Aditya Mittal "We have the right-sized footprint to move forward"

Blei, Vera; Madsen, Michelle . Metal Bulletin (Apr 2014): 19-22.

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The past three years have not been easy for ArcelorMittal, the world's largest steel company. In 2012

as European steel demand tumbled, ArcelorMittal was saddled with $22 billion of debt and capacity

that far exceeded demand at its European operations. Two years on and, as signs of green shoots

emerge, a leaner, fitter ArcelorMittal has posted its healthiest results since the crisis. In his first

interview of 2014, group CRO Aditya Mittal explains how ArcelorMittal has weathered the downturn

and is primed to benefit from signs of recovery in the European and US steel markets. Softly spoken,

but clearly passionate about the family business, Mittal has accrued an impressive roster of titles and

accolades for a businessman who is still just 38 years old. ArcelorMittal is forecasting growth of just

over 15% in Nafta's demand for steel over the next ten years, especially in the auto sector, which has

shown a strong recovery from the 2008 crash.

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Headnote

In an interview with Vera Blei and Michelle Madsen, ArcelorMittal cfo Aditya Mittal says that the

company is shaped for growth

The past three years have not been easy for ArcelorMittal, the world's largest steel company. In 2012

as European steel demand tumbled, ArcelorMittal was saddled with $22 billion of debt and capacity

that far exceeded demand at its European operations.

Two years on and, as signs of green shoots emerge, a leaner, fitter ArcelorMittal has posted its

healthiest results since the crisis.

In his first interview of 2014, group cfo Aditya Mittal explains how ArcelorMittal has weathered the

downturn and is primed to benefit from signs of recovery in the European and US steel markets.

"I don't think we were there two years ago but now we are, we have the right-sized footprint," Aditya

Mittal says.

The steelmaker has maintained a "cautiously optimistic" approach to the coming year, predicting that

its steel shipment volumes will increase by about 3% in 2014 compared with 2013.
"We are forecasting the US and Europe to be positive. And that is significant, especially for

ArcelorMittal because almost 70% of our shipments are in these markets," says Mittal, sitting at a

polished wood table at ArcelorMittal's quietly luxurious London office on the seventh floor of a discreet

glass-fronted building in Mayfair.

Softly spoken, but clearly passionate about the family business, Mittal has accrued an impressive

roster of titles and accolades for a businessman who is still just 38 years old.

After a short stint in the mergers and acquisitions department of Credit Suisse and with an economics

degree from Pennsylvania Ivy League School, Wharton College, Mittal joined his father's steel

company in 1997.

With over lóyears at the company, he has had various different roles, taking responsibility for

ArcelorMittal's US business before moving over to head up its European activities, as well as running

its strategy and M&A departments - and all of this on top of being the group's cfo. It's a wide brief,

explaining Mittal's comprehensive knowledge of even the smallest details ofthe steelmaker's huge

number of separate businesses.

It was Mittal that led his father's business through the high-profile acquisition of European steelmaker

Arcelor in 2006 - a five-month-long hostile battle for the Luxembourg-based company and its pan-

Europe operations.

The acrimonious $33.8 billion merger saw Arcelor bosses initially resist the deal and court a merger

with Russian steel major Severstal, only to about turn and accept Mittal's higher offer.

The combination of the two businesses catapulted Mittal into the limelight and created the world's

largest steelmaker.

More recently, Mittal orchestrated another landmark deal - the joint-venture buyout of ThyssenKrupp's

finishing plant in Calvert, Alabama with the world's second largest steelmaker, Nippon Steel &

Sumitomo Metals Corp (NSSMC).

The Calvert plant, which has been renamed by its new owners asAM/NS Calvert, has a 5.3 million tpy

hot strip mill, a 1.1 million tpy continuous pickling line, a 2.5 million tpy pickling line and tandem cold

rolling mill combo, a 600,000 tpy continuous annealing line and three hot-dip galvanizing lines with a

combined capacity of about 1.4 million tpy.

German steelmaker ThyssenKrupp put the plant up for sale a year-and-a-half before the deal was

finalised, leaving Calvert in a limbo until the two steel giants sealed the deal on February 26.

"The closure of [the] Alabama [transaction] by ArcelorMittal and Nippon Steel in February is a positive

step for Nafta," says Mittal.

With ArcelorMittal facilities in Brazil and Mexico providing the slabs needed by the Calvert plant, Mittal

foresees synergies across the company's operations on the continent. The deal also ties in with Mittal's

positive outlook for US growth, which he says has turned a corner with the automotive and energy

sectors expected to show strongest growth.

