Aditya Mittal - Group Chief Financial Officer, Principal Accounting Officer Daniel Fairclough - Director of Investor Relations London Lakshmi Niwas Mittal - Chairman, Chief Executive Officer, President, Managing Director of Operations Simon Wandke - Chief Executive Officer of Mining Davinder Chugh - Chief Executive Officer of ArcelorMittal Africa Lou Schorsch - Chief Executive Officer Flat Carbon Americas.

Tim Huff - RBC Capital Markets Carsten Rick - UBS Mike Shillaker - Credit Suisse Mike Flitton - Citigroup Tony Rizzuto - Cowen & Company Philip Ngotho - ABN AMRO Bastian Synagowitz - Deutsche Bank Seth Rosenfeld - Jefferies Rochus Brauneiser - Kepler Cheuvreux Phil Gibbs - KeyBanc Capital Markets Jaap Kuin - ING Financial Markets Chuck Bradford - Bradford Research.

Daniel, you can start now..

Thank you. Good morning and good afternoon, everybody. This is Daniel Fairclough from ArcelorMittal Investor Relations team. Thank you for joining us today on our conference call for the Second Quarter 2015 Results. First, I'd like to remind you that this call is being recorded. We are going to have a brief presentation from Mr.

Mittal and Aditya, followed by a Q&A session. The whole call should last about one hour. [Operator Instructions] And with that, I will hand over the call to Mr. Mittal..

Thank you. Good day to everyone and welcome to ArcelorMittal's second quarter 2015 results call. I am joined on this call today by all the members of the group management board and also Simon Wandke, who is the CEO of our Mining segment.

I will begin today's presentation with a brief overview of our second quarter 2015 results, followed by an update of our recent developments. I will then spend some time on the outlook for our markets before I turn the call over to Adit. He will go through the results in greater detail and provide an update on our guidance and targets for 2015.

As usual, I will start with Health and Safety. After a period of stability and inertia, we have broken new ground. The lost time injury frequency rate in the second quarter of 2015 was 0.68 times. This is the best frequency rate the group has ever achieved. As a Company, we are committed to safety.

And I want to see further progress in this area as we continue our journey towards zero harm. Turning to the second quarter highlights shown on Slide 4. We’ve reported EBITDA of $1.4 billion. This is essentially stable as compared to the first quarter of 2015.

We have reported a net income of $200 million for the quarter, which compare favorably with the recent period. I am also pleased to see the continued positive free cash flow generation and ongoing progress on net debt which is almost $900 million lower than the level 12 months ago.

On the next slide, I want to spend a few more minutes on the performance of our steel business. Steel shipments of 22.2 million tonnes in the second quarter of 2015 were 3.4% higher than the same quarter of 2014. The standout segment is again Europe, where we continued to make good progress.

EBITDA increased by 10.5% reflecting further improve market conditions as well as the results of our cost optimization efforts. In local currency terms the improvement is even more pronounced at 22.7% year-on-year basis.

The reported results for our NAFTA business have improved following the inventory write-downs, and onerous contract provisions booked in Q1. Looking at Brazil, our performance has remained resilient in the face of a challenging domestic market.

Dollar margins have been squeezed, due to lower realized selling prices and aggressive competition in exports-led market, but this has to an extent been offset by higher shipments. The performance of the ACIS segment has again been disappointing.

Despite of our continued progress on operational improvements, market conditions have been very challenging, particularly in South Africa and Kazakhstan. Moving to our Mining segment performance on Slide 6, iron ore production in the second quarter was 5.1% over the Q1 2015 levels. Market price shipments increased by 2.7% year-on-year.

Mining segment profitability remained stable, relative to the first quarter. The lower iron ore market prices were offset by a seasonal pick and shipments and further improved cost performance. Our performance at mines Canada is particularly notable.

Following the expansion, this is now a world-class operation currently operating well above its nominal capacity of 24 million tonnes. We reported record iron ore shipments volume in June of 2.7 million tonnes, and 7 million tonnes for the second quarter.

With the execution of mine plan and changing the bottleneck in our operations, we feel confident of progressing this operation towards 30 million tonnes per annum with minimal CapEx. What is particularly pleasing is Canadian mine's cost performance. I expect concentrated cash costs in 2015 to be almost 40% lower than in 2013.

There is further potential, and we should see costs move below $30 per tonne, as we realize the volume potential at Mines Canada. On Slide 7, I would like to take a moment to update you on some of the progress on key steel and automotive development. Starting with automotive in Canada, we completed construction of the heavy gauge 06 line.

This increases our galvanized steel capacity by 260,000 tonnes per year, along with mix and cost improvements. In India, in order to participate in the rapidly growing automotive market, we have signed the MOU with the Steel Authority of India Limited to study the feasibility of an automotive steel joint venture.

ArcelorMittal continues to be recognized as the market leader in the steel for automotive. This was reflected by a supplier award received from PSA, Peugot Citroen award, recognizing ArcelorMittal's ability to bring to market breakthrough technical solutions, such as Fortiform, which is an advanced high-strength steel for cold stamping.

