Protecting and developing our
competitive advantage
Gonzalo Urquijo
Investor Day 2010 - 16 September - London and New York
Disclaimer
•Forward-Looking Statements
This document may contain forward-looking information and statements about
ArcelorMittal and its subsidiaries. These statements include financial projections and estimates
and their underlying assumptions, statements regarding plans, objectives and expectations with
respect to future operations, products and services, and statements regarding future performance.
Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,”
“target” or similar expressions. Although ArcelorMittal’s management believes that the
expectations reflected in such forward-looking statements are reasonable, investors and holders
of ArcelorMittal’s securities are cautioned that forward-looking information and statements are
subject to numerous risks and uncertainties, many of which are difficult to predict and generally
beyond the control of ArcelorMittal, that could cause actual results and developments to differ
materially and adversely from those expressed in, or implied or projected by, the forward-looking
information and statements. These risks and uncertainties include those discussed or identified in
the filings with the Luxembourg Stock Market Authority for the Financial Markets (Commission de
Surveillance du Secteur Financier) and the United States Securities and Exchange Commission
(the “SEC”) made or to be made by ArcelorMittal, including ArcelorMittal’s Annual Report on Form
20-F for the year ended December 31, 2009 filed with the SEC. ArcelorMittal undertakes no
obligation to publicly update its forward-looking statements, whether as a result of new
information, future events, or otherwise.
1
Today’s Agenda
•
•
•
•
The future of our business
Strategy: winning in the post crisis world
Costs: protecting and developing our competitive advantage
Mining: building a world-class business
2
We must never stand still
Evolution of the men's 100m sprint world record…
11.0 secs
10.8 secs
10.6 secs
10.4 secs
10.2 secs
10.0 secs
9.8 secs
9.6 secs
9.4 secs
9.2 secs
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
The world record has been broken 65 times over 100 years….
Source: Wikipedia; Photo: Getty Images
3
Maintaining ArcelorMittal’s competitive
position
• The global cost curve continues to evolve
– Industry practices are improving
– High cost China capacity is being displaced
– New raw material contract system has flattened the curve
• Our cost position today is competitive; our advantage
comes from optimal operation of our global asset portfolio
• To maintain our cost-competitive position we must:
–
–
–
–
maintain operational excellence
invest to maintain and improve our assets
continuously seek to reduce costs
expand our mining activities
4
The cost curve continues to evolve
- Industry practices are improving
Global weighted average blast furnace PCI injection rates (kg/thm)
Coke
consumption
130
Coke rates falling
120
Energy
consumption
110
100
Tonnes /
person
`
Energy efficiency
improving
Productivity
improving
90
%
80
2002
2003
2004
2005
2006
2007
2008
Yield improving
2009E
The industry is becoming technically more adept
Source: McCloskey, ArcelorMittal estimates
5
The cost curve continues to evolve
– Chinese high-cost capacity is displaced
HRC cost curve of top 60 Chinese steel mills
Jun 2010 ($/ton)**
Closure of steel capacity in China* (mt)
120
High cost capacity
is being eliminated
700
100
80
600
15.7
2007
2008
2009
2010
2011E
35.2
60
500
8.8
21.1
While low cost mills
are expanding
16.9
40
400
14.0
6.0
24.0
29.6
Molten iron capacity
Steel capacity
20
0
300
•
200
DRC announced in 2006 that by the end of 2010, 100 million tonnes
obsolete molten iron capacity (BF<300 m3) and 55 million tonnes
steel capacity (converter < 20t and EAF < 30t) will be washed out
100
0
50
100
150
200
250
Mt
•
order was given by the government.
Mills with obsolete capac ity on M IIT 's elim ination list 2010
Mills with m ajor capacity expansion plans in 2010
2007 was the 1st year to execute elimination as an administrative
•
In the "steel industry revitalization plan 2009-2011“, the wash-out
standard was raised to BF<400 m3 and converter<30t
Circa 60mt of Chinese crude steel capacity has been eliminated over the last three years
* The figures in 2007 were the actual eliminated capacities; the others are obtained through calculation and estimation according to government’s announcement.
