Arcelormittal SA

Good afternoon, everyone. This is Daniel Fairclough from the ArcelorMittal Ambassador Relations team. Thank you for joining this call to discuss ArcelorMittal's performance and progress over the first half of 2024. Leading today's call will be our Group CFO, Mr. Germino Cristina. Before we begin, I would like to mention a few housekeeping items. As usual, we will not be going through the results presentation, which was published this morning on our website. However, I do want to draw your attention to the disclaimers on slide number two of that presentation. As normal, Gemina will make some opening remarks before moving directly to the Q&A session. So if you would like to ask a question, then please do press star 1 1 on your telephone keypad to join the queue. And if you want to exit the queue, just repeat that step, star 1 1. Over to you, Gemina.

Thanks, Daniel, and welcome, everyone. I will, as usual, keep my remarks brief and focus on the theme of strategic progress. Beginning first with safety. Across Asela-Mittal, our people are galvanized to improve safety and achieve our goals of being a fatality-free organization as quickly as we can. The third-part safety audit, which started at the end of December, is on schedule to be finalized this quarter. All the groundwork has been completed and DSS Plus are now developing their actions and recommendations. Combined with the considerable efforts already underway, this will enable us to deliver the safe results we are striving for. Moving to our financial performance, we have faced our challenges, both macro and micro, during the first half of 2024. But our results have shown good resilience and continue to reflect the positive actions we have taken to optimize our business and high-grade our asset portfolio. The beta pattern of $140 in the first half of 2024 compares well with our long-term history. Our operating results for the second quarter were broadly stable with the first quarter, despite the challenges faced in certain segments. This really highlights the benefits of our DDS-5 exposure. Pre-cash flow during the quarter was slightly positive, but let me remind you that this is after investment in our strategic growth projects. Stripping that out, the annualized run rate investable cash flow was about 1.7 billion. Our resilient financial performance and strong balance sheet enables to be fully focused on the strategic execution. And by strategic execution, I mean delivering on our growth projects, realizing the potential of acquired assets, and consistently returning capital to shareholders. Over the past three and a half years, we have invested almost $3 billion in our strategic growth projects. We are developing our upstream resources, including metallics, renewables. We are adding capacity in high-growth markets, including India. And we are developing our capabilities to produce higher margin products and solutions. We recently completed new code, new complex at Vega in Brazil and begun commissioning our one gigawatt renewables project in India. Our organic growth has good momentum with many projects should be commissioned in the coming periods. The new assets we have acquired in recent periods continue to perform well. We expect to conclude the acquisition of our 28% stake in Valrec very soon. We have added Italpaneli to support the growth of our construction business within sustainable solutions. The fact that we have been able to maintain our growth strategy despite the challenging macro climate means that we will enjoy the benefits to EBITDA on top of any cyclical recovery. Finally, I want to highlight once again our consistent return to shareholders. Over the first half of 2024, we have returned $1.1 billion through buybacks and dividends. This is over 6% of our current market cap. We have now bought back 36% of our equity in less than four years. Given valuation disconnects, our shares remain the best opportunity in the market, so buybacks will continue. To conclude my opening remarks, we are delivering resilient results, and our performance continues to provide evidence that ArcelorMittal can deliver value through all aspects of the field cycle. We are maintaining a very strong balance sheet. Our strategic growth projects have good momentum and will provide significant structural upside to EBITDA and cash flows on top of any cyclical recovery. And the benefits to our shareholders have been compounded by our continued share buybacks. With that, Daniel, we are ready now to go to the Q&As.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 and 1 again.

Great. Thank you, Sharon. So we do have a queue of questions already generally now. So we will take them in the order that they've been put into the system. So the first we will take from Alan at Morgan Stanley. Hi, Alan. How are you?

Hi. Hi. Thank you for taking my question. Firstly, on the outlook. Daniel, some of your peers have been profit warning over the last two weeks in Europe. In that context, how do you see the business developing for your Europe division over the next quarter? And in the U.S., I would say it's the inverse. Your competitors have been increasing prices. Do you see this as a genuine inflection, and what does that mean for your Q3? That's my first question.

Thanks. Sure, Alan. Thank you, and thank you for the question. So let me start first with Europe. As we all know, the market backdrop in Europe is challenging. As we anticipate at the very beginning of the year, we are seeing declining real demand. But we are not changing, even though we have revised downwards our parents to consumption forecast for Europe for 2024, we are still seeing parents to consumption to be at least flat or it's not a small positive, right? So when we look at our audiobooks also for quarter three, we do see normal seasonality. We are not really seeing something that is more extraordinary than that. And I think it's also important to note that we don't expect the same level of D-Stock that we saw in 2023. So we do believe that the apprenticeship consumption in the second half compared to second half of last year should be slightly better this year. And then, of course, as we know, in the U.S., right now prices have come down significantly. Prices are below IPP, which is something unusual. We would expect that to rebalance. So we'll see how it develops.

