ArcelorMittal SA (MT) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the results for the first quarter 2009 investor conference call. My name is Fay and I will be your coordinator for today's conference. (Operator Instructions).

I am now handing you over to your host to begin today's conference. Thank you.

Good day and welcome to ArcelorMittal's first-quarter 2009 results. Today I am joined by my GMB colleagues, Gonzalo Urquijo, Michel Wurth, Aditya Mittal and Christophe Cornier.

I would like to begin today's call by setting the agenda direction. When I spoke to you last time for the full and fourth-quarter earnings, I said that we have expected the first quarter to be really challenging, both in terms of the steel industry and the global economy, and this has proved true.

Over the last quarter all [CB] has stated that we are in the midst of the deepest and most synchronized recession in our lifetimes. Certainly the first quarter has been the most difficult operating environment that we have seen since the merger of -- creation of ArcelorMittal.

Yet we are seeing some signs that things are slowly beginning to turn the corner. China's economy is reaccelerating. They have the increase in the lending. They have a record growth in the fixed asset investment. And clearly we are seeing the impact of the stimulus plan.

In the rest of the world destocking of the manufacturing world is accelerating and has led to a historical and a nonsustainable low level of inventory in all the products, including steel.

At the same time we are seeing the banks' profit have improved and shown -- generated a lot of profits in the first quarter, and that means stability is coming in the financial markets.

For the steel industry the environment has been very tough. First quarter was exceptionally difficult. And we faced decline in demand and accelerated fall in the steel prices. We reported a net loss of $1.1 billion.

However, we have succeeded in strengthening further our operating position. Despite the crisis, however, we do not stop our health and safety effort, and we maintained a stable frequency rate.

On the business side, our EBITDA fell to $0.9 billion, but was in line with our guidance. Our debt position didn't improve due to the exceptionally low level of profitability during the quarter, but we maintain our liquidity and extended our debt maturity profile through new $6.3 billion of Forward Start facilities. And if you recall, we successfully completed $1.6 billion of convertible bond.

Further, you might have already read in the press release, we are launching a $3 billion capital increase, which will further strengthen our balance sheet and accelerate our net debt reduction program.

Looking forward, a technical recovery is inevitable as current 25% fall in world steel demand is far below real world GDP. Some signs of price rise start to appear, and even we should remain cautious, we see potential and gradual improvements going forward into the second part of the year.

However, ArcelorMittal should not bet on any recovery but on its own actions. We are fully maintaining our production cut, but also accelerating our cost reduction programs, and taking tough decisions to make sure we maintain our significant cost leadership over the industry.

We are implementing industrial optimization measures, which have resulted in more than $6 billion of annualized temporary fixed cost reductions in Q1 2009. And these are expected to go up to $7.5 billion on an annualized basis in second quarter.

We are also progressing very well towards our $2 billion SG&A saving, which are sustainable. We are working on reducing our working capital rotation days target to 75 to 85 days during 2009. And finally we believe that with this announcement of today's capital, we can accelerate the net reduction of $10 billion before the end of 2009. Again, all these actions will be key in our second quarter profit improvement, but more importantly, we will make the Company stronger.

For the guidance of second quarter, we are anticipating an EBITDA of $1.2 billion to $1.5 billion for our second quarter 2009.

Moving to health and safety, I am really happy that our health and safety performance has consistently improved over the last three years. In the first quarter of this year we have maintained a similar health and frequency rate. The (inaudible) was two accidents (inaudible) long one. And we continue our focus here despite the current economic environment.

I am very happy with the frequency rate maintained in the first quarter, despite of the production cuts. When the stress is high we still maintained the same frequency rate.

Moving to steel market. Before we discuss our results specifically, I will provide some comments on the steel market in general. As I said, steel demand continues to be extremely weak as a result of the ongoing global economic crisis. However, a ray of light has started to appear between the clouds.

First of all, the Chinese economy and real estate demand is reaccelerating. Since October 2008 Chinese (inaudible) domestic demand has recovered by 40%. But more importantly, real demand growth is now also accelerating, driven by the high steel (inaudible) and the record level of bank lending across the country.

Prices did not recover like demand. Chinese producers restart too early their production, but now the capitalization in China is back to 90%. Further growth in demand is expected to result in price rises.

Outside China, world crude steel production in March was down by a record 39% year-on-year basis. It was down by 45% in Europe, by 47% in Japan, and 52% in the US. These historical cuts have led to serious inventory reduction, not only within the steel industry, but through the supply chain. We believe this destocking will continue, but in some markets like Europe it is almost completed.

Scrap and flat products are rising. Prices of the steel scrap and flat products are rising again in Southern Europe. And signs of improvement in pricing have appeared globally in other product areas, such as rebar and stainless steel. In this context, we are seeing potential for price increase during Q2 and Q3 in major markets and products.

As I said, in China -- we next move to China specific. In China we saw the fixed asset investment growth increased by 28.6% year on year, and loan activity reached a record high. We believe that these actions will continue to drive real demand. And [up in] demand has also been positive and should continue to improve in line with real demand.

By the way, China is -- China's exports has not -- is not increasing. Exports and imports were equivalent in March, which is a good sign. And at the same time the level of inventories in 25 major cities had increased in February. But since March, the inventory levels are also falling in China.

In the US real demand continues to be poor. The industrial production down 12.8% in March. Automotive sales are down 37% and production declined again by 53% compared with the previous year. Consequently inventory levels are extremely low. Despite record low orders, service centers have successfully reduced inventory levels by nearly 30% over the last six months, which are in the absolute numbers our lowest since 1991.

In US imports continue to decline due to the fall in differential price and strong destocking. In Europe, same situation like US, the real demand fell 12.6%, and steel production reached a new fall of 45.3% in March, and destocking continues. Although inventories have been rapidly declining, further destocking is necessary in Europe in the second quarter.

Stainless steel, the good news is that base price has improved by EUR100 or $130 per tonne since the end of February, supported by inventory reductions. A loss -- such a decline in recent nickel price pick up on the LME. However, fundamental steel remains fragile, [given] real demand has declined an estimated 12% in Q1 in Europe. And we see no reason for this negative trend to end soon. Hopefully by the end of Q2 and early Q3, destocking should be completed and price improvement should continue.

Now I will discuss -- this is the overall market situation, economic situation. Now I will discuss our industrial plans. As I said, we are operating at less than 50% -- at what -- 50% of capacity utilization. And we will continue to do so as long as necessary. We believe the destocking will be completed globally by the end of this quarter, but we will not start -- restart production until demand, price and margin recovery have been confirmed.

Clearly operating at 50% capacity utilization is extremely painful in terms of cost. And surely it could result in doubling our fixed cost per ton. However, in this type of exceptional environment, contrary to most of our competitors, we have the unique ability to reduce our fixed costs in line with volume declines by optimizing our unique industrial network.