Source: Mysteel, NDRC, ArcelorMittal estimates
** Source: MIIT, SBB, Mysteel, ArcelorMittal estimates
6
The cost curve continues to evolve
- Raw materials pricing has changed
Historical iron ore spot v benchmark price ($/t)
225
200
175
Evolution of the pricing dynamic
Spot CFR China $/T
Steel producers
with long term
supply
contracts have
benefited in the
past
•
Australia $ /T FOB
on annually negotiated prices.
Australia Bench delivered China US $ /T
•
Platts IODEX-62%
For decades, the pricing of iron ore and coking coal was based
Benchmark prices were negotiated between a “lead buyer” and a
“lead seller” and then formed the basis for all other buyers and
sellers and applied for a contract year of 12 months.
•
150
China’s increasing consumption led to development of spot
prices for spot cargos.
•
125
Over time this spot market became deeper and covered a larger
part of the global iron ore supply.
•
100
In 2010, the major suppliers of iron ore migrated from the annual
benchmark system to a quarterly spot-referenced system.
•
75
This formula operates on the basis of the average spot price for
Iron Ore supplied to China, quoted in the Platt’s iron ore index
[IODEX]. After adjusting for freight, Fe content differential and
50
quality differential a FOB Brazil base price is achieved.
25
Aug-06
•
Aug-07
Aug-08
Aug-09
Aug-10
The whole industry is now paying spot prices with varying lags.
Quarter-to-quarter volatility is now the key issue.
New raw material contract pricing system has to some extent flattened the curve
Our position on the structural cost curve
is competitive
400
CIS
400
ArcelorMittal volume – weighted
Average cost: $430/t
300
China
500
Asia ex China
500
USA
600
Europe
600
Middle East/Africa
Regional average HRC cash cost 2009 ($/tonne)
South America
Global average HRC cost 2009 ($/tonne)
ArcelorMittal global weighted average
300
ArcelorMittal regional weighted average costs
200
90th percentile
200
100
1st quartile
0
0
2nd quartile
100
200
3rd quartile
300
400
100
0
500
600
0
Cumulative capacity
575Mt
Overall our structural cost position is comfortably better than the global average.
We are cost-competitive in all regions in which we operate.
Source: WSD; ArcelorMittal
8
Maintaining our competitive position
9
Operational optimisation is key to our
competitive advantage
• Leverage global reach and scale of the Group
–
–
–
–
Ability to adapt steel production to meet fluctuating demand
Optimize low cost plants and idle higher cost in times of weaker demand
Made a portion of fixed cost base variable following crisis
Capital efficiency necessary
… leading to significant potential for
Cost optimisation
• Global scale of the Group offers unrivalled opportunities for:
– Knowledge sharing
– Process management sharing
… leading to significant potential for
Cost improvement
Global scale, fixed to variable cost shift and knowledge sharing to drive cost reduction
10
Extensive industrial network
Æ unrivalled benchmarking
Number of facilities (BF and EAF) by country
Number of BF and EAF facilities by segment
18
50
16
45
BF
BF
EAF
EAF
40
14
35
12
30
10
25
8
20
6
15
4
10
2
Stainless
LC
FCE
FCA
0
AACIS
USA
Ukraine
Spain
Trinidad
Romania
Poland
Mexico
Morocco
Luxembourg
Germany
Kazakhstan
France
Czech Republic
Canada
Brazil
Bosnia
Belgium
Argentina
Algeria
0
South Africa
5
Approximately 120 facilities to share and exchange knowledge
11
Systems in place to identify and capture
improvement opportunities
Transversal activities
Benchmark analysis*
Raw Materials
Supply Chain
Gains
Fixed Cost
Reduction
Knowledge sharing
Core
project
Sustainable
Management
Gains
Continuous
Improvement
Gains
KMP
Case Study:
AMD-Gent-AMT
Benchmark study
Variable
cost
reduction
SG&A
Savings
GTB
GCB
Internal technical
benchmarking
•
Continuous improvement is in-grained in the culture
•
Operational excellence ‘Mantra’ to be ahead of Competition
•
Systems are in place to indentify and capture gains
•