Thank you. And what does that mean for the moving parts for your business in Europe and in the U.S. for Q3?

So, I will ask Dennis Warner to talk about the moving parts of all the segments, not only U.S. and Europe, so for the benefit of everyone.

Yeah, sure. Thanks, Jamila. So, I think as Alan talked about, I think the The main moving parts that we're going to see in Q3 relative to Q2 will be the seasonally lower volume in Europe and the lag effect of lower spot prices in NAFTA. But to provide a little bit more detail and context, I'll go through the various different segments, starting first with North America. So, yes, we will see lower spot prices in Q3 relative to Q2. Volumes, they'll be stable to marginally lower, quarter on quarter. And, of course, the impact of Mexico in Q3 is expected to be the same as it was in Q2. In terms of the Brazil segment, look, there we're not anticipating any major movements, so we would expect similar volume and overall pricing to be stable. in the Q3 relative to Q2. In Europe, reiterating again that volumes will be lower, but following the normal seasonal pattern, so nothing more exaggerated than our normal seasonal volume pattern in Europe, and that applies to both flat and long products. And, yes, we will see the lagged impact of lower prices, but, of course, we will also see the impact of lower raw material costs coming through as well. On the India and JVs, I think you will see in Q3 an improvement in volumes. So we had some maintenance in Q2, and so volume should improve in Q3. And then because of those recent high levels of imports, I think we should probably assume that prices will be slightly lower quarter on quarter. And then in mining, of course, it's difficult to say with accuracy at this point what prices will be quarter on quarter. But in terms of volumes, I think we can confidently expect that they will improve relative to the second quarter.

Thanks, Daniel. And my second question is on Valorec. So you expect the deal to close in Q3. When should we expect an update on the synergies so that we better understand the value that this investment brings to you, in addition to the simple consolidation of the additional earnings stream from Valorec?

Yeah, Alain, you're right. So our expectation is that the deal should close very soon, should close now in Q3. And then after that, from that point onwards, of course, we're going to be present also at the board of Alurex. We're going to be, our main focus, of course, is to try and support that business. As we said before, we believe that management has been doing a great job, so we want to contribute to that. And I'm sure we will be in a position to talk more about potential synergies that, as we know, they are minority shareholder of this business. it will need to be a win-win for both companies, and that's what we're going to, for sure, we will explore possibilities with them.

Thank you.

Great. Thanks very much, Alan. So we'll move now to the next question, which we will be taking from Tristan. Please go ahead, Tristan.

Yes, I thank you for taking my questions. Just a few follow-ups on the Q3 guidance. In North America, do you confirm how much time it would take really to restart the blast furnace? And also regarding the other division, which includes Ukraine and South Africa, I think there were expectations of further improvement in the second half. So how should we think about that business? Because I believe there's still a lot of tons associated with that EBITDA line. And lastly, to the guidance, sorry, on Europe, if real demand is down and you expect apparent consumption to be flat to up, does that mean that you expect some level of restocking already in September?

Yeah. So let me take the first part of your question. So in Mexico, So you specifically asked about the blast furnace. I think it's important, as you know, in Mexico, we have two business, most important one, of course, being the plant operations. And that part of the business is up and running, right? So we have that to the end of the blockade. We have started operations already. Of course, we will see an impact, as we highlighted in our earnings release in quarter three as well. but that business is up and running. Then we have the blast furnace, which is dedicated to the long business. That part of the business will take a little bit longer to restart. We should be restarting it. It should take us about two months to be able to restart that part of the business. Then, so the older divisions, so specifically about Ukraine, I think Ukraine did well given the circumstances in the second quarter. As we highlighted before, we brought back one additional furnace, so they ran with two furnaces for most of the quarter. That was helpful. We saw a significant increase in terms of production, shipments. As a result, they were a bit positive in quarter two, so that's reassuring. Of course, challenges remain. As we know, power, availability of power, logistics so we continue to face a number of challenges but in quarter two was was was a good performance um and then uh in europe yes our guidance of course assumes that we will see a bit of restocking overall for the year uh i i cannot precise if we're going to start to see it already in september but for the year for sure our expectation is that we will see some restocking after coming from years in which we were this talking. So that's in a nutshell the position.

Okay. That's helpful. And another question, Ben, on CBAM. I think you mentioned that you remain optimistic about the Commission strengthening the measures. Is there an ongoing dialogue at this stage given the election or changes there? Is it being posed at the moment? And what specifically are you pushing for? And do you think there is a possibility to extend the 2034 deadline for free allocations? Thank you.

Yeah.

