ArcelorMittal SA (MT) 2010 Q4 法說會逐字稿

Dear owners/investors, welcome to the ArcelorMittal's full-year and fourth-quarter results 2010. Please note that we will take a maximum of two questions per analyst and investor. If there is time left at the end of the call, we will be happy to take your additional questions.

I leave the floor now to Mr. Lakshmi Mittal, Chairman and CEO of ArcelorMittal. Please go ahead.

Good day to everyone, and welcome to ArcelorMittal's fourth-quarter and full-year 2010 results call. Today I'm joined on this call by my GMB colleagues Gonzalo Urquijo, Michel Wurth, Aditya Mittal, Christophe Cornier, Peter Kukielski, Davinder Chugh and Sudhir Maheshwari are on the call.

Before I start the presentation, I would like to begin with some opening remarks. 2010 was another year of challenge for ArcelorMittal. We saw a slow and progressive recovery in the underlying demand, quite consistent with our expectations. However, we faced unexpected challenges from significant volatility in raw material pricing. This led to big swings in markets and demand and impacted our financial performance.

Overall, though, I am satisfied that our EBITDA was over 50% higher than that of 2009 and that we have taken steps to further strengthen the balance sheet.

As we look to 2011, I am pleased to see the progress in demand recovery continue, with signs of some acceleration in the US. Selling prices are recovering, but positive momentum needs to be maintained, as we are facing acute pressure from raw material costs, which continue to be one of our biggest challenges.

Overall, I expect 2011 to be a stronger year for ArcelorMittal than 2010. I'm also pleased at the successful spinoff of Aperam and excited by the prospects of our new iron ore acquisition, Baffinland.

Moving on to the agenda for today, you can see on the screen, I will provide the highlights of our fourth-quarter and full-year results, a review of the market outlook. Then Aditya will cover the financial results in greater detail and conclude with some details on the guidance for the second quarter.

Starting with corporate responsibility, we are pleased to report that our health and safety performance improved for the fourth year in a row. In 2010, our lost-time injury frequency rate decreased to 1.8 from 1.9 in 2009, with significant improvement in our mining operations.

Clearly, substantial progress has been made over the past four years. However, we are striving to be the safest steel company in the world, and we believe our performance can be improved further still.

As a continuation of our ongoing effort in this area, a health and safety summit for the senior management team of ArcelorMittal was held at the beginning of this year. Here we had an open discussion [among a number of] teams which will form the basis of our future action plans, for example, further strengthening of fatality prevention standards.

As always, we have our annual health and safety day coming up in April. I want to assure you that ArcelorMittal's journey to zero remains the ultimate goal and that safety is the number one priority of the Group.

Turning to financial highlights, our full-year 2010 EBITDA was $8.5 billion, a 52% increase as compared to 2009. This excludes $400 million from Aperam, which we have accounted for as a discontinued operation.

For the fourth quarter, we reported EBITDA of $1.9 billion. This includes $100 million from the sale of CO2 credits which was not included in our guidance.

Looking at our shipments, overall we shipped 85 million tonnes of steel in 2010, representing an increase of 22% over 2009. In the fourth quarter, shipments increased by 3% sequentially to 21.1 million tonnes.

During the year, we generated $3.8 billion of cash from our continuing operations and invested most of this back into the business. The final quarter was particularly strong in terms of cash flow, leading to a $2.3 billion reduction our net debt, which was $19.7 billion at the end of the year.

As I mentioned, 2010 was a year of slow and progressive recovery in underlying demand in the markets we serve. As you can see from the charts on the screen, apparent steel consumption improved in the major regions during 2010. Globally, apparent steel consumption increased by 14% compared to 2009. But it was from a small [drive]. As you will recall -- it was far from a small drive. As you will recall, we started 2010 strongly. Sentiments were positive. And apparent steel consumption in the first half of the year exceeded most of our forecasts.

Then through the summer, falls in spot prices, evidence of tightening macro policy in China, and debt concerns in Europe significantly impacted confidence levels. This was particularly the case in the US, where apparent demand fell 7% in fourth quarter from third-quarter levels, due in part to single factor.

The good news, though, is that we did turn a corner during the fourth quarter, and apparent demand conditions were far healthier as we exited the year.

During the fourth quarter, we did work through some inventories built up in third quarter. Crude steel production of 21.6 million tonnes during fourth quarter was 3% lower than third quarter, translating to a lower capacity of 69% comparing to 71% in third quarter. Our steel shipments increased by 3% to 21.1 million tonnes, largely in line with our overall market developments in the fourth quarter.

For 2010, moving to mining production, our production from our own mines increased 30% compared to 2009. Production of 48.9 million tonnes fell just a little short of 50 million tonnes target, due primarily to lower offtake from our steel plants in Kazakhstan and Algeria.

For 2011, we will increase our iron ore production by 10%, and we remain on track for 100 million tonnes of production, including strategic contracts, by 2015.

Our met coal production in the fourth quarter was 1.8 million tonnes, taking us to 7 million tonnes for 2010. Coal production for the year was flat, similar to 2009 and third quarter.

For 2011, we expect a 20% increase in our coking coal production, due to yield improvements following our upgrades in our washing facilities in Kazakhstan in the first half of 2010. We remain on track to increase coking coal production to 12 million tonnes in 2015.

