ArcelorMittal SA (MT) 2012 Q1 法說會逐字稿

Good afternoon, everybody, and welcome to ArcelorMittal's first quarter 2012 results call. I'm Daniel Fairclough, Head of IR.

Before we start today's presentation, I have some housekeeping remarks.

Firstly, I want to remind everybody that this call is being recorded.

Secondly, if you want to ask a question, please, press, star, one on your keypad.

And then, finally, we will have 45 minutes for Q&A, so I want to ask everybody to, please, restrict themselves to two questions so that we give everybody a chance to ask their question.

With that, I will hand over to Mr. Mittal.

Good day to everyone, and welcome to ArcelorMittal's first quarter 2012 results call. I'm here joined on this call today by members of my Group management board.

Before I begin the presentation, I would like to make a few introductory remarks.

Market conditions are volatile and challenging. The European sovereign debt situation and the state of financial institutions continue to be light concerns. As a result, the demand picture in Europe, particularly in the south, remains subdued.

Nonetheless, we have observed improving sentiment during the first quarter in a number of key markets and have delivered a solid EBITDA outcome, particularly given the natural seasonal limits on the output of our mining business in Canada.

While I would, of course, like to see further restoration of our profitability, I am nonetheless pleased to be able to reiterate our guidance for the first half of the year. I'm particularly encouraged by the margin recovery in our steel business and the progress and the strength of our mining business in which we continue to invest so as to enhance the production capacity of our existing assets.

We have made good progress over recent quarters in transforming our capital structure, extending our debt maturity profile, improving our liquidity position, and managing down our financial leverage. While there will, of course, be short-term fluctuations in this trajectory, we have nonetheless been active in this regard in the first quarter this year. We will continue to work to drive operating cash flows, and I expect further noncore assets disposal in the coming quarters. It is our strategic objective to retain our investment-grade rating.

Moving to the agenda, on slide number 2, I will begin today's presentation with a brief overview of our results for the first quarter 2012. I will then spend some time on the outlook for our markets before I hand over to Aditya to go through the results and our guidance in more detail.

As usual, I will start with safety. ArcelorMittal's health and safety performance improved in the first three months of the year, with a lost time injury frequency rate of 1.1 times, as compared to 1.2 times in the fourth quarter of 2011. This is a record for the Group, and, as you can see, on a year-on-year basis, the trend remains clearly positive. Indeed, we should not forget that, at the time of the merger, the injury frequency rate was over 4. I'm pleased to see the ongoing improvement, but let me reiterate that I expect ArcelorMittal to make continued progress in safety performance as we try to be the safest metals and mining company in the world.

Turning to our first quarter 2012 performance shown on slide number 4, we posted first quarter of 2012 EBITDA of $2 billion. This includes a $200-million noncash gain from changes in the employee benefit plans in the first quarter. That is Canada. Ignoring this and the contribution from CO2 sales in fourth quarter, our EBITDA increased by 7%.

During first quarter 2012, our own iron production was 13.2 million tonnes, which is 12.1% higher than first quarter 2011 and on track for 10% growth this year.

Turning to slide 5, we have made good progress to date on our noncore asset disposal plans. During the first quarter 2012, we completed a partial sale of our interest in Erdemir, realizing cash inflow of $264 million for a 6.25% stake sold. A further 6.25% will be sold if warrants are exercised over the course of the next nine months, potentially generating up to $300 million in cash.

We have also reached an agreement with AXA to sell our 23.4% stake in Enovos for EUR330 million. We expect to see 50% of this amount in the second quarter of 2012, with the remainder, plus interest, due over subsequent periods.

Including the sale of Macarthur Coal and our Baosteel joint venture in fourth quarter 2011, the Company has sold approximately $1.6 billion of assets since September 2011. I expect further progress in this area in the coming months.

Moving to slide 6, as you can see on this slide, further progress has been made on the asset optimization plan. This is the plan we launched in September 2011 to generate an annualized $1 billion, sustainable EBITDA improvement by the end of 2012.

At the same time, we are also making progress on our other longstanding cost-cutting plan. At the end of first quarter 2012, the Company's annualized sustainable management gains increased to $4.2 billion as compared to $4 billion at fourth quarter 2011. The Company maintains its target to reach management gains of $4.8 billion from sustainable SG&A, fixed and variable cost reductions, and continuous improvements by the end of 2012. Together with the asset optimization plans, these management gains should further enhance [a successful] second quarter of 2012.

Moving on the subject of CapEx, on slide 7, capital expenditure decreased to $1.2 billion in first quarter 2012, as compared to $1.5 billion in fourth quarter 2011. You will recall that, back in third quarter 2011, we suspended all steel growth projects in light of the uncertainty on the European debt situation and its potential impact on global demand.

