Arcelormittal SA

Thank you for joining the Q2 analyst call of ArcelorMittal. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please note that the operator will control and unmute your line for your question. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Daniel Fairclough, Vice President, Industrial Relations. Please go ahead.

Thank you, Moritz. Good afternoon, everyone. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. Thank you very much for joining us on this call today to discuss our performance for the first half of 2023. I'm joined on this call today by our CEO, Aditya Mittal, our CFO, Germino Cristino, and by Stefan Baez, who is the CEO of our mining segment. Before we begin, I would like to mention a few housekeeping items. As usual, we will not be going through the results presentation that we published this morning on our website, but I do want to draw your attention to the disclaimers on slide number two of that presentation. We will be moving directly to the Q&A session, so if you would like to ask a question, then please do press star one on your telephone keypad to join the queue. And with that, I will hand over to Aditya for opening remarks.

Thank you, Daniel, and welcome, everyone. There is much I could highlight, but I will keep my remarks brief and focused on three key messages. First, our results continue to reflect the structural improvements that we have made to our business. Second, we are making clear progress in our decarbonization agenda. And third, the investments we are making to grow and develop our business are positioning us very well for the future. Just to expand a little on these points. On structural improvement to the business, it is not just about the EBITDA improvement per ton we are making, but also the dramatically different capital cost of our balance sheet and the impact of the strong contribution from our equity investments that drives the structural improvement to our free cash and net income. On DCAP, as a truly global, multi-region steel producer, the scale and breadth of our business gives us many more options. I remain convinced that we can develop the right set of solutions that will allow us to decarbonize our footprint effectively and at a competitive cost. Our DRIEF projects are progressing. We're currently in the process of moving these projects from the pre-feed stage to feed stage, which includes the ordering of long lead time equipment. Our smart carbon technologies are also progressing, and we're strengthening our vertical integration of lower carbon supply chains by securing and developing some of the resources that we will require to decarbonize. From a commercial standpoint, our products and solutions are gaining traction in the marketplace. We were the first to market with our Excarp brand of low-emission steel solutions, and customer interest continues to be very encouraging. This is reflected in the recent announcement that we will be supplying General Motors with our Excarp RRP product. On growth, Our unique asset portfolio positions us very well to benefit from growth in demand for steel. This demand growth will be driven by megatrends such as renewable energy transition, new mobility systems, and developed economies, while in less mature markets, high demand for steel will be driven by population growth and the desire to improve living standards. We will continue to invest in the very best opportunities to capture and benefit from this growth. The investments we have made in recent periods are contributing over and above our expectations. Our hot strip mill in Mexico is delivering enhanced margins. Our newly acquired asset in Brazil is performing well, and the team there has identified synergies more than double the initial estimate. Our HBI asset in Texas achieved record performance in the first half, producing 1 million ton of high-quality HBI in line with its nameplate capacity. We are progressing our strong pipeline of high-return strategic CAPEX projects. This includes our iron ore project in Liberia, which has been redesigned to maximize the potential of our Tier 1 resource. With a greater understanding of the ore body, we are now working on the feasibility of producing DRI-quality concentrate and the potential to take capacity to 30 million tons per annum. Nevertheless, the capex for the 15 million ton concentrator has increased, reflecting the redesign of plant and associated equipment, but with our expectation that this will generate $350 million of EBITDA at conservative long run prices, this remains a very strong project. In terms of the nearer term outlook, inventories in the system remain low, and this provides support for demand. Trends in automotive contrast with those of the construction markets, and we expect apparent demand for flat steel in Europe and North America to be higher this year than in 2022. We're well-placed to generate good levels of free cash, to continue progressing our decarbonization and growth agendas, and our capital returns program. Now allows Genuino to provide some more detail on our financial performance.

