ArcelorMittal S.A. (MT) Earnings Call Transcript & Summary

Retail Shareholders Event -- Annual Event for ArcelorMittal. It's a pleasure to be with a virtual sense rather than a real sense this year because of the COVID-19 virus with Michel Wurth, Member of the main Board of ArcelorMittal, and we also have Hetal Patel from Investor Relations, who is ready to answer -- to take in any questions that you put. [Operator Instructions] Michel, welcome. Very nice to see you. So you're looking well, I hope we're all well. But obviously, we are living through the worst pandemic in 101 years -- 02 years. It's caused the greatest economic damage, I guess, since the Second World War to the global economy. But I think, in fact, ArcelorMittal has had pretty good results. But let's leave that aside for the moment.

I mean the company has, what, 191,000 employees, in 16, 18 countries, customers in all over the world, 160-odd countries. How have you coped as a company with your employees during this period?

So thank you for your warm welcome, John, and then we'd also like to welcome all our participants to this conference is our dear shareholders as all the time. And we had a pleasure to have the occasion to speak to them. And first of all, I would like to [indiscernible] I think and I hope also that all of them are very safe and healthy and did not suffer from this terrible pandemic, which is absolutely key and which has, indeed, to come back to your question, be at the middle of our policy and of our efforts when it appeared in -- first, in -- mainly in March in our main plants and in our main offices. And what we said is -- and as we say it all the time for safety, we said also for health, and we said this is our first priority so that to help our people to come out. And I would say at the beginning of the pandemic in many of the plants we had to make shutdowns, but it was also necessary from our customer point of view. So the world at one-time stopped. And for example -- to give you simply one example for our European automotive clients in -- at the end of the first quarter, the beginning of April, demand within 3 weeks went down by 70%. So order books vanished. And so -- what we take to our people was safety first, we were immediately introducing our sanitary protocols. We were providing mask. We were providing -- we were imagining processes how to behave. And in general, we can say that things happened quite well. And when we look today at our statistics, we see that our people in our plants didn't get infected by the virus. And as I say all the time for safety, it is safer to work in our plants and to drive your car. I can also tell, it was safer to work in our plants in COVID periods than being outside our plants. Fortunately, it happened quite a lot with sometimes difficult -- different situations from one country to the other, but it was also in some countries to get a better support than in others. So first was health and safety. And then we need -- we needed to adapt to the situation in terms of cost, in terms of production. And as you know, ArcelorMittal, when there is a big turmoil coming, we are reacting very fast and very efficiently, and it was like that this time as well.

And did the reaction of the workforce vary from country to country? I mean, I'm thinking you've got some activity in China, but you also, of course, have a joint venture with Calvert -- Nippon Steel in the United States, Calvert. And my recollection of the news is that a lot of Americans are much more reluctant to recognize the virus and also wear masks and for example, in France or Luxembourg or Germany or whatever.

Yes. But I would say that our people working in the steel industry are disciplined people because we need to have a disciplined way how to proceed. And from that point of view, I think it worked. It worked quite well. We had a little bit more difficulties in Mexico, for example. We were also suffering in Brazil because in Brazil, you know as in the United States that policy was not so much emphasized on taking care of the situation. But in general, it worked quite well.

I think, it was very different [indiscernible]

No, but I think that we are global citizens, and we need to adapt, and we have to take the political environment. We cannot change it and then try to do our best for the best of our different stakeholders and also our employees. And from a production point of view, what happened we tried immediately to take care, to manage our fixed costs in the best possible way, to discuss with our stakeholders, to take advantage of part-time unemployment schemes, which are government supported in the different jurisdictions. We had to adapt production and in many of the production units in Q2, we had a drop of production of 25%, 20%, 30%, which was absolutely huge, but it was necessary because otherwise, you will build up inventory, you would have to spend a lot of money, and you are not sure that after the pandemic ended you are able to sell the product. So you need to be extremely reactive. And I would say that was very, very successful. And you mentioned before that we had good results, I would say, we had decent results, but it was also thanks to the reactivity of our people and also of our senior management.

No, I mean, thinking back to the Q3 results. I mean, they do look pretty good. Despite the economic collapse of much of the world. I mean, how do you explain it?

