Tata Steel Limited (500470) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tata Steel Limited Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Samita Shah. Thank you, and over to you, ma'am.

Thank you. Good morning, good afternoon, and good evening to all of you joining us today. I'm Samita Shah, and on behalf of Tata Steel, I'm delighted to welcome you all to this call to discuss our results for Q1 FY '22, which were published yesterday. First, my apologies for the issue many of you faced this morning. There were some technical glitches, and I know many of you could not connect. So we thought it better to reschedule to this afternoon. Our sincere apologies for all the inconvenience caused to you. Let's get started now. We have with us Mr. T.V. Narendran, CEO and Managing Director of Tata Steel; and Mr. Koushik Chatterjee, Executive Director and CFO, Tata Steel. After a few opening remarks, we will move to Q&A, where we will take your questions. And as before, if you have any questions on Tata Steel BSL and Tata Steel Long Products, we will be happy to answer them as well. I have to remind you that the entire discussion today will be covered by the safe harbor clause, which is on the results presentation uploaded on our website. And that will follow the entire discussion today. Thank you, and over to you, Naren.

Thanks, Samita. Good morning, good afternoon and good evening to all of you. Over the last 15 months, the global economy has been recovering driven by policy support and progressive vaccination, which has led to the improvement in business and customer confidence. However, Indian markets were adversely impacted again during the last quarter due to the second wave of COVID-19. And in these difficult times, we were working to minimize the impact on our employees, communities and customers. As of 31st July, we have supplied over 68,600 tonnes of liquid oxygen to different parts of India, and we continue to support communities across our operating locations by providing medical facilities, meals, counseling, et cetera. Now over 90% of our eligible employees across locations have taken at least 1 dose of vaccination. As far as the industry is concerned, the western steel -- western market steel prices remain robust with supplies lagging demand recovery, further supported by increasing production costs and the recent spike in raw material prices. Iron ore has actually moved up by about $50 in Q1, of course, over the last few weeks, has softened again. And hard coking coal prices jumped by about $80 during the last quarter and still stays quite strong. Moving to China. The Chinese government is focusing to control commodity price regulation. However, steel mills are facing margin pressure with higher input costs and are less likely to reduce prices because, for instance, the coking coal prices in China are much higher than it is in the rest of the world. It grows by more than $100 per tonne at the end of this quarter to reach $325 in Northwestern China, as China has stopped buying from Australia, as you're aware. At the same time, the Chinese government is taking steps to limit steel production and discourage exports with increased focus on pollution control. Recently, it has again raised export targets for pig iron and ferrochrome, while removing export tax rebate for various steel products. In this scenario, we expect the regional prices to remain at elevated levels for longer. These are structural positives for the steel sector. During the first quarter, Indian steel demand shrank by about 14.8% quarter-on-quarter due to seasonality and temporary weakness in various steel consuming sectors with local lockdowns and also second wave of COVID-19. While the domestic steel prices have softened -- had softened a bit during July, demand is recovering again as does prices. Currently, steel prices are still at a large discount to import parity prices. It's about 20% less than import parity prices. And this we believe should support domestic prices. A third wave of COVID-19 and a potential tapering of liquidity support and its pricing inflation remains the case. As far as our performance this quarter is concerned, during the quarter, Tata Steel India's Crude steel production declined by 2.6% quarter-on-quarter to 4.63 million tonnes with the supply of liquid medical oxygen to different states. Our steel deliveries declined 11% quarter-on-quarter to 4.15 million tonnes due to partial lockdowns and temporary shutdowns in various steel consuming sectors. We increased exports to 16% of our total sales to counter the softness in the domestic markets. We continue to focus on our objective to attain and retain market leadership in chosen segments by focusing on building strong customer relationships, superior distribution network, rolling out brands and new product development and we've developed 24 new products in India for customers across segments, including automotive and branded products and retail. Few of them are included in our investor presentation. We also focused on value-accretive growth to drive market share in chosen segments. We are expecting to add about 1 million tonnes this year in India in terms of steel volumes through debottlenecking and capacity ramp up across various types. Our 5 million tonne Kalinganagar Phase 2 expansion is focused on product mix enrichment and increase in competitive edge and cost savings. It will enhance the capability to produce high strength steel and advanced high strength steel up to 1,180 MPa, a new product for automotive, construction and other domestic B2B customers. Our 6 million tonne pellet plant and 2.2 million tonne cold rolling mill complex are expected to be commissioned in the first half of 2022. We are making good progress on our various initiatives to derisk the business. We launched the first in India -- India's first traded ferrous scrap product, Tata FerroShred, which will help to substitute high-quality shredded scrap imports. We have also developed and supplied pioneer products under our New Materials Business initiative. In Europe, economic activities in steel consuming sectors, especially automotive continue to recover. Our steel production in Europe remained stable and steel sales volume declined about 6% quarter-on-quarter to 2.33 million tonnes in June '21, but the product mix improved. The spot hot-rolled coil spread -- gross spread further improved during the quarter with high steel price -- with higher steel prices, which has started translating into the profitability of the steel business. European Commission has recently unveiled its Fit for 55 package to cut GHG emissions of Carbon Border Adjustment Mechanism as incentive scheme. While this is still at an early stage, but a well-designed Carbon Border Adjustment Mechanism should ensure a level playing field in Europe allowing Tata Steel to continue to compete for customers and support the transition to a net-zero steel producer. In this March, we received shareholders' approval to go ahead with the merger of Tata Steel BSL with Tata Steel. We filed the joint scheme petition with the NCLT to sanction the merger scheme with effect from 01 April 2019, and this is under consideration by the NCLT. I will now hand it over to Koushik to comment on our financial performance.

