up gradation of the railroad system, $350 million. So all these actions which we see from the Chinese government are very positive, and I think they are really looking for sustainability of the steel industry, and they also perhaps warn that the steel production should focus more in the domestic market, not really dumping their products on a global basis.

That is terrific.

Johan Rode, Citigroup.

I would also like to commend you on your production cutbacks. They are also very extensive and very groundbreaking.

I have a couple of questions on those cutbacks, though. You were saying that the turnaround has been spectacular, and in September you were running at close to full capacity utilization rates, and then suddenly everything disappears.

Can you give us an indication of where your -- the tonnes were and orderbooks were at that point in time? Were you above the industry average of around eight weeks, and if so, when will the full impact of production cutbacks actually come through in the statistics on the [ISI] and elsewhere on a regional basis?

And then perhaps if you can focus through the hedging that you have implemented in June? That clearly looks very profitable at this point with a $1 billion book value or mark-to-market already in the numbers, and that arguably was priced at $1.43 to the Euro.

But perhaps you can just indicate where that price was set and how that will evolve? Will that work out on a rolling basis, or how can we look at the profits from a hedging going forward in our analysis?

I would like to make a couple of comments here. Then I will hand it over to Aditya for explaining about the hedging.

Since 2007 and 2008, our US business had already been down. We had cut production 6% in 2007, and business was down 7% in 2008.

In Europe, too, we had seen some slowdown in the third quarter. We thought that this was more seasonal. It is like Olympics in China that everyone thought that all these production cuts in China is only do to Olympics for environmental reasons, and that will restart.

Similarly everyone expected that some slowdown in Europe is only due to a seasonal slowdown. But when the -- and at the same time, there has been a good demand from all the growth markets in September, and come October with this financial crisis, things changed. And it immediately affected and impacted our business from, say, Ukraine and Kazakhstan, which are export businesses. Where the products which are going to the industrial applications for housing and for the constructions and for the bridges, that market very quickly dried up.

For example, the Middle East market quickly dried up because there was no money in the system, and they started drying up very quickly. And then at the same time, what Christophe explained that we do not want to take risks with these customers if they are not -- if we're not convinced of their financial capabilities. So all these factors moved very quickly, and we took quick actions to stop productions there.

And in Europe and the United States, they have started declining quickly in the last couple of weeks, two weeks. And we have taken swift actions to reduce, cut production in these plants also.

So, can we anticipate that most of the production cutbacks really will be effective from end of November beginning December? So we will not see that dramatic a cutback yet in the October numbers of the developed markets outside of the US?

The summer season was over, and come in October we started to swing down. So we have got the inventories. We have cut production also to destock our inventories. So we did produce fully in October, but we have reduced our shipments in number in December. And in some of the spot markets, we reduced our production even in October.

It was not such a healthy orderbook in September as you would have expected. So already in September, there were jitters in the market. So that is where the eight-week leadtime that we would normally have in September did not really exist. It was a bit shorter, but then it became even shorter as every week progressed.

In terms of --

Also, in our investors meeting in September, we were hoping that the production cut requirement was going up to 15%. As we met in September, we did feel that there is some slowdown. and we expected only 15% production cut.

In terms of the hedging transaction, you're absolutely right. It has been profitable in the third quarter. And you're right; it was entered at EUR1.43 to the dollar, and clearly since then, the MTM has only improved.

The background is we used to do 18-month hedges, and in June/July we saw an opportunity to extend those hedges for a full-year period principally because we believe it was a hedge to the commodity cycle in some sense and made a lot of hedging sense to our raw materials purchases in Europe.

Some of that -- about a third of that hedge has been unwound in the last few weeks, and the remaining two-thirds continues for a four-year period as the level of purchases and raw materials -- overall dollar raw materials purchases may decline. We may unwind more of that in the coming weeks.