I say, how do we explain it? But basically, it explained because we took the right reactions that, in fact, as from Q2 on we were successful to almost what we call internally to variabalize our fixed costs. That would mean that if production is down 25% we were successfully reducing fixed cost by 25% in the same quarter. And in the third quarter -- that was in the second quarter was roughly 25%. And in the third quarter, what we did there, we got some upswing in the market. We could take advantage of it. So we were reactive in production, but also, we kept our fixed cost under control. And the consequence of that was that the results were much more decent. And what we saw also in Q3 was that the recovery was much more in the V form, differently from the crisis of 2008, where we had much more of a kind of health crisis because the crisis was much growing and much [indiscernible]. And now as we are presently speaking, we are seeing the second wave. But I can say, fortunately, the second wave is, I would say, not as strong in the steel industry sector, also with our customers than it has been in, for example, in some service industries, B2C, like hotel, restaurants, retail shops and so on, which are even today in a much worse situation than we have been.

But presumably, the key to the next year will be the vaccine, assuming that vaccines work that they're adopted, then what does the future look like for ArcelorMittal?

I think vaccines is a good news. And so we are supporting. And maybe that I can even tell the people that Mr. Mittal himself privately made a big donation for the Oxford University-developed vaccine because he saw the negative points of the COVID and so he took some of his personal wealth in order to try to accelerate the movement. But that is only, I think, it is clear that once the vaccine is coming, it will help normalizing the world. The world will be different tomorrow. So also in terms of consumption pattern, that is absolutely true. But I think what will be helpfully set during this pandemic saving rates increased a lot. And it's what we can hope after -- once the vaccine would be there that people would maybe invest a little bit more in consumer durables and consumer durables I would say, a most TV intensive and other consumer goods. And so this should be good. And that's the reason also why, in general, we hope that after the sharp drop in production this year, we can have an increase in [indiscernible], which we not fully compensate what we have lost this year, but we should definitely hope to be in a better shape next year. And we see it already also now because we foresee that after the rebound of Q3, we will have a rebound in Q4. So we will produce more in Q4 than we have produced in Q3, and we hope that this movement can continue in 2021.

And presumably, the biggest factor to help you would be a recovery of the automobile market.

Automotive is extremely important, and that is also -- the Q3 and Q4 had really been pushed by the increase in automotive sector. And there, technically, the effect has been twofold. In Q2, when the world stopped automotive industry, stopped to buy what I explained to you, but also the full supply chain emptied from steel. And now that production resumes, so there is also an accelerated -- a little bit accelerated demand because inventories have to be rebuilt, and that is giving us an advantage in terms of the stronger demand, and we hope that this will continue also in next year. But the other question which is important is construction. The construction market went not down as much and as people need housing and as governments want to support also infrastructure building, I think that should be okay. What is lagging behind a little bit is more industrial goods machinery also because at this moment, still also our clients industry doesn't really invest because they have been very careful in also spending money and preserving cash.

And if you look at the whole world, if -- I mean, what has happened in the last few weeks, of course, is a change of administration eventually [indiscernible] in the United States. Does that mean an end of trade wars between the United States and China? And if so, how does that impact ArcelorMittal? Or are you actually, in a sense, immune to the Trump administration's economic policy?

I would not say that we are immune, but as we are a global steel producer we are present in the different market. And hence, we could also take advantage of the different regions where we are producing. I would say the overall atmosphere was not very good due to all these trade wars, but it was at some time also necessary to tell also countries, which have been extremely aggressive in exports because they have huge overcapacities, to tell these countries, you need to stop, especially in the carbon world where we do not have the level playing field. And so from that point of view, I think free trade is one thing, but we are much more -- we should try to return to a world of fair trade and fair trade is giving fair chances also to each of the geographies so that they can produce. And what we can hope is also with the new administration in the U.S. and with the European Commission, that you should have a fair trade regime, which would be helpful also to cover and to meet all the other challenges we have as an industry.

I mean how to achieve that? I mean, if I remember correctly, I think ArcelorMittal complains that roughly 20% to 25% of European steel consumption is coming from countries which basically have quite an unfair cost advantage.