Well, Tristan, as we know, CBAN is extremely important for the industry in Europe, right? So at the moment, as we all know, the industry is – paying for high costs of CO2 emissions that nobody else is paying. We still have high energy costs in Europe. So at this point in time, the competition is not very fair, right? So that's why CBAN is so critical. We have been advocating for it for quite some time. But we know that we need improvements in the way it is designed today. And the key points first is to make sure that Europe can be competitive in the export markets so that we have a sort of rebate when we export. Second, we need to make sure that we avoid the circumvention that is leakage that produces outside of Europe pick and choose materials that they will send to Europe. Also, we need to make it broader because, of course, there are products coming to Europe that today are not covered by CBAN or finished products. So there are a number of points that we believe needs to be improved so that CBAN can be effective and then can support the industry and the development of the industry going forward. And then specifically in terms of emissions, or certificates, reduction of the certificates. I think this is the dialogue that is ongoing, but at this point in time, we don't really have any specifics to share with you.

Thank you very much.

Great. Thanks, Justin. So, we'll move now to the next question, which we'll take from Patrick at Bank of America. Hi, Patrick.

hello thank you very much for the call um uh two questions i wanted to ask um the first one is uh just on the buyback so i mean you're about three quarters of the way through the share buyback program and you know that's running ahead of schedule or it's you know i think you're about 60 of the time way through so if it continues at the kind of the same pace Would you wait until May 2025, the next shareholder AGM, or is it reasonably easy to reload if you find yourself running up against that 10% authorization? And then maybe linked to that or a second part of that question, how responsive are you to the share price levels? I mean, do you see the stock in the 20s, in the low 20s, and you think, okay – you know, this is a good opportunity to sort of accelerate the buyback? Or do you try and do it fairly mechanically where you just say, this is a free cash flow, this is allocation, and, you know, we're just going to spread it out? That's the first question. Thanks.

Yeah, Patrick. So regarding the first part of the question, that's easy. So we do have more today authorization that we got from our last AGM. So we could potentially increase the size of the buyback. Right now, as you know, we still have, so at the end of second quarter, we still had about 24 million shares to be bought. So it's still a sizable chunk of shares that we need to buy. And we'll see as and when we cross that, we will decide then the next steps. I think that the message is the same that what we have been discussing, that the policy is not changing, right? So the moment we, complete the program, we will, of course, based on our policy, make sure that minimum of 50% of the pre-cash is distributed to shareholders. Regarding the pace, we are not really trying to time the market. I think the objective, the main objective is to return cash to shareholders, and that's what we have been doing consistently. And regarding the valuation, it was low before. It's even lower today, right? So we feel that it is a good investment, even though now the share price is even lower, but we believe that when the market conditions improve and it will eventually, we will look back and see that the share buybacks really create a lot of value to our shareholders.

Okay, thank you very much. And then the second question I wanted to ask was just on the You know, there's a section in there where you talk about disciplined capital investment and I suppose requiring returns on any decarbonization capex that you spend. I mean, I would think that potentially a quite likely outcome of that approach is that there are going to be plants that are not going to make the hurdle rates for decarbonization unless you get substantial government support. I mean, is it not fair to say that you could end up in a situation where you're stuck in that you can't get a return to decarbonize them, you're not getting the funding? And so in that situation, what happens? Do you just run the plant with no reinvestment until the carbon costs are too high and it becomes uneconomic and you close it? Or, you know, if you stick to that completely, then... surely that is quite a high likelihood that at least some plants, this is what the ultimate outcome is going to be.

Well, yeah, I think we can talk about that, Patrick. So I think we have also been very clear that we will invest when it makes economic sense, right? So it's very important that we achieve success. decent levels of economic return to justify the investment. I think that's something that we owe to our shareholders, right? So, and as I talked a little bit earlier, in Europe, we are in a kind of a transition phase where CBAN is not yet effective. Policies, I'm sure they will continue to evolve. We just heard from our President of the Commission Van der Leyen also showing more support, of course, for the European industry. Of course, we have to see that supported by more actions, right? But I think we should see those moving parts before we can go ahead, commit all the investments. And we'll see. I mean, as we know in Europe today, some plans, Not us. I think the group is in good shape. We are doing well. But if you look around, you're going to see plants struggling. And that's why in Europe, the industry needs more protection, needs support to develop, as we saw in the U.S. at Section 232 as an example.

Okay. Thank you.

Thanks, Patrick. So we'll now move to the next question, which we will take from Cole. Jeffrey, go ahead, Cole, if you can hear us.

Good afternoon. Thanks for taking the question. I'd just like to hear your thoughts on some of the new trade barriers that you're seeing in Brazil and how that's impacting your business there or supporting it. And then you made a a preamble on how you've improved the EBITDA per ton of the business. Would you mind just recapping, you know, what are the bigger moving parts of what businesses you've sold and the investments that have improved that EBITDA per ton if this is the bottom of the cycle? Thank you.

