20-F 1 final20F.htm 20F MAIN DOCUMENT UNITED STATES

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

       REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

        SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35788

 

ARCELORMITTAL

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

 

Grand Duchy of Luxembourg

(Jurisdiction of incorporation or organization)

 

24-26, Boulevard d’Avranches, L-1160 Luxembourg,
Grand Duchy of Luxembourg

(Address of Registrant’s principal executive offices)

 

Anne van Ysendyck, Company Secretary, 24-26, Boulevard d’Avranches, L-1160 Luxembourg,
Grand Duchy of Luxembourg. Fax: +352 4792 89 3746

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Ordinary Shares

New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is reporting obligation pursuant to Section 15(d) of the Act:

None

 

Indicate the number of outstanding shares of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Ordinary Shares

3,065,710,869

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x    No  ☐ 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ☐ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                                                    

Yes      No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer  

Accelerated filer  ☐ 

Non-accelerated filer  ☐ 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP    International Financial Reporting Standards as issued by the International Accounting Standards

Board  x   Other  ☐ 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.                    

Item 17  ☐    Item 18  ☐ 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                           

Yes      No  

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

 

 


 

TABLE OF CONTENTS

 

 

 

Page

PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION

3

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

7

PART I

 

7

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

7

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

7

ITEM 3.

KEY INFORMATION

7

A.

Selected financial data

7

B.

Capitalization and indebtedness

8

C.

Reasons for the offer and use of proceeds

8

D.

Risk factors

8

ITEM 4.

INFORMATION ON THE COMPANY

27

A.

History and development of the Company

27

B.

Business overview

33

C.

Organizational structure

75

D.

Property, plant and equipment

76

ITEM 4A.

UNRESOLVED STAFF COMMENTS

102

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

102

A.

Operating results

118

B.

Liquidity and capital resources

132

C.

Research and development, patents and licenses

139

D.

Trend information

139

E.

Off-balance sheet arrangements

140

F.

Tabular disclosure of contractual obligations

140

G.

Safe harbor

141

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

141

A.

Directors and senior management

141

B.

Compensation

148

C.

Board practices/corporate governance

160

D.

Employees

169

E.

Share ownership

173

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

174

A.

Major shareholders

174

B.

Related party transactions

176

C.

Interests of experts and counsel

179

ITEM 8.

FINANCIAL INFORMATION

179

A.

Consolidated statements and other financial information

179

B.

Significant changes

180

ITEM 9.

THE OFFER AND LISTING

180

A.

Offer and listing details

180

B.

Plan of distribution

182

C.

Markets

182

D.

Selling shareholders

183

E.

Dilution

183

F.

Expenses of the issue

183

ITEM 10.

ADDITIONAL INFORMATION

183

A.

Share capital

183

B.

Memorandum and Articles of Association

184

C.

Material contracts

194

D.

Exchange controls

195

E.

Taxation

195

F.

Dividends and paying agents

200

G.

Statements by experts

200

H.

Documents on display

200

I.

Subsidiary information

200

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

200

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

203

A.

Debt securities

203

B.

Warrants and rights

203

C.

Other securities

203

D.

American depositary shares

203

PART II

 

204

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

204

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

204

ITEM 15.

CONTROLS AND PROCEDURES

204

ITEM 16A.

AUDIT & RISK COMMITTEE FINANCIAL EXPERT

207

ITEM 16B.

CODE OF ETHICS

207

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

207

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

208

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

208

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

208

ITEM 16G.

CORPORATE GOVERNANCE

208

ITEM 16H.

MINE SAFETY DISCLOSURE

208

PART III

 

209

ITEM 17.

FINANCIAL STATEMENTS

209

ITEM 18.

FINANCIAL STATEMENTS

209

ITEM 19.

EXHIBITS

209

 


 

  

 

PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION

Definitions and terminology

Unless indicated otherwise, or the context otherwise requires, references herein to “ArcelorMittal”, “we”, “us”, “our” and the “Company” or similar terms are to ArcelorMittal, formerly known as Mittal Steel Company N.V. (“Mittal Steel”), having its registered office at 24-26, Boulevard d’Avranches, L-1160 Luxembourg, Grand Duchy of Luxembourg, and, where the context requires, its consolidated subsidiaries. References to the “ArcelorMittal group” and the “Group” are to ArcelorMittal and its consolidated subsidiaries. ArcelorMittal’s principal subsidiaries, categorized by reporting segment and location, are listed below.

For the purposes of this annual report, the names of the following ArcelorMittal subsidiaries as abbreviated below will be used where applicable.

 

 


 

 

Name of Subsidiary

 

Abbreviation

 

Country

 

NAFTA

 

 

 

 

 

ArcelorMittal Dofasco G.P.

 

ArcelorMittal Dofasco

 

Canada

 

ArcelorMittal México S.A. de C.V.

 

ArcelorMittal Mexico

 

Mexico

 

ArcelorMittal USA LLC

 

ArcelorMittal USA

 

USA

 

ArcelorMittal Las Truchas, S.A. de C.V.

 

ArcelorMittal Las Truchas

 

Mexico

 

ArcelorMittal Long Products Canada G.P.

 

ArcelorMittal Long Products Canada

 

Canada

 

 

 

 

 

 

 

Brazil and neighboring countries ("Brazil")

 

 

 

 

 

ArcelorMittal Brasil S.A.

 

ArcelorMittal Brasil

 

Brazil

 

Acindar Industria Argentina de Aceros S.A.

 

Acindar

 

Argentina

 

 

 

 

 

 

 

Europe

 

 

 

 

 

ArcelorMittal Atlantique et Lorraine S.A.S.

 

ArcelorMittal Atlantique & Lorraine

 

France

 

ArcelorMittal Belgium N.V.

 

ArcelorMittal Belgium

 

Belgium

 

ArcelorMittal España S.A.

 

ArcelorMittal España

 

Spain

 

ArcelorMittal Flat Carbon Europe S.A.

 

AMFCE

 

Luxembourg

 

ArcelorMittal Galati S.A.

 

ArcelorMittal Galati

 

Romania

 

ArcelorMittal Poland S.A.

 

ArcelorMittal Poland

 

Poland

 

ArcelorMittal Eisenhüttenstadt GmbH

 

ArcelorMittal Eisenhüttenstadt

 

Germany

 

ArcelorMittal Bremen GmbH

 

ArcelorMittal Bremen

 

Germany

 

ArcelorMittal Méditerranée S.A.S.

 

ArcelorMittal Méditerranée

 

France

 

ArcelorMittal Belval & Differdange S.A.

 

ArcelorMittal Belval & Differdange

 

Luxembourg

 

ArcelorMittal Hamburg GmbH

 

ArcelorMittal Hamburg

 

Germany

 

ArcelorMittal Ostrava a.s.

 

ArcelorMittal Ostrava

 

Czech Republic

 

ArcelorMittal Duisburg GmbH

 

ArcelorMittal Duisburg

 

Germany

 

 

 

 

 

 

 

Africa and Commonwealth of Independent States ("ACIS")

 

 

 

 

 

ArcelorMittal South Africa Ltd.

 

ArcelorMittal South Africa

 

South Africa

 

JSC ArcelorMittal Temirtau

 

ArcelorMittal Temirtau

 

Kazakhstan

 

PJSC ArcelorMittal Kryvyi Rih

 

ArcelorMittal Kryvyi Rih

 

Ukraine

 

ArcelorMittal International Luxembourg S.A.

 

ArcelorMittal International Luxembourg

 

Luxembourg

 

 

 

 

 

 

 

Mining

 

 

 

 

 

ArcelorMittal Mining Canada G.P. and ArcelorMittal Infrastructure Canada G.P.1

 

ArcelorMittal Mines and Infrastructure Canada

 

Canada

 

ArcelorMittal Liberia Ltd

 

ArcelorMittal Liberia

 

Liberia

 

JSC ArcelorMittal Temirtau

 

ArcelorMittal Temirtau

 

Kazakhstan

 

PJSC ArcelorMittal Kryvyi Rih

 

ArcelorMittal Kryvyi Rih

 

Ukraine

 

 

 

 

 

 

1

The business formerly carried on by ArcelorMittal Mines Canada Inc. is now carried on by ArcelorMittal Mining Canada G.P. and ArcelorMittal Infrastructure G.P.

 

In addition, unless indicated otherwise, or the context otherwise requires, references in this annual report to:

·         “production capacity” are to the annual production capacity of plant and equipment based on existing technical parameters as estimated by management;

·         “steel products” are to finished and semi-finished steel products, and exclude raw materials (including those described under “upstream” below), direct reduced iron (“DRI”), hot metal, coke, etc.;

·         “sales” include shipping and handling fees and costs billed to a customer in a sales transaction;

4


 

·         “tons”, “net tons” or “ST” are to short tons and are used in measurements involving steel products (a short ton is equal to 907.2 kilograms or 2,000 pounds);

·         “tonnes” or “MT” are to metric tonnes and are used in measurements involving steel products, as well as crude steel, iron ore, iron ore pellets, DRI, hot metal, coke, coal, pig iron and scrap (a metric tonne is equal to 1,000 kilograms or 2,204.62 pounds);

·         “Articles of Association” are to the amended and restated articles of association of ArcelorMittal, dated April 27, 2016;

·         “crude steel” are to the first solid steel product upon solidification of liquid steel, including ingots from conventional mills and semis (e.g., slab, billet and blooms) from continuous casters;

·         measures of distance are stated in kilometers, each of which equals approximately 0.62 miles, or in meters, each of which equals approximately 3.28 feet;

·         “DMTU” or “dmtu” stands for dry metric tonne unit;

·         “real”, “reais” or “R$” are to Brazilian reais, the official currency of Brazil;

·         “US$”, “$”, “dollars”, “USD” or “U.S. dollars” are to United States dollars, the official currency of the United States;

·         “AUD$” or “AUD” are to Australian dollars, the official currency of Australia;

·         “C$” or “CAD” are to Canadian dollars, the official currency of Canada;

·         “CNY” are to Chinese yuan, the official currency of China;

·         “KZT” are to the Kazakhstani tenge, the official currency of Kazakhstan;

·         “UAH” are to the Ukrainian Hryvnia, the official currency of Ukraine;

·         “euro”, “euros”, “EUR” or “€” are to the official currency of the European Union (“EU”) member states participating in the European Monetary Union;

·         “ZAR” are to South African rand, the official currency of the Republic of South Africa;

·         “Ps.” or “MXN” are to the Mexican peso, the official currency of the United Mexican States;

·         “special bar quality” (“SBQ”) are to special bar quality steel, a high-quality long product;

·         “downstream” are to finishing operations, for example in the case of flat products, the process after the production of hot-rolled coil/plates, and in case of long products, the process after the production of blooms/billets (including production of bars, wire rods, SBQ, etc.);

·         “upstream” are to operations that precede downstream steel-making, coking coal, coke, sinter, DRI, blast furnace, basic oxygen furnace (“BOF”), electric arc furnace (“EAF”), casters & hot rolling/plate mill;

·         “number of employees” are to employees on the payroll of the Company;

·         “Significant Shareholder” are to a trust (HSBC Trust (C.I.) Limited, as trustee), of which Mr. Lakshmi N. Mittal, Mrs. Usha Mittal and their children are the beneficiaries, or (where the context requires) prior owners of the Significant Shareholder’s stake in ArcelorMittal;

·         “GMB” are to the Group Management Board, the former senior management body which was replaced by the CEO Office as of January 1, 2016. The CEO Office, supported by six Executive Officers, makes up the Company’s senior management;

5


 

·         “CEO Office” are to the Chief Executive Officer, Mr. Lakshmi N. Mittal, and the Chief Financial Officer, Mr. Aditya Mittal;

·         “Executive Officers” are to those executives of the Company who are supporting the CEO Office and jointly with the CEO Office represent the senior management of the Company;

·         “brownfield project” are to the expansion of an existing operation;

·         “greenfield project” are to the development of a new project;

·         “coking coal” are to coal that, by virtue of its coking properties, is used in the manufacture of coke, which is used in the steelmaking process;

·         “direct reduced iron” or “DRI” are to metallic iron formed by removing oxygen from iron ore without the formation of, or passage through, a smelting phase. DRI can be used as feedstock for steel production;

·         “iron ore fines” are to ultra-fine iron ore generated by mining and grinding processes, that are aggregated into iron ore pellets through an agglomeration process or used as sinter feed;

·         “iron pellets” are to agglomerated ultra-fine iron ore particles of a size and quality suitable for use in steel-making processes;

·         “sinter” are to a metallic input used in the blast furnace steel-making process, which aggregates fines, binder and other materials into a coherent mass by heating without melting;

·         “energy coal” are to coal used as a fuel source in electrical power generation, cement manufacture and various industrial applications. Energy coal may also be referred to as steam or thermal coal;

·         “metallurgical coal” are to a broader term than coking coal that includes all coals used in steelmaking, such as coal used for the pulverized coal injection (“PCI”) process;

·         “run of mine” or “ROM” are to mined iron ore or coal to be fed to a preparation and/or concentration process;

·         “wet recoverable” are to a quantity of iron ore or coal recovered after the material from the mine has gone through a preparation and/or concentration process excluding drying;

·         “CIS” are to the countries of the Commonwealth of Independent States; and

·         the “Spanish Stock Exchanges” are to the stock exchanges of Madrid, Barcelona, Bilbao and Valencia.

Financial information

This annual report contains the audited consolidated financial statements of ArcelorMittal and its consolidated subsidiaries, including the consolidated statements of financial position as of December 31, 2016 and 2015, and the consolidated statements of operations, other comprehensive income, changes in equity and cash flows for each of the years ended December 31, 2016, 2015 and 2014. ArcelorMittal’s consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The financial information and certain other information presented in a number of tables in this annual report have been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this annual report reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers. This annual report on Form 20-F includes net debt and operating working capital, which are non-GAAP financial measures. ArcelorMittal believes net debt and operating working capital to be relevant to enhance the understanding of its financial position and provides additional information to investors and management with respect to the Company’s operating cash flows, capital structure and credit assessment. Non-GAAP financial measures should be read in conjunction with and not as an alternative for, ArcelorMittal’s financial

6


 

information prepared in accordance with IFRS. Such non-GAAP measures may not be comparable to similarly titled measures applied by other companies.

 

Market information

This annual report includes industry data and projections about the Company’s markets obtained from industry surveys, market research, publicly available information and industry publications. Statements on ArcelorMittal’s competitive position contained in this annual report are based primarily on public sources including, but not limited to, publications of the World Steel Association. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed and that the projections they contain are based on a number of significant assumptions. The Company has not independently verified this data or determined the reasonableness of such assumptions. In addition, in many cases the Company has made statements in this annual report regarding its industry and its position in the industry based on internal surveys, industry forecasts and market research, as well as the Company’s experience. While these statements are believed to be reliable, they have not been independently verified.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report and the documents incorporated by reference in this annual report contain forward-looking statements based on estimates and assumptions. This annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, among other things, statements concerning the business, future financial condition, results of operations and prospects of ArcelorMittal, including its subsidiaries. These statements usually contain the words “believes”, “plans”, “expects”, “anticipates”, “intends”, “estimates” or other similar expressions. For each of these statements, you should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although it is believed that the expectations reflected in these forward-looking statements are reasonable, there is no assurance that the actual results or developments anticipated will be realized or, even if realized, that they will have the expected effects on the business, financial condition, results of operations or prospects of ArcelorMittal.

These forward-looking statements speak only as of the date on which the statements were made, and no obligation has been undertaken to publicly update or revise any forward-looking statements made in this annual report or elsewhere as a result of new information, future events or otherwise, except as required by applicable laws and regulations. A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk factors” (Part I, Item 3D of this Annual Report on Form 20-F). The Company undertakes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.

ITEM 1.              IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.              OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3.              KEY INFORMATION

A.    Selected financial data

The following tables present selected consolidated financial information of ArcelorMittal as of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, prepared in accordance with IFRS as issued by the IASB. This selected consolidated financial information should be read in conjunction with ArcelorMittal’s consolidated financial statements, including the notes thereto, included elsewhere herein.

 

 

7


 

 

Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

(Amounts in $ millions except per share data)

Year ended December 31,

 

 

2016

 

2015

 

2014

 

2013

 

2012

 

 

Sales

56,791

 

63,578

 

79,282

 

79,440

 

84,213

 

 

Operating income/(loss)

4,161

 

(4,161)

 

3,034

 

1,197

 

(2,645)

 

 

Net income/(loss) from continuing operations (including non-controlling interest)

1,734

 

(8,423)

 

(974)

 

(2,575)

 

(3,469)

 

 

Net income/(loss) attributable to equity holders of the parent

1,779

 

(7,946)

 

(1,086)

 

(2,545)

 

(3,352)

 

 

Net income/(loss) (including non-controlling interest)

1,734

 

(8,423)

 

(974)

 

(2,575)

 

(3,469)

 

 

Earnings per common share (in U.S. dollars)

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share1, 2

0.62

 

(3.43)

 

(0.48)

 

(1.13)

 

(1.68)

 

 

Diluted earnings (loss) per common share1, 2

0.62

 

(3.43)

 

(0.48)

 

(1.13)

 

(1.68)

 

 

Dividends declared per share3

-

 

-

 

0.15

 

0.15

 

0.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Position

 

 

 

 

 

 

 

 

 

 

 

(Amounts in $ millions except share data)

As of December 31,

 

 

2016

 

2015

 

2014

 

2013

 

2012

 

 

Total assets

75,142

 

76,846

 

99,179

 

112,308

 

113,998

 

 

Net assets

32,325

 

27,570

 

45,160

 

53,173

 

50,466

 

 

Share capital

401

 

10,011

 

10,011

 

10,011

 

9,403

 

 

Basic weighted average common shares outstanding (millions)2

2,860

 

2,316

 

2,312

 

2,297

 

1,999

 

 

Diluted weighted average common shares outstanding (millions)2

2,865

 

2,316

 

2,312

 

2,297

 

1,999

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Basic earnings per common share are computed by dividing net income attributable to equity holders of ArcelorMittal by the weighted average number of common shares outstanding during the periods presented. Diluted earnings per common share include assumed shares from stock options, shares from restricted stock units and convertible debt (if dilutive) in the weighted average number of common shares outstanding during the periods presented. See note 10.3 to the consolidated financial statements for further information.

2

Following the Company’s equity offering in April 2016, the earnings (loss) per share for prior periods has been recasted in accordance with IFRS in the current year for the years ended December 31, 2015, 2014, 2013 and 2012, respectively, to include the bonus element derived from the 35% discount to the theoretical ex-right price included in the subscription price.

3

Following the Company’s equity offering in April 2016, the dividends declared per share for prior periods has been recasted in the current year for the years ended December 31, 2014, 2013 and 2012, respectively, to include the bonus element derived from the 35% discount to the theoretical ex-right price included in the subscription price. The actual dividends paid were $0.20, $0.20 and $0.75 per issued share as of December 31, 2014, 2013 and 2012, respectively.

 

B.    Capitalization and indebtedness

Not applicable.

C.    Reasons for the offer and use of proceeds

Not applicable.

 

D.    Risk factors

ArcelorMittal’s business, financial condition, results of operations, reputation or prospects could be materially adversely affected by one or more of the risks and uncertainties described below.

Risks related to the global economy and the mining and steel industry

Excess capacity, oversupply and destocking cycles in the steel industry and in the iron ore mining industry have in the past, are currently and may continue in the future to weigh on the profitability of steel producers, including ArcelorMittal.

The steel industry is affected by global and regional production capacity and fluctuations in steel imports and exports, which are themselves affected by the existence and amounts of tariffs and customer stocking and destocking cycles. The steel industry globally has historically suffered from structural overcapacity, and the current global steelmaking capacity exceeds the current global consumption of steel. This overcapacity is amplified during periods

8


 

of global or regional economic weakness due to weaker global or regional demand. In particular, China is both the largest global steel consumer and the largest global steel producer by a large margin, and the balance between its domestic production and consumption has been an important factor influencing global steel prices in recent years. According to the monthly data from the Chinese National Bureau of Statistics, Chinese steel production totaled 799 million metric tonnes in 2015 and 808 million metric tonnes in 2016. Chinese apparent steel consumption is structurally below these production levels, with exports of 112.4 million tonnes in 2015 and 109 million tonnes in 2016, double the levels seen in 2012 and 2013. Given this structural overcapacity, the Chinese government has indicated its intention to reduce steel production capacity by 100-150 million tonnes by 2020, and the announcement of the anticipated merger of two major Chinese steel producers is an indication of potential progress to this end. It remains to be seen, however, if the country will maintain or achieve such goals and whether the reduction in capacity will result in a reduction in steel production. In addition to China, other developing markets (such as Brazil, Russia and Ukraine) show structural overcapacity following years of rapid economic growth and more recent slowdowns. Finally, certain developed markets, particularly developed Asia and to a much lesser degree Europe, remain in a position of structural overcapacity notwithstanding rationalization steps taken (in particular in Europe) by ArcelorMittal and other producers in recent years.

The overcapacity of steel production in the developing world and in China in particular has weighed on global steel prices, since China is the largest global steel consumer and, even more directly, by leading to massive exports to developed markets globally and in particular Europe and NAFTA, ArcelorMittal’s principal markets. These exports, often at low prices that may be at or below the cost of production, have depressed steel prices in regional markets world-wide. See “Unfair trade practices in ArcelorMittal’s home markets could negatively affect steel prices and reduce ArcelorMittal’s profitability.”

Despite prolonged iron ore oversupply in recent years, mining companies have continued to increase production, with global seaborne supply increasing again in 2016 and expected to increase further in 2017 and 2018. Excess iron ore supply coupled with decreased demand in iron ore consuming industries, such as steel, has led to a prolonged depression of iron ore prices, which has in turn weighed on steel prices as iron ore is a principal raw material in steelmaking.

A continuation of this trend of steel and iron ore oversupply, if not counterbalanced by effective trade measures and/or demand increases, would have a material adverse effect on ArcelorMittal’s results of operations and financial condition.

Protracted low steel and iron ore prices, or further decreases in steel and iron ore prices, would be likely to have an adverse effect on ArcelorMittal’s results of operations.   

As an integrated producer of steel and iron ore, ArcelorMittal’s results of operations are sensitive to the market prices of steel and iron ore in its markets and globally. The impact of market steel prices on its results is direct. The impact of market iron ore prices is both direct, as ArcelorMittal sells iron ore on the market to third parties, and indirect as iron ore is a principal raw material used in steel production and fluctuations in its market price are typically and eventually passed through to steel prices. Steel prices and iron ore prices are affected by supply trends (see above), demand trends and inventory cycles. In terms of demand, steel and iron ore prices are sensitive to trends in cyclical industries, such as the automotive, construction, appliance, machinery, equipment and transportation industries, which are significant markets for ArcelorMittal’s products. In the past, substantial price decreases during periods of economic weakness have not always been offset by commensurate price increases during periods of economic strength. In addition, as indicated above, excess supply relative to demand in local markets generally results in increased exports and drives down global prices. In terms of inventory, steel stocking and destocking cycles affect apparent demand for steel and hence steel prices and steel producers’ profitability.  For example, steel distributors may accumulate substantial steel inventories in periods of low prices and, in periods of rising real demand for steel from end-users, steel distributors may sell steel from inventory (destock), thereby delaying the effective implementation of steel price increases. Conversely, steel price decreases can sometimes develop their own momentum, as customers adopt a “wait and see” attitude and destock in the expectation of further price decreases.

As a result of these factors, steel and iron ore prices have been under pressure in recent periods and particularly in 2015, with both steel and iron ore reaching historical lows in 2015. This had a pronounced negative effect on ArcelorMittal’s results of operations, in the form of significant declines in revenues and operating income for 2015. Moreover, the particularly sharp decline in steel prices in the second half of 2015 triggered inventory related losses of $1.3 billion, and the significant decline in iron ore and coal prices led to a $3.4 billion impairment of mining assets and goodwill in the fourth quarter of 2015. Steel prices generally improved during 2016 compared to the low levels of year-end 2015, but with a high level of volatility, particularly in the fourth quarter. Iron ore prices were

9


 

highly volatile in 2016, hitting a record low of $39.25 per tonne on January 14, 2016 but with an average of $52.06 per tonne for the first half of 2016 and an improvement in the third quarter of 2016 to an average of $58.6 per tonne, and then to an average of $70.8 per tonne in the fourth quarter of 2016. Despite the recent price recovery on quarterly averages seen over the second half of 2016, iron ore prices are expected to remain under pressure from the expected continued oversupply.

While the steel price increases and iron ore price recovery during the second half of 2016 may well be supported by underlying demand trends, the timing and extent of continued price recovery or return to prior levels cannot be predicted. In response to recent declines and higher volatility in steel and iron ore prices, the Company has implemented in recent years a number of cost-saving measures intended to improve operating income (refer to “Item 4B–Information on the Company–Business overview–Competitive strengths–Dynamic responses to market challenges and opportunities” and “Item 4B–Information on the Company–Business overview–Business strategy–Action 2020 plan”), as well as measures to reduce its cash requirements, including through lower capital expenditures, interest expense and the suspension of dividend payments. These actions may not prove sufficient to restore or maintain profitability or cash flows, particularly if the low level of steel and iron ore prices is prolonged and the recent price increases do not hold, in which case, ArcelorMittal’s results of operations and financial condition would be adversely affected.

Volatility in the supply and prices of raw materials, energy and transportation, and volatility in steel prices or mismatches between steel prices and raw material prices could adversely affect ArcelorMittal’s results of operations. 

The prices of steel, iron ore, coking coal, coke and scrap are highly volatile. For example, iron ore spot prices fluctuated between a peak of $160 per tonne (Platts index, CFR China, 62% Fe) in February 2013 and $110 per tonne at the end of May in 2013 before steady declines culminated in a historical low at the end of December 2015 of $38.50 per tonne. A period of high volatility followed as prices spiked to $70.50 in April 2016, declining to $49.30 per tonne on June 2, 2016 and then increasing to $83.95 per tonne on December 12, 2016. A recent example of this volatility is the sudden and sharp increase in the coking coal prices in the second half of 2016, largely driven by a Chinese domestic shortage of coking coal as well as maintenance and operational production issues in Australian coking coal mines during the period. Hard coking coal (“HCC”) spot prices rose from $92 per tonne at the beginning of July to $212.50 per tonne on September 29, 2016 and a maximum of $310 per tonne on November 8, 2016, and finally closing the fourth quarter with a spot average at $266.15 per tonne.

Steel prices have similarly demonstrated significant volatility, for example in Europe ranging in 2013 from a high of $690 per tonne to a low of $586 per tonne (SBB, HRC N. Europe domestic EXW Ruhr). In the first half of 2014, steel prices increased steadily, continuing the upward trend beginning mid-2013. However, the second half of 2014 and the full year 2015 saw substantial decreases in steel prices, which dropped to $353 per tonne at the end of 2015, exceeding the historical lows. Steel prices rebounded strongly in 2016, from a low of $338 per tonne in January up to a peak of $506 per tonne in June 2016. The second half of 2016 started with a short-lived price softening to $452 per tonne in July, followed by a steady increase towards year end reaching $595 per tonne in December 2016. See “Item 5—Operating and financial review and prospects—Steel prices” for more information.  

Volatility in steel and raw material prices can result from many factors including: trends in demand for iron ore in the steel industry itself, and particularly from Chinese steel producers (as the largest group of producers); industry structural factors (including the oligopolistic nature of the sea-borne iron ore industry and the fragmented nature of the steel industry); the expectation or imposition of corrective trade measures; massive stocking and destocking activities (sudden drops in prices can lead end-users to delay orders pushing prices down further), as occurred most recently toward the end of 2015 and early 2016; speculation; new laws or regulations; changes in the supply of iron ore, in particular due to new mines coming into operation; business continuity of suppliers; changes in pricing models or contract arrangements; expansion projects of suppliers; worldwide production, including interruptions thereof by suppliers; capacity-utilization rates; accidents or other similar events at suppliers’ premises or along the supply chain; wars, natural disasters, political disruption and other similar events; fluctuations in exchange rates; the bargaining power of raw material suppliers and the availability and cost of transportation.

As a producer and seller of steel, the Company is directly exposed to fluctuations in the market price for steel, iron ore, coking coal and other raw materials, energy and transportation. In particular, steel production consumes substantial amounts of raw materials including iron ore, coking coal and coke, and the production of direct reduced iron, the production of steel in electric arc furnaces (“EAFs”) and the re-heating of steel involve the use of significant amounts of energy, making steel companies dependent on the price of and their reliable access to supplies of raw materials and energy. Although ArcelorMittal has substantial sources of iron ore and coal from its

10


 

own mines and strategic long-term contracts (the Company’s self-sufficiency rates were 55% for iron ore and 15% for pulverized coal injection (“PCI”) and coal in 2016), it nevertheless remains exposed to volatility in the supply and price of iron ore, coking coal and coke given that it obtains a significant portion of such raw materials under supply contracts from third parties. For additional details on ArcelorMittal’s raw materials supply and self-sufficiency, see “Item 4.B—Information on the Company—Mining products—Business overview—Other raw materials and energy”. 

Furthermore, while steel and raw material (in particular iron ore and coking coal) price trends have historically been correlated, a lack of correlation or an abnormal lag in the corollary relationship between raw material and steel prices may also occur and result in a “price-cost squeeze” in the steel industry. ArcelorMittal has experienced price-cost squeezes at various points in recent years and may continue to do so. In some of ArcelorMittal’s segments, in particular Europe and NAFTA, there are several months between raw material purchases and sales of steel products incorporating those materials, rendering them particularly susceptible to price-cost squeeze. This lag and the resulting price-cost squeeze due to the increase in coking coal prices, among other factors, resulted in a decline in profitability in the fourth quarter of 2016. The impact on 2017 profitability will be dependent on the outcome of supply contract negotiations as well as evolution of spot indexes and efforts to pass the input cost increase on to steel prices. Because ArcelorMittal sources a substantial portion of its raw materials through long-term contracts with quarterly (or more frequent) formula-based or negotiated price adjustments and as a steel producer sells a substantial part of its steel products at spot prices, it faces the risk of adverse differentials between its own production costs, which are affected by global raw materials and scrap prices, on the one hand, and trends for steel prices in regional markets, on the other hand. 

Another area of exposure to price volatility is energy and transportation. Freight costs (i.e., shipping) are a substantial component of ArcelorMittal’s cost of goods sold. Freight costs were particularly low in the second half of 2015 due, among other things, to depressed oil prices and demand. Ocean freight market rates for dry cargo remained low but volatile during 2016 with the Baltic Dry Index (“BDI”) reaching its lowest value historically in February 2016 at 290 points but recovering during the year driven by heavy demolition of ships and an increase in Chinese demand in the fourth quarter of 2016. If freight costs were to increase before iron ore or steel prices, this would directly and mechanically weigh on ArcelorMittal’s profitability (although it would make imports less competitive).

ArcelorMittal’s business and results are substantially affected by regional and global macroeconomic conditions. Recessions or prolonged periods of weak growth in the global economy or the economies of ArcelorMittal’s key selling markets have in the past had and in the future would be likely to have a material adverse effect on the mining and steel industries and on ArcelorMittal’s results of operations and financial condition.

The mining and steel industries have historically been highly volatile largely due to the cyclical nature of the business sectors that are the principal consumers of steel as described above. Demand for minerals, metals and steel products thus generally correlates to macroeconomic fluctuations in the global economy. For example, this correlation and the adverse effect of macroeconomic downturns on metal mining companies and steel producers were evidenced in the 2008/2009 financial and subsequent economic crisis. The results of both mining companies and steel producers were substantially affected, with many steel producers (including ArcelorMittal) recording sharply reduced revenues and operating losses. Economic growth (and hence steel and minerals demand) trends have varied across such markets since such period. 

In 2015, global apparent steel consumption contracted notably in China and most of ArcelorMittal’s core markets except Europe. In 2016, global steel demand has improved particularly in China where demand is estimated to have grown slightly this year. This is due to a rebound in real estate sales leading to growth in newly started floor space, the strength of auto and the rebound of machinery from declines seen in 2015. Europe is a major market for ArcelorMittal, whose results have suffered in prior years from recession and stagnation. European demand has grown since 2013 as the steel consuming sectors, particularly automotive, have gradually improved. In the US, growth in underlying steel demand has continued for flat and long products but apparent demand has been impacted since 2014 by significant destocking and lower energy demand for pipes and tubes. In Brazil and the CIS, apparent steel demand continues to decline significantly due to the ongoing recessions. In South Africa, after stagnating in 2014, steel demand also declined in 2016, especially for flat products.

The short-term outlook is for a gradual pick-up in global GDP supported by a modest rebound in the US, an end to recessions in Russia and Brazil, offset slightly by weaker EU growth. However, there are many risks to the global outlook including political tensions in Europe; threats to globalization by renewed protectionism; high debt and an

11


 

aging population causing Chinese growth to slow sharply. These would likely result in continued and prolonged subdued demand for (and hence the price of) steel and iron ore. These developments would have a material adverse effect on ArcelorMittal’s results of operations and financial condition.

