ArcelorMittal SA (MT) 2017 Q1 法說會逐字稿

Good afternoon, everybody, and welcome to ArcelorMittal's Q1 2017 Analyst and Investor Call. And this is Daniel Fairclough from ArcelorMittal's Investor Relations team, and I'm joined on this call today by Genuino Christino, who is the Group Head of Finance. We announced back in February at the time of our 2016 results that Genuino and I would cohost these calls for the first and third quarter results. And as usual, Mr. Mittal and Aditya will host the calls for our interim and full year results where the focus is intended to be more on the strategic progress against our target. So the purpose of the call today is to provide further clarity and answer any questions that you have on the financial results for the first quarter announced this morning. And hopefully, you have also had the opportunity to review the other document that we published. So we published the regular presentation with detailed speaker notes as well as our web Q&A document.

So before we open up to questions, I'd like to remind you that this call is being recorded (Operator Instructions) But before we begin, I'd like to, perhaps, just address one of the key issues straightaway, which is Mr. Mittal's comment in the earnings release this morning that we expect market conditions to be broadly stable in the second quarter. To be clear, this is a market comment. It is not guidance. The reality is that market conditions remain favorable. Demand in our core market is positive. Our order books remain healthy, and these conditions have really supported our best quarterly performance in almost 5 years since the second quarter of 2012. So the fact that we expect these conditions to continue in the second quarter, is from our perspective, a significant positive.

As you know, it is our policy not to give specific quantitative profitability guidance, but what we can talk about is the drivers. So looking to the second quarter, you should anticipate that our steel business will see higher shipments reflecting the normal seasonal trends. You'll also note that in Q1, our fixed costs benefited from its building inventory. So by that, I mean that we produced more than we shipped, leading to an increase in metal stock, and that driver will reverse in Q2. So our fixed costs will go back up. Then there is the impact of the lower iron ore price, which has evolved over the past 6 weeks or so. This will, obviously, impact the profitability of our mining segment but due to the effects of inventory, that will not show up fully in our cost of goods sold for the steel business until later quarters. So I hope that clarifies the statement made by Mr. Mittal. We have had a very strong performance in Q1, and the operating conditions have not changed. So with that, we will move to the Q&A.

And we'll take the first question, please, from Alain at Morgan Stanley.

Just 2 questions if I may. Firstly, on the working capital guidance for the full year. So you started the year with nearly $1 billion cash outflow guidance. How should we expect that to evolve in light of your commentary? And secondly, on the lead times for the orders you're seeing in the EU and the U.S., can you give us a bit more comments on the market commentary how you're seeing your end market, your customers? And what's the current lead times as compared to the historical averages?

This is Genuino. So I'll take your first question and then Daniel will comment on your second question. On the working capital, I mean we continue to believe that the guidance that we provided last quarter remains at this point, and looking at the current market conditions, a good working assumption. So we have, (inaudible) that's slightly higher but $1 billion is still a good working assumption.

Thanks, Genuino. So Alain, on your second question regarding lead times, I think I've just made the remark that our lead times do remain very healthy. And if you look at demand across our core business in Europe and North America and it is good, it is strong, and the indicators of that demand are there for everybody to see. And so there's been no slowdown in those markets. And if you look at our order books, they're very similar to the extended levels that we had in the first quarter.

And we'll move to the next question from Mike at Credit Suisse, please.

Just 3 very quick questions, if I may. Firstly, just on the guidance. I know you don't want to give actual quantitative guidance, but you did sort of mention in the last call that you would expect margins to be higher in Q2. Given the dynamic that you've painted at the start of the call, does that still stand that you would actually expect margins to be up quarter-on-quarter? Is the first question. The second question just on Brazil. Obviously, shipments were down a lot in the quarter, and you've given some explanation in that, but 22% does sound like quite a big number including the 10% for market weakness in long. So can you give us some sense of how much of that you expect to come back in the coming quarters because 500,000 tonnes, $80 a tonne that's around $40 million of lost EBITDAR in the quarter. So how much of that would you expect to come back in the coming quarters? And the final question just on iron ore. You've alluded to it just at the start of the call as well. There is a timing difference between what you ship, and the price you get is almost instantaneous. Does that include, which I guess it does, internally shipped tonnes? And on the back of that, what is the lag between that and the cost benefit that you receive from the lower iron ore price on third-party purchases and also on the lower price from the internally shipped stuff? And could you try and quantify the net impact because to me, obviously, Q2 is going to be negatively impacted but you should get some of that coming back in Q3 from the cost benefit. Is there any quantification of that?

