ArcelorMittal SA

AEX:MT

Earnings Call Analysis

Company Showcases Strong Portfolio and Market Growth

The company has executed a strategic buyback program, repurchasing over 30% of its business, and concurrently invested in growth, notably acquiring productive assets in Texas, USA and Brazil, both adding $500 million in normalized EBITDA. They emphasize the importance of maintaining a strong balance sheet to support growth and reward shareholders. The U.S. market is salient, with expected growth from $2 trillion investments boosting demand, while Indian demand is projected to nearly double, prompting capacity expansion from 7 to 15 million tonnes. Amidst a global landscape, production adjustments have been made, reflecting progress against previously high output levels. Company leadership is confident in their high-quality, cost-competitive assets, particularly in Brazil, which positions them well to endure market variabilities and continue servicing demands effectively.

Introduction

Senior executives of a global steel and mining company participated in the third quarter earnings call, addressing financial performance, tragic events, and corporate strategy. The foreboding undertones due to a recent mining disaster in Kazakhstan colored the meeting, eliciting condolences and firm commitments to enhance safety measures.

Accident in Kazakhstan

The company experienced a profound tragedy with the loss of 46 lives in a coal mine accident in Kazakhstan, deeply impacting families, colleagues, and communities. Internal investigations and cooperation with government inquiries aim to prevent any recurrence, and a pre-existing safety strategy, bolstered in 2022, will undergo intense review to further mitigate risks.

Financial Highlights and Outlook

Despite market headwinds, the company's financial health appears strong with consistent profitability and a robust balance sheet. Quarterly EBITDA per ton hit $136, outperforming historical averages, while net income almost doubled the long-term average. The low debt level, substantial liquidity, and unchanged guidance for working capital and capital expenditure showcase a company on steady footing. Future projections acknowledge the volatility of commodity prices but remain positive due to sound fundamentals and low inventory levels in the market.

Capital Allocation and Credit Health

Management purports a conservative approach to capital management, underscoring the importance of maintaining an investment-grade credit rating. This strategy has been validated, as seen by the large-scale buyback of over 30% of the company in two years, a testament to their commitment to shareholder value.

Kazakhstan Negotiations and Book Value Impact

Talks with the Kazakh government regarding the transfer of a mining asset are ongoing, and details on the balance sheet impact concerning deconsolidation of these assets are to emerge post-negotiation. Although the company provided the book value of the operations, predictions about potential implications on provisions and liabilities remain reserved until final agreement terms are publicized.

Market Dynamics and Strategic Investments

In the U.S., the company remains optimistic about steel demand, bolstered by extensive infrastructure investments. This aligns with the commitment to expand U.S. operations, including the Calvert project's electric arc furnace and a hydrogen-based iron (HBI) facility, reinforcing their positioning in high-quality, low-carbon steel production. With India's demand anticipated to increase significantly, the company is doubling down on expansion plans, which include a focus on high-quality, cost-efficient production.

Response to Chinese Export Trends and European Market Factors

Rising Chinese exports, while concerning, are not perceived as a long-term structural trend. The company foresees continued service to affected markets like Brazil due to the competitive nature and high quality of assets. European operations face cyclical maintenance, but the overarching tone anticipates readiness and capacity to address market demands once maintenance concludes.

Ukraine Operations and Decarbonization Efforts

Ukraine's challenging situation calls for perseverance with operations kept at reduced capacity due to logistics constraints. Nonetheless, the company is committed to employee support and asset maintenance. Decarbonization, a key strategic focus, sees movement in renewable energy projects, and preliminary evaluations into hydrogen as an internal venture or partnership, indicating a multi-dimensional approach to environmental responsibility.

Concluding Remarks

As the earnings call wrapped up, the company reiterated its position on prudent financial practices and its determination to navigate through the current complex market environment. The emphasis remains on the strategic advancement of development projects and safeguarding capital allocation for growth while ensuring incremental value to shareholders amid unpredictable global market pressures.

Earnings Call Transcript 2023-Q3

[Daniel Fairclough, executive]

Good afternoon, everyone. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. Thank you very much for joining us on this call today to discuss the third quarter and 9 months 2023. Before I hand directly to Mr. Mittal, I would like to refer you to the presentation we published this morning on our website and in particular, draw your attention to the disclaimers on Slide #2 of that presentation.