Finally we have announced that we will restart operations for the relining of the blast furnace 05 in Krakow, which is coming to the end of its life cycle in mid 2016. The investment includes the modernization of the basic oxygen furnace 03. Krakow's hot-rolling mill capacity will increase by 900,000 tonnes per annum.

And the hot dip galvanizing capacity will increase by 400,000 tonnes per annum. Moving to slide 8 and the market outlook, as you can see on the chart on the right-hand side of this slide, the ArcelorMittal shipment weighted global PMI has continued to remain in positive territory.

The uptick to 51.9 in June indicates continued growth in demand for our steel, particularly in European Union. The real underlying demand continues to grow across our key developed markets. In the United States, underlying real demand continues to grow, particularly in the auto and construction sector.

The only weak area is in energy investment, which is a market we are relatively underexposed to. In Europe manufacturing is benefitting from rising consumer demand, boosted by cheaper oil and easier credit, and the weaker euro is supporting exports.

We remain confident that underlying real demand will gradually accelerate, void by the recent strength of auto sales and a rebound in business confidence, which will support future investment. The outlook for Brazil remains weak, and is likely to undergo a prolonged recession.

The market has been impacted by a weak consumer, government spending cuts and rising interest rates, leading to declining real steel demand. The silver lining on the dark cloud is the weakness in the real, which helps the competitiveness of our exports, which remain 50% of our volume.

Now on Slide 9, I want to highlight our forecast for apparent consumption growth in our key regions. After all, it is apparent rather than underlying demand that will drive our shipments in 2015. Starting with the U.S., although real underlying demand is positive. Apparent demand is expected to decline by 3% to 4% in 2015.

Imports have declined, but remain elevated. But as inventory levels are now back to more normal levels, we can expect stronger demand in the second half, as compared to the first. In Europe I expect the continued real underlying demand growth to translate into further positive apparent demand growth in 2015.

And we maintain our forecast of an increase in the range of 1.5% to 2.5%. The outlook for emerging economies remains weak in Brazil, due to the ongoing weakness in the construction market in particular. We have revised down our 2015 apparent steel consumption forecast to negative minus 11% to negative 13%.

With the weak macro backdrop in CIS as well, apparent steel consumption is expected to decline by minus 8% up to minus 10%. Finally in China, we see signs of a stabilization due to the government's targeted stimulus. But apparent demand this year is likely to be stable at best.

As a result, we expect global apparent global steel consumption in 2015 to be very similar to 2014levels. But given the Company's specific geographical and end market exposures, we expect ArcelorMittal shipments to increase between 3% to 5% in 2015. Now I will hand it over to Adit..

Thank you. And good afternoon, everybody. On slide 11, where I'm going to start, we show the EBITDA progression from $1.447 million in Q1 2015 on an underlying basis to $1.399 million in 2Q 2015. This represents a decline of 3.3% during the period, reflecting relatively stable steel and mining business performance.

In steel, the positive contribution from higher shipment volumes was more than offset by weaker pricing. Shipments increased in all steel segments, reflecting seasonal factors and improved demand. There was a significant price cost squeeze in steel during the quarter, reflecting domestic price declines, most notably in NAFTA and the CIS.

Turning to mining, EBITDA was essentially stable, impacted by a seasonal improvement in shipment volumes, primarily in Mines Canada, and improved cost performance offset by the impact of declining iron ore prices. Moving along the bridge, you can see a negative $40 million impact from others.

This largely represents translation losses following the strengthening of the U.S. dollar against the euro and Brazilian real. Turning to Page 12, where I will compare EBITDA to net income, here you can see a comparison of second quarter 2015 performance versus first quarter 2015.

As you can see in the bridge during the second quarter 2015, we booked an impairment of $19 million relating to the closure of the Georgetown facility in the U.S.

Moving to the equity income line, in the second quarter our share of income was $125 million, as compared to losses of $2 million in Q1 2015, primarily due to annual dividends from Erdemir, as well as improved performance from Spanish investors. Net interest remained stable in 2Q compared to Q1 2015.

Foreign exchange and other net financing costs in 2Q was $73 million, as compared to $756 million for Q1. Foreign exchange costs for the second quarter included a foreign exchange gain of $115 million, as compared to a loss of $538 million in Q1 on account of dollar depreciation against the euro and the Brazilian real.

This is in line with the ForEx model and sensitivity to exchange rate movements that we provided at our Q1 results. Taxes and non-controlling interest amounted to $127 million, resulting in a net income of $179 million for the quarter.

Clearly the swing in net income from Q1 to Q2 is primarily driven by change in ForEx expenses, supported by better equity income and lower taxes. Turning to Slide 13, we walk through the waterfall which takes us from EBITDA to free cash flow.

During the second quarter we had a $0.4 billion release in operating working capital, due to normal seasonal effects. The third bar shows the combined impact of net financial cost, tax expenses and other items, totaling $0.8 billion, resulting in cash flow from operations of $1 billion.

CapEx is $542 million, resulting in positive free cash flow for the quarter of $0.5 billion. Turning to Slide 14, here we show a bridge of the change in our net debt from Q1 to second quarter 2015.