Thank you, Aditya. There is much to be pleased about our performance in the first half of 2023. We generated $4.4 billion of EBITDA. This is $155 of EBITDA per tonne shipped, which is the highest it has been in any six-month period over the past 11 years, bar the exceptional 18-month period from 2021 to the midpoint of 2022. This highlights the inherent strength we have built into our business in recent years, the quality of our asset base, and the value we are deriving from our recent acquisitions and strategic growth projects. But we must look further down the P&L to really appreciate the full impact of all the actions we have taken. Net income in the first half was $3 billion. This is double. the average of the last 11 years, 2012 to 2022. What are the key drives of this change? It is our portfolio improvement. It is the growing contribution from our JVs. It is the impact of our lower-cost balance sheet. And then these impacts are being geared further by our consistent share buybacks. The value we are creating is clear. We are consistently delivering a solid return on our book value, which has grown to $66 per share. I believe our performance provides evidence that ArcelorMittal can deliver value through all aspects of the still cycle. We are consistently generating good levels of cash flow, and to echo Aditya's point, we are growing and developing our earnings potential by investing in the most attractive growth opportunities that exist in our business. We continue to provide attractive levels of returns to our shareholders through our share buyback programs. And this is underpinned by a foundation of a strong investment-grade balance sheet. With that, we are ready to take your questions.

Great. Thank you, Jeremy. Thank you, Aditya. So we have a queue of questions already, and we will take the first question from Elaine at Morgan Stanley. Please go ahead.

Moving parts that we need to think about with respect to Q3, but I guess some of your peers have been referring to a more pronounced seasonality in Europe during Q3. Do you share this view, and what does that mean for your shipments? That's the first question. Thanks.

Thank you, Ola. Let me take your question. Look, I think for me the best way to talk about this point is by referring to our order book. In Europe, when I look at the order book for quarter three, we are full. So we are now taking orders really for October. So our base case is that not only Q3, but talk a little bit about the second half, Given that we don't expect, of course, the repeat of the severe, this thought that we face in the second half of 2022, our base case is that we're going to see a better second half in this year compared to 2022.

Thank you. Thank you. And my second question is on CSP in Brazil. Clearly, the asset has been generating an EBITDA run rate of more than double what you have guided for at acquisition. although the spread environment in Brazil appears to be quite ordinary. I think Aditya's comments at the intro on synergies suggest that your numbers were somewhat too conservative to start with. So where do you see the really better run rate going forward of this asset?

It's a great question. And I think it's safe to assume that it's been a great acquisition. We have inherited a great set of people with excellent assets. The synergies, as you mentioned, are double. I would, at this point in time, add that to the EBITDA level that we have guided to and use that as the base. The company is also helping us improve our overall performance in Brazil. So the synergies are two ways. So some of the synergies are also in Tubarão. And another key part of this acquisition has also been some of the fiscal incentives. And therefore, overall, This has been a good strategy for us to enhance the leadership position that we have in Brazil and also invest in really high-quality assets and people.

Thank you. Great. Thanks, Alain. So we'll move now to the next question, which I believe is from Patrick at Bank of America.

Good afternoon. Thank you very much for the time. Just on the decarbonization and the kind of approvals of the government subsidies or support, how should we think about the timing of these projects now? I know you said you were doing the feed work and starting to order the long lead items, but when should we expect kind of ground to be broken and these projects to really kick off? Thanks.

Sure. Thank you, Patrick. So it's been a busy quarter in terms of our DCAR projects in Europe. I think as all of you know, and as I mentioned in my remarks, we've got funding support from Spain, from Belgium, from France. We are in discussions with these governments on ensuring that the energy complex is competitive. What does that mean? Is the hydrogen supply available and at the right price? And the same for renewable energy. I expect that those discussions will be constructive. and we will arrive at the right conclusion. So we're going through the details of all of that. Simultaneously, we're not delaying. So we're moving from pre-feed to feed stage, which means that we would have 90% certainty on cost. We're doing detailed engineering and also ordering long-lead items. If you look at the overall timescale of these DCAR projects, we had applied for approval two years late. So we're getting approval from these various governments two years after. So it's safe to say that we're already two years delayed in terms of implementation of these projects. Clearly in those two years we've done some work. It's not that we've done nothing i.e. we moved from pre-feed to feed. But there is there is an implied delay. Normally capex of this this magnitude takes roughly three to four years. So you should factor that in as you as you see us moving from pre-feed to feed. as these projects would be on the marketplace, fully commissioned three to four years from now. We will obviously keep you updated as we finalize the feed work, the actual time schedule, as well as where we ended up with these respective governments.