Yeah, sure. In Brazil, I mean, we had the new quotas and then tariffs above the quotas. Of course, it's an important development, so we have about 11 products, so most of the products are flat products. So it should provide some support. We will see in the second half. It's not visible really yet in the second quarter. In the second quarter, we have not seen, even though we saw a nice improvement in the consumption in the second quarter. But import levels or market share from imports remain relatively stable at high levels. So we'll have to see. But clearly, I think more needs to be done. So in this environment where you have China exporting so much, the regions are being impacted directly or indirectly. So that's why it's so important that we have this trade so that the local industry that is doing the right things, adjusting production whenever it needs to demand, they don't suffer because one player is not behaving economically, right? So, and then in terms of the , that's quite a lot, and thank you for the question, because this is something that we try to convey this message that the group has changed over the last many years. We have existed a number of businesses that we felt Either we were not the right owners or could not be competitive. And just to give a couple of examples, we visited a lot of commodity business in Europe, so divestments of . We also in Europe, so we invested more in rails. Of course, we had the acquisitions in Brazil with very high levels of profitability. We invested in in Brazil, also covered a number of added value projects that automotive also done. So we have really been working very extensively on the footprint. Right? And that's why it's visible now. And when you combine that with the balance sheet, with the low level of debt that we have today, that's why we feel so comfortable to, even in this challenging macro, we can continue to push forward with our strategy, our investments, our return to shareholders.

And then just as a follow-up, there's been some obviously political commentary around Mexico and shipments coming across the border into the U.S., Would you just mind giving your thoughts on also Mattel's Mexico business and kind of the melt and pour kind of caveat that they were talking about? Thank you.

Yeah. Well, as a matter of principle, I mean, any agreement, as we had an agreement between the U.S. and the Mexican government with the view to prevent circumvention, we will support that, right? Coming to our business, Mexico is an important part of our business. We have invested heavily in the last couple of years. We have this new, brand-new hot strip mill that is performing well. And all of our steel in Mexico is melted in Mexico. So we are not really part of this. because all of our steel is melted and poured in Mexico.

Very clear. Thank you. Great. Thanks, Carl.

So we'll move to the next question, which we will be taking from Tom at Barclays. So please go ahead, Tom, if you can hear us.

Yeah, good afternoon. Thanks for taking our questions. Just two for me. The first one, you know, you talked a little bit about how unsustainable steel spreads and steel prices are eating into the cost curve. Maybe you can just give us some thoughts on what needs to happen as a sort of catalyst to actually get that to change. You mentioned sort of swift and effective responses to unfair trade. Have the policies we've already seen, is that going to be enough? Do you need more capacity being taken out? Do you need demand really just to improve? I'm just curious on, yeah, what stops it being unsustainable.

Thanks. Do you want to start, Daniel, provide your thoughts, and then I end?

Thank you, Jamila. So, yeah, I think there are perhaps several potential triggers. But clearly the best trigger would be an improvement in apparent demand, and that would be triggered really by confidence. So once the market participants become more confident that the real demand recovery is something that they can look forward to, then they're going to start thinking about replenishing their inventory and also the raw materials required to produce their inventories. So I think one important trigger could be that improvement in confidence and really just a sense that things are brightening and that the outlook is increasingly positive. Triggers for that could be the interest rate cutting cycle as one obvious point. The second trigger can really also be just this sense that things can't go any lower. So often what we see is that when steel prices have negative momentum, where possible, market participants will be destocking, they'll be sitting on their hands, taking a wait-and-see attitude. But when they believe that the risk to the downside is extremely limited, then they can be that kind of sense that I want to get a little bit more onto the front foot and start thinking about building some inventory before steel prices start to move in the opposite direction. And that in itself can act as a trigger. And then the third trigger would be on the supply side. So either you see the high-cost producers having to really cut production, Or we see a better domestic market share, i.e., less import penetration. So those would be the three catalysts. And we'll see which of those is ultimately the trigger to start moving pricing higher from the current levels.

Got it. Thank you. And then just some very quick clarification questions, please. So earlier you mentioned, Daniel, Mexico's strike impact, you think it'll be the same in Q3. Could you just clarify if that was earnings, volumes, or both? And then also in the release, you guys talked about reversing 1.6 billion of net working capital bill that you had in H1. Is that a sort of firm target? Is that like a minimum release that we're sort of expecting? Yeah, just any color that would be helpful. Thank you.

Yeah. So I'll take the second one, and Daniel can comment on the impacts of the blockade in Mexico. Clearly, we believe that we'll see a reversal of the investments that we made in the second half. As we know, it's still carrying in our inventory because of the weighted average impact, you know, high-cost materials coming from, Q4, Q1 of last year, so we'll work through that. But I think the message to the business is that, and given everything that we have just discussed, that we remain hopeful that we will see a better 2025 in terms of real demand. I think it's very important that we are ready for that. And the instruction to the audience is that we should just have the right level of working capital to what we believe we're going to need, looking at the demand that we have in front of us. So I would not jump to conclusions that we can see even more. I think I will be happy to see that reversing as we have guided. And then we will see, of course, where we landed at the end of the year. As we all know, also, There is some, it's challenging to predict so precisely the evolution of working capital, but the 1.6 is too profitable.