We also have a balance sheet which we have swaps into Euros. So two-thirds of our net debt is in Euros. So there will also be some benefit of that as we translate back into dollars as you mean the rate stays where it is today at the end of the fourth quarter.

And just one more follow-up on the raw materials side perhaps. So it is still early days. You're only perhaps starting -- you may not be that active in the negotiations on raw materials contracts, but can you give us a view on where you think raw materials prices are heading given the major CapEx that the steel industry is doing following the sharp upward revisions that we saw in last year?

We have seen the first sign of iron ore while agreeing to withdraw the additional price they wanted to have from the Chinese of 12%, and they have also announced production cuts. So clearly I believe that the raw materials suppliers understand. The quick change of the market dynamics, those who understand the price levels at which we're seeing in the marketplace, and the negotiations will start with this I think in good faith that all of them immediately at how we can work as a partner to have the realistic prices of raw materials to enable the industry to continue to create value for their shareholders.

Kuni Chen, Bank of America.

I will keep this short because it is obviously getting late in the call. Can you just run through the utilization rates or the cuts for the fourth quarter again in Flat Carbon America? I heard 40% in North America, but I did not catch the rest of those for Mexico and Brazil. And then for the $1.7 billion charge in the quarter, can you give us the after-tax amounts of that number? And then just (multiple speakers) I'm sorry, go ahead.

That was not me. That was someone else. But I can begin with that, and then we can continuing answering your questions.

The after-tax rate, we use a tax rate of 38%. But you do not see that in the third-quarter results because we have reduced our deferred tax liability by that amount as the tax benefit will not accrue in the third quarter, but will accrue at the life of this liability, which was approximately $638 million if I recollect. I could be off, though.

In terms of the production cutbacks at Flat Carbon Americas, when we say Brazil 30%, that looks like a very negative number. I would not read much too much into that. Brazil remains strong. Yes, there has been some weakness, but not to the extent of 30%. The reason why we have had to cut production in our Brazilian operations by 30% is primarily because more than 70% of that business is export-oriented. We are exporting slabs, and clearly the slab market is weaker than we anticipated. That has similar characteristics to the Asia, Africa, CIS business. And in Mexico, as a result, it is basically an export slab business that we have there. We have cut production by 50%.

So those were the other numbers at FCA, 40% for North America, 50% for Mexico, 30% for Brazil.

Great. And then one last question. One of the slides showed your hotrolled cash cost on a short-term basis was about 650 in the third quarter. Spot price is already obviously down to this level, and once you factor in the magnitude of the production cuts for the fourth quarter, is North America at least going to be EBITDA positive in your view?

So now you're asking for guidance, perhaps not guidance for the first quarter. But fundamentally clearly there is an adjustment to all of these costs as raw material costs decline. And that is assuming that the sale prices that you're seeing today continue into the first quarter of '09. So there has to be an adjustment somewhere. Because the key point is that our cost position we believe is on the lower end of the cost curve. And, therefore, either there would be more production cuts for the sale price to improve, or there would be more raw material cost decreases.

Already scrap costs have come down. Spot transactions on various other raw materials are lower. So, as they adjust, I do believe that fundamentally we are cost competitive vis-a-vis the marketplace.

Andrew Snowdowne, UBS.

Just a couple of very quick questions. The first one, you have given us good guidance in terms of production cutbacks and $2.5 billion to $3 billion of EBITDA in Q4. I'm wondering if you could give us some indication on the sort of price variance that you are factoring in on your selling price to come up with that target? Again, it is difficult to keep track with the rates in which prices are falling, so if you could just give us a feel as to what extent you are factoring in the price for Q4 versus Q3 achieved?

The next question, I wondered if you could give us some indication in terms of the management gains. It has been over five years of the timing of that. Is it going to be frontloaded or towards the back and in particular the additional $1 billion that you're targeting.

And then finally, I think you, by and large, answered it in the last one. Given the fact that raw materials are, by and large, on annual contracts, clearly that which is not on captive, is it foreseeable as things stand today that potentially Q1 could be a weaker quarter than in Q4?