So Mike, so let me try to address the Brazilian question and then the iron ore question, then I will touch on the first one. So in terms of the Brazilian shipments, yes, you're right. I mean the reduction is significant, but we will be recording at least 200 kt going forward. The way we look at it, I mean if we look at the shipments, first half, for flat products in Brazil. First half of '17 versus the first half of '16, we should be relatively flat. And then of course in long, we continue to see the weakness in construction. So that will -- even though we see conditions stabilizing, that is, we're not going to be recovering that, the losses that we had in Q1. Regarding the iron ore delaying, I mean you're right that we will see the impact in our mining division straightaway. And because of the accounting lag, it will take more time for us to see the full benefits in our steel division. The rule of thumb that we use and that works very well for Europe is the delta that you see in prices, 40% will [heat] your results in the first quarter, then 35% in the second, 15% in the third, and then 10% in the fourth. So it means that it takes almost 4 months for you to really refresh fully your cost base. In terms of measuring the impact in the next quarter, I'm not going to give you a number, but I think with this rule of thumb, you can -- I'm sure you can take into account, as you know, our production through EAF's integration of our mines, in particular ACIS and NAFTA. I'm sure you can up with a good estimate.

Thanks, Genuino. So just to address your question, Mike, on steel margins, and I think what you're alluding to is that the comments that we made last quarter on the price cost expansion that we were anticipating in the second quarter. I think if you look at our results for this quarter, and clearly, we have seen a price cost benefit. And we've noted that in NAFTA results, we've noted in the Brazil segment results, and I think if you look at the performance that we've enjoyed in Europe as well, it was primarily volumes but it was also the benefit of price costs there as well. And so looking into the second quarter and just reflecting on the answer that Genuino has just given in terms of the lag, both in terms of iron ore and coking coal, on an accounting basis, our cost of goods sold will increase in Q2 because of higher accounting raw material costs. And -- but that will be fully offset by the revenues lags as well. So I can confirm that there is no price/cost compression in the second quarter versus the first quarter.

Okay. And so just to confirm I guess it's right. There's no reason to believe that internally shipped tonnes are priced any differently to externally purchased tonnes of iron ore.

Yes, that's right, Mike. So the tonnes shipped at market price, the dynamics will be the same.

So we'll move on to the next question from Ioannis at RBC.

Two questions on my side. First, in terms of your demand forecasts. You are guiding to demand growth this year across most of your regions. But as was already mentioned, Q1 shipments were down 2% year-over-year. Part of it is a change in scope. Part of it is the issues you mentioned in Brazil. How should we think about full year improvement in volumes in light of the change in scope and then the issues you mentioned in Brazil, that would be the first question. And secondly, in the U.S., just looking at the automotive market, we've seen weak sales from automakers so far this year. What's your view on ArcelorMittal auto volumes in 2017 in terms of year-on-year growth? And do you see potential for market share gains?

Ioannis, maybe I'll take your second question first, and then Genuino can just highlight the scope effect on shipments this year. In terms of U.S. auto, I think you need to reflect on the fact that our business is not just U.S. It is a NAFTA auto business. So whilst there is the forecast of lower sales and production for the U.S. and for NAFTA as a whole, actually, the market forecasts are for stability and maybe even a slight growth this year. And so, I think, hopefully, that should answer that question that, overall, we wouldn't necessarily expect our NAFTA auto shipments to decline in 2017 versus 2016. In terms of market share, that's obviously something that we don't comment on. I think we have a lot of confidence though that given our reputation in the market, given the strength of our product portfolio, and that -- our market leadership position is quite clear. And in terms of the evolution, the way that the market is heading in terms of lightweighting, we have the required products within the portfolio to lead that evolution.

Yes, Ioannis. In terms of your question, in terms of shipments, so yes, so we had Brazil but we should also take into account that in CIS, we had also maintenance in one of our largest [retro burners] in Ukraine. So that will come back up again in second quarter and also in our long business in Europe, we also had some maintenance. So we also have some less availability of good steel there, so that will come back up. So we remain -- I mean we believe that we're going to be able to capture our growth of the [Tata] steel in our key markets. Having said that, we are not really providing a guidance in shipments other than we remain focused on making sure that we protect our market share.