Unfair trade practices in ArcelorMittal’s home markets could negatively affect steel prices and reduce ArcelorMittal’s profitability.

ArcelorMittal is exposed to the effects of “dumping” and other unfair trade and pricing practices by competitors. Moreover, government subsidization of the steel industry remains widespread in certain countries, particularly those with centrally-controlled economies such as China. In periods of lower global demand for steel, there is an increased risk of additional volumes of unfairly-traded steel exports into various markets, including North America and Europe and other markets such as South Africa, in which ArcelorMittal produces and sells its products. Such imports have had and could in the future have the effect of further reducing prices and demand for ArcelorMittal’s products.

Instances of such perceived dumping have been especially acute in recent years, and China has been accused by several countries and market participants of engaging in the widespread dumping of significant amounts of low-cost steel products in several markets. Chinese imports in key ArcelorMittal markets have seen significant increases in recent years from already high levels: Chinese steel exports to the EU increased from 1.7 million tonnes in 2009 to 7.2 million tonnes in 2015 and an estimated 6.1 million tonnes in 2016. Chinese exports into North America increased from 0.75 million tonnes in 2009 to 2.7 million tonnes in 2014 before declining to 2.2 million tonnes in 2015 and approximately 1 million tonnes in 2016 due in particular to the imposition of duties (as noted below). As mentioned above, industry studies suggest that Chinese low-cost steel exports benefit from significant state support, which allows for the sale of such steel products at artificially low prices, including at a loss to producers, which has a significant negative impact on global steel prices and the industry more generally. Moreover, while China is widely considered the most significant exporter of artificially low-cost steel products, several other countries are suspected to engage in similar unfair trade and pricing practices in the steel industry. In response, in the United States, final affirmative duty measures were adopted in 2016 with respect to three of ArcelorMittal’s flat products categories, corrosion-resistance steel, cold-rolled coil and hot-rolled coil, and a preliminary determination was confirmed for heavy plate in the U.S, and the U.S. Department of Commerce has initiated anti-circumvention investigations on cold-rolled coils and corrosion-resistant steel products from China (through Vietnam). In Europe, definitive measures have been adopted for cold-rolled coils versus China and Russia, preliminary antidumping duties have been adopted on hot-rolled coil and heavy plate imports from China as well as a new hot-rolled coil anti-dumping investigations have been initiated against five other countries. Additionally, the Company has collaborated to pursue anti-dumping actions in Canada, Mexico, Brazil and South Africa (See “Item 4.B—Information on the Company—Business overview—Government regulations—Foreign trade”). It remains unclear, however, whether further anti-dumping duties will be imposed against Chinese imports or other exporting countries, and how markets will respond to current and future anti-dumping measures. Furthermore, no assurance can be given that such legislation will achieve its intended result or that benefits will accrue to steelmakers at the intended rate and scale, or at all.  

Against this backdrop of increasing dumping and other unfair trade and pricing pressures, China is lobbying members of the World Trade Organization (“WTO”) for immediate “Market Economy Status” (“MES”) in light of the expiry on December 11, 2016 of certain protocols to its 2001 accession to the WTO. MES is a bilateral designation that is granted individually by a given country and can be made on the basis of a legal or political determination. Several countries, including several in markets in which ArcelorMittal operates, have already granted China MES and a day after the expiration of the subparagraph “a” of article 15 (December 12, 2016) of  the accession protocol of China to the WTO regarding the methodology for calculating the dumping margins, China notified the WTO Secretariat that it had requested dispute consultations with the United States and the European Union regarding special calculation methodologies used by the U.S. and EU in anti-dumping proceedings. As of the date of this report, neither the European Union nor the United States had granted China MES, and while Brazil recognized China’s MES in a memorandum of understanding in 2004, it continues to treat China as having non-MES for the purposes of calculating anti-dumping duties. No assurance can be given as to whether or when the EU, U.S., Brazil or other countries will grant MES to China. A country’s decision to grant MES to China would substantially reduce the anti-dumping duty margins that it may apply against China pursuant to the rules of WTO. This would encourage or at least fail to discourage China’s exportation of unfairly traded steel products into several markets in which ArcelorMittal operates.

A continuation or an increase in exports of low-cost steel products from developing countries, along with a lack of effective remedial trade policies, would continue to depress steel prices in various markets globally, including in

12


 

ArcelorMittal’s key markets.  See “Item 4.B—Information on the Company—Business overview—Government regulations”.

Conversely, ArcelorMittal has exposure to the effects of trade sanctions and barriers due to the global nature of its operations. Various countries have in the past instituted trade sanctions and barriers and the recurrence of such measures, or the imposition of the above-mentioned anti-dumping legislation, could adversely affect ArcelorMittal’s business by limiting the Company’s access to steel markets. In the United States, the recent presidential and congressional elections could result in significant changes in, and uncertainty with respect to, legislation, regulation and government policy directly affecting ArcelorMittal’s business (in particular exports from Canada or Mexico into the United States) or indirectly affecting the Company because of impacts on its customers and suppliers. In particular, President Trump has made comments suggesting that he intends  to re-negotiate the free trade agreements that the United States is party to, including NAFTA, although it remains unclear what specifically the new U.S. administration and U.S. Congress will or will not do in this respect.

Developments in the competitive environment in the steel industry could have an adverse effect on ArcelorMittal’s competitive position and hence its business, financial condition, results of operations or prospects.

The markets in which steel companies operate are highly competitive. Competition—in the form of established producers expanding in new markets, smaller producers increasing production in anticipation of demand increases or amid recoveries, or exporters selling excess capacity from markets such as China—could cause ArcelorMittal to lose market share, increase expenditures or reduce pricing. Any of these developments could have a material adverse effect on its business, financial condition, results of operations or prospects.

Competition from other materials could reduce market prices and demand for steel products and thereby reduce ArcelorMittal’s cash flows and profitability. 

In many applications, steel competes with other materials that may be used as substitutes, such as aluminum (particularly in the automobile industry), cement, composites, glass, plastic and wood. In particular, as a result of increasingly stringent regulatory requirements, as well as developments in alternative materials, designers, engineers and industrial manufacturers, especially those in the automotive industry, are increasing their use of lighter weight and alternative materials, such as aluminum, composites, plastics and carbon fiber in their products and/or reducing their use of steel. For example, automakers have begun to use greater amounts of aluminum and smaller proportions of steel in some models in recent years.

While ArcelorMittal has introduced new high-strength steel products, such as Usibor® 2000 and others (see “Item 4.B—Information on the Company—Business overview—Sustainable development—Outcome 2: Products that accelerate more sustainable lifestyles”), to respond to the need for lighter weight materials, loss of market share to substitute materials, increased government regulatory initiatives favoring the use of alternative materials, as well as the development of additional new substitutes for steel products could significantly reduce market prices and demand for steel products and thereby reduce ArcelorMittal’s cash flows and profitability.

ArcelorMittal is subject to strict environmental laws and regulations that could give rise to a significant increase in costs and liabilities. 

ArcelorMittal is subject to a broad range of environmental laws and regulations in each of the jurisdictions in which it operates. These laws and regulations impose increasingly stringent environmental protection standards regarding, among others, air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices and the remediation of environmental contamination. The costs of complying with, and the imposition of liabilities pursuant to, environmental laws and regulations can be significant, and compliance with new and more stringent obligations may require additional capital expenditures or modifications in operating practices. Failure to comply can result in civil and or criminal penalties being imposed, the suspension of permits, requirements to curtail or suspend operations and lawsuits by third parties. Despite ArcelorMittal’s efforts to comply with environmental laws and regulations, environmental incidents or accidents may occur that negatively affect the Company’s reputation or the operations of key facilities.

ArcelorMittal also incurs costs and liabilities associated with the assessment and remediation of contaminated sites. In addition to the impact on current facilities and operations, environmental remediation obligations can give rise to substantial liabilities in respect of divested assets and past activities. This may also be the case for acquisitions when liabilities for past acts or omissions are not adequately reflected in the terms and price of the

13


 

acquisition. ArcelorMittal could become subject to further remediation obligations in the future, as additional contamination is discovered or cleanup standards become more stringent.

Costs and liabilities associated with mining activities include those resulting from tailings and sludge disposal, effluent management, and rehabilitation of land disturbed during mining processes. ArcelorMittal could become subject to unidentified liabilities in the future, such as those relating to uncontrolled tailings breaches or other future events or to underestimated emissions of polluting substances. For example, the failure of a tailings ponds dam at ArcelorMittal’s mines could cause significant damage, including death, injury and environmental harm. While the Company carries out assessments of its facilities, it cannot guarantee that failures or breaches of a tailings ponds dam will not occur in the future.

ArcelorMittal’s operations may be located in areas where individuals or communities may regard its activities as having a detrimental effect on their natural environment and conditions of life. Any actions taken by such individuals or communities in response to such concerns could compromise ArcelorMittal’s profitability or, in extreme cases, the viability of an operation or the development of new activities in the relevant region or country.

See “Item 4.B—Information on the Company—Business overview—Government regulations—Environmental laws and regulations” and note 8.2 to ArcelorMittal’s consolidated financial statements.

Laws and regulations restricting emissions of greenhouse gases could force ArcelorMittal to incur increased capital and operating costs and could have a material adverse effect on ArcelorMittal’s results of operations and financial condition.  

Compliance with new and more stringent environmental obligations relating to greenhouse gas emissions may require additional capital expenditures or modifications in operating practices, as well as additional reporting obligations. The integrated steel process involves carbon and creates carbon dioxide (“CO2”), which distinguishes integrated steel producers from mini-mills and many other industries where CO2 generation is primarily linked to energy use.

The EU has established greenhouse gas regulations and is revising its emission trading system for the period after 2020 in a manner that may require ArcelorMittal to incur additional costs to acquire emissions allowances. In Kazakhstan the government has installed a domestic trading system which currently is in a pilot phase but would be similar to the EU system. South Africa envisages to start with a CO2 tax system in 2017. The United States required reporting of greenhouse gas emissions from certain large sources beginning in 2011 and has begun adopting and implementing regulations to restrict emissions of greenhouse gases under existing provisions of the Clean Air Act.

Further measures, in the EU, the United States, and many other countries, may be enacted in the future. In particular, in December 2015, the 195 countries participating in the United National Framework Convention on Climate Change reached an international agreement, the Paris Agreement. The 21st Conference of the Parties meeting (“COP21”) has confirmed the risk of climate change and the urgent need to address it. The Paris Agreement aims to implement the necessary drivers to achieve drastic reductions of carbon emissions. The Company takes this message seriously and investigates its possibilities to contribute to this by developing research and development programs, investigating its technical possibilities to reduce emissions and following the state of knowledge on climate change closely. Please refer to “Item 4B—Information on the Company—Business overview—Government regulations—Environmental laws and regulations” for further detail on the objectives. Such obligations, whether in the form of a national or international cap-and-trade emissions permit system, a carbon tax, emissions controls, reporting requirements, or other regulatory initiatives, could have a negative effect on ArcelorMittal’s production levels, income and cash flows. Such regulations could also have a negative effect on the Company’s suppliers and customers, which could result in higher costs and lower sales. Moreover, the EU Commission’s decision to further reduce the allocation of CO2 emission rights to companies could negatively impact the global industry, as the amount of such rights is currently at the edge of covering technically achievable operating conditions.

Furthermore, many developing nations have not yet instituted significant greenhouse gas regulations, and the Paris Agreement specifically recognized that peaking of greenhouse gas emissions will occur later in developing countries. As the Paris Agreement recognizes that the Intended Nationally Determined Contributions (“INDC”) for developing nations may be less stringent in light of different national circumstances, ArcelorMittal may be at a competitive disadvantage relative to steelmakers having more or all of their production in such countries. Depending on the extent of the difference between the requirements in developed regions (such as Europe) and developing regions (such as China or the CIS), this competitive disadvantage could be severe and render production in the developed region structurally unprofitable.

14


 

See “Item 4.B—Information on the Company—Business overview—Government regulations—Environmental laws and regulations” and note 8.2 to ArcelorMittal’s consolidated financial statements.

ArcelorMittal is subject to stringent health and safety laws and regulations that give rise to significant costs and could give rise to significant liabilities.

ArcelorMittal is subject to a broad range of health and safety laws and regulations in each of the jurisdictions in which it operates. These laws and regulations, as interpreted by relevant agencies and the courts, impose increasingly stringent health and safety protection standards. The costs of complying with, and the imposition of liabilities pursuant to, health and safety laws and regulations could be significant, and failure to comply could result in the assessment of civil and criminal penalties, the suspension of permits or operations, and lawsuits by third parties. In addition, under certain circumstances authorities could require ArcelorMittal facilities to curtail or suspend operations based on health and safety concerns.

Despite ArcelorMittal’s efforts to monitor and reduce accidents at its facilities (see “Item 4.B—Information on the Company—Business overview—Government regulations—Health and safety laws and regulations”), health and safety incidents do occur, some of which may result in costs and liabilities and negatively impact ArcelorMittal’s reputation or the operations of the affected facility. Such accidents could include explosions or gas leaks, fires or collapses in underground mining operations, vehicular accidents, and other accidents involving mobile equipment, or exposure to radioactive or other potentially hazardous materials. Some of ArcelorMittal’s industrial activities involve the use, storage and transport of dangerous chemicals and toxic substances, and ArcelorMittal is therefore subject to the risk of industrial accidents which could have significant adverse consequences for the Company’s workers and facilities, as well as the environment. Such accidents could lead to production stoppages, loss of key personnel, the loss of key assets, or put at risk employees (and those of sub-contractors and suppliers) or persons living near affected sites.

See “Item 4.B—Information on the Company—Business overview—Government regulations—Environmental laws and regulations” and note 8.2 to ArcelorMittal’s consolidated financial statements.

Risks related to ArcelorMittal

ArcelorMittal has a substantial amount of indebtedness, which could make it more difficult or expensive to refinance its maturing debt, incur new debt and/or flexibly manage its business.

As of December 31, 2016, ArcelorMittal had total debt outstanding of $13.7 billion, including $1.9 billion of short-term indebtedness (including payables to banks and the current portion of long-term debt) and $11.8 billion of long-term indebtedness. As of December 31, 2016, ArcelorMittal had $2.6 billion of cash and cash equivalents, including restricted cash, and $5.5 billion available to be drawn under existing credit facilities. As of December 31, 2016, the maturity schedule of outstanding debt was as follows: in 2017 ($1.9 billion), in 2018 ($1.5 billion), 2019 ($1.9 billion), 2020 ($1.9 billion), 2021 ($1.4 billion) and beyond ($5.1 billion). The Company also relies on its true sale of receivables programs for an aggregate program amount (i.e., the maximum amount of unpaid receivables that may be sold and outstanding at any given time) of $5.2 billion, of which $4.7 billion was outstanding as of December 31, 2016, as a way to manage its working capital cycle.

ArcelorMittal’s gearing (long-term debt, plus short-term debt, less cash and cash equivalents and restricted cash, divided by total equity), was 34% at December 31, 2016 as compared to 57% at December 31, 2015. ArcelorMittal’s level of gearing could increase should market conditions deteriorate or if it records impairment charges for tangible or intangible assets, such as property, plant and equipment, goodwill or deferred tax assets (see “—Changes in assumptions underlying the carrying value of certain assets, including as a result of adverse market conditions, could result in the impairment of such assets, including intangible assets such as goodwill” below); for example, ArcelorMittal recorded substantial impairments in 2012 and 2015. Substantial increases in its gearing could affect ArcelorMittal’s ability to, and the conditions under which it might, access financial markets to refinance maturing debt on acceptable terms. ArcelorMittal’s access to financial markets for refinancing also depends on the conditions in the global capital and credit markets, which are volatile. For example, during the 2008/2009 financial and economic crisis and again at the height of the eurozone sovereign debt crisis in 2012, access to the financial markets was restricted for many companies. Various macroeconomic and market factors could cause similar credit contractions at any time. Under such circumstances, the Company could experience difficulties in accessing the financial markets on acceptable terms or at all. 

15


 

ArcelorMittal’s level of debt outstanding could have adverse consequences more generally, including impairing its ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, and limiting its flexibility to adjust to changing market conditions or withstand competitive pressures, resulting in greater vulnerability to a downturn in general economic conditions. While ArcelorMittal has made substantial progress in deleveraging, further reductions in “net debt” (i.e., long-term debt net of current portion plus payables to banks and current portion of long-term debt, less cash and cash equivalents, restricted cash and short-term investments) continues to be a key focus, although there is no assurance that it will succeed.

Moreover, ArcelorMittal could, in order to increase its financial flexibility and strengthen its balance sheet, implement capital raising measures such as equity offerings (as was done in May 2009, January 2013 and April 2016), which could (depending on how they are structured) dilute the interests of existing shareholders or require them to invest further funds to avoid such dilution. In addition, ArcelorMittal has undertaken and may undertake further asset disposals in order to reduce debt. These asset disposals are subject to execution risk and may fail to materialize, and the proceeds received from such disposals may not reflect values that management believes are achievable and/or cause substantial accounting losses (particularly if the disposals are done in difficult market conditions). In addition, to the extent that the asset disposals include the sale of all or part of core assets (including through an increase in the share of non-controlling interests), this could reduce ArcelorMittal’s consolidated cash flows and/or the economic interest of ArcelorMittal shareholders in such assets, which may be cash-generative and profitable ones.

In addition, credit rating agencies could downgrade ArcelorMittal’s ratings either due to factors specific to ArcelorMittal, a prolonged cyclical downturn in the steel industry and mining industries, macroeconomic trends (such as global or regional recessions) or trends in credit and capital markets more generally. In this respect, Standard & Poor’s, Moody's and Fitch downgraded the Company’s rating to below “investment grade” in August, November and December 2012, respectively. On February 3, 2015, Standard & Poor’s further downgraded ArcelorMittal’s credit rating and, on December 18, 2015, it placed ArcelorMittal on negative outlook but then revised its outlook to positive and affirmed its long-term and short-term corporate credit ratings of the Company on November 17, 2016. On November 12, 2015, Moody’s further downgraded ArcelorMittal and placed it on negative outlook, but then upgraded its outlook to stable on August 16, 2016. On November 16, 2015, while Fitch affirmed its credit rating of ArcelorMittal, it lowered its outlook to negative. The margin under ArcelorMittal’s principal credit facilities and certain of its outstanding bonds is subject to adjustment in the event of a change in its long-term credit ratings, and the 2012, February 2015 and November 2015 downgrades resulted in increased interest expense in 2016. See “Item 5.B—Operating and financial review and prospects—Liquidity and capital resources”. Any further downgrades in ArcelorMittal’s credit ratings would result in a further increase in its cost of borrowing and could significantly harm its financial condition and results of operations as well as hinder its ability to refinance its existing indebtedness on acceptable terms.

ArcelorMittal’s principal credit facilities contain restrictive covenants. These covenants limit, inter alia, encumbrances on the assets of ArcelorMittal and its subsidiaries, the ability of ArcelorMittal’s subsidiaries to incur debt and the ability of ArcelorMittal and its subsidiaries to dispose of assets in certain circumstances. ArcelorMittal’s principal credit facilities also include the following financial covenant: ArcelorMittal must ensure that the “Leverage Ratio”, being the ratio of “Consolidated Total Net Borrowings” (consolidated total borrowings less consolidated cash and cash equivalents) to “Consolidated EBITDA” (the consolidated net pre-taxation profits of the ArcelorMittal group for a Measurement Period, subject to certain adjustments as defined in the facilities), at the end of each “Measurement Period” (each period of 12 months ending on the last day of a financial half-year or a financial year of ArcelorMittal), is not greater than a ratio of 4.25 to one or 4.0 to one for one credit facility (See “Item 5.B—Operating and financial review and prospects—Liquidity and capital resources”). As of December 31, 2016, the Company was in compliance with the Leverage Ratios.  

These restrictive and financial covenants could limit ArcelorMittal’s operating and financial flexibility. Failure to comply with any covenant would enable the lenders to accelerate ArcelorMittal’s repayment obligations. Moreover, ArcelorMittal’s debt facilities have provisions whereby certain events relating to other borrowers within the ArcelorMittal group could, under certain circumstances, lead to acceleration of debt repayment under the credit facilities. Any invocation of these cross-acceleration clauses could cause some or all of the other debt to accelerate, creating liquidity pressures. In addition, the mere market perception of a potential breach of any financial covenant could have a negative impact on ArcelorMittal’s ability to refinance its indebtedness on acceptable conditions.

Furthermore, some of ArcelorMittal’s debt is subject to floating rates of interest and thereby exposes ArcelorMittal to interest rate risk (i.e., if interest rates rise, ArcelorMittal’s debt service obligations on its floating

16


 

rate indebtedness would increase). Depending on market conditions, ArcelorMittal from time to time uses interest-rate swaps or other financial instruments to hedge a portion of its interest rate exposure either from fixed to floating or from floating to fixed. ArcelorMittal had exposure to 89% of its debt at fixed interest rates and 11% at floating rates as of December 31, 2016.

Finally, ArcelorMittal has foreign exchange exposure in relation to its debt, approximately 34% of which is denominated in euros as of December 31, 2016, while its financial statements are denominated in U.S. dollars. This creates balance sheet exposure, with a depreciation of the U.S. dollar against the euro leading to an increase in debt (including for covenant compliance measurement purposes).

See “Item 5.B—Operating and financial review and prospects—Liquidity and capital resources”.

ArcelorMittal’s level of profitability and cash flow currently is and, depending on market and operating conditions, may in the future be, substantially affected by its ability to reduce costs and improve operating efficiency.

Difficult operating conditions in recent years, due in particular to macroeconomic conditions and supply/demand trends, have reduced ArcelorMittal’s operating profitability, decreased its positive cash flows and reduced its profitability. The steel industry has historically been cyclical, periodically experiencing difficult operating conditions. In light of this, ArcelorMittal has historically and increasingly in recent periods, taken initiatives to reduce its costs and increase its operating efficiency. These initiatives have included various asset optimization and other programs throughout the Company. The most recent of these programs is the Action 2020 plan announced on February 5, 2016 that includes, among other aspects, several efficiency improvement initiatives. Implementation of cost saving and efficiency improvement initiatives is subject to operational challenges and limitations. Failure to implement fully such initiatives would prevent the attainment of announced profitability or cash flow improvement targets, and more generally could have a material adverse effect on the Company’s profitability and cash flow.

ArcelorMittal’s mining operations are subject to risks associated with mining activities.

ArcelorMittal operates mines and has substantially increased the scope of its mining activities in recent years. Mining operations are subject to the hazards and risks usually associated with the exploration, development and production of natural resources, any of which could result in production shortfalls or damage to persons or property. In particular, the hazards associated with open-pit mining operations include, among others:

·         flooding of the open pit;

·         collapse of the open-pit wall;

·         accidents associated with the operation of large open-pit mining and rock transportation equipment;

·         accidents associated with the preparation and ignition of large-scale open-pit blasting operations;

·         production disruptions due to weather;

·         hazards associated with the disposal of mineralized waste water, such as groundwater and waterway contamination; and

·         collapse of tailings ponds dams or dams.

 

Hazards associated with underground mining operations, of which ArcelorMittal has several, include, among others:

·         underground fires and explosions, including those caused by flammable gas;

·         gas and coal outbursts;

·         cave-ins or falls of ground;

·         discharges of gases and toxic chemicals;

17


 

·         flooding; 

·         sinkhole formation and ground subsidence;

·         difficulties associated with mining in extreme weather conditions, such as the Arctic; and

·         blasting, removing, and processing material from an underground mine.

ArcelorMittal is exposed to all of these hazards. The occurrence of any of the events listed above could delay production, increase production costs and result in death or injury to persons, damage to property and liability for ArcelorMittal, some or all of which may not be covered by insurance, as well as substantially harm ArcelorMittal’s reputation, both as a company focused on ensuring the health and safety of its employees and more generally.

ArcelorMittal’s reserve estimates may materially differ from mineral quantities that it may be able to actually recover; ArcelorMittal’s estimates of mine life may prove inaccurate; and market price fluctuations and changes in operating and capital costs may render certain ore reserves uneconomical to mine.

ArcelorMittal’s reported reserves are estimated quantities of the ore and metallurgical coal that it has determined can be economically mined and processed under present and anticipated conditions to extract their mineral content. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including factors beyond ArcelorMittal’s control. The process of estimating reserves involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. As a result, no assurance can be given that the estimated amounts of ore or coal will be recovered or that it will be recovered at the anticipated rates. Estimates may vary, and results of mining and production subsequent to the date of an estimate may lead to revisions of estimates. Reserve estimates and estimates of mine life may require revisions based on actual market conditions, production experience and other factors. Fluctuations in the market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates, mining duties or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a revision of reserves. In particular, a prolonged period of low prices or other indicators could lead to a review of the Group’s reserves. Such review would reflect the Company’s view based on estimates, assumptions and judgments and could result in a reduction in the Group’s reported reserves.  The Group’s reserve estimates reported in this annual report do not exceed the quantities that the Company estimates could be extracted economically if future prices were at similar levels to the average contracted price for the three years ended December 31, 2016. As a result, if the average contracted prices remain in 2017 at, near or below the low levels in the fourth quarter of 2015 and in the first half of 2016, the Company’s estimates of its reserves at year-end 2017 may decline.

Drilling and production risks could adversely affect the mining process.

Substantial time and expenditures are required to:

·        establish mineral reserves through drilling;

·        determine appropriate mining and metallurgical processes for optimizing the recovery of saleable product from iron ore and coal reserves;

·        obtain environmental and other licenses;

·        construct mining and processing facilities and the infrastructure required for greenfield properties;

·        extract the saleable products from the mined iron ore or coal; and

·        maintain the appropriate blend of ore to ensure the final product qualities expected by the customer are achieved.

18


 

If a project proves not to be economically feasible by the time ArcelorMittal is able to exploit it, ArcelorMittal may incur substantial losses and be obliged to recognize impairments. In addition, potential changes or complications involving metallurgical and other technological processes that arise during the life of a project may result in delays and cost overruns that may render the project not economically feasible.

ArcelorMittal faces rising extraction costs over time as reserves deplete.

Reserves are gradually depleted in the ordinary course of a given mining operation. As mining progresses, distances to the primary crusher and to waste deposits become longer, pits become steeper and underground operations become deeper. As a result, ArcelorMittal usually experiences rising unit extraction costs over time with respect to each of its mines.

 

 

ArcelorMittal has incurred and may incur in the future operating costs when production capacity is idled or increased costs to resume production at idled facilities. 

 

ArcelorMittal’s decisions about which facilities to operate and at which levels are made based upon customers’ orders for products as well as the capabilities and cost performance of the Company’s facilities. Considering temporary or structural overcapacity in the current market situation, production operations are concentrated at several plant locations and certain facilities are idled in response to customer demand, although operating costs are still incurred at such idled facilities. When idled facilities are restarted, ArcelorMittal incurs costs to replenish raw material inventories, prepare the previously idled facilities for operation, perform the required repair and maintenance activities and prepare employees to return to work safely and resume production responsibilities. Such costs could have an adverse effect on its results of operations or financial condition.

 

ArcelorMittal’s greenfield and brownfield investment projects are inherently subject to financing, execution and completion risks.

 

While the Company’s current strategy remains focused on cost improvement, non-core asset disposals and asset optimization, the Company had previously announced a number of envisaged greenfield or brownfield development projects, particularly in the mining sector, some of which are or may be ongoing. Please refer to “Item 4.A—Information on the Company—History and development of the Company—Updates on previously announced investment projects” for further information on greenfield projects the Company has announced. To the extent these projects go forward, they would entail substantial capital expenditures, and their timely completion and successful operation may be affected by factors beyond the control of ArcelorMittal. These factors include receiving financing on reasonable terms, obtaining or renewing required regulatory approvals and licenses, securing and maintaining adequate property rights to land and mineral resources, local opposition to land acquisition or project development, managing relationships with or obtaining consents from other shareholders, revision of economic viability projections, demand for the Company’s products, local environmental or health-related conditions (such as the Ebola epidemic in Liberia in 2014-2015), and general economic conditions. Any of these factors may cause the Company to delay, modify or forego some or all aspects of its development projects. The Company cannot guarantee that it will be able to execute its greenfield or brownfield development projects, and to the extent that they proceed, that it will be able to complete them on schedule, within budget, or achieve an adequate return on its investment. Conversely, should the Company decide to postpone or cancel development projects, it could incur various negative consequences such as litigation or impairment charges. 

 

ArcelorMittal faces risks associated with its investments in joint ventures and associates.

 

ArcelorMittal has investments in various joint ventures and associates.  See note 2.4 to ArcelorMittal’s consolidated financial statements. Joint ventures and associates may be controlled and managed by joint venture or controlling partners that may not fully comply with ArcelorMittal’s standards, controls and procedures, including ArcelorMittal’s health, safety, environment and community standards, which could lead to higher costs, reduced production or environmental, health and safety incidents or accidents, which could adversely affect ArcelorMittal’s results and reputation.

 

In addition, certain of these joint ventures and associates are currently experiencing, or may in the future experience, difficult operating conditions and/or incur losses. Difficult operating conditions in joint ventures and

19


 

associates in which ArcelorMittal has invested may expose it to loss of its investment, requirements for additional investments or calls on guarantees. For example, ArcelorMittal’s joint venture Al Jubail’s financial situation has been negatively impacted by a slower than expected ramp-up of operations. ArcelorMittal has provided shareholder loans to assist with funding and additional equity funding is expected from the other partners. ArcelorMittal’s investment in and loans to the joint venture were $149 million at December 31, 2016 following the recognition of its share in net losses. The Company has also guaranteed $403 million of Al Jubail’s external debt. In addition, as of December 31, 2016, ArcelorMittal had given $0.6 billion in guarantees on behalf of other associates and joint ventures including $463 million issued on behalf of Calvert. See notes 2.4.1, 2.4.2 and 8.3 to ArcelorMittal’s consolidated financial statements.

 

ArcelorMittal’s investments in joint ventures and associates may also result in impairments. For example, in 2014, the Company recorded an impairment charge of $621 million on its investment in China Oriental, following a revision of business assumptions in the context of the continuing economic slowdown in China. In 2015, the Company also recorded an impairment charge of $283 million in respect of its joint venture investment in Kalagadi Manganese (Propriety) Ltd, reflecting a write down of the full carrying amount of the investment and loans as a result of a downward revision of cash flow projections resulting from the expectation of the persistence of a lower manganese price outlook. As of December 31, 2016, ArcelorMittal’s investments accounted for under the equity method had a book value of $4.3 billion, including DHS Group ($902 million), China Oriental ($623 million) and Baffinland ($425 million).

 

A Mittal family trust has the ability to exercise significant influence over the outcome of shareholder votes.

 

As of December 31, 2016, a trust (HSBC Trust (C.I.) Limited, as trustee), of which Mr. Lakshmi N. Mittal, Mrs. Usha Mittal and their children are the beneficiaries, beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) shares amounting (when aggregated with ordinary shares of ArcelorMittal and options to acquire ordinary shares held directly by Mr. and Mrs. Mittal) to 1,146,687,339 shares, representing 37.4% of ArcelorMittal’s outstanding shares. See “Item 7.A—Major shareholders and related party transactions—Major shareholders”. As a result, the trust has the ability to significantly influence the decisions adopted at the ArcelorMittal general meetings of shareholders, including matters involving mergers or other business combinations, the acquisition or disposition of assets, issuances of equity and the incurrence of indebtedness. The trust also has the ability to significantly influence a change of control of ArcelorMittal.

The loss or diminution of the services of the Chairman of the Board of Directors and Chief Executive Officer of ArcelorMittal could have an adverse effect on its business and prospects.

The Chairman of the Board of Directors and Chief Executive Officer of ArcelorMittal, Mr. Lakshmi N. Mittal, has for over 30 years contributed significantly to shaping and implementing the business strategy of Mittal Steel and subsequently ArcelorMittal. His strategic vision was instrumental in the creation of the world’s largest and most global steel group. The loss or any diminution of the services of the Chairman of the Board of Directors and Chief Executive Officer could have an adverse effect on ArcelorMittal’s business and prospects. ArcelorMittal does not maintain key person life insurance on its Chairman of the Board of Directors and Chief Executive Officer.

ArcelorMittal is a holding company that depends on the earnings and cash flows of its operating subsidiaries, which may not be sufficient to meet future operational needs or for shareholder distributions and loss-making subsidiaries may drain cash flow necessary for such needs or distributions.

