Cleveland-Cliffs Inc.
Q2 2021 Earnings Call Transcript

Published: 22 Jul 2021

[Operator:]

Good morning, ladies and gentlemen. My name is Diego, and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs Second Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections for the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that could cause results to differ materially are set forth in reports on Forms 10-K and 10-Q and news releases filed with the SEC, which are available on the company website.

[Keith Koci:]

Thanks, Diego, and good morning everyone. Our second quarter numbers for revenue, net income and EBITDA were all quarterly records. They clearly demonstrate our operational and commercial success in integrating the two acquisitions into Cleveland-Cliffs, as well as a sustainable steel environment supported by strong and resilient demand for our products. This being said, our Q2 record numbers

[Lourenco Goncalves:]

Thank you Keith and good morning to everyone. The best way to understand the new Cleveland-Cliffs is by comparing Q2 results with Q1. Our revenue line increased by $1 billion and our cost of goods sold increased by just $100 million. The seamless and complete integration of both AK Steel and ArcelorMittal USA into Cleveland-Cliffs has generated a new and very efficient business model geared toward value creation. Demand for steel is very strong across all sectors, and strong demand supports strong prices. Q4 2020 was supposed to be the peak for steel prices, then Q1 2021, and then again in Q2. Well, we are in Q3 and the reality is demand is relentless. Most of our customers are experiencing record profits and learning that higher prices are good for pretty much everyone in the supply chain. Actually some of the customers who were complaining earlier this year about rising steel prices then turned around and decided to accept the reality. They cut deals with Cleveland-Cliffs at that time and are now just plain happy. Others probably will be unhappy for a long time. Also as new electric arc furnace capacity continues to be brought to operation in the United States and abroad, the notion that prime scrap is precious metal will be better understood. Iron ore fundamentals are strong as well, keeping the price of pig iron imported by the mini views elevated and also pushing up the pricing of steel offered by foreign sources.

[Operator:]

Thank you. And at this time, we will be conducting our question-and-answer session. Our first question comes from Phil Gibbs with KeyBanc Capital Markets. Please state your question.

[Phil Gibbs:]

Hey, good morning.

[Lourenco Goncalves:]

Good morning, Phil.

[Phil Gibbs:]

Lourenco I had a question just on the automotive piece of the equation. I think the revenues declined there a little bit, and you mentioned some chip issues impacting production. How is that evolving as you look into the back half of the year? The automotive supply chain has been kind of tough to read from our vantage point.

[Lourenco Goncalves:]

Yeah, I agree. Yeah. You can only read what you get good information. And they are not really sharing very good information, because we – at this point of view, we here at Cleveland-Cliffs, we're no longer relying on – by and large of course there are exception. Some of our clients are better than others. But by and large, we rely on our own assessment of how they are going to pull from the just-in-time inventory because they are always from the outside standpoint, we really optimistic. But actually they are hedging their position just in case they get what they need and then they will need the steel. But on the other hand, our commitment primarily is with our shareholders and we can't just play with that. So, that's why we moved a lot of tons in Q2 from automotive to other clients and that was a good thing for us. Something that we can only accomplish if you are managing our fully integrated and a synergetic company like the new Cleveland-Cliffs. So, what's my view? Yes, things will get better. They will not get worse. They will get that. But you always take lessons from situations. And this serious things that they put themselves on with microchips -- between the microchips being the tip of the iceberg shows that the supply chain is pretty weak and it's too complex. So, I assume that going forward they will -- they mean the automotive OEMs they will start to manage their supply chains a little better with more emphasis on real things like being close to the supplier understanding that short term is better not rely on port is mandatory. So, I'm very optimistic that things will get better.

[Phil Gibbs:]

Okay Lourenco. And then as we look at the third quarter, I know you've got some scheduled maintenance. Is that from an incremental standpoint versus the second quarter kind of a transitory cost headwind for you all as you have more maintenance in there or is that really not a factor?