That is absolutely right. And I think that's a problem of not fair regulations on steel trade, is the most difficult in Europe. You remember when President Trump introduced 232 there was a big fear here in Europe that the exports, which would no longer go to the U.S. would all be driven to Europe. And in fact, that happened to some extent. And so we, as a steel industry, we argued very strongly with the European Commission to introduce what we called safeguard measures. And safeguard measures were, in fact, to say, imports should not -- we were asking that imports -- part of import should be limited to a certain degree of consumption, in fact, the European Commission and say no part of imports will be a number of -- will be a certain volume, and this volume can grow by 5% per year. So that was heavy [indiscernible] us quite a lot, especially in the pandemic as well when you see that consumption goes down by 25% or 30% and the absolute level could remain the same. That would be very, very dangerous. Now in the meantime, we have made some progress with the European Commission because they have developed country-specific imports to Europe so that we can, at least, partially limit some very aggressive imports we see, for example, from Turkey, which was by far the worst, but also for certain categories from Eastern European countries, Russia or Asia. So we are simply trying to take some room and hence we are pleading for meeting this regime of safeguard measures, which will stop -- which is today, sought to end by mid '21, and we are today discussing with the European Commission, so that this continues so that we can continue to establish fair trade mechanisms.

Yes. I understand what you say. But if you take the case of Turkey, I mean, presumably, their cost advantage was helped by the near collapse at sometimes of the Turkish lira. And how do you -- when you get currency fluctuations, it must be terribly difficult to establish this level playing field.

Not so much because you have -- in the steel industry, you have a big pack of your costs which are in fact, international costs. You see raw material cost is in dollar-denominated basis of energy cost. If it's based on natural gas or on coal, is by 80% or 90% index on the international pricing. And so when you go through the bank, currency is helping you, but it was absolutely clear what what was the reason of aggressive imports from Turkey is the fact that domestic market was shrinking. And Turkish mills were saying, okay, can I have even a small contribution on my fixed costs so I export? So -- and that was what it was going and had nothing to do that their competitiveness would have increased. I think, in terms of quality, in terms of delivery also, they do not match what we can do for our customers.

Now the culprit in the past has always been China. What is the situation now with China? Are they still dumping steel or have inventories gone so low in China, but things have actually changed?

I think there are 2 movements. The first one is that China, in fact, was a big surprise of international steel markets this year. And in fact, China will see in 2020, its steel consumption going up by 7% or 8% compared to the year before, and that despite COVID. And that means how aggressive China has managed COVID, and how little harm it had left to the economy. And when COVID was there and in order to avoid negative growth, the Chinese authorities, local and national authorities developed huge infrastructure plans, which explains the surge of steel consumption. And hence, there is not so much room for Chinese steel producers to export steel. I think that is the first element. Then the second element was, remember, when we discussed it several years in a row in our yearly discussions, China had huge overcapacities. And it was these overcapacities, which helped them then to dump steel exports to other countries. And this needed to be stopped, and that was the reason that almost all of the big steel consuming markets. China had been punished with anti-dumping or countervailing duty programs, which are ongoing and which make it much more difficult today for China to import. The question is then if we can stop China to do some unfair trade, problem was Turkey came then back off as a [indiscernible] back and so we have to fight everyone all the time and there's a reason why we are so active on this side in the different countries.

Well, you have a stimulus package, obviously, in China, I assume there will be one passed very quickly in the United States. What you look forward to in terms of North America? Because you've sold ArcelorMittal U.S.A., how would -- you still have joint venture with Calvert. What is the...