Turning to corporate developments, on December 8, the Board of ArcelorMittal decided to proceed with the demerger of our stainless steel business, which had been under consideration since July. This decision was supported by our shareholders, and on January 25, the spinoff process was completed. Each ArcelorMittal shareholder received shares in the new company, Aperam.

Aperam began trading on January 26, opening strongly, reflecting an appetite for its growth particularly in integration and performance improvement potential.

Based on the trading performance of Aperam and ArcelorMittal in the three days post the merger, we estimate that the demerger process has unlocked over $2 billion in shareholder value. In December, we also implemented a successful dilution management program, which has significantly mitigated the potential dilution from our outstanding convertibles due in 2014.

ArcelorMittal and Nunavut Iron Ore have come together in partnership to acquire Baffinland. As of last Friday, 90% of Baffinland's shareholders had tendered to our offer.

Baffinland owns the Mary River project, a Tier 1 iron ore resource located in Northern Canada, with very high-quality product, in-situ 64.7% iron grade. The project has significant and scalable resources and represents a cornerstone in our plans to build a world-class mining business.

While exciting, the project brings a unique set of challenges due to the climate and location of the resources. We believe ArcelorMittal is well positioned to handle these challenges, as we have an extremely experienced mining team.

We are currently conducting exploration and feasibility studies, and these will be updated ahead of the project scope decisions. The acquisition of Baffinland supports our long-term iron ore growth strategy, but is not required to hit our 100 million tonne iron ore production target, including strategic contracts, for 2015, that was communicated in our September investor relation day.

I will make some comments on the market outlook. That outlook for the global economy remains positive, as can be seen from the chart on the screen. The leading indicators for Europe, US and China are all comfortably above the 50 level, indicating the prospect of further economic expansion in the months ahead. The consensus is for 2011 global GDP growth to be slightly lower than 2010.

The US economy appears to have gained some momentum since the slowdown visible during the summer period of 2010. Employment continues to pick up, credit conditions are improving, and auto sales appear to be on an upward trend. US auto sales are now expected to exceed 13 million units in 2011, up from 11.6 million in 2010.

Another steel-intensive segment that will grow positively in 2011 is energy, alternative energy projects such as wind and solar.

In Europe, the picture is more muted. Global growth in real demand is expected as the stimulus measures and household spending remains constrained by high unemployment and deleveraging. This is likely to mean that consumer demand remains weak and investments will be confined to replacement needs only. Germany, though, is likely to continue to grow more strongly than the rest of Europe and will be a support to those German-linked economies such as Poland.

China, government-imposed administrative measures indicate that the slowdown in monetary and investment growth is set to continue, which will of course constrain construction growth. Incentives to support auto and appliance demand were withdrawn at the end of last year, so these end markets for our steel will grow at a slower rate than over the past two years. However, there is a little sign of a significant slowdown in underlying real demand in China, and government social housing will offset much weaker growth in private real estate investment.

[Steel main] inventories in China are some 20% below the peak levels in the first quarter of 2010, and most recently, there are signs of some real stocking. While the steel industry growth in China is clearly lower than it has been, I still expect apparent steel consumption growth of at least 7% in 2011.

In Europe and the US, the demand from autos/capital goods OEMs has seen a very steady and consistent recovery. The area of steel demand that remains depressed in both markets is construction.

There are signs, though, that we are turning a corner in the US. The Architecture Building Index rose strongly in January and is now well into positive territory. The ABI tends to lead nonresidential construction by six to nine months, so this [seems] that we may see a pickup in the crucial area of the market in the second half of this year.

In Europe, the pace of contraction in the construction market has been deaccelerating as we moved through 2010. However the most recent reversal in the eurozone construction PMI was weather related, the current weakness suggests that it is too early to be calling a bottom.

The positive is the relatively low level of inventories in Europe and the US, which are very much in step with demand. In Europe, service center stocks are 25% above the mid-crisis level, but represents two months of supply, slightly below the longer-term average. In the US, certainly some replenishment of inventories has contributed to the current strong apparent demand. Inventories jumped 6% in December, but so did shipments on a month of supply basis. US inventories remain at 2.3 as compared to the longer-term average of 2.6.

So, on balance, we are relatively positive on the outlook for the global steel consumption growth in 2011. We are forecasting growth of at least 7% in China, around -- between 5% to 5.5% in Europe, and around 10% in the US. Overall, global basis, apparent steel consumption should grow by 7%.

Finally, on the raw material, rather than demand, the challenge for us once again is raw material prices. After sharp corrections during the second quarter of 2010, the price of ferrous materials rose strongly in the second half of last year.

Our production costs have been squeezed further by the rapid increases in coking coal prices over the past two months as supply has been disrupted by the harsh weather conditions in Australia. For a time in third quarter 2010, the steel prices in Europe and the US were falling despite these higher raw material prices. This really reflected very bleak customer sentiment due to the uncertainty and nervousness around the economic recovery.

In [November], the dramatic $280 a tonne increase in the US sheet prices has recovered much of the margins steel producers lost to higher costs in the second half of last year. It should be remembered that realization of these price levels will not be realized until Q2.

Now I will hand it over to Adit, who will walk us through the financial results in more detail.

Good morning and good afternoon. I'm not going to go into a detailed explanation of the EBITDA performance at the segment level, as a lot of that is captured in our earnings release, but I will review some of the highlights. And I will walk through the details of our P&L, balance sheet and cash flow, and wrap up with guidance for the first quarter of 2011.