Thanks. And if I could maybe have one follow-up. You spoke a little bit about how you have a global footprint and, I suppose, access to different energy markets. And if I think about, you know, the other partner in the HBI plant are intending to start their decarbonization journey by using HBI from Texas. And you obviously now have slabs in Brazil. We've seen interest in German production facilities where, again, it looked as though the potential partner wanted to ship slabs there to be re-rolled. How do you balance up kind of making green iron in Europe where energy prices are very high versus, I suppose, leveraging your global footprint where perhaps you've got access to lower energy costs and maybe getting green iron and shipping either green iron or slabs to Europe and not doing the actual iron making in Europe. How do you balance those two things? It must be quite difficult.

So, Patrick, first of all, thank you for the question, because you're highlighting the strength of our storm metal. That's exactly our strength. We can bring in slabs from Brazil. We can bring HBI from Texas. As I mentioned, it's hitting record production, so the plant is running normally now, doing really well. So we have all of these opportunities. We also have a mini mill in Europe. It's not like we don't. It's not a large mini mill, but it's a 1.2 million ton EF facility in Sestau, Spain. So we have a lot of these capabilities and that's why we can move quickly to the market and we can commercialize our products, which we're doing both in Europe and in NAFTA. But in terms of how do we judge it? So we're looking at it holistically. We are looking at, okay, what is the net capital cost included? The total cost of making these products in some of our facilities versus bringing in some of these products from outside. And on that basis, which where we find competitive, which we find is the most competitive, those are the projects which will see the light at the end of the day. And so that's how we're thinking about it. So we're not looking at our advantages in isolation. It's absolutely part of the mix. It makes it more challenging. It makes it more difficult because it's not easy to predict markets. Markets are volatile. Prices are volatile. But at least it provides us with certain boxes in which we operate to ensure that we have the most competitive CAPEX and the most competitive OPEX to deliver low-cost from a carbon perspective, but high-quality steel to our customers.

Thank you.

Great. Thanks, Patrick. So we'll move now to the next question from Efrem at Citi. Please go ahead, Efrem.

Thanks. Two questions. Firstly, the CAPEX guidance for both the the Brazilian long products plant and Liberia has been increased. I understand there's some reshuffling of scope, but are you also seeing general kind of cost inflation in projects affecting the CAPEX guidance? And also a sub-question on Liberia. You always kind of mentioned an optionality to 30 million tons. What's changed in the scoping of the project this time around to kind of... enable that 30 million tons to happen? And the second question, in the slide deck, it was good to see a slide on direct electrolysis, you know, for the first time, I think, in terms of a date of the first 80, 40 to 80,000 tons of plates by 2027. You always talked about direct electrolysis as more like a 2040-ish type of decarbonization part. Does it mean that that is possibly going to be brought forward.

Okay, great. A lot of questions. I will go through them point by point. Look, Monlevada and Liberia are unique, so I would not use them as examples of what's happening in the rest of our summit. But why are they unique? They're unique because both the projects were stopped for different reasons, but both projects were stopped and restarted. And as these projects have been restarted, I'll talk about them specifically now. For example, to your question in Liberia, we have had the chance to reexamine the grade, literally the ore body, as well as what we want to do in terms of the future. And we've become very focused that we want more DR concentrate qualities. And therefore, we have actually changed how we want to grind the ore so that we can produce even higher quality steels. And that has required investment in the equipment. It's civil works as well, backup infrastructure, as well as a backup power plant. And so the cost has escalated. So the majority of the cost increases in Liberia is because of that. And obviously, as the project has been delayed, there is an element of inflation. In terms of Monlevard, again, the project was stopped in 2020. We were thinking about this project almost 12 years ago. So a long time ago, it was stopped. We had ordered equipment a long time ago. And as we have restarted the project, we have spent more money on automation. We have done a lot more engineering civil works. And then that explains half of the cost increase, and the other half, obviously, is inflation. So I would not use that as examples. Clearly, what has happened in terms of inflation and scope increases is uh is not good news in liberia it's still okay because or relatively okay because we have an increase in the level of ebitda from the project but overall uh these are not good developments and obviously as a company we've been very focused to minimize the cost and make sure that these projects remain cost competitive and meet our return thresholds and they do in monlevard apart from the facility being franchised using our own iron ore to expand we also got an increased level of fiscal incentive. So it compensates some of these cost increases. But again, I don't want to provide any excuses for that. In terms of the CAPEX overrun, it's therefore restricted to this. Overall, the other projects are proceeding well. For example, there's a nice slide in our deck where we have three other projects in Brazil. One is in Vega, the other in Barra Mansa, the third in Serra Azul. All of them are on schedule. All of them are on track. So I would encourage you to think of these as isolated issues. In terms of direct electrolysis, look, we are starting the pilot cell now. If we pass through all the stages, then obviously we would have the ability to produce 40,000 to 50,000 tons of plate, direct electrolysis plate steel. I think I would still suggest that this is on the experimental stages, but clearly we're making progress When we think of DCARB as an organization, we have three avenues. One, obviously, is the DRIEF stage. We spoke about that. But we're also focused on our developing capability on the smart carbon route. The smart carbon route is basically capturing the carbon or reducing the carbon from the integrated route and storing it or sequestering it or converting it into something else. And we're also making progress on the smart carbon route. And the third is what you highlighted, which is the direct electrolysis route. So I hope I've tried to answer all of your questions. Let me know if you need any further clarifications. Thank you.