I'll now hand over to I now hand over the call to our Executive Chairman, Mr. Mittal

[Lakshmi Mittal, executive]

Thank you, Daniel. Good day, and thank you for joining us today for this Q3 earnings call. I am joined today by our Chief Executive, Adit Mittal, our Chief Financial Officer, Genuino Christino; and our Executive Vice President, [indiscernible], whose responsibilities include corporate health and safety.

Aditya and I would not normally be present at the third quarter, but we wanted to speak with you all, given the tragic accident that took place on October 28 at our [ Costeno ] coal mine in Kazakhstan that claimed the lives of 46 of our colleagues. The accident was devastating, especially for the families of the victims and also for colleagues of the disease who have lost friends and for the communities to which they will never return. It is naturally with these groups, the families, colleagues and communities where our greatest focus has been [indiscernible]. It goes without saying that it is also a very difficult time for the company. We are a global group, but we are also a community. The pain and the anguish within the company a [indiscernible] accident remains very raw. The outpouring of compassionate support shown by colleagues around the world for our colleagues in Kazakhstan has been a gratifying remainder of the depth of human kindness.

You will want to know how did this accident happen? We are asking ourself the same questions, and we will make sure we get answers. Answers that could help us implement the actions that will enable us to emerge stronger in the future. A full review of our health and safety program, including the progress that has been made in the last 2 years as well as the areas that need to be strengthened and improved is already underway. We will ensure that whatever lessons that can be learned are learned. We will ensure that whatever aspects of our safety processes can be strengthened will be strengthened.

Kazakhstan has played an important role in the group since we acquired in 1995. But over the course of this year, we have been in discussions with the government of Kazakhstan about the future ownership of this [indiscernible]. Before the recent accident, we had signed a preliminary agreement for the government to take over the operations. We are committed to completing this transaction as soon as possible. It is important for thousands of employees that work in [indiscernible] and Karaganda as well as their families and communities that they have certainty and stability about the future. Our Kazakhstan operations have played an important role in this company's history. I sincerely hope they will have a long and successful future.

With this, I will hand over now to add some additional details on the steps we are taking from here. Thank you.

[Aditya Mittal, executive]

As Mr. Mittal already said, 20th of October was the saddest day in the history of ArcelorMittal. The families of our 46 colleagues have had their lives devastated. Their grief and loss are shared by all our colleagues and our communities. We know there is no adequate compensation for this loss that we're doing everything in our power to provide appropriate support. Part of this is ensuring we fulfill our basic civic responsibility to properly look after those who have lost loved ones. Even during the process of transferring ownership to the government of Kazakhstan, we will continue to provide support for our communities as they navigate the strategy.

I'm sure, like me, you want to understand how this happened. We don't have all the answers today. A special commission has been initiated by the government to conduct the first phase investigation. We are cooperating fully to assist in this investigation. The commission is still taking evidence, and we expect preliminary findings to be published soon. It is only in Kazakhstan that we own and operate gold mines. Nevertheless, it is only appropriate at a time like this to review safety across the group and make whatever improvements are required to ensure that every single one of ArcelorMittal's operations have 0 serious accidents.

We had already launched a major step change in our safety activities at the start of 2022 when a new strategy focused on the twin pillars of risk management and cultural change was developed for group-wide implementation. You will find more detail on that strategy in the presentation and the earnings release.

We can see that in the steel side of the business, the step change is delivering results. Because of the efforts and commitment of our colleagues globally, this year, we have had no direct employee fatalities outside of CIS. And while we cannot yet say the same when you include contractors, we are nevertheless 40% better than the World Steel Association record. But this was not enough to stop these accidents happening. Given where we stand today, I cannot conclude that we have every single aspect covered or that our organization is set up optimally to achieve the transformation as swiftly as we must. We need to do much more. The only appropriate course of action [indiscernible] the hard look inside our group identify the gaps that exist and strengthen our actions, processes and culture to ensure that an accident of this magnitude never happens again.