"It will enable our Americas business to perform better. In Nafta we can now decide which product to

produce at which facility. So that order re-allocation will bring some benefits," he added.

ArcelorMittal is forecasting growth of just over 15% in Nafta's demand for steel over the next ten

years, especially in the auto sector, which has shown a strong recovery from the 2008 crash.

Mittal notes that the speed with which ArcelorMittal US implemented its asset optimisation programme

was a major factor in the business's rapid recovery.

Europe

In Europe, ArcelorMittal's recovery has come at a price. Ina bid to reduce costs and adapt to a lower

demand scenario, ArcelorMittal has stripped back operations in non-profitable areas - a move which

particularly affected its European operations.

Many historic European mills, which the steelmaker acquired in its multi-billion dollar takeover of

Luxembourg-based steelmaker Arcelor, felt the impact of a sharp downturn in ex-China steel demand

following the start ofthe global financial crisis in 2008.

Operations in France and Belgium were particularly hard hit, with inefficient mills including Liege and

Florange racking up huge losses despite the rationalisation of operations.

To cope with the downturn, the steelmaker slashed output and jobs across Europe, prompting a wave

of protests - the most severe seen in Belgium where workers were tear-gassed after throwing rocks at

policemen.
Mittal admits that the rationalisation of the steelmaker's European business has been painful for many,

but says that it has made the company stronger and better equipped to deal with today's rapidly

changing market conditions.

"We've now completed our asset optimisation programme across Europe. Though extremely difficult

for the employees who were affected it has provided a lot of stability and improvements for the rest of

the company," Mittal says.

The company's profitability increased significantly from 2 012 to 2013. On February 7 the group

reported a 23% year-on-year increase in fourth-quarter earnings, boosted largely by the improved

economic climate.

Mittal says that the impact of his cost-cutting programme will be wide-ranging and expects to see

more improvements in the next two years.

"The full benefits of our asset optimisation programme have not yet arrived. There will be more

benefits in 2014 and 2015. So we see the cost competitiveness and the performance of our flats

operations are improving year by year," he said.

It's not just the steelmaker's operations which have been streamlined. From January 2014,

ArcelorMittal's three discrete business lines in Europe were merged under the banner of ArcelorMittal

Europe, with Aditya Mittal at the helm.

"Historically in Europe we had three business lines, these come together under ArcelorMittal Europe,"

explains Mittal.

"I think it will simplify decision making, allowing for faster decisions. And lastly it will also improve

efficiency and productivity of our European torganisation and allow for better capital allocation," he

added.

A major concern for the European steel industry is the cost of energy and the new wave of

environmental regulation being pursued by the European Union.

Mittal says that the industry needs to operate under tighter environmental regulations but European

steelmakers also need to be able to operate on a level playing field with their counterparts in other

regions.
"What we need is to find a solution that satisfies the manufacturing industry and that satisfies the

environmental and energy aims of the European Union. If only Europe is restricting C02 and no one

else is, we have not achieved anything - we are just hurting the European steel industry or the

European manufacturing industry.

"Ifthis cannot be applied on a global basis at least the imports into Europe should have similar

environmental requirements [as material being produced in Europe]. And that is what we feel is a win-

win solution."

And what does this mean for prices?

"We don't comment on prices," Mittal says, tapping a pair of business cards on the table.

China

As Europe and the US start to emerge from the downturn, the world's second largest economy is

looking less healthy.

Earlier this month, news of China's first corporate default rocked the markets. It later emerged that it

was in fact news of a steel mill default which had the real impact on sentiment in the steelmaking raw

material markets, sending prices shooting down.

"The economy which is not as strong in 2 014 as in 2 013, as far as we are concerned, is China," says

Mittal.

"As credit has tightened, the yuan has depreciated a bit. We also see that some of the export

industries are re-exporting because of the growth in Europe and the US. This will also help the Chinese

economy. China is not as strong as 2013 but we don't see it entering negative territory.

"Relative to 2013 China looks weak in 2014, but China still has - as we all say - a reasonably

constructive environment in 2014," Mittal explains.

Chinese growth has indeed slowed - with the boom years of annual growth averaging over 9% long

gone - but if growth drops down to 4%, that's still growth says Mittal. A tightening credit climate,

however, can only hold up the growth of China's highly leveraged steel industry.

"Ifyou look at Chinese steel industry profitability it is significantly compressed compared to the past

which I think, amplified by the credit tightening, will make it harder for steel companies to grow," says

Mittal.
"There is a steel company in China which defaulted, so clearly the Chinese steel industry's capacity

growth will slow for the foreseeable future compared with what we have seen in the past," he adds.