Thanks, Efrem. So we'll now move to next question from Tristan at XNBMP.

Yes, hi. Thank you for taking my questions. First one is on volumes. In the past quarter, you guided for steel shipments to increase by 5% this year, ex-CSP in Ukraine. And now you demand outlook for the years, and you've seen also some operational disruption in Europe. So do you expect to be able to grow group volumes organically this year? And if you could give us maybe some color by division and more, let's say, near-term into Q3, more specific to ACIS, Europe, maybe mining volumes, do you expect a sequential pickup there? That's my first question. Thank you.

Yeah, Tristan, let me take this one. Yeah, so Tristan, we are not retaining the previous guidance of increasing shipments by 5% organically. The reason being that we did face some delays in bringing back the two finances in Europe. As you know, our initial expectation was to be able to do that by the mid to end June. And so we had delays there. So the finances are back now, but we only recently restarted them. And then, of course, we are also training our parents to consumption forecasts for the years, as we highlight in our presentation. Nevertheless, we still expect to be at least flat on an organic basis. And then once you have CSP percentage, then I think it's fair to say that we would still expect to be at least 5% above. Looking at the trends for Q3 by region, I think the trends that we are seeing are quite similar. So we do expect to see shipments to be relatively stable across the divisions. We will see, of course, the normal seasonality in Europe. But I would just caution that, of course, our shipments seem to truly work lower because we were constrained in terms of capacity. So you have to take that into account. So our volume is relatively stable. I think we have a chance to do a little bit better in CIS. We'll see. And then in mining, we should be doing better in terms of volumes. So we did face some unplanned maintenance in Mines Canada and also a strike in Liberia. that I would not expect to repeat, so we should be doing better there. So that's in a nutshell how we are seeing shipments, Tristan.

Okay. That's very clear and helpful. My second question is on public funding. I mean, you managed to unlock significant public funding over recent months, and this is really positive. But it seems those grants have some clawbacks attached to it if the project generates extra net revenues. Can you please explain how it would work? And also, when you appear in Germany, manage to unlock some OPEC subsidy as well, which I believe is the conditional payment mechanism. Are you also looking into this type of support? And do you believe there are good chances also to get this kind of OPEC subsidy outside Germany? Thank you.

Yeah. Look, thank you for the question. I think it's very important. I think the headline from our side is that the approvals that we have received from both Spain, France, and Belgium are comparable. And what are we asking? We're asking for half capex support, 50% of the investment, capital investment to be supported by these governments in terms of grants and that's really what what we have seen. The headline number I know in Belgium is not the same but there are other things that that make the project equally attractive. In terms of OPEC support we're not asking for OPEC support. So what we have seen perhaps others do is different than what we're asking. We are focused on CAPEX support. We think that makes the most sense for us. And that has been the dialogue. Simultaneously, we are in discussions with these governments, as I mentioned in my previous answer, to ensure that there is a competitive, reliable energy source, and that includes both hydrogen as well as renewable energy. You know we went through an energy crisis in Europe. Prices were high, prices were volatile, and we need to get some stability and some visibility on that. I also added to say that I'd already mentioned that these discussions are going well, and I expect, maybe not in all jurisdictions, but at least in some of these jurisdictions, that we will come to the right conclusion and move forward.