As a holding company, ArcelorMittal is dependent on the earnings and cash flows of, and dividends and distributions from, its operating subsidiaries to pay expenses, meet its debt service obligations, pay any cash dividends or distributions on its ordinary shares or conduct share buy-backs. Significant cash or cash equivalent balances may be held from time to time at the Company’s international operating subsidiaries, including in particular those in France and the United States, where the Company maintains cash management systems under which most of its cash and cash equivalents are centralized, and in Argentina, Brazil, Canada, Morocco, South Africa and Ukraine. Some of these operating subsidiaries have debt outstanding or are subject to acquisition agreements that impose restrictions on such operating subsidiaries’ ability to pay dividends, but such restrictions are not significant in the context of ArcelorMittal’s overall liquidity. These subsidiaries may also experience operating difficulties that impact their cash flows. ArcelorMittal South Africa, for example, has been experiencing significant difficulties in recent years. In order to decrease its significant outstanding debt, on January 15, 2016, ArcelorMittal South Africa closed a rights offering. The total cash proceeds amounted to R4.5 billion. ArcelorMittal underwrote the rights offering in its entirety. The Company fully subscribed to the capital increase, through repayment of an

20


 

outstanding intragroup loan of R3.2 billion and an additional cash injection of approximately R460 million. As a result of the rights issue, ArcelorMittal’s shareholding in ArcelorMittal South Africa increased from 52% to 71%.

Repatriation of funds from operating subsidiaries may also be affected by tax and foreign exchange policies in place from time to time in the various countries where the Company operates, though none of these policies are currently significant in the context of ArcelorMittal’s overall liquidity. Under the laws of Luxembourg, ArcelorMittal will be able to pay dividends or distributions only to the extent that it is entitled to receive cash dividend distributions from its subsidiaries, recognize gains from the sale of its assets or record share premium from the issuance of shares.

If the earnings and cash flows of its operating subsidiaries are substantially reduced, ArcelorMittal may not be in a position to meet its operational needs or to make shareholder distributions in line with announced proposals.

Changes in assumptions underlying the carrying value of certain assets, including as a result of adverse market conditions, could result in the impairment of such assets, including intangible assets such as goodwill.

At each reporting date, in accordance with the Company’s accounting policy described in note 5.3 to ArcelorMittal’s consolidated financial statements, ArcelorMittal reviews the carrying amounts of its tangible and intangible assets (goodwill is reviewed annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable) to determine whether there is any indication that the carrying amount of those assets may not be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset (or cash generating unit) is reviewed in order to determine the amount of the impairment, if any.

If certain of management’s estimates change during a given period, such as the discount rate, capital expenditures, expected changes to average selling prices, growth rates, shipments and direct costs, the estimate of the recoverable amount of goodwill or the asset could fall significantly and result in impairment. While impairment does not affect reported cash flows, the decrease of the estimated recoverable amount and the related non-cash charge in the consolidated statements of operations could have a material adverse effect on ArcelorMittal’s results of operations. For example, in 2016, the Company recorded an impairment charge as a result of the annual impairment test of $156 million related to tangible assets in the ACIS segment. In 2015, the Company recorded an impairment charge of $3.7 billion including $0.9 billion with respect to the Mining segment goodwill and $2.8 billion related to tangible and intangible assets ($2.5 billion and $0.3 billion in the Mining and ACIS segments, respectively). Following these impairment charges, substantial amounts of goodwill, tangible and intangible assets remain recorded on its balance sheet (there was $5.2 billion of goodwill for the Company and $4.1 billion of tangible and intangible assets and goodwill of $0.8 billion for ACIS on the balance sheet at December 31, 2016). No assurance can be given as to the absence of significant further impairment losses in future periods, particularly if market conditions deteriorate. In particular, changes in the key assumptions utilized in the October 31, 2016 impairment test would cause an impairment loss to be recognized in respect of the Brazil segment and an additional impairment loss to be recognized in respect of ACIS. See note 5.3 to ArcelorMittal’s 2016 consolidated financial statements, in particular for a discussion of the assumptions used for determining the Brazil and ACIS segment’s value in use.

ArcelorMittal’s ability to fully utilize its recognized deferred tax assets depends on its profitability and future cash flows.

At December 31, 2016, ArcelorMittal had $5.8 billion recorded as deferred tax assets on its consolidated statements of financial position. These assets can be utilized only if, and only to the extent that, ArcelorMittal’s operating subsidiaries generate adequate levels of taxable income in future periods to offset the tax loss carry forwards and reverse the temporary differences prior to expiration. At December 31, 2016, the amount of future income required to recover ArcelorMittal’s deferred tax assets of $5.8 billion was at least $27.3 billion at certain operating subsidiaries.

ArcelorMittal’s ability to generate taxable income is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. If ArcelorMittal generates lower taxable income than the amount it has assumed in determining its deferred tax assets, then the value of deferred tax assets will be reduced. In addition, assumptions regarding the future recoverability of deferred tax assets depend on management’s estimates of future taxable income in accordance with the tax laws applicable to ArcelorMittal’s subsidiaries in the countries in which they operate. If in the course of its assessments management determines that the carrying amount of any of its deferred tax assets may not be recoverable pursuant to such prevailing tax laws, the recoverable amount of such deferred tax assets may be impaired. ArcelorMittal’s assumptions regarding its ability to generate future

21


 

taxable income changed during 2016, resulting in a $0.7 billion derecognition of deferred tax assets in Luxembourg related to revised expectations of the deferred tax asset recoverability in U.S. dollar terms.

The Company’s investment projects may add to its financing requirements and adversely affect its cash flows and results of operations.

The steelmaking and mining businesses are capital intensive requiring substantial ongoing maintenance capital expenditure. In addition, ArcelorMittal has announced investment projects in the past and some are or may be ongoing. See “Item 4.D—Information on the Company—Property, plant and equipment—Capital expenditure projects”, “Item 5.F—Operating and financial review and prospects—Tabular disclosure of contractual obligations” and note 8.3 to ArcelorMittal’s consolidated financial statements. ArcelorMittal expects to fund these capital expenditures primarily through internal sources. Such sources may not suffice, however, depending on the amount of internally generated cash flows and other uses of cash, which may require ArcelorMittal to choose between incurring external financing, further increasing the Company’s level of indebtedness, or foregoing investments in projects targeted for profitable growth.  

See “Item 4.A—Information on the Company—History and development of the Company—Updates on previously announced investment projects”.

Underfunding of pension and other post-retirement benefit plans at some of ArcelorMittal’s operating subsidiaries could require the Company to make substantial cash contributions to pension plans or to pay for employee healthcare, which may reduce the cash available for ArcelorMittal’s business. 

ArcelorMittal’s principal operating subsidiaries in Brazil, Canada, Europe, South Africa and the United States provide defined benefit pension and other post-retirement benefit plans to their employees. Some of these plans are currently underfunded, see note 7.2 to ArcelorMittal’s consolidated financial statements for the total value of plan assets and any deficit.

 ArcelorMittal’s funding obligations depend upon future asset performance, which is tied to equity and debt markets to a substantial extent, the level of interest rates used to discount future liabilities, actuarial assumptions and experience, benefit plan changes and government regulation. Because of the large number of variables that determine pension funding requirements, which are difficult to predict, as well as any legislative action, future cash funding requirements for ArcelorMittal’s pension plans and other post-employment benefit plans could be significantly higher than current estimates. Increases in the general life expectancy assumption have contributed to increases in the defined benefit obligation. ArcelorMittal also makes contributions to a multi-employer pension plan in the U.S. (the Steelworkers Pension Trust) for which it is one of the largest employers. If the other contributors were to default on their obligations, ArcelorMittal would become liable for the plan. In these circumstances, funding requirements could have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects. 

ArcelorMittal could experience labor disputes that may disrupt its operations and its relationships with its customers and its ability to rationalize operations and reduce labor costs in certain markets may be limited in practice or encounter implementation difficulties.

A majority of the employees of ArcelorMittal and of its contractors are represented by labor unions and are covered by collective bargaining or similar agreements, which are subject to periodic renegotiation. Strikes or work stoppages could occur prior to, or during, negotiations preceding new collective bargaining agreements, during wage and benefits negotiations or during other periods for other reasons, in particular in connection with any announced intentions to adapt the footprint. ArcelorMittal may experience strikes and work stoppages at various facilities. Prolonged strikes or work stoppages, which may increase in their severity and frequency, may have an adverse effect on the operations and financial results of ArcelorMittal. The risk of strikes and work stoppages is particularly acute during collective bargaining agreement negotiations. For example, collective agreement negotiations are currently ongoing in South Africa and in Liberia. In addition, on June 23, 2016, ArcelorMittal announced its new three-year collective bargaining agreement with the United Steelworkers (USW) was ratified by USW-represented employees, following months of negotiations that threatened to, but did not in the end, disrupt operations. See “Item 6.D—Directors, senior management and employees—Employees”.

Faced with temporary or structural overcapacity in various markets, particularly developed ones, ArcelorMittal has in the past sought and may in the future seek to rationalize operations through temporary or permanent idling and/or closure of plants. These initiatives have in the past and may in the future lead to protracted labor disputes and

22


 

political controversy. For example, in 2012, the announced closure of the liquid phase of ArcelorMittal’s Florange plant in France, and also in the Liege plant in Belgium, attracted substantial media and political attention. Such situations carry the risk of delaying or increasing the cost of production rationalization measures, harming ArcelorMittal’s reputation and business standing in given markets and even the risk of nationalization. 

ArcelorMittal is subject to economic policy, political, social and legal risks and uncertainties in the emerging markets in which it operates or proposes to operate, and these uncertainties may have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects.

ArcelorMittal operates, or proposes to operate, in a large number of emerging markets. In recent years, many of these countries have implemented measures aimed at improving the business environment and providing a stable platform for economic development. ArcelorMittal’s business strategy has been developed partly on the assumption that this modernization, restructuring and upgrading of the business climate and physical infrastructure will continue, but this cannot be guaranteed. Any slowdown in the development of these economies could have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects, as could insufficient investment by government agencies or the private sector in physical infrastructure. For example, the failure of a country to develop reliable electricity and natural gas supplies and networks, and any resulting shortages or rationing, could lead to disruptions in ArcelorMittal’s production.

Moreover, some of the countries in which ArcelorMittal operates have been undergoing substantial political transformations from centrally-controlled command economies to market-oriented systems or from authoritarian regimes to democratically-elected governments and vice-versa. Political, economic and legal reforms necessary to complete such transformation may not progress sufficiently. On occasion, ethnic, religious, historical and other divisions have given rise to tensions and, in certain cases, wide-scale civil disturbances and military conflict. The political systems in these countries are vulnerable to their populations’ dissatisfaction with their government, reforms or the lack thereof, social and ethnic unrest and changes in governmental policies, any of which could have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects and its ability to continue to do business in these countries. For example, in Ukraine, a period of widespread civil unrest resulted in the removal of the President from office in February 2014 and the establishment of an interim government, which has been followed by ongoing conflict in Crimea and the Donbass region, with Russia purportedly annexing Crimea in March 2014, a disputed referendum approving independence of Crimea from Ukraine in May 2014 and intermittent combats between the Ukrainian army and pro-Russian rebels in the Donbass region. In addition, certain of ArcelorMittal’s operations are also located in areas where acute drug-related violence (including executions and kidnappings of non-gang civilians) occurs and the largest drug cartels operate, such as the states of Michoacan, Sinaloa and Sonora in Mexico.

 

Certain emerging markets where ArcelorMittal has operations are experiencing particularly difficult operating conditions. Brazil, for example, is going through severe recession, with significant declines seen in steel consumption and steel prices. Kazakhstan is also going through a recession, and its currency sharply depreciated at the end of 2015. The steel and mining industries in South Africa are subject to a challenging operating environment characterized by lower local demand, increased cheap imports and higher costs, resulting in losses in recent years for ArcelorMittal South Africa.

 

In addition, epidemics may affect ArcelorMittal’s operations in certain regions. For example, ArcelorMittal operates in Liberia, which underwent an Ebola virus disease epidemic in 2014 and 2015. This affected ArcelorMittal’s operations and projects in Liberia.  There can be no assurance that other epidemics will not adversely affect ArcelorMittal’s ongoing operations, production targets and expansion plans, if any, in other markets in which it operates.

 

In addition, the legal systems in some of the countries in which ArcelorMittal operates remain less than fully developed, particularly with respect to the independence of the judiciary, property rights, the protection of foreign investment and bankruptcy proceedings, generally resulting in a lower level of legal certainty or security for foreign investment than in more developed countries. ArcelorMittal may encounter difficulties in enforcing court judgments or arbitral awards in some countries in which it operates because, among other reasons, those countries may not be parties to treaties that recognize the mutual enforcement of court judgments. Assets in certain countries where ArcelorMittal operates could also be at risk of expropriation or nationalization, and compensation for such assets may be below fair value. For example, the Venezuelan government has implemented a number of selective nationalizations of companies operating in the country to date. Although ArcelorMittal believes that the long-term growth potential in emerging markets is strong, and intends them to be the focus of the majority of its near-term

23


 

growth capital expenditures, legal obstacles could have a material adverse effect on the implementation of ArcelorMittal’s growth plans and its operations in such countries.

ArcelorMittal’s results of operations could be affected by fluctuations in foreign exchange rates, particularly the euro to U.S. dollar exchange rate, as well as by exchange controls imposed by governmental authorities in the countries where it operates.

ArcelorMittal operates and sells products globally and as a result, its business, financial condition, results of operations or prospects could be adversely affected by fluctuations in exchange rates. A substantial portion of ArcelorMittal’s assets, liabilities, operating costs, sales and earnings are denominated in currencies other than the U.S. dollar (ArcelorMittal’s reporting currency). Accordingly, its results of operations are subject to translation risk (i.e., the USD value of the revenues and profits generated in other currencies and its debt denominated in other currencies) and transaction risk (i.e., a mismatch between the currency of costs and revenues). For example, in 2015 ArcelorMittal recognized a $0.7 billion foreign exchange loss primarily due to the decrease in euro denominated deferred tax assets and debt as a result of the sharp appreciation of the USD versus the euro.

Moreover, ArcelorMittal operates in several countries whose currencies are, or have in the past been, subject to limitations imposed by those countries’ central banks, or which have experienced sudden and significant devaluations. In emerging countries where ArcelorMittal has operations and/or generates substantial revenue, such as Argentina, Brazil, Venezuela, Kazakhstan and Ukraine, the risk of significant currency devaluation is high. On February 5, 2015, the National Bank of Ukraine decided to suspend its intervention in the UAH, which had kept a cap on the USD/UAH exchange rate and leaves its currency floating freely against the U.S. dollar. Consequently, the UAH has been significantly devalued against the USD, losing as much as 60% since 2014 highs, including intraday losses of up to 30%. The Kazakhstani tenge leveled off after a period of high volatility (with a high of 388.5 and a low of 336.5 during the first quarter of 2016) following the free float regime introduction in August 2015, and during the rest of 2016, it remained around 330 to 340 against the U.S. dollar. In Venezuela, following the application of the DICOM rate, the Company’s net investment in Unicon decreased from $628 million to $43 million on January 1, 2016 and amounted to $48 million at December 31, 2016 (See “Item 4.B—Information on the Company—Business overview—Government regulations—Key currency regulations and exchange controls”).

Currency devaluations, the imposition of new exchange controls or other similar restrictions on currency convertibility, or the tightening of existing controls in the countries in which ArcelorMittal operates could adversely affect its business, financial condition, results of operations or prospects. See “Item 4.B—Information on the Company—Business overview—Government regulations—Key currency regulations and exchange controls”.

 

Disruptions to ArcelorMittal’s manufacturing processes could adversely affect its operations, customer service levels and financial results.

Steel manufacturing processes are dependent on critical steel-making equipment, such as furnaces, continuous casters, rolling mills and electrical equipment (such as transformers), and such equipment may incur downtime as a result of unanticipated failures or other events, such as fires, explosions or furnace breakdowns. ArcelorMittal’s manufacturing plants have experienced, and may in the future experience, plant shutdowns or periods of reduced production as a result of such equipment failures or other events, one example being the damage to the steam boilers in the site in Fos-sur-Mer in March 2016 or the loss of steam to the ArcelorMittal Burns Harbor site in May 2016. To the extent that lost production as a result of such a disruption cannot be compensated for by unaffected facilities, such disruptions could have an adverse effect on ArcelorMittal’s operations, customer service levels and results of operations.

Natural disasters or severe weather conditions could damage ArcelorMittal’s production facilities or adversely affect its operations.

Natural disasters could significantly damage ArcelorMittal’s production facilities and general infrastructure. For example, ArcelorMittal Mexico’s production facilities located in Lázaro Cárdenas, Michoacán, Mexico and ArcelorMittal Galati’s production facilities in Romania are located in or close to regions prone to earthquakes. The Lázaro Cárdenas area has, in addition, been subject to a number of tsunamis in the past. The site of the joint venture AM/NS Calvert (“Calvert”) in the United States is located in an area subject to tornados. ArcelorMittal also has assets in locations subject to Arctic freeze such as the mining facilities through its joint venture in Baffinland and to bush fires, specifically in Kazakhstan and South Africa. More generally, changing weather patterns and climatic conditions in recent years, possibly due to the phenomenon of global warming, have added to the unpredictability and frequency of natural disasters. Damage to ArcelorMittal production facilities due to natural disasters could, to

24


 

the extent that lost production cannot be compensated for by unaffected facilities, adversely affect its business, results of operations or financial condition. 

In addition to natural disasters, ArcelorMittal’s operations can be affected by severe weather conditions. This is due in particular to the long supply chain for certain of its operations and the location of certain operations in areas subject to harsh winter conditions (i.e., the Great Lakes Region, Canada and Kazakhstan). For example, supply chain issues caused by a particularly harsh winter (causing in particular the closure of the Great Lakes shipping lanes) negatively affected operations in Canada and the Northeastern United States during the first quarter of 2014.

ArcelorMittal’s insurance policies provide limited coverage, potentially leaving it uninsured against some business risks.

The occurrence of an event that is uninsurable or not fully insured could have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects. ArcelorMittal maintains insurance on property and equipment in amounts believed to be consistent with industry practices, but it is not fully insured against all such risks. ArcelorMittal’s insurance policies cover physical loss or damage to its property and equipment on a reinstatement basis as arising from a number of specified risks and certain consequential losses, including business interruption arising from the occurrence of an insured event under the policies. Under ArcelorMittal’s property and equipment policies, damages and losses caused by certain natural disasters, such as earthquakes, floods and windstorms, are also covered.

ArcelorMittal also purchases worldwide third-party public and product liability insurance coverage for all of its subsidiaries. Various other types of insurance are also maintained, such as comprehensive construction and contractor insurance for its greenfield and major capital expenditures projects, directors and officers liability, transport, and charterers’ liability, as well as other customary policies such as car insurance, travel assistance and medical insurance.

In addition, ArcelorMittal maintains trade credit insurance on receivables from selected customers, subject to limits that it believes are consistent with those in the industry, in order to protect it against the risk of non-payment due to customers’ insolvency or other causes. Not all of ArcelorMittal’s customers are or can be insured, and even when insurance is available, it may not fully cover the exposure.

Notwithstanding the insurance coverage that ArcelorMittal and its subsidiaries carry, the occurrence of an event that causes losses in excess of limits specified under the relevant policy, or losses arising from events not covered by insurance policies, could materially harm ArcelorMittal’s financial condition and future operating results.

Product liability claims could have a significant adverse financial impact on ArcelorMittal.

ArcelorMittal sells products to major manufacturers engaged in manufacturing and selling a wide range of end products. ArcelorMittal also from time to time offers advice to these manufacturers. Furthermore, ArcelorMittal’s products are also sold to, and used in, certain safety-critical applications, such as, for example, pipes used in gas or oil pipelines and in automotive applications. There could be significant consequential damages resulting from the use of or defects in such products. ArcelorMittal has a limited amount of product liability insurance coverage, and a major claim for damages related to ArcelorMittal products sold and, as the case may be, advice given in connection with such products could leave ArcelorMittal uninsured against a portion or the entirety of the award and, as a result, materially harm its financial condition and future operating results.

ArcelorMittal is subject to regulatory and compliance risks, which may expose it to investigations by governmental authorities, litigation and fines, in relation, among other things, to its pricing and marketing practices or other antitrust matters. The resolution of such matters could negatively affect the Company’s profitability and cash flows in a particular period or harm its reputation.

ArcelorMittal is the largest steel producer in the world. As a result, ArcelorMittal may be subject to exacting scrutiny from regulatory authorities and private parties, particularly regarding its trade practices and dealings with customers and counterparties. As a result of its position in steel markets and its historically acquisitive growth strategy, ArcelorMittal could be subject to governmental investigations and lawsuits based on antitrust laws in particular. These could require significant expenditures and result in liabilities or governmental orders that could have a material adverse effect on ArcelorMittal’s business, operating results, financial condition and prospects. ArcelorMittal and certain of its subsidiaries are currently under investigation by governmental entities in several countries, and are named as defendants in a number of lawsuits relating to various antitrust matters. See note 8.2 to

25


 

ArcelorMittal’s consolidated financial statements. Antitrust proceedings, investigations and follow-on claims involving ArcelorMittal subsidiaries are also currently pending in various countries including Brazil and Germany. 

Because of the fact-intensive nature of the issues involved and the inherent uncertainty of such litigation and investigations, the nature of the resolutions of such proceedings are difficult to forecast but negative outcomes are possible. An adverse ruling in the proceedings described above or in other similar proceedings in the future could subject ArcelorMittal to substantial administrative penalties and/or civil damages. In cases relating to other companies, civil damages have been as high as hundreds of millions of U.S. dollars in major civil antitrust proceedings during the last decade. In addition, ArcelorMittal operates in many jurisdictions around the world, increasing the risk of non-compliance with laws and regulations in relation to anti-corruption, economic sanctions and other ethical matters, despite its compliance policies and procedures. Unfavorable outcomes in current and potential future litigation and investigations could reduce ArcelorMittal’s liquidity and negatively affect its profitability, cash flows, results of operations and financial condition, as well as harm its reputation.

ArcelorMittal is currently and in the future may be subject to legal proceedings, the resolution of which could negatively affect the Company’s profitability and cash flows in a particular period.

ArcelorMittal’s profitability or cash flows in a particular period could be affected by adverse rulings in legal proceedings currently pending or by legal proceedings that may be filed against the Company in the future. See note 8.2 to ArcelorMittal’s consolidated financial statements.

ArcelorMittal’s business is subject to an extensive, complex and evolving regulatory framework and its governance and compliance processes may fail to prevent regulatory penalties and reputational harm, whether at operating subsidiaries, joint ventures or associates.

ArcelorMittal operates in a global environment, and, at a time of increased enforcement activity and enforcement initiatives worldwide, its business straddles multiple jurisdictions and complex regulatory frameworks. Such regulatory frameworks, including but not limited to the area of economic sanctions, are constantly evolving, and ArcelorMittal may as a result become subject to increasing limitations on its business activities and to the risk of fines or other sanctions for non-compliance. Moreover, ArcelorMittal’s governance and compliance processes, which include the review of internal controls over financial reporting, may not prevent breaches of law or accounting or governance standards at the Company or its subsidiaries. The risk of violation is also present at the Company’s joint ventures and associates where ArcelorMittal has only a non-controlling stake and does not control governance practices or accounting and reporting procedures.

In addition, ArcelorMittal may be subject to breaches of its Code of Business Conduct, other rules and protocols for the conduct of business, as well as to instances of fraudulent behavior and dishonesty by its employees, contractors or other agents. The Company’s failure to comply with applicable laws and other standards could subject it to fines, litigation, loss of operating licenses and reputational harm.

The income tax liability of ArcelorMittal may substantially increase if the tax laws and regulations in countries in which it operates change or become subject to adverse interpretations or inconsistent enforcement.

Taxes payable by companies in many of the countries in which ArcelorMittal operates are substantial and include value-added tax, excise duties, profit taxes, payroll-related taxes, property taxes, mining taxes and other taxes. Tax laws and regulations in some of these countries may be subject to frequent change, varying interpretation and inconsistent enforcement. Ineffective tax collection systems and national or local government budget requirements may increase the likelihood of the imposition of arbitrary or onerous taxes and penalties, which could have a material adverse effect on ArcelorMittal’s financial condition and results of operations. In addition to the usual tax burden imposed on taxpayers, these conditions create uncertainty as to the tax implications of various business decisions. This uncertainty could expose ArcelorMittal to significant fines and penalties and to enforcement measures despite its best efforts at compliance, and could result in a greater than expected tax burden. See note 9 to ArcelorMittal’s consolidated financial statements.

In addition, many of the jurisdictions in which ArcelorMittal operates have adopted transfer pricing legislation. If tax authorities impose significant additional tax liabilities as a result of transfer pricing adjustments, it could have a material adverse effect on ArcelorMittal’s financial condition and results of operations.

26


 

It is possible that tax authorities in the countries in which ArcelorMittal operates will introduce additional revenue raising measures. The introduction of any such provisions may affect the overall tax efficiency of ArcelorMittal and may result in significant additional taxes becoming payable. Any such additional tax exposure could have a material adverse effect on the Company’s financial condition and results of operations.

ArcelorMittal may face a significant increase in its income taxes if tax rates increase or the tax laws or regulations in the jurisdictions in which it operates, or treaties between those jurisdictions, are modified in an adverse manner. This may adversely affect ArcelorMittal’s cash flows, liquidity and ability to pay dividends.

ArcelorMittal’s reputation and business could be materially harmed as a result of data breaches, data theft, unauthorized access or successful hacking.

ArcelorMittal’s operations depend on the secure and reliable performance of its information technology systems. An increasing number of companies, including ArcelorMittal, have recently experienced intrusion attempts or even breaches of their information technology security, some of which have involved sophisticated and highly targeted attacks on their computer networks. ArcelorMittal’s corporate website was the target of a hacking attack in January 2012, which brought the website down for several days, and phishing, ransomware and virus attacks have been increasing in more recent years through 2016. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement in a timely manner effective and efficient countermeasures.

If unauthorized parties attempt or manage to bring down the Company’s website or force access into its information technology systems, they may be able to misappropriate confidential information, cause interruptions in the Company’s operations, damage its computers or process control systems or otherwise damage its reputation and business. In such circumstances, the Company could be held liable or be subject to regulatory or other actions for breaching confidentiality and personal data protection rules. Any compromise of the security of the Company’s information technology systems could result in a loss of confidence in the Company’s security measures and subject it to litigation, civil or criminal penalties, and adverse publicity that could adversely affect its reputation, financial condition and results of operations.

U.S. investors may have difficulty enforcing civil liabilities against ArcelorMittal and its directors and senior management.

ArcelorMittal is incorporated under the laws of the Grand Duchy of Luxembourg with its principal executive offices and corporate headquarters in Luxembourg. The majority of ArcelorMittal’s directors and senior management are residents of jurisdictions outside of the United States. The majority of ArcelorMittal’s assets and the assets of these persons are located outside the United States. As a result, U.S. investors may find it difficult to effect service of process within the United States upon ArcelorMittal or these persons or to enforce outside the United States judgments obtained against ArcelorMittal or these persons in U.S. courts, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts judgments obtained against ArcelorMittal or these persons in courts in jurisdictions outside the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for a U.S. investor to bring an original action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against ArcelorMittal’s directors and senior management and non-U.S. experts named in this annual report.  

 

ITEM 4.         INFORMATION ON THE COMPANY

A.    History and development of the Company

ArcelorMittal is the world’s leading integrated steel and mining company. Since the creation of ArcelorMittal in 2006 (through the combination of Mittal Steel Company N.V. and Arcelor) and continuing through 2008, ArcelorMittal has pursued a disciplined growth strategy, with transactions in Argentina, Australia, Austria, Brazil, Canada, Costa Rica, China, Estonia, France, Germany, Italy, Mexico, Poland, Russia, Slovakia, South Africa, Sweden, Turkey, the United Kingdom, Uruguay, United Arab Emirates, the United States and Venezuela. Beginning in the latter part of 2008, ArcelorMittal largely suspended mergers and acquisitions activity in light of the deteriorating economic and market environment, and sharply curtailed its investment activities, with the exception of the acquisition (along with a partner) of Baffinland in 2011.

27


 

 

Since September 2011, ArcelorMittal has been undergoing a deleveraging process to reduce its indebtedness including numerous divestments of non-core assets (see note 2.3 to the consolidated financial statements for the divestments made in 2015 and 2016). Despite ArcelorMittal’s overall strategy of deleveraging, the Company completed an acquisition through a 50/50 joint venture partnership of Calvert in 2014.

 

ArcelorMittal's success is built on its core values of sustainability, quality and leadership and the entrepreneurial boldness that has empowered its emergence as the first truly global steel and mining company. Acknowledging that a combination of structural issues and macroeconomic conditions will continue to challenge returns in its sector, the Company has adapted its footprint to the new demand realities, redoubled its efforts to control costs and repositioned its operations with a view toward outperforming its competitors. ArcelorMittal’s research and development capability is strong and includes several major research centers as well as strong academic partnerships with universities and other scientific bodies.

 

Against this backdrop, ArcelorMittal's strategy is to leverage four distinctive attributes that will enable it to capture leading positions in the most attractive areas of the steel industry’s value chain, from mining at one end to distribution and first-stage processing at the other: global scale and scope; superior technical capabilities; a diverse portfolio of steel and related businesses, one of which is mining; and financial capabilities. The Company’s strategy is further detailed under “Item 4.B—Information on the Company—Business overview—Business strategy”.

 

 Geography:  ArcelorMittal is the largest steel producer in the Americas, Africa and Europe and is the fifth largest steel producer in the CIS region. ArcelorMittal has steel-making operations in 18 countries on four continents, including 51 integrated and mini-mill steel-making facilities. As of December 31, 2016, ArcelorMittal had approximately 199,000 employees.

ArcelorMittal’s steel-making operations have a high degree of geographic diversification. Approximately 37% of its crude steel is produced in the Americas, approximately 47% is produced in Europe and approximately 16% is produced in other countries, such as Kazakhstan, South Africa and Ukraine. In addition, ArcelorMittal’s sales of steel products are spread over both developed and developing markets, which have different consumption characteristics. ArcelorMittal’s mining operations, present in North and South America, Africa, Europe and the CIS region, are integrated with its global steel-making facilities and are important producers of iron ore and coal in their own right.

Products: ArcelorMittal produces a broad range of high-quality finished and semi-finished steel products (“semis”). Specifically, ArcelorMittal produces flat steel products, including sheet and plate, and long steel products, including bars, rods and structural shapes. In addition, ArcelorMittal produces pipes and tubes for various applications. ArcelorMittal sells its steel products primarily in local markets and through its centralized marketing organization to a diverse range of customers in approximately 160 countries including the automotive, appliance, engineering, construction and machinery industries. The Company also produces various types of mining products including iron ore lump, fines, concentrate and sinter feed, as well as coking, PCI and thermal coal.

As a global steel producer, the Company is able to meet the needs of different markets. Steel consumption and product requirements clearly differ between developed markets and developing markets. Steel consumption in developed economies is weighted towards flat products and a higher value-added mix, while developing markets utilize a higher proportion of long products and commodity grades. To meet these diverse needs, the Company maintains a high degree of product diversification and seeks opportunities to increase the proportion of higher value-added products in its product mix.

Automotive focus: ArcelorMittal has a leading market share in its core markets in the automotive steel business and is a leader in the fast-growing advanced high strength steels segment. ArcelorMittal is the first steel company in the world to embed its own engineers within an automotive customer to provide engineering support. The Company begins working with original equipment manufacturers (“OEMs”) as early as five years before a vehicle reaches the showroom, to provide generic steel solutions, co-engineering and help with the industrialization of the project. In November 2016, ArcelorMittal introduced a new generation of advanced high strength steels, including new press hardenable steels and martensitic steels. Together, these new steel grades aim to help automakers further reduce body-in-white weight to improve fuel economy without compromising vehicle safety or performance. See­ “Item 4.B— Information on the Company—Business overview—Competitive strengths—Research and development” below for further detail.

 

28


 

Mining Value Chain: ArcelorMittal has a significant portfolio of raw material and mining assets, as well as certain strategic long-term contracts with external suppliers. In 2016, approximately 55% of ArcelorMittal’s iron-ore requirements and approximately 15% of its PCI and coal requirements were supplied from its own mines or pursuant to strategic contracts with third-party suppliers. The Company currently has iron ore mining activities in Brazil, Bosnia, Canada, Kazakhstan, Liberia, Mexico, Ukraine and the United States. The Company currently has coal mining activities in Kazakhstan and the United States.

In addition, ArcelorMittal produces substantial amounts of direct reduced iron, or DRI, which is a scrap substitute used in its mini-mill facilities to supplement external metallics purchases. ArcelorMittal is also a significant producer of coke, which is produced from metallurgical coal and is a critical raw material for steel-making, satisfying 92% of its coke needs through its own production facilities. ArcelorMittal’s facilities have good access to shipping facilities, including through ArcelorMittal’s own 16 deep-water port facilities and linked railway sidings.

ArcelorMittal has its own downstream steel distribution business, primarily run through its Europe segment. It also provides value-added and customized steel solutions through additional processing activities to meet specific customer requirements.