You can see on this chart, a steelmaker, if he is running a single production unit, and if he is facing a 40% decline in volume, he would face a strong rise in the fixed cost per tonne at 60% capacity utilization. But contrary, a multi-producer like ArcelorMittal would be able to optimize its industrial network and [variablize] the fixed cost by temporarily stopping its high cost plants and operating at high levels of capacity utilization in its low cost plants. This is a strategy which ArcelorMittal has adopted since fourth quarter 2008 and continued in first quarter 2009.

As a consequence, we have been able to temporarily reduce fixed cost by more than $6 billion in Q1, and expected to reduce further by more than $7.5 billion on an annualized basis in second quarter.

In terms of our temporary fixed cost, if you see on the management gains, as we mentioned in our last call, that we are confident of achieving $2 billion. At the end of the first quarter we already capture $1.2 billion of savings. And by end of second quarter we expect to capture $1.7 billion.

In total, these actions should allow us to considerably reduce our fixed cost position. In the first quarter we reduced our fixed cost by 27% compared to 2008. And due to further optimization and management gains progress our fixed cost reduction should represent approximately 30% in Q2. More important, our program should allow us to maintain our cost advantage of $75 per tonne over the industry.

With this overview and this market situation and industrial optimization, I will now hand it over to Aditya for the financial results.

Good morning and good afternoon. I will briefly highlight the aspects of our income statement, cash flow, balance sheet, review our financial plan, and then request my GMB colleagues to go through their individual segments.

In terms of our P&L I will walk through a comparison between our first quarter 2009 performance versus fourth quarter of 2008. Our results declined significantly in the first quarter '09 due to the exceptional market environment that we are in. As you heard earlier, EBITDA decreased by 69% in the quarter, ending the quarter at $0.9 billion.

During the quarter we also had pretax exceptional charges of $1.2 billion, which primarily related to write-downs of inventories as prices continued to deteriorate in the first quarter.

Net interest expense, including interest expense -- as well as interest income, in the first quarter decreased to $304 million as compared to $468 million in the fourth quarter, primarily due to a reduction in average net debt and lower interest rates. Net income for the quarter was a loss of $1.063 billion.

In terms of the cash flow, cash flow from operating activities decreased to $0.3 billion in the quarter compared to almost $6 billion in the fourth quarter. The operating loss, which included a non-cash gain of $503 million related to the unwind of the dynamic delta hedge, was offset by $1.5 billion of working capital generation. Furthermore, the Company made VSS and other payments totaling $0.8 billion, including a reduction in our sale of receivables program, which created a net cash out of over $835 million.

I will not expect the size of these statements to continue or to repeat in the second quarter, especially the [crude seller] receivable program. I think that a significant portion of that decrease has been achieved. Out of the $835 million, VSS payments total $159 million and the rest being the [seller] receivable program.

Our rotation working capital actually increased, even though we reached our working capital by $1.5 billion, 215 days compared to 96 days, which provides further [scope] for reduction in 2009. Our target remains between 75 to 85 days for the year.

In terms of CapEx, we spent $0.9 billion in the quarter. This includes certain CapEx payables, and therefore we expect in the second quarter, as we are completing all of our past contracts, our CapEx will be closer to $600 million, and therefore we should achieve total CapEx of $3 billion for 2009.

During the year we also made various -- we also had some certain proceeds from the partial sale of Soteg. We also completed the acquisition of a 60% stake in Dubai Steel Trading Corporation. Regardless of the first word of its name, it is still doing well. And we also sold various minority interest in land. We also paid out within the quarter $0.2 billion to our shareholders.

In terms of our balance sheet, our net debt did increase by $0.2 billion to $26.7 billion, primarily because of the reasons discussed earlier. As a result, our gearing increased from 45% to 48%, and our net debt to EBITDA ratio is at 1.3 times as of the end of March. As you know, we had previously announced and maintained our $10 billion net debt reduction target for -- in '09 compared to third quarter 2008 levels.

We are accelerating the achievements of this target by our announcement this afternoon of a $3 billion capital raising. There is a convert portion, which is a minimum of $500 million. The rest is common equity of $2.5 billion. The family is subscribing to 10% of -- at least 10% of the common inequity. Then there is 180 day lockup as part of the agreement -- part of the offer, I should say.

In terms of liquidity, clearly our liquidity position deteriorated on a March 31 basis, but primarily due to the cancellation of some lines. But adding the benefits of the convertible on a pro forma basis, it is largely intact.

In addition, we are also particularly pleased that we have extended the maturity of debts and lines by securing $6.3 billion of our Forward Start facilities. As a result, more than 90% of our credit facilities are now maturing in 2012.

Let me now move on to our debt profile. Clearly we have taken significant steps to further balance out our gross debt maturity. Firstly we, as I said earlier, we have put in place two Forward Start facilities totaling $6.3 billion. Out of that, we are actually moving $2.9 billion of debt due in 2010 to 2012 out of -- $2.9 billion out of $3.2 billion. On the maturity profile that is $2.75 billion, because additional $0.3 billion was achieved after the quarter closed.

Similarly, the convertible bond was done after the quarter closed. And there is a mandatory prepayment of 75% of the convert to the Forward Start, proportionate to the line as well as to the actual debt outstanding. Along with all of these actions, we have improved our debt maturity profile and will continue to do so, including today's announcement.

In terms of our working capital focus, as we heard earlier, we are targeting significant reduction in working capital. And our days remain higher than our target. On a mathematical basis, if we were to achieve our target, we would in theory release an additional $5 billion to $6 billion of working capital. That is based on getting the target to 75 to 85 days compared to where we are today.

Clearly, achieving further working capital reduction is part of our target of further accelerating our net debt reduction.

Now I will request my GMB colleagues to walk through details on their segments. Thank you.

I am starting with Flat Carbon Europe. Good day for everyone. First of all in terms of safety, I would say that frequency and severity rates of accidents have been stable between the end of 2008 and the first quarter of 2009, reaching the lowest level we have ever achieved. And we can say that in terms of safety things are continuously improving, which is obviously very good.

Now moving on to operations, steel shipments have gone down in the quarter by 20% from 6 million to 4.8 million tonnes due to the continued severe decline in demand impacting all finishing activities of our customers. So reduction in shipments is due mostly to lower sales in the automotive segment compared to last quarter and to a lesser extent to industry customers.

Generally supply chains in Europe remain congested, and destocking is taking longer than anticipated. Long-term contracts represented approximately 45% of our sales volume in the first quarter, providing some volume and price stability.

Cold steel production was slightly lower than shipments at 4.6 million tonnes, as our efforts of internal destocking continue.

The average steel price has come down from $956 per tonne in Q4 to $838 in Q1. That is due to a significant drop in spot pricing, which is only partly mitigated by long-term contract prices, which have actually increased slightly since last quarter, in particular due to the packaging products for which we have been able to restore profitability in 2009.