Very clear. Thank you. Great. Thanks, Tristan. So we'll move now to the next question from Andrew at UBS.

Hi, gents. Thanks for the opportunity. Just going to follow up on a couple of things. First of all, just on the capex, in light of the strategic capex hike, and I guess we've seen decent-sized inflation on some of your rival peers in Europe on their green steel projects. I'm wondering how you still feel about that 10 billion original gross capex number. Is there risk on that? And over the next few years, What's the likely trend, given obviously you're still doing some engineering studies and so forth? How do we see the CapEx overall for group being phased in 2024, 2025 and beyond? And just to follow up on Alan's question earlier, he was asking about the third-course dynamics, I guess by division. Can you just give us a bit more of a steer on where you're likely to see the most earnings pressure? you know, relative sort of movements in pricing and costs. You've given some details on volumes already, but can you just spell that out by division if that's okay? Thanks.

Yeah, sure. I'll take the first part of your question and then get Ginrino to answer the second part. In terms of overall capex, let me just start with the strategic capex, just to underline that so that we're all on the same page. As you heard earlier, we talked about Montlevade and the Liberia project, which due to scope changes and other improvements and inflation has increased. But both these projects are also delayed. So the overall impact on an annual basis is not changing. So the guidance we provide on strategic capex per year continues. So there is no increase in 24-25 due to Brazil or due to Montlevade or due to Liberia. In terms of the DCARB envelope, the $10 billion that you referred to, the target of that capital investment is to reduce our global carbon emissions by 25%. And that remains the focus. Yes, I agree with you. There has been inflation, and we see some of that inflation as well. But we are very focused on a few things as we think about our plan to reduce our carbon footprint by 25%. can we repurpose or re-scope some of this? And I think there was an earlier question very kindly talking about our instrumental strengths in terms of DCARB, right? Energy, slabs, HBI in Texas. Can we use some of our assets that we already have to achieve the same goals? Obviously, we're very focused on value engineering. What can we do knowing that all of these things are costing more? How can we value engineer to make sure that the cost increases is is not that significant. We talked about technology development earlier on. Are there new technologies or capabilities that we can develop? So the focus remains to achieve the 25% reduction in carbon emissions with the $10 billion of capital. And that is what we are working towards. That's good.

Genuino?

Genuino, just on the third quarter dynamics.

Yeah, so on that, Andrew, so we talked about volumes, right, by region. And again, here in terms of spreads, prices, we see the same dynamics across our business as well. As we know, prices and spreads have moderated during the second quarter. So that will impact our results in Q3. prices have declined, and so that will have an impact. But at the same time, costs have come down. I mean, we saw a nice reduction in terms of cooking coal prices. I don't know, also moderating to some extent, so that will provide some relief. But overall, as we know, the spreads have moderated. Then in Europe, because of the production limitations that we faced, And as we bring back this furnace, I would expect our fixed cost position to be slightly better also in the second quarter. Third quarter, sorry.

Yeah. Okay. Thank you very much.

Great. Excellent. Thanks, Andy. So we'll move now to the next question from Phil at KeyBank. Go ahead, Phil.

Hey. Good afternoon. How are you? Good, Phil. All well. How are you? Good. Thank you. First question is just on the Mexico HATS RITMO project and how that's progressed and whether or not you've reached critical mass in terms of your output.

It's a great question, Phil. So the Mexico hot strip mill has surpassed our expectations in terms of its overall profitability and how it's catering into the marketplace. In terms of critical mass, the equipment is capable, but at this point in time, some of the slabs, we are increasing the level of production of slabs that we can make in Mexico so that we can cater to that hot strip mill. So the bottleneck has shifted from the hot strip mill to actual slab production, which is where it should be. And as we make further progress on the upstream in Mexico, we will be increasing the production in the hot strip mill. Some of the slabs, as you know, are also going into Calvert, and so not all of the capacity is available for this hot strip mill. So we were positively surprised by its ramp-up, by its market acceptance, and that's why the bottleneck has shifted significantly. to the EEF facility there. So, yeah, so it's all good news in terms of the Mexican hot strip mill.