[Lourenco Goncalves:]

It's minor. It's minor. And at the end of the day what matters is that all numbers that we gave as guidance they are already embedding all these things. So, we are talking about $1.8 billion EBITDA in Q3. And Keith Koci just released our full year guidance of $5.5 billion for 2021. So, that implies another $1.8 billion EBITDA in Q4. So, all these two numbers Q3 Q4 EBITDA of $1.8 billion are set in stone at this point the way we normally do our assessment and all these cost fluctuations are taken into consideration. The important thing is that -- a lot of the reliability that the clients are seeing right now and the way we supply from our big footprint is already a consequence of how we approach maintenance. We are taking very good care of the assets that we acquired and we are playing extremely well in -- with production planning and making sure that we are prepared for all the plant outages. For example, this one in the Indiana Harbor with a 45 days duration, we of course, already built a lot of slab inventory. And a lot of what you see in cash flow is related to that cash flow in Q2 because we have to prepare for this outage. Otherwise the client should not be taken care of. So, our holistic approach to the footprint our way our technical and a matter of fact approach on how to deal with the assets is a big change. I think it's a very welcome change to this industry since we acquired the assets that we did last year.

[Phil Gibbs:]

Thanks. And if I could ask just a follow-up just on the guidance that you guys have provided the $5.5 billion. There's some puts and takes. What's the expectation for hot rolled for the rest of the year in that equation? Thanks guys.

[Lourenco Goncalves:]

We are using the curve that we have available to us with -- from the commodity stacks of the big banks. And we are sticking with the same way and assessment that we used before. So there is nothing very negative about. There is nothing overly positive about. We just using the forecast -- the same forecast that you and other research analysts probably used using the fourth curve of the commodities that's of the big things.

[Phil Gibbs:]

Thanks, Lourenco. I appreciate it.

[Lourenco Goncalves:]

All right. Thank you, Phil.

[Operator:]

And our next question comes from Lucas Pipes with B. Riley Securities. Please go ahead with your question.

[Lucas Pipes:]

Hey, good morning everybody. And congratulations on another really strong quarter and a very positive outlook from my perspective.

[Lourenco Goncalves:]

Thanks, Lucas.

[Lucas Pipes:]

Lourenco I wanted to touch a little bit on the net debt target of zero. It makes all the sense in the world to me. But maybe the market could benefit from getting an explanation from just what is the strategic rationale for a net debt zero target? Thank you very much for your perspective.

[Lourenco Goncalves:]

Look, Lucas, first of all, net debt zero in a cyclical industry is something that should not cause anyone surprise. That's a very first thing. We -- I have been in this business for four decades. I have seen everything

[Lucas Pipes:]

No. That's very, very helpful. And I appreciate that perspective very much. My second question, Lourenco, is in regards to the fixed price contracts. You touched on those in the remarks and in the release this morning. And I wonder, just in terms of contract structure, what is on the table here? Could we be seeing some index pricing with some of your auto customers later this year? Is that a possibility, or how would you describe these negotiations at this point? Thank you very much.

[Lourenco Goncalves:]

Lucas, I think you appreciate that I'm not going to say publicly or any outside conversation about how we are actually negotiated with the clients. That's off limits. So we are not going to talk about that. I would just say that, people still talk about synergies and things like that. If there's one synergy that people can deny that we accomplish are commercial synergies. So we are now a much stronger commercial animal than either of the three companies that were behind the new Cleveland-Cliffs have ever been. We are in good shape. And we are doing everything we need to do to the business, to the shareholders, to the balance sheet and to the debt holders. So at the end of the day, everybody will be happy, including the clients. I'm not saying that all clients would be happy. I'm prepared to dump a client if I need to. That's another thing that in the past I am 100% sure that AK still have never considered, because they believe that if they do ArcelorMittal will certainly go there and grab the business and vice versa. That opportunity is gone. And I'll leave at that.

[Lucas Pipes:]

Lourenco, thank you very much and continue. Best of luck.

[Lourenco Goncalves:]

Thank you.

[Operator:]

Thank you. Our next question comes from Tristan Gresser with Exane BNP Paribas. Please go ahead with your question.

[Tristan Gresser:]

Yes. Hi. Good morning. Thank you for taking my question. Maybe first a quick one on the outlook for maybe working capital in H2. Obviously, you had a big deal in Q2 as you mentioned to prepare for the outage. What should we expect for H2? Maybe more neutral release given the outage. And also, if you can touch on if anything has changed regarding CapEx for next year as well. Thank you.