We did, however, continue to fund our mining group CapEx. We are making progress on our plan to take iron ore production from our own mines from 54 million tonnes in 2011 up to 84 million tonnes in 2015.

In fourth quarter 2011, we completed first phase of our Liberia iron ore project. We are now running at a targeted 4-million-tonnes annual rate.

The team is also progressing well with the investments at our existing mining operations in Canada. There, we are on track to increase production from the current 16 million tonnes annual rate to 24 million tonnes in 2013 and are currently starting the further expansion to 30 million tonnes per annum.

We are still reviewing and working on our Baffinland project.

Overall, the Group's CapEx target for 2012 remains between $4 billion and $4.5 billion.

I will now talk about the market outlook.

We believe that fourth quarter was the weakest point in the cycle and are pleased to see that demand has rebounded. Global apparent steel consumption increased by 8.1% in first quarter 2012 comparing with fourth quarter 2011. This was 0.5% increase on a year-on-year basis.

You can see on slide 10 the chart showing global leading indicators. In terms of sentiment, we have come a long way since the October/November period of last year. We show on this chart a GDP weighted average on the global leading indicators. These remain in positive territory, supporting a mild recovery.

In the US, demand indicators are strong, which is being supported by machinery, energy, and water demand. In first quarter, US light vehicle sales are up 10% year on year, [averaged] 14.3 million units annualized (inaudible), compared to the average of 12.7 million in 2011. Indicators have slowed recently but are still supportive of growth with the PMI expanding to 54.8 from 53.4 in March. US credit is growing at double-digit rates, and this is supporting consumer confidence.

In Europe, we still believe the outlook is for a recession rather than the crisis that many feared at points during the second half of last year. European (inaudible) indexes have contracted for the ninth consecutive month. The biggest challenge is critical availability and the risks surrounding the potential changing vertical landscape.

Slide 11. It goes without saying that, in the western world, the steel industry has been suppressed by a very weak construction market for the past three years. Given that construction demand represents one-third of the steel consumption in the developed world, this has been a significant constraint on our steel capacity utilization rates.

The good news is that, in the US, there are initial signs for some optimism. The ABI, architectural billings index, in the US has been above 50 now for five months, which is normally a six- to nine-month lag to nonresidential construction.

As you can see from the chart on the top, left-hand side, residential permits have begun to pick up from very low levels. Jobs are being created in the US, and credit is available, prompting improved consumer confidence. We expect construction activity to be a key US demand driver in 2013 and 2014. We have said all along that some sort of recovery in construction was the missing link to get utilization rates back to where they need to be to consistently support the levels of [short-term] profitability we expect on a normalized basis.

Now I'll move to slide 12 on China. With better indicators and a pickup in steel output in China, GDP growth this year of about 8%, and steel demand growth of about 5%, we believe this supports our view of a soft landing in China. (Inaudible) in China have risen double digits, and inflation is following. (Inaudible), picking up further in April and signs of stabilization in the real estate sector, real demand should continue to grow through the remainder of the year. January/February was the low point in terms of activity, and steel production remained quite weak, although up on the low levels of fourth quarter that were driven by destocking.

Since then, we have seen a rebound in steel production from 610 million tonnes annualized in November 2011 to 725 million tonnes in March. The first quarter [averaged] just under 700 million tonnes. It is likely that April was about 730 million tonnes, which would be a new record.

The global inventory situation is shown on slide 13. As you can see, the inventory situation has improved significantly in Europe and Brazil over the past six months and remains supportive in the US. Yes, China's inventories have increased, but that's a normal, seasonal pattern. Overall, we would characterize the global inventory picture as supportive.

So, to summarize our outlook for 2012, our best guess assumes a technical recession in Europe but low GDP growth as well. Under this scenario, apparent steel demand in Europe declines slightly this year but grows in all other regions. The risk to this outlook is, if Europe moves into a crisis-type environment, driving GDP down year over year. Under this scenario, we could still see a low, double-digit decline in Europe in apparent steel consumption and knock-on impact on the US and other important markets.

I would like to finish this section with slide 15 and prices. On the left of the chart, I think it's important to reflect that, despite all the concerns on China, iron ore has remained very resilient over the past two quarters. Steel prices today are well supported by raw material price levels. As we move through the rest of the year, we do not foresee any significant weakness and those raw material prices dropping.

With this, now I will hand over the floor to Aditya, who will discuss the financial results and guidance in more detail.

Good afternoon, and good morning.