Therefore, we're also commissioning an independent third-party comprehensive global safety audit whose key recommendations will be published in due course. We know that going forward, we will be judged more on what we do than what we say. We are committed to taking all the steps necessary to learn from the strategy ensure it is never repeated and emerged a better, safer company.

Genuino will now make some further remarks.

[Genuino Christino, executive]

Thank you, Aditya. I must also begin by expressing my sincere condolences to the families and friends of our colleagues who died following the accident on the 28th of October. The accidents that we have experienced in the coal mines have been deeply troubling to the company and to the Kazakh government. It's fair to say that over the course of the year, we have faced not only an increasingly difficult trade environment, but also an increasingly tense operating environment. You know that on the 22nd of October, we signed a nonbinding agreement with the government of Kazakhstan to transfer the asset to the Kazakh state. Discussions have been ongoing for many months already, and it became increasingly clear that the government was again interested in only and operating this asset. To help you understand the performance and financial contribution of Kazakhstan to our group, we have provided some relevant information in today's earnings release and accompanying slide deck. And I hope that you will appreciate the ongoing negotiations, we will not be able to comment further on today's call. As soon as there is a final agreement, it will be communicated via the appropriate channels.

As we have today announced our 3Q results, I will also make some comments on the financial performance, although I will keep my remarks brief. Our financial performance continues to reflect the structural improvements we have talked about in recent quarters. Despite the impact of weaker average selling prices and seasonally lower volumes, EBITDA per ton in quarter 3 was $136. For the first 9 months, it was $149. This compares well with the long-term history of our group, showing the benefits of our high-graded asset portfolio.

But looking at EBITDA alone only shows part of our financial improvement. If you look at our long-term history, the average annual net income pre-exceptional items was about $2 billion. Our run rate this quarter was almost double this long-term average level. This captures the improvement in EBITDA, the much bigger contribution of our joint ventures, in particular, India and the benefits of our low-cost balance sheet.

Net debt this quarter declined to $4.3 billion, and we finished the quarter with excellent liquidity of $11.8 billion. Our guidance on working capital and CapEx is unchanged. After investing $0.9 billion in working capital year-to-date, we expect this to more than reverse in the final quarter. We expect our CapEx to be in the middle of our $4.5 billion to $5 billion guidance range.

Looking forward, Quarter 4 will be impacted by the lower spread levels we have experienced in recent months, but the levels reached in recent weeks are unsustainable and supply will respond. And why the real demand environment is weak, in aggregate, inventories in the system remain low. And we have seen in recent years that when inventories are low, a shift in sentiment can quickly translate to prices.

The longer-term fundamental picture remains positive. Our strong balance sheet and expectations of consistently positive free cash flow underpins the continued execution of our strategy. We will continue to invest in our operations to improve our safety and environmental performance and supply the growing needs of our customers for low carbon steel solutions. We will continue to advance our strategic growth projects to support higher normalized profitability, and we will continue to implement our defined capital allocation policy, which allows us to advance our strategic and growth agendas, while consistently returning capital to shareholders through our share buybacks.

With our opening remarks now concluded, we will now take your questions. Daniel, please go ahead.

[Daniel Fairclough, executive]

Thank you, Genuino. So if I can just reiterate the instructions from the operator. [Operator Instructions] We do have a number of analysts already in the queue, and we will take the first question, please, from Alain at Morgan Stanley.

[Alain Gabriel, analyst]

Two questions as well from my side. I'll take them one at a time. on a question on capital allocation to Aditya. You seem to have posed your buyback program since August, and M&A opportunities may emerge in the current environment. If these opportunities come your way, how do you think about balance sheet capacity and the leverage that you're willing to take on in the context of your capital allocation framework? That's my first question.

[Aditya Mittal, executive]

Let me start again. I think I was on mute. Yes, Alain, thank you for your question. Let me -- so I guess you guys can hear me? Operator, can you guys all hear me? So let me start again, Alain, thank you for your question.

