Cole Hathorn

Cole Hathorn asked about the market dynamics for softwood pulp, including supply disruptions and the narrowing hardwood-softwood price gap, and the outlook for upward price pressure. He also questioned the drivers of higher European lumber and fiber costs, the German economy's lead indicators, the pulp and paper industry's lobbying efforts against wood for biofuel, the impact of lower CO2 costs in Europe, and the long-term potential for wood to gain market share in construction against steel and cement.

Answer

Juan Carlos Bueno (President and Chief Executive Officer) noted significant developments in Indonesia potentially reducing hardwood supply, which, combined with a narrowed hardwood-softwood price delta, suggests potential upward price pressure. He attributed higher German fiber costs to the government's biofuel incentives and reduced sawlog availability due to lower-than-expected calamity harvests. Bueno mentioned gradual improvement in the German economy, supported by defense investments, and a positive outlook for lumber prices. He confirmed active lobbying against wood for biofuel and for proper biogenic carbon credit allocation. Bueno also expressed strong belief in mass timber's growth in construction, citing double-digit annual growth rates in Europe and North America, driven by cost-effectiveness, environmental benefits, and construction speed.

Cole Hathorn explored the market dynamics for softwood pulp, considering Indonesian supply disruptions and the narrowing hardwood-softwood price gap. He also sought detailed insights into European lumber fiber cost trends, the outlook for construction demand, and Mercer's lobbying efforts regarding wood use for biofuels versus products.

Answer

Juan Carlos Bueno, President and CEO, noted significant Indonesian developments potentially leading to improved pulp prices. He explained that German energy policy and reduced harvesting are driving up fiber costs in Europe, but Nordic supply might ease pressure. He anticipates gradual improvement in German construction, with positive lumber price momentum overall for the year, and confirmed active lobbying against biofuel prioritization and for biogenic carbon credits. He also discussed the long-term potential of mass timber to substitute traditional construction materials.

Cole Hathorn from Jefferies asked about the potential impact of US lumber duties on Canadian sawmill fiber supply and the knock-on effects for the pulp market. He also inquired about the relative profitability of Mercer's European versus Canadian pulp mills and the outlook for the German pallets and lumber business, including the possibility of energy rebates.

Answer

CEO Juan Carlos Bueno agreed that higher duties could pressure Canadian sawmills and tighten fiber supply, noting Mercer is well-positioned by sourcing fiber from the US for its Celgar mill. He described the European mills as highly competitive and profitable, with future value from bio-refinery projects. He sees a gradual recovery in Germany into 2026. CFO Richard Short added that no energy rebates are expected from Germany.

Cole Hathorn from Jefferies inquired about raw material cost trends, specifically the drivers for the 10% sawlog cost increase in Germany. He also asked for the rationale behind the expected pulp price stability in Europe and North America compared to China. In follow-ups, he questioned the dynamics of China's lower softwood futures price and its relation to import prices, and later asked about changes in customer order patterns.

Answer

Executive Juan Bueno attributed the German sawlog cost increase to lower availability of calamity wood while demand remains normal, particularly impacting the Torgau mill as it shifts to higher-quality lumber production. He reiterated that pulp price stability in the West is supported by constrained supply and rising producer costs due to currency shifts. Bueno agreed that the lower China futures price is heavily influenced by lower-quality Russian fiber and doesn't necessarily reflect the price for prime imported pulp. He concluded that customer order patterns in Europe and North America remain stable and contract-based.

Cole Hathorn of Jefferies sought clarification on whether German fiber cost inflation applied to both sawlogs and pulpwood, asked about any signs of recovery in the pallet business, and inquired about the future of the softwood-hardwood pulp price spread.

Answer

Juan Bueno (Executive) clarified that fiber cost inflation in Germany is expected to be higher for sawlogs (approx. 10%) than for pulp logs (approx. 5-6%). He reported no significant recovery in the pallet market, which remains subdued due to weakness in the German auto and chemical industries. Regarding pulp, Bueno expects the wide price gap between softwood and hardwood to persist through 2025, as strong supply constraints support softwood prices while hardwood prices rise from a low base due to producer maintenance.

Cole Hathorn asked for more detail on the uptick in European lumber markets, including regional drivers, and requested color on regional fiber cost trends in Europe versus Canada. He followed up by asking if the company's favorable cost position in Europe was leading to an improved order book due to competitor downtime.

Answer

Executive Juan Bueno identified the U.K. as the primary driver of the demand uptick in European lumber. He stated that fiber costs were flat quarter-over-quarter, crediting the Peace River woodroom and U.S. sourcing in Canada, and the logistics strength of their Mercer Holz subsidiary in Germany. Bueno clarified that the benefit from competitor downtime is reflected in strong overall softwood pulp prices rather than increased order volumes, as their mills are already running at full capacity with contracted sales.

Cole Hathorn asked about ArcelorMittal's strategy for ramping up European capacity in response to import quotas, estimating how much of the displaced 10 million tons of imports ArcelorMittal could meet while maintaining market share, and whether this would require additional CapEx. He also questioned the triggers for activating idle capacity and if customers would need to adapt to longer supply chains.