I'm starting with slide 17. Here you can see the bridge to explain the increase in Group EBITDA from $1.7 billion in Q4 to $2 billion in Q1 2012. Q1 2012 EBITDA includes the positive noncash gain of $241 million from changes in employee benefit plans at Dofasco, and Q4 2011 includes a $93-million gain from CO2 sales. The net of these is shown in this bridge as Others. Stripping out these Other items, EBITDA would have increased by 7% in Q1 2012 versus Q4 2011.

However, this understates the underlying performance of the business, which has been impacted by seasonal factors in the mining division, primarily at ArcelorMittal mines Canada due to the routine freezing of the lakes. This reduced EBITDA by $179 million in terms of volumes. In addition, there was a slight negative effect on iron ore and coal pricing of another $122 million. If you strip out both these effects, you can see the clear improvement in the profitability of the steel business.

Moving on to the P&L bridge on slide 18, we will focus on the chart in the upper half of the slide, which shows Q1 results, but comparative figures are there for the previous quarter in the lower half. I will point out the key differences below the EBITDA line.

Impairment charges for Q1 were $69 million. This relates to the extended idling of our electric arc furnace and continuous caster operations at the Schifflange site in Luxembourg, which is part of the Long Carbon Europe division. During Q1 2012, the Company also booked restructuring charges of $107 million due to the implementation of the asset optimization plan, primarily due to voluntary separation schemes in Poland, as well as employment costs due to the idling of the arc furnace in Madrid, in Spain.

Loss from equity method investments and other income in Q1 was $14 million, as compared to an income of $177 million in Q4. The net impact from the partial sale of the Company's stake in Erdemir and the agreed sale of Enovos resulted in a net loss of $85 million. After considering acquisition costs, net of dividends received, both these transactions are cash positive. As Erdemir will no longer be accounted for under the equity method but as assets available for sale, I expect the income from equity method investments and other income to be lower in future periods.

Foreign exchange and other finance costs were $362 million for Q1, as compared to gains of $13 million for Q4. This largely reflects the impact of the 3% appreciation of the euro exchange rate on our euro debt balance relative to Q4, where the euro depreciated and we had gains. We reported a marginal net income of $11 million in the first quarter, compared to a $1-billion loss in Q4, which you will remember was heavily impacted by adjustments to deferred tax.

Next, we turn to slide 19, where the waterfall takes us from EBITDA to free cash flow. Cash flow provided by operating activities for Q4 included a $300-million investment in operating working capital, primarily resulting due to higher receivables. Rotation days increased to 69 days during Q1 from 67 days in Q4. This trend should reverse in Q2 as we better manage our working capital and have lower inventory days as well. Cash flow from operations was positive, at $0.5 billion. And, with CapEx for Q1 at $1.2 billion, we had negative free cash flow for the quarter of $0.7 billion.

Turning to slide 20, we show a bridge for the movement in our net debt. The principal consumer of cash during the quarter was the negative free cash flow, $0.7 billion, just discussed, negative FX impact of $0.3 billion due to the appreciation of the euro and dividends, partly offset by $0.3 billion proceeds from the 6.25% partial sale of Erdimir. As a result, our net debt increased by $1.1 billion to $23.6 billion. We're expecting net debt to decline in Q2, which we review next in our guidance slide.

So, turning to slide 22, as you know, we have reaffirmed our EBITDA guidance for the first half 2012.

We expect steel shipments in the second quarter to be at similar levels to the first quarter of 2012. Profitability of all steel segments is expected to improve on a like-to-like basis in Q2 as compared to Q1.

With improved weather and seasonal factors, the mining segment is expected to benefit from higher shipments in the second quarter of 2012. Full year 2012, our iron ore and coal production is expected to remain on track to increase by approximately 10% year on year.

In terms of CapEx, we continue to focus on core growth CapEx, primarily resulting -- primarily in mining, resulting in the postponement of all steel growth CapEx. As a result, we expect that full year 2012 CapEx will be between $4 billion to $4.5 billion.

Further reduction in net debt through the year is anticipated as the Company focuses on working capital management and further noncore asset divestments. This is consistent with our stated objective to retain our investment-grade rating.

With those introductory remarks, we are now ready to take your questions. Thank you.

If you'd like to ask a question, please, do press star, one on your keypad. And there are a few already in the queue. So we will start with Anindya at Citibank.

Two questions, please, on Flat Carbon Europe, can you give us a sense of your expectations for shipments over the balance of the year, just looking at how negatively auto production is working out? I mean, we've had pretty sharp drops in French auto production and, with the exception of Germany, pretty much every country, and even Germany is starting to turn a bit. So it would be really useful if you can give us your prognosis of how demand is shaping up. We know it's negative, but France, in particular, is starting to look quite bad.