The main components of the debt movement during the quarter is a positive free cash flow $0.5 and which I just described, and the proceeds of $1 billion, primarily from the final installment of the Kiswire divestment and sale of European distribution businesses, offset in part by $0.3 billion dividends paid to ArcelorMittal shareholders, and negative foreign exchange impact of $0.2 billion.

The ForEx impact is primarily due to the impact of a stronger euro on the translation of our euro denominated debt into U.S. dollars. As a result of these movements net debt remain stable during the second quarter to end the period at $16.6 billion. Finally, let me now talk about our guidance and targets for 2015. I'm on Slide 15.

We continue to expect 2015 EBITDA within the range of $6 billion to $7 billion. This implies a stronger second half performance. There are four drivers to this, the first is the U.S. destocking phase, which is ending. And as a result, we expect to see improved volumes in the second half.

The second impact is, the impact of Calvert on our consolidated results which will significantly improve in the second half, as it is no longer disadvantage by high cost slabs. The third is cost reduction efforts we are pulling the required delivers to improve our cost across the steel business and this will also a positive impact in the second half.

And finally, we should expect further improved volumes and cost performance in our Mining segment. Assuming a continuation of current market conditions these drivers are expected to lift our EBITDA above $6 billion for the year.

Clearly to achieve levels more towards the higher end of the guidance range will require operating conditions to improve relative to current levels. Moving beyond EBITDA guidance, we remain on track to spend approximately $3 billion in capital expenditures and incur interest expenses of no more than $1.4 billion.

As a result, we continue to expect positive free cash flow in 2015 and then the year with net debt below $15.8 billion. This completes our prepared remarks. And we will now move to your questions. Thank you..

Thank you. So we have quite a long list of analysts already waiting to ask a question. So if I could ask those people to limit themselves to two questions, so that we get through as many people as possible. That would be appreciated. But we will start with the first question is from Tim at RBC. Please..

Yes. Thank you very much. Just two questions, one on CapEx. Obviously the first half was a little bit lower than the run rate for the year. You had relatively steady quarter-on-quarter CapEx for NAFTA and ACIS.

Were you expecting to see a pick-up in CapEx in Brazil, Europe or maybe mining in the second half of the year? And secondly, as you pointed out, consumption in Brazil and CIS incredibly weak forecast for the year.

How do you see both of those markets developing going forward? Do you see more of a, I guess, a continued slowdown into the second half, and steady into 2016? Or at any point in the next 18 months, do you see some sort of recovery? Thank you..

Yes, so let me answer your question on CapEx and then we move to my other colleagues. In terms of CapEx, CapEx first half is actually in line with what we expected to see. If you look at the CapEx guidance for the full year is about $3 billion. Last year’s CapEx guidance I mean not guidance, but CapEx was $3.66 billion.

So that’s roughly a $660 million reduction year-on-year. And first half CapEx is roughly $360 million down. So we are on plan we expect to hit $3 billion in CapEx for 2015. We normally as a company spend more CapEx in the second half and the first half and that’s the impact that’s you are seeing..

Going on Brazil?.

Yes, if I could just comment on Brazil. I think we had expected and might even have said at the last earnings call that Q2 would be a bottom for that market I think that was in fact the consensus I think now there is a view that we’ll - we can more or less write off the prospectus for any improvement for the rest of this year.

I think what makes it particularly difficult to project is that there is a very strong political aspect connected with the Petrobras scandal that underlies some of the difficulties that that economy is having today. And that has a psychological effect on both business and consumer confidence.

I think importantly it means that the economic program that has been proposed, which I think everybody believes is the right direction for Brazil, has not been fully implemented because of those political differences and complexities. So again, I think people know what needs to be done there from a policy perspective.

The underlying prospects of the economy continue to be good. Obviously it's dealing with an adjustment in commodity prices, since that's- a lot of the economy is oriented in that way. But again, this should be just a cyclical downturn. We therefore would hope to see some good improvement in 2016.

But because of that political impact, it's very difficult to project..

Was there anything you want to say on….

Yes, very briefly Mr. Mittal and Tim, we did have some challenges as far as ACIS is concerned by way of the currency skew, especially with the weakness of the ruble. And also we had the impact of the Chinese prices, which are driving low.

But we have taken actions, and in South Africa there are actions with regard to engaging with the government for getting fair trade measures. And also we are similarly engaging in Kazakhstan for reducing our costs, and also engaging with the government on certain measures.

So given these things, these external developments in terms of the fair trade and internal actions that we are taking, we are expecting improvement going forward. So I think overall it is a positive outlook on this..

I will only add that economic environment is not going to change a lot. From our perspective the demand environment is low. But there are opportunities which could come if we are more competitive in ACIS. And if you look at Ukraine, we are performing really well. Operations are very stable.

We have produced higher than the first half of 2014 in 2015, in spite of such volatility. So what I am saying here that operations are stable in South Africa. Operations are stable in Ukraine. Operations will be stable in the second half of this year. So there are challenges here in terms of competitiveness, which we are taking action on these.