Daniel?

Yeah, sorry, Gemino. So then on Mexico, Tom, yes, I can confirm that. So in terms of the volume, we would expect a similar impact in Q3 and Q2 from the blockade to about 400,000 tons, and therefore the same profitability impact of about $0.1 billion. So no delta quarter-on-quarter.

Okay. So, there's no sort of like catch up with the sort of bonus payments and back pay that's not going to have a sort of incremental impact on Q3. It's all sort of vacant.

So, no. So, yes, you should just assume no delta from that specific effect, Q3 versus Q2.

Got it. Thank you.

Perfect. Thanks, Tom. So, we will take the next question from Ephraim. So please go ahead, Ephraim, if you can hear us.

Thank you. Can you hear me?

Yes, we can. Thanks, Ephraim.

Yeah. So three tiny clarification questions. Firstly, the doubling of the EBITDA in sustainable solutions by 2028, is that just the impact from et al. finally and India Renewables, correct? I mean, it does not include. the impact of future acquisitions and things like Valorex, which I assume will be put under sustainable solutions. The reason is maybe the roughly 100 million incremental from India Renewables and 150 million from Valorex plus some from Metal Family. You're pretty much there for your 2028 target.

So I don't know. I think the Valorex, as you know, will be part of our JVs, right? So it's an equity stake, 28%. So we will be reported as part of JVs. It will be part of sustainable solutions. But look, I mean, we have high ambitions for this part of the business. So the renewable project in India and it will not take us to the target. So we still have work to do and we're excited to to see that through, so we have a number of nice projects in front of us that we feel that we're going to be able to add a lot of value.

Thank you. Second, how much of the working capital bill was due to Mexico, if you can quantify that just to get comfort around the 1.6 billion release, because that's an easy win?

Look, to be honest, it's because if you look at the shipments in our long business in Africa, you're going to see that there is actually a bit of an increase, right? So we were able to mitigate some of the blockade impacts by, in case of longs, because we have different locations, we were able to continue to ship that materials, right? And that is, of course, some raw materials that could not be transformed. But we are not quantifying that, but, again, I think you can assume that we feel at this point, seeing what we have in front of us, we feel good about the release in the second half. Thank you. More so, I would say, more so in Q4 than in Q3, right, as it is typically the pattern.

Yeah, seasonality, yeah. Thank you. And the third question, the DR pellet projects, the 5 million tons from blast furnace to DR pellets, can you give us a sense as to the capex that's involved in that? Because the DR pellet premium over blast furnace pellet has been, you know, $5, $6 per ton on average. So just want to sense kind of how much incremental return if the spot premiums hold. Obviously, if the premiums go up in the future, it goes up.

Yeah. Did any of you want to talk about that?

Yeah, sure. So we have announced 200 million with the CapEx on that project. In terms of the premium, I think this past quarter it has been about $8 a ton. But of course, I think the important thing as we move forward is that we know we're going to need more of this type of material as we look to expand our DRI capacity. We have the Texas project under consideration, and there's an appealing opportunity there to double our capacity of DRI in Texas, so we're going to need more feedstock for that type of project.

So would it be fair to say that most of that incremental 5 million tons would be going internally to other acrylametal plants?

Yeah, I think that's a fair assumption. And also, we'll just add to what Dana said that we're going to be able to keep the flexibility, right? So we're going to be able to have either DRI pellets or BR pellets, so we're not giving up that flexibility.

Thank you. That's it from me.

Okay. Thanks, Malcolm. So we will move to the next question, which we will take from Dominic at TPC Morgan. Please go ahead, Dominic.

Hi, guys. Just two quick questions for me. Just one on clarification. So, again, looking into H2 and on CAPEX, so there's a little bit of a step up to the top end for guidance. for CapEx in H2. Is there a risk of an underspend on CapEx, or you're very, very confident you'll come in sort of within that range? And then second question, we hear the commentary, we sort of see the numbers on inventories for U.S., Europe, but just wondering if we could push you a little bit further on kind of what you see and what you see in terms of lead times for U.S. and Europe. and the extent to which we could see those markets tightening quite rapidly as we move into an interest rate cutting cycle.

Yeah, so the capex, yeah, I think we are not changing our guidance, so we're still retaining our guidance of 4.5 to 5. In the H1, I believe we were at about 2.2, so slightly. if you analyze that a little bit lower than the bottom end of the range. But at this point, we feel comfortable that it's just timing, so we should be within our range. Then in terms of inventories, I think the times are short, Dominic. I would say both in, and that's typically the case, right, when demand is relatively weak. So lead times remain at, I would say, at the low end of the range. And the moment, again, the moment we see a rebound in terms of the demand, real demand, we see some pickup in inventories, that is typically when you see that lead times becoming longer, and that then tends to drive very quickly, can drive very quickly prices up.