We are very proud of our strong balance sheet. We remain very focused on retaining an investment-grade credit rating. We think they are very important strategically. And we think the capital allocation policy that we outlined over the last 2 years has worked increasingly well. In the last 2 years, we have bought back over 30% of the business. We have been able to invest in our strategic CapEx and at the same time, we've been able to grow the business. We acquired a fantastic facility in Texas, in Corpus Christi, as you know, which supports our decarb efforts. We acquired a very well-invested facility in Brazil. Both these facilities are performing well, achieving normalized EBITDA to $500 million. So we believe that our strong balance sheet the focus on retaining that, along with the capital allocation policy that we have outlined allows us to both grow the business, develop the business as well as return capital to shareholders.

[Alain Gabriel, analyst]

My second question is on Kazakhstan. I guess you mentioned you're constrained can say, but my question is more of an accounting one. I'm not sure if Genuino you're able to answer that. But -- are you able to give us a bit more granularity on the balance sheet impact of a potential deconsolidation of these assets? You talked about $1.8 billion of book value. I presume this could be at risk if you give away the assets. And then as an extension to this one, how much provisions and other liabilities are attached to the Kazakh assets?

[Genuino Christino, executive]

Yes. I mean, as we highlighted, we're not going to be in a position as this negotiation is happening with the government. We're not going to be able to comment much. I mean we try to provide you and with some more numbers for the operations better so that you can better understand what is the contribution of this asset to our consolidated numbers. So you have the book values there. And we will have to wait to see what is the final outcome of the negotiations before we can comment more.

[Daniel Fairclough, executive]

So we'll move to the next question, please, from Tristan at BNP.

[Tristan Gresser, analyst]

I have two. The first one is on the U.S. market. I noticed in the slide in your presentation that you paint a pretty optimistic assessment of the demand environment there. I think you referred to a 9% upside potential for flat steel demand which I think is more than what you have for India. So could you elaborate a bit there? And it's my understanding that higher spending in the U.S. will benefit more long steel products and flat steel, except plate. So I would like to have your thought there? And second, you purchased an HBI facility in [indiscernible]. You're spending more at Calvert. So how attractive is the U.S. market? And how does that fit in your capital allocation strategy? I start there.

[Aditya Mittal, executive]

Sure. Tristan, thank you for the question. Maybe I'll take the second half of your the second question that you asked, and I'll get Genuino to revert on the first. So in terms of the U.S., I must emphasize that the U.S. is one of our largest single country markets. If you exclude India, it is the largest single country market. And we have an excellent franchise business. We supply to the most demanding customers, not only from our operations in Calvert, Alabama, but from other facilities that we have in NAFTA. We continue to invest in the U.S. As you are aware, we are finishing our electric arc furnace project at Calvert that we finished in 2024. That will strengthen the facility further and bring significant benefits to our business.

And as you mentioned, we have acquired an HBI facility in Corpus Christi, Texas. It's doing really well. It's a nameplate capacity. I've been struggling for many, many years. It really enables us to move forward in terms of decarbonizing our business because as you are aware, HBI provides low-cost green metallics. Relatively lower carbon metallics and optionality to green it in different technologies. So the U.S. market remains important. We are focused on it, and I'll ask Genuino to talk to you a little bit about the growth forecasts.

[Genuino Christino, executive]

Thank you, Aditya. Tristan, I think some of the numbers that you were quoting, what you see now in line is really our projection for 2032. So then you see that we expect the demand in U.S. to grow, supported by -- as you know, we have different programs announced by the [indiscernible], very large programs, probably totaling more than $2 trillion of investments over the next years so that will support [indiscernible] steel. But if you see the level of growth in India, it's superior, right? So we are expecting that the demand in India will almost double from where we are today. So that's almost 100 million tons of growth, and that's why we are investing so much in India, trying to double the capacity now from the 7 million to 15 million tonnes and with some more plans ahead of us.

So when you have these volumes of investments in the U.S., I mean, all these investments expected to happen over the next couple of years, I think it's fair to assume that everybody will benefit not only the long producers, but everybody will benefit. We will see more warehouses, more roads, more everything, right? So I would expect that the whole industry will benefit from that.