There will not be a change on the economic environment. But we think we with the cost improvements and some improvement on the trade actions, we should do better in the second half..

That's very helpful.

Just quickly, the pickup in CapEx in the second half, the question was more directed at which divisions did you expect to see that in?.

Tim, I'll get you a forecast per division in the second half. Normally we don't give that information out. I think overall on CapEx, as you know, we're not really investing in growth CapEx in the mining side. In terms of steel, the key focus of CapEx remains to protect our franchise.

And you see the projects that are getting completed in Canada at Dofasco as well as at Calvert. And we just announced a project in Europe to expand finishing capacity in Poland. So it's 900,000 tonnes of hot-rolled and half of million tonnes of galv. So those are really the only CapEx projects all most all CapEx projects in Brazil are on hold.

And I have now the number. So there is going to be an increase in CapEx in the second half in NAFTA, as well as in Europe, with a reduction of CapEx in Brazil. And then also an increase in CapEx in ACIS. And we expect mining CapEx to be slightly lower..

That is incredibly helpful. Thank you very much..

Sure..

Thanks, Tim. We will move to the next question from Carsten Rick at UBS. Please..

Thank you, very much. Two questions from my side. First one, you hinted on the last conference call that Calvert was to some extent a drag on the earnings. And I would select [frankly] the falling price environment that it was also negatively still hurting your second quarter.

Could you quantify the negative impact, you had from the slab purchasing facility, which is linked to Calvert, and what do you expect in the second half? Second question, there was one news the other day on the Thabazimbi mine, well Kumba mine.

And my question is, is it ArcelorMittal who has the closure cost risk here? Or is the cost with, I think it was [indiscernible]? Thank you..

And the slab impact at Calvert, I don't want to give a number out. But I think it's sufficient really to recognize that the contract we have there is lagged. I think it's lagged about four months. And if you just look at the shift in particularly finished product prices in the U.S.

and how rapidly those prices dropped, you can see that if we're paying the slab price of four months previously that that's going to be a significant drag on the reported earnings. If you looked at in a LIFO basis, of course, you'd have a different outcome there.

So I think that takes us then, if you just do the arithmetic there, you can get an idea of the magnitude. And while we're still carrying some of those slabs, we think that clearly the impact of that will diminish very significantly in the second half..

Thank you..

And for Thabazimbi it has been traditionally so that the responsibility of the closure cost is on the ArcelorMittal South Africa side. It is provided for, but one needs to see as it unfolds the adequacy of those provisions et cetera..

So you've built provisions, but the cash-out has not yet occurred?.

That’s right..

Okay, thank you..

Can I just add on Thabazimbi? Our belief is that we want to work with the government to prevent the closure, and to see if we can bring another mine operator. So we're going to pay the closure cost. Maybe there is an avenue to work with the government to save the mine, and not incur those cash costs..

Okay, perfect..

Great. Thank Carsten. So we’ll move to the next question is from Mike, at Credit Suisse..

Hi, thanks guys. So my two questions, first of all there was a question that I asked on the last call, and I'd just really like an update in terms of where we are, which is on any potential asset optimization program in the U.S. I understand the reluctance to give too much detail, I guess, given what potentially is going on.

But if you could just sort of give us a feeling of where are and when we may hear more, and what we may hear. And the second question, just on net debt. It's creeping down. But it's pretty stubborn. And then certainly if the environment continues like this, then I guess it creeps down, but not a lot more than that. You're still way off the 2015.

Have you thought about revisiting some of the asset sales that you looked at in the past? And do you feel the market has become a bit more conducive to asset purchases at reasonable prices right now? Thank you..

On the asset optimization, I'm afraid we can't give any more detail than what we've given before here. And I think everybody can recognize that this is a complex process. We are in negotiations, as people know, for a new collective labor agreement with the steel workers. I think we've having good dialog with them.

We have a long-standing partnership with them. Ultimately they're very interested in having a successful, profitable operation. We need their support to achieve that goal. So there's a good alignment there. But I think until we've had the chance to work that through in that negotiation, it's difficult for us to talk specifically about it.

The new contract will be in place at the beginning of September. So I think we would fully expect to be able to finally share some more details and aspects of the program in the next call..

Okay, Michael. In terms of net debt, I think we are making progress. If you look at Q2, Q2 net debt is about $900 million lower than where we were a year ago. And this is in a market, as we all know, conditions are very difficult. And in the last 12 months we have paid two dividend checks, actually.

Because last year we paid in Q3.and this year we've paid in Q2. So I do believe we are making progress. Perhaps we could be making faster progress. But I think we outlined that the target, once the target is achieved we will reassess whether we increase CapEx or et cetera, et cetera. And we did say it's a medium-term target.

So there was never a desire to accelerate any corporate action to achieve the target. Nevertheless, we remain focused on optimizing the portfolio of assets that we have.

You can see even in the first half, we have had some asset sales we consolidated our position in the distribution side in Europe by merging with local players and that also had a positive net debt impact. So I believe those types of actions will continue.