Great. Thanks, Dominic. I'm not sure if you have a follow-up. No, it's all good. Thanks.

Great. Thank you. So in that case, we will move to our next question, which we will take from Matt at Goldman Sachs. So please go ahead, Matt.

Hi. Good afternoon. Just a quick question on India. You and your peers have described these low-cost imports from China as a as a predatory pricing strategy. And I guess we've seen the rest of the world move quite quickly to protect domestic markets. So my question is, has the Indian government been receptive to your concerns? And to the extent you can, please comment on Mattel's stance and the level of protectionist measures you'd like to see introduced.

Well, I think the whole industry in India is, of course, concerned about the level of imports coming from China, as any other region in the world meant. There is, of course, dialogue. I think the government understands the challenge. And I think there is a lot of focus from the Indian government to make sure that the industry can continue to develop. right? I mean, when you look at all materials, look at the forecasts that we have for burn steel consumption in India, it will grow so much in the next 10, 12 years, then it's absolutely critical that the industry can develop, right? And of course, the Indian government doesn't want to be dependent on materials coming from China. So I think it's a matter of time. So if China doesn't correct course, then I think it's just a matter of time to see more protection, as we saw back in 1516. So that's when a lot of trade actions started. And we are, again, starting to see that Mexico, Brazil, South Africa, different parts of the world are also starting to respond to that. And for sure, that should also happen there against China.

That's helpful. Thank you. And I guess just following on from that, with the JV, you've long said that you expect it to remain self-funded. But I guess if we see EBITDA up a ton at current levels continuing, can this JV continue to self-fund the Phase 1A growth plans?

Yeah, we feel very comfortable about that. As a matter of fact, if you look at even in this challenging market conditions, and we had maintenance in our JV in the second quarter. And if you look at the profitability there, still decent. We have very low cash needs. So the normal business in terms of maintenance cap, interest costs, extremely low. So this business generates good level of free cash. But more importantly, of course, we have already signed contracts credit lines that will allow us to complete this first expansion to 15 million tons. And that's transformational, right? So when you do that and you achieve this 15 million tons and you start to deliver on the EBITDA and then the free cash follows, it makes it much easier then to continue the process, the expansion. I think the challenge that we have in India is to make sure that we can keep pace with the market and make sure that we can not only retain, but increase our market share in that market.

That's great. Thanks, Junri. And if I could just ask a quick clarification question. At a group level, you're expecting about a 10 million ton increase in iron ore into 2025. Can you please give a breakdown on the components coming from Liberia and Sarazil, just given that Both are finishing in the second half and will be ramping up next year.

Thanks. Okay. Daniel, do you want to provide that?

Yeah, thank you, Germino. So I think when we look at our bridge from first half 24 to that 50 million ton number in 2025, first of all, I think we would be expecting a better volume performance in the second half. Obviously the Q2 numbers were held back by maintenance in Canada and also the impact of those wildfires. So second half volumes should already be better than the first half run rate. And then the key deltas in 2025 versus 2024, it really will be Liberia. So we're on course to have the first concentrate available at the end of the year. And then that will continue to ramp up as we move through 2024. So at this stage, we would be expecting at least a 10 million ton volume performance from Liberia in 2025. So a significant step up from the 2024 level. And then, yes, you mentioned the serozole, so that's really the other main delta when we look at 2025 versus 2024.

Hopefully that works for you, Matt.

Yeah, yeah, thanks, Daniel, Jason.

Okay, thank you. So we will move to the next question, which we will take from Andrew at UBS. So please go ahead, Andrew, if you can hear me.

Okay. Can you hear me?

Yes, we can. Thank you.

Excellent. Cool. So, just on the follow-up to one of your previous questions about what turns market in Europe, I mean, you obviously talked about potential for restocking, demand picking up, interest rates falling, etc. All that was on the demand side. Then you just mentioned some of the potential high-cost blast for disclosures. Your shipment levels at the moment are running pretty well. In the past, you've been one of the leaders in taking out capacity on those down cycles. I'm curious to see, in the coming months, what planned normal maintenance is for over the summer, which blast furnaces potentially will be down. Then, how much worse do things have to get for you to start actually closing blast furnace capacity? or is it just a case of you're very confident that demand will turn and therefore you don't feel this time around you need to do much?

Yeah, well, so you're right. So we are running today all of our furnaces, with the exception of one furnace in pause, as we talked about before. And I think, as I said at the beginning also, so when we look at our order books, We feel okay, so we will have the normal seasonality. We don't really have in the second half any major maintenance we've seen for the finances. As you know, we did a lot of work on that last year. And we will sell, we will produce what we can sell, Andrew. So to the extent, and that's the beauty of the Arsenal Mutual footprint, right? So if we feel that we don't have enough demand in front of us, we have the option to reduce capacity to bring down one furnace, or we can adjust the capacity of different furnaces. And if we get to that point, we'll do as we did in the past. We will take that call. But right now, we don't see the need, so we continue to move forward. Okay. Now that's clear. Okay. Thank you.