Institutionalize new ways of working with continued cost focus
•
Extensive knowledge within the group, more sharing and
learning
Internal cost
benchmarking
•
Cost benchmark developed during crisis year to track and
compare results across group
•
Potential savings identified on plant by plant basis
•
We have excellent examples in & outside the Group
•
There is significant room for further improvement
•
Knowledge base is unrivalled
Sustainable management gain targets to be achieved by bridging the cost gap
through continuous improvement and operational excellence
* Group Cost Benchmark (GCB); Group Technical Benchmark (GTB) and Group Quality Benchmark (GQB); Knowledge Management Programs (KMP)
12
Robust benchmarking systems to bridge
the performance gap
Theoretical potential gains identified
CIP process variable cost reduction ($/t)
Hot dip galvanizing: Zinc global yield 2009 (kg/t)
1600
1400
1200
CIP gain
1000
800
600
400
200
Raw
material
mix
Metallix Mix
Coke
equivalent
Energy
Credits
and byproducts
Other
Variable
costs
Actual
Variable
Cost
increase
9 Identification of cost metric and areas of focus
9 Analysis done on various processes
9 Inter-unit and inter driver comparison
0
1
6
11
16
21
26
31
36
41
46
51
9 Global technical benchmark database
9 Targeting cost improvement
9 Micro comparison of least performing facilities
An efficient cost and technical benchmarking system in operation
13
56
Benchmarking identifies gaps and cost
drivers
Theoretical potential gains identified
PCI usage in blast furnace (kg/tonne)
2008
2009
Potential gap identified – reduce coke consumption
1Q 10
Target
•
•
•
ACIS
FCA
FCE
Push towards PCI usage in all blast furnaces
(taking into account local conditions)
Gap of 48 kg/t hot metal to benchmark level
Potential gains of US$7/t by increased usage of
PCI in BF with good payback
AM Group
HRM recoverable production gains (kt/year)
Potential gap identified - Reliability
gain with std unplanned delay(kt/y)
normal production (kt/y)
•
•
•
Average level
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Reduce unplanned stoppages to benchmark levels
Average potential for improvement = 260 Kt/year
260 Kt/year x 17 mills = 4.4 mt/year
17
Bringing all our plants to benchmark level is not possible but the
improvement potential remains significant
14
Gap identified
- Gas & Electricity savings
Theoretical potential gains identified
Ranking of plants by absolute potential saving (TJ)
Energy gap identified
25000
•
The 7 most energy intensive processes account for
85% of our energy bills
20000
•
Targeting these processes to achieve benchmark
levels has potential to reduce energy consumption
by 19%
•
Energy action plan to target plants with high
improvement potential as well as good performing
plants where small improvements translate into high
stakes due to high volumes
•
Potential to reduce electricity and gas consumption
by 150 TJ equivalent to US$0.45 billion annually
•
In addition, energy cost savings coming through
coke and PCI actions
15000
10000
5000
0
Bringing all our plants to benchmark levels
Better use of our internal gases through first recovery
•
Investments required to recover energy and produce electricity
Part of benefit to be captured by continuous
improvement while some investment projects will be
needed to capture the full potential
Energy efficiency will be key driver to achieve CO2 footprint reduction of 8% by 2020
15
Management gains target
16
Cost improvement was a key element of
our response to the global crisis
Management gains progress (US$ billion annualized)
3.5
Fixed costs annualized (in billion US$)
30
Target by end of 2010
US$3.0bn of
sustainable
management gains
3.0
2.5
Target by end of 2009
25
2.0
US$3.9bn of
temporary fixed cost
saving*
1.5
1.0
20
0.5
0.0
Captured Captured Captured Captured Captured Captured Captured
at 31/12/08 at 31/03/09 at 30/06/09 at 30/09/09 at 31/12/09 at 31/03/10 at 30/06/10
•
•
•
15
2008
Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010