We continue assess options that we have to strengthen the balance sheet in terms of portfolio optimization, but this is not the best market also, I mean if you look at where the steel industry is, and where commodities are generally. This is not really the market to entertain large scale asset divestments..

Okay thank you and so I guess the reacher is there's no real impatience. You still seem pretty patient in terms of the timeframe to get the net debt level down.

And in terms of the asset sales that you may continue with, should we just expect an ongoing sort of piecemeal rate of these small assets, nothing too major nothing to material?.

Yes, I think the - you are actually right there is no pressure in the organization to reduce debt, I mean from an external perspective. Clearly we're committed as a management team to do what we can to further strengthen the balance sheet.

I wouldn’t go so far to say that there will be no activity we always look at it, but there is no pressure to do something in the next six months or three months or 12 months. If opportunities materialize and they makes sense for our shareholders then we will act..

Okay. Many thanks..

Thanks. So we’ll take the next question please Mike Flitton at Citigroup..

Hi, guys thanks for taking my questions. Most of them have been answered. I’ve just go one more on Brazil. I just could you just help us think in a bit more detail on the second half and clearly the domestic market obviously is continuing to weaken. You’ve taken your for cost down auto production and construction are running negatives.

Obviously half your production is exports, but my understanding is it the domestic production is a higher margin on but the flat and the long side.

So would you expect to see a worsening price mix effect going forward and just on the real obviously does help on the transaction, but can you just help on sort of the translation impact there? Is it a net positive or a negative impact from obviously the real hitting new highs? Thank you..

I think clearly there is continuous to be a lot of headwinds in Brazil. So it’s difficult to say that we are going to see improvement in the second half. I think the currency movement and really just in the last couple of weeks we seen the currency those are lot of values. So that helps us quite a bit on the cost front.

Are you see that flow through direction on that 50% or so of our production there that is exported. So that’s a direct and immediate benefit on that front.

In terms of the domestic market it does help us be more competitive versus potential imports, which are not that high but also have not been coming down as rapidly as we think they should give the basic economies in that market.

But clearly there is a loss in terms of the dollar realization but I think on the other hand that the lower value of the real provide some opportunity given that the spreads to imports are lower than has traditionally been the case for some movement in the prices upward.

So I think that’s to be determine that obviously lot of other factors there is a lot of domestic competition in that market.

I think we held up our share very well in that market I think the absolute results continue to be quite good given the severity of the local downturn there and the exchange rate net-net I think should be a positive force, but a lot depends on what happens in terms of those domestic prices adjusting as the real devalues, or is going through the current weakening..

Okay thank you..

Thanks. And we will move to the next question please from Tony Rizzuto at Cowen..

Thanks very much, Daniel. Good day all and thanks for taking my questions. My first question is on the trade cases in the U.S. can they be successful even with prices remaining depress than Europe and Asia and wouldn’t growing spread make it difficult to prove final injury and ultimately to sustain any shorter term gains.

That’s my first question secondly iron ore steel North America I saw your operations in Canada late June and I came away very impressed with your cost and volume expansion with low capital intensity. My question is how confident are you that’s you have adequate flexibility to supply your Canadian and U.S.

steel mills with pellets, if necessary, to do so for a period of time?.

I think it's a good question on the trade cases. Obviously I think we feel, and this is kind of the strong view of the entire industry that we've got a very solid case for unfairly traded imports coming into the U.S. You look at the surge that we've seen over the last, let's say 18 months or so, I wouldn't say it's unprecedented.

But it's certainly very, very substantial. And I think it's caused substantial injury to the industry. And I think if you look at the recent changes, they're largely technical. They're not game-changers necessarily.

But the changes in the way the laws will be interpreted and enforced actually means that the ITC needs to look at broader of impact and injury than might have been the case before, I think. Which should help us in this front. The premients versus import levels that can move month to month. We were down below 150 couple of months ago. We're up again.

But that's largely because of, I think, unsustainable drops, let's say what we think should be unsustainable, and really aren't driven by any clear market forces or market decision in price levels, particularly coming out of China. So I think we would still feel we've got very solid cases there.

But obviously it's not in our hands, other than just making the best case that we can. And the decisions will come forward over the next several months. But the 6 to 0 decision in the court case that there's at least a good potential for injury, we think is quite consistent with that view.

In terms of the iron ore, I think as you know, we have substantial contracts that really have a long way to go now, our contracts with our major supplier in North America, with Cliffs really runs until the end of 2015 or beginning of 2016.

So that's quite a long time before we'll really need to have some resolution in terms of how we move forward this. But within that timeframe, the opportunity to potentially look at the operations in Quebec as a source for operations in North America, already traditionally that's an important supplier to Dofasco.

That's part of the considerations that we could pursue. But again it's far off now. In principle I don’t think we need to go there. But it certainly could be part of the mix..

Thanks, Lou. That's great color. I appreciate it..

Great. And so we’ll take the next question please from Philip at ABN AMRO..