Great. Thanks, Andrew. So we will now move to our next question, which we're going to take from Max at Otto. So go ahead, Max, if you can hear us.

Yeah, good afternoon. Just following on on mining, I mean one of your competitors had to, I mean one of the other producers of iron ore in the region had to shut down operations because of the white fire. Is that something that you rule out on your side given that this white fire are still raging at the moment? And in Liberia, you had some difficulties with the railway. Are they now solved? We're hearing some people wanting to access this line and Yeah, which could perhaps reduce your own shipments. So can you comment on that too?

Yeah, so first on Canada, the fires, you're absolutely right. So we also suffered the impacts of the fire for a couple of weeks. And if you look at the production now, what we published, you can see that there is a lower production part of it because of maintenance, but also because of the impacts of the fire. It's largely resolved now. That's why we feel that, absent the repeat of the maintenance work, we will see, nevertheless, an improvement in production and shipments in Miles Canada in quarter three. In Liberia, we have basically resolved now the issues with the rail. Q2 was still impacted, and that's why Daniel was also saying that we expect higher numbers in the second half. We'll see the capacity in Liberia coming back to normal levels in Q3. And, look, we have an agreement with the government that is signed that we – That is valid. So we have, of course, dialogue with the government, with different parties. But we are the operators of the rail. We have the concession. And as we have been discussing, we have very ambitious plans for Liberia. We see the potential of the mine. We have plans to take it to 30 million tons. And that's what we intend to do.

Okay, okay, that's clear. And just the last one, it's on Argentina. This is a country that has been dragging down the Brazil segment over the last two or three quarters, but now it seems that it's turning the corner, that the economic climate is a lot more constructive. So do you think it will now be quite neutral, and could it even become a big earnings driver for ArcelorMittal, given that you are by far the largest producer in the country?

It's not yet the case in quarter two, and you're right. So in quarter two, it was very challenging first half for Argentina, right? Of course, we are, Argentina is going through, is going through a major transformation, call it. The new government taking very hard measures to try to fix the economy, to reduce the inflation. And as, but as a result, a number of projects were cut. The demand in Argentina in the first half was extremely weak, but to the extent that the government can succeed in bringing stability, reducing the level of inflation, then that should be temporary and we should start to see again Argentina contributing more to our results. So I think we are optimistic, but we have, of course, to wait and see in 30 days. But this year so far, we are going through this

Okay, now that's clear. Thank you.

Great. Thanks, Max. So we will move to our next question, which we will take from Bastian at Deutsche Bank. Hi, Bastian.

Please go ahead. Yeah. Good afternoon, all, and thanks for taking my question. I actually only have a quick one left on decarbonization. I think you've been moving a bit more mindful here, which clearly has been proving the right approach so far, just given a very slow momentum in terms of the European infrastructure for things like hydrogen, and I guess also the other components on the policy side, which you mentioned earlier. I guess yet we're getting to the point where the project pace will have to speed up, and I think most of your peers have seen a significant step up on decarbonization capex already, or will see that next year, and by now we should have pretty good visibility on what is coming at least in 2025, so Could you please give us maybe some early gauge on what to assume for CapEx on decarbonization for 2025, i.e., will that be more like a 500 to 1 billion ballpark number, or will it be possibly above 1 billion? Maybe just any steel on that front, that would be great.

You want to talk about it then? Can I answer it?

So thanks, Shabmina. So I think, look, the focus of our work on DCARB at the moment, as we've been consistently talking about, is engineering. So completing the engineering of the various different projects and studies that we have underway to complete. On top of that, we've been making progress with the various different governments to make sure that they're obviously supporting these projects. And that's not just on the CAPEX side, but very importantly to make sure that we have the right input factors to make sure that at the end of the day, these projects can be sustainable and cost competitive. So then looking into 2025 relative to this year, I don't think we will see a material step up in CAPEX related to our DCAR projects. So that would be my expectation rather than the numbers that you were talking about in your question.

Okay, thanks, Dana. And just as a quick follow-up, so this year, I think you're aiming to spend 300 to 400 million. Next year, it's going to be the same level. Is that a gross number, or is that already net of any government, basically, share of the CapEx wallet, basically, which you're budgeting for?

Yeah, so most of that is, as I say, it's supporting the engineering studies, et cetera. So, And we've not yet been able to offset the benefits of the government support. So that will help to reduce the impact as we move forward as certain projects start to accelerate.

Understood. Okay, perfect. Thank you.

Super. Thanks, Bastian. So we have a couple of questions left. So one of them is a follow-up, but we'll take the next question from Alon at Lutenberg Intelligence. So please go ahead, Alon, if you can hear us.