Prices have been particularly under pressure in Eastern and Southeastern Europe due, among other factors, to aggressive import offers, mostly from Russia for hot rolled material, but also from Asian producers, particularly for coated materials.

Looking now at profitability, our EBITDA for the first quarter was $462 million, which corresponds to a 52% decrease compared to the result of the last quarter of 2008. This decrease was driven mainly by the lower selling prices and lower volumes.

Our cost situation has strongly improved thanks to decreasing raw material prices and also to the strong fixed cost savings which we have been able to achieve by adapting production and structures to the lower level of demand. Nevertheless, prices have fallen faster than costs, leading to a reduction in profitability to $96 per ton.

The economic outlook has been particular -- has been regularly downgraded, and Flat Carbon Europe has adapted its industrial configuration to adapt itself to a sustained period of reduced demand.

Prices seem to have reached the bottom. Also there remains a lack of visibility in terms of volumes, which are not expected to rise in the second quarter of 2009, with the exception of the automotive segment, as car sales are presently boosted by various national stimulus plans. Flat Carbon will continue to improve its cost structure, in particular in its fixed cost, as production optimization plans announced recently are implemented.

I turn now to Steel Solutions and Services. That means our Distribution division and we are starting again with safety, I reported the frequency rate has slightly increased to 3.7 in the first quarter, compared to -- but it is better than the full year of 2008 performance. We will do our utmost to ensure that the excellent progress of recent quarters are sustained and [indeed] improved in the future.

Moving now to operations, steel shipments from [AM3S] went up to 3.9 million tonnes, roughly 200,000 tonnes above the last quarter of 2008. This increase is mainly due to higher shipments from ArcelorMittal International. That means export shipping for the other activities volumes were impacted by the general slowdown in demand. And excluding ArcelorMittal International, steel shipments in quarter one were 2.2 million tonnes, which is 200,000 tonnes below quarter four.

Steel selling prices decreased quite rapidly and reached $831 per tonne in the first quarter of this year, corresponding to a reduction of $275 or $25 per tonne compared -- or 25% compared to the previous quarter. Expressed in euros, and excluding AMI, that means the export business, prices decreased to reach EUR798 per tonne, a reduction of 14% versus quarter four 2008. And I think this illustrates well the bad -- the poor economic situation in Europe over the first quarter.

Hence EBITDA decreased from $187 million in quarter four to minus $19 million in the first quarter of 2009. This decrease is entirely due to the deterioration of gross margins, impacted by windfall losses. Indeed, due to our inventories the decrease of our cost of goods sold according to the weighted average valuation was lower than the decline in selling prices, leading to lower margins.

In terms of guidance for the second quarter, the outlook for Steel Solutions and Services is consistent with that of its main European markets, automotive and construction. Slight recovery in demand is forecast in the second quarter.

I hand now over to Gonzalo, who will comment results of Long Carbon Steel.

Good morning and good afternoon to everybody. First, I will start with health and safety as always. I have to say yesterday we had a Health and Safety Day of the Company, and it was full success, full involvement of all the employees of ArcelorMittal, and even for the first time the Board of Directors was involved, [different ordered] and visits to plants, etc.

In terms for Long products, the frequency rate in the first quarter has been 1.9, which is exactly half of what it was in one year ago. So we are very satisfied for that. We have had one fatality in Romania that is under investigation now. We are concentrating very much on safety in Long, especially with this market situation where we have a stop and go, and some plants are idled, other ones are stop and go. So it is a very important situation and we have to monitor that very carefully.

In terms of capacity utilization, we have been at 50% in Long products. Now in terms of shipments, we have been -- in shipments down, as you have seen, 3%. Why have we decreased in shipments? Clearly due to four reasons. The low economic environment, number one. Continued destocking of our customers, number two. Number three, decrease of raw materials, that is basically scrap, which has not pushed customers to buy. And last, but not least, we have seen a very important decrease in not construction-related products, but products -- industrial Long products or for manufacturing business.

If I go to the sales price, we have seen a very important decrease in sales price at 22%. Practically from $1,000 we were to $700 -- as you can see -- and $80. Now that has been somewhat offset by the raw material, especially for the scrap root, where we have seen important decreases of scrap. You remember in USA we were at peaks $800, and we have been down to around $170. In Europe, EUR440 to EUR150. Even though we have seen increases in the last days or weeks.

In terms of EBITDA, a very important decrease of practically 70%. At the end it reflects this very low volumes on one hand, and second, this very important decrease in prices. So we will continue working hard in reducing costs and generating cash, and we started a price increases, which we want to continue in Q2.

Now as for the guidance, we do expect to see an improvement in the second quarter. Why? Because stocks are lower, number one. There is also a seasonality effect referred to construction products. And we do see a sort of movement there. And we have already succeeded in some increases in prices, and we hope to continue in this trend.

Now if you allow me and you bear with me once more, I will talk about Stainless. Next page please. Safety performance, we had very good results in Stainless. We are at a frequency rate of 0.6, which is a very good one. And on subcontractors we are at zero accidents. I say zero accidents, which is an excellent number. And as I said for Long, we continue to work very hard in this mode of stop and go, idling plants, not to have any issue on this.

Now in terms of shipments, we are down 315 KT. That is minus 14%. But if we compare it to one year ago, it is minus 40%. In terms of capacity utilization, we are at 47%. One issue, which has been important in the Stainless, that has been the nickel. That it was more or less stable around $10,500 per ton in Q1, even though as you saw in April, it went up to $12,400. Yesterday it was below $11,000 once more.

In terms of EBITDA, we have not been able to generate EBITDA, but negative results in Europe compensated with positive results in Brazil.

Now we see Europe with a weak demand and credit constraints, even though the good news that we haven't had -- imports have not increased. We are at 10% level of imports, which was the same as Q4. But in terms of prices in Europe, we have had lowest base price since -- from [CRU] prices since 1994. It has been around 950, 975 base price euro tonne for base price.

Now if we see and go into the outlook, we do think the real demand will remain somewhat weak, and capacity utilization will continue low. Although we have seen already an important destocking, it will -- somewhat will continue, and we have started to increase prices. We have already succeeded in EUR100 a tonne increase in Europe, and we will continue doing our best to push prices up. So we do see Europe will remain poor and Brazil will improve for next quarter.

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

So Asia, Africa and CIS, first safety issue. We continue to work a lot on this issue. For steel operation and iron ore mine we have reached a very good level, quite comparable to the best unit of the [ore].

A point of concern remain a coal mine in Kazakhstan, and to a lesser extent in our main coal mine in Kazakhstan and to a lesser extent in [Cusbar]. You remember that in Kazakhstan we continue to run very important CapEx program, more than $140 million for this year. And we are doing a lot of progress, even if we had three fatalities since the beginning of the year in a coal mine in Kazakhstan.

For operation in this segment the market started to be difficult in the middle of last year. And then we had a very poor fourth quarter last year. And then in Q1 our volume up compared to Q4 2008. Even (inaudible) could move to be one-third lower than the level of last year.