[Tristan Gresser, analyst]

All right. That's clear. And if I could just follow-up with also a high topic question. It's on China. I think the demand and export situation in China has been pretty negative this year with the real estate market normalizing. Do you believe those production and export trends are here to stay? Or is that just temporary? And how is the situation in our view different from 2015, '16? And what can you do to limit the negative impact on your operation? And if things were to last, would you contemplate further restructuring in Europe or Brazil been hit by Chinese export?

[Genuino Christino, executive]

Yes thank you, Tristan. You're right. I think we are seeing, of course, a significant increase in exports from China. We continue to believe that that's not structural. If you look at the level of profitability today in China, we believe that only a small number of companies can actually make money in this environment. Level of spreads are extremely low, too low, actually. We started to see some production cuts. The September numbers show some progress. And if you see, the situation seems to some extent, [indiscernible] much what we saw in the last half of 2022 when production was really running high in the first half, and then we saw significant production cuts in the second half of 2022. And then overall for the year, the production didn't change much. We'll see now what happens remainder of the year. Clearly, in this environment, it's tough, right, for companies to make money. So we don't believe that China wants to go back to the 2015, '16 situation. As you can recall that trigger a number of trade actions we will see finally what happens. Our assets, I mean, you mentioned Brazil, the very -- assets are of very high quality. They are cost competitive. And I'm sure we're going to be in a position to continue to service those markets.

[Daniel Fairclough, executive]

So we'll now move to the next question from Patrick at Bank of America.

[Patrick Mann, analyst]

I just have two very quick follow-up questions from the previous question. So you did say in terms of balance sheet strength, you want to keep investment-grade balance sheet, a strong balance sheet. Just remind us, is there an absolute net debt number? Should we still think about $7 billion is the ceiling there? And then the second follow-up question is just if I look at what the government of Kazakhstan is saying around the timing of the transfer of that business, they're saying they want to get it done in November. Have you got any comments around the timing? And then I've got one other question after that, but I'll stop for the quick follow-ups.

[Aditya Mittal, executive]

Sure. Thank you, Patrick. Patrick, I think you heard my comments quite well. So there's not much more to add. We're very focused on our balance sheet, retaining investment-grade credit rating. And at the same time, we're very supportive and of our capital allocation policy, it has worked really well.

In terms of the net debt target, it depends on what the earnings power of the business is fundamentally. To the extent that, that changes, we will update our net debt target. But you should assume that we are focused on a strong balance sheet, investment credit rating -- investment-grade credit rating as well as maintaining our capital allocation framework. In terms of Kazakhstan, I think Genuino talked a lot about it in his opening remarks. There's not much more I think all parties are working diligently to expedite the pros of this transaction.

[Patrick Mann, analyst]

Okay. And then my -- I suppose new question is you're saying structurally the business is more profitable and $136 a tonne EBITDA in a very weak market is much better than previous down cycles. I suppose just thinking forward to next year, especially in Europe, auto production this year has been really strong, and it looks like backlog of orders is coming to an end and possibly we might see sort of some contraction in autos production next year. Do you think this could take another leg down in terms of where that trough EBITDA is? In other words, are we being flatted by very strong auto production this year and that could weaken into next year? Or how are you thinking about the auto market for 2024?

[Genuino Christino, executive]

Yes, Patrick. Let me take this one. Well, it's really too early to talk about next year in terms of auto negotiations, in some cases, we have started discussions, but it's still early in the process. Our focus really when it comes to this contract is to make sure that we have a win-win negotiation with our customers. We are focused on making sure that we are rewarded by the quality of the products and services that we deliver. And that has always been the focus. And I think that's well understood. So I would not be overly concerned about that right now. You're right. So we'll see what happens.

I would just point that inventory levels are still low. So there can be also opportunity for them to replenish some of their inventories. I cannot speak for them. But this year, it has been good. It has been strong. We have been actually shipped more than what we had anticipated at the beginning of the year and we'll see how it plays out next year.

[Daniel Fairclough, executive]

So we'll move now to a question from Bastian at Deutsche Bank.

[Bastian Synagowitz, analyst]

Also, thanks for giving us that color on [indiscernible], could you maybe help us with the EBITDA number, which [ Temitohas ] been contributing in the course of the third quarter, please? This is my first question.