Yes, good afternoon. Thank you for taking my questions. One question relating to the trade cases. We’ve seen them being filed for [indiscernible]. Without speculating on whether there will be any more trade cases, are there other product groups that have suffered from imports in the same order of magnitude? That's my first question.

Then the second question is on the lead times of your order book in the U.S. Could you provide some color on that? And also I don't know how much you can say. But do you see opportunities for further price increases in the second of the year? Thank you..

I think it's difficult to not speculate about other trade cases but yet talk about products that could be other trade cases. So it's difficult to say. I think everybody knows the products that aren't covered yet. And I think we'll have to see on that front. So we do feel that that surge covers the broad product range.

And again, I think it's a matter of just having to wait to see how things develop. What was the…..

Lead time order book..

I think we've seen the lead times, we saw some improvement basically at the beginning of the second quarter. We have seen the lead times be more or less stable since then. So we haven't seen further tightening of lead times.

I think part of that is that particularly given that very sharp drop in demand the almost buyer strike connected with the inventory adjustment in the first quarter, I think we had particularly the electric furnace operations were throttled back a bit.

And without people making big announcements and so on, they're able to increase their production and participation in the market. So we're still looking at roughly three to four weeks. I think that's where we were a few months ago. That is a somewhat normal range, if you want. I'm talking here about the hot rolled products on the flat rolled side.

So again, we haven't seen that tighten further. But I think that underlying we certainly have seen the order flow improve slowing over this period, if not the lead times. I think on terms of the pricing, it's not appropriate for me to speculate on that going forward..

Okay, thank you..

Thank you. We will take the next question please from Bastian at Deutsche Bank..

Yes, good afternoon gentlemen. Most of my questions have been answered already. But there's just one last one on Europe where your shipments are doing quite well against last year, despite the fact that the inventory data has showed some H1 destocking.

Firstly, can you explain what is driving this? Is it strong automotive demand? Is it market share gains? And then secondly, will the strength continue in the second half, and then also do you expect the cost reductions to set off the recent price decline and hence margins to be stable or even up in the third quarter? Thank you..

Okay, thank you. In terms of Europe, shipments have increased first half 2015 versus first half 2014. Recognize that Europe represents flat and long. In terms of flat clearly the automotive order book continues to do well, and we are beneficiaries of that, as we do have a significant portion of our shipments going to that product segment.

When you look at the long business, we have also commissioned projects which improve our high added-value power capabilities, such as rail investments and quality wire rod investments. And those are also flowing through in terms of increased shipments. In terms of the second half, we should expect in terms of shipments, a seasonal variation.

So shipments are expected to be down in the second half compared to the first half. I would say that overall price cost spreads are stable. We continue to make progress in terms of improving our cost base. And that momentum still exists within the organization..

Okay, thank you. Just one follow-up on the long steel segment where obviously one of your competitors has basically exited the market over the recent week so which obviously should be very positive for you. Have you already seen first benefits here? Are prices now going up? And obviously more volumes come over into the order book as well..

Since you've not mentioned the competitor, I'm happy to talk in hypotheticals. I think an exit is a very strong word. I think they have created a new company where they have put their existing business. So I don't believe there is any impact on the market at this point in time. Let us see what the final resolution of that is.

And then perhaps there's some impacts on the marketplace..

Okay, very helpful. Thank you..

Thanks Bastian. So we will take the next question please from Seth, Jefferies..

Good afternoon. This is Seth Rosenfeld from Jefferies. Just few follow-up questions on the NAFTA business and then looking at the net debt targets.

On NAFTA, can you just walk us through some of the key drivers for what appear very significant Q-on-Q increase in EBITDA in the second quarter? I recognize there were some negative one-offs last quarter on the inventory write-down and onerous contract charge. What sort of one-offs to be see in this quarter as well? You mentioned the release.

There were some benefits from the inventory write-down expensed back in Q1. How sustainable are any of those benefits now looking into H2? And then separately on the net debt side, your medium term net debt target I believe was set several years back at the time when your EBITDA was running significantly above where we are right now.

With it appearing is that there might be a structurally lower level of profitability looking forward.

How do you think about that $15 billion target in the long term? Is that really low enough in light of any pressures you might be under to regain investment grade credit rating? And then how should we look at that moving in the next couple of years? Thank you..

I think you've seen the numbers on the adjustments that were made in Q1, and how the impact they would have on Q2. I think in the underlying business clearly we are seeing higher shipment levels and I think the shipment improvement let's say, was higher in the U.S.

as a whole than in the NAFTA region, if you look across each different component of that region. So that helps us there where there's a bit more fixed-cost leverage that can be addressed in terms of the U.S. improvement.

On the volume front, I think we also saw some better cost performance, part of that linked to the fact that we did have a-- did idle on one of our blast furnaces in March. So you saw the benefit of that in terms of utilization elsewhere, and the resulting cost benefit in the other operations.

And finally we did see some improvement in the spot prices, again slow but steady let's hope, in terms of Q2 as well. So I think we continue to perform very well in our Canadian operations. We see good improvement. In the traditional U.S. operations, we're seeing some improvement by the end of the quarter.

