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

Good afternoon, everyone. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. Thank you for joining this call today to discuss our performance and progress in the second quarter and first half of 2026. Leading today's call will be our Group CFO, Mr. Genuino Christino. 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 21 of that presentation. And following opening remarks from Genuino, we will be moving directly to the Q&A session. [Operator Instructions] And with that, I'll hand over the call to Genuino.

Thanks, Daniel. Welcome, everyone, and thanks for joining today's call. As usual, I will keep my remarks brief. Let me start with safety, which remains our highest priority. ArcelorMittal's safety transformation continues to deliver measurable progress. The frequency rate of lost time injuries in the first 6 months of the year represented was a record low for our company. While we are encouraged by these improvements, we remain firmly focused on driving further progress. Turning now to the business. I would like to focus on 3 key points. First, we are seeing positive near-term momentum across the business. The operating environment has improved through the first half of the year, driving improved results and with positive momentum across all segments. There is more improvement to come. EBITDA for the second quarter improved to $2.1 billion. This represents a margin of $155 per tonne, which is well above our previous through-the-cycle averages. Our European segment delivered EBITDA per tonne of $98, which is a 3-year high and demonstrates the early signs of the improved policy backdrop. Importantly, these results do not yet reflect the benefits of the new TRQ trade tool, which are becoming increasingly evident. Customer engagement is higher, our order book is getting stronger and prices are bucking the normal seasonal trends. Reflecting these positive dynamics, we have announced production restarts in Spain, Poland and more recently, France. As we head into August, we have our full suite of blast furnaces in operation. And as a result, we are guiding to third quarter shipments to be stable to higher than the second quarter, which would represent a powerful counterseasonal outcome. Underlying free cash flow in the first half was strong, annualizing at $2.5 billion, excluding seasonal working capital investments and strategic growth CapEx. This is a strong outcome at this stage of the cycle and provides the foundation for continued investments and returns of capital to shareholders. This brings me to my second point, our differentiated portfolio of strategic growth projects and the opportunities that we are developing into growth options. The medium- and long-term outlook for our business is supported by a number of powerful megatrends. Steel remains a critical enabler of electrification, renewable energy and data center infrastructure. At the same time, growing investment in infrastructure and defense is supporting steel demand across many of our core markets. India is expected to remain one of the fastest-growing major steel markets in the world, with demand expected to approximately double over the next decade. ArcelorMittal has the products, people, capabilities and geographical footprint to capture the opportunities these long-term trends create. For several years now, we have been consistently funding our strategic growth projects. These high-return projects are expected to contribute new incremental EBITDA of $1.8 billion from 2026 onwards, providing a clear pathway to structurally higher earnings and returns through the cycle. What differentiates ArcelorMittal is not only the quality of our growth opportunities, but also the breadth of future options available to us. We have unique exposure to India, where we have a long-term plan to grow capacity to 40 million tonnes per annum. In Brazil, we are evaluating downstream growth opportunities that leverage our low-cost asset base and long slab position to create higher-value products. In the U.S., we are advancing studies for potential second EAF at Calvert, building on the successful execution of the first EAF. In Liberia, our extensive resource base and established infrastructure provide further capital-efficient growth optionality. As with our capital allocation decisions, growth investments must compete for capital and ensure that we are on course to deliver increasing returns on capital employed. My final point is that we have all the elements in place to continue creating shareholders' value. The steel industry continues to evolve. Markets are becoming increasingly regionalized, supported by trade measures that promote domestic production. This aligns strongly with ArcelorMittal's business model of local production to serve local demand. We believe this regionalization trend should support higher sustainable profitability and returns across the cycle. At the same time, supportive policy momentum, the earnings contribution from our strategic growth projects, the future growth options that we are developing and our exposure to powerful long-term demand trends, are key drivers of higher earnings, returns on capital and free cash flow over time. Achieving our cost of capital is not a goal, but a minimum expectation for our business. We are allocating capital to projects that can generate returns well in excess of our cost of capital. The value we create for shareholders is then amplified via our consistent capital return policy, progressively growing the base dividend as earnings power of the business grows and consistent share buybacks. As I conclude, the message is simple. I would like everyone to take away 3 key points from today's call. First, we are seeing positive momentum across the business. Our results are improving, market conditions are strengthening and the benefits of the recent policy change support the outlook. Second, we have a differentiated portfolio of strategic growth opportunities together with future growth options that provides a clear pathway to structurally higher earnings and returns through the cycle. Third, we clearly have the right elements in place to create a long-term shareholder value. We are focused on improving returns on capital, value-creating organic growth, maintaining a strong investment-grade balance sheet and delivering strong shareholder returns. With that, Daniel, I believe we can go to our Q&A.