As you know, our EBITDA for the fourth quarter was $1.9 billion. This includes $0.1 billion gain of CO2, which is a decline of 14% compared to the third quarter. Let me review some of the key drivers.

We -- flipping slides, yes, thank you -- in terms of the key drivers, we suffered from lower domestic prices in most of our markets, both in flat products and in long. This was especially true for Europe and North America, where we faced a margin squeeze as either costs were up or prices were down.

In terms of Brazil, we also had significant weakness in the fourth quarter. The domestic economy remained healthy, but our performance was impacted by weakening prices and lower domestic shipments. This as true both for the flat and long business. In flat products, this was exacerbated by the inventory bubble, which is now likely to last through the second quarter of 2011.

In addition, during the quarter, we also had a disruption in our coal supply terminal in AM Tubarao, and this had a small impact on shipments in Q4, but will continue to impact export tonnages for the first half of 2011.

Moving on to South Africa, the domestic market was cooling off towards the summer World Cup. As a result, prices and domestic shipments both fell. We expect this to turn around and improve in Q1.

The one bright spot was in the CIS, where better regional demand positively impacted prices and offset normal seasonal volume weakness. Nevertheless, as a result of the weakness in the developed markets and some of our developing markets' businesses, our EBITDA declined.

If you look at the bridge from EBITDA to net income, you can see here our depreciation and amortization was $1.45 billion. This includes impairment charges of $381 million.

Net interest expense also increased to $413 million, primarily due to exchange rate fluctuations and higher interest on account of new bonds issued both in the third and fourth quarter. We also had a noncash loss of $300 million due to a mark-to-market on our convertible bonds. Both the dilution management exercise, which we had talked about earlier, no additional mark-to-market gains or losses are expected.

Furthermore, in terms of the bridge, the net loss from discontinued operations of [$547 million] represents a post-tax result for the stainless steel business, including the impairment charge, of about $600 million associated with the spinout of Aperam, offset by minority interest gain.

All of these factors resulted in a net loss for the quarter of $0.8 billion compared to net income of $1.4 billion in the third quarter.

If we turn to the cash flow, here we show a rough bridge from EBITDA to free cash flow. This includes Aperam cash flows as well. Clearly, the biggest driver in our cash flow has been the working capital release of $2.1 billion, which was primarily driven by lower capacity utilization, i.e., lower production, during the fourth quarter, as well as tighter working capital management.

This has resulted in our rotation days declining from 75 to 57 days (sic see - Press Release) in the third quarter. Clearly, this is not sustainable, and I'll talk about what we expect in Q1 later on.

In terms of usage of cash, in terms of interest expense, tax, ForEx and other items, they totaled $424 million, representing both interest expense and noncash gains, as well as the positive offset of our TSR program in the quarter.

As a result, we generated cash flow from operations of $3.6 billion. We also spent $1.4 billion in CapEx during the quarter, significantly more than the previous quarters, reflecting our normal spending pattern.

In the quarter, there was no impact on M&A, so free cash flow for the quarter was $2.2 billion. Excluding Aperam or our stainless spinoff, free cash flow was about $2 billion.

Turning to the balance sheet, we just discussed the positive cash flow impact, and this -- in terms of the working capital, and this was really the key driver behind the $2.3 billion reduction in net debt to $19.7 billion from $22.1 billion at the end of the third quarter.

Our net debt to average EBITDA ratio was also slightly down to 1.4 times versus 1.5 times in the third quarter. Net debt to LTM ratio was at 2.2 times, down from 2.4 times at the end of the third quarter.

I also want to add that we have a receivable of $900 million from Aperam on our balance sheet as of January 25, and Aperam, as you know, is focused on refinancing that in the medium term. Clearly, if you look at our balance sheet and our credit ratios, our focus remains to maintain very strong liquidity and investment-grade status.

In terms of our guidance, our EBITDA is expected to be within the range of $2 billion to $2.5 billion. This expected improvement in performance compared to the fourth quarter is due to better market conditions, including higher shipments, selling prices, which should combine to offset the impact of higher cost of raw materials. EBITDA per tonne should also increase from the fourth-quarter level, and we expect production will increase more than shipments, with capacity utilization at approximately 76% as compared to 69% in the fourth quarter.

Clearly, with these higher activity levels during the first quarter, a rebuild of internal inventory will take place, and together with higher raw material costs will mean that our working capital will increase quite significantly during the first quarter. Cash out during the quarter will also include consideration for the Baffinland acquisition.

As a result, net debt will increase during the quarter, likely more than reversing the improvement that we had in the fourth quarter. This will of course also have an impact on net interest costs, which we expect to be higher in the first quarter compared to the fourth quarter.

Full-year CapEx for 2011 is expected to be $5 billion, of which almost a third is dedicated to our mining projects -- i.e., $1.4 billion -- and this $5 billion CapEx number represents a growth of roughly 50% compared to the actual CapEx number for 2010.

Lastly, I would just like to point out that in order to increase both internal and external transparency, we want to confirm that we are on track to report mining as a separate segment as of the first quarter. There's also some detail in the appendix as to exactly how we intend to do that. And the appendix also has some more segmental highlights that you can review.

This concludes our prepared remarks, and we are now happy to answer your questions. Thank you.

(Operator Instructions). Michelle Applebaum, Steel Market Intelligence.