These are different things. I think that if you look at the state of infrastructure in America, there is absolutely need to improve the infrastructure and to launch big works to improve the situation. This is something which is ongoing, President Trump was speaking about it, not very much what's happening, but it is clear to all of us that one of the responses of COVID, not only in the U.S., but we have seen it in China and also with the Green Deal with $700 billion stimulus plan, which is foreseen in Europe. This is meant to try to bring back the economy, and it is focused mainly on investment and that should, in the long run, be positive for steel consumption. Now specifically, when did we sell our American units? I think there are some strategic thoughts, which I'd like to explain to our shareholders because they might not really understand. The most important one is the solution we have found with Cliffs, who is the buyer of these mills is, in fact, strategic. Our U.S. mills, in fact, held captive sources of iron ore. And these captive sources are now eaten up so that there is no longer very much reserves. And hence, the question was how can we establish this captive supply of coal and of ore in the long run, and we didn't see a possibility because the only company in the U.S., which is long in, I don't know, is precisely Cliffs and so either the model would have been bilateral monopoly where you would fight on the price because importing iron ore from Brazil or from elsewhere, it doesn't work because infrastructure is not there in the U.S. So either you would have in the bilateral monopoly or you have an integrated supply chain and the Cliffs, 2 years ago, when they were buying AK Steel, they were starting this integrated approach. And it was also, for that reason, Cliffs who came and we had these discussions about how can we do best and that at the end of the day, we started to negotiate and results that's the outcome, which was by far the best one because it gives a good chance to our mills in the U.S., which are quite high-cost mills because they are unionized, they are, to some extent, a little bit older. They might need a little bit also more CapEx in the future. But they would take a long-term secured supply. And when we were discussing, we were also seeing that Cliffs, in fact, was paying quite a decent price and price, which is not based on Q2 results, but which was really based on mid-cycle EBITDA multiples. And on top of that, from ArcelorMittal's point of view, one of the advantage was also that in these mills, there are a lot of past liabilities in terms of pension liabilities or health care liabilities because these companies had huge amount of number of employees. And all these liabilities passed all over to Cliffs. So all in all, I would say, a good industrial solution for the U.S. mills for us a very -- a good, let's say, a market price, which is okay. And the fact that it helped us to strengthen further our balance sheet with one of the outcomes out of this is that our objective of net debt of $7 billion has been through that acquisition. And so from that point of view, definitely we believe that it is a win-win situation. And for ArcelorMittal, the sacrifice is manageable because we remain quite strong in North America. First of all, we are the owners of Dofasco and Dofasco is the best integrated mill in North America by no means. It's very efficient, really like similar to our best European plant. And then we have acquired Calvert and Calvert is the most modern finishing mill, I would say, in the west [indiscernible] and parallel to our investment in Calvert, you probably are aware, we decided also to build in Calvert, an electric arc furnace with capacity of 1.5 million tonnes that is roughly already 1/3 of the production of the raw steel would be produced in Calvert as well, mainly coming then from -- in the future from Mexico, which is also quite -- not far away and which can be easily shipped with high-quality semis and then the rest from Brazil and hence a big part of our automotive customer base and still a presence of -- we remain a very strong competitor in the U.S. with a big market share for our key customers and that in combination between Dofasco and Calvert. So in all, I think a very good deal.

Excellent. You mentioned unions. And that case is based with Ilva. What is happening with Ilva? Wasn't there a deadline yesterday with Italian...

Yes. That was -- yes, unfortunately, the deadline has been postponed by 10 days. So we have signed yesterday with Ilva...

With the Italian...

Because negotiations were not really finished. And so unfortunately, it's a little bit too premature to tell you what the exact outcome is. But what is important to note is that due to the difficulties we found in in Ilva, and which had been much worsened also due to COVID and I would say that has also increased social tension, we made an agreement at the beginning of the year with the Italian government where we said we need to derisk this venture a little bit. And then we agreed -- we made an agreement in principle saying that we would change the industrial plan, making it even more greener than it was before. Because there would be some DRI production in electric arc furnace and glass blast furnaces; second, derisking it by transforming what was still due to the Italian authorities for buying -- of buying Ilva, that this will be transformed into equity inside Ilva and hence the Italian authorities or company-designated person will become our partners; and third, when we reached that agreement in principle was that we wanted to have an alignment of interest between the Italian authorities and ArcelorMittal. And in this agreement I think it was in May, we had also -- there was one clause to say that if this agreement cannot be made -- cannot be finalized in the final agreement where the deadline is November -- was November 30, then ArcelorMittal has the right to walk away. And in the meantime, what we say we want to negotiate in good faith in order to find this solution. I would say what I hear from the market and the negotiations are not finished, but both sides negotiated in a good faith and the fact that we said we need 10 days more to finalize the agreement. It's a better -- it's a positive sign. But in these negotiations, you never know.

Do you expect the Italian government -- Italian state to have a majority share?

I think it's too early. The importance for us is we want to -- I think that ArcelorMittal will be the industrial operator. The other question is more of a question of the account who will contribute what. And as there is a need of additional resources, we have to see where these negotiations are going. But I think it will be definitely a partnership model of the different stakeholders because that will be the best point for the company to, first of all, to come out of the crisis and to move forward.

Let me just ask Hetal Patel if there have been any questions from shareholders.