And, secondly, in AACIS, was it just the cost pressures in Kazakhstan (inaudible) has was spoken about, or are there other issues, as well, that's denting the performance there? What measures can you take to mitigate the cost pressures that you're seeing in the CIS. Thank you.

Sure. In terms of the European business, I'll talk primarily about the flat business. We're seeing similar shipment levels in the second quarter as we are in the first quarter. And, if you strip out the impact of exports, we see even in Q1 a decline on a year-on-year basis. So, clearly, in Europe, we had talked about negative apparent steel consumption growth on a year-on-year basis, which is a reality (inaudible).

We do expect, based on the forecast we have seen that the second half in Europe on a shipment basis will be weaker. Again, that's seasonal factors primarily. At this point in time, we are not seeing a significant deceleration in the activity level or a change compared to what we have seen in the last few months.

Seasonally, as you know, third quarter is weak, and fourth quarter is a shorter calendar quarter, as well as we have -- as well as the fact that there is December.

Apart from the shipment decline in the second half, we do believe that, from cost and price pressure, there should be relative stability. If you go back into 2011, second half, we saw that raw material prices came down because of China-specific weakness. And, as a result, steel prices came down. At this point in time, we're not seeing -- we're not forecasting, at least, any weakness in China. Rather, we have seen in the last few months growth appearing in China compared to the January and February months.

So, yes, volumes should be lower, but we do expect a more stable margin environment in Europe.

For AACIS, Gonzalo will add a few remarks. I would just say that it's not really only Kazakhstan. There are impacts in Ukraine. And Gonzalo can get into more detail.

As you said, in terms of AACIS, that issue, we have had a better performance (inaudible), where we have (inaudible). That means, in volumes, that we have been impacted by, on one hand, selling prices (inaudible) because you do see the difference in selling prices, but it's due to the exchange rates. When we go to Kazakhstan and Ukraine, we have been negatively impacted by the selling prices, number one.

In terms of costs, we have been negatively impacted. And we had raw material that was a higher price that we've had to bring out of the stock, so that has also had a negative impact.

Another, additional one is we do show, for example, in South Africa, coke and chemicals, which has also impacted negatively.

So those are the three main issues. I will say -- what are we doing, as you said. Well, we're trying to be reliable in terms of production, number one. We are doing, in terms of management gains, a tremendous effort going forward for the second quarter. So, at the end, we will try and mitigate that. But it also depends in the markets, of course. But, internally, we're doing all of what is in our hands in order to mitigate this.

Thank you.

Okay. We'll take the next question from Mike Shillaker at Credit Suisse.

Two questions from me as well. The first question -- in terms of the intelligence and feedback I'm getting from the European market, it does feel as though the price-over-volume strategy has broken down somewhat. It's almost a little bit reminiscent of 2001/2001 in terms of the way the market is behaving. Is this a decision that's been made centrally to hunt for volume? To counter that, will you cut production by more than the seasonal norm over the summer to restore pricing if you need to? And what controls are you putting on your salespeople to make sure that they aren't discounting to simply look for volume is question one.

Question two. Obviously, the debt rating still remains an issue. I totally appreciate that you're very keen to keep investment-grade. But, if you were to face a downgrade, could you just talk through the remedial actions that you would feel that you would have to take as a consequence? Or do you just [soldier on], the debt market is open to you, nothing changes? And, within that context, what would the additional cost on the debt be? Thanks very much.

Michael, I would not say that price over volume has broken down. I think, as far as ArcelorMittal is concerned, we still believe we create more value if we have a price-over-volume strategy.

I think what is impacting the marketplace is that there has been a decline in the steel consumption already off low levels for 2011. And people have not adjusted supply as much. And so, clearly, there is room to do better.

I think, in terms of what you see from us, if you see a restart in Sestao, we're also taking down other furnaces in Spain and in other parts of Europe. So we are going to restrict or we're going to match our volumes to the level of demand in the market. I don't believe by gaining volume or market share we will create more value for our shareholders or for our Company. I do believe that the sales force at ArcelorMittal is working in that spirit and in that direction.

In terms of our debt rating, it's a clear priority. I think we have made very good progress because, as you know, two rating agencies -- we have a relatively stable outlook with one. With one, we have a negative outlook. And that decision was taken in November. And, if you think of November and where we're sitting in May today, a lot of things have happened. The overall macro situation is improved. I grant that Europe still remains a light concern.

Number two, we have made good progress. We have started on the noncore asset divestments. We have $1.6 billion done so far. We have a few more in the pipeline which will be announced in second quarter and a few more during the rest of the year. So I do believe we continue to make progress in terms of our asset optimization program and management gains, and we reaffirm guidance for the first time, in spite of economic challenges.