Thank you for a great rundown, and great quarter, and great guidance.

I had a question about the overall market trend. The Western mature markets are seeing strong pricing these days, but in general, operating rates don't seem to be terribly high. I was wondering if you had any thoughts on whether or not places like Europe and the United States, where prices are doing well -- and particularly the United States -- see these prices as being sustainable.

Thank you, Michelle. I think that's a very valid observation. In terms of what we see in the marketplace today, especially in North America, the available capacity utilization rates are quite high. That does not mean that there is no capacity in the system. The capacity is there, but clearly, there is a lead time to restart furnaces. Certain furnaces have lockouts, and clearly, certain furnaces are lacking linkages to raw material. And as a result, we are seeing a strong pricing level in North America.

To the extent that the capacity does not come online, clearly, these price levels are sustainable, [as you mean] that the demand picture stays strong into the second half.

To the extent that some of this offline capacity comes onstream, clearly that will put some pressure in terms of margins going forward.

Aditya, you are throwing out the phrase "available capacity utilization," which I think is a great way to look at it. But I don't think people here are very much doing that. Could you talk about what you think that number is as compared to -- the reported number in the US right now is 75%. What would you think the capacity utilization of available blast furnaces really is?

Yes, so I think there's a good reason why people don't talk about it, because it's very difficult to pinpoint exactly what is the available capacity utilization rate. I think a lot of these furnaces are down, but they can be brought up quickly.

At ArcelorMittal USA, we are in the process of bringing back up one furnace, which is Indiana Harbor West #3, which should come up in the second quarter. And so, therefore, I think to speculate as to when others bring back their furnaces I think is speculation at best. And, therefore, the capacity utilization number in the US is 75%. But at this point in time in the cycle, clearly, available capacity is much less than that.

Okay, great. Thank you.

I would like maybe to add something about Europe, because it seems here the situation is quite similar in Europe. Useful capacity today is a little bit lower than real capacity, and you have certain reasons playing into that direction.

First of all, you have a certain number of furnaces which were out of operations and which are not coming back. Second, you have had some difficulties of getting the right raw materials, and the coal situation in Australia is definitely not helping.

Third, also, over time, we have seen some distortion in terms of some lower quality of raw materials coming to European steel producers in general and having as a consequence that the productivity of blast furnaces went down.

And fourth, you see also, as far as we can hear from certain market participants, some incidents in production so that there are some difficulties for production to come back. And the consequence, then, is that the market is tighter. And some of our customers, especially at the end customers, we think that they have had quite low inventories by year-end and need to refill their order book, which creates a dynamic which is quite powerful.

Alessandro Abate, JPMorgan.

Just two questions. The first one, if you can just give a little bit more light about the situation in Brazil. You spoke about the kind of inventory bubble. If you just can tell us when exactly you expect this inventory to reduce towards normalized level and hence impact favorably your P&L and shipment level.

The second one is more like a perception on the scrap price trend in the US, which is basically about to normalize, which clearly could undermine the stability of steel price unless underlying real demand kicks in, sustaining volumes.

What do you expect, actually, in the next three months about a scrap price level, and if you think that higher iron ore costs and coking coal could actually push a bit blast furnace production-oriented steelmakers to inject more scrap into the blast furnace and minimize the cash costs? Thanks.

In terms of Brazil, I'm not clear on your question. Do you want to understand the history of why we have the inventory bubble, or why we think it's going to be resolved by 2Q 2011?

When do you think, basically, this inventory is going to come down to normalized level, more or less a range of time within Q2, and hence favorably impact your production level and shipments?

Okay. At this point in time, we are not giving second-quarter guidance, so I would hesitate to throw out shipment numbers that we would expect to have domestically in Brazil in 2Q.

Suffice to say that the inventory bubble's main effect is actually in the price level, because the price premium that we have had in Brazil historically has been eroded due to the influx of imports and due to the fact that we have high inventories in the system.

Today, there is virtually no price premium in Brazil. And I think in due course, in Q1 and the first half of this year, some of the price premium will get restored as the inventory situation normalizes.

I do expect that by second quarter 2011, though, the inventory situation to be -- or the bubble to be eliminated, so inventory situation completely normalized, and by then, a price premium restored.

In terms of scrap in the US, I don't know if Gonzalo wants to add some thoughts.

Yes, I would add that the scrap in the US and in Europe, if you'll allow me, Aditya, in terms of the inventory bubble, I think in long, we haven't had that bubble. It is true that always for long products in Brazil, the month of December and beginning of January is a slowdown, so we do see that.

We did see it in the results of long, when you see the variation. We were impacted somewhat by prices, and of course by volume, as always, so that is clear. But we do see that the inventory bubble for Brazil for long products is not there, and the inventories are not at a high level at this moment, at least for long products.

Now, coming back to the scrap, two issues on scrap. We have seen scrap that has increased very much in the last two months in the US and in Europe, where I would say it has increased a lot, practically at 25%, 30%, and in a very short period of time.

Now, we have seen in the last days, or weeks, I would say, that this has turned around somewhat. It's somewhat flatter or even a decreasing of it. We've had some issues in Europe due to Egypt, due to the demand of the Turkish consumers, and that has meant that scrap has somewhat decreased.