Yes. Thank you, John. I think there is a couple -- actually. My name is Stan with [indiscernible] Europe. I think first and foremost, you're restarting some capacity in Europe. However, is there a mismatch between the restarts and the current demand levels? And secondly, in regards to the restructuring cost programs that you announced, you've recently announced the closure at Krakow in Poland and have ArcelorMittal any plans to close further blast furnaces in Europe?

Okay. Yes, this is a very, very right questions. First of all, in terms of restarting capacity, I think that our aim definitively is to be very reactive and as soon as we see the market move to be able to stop capacity all to bring back capacity. And what we have seen is that we have presently taken decision to restart some of the blast furnaces. Most recent one will be in Italy, for example, in January, there will be the third blast furnace in Ilva, which will be restarted. But we have restarted the blast furnace in Bremen. We have restarted a blast furnace in Dunkirk. We are operating today 3 blast furnaces in Tubarao. We are operating the 2 blast furnaces in Fos. So yes, we have brought back some capacities, but we have today, I would say, tight, but we are producing enough but not too much steel in order to serve our customers, and we have seen that very well in the third quarter with the results, with fixed cost results which were decent, and we foresee the same in the third quarter. Now -- and we will continue to monitor that extremely precisely. There's still some capacity, which we stopped. In particular, we have one big relining in Gent, which will be restarted because Gent is a very competitive plant. But unfortunately, from time to time, you have to restart. So that is 110 days full stop of one blast furnace, which is currently and which explains also why we had to restart so many other plants. Now in this context, you mentioned also the decision to close the Krakow blast furnace. What you have to know is the steel shop and the one blast furnace in Krakow was, in fact, relatively high-cost units. And what we need and in particular, what becomes obvious in crisis times when we see it like that, is that if you have high-cost units, you cannot work profitably. And there is a chance in Poland because 30 kilometers from Krakow away, we have the plant in Katowice. And there, we have a very powerful liquid space. And in fact, it is possible to transfer production there to produce it at a much lower cost, including the handling cost to bring the semis to Krakow so that at the end of the day, we will improve profitability. Why we'll be doing it? So in terms of market share, we will absolutely keep in terms of volumes in Poland. Also, we keep it but we have -- we can have the same production with less production units. And hence, we are working in a more productive way than it would be otherwise the way. But I can also reassure the question of this shareholder. We do not have now a plan to systematically also do shutdowns. What we have as a plan is to see, we are looking at our asset base regularly. And normally, this passes in the third, fourth quarter when we are preparing our budget for next year and looking at our strategic developments. We are looking -- we are making a portfolio analysis and take decisions. And what we have learned also from the 2008 crisis is that you need to match capacity to final demand. This has made us much -- ArcelorMittal much more competitive, and this is what we are working now. And in particular, now -- the budget process, which is discussed now with the different units, we did not say make us proposals to close assets, but we asked another question. And we were asking, in fact, our CEOs and our management teams, what did we learn from COVID? Because from COVID, we learned to take out a lot of fixed cost. And we say isn't that an opportunity to take out some part of -- for [indiscernible] to take out in a path of fixed costs in the long run, for example, to make some processes leaner to make organization less complex. And that is what is going on now. I do not have yet the final results of this exercise, but there will be some good ideas. But I think that we will make much more disclosures on that when we are speaking about the 2020 results and presenting 2020 results in beginning of February and then also give some guidance for year 2021.

Well, the cost-cutting has obviously helped you get to the $7 billion net debt target, which is quite impressive. And also, there was a $500 million share buyback. Is this a change of policy by ArcelorMittal that will last, and would you concentrate more and more on shareholder returns?

Yes. That was what we have said and I think that objective to reach $7 billion of net debt that, in fact, been fixed, I think, as early as 2016. And there we have said, this is our goal, and we worked very hard in order to reach it and [indiscernible] which had been -- we have used since -- has been -- the efforts have been tremendous and simply, to recall maybe that you don't have this in mind. But when we entered the crisis of 2008, ArcelorMittal had a net debt of $32 billion. That was 1st of October 2008. Now we are 12 years later, and we have brought down this debt from $32 billion to $7 billion, a tremendous effort, tremendous effort for everyone. And first of all, I would like to give tribute to all of our people, our management because it is a lot of effort also to all other stakeholders, also our shareholders. They accepted that from time to time, there was no dividend payment. They were asked 2 or 3 times even to make a capital increase. All that contributed and then we made some portfolio optimization by selling some assets. All these together helped us to reach this objective. Now we have it. And that was also the reason why we said we need now also to honor this and to give some money back to our shareholders. And that is really what we can start from now on, and which means that also in February, we will make an announcement on how this policy will be seen in terms of dividend policy in terms of buyback policy. But we see that today with our balance sheet of $7 billion, we are capable of generating free cash flow throughout the cycle. We have parallel reduced the cash we need to run sustainably the business. And so there will be free cash flow available, and we will discuss and we are discussing presently with our shareholders what is the best way to give them a significant part of this cash back so that they can get some fruits of the efforts which had been done.