I will answer some of the questions for you. Management gained from this $1 billion additional saving. It will frontloaded in the sense that we wanted to achieve this in 2009. And for the rest $4 billion, we have felt it will be equally distributed over a five-year period. That means effectively out of $5 billion, we target $1.8 billion to be achieved in the next year.

The raw materials costs, generally they are the benchmark pricing fixed from -- I think they are effective from the second quarter of every year, but at this time, in view of this situation, which is a very unusual situation, our management teams are working with the raw material suppliers and discussing the reality of the situation, and there will be a discussion of how we can be -- we're able to reduce the raw material prices now in the fourth quarter and in the first quarter instead of waiting for the benchmark prices discussed in the next year.

So our plan at this time is to start discussions with the raw materials suppliers to reduce our costs now.

In terms of your question on price impact in the fourth quarter, our EBITDA guidance is $2.5 billion to $3 billion, so that is an EBITDA loss of $5.5 billion to $6 billion. Approximately half of that is volume; half of that is price. So that gives you some perspective on what is happening. That translates into roughly $100 a tonne. It could be slightly higher.

Hermann Reith, BHF.

I have a question regarding the CapEx planning. Is it right to say that the reduction of CapEx will not affect already, say, steps yet which have already started, and that only projects are affected which have not been started? And what of these projects are affected?

Basically what will we're saying that, first of all, our CapEx, which have been reduced, is for the growth projects, and we believe that our -- we're not reducing any of our maintenance CapEx. We want to maintain our plant and equipment in very healthy conditions. Those maintenance CapEx will continue to be spent. They will continue to spend on the safety and the safety and health and also on the environmental projects. And other growth projects, which have not started in many of the units, will be put on hold, and we will dilute their situations once the situation improves in the market.

So there is a long list of those projects, small to big, and all of those projects have been put on hold.

(multiple speakers) -- the impact when this will be, say, reviewed, putting on hold these gross projects? What has to happen?

We wish to see normal market conditions where we see that there is no financial crisis, economic stimulus package is in place, and there is an increase in the demand. If the demand starts showing up, we should be in a position where we could say, okay, from this point onwards, the demand growth is back to 3% to 4% on an annual basis, on a global basis.

Raoudha Bouzekri, Cheuvreux.

I have just a couple of questions. First of all, regarding your Q4 guidance, I'm wondering if you could give us more color by division? In fact, I believe that we will probably report some losses on some of them. Which division is most at risk?

The second question is regarding the tax rate. Why has it been consistently so low since Q3 '07? Each quarter you give us a different explanation. What is your best forecast for Q4 and then for 2009? Thank you.

Okay. In terms of the tax rate, I don't think we give a different explanation, but I can stand corrected. I believe the message is consistent. We have significant net operating losses at a lot of our subsidiaries. At other subsidiaries we have low tax rates. And perhaps as a result of all of those actions, we have guided at a 20% tax rate, and we're achieving more in the 15%. That is a distribution of results. Perhaps we can argue and guide that the tax issue be between 15% to 20%. Clearly we have to see how as the profitability will change in the fourth quarter, whether it is still 15% or maybe 20% by then. That is in terms of tax rates.

I do not really expect any negative EBITDA from any segment in the fourth quarter. I think clearly there may be some impact in AM3S, which may have marginal EBITDA in the fourth quarter but also in stainless. I don't know if Michel Wurth or Gonzalo or Christophe want to comment on any of these issues.

No, I think you have said everything. I think that is clear. AM3S is more confronted because of the negative windfall losses we're doing due to the fact that our inventory today is higher than many of the products which have -- what the (inaudible) is there will be a negative effect, and we hope to be in the black, but it will be tough.

And for stainless, what we said in the guidance, confident on Brazil, and for Europe it will be a very tough quarter clearly.