[Keith Koci:]

Yes. Sure, Tristan. So the working capital, the two big factors are receivables and inventory. Receivables will really just be dependent on pricing. So whatever pricing assumption is used for the rest of the year is the way the receivables will go, because volumes are likely to remain similar to where they are now. So probably, it depends. Prices go up, receivables will go up and if prices were to move down, we don't expect that. But if they were then the receivables will come down. So but more than likely, you're just looking at flat for the rest of the year on receivables. Inventory same thing, its going to depend on if and when the automakers can pull – pull the additional demand to catch for the chip shortage. We do have a small inventory build for them ready to go. So if they can pull, we can probably release a couple of hundred million out of inventory, if the chip shortage goes into next year then that might sit and go into next year. So it's – again, it's going to depend on, how our customers produce here in the second half, as far as CapEx, we would – we haven't developed our 2022 CapEx forecast yet. At this point for modeling purposes, we would assume just to use a similar number where we're heading this year. We're heading to about a $650 million number this year. So at this point, that's probably a good number as well to use for 2022. But we'll be updating that number as we continue our analysis and our budget process for 2022. And we'll make an update in the coming quarters.

[Tristan Gresser:]

All right. Thank you. If I may follow-up regarding your environmental targets to reduce emission, I think minus 25% by 2030. You talked about the interesting use of natural gas, but also I think energy efficiency, carbon capture and storage. Between all those option is there really one that stands out that would enable you to achieve most of the gains in terms of CO2 reduction? And also, when you look at this time frame is there any CapEx gross CapEx associated with those efforts? And lastly, I think the US government is also kind of preparing to help the industry to de-carbonize. Do you expect to receive some kind of formal help or financing as well? Thank you.

[Lourenco Goncalves:]

I'm sorry. Expect to achieve what? Say it one more time.

[Tristan Gresser:]

Your carbon emission reduction 25% by 2023.

[Lourenco Goncalves:]

Yeah. We are totally confident that, we are getting there. And we also will continue to refine these numbers toward targets for 2035, 2040, 2050. We're going to get there. But I don't feel like at this point, there is any need other than for press release purposes to be stating that we will be carbon neutral by 2050, because nobody knows at this point. That's it. Every single company that committed with that are just telling what people would like to hear. My 2030 number is real, as real as my net debt zero, target as real as my $9 billion in revenues year-to-date, as real as my EBITDA year-to-date. That is a number that nobody could have imagined six months ago. That's how we do things. We are in the United States, Tristan. You guys in Europe, you guys talk a good game. But the best contribution that Europe can really give to the decarbonization of the world is not in subsidizing losers and mavericks that come with proposals, just to keep people employed. So Europe sucks from the environmental standpoint. So we are real here in the United States. We have the best footprint. We have the best carbon compliance in the entire world. Europe is light years behind. Japan is light years behind. Korea is light years behind. And China doesn't even make to the picture yet. That's the reality. People will start to see that in the very near future. Did that answer your question?

[Tristan Gresser:]

Yes. Kind of. Just one quick follow-up. When you look at.

[Lourenco Goncalves:]

But what part did you not understand? I'll tell you that the plants that are talking a good game should be shut down by now. Spain this folks. You are in Europe, right? You're out of London?

[Tristan Gresser:]

Yes, yes.

[Lourenco Goncalves:]

Yes. So you know what I'm talking about. You know. You know better than anyone on the call. But you get the same. So keep doing. Be my guest.

[Tristan Gresser:]

So one follow-up I had was just on the elements, you can leverage to decarbonize. And you talk about natural gas and I think it's really interesting. But for your targets do – would you say that natural gas will be, I don't know more than 50% of all the reductions you can realize or carbon capture and storage is also a part to play in energy efficiency as well? Just trying to figure out the different elements in that target. Thank you.

[Lourenco Goncalves:]

Yes. Natural gas is hydrogen at the end of the day. Look at the proportion of carbon and hydrogen in the CH4 and CH286. Think about the chemical reaction to reduce iron ore in a blast furnace or in a direct reduction reactor, when you use coke alone produces CO as a reduction or reform the natural gas when you produce a lot of H2 and a little bit of CO that will be transformed in CO2 only in minor proportion. So natural gas is the way to decarbonize the steel industry, the only technologically dominated way at this point. Everybody else that's talking about anything is just technologically speculating. That's the story we are doing right here. When people are talking about I put $1 billion in a plant that nobody believed that would be a game changer. So much of a game changer that made us able to change the landscape of the American steel industry by consolidating the two best mills in the integrated route and supplying them with HBI. HBI, that was never considered feedstock for blast furnaces other than a weak attempt to buy that I don't know if it plays out or not because nobody hears about – because of the problem that I have just mentioned to you about the European steel. So – but look it takes time for people to see things. I am a patient guy. I never fight to take. So I'm always ready to take advantage of the weakness of investors. They give me money to take it. I'll leave at that, Tristan. All right. Thanks. Appreciate it. Diego, who is next?

