Winning in the post crisis world

Transcription

1 Winning in the post crisis world Sudhir Maheshwari Credit Suisse Metals and Mining conference - 22 September London Photo: Getty Images

2 Disclaimer Forward-Looking Statements This document may contain forward-looking information and statements about ArcelorMittal and its subsidiaries. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. Forwardlooking statements may be identified by the words believe, expect, anticipate, target or similar expressions. Although ArcelorMittal s management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of ArcelorMittal s securities are cautioned that forward-looking information and statements are subject to numerous risks and uncertainties, many of which are difficult to predict and generally beyond the control of ArcelorMittal, that could cause actual results and developments to differ materially and adversely from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the filings with the Luxembourg Stock Market Authority for the Financial Markets (Commission de Surveillance du Secteur Financier) and the United States Securities and Exchange Commission (the SEC ) made or to be made by ArcelorMittal, including ArcelorMittal s Annual Report on Form 20-F for the year ended December 31, 2009 filed with the SEC. ArcelorMittal undertakes no obligation to publicly update its forward-looking statements, whether as a result of new information, future events, or otherwise. 2

3 Today s Agenda Steel market Current challenges Strategic priorities 3

4 Steel market

5 Global steel demand Global industrial production (y-on-y) Global apparent steel consumption (million tonnes per month) 25% 20% OECD China Developing ex China China Developed 15% 10% 40 5% 35 0% % -10% -15% -20% March-May 2010 global apparent steel consumption back at peaks Source: Global Insight, WSA and ArcelorMittal estimates 5

6 Developed market demand Expansion US PMI and manufacturing output % 5% 0% European and US service centre inventory levels (Base 100 is average 2007)* 120 Contraction PMI Manu Output, % (RHS) % -10% -15% Europe PMI and manufacturing output % Expansion % 5% 0% Contraction Headline PMI Manu output (%) RHS -5% -10% -15% -20% -25% 50 Europe (EASSC) USA (MSCI) % In the developed world, the underlying recovery remains slow and progressive Source: Global Insight, WSA and ArcelorMittal estimates *Note: EU stocks refer to strip mill products at service centers. USA stocks refer to all steel products held at service centers 6

7 China market demand China money supply (M2; y-on-y) China inventories major 25 cities (000mt) China has destocked post new year Long Flat August IP beat expectations; growth rate of money supply expanded for first time in 9 months China net exports (000mt) 0 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep August net exports down 65% on July levels China concerns are over-hyped Monetary tightening has slowed pace of growth, but we do not see a collapse Early signs that monetary policy is being eased China demand fundamentals remain robust early signs of policy easing Source: Global Insight, WSA and ArcelorMittal estimates 7

8 Current challenges

9 Raw materials challenges Iron ore price movement China spot CFR $/t Volatility of iron ore pricing has led to a mismatch of spot steel prices and our costs This mismatch is a quarterly issue and should even out over longer periods The volatility of iron ore pricing is expected to decline as new supply displaces the highest cost capacity Highly volatile iron ore prices post crisis We will look to match raw material contract periods with our steel order book Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Lower iron ore price volatility will smooth our margins Source: Bloomberg; Rio Tinto Iron Ore 9

10 Market share challenges ArcelorMittal deliveries to European auto customers ArcelorMittal market share Flat Carbon Europe Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 AMAE Deliveries (LHS, indexed to 1Q08) European auto production (RHS, k vehicles) 3Q10E Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Market supply (indexed 2006 = 100) Share of Eurofer deliveries (indexed 2006 = 100) Share of total market supply incl imports (indexed 2006 = 100) We lost share of the European auto market during the crisis We have now fully recovered our auto market share back to the pre-crisis level European auto market is currently smaller than precrisis but should return in coming years Our share of the total European flat carbon market is now back to pre-crisis levels This reflects the fact that imports in to Europe in 2Q were low (~12% of consumption vs. 18% historically) Our share of total Eurofer mills production increased but it is still below our target levels we aim to recover this market share by end-2011 We have recovered our market share in European auto sheet, and have firm plans in place to recover lost market share in Northern Europe industrial segment 10