Thank you. And then just as a follow-up, as we look at Europe, do you have any annual or semiannual contracts resetting in the second half of 2023, or any resets largely isolated to the beginning of 2024? Thank you.

In Europe, the majority of our contracts, they reset at the beginning of the year. And we had some contracts resetting at the beginning of the second quarter, and that's the large majority of our contracts in Europe. So not much really to reset now in the second half.

Thank you.

Great. Thanks, Phil. So we'll move to the next question from Bastian at Deutsche Bank. Please go ahead.

Yes. Good afternoon, all. Thanks for taking my questions. I've got two left. And the first one is on AMNS India. You did every day a pattern of more than $330, which is pretty impressive to say at least, given the current price environment. And I guess when considering that the large exports have been coming over from your neighbor then in China. So I was wondering whether you could just give us a quick update on the key trends which you're seeing in the third quarter here and also the second half and whether you expect to keep these run rates here in the short term. That is my first question.

Yeah, great. Thank you for highlighting that. Look, AM&S is a success story. We have been able to ramp up production. We've been able to improve the quality. We have great customer acceptance of the value that we're bringing to the Indian marketplace. And we've been frantically growing the business as well. So this quarter, we'll be inaugurating CGL4, which is a continuous galvanizing line, which will allow us to produce Magnela's product. Next year, we'll be doing automotive. And as you know, we are in the midst of doubling that facility, both upstream and downstream, to produce 14 million tons of high-quality steel on a coastal site in the country. So, overall, the company does really well. In terms of its results, I would expect the results to remain elevated most of this year. We have benefits of really low gas pricing, contracts we'd entered in 2020. And clearly, relative to the rest of the energy complex, these contracts are quite favorable to AM&S. And that has been supporting supporting its profitability in the second quarter and will continue to support its profitability into the second half. I don't know if Giannino would like to provide any more specifics on that.

No, I think you touched on all the key points. So, let's see if there is any follow-up from Boston. Okay.

Yeah, just a quick follow-up on that one, maybe. Aditya, you highlighted gas. I guess gas was always one of the key factors when you basically bought the asset. I guess one of the key points was you wanted to renegotiate the gas contract. How does this work now? Is this like an annual price mechanism? Is it a floating price? Is it a fixed price? How does it work for you?

Yeah, so it's a combination of the above, but fundamentally it's by market price gas. So there's no it's not a deal with the government or anything like that. So we are out there in the market. And in 2020, we signed roughly three to five-year contracts. And those contracts were in place. And so AMN has avoided the spike in energy, which has impacted, obviously, other gas-based producers around the world. But AMN has avoided it. So that's how I think about it. And clearly, some of this is a rolling hedge. And so as prices normalize, we'll be extending the hedge. So The company is fundamentally still exposed to international gas markets. That has not changed. But clearly, we have longer duration and more fixed prices and more stable prices, which allows the business to develop and grow.

Okay. That's very helpful. Then my second question is on Calvert and the EAF project, please. I remember that it was supposed to be on track in March, and now it is being delayed on reasonably short notice because, I guess, startup was planned for the second half of this year. So what's behind this and does the CSP acquisition tie into it because it gives you a bit more flexibility on your slab supply in the short term? That is one point. And then secondly, with a larger slab capacity once that is finished, is there any plan to also expand Calvert's product capability as well?

So just overall in terms of Calvert and its supplies, you're right, the EA project is delayed. This is primarily just delaying construction work and finding the right skill set, i.e., the people to do the critical jobs. I will not read anything more into it than just that. And so as time went by, we realized that this project is going to get delayed, and we took the opportunity today to inform you of that. In terms of overall product capability at Calvert, we are still focused on a second EEF. This will continue to enhance our ability to approach the U.S. marketplace and continue to produce value at product. The first EF, obviously, as you know, is automotive capable. So we plan to produce automotive grades through the EF stream. We have the right asset base, the right equipment that we've invested in to ensure that we're capable of doing that. In terms of overall slabs, yes, through CSP, we now have more slabs as a group. But if you look at what we're trying to achieve and my answers in Mexico, we feel very comfortable with this exposure. So we're very happy with the CSP acquisition, very happy with our tuberose slab capability, same with the Mexican slab capability. So very happy with the overall mix that we have as we develop our business. Okay. Thank you.