[Operator:]

Thank you. And our next question comes from Matthew Fields with Bank of America. Please go ahead.

[Matthew Fields:]

Hey, Lourenco. Hi, Keith. A couple of questions on the cash flow balance sheet side of the house. Clarification on that $455 million of debt retired in July. Is that mostly ABL? Is that some additional market repurchases of bonds? And then how do you anticipate using that kind of free cash flow that you're telegraphing for debt reduction on ABL versus open market repurchases? None of the bonds are callable until 2022. So, I just wanted to get a sense of the trajectory there for the rest of the year.

[Keith Koci:]

Yes. Sure Matt. Yes, so far the whole -- the entire $455 million went to the ABL this quarter. And it's -- we'll look at open market repurchases from time-to-time when they're available. Generally, we can only get so much going that route. So, ABL is obviously the priority and where the majority is going to go but we'll always be a little bit opportunistic at times to pick off some stuff in the open market.

[Matthew Fields:]

Okay, great. That's very helpful. Thank you. And then second on the MC&A preferred stake. You don't have to do anything until December 2022. I guess you have a free option on deciding what to do then before that starts paying dividends. But now that you're considering paying it in cash, I guess at $20 a share roughly that's $1.1 billion, $1.2 billion proceeds if I'm correct. Does that affect the net debt zero target in 2022 if that's now considered to be paid in cash versus retired with equity?

[Lourenco Goncalves:]

Well, based on our current projections if we decide to do the pay down -- the payoff of the redemption of the entire tranche of preferred in Q3 that would delay our net debt zero accomplished by one quarter. So, we said that we would get net debt zero within 2022 that doesn't change. It might change might delay one quarter. So, instead of accomplished that by let's call Q3, will come in Q4. So what? Still in 2022. That's the scale of things right now. But paying the preferred now and spending the $1.1 billion that you have just said it's just again LG not fighting the tape because if I try not to do it I will adapt to having the opportunity to do the same thing, instead of paying $1.1 billion, we'd have to pay $2.2 billion because if you believe that we are going to continue to trade at this ridiculous low price be my guest. Actually you know that that's not the things that play, right? You are from Bank of America, right?

[Matthew Fields:]

Well, I know not to fight Lourenco on the tape. So, thanks for the clarity on that. And it's just a stunning kind of to see where the company is now versus a few years ago. So, thanks very much for the questions. Appreciate it and good luck in the rest of the year.

[Lourenco Goncalves:]

I appreciate that very much the support. And you are in the bonds and it's always great to have a good partner within Bank of America. Thanks Matt.

[Operator:]

Thank you. Our next question comes from Karl Blunden with Goldman Sachs. Please state your question.

[Karl Blunden:]

Hi, good morning. Thanks for the time. Maybe just a follow-up here on the net debt zero position that you anticipate getting to in 2022. Gives you a lot of options. And you've outlined a couple of the other -- the different options available to you. At what point do you consider accelerating your decarbonization investments or potentially also reducing pension obligations?

[Lourenco Goncalves:]

Let's start with the -- accelerating decarbonization. We continue to work with a plan that was put in place in 2017. So, I don't know where you are coming from. But we are the only ones that instead of talking about we have already done things. You understand that we are using 54% of our internal usage of HBI in blast furnace, right? So you understand when you put more HBI inside the blast furnace, you are putting more pre-reduced iron inside the blast furnace. If it's pre-reduced, you need less reduction. If you need less reduction, you are loading less carbon. So you are as a consequence generating less CO. So it's happening as we speak. Also I said that one of the guidelines for the Indiana Harbor 7 order that's coming and starting September 1st is to enhance our ability to use more HBI, more natural gas through the two years. So that will reduce scope. That will reduce fuel. So what else I'm missing here is that you feel like we are not doing enough for decarbonization.

[Karl Blunden:]

No. I think you guys are a leader on the HBI at least as far as blast furnaces are concerned. But at some point, you might have an opportunity to make another big investment either EAF or additional HBI capacity?