Thank you, Naren, and good morning, good afternoon to all of you. I hope you and your loved ones are safe and well, and all of you are -- have got or getting vaccinated because it's important for us globally to get vaccinated as soon as possible. Turning to our performance. Continuing with our strong performance in the fourth quarter of the last financial year despite the second wave of the pandemic in India and disruption caused by the human suffering, our consolidated financial performance for the quarter was exceptionally strong on the back of strong underlying business performance and robust market conditions. Our consolidated revenue increased during the quarter by 7% quarter-on-quarter and more than double on a year-on-year basis to INR 53,372 crores. We have again delivered strong financial performance this quarter by achieving a new highest ever quarterly consolidated EBITDA of INR 16,185 crores, which reflects essentially a 30% margin. Consolidated profit after tax stood at INR 9,768 crores, which is higher than the full year PAT of the previous financial year. Our India operations, which includes the standalone Tata Steel, Tata Steel BSL and Tata Steel Long Products generated revenues of about INR 30,344 crores, supported by higher steel prices and stable operations. We achieved highest ever quarterly EBITDA of about INR 13,946 crores this quarter. Tata Steel standalone revenues were marginally lower at INR 20,798 crores as the benefit of the strong steel prices were offset by lower deliveries Naren has explained on the deliveries front. Tata Steel standalone also achieved highest ever quarterly EBITDA of INR 10,274 crores, with a 12% quarter-on-quarter growth. The operations generated free cash flow of more than INR 4,700 crores in the first quarter of this financial year. Our key subsidiaries, Tata Steel BSL, Tata Steel Long Products, continues to deliver strong operating performance. Tata Steel BSL generated an EBITDA of INR 3,118 crores, while Tata Steel Long Products generated an EBITDA of INR 554 crores. Both entities generated free cash flow of more than INR 2,700 crores and INR 450 crores, respectively. As part of the overall deleveraging program, both companies have utilized the free cash flows to reduce debt, both Tata Steel BSL and Tata Steel Long Products are close to being net debt free individually. Moving to Europe. Our revenues improved to GBP 1.9 billion during the quarter, with the increase in market prices starting to translate into the profit and loss account. Reported EBITDA for the quarter improved by 19% quarter-on-quarter with higher steel prices and product mix, partially offset by increased input costs as iron ore costs have started to increase. The reported EBITDA is after a one-off expense of about GBP 14 million related to the sale of CO2 emission rights sold earlier in the first quarter of last year. With the continued elevated steel prices and with lag effect of spreads, we are seeing our European spreads widened materially in the second quarter, which would mean much higher profitability than past trends, even though coal prices have moved up recently. We continue to prioritize on CapEx spend on ongoing projects, especially in the expansion of Kalinganagar and strategically essential investments. On consolidated basis, we spent about INR 2,000 crores of CapEx during this quarter, which includes our accelerated CapEx for Kalinganagar. As mentioned in my earlier call, our FY '22 consolidated CapEx is expected to be about INR 10,000 crores to INR 12,000 crores. Despite the increase in working capital due to higher value of inventory and debtors for a similar number of holding days, the company generated consolidated free cash flow of over INR 3,500 crores during this quarter. Besides CapEx, other key outflows in the quarter includes INR 1,300 -- sorry INR 1,100 crores for interest, which is now trending down due to the massive deleveraging that we have done and we would see more reduction going forward. We now have a marginal tax regime and have paid about INR 958 crores for taxes. We will continue to deleverage in the coming quarters, and we expect to bring down the debt further by the end of the current financial year. We made debt repayments of INR 5,894 crores this quarter. Our gross debt has decreased to about INR 84,237 crores while the net debt has come down to INR 73,973 crores. Our credit metrics have improved significantly with net debt to equity now remaining under 1x and the improvement in net debt to EBITDA to 1.59x, which is now under the 2x trend line, which we have talked about earlier. Our group liquidity position remains strong at INR 20,695 crores, including about INR 10,264 crores of cash and cash equivalents. With this, I'll end my comments here and open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Indrajit from CLSA.