So we have seen this trend now. This will continue, but we don't think it will go down to the levels we had let's say two months ago. So we have had some inflection, because it had increased a lot and in a very short period of time. So it is a natural correction, but we do think that going forward, even though we could continue to decrease a bit, we will at the end plateau in a higher level than what it was two months ago.

Thank you very much.

A question on blast furnaces on scrap?

What I think that in general what we can see is that scrap is one way to produce metallics, and in particular if raw materials, iron ore and coal is going up very much, there is a natural tendency of the integrated steel producers to try to decrease the hot metal ratio and to use more scrap. And when the scrap price -- scrap was really tight over the last time for the flat producers. And from that point of view, there definitely will be an increased demand as well.

So, basically, in other words, this kind of tentative increase towards scrap can offset the weakness that comes from underlying demand of long products at the moment, right?

Can you repeat your question, please?

I was wondering whether this phenomenon that you see with the blast furnace producers switching a bit more their demand for raw materials towards scrap now, that basically iron ore cost is so high, can actually offset a bit the weakness and help scrap price to be sustained at current level.

I would suggest that may be a stretch. I think the main driver of scrap prices will remain both the demand and supply balance for long and flat products. Substitution of scrap versus ore and coal I don't think will be the main driver of a price change.

Okay, thank you very much.

Michael Shillaker, Credit Suisse.

Could you possibly give me some sense of the run rate of EBITDA through the first quarter? Because one would imagine that as you, in terms of your visibility on March, it is potentially significantly better than the January run rate.

Could Michel also comment a little bit on European prices? Obviously, Aditya talked about US prices. And if you put the whole thing together with where you know prices are going, the likely price realization into March and into Q2 versus what you know on costs, can you give us -- I know you won't give guidance, but can you give us some sense of where you think Q2 is heading?

The second question, very quickly -- there have been some comments that you I think had made in the press this morning on visibility or earnings risk in H2, [given you know] costs. But is it fair to say that your visibility on both price and volume is actually relatively weak, and therefore, actually, it's way too soon to give any form of guidance for the second half of the year whatsoever?

And the third point -- Michel made a really good point, I think, on met coal. Are you actually finding any problems sourcing met coal? Do you sense it is a problem through the industry in general? How many months of inventory of met coal are you actually running with at the moment? And is there a risk, a little bit like what we saw in 2004, I think scrap and coke were the primary constraints, but the industry actually, even on lower utilization levels, was actually constrained by a shortage of raw material?

I think for your questions, I will try and address the run rate. Clearly, the run rate will improve on a monthly basis. But I don't want to come out with a guidance on what the March run rate would be. I think we have our own forecasts. Our guidance for Q1 remains $2 billion to $2.5 billion.

It is fair to say that we are seeing some price increases in the marketplace. And the effect of that is in Q2. So we are forecasting a better 2011 than 2010.

I also share your view that it is premature to speculate on second half of '11. Second half '11 could be weaker than '10. Clearly, it's strongly dependent on capacity utilization numbers and where the price environment in the global steel industry is.

In terms of cost, I think the effects -- I would be surprised if it is much more significant than what we are seeing at this point in time in the cycle.

Michel, do you want to talk about prices?

It's difficult to speak about prices as being -- if we want to speak about prices, we can re-create some of the specialized press like SBB or so, where you know a lot. But last thing away, what I would like to see in terms of prices that is -- for most of the automotive business, I would say we have contracts, and we are quite secured with the kind of clauses we have in terms of contracts. And in fact, we have succeeded to change the model with automotive and with contract prices, giving value to our customers and trying to absorb the volatility in terms of cost.

For the other prices in Europe, I would say that with the high volatility, there is more and more in more markets a tendency to address prices on a monthly basis. You see that in the south of Europe very much. You see that in Eastern Europe. And you see more and more that through their customers, they're much more aware of what's the cost increase for producers.

And hence you see a more rapid evolution of prices in many of the places. And that means that we are much closer to the economic reality than we have been in some of the previous cycles.

On your question, Michael, on met coal, we have sufficient inventory levels in our met coal, and we do not feel that this delay from Australian coal will impact our reduction schedule.

And do you sense that there are any of your peers in the industry -- I mean, you talked about restarts of blast furnaces potentially being impeded by the lack of raw material availability. So is it possible -- I mean, if you look back to 2004, I think the industry was impeded by a lack of coke in the market. So do we run the risk, actually, that the industry can't produce and bring back furnaces as quickly as perhaps it would?

As far as ArcelorMittal is concerned, we do not see that this disruption could impede our production planning.

No, but I'm talking for the industry as a whole.

For the industry as a whole, there are a few cases which we hear have been disrupted throughout the industry in some cases, but now things are coming back to normal. There is a disruption, clearly, in the month of January and part in February. There could be some disruptions in some companies, but generally, I do not see that this could be a major disruption, though.

All right, thanks.

Vincent Lepine, Exane BNP.

I have two-and-a-half questions, to stay in the two limit. The first one is on long products. The EBITDA was obviously weaker in Q4, and yet the average selling price was up, if I'm not mistaken. So I was wondering if you could tell us to what extent the increase in cost per tonne had to do with higher scrap prices, i.e., the question, if I put it another way, is how much of the scrap price increase that we've seen to date has already been captured in the Q4 results for long products?

The second question is on the impairment that you took on Russian coal mines. I was wondering if you could tell us what the rationale was for that.