Great. Thank you, Genuino. So we have a queue of questions in front of us. And the first one we will take from Alain at Morgan Stanley.

A couple of questions from my side. Firstly, on Europe, can you talk a bit more about your outlook for that division? You've announced the restart of Fos-sur-Mer. Your order books appear to inflect. How should we expect your pricing dynamic to evolve into Q3 and Q4 after taking into account the lags? And should we expect any incremental ramp-up costs that can hold your margins back for Europe? That's my first question.

Yes. Thank you, Alain. First of all, I think what we are seeing in Europe, it's all very positive, right? If you look at our guidance for quarter 3 in terms of shipments being higher or flat to slightly higher than the second quarter, as you know, that's not the usual trend. That speaks for what we are seeing in terms of the order book. We are booking right now -- already for quarter 4. So it's all playing out very, very well, I would say, and that's the reason why we have brought back the furnaces. So we have 3 furnaces that are running. We will be running actually all of our furnaces in Europe from quarter 3 onwards. We are also seeing, which is also not what you would typically expect just before the summer breaks in Europe, right? So typically, at this point of the year, you would see prices kind of drifting a little bit lower. And that's not what you see, right? Of course, I'm not going to comment on evolution of prices from here, but looking at the indexes right now, they are moving in the right direction, right? So that's very good to see. Imports should be lower as a result of TRQ. I would expect the company to continue to now regain market share from imports, as we talked before. And when we talked about -- when we think about the margins of the production that we're going to be bringing back, I think the message is same, Alain, that we talked about before. As you know, I mean, as we bring back this capacity, we benefit from the fixed cost absorption, right, because we don't really expect to be adding much in terms of fixed costs as we bring back the capacity. But at the same time, you're going to have more carbon costs, right? So you need to balance that. Overall, our expectation is that this tonnes should be even more profitable than what we have today.

That's very clear. And the second question is around Section 232, which is in 2 parts. So firstly, the U.S. may roll out an onshoring investment plan for aluminum, where companies become eligible to import aluminum at a reduced tariff if they are building new capacity in the U.S. Are you having similar conversations with policymakers in the U.S. to improve the economics of a potential second EAF at Calvert? That's one. And then sticking with Section 232, there are talks about Mexico potentially adopting a Section 232-style tariff framework as part of a revamped USMCA, Essentially, this would push Section 232 to the Mexican border. How would the setup impact your Mexican business if it were to happen?

Daniel, do you want to take this one?

Yes. Thanks, Genuino. So yes, thanks, Alain, for the question. I think starting obviously with North America, Section 232, interesting development with aluminum that you noted. Obviously, we've -- in the past couple of quarters, this subject has come up in our results conference calls. But I think just to take a step back, I think it's clear that ArcelorMittal is very committed to our franchise in the U.S. and North America more broadly. We have a record of innovation. We have our global R&D resources. We have our leading customer service in terms of quality and delivery. So we really have a tremendous amount to offer our customers in the U.S. So the U.S. policy objective, I think, is very much around encouraging domestic melt-and-pour capacity, and that's very much aligned with the investments that we have already been making at Calvert. So Genuino talked about the EAFs at Calvert in his opening remarks. EAF, the first EAF, the existing project that continues to ramp up very well. We expect full capacity to be achieved later in this second half of the year. And to remind everybody, that's a state-of-the-art facility, first of its kind capable of producing the most demanding exposed automotive grades. And similarly, our new electrical steels project at Calvert, that's going to be producing the most sophisticated non-grain-oriented steels, and that's progressing very much to plan. The second EAF, it's a very strong project. It would further increase our domestic U.S. melt-and-pour capacity. It would make Calvert less dependent on imported sources of slab. So it's very consistent with that overall U.S. policy objective of producing steel domestically and having those robust supply chains. Any potential savings from the policy would, I think, ultimately be determined by the Department of Commerce. So consideration would be given to the resources that are committed, the national security benefits of any commitment and the commercially reasonable time period necessary to complete the project. So none of that we can answer at this stage. But I think what I can say at this stage is, and just referencing the opening remarks in the presentation, is that we are moving forward with the detailed engineering for the second EAF. We're incorporating the lessons learned from the first EAF project to optimize this. And as and when we've got any updates, we will share those with you in due course. And then just on your second question, I think it almost answers itself. I think, first of all, we have a strong business in North America. We're focused on producing locally for local demand. And I think we've long advocated for a greater policy alignment between the countries of the USMCA and very much broadening out the Section 232 border to the whole region and really creating this steel fortress North America. So Mexico continues to have relatively high import penetration compared to many of the other markets. So further improvements really are needed. So I think the -- obviously, we can't confirm any of what you talked about in your question, but any move in that direction, we would be encouraging. So we're really advocating for a greater regional alignment, helping to reduce tariff-related costs across the North American business. So let's see what happens, but any progress there would clearly be a positive for our North American business. Great. So I think we'll move to the next question, which we'll take from Ephrem at Citi.