Thanks, Bastian. So we'll move now to a question from Max at Oddo.

I noticed that you increased your FBTA guidance for the Liberian project from $250 million to $350 million. I did not understand why it was the case since the scope is unchanged and I assume the assumptions for iron ore prices are also unchanged. So perhaps can you elaborate a little bit on this one?

Yeah, let me take it up. Look, fundamentally, it's all the three that you talked about. So with the changes, we can produce a higher-grade product. And clearly, with a higher-grade product, we generate more premia. And we do believe that the pricing of that premia and the overall price tag has changed as well. And so we updated our assumptions, and EBITDA has now moved from $250 to $350 million. If you look at our assumptions within the model, it's still much lower than where iron ore pricing is today, right? Iron ore pricing today is much more elevated than these long-term assumptions. The asset is a Tier 1 asset. It's a well-invested resource body. It will be a well-invested mine. It's low cost. We own the railway. We have port access. And therefore, you should expect higher levels of profitability. Even in terms of our estimate, the overall iron ore pricing in our estimate of $350 million of EBITDA, it's lower than consensus assumptions. We've also made other improvements, like we've changed how we do the transshipment and all of that on the logistical side, and that also adds to the EBITDA and lowers the FOB cost of the product. So I hope I provided you with enough color.

That's clear, yeah. And second question is on the Texas HBI unit. You seem to be very satisfied with it. But a few weeks ago, Verstappen, they actually took an impairment on this asset. So I was wondering why you could have such different views on the same asset.

Well, Max, it's very difficult to comment on that. I mean, clearly, we don't see any reason for us to take an impairment there. I mean, the asset is performing very well. We had a record production. Profitability is quite strong, as we highlighted in our earnings. You know, I mean, I cannot really comment on the reasons why our partner decided to take an internment.

Of course, that's fair. And perhaps the last one, on 4th of May, there was a lot of fuss, at least in France, regarding the unit because there was a fear that it might close for an undetermined time at that point in time. Do you think that's fully behind you now and that the risk of a shutdown is completely without it?

Yeah, thank you for the question. Let me just explain the situation. Fundamentally, there was an inspection that occurred which identified that the dust levels were too high. And we obviously do not agree. We have a lot of remedial actions on that already underway. It went to the court, and the court obviously sided with us. The onus is on us to implement all the actions. We are busy doing... implementing all of these directives. And it's also important to recognize that the dust requirements have been a moving goalpost. So it's not that this has been a noncompliance for a long period of time. We changed the regulations, and with the new regulations, we're still implementing the actions. And the court has sided with us. So as long as we implement those actions, which we absolutely intend to do, I do not see further risk. Overall, the facility has reduced its level of dust emissions quite dramatically. So if you look at what has happened over the last few years, there's been a 70% reduction, for example, overall in terms of the coke facilities and other areas. So the company is on the right track, but clearly it remains work in progress.

Okay, thank you.

Thank you, Max. So I think, Aditya, we've got time for a couple of follow-up questions, the first of which we'll take from Tom at Barclays.

Hi, guys. Thanks very much for the opportunity. Just two left from my side. The first one just on China exports. So you attributed the increase to international price differentials. It's obviously closed a little bit, but I guess FX is working against you. You still see European HRC prices quite a bit above China. Do you think that gap is closed, or do you still see sort of risks of China exports through Q3 and Q4? That's the first one.