Maybe just a quick follow-up on the latest coking coal price surge. And given the related time lags and the exposure you have to spot pricing, should we expect the main impact in Q2 or Q3? How would that play out?

Well, I just see the rule of thumb that we just described for iron ore would also be applicable for the coking coal that we are buying in the market. So 40%, 35%, 15% and 10%, I think that is a good rule of thumb for you to apply.

We'll move on to the next question from Jason at Bank of America.

Look, 2 questions from me. One is just technical, just to make sure I understand the accounting. The other's a bit more big picture. Just on the comment you made on the fixed cost absorption and you said that you produced the inventory and that has basically brought down the fixed cost per tonne, if I understood you correctly. To the extent that you're talking about that going up in the second half -- or sorry, the second quarter, Dan, is that because you're producing less? Or you are saying it's going to go up overall just because you're shipping out of inventory? So that's the first question. Second question just more on the competitive backdrop. I'm wondering how you guys are thinking about the U.S. steel results debacle and, in particular, the fact that they're having to sort of back away a little bit and start reinvesting in all of their facilities? What does that mean for ArcelorMittal?

Thanks, Jason. So I think Genuino is well placed to answer the technical point on fixed cost absorption. But I think to address the issue that you raised on the competitive landscape in the U.S., I think, obviously, we had a -- we've got a lot of confidence, I think, that we've been able to maintain our assets very well and our assets throughout the very challenging years that we've had over the past 4 or 5 years have been very well invested. So if you look at the results that we've been able to generate in terms of production, asset downtime, et cetera, it is very encouraging and I think that, that reflects the fact that we've been -- there's no question that we haven't been maintaining and investing in our assets effectively. And so if there are examples where our competitors are now having to take production downtime in order to revitalize their assets, obviously, that's going to tighten up the supply in the market a little bit further, and that can only be a positive for our overall business. And Genuino, just on the fixed cost effect.

Yes. Jason, so if you look at our -- the cyclicality in our working capital seasonality, you will see that typically in Q1, we build working capital, and this is in anticipation of generally what is our stronger quarter, which is second quarter. And then normally, you can see a reversal of that. So in Q1, we tend to produce more, and then in Q2, as we see higher shipments, the production is slightly lower, and therefore, you see the reverse. That's what Daniel was trying to explain. So less fixed cost in Q1 and that will reverse in Q2.

Can I just follow up, guys? So if we look at -- I think the disappointment today in the market is that we should be seeing the costs -- we thought we were going to be seeing the costs going down in the second quarter. And is it the case then that maybe we, the market, understand -- misunderstand this dynamic in the fixed cost absorption? As you sort of produced, you have lower unit fixed cost, but you're producing that inventory, and then we unwind that into the second quarter, but then you've actually got higher fixed cost absorption into the tonnes you're producing. Is that something that you think is well understood by the market?

Well, this is not something that is new. I mean it happens. In our case, as I said, it's part of the normal seasonality of our business and even so. So I guess we should not forget that we have seen also iron ore prices continue to go up until at least Q1. So in Q1, as you know, iron ore price is quite high. And because of the lag, that will continue to impact our costs going forward. And because of the rise also of the coking coal that we saw, particularly in the fourth quarter, that continues also to impact our cost. Remember, so we spoke about 4 quarters, for us to really start to see completely refresh of our lower costs.

Thanks, Jason. And so we'll take the next question, please, from Luc at Exane.

I would've a couple of questions, one related to working capital requirement. And what you could say as to what are your requirements for the full year? Previously, you guided on [$0.]5 billion to $1 billion potential need. Is this still valid? Or do you see the need closer to the $1 billion given the Q1, which I understand is seasonal buildup. That's my first question. Secondly, looking at market conditions, which seems to have changed not for the best over the past 3 weeks. They are currently widespread looking at U.S. or Europe versus China. Do you see downward pressure? I understand that your order intakes are good. But can you comment maybe on how you see things developing as we get into the (inaudible). That would be my second question.

