EuroBusiness Media (EBM): Arcelor, one of the world's leading steel companies, just reported earnings for the first half, and the Company is unveiling its plans for its Brazilian assets. Guy Dollé, welcome. You are the CEO of Arcelor. What are your comments on the company's performance in the first half of the year?
Guy Dollé (GD): These are very good results, the best ever achieved by Arcelor, mainly due to the price increases - despite raw materials price increases - and also due to our exposure to South America. And that was achieved despite a huge decrease of volume of production and shipments, in order to enable us to better control the evolution of inventories.
EBM: What is the exact situation on stocks, or inventories, in Europe today?
GD: That depends on the product. I think that for long carbon steel, which is mainly devoted to construction, it is close to normal or normal -- we saw the first order increase in June, which is good. For flat, it's a little bit more difficult. I do believe that inventories will be close to normal in Europe at the end of Q3. We have already seen the first early signal of needs coming from some transformers in July. So that means that the "trough" was more or less reached at the end of Q2.
EBM: What is your outlook for prices at the end of the year? Is there any likelihood of a pick up in European demand which could support prices?
GD: It depends on the product of course. I don't anticipate any improvement for stainless. For long carbon steel, as you know, we use the automatic scrap surcharge, which means that what is important is not just prices, but also margins on raw materials. We have been able to control that, which means that these margins are rather normal compared to a year ago. The situation is much more difficult for longs, especially for commodities where, due to imports -- starting with Southern Europe -- prices have been under pressure in May and June. But we reached the bottom at the end of June, and there are no more offers at low prices today. This means that if there is -- as I expect -- some improvement in the technical demand, due to inventory levels, there is a possibility of a small price increase during Q4.
EMB: Today, at the half year mark, could you fine tune for us your guidance and outlook for the full-year?
GD: You'll remember that a couple of months ago I said that 2005 results would be better than 2004 results. I can confirm that this will be realized.
EBM: Coming now to today's announcement, the market has been expecting you to unveil the details of your plans for your Brazilian assets. Can you now disclose the full details of the operation?
GD: This was announced in principle a year ago, when we described the model for creating a holding called Arcelor do Brazil, which would be listed on the Bovespa. We have achieved that plan, using Belgo Mineira as the center piece, and using the name Arcelor do Brazil. It will be one of the blue chip companies listed on the Bovespa, and one of the six largest. It is very important for us, as well as our Brazilian and international shareholders, to be aware of the efficiency of this Brazilian Company.
EBM: What is the strategic significance of this Brazilian announcement, and what is the likely impact for Arcelor's overall valuation and its reception by the investment community?
GD: It's clear that we have two targets. The first one is to take advantage of the growing market that is South America - both in Brazil and Argentina. We believe that in the next decade the consumption per capita will double, and we will be able to take advantage of being active in this region. The second one is that Brazil is one of the lowest cost countries for producing semi, taking advantage of raw material availability, good performance of facilities, and good management. We will use this as the basis of our growth in North America and other countries, and also to transfer some of this semi to Europe, in order to replace the semi which used to be produced in continental plants.
EBM: As Brazil becomes an increasing part of Arcelor's story, how would you describe the comparative advantage of having a big presence in Brazil versus Europe, for example?
GD: It's a low cost country. It's clear that you are able to deliver top grade quality, for example on slabs, for 60 euros less (on cash costs) compared to our best continental plants. So it will first be used as a benchmark to improve our coastal plants, but it will also be used to deliver -- as I mentioned before -- products to our continental plants.
EBM: Beyond Brazil, what is your strategy in China? Do you plan to make acquisitions in China?
GD: China is a fantastic market, as you know, with a lot of needs and some prospects for growth. We have been in discussions with a Chinese company for two quarters now. I do believe that in the next three to four months we could reach an agreement. It's a little bit complex because you have to agree with the company, with the province, and with the central administration. But I am optimistic that we will be able to achieve this goal, and to take a very important stake in an efficient Chinese company.
EBM: Guy Dollé, CEO of Arcelor, thank you for being with us.