And in Calvert we talked about some of the lag effects in terms of slab pricing versus sales product pricing that will continue in the second half. But you started to a see a little bit of that in the second quarter as well. So I think its small improvement, let's say, across a wide range that we'd expect to continue into the second half..

On the inventory side, I know you had the write-down in Q1, and you don’t always provide exact color on the calls for this.

But was there any upward revision to the inventories in Q2?.

So let me just provide some more color on that, and then move to your net debt question. So we had an onerous contract charge of $69 million and there was an inventory write-down in Q1 which is not occurs in Q2. So the easiest way of looking at not the results just to add back $69 million and you can look at the first half.

If you are looking at first half versus second half I think we have gone through all the points, but just to be clear one of the difference between first and second half will be the $69 million onerous contract charges not repeat.

Something else that we are not talked about extensively in the call is we took an impairment in Georgetown of $19 million. But there is a $30 million cost associated with Georgetown in terms of laying off individual.

So the way I think about it is there is $100 million reported benefit already in NAFTA in the second half we talked about the Calvert slab impact and then we have just gone through the points of destocking is ended in the U.S. and so we should have improve volumes and better costs performance.

In terms of the medium term net debt question I think you start with the premise that EBITDA is structurally lower. I don’t think where in that camp, I think we clearly are in an environment where EBITDA is lower, but I don’t believe the structurally lower.

I think the area that we look at is China and there’s been a lot of data coming out of China demonstrating the lack of profitability of Chinese mills.

I think CISA announced almost half of the Chinese steel producers are loss making there is significant billions of dollars are loss that they making, but even more interestingly when you look at the spread in China. The spread China in July is almost $40 less than the second quarter.

So clearly we feel that this is not sustainable in the medium to long run and therefore structural adjustment to the global steel industry.

Lastly, I would add that when we talked about the medium term net debt target we said that when we achieve that target we will then access what we do with the excess cash do we increase dividends, do we increase CapEx, or do we reduce debt flow so those options on that argument remains valid..

Thank you very much..

Great thanks. And we will now take the next question from Rochus at Kepler. Please..

Yes, just one question back to your volume guidance 3% to 5% which is maintained at the point around 3% in the first half.

What’s the key drivers beside NAFTA which you talked in detail to what help you to get to higher point of your guidance range and probably could you give us a bit of a relative sense how other areas might contributed relative to the NAFTA in terms of volume uplift in the second half? And in that context, you expect the same usual seasonality in Europe this year in the third quarter.

That’s the first part. The other part is the long product division, the long product side of your European portfolio has done extraordinarily well with some 10% growth.

Is there anything particularly we can take from that is there anything you see on a broader base happening on the construction front in Europe and color would be quite helpful and just for clarification $30 million cost at Georgetown that has happened in the second quarter, obviously, correct?.

Yes that’s right. In terms of your question just walking through shipments generally, so we expect improved shipments in NAFTA we expect improved shipments in Brazil and we also expect improved shipment in ACIS. And we expect lower shipments because a seasonal factors in Europe. And since we are ACIS I just want to make maybe few remarks.

I think it’s important to recognize that our performance is improving. We talked about the increase in shipments. We have relined a furnace in Kazakhstan as well. And we'll have the benefit of that output in the second half. However, market conditions in the ACIS segment are at present time worse than the first half.

So the improved performance doesn't necessarily translate into improve EBITDA into the second half. In terms of long products, I think Q1 was notably weak. And so in Q2, I think there was a catch-up effect as well in the long business.

And the other impacts of improved long performance are just- our product mix has moved upwards, as I mentioned earlier, towards more HAV..

Okay, just clear. Thank you..

Thanks, Rochus. We’ll move to next question from Jaap at ING. Please..

Yes, hi. Thanks for taking my question. I guess the first one would be on the cash cost for mining. You've clearly indicated that the Canadian operations are going well, and you're moving towards the $30 per tonne there.

But could you maybe comment on the whole, and kind of when do you see that target in reach?.

Thank you, Jaap. Yes. It's been progressive task, and it's a wide-ranging cost-reduction program that's been going for about two and a half years if we focus on Canada, which has taken us, as we mentioned earlier that 40% since 2013 down to this year. And that trend sees us continuing the reduction into Q4.

So a wide-spread range of opportunities for us, contractor reductions, efficiency gains, right down to port improvements, rail haulage. It's a culture change and a cost-reduction change program that's well underway. And we still see room for us to capture more cost saving benefits going forward..

And could you maybe put more- like a number on let's say for the division, the cash cost of production you're aiming at, let's say, in the coming 1-2 years?.

We won't be giving specific numbers. But we still think that whilst we've achieved a lot in Canada, and that's not just Canada, so it's across the board that those cost reduction actions are in place. We still see room for opportunities. So the trend continues.

We're going to have to redouble our efforts of prices go to where they touched in about four weeks ago at the 44 level. But it is a matter of continuous aggressive cost-cutting. In Canada we've said that number has got a chance of going below the $3 level and we’re putting all efforts to that account..

Okay, great. That's it from my side..