 

 

Updates on previously announced investment projects

In the strong market environment that prevailed from 2005 through 2008, the Company announced a series of proposed greenfield and brownfield investment projects. As a result of the severe market downturn in 2008-2009, the Company re-examined its investment projects involving significant capital expenditure and subsequently has continued to reassess the cost-benefit and feasibility calculations of these projects. The Company has adjusted its investment priorities in recent years and has sought to reduce its capital expenditures. In 2017, capital expenditures are expected to be approximately $2.9 billion as compared to capital expenditures of $2.4 billion for the year ended December 31, 2016. Accordingly, while the Company continues to study certain of its key previously announced investment projects summarized below, no assurance can be given that they will proceed. Certain investment projects are highlighted below. For further information on the investment projects underway, please see “Item 4.D—Information on the Company—Property, plant and equipmentCapital expenditure projects”.

 

India greenfield projects. The Company explored investment opportunities in India and in June 2010, entered into a memorandum of understanding with authorities in the state of Karnataka in South India that envisaged the construction of a six million tonne steel plant with a captive 750 megawatt power plant, representing a potential aggregate investment of $6.5 billion. The Company has completed all of the necessary steps to acquire the land. ArcelorMittal India Limited received possession certificates for 2,659 acres of private land following the acquisition of 1,827 acres and 832 acres in December 2011 and October 2012, respectively, leaving a balance of 136.33 acres of land owned by the Karnataka Government, which is being processed for allocation.

 

However, in view of excess capacity of steel worldwide and uncertainty in iron ore availability locally, the Company is also exploring the possibility of utilizing the land in Karnataka for the establishment of a solar farm for generating solar energy. This would contribute to the mitigation of Karnataka's power crisis and to the participation in the National Solar Energy mission of the Government of India. In this regard, the Company has sought the State Government's permission to set up a solar farm of up to 600 MW. The State Government is considering ArcelorMittal’s proposal and the Company is hopeful of receiving a favorable response to the proposal.

 

Brazil. During the second quarter of 2013, ArcelorMittal restarted its Monlevade expansion project, which was initially expected to be completed in two phases, with the first phase focused mainly on downstream facilities consisting of a new wire rod mill with additional capacity of 1.05 million tonnes of coils per year and estimated investment of $280 million. The investment also included a rebar revamping in Juiz de Fora to increase rebar production from 50,000 to 400,000 tonnes per year replacing equivalent wire rod production capacity that would be transferred to Monlevade. The Monlevade wire rod expansion project was completed in the fourth quarter of 2015 and the Juiz de Fora rebar revamping was concluded in the last quarter of 2014, each in line with its respective budget. The Company does not expect to increase shipments from Monlevade until domestic demand improves. The Juiz de Fora meltshop expansion project to increase meltshop capacity by 200,000 tonnes is expected to be completed in 2018 at the earliest. A decision regarding the execution of the second phase of the projects (for upstream facilities) will be taken at a later date.

29


 

Liberia. In December 2006, the Government of Liberia and ArcelorMittal announced the finalization of a first amendment to agreements relating to an iron ore mining and infrastructure development project entered into in 2005. A further amendment to the 2006 Mineral Development Agreement was negotiated and ratified in September 2013. The project consists of reopening mines in Nimba County, rehabilitating 260 kilometers of abandoned railway, developing the Buchanan port for shipping traffic and includes a number of important social initiatives, including providing training and health facilities for employees. Production of direct shipping ore (“DSO”) commenced in the second half of 2011 which increased to a capacity of five million tonnes in 2013 and produced 4.3 million tonnes in 2015. In the current DSO phase, significant cost reductions and re-structuring has continued to ensure competitiveness at current prices. Drilling for orebody extensions commenced and in 2016 the operation was right sized to 2 to 3 million tonnes to focus on its natural Atlantic markets. This repositioning for size and competitiveness also extends the life of the DSO phase at its ageing Tokadeh deposit. ArcelorMittal considers the Gangra deposit, which has a lower strip ratio and higher grade DSO, as the preferred next phase of development where production in Gangra could start by the third quarter of 2017.

 

ArcelorMittal had previously announced a Phase 2 project that envisaged the construction of 15 million tonnes of concentrate sinter fines capacity and associated infrastructure. The phase 2 project was initially delayed due to the declaration of force majeure by contractors in August 2014 due to the Ebola virus outbreak in West Africa. While rapid price declines over the period since the force majeure have led to a reassessment of the project, ArcelorMittal is considering transitioning production to a higher grade sinter fines product but in a phased approach as opposed to a major step-up as originally envisaged in phase 2. Extensive tonnage of concentrator feed material is already exposed in readiness for a concentrated sinter fines and work continues in 2017 to define the best business option.

 

Kalagadi Manganese (South Africa). In 2007, ArcelorMittal entered into a joint venture agreement with Kalahari Resources and the Industrial Development Corporation Limited to develop the Kalagadi manganese ore deposits in South Africa. The Kalagadi Manganese’s project is situated in the Kuruman / Hotazel district of the Northern Cape Province. The project envisages the establishment of a manganese ore mine and sinter plant at Hotazel that would ultimately produce 2.4 million tonnes of sinter product per annum and the establishment of a 320,000 tonne per annum ferromanganese alloy production facility in the Coega Industrial Development Zone in Port Elizabeth. On October 21, 2016, ArcelorMittal signed an agreement with Kgalagadi Alloys (Proprietary) Ltd for the sale of its 50% investment in Kalagadi Manganese for a deferred consideration to be paid during the life of the mine and capped at $150 million. The completion of the sale is subject to various closing conditions and regulatory approvals. The South African Competition Commission approved the sale on January 16, 2017. The Company expects to complete the sale during the first half of 2017.

Baffinland (Canada). In March 2011, ArcelorMittal acquired 70% of Baffinland Iron Mines Corp. (“Baffinland”), with Nunavut Iron Ore Inc. (“Nunavut Iron Ore”) owning the remaining 30%. In February 2013, ArcelorMittal and Nunavut Iron Ore entered into a joint arrangement and equalized their shareholdings at 50/50. ArcelorMittal retained operator and marketing rights and, in consideration for its increased shareholding, Nunavut Iron Ore assumed certain project funding obligations. During 2015, following part of the capital increases being subscribed only by Nunavut Iron Ore, ArcelorMittal’s shareholding decreased to 46.08%. In 2016, ArcelorMittal’s shareholding decreased further to 44.54% after part of the capital increases were only subscribed by Nunavut Iron Ore. During 2016, the project reached commercial production (for further details, see “Item 4.D–Information on the Company—Property, plant and equipment”).

Baffinland also has a plan for Phase 3 (subject to shareholder approval, completion of a feasibility study and certain additional conditions), which involves the construction of a railway to replace the existing truck-haul operation for transport of iron ore from Mary River to Milne Inlet, as well as expansion of mining, crushing and screening operations and port shiploading capacity. The objective of Phase 3 is to increase production capacity to 12 million tonnes per year. Baffinland estimates that $855 million of capital expenditures will be required for Phase 3, and has indicated that it intends to fund those expenditures with operating cash flows, additional equity and new debt. Nunavut Iron Ore has indicated its intention to provide up to $450 million of equity funding for Phase 3, subject to satisfaction of certain conditions, ArcelorMittal has an option expiring in October 2017 to provide up to $85 million of equity funding for Phase 3, but no obligation to provide such funding. If Nunavut or other parties fund further phases, it would result in further dilution of ArcelorMittal’s shareholding. Since August 2016, ArcelorMittal and Nunavut Iron Ore share operator rights for Baffinland’s operations. Subject to Phase 3 being

30


 

completed, ArcelorMittal maintains shared operator rights until June 30, 2018 (which could be extended to December 31, 2018) and continues to retain marketing rights until December 31, 2019.

 

Key transactions and events in 2016

ArcelorMittal’s principal investments, acquisitions and disposals, and other key events that occurred during the year ended December 31, 2016 are summarized below.

·         During 2016, ArcelorMittal completed several financing and repayment transactions. Please refer to “Item 5B—Operating and financial review and prospects—Liquidity and capital resources—Financings” for a summary of the transactions.

·         During 2016, ArcelorMittal completed certain divestment and other investment transactions not listed below. Please refer to notes 2.3 and 2.5 to the consolidated financial statements within this report for a summary of the transactions.

·         On September 28, 2016, ArcelorMittal South Africa (“AMSA”) announced that it had entered into agreements to implement a Broad-Based Black Economic Empowerment (B-BBEE) transaction which includes: the issuance of a 17% shareholding in AMSA using a new class of notionally funded shares to a special purpose vehicle owned by Likamva Resources Proprietary Limited (Likamva). Likamva has undertaken to introduce broad-based social and community development organizations as shareholders to hold an effective 5% interest (of the 17%, leaving Likamva with a 12% shareholding) within 24 months; and a 5.1% shareholding in AMSA using another new class of notionally funded shares to the ArcelorMittal South Africa Employee Empowerment Share Trust for the benefit of AMSA employees and AMSA management. All the shares have certain restrictions on disposal for a period of 10 years (“Lock-in Period”), thereby promoting long-term sustainable B-BBEE in AMSA. The shares were issued on December 7, 2016.

·         On August 2, 2016, the Company signed an agreement for the sale of its 10.08% interest in Hunan Valin to a private equity fund. On September 14, 2016, the Company transferred the Hunan Valin shares and simultaneously received the full proceeds of $165 million (RMB1,103 million) from the buyer and recorded a gain of $74 million.

·         On July 28, 2016, ArcelorMittal signed an agreement with Megasa Siderúrgica S.L. for the sale of its wholly owned subsidiary ArcelorMittal Zaragoza in Spain for total consideration of €80 million ($89 million). The closing conditions were completed on September 30, 2016.

·         On June 30, 2016, ArcelorMittal and Marcegaglia announced that they had submitted an indicative offer for the acquisition of Ilva (Italy), an Italian company engaged in the production and processing of steel products, which has been declared insolvent and is currently subject to the extraordinary administration of the commissioners appointed by the Italian Government. The commissioners are carrying out a procedure for the lease and subsequent sale of the businesses of Ilva and its subsidiaries through a competitive bid process, which is ongoing.

·         On June 23, 2016, ArcelorMittal announced its new contract with the United Steelworkers (USW) was ratified by USW-represented employees. The three-year collective bargaining agreement covers more than 12,000 USW-represented employees at 13 of the Company’s United States facilities in Indiana, Illinois, Minnesota, Ohio, Pennsylvania and West Virginia.

·         On April 8, 2016, ArcelorMittal completed an equity offering with net proceeds of $3.1 billion. New shares of 1,262,351,531 were issued at a subscription price of €2.20 per new share. The Mittal family trust entities exercised their rights for new shares pro rata to their shareholding of 37.38%. Following the equity offering, ArcelorMittal’s issued share capital consists of 3,065,710,869 shares without nominal value.

·         On April 4, 2016, ArcelorMittal completed the sale of its US LaPlace and Vinton Long Carbon facilities to an affiliate of Black Diamond Capital Management (‘Black Diamond’). The LaPlace, Louisiana facility,

31


 

along with a rolling mill in Harriman, Tennessee, produces billets, angles, flats, channels and beams. The Vinton facility, located in El Paso, Texas, produces rebar and grinding media. Simultaneously, ArcelorMittal has entered into a transition services agreement with Black Diamond, in order to facilitate a smooth transition period and ensure no business disruption.

·         On February 1, 2016, ArcelorMittal completed the sale of its 35% stake in Gestamp Automoción (“Gestamp”) to the majority shareholder, the Riberas family, for total cash consideration of €875 million ($971 million) received in the second quarter of 2016. In addition to the cash consideration, ArcelorMittal received a payment of €10 million ($11 million) for the 2015 dividend in the second quarter of 2016. ArcelorMittal will continue its supply relationship with Gestamp through its 35% shareholding in Gonvarri Steel Industries, a sister company of Gestamp. ArcelorMittal sells coils to Gonvarri Steel Industries for processing before they pass to Gestamp and other customers. Further, ArcelorMittal will continue to have a board presence in Gestamp, collaborate in automotive R&D and remain its major steel supplier.

 

Recent developments

·         On January 27, 2017, China Oriental, a Chinese integrated iron and steel conglomerate listed on the Hong Kong Stock Exchange (“HKEx”) in which ArcelorMittal held a 47% associated interest, announced the completion of a share placing in order to restore the minimum 25% free float requirement as per the HKEx listing requirement. The trading of China Oriental’s shares, which had been suspended since April 29, 2014, resumed on February 1, 2017. Following this share placing, ArcelorMittal’s interest in China Oriental decreased to 39%.

·         On February 10, 2017, ArcelorMittal’s announced that its Board of Directors has proposed a share consolidation based on a ratio 1:3, where every three current shares will be consolidated into one share (with a change to the number of shares outstanding and the nominal value of the shares outstanding). This proposal is subject to shareholder approval at an Extraordinary General Meeting of Shareholders expected to be held on May 10, 2017 which, if approved, will be implemented shortly thereafter. Details will be published in the convening notice for the General Meeting of Shareholders that is expected to be published in April 2017.

·         On February 23, 2017, ArcelorMittal and Votorantim S.A. announced the signing of an agreement, pursuant to which Votorantim’s long steel businesses in Brazil, Votorantim Siderurgia, will become a subsidiary of ArcelorMittal Brasil and Votorantim will hold a non-controlling interest in ArcelorMittal Brasil. Votorantim’s long steel operations in Argentina (Acerbrag) and Colombia (PazdelRío) were not included in the transaction. The combination of the businesses will result in a long product steel producer with annual crude steel capacity of 5.6 million tonnes and annual rolling capacity of 5.4 million tonnes. The combined operations include ArcelorMittal Brasil’s production sites at Monlevade, Cariacica, Juiz de Fora, Piracicaba and Itaúna, and Votorantim Siderurgia’s production sites at Barra Mansa, Resende and its participation in Sitrel, in Três Lagoas. The merger is expected to generate cost, logistical and operational synergies. The combined businesses’ production facilities are geographically complementary, enabling closer proximity and higher levels of service to its customer base. The transaction is subject to regulatory approvals in Brazil, including the approval of the Brazilian anti-trust authority CADE.

 

Other information

ArcelorMittal is a public limited liability company (société anonyme) that was incorporated for an unlimited period under the laws of the Grand Duchy of Luxembourg on June 8, 2001. ArcelorMittal is registered at the R.C.S. Luxembourg under number B 82.454.

The mailing address and telephone number of ArcelorMittal’s registered office are:

ArcelorMittal
24-26, Boulevard d’Avranches
L-1160 Luxembourg

32


 

Grand Duchy of Luxembourg
Telephone: +352 4792-1

ArcelorMittal’s agent for U.S. federal securities law purposes is:

ArcelorMittal USA LLC
1 South Dearborn Street, 19th floor
Chicago, Illinois 60603
United States of America
Telephone: + 1 312 899-3985

ArcelorMittal shares are listed and traded (through a single order book as from January 14, 2009) on the Euronext European markets (Paris and Amsterdam) (symbol “MT”), are admitted to trading on the Luxembourg Stock Exchange’s regulated market and listed on the Official List of the Luxembourg Stock Exchange (symbol “MT”) and are listed and traded on the Spanish Stock Exchanges (symbol “MTS”). ArcelorMittal shares are also listed and traded on the NYSE (symbol “MT”).

Internet site

ArcelorMittal maintains an Internet site at www.arcelormittal.com. Information contained on or otherwise accessible through this Internet site is not a part of this annual report. All references in this annual report to this Internet site are inactive textual references to this URL and are for information only.

 

B. Business overview

 

Business strategy

 

ArcelorMittal’s success is built on its core values of sustainability, quality and leadership and the entrepreneurial boldness that has empowered its emergence as the first truly global steel and mining company. Acknowledging that a combination of structural issues and macroeconomic conditions will continue to challenge returns in its sector, the Company has adapted its footprint to the new demand realities, intensified its efforts to control costs and repositioned its operations to outperform its competitors.

 

Against this backdrop, ArcelorMittal's strategy is to leverage four distinctive attributes that will enable it to capture leading positions in the most attractive areas of the steel industry value chain, from mining at one end to distribution and first-stage processing at the other:

 

•              Global scale and scope

•              Unmatched technical capabilities

•              Diverse portfolio of steel and related businesses, particularly mining

•              Financial capability.

 

Three themes

 

Steel. ArcelorMittal looks to expand its leadership role in attractive markets and segments by leveraging the Company’s technical capabilities and its global scale and scope. These are critical differentiators for sophisticated customers that value the distinctive technical and service capabilities the Company offers. Such customers are typically found in the automotive, energy, infrastructure and a number of smaller markets where ArcelorMittal is a market leader. In addition, the Company is present in, and will further develop, attractive steel businesses that benefit from favorable market structures or geographies. In developing attractive steel businesses, ArcelorMittal’s goal is to be the supplier of choice by anticipating customers’ requirements and exceeding their expectations. It will invest to develop and grow these businesses and enhance its ability to serve its customers. Given the current environment, that investment will be highly disciplined. Commodity steel markets will inevitably remain an important part of ArcelorMittal’s steel portfolio. Here, a lean cost structure should limit the downside in weak markets while allowing the Company to capture the upside in strong markets.

 

33


 

Mining. ArcelorMittal is working to continue to create value from its world-class mining business. Mining forms part of the steel value chain but typically enjoys a number of structural advantages, such as a steeper cost curve. The Company's strategy is to create value from its most significant assets, through selective expansion/de-bottlenecking, by controlling cost and capital expenditure, and by supplying products that are highly valued by steel producers. ArcelorMittal's financial capability allowed it to continue to invest in key mining assets (notably ArcelorMittal Mines and Infrastructure Canada),  while the diversity of its steel and mining portfolio facilitates the ability of the mining business to optimize the value of its products in the steelmaking process. The Company's mining business aspires to be the supplier of choice for a balanced mix of both internal and external customers, while at the same time providing a natural hedge against market volatility for its steel operations.

 

All operations. ArcelorMittal strives to achieve best-in-class competitiveness. Operational excellence, including health and safety, the number one priority, is at the core of the Company's strategy in both steel and mining. The Company steadily optimizes its asset base to ensure it is achieving high operating rates at its best assets. Its technical capabilities and the diversity of its portfolio of businesses underpin a strong commitment to institutional learning and continuous improvement through measures such as benchmarking and best-practice sharing. Innovation in products and processes also plays an important role while supporting overall competitiveness.

 

Five key strategic enablers

Critical to implementing this strategy are five key enablers:

  

A clear license to operate. Many of ArcelorMittal's businesses are located in regions that are in the early stages of economic development. Practically all are resource-intensive. The Company recognizes that it has an obligation to act responsibly towards all stakeholders ArcelorMittal's commitment to sustainability is outlined in the Sustainable Development section below. Sustainability is a core value that underlies ArcelorMittal's efforts to be both the world’s safest steel and mining company and a responsible environmental steward.

 

A strong balance sheet. The Company's balance sheet currently constrains its flexibility for funding organic growth or transformative acquisitions. While good progress has been made in recent years to reduce debt, achieving a sustainable medium-term net debt level remains a critical objective.

 

A decentralized organizational structure. ArcelorMittal's scale and scope are defining characteristics that give it a competitive advantage. They also introduce complexity and the risks of inefficiency, bureaucracy and diffuse accountability. To manage these risks, the Company favors a structure in which the responsibility for profit and loss is focused on business units aligned with markets.

 

Active portfolio management. Throughout the Company's history, it has sought to grow and strengthen the business through acquisition. That remains the case. The acquisition of existing assets and businesses is typically seen as a more attractive growth path than greenfield investment. But the Company is also willing to dispose of businesses that cannot meet its performance standards or that have more value to others.

 

The best talent. ArcelorMittal's success will depend on the quality of its people, and its ability to engage, motivate and reward them. As detailed in the Employee Development sections below, the Company is committed to investing in its people and ensuring a strong leadership pipeline. It will continue to improve its processes to attract, develop and retain the best talent.

 

Action 2020 Plan

On February 5, 2016, the Company announced its Action 2020 plan, which represents a strategic roadmap for each of ArcelorMittal’s main business segments. The Action 2020 plan is over and above the Company’s ongoing management gains plan and seeks to deliver real structural improvements unique to ArcelorMittal’s business. The Action 2020 plan targets to improve the Company’s operating income by $3 billion, absent any recovery in steel spreads and raw materials prices from the levels at the beginning of 2016.

Some of the key segment initiatives included in the Action 2020 plan are:

·         Europe: The Company plans to continue its successful asset optimization as an ongoing transformation plan, involving continued optimization, and the clustering of finishing sites to remove substantial overhead, centralize activities (including procurement) and improve logistics and service. Together

34


 

with expected higher added value (HAV) mix and volume gains, this targets delivering a $1 billion improvement in operating income over the period.

·         NAFTA: The downstream footprint optimization in the U.S. has commenced and targets yielding a minimum of $250 million improvement in operating income. The Company intends to continue to ramp-up Calvert to full capacity during 2016 and 2017 and this is anticipated to deliver a minimum of $250 million operating income improvement. Other projects are expected to boost the HAV mix and generate further improvement.

·         Brazil: The Company plans to execute its value plan and targets an improvement in sales mix including a recovery of a share of higher margin domestic volumes and improved HAV mix by the end of 2020.

·         ACIS: The Company plans to continue its strategic focus on operational excellence to deliver volumes that will leverage the new competitive cost base it has in the CIS (following competitive currency devaluation) and execute on the improved competitiveness plan in South Africa.

 

The above statements regarding Action 2020 are objectives. They constitute forward-looking statements and are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its management, and are based upon various assumptions including with respect to future decisions, which are subject to change, and the Company's ability to implement its strategy and in particular cost saving and efficiency improvement initiatives, which are subject to operational challenges and limitations. Actual results may vary and those variations may be material. See “—Dynamic responses to market challenges and opportunities” for the Company’s progress against these objectives.

 

35


 

Competitive strengths

As shown by the following graph, ArcelorMittal has a diversified portfolio of steel and mining products to meet a wide range of customer needs across many steel-consuming industries, including automotive, appliance, engineering, construction, energy and machinery.

* Other steel sales mainly represent metal processing, machinery, electrical equipment and domestic appliances

**Other sales mainly represent slag, waste, sale of energy, transport services

 

The Company believes that the following factors contribute to ArcelorMittal’s success in the global steel and mining industry:

Market leader in steel.  ArcelorMittal is the world’s largest steel producer, with annual achievable production capacity of approximately 113 million tonnes of crude steel for the year ended December 31, 2016. Steel shipments for the year ended December 31, 2016 totaled 83.9 million tonnes.

ArcelorMittal is the largest producer of steel in North and South America and Africa and the fifth largest steel producer in the CIS region. It is also the largest steel producer in the EU, with significant operations in France, Germany, Belgium, Spain, Luxembourg, Poland, the Czech Republic and Romania. In addition, many of ArcelorMittal’s operating units have access to developing markets that are expected to experience, over time, above-average growth in steel consumption (such as Central and Eastern Europe, South America, India, Africa, CIS and Southeast Asia).

The Company sells its products in local markets and through a centralized marketing organization to customers in approximately 160 countries. ArcelorMittal’s diversified product offering, together with its distribution network and research and development (“R&D”) programs, enable it to build strong relationships with customers, which include many of the world’s major automobile and appliance manufacturers. The Company is a strategic partner to several of the major original equipment manufacturers (“OEMs”) and has the capability to build long-term contractual relationships with them based on early vendor involvement, contributions to global OEM platforms and common value-creation programs.

 

A world-class mining business.  ArcelorMittal has a global portfolio of 14 operating units with mines in operation and development and is among the largest iron ore producers in the world. In the year ended December 31, 2016, ArcelorMittal mines produced 55.2 million tonnes of iron ore which supplied together with strategic contracts 55% of the Company’s iron ore requirements, and also produced 6.3 million tonnes of coking coal and PCI which supplied together with strategic contracts 15% of the Company’s PCI and metallurgical coal requirements. The Company has iron ore mining activities in Brazil, Bosnia, Canada, Kazakhstan, Liberia, Mexico, Ukraine and the

36


 

United States. The Company has coal mining activities in Kazakhstan and the United States. ArcelorMittal’s main mining products include iron ore lump, fines, concentrate, pellets, sinter feed, coking coal, PCI and thermal coal. As of December 31, 2016, ArcelorMittal’s iron ore reserves were estimated at 4.2 billion tonnes run of mine and its total coking coal reserves were estimated at 254 million tonnes run of mine or 128 million wet recoverable tonnes. See “Item 4D—Information on the Company—Property, plant and equipment—Reserves (iron ore and coal)” for a detailed list of the entities providing reserves and ownership structure.

The Company’s long-life iron ore and coal reserves provide a measure of security of supply and an important natural hedge against raw material volatility and global supply constraints. The mining business is managed as a separate segment which enhances ArcelorMittal’s ability to optimize capital allocation.

 

Market-leading automotive steel business. The Company estimates that it has approximately 17% of the worldwide market share for the automotive industry, specifically for flat products.

Long-term contracts add to the stability of the business. ArcelorMittal has built close relationships with its customers, often working with them at the vehicle design stage. These relationships are founded on the Company’s continuing investment in R&D and its ability to provide well-engineered solutions that help make vehicles lighter, safer and more fuel-efficient.

ArcelorMittal has a leading market share in its core markets and is a leader in the fast-growing advanced high strength steels segment. Its S-in motion® line of solutions is a unique offering to the automotive market that is responsive to OEMs’ requirements for safety, fuel economy and reduced CO2 emissions. By utilizing advanced high strength steels promoted in the S-in motion® projects, OEMs can achieve weight reduction with the solutions offered. ArcelorMittal’s automotive products include an innovative ultra-lightweight steel car door, which is less expensive than an aluminum door. Further solutions developed for the pick-up truck market offer weight savings. A third generation of cold stamping advanced high-strength steel (“AHSS”) is being launched and a new grade of AHSS with a tensile strength one third higher than the Company’s current offering is under development. These will offer further substantial weight savings. See­ “Research and development” section below for further detail on the new products being developed.

In the automotive industry, ArcelorMittal mainly supplies the geographic markets where its production facilities are located in Europe, North and South America and South Africa. The Company expanded its automotive footprint to China through VAMA, its joint venture with Hunan Valin, which has obtained approvals from international and domestic car manufacturers. VAMA’s product mix is oriented toward higher value products and mainly toward the OEMs to which the Company sells tailored solutions based on its products. With sales and service offices worldwide, production facilities in North and South America, South Africa and Europe and China, ArcelorMittal believes it is uniquely positioned to supply global automotive customers with the same products worldwide. The Company has multiple joint ventures and has also developed a global downstream network of partners through its distribution solutions activities. This provides the Company with a proximity advantage in virtually all regions where its global customers are present.

 

 

Research and development. Research and Development (“R&D”) provides the technical foundation for the sustainability and commercial success of the Company by stimulating innovative thinking and continuous product and process improvement.

The Company operates 12 research centers around the world and, in 2016, demonstrated its continuing commitment to R&D by increasing the activity of its new facility in Brazil.

ArcelorMittal believes it possesses leading R&D capabilities among steel producers. Its R&D function aims to develop products that create value for customers, improve ArcelorMittal's competitiveness through process optimization, and make a significant contribution to sustainable development by innovation of products and processes that support our 10 outcomes. It also aims to attract technical talent to the Company.

37


 

The Company maintains strong academic partnerships with universities and other scientific bodies, and works closely with customers to foster the development of new steel products and solutions that support ArcelorMittal's aim of being the supplier of choice for its customers.

In 2016, ArcelorMittal's R&D expense was $239 million.

ArcelorMittal's R&D focuses on three main areas:

Maintaining the competitiveness of steel versus alternative materials, particularly in the Company's unique automotive franchise. R&D plays a vital role in supporting the Company's focus on higher-added-value products, especially those designed to meet the evolving needs of the automotive industry - a sector that contributed 20% of the Company’s revenues in 2016, including both flat and long products (19% for both flat and long products in 2015). ArcelorMittal has pioneered Advanced High Strength Steel (“AHSS”) grades and manufacturing processes that help automotive customers meet demanding new targets for fuel economy. In 2016, the Company’s R&D activities for automotive focused on the finalization of new Press Hardening Steels (“PHS”) and third generation of AHSS for hot and cold stamping. These developments are supported by engineering solutions that give customers the technology and information they need to use them efficiently, as well as a holistic lifecycle analysis that details the environmental footprint of the product from manufacture through use to final disposal and recycling, including CO₂ emissions.

For further details of developments in 2016, see “Item 4.B—Information on the Company—Business overview—Sustainable development—Outcome 2: Products that accelerate more sustainable lifestyles”.

Creating niche products to grow ArcelorMittal's non-auto segments. ArcelorMittal recognizes that customers in many industries share the automotive industry's demand for innovative products and processes. The Company aims to deliver similar breakthrough advances in these sectors by creating differentiated products and unique design solutions, all designed to ensure that steel is the customers' material of choice.

Construction is a key sector for ArcelorMittal, accounting for 18% of the Company's sales in 2016, and the Company's R&D effort is focusing on providing higher value added products which meet customer needs, including their sustainable development goals.

In 2016, breakthroughs included a new range of AZ900 sheet piles which enable further optimization of retaining walls in ports, and patented technology for mega columns in tall and ultra-tall buildings. These are described in “Item 4.B—Information on the Company—Business overview— Sustainable development—Outcome 3: Products that create sustainable infrastructure”.

The Company also continues to respond to the expectations of its customers in the packaging and appliances markets, see “Item 4.B—Information on the Company—Business overview— Sustainable development—Outcome 2: Products that accelerate more sustainable lifestyles”.

ArcelorMittal is also developing innovative solutions for the energy segment, both renewable and conventional. In 2016, R&D developed solutions for tank railway cars designed to carry oil, which in the past have been involved in accidents causing fatal injuries and property damage. The Company's new, and highly durable, tank car steel was subjected to full scale testing in 2016 with excellent results. These are described further in “Item 4.B—Information on the Company—Business overview— Sustainable development—Outcome 3: Products that create sustainable infrastructure”.

Ensuring a continuing and growing contribution to ArcelorMittal's management gains program through research dedicated to improving the Company's steelmaking processes. The creation of unique processes plays an important role both in sustaining the Company's competitiveness and promoting process-driven product development. In 2016, approximately 92 innovative research-developed technical solutions were deployed across the Company's sites.

 

The Company is, for example, integrating a new type of low-maintenance instrumentation for monitoring combustion in furnaces. This instrumentation was validated for use in reheating furnaces in early 2016 and is being rapidly rolled out. To further improve energy efficiency in reheating furnaces, the Company developed new state-of-

38


 

the-art control models in 2016. New technology to reduce dust emissions from one of the Company's sinter plants is described in “Item 4.B—Information on the Company—Business overview— Sustainable development—Outcome 5: Trusted user of air, land and water”.

 

For details of R&D's role in reducing ArcelorMittal's environmental impact, delivering energy saving programs and lowering emissions of solids, water and gases, see “Item 4.B—Information on the Company— Business overview—Sustainable development—Outcomes 5: Trusted user of air, land and water” and “Outcome 6: Responsible energy user that helps create a lower carbon future”.

 

 

Diversified and efficient producer. As a global steel manufacturer with a leading position in many markets, ArcelorMittal benefits from scale and production cost efficiencies in various markets and a measure of protection against the cyclicality of the steel industry and raw materials prices.

·         Diversified production process. In 2016, approximately 71.6 million tonnes of crude steel were produced through the basic oxygen furnace process, approximately 15.8 million tonnes through the electric arc furnace process and approximately 3.4 million tonnes of crude steel through the open hearth furnace process. This provides ArcelorMittal with greater flexibility in its raw material and energy use, and increased ability to meet varying customer requirements in the markets it serves.

·         Product and geographic diversification. By operating a portfolio of assets diversified across product segments and geographic areas, ArcelorMittal benefits from a number of natural hedges. As a global steel producer with a broad range of high-quality finished and semi-finished steel products, ArcelorMittal is able to meet the needs of diverse markets. Steel consumption and product requirements vary between mature economy markets and developing economy markets. Steel consumption in mature economies is largely from flat products and a higher value-added mix, while developing markets utilize a higher proportion of long products and commodity grades. As developing economies mature and as market needs evolve, local customers will require increasingly advanced steel products. To meet these diverse needs, ArcelorMittal maintains a high degree of product diversification and seeks opportunities to increase the proportion of its product mix consisting of higher value-added products.

·         Upstream integration. ArcelorMittal believes that its own raw material production provides it with a competitive advantage over time. Additionally, ArcelorMittal benefits from the ability to optimize its steel-making facilities’ efficient use of raw materials, its global procurement strategy and the implementation of company-wide knowledge management practices with respect to raw materials. Certain of the Company’s operating units also have access to infrastructure, such as deep-water port facilities, railway sidings and engineering workshops that lower transportation and logistics costs.

·         Downstream integration. ArcelorMittal’s downstream integration primarily through its Europe segment for distribution solutions enables it to provide customized steel solutions to its customers more effectively. The Company’s downstream assets have cut-to-length, slitting and other processing facilities, which provide value additions and help it to maximize operational efficiencies.