Nevertheless, price are down, and [RBDI] down 35%. How did we do to increase volume, is not that much for a domestic market in CIS, because CIS markets are very poor nowadays. What we have done is export more. And then we have reorganized our export network in the Middle East, in India, in Africa.

And in the same time we have cut very drastically costs -- that is fixed costs, but also raw material cost. For instance, in CIS now we aren't totally self-sufficient for iron ore and coal. And altogether with more effort in export and better cost we succeeded to sell more in Q1.

For Q2 we expect volume to continue to grow around [3] million tonnes. And price will be a bit like (inaudible) that is slightly better our Long product. There is real increase of (inaudible) products, but remain to be seen in Flat. Flat Carbon price remains very flat and even decreasing slightly in China, for instance.

Thank you.

I will now walk you through Flat Carbon Americas and then conclude with guidance. Let me also address our performance on safety. Unfortunately, our frequency rate did increase in 2009 compared to 2008, and therefore we have more work to do in this regard in 2009. It is still lower than a two-year average. And I suspect it is because we have shut down a lot of facilities and removed a lot of people, but clearly we need to do a better job, and that will be the focus area.

In terms of operating results, in Q1 '09 [AACIS] saw steel shipments down 7% versus fourth quarter of 08. But there was a completely different mix. Because of the economic slowdown and weakened end user demand, we had lower shipments in North America. In the US shipments were down 23%, and in Canada down 11%. This is based on the fourth quarter of 2008.

However, in Brazil we had shipments which were 23% higher, primarily due to higher volume of slabs and some hot rolled coil exports. And in Mexico our shipments were 12% higher, again due to slab sales into Asia. As a result, the combined steel shipments were down 7%.

At SCA the impact of the crisis was evidenced more strongly in prices, which dropped 25% versus the fourth-quarter levels. Clearly more significant than volume declines. Here the story is opposite in the sense that Flat prices fell by more than 30%, while average prices in North America fell by 15%, reflecting a higher drop in spot prices, offset by more stable contract prices.

Very early on in the crisis we adopted an intense focus on cash cost and customers. We have taken various actions, releasing cash from working capital, idling facilities in line with the drop in demand, reducing fixed costs by 35%, and improving our delivery and quality, which are at record levels in North America.

As a result of such initiatives, in the first quarter Flat Carbon Americas was able to generate positive EBITDA of $87 million, which still is an 80% reduction from the fourth quarter of 2008.

In terms of guidance for ArcelorMittal, as you have heard from all of the various GMB members and earlier on in our presentation, we expect overall volumes to be marginally higher due to Long products, as well as improved shipments in our Asia, Africa, CIS segment.

Prices are on average down for the Company, even though there are price increases that are in the offing. We heard about Stainless, about Long in various markets, as well as increases in hot rolled coil in Southern Europe.

Offsetting the fact that we will have a lower average steel price, is that we should have some raw material cost reductions, which begin to kick in. And most importantly is a fixed cost reduction, in which we grow from $6 billion to $7.5 billion in the second quarter, which drive improvement in our second-quarter EBITDA.

So overall we clearly have a very strong and clear low-cost strategy in developed markets through the idling of facilities and reducing our fixed cost base, and increasing volumes in developing markets. As a result, our EBITDA expectation is between $1.2 billion to $1.5 billion for second quarter.

And to conclude, our intensified industrial and financial plan demonstrates our commitment to take necessary action as we navigate this crisis, as well as enable ArcelorMittal to maintain its leadership in the global steel industry.

Now we would like to open the floor to questions. Thank you.

(Operator Instructions). Michael Gambardella, JPMorgan.

I have a question regarding steel inventories, just in general. When people in the steel industry talk about inventories, they are talking largely about service center inventories, because those are the only numbers that get reported.

My sense is, talking to some of the distributors, is that a lot of the distributors, especially outside of Europe, are smaller firms that don't have credit availability really at all. And that the service center industry has been pushing the inventorying of steel back to the mills. So that the mills are acting as the inventory base for the service center industry around the world.

Are you seeing any of that? And also in terms of your own inventory, can you comment on what the steel inventories look like at ArcelorMittal on a volume basis, so that we can ex out the impact of the inventory write-downs and decreased prices in the market?

Okay. I will start speaking a bit of Long. First, I think you cannot generalize and will have to understand it by product, by family of product, by regions, in order to get a good feeling of this.

So if you allow me, I will go a bit for Long in different areas of the world. In terms of stock, I have to say that in general with our 50% capacity cuts, we have not been increasing on the stock. As the CFO said, we have even reduced our total operating working capital. So we have made a tremendous effort. And we have been in advance with what has been the fall of that demand. That would be my first comment.

My second one I am going into the Long products. We have seen -- it is true that many of our customers are smaller customers. Everybody has a liquidity, a balance sheet situation. And there is issues of credit risk with our customers and with the customers of our customers. So everybody is taking a good care of all that.

Now we have seen, I would say, that stocks -- I think in absolute terms, or in terms of tonnes, are much lower than what they were one year ago at the end of the year in Q2. But very important differences.

Now, if you look at them -- I am talking let's say of Europe now if you look at them in terms of the sales that you are doing now, if sales are doing down 40%, for example, well those stocks may still seem high, or starting to have an adequate level. You may see them, for example, for Long products in the distribution activity around 90 days, between 80 and 90 days.

But I am telling you in terms of the actual sales, if the market moves at any moment and at a moment, or you compare them to the past, they are much lower than that. They could be close to 60 days or 65 days what was the sales in the past.

Now if we go to the Americas, for example, we have seen an enormous effort and enormous decrease in stock of Long products. I think a lot has been achieved in Europe and in the US, that I am saying now, but once more I think, even in general, are conservative. That is, people are not willing to fill up their stock or their inventories, so we don't have as of today that game of apparent demand.

We do see that people are selling what they are really -- they are buying -- sorry -- what they can sell. They are not willing to fill up their stockyards, that is clear. So that game as of today is not there, at least for Long products.

But I tell you, we have seen a very important decrease in US. In other areas of the world we have also seen a decrease -- And in Europe Middle East and other places. And in Europe also, we have seen a very important decrease.

For Stainless in Europe we have all seen a very important destocking that started even earlier than in Long and in Flat products. It started, for instance, mid last year. But once more demand is low. So at the end, if you compare it with the demand we are having now -- with stocks now, are probably at the same level we had them six months ago. That is what I have to say for Long and for Stainless. And then for Flat?

Let me first try and answer Michael's question on a global basis, and then further clarifications on each geographic area. We can get into that. Globally we had about 8.5 million tonnes of inventory reduction.

And Michael, you are right in the sense that part of the 8.5 million more than 6 million was raw materials. So really it is an inventory reduction -- a raw material inventory reduction story. So to that extent, our finished products on a days basis globally did not face a significant dent. And maybe you are seeing some of the service centers managing with lower inventories because they are storing it at mills.