[Genuino Christino, executive]

If you look at our slide, what we have been saying -- what we said is we gave you what has been the average contribution of Demita to the group in terms of EBITDA of about $300 million. CapEx, about $250 million per year. And we are saying that this year because of the challenging market environment and operational environment that we have faced the profitability of the business and the EBIT of the business is negative. But we're not going to break down the results. You can see, I mean, what is look at 9 months you will see that we have Ukraine and Kazakhstan negative, offset in part by [indiscernible]. But that gives you an indication of the magnitude, but it has been negative this year for us.

[Bastian Synagowitz, analyst]

Could you at least tell us -- and I suppose it's also been negative last quarter, but could you at least give us some direction guidance, whether it's been negative last quarter?

[Genuino Christino, executive]

It was negative last quarter as well.

[Bastian Synagowitz, analyst]

Okay. Then my second question is on the pollution Fee Act in the U.S. And I appreciate that's a very preliminary framework, and it's probably very early days, but it would still be great if you could give us your thoughts on it and how it would be impacting your business? My question is on the pollution Fee Act in the U.S., which I thought was basically I think the initiative was published about a week ago, and it seems to be a bit of a response to the conversations, which have held on the European and U.S. I think green steel and aluminum trade agreement, which apparently has failed. And I think that deadline has been shifted out. But from my understanding, there has been now a new proposal made, i.e., the pollution Fee Act, which I think is also aiming to basically put a charge on imports or basically try to find a mechanism to basically protect the U.S. market against material, which is not coping with the emission standards, which the U.S. market has. Just in case you've got any early thoughts on this and how it would be impacting your business, given that you're also shipping quite a bit of amount of material from both obviously, Brazil, Mexico and also Canada? Just in case you got any early thoughts, that would be great.

[Aditya Mittal, executive]

Yes. Thank you. Nothing specific, to be honest with you. I think it's very early days. But clearly, the direction of travel is that leading economies are moving towards a more fair based trading system. And what does that really mean? It means to the extent that industries and companies are decarbonizing, how can they ensure that they can compete effectively other imports. And so there needs to be a level playing field. And I think you see some of that in the C-band that has been launched in Europe. It's under trial period, and after 2 years, there will be costs I believe, in the U.S. also, they're examining how best to ensure that there is a level playing field and that we have a fair trading system.

[Bastian Synagowitz, analyst]

Okay. Maybe just on the European sea band because I saw on your slides, you say that there is already a penalty relating to -- related to the noncompliance reporting rules for the [indiscernible] also in the transition period. My understanding was that there is not a financial penalty at this point, but maybe I'm wrong, if maybe you could just briefly provide a bit of color on that as well.

[Genuino Christino, executive]

Yes. Bastian, our understanding is that you're right. So they will not be paying now, of course, for these first 2 years and the CO2 costs. But to the extent that it fails to report, then there can be some financial penalties to be established. We don't know exactly how this is going to work. It's still relatively new. In the first -- at least 3 quarters, the rules are yet being worked out and the commission and the various state and [indiscernible] states still align on how this is going to happen. But our understanding is that if some more imports and doesn't report, it can -- then can be subject to penalties, but that's not the same as pain for the carbon.

[Daniel Fairclough, executive]

We'll move now to a question from Max at auto. Go ahead, Max.

[Maxime Kogge, analyst]

My first question is on Ukraine. Can you share the current utilization rate in iron ore, bigger semifinished products? And the steps actually towards a step-up in production? I understand there's a blast furnace now in maintenance, but when it's done, when it's completed at the end of the year, there could be a significant increase in production. So could you give us a bit more color on that?

[Genuino Christino, executive]

Yes, Max, I can. To be honest, the situation has not really changed much. We continue to operate on less balance -- only one [indiscernible]. And we continue to run the mines at about 40%, 45% of capacity. The challenges continue to be logistics to get the raw materials in to get the finished products out. The products that we are producing today in terms of finished products, they have been sold domestically and to some neighboring countries where we still have access to logistics. So that remains really the main challenge and we have to see how it evolves. The situation is still, as we all know, quite fragile. But it's -- the good thing is the assets continue to be well kept and we continue to support our employees. And the teams are doing a great job in managing this very, very challenging situation.