And then lastly, you did mention on the working capital that it would increase quite significantly in the early part of the year. I mean, looking at rotation days, should we expect that you go back from 77 days -- sorry, 57 days at the end of 2010, into your target range of 75 to 85 already by the end of Q1? Thank you.

Okay, as for our long products, it is true that we've had an important decrease in result. I will tell you there, you have Long Carbon Europe, you have Long Carbon Americas, and Tubular Products. Now, Long Carbon Europe has decreased a bit, and there we do see a price/cost squeeze due to the increase of scrap.

Now, Tubular Products has let's say compensated this. But where we've had the big differences is Long Carbon Americas. And what happened in Long Carbon Americas? We had, as you remember, and we said [VN Algier], let's say, an extraordinary ore result that was not recurrent on one hand. And we have seen, as I said before, a decrease in volumes in the fourth quarter and prices. And our mix has been worse because in order not to force the Brazilian market, for example, we've exported more at different prices.

So I wouldn't say there is a price/cost squeeze, that it's more the question of decrease in volumes and decrease in average prices, because that is, let's say, practically all, as I said, tubes cancels Long Carbon Europe. So that's all the variance.

And those are the three main reasons -- decrease in volume and decrease in prices, and then we had that portion that is that extraordinary result of VN Algier. And that accounts for the main differences in Long Carbon in results. So the only price/cost squeeze has been in Europe, and it's not that important. The rest has come from the price situation and market situation in Brazil.

I would also add that in Europe, prices actually fell. What you see is the fact that there is an appreciation. With the dollars, the prices look higher, but in euro terms, prices fell. So that's part of the reason why we have low EBITDA in Long Carbon Europe in the fourth quarter.

In terms of the Russian coal impairment, I think fundamentally, our pricing assumptions are quite conservative, and as a result an impairment was taken. There were some issues in terms of reserve life and the ability compared to when we first acquired the mine in terms of maximizing production, and that triggered the impairment. But I do agree with you; when you look at the existing price environment for coking coal, I don't believe the mine on a longer-term basis is negative value.

In terms of working capital, I expect the range to be restored between 65 to 85 days. And clearly, we would expect a substantial increase in working capital in the first quarter. And as a result, we had said earlier that net debt will also increase by more than it was reduced in the fourth quarter of 2010.

Andy Mohinta, Citigroup.

Two questions, please. The CapEx for iron ore, $1.4 billion, can you just give us a split of how much of that is investment CapEx and how much of that is sustaining?

Also, can you give us a sense of -- you did, I think Mr. Mittal mentioned the inventory levels he saw in the US and Europe. Can you give us a sense of if the restocking has a little bit to run? Are you still seeing, certainly in your own distribution businesses, restocking still going on, or do you think it has paused for the moment?

Of the $1.4 billion, the sustaining CapEx is of the order of $800 million, and the balance is for development projects. Development projects are primarily in -- we have to be finished off the first phase of Liberia this year, which is $300 million, and then we have activities, of course, continuing in Mauritania, Senegal, and also in our Canadian mines.

In terms of inventory, I think that today what we see is very often inventories very clearly linked to the level of activity and to the anticipation of activity, because credit availability with the end customers is normally not there. And that's the reason why, for example, today we have not really seen a big bubble which is coming.

This being said, we need also to foresee some kind of volatility in end inventory, which is linked to the level of activity over the year. For example, in summer period or by year-end normally, you see with lots of customers simply a prudent approach in trying to have a clean balance sheet in terms of inventory.

And Michel, can you just give us a sense of -- there was a number mentioned of 2.3 months of shipments in Europe. Is that just for flat products, or is that flat and long?

2.3 months is a little bit below average, which means that globally there is no -- what I wanted to say, there is absolutely no inventory bubble. The question is whether in the New World we will reach precrisis inventory is another question, because you see a lot of people being much more tighter in the way they manage their ways. So from that point of view, if you want to be prudent, you would say that today inventory is quite at the normal level.

Okay, thank you, Michel.

Andrew Snowdowne, UBS.

I guess the first question is, just first of all, in terms of your CapEx guidance -- and some of it was answered -- but can you just confirm that none of that guidance for the mining expenditure allows for Baffinland? Maybe you could give us a sense of timing as to when you would expect to be spending the additional CapEx required on that acquisition.

And then another question. And again, carrying on a little bit from Michael's earlier question with regards to the run rate through the quarter, if we look at Steel Business Briefing and other sources in terms of price increases, is it fair to assume roughly a two-month lag on when that hits your P&L?

In other words, what I'm trying to get at is, can you give us a sense of the timing difference between prices that we can see and when it's hitting your P&L, and give us a sense of how much of the price increase that we've seen already will actually impact in Q2 rather than in Q1, and so a better sense of price versus cost?

And then a final question, maybe just a confirmation in terms of the guidance that was given in September at your strategy day on your intentions in terms of acquisitions on the mining front, because I continue to be bombarded by questions on potential acquisitions in Canada and the US.

You previously indicated that any major acquisitions you would look to fund by way of equity. Debt preservation is key. You have now really indicated that net debt will rise and net working capital largely reversed the positive inflow that you've seen in Q4 again in Q1.

Maybe if you could just confirm whether that strategy is still intact or whether you are now actively also looking at some major acquisitions in iron ore and coking coal. Thank you very much.