Luc, let me address the first question. I mean we touched on it already at the beginning of the call. Yes, so we are reconfirming that based on current market conditions and what we see today, the $1 billion was slightly higher assumption for working capital, but full year remains a good working assumption. Second question, Daniel will address.

Yes, thanks, Genuino. So everyone, obviously, we've got our policy to talk in public forums about our expectations for the steel pricing. And I think given the coal energy highlight in your question, we did talk about the strength of demand in our core markets, the strength of our order book in our core markets. And given that inventory is very balanced and the U.S. is actually on an absolute amounts of shipment basis, you can see that U.S. inventories are quite low at the moment. One of the fundamentals are really in place within our core markets to support healthy steel spreads. And so yes, the risks are there, trying to just have a lot of excess capacity within its steel business. And that does present a risk to the global steel industry, and so China does need to address that capacity and balance. It is making progress but more effort needs to be done to address and make that industry more sustainable on a going-forwards basis. And so all about -- all that we can do with that, in recognizing that, that risk -- all that we can do is focus on the things that we have influence on as we will continue to deliver the Action 2020 program and the improvements associated with that, and we'll continue to strengthen our balance sheet and deleverage, and we will continue to work with the governments and petition and the lobby for protection and to proposes in place where appropriate to protect our high-quality cost-competitive well-invested domestic assets from any evidence of unfair trade.

Can you maybe elaborate a bit more as to what do you think is happening currently in the Chinese market? What do you think is driving the weakness in prices? It is only related to some form of destocking? Or do you see something bigger at stake?

As you noted, it's been just in recent weeks that you've seen the correction in pricing and spreads in China. So it's probably too early to draw any strong conclusions. Obviously, what we can observe is that pricing has dropped. That is coincident with the drop that we've seen in the iron ore price, and so there's probably an incentive there within the domestic market for customers to adopt a wait-and-see attitude and to destock, which is, obviously, unhelpful to spreads when that occurs. But it is too early to draw any strong conclusions. What we need to do is keep a good eye on it, remain vigilant and make sure that any destabilization in the Chinese market due to that excess capacity does not pollute our markets.

All right. So we'll move on to the next question, please, from Alessandro at Berenburg.

Most of my questions have already been answered, just 2 left. Relative to the European market, which seems to be quite strong and solid, also for a healthy backlog of orders that you have, how do you compare now the resilience of the prices relative to growing imports on a year-on-year basis? Because I mean if you have to go backwards in the industry -- in the history of the industry, I mean with such a huge level of input, clearly, also reflects a very good supply and demand balance in Europe. Do you see any major risk of a downside of prices coming from current label? And also to the preliminary anti-dumping investigation against the import of HRC from a number of countries, I mean the final decision will be taken by October 6. Also, the European Commission has recognized that there is injury from this input. How do you reconcile that with the chances that there can be a further implementation of a final anti-dumping duties that is favoring the industry market? And the second one is related to an update on Action 2020 program. What are you -- at the moment, what kind of view you have in the coming years?

Thanks, Alessandro. So I'll let Genuino just cover the Action 2020 topic in a moment. But first of all just to address your questions on pricing and maybe the influence of the ongoing investigation. And obviously, we can't comment on pricing. Just in my previous response to Luc's question, I did obviously acknowledge the risks that are out there, and that's something that I think everybody is aware of. The risk of the global excess capacity in steel, that needs to continue to be addressed and we will continue to make the necessary efforts to protect our domestic concerns, whether is it evidenced that, that excess capacity is driving any unfair trade. And I think, as you highlight in the investigation that's ongoing on the HRC imports into Europe, there was a very strong evidence. So that case is very, very strong. There is evidence of injury, and obviously, we didn't have the provisional duties -- we didn't have any provisional duties put in place in time for the initial deadline. But I think that was just not due to a lack of conviction that the injury was there, just that there was a requirement for a further level of detail which will now be considered during the remaining period of the -- of that investigation. So it's a strong case and there is clear evidence of unfair trade which is supporting increased imports into out European market, and -- so the only factors there to justify import tariffs and that we will, obviously, wait for the final decision as you highlight in Q3.

On Action 2020, Alessandro, we continue to make good progress across the organization. Our teams remain focused on achieving the results. We see good progress, for instance, in our footprint in U.S.A. the ramp-up of Calvert progressing very well, also in Europe our transformation program. So the initiatives are underway. And the measurement, how much we going to -- we're actually achieving as we have in our Q&A, we'll be updating you at the end of the year once we announce our 2017 results.