I do not really share that view in terms of the North American business. I think there is -- because of some price erosion that occurred, people suddenly stopped buying and they want to see what happens next. I think that is what it is. But the level of inventory is very depleted.

And what we are seeing it is our service centers are actually trying to buy from each other, which is not sustainable. And they are clearly not making a profit. So therefore that is our perspective on what we are seeing in terms of the inventory situation.

Michael Shillaker, Credit Suisse.

I've got a number of brief questions. First of all, how realistic is the $5 billion to $6 billion of net working capital reduction if you hit your target? Because that would imply, if you add in the $2.5 billion from the equity issuance that actually your net debt is going to be substantially below the $22 billion, which is the $32 billion less $10 billion that you have previously guided to. Or you are actually expecting a cash drain at the operating level, and therefore you do 22 (technical difficulty) what you are effectively doing on free cash out of the business.

The second, very quick question, can you tell us what the implied Forex gain in Q2 guidance is? The third question from me is the Mittal family are only subscribing to 10%, or at least 10%, but I assume it is not going to be the full amount. Did this put any constraint on ArcelorMittal in terms of what it was actually prepared to go to the market and raise?

My final question, which I think is really crucial for the way the cycle shapes up. What are you expecting in terms of a Q3 summer slowdown? Because normally you would expect a weaker summer. The reality is, if you get a summer slowdown this year, given people are very, very queasy in terms of operating free cash, your net working capital for the industry is done by the second quarter, or should be done more or less by the second quarter.

If you get a slowdown in the summer, is there a risk that people are forced to look for volume over the summer into a very weak market? Which to me is the difference between a much better second half if Q3 is better, and an absolutely disastrous Q3 -- second half if Q3 is worse, because the industry could see discipline breakdown over the summer. Thanks very much.

Thank you for your questions. I think in some sense your first question and third question contradict each other, because at one point in time you imply that perhaps you're raising too much of capital because we will be at less than 22.5, and then asking whether the family imposed a limit on ArcelorMittal. Well, the family did not impose a limit on ArcelorMittal. I think the Company believed this was the right amount.

Let me try and see if I can answer your first question as to why we believe this amount is appropriate. You're right, in terms of working capital, if we achieve our target then our net debt would get reduced quite significantly. The reason why we are not revising our target downwards is not because we expect significant cash losses due to our earnings, but primarily because as soon as the cycle picks up, the days will also shrink. So we have to appreciate that the $5 billion to $6 million working capital assumes no volume improvement. And there is a possibility that we could have volume improvement occurring in the fourth quarter, or starting in the third quarter.

I can give you an example of a subsidiary we have, Asia, Africa, CIS is a great example, which is planning to be operating at 100% capacity. We have other facilities in our developing markets, which today are operating one out of three blast furnaces and intend to operate all three blast furnaces in the fourth quarter, because their costs position is so excellent that they make money even if prices don't recover.

As a result, we do have plans to fund some of this working capital back. Clearly that will not happen if the business cycle does not improve, but we expect that. So that is how I think we do our math, which makes us comfortable in achieving the $10 billion net debt target, and making sure working capital is adequate to supply our plants with the right amount of raw materials.

In terms of Forex gain, I think that is a great question. The guidance for the next quarter is less than [$115] million. Basically we took the charge, or we had to take a charge under IFRS in the first quarter, because we are aware that we would not be buying as much raw materials in 2009, and the prices would be less.

For example, (inaudible) the hedge program applies to about 8.3 million tonnes of raw materials. And under their operating case they're going to be procuring only 3.6 million tonnes of materials. We should not translate that into an operating rate, because clearly a lot of in-sourcing is happening. And our iron ore self-sufficiency, for example, has increased to 65%, largely due to SCE.

We have those effects, and since we were aware of that, and that was the sourcing strategy, we had to take the 5 million tonne hedge gain out of the 8 now. And the rest of the hedge gain will be divided over the next three quarters as we take down the raw material.

I am not sure exactly what you're looking for, the Q3 slowdown. I mean, from our perspective, the developing regions are ramping up, so we are not seeing that slowdown. We believe in the United States we are -- this summer we should hit the low point in terms of inventory. So the risk is more on an uptick which comes sooner than later.

Sylvain Brunet, BNP Paribas.

The first question I had was related to the offering of this afternoon. Could you please confirm if we are looking at new shares to be issued, or if we are talking treasury shares to be recycled? In which case, should we expect the risk of a capital loss?

The second question is whether the family would be following the offering in cash or if you would be required to use a (inaudible) or anything? As there are plenty of rumors in the market, I think it would be very useful if you could clear the air on that. Thank you.

The family would be following the offering in cash. I don't know how else we would follow it, but we are following it in cash. And if the offering gets upsized then we would be following the 10% as the offering gets upsized. And then we will make a final determination if it is greater than 10% in terms of the take-up.

We haven't fully decided whether it is treasury shares or new shares. I would say it is a combination of both. I think we would be limiting the extent of any impact on our financial statements.

Are we right to assume that you had $5.8 billion of treasury shares on the balance sheet at the end of December '08?

I can give you the exact number if you hold on. The key -- the value is -- $82 million roughly treasury shares -- as of year-end is $82 million. And roughly the value is $70 per share, so you are absolutely right, that is 5.6ish. Normally, if you sell treasury shares though it does not generate an impact on the P&L. It flows through OCI, which is on the equity side. So there may be some impacts on OCI, but not on P&L.

Nik Oliver, Merrill Lynch.

Just a couple of accounting and questions are left. Firstly, Aditya, you mentioned on the cash flow the sale in receivable. Just to confirm my understanding, is that effectively outsourcing and debt collection or receivable collection to a third party? And if that is the case, could you just quantify the beneficial effects that had on working capital, because I'm assuming that is involved in taking some working capital off the balance sheet?

Secondly, apologies if you mentioned this already, I joined late. The delta hedging gain in Q1, could you just confirm where that appeared in income statement and profit line it fell into. Thank you.

The delta hedge falls into cost of goods sold. So it is in EBITDA and in operating income. So that is the line that it flows through, because it has to do with the hedges of raw materials, and it is over four years and we are continuing it.

In terms of our sale of receivables, the program actually declined, because the pool of receivables available for sale actually shrank. So you could theoretically argue that the working capital decrease of $1.5 billion should be offset by the sale of receivable program negative.

Okay, that's great.

We do this program because it creates a lot of efficiency in our system. We create the invoice and we sell the invoices to a third-party and we get the cash. And that is a program we have had for many years, and we intend to continue. But as the volume of receivables, not because of partially number of tonnes, but primarily price has shrunk, the proceeds from such a program have declined, and hence have created a cash out.

Johan Rode, Citigroup.