[Maxime Kogge, analyst]

Okay. And the second and last question is on your decarbonization strategy. Its on hydrogen. I've seen that in Brazil, you signed an MOU with a local electricity company to evaluate the feasibility of a H2 plant. So I wonder how far would you be actually willing to in-source hydrogen production? Is it something that you think will be essentially outsourced to external providers? Or is that something that you could do also on your own and for a significant part of your needs in terms of DRI?

[Aditya Mittal, executive]

Yes. Thank you for the question. Just very quickly on decarb as big picture. As all of you are aware, ArcelorMittal is a technology leader. We have a phenomenal capability in terms of R&D. We have a globally diversified workforce, which I believe is the best in the industry. And along with the fact that we have different pockets of energy, and we have global asset base. I think we're extremely well positioned to lead the way in terms of how you decarbonize both steel processes as well as steel product.

In terms of what we are doing to vertically integrate into the energy space, the focus so far has been on renewable energy. There's a nice slide where we have 3 projects that we have started in India, in Brazil and in Argentina. These are excellent projects when you look through the see-through return, the benefit to the steel facility as well as renewable stand-alone return, they more than exceed our investment hurdles.

In terms of hydrogen and other sources, I think, look, it's preliminary, we're evaluating. To the extent that we can meet our investment hurdles and that they create value for us in the long run and further support as we decarbonize our business, we will clearly look at them and inform you accordingly.

[Daniel Fairclough, executive]

So we'll now move to a question from [ Timna ] at Wolfe Research.

[Unknown Analyst]

I was hoping for an update on Calvert timing, but also in the context of Calvert and also another large elective or furnace adding capacity how you're thinking about the scrap market? Certainly, the HBI facility have helps, but it seems like a lot of additional scrap demand around the corner, I would love your thoughts.

[Aditya Mittal, executive]

Sure. Thank you, Timna. Look, the Calvert project is proceeding well. We expect to have a start-up by the first half of 2024. It's an excellent project because it's got a lot of secondary metallurgy, and it can produce the highest grades and supported by our facility in Corpus Christi in Texas, as you mentioned, we will be able to do low-carbon, high-quality automotive products. So really, this will lead the way in terms of the U.S. steel business and the U.S. steel industry and really having a low-carbon base for high-quality exposed automotive applications.

In terms of scrap, I do agree with you that it's harder and harder to find good quality scrap, prime scrap in the United States. And that is why I think our strategy of investing in Texas making sure that we have that strategic asset where we have good quality, high quality, I should add, low-carbon metallics repay dividends.

[Unknown Analyst]

Okay. And if I could one more. What conditions are you thinking about to consider restarting some of the idle assets in Europe. It's a question of seasonality, you think? Or can you give us a little more color on what you're looking for there?

[Genuino Christino, executive]

Yes, Timna, let me take this one. I mean what we have right now, we have basically maintenance. Two of our furnaces. One furnace in Germany, it's going to be down for 30 days for maintenance. And then we have a [ reline ] in Gent in Belgium for about 70 days. And then after that, these finances should be up and running. The only furnace that is currently down for market conditions due to market conditions is for us, and we will wait a bit more to take a decision to restart the [indiscernible]. But other than that, and for the maintenance work that will be constraining our production in Q4, as we have highlighted in our earnings release, the other facilities all then.

[Daniel Fairclough, executive]

So we'll move now to a question from Andrew at UBS. Go ahead, Andrew.

[Andrew Jones, analyst]

Just wanted to touch on the M&A topic again. I think we tried to ask about sort of potential maximum leverage ratios and things like that. You talked about the earning power of the business. I mean it's very multiple of EBITDA? And also if you're thinking about acquisitions, I mean, is your -- would you consider using a significant amount of stock given the fact that, obviously, it trades at a pretty low multiple today and will be depressed point in the cycle? How do you think about use of stock in M&A? And I guess, we've all been tip turning around the topics. But what are you able to tell us about the links to yourselves to obviously a large producer in the U.S. and then also these [indiscernible] assets in India that have been in the press as well. Can you just give us an idea about maybe potential rationale and how you think about above those assets?