11 Strategic priorities 11

12 Balance sheet strength Net Debt (US$ billion) Net Debt (USDbn) - LHS Credit ratings 4Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q x 1.4x 1.5x 1.0x 0.5x 0.0x Net Debt / Average EBITDA* - RHS Balance sheet strengths We remain committed to a strong balance sheet with good liquidity A solid investment grade rating is important to ArcelorMittal and remains a priority While our balance sheet offers flexibility, we are comfortable with the current net debt level of ~US$ 20 billion Credit metrics are improving with increased profitability We have significant support from a high quality bank group and proven access to debt capital markets Moody s: Baa3 Standard & Poor s: BBB Fitch: BBB Our credit metrics are strong; We are comfortable with the current net debt level * Based on yearly average EBITDA since January 1,

13 Liquidity and debt maturity profile Debt structure September 2008 Pro-forma debt maturities* (US$ billion) Commercial paper, 10% 5 Bond, 15% Bank loans and others, 75% Bonds Term Loans Convertibles Other Commercial Paper Debt structure June 2010** Bank loans and others, 29% Commercial paper, 7% Convertible, 8% Approximately US$ 13.1 billion of successful capital markets refinancing in 2009 Successful extension of the maturity profile from 2.6 years at end Q to 5.4 years after recent US bond issue Bond, 56% New highly successful three-tranche dollar bond issued in the amount of US$ 2.5 billion in August further extended debt maturity profile to 5.4 years * As of June 30, 2010, pro forma for US$ 2.5 billion US bond issue in august 2010 and repayment of EUR 600 million 5.25% Eurobond in September 2010 ** After US$ 2.5 billion Yankee bond issued in August 2010 Commercial paper (CP) expected to be rolled over 13

14 Maintaining our competitive position Competitive does not just mean low-cost Regional average HRC cash cost 2009 ($/tonne) More important is being competitive in target markets Competitive on costs Competitive on quality Competitive on service CIS South America Middle East/Africa Europe USA Asia ex China China ArcelorMittal global weighted average We occupy a better-than-average cost position in the regions we are serving ArcelorMittal regional weighted average costs We have one of the largest R&D budgets in the steel industry; this supports our product quality and innovation We have a strong relationship with customers which reflects in our service quality Cumulative capacity 575Mt We have a strong competitive position today, but we can always improve Source: World Steel Dynamics (WSD) structural cost curve 14

15 Developing our competitive position We are investing to improve our assets. Projects approved/completed over past 6 months: LCA: Steelton new reheat furnace LCE: new wire rod mill at Duisburg AACIS: continuous caster for long products at Kryviy Rih FCE: upgrade of PCI facilities at Gent LCE/FCE: build PCI facility at Blast Furnace #2 of Dąbrowa Górnicza, Poland Management gains realised and 2012 target (US$bn) We achieved US$3 billion of management gains ahead of target; we aim to achieve a further US$2 billion by end Q 10 Mgt gain Input Cost Yield & Quality Energy SG&A Fixed cost Others 2012 Target We are investing to improve our assets; we target further management gains savings 15

16 Exploit our mining resources Geographical split of estimated iron ore resources* 2009 ArcelorMittal has a worldclass iron ore reserve and resource base Brazil 7% USA 3% Other 5% Our strategy is to commercially develop this to maximise the value for our shareholders Ukraine 10% Canada 42% We have spent time and money proving out our resource base Liberia 13% We are now standardising the classification of the mining asset base Kazakhstan 20% Estimated iron ore resources of 19 billion tonnes in 2009* Our vast iron ore resource base provides significant growth options * Final resource estimates expected The above preliminary estimates are based on surveys conducted to date and include inferred resources which, as of the date hereof, are still considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. The potential quantity and grade is conceptual in nature; there has been insufficient exploration to date to define a mineral resource; and it is uncertain if further exploration will result in the above targets being delineated as a mineral resource. There is no certainty that the above preliminary assessments will be realized. 16