Yeah, hi. Thanks for taking my question. Most of them have been answered. I just had a clarification question on your strategic project. You have three which are being commissioned this year in the second half which have the capability of adding $285 million EBITDA which would just remind us what the profile of that looks like when that will start coming through. I think you've already alluded to Sarah Azoul mainly coming through in 2025 but the other two that would be helpful.

Hopefully, I get the gist of your question here, Alon, but I think we do have a very useful slide in our presentation deck to show the cadence of the EBITDA that we anticipate on an annual basis from the organic investments. If you do get a chance to look at slide 9 within the presentation deck, it's pretty neatly laid out, but just for everybody's benefit, we would expect some positive impact in the second half from the two projects that we've commissioned and begun commissioning over the end of Q2, so the Vega project in Brazil and the India renewables commissioning. But that will significantly accelerate in 2025. So for the full year of 2025, we're expecting a $500 million benefit from the incremental benefit from the strategic projects. And then, of course, on top of that, we should be seeing the EBITDA benefit from Valet, from Ida Finale. So year on year, Next year's delta is $0.7 million. Then into 2026, there would be another $0.5 billion step up as more of the projects bet down. And then the remaining amount would be post-2026. So in total, it's a $2 billion uplift, including the 0.3 we already discussed. have been benefiting from in Mexico. But this is going to be a very sort of significant but also unique driver of Arsenal Metals profitability relative to our peers as we go through the next two or three years and would, of course, come on top of any cyclical recovery that we can anticipate.

Great, thanks for that. If I can, just one additional question on net debt and how that evolves over 3Q and 4Q. It looks like you've got the VALOREC payment in 3Q, so net debt climbs, plus CapEx is basically somewhat thick and half-weighted, but then with capital release in Q4. which will bring net debt back down. Are there any other kind of major moving parts, and is that profile broadly correct?

Well, I think you got it right. Yeah, those are the moving parts. I would just say that we do expect the company to be free cash flow positive, right? And on top of that, we will have the reversal of the working capital investments, right? In quarter three, we will see an increase because of BALOREC. But then we would expect net debt to come down again by the end of the year. And we should, of course, we will retain a very strong balance sheet low, absolute levels of net debt. Great.

Thank you.

Perfect. Thanks. So we will now move to our last question, actually. So it's a follow-up from Tristan at BMP . So go ahead, Tristan, if you can answer.

Yes, thank you for the follow-up. Just on X-CARB, you mentioned that your European flat footprint has the capability to produce 80% of all grades and dimensions. So what is that percentage relative to your current product mix? So in other words, with X-Carb, which is scrap-based, how much of that mix can you replicate? And if it is a good chunk of your portfolio already, which it could be, does that mean that you don't necessarily need the five, six DRI plants you have announced to build across Europe?

Yeah, so as you know, we have in Europe, I think when we talk about the carb and there is a lot, but we are the only one that has today an electric arc furnace already producing flat fuels, right? That's our plant, which we are then ramping up. And on top of that, of course, we have our facilities in the steel. We have... About 50% of our long capacity or 60% is also electric arc based. And we continue to dedicate a lot of resources into R&D. I mean, today we announced a new line of products under the X-Carve umbrella for the development of the hydrogen network in Europe. So we continue to make good progress there. But in terms of absolute volumes, as we know, We are doubling the volumes this year. We are expecting to complete this year with more than 400 KT. But, of course, we have to decarbonize the footprint, right? So, you should not read that. Because of that, we don't need to progress without decarbonization plans.

All right. That's helpful. of your current flat roll product mix? Is that 50% you could replicate with X-Carb and scrap based process? Or is it closer to 80%? It's 80%.

We are saying 80% for industry customers, right?

So industry customers.

All right, that's clear. So it's much lower. Okay. Thank you. And maybe just a quick follow-up. Could you remind us the volume exposure you have of volumes coming from Europe to the U.S. in case we see tariffs returning on U.S. borders? I do believe you had some special rail and other types of product, but I don't remember the volume figure.

It's not a big number, Justin. It's not a big number. But you're right, we do have exports, some specialty steels that in any case, even when Europe was still paying Section 232, we never stopped them. So these are products that are not available there in the U.S., so I would not expect any implications. And second, the volume is not so significant.

Okay. Thank you very much.

Great, thanks, Justin. So that was our last question, Germino, so I'll hand back to you to conclude the call.

So thank you, everyone. And before we close, I want to reiterate my message from the beginning of the call. Firstly, the whole Afalamita organization is galvanized to improve safety performance. Secondly, our resilient results in the face of challenging market continue to demonstrate structural improvement. This resilience means that we have been able to focus on our growth agenda Investments we have been making will provide significant structural upside to EBITDA and cash flows on top of any cyclical recovery. Our ongoing buybacks are compounding the value creating benefits to our shareholders. And if you need anything further, please do reach out to Daniel and his team. I wish you all a good summer. Stay safe and keep those around you safe as well. Thank you very much.