 

Dynamic responses to market challenges and opportunities. ArcelorMittal’s management team has a strong track record and extensive experience in the steel and mining industries. In March 2013, in response to worsening market conditions in the steel industry over recent years, the Company announced a management gains improvement target of $3 billion from sustainable selling, general and administrative expenses (“SG&A”), and fixed and variable cost reductions by the end of 2015. Action plans and detailed targets were set and rolled out to the various business units, and progress was monitored and reported upon. In 2015, the Company completed the management gains program, which generated savings of $3.0 billion. The program targeted cost savings related to reliability, fuel rate, yield and productivity with two-thirds of targeted costs being variable costs.  

From late 2011 until 2015, the Company implemented an asset optimization initiative in Europe aimed at maximizing steel production at its lowest cost facilities. Implementation costs (consisting principally of restructuring costs and fixed asset impairments) totaled $2.1 billion (of which $0.8 billion was non-cash). Among other things, the

39


 

initiatives included mothballing the liquid phase at the Florange site of ArcelorMittal Atlantique & Lorraine, France in 2012 and restructuring ArcelorMittal Liège. In February 2016, the Company announced its Action 2020 plan (see “Item 4.B—Information on the Company––Business overview––Business strategy”) which targets an improvement in operating income by $3 billion, absent any recovery in steel spreads and raw materials prices from the levels at the beginning of 2016. The Company has made measurable progress on its strategic Action 2020 plan resulting in a $0.9 billion contribution to 2016 operating income. The Company is approximately one third of the way along the Action 2020 journey with all segments contributing to the progress in 2016. The savings achieved so far are largely from a combination of cost and product mix improvements. Volume is a key component of Action 2020 (5 million tonne volume improvement) and the Company expects to see more progress in this area in 2017.

·         The European transformation program has progressed with savings in procurement and productivity on track. Savings at the cluster leading plants supported by their satellite plants are being made, with changes to the operating model focusing on safety, operational performance, maximizing reliability, improving quality and enhancing service levels. At the same time, the reporting structure for some functions has been amended, notably finance, supply chain and marketing, which will drive a more integrated centrally coordinated approach, further reducing costs.

·         The Company has made good progress in NAFTA with the footprint optimization project at ArcelorMittal Indiana Harbor underway. Additionally, NAFTA has idled redundant operations including the #1 aluminize line, 84” hot strip mill, and #5 continuous galvanizing line. Further planned investments of approximately $200 million, includes a new caster at the No.3 steel shop (completed in in the fourth quarter of 2016), restoration of the 80” HSM and Indiana Harbor finishing and logistics. The Calvert ramp up is progressing well with automotive certifications ongoing and increased capacity utilization. Additionally, in NAFTA, portfolio optimization plans progressed with sale of long steel producing subsidiaries in the U.S. (LaPlace and Vinton).

·         In Brazil, structural cost reductions are being implemented; portfolio optimized with the closure of Point Lisas operations in Trinidad and Tobago and further fixed costs savings in Argentina.

·         In ACIS, the Company has seen improving operational performance in CIS (with production up in both Ukraine and Kazakhstan) and benefits of currency devaluation.  

·         Finally in Mining, despite lower shipments, the Company has maintained its stringent cost focus and reduced its iron ore production costs by 10%.

In addition, the Company had temporarily suspended steel growth capital expenditure in 2011, but beginning in the second half of 2013 and continuing through 2016, select steel capital expenditure projects were restarted to support the development of key activities, including a greater focus on automotive.

 

Proven expertise in acquisitions and turnarounds.  ArcelorMittal’s management team has proven expertise in successfully acquiring and subsequently integrating operations, as well as turning around underperforming assets within tight timeframes. The Company takes a disciplined approach to investing and uses teams with diverse areas of expertise from different business units across the Company to evaluate new assets, conduct due diligence and monitor integration and post-acquisition performance. The Company has grown through a series of acquisitions and by improving the operating performance and financial management at acquired facilities. In particular, ArcelorMittal seeks to improve acquired businesses by eliminating operational bottlenecks, addressing any historical under-investments and increasing the capability of acquired facilities to produce higher quality steel. The Company introduces focused capital expenditure programs, implements company-wide best practices, balances working capital, ensures adequate management resources and introduces safety and environmental improvements at acquired facilities. ArcelorMittal believes that these operating and financial measures have improved the operating performance and quality of steel produced at such facilities.

Due to difficult economic and market conditions, ArcelorMittal has curtailed M&A and greenfield investment activity. The Company has focused on improving its costs through its management gains program, non-core asset disposals and resizing its operational footprint through asset optimization. The Company has continued its strategy to dispose of non-core assets, including for example, the disposal of Gallatin, Circuit Foil Luxembourg, the steel cord business and ATIC in 2014 and others. In 2016, the Company sold its minority shareholding in Gestamp as part of this strategy. In addition, as global market conditions gradually improve, the Company has taken advantage of select growth opportunities, including completing a 50/50 joint venture of Calvert in partnership with NSSMC. In 2015 the Company signed a Memorandum of Understanding with the Steel Authority of India Limited (“SAIL”) to

40


 

set up an automotive joint venture arrangement in India and in June 2016, ArcelorMittal and Marcegaglia announced they had submitted an offer for the acquisition of Ilva (Italy).

 

Sustainable development. Sustainable development (“SD”) is central to ArcelorMittal's aim of creating value for shareholders and other stakeholders, and maintaining profitable market share. The Company’s ambition is to position steel, and ArcelorMittal's steel in particular, as an essential and trusted contributor to the creation of high quality and sustainable lives in the coming decades. The Company considers its SD strategy as critical in preventing business disruptions and maintaining and winning trust and supplier-of-choice status among the growing number of customers who share its commitment to higher environmental and social standards.

 

The Company believes that demand for sustainability standards and transparency will continue to grow and, in 2016, continued to take a leading role in shaping assurance schemes for steel and mining. The Company draws on its experience in providing solutions to the automotive industry, where demand for both assurance and sustainable product innovation is high, while achieving greater engagement with sectors where these trends are growing, such as construction and energy. The Company expects that the increasing interest in building a low-carbon circular economy will also stimulate demand for new kinds of steel solutions. In 2016, the Company continued to explore the expectations of stakeholders on the role it can play in combatting climate change and building the circular economy.

 

The Company's SD framework, launched in 2015, outlines the 10 SD outcomes ArcelorMittal needs to achieve in order to create long-term value for all its stakeholders. In 2016, the Company continued to build an understanding of, and engagement with, the 10 outcomes among its leadership, particularly within the Mining and Europe flat businesses, and at the local level via an SD dashboard assessment system designed to help local management consider the maturity of its approach to the outcomes, identify hotspots and good practice, and plan for improvements. The creation and implementation of this process and the feedback received has led to the formation of a number of expert communities on sustainable development.

 

The 10 outcomes, and the Company’s progress towards them, are summarized below.

 

Outcome 1: Safe, healthy, quality working lives for ArcelorMittal’s people

The Company regards its employees as a highly-valued resource. Its intended outcome is that its workforce is safe and healthy, is committed to the Company’s success, and operates with integrity. Diversity is valued, and every individual is respected and their potential developed.


Safety 

 

The Company-wide safety program, “Journey to Zero,” aims to achieve no fatalities or lost-time injuries by creating a culture of shared vigilance in which the risks and hazards are understood and monitored, best practices are shared and appropriate action is taken at every level. Since Journey to Zero was introduced in 2007, the Company has seen significant improvements in safety performance, as measured by tracking the number of injuries per million hours worked that result in employees or contractors taking time off work (the “lost-time injury frequency rate” or “LTIFR”) as well as the number of restricted work injuries per million hours worked that result in employees or contractors not being able to perform their normal tasks. The LTIFR was 0.82 incidents per million hours worked in 2016 compared with 0.81 in 2015 and in marked contrast with the 3.1 recorded in 2007, the first year in which the Company recorded safety data after its formation. ArcelorMittal's performance is significantly better than the steel industry average of 1.2, the World Steel Association figure for 2015. 

 

Own personnel and contractors

 

 

 

 

 

 

For the year ended December 31,

Lost time injury frequency rate

 

2016

 

2015

Mining

 

1.07

 

0.74

 

 

 

 

 

NAFTA

 

0.95

 

1.02

Brazil

 

0.37

 

0.62

Europe

 

1.01

 

0.99

ACIS

 

0.58

 

0.54

Total Steel

 

0.78

 

0.82

 

 

 

 

 

Total (Steel and Mining)

 

0.82

 

0.81

41


 

  

Nonetheless, it is with deep regret that the Company reported 17 fatalities during 2016. Of these, six occurred in its mining operations. These are a cause of great distress to the entire workforce. The leadership of the Company is revisiting its use of safety data, with particular attention on contractors, to ensure that such data is used more effectively in preventing injury. The Company has identified three ways in which data can be deployed more efficiently: first, by deepening the skills of its employees to detect, analyze, report and share learning about ‘serious occurrences’ which could have resulted in especially severe injuries; second, by improving the quality of key tools, such as hazard identification and risks analysis, shop floor audits, or pre-shift meetings; and third, by continuing to develop a caring culture through effective communication and regular hands-on training.

 

In 2017, the Company will continue working to bring specific support to sites with anomalous safety performance in term of fatalities to ensure stronger alignment between group level safety strategy and site level implementation.

 

 These measures are designed to strengthen ArcelorMittal's existing safety monitoring and management system, which takes into account both the physical and human aspects of workplace safety. The system includes safety leadership and awareness programs, which are backed up by workshops, training sessions and ongoing communication programs. An annual health and safety day provides an opportunity for best-practice sharing across the Company and in 2016 saw 216,030 participants actively involved in workshops and activities.

 

Employees and contractors are encouraged to engage in a dialogue on safety issues during regular shop floor audits, "safety moments" at the start of a shift, or during monthly review meetings. The Company works closely with its trade unions to drive safety improvements through a global partnership consisting of a Joint Global Health and Safety Committee at the corporate level and local committees at every production unit.

 

All accidents are investigated, and designated Group Management Committee[1]  members review all fatalities to ensure lessons are learned throughout the Company. Management accountability for safety is reinforced through a remuneration policy that links an element of executive bonuses to safety performance.

 

Health

 

ArcelorMittal’s local management takes a proactive approach to the health of employees. In addition to its objective of eliminating accidents, the Company’s Journey to Zero also aims to encourage healthy lifestyles and foster wellbeing, and to reduce occupational diseases to zero. Initiatives are run at the local level to prevent health issues arising from microclimatic conditions and the handling of chemicals, as well as those arising from personal behaviors, such as smoking, drug and alcohol use. Wellbeing programs are also run to help employees address stress and fatigue, and to encourage physical activity. The Company aims to continuously improve the hygiene standards within its facilities, and is a member of the International Occupational Hygiene Association. An annual health week provides activities with a local focus on these issues.

 

Employee relations and engagement

 

ArcelorMittal views employee engagement as a combination of knowledge (knowing what to do) and motivation (wanting to do it). In all engagement practices, the Company seeks to integrate feedback into action plans to address employees’ concerns. Every two years, ArcelorMittal undertakes a Company-wide survey to gauge employees’ opinions, attitudes and levels of satisfaction. This "Speak up!" survey looks at a variety of key dimensions including organizational direction, leadership and professional deployment and development. It


[1] The Group Management Committee includes the Executive Officers and additional members of management acting as a consultative committee to the CEO Office.

42


 

allows employees to relay feedback anonymously to the executive leadership. A representative, random sample of Company employees is also included in ArcelorMittal's reputation surveys, which canvas the views of a wide range of stakeholders. In 2016, surveys were undertaken in France and the U.S., and follow-up action plans are in development.

 

The Company conducts open and continuous dialogue to create a working environment based on mutual trust, understanding and respect so that the rights of its workers are protected. It prides itself on productive working relationships with unions: 89% of employees are covered by collective bargaining agreements, and the Company recorded 0 strikes lasting more than one week in 2016.

 

See “Item 6.D––Directors, senior management and employees––Employees”.

Diversity and inclusion  

 

ArcelorMittal values diversity as a way of bringing fresh perspectives and experiences to the business, and for the contribution it makes to the Company's ambition to be an employer of choice within the industry. The Company has a presence in 60 countries and employees from many more, and its diversity and inclusion policy reflects an effort to encompass different cultures, generations, genders, ethnic groups, nationalities, abilities and social backgrounds.

 

Improving gender balance and supporting women leaders are priorities of the Company. ArcelorMittal’s senior management is committed to creating and maintaining a more inclusive culture and ensuring that the Company attracts talented women. A number of programs are in place to develop women as leaders, supported by various initiatives including the development of training programs for women employees combined with mentoring and coaching, networking and role model involvement. There is also an important focus given to the career evolution of women and succession planning. Following the appointment of a female director to the Board of Directors in 2015, the number of women directors now stands at three out of a total of 12 board members, in line with the Company’s goal set in 2012. In 2016, women accounted for 12% of employees in management positions. ArcelorMittal Ostrava received the “Company of the Year: Equal Opportunities” award at the Prague Diversity at Work conference for its support of female employees.

 

The ArcelorMittal University (the “University”) has delivered two global leadership development programs for women since 2011. In 2016, the Company reviewed their impacts as agents of change on the participants. Two-thirds of participants said that the programs had enhanced their influencing, networking and personal branding skills and were a credit to their career evolution. In 2017, the Company plans to launch a new program for women, ‘Women@ArcelorMittal’, replacing the existing two courses.

 

The University runs several training programs for employees on working among diverse cultures to build their understanding of how cultural orientations affect attitudes and actions and how to manage conflict and misunderstandings that may arise from different cultural perspectives and communication styles.  

 

To boost support for people with disabilities, the Company has developed broad-ranging initiatives in a number of countries. In France, for example, the seven sites of ArcelorMittal Atlantique & Lorraine have an agreement with three unions to promote the vocational integration of workers with disabilities, and they run a dedicated awareness week for the workforce; and Fos-sur-Mer runs a training program aimed at qualifying unemployed people with disabilities to work in metallurgical roles, in partnership with Agefiph (Fund for the Integration of the Disabled).

 

Employee development  

 

The Company considers employee development, including succession planning and developing young talent, to be crucial to its future success. Across its operations, programs are in place designed to spot people with potential, and manage the succession of key roles as part of the Company's overall workforce planning process. The Appointments, Remuneration and Corporate Governance Committee is responsible for this process.

 

ArcelorMittal's employees chart their personal and professional progress through a performance review process with their line manager twice per year, and 97% of employees took part in 2016, up from 96% in 2015.

 

Employees can select online and classroom training courses from the ArcelorMittal University, as well as a range of leadership, management, functional, technical and bespoke programs for lifelong learning and professional

43


 

progression. The University's network of local campuses is strategically located across the world in Temirtau and Karaganda (Kazakhstan), Hamilton (Canada), Avilès (Spain), Ostrava (Czech Republic), Vanderbijlpark (South Africa) and Kryvyi Rih (Ukraine). Preparations are underway to open two new campus locations in Brazil in 2017.

 

Many employee development initiatives are locally led. The Company's Dofasco plant was recognized by Canada's Top 100 Employers in 2016 with long-term professional and personal employee development, including support for individual tuition, cited among a range of employee benefits.

 

Career committees oversee the management and development of individuals, the improvement of competency levels across the organization, and the availability of a pipeline of talent for key positions. Each year, senior management reviews succession plans for around 300 key positions within the Company. See “Item 6.C— Directors, senior management and employees—Board practices/Corporate governance—Succession management”.

 

Outcome 2: Products that accelerate more sustainable lifestyles

 

The Company aims for steel to be the material of choice for the designers and manufacturers of automotive products, appliances and packaging, because it is strong, durable and innovative, and its robust sustainability credentials over its full lifecycle are widely understood and recognized. ArcelorMittal is already playing a key role, for example in making cars stronger yet lighter to reduce carbon emissions through AHSS, and in providing innovations in coating techniques for appliances and packaging.

 

The Company observes increasing expectations from both customers and regulators, and aims to meet and exceed those expectations and support its customers to design products that contribute to sustainable development through energy efficiency, materials re-use, recyclability, resource efficiency, reduced negative consequences for the environment or society and affordability. ArcelorMittal also observes that its customers are increasingly looking for social and environmental standards in their supply chain, and seeks to turn this to its competitive advantage by certifying the sustainability standards of the Company’s operations (see “Item 4B—Information on the Company—Business overview—Sustainable development–Outcome 7: Supply chains that ArcelorMittal’s customers trust”).

 

Lifecycle analysis (“LCA”), designed to analyze and reduce the resource and emissions impact of products during their production, use and disposal, helps assess sustainability value at the product development stage, particularly in comparison to competing materials such as cement and aluminum. Since 2005, the Company has developed a deep expertise in LCA and has undertaken over 67 LCA studies in relation to construction, automotive, packaging and general industry products and processes. LCA is integral to ISO14040-44 and is a requirement of environmental product declarations for construction products in Europe. ArcelorMittal participates in the Worldsteel LCA expert group and the SOVAMAT initiative (SOcial VAlue of MATerials), an international network of experts on the social and environmental impacts of materials.

 

Innovation is a key to achieving this outcome, and the Company’s R&D teams seek to improve on the social and environmental value of its products. In 2016, the Company’s global R&D division launched 37 products with contributions to sustainable lifestyles to achieve outcome 2  – for the automotive, packaging and household appliances sectors - and worked on 19 such product development programs. Approximately 30% of the Company’s global R&D budget in 2016 was for automotive research.  For example, the Company launched its S-in motion® for mid-size sedan and SUV solutions. By using new advanced steel products and design and engineering processes, S-in motion® for mid-size sedans and SUVs can help carmakers achieve a 20% to 26% body structure weight reduction compared to representative 2015 North American mid-size sedans and SUVs, a development which won the American Metals Market Best Product Innovation award in 2016. 

 

ArcelorMittal is expanding its global portfolio of automotive steels by introducing a new generation of AHSS steels. Two new PHS products, Ductibor® 1000 and Usibor® 2000, were launched and are already available for OEM qualification testing in Europe. In addition, martensitic steels MartINsite® M1700 and M2000 were launched, which are very strong steels suitable for anti-intrusion parts such as bumpers and door beams. Starting in 2017 in Europe, the Company is also preparing to expand its Fortiform® family of third generation AHSS products for cold forming, which combine high levels of formability and mechanical strength with increased energy absorption on impact in a crash, even though less steel is used. Together, these new steel

44


 

grades will help automakers further reduce the weight of the basic vehicle frame to improve fuel economy without compromising vehicle safety or performance.

 

The Company's award-winning, integrated door ring, with its superior crash resistance and contribution to further weight reduction, has received strong interest from a number of automotive manufacturers around the world.

 

Significant investments are being made in both Europe and the U.S. to incorporate into existing facilities the capacity to produce and coat new PHS and third generation AHSS steels. These investments include the Company’s first unique jet vapor deposition (“JVD”) line in Liege designed to create a new generation of coated products with improved quality and enhanced functionality (Jetgal®) as well as the installation of quenching and partitioning (“Q&P”) facilities at ArcelorMittal Gent and Liege, which will enable the Gent steel mill to produce the Fortiform® line of automotive products. Similarly, the Company’s AM/NS Calvert joint venture with Nippon Steel and Sumitomo Metals Corp in Alabama, U.S., will be equipped to produce the same steel grades in North America.

 

In the packaging sector, the Company continues to respond to pending or anticipated new legislation requiring ecologically-friendly coatings with the development of steel for food packaging that avoids the need to use chromium VI and bisphenol A. In 2016, ArcelorMittal picked up the bronze award in the Sustainability category of the 2016 Canmaker Summit “Can of the Year" awards.

 

Outcome 3: Products that create sustainable infrastructure

 

Steel's strength, flexibility, and durability, and the fact it can be infinitely recycled without losing its key qualities, all lend themselves to low impact solutions, and the Company is engaging with customers in the construction, energy, public transport and general industrial markets to raise understanding of the important contribution steel can make to sustainable development.

 

 ArcelorMittal observes that customers in the construction sector increasingly consider sustainability value across the whole life of a project. The Company is providing solutions at every stage of the process, and across the entire lifecycle. In 2016, its global R&D division launched  67 product solutions with contributions to sustainable infrastructure to achieve outcome 3, and worked on 15 product development programs with the same intention.

 

In 2016, ArcelorMittal became a member of the Institut Bauen und Umwelt (“IBU”), the Institute of Construction and Environment, which specializes in the sustainability labeling of construction products and materials. IBU operates a program for Environmental Product Declaration (“EPD”) which is recognized worldwide. EPDs are based on a lifecycle assessment of the product, and include detailed information on its potential environmental impact. EPD’s are increasingly required by companies working in, and supplying to, the construction industry, and the Company’s global R&D division has completed EPD’s for its steel reinforced bars, structural sections and sheet piles, with plans to create further EPD’s for structural beams, road safety barriers and coated coils.

 

The Company has established an internal forum for exchange on opportunities from the circular economy, and is also a member of the CIRAIG International Lifecycle Chair and the international reference center for the lifecycle of products, processes and services, and is active in particular in their circular economy working group. While steel's recyclability is a key contribution to the circular economy, its long lifespan also creates the potential for re-use. The Company is exploring the possibilities for re-usable steel components with customers, and in 2016 took part in the circular building project at the London Design Festival, a collaboration which produced a building made from 100% re-usable components. The Company also developed a working group to identify stakeholder expectations on this aspect of the circular economy, and explore further commercial opportunities.

 

The Company’s global R&D division has developed software packages AMECO and LicaBuilt to assist with sustainable design and choice of components, enabling architects and engineers to assess the relative lifecycle impacts of their bridges and building designs based on their choice of materials in terms of CO2 emissions, energy and water consumption and waste generation.

 

In 2016, the Company continued to develop its Steel in Modern Construction initiative, a platform which quantitatively and explicitly assesses the impact of different material solutions on the performance of a full office building.

 

45


 

The Company is innovating solutions to improve durability, reduce weight or cut pollution. For example, in 2016, the Company developed new patented technology for mega columns in tall and ultra-tall buildings that enable a rapid, safer and efficient construction method in confined urban spaces, as well as an ambitious rolling technology that enabled the creation of AZ800, a new generation of sheet piles which further optimize retaining walls in ports. AZ800 allows the creation of a longer retaining wall using the same amount of steel, reducing the environmental footprint of the walls by 5 to 10%. The larger size of the sheet pile also allows a reduction in the number of units needed, thereby reducing construction time.

 

ArcelorMittal also continues to innovate in coating steels at the production stage, thus reducing energy as well as labor costs for customers in the construction and domestic appliance sectors. JVD coatings are one of these new products, and zinc magnesium coatings continue to be deployed across several plants. In the U.S., the Company’s global R&D division partnered with Lehigh University and Pennsylvania Infrastructure Technology Alliance (PITA) to evaluate the lifecycle cost of bridges comparing conventional painted steels with ArcelorMittal’s corrosion-resistant steel Duracorr® (ASTM A 1010). The results clearly show that despite Duracorr®’s higher initial cost, the lifecycle cost of the Duracorr® bridge is one-half to one-third that of a bridge built with conventional painted steels due to the maintenance-free service during the bridge’s lifetime (100 years).  In addition, ‘no maintenance’ is a significant factor in responsible environmental stewardship in all areas, and even more significant in ecologically sensitive areas. These findings have now resulted in an increased level of interest in Duracorr® for bridges from a number of U.S. states and Canada.

   

Outcome 4: Efficient use of resources and high recycling rates

 

ArcelorMittal aims to be acknowledged for using resources in the most efficient and effective way, so that it creates significant value for customers and shareholders as well as for the environment. The Company is currently one of the world's biggest recyclers, predominantly because of the scrap steel used in its integrated plants and as feedstock in its electric arc furnaces, and it sees steel and steel-making by-products as having a far larger role to play in the circular economy. In 2016, global R&D worked on 11 new projects to develop new process solutions to help achieve this outcome.

 

The Company considers its resource efficiency efforts to take two main forms within its own operations: making the steelmaking process more efficient by re-using by-products, solids and waste gases, both internally within the steelmaking process and externally in other industries; and utilizing scrap from steel that has already been used. While these efforts provide scope for creating considerable value in themselves, ArcelorMittal is also working with others within the industry and beyond to build a wider understanding of steel's potential for re-use, recovery and recycling, for example in its work with the Worldsteel on steel product lifespans, or with customers and others to help identify obstacles to recycling, and ways to resolve them.

 

Steel-making produces a range of valuable by-products and the Company is intensifying its efforts to ensure that they are used to create value within and beyond the business. Wherever possible, by-products are re-used within the steel-making process: this applies especially to gases, which can be re-used as energy for the Company's operations as well as for neighboring communities, but also to dust, slag and sludges, which can all be used in either the integrated steelmaking route (with sinter plant, blast furnaces and BOF) or the electric arc furnace (“EAF”) route. This reduces the amount of virgin inputs the Company needs, reducing raw material costs as well as environmental impact. 

 

By-products are also sold to other industries. Better known examples include the use of slag by-products in road construction, fertilizer and the cement industry. The Company also sells blast furnace slag for use in the production of stonewool, a fire retardant and insulator; some European sites supply blast furnace slag to the glass-making industry. The Company is developing markets for calcium carbonate residues, including in the paint manufacture industry. The Company's R&D function is investigating the potential use of slag from furnaces in water filtration and greenhouse gas capture.

 

Scrap is an important resource for steelmaking. ArcelorMittal has the capacity to produce steel both via the EAF route using scrap and the integral iron ore-based blast furnace route. It optimizes the relative share of each in response to market conditions. Over recent years, the scrap input rate of the Company’s steel stands at around 30%, making it one of the world’s biggest recyclers.  

 

The Company’s research indicates that global recycling rates for obsolete steel currently stand at 87% which is the highest recycling rate for an obsolete material. Global demand outstrips supply however, and this generally

46


 

means that the cost of scrap for the EAF is higher than that of iron ore in the integrated blast furnace process, and this can be a major factor in determining the Company’s production balance, and therefore the carbon intensity of the steel it produces. See “Item 5–Operating and financial review and prospects–Scrap” for further details on the use of scrap and price differential.

 

In order to inform long-term production strategy, the Company is working with customers and others to create an authoritative source of data on steel stocks, recovery and recycling rates across the world. In 2016, the Company commissioned a third party study aimed at identifying the impacts the increasing availability of scrap will have on the steel industry, and also began an exploration of its scrap supply chain to identify any areas of concern.

 

With a number of European universities, ArcelorMittal is undertaking an analysis of the ways in which steel flows from one use to another, and where the potential for greater cost and carbon efficiencies and the entailing value creation lies. It also works with customers to identify cost and carbon savings by reducing post-industrial scrap.

 

 Quality issues from obsolete scrap make its use in steel production more attractive where its impurities from other materials are easily accommodated, typically in construction and infrastructure products, which are usually made via the EAF route. ArcelorMittal seeks to improve the quality of the scrap it uses and to this end the global R&D division is exploring the viability of a new automated process for sorting shredded scrap. This could increase its capacity to recycle obsolete scrap in its production processes.   

 

Outcome 5: Trusted user of air, land and water

ArcelorMittal understands that it shares natural resources such as air, land and water, and that changes in their quality are important issues for its stakeholders. The Company's intention is that stakeholders trust ArcelorMittal to share natural capital, because it operates responsibly and transparently, demonstrates that it understands and wants to improve its impacts, and works in collaboration with partners and local communities to protect and enhance the environment. The Company therefore endeavors to listen to concerns about air and water quality wherever they are raised, and its country managers engage with stakeholders at every level.

 

 Before developing any new mine or steel plant, the Company carries out detailed environmental impact assessments, and establishes an environmental management plan. At all existing production sites, it monitors air, water, energy and residue data, and publishes data annually at a corporate level in its online Annual Review and country level sustainability reports, of which 17 were published in 2016. In 2016, the Company also undertook an internal 'dashboard assessment', to identify hotspots, share best practices and drive improvements.

 

In 2016, ArcelorMittal allocated a total of $177 million for investment in environmental capital projects intended to help deliver the Company’s fifth intended outcome, to become a trusted user of air, land and water. At the same time, its global R&D function is exploring innovative ways to reduce dust emissions in particular. Air quality has always been a priority for ArcelorMittal, as the Company knows that it is one of the most salient issues for local communities. Between 2010 and 2015, the Company's dust emissions per tonne of steel fell by 22%. In 2016, over 82% of the capital investment allocated to environmental projects was for projects aimed at improving air emissions. The Company decided on three new such capital investment projects for its Dabrowa Gornicza site in Poland in 2016, amounting to $92 million. These include the pilot of a new hybrid filtration technology designed to minimize particulate emissions from the sintering process, which is currently being tested by the global R&D division in Gijon, Spain. At the end of 2016, a further investment project was completed in Poland to modernize the coke plant at Zdzieszowice  designed to have a significant impact on air emissions. Together, these projects are intended to ensure that operations are compliant with the European Industrial Emissions Directive once complete, expected in 2018.

 

The Company aims to practice good land use management, and to protect biodiversity in the environments where it operates, understanding the shared value this creates. In Tubarão, Brazil, for example, the Company has planted 2.6 million trees over the past 28 years to reduce wind erosion at the site, and this ‘green belt’ has consequently been shown to control dust emissions from material handling operations by 76% and from mineral piles by 99%.

 

At the Company's Liberia iron ore mines, which are situated close to both mountain and lowland rainforests, ArcelorMittal is engaged in major biodiversity investments to offset the impact of the project. Its Biodiversity Conservation Program has been in operation for four years, and in 2016 it published a public report on its progress.

47


 

ArcelorMittal’s joint venture, Baffinland’s Mary River Project, is located in the Canadian Arctic on Baffin Island, Nunavut where extensive environmental monitoring and careful management have been developed with a balance of scientific and Inuit knowledge. As a result, Baffinland has designed the project to avoid or minimize environmental impacts. The key to the project’s success has been a sound understanding of its environmental aspects and an ongoing commitment to communicating with all stakeholders on environmental matters.

 

It is vital that ArcelorMittal manages tailings ponds carefully to ensure they are structurally sound and have adequate water management arrangements. In 2016, the Company undertook further inspection and monitoring to ensure the implementation of its tailings storage facilities surveillance guidance, developed and rolled out globally in 2015. It also undertook a round of third party dam safety reviews. The Company implemented innovative ‘dry stacking technology’ at its Serra Azul mine in Brazil, in which tailings are dried so they can be stored in a more structurally stable form. The Company also allocated $28.1  million to projects that will improve tailings management across its operations.

 

ArcelorMittal also partners with local environmental organizations to improve and research local biodiversity. In the U.S., the Company has been part of a multi-stakeholder partnership aimed at sustaining, restoring and protecting the biodiversity of the Great Lakes since 2007. ArcelorMittal Tubarão in Brazil has hosted the Tamar project since 2000 to track the health, growth and migratory patterns of the green turtle (Chelonia Mydas), of which more than 3,500 are located within the Company’s perimeter owing to the favorable water conditions.

 

The Company understands the importance of water to its stakeholders, and aims to be responsible both in the amount of water it consumes, and in the quality of the water discharged by its sites into the environment. In 2016, the Company requested feedback from each of its sites regarding the value of water at that site within the Company’s new dashboard assessment system: sites responded with information on a wide range of local initiatives and stakeholder issues, all of which will inform the Company’s learning and establishment of good practice.

 

Steel plants are designed to treat and recycle water, often thousands of times, so that actual volumes used are far higher than those withdrawn. Seawater may be used for cooling to avoid reliance on municipal water sources. Water withdrawn from groundwater sources makes up less than 1% of the Company's water intake. The Company is working with local stakeholders to explore the use of alternative sources where water is scarce, including seawater, rainwater, and wastewater from water treatment plants. For example, in Ostrava in the Czech Republic, it worked with the local watershed administrator to agree on alternative water supplies in the face of surface water drought in 2015. In 2016, this led to the Company’s collaboration in the local watershed planning process. In Brazil, the Company's responses to water scarcity over 2014 and 2015 have led Tubarão to explore the implementation of a desalination plant to further reduce its dependency on surface and groundwater supplies.

 

In 2016, the Company launched a new water assessment tool across its mining operations, developed by its global R&D and mining divisions, and designed to provide stronger data to support water improvement plans. The Company also invested in capital projects in mining, including the building of interception ditches at its Mont Wright and Fire Lake mines in Canada to protect surrounding lakes and rivers.

 

Outcome 6: Responsible energy user that helps create a lower carbon future

ArcelorMittal wants to be trusted by its stakeholders to make a positive contribution to a lower-carbon future, both by cutting energy use and carbon emissions, and by developing innovative products that help customers and other industries do the same.

 

The Company believes it plays an important role in carbon reduction, since modern specialist steels are helping make products and materials more carbon-efficient. Lifecycle analysis studies show that often less CO2 emissions are associated with steel over its entire lifecycle than with certain other materials, such as concrete and aluminum. ArcelorMittal recognizes that it must go further to reduce its own emissions, both through energy efficiencies and carbon reuse technology.