Iron ore sales to China

The steelmaker's operations in China include stakes in steelmaking and automotive parts

manufacturing companies in Hunan and a number of sales offices in major cities including Shanghai

and Beijing.

But given ArcelorMittal's relatively small footprint in the Chinese steel industry, any downturn is likely

to have an equal impact on the company's mining business, which sells a proportion of its output to

mills in China.

"If the demand picture in China weakens, the impact is not on the tonnes you sell but on the pricing,"

says Mittal, adding that the impact of any long-term price weakness would be mitigated by the fact

that ArcelorMittal's iron ore projects have a high return on long-term iron ore consensus pricing.

Mining

A relatively new business for the steel major, ArcelorMittal's mining arm has rapidly become a major

player in the iron ore and coking coal markets.

With 29 mining operations in countries including Ukraine, Liberia, Algeria and Canada, ArcelorMittal is

now among the world's five largest iron ore miners, snapping at the heels of majors Vale, BHP Billiton

and Rio Tinto.

"[For Liberia] we have cash costs less than $30 per tonne, with an improved product in phase 2 [high

quality sinter feed]. In Canada, life-of-mine cost is $38 [but with the benefit of stretch volumes it

could be better] again for a high-quality concentrate," says Mittal.

"These are FOB costs, but after allowing for freight you can see these are still highly competitive

assets... the projects will generate a return on our investments even ifiron ore prices drop into the

$80-90 range."

ArcelorMittal still consumes much more ore than it produces, and buys from a range of different

producers, offering a range of qualities and types of ore.

"The shipments to ArcelorMittal are transferred at market price," explains Mittal. "And based on

whether it makes more logistical sense for our mining Business to sell to thirdparty customers they

decide to do that and we end up buying from other suppliers as well."

It was to the mining business that ArcelorMittal dedicated the bulk of its capital allocation as the steel

industry went into a downturn, investing in both brownfield and ambitious new greenfield projects.

ArcelorMittal became the first major investor in post-war Liberia with its brownfield development ofthe

abandoned Yekepa mine on the border with Guinea, when it started operating in the country in 2006.

It is still the biggest investor in the country, eight years on.

After shipping its first iron ore from the project in 2011, ArcelorMittal is now entering the second

phase ofits Liberia operations with a $ 1.5 billion investment to increase output and construct a

concentrator, which will see output from the mine leap up to 20 million tpy.

"We have to invest in the rail to get up to this capacity," notes Mittal. "It is not designed for 15-20

million tonnes. The project is underway, running parallel to the existing DSO [direct shipping ore]

project expected to complete by end 2015."

The railroad, re-conditioned by ArcelorMittal, provides a vital link to the seaborne market via the port

ofBuchanan on the Atlantic Coast for miners operating in the iron ore rich mountains on the Guinea/

Liberia border.

With the BHP Billiton/ Newmont joint venture iron ore project Euronimba and Alternative Investment

Market-listed Sable Mining's Nimba project just on the other side ofthe mountain where the Yekepa

mine is located, could this be a good opportunity for a joint venture - giving ArcelorMittal access to

more tonnes ofhigh-grade oreandunlockingthe otherprojects by giving them access to the rail line?

'We're not looking at any joint venturesin Liberia at the moment," says Mittal. 'We can grow Liberia

once Phase 2 is done, from 15 to 20 million tonnes because we will maintain the 5 milliontpy we are

producing from phase one as well."

Market observers have questioned what ArcelorMittal's mining ambitions are. Does it want to switch

its operations to mining from steel? Mittal says that the businesses are complementary and run

alongside each other.

"I think it would have been hard forthe iron ore business to grow on a standalone basis. The

ArcelorMittal balance sheet provides it with a lot of support," says Mittal. "The iron ore business has a

very large customer - ArcelorMittal," he adds.

It's not just the Liberian mining business that is growing. Mittal is eying production ofup to 30 million

tonnes from the company's Canadian operations.

"Aswe speak, we areworkingon our M ary River project in Baffin Island, with our partners Nunavut

Iron Ore where we are going to do DSO material. We call it DSP, direct ship pelletbecause we think

the iron ore is such good quality that it is almost like pellet at 67% Fe. We are growing our marketable

shipments, by 2 015 we will hit a pro duction capacity of84 million tonnes," says Mittal.

As ArcelorMittal's big-ticket mining projects clear their high capital expenditure stages, the company is

gearing up to make major investments in steel again.