You mentioned word sustainable. I mean, sustainability, of course, is a big project for ArcelorMittal, in particular for the company in general. What do you -- you have a target of being carbon-neutral by 2050 and reducing it by 30% by 2030, just 10 years from now, how are we going to do this?

So first of all, I would like to explain that this is really a strategic objective. And the target of 2050, in fact, is aligned on the objectives we have set in the Paris Agreement. And where are we doing it? Because we believe that we as ArcelorMittal, in particular, but also in general, if the steel industry can become carbon-neutral, then our industry has a huge positive future. Why is that? Because, look, what you can do with steel in infrastructure, in transport, in everyday life and as steel can be recycled through the scrap all the time. And we can also then make the primary steelmaking CO2 free, then we will be part of a circular economy. And hence, we tell ourselves, this is something strategically we should reach. Now what -- and then the question comes what do we have to do in order to reach it? And second question is what other stakeholders and in particular, policy makers, the EU commission, governments can need to do so that it can be reached in the prospect of the Paris Agreement. Now from ourselves, it's mainly, first of all, it's a strategic decision and then is trying to find out what are the right technologies which can help you to reach this way. And it is in that respects that we have -- we are developing now a certain number of technologies which are, by the way, described in our Climate Action Report, our shareholders can look at on our website where we say what we can do as a company. And with this portfolio of technologies, we believe that indeed is that we can reach the 30% reduction by 2030 and in the long run to -- become carbon-neutral in the long run. Nevertheless, we say our efforts is fine, but in order to be able to reach it we need it to have a level playing field because these technologies, and we can go later on a little bit, I can describe what the roots are, but these technologies are generally more costly than the traditional way to produce steel. And hence, we say the best would be to have a universal price of carbon, which would be the same for everyone. And as we are technology leaders, we would be the big business, but that's not the case. And we see the European Union, in particular, moving first. So we are telling we need in Europe, for example, cross-border tax, which means that carbon -- if flat steel and CO2 -- steel with CO2 content is imported in Europe, if you pay a tax for the value of CO2, its content. Second, we think that we need some support in funding some of these investments. And in a similar way, then governments work, for example, helping to finance renewable energy scheme. So because the cost was at the beginning higher than in old gas power works. We say also that at the beginning, we probably need these types of compensations for the steel -- for the steel products, which are green steel products. And it is set what we are precisely discussing. And we are saying we are committed to, this is our vision, but we want that policymakers, EU commission also is also helping with different instruments so that we can altogether reach the objectives of the Paris Agreement.

And are you encouraged? I mean, if you look at China now, I mean, China has set a target of -- I think 2060 of carbon neutrality, which would be a big game changer. And I think even greater might be a thought in China as well as ArcelorMittal. Do you see the general political climate changing in terms of sustainability and climate change?

I think this is a trend which is extremely powerful. So in terms of China, China did not say how they would like to reach it. I think is the difference between China today and what ArcelorMittal is saying that we are trying to trace the way how we want to achieve it and what is necessary. But if China is serious with this objective, I think it will be absolutely great news, but it needs also that in the future, then the Chinese steel industry will be a strong competitor, but we do not see a strong competition provided that it is that competition because we believe that in the steel industry as well in technology, as in the steel product, we are really a technology leader, thanks to our R&D people, thanks to the imagination of the people, thanks to the cooperation with our big customers. And so from that point of view, we do not fear competition. I think it would even accelerate, but it should be the same for everyone.

But are you assuming also that there will have to be technological innovation of a huge sort, I mean, with hydrogen, for example?