Answer

CEO Aditya Mittal stated that maintaining market share would not require significant CapEx, as the company has idle capacity to meet market growth driven by customer demand. CFO Genuino M. Christino confirmed that ArcelorMittal's market share against domestic supply is about 30% of the 8 million tons of flat products expected to be displaced by import reductions. He reiterated that the existing CapEx guidance of $4.5-$5 billion includes these plans, with full impact expected by 2027. Both executives emphasized that the trigger for ramping up capacity would be customer demand and the order book, ensuring profitability and earning the cost of capital. Aditya Mittal also noted flexibility through slack capacity in Brazil to augment European facilities with slabs.

Cole Hathorn asked about ArcelorMittal's capacity ramp-up strategy in Europe, specifically how much of the estimated 10 million tons of displaced imports ArcelorMittal could meet, and if this would require additional CapEx beyond existing idle capacity. He also questioned the triggers for ramping up idle capacity, such as demand and pricing, and whether European customers would need to adapt to longer order books or supply chains.

Answer

CEO Aditya Mittal confirmed that maintaining market share would require minimal CapEx, as ArcelorMittal possesses idle capacity. CFO Genuino Christino agreed with the 10 million tons import reduction estimate (8 million for flat products) and ArcelorMittal's 30% market share, expecting the full impact in 2027. He stated that the company is preparing to meet demand without additional CapEx beyond the $4.5 billion-$5 billion guidance. Mr. Christino emphasized that the trigger for increasing capacity would be actual demand, ensuring economic viability and a return on capital. Mr. Mittal added that the order book would determine production cycles, noting flexibility through slack capacity in Brazil to augment European facilities with slabs.

Cole Hathorn inquired about ArcelorMittal's medium-term CapEx profile for 2025-2027, considering strategic projects, and the outlook for working capital into 2026, especially in a potentially stronger pricing environment. He also asked about order book management for early 2026.

Answer

CFO Genuino Christino advised using a CapEx range of $4.5 billion to $5 billion as a current reference and stated that working capital in 2026 would likely move in line with EBITDA, implying investment if the business is strong. He noted that order books remain relatively stable, with no special actions being taken to anticipate a stronger 2026 beyond allowing necessary working capital.

Cole Hathorn of Jefferies asked about the European market outlook, including plans to increase volumes and how competitors with idle capacity might react to improved spreads. He also inquired about the dynamics driving the expected Q2 improvement in the India JV, particularly regarding safeguard actions.

Answer

Group CFO Genuino Christino stated that European demand is being supported by a reduction in imports due to trade actions, which should allow domestic players to regain market share. He noted that restarting idle capacity is not simple for competitors due to high CO2 costs. For India, he cited strong demand growth, new safeguards supporting prices, and the completion of Q1 maintenance as key factors for an expected improvement in Q2 profitability.

Cole Hathorn asked for an outlook on the Indian market, whether new CapEx projects support structurally higher margins, and for a summary of actions taken over the past five years that have improved the business's margin profile.

Answer

CEO Aditya Mittal described the short-term Indian market as challenging due to a flood of imports but expressed confidence that the government will take appropriate safeguard action. He affirmed that the company's growth strategy is focused on value-accretive projects, not just crude steel capacity, to drive structurally higher margins. He cited portfolio optimization, high-quality acquisitions like Pecém, and downstream investments as key actions that have transformed the company's profitability.

Cole Hathorn asked about the impact of new trade barriers in Brazil and requested a recap of the portfolio changes that have improved the company's EBITDA per tonne. He also sought commentary on the political discussion around steel shipments from Mexico to the U.S.

Answer

Group CFO Genuino Christino noted that new quotas in Brazil are helpful but more action is needed against high import levels. He attributed the improved EBITDA per tonne to exiting lower-margin commodity businesses in Europe and acquiring higher-profitability assets in Brazil. Regarding Mexico, he clarified that all of ArcelorMittal's steel is smelted and poured in Mexico, placing it outside the circumvention debate.

Cole Hathorn from Jefferies asked for the outlook on sequential volume improvement following a weak Q1 and for more detail on the drivers of North America's EBIT performance, especially in the retail tableware business.

Answer

Executive Ralf Wunderlich confirmed Q1 is seasonally the softest quarter and expects stronger quarters ahead, supported by seasonality and new investments in North America coming online later in the year. He reiterated that the North American retail tableware business, while a strong market, was uniquely impacted in Q1 by a volume pull-forward into the prior year and the timing of Easter.

Asked about the sequential volume outlook, the EBIT drivers for North America in Q2, and the potential impact of U.S. tariffs on sales.

Answer

Q1 is seasonally the weakest quarter, and performance is expected to improve sequentially due to seasonality and new capacity coming online. The Q1 weakness in North American retail tableware was a temporary effect from a Q4 pull-forward and late Easter. The company does not anticipate a significant impact from tariffs due to its 'local for local' model.