ArcelorMittal has a very flexible management structure
Pre-crisis cost improvement plans were rapidly adapted to the crisis environment
Speed and minimal capex were key
Flexibility of previously fixed costs and substantial SG&A cuts means that ArcelorMittal has improved
during the crisis
* At constant fixed exchange rate at 2008
17
Crisis gains largely fixed costs related
Breakdown of realized US$$ 3 billion by cost type by 1H10
Structure
costs
Spares 9%
4%
Segmental breakdown of realized US$ 3 billion by 1H10
SGA
Manpow er
Cost
14%
Others
13%
FCA
3%
Stainless
3%
AMDS
7%
Contractors
22%
AACIS
3%
COGS
Manpow er
Cost
31%
SG&A non
manpow er
20%
FCE
54%
LCA
10%
LCE
7%
US$ 3 billion, largely manpower related; with FCE as main contributor
18
Crisis brought about different priorities
and opportunities
Initial Management gains target*
Management gains realised up to 1H10 and 2012 target
5.0
5.0
0.2
0.5
0.5
0.1
4.0
4.0
0.4
1.6
0.5
0.3
3.0
3.0
0.8
5.0
5.0
4.5
2.0
2.0
0.9
1.2
SG&A
Fixed cost
3.3
3.0
1.0
2.1
1.0
3.8
3.0
2.9
4.2
4.3
1.2
0.0
0.0
Input Cost
Yield &
Quality
Energy
SGA
Other
2012 Target
- Capital intensive projects on hold during crisis
- Focus on high fixed cost & manpower reduction
2Q 10 Mgt Input Cost
gain
Yield &
Quality
Energy
Others
2012
Target
- Investment required to achieve US$ 2 billion saving
US$ 2.0 - 2.5 billion
As capital intensive projects were put on hold, increased focus on
manpower related and high fixed cost areas
* Initial Management gains plan announced in 2008 of US$ 4 billion was later enhanced by additional US$ 1 billion of SG&A savings.
19
Operational improvements to drive
2012 targets
• An additional US$ 2 billion of sustainable management
gains targeted by end of 2012. To be driven by operational
improvements.
• Internal benchmarking systems identify opportunities
–
–
–
–
–
Leveraging scale of group for effective internal benchmarking
Main KPIs regularly challenged for improvement
Seeking to capture best in class internal processes
Sustainable variable cost improvements
Progress on management gains target tracked weekly
• External lens used to review competition and support
internal benchmarking process
Drive for operational excellence continues
20
Target US$ 2 billion by 2012
Segmental breakdown of US$ 2 billion management
gains target
2.0
0.2
0.1
0.2
1.5
0.5
2.0
1.0
1.7
1.8
1.5
0.6
1.0
0.5
0.4
0.4
FCA
FCE
0.0
LC
AACIS
Stainless
AMDS
Total
Main investments and key initiatives
FCA
• AMT yield and input cost improvements (substitution of material for
PCI, yield improvement in coke plant, HSM and CC working ratio
improvement)
• AMD World Class Manufacturing (WCM) plans + maintain galvanized
products volumes
• IH Optimization of steel shops and flare gas capture
FCE
• CORE (Raw Material Cost Reduction Project)
• SIP (Site Improvement Plan) like energy saving projects, debottlenecking, equipment balancing, yield & quality improvement
LCE
• Ostrava: PCI project and CCM upgrade
• Zenica: restart of 1MT integrated route and close EAF route
• Hunedoara: revamping of rolling mill
LCA
• Monlevade, Lazaro Cardenas, Juiz de Fora: Iron making optimization
• Point Lisas, Acindar, Lazaro Cardenas: Steel shop optimization
• Point Lisas: Reduction in natural gas consumption
AACIS
• Kryviy Rih, Newcastle, Temirtau: iron yield improvement on BOFs
AMDS
• Continuous improvement Logistic (sourcing and optimization)
Plans in place to deliver cost savings program
21
Recap
• ArcelorMittal must continuously improve just to keep pace
with the industry
… but our goal is to move down the cost curve
• Our flexibility allowed us to respond quickly and
aggressively to the crisis
• Our internal benchmarking opportunities are unrivalled and
support a further US$ 2 billion management gains target
for 2012
• The US$ 3 billion management gains savings achieved (as
well as the additional US$ 2 billion to be achieved) should
support higher long-term profitability
22