Two questions from my side. First, on the working capital increase of about INR 8,200 crores. Can you throw some more light on that as what are the different debt? How much will be inventory? And if there is any pending carbon cost-related payout for the last quarter, which we have done this year? And how do we see this trending in the next 3 quarters of this year?

Koushik?

So Indrajit, I think a large part of the inventory has happened due to the -- not the quantity, but more on the value part of it. So we clearly have seen that in India, the inventory increase as far as the quantity is concerned, has been there. But most part of it is on account of PSC where the inventory value is almost about INR 2,000 crores, which has increased between the 2 quarters. So I think that is an important part. So total increase is about INR 6,500 crores, of which INR 4,000-odd crores is in Europe. And INR 2,000 crores, INR 2,500 crores is in India. The inventory doesn't have any relation to carbon. I think it's more about the holding base, which is what we track very clearly because the physical quantity determines the efficiency, whereas the value, which is somewhat out of our control is determined by the price in the market. So I think largely the Indian inventory, as I mentioned to you, INR 2,600 crores and INR 4,600 crores is in Europe.

Just to supplement what Koushik said, the inventory buildup in India was also partly because of the local lockdowns, and we expect to unwind that increase in inventory during this quarter.

Sure. And this is a combination of both finished goods and raw materials?

Correct.

That's correct.

Okay. And sir, my second question is on Europe. Yes, sorry.

Sorry, Indrajit. Go ahead.

No, sorry, sorry, you go ahead.

No, I was just saying that the -- in raw materials, it has actually trended down. In finished goods, it's been higher. And that's the mix between the 2. In tonnage terms, for example, in raw materials, we have been able to reduce more than 1 million tonnes in our inventory and the value effect has also come down, whereas -- and I'm talking consolidated. But in finished goods, I think the value of the -- the price of the product is something which has resulted in the value increase significantly.

Sure. That is helpful. Second, on Europe cost, the other expenses in Europe has gone up from about INR 5,500 crores to INR 6,000 crores. So what could have driven this? And how do you see this trending? And also on raw material, in last quarter numbers, what kind of iron ore and coking coal prices would we have booked in Europe?

Naren, you will take the second one?

Yes, I'll take the second part. I think as far as Europe is concerned, let me put it differently. From last quarter to this quarter, the coking coal prices at the purchase level will go up by about $30 and at a consumption level, maybe about $20, both in Europe and in India. So that will be the quarter-on-quarter impact of the rising coal prices. Iron ore will be about not much impact in India, obviously, because we hardly buy any iron ore. But in Europe, it will be about $10 impact quarter-on-quarter. Koushik, do you want to answer the first one?

Yes. So you wanted to know what the other expenses in total, right?

No. In Europe. In Europe, in the presentation, you have mentioned it has gone up from INR 5,500 crores to INR 6,000 crores.

Let me come back to you. I'll come back to you.

Okay. And one last question, if I may. While we have seen significant interest cost reduction both in Bhushan and standalone. The same is not yet reflecting in the consol numbers, in the P&L. So when can we see that effect in P&L income?