So we'll take the next question...

(technical difficulty)

Thanks, Alessandra. Sorry, my mic was switched off. So we'll take the next question please from Seth at Jefferies.

Two questions. First on the mining side. Can you give us an update please on your cost savings program there? And also with regards I think it was last week you renegotiated Canadian Union agreement for some of your operations in the region. In those negotiations, you seemed to have dropped a new two-tiered pension. There's something of that sort, also weight on your cost savings target for full year. And then separately, last quarter, Aditya was able to give us a bit of color on the outlook 2 quarters forward going into Q2 at the time. Can you please give us any thought on the outlook for Q3 please?

Thanks, Seth. So just in terms of mining costs, obviously, we're making some great progress within the mining operations this year, and you can see that in the Q1 shipments on a year-on-year basis. And so we are, obviously, looking to increase the shipment volumes this year by 10%. That's reflecting the normalization of the situation in Ukraine. It's reflecting the restarts of our Mexican mine, but it's also crucially reflecting increased production in Liberia so that we are now transitioning to the new deposited Gangra, which is a higher quality DSO material and it has a -- it's easier to access that material. So we have to remove less burden, so the strip ratio is lower. So the operating costs at Liberia will benefit from that and the product quality will may not have realized price in the market is higher as well. And so we're making progress in mining. And in terms of the overall cost, we didn't stop here with an objective of further reducing our cost position. We've worked hard over the past 2, 3 years to reposition ourselves on the global cost curve. We now do have that good position as being free cash flow breakeven at a $40 CIS China iron ore price. And as we move forward, the focus is protecting that cost base, protecting that cost position and at the same time, improving our product quality and the price that we're able to realize in the market. And then just in terms of the outlook beyond the second quarter, I think what I would be just anticipating is at this stage the normal seasonal trends within the business because there's nothing else that we're seeing at the moment to -- that you should factor in.

Seth, in terms of your question on the CLA signing in Canada, I mean we -- I don't have the specifics in front of me, but I can confirm that given the circumstances, I guess other parties were

(technical difficulty)

Thanks, Genuino, so we'll move to the next question please from Rochus at Kepler.

Just a few questions from us. The one is on your production risen, I'm not really sure that I got the point you made, you're saying, okay, you'll produce more in Q1 and then you start releasing and from the second quarter onwards. At least when I look back to the previous couple of years, second quarter in production was always stable or even up. So has there something changed in the way you're running your assets? Or is there anything else why the reason might be different this year? That's the first question. The second one is again on your comment on the guidance for Q2. So if you're saying now -- if you're now seeing less spread improvement in the second quarter, is this purely a function of the costs which are dragging for longer? Or is there anything else which is creating a headwind on the second quarter steel spread? And the third question is, on the loss of volumes you incurred in the first quarter from Tubarão, Ukraine and so on. Can you give us a sense of the volume effect in Q1 and the EBITDA impact you're having there? And the last question is on -- I think you touched the point on the long side which hasn't been that great and some parts. I guess it's not only the European side across the board, I guess the longs have been down by 11% year-over-year. Like I said it's definitely more than the deconsolidation. Can you give us a sense about the big picture, what's happening there?

So maybe let me try to explain a bit better the response issue. It's true. I mean when you look at our production and shipment, you will see that there is always a huge loss between our crude steel production and shipments. So that is normal. You always see production high and that's the huge loss that you'll see every, every, every quarter. But then in -- so if you apply that normal huge loss, you would see that in Q1, we are producing more. So we are restocking. And then the way to think about it, maybe another way to think about it is, if I'm producing more, the putdown, the fixed cost putdown of my production will be lower because my fixed cost doesn't change, I'm producing more, so then I have less fixed costs per tonne, right? And then as we move into the second quarter, my production will not be at the same rate as my shipments, and therefore, my cost in that particular quarter will be higher because I'm producing less. And my per tonne will go up. So that's another way of looking at it, but that's again, I mean, this is really the normal aspect of our business. There is nothing new here. It doesn't mean that we're running our facilities in a different way. It's exactly the same thing.

Thanks, Genuino. So I'm going to come back to your question on guidance before. I think Genuino will cover the volumes at Tubarão and Ukraine and what's going on with the long product business. So just in terms of the guidance, I really think it really boils down to the iron ore pricing. So if you look at how the iron ore prices evolved, since we last talked to the market, clearly it's moved down. And you have an export market seems to your pricing adjust to that lower iron ore price, but it's not really affecting our steel business. It's really affecting the mining business. And so the expectation is, as we look into the second quarter that lower iron ore price will have a negative impact on mining segment profitability. And as we've talked about several times in previous questions, you don't see that benefit coming into your steel cost of goods sold because of the inventory and the lagy effect. So that lower iron ore price that we've seen over the past couple of months is only going to start to come through more into the second half of the year in terms of steel cost of goods sold.

In terms of the shipments, so most of the shipments the reduction that we saw in Brazil, I think it's important to say that this is in the export market. So domestic shipments in Brazil, they were fine, actually up year-on-year. I think that's also encouraging because it shows that reflecting, since we start to see a positive momentum there in flat. So that will, as I've described, so we'll see a catch-up in shipments in Q2, but we should also take into account that is going to be also in the export market. So we'll continue -- hopefully, we'll continue to see a positive development in domestic market, but the catch-up in shipments will also mean that our exports will also go up in the second quarter. And then I'm not going to give you here a number for the shipments. I think you can -- based on the profitability of these -- of our divisions, I'm sure you can come up with a good estimate. In terms of longs, again, it's just the longs Europe, I think we have good demand in long Europe and we saw difference in consumption up. This showed there really was just some maintenance work which will not reoccur in the second quarter.

So we'll move on to the next question from Novid at Cowen.

You guys had discussed how the destocking pretty much has ended in the U.S. I was wondering if you can give us a little bit of color on the inventory situation in Europe right now.

Yes, sure. I think what we do observe in Europe is that there's less volatility in the inventory in the system. So we're not seeing that same more significant movement that you see in the service centers in the U.S. So inventories within Europe are relatively stable. And when we look at demand, there's a much closer relationship between real demand and apparent demand. And so looking at the picture today, and although there's no really useful indicators and the sort of like the MSCI data that you can rely on in the U.S., we don't have that level of detail in Europe. But what I can tell you from our business is that the inventory situation is quite normal.

Okay. And then just as far as underlying demand goes, what would need to happen or what are the drivers that would get Europe up to kind of the growth rates that you guys are estimating in the U.S. Whether it'd be next year or the coming year. Just wondering what the moving parts are there.

Yes. So actually, it's a little bit of a function that what we've just talked about where in the U.S. market, you do have this disconnect between apparent demand and real underlying demand. So taking it back to last year, real demand in U.S. did grow. But due to the destocking in that market, apparent demand was negative. And so then looking into 2017, although we're seeing a slight improvement in real underlying demand in the U.S. market, by far the bigger driver is the -- no repeat of the destock effect that we had in the 2016 base. So then switching to the European market, you are seeing a much closer relationship between apparent and real demand in our markets. And obviously, so far this year, the indicators of demand had been positive. We are seeing that reflected in the strong shipment performance that we've seen in the first quarter and into the second quarter. But I think in terms of the opportunity for further growth in Europe, it's still clear. We're still continuing to improve some of the key end market demand areas relative to where we were prior to the crisis. And if you look at some of the appendix slides in our presentation, it just show that the main end use markets in Europe do have a lot of relatively positive albeit very steady growth in front of them.

So we'll move to the next question please from Christian at Soc Gen.

So Daniel. I have 3, 4 questions. The first one is I think South Africa has been increasing their tariff on imports. And could you tell us if you believe this may have a favorable impact on your South African operations as early as this quarter or next quarter? And the second thing is, your coke supplier in Indiana Harbor, I understand you are facing some questions with regards to the renewal of its air permit. Could that be an issue for you in the U.S. in terms of your production there? And the third question is in Brazil. Obviously, we see an issue about sodium, but what is the indicator in Brazil for industrial production and confidence have been steadily improving in past month. Do you see any indication that perhaps underlying demand for your portfolio for your product is improving somewhat?