The same for AACIS. What happens if this -- you need mainly export (inaudible) is extremely competitive. But today with the price of scrap down, it is just not the most competitive you can find on the market. So then competition is difficult.

Just a follow-up question on standards. Could you give us the breakdown of EBITDA between Americas and Europe?

Sure. In terms of the -- it depends per quarter, but in terms of -- I will give it to you immediately.

Okay. Yes, out of the 250, Europe has been 40, but we have our provision on stock there that it is around 20, and the rest is coming from Brazil.

Alexandre Weinberg, Petercam.

Most of my questions have already been answered, but maybe just two on the mining side.

So the first one, could you tell us maybe what was the cost advantage when including transport costs you had from your own mind in comparison to contract prices?

And secondly, regarding the project, is the Liberian project still ready to be ramped up in 2009, and will the CapEx reduction impact the speed of the ramp-up? Thank you.

Yes, the cost advantage we have -- I think we have an average cost of our own mine, which is around $40 per tonne. But you just cannot take the difference between this 40 and the cost of, I don't know from Brazil or Australia because our issue per tonne is a slightly bigger one. So you have to make a small calculation.

Okay.

So the project is progressing as forecasted, and we plan to ship the first ore in the middle of next year and to be able to ship 1 million tonnes next year.

Okay. And regarding the speed of the ramp-up, 250 million tonnes?

That we have not yet decided. We will decide that next year.

Rochus Brauneiser, Kepler Capital Markets.

Thanks for taking my questions. Maybe a few smaller follow-up questions. Could you give us a rough idea about the breakdown between fixeds cost and variable costs in your total Q3 cash cost figure?

And coming back to the potential inventory losses of AM3S, could you give us any dollar figure which might be behind that?

And are you able to provide us any target in that debt figure for end of 2008 at this point in time? Maybe could you just remind us what the percentage of export business was in the first nine months at AM3S?

Unfortunately the AACIS export is two-thirds -- between 60% to 70% of the book of order. It used to be more, even more, but then the CIS market is worse. It was growing -- all the steel except now where it could be led out. But normally we are two-third, one-third. Two-third export, one-third domestic. (inaudible) domestic.

I will answer the two financial questions, and then maybe Michel can talk about inventory issues at AACIS. The inventory question I should say at AM3S.

In terms of fixed costs and variable costs, our fixed cost is roughly $150 per tonne on a global basis, which roughly implies 25% fixed and 75% variable. I do not want to venture out a net debt number. It is difficult to predict what the working capital balance will be at the end of the year. We provided you with an EBITDA forecast, as well as a CapEx forecast.

And to the extent the working capital reduction is not achieved in the fourth quarter, we've clearly achieved it in the first quarter of 2009. This is the $5.4 billion that we have been -- that has been increased in the third quarter of this year.

Okay. Then concerning the question of windfall losses, we would foresee in Q4 I would say it would be in the range of between $200 million and $250 million depending on the shipments, depending also on how much we purchased lower than $250 million I would say.

Just on the net debt, what I can say is that it will be lower than where we are today.

Okay. Can I maybe ask one final follow-up question just to get a sense behind your cut in production globally on terms of crude steel production, which was maybe some 6% quarter on quarter, whereas your shipments fell by 14% quarter on quarter. Can you bring some light behind why your shipment rate was decelerating further, faster than your production cuts? Was that because the market was drying out overnight, and you just could not follow as quickly, or was there anything else behind it?

I think in some of the cases we talked it just slowed down, and the market would pick up at the beginning of the fourth quarter, which has been the practice in the past. But while we expected this due to financial meltdown, the material got produced, and we could not find the customer.

Thank you, ladies and gentlemen. We have no further questions coming through, so I will hand you back over to Mr. Mittal, CEO of ArcelorMittal, to wrap up today's conference.

Thank you for joining this conference call, and we look forward to be talking to you in the next quarter. Thank you. All the best.

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