So actually, in standalone, Bushan, LP all have gone down. In Europe, we have -- this year, this quarter, repaid about or rather prepaid about EUR 0.5 billion of debt. And because we have short close, there was a onetime cost on account of that. So it is because of that, we had -- you don't see a material movement in the consolidated. It is -- it will happen in the next 3 quarters because we are taking out significant debt outside of India, now paying back in Singapore as well as in Europe. And therefore, you will see the consolidated numbers. In fact, on a full year basis, it will be materially lower than the previous year.

Next question is from the line of Pinakin from JPMorgan.

Sir, I have 3 quick questions. My first is on Europe. If you look at the spot European HRG prices between the June quarter of -- between the September quarter last year and June quarter of this year, HRG prices are broadly up just over $900 a tonne. And against this Tata Steel Europe implied ASP per tonne is up just over $300 a tonne. Again, these are not apples-to-apples comparison, but there seems to be a material lag. At this point of time, starting from 2Q, what percentage of the sales portfolio would reflect steel prices, which were prevailing in the June quarter and how much would still be on older steel prices?

So Pinakin, there are 2 key points I want to make, right? Firstly, the spot prices, which get reported are spot prices. And oftentimes, not much volumes are transacted at those prices because typically, a lot of the European contracts are a little bit longer tenured than the spot prices, right? That is one. Second point is it's not just a tenure. It also depends on the timing of the contracts. For instance, we had a lot of contracts which were negotiated in November, December last year, and hence, we had contracts from 01 January. And we had a lot of contracts which have come up on 01 July, which is this quarter. So you will see the benefits of the higher prices in Europe flowing through from this quarter. So if I were to give you a guidance, let's say, this quarter, we expect the impact to be at least EUR 200 to EUR 250 a tonne in Europe, okay, of improving prices compared to the previous quarter.

Sir, just to understand more clearly is that given the lag, it also means that we will continue to see upward trending ASPs per tonne in Tata Europe over the September, December and potentially even the March quarter, right, because of the lag, repricing of the contracts?

Yes. As the mix changes, so there are 2 impacts, right? One is the increase because you've contracted at a higher price. And two is, as you bill out some of the older contracts and the newer contracts are a bigger part of the mix, you will see the mix impact. So that's why we are forecasting a very strong Q2, Q3, Q4 from that perspective in Europe. What we are watchful of is raw material prices, which from a Europe point of view, it's good news when the iron ore prices drop.

Just 2 more questions. First is, sir, how do you see the India ASPs per tonne over the September quarter because in India, also, there is an auto contract volume? And secondly, on working capital, while we will see some release in India, is it fair to say that the INR 80 billion, INR 8,000 crores plus working capital build that we saw in the June quarter at best over the next 2 to 3 quarters should be a neutral number because ultimately, that is what will if it's not working capital build, it will go towards paying down debt.

Yes. So as far as India is concerned, we expect this quarter, the realizations to be about INR 3,000 higher than last quarter, largely because of auto contracts also because export prices are better in this quarter than the last quarter because export prices hit the bottom line with a few months lag, right? I mean you book an order today, you ship it after 2, 3 months. So from that point of view, you will see the better prices playing out this quarter. We will have more volumes and a better mix of downstream. So for these reasons, we see a INR 3,000 improvement in prices this quarter in India compared to the previous quarter. What is going to be soft and that has been factored in the INR 3,000 is the long products prices this quarter will be lower than last quarter. But overall, because we are more flat oriented and because of all that we have said, and long is also particularly for Tata Steel Long Products, there are auto contracts where the higher prices will kick in this quarter. So overall, INR 3,000 is the guidance for this quarter. And as far as working capital is concerned, we expect to sell more volumes in this quarter than we did last quarter. And that's because, particularly in India, we'll be unwinding the finished goods that was built up and also market conditions are stronger in some sense, trending more stable to upwards in India and export markets continue to be strong, and we are exporting -- we are expecting to export about 20% of what we produced this quarter. So that should help bring down the inventory. But the more specific point that you asked, yes, inventory buildup, I think, or rather the working capital build up to that extent seems to have peaked. And if raw material prices drop, then Europe has greater opportunity to release more of the capital from that point of view.

Understood, sir. This was very helpful.

And if I can just add to Naren's point, I think given the steep increases that we are seeing in the second quarter spread, there would be pressure on working capital, but we see the third and fourth quarter to be the ones where we'll start releasing that.