So 2 questions. Firstly, can you talk about the level of inventories you're seeing in Europe? The messaging from the steel industry was that if TRQ came on, the slightly higher level of inventories carried over from last year will mean volumes will not pick up immediately, but your guidance for 3Q suggests otherwise, with much better seasonal shipments in the third quarter. So is the inventory levels now significantly lower to enable that shipment increase? And then secondly, both related, do the extension of free allowances to 2038 by the EU tweak any of your investment or decarbonization plans in Europe? And then given the blast furnaces that you are bringing back on right now, do you have enough carbon allowances for it? Or is it something that you will have to buy from the market?

Okay. Thanks, Ephrem. So let me take your first question, and Daniel will comment on the ETS and the carbon cost. So inventories in Europe, Ephrem, I think what we saw during the quarter was pretty much what we were anticipating and we discussed during our first quarter. Imports were still elevated in the second quarter, right? And however, when you look at on a half year against half year of last year, you see that it's relatively stable, right? So -- and as we also talked about in quarter 1, we don't really see that inventories are so excessive in Europe, right? And you can see that in our guidance. And perhaps that's because we are also more exposed to South, through France and Spain. And as we know, that's the region that is going to be also replacing most of the imports, so a large part of the imports. But we feel very -- so when we look at our order books and we look how the engagement from customers, it's all developing nicely, I would say. We talked also about how prices are evolving, which typically, when you have high inventories, you would not see that happening, right? So that gives us confidence to provide this guidance, and we feel good about it. Daniel, do you want to talk about carbon?

Yes, sure. So on the topic of ETS, I think just to take a step back, first of all, I think it's clear that the Commission is now really finally recognizing the challenges facing industry in Europe and really taking concrete actions to support it. So for steel, we've seen the new carbon border. The CBAM, that's been in place since the 1st of January. The new TRQ trade tool has been in place since the beginning of this month. And these are very important developments, which are really reshaping the outlook for the steel industry in Europe. The ETS review, that's another important component of this. And the current proposals really do, I think, represent a step in the right direction. So it reflects this ongoing recognition and that decarbonization objectives do need to be balanced with industrial competitiveness. So we see a number of positive elements, including the extension of the free allocation phaseout, the changes to the ETS cap that improve long-term availability of allowances and greater support for industrial decarbonization through things like the Decarbonization Bank. But our key concern does remain aligning rising carbon costs with the conditions needed for decarbonization at scale. So we're going to continue to engage constructively on a framework that supports both decarbonization and maintains industrial competitiveness. And then on your last point, just in terms of incremental carbon costs, I think Genuino referenced it in his earlier remarks. I think it's something that we mentioned on the call last quarter as well. So as we increase our production in Europe, you should anticipate that this will increase our carbon cost in Europe. So that's something that you need to be balancing in your projections. But Genuino was very clear in saying that this will be more than outweighed by the operating leverage, the fixed cost absorption. So those new tonnes that we're bringing on being incrementally more profitable than what we've just posted today. Great. Thanks, Ephrem. So with that, we will move to the next question, which we'll take from Reinhardt at Bank of America.

First, I just want to ask about your slab network in the Western Hemisphere. To what extent do you have spare capacity in Brazil and especially now with the Calvert EAF ramping up, how much capacity do you think you have to be able to divert into Europe if the market maybe needs some extra tonnes?

We are running our facilities in Brazil today at full capacity. The flat business is running. So all the furnaces are running. Of course, we have plenty of optionality to divert volumes where we see the opportunities, right? I mean, of course, the Group will always have priority. As you know, we have high-quality slabs coming not only from the same 3 million tonnes of slabs. We have also Tubarao also producing slabs. So we have something that I think is unique to ArcelorMittal. And we talked about it in the past that we will see finally what happens and the ability of other mills in Europe to take their market share of the lower imports. But ArcelorMittal remain well positioned here to, if necessary, to bring slabs. We have more downstream capacity that we can utilize if we see that opportunity. So yes, so the Group is, I would say, in a unique position here to capitalize on its footprint.