We're in dialogue and we're relatively comfortable in terms of where we stand. The needed impact on the organization is increase in interest rate, approximately $100 million for one notch. As you know, liquidity position is considerably improved now with $15 billion of liquidity. Our debt maturity profile is 6.4 years. So we do not have any refinancing risk, as such, in the next one or two years as well.

But, having said that, we remain confident with the plans that we have executed and are executing upon to maintain our investment-grade rating.

That's very clear. Can you give us any sense in the volume of transactions that you've got coming through in terms of the amount you're likely to raise from asset sales in the next quarters?

Michael, we haven't given a specific target. What we have talked about, as you know, is the $10-billion assets and joint ventures that we have on the balance sheet, which is in the Other Assets line. We expect that a significant portion of that will be crystallized. The other portion of that remains core, and we've talked about the assets which remain core, such as (inaudible) and others. So I think there's enough material out there to make a sensible estimate, and I think we're making good progress on that.

Okay. Well done. Very clear. Thanks.

Great. We'll move to Alessandro Abate, JPMorgan.

Just two questions. The first one is related to the asset optimization plan. Relative to your capacity, your current utilization rates, do you see going forward-- basically, you set this goal, this $1 billion annualized cash cost savings -- structural savings from December 2012? Do you think there is further room in 2013, considering the blast furnace you have in Europe?

And the second question is related to AMMC and your plan to increase the output of iron ore from 24 million to 30 million-- if you can, give a little bit more color on that. When do you expect this to happen? If there are other bases, what is the rationale or the driver that can enable you to get 30 million, 6 million more on your forecast? Thank you.

I think assets optimization plan which we have launched includes our next two to three years' view on our European and American economies. This takes care of growth in the American economy, and this also takes care of the very slow growth in Europe. So I do not think at this time we will be launching any new initiative other than what we have already launched. And our target for $1 billion by end of this year is really a good benchmark for us.

On the Canadian assets, 24 million to 30 million, we have not taken a final decision yet. We are still -- we have initiated the feasibility study now, and that will take care of going forward in the future.

Peter, do you have any more comments?

The one additional comment that I would make with respect to the rationale is that 30 million tonnes is approximately the capacity of our infrastructure without making any additions to it. So it is a logical next step in the evolution of Mines Canada.

Thank you very much for the answers.

Great. We'll move on to Sal Tharani at Goldman Sachs.

I have a quick question on the US and Canada. Can you remind us what percentage of your business is contract with the spot? And, also, in your contract business, do you have lags in realizing the prices, so it means you may have -- you may not have gotten the full spot price on those contracts in the first quarter and may continue to get in the second quarter?

Sal, if you look across USA and Canada, and here I'm talking about flat, which, of course, is the larger portion of the business, I think about 40% to 45% would be annual contract business. There's about 10% to 15% that would be indexed, and, typically, it's indexed against true lag to quarter. And then the remainder would be spot business.

Great. Thank you very much.

Okay. We'll take the next question from Cedar Barnes at Merrill Lynch.

I've just got a quick question on the European price/volume dynamic with respect to the news that we saw yesterday that Mittal is going to restart [a MOL] in Spain, which has been idled. Obviously, you're talking about volumes being down year on year, a softer outlook in Europe. I'd just like to understand how restarting that MOL plays into that kind of softer environment. Thanks.

Sure, Cedar. I think it plays into that environment because we're also taking off a blast furnace in Spain (inaudible). And that announcement has not been made because that furnace has not really been taken offline, even though it's scheduled to go offline. And you will see that. So, net/net capacity is similar or lower compared to where we are in the first half. I had alluded to earlier on there is another furnace in northern Europe side which we will take off in the second half of the year as well, which is, again, scheduled for the [third]. So we are taking -- we're planning to take off two blast furnaces. Obviously, this could change if the demand environment is different than what we're forecasting. And we are restarting the facility in Sestao.

Sestao, you should also recognize, is a slightly different type of animal. It's our only electric arc furnace. Our production route costs slightly are up. It can produce very thin gauge. And we have structured a very flexible wage agreement there, which is conditional on that facility achieving certain milestones. So the cost position is attractive, and, as we bring down other furnaces, we are maintaining the level of productive capacity in the European landscape.

Okay. Thanks very much.

Okay. We'll take the next question from Luc Pez at Exane.

Two questions, if I may. First of all, if you could come back a bit on the consolidation contribution, which was again a positive contribution in the first quarter of this year, shall we expect the reversal of the contribution, actually, from inter-segment margin elimination over the remainder of the year?