Absolutely. And basically, to tell you, there are 2 avenues how to reach these goals. The first one is indeed hydrogen because, in fact, today, you need coal to extract the oxide, which is in the iron ore and then you emit CO2. If you use hydrogen, then you use hydrogen as absorbing the oxygen and you emit H2O, that means water. And that is CO2 free. But in order to make this way, what do you need? First of all, you need huge amount of hydrogen, which is to be fabricated through green energy. And this is a huge amount and probably not achievable in the level of 2030. And second, you need to replace the blast furnace in the traditional way how you produce steel and to substitute it with the kind of DRI production, which is produced based on oxygen. And we are piloting this technology in our plant in Hamburg because ArcelorMittal is the sole European producer who owns DRI unit in Hamburg. But we believe this cannot be the only solution, at least, at the horizon of 10 or 15 years because CapEx is too expensive, and energy is not available. And hence, we are working on the second avenue of different technologies, and that is to do -- this is what we call smart carbon technologies. Some of it is, for example, to extract CO2 and to transform this CO2 into a product which is substituting fossil energy. For example, we have such a plant in Gent, where we produce bioethanol, which is a combination of CO2 and the kind of special enzymes. And this product can be used in the chemical industry or as the fuel for engines. And so this is a good way, and hence, you do not use oil for steel production. Other thing would be to substitute coal with, for example, biomass.

Do you think you'll get to a point where ArcelorMittal's iron ore mining sector becomes less important?

I don't think so because it's a question of iron ore sector is that as strong as steel consumption is growing, there is not enough scrap ability. Today, available scrap is recycled by more than 90% on a global -- well, but we are consuming today the scrap, which is the steel which had been produced on average in the '70s or '80s. At that moment, global steel production was 700 million tonnes. It's today 2 billion tonnes. And that's the reason why today, in our -- the use of scrap in the globe steel industry only is 30%. And this needs to come up. And as long as you have a positive growth of steel consumption, you need to have iron ore mines to produce. And I think that we are extremely happy as ArcelorMittal to be owners of very competitive mines because it makes us -- it gives us a longer value chain and especially in times like today where the iron ore price is very high, it helps us definitely to have better financial results than our competitors.

And you're now expanding the plant in Liberia.

We are expanding the plant in Liberia for -- because the project is absolutely attractive. Liberian iron ore reserves have low iron ore and I would say, of low quality. And what we are doing is building, investing in what we call in technical jargon, a beneficiation plant. And the beneficiation plant is, in fact, to transform this poor iron ore into high grade, high-quality iron ore, which sells with a premium on the market. And we are doing -- in fact, we are finishing an investment, which had been started earlier -- 7 or 8 years earlier and had to be stopped at the moment when in Liberia was Ebola pandemic and when everyone had to leave the company. So this is now relatively small investment for a huge project, and that is what we are starting to be highly compelling indeed and even with iron ore prices, which will be much lower than the ones we have today.

We don't have much time left. Let me just ask Hetal for more questions.

Yes. Thank you, John. I think we've got 2 more questions actually from the participants. First of all, India. So ArcelorMittal India. How are those assets performing today with the COVID pandemic? And can you give us an update on your growth plans and time lines and any further funding required to grow those plans?

So you remember, I think it's good to speak to say words about India because today, the Indian steel market is probably the market which will grow the most over the next decade. And some people say it will even more than double from the present 100 million tonnes of capacity. And it is the market contrary to China, which is already quite consolidated because basically, you have 4 big producers of flat steel, which is JSW, Tata, SAIL and now ArcelorMittal, AMNS. So it's former Arcelor Steel. And so from that point of view, this was absolutely a strategic move and definitely not an emotional investment made by Mr. Mittal. And I think the fact that it was done together with Nippon Steel is good in terms of technology, in terms of support. And in fact, the Arcelor acquisition had been structured in such a way that it is self-financed with the equity, which had been put in by the 2 shareholders. So first of all, this was a great move, which is integration went extremely well. And I would say, from -- the economic results are excellent. Today, we are running full in India. We are at the run rate of $700 million of EBITDA per year or more than $700 million for a total production of 7.5 million tonnes and there is potential to increase production further in the next round. So it's the first increase -- in the first growth, we will do is that we will increase the pellet production to 20 million tonnes by the end already of next year because we have very good iron ore also where we can produce pellets, which is quite a valuable way. And then we are evaluating today the possibility how we can grow probably with small brownfield investments we can improve, we can increase by 1 million or 1 million of that. But the long-term vision would be to double or even more to double the production of the AMNS in order to remain one of the big players and to have at least 10% of market share in the Indian steel market.