That's very clear. And maybe just a question on your order book comments into 3Q. Can you give us a sense of how much of that sort of stable to up or, I guess, seasonal outperformance is due to market share gains? And how much of that would you estimate is just end market activity being better than expected?

Well, clearly, I mean, the demand picture in Europe has not really changed much, right, compared to what we discussed. So the demand in Europe is suppressed -- it's stable, right? Which is good because in the prior years, as we talked about as well, the real demand in Europe was declining. And this year, our expectation is for the real demand to stabilize, which I would say it's encouraging. It's a good start, right? So the demand picture is not really changing so much. So then it's really -- I mean, it's a function of the reduced level of imports that we are expecting with TRQ. So that's how we are seeing the evolution here.

Great. So I think we'll take the next question now from Tristan at BNP Exane.

Maybe just a quick follow-up on the order book. Were you able to quantify it in Europe? It's up year-on-year, but by how much? Is it double digit?

Tristan, look, I mean, I think our guidance is quite clear, right? So -- and if you look at our deck, our slides, we have provided the drop in shipments in '25 and '24, Q3 against Q2. You can see that it's mid- to high single digit in terms of drop in shipments quarter-on-quarter, Q3 against Q2. And the guidance is for stable or slightly higher. I think that's quite specific guidance, I would say. And as I talked about also before, we are now really looking at Q4. So it's -- we are in a good position, in a strong position here. Again, a very good level of engagement from customers. So it's all developing, as I said, quite well.

Okay. No, that's fair. Another question on Europe. Do you think there is a decent probability that the price-setting tonne for HRC in Europe could be the tariff paying imports? Or do you think that there's going to be sufficient domestic capacity, especially in the near term? And also on the supply side, do you see a risk of seeing some idle facilities in Europe getting purchased by foreign slab producer and transform into re-rolling centers? Is that something that you would consider as a risk?

Yes. So maybe I will start and Daniel will add, Tristan. So first part of your question, I think what we are still missing in Europe, to be honest, is this pickup in demand, right? So as we were discussing, so demand is now relatively flat, the real demand. If you look at the World Steel Association, they have a positive forecast for next year. We have all these programs announced in various countries that should support. We talked a little bit about the megatrends as well, electrification. So I think we remain in the medium to long term, optimistic that demand in Europe should start to move in the right direction as well, right? More recently, we have seen PMIs also moving in positive territory, which is encouraging. So I think if you get to a scenario where demand improves, why not, right? So then it might be that actually imports -- the import parity will establish the European prices. But that's -- I think that's -- we are still some time. We have to see how the competition, how the other mills also bring capacity, what they can actually do, right? So I think it's early days, really, to talk about this. One thing is for sure, as we bring capacity back and competition does the same, the marginal cost of production in Europe should rise. And that should, of course, support prices in Europe. Daniel, do you want to talk a little bit about the re-rollers and...

Yes. Yes, sure. So I think it's clear that European policy is there to promote competitiveness of domestic capacity, domestic production. So I think it's clear that the Commission does not want to see capacity close. They want to see capacity remain competitive. They want the industry to continue to support employment, et cetera. So in your scenario, I think I would -- it would reinforce further actions from the Commission and putting slabs into the TRQ quota tool. So I think that it's probably just a question of time before slabs become part of TRQ just to make sure that, that's not a long-term risk to steel production in Europe.

All right. That's very clear. And if I could just squeeze a quick one on China. I noticed you put China restructuring as a potential upside in the presentation. I don't think that was there before. Does that mean you've seen some positive sign or expect anything in the coming year? Or am I just reading too much out of it?

Unfortunately, yes, Tristan, to be honest, I mean, we know, I mean -- and we have discussed that, right? So we know that it has to happen at some point in time. It's just not possible for us to say when and how. But I think it's clear that it eventually will need to happen. I mean, you still have -- as we know, I mean, half of the industry in China at least, burning cash is not something that we see is sustainable. But when and how it happens is difficult to precise. But that, of course, when it does and international prices then would then normalize, that, of course, would support the industry, not only in Europe but across the globe for sure.

Great. Thanks, Tristan. So we'll move now to take the next question from Andrew at UBS.

Can you hear me okay?

Yes.