 

The Company’s role in engaging stakeholders on the issues surrounding carbon is broadening, and it is working to ensure that the right public policy frameworks are put in place to deliver substantial carbon

48


 

reductions from the steel industry globally. The Company remained concerned in 2016 about the potential cost of the proposed 2021-2030 EU Emissions Trading Scheme (“ETS”) and believes that ETS proposals in their current form could jeopardize European steel jobs without any effective reduction in carbon emissions, since they risk leading to increased volumes of higher-carbon imported steel from plants unaffected by carbon trading schemes. See “Item 4B—Information on the Company—Business overview—Government regulations—Environmental laws and regulations”.

 

An energy audit process assessing performance and identifying areas of improvement is applied at a number of plants, and the majority of ArcelorMittal’s large sites are ISO50001 standard certified or equivalent. These measures have enabled all European sites to comply with the requirements of the EU Energy Directive.

 

The Company continues to seek ways in which waste energy from the steel-making process can be either recycled within its own operations or exported as heat, steam or electricity. For example, ArcelorMittal owns or co-owns power plants that supply heating to the city of Zenica in Bosnia and Herzegovina, Dabrowa Gornicza in Poland and Ostrava in the Czech Republic. In the U.S., the Company has ongoing activities in place with the aim of reducing energy consumption at all of its facilities by one percent each year over the next seven  years through a special Department of Energy initiative. In 2016, an Energy Awareness Month initiative was launched across the NAFTA region.

 

Each year, the Company makes capital investments to improve energy efficiency and reduce carbon emissions. In 2016, further projects were approved, involving a capital expenditure of $108 million. These included the revamping of a major power plant at Burns Harbor in the U.S. as well as a capital investment at the Company's mining unit in Canada, where with the support of the Quebec Government, the Company is installing a cryogenic storage system to test natural gas replacement in its iron ore pellet plant. In addition, ArcelorMittal's 10 energy upgrade projects at its Dofasco site in Canada are supported by $40 million in government grants and incentives, and include the installation in April 2016 of a refurbished 12.5 MW steam turbine generator to use surplus steam to produce electricity. The initiatives are projected to save enough electricity annually to power 19,000 homes. Global R&D rolled out 15 new energy efficiency processes across the Company’s operations in 2016, and worked on three new solutions.

 

ArcelorMittal also expects innovative breakthroughs to play a key role in creating a lower carbon future for steelmaking, both in terms of products and processes, and with reference to partnerships and collaborations. At the COP22 talks in Marrakesh in 2016, the Company and its partners Evonik, LafargeHolcim and Solvay announced the formation of the Low Carbon Technology Partnerships Initiative across the steel, cement and chemicals industries. The partnership will look at the potential synergies that exist between the manufacturing processes of these three energy-intensive sectors, and how these synergies could be harnessed to reduce CO2 emissions. As a first step, the partnership will produce a study to identify potential ways to valorize industrial off-gases and other by-products. Initial research suggests that deploying cross-sector carbon capture and re-use opportunities on an industrial scale could reduce up to 7% of global anthropogenic CO2 emissions.

 

ArcelorMittal has also been exploring opportunities for carbon capture and utilization. The Company works in a partnership project with carbon recycling pioneer LanzaTech aimed at using waste carbon monoxide from steel-making to produce ethanol on a commercial basis. The Company projects that every tonne of ethanol produced will displace 5.2 barrels of gasoline as well as reduce ArcelorMittal’s CO2 emissions by 2.3 tonnes. A pilot project announced in 2015 at the Company's steel plant in Gent is expected to commence in 2017.

 

Outcome 7: Supply chains that ArcelorMittal’s customers trust

 

ArcelorMittal considers responsible supply chain management to be a commercial and logistical necessity if it is to meet the growing expectations of its customers. It therefore aims to win the trust of its customers by achieving or surpassing their standards, both in its own steel and mining operations, and in its supply chain.

 

Since 2011, the Company’s Code for Responsible Sourcing has set out minimum standards for its suppliers and described how the Company will work with them to achieve these standards. In 2016, the Company continued to ask all new global suppliers to sign up to the Code, as well as surveying all strategic and core suppliers for their implementation of the Code. In addition, the Company has mapped its supply chain for social and environmental areas of concern and identified the key hotspots for further due diligence.

 

49


 

In recent years, the Company has seen evidence of growing demand from its customers for reassurance on environmental and social standards in their supply chains. Customer requests for information on the sustainability of the Company's supply chain in 2016 were also greater in number, and more detailed, than in previous years. In 2016, for example, ArcelorMittal's ability to demonstrate sustainability standards contributed to its winning an open tender to supply 120 meter rails to Deutsche Bahn. The Company has also undertaken increased levels of direct engagement on supply chain standards with customers from the automotive and other sectors, including construction, household goods and packaging, and believes that the interest in supply chain certification and assurance is growing, and that this trend will continue. The Company aims to win the trust of all customers by demonstrating transparency and accountability, thus becoming the customer’s supplier of choice. 

 

In 2016, ArcelorMittal worked with its peers in the steel and mining industries, and with other stakeholders, to advance the development of third party standards. It is taking a leading role in creating two new assurance organizations: the IRMA, and Responsible steel. Both organizations have already received supportive engagement from a number of high profile customers. Following further engagement with stakeholders in early 2017, the Company believes that it will be in a position to pilot new certification standards later in the year. The aim is to ensure that ArcelorMittal sites can position themselves to meet the probable standards before they are required.

 

In response to an awareness of potential social and environmental issues in its tin supply chain, in 2015 ArcelorMittal joined a multi-stakeholder working group on sustainable tin production in Indonesia. In 2016, ArcelorMittal continued to engage in this project and is exploring how to ensure more effective partnership with local stakeholders.               

 

Outcome 8: Active and welcomed member of the community

 

The Company aims to be welcomed as a good neighbor, actively engaging at a local level, and to make a positive contribution to more resilient and thriving communities through both its day-to-day operations and thoughtful, well-targeted investments. It understands the importance of active engagement in the community, and of securing the trust and support of governments and listening to and understanding the needs and issues of local people, so that the Company can maintain its ‘social license’ to operate.

 

The Company aims to listen to local and other stakeholders, because it wants to build relationships that encourage people to share their concerns with the confidence that they will be heard, and to understand in detail what its community impacts are, both positive and negative, so that it can adapt, prevent issues from arising where possible, and respond to those which have escalated.  Where stakeholders have a grievance, ArcelorMittal is committed to giving them a fair hearing and, where the grievance is legitimate and concerns something in the Company's control, access to remedy. New community grievance guidelines were issued in 2015.

 

In 2016, the Company spent $20 million in numerous community investment programs across its areas of operations. Increasingly, ArcelorMittal recognizes the importance of building ‘shared value’, aimed at making communities more resilient and at the same time strengthening the Company's business. In the United States, ArcelorMittal has developed public-private partnerships near its joint venture facility AM/NS Calvert, with Mobile Baykeeper, Mobile Area Education Foundation and Exploreum combining the work of environmental stewardship and STEM education to encourage students, community members and government officials to care for waterways near the Gulf Coast in Alabama. Similar collaboration exists in the Company’s Vittoria plant in Brazil where ArcelorMittal has joined with local government and financial partners to support small manufacturing businesses in the region. Public private partnerships are also in place in Romania, Ukraine, Poland and South Africa.

 

ArcelorMittal was recognized in 2016 by General Motors’ “Top Diversity Performer Platinum Award” for its supplier diversity program, which provides opportunities to minority, women and veteran owned businesses to participate in the Company’s procurement process.  

 

The Company recognizes community partnerships as a key driver for employee retention and engagement. Annual external reputation surveys specifically highlight the importance of community investment in employees’ sentiment about the Company. To drive this sense of shared value for employees, the Company actively encourages employee volunteering. In 2016, the Company’s U.S. business successfully reached its target to double the number of skills-based volunteer hours donated by employees to local partners.

50


 

 

Outcome 9: Pipeline of talented scientists and engineers for tomorrow    

 

Talented scientists and engineers will play a critical part in building a sustainable future for society at large, for the steel industry, and for the Company. ArcelorMittal recognizes the importance of developing skills in STEM (science, technology, engineering and mathematics), which is the global theme for the Company’s community investment strategy.

 

The number and quality of the Company's STEM projects is growing. There is a need for solid professional skills, and the ability to adapt to change, exploit new technology and thrive in an increasingly complex workplace - which means recruiting skills in new areas such as lifecycle analysis, robotics, data analysis, nanotechnologies, circular economics, and 3D metallurgy. The Company is lengthening its talent pipeline, deepening its relationships with schools, colleges and universities to encourage students to choose STEM subjects. In addition to providing teaching aids and technological support, the Company invites students to its steel plants to show them where their skills could take them.

 

The Company has long-term partnerships with leading academic organizations around the world, including the universities of Stanford and MIT in the U.S., Cambridge in the UK, Lausanne in Switzerland, McMasters in Canada, and the China Central University. The Company also offers internships and sponsorship of PhDs through joint research projects. These partnerships are designed to develop productive collaboration on specific issues, and help ensure the Company can attract the best graduates. In 2016, in R&D alone, the Company hosted more than 180 engineering students in their final year on long-term internships, and more than 60 PhD students on a variety of different programs.  

 

For example, ArcelorMittal Mexico awarded 504 scholarships for STEM students in 2016, while ArcelorMittal Galati in Romania welcomed 100 graduates from Galati and Braila counties at its apprentice school. A pilot project at ArcelorMittal Poland, involving the Zespół Szkół HTS vocational school in Kraków, gave students vocational training.

 

In Kazakhstan, the Company signed a Memorandum of mutual cooperation with Karaganda State Industrial University (KSIU) in 2013, resulting in a series of cooperative initiatives around STEM training. In 2016, as part of a range of training, research and knowledge-sharing activities, 212 students took part in internships at ArcelorMittal Temirtau. 

  

ArcelorMittal Brazil has developed several community projects in order to promote STEM to children. These include the ArcelorMittal Environment Award, which has been dedicated to raising awareness of environmental issues among elementary school students and employees’ children for 25 years. The 2016 awards involved 73,000 students, and in November 2016 the first prize was awarded to an initiative entitled "sustainable solar energy accessible to populations in need," conceived by the Municipal school Ordeal Ferreira Campos, Sabará.    

 

In South Africa, the Company restarted a recruitment drive to attract young engineers, offering a 40 week apprenticeship contract, focusing on the iron and steel manufacturing process. The program includes institutional and on the job training, with regular assessments and progress monitoring as an integral part of the apprenticeship program.

 

        Outcome 10: ArcelorMittal’s contribution to society measured, shared and valued

 

ArcelorMittal recognizes it can benefit from understanding the broader social and economic value it creates, both directly and indirectly, and from sharing this information with its stakeholders. It aims to be able to show the value of the contributions it makes to society, and to enable its leadership and its stakeholders to understand and appreciate these as well as its financial results. 

 

The Company believes that impact is most meaningfully measured at the country level. This has been demonstrated by ArcelorMittal South Africa, which published its second ‘Factor report’, updating stakeholders on the economic and social contributions it had made to the country since its first report was published in 2014. Multiple other ArcelorMittal country sustainable development reports included basic data on direct economic contributions. Following the success of South Africa’s program, ArcelorMittal is preparing a framework to guide all country level social impact studies to ensure quality and consistency.

 

51


 

The SD ‘dashboard assessment’ process introduced in 2016 gave country management the opportunity to reflect on the extent to which the Company measures what it contributes in each country of operation, the balance between positive and negative contributions, and the importance of such information in maintaining its social license to operate.

 

These outcomes are underpinned by Transparent Good Governance

 

Listening, learning, respect and transparency are key to the integrity of the Company’s leadership and governance, ensuring the Company operates effectively and ethically in all parts of the world. In 2016, 81% of our employees had completed up to date training in the Code of Business Conduct, and 76% had completed their Anti-Corruption training.  The Company provided focused training on the theme of integrity and human rights in Kazakhstan during the year. See also “Item 16.B–Code of Ethics” and “Item 6.C‒Directors, senior management and employees‒Board practices/corporate governance”.

 

ArcelorMittal considers its relationships with its various stakeholders to be vital across its operations. Conducted in the right way, these relationships help the Company to know how best to respond, anticipate future problems and earn the trust of its stakeholders. ArcelorMittal’s operations in each of the countries in which it operates are encouraged to assess their stakeholder expectations, in order to inform their approach to the 10 SD outcomes.

 

The Company believes that stakeholder trust will be enhanced through transparency about the social and environmental impacts of its operations. The Company is continuously enhancing its disclosures through its journey to integrated reporting in its corporate Annual Review and country level reports, of which 17 were published in 2016, as well as its disclosures to the Carbon Disclosure Project and a number of investor and customer surveys. In Brazil, where transparency is of particular stakeholder concern, ArcelorMittal announced a partnership with the non-governmental organization Transparency International in a reinforcement of its  commitment to ethical business practices.

 

The Company’s human rights policy draws on the UN Universal Declaration of Human Rights, the International Bill of Human Rights, the core conventions of the International Labor Organization, and the UN Global Compact. It includes commitments to the Company’s workforce, local communities and business partners, and covers health and safety, labor rights and the rights of indigenous people. Employees are required to undertake training in the Company’s policy every three years, and in 2016, 84% of the Company’s workforce had completed up-to-date human rights training, up from 81% in 2015.

 

Where appropriate, ArcelorMittal provides face-to-face training for employees on human rights. In December 2016, it provided a focused workshop for its workforce in Kazakhstan. Following a review of its human rights program in 2015 and 2016, a gap analysis and a dashboard assessment of SD outcome 1 (people) and 8 (communities) in all countries in 2016, the Company is developing an action plan to improve the implementation of the Company’s human rights standards.

 

See also “Item 6.CDirectors, senior management and employees‒–Board practices/corporate governance–Ethics and conflicts of interest”.

 

Products

Information regarding segment sales by geographic area and sales by type of products can be found in note 3 to ArcelorMittal’s consolidated financial statements.

ArcelorMittal has a high degree of product diversification relative to other steel companies. Its plants manufacture a broad range of finished and semi-finished steel products with different specifications, including many complex and highly technical and sophisticated products that it sells to demanding customers for use in high-end applications.

ArcelorMittal’s principal steel products include:

·         semi-finished flat products such as slabs;

52


 

·         finished flat products such as plates, hot- and cold-rolled coils and sheets, hot-dipped and electro-galvanized coils and sheets, tinplate and color coated coils and sheets;

·         semi-finished long products such as blooms and billets;

·         finished long products such as bars, wire-rods, structural sections, rails, sheet piles and wire-products; and

·         seamless and welded pipes and tubes.

ArcelorMittal’s main mining products include:

·         iron ore lump, fines, concentrate, pellets and sinter feed; and

·         coking, PCI and thermal coal.

Steel-making process

Historically, primary steel producers have been divided into “integrated” and “mini-mill” producers. Over the past few decades, a third type of steel producer has emerged that combines the strengths of both the integrated and the mini-mill processes. These producers are referred to as “integrated mini-mill producers”.

 

Integrated steel-making

In integrated steel production, coal is converted to coke in a coke oven, and then combined in a blast furnace with iron ore and limestone to produce pig iron. Pig iron is then combined with scrap in a converter, which is generally a basic oxygen or tandem furnace, to produce raw or liquid steel. Once produced, the liquid steel is metallurgically refined and then transported to a continuous caster for casting into a slab, bloom or billet, which is then further shaped or rolled into its final form. Various finishing or coating processes may follow this casting and rolling. Recent modernization efforts by integrated steel producers have focused on cutting costs through eliminating unnecessary production steps, reducing manning levels through automation, and decreasing waste generation. Integrated mills are substantially dependent upon iron ore and coking coal which, due to supply and demand imbalances, shortening of contract durations and the linkage between contract prices and spot prices, have been characterized by price volatility in recent years.

 

Mini-mills

A mini-mill employs an electric arc furnace to directly melt scrap and/or scrap substitutes such as direct reduced iron, thus entirely replacing all of the steps up to and including the energy-intensive blast furnace. A mini-mill incorporates the melt shop, ladle metallurgical station, casting, and rolling into a unified continuous flow. Mini-mills are generally characterized by lower costs of production and higher productivity than integrated steel-makers. These attributes are due in part to the lower capital costs and lower operating costs resulting from the streamlined melting process and the more efficient plant layouts of mini-mills. The quality of steel produced by mini-mills is primarily limited by the quality of the metallic raw materials used in liquid steel-making, which in turn is affected by the limited availability of high-quality scrap or virgin ore-based metallics for use in the electric arc furnaces. Mini-mills are substantially dependent on scrap, which has been characterized by price volatility in recent years, and the cost of electricity.

 

Integrated mini-mills

Integrated mini-mills are mini-mills that produce their own metallic raw materials consisting of high-quality scrap substitutes, such as direct reduced iron. Unlike most mini-mills, integrated mini-mills are able to produce steel with the quality of an integrated producer, since scrap substitutes, such as direct reduced iron, are derived from virgin iron ore, which has fewer impurities. The internal production of scrap substitutes as the primary metallic feedstock provides integrated mini-mills with a competitive advantage over traditional scrap-based mini-mills by insulating the integrated mini-mills from their dependence on scrap, which continues to be subject to price volatility. The internal production of metallic feedstock also enables integrated mini-mills to reduce handling and transportation costs. The high percentage use of scrap substitutes such as direct reduced iron also allows the

53


 

integrated mini-mills to take advantage of periods of low scrap prices by procuring a wide variety of lower-cost scrap grades, which can be blended with the higher-purity direct reduced iron charge. Because the production of direct reduced iron involves the use of significant amounts of natural gas, integrated mini-mills are more sensitive to the price of natural gas than are mini-mills using scrap.

 

Key steel products

Steel-makers primarily produce two types of steel products: flat products and long products. Flat products, such as sheet or plate, are produced from slabs. Long products, such as bars, rods and structural shapes, are rolled from blooms and/or billets.

 

Flat products

Slab. A slab is a semi-finished steel product obtained by the continuous casting of steel or rolling ingots on a rolling mill and cutting them into various lengths. A slab has a rectangular cross-section and is used as a starting material in the production process of other flat products (e.g., hot-rolled sheet, plates).

 

Hot-rolled sheet. Hot-rolled sheet is minimally processed steel that is used in the manufacture of various non-surface critical applications, such as automobile suspension arms, frames, wheels, and other unexposed parts in auto and truck bodies, agricultural equipment, construction products, machinery, tubing, pipe and guard rails. All flat-rolled steel sheet is initially hot-rolled, a process that consists of passing a cast slab through a multi-stand rolling mill to reduce its thickness to less than 12 millimeters. Flat-rolled steel sheet that has been wound is referred to as “coiled”.

 

Cold-rolled sheet. Cold-rolled sheet is hot-rolled sheet that has been further processed through a pickle line, which is an acid bath that removes scaling from steel’s surface, and then successively passed through a rolling mill without reheating until the desired gauge, or thickness, and other physical properties have been achieved. Cold-rolling reduces gauge and hardens the steel and, when further processed through an annealing furnace and a temper mill, improves uniformity, ductility and formability. Cold-rolling can also impart various surface finishes and textures. Cold-rolled steel is used in applications that demand higher surface quality or finish, such as exposed automobile and appliance panels. As a result, the prices of cold-rolled sheet are higher than the prices of hot-rolled sheet. Typically, cold-rolled sheet is coated or painted prior to sale to an end-user.

 

Coated sheet. Coated sheet is generally cold-rolled steel that has been coated with zinc, aluminum or a combination thereof to render it corrosion-resistant and to improve its paintability. Hot-dipped galvanized, electro-galvanized and aluminized products are types of coated sheet. These are also the highest value-added sheet products because they require the greatest degree of processing and tend to have the strictest quality requirements. Coated sheet is used for many applications, often where exposed to the elements, such as automobile exteriors, major household appliances, roofing and siding, heating and air conditioning equipment, air ducts and switch boxes, as well as in certain packaging applications, such as food containers.

 

Plates. Plates are produced by hot-rolling either reheated slabs or ingots. The principal end uses for plates include various structural products such as for bridge construction, storage vessels, tanks, shipbuilding, line pipe, industrial machinery and equipment.

 

Tinplate. Tinplate is a light-gauge, cold-rolled, low-carbon steel usually coated with a micro-thin layer of tin. Tinplate is usually between 0.14 millimeters and 0.84 millimeters thick and offers particular advantages for packaging, such as strength, workability, corrosion resistance, weldability and ease in decoration. Food and general line steel containers are made from tinplate.

 

Electrical steels. There are three principal types of electrical steel: grain-oriented steels, non-grain oriented fully processed steels and non-grain oriented semi-processed steels.

 

·         Grain-oriented steels are 3% silicon-iron alloys developed with a grain orientation to provide very low power loss and high permeability in the rolling direction, for high efficiency transformers.

54


 

·         Non-grain oriented fully processed steels are iron-silicon alloys with varying silicon contents and have similar magnetic properties in all directions in the plane of the sheet. They are principally used for motors, generators, alternators, ballasts, small transformers and a variety of other electromagnetic applications. A wide range of products, including a newly developed thin gauge material for high frequency applications, are available.

·         Non-grain oriented semi-processed steels are largely non-silicon alloys sold in the not finally annealed condition to enhance punchability. Low power loss and good permeability properties are developed after final annealing of the laminations. These materials are sold under the Newcor and Polycor trademarks.

Long products

Billets/Blooms. Billets and blooms are semi-finished steel products. Billets generally have square cross-sections up to 180 millimeters by 180 millimeters, and blooms generally have square or rectangular cross-sections greater than 180 millimeters by 180 millimeters. These products are either continuously cast or rolled from ingots and are used for further processing by rolling to produce finished products like bars, wire rod and sections.

 

Bars. Bars are long steel products that are rolled from billets. Merchant bar and reinforcing bar (rebar) are two common categories of bars. Merchant bars include rounds, flats, angles, squares, and channels that are used by fabricators to manufacture a wide variety of products such as furniture, stair railings, and farm equipment. Rebar is used to strengthen concrete in highways, bridges and buildings.

 

Special bar quality (“SBQ”) steel. SBQ steel is the highest quality steel long product and is typically used in safety-critical applications by manufacturers of engineered products. SBQ steel must meet specific applications’ needs for strength, toughness, fatigue life and other engineering parameters. SBQ steel is the only bar product that typically requires customer qualification and is generally sold under contract to long-term customers. End-markets are principally the automotive, heavy truck and agricultural sectors, and products made with SBQ steel include axles, crankshafts, transmission gears, bearings and seamless tubes.

 

Wire rods. Wire rod is ring-shaped coiled steel with diameters ranging from 5.5 to 42 millimeters. Wire rod is used in the automotive, construction, welding and engineering sectors.

 

Wire products. Wire products include a broad range of products produced by cold reducing wire rod through a series of dies to improve surface finish, dimensional accuracy and physical properties. Wire products are used in a variety of applications such as fasteners, springs, concrete wire, electrical conductors and structural cables.

 

Structural sections. Structural sections or shapes are the general terms for rolled flanged shapes with at least one dimension of their cross-section of 80 millimeters or greater. They are produced in a rolling mill from reheated blooms or billets. Structural sections include wide-flange beams, bearing piles, channels, angles and tees. They are used mainly in the construction industry and in many other structural applications.

 

Rails. Rails are hot-rolled from a reheated bloom. They are used mainly for railway rails but they also have many industrial applications, including rails for construction cranes.

 

Seamless tubes. Seamless tubes have outer dimensions of approximately 25 millimeters to 508 millimeters. They are produced by piercing solid steel cylinders in a forging operation in which the metal is worked from both the inside and outside. The final product is a tube with uniform properties from the surface through the wall and from one end to the other.

 

Steel sheet piles. Steel sheet piles are hot rolled products used in civil engineering for permanent and temporary retaining structures. Main applications are the construction of quay walls, jetties, breakwaters, locks and dams, river reinforcement and channel embankments, as well as bridge abutments and underpasses. Temporary structures like river cofferdams are made with steel sheet piles. A special combination of H beams and steel sheet piles are sometimes used for the construction of large container terminals and similar port structures.  

 

Welded pipes and tubes. Welded pipes and tubes are manufactured from steel sheet that is bent into a cylinder and welded either longitudinally or helically.

 

55


 

Mining products

ArcelorMittal’s principal mining products and raw material input items for steel operations include iron ore, solid fuels (coking coal and PCI coal), metallics, alloys, base metals, energy and industrial gases.

ArcelorMittal’s mining and raw materials supply strategy consists of:

·         Acquiring and expanding production of certain raw materials, in particular iron ore, coal and manufacturing refractory products and developing diverse third-party customer relationships;

·         With respect to purchasing, pursuing the lowest unit price available based on the principles of total cost of ownership and value-in-use through aggregated purchasing, supply chain and consumption optimization;

·         Exploiting its global purchasing reach; and

·         Leveraging local and low cost advantages on a global scale.

Faced with lower and more volatile raw materials prices in recent years, ArcelorMittal’s priority has been to optimize output and production from its existing sources focused mainly on iron ore and coking coal rather than to further expand its portfolio of mining assets. Iron ore and coking coal are its two most important inputs in the steel-making process.

ArcelorMittal is a party to contracts with other mining companies that provide long-term, stable sources of raw materials. The Company’s largest iron ore supply contracts are agreements with Vale that were entered into in 2008 and amended in 2009 in response to changed market conditions and to introduce a greater level of flexibility with respect to ArcelorMittal’s purchasing requirements and Vale’s supply requirements. Such contracts with Vale are in the process of being updated. ArcelorMittal’s other principal international iron ore suppliers include Cliffs Natural Resources Inc. in the United States, Metalloinvest and Severstal in Russia, Metinvest in Ukraine, Luossavaara-Kiirunavaara AB in Sweden, Samarco in Brazil, IOC (Rio Tinto Ltd.) in Canada and Sishen in South Africa. ArcelorMittal’s principal coal suppliers include the BHP Billiton Mitsubishi Alliance (“BMA”), Rio Tinto, Anglo Coal, Glencore and Peabody in Australia, Alpha Natural Resources and Walter Energy Inc. in the United States, Teck Coal in Canada and Vale. ArcelorMittal includes certain long-term contracts in its assessment of its raw material self-sufficiency due to their pricing arrangements, such as its contracts with Cliffs Natural Resources Inc. (iron ore) and, in prior years, with Sishen (iron ore).

ArcelorMittal believes that its portfolio of long-term supply contracts can play an important role in preventing disruptions in the production process. In 2016, ArcelorMittal sourced a large portion of its iron ore requirements and the majority of its coking coal requirements from its own mines and strategic long-term contracts, which include different pricing mechanisms (e.g. quarterly, monthly) (see “Item 5—Operating and financial review and prospects—Raw materials”). 

The table below sets forth information regarding ArcelorMittal’s raw material consumption in 2016.

 

 

Millions of metric tonnes

 

Consumption

 

Sourced from own mines and strategic long-term contracts

 

Other sources

 

Self-sufficiency %

 

Iron Ore

 

114.9

 

62.9

 

52.0

 

55%

 

PCI & Coal1

 

46.3

 

6.9

 

39.4

 

15%

 

Coke

 

29.0

 

26.7

 

2.3

 

92%

 

Scrap & DRI

 

33.7

 

18.3

 

15.4

 

54%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Includes coal only for the steelmaking process and excludes steam coal for power generation. ArcelorMittal's consumption of PCI and Coal was 8.9 million tonnes and 37.4 million tonnes, respectively for the year ended December 31, 2016.

 

56


 

Iron ore

ArcelorMittal sources significant portions of its iron ore needs from its own mines in Kazakhstan, Ukraine, Bosnia, Canada, the United States, Mexico, Liberia and Brazil. In 2013, ArcelorMittal expanded the capacity of existing mines in Canada, started development of an early revenue phase through its joint venture in Baffinland, expanded capacity of its mines in Liberia, and completed the expansion of its mines in Brazil in the fourth quarter of 2012. Several of ArcelorMittal’s steel plants also have in place off-take arrangements with mineral suppliers located near its production facilities.

For further information on iron-ore production, see “Item 5.A—Operating and financial review and prospects—Operating results”. For further information on each of ArcelorMittal’s principal iron ore mining operations, see “Item 4.D—Information on the Company—Property, plant and equipment”.

Solid fuels

Coking coal

As with iron ore, ArcelorMittal sources a percentage of its coking coal from its own coal mines in Kazakhstan and the United States. The Company’s mines in Kazakhstan supply substantially all of its requirements for its steelmaking operations at ArcelorMittal Temirtau, while the mines in the United States supply other steel plants within the ArcelorMittal group together with external customers.

For further information on coking coal mining production, see “Item 5.A—Operating and financial review and prospects—Operating results”.

Coke

ArcelorMittal has its own coke-making facilities at most of its integrated mill sites, including in Bosnia, the United States, Canada, Mexico, Brazil, Spain, France, Germany, Belgium, Poland, Czech Republic, Kazakhstan, South Africa and Ukraine. While ArcelorMittal meets most of its own coke requirements, certain of ArcelorMittal’s operating subsidiaries buy coke from mostly domestic or regional sources to optimize cost savings from transport efficiencies, and certain of its subsidiaries sell, on occasion, excess coke at market prices to third parties. The remainder of the spot purchases of coke are made from China, Columbia and the United States.

In the United States, ArcelorMittal USA produces part of its coke requirement in its own batteries, with the bulk procured under long-term contracts from dedicated coke batteries owned by third parties.

 

 

Other raw materials and energy

Metallics (scrap)

ArcelorMittal procures the majority of its scrap requirements locally and regionally optimizing transport costs. Typically, scrap purchases are made in the spot market on a monthly/weekly basis or with short-term contracts. In Europe, ArcelorMittal has entered into certain contracts for scrap recycling.

Alloys

ArcelorMittal purchases its requirements of bulk and noble alloys from a number of global, regional and local suppliers on contracts that are linked to generally-accepted indices or negotiated on a quarterly basis.

Base metals

The majority of the Company’s base metal needs, including zinc, tin, aluminum and nickel are purchased under annual volume contracts. Pricing is based on the market-accepted indices. Material is sourced from both local and global producers.

57


 

Electricity

ArcelorMittal generally procures its electricity through tariff-based systems in regulated areas such as parts of the United States and South Africa, through direct access to markets in most of European mills or through bilateral contracts elsewhere. The duration of these contracts varies significantly depending on the area and type of arrangement.

For integrated steel mills, plant off-gases from various process steps are utilized to generate a significant portion of the plant’s electricity requirements and lower the purchase volumes from the grid. This is either produced by the plant itself or with a partner in the form of a co-generation contract.

Natural gas

ArcelorMittal procures much of its natural gas requirements for its U.S., Canadian and Mexican operations from the natural gas spot market or through short-term contracts entered into with local suppliers, with prices fixed either by contract or tariff-based spot market prices. For its European and Ukrainian operations, with a contractual mix of “all-in” bilateral supply and direct access to the market, ArcelorMittal sources its natural gas requirements under the prevailing mix of oil-based pricing systems and European short term/spot-indexed supply contracts. The remainder of ArcelorMittal’s natural gas consumption represents less than 15% of ArcelorMittal’s total consumption and is generally sourced from regulated markets.

Industrial gases

Most of ArcelorMittal’s industrial gas requirements are produced and supplied under long-term contracts with various suppliers in different geographical regions.

Shipping

ArcelorMittal Shipping Limited (“AM Shipping”) provides ocean transportation solutions to ArcelorMittal’s manufacturing subsidiaries and affiliates. AM Shipping determines cost-efficient and timely approaches for the transport of raw materials, such as iron ore, coal, coke and scrap, and semi-finished and finished products. AM Shipping is also responsible for providing shipping services to the Company’s sales organizations. This includes forwarding services and complete logistics services through ArcelorMittal Logistics. It provides complete logistics solutions from plants to customer locations using various modes of transport.

In 2016, AM Shipping arranged transportation for approximately 64.1 million tonnes of raw materials and about 13.65 million tonnes of finished products. The key objectives of AM Shipping are to ensure cost-effective and timely shipping services to all units. AM Shipping acts as an agent for a Mauritius-based shipping company, Global Chartering Ltd. (“GC”), Luxembourg based ArcelorMittal Sourcing and Luxembourg based AM Mining SA. GC handles shipping of approximately 22% of the Company’s raw materials, which are transported by sea by chartering vessels on a short- to long-term basis. In its fleet are several Capesize, Panamax and Supramax vessels on a medium-to-long-term charter. AM Shipping’s strategy is to cover about 33% of the cargo requirements of the Group on a medium to long-term basis, and to arrange remaining transportation requirements on a spot basis.

Purchasing

ArcelorMittal has implemented a global procurement process for its major procurement requirements, including raw materials, industrial services, industrial equipment, spares and maintenance, as well as capital expenditure items, energy and shipping. ArcelorMittal’s centralized procurement teams also provide services such as optimization of contracts and the supply base, logistics and optimizing different qualities of materials suitable for different plants and low cost sourcing.

By engaging in these processes, ArcelorMittal seeks to benefit from economies of scale in a number of ways, including by establishing long-term relationships with suppliers that sometimes allow for advantageous input pricing, pooling its knowledge of the market fundamentals and drivers for inputs and deploying specialized technical knowledge especially for the acquisition of industrial services and plant equipment and facilities. This enables ArcelorMittal to achieve a balanced supply portfolio in terms of diversification of sourcing risk in conjunction with the ability to benefit from a number of its own raw materials sources.