"I see our mining business growing. But I also see our steel business growing," says Mittal.

With around $4 billion ayearto spend on capital projects, $2.7 billion ofwhich is earmarked for

maintenance works, the steelmaker has abudget ofaround $1.3 billion for growth programmes. Mittal

says a higher proportion ofthis will be dedicated to steel in coming years.

"Going forward, the hump of mining growth capex is going to come off," says Mittal, noting that in the

past two years around 90% of ArcelorMittal's capital projects budget has been poured into its mining

business.

Redeploying capex

"Overthenextfewyears, as alotof our key mining projects come to completion, we will have more

discretionary capex available for steelwhich we will redeploy for franchise steel investment, so the

timing works very well."

As the Mexican and Brazilian economies dipped into recession, ArcelorMittal slowed its investments,

redeploying capexto its integrated mining plans. Now that steel demand is posting an uptick, the

steelmaker's investment focus is shifting back over with investment budgets poised to fund growth.

"When you look at Brazil, we are growing. We are making investments in Europe, optimising our

galvanizing lines in Canada, restarting our wire rod project in Monlevade and increasing rebar capacity

at Juiz de Fora. These are the types ofventures in which we are investing and growing."
Stating growth plans in the steel industry, which has been reported as suffering from high levels of

over-capacity, is a bold move. But Mittal says that the overcapacity crisis has been blown out

ofproportion.

"I think that capacity numbers arenotatrue representation ofthe reality," says Mittal.

"Our asset optimization plan allows us to compete effectively with this market environment. So we are

not banking on the change in capacity utilisation for sustainability."

Future plans

With a clear vision ofwhere the company will be going in the next decade, what about Mittal's own

plans?

With Lakshmi Mittal, Mittal's father and founder ofthe company, still very much at the helm ofthe

business, what's the next step for Aditya in the company?

Mittal looks back on his career at the steelmaker. "Afterthe merger I began to run operations in the

Americas. Running a business for five years was a great experience, it allowed me to appreciate first-

hand the people, the teams and strengths that we had - and also what the Nafta market is all about

and what we can do to differentiate ourselves.

"After that I was asked to join the Flat Europe business and it was very quickly clearto me that the

problem there was the footprint we had was not equal to the size ofthe market, so as you can imagine

it was a very difficult process over the last two years but very important to achieve sustainability.

"The crisis was very significant, figuring out how we would respond to that crisis and continue to grow

in spite ofthe crisis has been very interesting.

"The major structural changes in Europe are done. Every day you operate in an industry, whether in

Europe or elsewhere, you have to look at productivity and cost effectiveness, to look at developing

yourproducts: that challenge continues on a daily basis."

So would ArcelorMittal exist even ifthere were no Mittals running it?

"The idea is to build an institution, which by definition will stand the test oftime, no matter whether

the family is running it or not," Mittal says, laughing.

"I still get challenged and am interested in what the company and industry offers. I have not yet had a

boring day. Ifl have a boring day I have to think about what to do."

Sidebar

"I see our mining business growing. But I also see our steel business growing," says Mittal

'We've now completed our asset optimisation programme across Europe'

Sidebar

'If you look at Chinese steel industry profitability it is significantly compressed compared to the past

which I think, amplified by the credit tightening, will make it harder for steel companies to grow'

Sidebar

1 have not yet had a boring day. If I have a boring day I have to think about what todo'

Word count: 3053

Copyright Euromoney Institutional Investor PLC Apr 2014

Indexing (details)
Cite

Subject

Steel industry;

Business growth;

Chief financial officers;

Economic recovery;

Corporate profiles

Location

Europe

People

Mittal, Aditya

Company / organization

Name:

ArcelorMittal

NAICS:

331110

Classification
8660: Metalworking industry

9175: Western Europe

2130: Executives

1110: Economic conditions & forecasts

9110: Company specific

Title

Aditya Mittal "We have the right-sized footprint to move forward"

Author

Blei, Vera; Madsen, Michelle

Publication title

Metal Bulletin

Pages

19-22

Number of pages

Publication year

2014

Publication date

Apr 2014

Publisher

Euromoney Institutional Investor PLC

Place of publication

London

Country of publication

United Kingdom

Publication subject

Metallurgy

ISSN

00260533

Source type

Trade Journals

Language of publication

English
Document type

Cover Story

Document feature

Photographs

ProQuest document ID

1625806649

Document URL

http://search.proquest.com/docview/1625806649?accountid=17194

Copyright

Copyright Euromoney Institutional Investor PLC Apr 2014

Last updated

2014-11-19

Database

ProQuest Central