ArcelorMittal Q2 2010 Earnings Call Transcript

ArcelorMittal Q2 2010 Earnings Call Transcript
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ArcelorMittal (MT)

Q2 2010 Earnings Call Transcript

August 5, 2010 9:00 am ET

Executives

Lakshmi Mittal – Chairman and CEO

Aditya Mittal – CFO

Analysts

Michelle Applebaum – Steel Market Intelligence

Michael Shillaker – Credit Suisse

Vincent Lepine – Exane BNP Paribas

Michael Gambardella – JPMorgan

Nik Oliver – Merrill Lynch

Luc Pez – Oddo Securities

Charles Bradford – Affiliated Research Group

Andrew Snowdowne – UBS

Rochus Brauneiser – Kepler Capital Markets

Anand Mahindra [ph] – Citigroup

Dave Martin – Deutsche Bank

Ephrem Ravi – Morgan Stanley

Charlie Dove-Edwin – MF Global

Elena Antonova – Knight Capital Group

Presentation

Operator

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» ArcelorMittal Q2 2010 Earnings Call Transcript

Dear analysts and investors, welcome to ArcelorMittal's second quarter results 2010. Please note that we will take maximum two questions per analyst and investors. If there is time left at the end of the call, we will be happy to take your additional questions. I leave the floor now to Mr. Lakshmi Mittal, Chairman and CEO of ArcelorMittal.

Lakshmi Mittal

Hi, good morning and good afternoon to everyone, and welcome to ArcelorMittal’s second quarter 2010 results. As usual, I am joined by my GMB colleagues, Gonzalo Urquijo, Michel Wurth, Aditya Mittal, Christophe Cornier, Peter Kukielski, Davinder Chugh, and Sudhir Maheshwari.

Before I start today’s presentation, let me give you a brief overview. The global steel market continue to recover albeit slowly. During the second quarter and for the fifth quarter in succession, our shipments increased and the Group EBITDA improved dramatically. Nevertheless, the current environment is challenging. In the developed world, government emphasis and unemployment are high, corporate investment is low, and the construction market remain depressed. Through monetary tightening by the government, the Chinese economy has begun to slow down and could slow down further in the second half. This along with the sovereign debt issues in Europe has created uncertainty in the global economy.

While this uncertainty along with the normal summer slowdown will result in reduced volume for us in Q3, real demand should continue to grow progressively. In addition, we are also facing higher costs due to the lag effect for the quarterly coal and iron ore contracts. The recent price weakness in China has made it a challenge to pass this through to our cost customers, but this increase should be temporary. On the positive side, we have been working with good success to have our long-term contract pricing mechanism better reflect the new raw material environment.

Today, we are also announcing that we will assess the spinoff of our Stainless segment. Such a spinoff would enable the Stainless segment to benefit from better visibility in the market and to pursue its growth strategy as an independent company in emerging markets and specific products. Today, as shown in our agenda, after a brief introduction and overview, I will discuss corporate responsibility, our performance, and industry plan, followed by an overview of the environment and the steel market. Then Aditya will present our second quarter 2010 results concluding with our guidance for third quarter, and we will conclude with Q&A session.

During second quarter, our Health & Safety frequency rate improved marginally over that of Q1. Our commitment to Health & Safety remains the top priority of the Group. Our financial results for the second quarter 2010 include second quarter EBITDA of $3 billion, up from 59% from first quarter and within our guidance range, and net debt decreased by $400 million to $20.3 billion primarily as a result of foreign exchange.

In terms of our recent performance and industrial plan, we increased our capacity realization to 78% during second quarter, up from 72% in first quarter. We achieved $3 billion of annualized sustainable cost reduction by the end of second quarter, reaching our 2010 target ahead of schedule. As you can see, due to anticipated weaker market conditions including seasonal slowdown, third quarter EBITDA is expected to be between $2.1 billion to $2.5 billion, and we expect capacity utilization to decrease to approximately 70%. Finally, we have announced that we are assessing the spin-off of our stainless segment to shareholders.

First, let’s look at some of our corporate responsibility. As I said, we have improved our frequency rate modestly to 1.8 in the second quarter from 1.9 in the first quarter. We have made significant improvements in the mining operations, Asia, Africa and CIS, and distribution solutions, and which was offset by deterioration in the Flat Carbon Euro, Long Carbon Americas, and Stainless Steel divisions. We are targeting a further reduction to frequency rate for the year 2010. Whilst we have seen a gradual improvement in our safety performance, we have experienced accidents and regrettable fatalities in the first half, meaning we must continue our efforts as we strive to reach our journey to zero goal.

In addition to Health & Safety, we have made progress with a number of other corporate responsibility initiatives including, we recently published our third Group corporate responsibility report. We announced three major dust reduction system technology investments to reduce environmental impact. ArcelorMittal and its partners announced $7.6 million in funding for North American “Sustain Our Great Lakes” program.

Now, I will discuss performance and industrial plan. As I have said, we have been gradually increasing the steel production for the last several quarters as the market has been recovering. During second quarter, our utilization was 78% from 72%, but in due to seasonal slowdown in the market cautious attitude, we expect our capacity utilization for third quarter to decrease to approximately 70%. We will continue to monitor our production levels and adjust our output as warranted by the order flow from our customers. Iron ore, our internal iron ore production increased by approximately 21% from 10.6 million tons in Q1 to 12.8 million tons. As for 2010 as a whole, we expect iron ore production from our own mines to increase by more than 10 million tons due to both mine restarts and some expansion. Production of met coal increased to just under 2 million tons.

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