[Lourenco Goncalves:]

In order to invest in HBI capacity, I need to be short in HBI. I'm not shorting HBI just yet. So I'm still pretty much in line. By the end of this year, I will have zero HBI to sell to the market because micro internal consumption will be pretty much equivalent to my two-point something million tons production a year. So they are going to be even in terms of our internal consumption. So at that point we might consider. As far as investing in EAF, they're going to need to have to invest on HBI because if you follow my line of thought there's a scrap shortage in the making, particularly for highly specified products that was kind of ignored by others. That's another thing that I can't prove right now. You're going to have to bear with me. So one more year, two more years to be crystal clear. But that's the history of my life. And I'm not surprised that you are not there with me just yet. And another thing last but not least, we are very comfortable with the footprint that we have. We are generating a lot less yield than any other integrated steel build in the entire world right now as we speak. I'm talking about Nippon Steel, JFE, , TIPCO. And we are going to continue to reduce the CO2 generation and we're going to implement carbon capture. No there's not planning to go EAF. I'm not going to tell you what you'd like to hear. And the Goldman Sachs needs to move on from this concepts that are W-R-O-N-G wrong. You got it?

[Karl Blunden:]

No. I got you. I mean you guys are doing on a lot of different areas. I'm just thinking about different…

[Lourenco Goncalves:]

I'm sure you did not get.

[Karl Blunden:]

…uses of cash.

[Lourenco Goncalves:]

But you will get in six months, one year, two years, you and Goldman Sachs.

[Karl Blunden:]

No. A lot of that makes sense. In terms of what you're using cash for you discussed the preferred. Is there any intended use or potential use of cash for pension obligations some of the acquired obligations for example?

[Lourenco Goncalves:]

Yeah. Keith will take that.

[Keith Koci:]

Yeah. Hey, Karl, right now our balance sheet has the pension and the OPEB right now. The pension obligations are shrinking as we speak. Our asset returns are outperforming all other costs on pensions right now. We're in a position now where we don't -- we see pension cash pension funding requirements of almost less than $20 million a year going forward. So, it's basically a zero going forward. So we're there on pension. As far as the retiree health and OPEB, it's less than $200 million a year to fund in cash. And with a company of our size that's -- we consider that to be negligible. And we can handle that going forward. It's a 40, 50-year run out on those obligations. So there's no reason to pre-fund or do anything like that. It would be probably not the best use of our capital to prefund anything like that. But it's a long run out.

[Karl Blunden:]

That's helpful. I guess the one quick follow-up is on I haven't seen a gross debt target. It sounds like you could continue being flexible there. And you wouldn't really want to put that out there because I think it would commit you to taking out bonds at given points in time. But is there anything you can share around gross debt?

[Lourenco Goncalves:]

Yes. You already answered your own question yes. All right.

[Karl Blunden:]

All right. Thanks.

[Lourenco Goncalves:]

Who’s next?

[Operator:]

Our next question comes from Lucas Pipes with B. Riley Securities. Please go ahead.

[Lucas Pipes:]

Hey, thanks very much for taking the follow up, Lourenco and team. And it's somewhat of a higher level question, but you take kind of the second half guidance here multiply it by 2 annualize it. And on a forward basis with your net debt target you're -- it's 1.5x EV to EBITDA. And so clearly what -- market implies a rapid deterioration in steel prices. And Lourenco, I wondered if you could shared your views on how steel markets specifically in North America are different? And how it might be in comparison to other commodities that have rolled over may not be reasonable here? Thank you very much for your impression.

[Lourenco Goncalves:]

So, I don't know exactly what other commodities you have in mind, but if you have in mind stuff like Columbus and things like that it's night and day. So it's just not -- it doesn't apply. The other thing is that you need to understand that a lot of what's called commodity in our market is actually highly specified material that cannot be interchangeable. It cannot be just replaced at will, even though that's the perception that is sold to the market. One -- actually one very relevant thing that's coming from our M&A move last year with AK ArcellorMittal USA is to show just that because we deal with situations that we have a lot of leverage in the negotiations. Not blood force. But the fact that we are in control of things that can make or break for these clients because we're not dealing with commodity products. We are dealing with highly specified parts that can derail development. I'm not saying that we're going to put this to good use, but it's real and exists. That's a big difference between pork belly and steel specified -- advanced high-strain steels for specific users. Another point to be considered is that one thing is, when you're talking about the ability to do something. I don't really question the ability of a plant, or a furnace, or company to do something in more scale. But to manage our supply chain with 5 million tons give or take a year of complex parts in a way that keeps the flow of metal into the assembly lines on time and on quality that's an enormous task and knowing that, every three to four years, we need to redo everything to comply with new models and things like that. We are working now on things that will happen in 2025, 2026, 2027. So it's a beast that keeps spitting on itself. And then the follow-up question would be Lucas why this – why it's never done before? And the question is good. But the answer for me is that, I don't know, because I always thought it would be possible. And since we – this is what we did last year, I'm proving every day that, it's possible, and we're doing it. But the proof is in the pudding. And again, I don't find the tape. So I'm prepared for any type of outcome in the marketplace. They like it, great. They don't like it. I do something to be good for my shareholders, or bondholders, for my clients with whatever the market gives to me.