Understood, sir.

If I can just also answer the variation that you had asked for the expenses. Essentially, it is in the maintenance cost in Europe, apart from rent and higher rates, which accounted for almost about INR 450 crores, the gap that you are seeing, INR 6,000 crores and INR 5,500 crores.

The next question is from the line of Satyadeep Jain from AMBIT Capital.

A couple of questions. One would be a follow-up to Pinakin's question. The other steel companies have -- some of the peers have reported a higher Q-on-Q increase in realization. Is there -- can you talk about your Tata Steel Europe's product mix? Especially, are there any specific products which have longer fixed contract duration? Is it packaging or more auto compared to others? I just want to understand that late cycle or higher fixed cost exposure to Tata Steel Europe versus some of the other peers. That would be my first question.

Yes. So Satyadeep, we have -- the auto contracts and the packaging contracts are the longer tenure contracts. And I think they account for about 50% to 60% of our mix, right? But like I said, they are not everything starting at the same point in time. They may be starting at different points in time. And so for instance, we had a lot of water contracts due from 01 July, which has got renegotiated at the new prices, right? So it depends on when the new contracts kick in and so those tenures may be across suppliers. Secondly, some of our peers, if you really look at it, there is also other income in that, non-steel income. So I think you should also normalize that and then compare the price increases. Yes, we are lagging a bit, but you will see that in this quarter, we will more than make up for that.

Okay. So the other question would be some of the peers in Europe are also taking the opportunity to realign their blast furnaces because they have been -- all the plants have been running at 100% utilization for a while now. Do you see something like maybe a maintenance period for Netherlands or for U.K. also in this year or in the upcoming future?

No major work apart from the regular stuff, and we took some shutdowns in April, which was, to some extent, the reason why the maintenance costs went up, as Koushik mentioned, also, that's also why the production was a bit lower than the previous quarter in -- because of those shutdowns, but no major work, which involves many days of shutdown plant in both Netherlands and U.K. for the rest of the year.

Just if I can squeeze one more. On carbon, I understood I think there was a liability towards the end of the year and it's needed to be settled by April for the shortfall that was there in FY '21. Was that the case? Was there a payment in April towards that? And the company is also levying a carbon surcharge? Is that surcharge in all products and given some of the peers are not levying a carbon surcharge, is there a longevity to that surcharge if the other -- if your peers are not going to levy it anytime soon?

So I'll answer the second part and let Koushik answer the first part. The surcharge is basically calculated based on the difference between the allowances that we get and the cost that incur and that gives the surcharge that we have added to our price. So far, customers have accepted it. Our peers are also following it in some sense, whether they call it a surcharge or not. And -- but the larger point is, I think any carbon cost in Europe is applicable to everyone. And so in some sense, that's a cost being added to all producers and to ensure that the producers in Europe are not disadvantaged because of that additional cost, you have the proposed Carbon Border Adjustment Mechanism so that there is a level playing field as there is no carbon leakage, so to say. So I think while there are additional costs in Europe because of this, but in some sense, that it is reflecting in the higher spreads that we believe you will see in Europe compared to other geographies because of these structures. Koushik, you can address the CO2, more specific question on CO2 payments.

Yes. So the amount that was expected to be settled has been done in April itself, and it was around GBP 227 million. So that's been settled and done.

[Operator Instructions] The next question is from the line of Saumil Mehta from Kotak Mutual Fund (sic) [ BNP Mutual Fund ].

I have 2 questions on Europe. One is, is it possible to give a broad breakup as to what are the long- and short-term contracts, and by long is mainly what percentage would be the annual contracts for us, if any?

Yes. I think just give you a minute. I think I've answered the question differently. But more specifically, I think it's about 60% to 70% would be the -- what would be a 6 months and above kind of contracts.

Okay, okay. 60% to 70%.

Yes. But like I said, they are now done starting at the same time. Yes, Samita, you want to say something?

No, I think that the number is broadly in that range.

Yes. And my second question is when you said that, obviously, there is a lag impact, and you will see a positive traction maybe about EUR 200 to EUR 250 a tonne in this quarter. Can we see a similar number in the subsequent quarter because the steel prices have been up almost $900, I understand, it's not a spot to spot basis, but the realization is only about $300. So a large part of the lag will come in Q2, but even Q3 can have a similar pricing increase based on whatever price action we've seen as of now.