And the second question would be related to market outlook in view of the recent deterioration across our region in terms of pricing. To what extent is this reflected in your outlook? Or how do you view this impacting the second half of this year? Thank you.

In terms of the Others or consolidated impact, it should be negative in second quarter. We had a positive impact as we reduced the level of internal inventory due to the less shipments at AMMC, and, in Q2, that should reverse. We had the same impact in Q1 of last year and a similar amount.

Also recognize that the Others include other income. We have our shipping income, which is captured here. We have captive insurance, which is captured here. So there's some other income which offset the head office costs. But second quarter is expected to be negative, and Q1, as you know, is positive (inaudible).

On the market outlook for the year, I would like to say that we forecast between 4% and 4.5% growth in the global consumption.

And, if you go by the different geographies, Europe, based on credit situation, we are seeing a contraction between 1% to 2%.

If you look at North America, we are seeing growth within 6% to 7%.

If we move to China, China, we are seeing that, in spite of the first two months, January/February, weaker, we have seen rebound in March and April. As I said in my comments, April, we have seen the annualized production at 730 million tonnes in China, which is a record production. And our forecast is that China's demand will grow between 4% to 4.5% this year, in spite of the weak start. And, well, we have seen that to be -- [private residential] has been weak. There have been credit issues. There have been -- on the housing, there has been -- there is a slowdown. But it is getting offset by the public housing in China.

In the US, we are seeing a centering of the upward demand (inaudible) machinery. We have seen very slight pickup in the residential buying from the very low number.

And Europe continues to a concern.

Brazil last year was slow, but (inaudible) this year. We expect, in Rio, several major projects being taken up for Olympics and World Cup. The demand should be 5% to 6% growth this year, many on the long products side.

And other -- rest of the world, in spite of all this what is happening in [the world], we see growth of between 4% and 4.5%.

So this is our outlook on the steel demand for the year.

One final question, if I may. When would you be in position to comment on the results of the feasibility study with regards to the expansion in Canada to 30 million tonnes, please?

I think it's still early days to determine exactly when that will be because, really, it will involve, first, on to the pre-feasibility, review that, then feasibility. These things take -- especially for a complex expansion like this take a bit of time. So I would imagine it would take us of the order of a year or so.

Thank you.

Okay. We'll take the next question from Neil Sampat of Nomura.

I'm just wondering if you could, I guess, reiterate your dividend policy and remind us how you'd be looking at it going forward.

If you recall that they have already halved our dividend in 2008 crisis, and the board of directors have endorsed $0.75 to the dividend policy for 2012. And the shareholders also approved it [yesterday]. And we believe that this policy should continue.

Thank you.

Okay. So we'll take the next question from Carsten Riek at UBS.

Just a very quick question on China, because I saw that China's run rate recently was quite high with regard to production. I still can't believe that the material is really needed. If you look at the utilization rate and you look at the same time at the profitability of the Chinese mills, we see for the first time since, at least, I have records that utilization rates are close to 90% while the steel companies in China are making losses. How does that work together in your view?

Logically, you are right. But China has a lot of capacity to produce. And, at the same time, there is a lot of pressure on the Chinese mills to keep the steel prices low to keep the -- to contain inflation. And we also noticed that Chinese companies are not making money in the first quarter, and they are continuing to (inaudible).

Is there a risk that the government at some point will step on the brakes and say -- we can't have that any longer because we have to subsidize the whole industry, if it continues and actually lower the production, which could have a detrimental impact on the whole kind of supply/demand balance globally, actually offsetting much more the stress from Europe than anything else.

Well, this is one of the scenarios one can play out.

Okay. Thank you.

Okay. We'll take (technical difficulties) from Jeff Largey at Macquarie.

I was curious, with the reiteration of the guidance, say, for the first half and the potential asset sales that are in the pipeline, if you feel comfortable saying that you'll be able to hit the net debt target that you had set back in September of last year -- I think it was about $22.5 billion by midyear 2012 -- and, even if, potentially, you look to be below that by midyear.

You're right. Our guidance was $22.5 billion by midyear 2012. We remain comfortable with that. We believe we should achieve that. To the extent that we do divestments and pocket the proceeds, additional divestments versus the ones we've already announced, I would expect that take that net debt number below $22.5 billion. At this point in time, based on what we have announced and based on the forecast that we can see as an organization, we should have a net debt below $22.5 billion by end of June.

Great. And, for a second question, it's more on the mining side. There's a number of projects that Arcelor is looking at. Some, I think, are more near dated, like phase 2 of Liberia, some, as Peter mentioned, are a little longer dated, such as maybe going to 30 million tonnes in Canada. Do we need to see some sort of resolution on the balance sheet; say, a decision by S&P? Or do we need to see greater visibility in the steel market before we actually start to get some decisions on some of these expansion projects? I mean, I appreciate some of these are not even in feasibility study. But phase 2 at Liberia would seem to be creeping up on us if you're expecting to get there by 2015.