ArcelorMittal has institutionalized the “total cost of ownership” methodology as its way of conducting its procurement activities across the Group. This methodology focuses on the total cost of ownership for decision

58


 

making, with the goal of lowering the total cost of production through minimization of waste, improved input material recovery rates and higher rates of recycling.

 

Sales and marketing

In 2016, ArcelorMittal sold approximately 83.9 million tonnes of steel products.

Sales

The majority of steel sales from ArcelorMittal are destined for domestic markets. For these domestic markets, sales are usually approached as a decentralized activity that is managed either at the business unit or at the production unit level. For certain specific markets, such as automotive, there is a global approach offering similar products manufactured in different production units around the world. In instances where production facilities are in relatively close proximity to one another, and where the market requirements are similar, the sales function is aggregated to serve a number of production units. In the EU region and in South America, ArcelorMittal owns a large number of service and distribution centers. Depending on the level of complexity of the product, or the level of service required by the customer, the service center operations form an integral part of the supply chain to ArcelorMittal’s customers. Distribution centers provide access to ArcelorMittal’s products to smaller customers that cannot or do not want to buy directly from the operating facility.

The Group prefers to sell exports through its international network of sales agencies to ensure that all ArcelorMittal products are presented to the market in a cost-efficient and coordinated manner.

Sales are executed at the local level, but are conducted in accordance with the Group’s sales and marketing and code of conduct policies.

For some global industries with customers in more than one of the geographical areas that ArcelorMittal serves, the Company has established customized sales and service functions. This is particularly the case for the automotive and packaging industries. Sales through these channels are coordinated at the Group level with respect to contract, price and payment conditions.

Marketing

Marketing follows the sales activity very closely and is by preference executed at the local level. In practice, this leads to a focus on regional marketing competencies, particularly where there are similarities among regional markets in close geographical proximity. Local marketing provides guidance to sales on forecasting and pricing. At the global level, the objective is to share marketing intelligence with a view towards identifying new opportunities, either in new products or applications, new product requirements or new geographical demand. Where a new product application is involved, the in-house research and development unit of ArcelorMittal is involved in developing the appropriate products.

An important part of the marketing function at ArcelorMittal is to develop short-range outlooks that provide future perspectives on the state of market demand and supply. These outlooks are shared with the sales team in the process of finalizing the sales strategy for the immediate future and with senior management when market conditions call for production adjustments.

Globally, sales and marketing activities are coordinated to ensure a harmonized approach to the market. The objective is to provide similar service experiences to all customers of ArcelorMittal in each market.

Insurance

ArcelorMittal maintains insurance policies to cover physical loss or damage to its property and equipment on a reinstatement basis arising from a number of specified risks, including certain natural disasters, such as earthquakes, acts of terrorism, floods and windstorms, and certain consequential losses, including business interruption arising from the occurrence of an insured event under the said policies.

ArcelorMittal also purchases worldwide third-party public and product liability insurance coverage for all of its subsidiaries.

59


 

Various other types of insurance are also maintained, such as comprehensive construction and contractor insurance for its greenfield and major capital expenditures projects, directors and officers liability, transport, and charterers’ liability, as well as other customary policies such as car insurance, travel assistance and medical insurance.

Each of the operating subsidiaries of ArcelorMittal maintains various local insurance policies that are mandatory at the local level, such as employer liability, workers compensation and auto liability, as well as specific insurance such as public liability to comply with local regulations.

In addition, ArcelorMittal maintains trade credit insurance on receivables from selected customers, subject to limits that it believes are consistent with those in the industry, in order to protect it against the risk of non-payment due to customers’ insolvency or other causes. Not all of ArcelorMittal’s customers are or can be insured, and even when insurance is available, it may not fully cover the exposure.

ArcelorMittal believes that its insurance coverage is in line with industry practice and sufficient to cover normal risks in its operations. Notwithstanding the insurance coverage that ArcelorMittal and its subsidiaries carry, the occurrence of an event that causes losses in excess of limits specified under the relevant policy, or losses arising from events not covered by insurance policies, could materially harm ArcelorMittal’s financial condition and future operating results.

Intellectual property

ArcelorMittal owns and maintains a patent portfolio covering processes and steel products, including uses and applications that it creates, develops and implements in territories throughout the world. Such patents and inventions primarily relate to steel solutions with new or enhanced properties, as well as new technologies that generate greater cost-efficiencies.

ArcelorMittal also owns trademarks, both registered and unregistered, relating to the names and logos of its companies and the brands of its products. ArcelorMittal has policies and systems in place to monitor and protect the confidentiality of its know-how and proprietary information. The Company applies a general policy for patenting selected new inventions, and its committees organize an annual patent portfolio screening by individuals from the Company’s R&D and business sectors in order to optimize the global efficiency of the Company’s patent portfolio. The Company’s patent portfolio includes more than 5,000 patents and patent applications, mostly recent and middle-aged, for more than 550 patent families, with 48 inventions newly-protected in 2016. Because of this constant innovation, the Company does not expect the lapse of patents that protect older technology to materially affect current revenue.

In addition to its patent portfolio, ArcelorMittal is constantly developing technical know-how and other unpatented proprietary information related to design, production process, and use of high quality steel products, leading to development of new applications or to improvement of steel solutions proposed to its customers, such as the ones aiming at weight reduction for vehicles. ArcelorMittal has also been granted licenses for technologies developed by third parties in order to allow it to propose comprehensive steel solutions to customers. ArcelorMittal is not aware of any pending lawsuits alleging infringement of others’ intellectual property rights that could materially harm its business. 

  

Government regulations

See “Item 3.D—Key information—Risk factors” and note 8.2 to ArcelorMittal’s consolidated financial statements.

ArcelorMittal’s operations are subject to various regulatory regimes in the regions in which it conducts its operations. The following is a discussion of the principal features of selected regulatory regimes, as of December 31, 2016, that affect or are likely to affect its operations.

Environmental laws and regulations

ArcelorMittal’s operations are subject to a broad range of laws and regulations relating to air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, the protection of soil, biodiversity and ecosystems or

60


 

rehabilitation (including in Mining). As these laws and regulations in the United States, the EU and other jurisdictions continue to become more stringent, ArcelorMittal expects to expend substantial amounts to achieve or maintain ongoing compliance. Further details regarding specific environmental proceedings involving ArcelorMittal, including provisions to cover environmental remedial activities and liabilities, decommissioning and asset retirement obligations are described in notes 8.1 and 8.2 to ArcelorMittal’s consolidated financial statements.

Some of ArcelorMittal’s most important environmental compliance initiatives are described below, as well as the main environmental laws and regulations that apply to ArcelorMittal in its principal countries of operation. It is difficult to anticipate whether additional operating or capital expenditures will be required to comply with pending or recently-enacted amendments to environmental laws and regulations or what effect they will have on the Company’s business, financial results or cash flow from operations. In 2016, ArcelorMittal approved a number of multi-year capital expenditures totaling $285 million in order to facilitate compliance with these environmental and energy laws and regulations.

Industrial emissions regulation: climate change

ArcelorMittal’s activities in the 28 member states of the EU are subject to the EU Emissions Trading Scheme (“ETS”), and it is likely that requirements relating to greenhouse gas (“GHG”) emissions will become more stringent and will expand to other jurisdictions in the future. In the United States, the U.S. Environmental Protection Agency (“EPA”) has taken the first steps towards implementing a comprehensive GHG policy establishing reporting and permitting obligations for significant statutory sources of GHG emissions for new sources or existing sources that seek to modify their operations that will result in an increase in GHG emissions. In South Africa, a bill to tax carbon dioxide emissions is under discussion. In Mexico, Brazil and Kazakhstan new regulatory initiatives are being discussed by the different government authorities. In the United Kingdom, ArcelorMittal’s activities are subject to the Carbon Reduction Energy Efficiency Scheme (“CRC”).

In December 2015, 195 countries participating in the United Nations Framework Convention on Climate Change (“UNFCC”), at its COP21 held in Paris, adopted a new global agreement on the reduction of climate change (the “Paris Agreement”).  The Paris Agreement sets a goal of limiting the increase in global average temperature to well below 2 degrees C and pursuing efforts to limit the increase to 1.5 degrees C, to be achieved by getting global GHG emissions to peak as soon as possible.  The Paris Agreement consists of two elements: a legally binding commitment by each participating country to set an emissions reduction target, referred to as “nationally determined contributions” or “NDCs”, with a review of the NDCs that could lead to updates and enhancements every five years beginning in 2023 (Article 4) and a transparency commitment requiring participating countries to disclose in full their progress (Article 13).  The majority of countries have issued their intended NDCs.

ArcelorMittal is closely monitoring national and international negotiations, regulatory and legislative developments and is endeavoring to reduce its own emissions where appropriate.

United States

ArcelorMittal’s operating subsidiaries in the United States are subject to numerous environmental laws and regulations including at the federal level, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act (“RCRA”), the Comprehensive Environmental Response, Compensation and Liability Act, also known as “Superfund”, the Safe Drinking Water Act and the Toxic Substances Control Act, as well as applicable state and local environmental requirements.

The EPA has issued a series of regulations and guidance documents, which establish both reporting and permitting obligations for significant stationary sources of GHG emissions including iron and steel facilities. Obligations inherent to those new regulations will apply to either new sources of GHGs or existing sources that seek to modify their operations in ways that result in a significant increase in GHG emissions. Sources triggering GHG permitting obligations are obligated to install Best Available Control Technology to reduce GHG emissions. As a result, although not presently required, ArcelorMittal USA may incur substantial expenses to assess, identify and install GHG emission control technologies at some point in the future.

The EPA is expected to pursue the establishment of more stringent air emissions standards. As these potential developments could have significant financial implications, ArcelorMittal USA continues to carefully monitor all developments in this area and to proactively engage with regulators as appropriate to define its regulatory obligations.

61


 

In 2013, Region V of the EPA rejected the State of Minnesota’s plan for reducing regional haze, which was designed to restore visibility in pristine areas, and promulgated its own plan to require the taconite industry to install low NOx technology at taconite furnaces in the region. This will require significant capital investment. In 2015, the taconite industry reached a settlement with the EPA to establish more flexible ranges for final limits and secured additional time to meet them. The EPA promulgated a final rule effectuating that settlement in April 2016.  However, the new rule raised an additional concern regarding the process for setting final limits. The taconite industry has taken action to preserve its rights on the remaining issue and is working on negotiating a resolution. In the interim, the stay of the EPA’s original rule has been lifted and efforts are underway to comply.

 

ArcelorMittal USA does not presently expect to incur significant capital expenditures relating to other environmental regulatory developments or matters in 2017.

 

European Union

 

Significant EU Directives and regulations that are applicable to ArcelorMittal’s production units in the EU, include the following:

 

·         Directive 2010/75/EU of November 24, 2010 on Industrial Emissions (the “IED Directive”), which applies common rules for permitting and controlling industrial installations. To receive a permit, installations covered by the IED Directive must ensure that their Emissions Limit Values (“ELV”) do not exceed those associated with the best available techniques (“BATs”), as adopted in the decision (February 28, 2012) of the European Commission establishing the BAT conclusions for iron and steel production under the IED (C(2012)903). Air, soil or water, energy emissions, waste generation, as well as noise, hazards and site closure, are all considered with few possibilities to obtain derogations related to the implementation of BAT and the associated emissions limits values. The implementation of the IED Directive materially impacts ArcelorMittal’s activities in the EU to an amount not yet determined since many issues that ultimately will determine this impact are not yet fixed due to authorities’ delays in implementing decisions and reconsideration of permits. Most of the Member States were expected to update permits and have ELVs achieved by operators in March 2016. However, the negotiation and the update of existing permits are still ongoing in some countries.

·         Directive 2008/98/EC of November 19, 2008, which establishes the legislative framework for the handling and management of waste in the EU. On December 2, 2015, the Commission adopted an ambitious new Circular Economy Package to stimulate Europe's transition towards a circular economy which will boost global competitiveness. The proposed actions will contribute to "closing the loop" of product lifecycles. The plans will extract the maximum value and use from all raw materials, products and waste, fostering energy savings and reducing greenhouse gas emissions. The proposals cover the full lifecycle: from production and consumption to waste management and the market for secondary raw materials. According to the proposed actions, the Directive 2008/98/EC on waste will be amended. 

·         Directive 2012/27/EU of October 25, 2012, which repeals prior Directives 2004/8/EC and 2006/32/EC, and brings forward legally binding measures to step up Member States’ efforts to use energy more efficiently at all stages of the energy chain – from the transformation of energy and its distribution to its final consumption. Measures include the legal obligation to establish energy efficiency obligations schemes or policy measures in all Member States. The final target is to achieve energy efficiency improvements of 20%. It is worth noting that most provisions of the texts do not apply to ETS industries and a lot of flexibility is given to the Member States to set up supportive schemes instead of obligatory ones. “REACH” Regulation (EC) no. 1907/2006 for Registration, Evaluation, Authorization and Restriction of Chemicals, adopted on December 18, 2006, which controls the (chemical) substances used, manufactured in or imported into the EU and “CLP” Regulation (EC) no. 1272/2008 of December 16, 2008 on the classification, labeling and packaging of substances and mixtures, which complements it. 

·         Directive 2003/87/EC of October 13, 2003 (which has been amended several times and especially by Directive 2009/29/EC) and related directives establishing the ETS in three phases for achieving Kyoto Protocol commitments relating to GHGs for Member States. The ETS works on the "cap and trade" principle. This means there is a “cap”, or limit, on the total amount of certain GHGs that can be emitted by the factories, power plants and other installations subject to the ETS. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value. At the end of each year, each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or sell them.

62


 

Phase II of the ETS ended on December 31, 2012, and Phase III covers the period from 2013 to 2020. In Phase III, all CO2 allowances should be auctioned (as per Regulation (EC) no. 1031/2010 of November 12, 2010 on the timing, administration and other aspects of auctioning of emission allowances). The Commission is implementing Phase III of the ETS in a manner that could increase costs for the Group to obtain sufficient emission allowances for its European operations depending on steel production level and the market price of emission allowances. Through Commission Decision 2010/2/EU of December 24, 2009, manufacturing of coke oven products, of basic iron and steel, of ferro-alloys and of cast iron tubes have been recognized as exposed to a significant risk of “carbon leakage”. In its decision of April 27, 2011, the Commission determined transitional EU-wide rules for the harmonized free allocation of emission allowances and the benchmark values for the steel industry. The values adopted result in fewer free allocations than those sought by the European steel industry and will lead to additional cost for steel companies in Europe. Under Commission Decision 2013/448/EU of September 5, 2013, implementation of a so called “Cross Sectoral Correction Factor” will further negatively impact CO2 free allowances previously announced to industry based on benchmark values. In 2014, the Commission investigated new possible schemes and mechanisms to regulate and adjust CO2 prices on ETS market (CO2 backloading, or Market Stability Reserve). On October 6, 2015, the Commission published its decision concerning the establishment and operation of a Market Stability Reserve. The reserve is supposed to address the current surplus of allowances and improve the system's resilience to major shocks by adjusting the supply of allowances to be auctioned. In other words it is meant to address the market imbalances. The Commission agreed (October 23, 2014) on a 2030 greenhouse gas reduction target of at least 40% compared to 1990. This is on top of the other main targets of the Commission’s 2030 policy framework calling for increasing the share of renewable energy to at least 27% and increasing energy efficiency by at least 27%.

The following EU Directives are also significant:

·         Directive 2008/50/EC of May 21, 2008 on ambient air quality and cleaner air for Europe.

·         Directive 2004/107/EC of December 15, 2004 relating to limit values and target values for pollutants in ambient air, including thresholds on very fine particulates.

·         Directive 2001/81/EC of October 23, 2001 on national emission ceilings for certain pollutants which are currently being reviewed as part of The Clean Air Policy Package. The proposal would repeal and replace the current EU regime on the annual capping of national emissions of air pollutants. By doing so, it ensures that the national emission ceilings (NECs) set in the current Directive 2001/81/EC for 2010 onwards for SO2, NOx, NMVOC and NH3 shall apply until 2020 and establishes new national emission reduction commitments ("reduction commitments") applicable from 2020 and 2030 for SO2, NOx, NMVOC, NH3, fine particulate matter (“PM”2,5) and methane (CH4).

·         The new Directive on the control of major accidents hazards involving dangerous substances, also known as SEVESO III 2012/18/UE (repeals Directive 96/82/EC of December 9, 1996), which has been applicable since June 1, 2015. Updates are taking into account changes in the EU classification of dangerous substances, strengthening provisions on public access to safety information and introducing stricter standards for inspections of installations.

·         Directive 2011/92/UE concerning the impact assessment of certain public and private projects on the environment. Directive 2009/31/EC of April 23, 2009 on the geological storage of carbon dioxide.

·         Directive 2009/28/EC of April 23, 2009 on the promotion of the use of energy from renewable sources.

·         Directive 2008/68/EC of September 24, 2008 on the inland transport of dangerous goods, by rail, road, and inland waterway.

·         Directive 2004/35/EC of April 21, 2004, and Directive 2008/99/EC of November 19, 2008, establishing liability (including criminal liability) for violations of the EU environmental legislation.

·         The new Directive 2013/59/EURATOM of December 5, 2013, establishing basic safety standards for protection from the exposure to ionizing radiation and repealing former EURATOM directives, to be complied with by February 6, 2018.

 

ArcelorMittal anticipates that its capital expenditure with respect to environmental matters in the EU over the next several years will relate primarily to installations of additional air emission controls and to requirements imposed in the course of renewal of permits and authorizations, including those pursuant to the IED Directive.

Other jurisdictions

63


 

Increasingly stringent environmental laws and regulations also have been adopted in other jurisdictions. Set out below is a summary of the principal environmental legislation applicable to ArcelorMittal in key jurisdictions where it has substantial manufacturing or mining operations.

Argentina

 

Law 25.675, which was enacted in 2002, required facilities engaging in potentially hazardous activities to obtain Environmental Insurance. ArcelorMittal has obtained Environmental Bonding Insurance for Villa Constitucion, Tablada and San Nicolas plants in order to meet the requirements and renews the plans annually.

Law 11.717 and Decree 101/03 for Santa Fe province regulate environmental licenses and the environmental requalification plan. The Villa Constitucion plant’s license was officially obtained in June 2013. The Villa Constitucion Plant’s committed plan was monitored by environmental authorities and completed in January 2014. The Tablada and San Nicolas Plants licenses were obtained for Tablada in November 2013 and the San Nicolas license was obtained in July 2013 and an additional license in April 2014. The renewal process for the Villa Constitucion plant has been tied to investments in water treatment for direct reduction process effluents and to the resolution of certain environmental issues relating to the steel facility. Regarding the San Nicolas and Tablada sites, there are no issues preventing approval.

 

Decree 2151/14 requires that industrial non-dangerous residues undergo recycle or recovery activities and avoid final disposal. The Company is already compliant but may be required to develop further projects in relation to new by-products.

In the Buenos Aires province, Decree 429/13 has imposed taxes relating to water consumption. The impact of this on the Company’s operations is minimal.

Law 27.191 was approved relating to renewal energy consumption in energy intensive industries and applying fines for non-compliance. The new law is expected to increase energy costs in Argentina in the years to come. There is unlikely to be any impact in 2017 for the Company as all contracts with suppliers are in place. It is likely that capital intensive renewal energy projects will need to be undertaken.

Decree 3395/92 for Air Quality Standards were under review in 2016 and more stringent air quality standards are foreseen for 2017 in the Buenos Aires province. No significant capital expenditures are foreseen for the Buenos Aries site at this time. However, if such changes are mirrored in other provinces, capital expenditures will be required in order to comply.

Bosnia and Herzegovina

Environmental legislation in Bosnia and Herzegovina is essentially based on the provisions of a set of federal laws and regulations that have been effective since January 2008. The following practices are particularly relevant for ArcelorMittal Zenica: adopting best available techniques and complying with limit values that achieve environmental quality standards in air and water, preventing and controlling major accidents involving hazardous substances, procedures and measures for dealing with accidents on waters and coastal water land, fees on sulfur dioxide, nitrogen oxides and dust emissions the discharge of pollutants in water, waste recovery, disposal and export and limitations on noise pollution.

Environmental permits issued in 2009 and 2010 have expired between November 2014 and November 2015 and ArcelorMittal Zenica has duly submitted timely requests for the renewal of its permits based on current regulations. ArcelorMittal Zenica is working together with the Federal Ministry of Environment and Tourism on the renewal of expired permits and therefore does not anticipate any issues with the continuity of operations. In February 2016, ArcelorMittal Zenica submitted a revised request for an integrated environmental permit to the Federal Ministry of Environment and Tourism. Based on the finding of a commission formed by the Federal Ministry, ArcelorMittal Zenica submitted an updated request to the Federal Ministry in August 2016. The Federal Ministry’s work on the preparation of an integrated environmental permit for all plants in ArcelorMittal Zenica is in the final phase. It is expected that one integrated environmental permit will be issued by the end of March 2017.

In addition to investments already achieved and ongoing investments, several investments are expected in the coming years to continue improving the environmental footprint of the plant and thus lower emissions release, in the context of poor air quality in Bosnia Herzegovina and NGO concerns regarding the situation.

64


 

For ArcelorMittal Prijedor, the Omarska mine has two separate licenses, one for the surface pit, which was renewed in 2015 and remains valid through 2020, and the other for the GMS plant (Medjedja tailing dam and maintenance) which was renewed in 2013 and remains valid until 2018. ArcelorMittal Prijedor is required to renew its environmental licenses every 5 years. ArcelorMittal Prijedor also obtained an environmental license for Limestone Quarry Drenovaca in 2016, which must be renewed in 2021.

Brazil

ArcelorMittal’s operating subsidiaries in Brazil are subject to federal and state environmental laws and resolutions issued by the Brazilian National Environmental Council (“CONAMA”). The Federal Constitution established the protection of the environment as a principle, while both the government and society generally are responsible for the achievement of such purpose.

National Decree no. 7390/2010 regulates Articles 6, 11 and 12 of the National Policy on Climate Change (Federal Law No. 12187/2009). For the steel sector, a reduction target of 5% by 2020 with 2012 as the reference year has been established.

On April 4, 2012, the Brazilian Institute on Steel and its associated companies launched the “Protocol for Sustainable Charcoal Production”. The Protocol’s objectives are to avoid charcoal production from illegal deforestation and to stimulate suppliers to produce charcoal from eucalyptus planted forests. In 2013, meetings were held to define actions to achieve the protocol’s objectives. In 2015, the criterion for Green Labeling in pig-iron production was established by the Brazilian Association of Technical Standards. Implementation of the new Protocol, however, depends on the creation of forms which are envisaged to be finalized in 2017.

Federal Resolution No. 436/2011 published by CONAMA, established maximum limits for air pollutants emissions from stationary sources installed or having requested its installation license before January 2, 2007. More restrictive limits can be determined by the licensing environmental agency, according to the local conditions of the area that is affected by the pollution source. Beginning in 2014, more stringent limits became effective for emissions of particulate material, SO2, NOx from coke ovens, electric arc furnaces, rolling mills, sintering, charcoal blast furnaces and blast furnaces. ArcelorMittal Brasil already complies with these new emission standards. In Minas Gerais, the Normative Deliberation 187/2013 established maximum limits for air pollutants emissions from stationary sources. Although pig iron suppliers do not currently achieve these limits, the compliance deadline is 2018.

A new resolution from the São Paulo State Environmental Agency (“CETESB”) establishing new soil guidance values has been enforced following São Paulo State Board Decision 045/2014. Standards for inorganic compounds (metals) have become, in general, less restrictive. However, guidance values for other compounds (PAHs, Organic Chlorides etc.) have become more restrictive. Considering that the guidance values under Federal Resolution No. 420/2009, published by CONAMA, were based on the prior CETESB values, it was expected that the federal guidance values would be changed in 2016 but no movement towards a change has been started.

São Paulo published Decree No. 59263/2013 which established guidelines for contaminated site management. The main items are related to the publication of a State List of Contaminated Sites. The Decree requires the legally responsible person to provide bank guarantees or environmental insurance worth at least 125% of the costs estimated in such plan. The penalties for violating this Decree could consist of fines up to $30 million or embargo, demolition and suspension of loans and tax benefits.

Due to the water crisis faced in the South East of Brazil, São Paulo, Minas Gerais and Espírito Santo, where most of ArcelorMittal Brasil industrial sites are located, laws issued in 2015 which have imposed restrictions on water permits for industrial use are still active. These restrictions are only applied for the period when river flows are below pre-established levels. The restriction of 30% in ArcelorMittal Serra Azul’s water permit continues. The restriction has not affected its operations since the site also has groundwater permits that provide the necessary flow for the operational activities.

Espírito Santo State Law No. 10179/2014 establishes Water Resources Policy. Article No. 31 states that water intake and discharge are subject to a financial charge.

Regarding industrial effluents, regulatory Deliberation CERH n° 47/2014 established new procedures for granting submissions for the release of effluents in Minas Gerais State.    

65


 

Following the 2005 World Health Organization (“WHO”) recommendations, there continues to be a trend to adopt new air quality standards at the national and state levels. National standards in force, established by Resolution CONAMA 003/1990, are considered outdated and a change of values ​​for parameters such as PM10, NOx, and O3 are envisaged, together with the incorporation of the PM2.5 parameter. The states of São Paulo and Espírito Santo, through the State Decree 59113/2013 and Decree No. 3463-R DE 12.16.2013, respectively, have reviewed the state air quality standards following the guideline values ​​suggested by WHO, and have established emission control plans for gradual adaptation to the new standards. This trend may result in more stringent air emission limits on industrial activities in these states and other states from the review of national standards.

In Vitória, a new municipal mechanism to control dust emissions and air quality has been implemented, which, among other things, creates intermediate targets to be implemented within three years, lowers emission values to new parameters, especially PM 2.5, and creates an emergency plan when air quality at Vitória falls to a critical level. The State is leading investigations on the “Black dust” saga which is followed by the press and social media due to potential health issues in the area. Emissions of several industries are scrutinized by the authorities. In November 2016, the Federal Public Prosecutor´s Office in Espírito Santo State requested to be part in the lawsuit in which ANAMA (National Association of Friends of the Environment) is claimant against ArcelorMittal in a matter involving visible emissions. There have been no orders or findings from the Judge in the matter yet.

Following the Mariana disaster (Samarco), the state of Minas has issued a State Decree No. 46993/2016 and a State Resolution SEMAD / FEAM 2372/16, both requiring extraordinary audits of tailings dams, generating increased costs for compliance and a number of surveillance visits from federal and state agencies (environment, geology and police departments).

Minas Gerais State Law 21972/2016 proposed significant changes both in the structure and the competences of the state Environmental Agency. To be implemented, such changes must be regulated by state decrees which have not yet been issued. The Industry Federation is holding meetings with the government to oppose changes that could negatively impact the sector.

Canada

ArcelorMittal’s operating subsidiaries in Canada are subject to federal environmental laws regulating matters of national interest (for example, the Fisheries Act and the Canadian Environmental Act) and provincial legislation regulating matters of more local importance such as natural resource use, local air quality and noise.

The province of Quebec and the state of California in the U.S. are currently members of the Western Climate Initiative (“WCI”), a sub-national GHG emission cap-and-trade program. In 2016, the government of Ontario enacted the Climate Change Mitigation and Low-Carbon Economy Act and an associated regulation (O. Reg. 144/16) which established a GHG emission cap-and-trade program to begin in 2017. Ontario plans to link its program to the WCI in 2018. 

 

ArcelorMittal Dofasco will be covered by the GHG program. In Ontario’s first compliance period (2017 to 2020), energy-intensive and trade-exposed industries including steel will receive 100% free allowances up to an annually declining cap based on benchmark GHG emissions intensities for coke making, iron making, BOF steel making, EAF steel-making and stationary combustion. ArcelorMittal Dofasco will receive the majority of allowances free of charge in the first compliance period. Reduction targets have not yet been set for 2021 to 2030.

  

In October 2016, the government of Canada announced its intention to impose a minimum, national carbon price on provinces without a pricing system for reducing GHG emissions. The cap-and-trade programs in Ontario and Quebec where most of ArcelorMittal’s Canadian facilities are located satisfy the federal requirement.

Consultations began in October 2016 with large emitters of GHG in relation to cap and trade for the period of 2021 to 2030. The Government’s first proposal is very aggressive, and representations are being made in order to minimize the financial impact of any new standards.

The Department of Environment and Climate Change Canada has developed Base Level Industrial Emission Requirements (“BLIER”s) under the national regulation addressing Criteria Air Contaminants. For the steel sector, emissions of NOX, SO2, VOCs and fugitive particulates are covered. The SO2 BLIER requires ArcelorMittal Dofasco to install full coke oven gas desulphurization by December 31, 2025.

 

66


 

In July 2016, Ontario implemented a new annual air emission standard for Benzo[a]pyrene and benzene, and a new 24-hour measurement standard for manganese. ArcelorMittal Dofasco complies with these new regulated limits through site specific standards and associated orders. 

In September 2016, ArcelorMittal Dofasco was charged with two offenses related to a February 2015 emission from Blast Furnace #4 contrary to sections 14(1) and 186(1) of the Ontario Environmental Protection Act. The case will proceed before the courts in 2017.

In Quebec, the mining and metallurgical sectors are negotiating depollution permits that will apply to ArcelorMittal Mining and Infrastructure Canada and ArcelorMittal Long Products Canada works. In the mining sector, some objectives for dust, NOx and SO2 were also identified and a draft agreement prepared, but there has been no further progress.

The depollution permit for Mont Wright was issued in March and modified in July 2015. The Port-Cartier pellet plant depollution permit was issued in April 2015. The Fire Lake depollution permit was received in June 2015 and has a term of 5 years. The new permits will require ArcelorMittal Mines and Infrastructure Canada to invest in a pellet plant wastewater system and conduct studies on air emissions. Investments in drainage collection ditches and water treatment facilities are required in Mont Wright and in Fire Lake. Starting in 2014, ArcelorMittal Mining Canada is taxed on sites with depollution permits for waste rock and tailings storage with a maximum annual cost per site of CAD1 million per year per site. An environmental impact assessment is under evaluation by the government for the expansion of the existing tailings impoundment and new tailings impoundment for the current mining plan which runs through 2045. Federal and provincial permits are expected in 2018. A bank guarantee will be provided as required to cover the loss of fish habitat as a result of tailings expansion in 2017–2018.

Pursuant to the mining regulation and the restoration plans for the facilities in Mont Wright, Fire Lake and Port-Cartier ArcelorMittal Mining and Infrastructure Canada will be required to provide  a financial guarantee estimated to be in the range of CAD85 million to CAD95 million for restoration of the sites Quebec Ministry of Natural Resources. The total amount of financial guarantee for Mont-Wright and Port-Cartier is expected to be obtained in 2017. The Fire Lake closure plan needs to be approved before establishing a financial warranty.

ArcelorMittal Long Products Canada expects the new permits for its Contrecoeur facilities will be issued in 2017. Obtaining the new permits will require increasing monitoring frequencies as well as conducting certain studies including water usage and air dispersion modeling.

Quebec adopted a Clean Air Regulation on June 30, 2011 that requires Particulate Matter (PM) testing for steel mills, (annual testing of baghouses and testing of roof fans every three years),  and installation of broken bag detectors in baghouses. An investment of ~CAD30 million will be required for ArcelorMittal Long Products Canada to comply with this regulation.

In the mining sector, this regulation will reduce the limit for total PM from 120 to 75 grams/tonne produced for existing pelletizing plants, including ArcelorMittal Mines and Infrastructure Canada. The limit for a new plant will be 50 grams/tonne produced. The immediate financial compliance impact is CAD2 million for installation of continuous monitoring equipment. The electrostatic precipitator refurbishment plan included in the five-year capital expenditure plan will contribute to ensuring conformance with the new emission limit on a medium-term basis. Preliminary evaluations indicate that this project cost could be approximately CAD80 million over the next five years. 

A one-year test with liquefied natural gas (“LNG”) will start in the spring of 2017. At ArcelorMittal Mines and Infrastructure Canada a total of six burners on one production line were converted to LNG with the objective of reducing the cost of GHG.

Kazakhstan

In April 2016, Kazakhstan introduced a number of amendments to the environmental code in the area of GHG emissions. Among other things, the amendments suspended provisions of the environmental code which (i) prohibit GHG emissions without obtaining a quota and (ii) regulate trading of emission quotas until January 1, 2018. Previously issued quotas and trading of quotas have also been suspended until January 2018. Pursuant to the Paris Agreement, Kazakhstan announced that it plans to achieve an economy-wide target of 15%-25% reduction in GHG emissions by 2030 compared to 1990.

67


 

 The committee of environmental control and regulations of the Ministry of Energy have put forth a proposal to cancel the procedure of obtaining special permits that allow emissions and discharges to the environment (i.e., "ecological permits"). These ecological permits are separate from the permits governing GHG emissions. As of December 31, 2016, no ecological permits had been cancelled.  