Yes. The only point is long-term contract prices will not reflect spot prices, not just for us, for anybody else. Because like I said, if the market consumes 150 million tonnes of steel in a year, spot will be a very small percentage of that, right? So to me, there will always be a difference between the spot that you keep seeing on a daily basis with the contracted prices. So I think what you should look at is the realizations that steel companies announce vis-a-vis the spot and that will be the difference which is there. And if you see a difference between Tata Steel and the rest, what we're saying is we will bridge that gap because there is a lag effect.

Definitely. And in terms of the flexibility of the contract, how flexible they are in terms of any price revision or escalation, if any or these are tall ask?

So normally, it's not so much an escalation clause, but if the changes are very significant, then there's always on a good spirit basis a discussion between the customer and the supplier. It works both ways. When steel prices drop very steeply, also, there is a conversation at times. And similarly, as has happened now, when it increases deeply also, there is a conversation which happens. So that is what is getting reflected apart from the new contracts that have been negotiated from this quarter, you'll see those prices.

Sure. And my final question is when I see about the steel prices, I think, last time around was maybe somewhere in 2007, 2008, these kind of prices. While I understand companies are lot different. But at that time, the profitability was very different from what you are. I assume in last 10 years, there have been significant cost efficiency, product mix has actually improved. We have cut down on Long Products. So is it possible to see a few quarters of similar profitability, what we saw in 2008 also? Or that would be a tall ask at this point in time?

I think there are a couple of things which are different, right? I mean, yes, there is a lot more efficiency today than there was 10 years back, right? So that is very clear. Secondly, what is also happening now is nobody is adding capacity as feverishly as they were at that point in time. China was adding 40 million, 50 million tonnes a year at that point in time, right? So nobody is adding capacity significantly apart from in India, right? So the supply side is far more disciplined than it was 10 years back. So I think both these suggest that this will be structurally a different kind of few quarters, a few years, maybe. I'm not saying that today's price will be there for the next few years. But all I'm saying is spreads and profitability for steel companies will be different. In many ways, the profitability of steel companies outside China were determined by the profitability of steel industry in China, which was very poor, even in the best of times. The EBITDA margins were 5%, 10%, right? And since they were exporting at those prices, the EBITDA margins for globally the steel industry also suffers. So that is changing. As China is exporting less, there's more discipline in the market and steel companies are making the profits that they should be making to give the return on the capital that they've invested in.

Next question is from the line of Vineet Maloo from Aditya Birla Sun Life Asset Management.

I just want to understand, so you remarked in somebody's question that the spot prices may not be representative because very less volume gets transacted at those levels, right? While I understand the timing difference is because of contract, et cetera. My question is, does it mean that whatever the spot price be suggesting, it's not that eventually we'll realize those numbers in some form or the other, is that what it means?

No. Basically, it means that maybe 10%, 15%, 20% of the business will be transacted at those prices, right? So 100% of the business will not get transacted at those price because typically who buys spot somebody who's a pipe manufacturer or somebody who is a commercial grade -- I mean, steel buyer who's buying spot. Most auto companies or packaging companies or anybody who buys steel of a certain quality from a certain supplier with a certain relationship will contract at least 3 months, 6 months, 1 year, whatever, right? So the spot prices are more reflecting shortages, people who have not covered their volumes and are hence buying the market. If Tata Steel exports, which it does to Europe, we get something close to the spot price, but that's 30,000 tonnes or 50,000 tonnes and in a market which consumes maybe 12 million tonnes a month, right, or 15 million tonnes a month. So that's the difference between spot and transacted prices. So that's why even if you look at other steel companies, you will see that the realizations are obviously lower than the spot. They may be higher than as we are saying Tata Steel, but they are still lower than spot because that difference will always be there, which is true in India as well, right? I mean if you see auto contracts in India, while the auto companies cases, auto prices are high, it is still lower than the spot price. But normally, these contracted volumes or contracted tonnages help in a -- more in a down market than in a up market.

So just to clarify once again, I'm sorry to delay with this point. I mean is it then fair to say that none of the contract prices are indexed to any form of average of spot. They are independently negotiated. Is that how we should understand it?