[Aditya Mittal, executive]

Yes. Thank you. Look, I don't think you guys are tip [indiscernible]. I think you guys are trying to ask it directly and directly many times. But as you are aware, we cannot comment on M&A. In terms of your question on capital discipline, I think that's a very good one. I think I said it, but you asked a nuance, so I will elaborate further.

We're focused on retaining a strong balance sheet, focused on retaining our investment-grade credit rating and focused on our capital allocation policy. As I mentioned, we have bought back more than 30% of the business. So really, it would not make sense for us to be issuing shares. I think you highlighted the multiple discrepancy. We've also talked about the book value per share. We talk about the growth. We talked about how in this environment, the margin per tonne remains good. If you look through our net income, it's very, very strong and it's [indiscernible] in the last 9 months on a per share basis. And that's because we have these excellent joint ventures as well.

You alluded to India, India is doing really well. It's a very strong business. We're growing it. We are investing to double the assets. So if you visit, you would see lots and lots of cranes and the underlying business is very strong because it has a low cost base. We have our own iron ore, we have our own pelletizers, everything is coastal. We make high-quality products there. We are starting up our automotive capable, cold rolling and galv lines as well. So I think that's the complete picture on ArcelorMittal and therefore, our capital allocation policy in which we take half of free cash flow and to shareholders as appropriate. I think it will not be appropriate for us to be issuing shares in this environment.

[Andrew Jones, analyst]

That's very clear. And -- but do you have -- I mean, you've talked about obviously the $7 billion in the past as the net debt target is for a -- to keep a strong balance sheet to keep paying investment credit rating. Is there a maximum point that you put on it? I mean if you exceeded, say, 2x EBITDA or that would that be -- would that be a no go? Or would it -- what -- can you give us any steer around that?

[Aditya Mittal, executive]

Yes. Look, I think the focus remains strong balance sheet, investment grade to the extent that we develop the business, grow the business, we can evaluate that. But really, you should look at this company will be maintaining and retaining its investment-based credit metrics. It's hard for me to be more explicit than that. But I think that provides you with a good framework of what we're trying to achieve.

[Daniel Fairclough, executive]

So we'll move to the last question actually, which is from Moses at JPMorgan.

[Moses Ola, analyst]

I just wanted to ask on the working capital so we build here in this quarter. And -- just trying to understand the reasons for that build, if any available to deal with building inventories for capacity curtailment? And if so, how much of these inventories are finished goods inventories versus semi finished goods? Just to give us a steer on essentially what we can expect to unwind in Q4 given obviously a weak demand environment currently?

[Genuino Christino, executive]

Yes, let me take this one. So there are a couple of reasons for the review of inventories in Q3. One is, of course, we had the incident in with 2 finances in Europe. So as a result, we draw from inventories to supply customers in the first half. So we got to a point where we had to start replenishing our internal inventories. And as I have said in another question, we do have maintenance work in quarter 4 into finances. So it was also important to prepare for that. So most of the replenishment that you see is on the metal stock side. And as we have guided up to Q3, we have invested about $900 million in working capital and our expectation is to more than reverse that in Q4. So that should give you an indication of the potential inflow coming from working capital in Q4. I hope that helps.

[Daniel Fairclough, executive]

Aditya, that's our last question, so I'll hand the call back to you.

[Aditya Mittal, executive]

Okay. Thank you, Daniel. Thank you, everyone, for joining the call today. I just wanted to reiterate that I know it's a very difficult time for all of us. The tragedy and the pain of Kazakhstan is very raw. We're doing everything we can to support the communities and our colleagues who are deeply impacted. They're absolutely devastated. At the same time, we are working very, very hard. All the leaders in the company are focused on improving our safety practices across the board. We are also going to use the support of a third-party independent firm which will do a comprehensive audit looking at governance practices, looking at policies, processes, what we do on the shop floor, are audits good enough, training exercises, and we will be publishing those recommendations. I can assure you we take this very seriously, extremely seriously and we're all more than committed, more than 100% committed on improving our global safety performance.

With that, thank you very much for your time and look forward to talking to you soon.

[Operator]

Ladies and gentlemen, the conference has now concluded.