Just a few questions. As you didn't exclude this hedging gain from your EBITDA this time around, and therefore -- can you -- underlying EBITDA therefore has to be reduced by this $503 million, can you perhaps give us guidance of where your underlying EBITDA as guidance will move to in terms of that $1.2 billion, $1.5 billion? Or alternatively, doing that on its back, how much of this hedging gain do you assume in that guided range of $1.2 billion to $1.5 billion for the second quarter?

The second question, just on the talk on the China capacity utilization rate increasing to 90%, we also hear talk that the export rebates are increasing. And clearly, as you mentioned, with Mittal that you are not seeing any exports in March. But it takes a while to produce these finished products. It seems that with low transportation costs, and with your own production also increasing in AACIS with these low production costs, that any demand pickup at the back end of this year could just place further pressure on prices from China and AACIS and other producers in that region. Just your comment on that.

Then just finally, just to get final clarification of this debt reduction target, that you have mentioned, the $10.5 billion. At this point the $10.5 billion is excluded of this capital rights issue, or you don't change that because of the upside. So in a sense at the beginning of this year, or at the end of last year when you gave that guidance, you thought that -- you didn't think of these specific rights issues, but that the market has deteriorated by the extent of the size of the rights issues. Can we read it like that?

In terms of the dynamic delta hedge, as you know, there is $778 million of income for 2009. The reason why it continues to flow through operating activities is because we are continuously entering into hedges as well. We still have $1.5 billion worth of hedges outstanding. And we are -- what we are doing is there are lower cost raw materials as a result to SCE, and so in that sense it helps the operating results of SCE.

There is $778 million. The $503 million has been recorded, as I mentioned earlier, in the first quarter, which leaves about $275 million, and that will be over the next three quarters. In terms of guidance, I don't have an exact number, but I would expect it to be between $100 million to $150 million in the second quarter. It could be less as well, but that would be the number I would expect today.

I will answer the debt question, and then we can talk about -- Lakshmi can talk about China. I think that is a good question. I think we have just launched this offer. We need to complete it and then reevaluate where we stand in terms of our net debt targets.

On China, when I said 90%, I meant that they have reduced their capacity utilization down to 90%. In January/February at one point China had increased their production to 100% capacity utilization. So when they saw the opportunity is not there for export, they reduced 90% capacity utilization.

They are in the destocking situation now. They are trying to reduce their inventories, which is a good thing. At the same time they are getting impacted by the stimulus package and the lending program, so their domestic demand is growing.

In the month of March we have seen that China had also starting to import steel. So they exported about 1.7 million tonnes. They import about 1.7 million tonnes, which means China's steel industry today is not really for major export. They want to contain their exports, and also they want to supply more to the domestic market.

You are right that there has been export (inaudible), but it has not still -- they do not find it too interesting or economically viable to export. At the same time, the demand has been weak there. And the debt area has been weak to accept the exports.

CIS, clearly in view of their currency devaluation, they have become low cost producer. But in recent last few weeks we have seen that Russian currency has slightly appreciated also, so it puts also pressure on them on the cost side. And at the same time we are seeing the demand increase in some of the areas in the Middle East, which allows them to also increase their volume.

Overall, I believe that the emerging markets are turning out much better. As I said -- I said this in my press call that India is seeing a very -- showing a very positive sign. Their demand growth this year will be positive 5%. While the Steel Association has come on with the negative growth for China for 5%, but we believe that they will be in a positive area between Europe to 5%. We are seeing demand improvements in Middle East. So all this will allow that there will be less pressure on imports from China, and there should be some tendency to increase pricing.

Just one final question on emission rights. Some of your competitors have announced that they have sold some of their rights in this last period. And operating rights are significantly below the level required for your rights, so you are actually building rights. Have you sold any of these rights in this period? And if so, what effect was that on the P&L?

We have not sold any of these rights -- the CO2 rights. We still own them. They expire in 2012, so you would have to take a much longer perspective to actually sell them today.

Rochus Brauneiser, Kepler Capital.

Three questions come if I may. That one is related to the timing of this rights issue now. What does the timing imply as it comes a month after the convertible bond issue?

Does this mean there is less confidence in a recovery, because obviously you still are confident to reduce net debt by $10 billion? So does this mean that you're less positive on the second half EBITDA outlook? That is the first question.

Second question is, based on the slides you presented, obviously the EBITDA guidance for the second quarter is based on a crude production of some [15] million tonnes. How would this number change if you would produce 1 million more or 1 million less?

The third question is more on your view on the medium-term demand and supply equilibrium. Is there any need from your side and from competitors to shut down capacity at least for a year or two, or maybe longer, just to keep -- to stabilize prices in the medium term?

In terms of what we announced this morning, we announced a common stock offering, as well as a convert at an accelerated book bill. In terms of the convertible bond, when we announced the convertible bond we had not issued guidance. And therefore before raising equity, we wanted all the information out in the market, which we did this morning. And after that we announced our common stock and convertible offering.

I would not read too much into it. The only other thing I would add is that the convertible also convinced us that there was a strong investor appetite, so in some sense accelerated our thinking as to that we should think about doing something earlier. And therefore we have done this to accelerate our net debt reduction target, which strengthens our balance sheet sooner than our target. Which I think is a net positive for the Company, because it opens up various options, and it is not German by a deterioration in our outlook of the second half. So that is the thing.

The other small point on 1 million ton production, if we produce 1 million tonnes more, it doesn't really have an impact on EBITDA unless we sell it. So in terms of shipment, the value of 1 million tonnes, our fixed cost are running at about $250. So if you add a contribution margin or a variable of $50 million to $75 million, that is giving you about $300 million of EBITDA. So clearly we are volume sensitive, like most other steel companies, but we will not sacrifice price or volume as that is our stated strategy.

On your third question on this capacity shutdown, I cannot speak or make comments about our competition, what they should do, but ArcelorMittal has temporarily shut down facilities in Europe. And where they will not produce the demand does not improve. That is why we like to maintain our market share to cater our customers.

At the same time there has been some cases in the United States where we have shutdown, like Lackawanna and Hennepin. And there we have taken those steps, but otherwise we will continue to monitor the situation that -- what is the demand and economic development, accordingly we will take action.

Clearly in today's time it is very important that our plants remain the cost leader. So we believe that those plants who are cost leaders will continue to be loaded first. And the future of those plants, which are temporarily shut down, will depend on cost competitiveness of those plants.

May I add a follow-up question on your Stainless division? You mentioned the loss which has been generated in the first quarter. Can you become a little bit more precise on the amount of loss?

Yes, the lost is just below minus $5 million in the first quarter. That has been the loss in the Stainless steel due to these very low prices we have had, especially in Europe, very low volumes. And also in Brazil we have been impacted -- remember it is the South Cone -- with the month of January that is vacation, so volumes have been lower there.

But at the end of the quarter, beginning of this quarter, we have increased prices in Europe 100 EUR100, and we plan to go further during the second quarter in increasing prices.