In terms of the overall CapEx and our balance sheet, the most significant growth CapEx is really Canada, where we are taking capacity from 16 million tonnes to 24 million tonnes. The majority of that CapEx is occurring in 2012. That should taper off in 2013 because that's -- the project should complete in the first half of 2013. Ramp up could take a bit longer, but the project is going to complete in the first half of 2013.

So, if you think of Liberia as the next project, it works quite nicely in terms of cash flows, assuming that we don't decrease CapEx but maintain CapEx at these low levels.

The restart of Liberia -- having said all of that, the restart of Liberia is not cash flow dependent because we still believe it creates tremendous value, and we need to fund it and accelerate it. The restart of Liberia remains dependent on us achieving the right milestones for the government of Liberia on phase two. And we're in discussions with the government. As you know, they had an election last year, and the government has been slow to form. And we're in discussions. So it's conditional on that more than anything.

But it's fair to say that the growth CapEx in mining is very much -- it's a phased approach that's staged -- I mean, because these projects do look very attractive from a return point of view.

Yes. That's right. They are a bit phased and staged, but, fundamentally, we want to move ahead, assuming we achieve the right approvals in Liberia with phase two Liberia, as it's attractive, and we are in the midst of completing our expansion in Canada.

Great. Thank you.

Okay. We'll take the next question from Bastian Synagowitz at Deutsche Bank.

I've got one more question on the balance sheet, following up on Michael's earlier question. I appreciate you don't want to give any indication on the precise divestments which you plan, but, besides the $600 million possible cash taken, which you still will have, roughly, from the recent divestments, would you say it's fair to assume that you will requiring, broadly, another $2 billion to $3 billion in further divestments to achieve the 25% target for adjusted FFO (inaudible) which you require for, I think, the S&P investment-grade definition?

And then, secondly, would you try to remain investment-grade, really, by any means? Thank you. Bye.

I think a lot of this -- our points were covered in my response to Michael. I don't have much more to add to Michael Shillaker, apart from the fact that investment-grade is a priority, and we think we're making good progress on all the plans. We have been in discussions with these agencies, and we expect to remain investment-grade rated as an organization.

Okay. Thank you.

We'll take the next question from Carly Mattson at Goldman Sachs.

This is one more on the balance sheet. But, from Goldman's perspective, S&P has talked a lot about the debt balance. And, as others on the call talked about, the balance that you talk about, the net debt balance -- if you would bridge just kind of how we should think about getting to the metric -- getting from what the Company talks to to the metrics S&P is looking for. That's something that's come up in conversations with S&P because they talk about more about the (inaudible) debt metrics rather than the net debt metrics.

I don't think there is a discrepancy internally. When we talk to our shareholders, (technical difficulties) based on net financial debt. And we understand that S&P has an adjusted debt. Clearly, as we reduce net financial debt, adjusted debt also reduces. But we're also focused on adjusted debt. If you saw, in Q1, we had a curtailment gain at Dofasco that was an important benefit change that occurred. That reduced adjusted debt, because there are less pension and (inaudible) liabilities on a going-forward basis. So we are focused on the ratio. That is what we discussed with the agencies. And it's easier externally to talk about net financial debt, as we believe that's the appropriate way to look at our Company, because we talk about EBITDA and net debt. If you look at adjusted debt, a lot of the cost of maintaining the adjusted debt is above the EBITDA line. And we're not reporting the costs above the EBITDA line. So we believe we are very consistent in how we talk about these issues with you, as well as with the rating agencies and the (inaudible).

Okay. (Inaudible). How should we think about absolute debt reduction going forward? Is that something that the Company would look to do, or should we be looking and just think about net debt reduction?

From what perspective?

From an absolute debt reduction perspective.

We clearly are focused on both. But the biggest driver of the difference between net debt and the adjusted debt remains pension and benefit obligations. These obligations, clearly, are governed by contractual terms that we have with our employees unions and the Company. So it's only unilateral reduction that we can -- that we need to discuss (inaudible). And we have shown that we have done that successfully in Canada in Q1.

Great. Thank you.

We'll take the next question from Rochus Brauneiser from Kepler.

Just a follow-up question on the volume trends. You're expecting kind of a flattish shipment trend in the second quarter. Based on that, are you seeing your steel production utilization [ramp] up or down from the first quarter's 73%, just to get a sense of the direction of your inventory in the second quarter. That's the first question.