Okay. In terms of the CapEx for 2011, there's a very small portion which includes Baffinland, probably less than $100 million, and this is just to complete the feasibility studies and the completion of the environmental impact assessment. That's the focus of 2011, to make sure that we -- we just basically acquired the company, as you know, a few weeks ago -- to go in and make sure we have a plan which we believe is derisked and is achievable. And that's the focus of 2011.

Our target of 100 million tonnes excludes any Baffinland iron ore, and the CapEx budgets that we have today for the next five years exclude Baffinland.

In terms of -- since we are on mining, I'll address your major acquisition point as well. Our strategy has not changed. Even though net debt is down in the quarter, it's going to go up next quarter. We are very focused on maintaining our investment-grade rating. And to the extent we do look at a major acquisition, again, it will be equity-funded, as we suggested on the investor day.

In terms of pricing and the run rate and how it will impact our P&L, clearly, there is a lag. We have index contracts. We have long-term automotive and appliance contracts. And there's also a lag in terms of costs that are there.

As you know, the costs that we see today keep on hitting our P&L in different proportions throughout the quarter, and the full impact we will only see in the fourth quarter of 2011. So I don't want to get into too much of detail on what is the price -- margin expansion or not in 2Q versus first quarter and second half, etc. But that just gives you a sense of the fact that, yes, there is a lag effect on prices, but also a lag effect on cost.

Thank you.

Ephrem Ravi, Morgan Stanley.

It's Ephrem Ravi, Morgan Stanley. I will be a good headmaster's pet and stick to two questions.

Number one, on your disclosure, going from Q1 '11, you said that you would report iron ore separately, but not considering the marketable -- iron ore not marketable, if I do a very rough back-of-the-envelope, that would only leave around 15 million to 20 million tonnes of [62%] grade that you would be reporting under the iron ore business. Would that number be a rough estimate? Or if you can give a more precise number, that would be useful.

And also, I have a subquestion to that in terms of referenceable '11 market price. Obviously, [WSF] versus FOB and by the different regions are slightly different. In terms of modeling it going forward, do you think a percentage discount versus the [plats] price or something like that makes sense?

The second question, on the guidance of 74% capacity utilization, obviously it's a 10% increase in production. But can you give us a sense as to how much you are looking for in terms of facility increase in shipments? Because I assume a little bit of inventory build will get built into that. Thank you.

In terms of mining, your 20 million tonne number was for the full year, or--?

For the full year, on a [52%] Fe basis, comparable, like for like.

Maybe slightly higher, 24 million, 25 million tonnes for the year. But I don't want to get into too much more detail, as we will go through a full process when we announce results in Q1 and explain the methodology and how we intend to achieve it.

The range, from what I understand, is it may be slightly higher in 2011 because of higher production, but we can review that when we talk about Q1 segmentation in our results then.

In terms of your plats question, if you could perhaps repeat what your question was. Is a discount to plats (multiple speakers) moving forward?

Yes, because you used the phrase "reference to market prices." Obviously, I mean, there are different in FOB versus [SIF] prices, and also, I guess, the coking coal price in Russia and Kazakhstan will be different to the coking coal prices you're getting in Western Canada, FOB. So is a standard discount to plats, kind of just to help plan or model this thing going forward, because I guess this will be a pretty material proportion of your EBITDA.

You're just addressing the mining profitability --

Yes.

-- as to how we do the pricing?

Yes, exactly.

Yes, I think the pricing is based on plats, but then, obviously, is adjusted for Fe, is adjusted for freight and other costs to arrive at a steel facility or to arrive onto a ship. So it is marketable on a plats basis.

And can I just have one clarification on that? So you will strip out all the mining business from all the different regions into a separate mining division? So it's not just mining subline under a regional, for example, Flat Carbon Americas business?

Yes, you're absolutely right. There would be a separate segment. So it will not be a subline under [SCA] or AACIS. That's how we are managing the mining business as of the beginning of the year. Peter and Steve can describe how they are in charge of all the mines on a global basis.

Clearly, mines which have ore which is not marketable is transferred at cost. And whichever mines we believe is marketable is transferred at market price. And you suggested plats as an index. That's one of the things that we are using. That's obviously all the adjustments you would arrive in terms of freight costs or actually ore value and use to arrive at a cost facility.

There is within this tonnage also third-party sales, so there are references to the external market and not just a calculation.

(multiple speakers) correct, nothing to add to that, Aditya.

Jeff Largey, Nomura.

I have two questions. The first is, in terms of capacity utilization by division, I was wondering if you could give a breakdown for the first quarter.

And then the second question has to do with cash flow expectations for the full year. I recognize it's probably hard to give a guidance for the full year, but do you have a net debt target for year-end? do you envision being free cash flow positive for the full year? I mean, I think the build in working capital in the first quarter in many ways is a bullish sign, but I just want to get a sense of maybe where we could end up at year-end.

Okay, let me try and first address capacity utilization numbers. I mean, clearly, Q2 capacity utilization is rising everywhere. What I can try and do is give you a sense of where it's rising perhaps less. And I think the weakest increases is, basically, from fourth quarter to Q1, is at CA level. Other than that, the capacity utilization levels are close to or in excess of the 10% levels. That's our forecast as of now. Clearly, based on production issues or lack of production issues, those forecasts could change.

In terms of net debt target, we do not have a net debt target for the year. Clearly, the big change to our balance sheet for 2011 will be the fact that we have $5 billion in CapEx plan, which is much higher than what we had planned in 2010. Simultaneously, we are paying out the cash for Baffinland in Q1, and we also have a receivable for Aperam.