The Administrative Code of Kazakhstan that came into force on January 1, 2015 increased the penalty provisions for legal entities and officials for environmental violations.  Fines were determined for exceeding the approved level of GHG emissions in the amount of five times the “monthly calculation index” for each unit of quota exceeding the permitted level.

Starting from January 1, 2016, one monthly calculation index is equal to 2,121 KZT ($6). The size of the monthly calculation index is approved by the state and re-considered annually. When deciding on the amount of the fine, the court or other authority considering the administrative offence will take into account the value of the index which was in effect at the time when the administrative proceeding was initiated. In addition to such an administrative fine, exceeding the approved level of GHG emissions may be grounds for the state to claim compensation for damages caused to the environment. However, in line with the above amendments to the environmental code, the provisions of the administrative code imposing liabilities for exceeding GHG emission quotas have been suspended until January 1, 2018.

Liberia

The Environmental Protection Agency Act (2002) (“EPA Act”) was the initial environmental law in Liberia. It established an Environmental Administrative Court and provided for a National Environment Action Plan, which builds on local and regional action plans.  The EPA Act requires Environmental Impact Assessments (“EIAs”) to be carried out for all activities and projects likely to have an adverse impact on the environment, as well as mechanisms to achieve restoration of degraded environments.  It also provides the means for permits, fees and fines.

Enacted at the same time, the Act Adopting the Environment Protection and Management Law of the Republic of Liberia (2002) (“EPML”) is the principal piece of legislation covering environmental protection and management in Liberia. The Liberian system incorporates a social impact assessment within the Environmental Impact Assessment.

In the absence to date of any announced environmental management regulations, ArcelorMittal has devised an Environmental and Social Standards Manual to cover its operations in Liberia. This was approved by the Liberian EPA for use as a guidance document for all site activities under the existing Liberia mining project and remains the only set of such guidelines in the country. ArcelorMittal updates this Manual periodically, according to experience and operational needs.

The Act Adopting the National Forestry Reform Law (2006), together with the National Forestry Law (2000) and the Act Creating the Forestry Development Authority (2000) which it amended, cover all aspects of commercial and community use of forests. Community management of forests was significantly enhanced by the enactment of the Community Rights Law with respect to Forest Lands (2009). Some territory gazette under this law is within ArcelorMittal’s concession, and access to these areas is leading to a series of test cases between this law and the Company’s Mineral Development Agreement. Some parts of the concession are also protected under the Act for the Establishment of a Protected Forest Areas Network (2003), and specifically by the subsidiary Act for the Establishment of the East Nimba Nature Reserve (2003).

With respect to land tenure, in rural areas there is a strong crossover between agriculture and forestry.  A moratorium on Public Land Sales banned all transactions involving public land and also voided any new Tribal Land Certificates (“TLC”). The 2010 Land Policy Review was silent on the validity of existing TLCs as ownership documents, although they are the first step in the chain of transfer of land from customary to individual title. In 2014, the Lands Commission suspended deals involving TLC, pending a review of their relationship to formal title deeds. The Ministry of Lands, Mines and Energy (“MLME”) reported allowing TLCs to be used as valid land ownership documentation in respect of land that had to be leased for development. They also produced guidelines for the process for valuing land for developmental rental purposes only, and these have been deployed in all concessions. So far, there has been no codification of these guidelines into law, but they are a requirement of concessionaires managed by MLME, of which ArcelorMittal is one.

Although ArcelorMittal has now suspended its proposed Project Phase 2 expansion, the various Environmental Permits already awarded set a number of stringent conditions for ongoing operations and for future project

68


 

developments.  Among other things, they have necessarily committed ArcelorMittal to a significant environmental offset program and a comprehensive mine closure plan. While most of the costs of these initiatives will be incorporated in operational expenditure over the life of the mine, the implication is that the offsets may eventually amount to at least $70 million and overall mine closure may amount to more than $100 million.

Mexico

In Mexico, steel and mining activities are under federal jurisdiction. Permits to operate are subject to different environmental authorizations. Complementary to the framework law on the environment of January 28, 1988 (Ley general para el equilibrio ecologico y protección ambiente or “LGEEPA”), the following specific regulations apply: prevention and control of air pollution, environmental impact study, environmental audit,  transfer of contaminants, water management, waste management, sustainable forestry development, radioactivity control, wildlife management and environmental noise pollution control.

In addition, on June 6, 2012, Mexico issued a new General Federal Law for Climate Change and on June 7, 2013, a new Federal Law of Environmental Responsibility.  These establish the “polluter pays” principle in which the person that caused the environmental breach is responsible for restoring the environment to its pre-pollution condition and for any other administrative, economic and potentially criminal liabilities.

In January 2014, ArcelorMittal Mexico’s raw water consumption costs increased 395% due to changes in the Water Federal Rights Law. In addition, for waste water discharges, any parameter above the maximum permissible limit now generates a fine according to a volume discharge and fine factor.

 

In September 2016, the environmental authority proposed launching a pilot scheme to establish a carbon market based on a cap and trade system, which in the future could oblige ArcelorMittal Mexico to comply with maximum CO2 emission limits to buy carbon credits and/or invest in projects to reduce emissions and obtain carbon credits. The proposal is still under review and has not yet been finalized.

South Africa

The National Environmental Management Act (“NEMA”) 107 of 1998 serves as the departure point for any project in South Africa and informs the Environmental Impact Assessment (“EIA”) process that needs to be followed in order to obtain the required authorization. An environmental authorization is issued pursuant to NEMA and other related environmental legislation, for example the National Environmental Management: Waste Act, 59 of 2008 (“NEM:WA”) as well as the National Environmental Management: Air Quality Act, 39 of 2004 (“NEM:AQA”)  for any projects requiring an EIA process. Furthermore, the “duty of care” principle enshrined in the NEMA Act specifies that any harm caused to the environment is a criminal offense under the terms of the NEMA. A compliance notice/directive was issued on December 7, 2015 by the Department of Environmental Affairs regarding certain operations at the Newcastle Works. The compliance notice/directive required the Newcastle Works to cease its existing practices for waste disposal at a site that allegedly was operating unlawfully and to cease sales of slag to outside companies unless proof was submitted that such companies are in possession of a waste management license. Finally, the compliance notice/directive requires Newcastle Works to conduct a study of possible environmental related impacts with regard to certain identified areas of the site.  ArcelorMittal South Africa is currently challenging the compliance notice/directive.

 

The NEM: WA came into effect on July 1, 2009, and applies to all waste related activities and contaminated land and replaces older legislation in this regard. NEM:AQA, which took full effect on April 1, 2010, introduced strict emission standards for new and existing plants. Existing plants or processes are granted a period of 5 years to achieve standards set for existing plants and 10 years to achieve standards set for new plants. ArcelorMittal South Africa’s coke making operations, in particular, but other operations as well, are affected by the implementation of this Act, and major capital expenditures are expected to be implemented over the next four years to meet the relatively strict 2020 standards.

 

South Africa has committed to reduce GHG emissions below business as usual by 34% by 2020 and 42% by 2025, as well as adaptation measures, as outlined in South Africa’s Intended NDC recently submitted for purposes of the Paris Agreement. A carbon tax is envisaged to be implemented during 2017 or 2018 together with complementary measures to reduce GHG emissions and effect behavioural change. In its draft carbon tax bill, the Treasury lists a number of allowances to mitigate the impact the tax would have on industries and the final design of the taxation structure is expected to be finalized during the first half of 2017.  Current expectations are that AMSA could achieve an 80% tax-free threshold with the remainder of its emissions being taxed at ZAR120/tCO2. This

69


 

would equate to a financial impact of ZAR300 million per year on South Africa’s operations and will not be deductible as an expense.  

 

Ukrain

 

Ukraine is expected to progressively implement EU environmental regulations and emission standards which may require significant capital expenditures in the coming years. However, as of December 31, 2016 none of the abovementioned significant EU directives and regulations had been implemented. Furthermore, there is no up-to-date legislative plan as to implementation of the EU environmental standards and requirements.

 

 

Venezuela

 

Industrias Unicon, C.A. (“Unicon”) is subject to various Venezuelan environmental regulations, the most important being the Organic Law for the Environment (2006) and the Criminal Law of the Environment (2012). Unicon is also subject to annual inspections by federal and regional government environmental entities, where environmental permits and uses are reviewed. Strict compliance of environmental regulations by Unicon has been verified, without any observations from these inspection bodies.  Furthermore, in 2016, Unicon at its own initiative has planted directly and indirectly more than two thousand trees in urban and suburban areas, in support of environmental initiatives by local foundations plans. Additionally, Unicon has undertaken various educational campaigns related to the protection of the environment at local schools and adjacent communities.

 

Health and safety laws and regulations

ArcelorMittal’s operations are subject to a broad range of laws and regulations relating to the protection of human health and safety. As these laws and regulations in the United States, the EU and other jurisdictions continue to become more stringent, ArcelorMittal expects to expend substantial amounts to achieve or maintain compliance. ArcelorMittal has established corporate health and safety guidelines requiring each of its business units and sites to comply with all applicable laws and regulations. Compliance with such laws and regulations and monitoring changes to them are addressed primarily at the business unit level. ArcelorMittal has a clear and strong health and safety policy aimed at reducing on a continuing basis the severity and frequency of accidents. The policy outlines the commitment ArcelorMittal has made to the health and safety of all employees and implements a common health and safety model across the entire organization which permits the Corporate Health and Safety department to define and track performance targets and monitor results from every business unit and site. Further, ArcelorMittal has implemented an injury tracking and reporting database to track all information on injuries, lost man-days and other significant events. At present, the database enables access to statistics for the ArcelorMittal group as a whole, and more detailed information on injuries for business units and sites. Additional information is available at plant sites. The database incorporates a company-wide used return-of-experience system for disseminating lessons learned from individual incidents. The aim is to achieve faster and more accurate feedback on the cause of accidents in order to prevent their recurrence. A benchmarking component was deployed in 2010 and, as with any database, continues to grow in terms of content and uses over time. To monitor compliance, an auditing system has been put in place to check compliance with internal standards and with the Occupational Health and Safety Assessment Series (“OHSAS”) implementation.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) each reporting operator of a coal or other mine is required to include certain mine safety information within its periodic reports filed with the SEC. Pursuant to Section 1503 of the Dodd-Frank Act, the Company presents information regarding certain mining safety and health matters for each of its U.S. mine locations in Item 16H of this annual report.

 

Foreign trade

ArcelorMittal has manufacturing operations in many countries and sells its products worldwide. In 2016, certain countries and communities, such as Australia, Brasil, Canada, Chile, the Dominican Republic, Egypt, the Eurasian Economic Union, the European Union, the Gulf Cooperation Council, India, Indonesia, Malaysia, Mexico, South Africa, Taiwan, Thailand, Turkey, the United States of America and Vietnam, continued or launched investigations

70


 

into whether to impose/continue imposing trade remedies (usually anti-dumping or safeguard measures) against injury, or the threat thereof, caused by increasing steel imports originating from various steel producing countries.

Under both international agreements and the domestic trade laws of most countries, trade remedies are available to domestic industries where imports are “dumped” or “subsidized” and such imports cause injury, or a threat thereof, to a domestic industry. Although there are differences in how trade remedies are assessed, such laws have common features established in accordance with World Trade Organization (“WTO”) standards. Dumping involves exporting a product at a price lower than that at which the same or similar product is sold in the home market of the exporter, or where the export prices are lower than a value that typically must be at or above the full cost of production (including sales and marketing costs) plus a reasonable amount for profit. Subsidies from governments (including, among others, grants and loans at artificially low interest rates) are similarly actionable under certain circumstances. The trade remedies available are typically (i) an antidumping duty order or suspension agreement where injurious dumping is found and (ii) a countervailing duty order or suspension agreement where injurious subsidization is found. Normally, the duty is equal to the amount of dumping or subsidization that is generally imposed on the imported product (other than in the European Union where the lesser duty rule is applied). Accordingly, such orders and suspension agreements do not prevent the importation of a product, but rather require that either the product be priced at a non-dumped level or without the benefit of subsidies, or that the importer pay the difference between such dumped or subsidized price and the actual price to the government as a duty.

Safeguard measures are addressed more generally to a particular product, irrespective of its country of origin, to protect domestic production against increased imports of that product. The remedies available for safeguard investigations are commonly safeguard duties or quotas on the imported products.

There is often a range of so-called “sunset” reviews affecting various countries of interest to ArcelorMittal. For example, in May 2016, the United States initiated a sunset review of duties imposed in December 2014 for hot rolled products from Russia.  In September 2016, the US Department of Commerce, in light of this sunset review, decided to continue applying those duties stating that such products from Russia posed the same dumping risks as in 2014. All WTO members are required to review antidumping duty and countervailing duty orders and suspension agreements every five years to determine if they should be maintained, revised or revoked. This requires a review of whether the dumping or subsidization is likely to continue or recur if the order/suspension agreement is revoked and whether a domestic industry in the country is likely to suffer the continuation or recurrence of the injury within the reasonably foreseeable future if the orders are revoked. If the government finds dumping or subsidization and the injury is likely to continue or recur, then the orders continue. In the case of safeguard measures enduring for greater than three years, all WTO members are required to review the imposed measures in the mid-term of the relevant measure. After a review, restrictions may be extended if they continue to be required, but the total period of relief provided may not exceed eight years.

 

In 2016, the European Commission’s provisional antidumping duties on certain cold-rolled steel products imported from China and Russia became permanent and will remain in place for a period of five years. The European Commission also imposed provisional antidumping duties on certain hot-rolled and heavy plate steel products imported from China and certain other countries, which provisions will be reviewed for permanent application, modification or repeal in 2017. In the United States, provisional antidumping duties and countervailing duties against corrosion-resistant, hot-rolled and cold-rolled steel imports from China, Brazil and certain other countries became definitive in 2017, and the US Department of Commerce applied provisional antidumping and countervailing duties against heavy steel plate imports from China, Brazil, South Africa and certain other countries, which could become permanent in 2017. The European Commission and US Department of Commerce continue to investigate several other products, countries and markets relevant to ArcelorMittal for potential trade action.

 

China poses unique trade policy questions as the EU, among other regions, debates whether to grant China market economy status (“MES”) under WTO rules. MES is a critical component in determining the magnitude of trade remedies that may be applied against a country engaging in unfair trade practices. Where a country has MES, this alters the comparative price selection and cost benchmarks used to calculate the margin of the alleged dumping. While China viewed the recognition of its MES as automatic and necessary from the point of expiry of certain of its WTO accession protocols on December 11, 2016, this status was not granted  by certain regions and countries, notably the EU and the U.S. Accordingly, on December 12, 2016 China notified the WTO that it was requesting dispute consultations with both the United States and the European Union in respect of the special calculation methods used by both the United States and European Union in anti-dumping proceedings.

 

71


 

In a number of markets in which ArcelorMittal has manufacturing operations, it may be the beneficiary of trade actions intended to address trade problems consistent with WTO regulations, for example in the European Union, Canada or the United States. In other situations, certain operations of ArcelorMittal may be a respondent in one or more trade cases and its products subject to duties or other trade restrictions, for example in India and in Mexico.

Key currency regulations and exchange controls

As a holding company, ArcelorMittal is dependent on the earnings and cash flows of, and dividends and distributions from, its operating subsidiaries to pay expenses, meet its debt service obligations, pay any cash dividends or distributions on its ordinary shares or conduct share buy-backs. Significant cash or cash equivalent balances may be held from time to time at subsidiaries where repatriation of funds may be affected by tax and foreign exchange policies, including in Argentina, Brazil, China, Kazakhstan, South Africa and Ukraine. Such policies are briefly summarized below; however, none of these are currently significant in the context of ArcelorMittal’s overall liquidity.

Argentina

In December 2015, the newly elected Argentinian government announced initiatives to significantly relax foreign exchange controls and regulations. These measures, among other things, allow the currency to float, subject to intervention by the central bank to avoid destabilizing movements. The Argentine peso is not fully convertible and is most commonly traded as a non-deliverable forward (i.e., cash settlement at maturity based on the relative movement of the designated currency rather than the physical settlement of the designated currency at maturity), both onshore and offshore. Despite the lifting of controls, rules on the repatriation of export receipts remain unchanged in respect of the conversion of 100% of foreign exchange revenue into Argentine pesos. Access to the foreign exchange markets for the payment of dividends does not require authorization from the central bank, only the completion of certain legal and administrative procedures.

Brazil

The central bank of Brazil operates a managed floating foreign exchange regime, although intervention has become more regular in recent years. The Brazilian real is fully deliverable onshore (i.e., physical settlement of the designated currency at maturity), but is non-deliverable offshore. With proper documentation, the repatriation of registered invested capital and remittance of profits do not require prior approval from the central bank of Brazil. Profits can be freely remitted as dividends or as interest on capital to foreign shareholders or portfolio investors.

China

China’s foreign exchange regime has recently undergone significant liberalization. The People’s Bank of China (“PBOC”) maintains the Chinese renminbi in a managed float with reference to a basket of currencies. The CNY, which refers to the Chinese renminbi on the onshore market, is partially convertible and has a non-deliverable offshore market. All transactions involving foreign exchange are strictly controlled by the State Administration of Foreign Exchange. The CNH, which is the Chinese renminbi traded offshore, became deliverable in Hong Kong in July 2010. The CNH can generally be transferred freely between offshore accounts and interaction with the onshore market is growing, although transfers of CNH from Hong Kong to onshore China are subject to regulations and approval by the PBOC.

Kazakhstan

In August 2015, the National Bank of Kazakhstan devalued the Kazakhstan tenge and introduced a free-floating exchange rate. The National Oil Fund has begun conducting open market operations to finance economic programs, hence the current exchange rate regime may be best described as a managed float. Liquidity in foreign exchange markets is limited and mainly non-deliverable forwards are traded on offshore markets. There are no restrictions on tenge convertibility, but domestic legal entities must state their reasons for buying foreign currency and may only trade with authorized banks.

South Africa

The South African Reserve Bank operates a managed floating foreign exchange regime. The South African rand (“ZAR”) is deliverable and largely convertible and the reserve bank is gradually relaxing exchange controls. Since January 1, 2014, companies may apply for approval to establish a holding company to hold their offshore

72


 

investments. Subject to certain conditions, listed companies may place ZAR 2 billion per annum on such holding companies that can be transferred offshore without exchange control approval, and unlisted companies may transfer ZAR 1 billion per year.

Ukraine

The National Bank of Ukraine is responsible for the country’s monetary policy. The exchange rate system is highly regulated and only deliverable forwards are allowed on the onshore market. On the offshore market, only non-deliverable forwards are allowed, but liquidity is very limited. Since August 2016, foreign investors are entitled to repatriate profit, income or other funds relating to investments without any restrictions, after the payment of applicable taxes. Except for payments of 2014 and 2015 dividends, which were allowed subject to certain restrictions, there is a ban on the remittance of funds to foreign investors through the payment of dividends on securities traded on the stock exchange, a decrease in share capital or the exit of foreign investors from domestic legal entities.

Venezuela

Venezuela’s foreign exchange regime has been characterized by governmental devaluation and sudden legislative change. Most recently, Venezuela featured two controlled exchange systems for the Bolivar, its official currency: SIMADI, which was available to public and private companies and individuals, and SICAD, which was a public “bidding” system for eligible participants purchasing certain imports. In the first quarter of 2016, the Venezuelan government announced the elimination of the SICAD rate and the free float of the SIMADI rate, before later announcing the replacement of the SIMADI rate with two new exchange systems: DIPRO, which is fixed at a rate of 10 Bolivares per 1 U.S. dollar and is used primarily for priority food and medicine sectors, and DICOM, which is allowed to float freely and applies for most other sectors. The DICOM rate was originally set at 206 Bolivares per 1 U.S. dollar on March 10, 2016, before falling to 674 Bolivares per 1 U.S. dollar at December 31, 2016.

The Company translated its Venezuelan operations at the SICAD rate in 2014 and 2015 (13.5 Bolivares per 1 U.S. dollar as of December 31, 2015), before adopting the DICOM rate, effective January 1, 2016. As a result of this change, ArcelorMittal’s net investment in its Venezuelan operations Unicon decreased from $628 million to $43 million on January 1, 2016, and amounted to $48 million at December 31, 2016. For the Company’s analysis of the translation effect of the rate applied to its Venezuelan operations, see note 2.2.2 to the consolidated financial statements.

Disclosure pursuant to Section 219 of the Iran Threat Reduction & Syria Human Rights Act (ITRA)

ArcelorMittal’s business with customers in Iran

In 2016, ArcelorMittal sold the following products to customers in Iran: commodity-grade long and flat steel products for the consumer and construction sector, and flat steel products for packaging uses and the automotive sector.  ArcelorMittal’s subsidiary ArcelorMittal International FZE in Dubai (“AMID”) sold such steel products to customers in Iran, generating $388 million in revenue in 2016. AMID sells to trading companies, most of which are based in Dubai and some of which are owned by Iranian nationals, that export and ship the products to stockists (i.e., wholesalers) and fabricators in Iran which, to the best of ArcelorMittal’s knowledge, on-sell them primarily to companies involved in the private-sector construction and consumer goods industries. Following the significant easing of UN, EU and U.S. secondary sanctions on January 16, 2016 (“Implementation Day”) in accordance with the Joint Comprehensive Plan of Action (“JCPOA”), AMID has started direct sales of commodity grade long and flat steel products to Iranian companies in Iran involved in the construction and consumer goods industries, amounting to 12.3% of AMID’s 2016 sales in Iran. AMID also resumed sales of API grade slab products for use in the energy and petrochemicals sector. ArcelorMittal intends to continue the above described AMID business in compliance with applicable sanction laws in 2017.

 In 2016, ArcelorMittal’s Europe segment sold coated flat products, alloy steel plates and stay cable strands both directly and indirectly for projects in Iran. These activities generated $5.8 million in revenue with a profit of $0.8 million; ArcelorMittal’s Europe segment intends to continue this business in light of the changes to the sanctions regime on Implementation day. ArcelorMittal’s Europe segment has made sales of flat coated and non-coated products to Iran Khodro & Renault Pars generating sales of $1.7 million. According to press reports and other public information, these companies may have links to the Iranian Government. ArcelorMittal’s Europe

73


 

segment has also made sales of cable stay to a European construction company for use in a bridge project for the Municipality of Shiraz for $0.4 million. ArcelorMittal Europe intends to continue this business.

To the best of the Company’s knowledge, none of the above sales have gone to any sanctionable end-uses or end users. No U.S. affiliate or persons are involved in these sales, and they are not conducted in U.S. dollars.

ArcelorMittal continues to monitor developments in this area, especially in the light of the JCPOA and the potential for “snap-back,” or re-imposition of sanctions as a result of an alleged breach of the JCPOA, and will determine whether and to what extent they affect its business with Iranian customers as currently conducted and intended to be conducted. ArcelorMittal intends to comply with applicable restrictions and to prevent any sales prohibited or sanctionable under U.S. or EU law, and has procedures and systems in place to ensure compliance with these restrictions and prohibitions. However, ArcelorMittal’s business is subject to an extensive, complex and evolving regulatory framework, significant direct U.S. sanctions and some U.S. secondary sanctions against Iran remain, and despite its governance, compliance policies and procedures and continuous efforts to comply with all applicable sanctions regimes, its systems and procedures may not always prevent the occurrence of violations which may lead to regulatory penalties or cause reputational harm to operating subsidiaries, joint ventures or associates. See “Item 3.D—Key information—Risk factors.”

Iran-related activities of ArcelorMittal affiliates

Pursuant to Section 13(r) of the Securities Exchange Act of 1934, ArcelorMittal is required to disclose whether any of its affiliates have engaged in certain Iran-related activities and transactions.

HPCL-Mittal Energy Limited (“HMEL”), a joint venture in which the Significant Shareholder of ArcelorMittal holds a 48.99% stake, owns and operates the Guru Gobind Singh Refinery, an oil refinery located in the Bathinda district of Punjab, India. In connection with its oil refining activities, HMEL purchased approximately 4.2 million barrels of crude oil on a CIF basis from the National Iranian Oil Company (the “NIOC”) in 2012 for an amount of $460 million. The crude oil was transported from Iran to HMEL’s operations in India in a series of three shipments that took place between August and October 2012.

HMEL has made payment of $63 million (in euro equivalent) during 2016 in respect of these purchases. 

 

Between 2013 and 2015, HMEL did not initiate further purchases of crude oil from the NIOC. HMEL resumed its purchases from the NIOC in 2016 after most sanctions on Iran were lifted. HMEL entered into a term contract for 6 million barrels to be purchased between June 2016 and March 2017. Out of this amount, HMEL had purchased approximately 4 million barrels of crude oil in four parcels through December 2016. Payments in euro equivalent of $88.7 million for these purchases were made during 2016 and a balance of $97 million is outstanding.

HMEL made no sales of refined products to Iran.

HMEL produces a variety of petroleum and petrochemical products, which individually require different types of crude oil in different quantities. HMEL generally comingles crude oil purchased from various sources, making it difficult to trace the raw materials used in manufacturing a given product or to link revenues directly to such inputs. HMEL cannot determine with certainty the amount of its revenue or profit in 2016 that were related to crude oil purchased from the NIOC.

 

74


 

C.    Organizational structure

Corporate structure

ArcelorMittal is a holding company with no business operations of its own. All of ArcelorMittal’s significant operating subsidiaries are indirectly owned by ArcelorMittal through intermediate holding companies. The following chart represents the operational structure of the Company, including ArcelorMittal’s significant operating subsidiaries and not its legal or ownership structure. 

  

 

75


 

 

Please refer to the Presentation of Financial and Certain Other Information section of this Annual Report on Form 20-F for a listing of the Company’s principal subsidiaries, including country of incorporation. Please refer to note 2.2.1 of the consolidated financial statements for the ownership percentages of these subsidiaries. Unless otherwise stated, the subsidiaries as listed have share capital consisting solely of ordinary shares, which are held directly or indirectly by the Company and the proportion of ownership interests held equals to the voting rights held by the Company.

 

Investments accounted for under the equity method

ArcelorMittal has investments in entities accounted for under the equity method. See note 2.4 to ArcelorMittal’s consolidated financial statements.

 

Reportable segments

ArcelorMittal reports its business in the following five reportable segments corresponding to continuing activities: NAFTA, Brazil, Europe, ACIS and Mining.

 

NAFTA produces flat, long and tubular products. Flat products include slabs, hot-rolled coil, cold-rolled coil, coated steel products and plate and are sold primarily to customers in the following industries: distribution and processing; automotive; pipes and tubes; construction; packaging and appliances. Flat product facilities are located at seven integrated and mini-mill sites located in three countries. Long products include wire rod, sections, rebar, billets, blooms and wire drawing. Long production facilities are located at five integrated and mini-mill sites located in three countries. In 2016, shipments from NAFTA totaled 21.3 million tonnes.

 

Brazil produces flat, long and tubular products. Flat products include slabs, hot-rolled coil, cold-rolled coil and coated steel. Long products comprise sections, wire rod, bar and rebars, billets, blooms and wire drawing. In 2016, shipments from Brazil totaled 10.8 million tonnes.

 

Europe produces flat, long and tubular products. Flat products include hot-rolled coil, cold-rolled coil, coated products, tinplate, plate and slab. These products are sold primarily to customers in the automotive, general industry and packaging industries. Flat product facilities are located at 14 integrated and mini-mill sites located in six countries. Long products include sections, wire rod, rebar, billets, blooms and wire drawing.  Long product facilities are located at 14 integrated and mini-mill sites in eight countries. In addition, Europe includes downstream solutions, which provides primarily distribution of long and flat products as well as value-added and customized steel solutions through further processing to meet specific customer requirements. In 2016, shipments from Europe totaled 40.2 million tonnes.

 

ACIS produces a combination of flat, long and tubular products. It has five flat and long production facilities in three countries. In 2016, shipments from ACIS totaled 13.3 million tonnes, with shipments having been made worldwide.

 

Mining provides the Company’s steel operations with high quality and low-cost iron ore and coal reserves and also sells limited amounts of mineral products to third parties. The Company’s mines are located in North and South America, Europe, Africa and CIS. In 2016, iron ore and coal production from own mines totaled approximately 55.2 million tonnes and 6.3 million tonnes, respectively.

 

D.    Property, plant and equipment

ArcelorMittal has steel production facilities, as well as iron ore and coal mining operations, in North and South America, Europe, Asia and Africa.

All of its operating subsidiaries are substantially owned by ArcelorMittal through intermediate holding companies, and are grouped into the five reportable segments described above in “Item 4.C—Information on the Company—Organizational structure”. Unless otherwise stated, ArcelorMittal owns all of the assets described in this section.

76


 

For further information on environmental issues that may affect ArcelorMittal’s utilization of its assets, see “Item 4.B—Information on the Company—Business overview—Government regulations—Environmental laws and regulations” and note 8.2 to ArcelorMittal’s consolidated financial statements.

Steel production facilities of ArcelorMittal

The following table provides an overview by type of steel facility of the principal production units of ArcelorMittal’s operations. While all of the Group’s facilities are shown in the tables, only the facilities of significant subsidiaries are described textually for each segment. The facilities included in the tables are listed from upstream to downstream in the steel-making process.

  

 

 

Facility

 

Number of facilities

 

Capacity (in million tonnes per year)1

 

Production in 2016 (in million tonnes)2

 

Coke Oven Battery

 

69

 

32.8

 

25.4

 

Sinter Plant

 

32

 

95.8

 

68.5

 

Blast Furnace

 

56

 

94.1

 

71.0

 

Basic Oxygen Furnace (including Tandem Furnace)

 

71

 

101.7

 

75.8

 

DRI Plant

 

13

 

9.4

 

6.1

 

Electric Arc Furnace

 

36

 

28.8

 

16.6

 

Continuous Caster—Slabs

 

46

 

90.7

 

62.5

 

Hot Rolling Mill

 

22

 

76.1

 

52.5

 

Pickling Line

 

35

 

36.3

 

18.9

 

Tandem Mill

 

37

 

41.4

 

27.6

 

Annealing Line (continuous / batch)

 

53

 

20.8

 

11.3

 

Skin Pass Mill

 

35

 

20.7

 

9.4

 

Plate Mill

 

11

 

6.7

 

2.8

 

Continuous Caster—Bloom / Billet

 

38

 

34.0

 

23.0

 

Breakdown Mill (Blooming / Slabbing Mill)

 

3

 

10.7

 

5.1

 

Billet Rolling Mill

 

3

 

2.6

 

1.7

 

Section Mill

 

28

 

14.6

 

8.9

 

Bar Mill

 

24

 

9.1

 

5.6

 

Wire Rod Mill

 

19

 

12.5

 

8.2

 

Hot Dip Galvanizing Line

 

58

 

20.7

 

17.1

 

Electro Galvanizing Line

 

12

 

2.2

 

1.0

 

Tinplate Mill

 

16

 

3.4

 

2.1

 

Tin Free Steel (TFS)

 

1

 

0.3

 

0.1

 

Color Coating Line

 

18

 

2.8

 

1.9

 

Seamless Pipes

 

8

 

0.9

 

0.3

 

Welded Pipes

 

61

 

3.1

 

1.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Reflects design capacity and does not take into account other constraints in the production process (such as, upstream and downstream bottlenecks and product mix changes). As a result, in some cases, design capacity may be different from the current achievable capacity.

2

Production facility details include the production numbers for each step in the steel-making process. Output from one step in the process is used as input in the next step in the process. Therefore, the sum of the production numbers does not equal the quantity of sellable finished steel products.

77


 

 

 

NAFTA

 

 

 

 

 

Crude Steel

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unit

 

Country

 

Locations

 

Production in 2016 (in million 

tonnes)2

 

Type of plant

 

Products

 

ArcelorMittal USA

 

USA

 

Warren, OH

 

n/a

 

Coke-Making

 

Coke

 

ArcelorMittal USA

 

USA

 

Monessen, PA

 

n/a

 

Coke-Making

 

Coke

 

ArcelorMittal USA 3

 

USA

 

East Chicago, IN

 

4.5

 

Integrated

 

Flat

 

ArcelorMittal USA

 

USA

 

Burns Harbor, IN

 

4.4

 

Integrated

 

Flat

 

ArcelorMittal USA

 

USA

 

Cleveland, OH

 

3.2

 

Integrated

 

Flat

 

ArcelorMittal USA

 

USA

 

Riverdale, IL

 

0.7

 

Integrated

 

Flat

 

ArcelorMittal USA

 

USA

 

Coatesville, PA

 

0.4

 

Mini-mill

 

Flat

 

ArcelorMittal USA

 

USA

 

Columbus, OH

 

n/a

 

Downstream

 

Flat

 

I/N Tek

 

USA

 

New Carlisle, IN

 

n/a

 

Downstream

 

Flat

 

ArcelorMittal USA

 

USA

 

Conshohocken, PA

 

n/a

 

Downstream

 

Flat

 

ArcelorMittal USA

 

USA

 

Weirton, WV

 

n/a

 

Downstream

 

Flat

 

ArcelorMittal USA