The second one is in terms of modeling for the Flat Carbon Europe division. Can you give us a sense how much of the cost relief you're facing there as a non-integrated producer? How much of this has been already become visible in the first quarter from the top of the cost curve, which probably occurred closer to the end of last year?

What was the first question on inventory? I missed that.

The first question was, with your flat shipment guidance for Q2, how does that translate in terms of crude production utilization? Is this rather up or down from Q1, to get a sense on the direction of inventory in Q2.

Okay. In terms of inventory, we had higher production in Q4 relative to shipment, so Q1 was a story of relieving inventories or liquidating inventory. In Q2, we're not releasing for liquidation that much inventory, and, as a result, we're forecasting crude steel production similar or higher.

And, in terms of cost modeling, you know that there is a lag effect on costs. And you also know that we changed (inaudible). And we got the benefit of that in Q1. But the cost benefit will flow through in Q2 and in Q3.

Can you give us a rough indication of what the total cost relief might be for Flat Carbon Europe from the end of 2011?

I think, at this point in time, all we're suggesting is based on where the raw material prices are relative to Q4 2011. Q3 is going to have the lowest costs from a cycle -- from that raw material -- I don't want to give specific numbers on how (inaudible) is changing on a quarterly basis at this point in time.

All right. Fair enough.

(Inaudible) the full benefit of the existing raw material price scenario in Q3 of 2012.

Okay.

So we'll move to Tim Cahill at Davy.

My first question is in relation to the US. AK Steel have announced a price increase this morning. Obviously, there's been a little bit of softness in the steel price in the US over recent weeks. Could you comment on whether you expect to follow this steel price -- if you there's a chance that we might start to see US steel prices stabilize or move up over the coming weeks or months?

Secondly, in Europe, could you give a little bit of a flavor or order books and more recent trends in orders? Obviously, a lot of uncertainty and lack of visibility we're facing towards the coming months and quarters. But maybe, again, comment on pricing -- a little bit of price softness in Europe. What do you expect to happen over the coming quarters as we approach the July price negotiations?

And then, finally, the second half of the year -- you've given guidance for H1. I know you don't really want to talk about the second half of the year, but maybe you could just tell us what would need to happen in order for your H2 EBITDA to be higher than your H1. So (inaudible) let us know what would need to happen for H2 EBITDA to be above H1. Thank you.

On the US pricing, I think we've actually had a fair amount of stability if you step back a bit from the kind of week-to-week movements over the last, let's say, two to three months. And the range has really been kind of $650 to $700 a short tonne for hot bend. I think we have been within that range throughout that period. You're right that things have been drifting down a little bit. But, had we had this conversation three weeks ago, we would have been talking about things picking up a little bit.

There is a pretty wide band also in spot pricing in the market. So announcements sometimes might not -- I'm not commenting specifically about this case. But sometimes they're difficult to interpret. I think we do think that there should be some room for some improvement there. But, again, our view is that they've been relatively stable over the last two to three months, let's say, in that $650 to $700 range. And we'd expect that to continue.

So, in terms of the European price environment, I don't have much more to add, apart from what [Frank] said. There remain some concerns because of the European macro outlook. What is interesting about the European price environment relative to the US is that prices in Europe are not significantly above imports. In some markets, (inaudible) equal to imports or maybe even at a slight discount to imports. In the US, even at these price levels, we still have a premium (inaudible). There is some room, and I think (inaudible) volume strategy earlier on.

In terms of second half versus first half, we're not giving that (inaudible) as we're reporting Q1 results. What we can talk about, though, which has been mentioned earlier, is that, if you look at 2011, in the second half of 2011, we saw the raw material price environment deteriorate, which led to steel prices to fall. We're not seeing that trend. We're seeing, at least in the last few months, stability or, also, China, and, therefore we're forecasting a more stable raw material environment, which should help the steel industry from a cost perspective and a margin perspective.

Great, guys. Thank you very much.

Okay. So we'll take the last question. It's a follow-up from Carsten Riek.

Just very quickly on the first half guidance, are the pension one-offs of $200 million included in your first half guidance? Yes or no?

Our guidance is higher than second half of 2011. So the answer is yes.

Okay. Thank you.

So I would like to conclude my remarks by saying that, despite the challenging environment, we have delivered a solid EBITDA outcome in the first three months of 2012. We have posted momentum in our results, and this will be maintained in the second quarter. So I think it's clear that we are making progress, and we are heading in the right direction. Certainly, there are risks and uncertainties, but I am confident that ArcelorMittal has the core strength to meet the challenge.

Thank you, everyone, for your interest and also for joining to this call. If you have any further questions, you can always call Daniel and all our IR team. Look forward to speaking to you soon. Thank you. Have a good day.