As we are forecasting or we are seeing higher raw material prices and higher capacity utilization, clearly, there would still be a buildup of working capital for the year, assuming market conditions remain the same.

So those are the trends and big-ticket items that we are seeing for 2011 as of now.

Bastian Synagowitz, Deutsche Bank.

I've got two quick questions left. The first one is on your recent acquisition of Baffinland. Could you please give us an idea what the underlying iron ore price level is which would justify the Baffinland acquisition?

And then secondly, you mentioned I think you booked a small impairment charge of I think roughly $80 million related to the idling of downstream assets in Europe, which ultimately idled and is temporarily -- is it on permanent closure? Thanks.

The iron ore price that would justify the acquisition of Baffinland is, I believe, a price that we will likely never see. The operating costs at Baffinland are potentially so low once the project is built that this project can produce at a profit through any cycle. But certainly at long-term prices, in the order of $50 to $60, this project makes a lot of money.

Okay, thanks.

Kartikeyan Swaminathan, Goldman Sachs.

I had a couple of questions, if I may. Firstly, I was wondering if it's at all possible to try and provide an idea of the extent to which you believe there has been prebuying in the market by distributors and end-users alike, given there's been quite a lot of anticipation that raw materials are going to place upward pressure on pricing.

And my second question is, watching the consolidation in the North American coking coal markets amongst the players there, do you believe that poses any kind of competitive threat? And is there any particular response or change of your strategy going forward?

I just want to come back to the previous question, which was on impairment charges of $80 million. These relate to FCE downstream facilities. It's Poland and France, it's primarily painting lines as well as their two galvanizing lines, which will be -- will not be viable as the market returns. And so those are the impairment charges that we have taken. Some of these are not write offs, so they're just an adjustment to value and use of the existing facilities.

In terms of prebuying, do you want to comment, Michel, prebuying of our customers in terms of the distribution segment you see there?

Prebuying because the prices would go up?

No, I would say that there is, at least from AMDS point of view, we have been very careful to -- and we did not sell more than what we had budgeted in order precisely to prevent the speculative buying, because normally in distribution segment, you see sometimes a lack of adjustment of the prices, and we were seeing that. So we were quite disciplined in what we can see is in December.

January, we were absolutely on the budget, which is in line also with the forecasts of European consumption. So, once again, you see our policy is to try to supply what real customer demand is, and we apply it, obviously, on [same] distribution.

Rochus Brauneiser, Kepler Capital Markets.

One question is regarding to these comments made this morning on potential weakness in the outlook in the second half compared to the first half. Maybe could you get this in maybe in a context -- is this more like a general reference to the usual seasonality effects you tend to see in a second half? Or is this also including any cautiousness towards potential destocking in the market in the second half and once the pressure from some of the raw materials, i.e., coking coal, might ease?

And the second question would be regarding the average leadtime in your business. When we look at Flat Carbon Europe and Flat Carbon North America, if we abstract from contract sales, what is the average leadtime in this area?

And regarding your general visibility, when you look at the order situation right now and your sense on customer demand, do you have any feel for the utilization rate in your business into the second quarter? Many thanks.

There was a question previously on coking coal consolidation. I think at this point in time, we do not have any comments on that.

In terms of potential weakness in the second half versus the first half, I think we have outlined a lot of the risks that are there. Clearly, there is a seasonality effect; the second half is weaker than the first half generally. So that's one aspect.

Second is related to supply. Clearly, there is a certain level of demand. And to the extent that there is more supply, either because more capacity is utilized as companies debottleneck their existing capacities or are able to create the raw material linkages, then that's a risk, or to the extent that raw materials are more available. So, clearly, there's a supply risk. And in terms of demand, you talked about destocking; that could be a risk, and also perhaps a lower growth scenario.

So those are the risks that tend to exist and could occur in the second half versus the first half of 2011. In terms of average leadtime --

(technical difficulty) 100 to 120 days, depending also on the length of the supply chain, for example, for Australian coal is longer than for Swedish ore, but on average, 100 to 120 days, on top of which you have to add the price lag due to the pricing formula of the quarterly iron ore prices.

In terms of the leadtime, I was more referring to the leadtime of your orders when the actual pricing is becoming P&L effective, so the leadtime between the noncontracted business -- how quickly that runs into the P&L?

I would say that depends on whether we have monthly pricing or not. For example, in terms of monthly in Poland or in Southern Europe, we are still selling for March deliveries and starting to sell for April. For the quarterly contracts, which is more what is in use in Northern Europe, Germany and so on, we will start selling following the second half of February.

Okay. And the last question was on your -- if there were any kind of visibility on the second quarter, could you see production levels -- whether this is still on a similar upward trend than in the first quarter?

I think there is no guidance in the second quarter. Statistically, we know that the second quarter normally is quite strong because winter is coming out, so a little bit better activity in construction and industrial activity, normally statistically it is highest.

Okay, fair enough.

Thank you. Charlie Dove-Edwin, MF Global.

Your line is open, sir. Please go ahead. It appears he may have stepped away from his phone.

We have no further questions. Sir, I'd like to turn the call back for you for any additional or closing remarks. Thank you.

Thank you for participating in this call, and looking forward to talk to you the next quarter. Thank you very much. Have a good day.

Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect.