Arcelormittal SA

Good afternoon and good morning, everybody. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. Thank you very much for joining us today to discuss the results for the fourth quarter of 2020. Present on this call today, we have Mr. Mittal, Executive Chairman. We have Aditya Mittal, CEO. And we have Genuino Cristino, CFO. And we also have our Head of Mining, Simon Wanke. The focus of today's call is to discuss the results of the fourth quarter and strategic progress we're making at ArcelMittal. This was covered in depth in a detailed presentation published alongside our results this morning. So as usual, the format of this call will be some opening remarks followed directly by a Q&A session. As such, we should be able to complete this call in about 45 minutes. If you'd like to join the Q2ASKer question, please do press star 1 on your keypad If you could limit yourselves to one question and a follow-up, that would be appreciated so that we can get through as many questions as possible. With that very brief opening, I'll hand over to Mr. Mittal.

Thank you, Daniel. Good day, everyone, and thank you for joining us on this call to discuss our results for fourth quarter 2020 and the strategic progress we have achieved. 2020 was, of course, an exceptional year in many ways. What was not exceptional was the response of Arso Mittal to the many challenges that we faced over the past 12 months. It is our organization's DNA to lead, to respond quickly and effectively to changes and challenges that often occur in our industry. I'm immensely proud of all our people and what we achieved together in 2020. We start 2021 in a position of strength. Our markets have bounced back. Our balance sheet has never been strong. We have a more focused asset base with a defined growth plan and a clear strategy to drive our decarbonization goals. Most importantly, after many years of deliberating focus, we are now in a strong position to reward our shareholders consistently. Returning capital is a clear priority of the new policy announced today. I have decided this is the right moment for me to transition to executive chairman. The board unanimously agreed that Aditya Mittal is the natural and right choice for the company's chief executive, what I believe is the most prestigious steel company in the world. Adit and I have worked closely together since he joined the company in 1997. And in recent years, we have been managing the company together. So this transition will be one of continuity, and it will be seamless. Adit, would you like to say a few words?

Sure. Thank you. Good morning and good afternoon, everyone. As you have said, we have been working very closely together for many years, and we will continue to do that. I'm personally very excited about what lies ahead. Our Swarmittal is full of incredible people, a company with excellent knowledge and capabilities, and a company with tremendous potential. I'm also very proud of all our people and the character they have shown as we navigated the challenges of 2020. Given the circumstances, the company performed well. As you heard, we have a strong balance sheet, having paid down a lot of debt We have reshaped our portfolio of assets, which gives us more focus. And through the experiences of COVID, we have uncovered more efficient working practices, which will underpin our competitive position going forward. From this strong base, we're well-placed to undertake the work that will be involved in ensuring that our Sromitlo transitions successfully to a low-carbon future. It is a great challenge, but also a great opportunity as it allows us to utilize the strength and breadth of our human and technology capital. Our role is to lead this transition, and this will undoubtedly be a critical driver of our submittal strategy in the coming years and decades. I believe we can do great things as a company. Today, we also announced Genuino Cristino as our new CFO, You've all come to know Genrino well, I think. He has regularly attended our analyst calls for several years now and has also been meeting with many of our investors. Genrino and I have been working closely together in his capacity as head of finance, and he has been instrumental in the progress we have made to reshape our balance sheet. He has proven his capabilities with a track record of achievement, and he really embodies the attributes we look for. I will pause there now and hand back to Daniel to begin the Q&A session. Thank you.

Thanks, Aditya. Thanks, Mr. Mittal. So we have a good queue in front of us, and we'll take the first question, please, from Alain at Morgan Stanley.

Please go ahead. Yes, hi. Hi, Daniel. Aditya, congratulations on your new role. You are now at the helm of a company that is probably in the best position it has been since the merger of Arcelor and Mittal back in 2006. But if I may ask you, in your new CEO role, putting your CEO hat on, what are the top three accomplishments that you plan to achieve in your first year in the role?

Okay, fantastic. First of all, thank you very much. It's a real privilege and an honor to be appointed the CEO of ArcelorMittal. As you know, Mr. Mittal and I have been working very closely. You've watched us for many, many years. So the change is evolutionary, not revolutionary. So I would think of continuity more than anything. But clearly as a CEO, I'll be managing and overseeing the performance of the company and the development of our short and long-term strategy to create value for all stakeholders. I think there are three areas to focus on. A lot of this is captured in our presentation as well. But let me begin with the first, clearly leadership on sustainability. That is not only a license to operate, but as I mentioned, it's an opportunity for us to demonstrate our capabilities. As you know, we have tremendous capabilities in R&D. We are the technology leader. We have the most committed, most diverse, most passionate workforce in the steel industry on a global basis. And together, I do believe that we can create the right solutions as we have to decarbonize the steel industry. And this is not only process, but also product. As you know, we have begun investments on various technologies, whether it is the smart carbon route or innovative DRI. And I believe we're the first company to actually book certified green steel in the fourth quarter of 2020. So clearly, that's an area which is a threat, but also an opportunity for us. The second is we need to maintain and improve our cost position. This is at the heart of our DNA. And I think this is how you remain successful in the global steel industry. Clearly having the lowest cost position in each of the regions in which we operate is what allows us to further develop our products, further develop our strategy, grow the business, and create value through the chain. Lastly, I would say our portfolio of assets. is now more focused and it presents a range of investment opportunities. I'm not suggesting that we increase CapEx. On the contrary, you'll have seen our CapEx for 2020 on a scope-adjusted basis matches what we've done with the same scope in 2019. But the portfolio of assets that we have separate us from our peer group as it allows us to capture unique growth opportunities, whether this is Mexico or Liberia or Brazil. We have talked a lot about this in our presentation, but we have restarted our Liberian project, for example, where more than half of the capital has already been invested. In Brazil, the market is growing faster than we anticipated, so we restarted the Vega project, which is more value-added product in the market. We continue the Hot Strip Mill project in Mexico. As you know, we don't have a domestic presence in Mexico. It's a growing market. It's still importing flat steel. And through this investment, we can participate in all of that. Just to give you a sense of numbers, just these three projects is an incremental $1.5 billion capex. And on normalized spreads and normalized pricing, our long-term conservative forecast of iron ore, we expect them to generate more than $600 million of EBITDA. So I hope this gives you a sense of the three key priorities. Clearly, underpinning all of that is we need to reward our shareholders. We all in the company have worked very hard, and together with our shareholder support, we have achieved our balance sheet targets. We now have a strong foundation for consistent capital returns to shareholders. I hope you saw that this morning in terms of our announcement. So maybe I'll just conclude right there and just say I'm very excited about the next chapter.

Thank you. Thanks for that. So we'll move to the next question, please, from Luke at JPMorgan. Go ahead, Luke. Hi, Luke.

Are you there? Luke has just dropped off a conference.

Okay. So I'm sure he'll rejoin, in which case we will move directly to Seth at Exxon, please.

Good afternoon. Thank you. And I'd like to reiterate the earlier comments. Congratulations on the new role. If I can ask you a question with regards to the outlook for deleveraging and shareholder returns. On past calls, I believe you've commented that deleveraging would essentially conclude at about $7 billion, subject to seasonality. The 50% free cash flow payout ratio is excellent to see, but it does leave a lot of cash on hand that will naturally drive further deleveraging. Just trying to better understand it, given your comment that $7 billion is sufficient to ensure investment grade through cycle, do you want net debt to fall further? Is there a new target we should keep in mind for lower net debt? And if that is the case, is there an opportunity for the free cash flow payout ratio to actually increase in future years?

Thank you. Sure. Thank you, Seth. I would look at the capital return policy that we announced this morning as a very good starting point. We've talked about reinstating our base dividend at $0.30. Our intention is that that progressively increases. And simultaneously, we have added a variable component of free cash flow as our share buyback. On a combined basis, that's about 60% of free cash flow. We have not articulated any further deleveraging target. Our target is based on maintaining our investment grade metrics of the cycle. $7 billion is the appropriate number. based on the work that we have done. So the takeaway I would have from our release and our thought process is this is a very good starting point, and based on the discussions we have had with our stakeholders, shareholders, as well as our board, the feedback we have received is that this is a good start, and I'm sure in the near future we'll be progressively increasing these payouts.

Okay, cool. Thank you.

Thanks, Ed. So we'll move to the next question, please, from Jack at Goldman Sachs.

Yeah, thanks very much. And yeah, I would echo the congratulations. My question is just, I mean, you've talked about sustainability and decarbonization as obviously key focuses for the group. And we see the carbon price, which has ticked up quite notably of late. So I was just wondering, Can you tell us what the cost of covering Mittau's carbon emissions was in 2020 and then the cost expected going forward?

Thank you, Jack. In terms of your question, we have not disclosed the cost of emissions, but what I would suggest to you is that we are in line. with the competitive situation in Europe, and there has been some discussion in the past or some analyst estimates as to what roughly that is, and that's in the ballpark. In terms of moving forward or going forward, a significant portion of our shortage is hedged. So not all of it, but a significant portion. So we would not expect to see a cost increase due to the price action that has happened in the recent past. I think what's also important to underline is that we continue to make progress as we decarbonize our process routes, and we continue to improve our emission standards, and that also provides support as the level of emission allowances are reducing progressively year on year.

Thank you. Perhaps just one follow-up, if I can, which is You know, obviously, you've now disposed of the AMUSA assets and you've announced the fixed cost reduction this morning. And I'm just wondering, kind of in a more normalized demand environment, if you would think that margins can exceed prior peaks in 17-18 or whether perhaps some of these sort of considerations would likely... sort of diminish that likelihood?

So if you look at the market today, clearly it's ahead of where we were in 17, 18. In terms of what are the drivers of this, it's the fact that real demand has come back. You can see this across the board. Post the summer lockdown, we see that in all the regions in which we operate. On top of it, we've had significant stimulus support. And clearly, we see new demand patterns that should emerge as the energy sector continues to decarbonize. And that's what's driving real demand. And we see this underlying recovery of real demand continuing into the second half. In terms of the cost of carbon and the impact on margins, as I mentioned earlier, it is not that significant. Clearly, these costs will continue to increase. And therefore, with our capabilities as a company, both on the technology side and on the process and product side, and regulatory support, I believe that we can turn this threat into an opportunity. Thank you very much.

Thanks, Jack. So we'll move to the next question, please, from Jason at Bank of America.

Yep. So good afternoon, everybody, and congrats to Aditya. Well done. Just a quick question for you on your JVs. And I'm just wondering if you think that you're getting value for your JVs in the share price, and what would it take to bring these assets into the P&L as part of the group EBITDA? Particularly here, I guess I'm focused on SR, given the way that business is growing in importance.

Great. First of all, thank you, Jason. You're right. This is an important issue. question that you raised. This is a discussion that we continue to have with our stakeholders and we'll engage with you and others to better present the results and figure out what is the best way to also present it in terms of EBITDA. Maybe I'll take a moment and just provide everyone with an update. There's a lot of information in the investor presentation that we issued this morning. But the company performed well in 2020, hit production records in the fourth quarter, almost across the value chain in the month of December. We're very proud and appreciative of the hard work the management team has done there. The company was positive EBITDA and positive free cash through every quarter of 2020. We're in the process of commissioning a pellet plant, a 6 million ton pellet plant in the first half of this year. bringing our total pellet capacity to 20 million tons, and focused on debottlenecking this operation to 8.5 million tons, and then focusing on further growth. I think one action that we will take this year, which will support your question, is we will be inviting post-assuming COVID travel rules are relaxed, to visit the facility. and see firsthand what is the quality of the assets that we have, the quality of the people, and exactly what is the strategy. And perhaps post that visit, we can continue these discussions and figure out is there a better way to present SR as part of our financial presentation.

Thanks, Aditya. We look forward to that trip. It should be pretty exciting.

Yeah, me too. We all need to start traveling now.

Great. Thanks, Chase. And so we'll move to the next question, please, from Alan Jeffries. Please go ahead.

Thanks. Good afternoon and congratulations. I was just wondering if you could talk about the tightness we're seeing in the European market right now. How far into the second quarter are your lead times? And how long do you think this market environment could persist? Is there an environment where this tightness goes beyond the summit?

Yeah, thank you. So the demand, the situation is actually driven by real demand. And as I mentioned earlier, we saw real demand come back stronger than any of us had forecasted, driven by consumer sentiment but also by stimulus funds. And we see that situation continuing into the second half. I mean, underlying demand levels remain healthy. Clearly, we should not underestimate risk. we're still in a situation where there is a global pandemic. There could be mutations or the rate of vaccine deployment could disappoint. But assuming those risks don't manifest, then I would expect that demand levels would remain healthy into 2021 and perhaps even into 2022. Thank you very much.

Thanks, Alan. So we'll take the next question, please, from Phil at Keyback.

Hey, thanks very much. Aditya, on the auto and packaging contracts in Europe and North America, should we expect those to be gross profit accretive to 2021 against current iron ore prices, or would we need to see some easing in those raw materials?

Sure. Overall, automotive and packaging is in the aggregate positive relative to 2020. I hope I've answered your question.

Yes, it does. Secondarily, on the net working capital expectation for the year, clearly there's a build given the volume in pricing tailwinds you have. What's a reasonable way to think about how much build we could see this year in the numbers? Genvino, can you take that up?

Yeah, I can. So I think it's important to start by saying that we had, of course, deficiency targets to achieve in 2020. I think we did a very good job in achieving those. So I think the objective is to make sure that we retain those gains in 2021 and beyond. I think it's also important to acknowledge that we exceeded 2020 with market conditions at reasonable levels in terms of raw material prices, et cetera. So this is important to keep in mind as fundamentally our working capital position will be determined by the changes we see in quarter four of 2021 against quarter four of 2020. Of course, we believe that our volumes will continue to increase. I mean, production and shipments, as you saw, apparent steel consumption forecast for the year. And additionally, our selling prices in Q4 still do not reflect the current market prices that we will see in Q1 and in Q2. So that has to be taken into account as well. So I guess in a nutshell, our expectation is for 2021 to see investments in working capital But as long as we can retain our efficiency gains, as we discussed, we do not expect this to be out-of-proportional offsides. Thank you.

Thanks very much.

Thanks, Phil. So I see next in the list we have Alan. Please go ahead, please.

Hey. Thanks for a follow-up question already. Actually, I had one about the green steel products, and I appreciate it's early days, that some of those are only coming out in December. From a commercial standpoint, you can say, are you able to achieve a premium pricing level for these products, and how do you see the market eventually maturing for these? Is it one where it's a simple premium above their more CO2-intense equivalents? or does it become kind of a completely separate market with its own supply and demand fundamentals?

Yeah, I think it's a great question, and we don't have all the answers. As you mentioned, it's early days. I think the two key takeaways are that, look, we have a product out there which is accepted by the market. It's certified by a third-party auditor. It's accepted by the UN Global House Emission Protocols. So that's excellent achievement, and we continue to but continue to grow that product offering. And number two, we did receive better margins on that product, all in. So it's off to a good start. Okay, thank you.

Thanks, Alex. So we'll take the next question, please, from Christian at Sokjan.

Thanks, Daniel, and congratulations to both of you, Aditya and Gemino. Just on green steel, just to follow up, Could you remind us what kind of volume you expect to be able to produce, say, in the next two, three years? Is that all coming out of Germany, or are you able to achieve some in the future out of your DRI in Quebec, for instance?

First of all, thank you. Thank you, Christian. The target is to do 600,000 tons of certified green steel by 2022. And this is primarily a West Europe offering at this point in time. We are examining what we can do in other regions and other markets as we speak.

Okay, thanks. And follow up on a different subject. The 50% of free cash flow which would be used to do share buyback, in a scenario where your share price increases materially and perhaps the share buyback impact is significant, is less obvious. Would you consider changing that for a dividend payment or reducing the buyback and increasing the dividend instead, or is that purely committed to buyback?

Thank you for the question. We're not committed to the buyback in that sense. We remain flexible. The intent is to return capital to shareholders. Clearly, in a buyback, shareholders can also participate by selling down their stake proportionately as well. But this remains a live discussion, and we're happy to engage and fine-tune the plan. But the fundamental takeaway should be that there's a progressive base dividend. By the word progressive, we are signaling that it should increase in time. And on top of that, the remaining cash flow, 50% would be returned to shareholders.

Great, thank you.

Thank you.

Thanks, Christian. So we'll move to the next question, please, from Carsten at Credit Suisse.

Thank you very much. And first of all, congrats, Aditya and Ginovino, to the new roads. I have a question on the $1 billion fixed cost reduction plan, as it is shown on slide 11. Just to clarify, are the closures in Krakow, Florange, and in Zaldana part of the $1 billion fixed cost reduction plan, or did it just open the opportunity to reduce fixed costs in other plants?

Karsten, thank you. I'm not 100% clear on your question, so I'll try and answer it, but let me know if I haven't fully done so. So the footprint optimization in Krakow and L'Orange and Saldana are part of our billion dollar fixed cost reduction plan. It's not the only part. It's not the only part of the cost reduction plan. There are other productivity improvements that we're making across the board. These are all learnings from the COVID crisis. And at the same time, we're improving our costs in terms of how we maintain and repair our facilities. And then clearly they're significant SG&A savings as well.

Okay, now that answers it already. So the cost reduction you had, so the lower numbers of employees, et cetera, et cetera, in Krakow, Florange and Saldana, they actually contributed to the 1 billion. Because I just wanted to see whether there is a, because the EBTA is missing from that facilities too, I would guess, after the closure. Good. Thank you very much. That is my question. I'll get back into line. Thank you very much.

Sure, Carson. Just to add something to your comment, I would not get too focused on the EBITDA missing from these facilities. This is a bit like the asset optimization plan. So the contribution is really the cost saving. The volumes that we would lose from the Krakow primary are being supported or supplanted by the volumes coming from our facility, which is next door DG facility. So we're ramping up our capability at DG. There's also small investment there where we're debottlenecking the caster. So the concept is that we have the same throughput to the market, but with a lower asset intensity. So the saving here is cost is one, clearly, which is most important, but we also save on ongoing working capital. because our working capital is just at one primary facility. And we also save on capex, because we no longer have to support two primary facilities for the same throughput. And the same applies to the Coke battery. Same applies to Saldana, where a lot of the production is shifted to Vanderbilt Park.

Okay, that helps. Thanks for the explanation. Sure.

Thanks. So we'll move to the next question, please, from Miles at UBS.

Thank you. Maybe first of all on CapEx, $3 billion in 2021. How should we think about that for the medium term and alongside your decarbonization plan? Do you think we can see CapEx stay around that level out for the next five, 10 years? Or are we going to have to see some material increase come through as you look to decarbonize the business?

So that's an excellent question. I think fundamentally our capex level is 2.8 billion for 2021 and this is in line or slightly in line with our depreciation forecast for 2021 and includes all the strategic capex investments we are making. Some of it is decarbonization, but also the stuff we're doing in Mexico, Brazil and Liberia. In terms of going forward, I would wait a little bit in the sense that in June of this year, we're issuing our carbon report. And in the carbon report, we will provide more granularity as to what our CAPEX requirements would be to decarbonize our acid base to 2030 with specific CAPEX numbers. But fundamentally, we're not expecting that the CAPEX levels will materially increase. they should be around the $3 billion ballpark, plus minus, as you suggested.

And then maybe just on the M&A front, you know, so there's various transactions going or being talked around in Europe. Do you think there are any sort of compelling opportunities for yourselves to get involved in Europe or elsewhere?

So, as you know, we've done a lot of work to delever the balance sheet. We have achieved our targets. At this point in time, our focus is to look at the opportunities we have on an inorganic basis. We also made a huge acquisition and step forward in India. Our focus is to grow that business, and there's tremendous growth opportunities there and some of the emerging markets in which we operate. I would say southern United States is an area of growth for us. We announced an EEF there at Calvert, plus Mexico, Brazil. And of course, we have a lot of infrastructure and mining, so just leveraging that. I think those are the areas which are growth priorities. And simultaneously, clearly, the focus is how we decarbonize. Whereas I mentioned earlier, we see threats, but also opportunities.

So no M&A is the message.

Yeah, I would never rule it out, but that's not the focus. Okay, thank you. Thank you.

Thanks, Miles. We'll move to the next question, please, from Ephraim at Citi.

Thanks. Can I just follow up on the capital return policy? So what would be the policy on disposal both of assets and for stakes, you know, like the ones in China, et cetera? Would that also, should we kind of read from the buyback announcement on the cliff stake sale that that would be the policy is to use that cash for buybacks in addition to that 50% of the free cash to be used for a buyback? Yes, that's the question.

Sure, thank you. So first of all, I just want to make sure we all differentiate between the capital return policy and asset optimization. So the capital return policy is quite simple, progressive-based dividend. After that, whatever free cash flow is remaining, 50% to be returned to shareholders. And that continues. In terms of the asset optimization, clearly you saw that we received cash proceeds from Cleveland Cliffs in the second half of last year, and we used that to buy back our shares. We also sold down our stake in Cleveland Cliff at the beginning of this week, and we're using those proceeds to buy back our shares. We have, as I mentioned earlier, we have hit our deleveraging target. So to the extent that through asset optimization we have net proceeds and net excess cash proceeds, then I think it's fair to assume that we would figure out the most optimum or efficient way to return that to shareholders.

Thank you.

Thanks, Efrem. So we'll move to the next question, please, from Wilkes.

Go ahead, please. Yes, thanks for taking my questions. And congrats again to Aditya and Jimeno. The question I have is on the plate business. So obviously, this is now part of your Asset for sale, can you talk about what the ideas are for this business and in this context, would it also then can be applied for the dealing estate on which you have done an impairment in Q4?

Yeah, I would not read, make those conclusions. I think we looked at these businesses and clearly the plate market has not recovered. We ran our impairment testing and those were the impacts. So I would not read into our disposal strategy linked to our impairment strategy, but I'll get Gino to provide more details.

Yeah, I think that's it. You summarized it quite well. I think our plate business, part of it is really dependent on oil and gas projects that we believe is going to take a little while to recover. And then once we put that into our impairment models, then it affects the DCF, and that's why you have the impairment. And the same would apply to Dininga also. I would just say that those are our own assumptions. It doesn't mean that the company is recording that impairment locally, but that's our own views of the situation.

Okay. And then follow up on ILVA. So by mid of the quarter, Italian government will join as a shareholder and it will be then run as a 50-50 JV. How shall we think about the cash needs or the cash needs to inject into the JV from your side going forward? How long do you think the planned investment to step up the environmental installations and to implement the industrial plan and to cover the future cash needs, how long will these be covered by the new capital structure as of this quarter? And in this context, What are you thinking about the DRI project, which shall be linked to the electric arc furnace installation in Toronto? How much would you be available as a partner or owner of that asset?

Sure. So you're right that we intend to consummate this transaction in the middle of this quarter, so fairly soon. As you mentioned, it's a public-private partnership. The business plan that has been jointly made within Vitalia and Arswar Mittal contemplates that ILVA as a standalone entity will have the funds which are sufficient to fund its environmental capex as well as its industrial capex. And that's a multi-year plan that has been agreed. The intention is that there's Another consortium, and clearly ILVA can join that consortium, but another consortium would be building the DRI facility, which would be supplying the DRI at a predetermined price. And ILVA's obligation is to build an EEF and complete its environmental investments and obviously refurbish Blast Furnace No. 5. So those are the key tenets of the industrial and strategic plan vis-à-vis the ILVA project.

And can you comment whether that DRI project could be of interest for Aslam et al.?

Yeah, I think at this point in time it's too premature to comment, but clearly we'll be working through our ownership slash partnership in ILVA on how that DRI project is commissioned, what are the technologies it deploys, and what is the best way to have the best OPEX cost for Eleva going forward.

All right. Excellent. Thank you very much.

Thanks, Rokas. So we'll move to the next question, please, from Grant at Bloomberg Intelligence.

Hi. Thank you. Congratulations, Aditya. Just a follow-up question on your outlook. I see you've got consumption in Europe going up sort of 7.5% to 9.5%. I'm trying to contrast your fairly bullish remarks on steel demand and the outlook in the second half of the year with some of your peers in Europe who are probably a little bit more cautious. What is your sort of actual outlook or how much visibility do you have looking out into the second half in terms of order books, et cetera?

Thank you. That's a very good question. I think we are receiving lots of inquiries into the third quarter of this year. So we do have some visibility. And we are in the midst of deciding whether we book those inquiries into the third quarter. I would characterize our outlook based on what we're seeing in terms of demand. We see good levels of real demand across the board. And in terms of inventory levels, if you look at inventory levels, they still remain low. And so the full restock is also not complete. And that perhaps is the reason why we're more constructive in terms of the real demand levels.

Great. Thank you. And perhaps just a small follow-up in terms of the green recovery plan in Europe. Are you actually seeing any sort of tangible evidence of projects or demand coming through on that sort of basis?

We have been supplying to the renewable sector. So in terms of growth, it's as we were expecting. So there's nothing which is divergent into 2021 relative to 2020. But the interest that we have seen in certified green steel is is clearly very supportive, and we have seen a lot of interest in that product.

Great. Thank you very much.

Thank you. We'll move to the next question, please, from Luke at JPMorgan.

Hi. Apologies about the floor, and congratulations to Ditcher and Gemwino. Two questions, if I may. Just firstly on the EBITDA contribution. from ILVA and the flat steel asset Salt Cliffs. Can you give an indication of what the contribution was from them in Q4 and 2020? Sure.

Genuino, would you like to take that?

Yeah, I can, Aditya. So, look, for ILVA, Q4 was kind of a break-even, slightly positive, but not really adding much.

And the same for AMUSA, it was marginally positive into Q4.

Okay, great. And then secondly, just on European shipments, you talked about, again, restarting mid-February to remind us how much additional capacity that SPLOS kind of adds. And then just in terms of shipments for Q1, is it realistic to expect output could potentially be flat quarter on quarter in Europe? even with ILVA being deconsolidated and coming out of the consolidated numbers?

So we haven't provided such specific guidance by region. I think the important thing to take away from the Ghent reline is that we all build inventory ahead of a reline, so the impact on finished steel is not that significant. Sure, there is some impact, but not as significant as the total size or the total volume of that furnace. Clearly, shipments into Q1 relative to fourth quarter are increasing across the board as we see real and apparent demand come back.

Okay.

Thank you.

Thanks very much, Luke. So we'll take a follow-up now from Seth at Exxon.

Thank you for taking my follow-up. Just with regards to your profitability in North America following disposal of AMUSA, your last comment that AMUSA was just moderately positive in Q4 is, I guess, a bit surprising in light of the higher profitability reported for the entirety of NAFTA. Can you just touch on, on a go-forward basis, how we should think about the profitability of the new AMNAFTA business versus prior? and any scale of margin uplift we should expect in maybe a comparable pricing environment. And if I can, just throw in a second question. Your comment earlier on potentially expanding Calvert, if you can walk through what would potentially drive that decision and over what timeline. Thank you.

Sure. I'll talk about Calvert and I'll get you to know. to answer the first question. In terms of Calvert, we've taken the decision to build a 1.5 million ton EEF and caster. There's a good description in our investor presentation. We have submitted all the required documents for environmental permitting. The equipment manufacturer selection is ongoing and the pre-construction activities are already underway. There's a lot of benefits from this EEF. Clearly, it supports our Made in America or Buy American initiative. It helps in the automotive business as well, and the idea is to produce Gen 3 steels at Calvert. We can hot charge, so there are some cost advantages as well. We also have the option to add further capacity. This would literally be doubling and just duplicating the asset base. and the capex intensity would be much lower, almost half of the first. And this would also be very attractive as we become even more nimble and have shorter lead times and address the market. This obviously is not an increase of shipments in the marketplace because Calvert is already maximizing its finishing output, but this relieves the pressure on us trying to supply slabs into Calvert whether it's the contract that we have at Cleveland Cliffs or from our Mexican operations as they ramp up their hot strip mill. So I hope that provides you with a perspective of some of our thoughts vis-a-vis Calvert, and I'll get Jim Reno to talk about NAFTA.

So NAFTA and Q4, I believe that the key driver there, as you can see, we didn't really capture much of the selling price, right? I mean, you see a very small increase quote on quote in prices. Clearly that's because of the lag. Our quarterly contracts do not benefit at all in quarter four. So also the support orders also because of the lag also didn't benefit so much. I think we are really looking to show a significant improvement in terms of prices, of course, as we move into quarter one. The deconsolidation of the MUSA or the sale of the MUSA will translate into higher levels of ibuprofen for that segment. That's our expectation. Yeah, so that's how I would summarize it.

Are you able to give us any sense of the range of uplifting ibuprofen on a like-for-like basis?

No, I will not get into that level of detail specifically.

Just to add to Jen Reno's comment, though, Seth, I think based on what we said previously, you can work it out. So you have the shipments, 12 to 30 million tons through the cycle, $500 million of EBITDA contribution to the segment. So if you strip that out from the average of the prior cycle, I think you will see that it's comfortably less than half the EBITDA of the segment, comfortably more than half of the shipments of the segment, and therefore the remaining NAFTA business you will see through that cycle a step up in the EBITDA pattern.

Very clear. Thank you.

Great. Thanks, Seth. So we'll take another follow-up from Jason at Bank of America. Okay.

Jason is not on the queue anymore.

Thanks, Operator. So perhaps Carsten at Credit Suisse, a follow-up from him?

Yeah, of course. I have one question on the iron ore segment. We have seen a quite significant increase of almost 1 million tons of marketable iron ore quarter on quarter. Can we assume that this would be the new run rate, or did you sell out of inventories in the last quarter? and shipment will moderate to more normal levels going forward.

Thanks, Carsten. Thanks, Carsten. Simon speaking. Look, Q4, you need to look at that in the sense of Q3 and Q4 together. So the main increase that we saw in Q4 was a really solid quarter across the board, but particularly in Liberia and Canada. Liberia was, of course, coming out of the wet season from Q3, so you do see a tick up in Q4. but we had a particularly strong business run through the Q3. So not really building stocks as you're intimating, just solid performance. Canada, the same, AMMC in Quebec had a very strong quarter. Again, there'd been some delays in, as you know, in COVID-related contractor activities and maintenance in Q2. In Q4, we had a strong run at production. And so overall, You saw a big number at 10.6. In terms of Q1 and looking forward on your question, I mean, Q1 is, of course, a seasonally down point, typically with the weather in the Northern Hemisphere. So you'll probably see that come back a bit. But, no, our goal is to run our assets full at this point in time.

Perfect. Thank you very much.

Thanks, sir. I think we're going to make time for three more questions, the first of which we'll take from Miles at UBS.

Great. Thanks. Just to clarify, what's the intention with the remaining cliff stake? I mean, it kind of feels like it's non-core. There's a bit of a lockup, I believe. But if you were to sell it, say, in three, four months' time, Are you likely, do you think about out-of-cycle returns? I mean, you've done it, you've seen it twice already, so I assume the answer is probably yes, but I thought it would be worth just clarifying that.

Sorry, Miles, I missed the second half of your question.

So with any proceeds from disposals, as a board, do you decide to return those immediately or? Would you wait till quarterly results to decide what to do with the proceeds?

Okay. Look, I'll just answer Cliff's first. In terms of the equity sale that was completed the early part of this week, I think Cliff's was looking at how they can strengthen their balance sheet to deliver their balance sheet. And they were contemplating an offering, and we thought this was a good opportunity to piggyback with their activities. So other than that, there's nothing more to add vis-a-vis our stake at Cleveland Cliffs. In terms of overall strategy, look, as I mentioned earlier, the intention, we have achieved our net debt targets. We have a capital return policy to shareholders. in case we do sell down stakes and other interests that we have, then clearly we would examine what to do with that cash. The intention would not to just continue to deliver, but if there is no good use for that cash, then clearly we'd be wanting to return it to shareholders. I also mentioned earlier that the focus is not M&A. The focus is to grow the business. We have great opportunities within the company, within our CapEx envelope, and that's really the focus areas. Thank you.

Thanks, Miles. So we'll move to a further follow-up from Christian at SockGen.

Yes, thank you. A very quick one on what we're seeing in China at present with, in particular, Baobo seemingly consolidating increasingly into the Chinese corporate world. And at the same time, we're seeing the rhetoric from the authorities about continuing to take out capacity. So is your impression that we're having a step change in the position of China as a great exporter of deflation? And are we going to see more imports into China in future? Do you think that's a relevant factor to consider?

I think those are all questions to be answered. I think they're all good indicators. There's also interesting commentary on the VAT rebate that they may be reducing the VAT rebate, so making exports marginally less attractive. But I think it's too early to conclude on what the demand-supply balance in China would be and how that would shape up. Clearly, consolidation is good. And that is one of the areas that the Chinese steel industry was very different from the rest of the world, because in other markets, there's a higher level of consolidation than what we have seen in China. And as you mentioned, Bao is leading that process, but I expect other steel companies to also do the same. It will also be interesting to see what the impact of decarbonization is on the Chinese steel industry. because that will also shift capacity or the type of process that is deployed and what impact that has on the overall supply of steel in the Chinese industry. Nevertheless, I would always remain cautious given the history of exports coming out of China.

Okay, great. Thanks.

Thanks, Christian. So we'll move to a further follow-up from Bastian at Deutsche Peace.

Hi, yes. Good afternoon, gentlemen. And Aditya and Genuino, also congratulations from my side. I just have a very quick follow-up on Luke's question earlier on the European production network. Could you please help us to reconcile how much capacity you brought back to production on a net basis since the beginning of the year? Not sure if I kept track correctly, but from what I understand, you brought back Ghent and then one blast furnace at Ylva with, I think, four to five million tons in capacity all in. And then secondly, are there still any blast furnaces which you keep offline here after idling them in response to COVID last year? And are there any larger maintenance breaks coming up here in the European network before the year end? Thank you.

So in terms of our production, so we have, as you rightly said, so in Europe, we brought back capacity during quarter four. And now we expect to restart the DBF in Ghent at some point now in Feb. We have also restarted. We're also operating UVA now with three blast furnaces. And then we're going to be running all of those pool. There is no more blast furnaces to be brought back up. In Ghent, as we said earlier, this extra production, because we built inventory slabs So we continue to operate our finishing facilities. So the production now will replace the slabs that we have been consuming.

Okay, perfect. Thank you. In terms of any maintenance breaks which are potentially coming up, is there anything larger on your schedule?

No, not for quarter one.

And for the rest of the year in the European network?

Well, I don't believe we have anything. I would need to double-check, Bastian. We're all looking at each other here, so I don't think nothing that comes to our mind that is of significance.

Okay. Okay, that's perfect. Thanks so much.

Thanks, Bastian. So we have one final question, and it's from Luke at J.P. Morgan.

Hey, thanks a lot for the follow-up question. My question is just on the comment earlier around China and scrap steel and obviously a big move in the scrap market at the back end of last year and early this year and it's coincided with the taxation of scrap imports in China. I'm just interested if you have any thoughts on availability of scrap and maybe over the medium term given your environmental drive probably or likely include the move towards electric arc furnace over the near term, whether you see any risks from scrap availability and scrap pricing inhibiting your move towards EAS versus blast furnace. Thanks.

Okay, great. I think we normally don't comment on specific price action of specific products, either on a regional or a global basis. But maybe just to provide some context, as I said earlier, it's a bit hard to read all the actions in China. Let us see what inspires there and what impacts it has on EEF technology and scrap. But what I would add is that on a global basis, if you look at the steel industry, two-thirds of steel is coming from pure iron ore and one-third from scrap. So fundamentally, there is no way to satisfy demand if you just rely on scrap. And that is why there's a lot of discussion on DRI route, where you basically use the different energy sources, but you create DRI from iron and that you can feed into an electric furnace, or you deploy smart carbon technologies in which you reduce the carbon emissions coming out of blast furnaces today. And so at the end of the day, if you really want to decarbonize the steel business, you need to find a solution for primary steel as well, just because there's not that much of scrap around. Thank you.

Yeah, okay.

Great. Thanks, Luke. Mr. Mittal, that finalizes the Q&A session, so I'll hand back to you for any closing remarks.

Thank you, everyone, and thank you, Daniel. Thank you, everyone, for joining this call. And as usual, it's always a pleasure to talk to you, listen to your questions, and see your reaction and reflection on our performance and take a lot of cues from what you have been discussing. And we will work on those things and looking forward to speaking to you next quarter. Thank you. Have a great year.

Great. Thank you very much, guys. Talk to you next quarter.