Okay. So let me try to address first the South African question. I think what we have seen recently is the announcement by the South African government of the intention to impose safeguards and that should be in place, I believe, if I recall correctly, the date from second -- from June, July onwards. So we -- of course that is very important for our industry in South Africa. We have seen all sorts of level of imports, high, very high, in South Africa really hurting the business. So we hope that, that will help. So this is not really for now for Q2. But then, hopefully it will help us in the second half. In terms of Brazil, so yes, you're right. I mean, we see a lot of positive indicators there, not only the sentiment but we see inflation coming down very significantly. We see that then the interest rates are also falling, which for sure will support investments going forward. But for the time being, in terms of shipments, so as I said, we see an improvement in our Flat business year-on-year in particular, and our long business is still down. So construction remains relatively weak but we see signs of improvement in the industry overall. So construction is still weak. But the industry is starting to show some recovery. But given the weight importance of the construction market for our long business, so in terms of shipments, we still don't see positive evolution.

Thanks, Genuino. And just coming back to your question, Christian, coke supply in Indiana Harbor that's not something that I have in front of me actually. So I'll follow up with you after the call if that's okay.

And so we'll take the next question please from Phil at KeyBanc.

The question was on operating maintenance spend. I know you said to Daniel already that within U.S. and Europe that the company has provided what you think to be reasonable levels of spending on the assets during the downturn. But does the '17 cost profile for the business reflect any pickup in maintenance spending as profits have recovered? I guess that's one. And then the subquestion to that, is there a way to think about normalized maintenance spending within U.S. or Europe on a per tonne or percentage of sales basis?

In terms of the -- I think in our K, if you look back, if you go back to 2014 and given exactly the fact that we have maintained a well of assets, we were able actually to extend the useful life of our assets used. So we feel very comfortable with our maintenance policy. So that is no -- we have no intention or plans to change that. We don't see any reason to change that. So the CapEx that you see going to -- in our NAFTA operations, they are for the footprint which is progressing and will continue. So we have worked very hard, as you know, in our footprint there. So I don't see any -- we don't see any and we don't anticipate any change there.

Yes. And then just in terms of the overall maintenance spend for the group maintenance CapEx spend, you should just assume that sort of $2.1 billion, $2.2 billion which we've been consistently spending that, that will remain the case going forward.

Overall speaking, were there any on the operating level?

Yes, so beyond that, sort of aggregate global level. I don't think that's a level of detail that we're prepared to go into, if that's okay.

Okay. And then last one here. Any update you can provide us on the Calvert production ramp?

Yes. So just to compliment in terms of I think your question is more on the OpEx side, so we are not really anticipating or forecast increase in our OpEx. In terms of Calvert, so we continue to make good progress. So in Q1, we were running at a capacity of close to slightly above actually 90%. Is that good for you, Phil?

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

Just a follow-up on the net working capital. We have seen a significant uptick here I think more than 25% quarter-on-quarter. I'm just curious where this net working capital actually regionally happened. Was there any volume involved which you've built to get a better understanding, why you actually did this? Was there any impact in Brazil, any outage involved? That's the first one and on the second question, what we've seen in Russia CIS right now is a quite significant drop in steel prices. We're talking about somewhere in the range of $80 per tonne already. Have you seen any of these drops in your CIS operations already? And what do you think about the performance of ACIS going into the second quarter?

So let me -- so the working capital, I think it's quite straightforward. If you look at our production and shipments by division, and if you apply the usual yield between crude steel and shipments, then you can see that we have huge working capital metal stock in all of our divisions, which again is the normal seasonality of the business. The only exception to date, of course, was CIS because of the maintenance work there. So we had actually more shipments coming from -- so we had less production there. So we destocked in CIS but not in other divisions, we restocked. In Brazil, I mean good way to see it is that we have some maintenance work in Q4 in our hot strip mill. So then in Q1, of course, we are replenishing our HIC inventories. And then other than that, some shipments just got late. So some were in transit and because of the income terms we do not count them in this quarter, that will come of course in the second quarter. So that was just timing issues there.

Carsten, just on your question on the Russian CIS market, obviously that's a market which is quite approximate to the China market where you have seen pricing adjust to the lower raw material environment. And so within that area of the business, obviously, and the order lead times are fairly short and we only have a sort of 2- or 3-week order book so our pricing there does reflect the market reality quite quickly.

Okay. But you haven't seen any spillover effect into the European market here at all, at the moment?