So Europe was minus 5.

No. That is the net between both between Brazil and Europe.

And Europe alone?

Has lost more and it is being compensated by Brazil.

I have some specific numbers, if you want to provide them.

Yes, yes, sure. I have no problem. The specific numbers are minus 40 versus at the end that is Europe, and the rest is a positive in Brazil. That would be plus 35. So the net net is minus 5 in round figures. (multiple speakers)

Andrew Snowdowne, UBS London.

I have a couple of questions just specific to the results, if I may. I am wondering if you could give us some guidance on the tax rates you apply as for full year. There is quite a big swing in (inaudible) losses. There is a tax gain between Q1 versus Q4. So any guidance there would be very helpful.

Then maybe with certain rotation days where we saw a big increase in the quarter, I wondered if you could give us the split between inventories, receivables and payables? And maybe some comments as to why they have did increase, because if I understood correctly, at your results you are suggesting that you are expecting that number to already be in line, or on track to hit your target of 75 to 80 days. So what has really gone wrong there, and why are you still comfortable that you will still achieve your target of 75 to 80 days?

Then a final question is, maybe if you could give us more comments in terms of the family's participation in the capital raising. Was it under consideration to participate in-line with your current holding, or is there any -- could maybe give us more in terms of why are you participating to the extent of 10%?

I think I missed your first question, so if (multiple speakers).

(inaudible) tax rate.

Yes, the tax rate. That's right. That is a great question. It is an area where we have tried to dig deeper to provide some guidance, but we are not really there.

It is quite sensitive when we get into loss territory, because if we have zero net income then theoretically the effective tax rate could be 100%, even if we have a few million dollars of tax losses.

What is happening though as to why the tax rate has increased is primarily because we earned income in significantly lower tax jurisdictions and lost more money in higher tax jurisdictions. So if you think of $2.2 billion as pretax, we lost about $3 billion plus in higher tax jurisdictions. And you offset that by 30% and you get $1 billion and -- we earned and about $1 billion in lower tax jurisdictions due to various previous deferred tax losses or certain lower tax rates, and that is why you get the 49%.

So that is basically the reasons. I cannot really give a guidance on that. That is very difficult. As the economic environment stabilizes, we can start giving guidance on our tax rate.

In terms of working capital, yes, we had expected to do better in Q1. And I expect our efforts will continue in the second quarter. But clearly we had industrial limitations in terms of reducing our finished goods inventory, just because we did not want to flood the market with steel, and we were still operating at 45%, where we did make a significant -- where we did make significant progress was in terms of raw materials.

I am not clear on what your question was on receivables versus inventories.

I'm wondering whether you could just give us specific days to make up the 115 if you split it between inventories, receivables and payables?

The days versus inventory -- let me try and see if I can find that. In the meantime, do you want to talk about -- I think I have it here now. In terms of days for inventories it is 119 in the fourth quarter. And first quarter is 138. -- 133. So inventories have gone up by approximately 14 days. And trade receivables have also increased by 10 days. And trade payables have gone from 50 minus days to 56. So that gets you the difference. We were in the fourth quarter on, I guess, 96 days and now we are going 115 days.

Dave Martin, Deutsche Bank.

Just a couple of questions. First, on the balance sheet, can you update us on progress to renegotiate covenants or debt terms? I would have thought that you would have possibly accomplished that via an offering of this size.

And then secondly, can you update us, is it still your view that the covenants, as currently stated, exclude any inventory charges in that calculation?

In terms of our covenant, we are not in any discussions on waivers or anything with any of our banks. I don't know, that was your first question.

In terms of the balance sheet and today's offering, I am not clear on the specific question as to why the thinking was on 3 versus some other amount.

No, I was just more curious about any discussions to restructure your debt terms or covenants, not necessarily on the size of the offering.

We are not in any discussions with our banks on a covenant waiver.

Then as far as the actual calculation, that excludes inventory charges?

Which calculation?

The covenant calculation.

Oh, the covenant translation. In terms of the covenant calculation, you have the same documents as I have. Extraordinary items are excluded. Extraordinary items no longer exist in the IFRS as of 2003, and these documents were created post that event, and therefore counsel has advised us that exceptional is equivalent to extraordinary. And inventory charges, as you know, are considered exceptional charges under IFRS.

My second question, just coming back to your comments about China, it is my understanding that they have essentially achieved in the first quarter their total loan growth target for the full year. Given that their steel market continues to struggle, are you expecting them to expand their loan growth initiatives or stimulus initiatives in total?

We believe that they will have almost the same demand like last year, in spite of the fact that their exported products made of steel will go down. Which means that the stimulus package will grow their domestic demand, which will offset their lowering of exports. And that means their domestic market will remain strong. This is our opinion.

Nick Hatch, ING London.

Three questions. First of all, and apologies, I missed a bit of the call. But can you just confirm that the hedge -- the raw material hedge is fully applicable to Flat Carbon Europe, both in terms of the $503 million and the residual $275 million. That is my first question.

Second, in terms of working capital, you're talking about $1.5 billion. But in the text of the release, on page 11, and I may be missing something here, you talk about the operating working capital dropping from $21 billion at the end of '08 to $17.9 million. Can you just reconcile those two figures for me?

And then lastly, I am a bit surprised at having decided to have an equity offering you didn't have a rather large discounted rights issue. Obviously put (inaudible) 20 suggestions in the market that some additional financing may be required at some point.

I am wondering if you could just give any sort of flavor on what sort of assumptions you might be making on ongoing EBITDA going forward there, and also explain why you didn't go for a larger equity offering?

In terms of your first question, yes, the whole dynamic delta hedge applies to Flat Carbon Europe. And so you would see that in [SCR] results going forward to the extent that the remaining $200 something million is unwound.

In terms of operating working capital, the change is you have a reduction of 1.5. And then we have to add the inventory write-down that occurred of $1.2 billion within the quarter. And we need to add the currency translation adjustment. There was a big change in the value of our working capital, because on December 31 the dollar was 1.39. It was weaker compared to the euro, and a lot of our working capital is in euros. And then the dollar became, as on March 31, we closed, I believe at 1.3031, and as a result the value in terms of dollars declined. So those were the three effects. And roughly the remaining gap is the exchange rate effect.

In terms of our thinking going forward on a rights issue or the size, I think I want to comment on the size, because we wanted to do something on a timely perspective, and accelerated book bill achieved that.

Number two, you have seen the EBITDA guidance, it is about $1.2 billion to $1.5 billion. What we are -- what we are suggesting, or what we believe, that there will be a couple of factors which will come into the second half which should be positive. And you can make your own determination whether those factors are appropriate or not.

Number one, we will have the full impact of our fixed cost reduction. As I mentioned earlier, in Europe a lot of the idling has occurred. But it didn't happen exactly on the first of the quarter, so some of that impact will still come in the third quarter.