Thank, Jaap. So we’ll - we’ve got a couple of more questions to come. So the first we’ll take from Phil Gibbs at KeyBanc Capital. Please..

Good morning. Any color you could give on China, given you operate there? Any push that you're seeing within the country to reduce capacity? I know that you spoke a bit about the losses being unsustainable. I agree with you.

Just any thoughts there?.

We have been hearing a lot that the Chinese government wants to reduce capacity by 80 million tonnes. And last couple of months this year we have seen couple of plants getting shut down, who have highly polluted and very small plants. So there is a desire from the Chinese government to reduce capacity.

But we have to really watch and see how much they do, and in which timeframe, clearly with this kind of losses, which we are seeing in first half of this year and month of July, when the spread reduced to squeeze by another $40, I think that this should really accelerate the process of closing down the capacity. But we need to be watchful and see..

Okay, appreciate that. And then just secondarily, when - I think the third driver you mentioned for improved second half profitability for the business was cost levers. I was curious as to whether you are seeing those cost levers as short term in nature or structural in nature. And if you could provide any broader comments on the U.S.

within that context would be helpful. Thank you..

In both cases we said Kazakhstan, it should be of the structural nature, and also in U.S., since we are in the middle of negotiations with the union, we do not want to speak very specific. But clearly our target is not to be in a disadvantaged position on the ways its build comparing with the competitor, whether it is steel or alternate product..

Great, thank you. So unless you have anything further Phil I think we’ll move to the next question, which we will take from Chuck Bradford of Bradford Research..

Good afternoon. Question about the trade cases that's been talked about so much. But the new law that was passed in the U.S. would seem to speed up the process.

But has there been any analysis done as to whether or not the new law is compliant with the WTO?.

That's kind of beyond my pay grade. I presume it would not have been passed if it were not, Chuck. But it's not something that I think we're the particular experts..

The U.S. has been sued in the past and found not being compliant. Because I'm really trying to get an idea of what impact the trade cases will have. Some of what I've seen so far is it's been a downward pressure on Asian prices.

Have you seen any effect?.

Yes, I think we need to let the process work through before we can really see the effect. I think there's so many factors driving price levels and developments worldwide that's it's difficult for me to say that some trade, even some threat or rumor of trade cases being filed in the U.S.

is driving price levels over all the tonnage that's flowing through markets in Asia. So I think again, as you know very well I'm sure, we need to go through the process here. I think we still expect it takes about the same amount of time. We'll see sometime later this year the initial findings of injury, quantified by the Department of Commerce.

So building in the court case on that 6 to 0 ITC ruling, and from that point on then whatever duties are identified would begin to be charged.

And then I think that insofar as that starts to eliminate or reduce unfairly traded product in the US market, then that should have a positive effect for us both in terms of—let’s say in revenues more generally. So both volume and prices.

So, again it’s difficult to quantify that relative to all the other factors that are driving demand and results in that market. But I think we still see an important benefit. And I think we have no real long-term concerns that these aren't appropriate changes in the law..

Thank you..

Great, thanks very much. So we’ll now move to our last question is from [indiscernible]..

Thanks guys. I got two quick questions. The first one is on NAFTA and the onerous contract charge. If U.S. or North American steel prices stay where they are, would you need to and if so at what point, would you take another onerous contract charge? That's the first question.

The second is the shipment guidance plus 3% to 5% this year, when you gave the shipment guidance at Q1 I think you said about half of the 5% was inclusive of the startup of the Newcastle blast furnace. Is that still the case in this new 3% to 5% shipment guidance? Thank you..

Okay, in terms of how we account for onerous contracts, we clearly project forward based on the existing market prices. Market prices in the U.S. are moving up. So there is no need or no expectation that we would have an onerous contract charge. The charge was taken in Q1, and that was a low point of the cycle.

In terms of the shipment guidance, you're right. I think what we talked about was that half of it is coming from furnace restarts. So not only Newcastle and we talked the furnace in Brazil, which is Tubarao. We talked about Kazakhstan, which you will see some of that in the second half and obviously an effect of Newcastle.

What has changed since we talked about that in Q1 is the South African market is much weaker. So you won't really see that much of impact of the Newcastle furnace coming into ACIS as much we perhaps anticipated before. But that is kind of being supplemented or supported by increased shipments out of Europe. So that's why the guidance remains 3% to 5%.

NAFTA clearly is also doing better in the second half..

Okay, thank you. I could just follow-up on the first question again on the onerous contract charge, you said you project forward. Are you able to give us a sense of how far you projected forward with that charge or the tonnage that it covered? Is that a prospect given prices have crept up, that even that you can reverse some of that charge..

So the charge has taken and to the extent that the prices turn out to be better than that, that flows through EBITDA.

Right?.

Okay..

And we project forward from an accounting perspective for the reporting period at that point in time when you're going to take the charge. And if the contract is of a longer duration, then we use the existing pricing for that reporting period and project into the contract duration..

Okay. Thanks, cheers..

Thank you very much. Since there are no other questions, thank you very much for participating in this call. And looking forward to talking to you next quarter. In the meantime, have a happy summer..