No. I know I've been trying to stress that on, obviously, comments that we've made around this topic. And today that -- and the risks are clearly there. But what we're seeing within our business today is that there's no compression of spreads.

Thanks. So we'll move on to Bastian please at Deutsche Bank.

Just have 3 quick ones. Firstly following up on Jason's questions, and your question and your comments around fixed cost and margins. First I'm not quite sure I caught it correctly. When you say prices will compensate the rising account in cost, does this also consider the fact that fixed cost will be up or is the risk that the gross margins will be up? But if you include the fixed cost which will be higher, it will drive your overall EBITDA per tonne margin down. Then the second, could you please quantify the impact of the reline and the maintenance you did this February in the first quarter? And the last one just again on the cash requirement. Where you could give us a bit of an early color on your CapEx for the next few years? Seems like we shouldn't be expecting any larger maintenance cycle. But given the recovery and pretty much all of the markets, are there any larger projects for growth or product upgrades which you are planning to revise?

Bastian, just on the first question in terms of trying to get even more sort of guidance out of this for the second quarter. I think we've laid out the factors to consider, and so we've talked about these in the stronger volumes. We've talked about pricing having adjusted to the higher accounting raw material cost as they come through in the second quarter. Genuino has talked to the issue of fixed cost and how that is going to impact the second quarter relative to the first quarter and we've highlighted the obvious factor which is the iron ore price hitting our mining segment performance in the second quarter before that you start to see any relief really in the cost of goods sold. So hopefully, that's all the elements that you need to be considering when you're formulating your forecast for the second quarter. And answering your question on the -- your third question on CapEx, I think if you look at the level of maintenance CapEx that we have, which has been quite consistent around the $2.1 billion, $2.2 billion level, that is giving us a nice amount to invest this year in developing the business, investing in high-quality products and high-quality solutions and really allowing us to take advantage of the opportunities within the business to create value for the future. And I think it isn't inappropriate at this stage to talk -- to start talking about guidance for CapEx beyond this year. But I think the reassuring message that you have -- you should have is that there's been no lack of investment within our operations in recent years.

Okay. Just following up on that one, so you say the $2.1 billion, $2.2 billion actually does include some -- using some product upgrades of your plants which is, for example, need for some of the higher strength materials I guess?

No. That's really the ongoing maintenance CapEx within both steel and mining.

Okay, okay. And then just on Qikiqtani was there any large financial impact in the EBITDA in the first quarter?

I mean, clearly the production was down. So the impact was not very significant. But then of course, going forward, we have to restock. So we draw on our inventories and that's why, as I described to you, we don't see an increase in inventories in CIS. Then going forward, we have to replenish that.

There was clearly -- there was obviously the working capital and more potential on balance sheet. I was referring to the P&L part, were there any costs you were carrying through the P&L related to the maintenance other than, like fixed cost dilution?

So I mean there might be some cost, of course, but there's also some part of it gets capitalized. So to the extent that it increased the useful life of the plant, so it does not impact, and then there might be some small cost that get expense. But most of it would be capitalized as part of the -- this type of maintenance would generally extend the useful life of the plant.

So we'll move on to our last question please, which is from Brett at Loop Capital.

Just give a rough sense as to sort of what's going on in Italy, kind of your inclinations in terms of buying additional assets, potentially selling assets, and then also sort of -- I know you guys have got a commitment to getting investment-grade style numbers. You had investment-grade style quarter. Any updates from the rating agencies?

Brett, let me start with the last one, the investment grade. So yes, you're right. So we were pleased with the evolution that we made. I mean we had the upgrade with Moody's. We had also this presentation of the rate with Fitch. And we continued the dialogue with them, very active dialogue. I cannot really share much with you as you know these are confidential discussions. In terms of Italy, I mean, unfortunately, I'm not going to be able to provide much color here. As you know, we're also bound by confidentiality but we remain focused in being successful there and we will know the outcome when the government announce. Expectation is that...

I would say, are you generally acquisitive from this point forward or more focused on delevering or even asset sales?

Well, our focus at this point is deleveraging. That's our priority, as we have previously communicated, so we'll continue the deleveraging process.

So that was the last question. So thank you very much for everybody's attention, and Mr. Mittal and Aditya look forward to updating you on the strategic progress of the group at the first half results which we'll be publishing at the end of July. Thanks very much.