Well, let me take this one. Yeah, so we have seen, of course, the level of exports from China rising. That is, of course, a concern. More recently, we have seen the government currently taking action to control the level of production, which is, of course, very good news. You have seen also our forecast for demand in China. It's basically unchanged. So to the extent that we see a correction in production now in the second half, our expectation then would be that the level of exports come down accordingly. And of course, there is also discussions about new stimulus, which is also always good news for the Chinese market, for the overall industry overall. But as we know, I mean, from the moment these stimulus are really announced effective. It's going to take some time for us to see action on the ground. So our base case this year remains that the appearance to consumption in China is going to be relatively flat. But if that happens, we can support us in 2024, maybe, you know, beginning of the year or more in the second quarter of 2024.

That makes sense. Thank you. And then the other question was just maybe a little bit more on the guidance. So on slide seven, you get this very good chart, I suppose, of EBITDA per ton. H1 has been at 155, so well above that long-term average line that you put there at 120. But given the sort of commentary on spread compression, given the Oslo Metel PMI, I see as the lowest basically ever since, you know, apart from COVID and GFC. Is it fair to say the H2DA button should be trending below the 120 average, or do you think this is a new sort of floor level for you despite sort of macro headwinds? Thanks.

So this is not something that – I mean, we're not going to be specific on that. I mean, I think it's clear in what we are trying to highlight. It's all the improvements that we have made over the last couple of years. I think that's very, very clear. And we can really see that in our results. We're very pleased with that. But I'm not going to be specific in terms of a bit of guidance in the second half.

I would just add that you paint a very negative picture. And all the data that you pointed to is accurate, so I'm not arguing with the data. But I think the positive also is that inventories in the system remain low, right? So maybe we have those PMI readings and all of that, but fundamentally what we don't have when real demand is going sideways is the inventory destock. That we went through in the fourth quarter of last year. And so parent demand is relatively flat. We expect second half 23, as Jean Reno said earlier, volumes to be better than second half 2022. Auto is strong, relatively, in this marketplace. Auto is doing well. It's offsetting some of the weakness that we're seeing in the construction segments.

That's very clear. Thank you. Sorry, I didn't mean to paint a negative picture. I was just sort of referencing your slides. Thank you. That's helpful. Thank you.

Thanks, Tom. So I think we'll move now to our last question, a follow-up from Elaine at Morgan Stanley. Go ahead, Elaine, again.

Thanks. One question for me. It's on gearing. So you have had a net debt target of around $7 billion in the past, but we've been consistently below that level for the last while. Of course, the business remains cyclical, but all else being equal, where would you like your net debt to be at the end of next year or in the next 12 months in the context of your growth projects, the buyback program, and decarbonization? That's my question.

Thank you, Ola. Well, as you know, Ola, we don't really have a target for our net debt. All we have been saying is that we don't want to cross our self-imposed limit of $7 billion. So we're going to be within that range. And we said that in the past. We don't have the intention to structurally also be a positive net debt balance sheet. That's not really the objective. but I think we feel very comfortable with the levels that we have right now. They allow the company to focus on executing its strategy, so we feel relaxed. We are seeing what is happening in the marketplace, and we remain able to continue the execution of our strategy, which is very good.

Thank you. Excellent. Thank you. So that's the last of our questions, Aditya. So handing back to you to close the call.

Okay, great. First of all, thank you very much for all your questions and interest in the company. As I said in my opening remarks, we wanted to highlight three things. I hope we did that, a structural improvement to our earnings profile, the fact that we are making progress on DCARB. We're very focused on reducing our carbon emissions but maintaining the overall performance CAPEX envelope. We have unique strengths in making that possible, which we also talked about, and also how well we're doing on our growth agenda. I know this quarter we went through Liberia and Mondevat, but if you just look at what we have achieved, PESM is doing really well in Brazil. Texas had record shipments. It had positive EBITDA contribution. We talked about the Mexico hot strip mill. We talked about AMNS, how well that is doing. So there's real tangible progress on our growth agenda. All these growth projects are outperforming our expectations and even the guidance you would have thought of or would have provided. So it's all very good news. So from my standpoint, and I said it in the last, second to last question, I think, look, the second half of 2023 is not like the second half of 2022. So overall, markets are also constructive, and clearly most critical to us is the progress we made in our business to ensure that we can cater to that market, we have safe, high-quality steel products in the marketplace, and that we have made structural improvements to our business. So with that, I just want to thank everyone again and wish everyone safe holidays in case you guys are taking some time off. Thank you.