Number two, raw material prices are coming down. Iron ore negotiations are not finalized, but we are still buying iron ore and coal, and we are buying them at [end] prices. And so that positive incremental benefit will be there.

Earlier on in the call you heard about the sensitivity to volume. So assuming a technical recovery 10% volume increase, we are shipping approximately 16 million tonnes. It could translate into an additional 3 million tonnes. And 3 million tonnes on $300 million of fixed cost or contribution is quite a lot. Because that is almost $900 million EBITDA. You can make your own assessment whether a 10% recovery on our existing shipment level will occur in the second half.

Then we talked about discussing with our customers whether we can affect a price recovery. Clearly there are certain signs, but it is not across the broader market. And maybe it will become across the broader market in the second half.

Those are some of the things that we are looking at when we think about the second half and our operating performance. What I really want to underline is that there has been a tremendous cost performance at ArcelorMittal in Q1, and those efforts are continuing and further being strengthened.

Mark Parr, KeyBanc Capital Markets.

I had a couple of questions. Also, I wanted to make a comment first of all. Just because your Company has been so instrumental in addressing the need for consolidation in the steel industry, and looking at the way that steel companies now have access to capital in the midst of an economic downturn, this is something I think it would be almost unimaginable in previous downturns. I think you should really be congratulated for your foresight and for the tremendous progress you have achieved in helping the industry become healthier over the past five years.

Along those lines, I just had a couple of questions. First, if you could talk about your thought process around the statistic value of upstream integration. And in this environment, if there is anything you are looking at that that we could expect?

Lastly, a question on your current raw material position in North America, and whether -- what you are seeing there as far as pricing is concerned and your supply situation? Thank you very much.

Thank you very much for your comments. And I think I would like to share your congratulations to my colleagues in the industry, because it is not only ArcelorMittal who participated in this consolidation. Of course, we lead the process, but the industry as a whole participated in this consolidation process. And if it would have been 2001 scenario in 2009, I think we would have seen a very serious situation in the industry.

If you recall in the last recession, industry operated at more than 80% of capacity, and was still they could not survive. But here you can clearly see that industry has changed his (inaudible). It has become much more stronger, healthier and much more profit oriented than the volume oriented, so which has allowed industry to survive even in -- do well relatively in this kind of environment, which is unprecedented since the World War.

I am very pleased with the progress the industry has made, and in particular ArcelorMittal. And we are clearly taking right decisions in this environment to cut production to meet our customers' demand. At the same time not -- at the same time cutting costs all over the Company. And moving towards strengthening the Company further. And this afternoon we announced new equity issues. So all these actions clearly prove that industry -- ArcelorMittal is moving into the right direction.

Second, on the raw material strategy, we still believe that our raw material supply source are very strong and very cost competitive. We will continue to operate them. And some of the projects which we have in hand will restart once we see that there is a much more clarity and visibility on the demand side.

And as the economy will grow, ArcelorMittal will continue to look for all those opportunities. And the strengthening of the raw material or our growth plan which we had for the time being put it on the hold, and we will see in the future what we do.

Could you talk a little about your North American raw material position right now?

Yes. That is not a happy story. That is actually quite an ugly story. We have a long-term contract with Cleveland-Cliffs. And today the pricing is based on 2008. Clearly there will be some relief in 2010, based on where 2009 is.

As you know, it is partially PPI, one-third PPI, one-third global [pellet], and one-third [hot pan] price. So it has a market flex which we should see in 2010. That covers about a majority -- a significant majority, I would say 70% of our iron ore buy. And the rest is Minorca and [having] mines.

Since that contact has a fixed quantity, we have had to shut down our existing lower cost operations, so that we do not build inventory. But we are still building inventory in our US operations, as we speak.

In terms of coal, we have certain -- a coal legacy contract as a result of the way our coke factories are structured and the way we buy coke. But the rest of our coal contracts are in the open market. And largely we have succeeded in getting benchmarks prices or very similar to benchmark prices.

Ephrem Ravi, Morgan Stanley.

Most of my questions have been answered. Just two questions. One, I didn't see a discussion about dividend this time around. I just wanted to know, before the capital raising was there a discussion within the management board in terms of eliminating the dividend and using that as the cash buffer, rather than capital raising? And to kind of -- did the family's cash flow from dividends have an impact on this position?

The second question is on the fixed cost reductions that you talked about due to hot idling. At what point do you decide to go in terms of wholesale, not just hot idling, but permanently shutting down material amounts of capacity? And what kind of one-off cost per ton, if you will, would you be expecting today if that turned out to be the case?

In terms of the dividend, as you recall, we had reduced our dividend. We had halved our dividend in the previous quarter. We had the discussion and generally, especially from Investor Relations, we felt that the medium term, long term fundamentals of the Company are fine, and therefore we should not further reduce our dividend, as that would send the wrong message. That was the discussion we had.

In terms of our fixed cost idling, I think we showed you on a slide that maintaining some of these options is quite low cost. Because -- for a short period of time. Clearly if that becomes longer than six nine or a year, then some of the costs begin to increase. So that is a strategy at this point in time.

We had not really evaluated the cost of permanently shutting down capacity. We are still trying to determine the statistic outlook on a 2 to 3 year basis, and then decide if any capacity we want to permanently idle.

Clearly, there is some discussion in the United States. We have shut down Hennepin and Lackawanna, which on a combined basis takes out over 1 million tonnes back of coated galvanizing capacity. And as I mentioned earlier, we did not go ahead with the line -- or the additional CGL line, and therefore theoretically we have already taken out 1.6 million tonnes of finishing capacity. And we are doing a bit more in Canada as well.

So there had been movements made to adjust to the market. We now need to see how that 1.6 or 1.2 impacts the rest of our finishing operations, and if it has any impact on our upstream facilities.

It may not be a complete shutdown of a full facility. It may be shutdown of portions of facilities. So all of those decisions have to be made once we have a clearer perspective in the United States of our medium-term strategy. (inaudible).

If I can just have a follow-up question on that. And I promise is the last one. Your (inaudible) capacities are in 130 million tonnes. And at Q2 run rates, even when you have the recovery -- the volume recovery, you are effectively talking about volumes doubling from current levels to get up to anywhere near full capacity. And obviously there is a capacity creep that happens every year.

At what point in time do you basically have to take it on the chin in terms of capacity reductions? And does your balance sheet position and the one-off costs that involves hamper you in any way in taking the first step, as you took in the case of consolidation, to start the process of capacity rationalization as well?

It is early at this time to decide on that matter. Today we still believe that the economy will start reviving. And we have to further watch and see what is happening in the economy. How the economy is playing out. And for the time being we do not think this is to look at permanently shutting down the capacities in Europe. We think that there is still time to revive those capacities, and we will monitor it and see.

There are no further questions in the queue.

Thank you very much for your participation, and look forward to talking to you next time. Thank you, bye-bye.

Thank you.