17 Expanding iron ore production to 100MT 2015 iron ore growth* target (mt) Iron ore development target to 2015* (mt) Target 100mt by Own production Strategic contracts F Efficiency Brow nfield Improvements** expansion Greenfield Cleveland Cliff expansion contract 2015 plan Strategic Contracts Base Production Planned Brow nfield Expansion Planned Greenfield Expansion Potential Brow nfield Projects Potential Greenfield Projects We have plans for growth beyond the 100Mt target in 2015 * 2015 strategic contracts include Kumba supply agreement (currently under arbitration) and the Cliffs-ISG contract which expires 31 Dec 2016; it does not include the Cliffs- Ispat Inland contract which expires 31 Jan ** Includes extended life of mine projects and returning to full capacity 17

18 Further develop our coal assets Key coal assets. USA Coal mines Kazakhstan Coal Mines Russia Coal Mines Similar to iron ore we leverage logistical savings at some of our coal mines proximate to our steel plants ArcelorMittal has plans to further develop its coal assets: Growing existing operations Exploring for further opportunities with JV partners and Areas of interest Coal asset Macarthur Coal shareholding Actively reviewing opportunities in new frontiers Coal of Africa Shareholding Target to increase coal production from approximately 7mt to 12mt by 2015 Coal plans are less developed than iron ore but we intend to grow 18

19 Execute organic growth options Market position and market share estimates by region No 1 in North America No 1 in Western Europe No 1 in Eastern Europe and CIS Emerging markets continue to offer the best organic growth potential for ArcelorMittal Superior demand growth potential We have the platform and experience: No 1 in South America No 1 in Africa ArcelorMittal Others already the steel market leader in Latin America, CIS and Africa ArcelorMittal focus areas for growth are Brazil and India We also have JV projects in the Middle East and China Industrial and commercial network focus on market sustainability and growth opportunity Source: WSA and ArcelorMittal estimates 19

20 Brazil growth plans in place ArcelorMittal Brazil industrial network Brazilian long products capacity expansions: 2010: Monlevade project from 1200 ktpy to 2400 ktpy (US$1.2 billion capex) 2011*: AM Cariacica from 600 to 800 ktpy (under evaluation) 2013*: AM Juiz de Fora from 1000 ktpy to 2200 ktpy (under evaluation) Brazilian flat products business has excess primary capacity so the rolling mill at Tubarao will be expanded, or a new rolling mill built We expect to develop at least one vertically integrated greenfield project by 2020, utilising our iron ore resources Ecuador Venezuela Colombia Peru Chile Bolivia 2300 km Argentina Paraguay Brazil Uruguay Monlevade Juiz de Fora Cariacica Tubarao Vega Du sol We are growing our Brazilian long product capacity and plan to increase in flats * Planned project implementation dates 20

21 India our new strategy We now plan smaller steps: Mtpa modules In areas with easier access to land (Karnataka) and proximity to strong consumption centers reduced implementation risk Pakistan China Expertise of local partner is invaluable. Uttam Galva stake gives us: Access to its large downstream network (we are already largest importer of steel into India) Partner in developing service centres for auto/appliances using AM feedstock JV partner for potential greenfield in Western India 3 Jharkhand 1 2 Orissa Karnataka greenfield project: Land acquisition expected to be completed by end of this year We are also expecting to get some mining leases in Karnataka as well Western India JV potential Karnataka 4 Major steel markets Jharkhand greenfield project: land acquisition is progressing well Smaller modular sites planned between million tonnes per annum 21

22 Re-cap The company is stronger post crisis Our balance sheet is strong our debt level is comfortable and we do not expect it to change significantly We are cost-competitive and we have plans in place to improve our position further Investing in our mining assets to exploit our resource base is a priority Our strategy in India has changed; we are now on the ground selling branded steel; our first domestic production is expected by 2013 Brazil remains a huge growth market and we have opportunities to expand upstream and downstream 22