And India could be the real jewel in the crown, couldn't it, if you've got 6% annual growth every year. I mean...

I would not say the jewel, but one of the jewels of the crown, definitively very good. And if I can make comparison with another emerging market where we have done very good experience, which was Brazil, in fact. Because Brazil has huge competitive advantages for making steel, India as well, because it has iron ore. It is a growing market. It is almost going to be become industrialized. So more and more sophisticated steels. We can bring all our know-how here and beat competition in terms of quality of steel. So the overall prospectives are extremely good. And that's the reason why we are so excited about the Indian venture, which will definitively be in the future, one of the elements of growth of the group.

We haven't mentioned the CIS countries. What are the prospects there? Are they seem to be much weaker than India and Brazil, for example?

I would say -- I would distinguish. So CIS is, in fact, 2 continents. It's one side Africa and the other side, our plant in Temirtau and in Ukraine. And if I look at the present situation, I would say that South Africa is much more problematic than the CIS countries because South Africa was lacking competitiveness. And in fact, there is a problem. Steel consumption is going down. There is no competitiveness to export from South Africa. And hence, we are really in the restructuring mode and we had suffered quite a lot in order to do our best things at improving it. So it's not from a global point of view, you can say that the evolution in South Africa was not as positive as in many other geographies. Now regarding CIS countries. There, we have the advantage of having captive mines. And so we are producing the full range of products in Kazakhstan, and we are producing mainly long products and semi-finished products in Ukraine. Fortunately, we are in -- not in the Donbass region, so we were not -- we did not suffer so much from the civil war and the events in Ukraine. And I would say that with a very high iron ore prices we see today in the world, we are producing a very competitive cost in Ukraine, but also to some extent in Kazakhstan, which is further away, and we are competing there well with Russian producers because our overall cost situation is quite good. So from that point of view, I would say, good improvement. Now they have suffered a little bit more last year. They have suffered from the COVID as well, but they are developing now satisfactory.

Michel, we only have a couple of minutes left. And I think the horizon is looking actually pretty good. But presumably, there can still be some dark clouds. What are the risks that you see ahead that somehow ArcelorMittal will have to confront?

So we say the horizon is good, but we have to understand that 2020 will be a year with very low EBITDA because we will be historically low. So it will be the lowest EBITDA level over the last 10 years. So we are in a very back situation. Now starting from this, we are making good progress, you are absolutely right. Demand is going up recently, also transformation margins have gone up. And indeed, my comments have been quite positive because also, I think that ArcelorMittal today is in a position of strength in terms of competitiveness. We have done our homework in 2010 to '15 when we made all this restructurings. We had the 2020 plan to reduce cost. We have made strategic moves. We have reduced very much our cost of capital. We have reduced interest payments. We have reduced our net debt. So, from that point of view, we are today -- I would say, our equilibrium level is much lower than it has been before, and that is what makes us really saying that we are positive, and we are able today, as we have shown in Q2 to deliver free cash flow even if the overall market situation is very, very, very bad. And that gives us some good insight of optimism and also, I think, a positive message to our shareholders that we can deliver results and that we can deliver cash and dividends, offer buybacks, while we will continue to invest to be a good employer and to continue to try to make this business sustainable.

Michel, that is a perfect note to end. We've had -- thank you very, very much for all your help. And thank you also Hetal and the people behind the scenes for their help. I want to wish you for a very good festive season. And also, I'd like to thank our viewers for tuning in, and I'd like to wish them good health and a very good end to this year. It's been a dreadful year in many respects but not I, think, for ArcelorMittal's shareholdings. So let us hope that things continue to do well, and I wish you all very, very good Christmas and New Year. Thank you very much.

Okay. Thank you as well, John. I think it was great to have this session with you. I think you said it very well for our listeners as well. We wish them all the best. And I think that we could pass on the message that we try to take care of the company, of our people, of all of the stakeholders in very tough times, but everyone has done a marvelous job, I would say, continues to do so. And so I think that from that point of view, the prospects are positive. And so, I want to join you by wishing to all of our people, all our shareholders all the best for year-end. First of all, good health; and second, rapidly a vaccine; and third, a very, very good and prosperous New Year 2021.

Thank you.

Thank you very much, everyone.

Thank you very much.