[Lucas Pipes:]

Very, very helpful. Lourenco, I really appreciate that additional color, and continue best of luck.

[Lourenco Goncalves:]

Thanks, Lucas.

[Operator:]

Thank you. Our next question comes from Sean Wondrack with Deutsche Bank. Please go ahead.

[Sean Wondrack:]

Hey, guys. And really nice job quarter again.

[Lourenco Goncalves:]

Hey, Sean.

[Sean Wondrack:]

First question just when you take a look at the 9, 7 in secured notes you have outstanding are there any other means other than open market purchases, where you could redeem that tranche below the make coal price at this point in time?

[Keith Koci:]

Yeah. Sean, they're callable next year. So the call periods opens up I think in the first quarter of next year. So between now and then not a whole lot of options on that tranche.

[Sean Wondrack:]

Got you. Okay. Thank you. Appreciate that. And then just with the massive debt reduction that's ongoing right now. I know, this is probably a hard question to answer. But is there a rough idea, what the potential interest savings could be there? I mean, I think you paid a pretty considerable amount of interest last year. And obviously that's going to come down at time.

[Keith Koci:]

Yeah. I mean, it depends on where we go. So the ABL is obviously our lowest cost debt. So as we pay down the ABL, we're saving about 2% on that. And then as we – we took down the 25s in the second quarter and that was – those were 5.75%. So it depends on the order, and how we do it. But yeah, you're going to see a sizable reduction. It will show up more kind of starting early next year than it will this year. But yeah, there will be a sizable reduction in our cash interest costs starting in –

[Lourenco Goncalves:]

Yeah. But look to say at this point, that we are paying an enormous amount in interest expense it's not really reflecting the reality of the numbers. Look, we are talking about a company that will have revenues in the $20 billion level. So we have one trust that, I don't like. And that's the trust that we put in place at the peak of the pandemic. And that one is not callable. And that one is the biggest candidate for me to bite the bullet and pay the make whole. Everything else we'll manage, because all other tranches are priced in perfection. Remember, we are pricing at BB level when we were B minus. We are now pricing at a BBB level when we're a BB. And we have no plans to issue. And we know that there's an issue that right now will be very cheap. So, no, we are in good shape. Our debt is not a problem right now. Our debt is good.

[Sean Wondrack:]

Right. No. That makes a lot of sense and that kind of helps us frame on the gross debt side. That you want to keep some of this capital outstanding because it's low cost which makes sense.

[Keith Koci:]

Yeah.

[Sean Wondrack:]

Just my last question, if I may in the M&A market. We saw Nucor made a small downstream acquisition I think yesterday. Another one of your competitors recently mentioned the potential for a pickup in the M&A market. Obviously, you got way ahead of the curve with your transactions last year and that's shown up in the P&L. But can you just maybe provide some thoughts of after you get through your debt reduction goal? Sort of what your capital allocation priorities are there?

[Lourenco Goncalves:]

Yeah. Our information one, the redemption of the ArcelorMittal preferred is the very first one. And I'm glad to see other companies doing M&A is good, not to the level and to the extent that we did, but it's still good. Small things are good too. So -- and we will only talk about our own plans when they are done. So we don't have anything to discuss right now, Sean.

[Sean Wondrack:]

Okay. Thank you very much for answering my questions.

[Lourenco Goncalves:]

Thank you. Thank you.

[Operator:]

Thank you. There are no further questions at this time. I'll turn it back to management for closing remarks.

[Lourenco Goncalves:]

Thank you very much. I appreciate the interest and we will keep in touch. Bye now.

[Operator:]

This concludes today's conference. All parties may disconnect. Have a great day.