Outokumpu Oyj New

I understand it's higher than what we've seen in Q1, but given the moves, I mean, it's a hard item to calibrate.

Certainly, if we come back to the first part, Tristan, in terms of net of time in hedging in the first quarter of the year, we saw a negative impact for Europe, a positive impact for the Americas. America is being positive in here as they have seen and we have seen a higher commodity price level and through their pricing, predominantly base plus alloy surcharge, although these positive impacts on pricing realized earlier than they do in beer Europe. So there is a bit of a time gap. time difference between both business areas. But it's also important to assess then the performance of business area Europe in the first quarter. Certainly also the backlog recovery and still providing and selling material out of the fourth quarter in the first quarter also accelerated this impact. So I hope that this gives a bit of an explanation now going forward. And then with current market prices, which we see, we do see then also an improved pricing level and timing gain going forward. And this is then how we guide on net-off timing and then the hedging element to it.

Any chance on the scale of that?

Because I understand this can be... Well, before we... I think we guided always between... Or if I look back the last couple of years, we had an impact of 0 to 10 million euros and we... We guided for some gains or some losses. Now the impact is more meaningful. We have been guiding, as I think important what I mentioned before, both the volume side and the net of timing and hedging impact, the positive impact here are equally important in terms of size and magnitude.

All right, that's very clear. Thank you. I'll jump back on the queue. Thanks. Thank you.

The next question comes from Adane Koku from Morgan Stanley. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. My first one is just on Europe. Could you help us quantify at all what kind of headwind in Q2 we should consider for the remaining order backlog of this lower margin material from Q4?

Maybe if I start on that, I would say that our biggest impact, of course, on that has been in Q4 and now still impacting Q1. The last backlogs that we have, like we said, we will be working through in Q2. So the impact will be lower clearly in Q2 than it was in Q1.

Okay, that's helpful. Thank you. And maybe just a question on the ferrochrome market. Could you discuss in a bit more detail how much of the impact of CBAM do you think you've seen already in Q1? There was a kind of strong volume performance here. Is there scope for volumes to be driven higher again for the rest of the year from the CBAM demand effect?

Yeah, I would say that the CBAM has not had as big of an impact on ferrochrome as it has had on stainless steel in Europe. So stainless steel, the carbon border mechanism really puts a clear price on imported stainless steel. CBAM, the difference is smaller because we don't have the scope to in CBAM. That's where the difference would really come if you, for instance, compare to African suppliers. But where the higher demand for ferrochrome comes is one is seasonality. We, of course, deliver mainly to stainless steel. And the second thing is, of course, that the uncertainty continues on the production of ferrochrome in Zimbabwe and in South Africa. So there is more demand for the reliable supplier in the Western world, which is Autocompo. And we are in the Western world the biggest ferrochrome producer.

So would an interpretation of kind of stable volumes from here, all else done, changed, be kind of fair for the Ferrochrome business?

I would say robust demand for our Ferrochrome continues. And at the same time, we are developing new products that will bring us also to other customer segments.

Perfect. That's helpful. I'll join the queue again. Thank you. Thank you.

The next question comes from Bastian Sinigowitz from Deutsche Bank. Please go ahead.

Yes, good afternoon and thanks for taking my questions. My first one is just on the Americas and the dynamics you see there. I guess the first quarter was really quite strong and I think you hinted that the Mexican markets saw an uptick which mostly starts towards the end of the quarter. So would it be fair to assume that we have not yet seen the full degree of the strength and the business will continue to do well into the second quarter? That is my first question.

Well, on US, on American side, I would say that I think what we see now in Q1, we have the full impact of the price increases in and volumes have also improved seasonality wise. It's a season, of course, where we should book better results and we expect that to continue. And then on Mexico, there was a price increase in in the beginning of year that seems to stick because of also some higher tariffs for Asian imports. And now we just have to see how this new rule that the president put on the market, that the public procurement basically would need to prefer domestic steel, even if it's more expensive than the Asian imports. So that impact we have not seen yet. So hopefully it will support the Mexican market.

Maybe a bit too early yet to really quantify. It's early signs, as we said. And then in terms of how to think about the Americas as well, also here, and I think I mentioned it in some of my comments earlier, that there is an increase also in raw material costs and prices, and that is also what we see in the U.S., So that is something we need to take into consideration, plus some other inflationary topics in the U.S.

Understood, great. And my second question is coming back on the European business, maybe also to Adana's question earlier. So I wanted to check with you first of all, what exactly has happened? Was it a situation where basically your commercial team allowed customers to come into the order book too early and hence not captured basically the magnitude of the price increase where maybe raw material cost has gone up already? And then also maybe in terms of the quantification, I don't know if you could give us maybe a bit more detail here, either in terms of what the earnings impact has been or maybe how far in the first quarter you still had a certain percentage of your overall volumes, which were basically tied to these less favorable pricing contracts. That's my second one.

I think it's important to notice that we have, Bastian, a backlog which was created in the fourth quarter which is then going and swapping into the first quarter and further on into the second quarter here as well. So this is not really much from that perspective immediately in the first quarter on limiting. But overall, if I may describe the impact in here is you do have... a higher share of old orders with lower pricing, with lower margins in the first quarter. That is one impact. Then, of course, in overcoming the challenges, we have somewhat more manning and advisory costs in here. But then also there is a certain element of lost market opportunities here as well, particularly with the decrease in the Asian imports from that market. But as I said, we overcome most of the challenges, made significant progress and are now walking through and working through the basically in the second quarter.

Okay, great. Thank you. Then my last question is just on cash flow and working capital. And I thought your performance here was quite impressive indeed. And now metal and stainless price is obviously picking up. So I just wanted to get an update on what we can pencil in for working capital for the full year. Do you expect to be able to retain, I guess, the current levels? Will there maybe be some increase later on or not? Any help on that would be...

We're not giving exactly a full year guidance yet on working capital. But what I can say definitely is that we will continue our efforts to improve our working capital efficiency. Yes, you're absolutely right. We have seen an increase not only in commodity prices, also business activities now into the fourth quarter. Sorry, second quarter, we aim to reduce our inventories in order and improve our efficiency in order to compensate for the pricing impact coming from higher commodity prices.

Okay, great. Thank you.

The next question comes from Dominic Okane from JP Morgan. Please go ahead.

Hello. I have three questions. First two, just in the context of your comments around Europe and the dynamics that you've talked to here, including to Sebastian's previous question, is it reasonable to assume that Europe will be EBITDA positive in the second quarter? My second question is, can you just maybe provide some comments on how you see the inventory positions in both Europe and and the US. And then I have one final question.

So maybe if I can take, we're not guiding on business areas specifically, but what I can say is here to help around this is that most of the EBITDA improvement, which we guide for from Q1 into Q2, is related to business area Europe, both on the volume side and also on the net of timing and hedging. So that is hopefully answers number one. And then the second one was on, you said, inventory position. I think, well, inventory position you mean from our internal inventories or?

Just broadly into how you see the inventory volumes held in Europe and in the US at the market level.

Okay, you mean our distributors or customers in itself. Yes, maybe on the European side, I can say that the inventory levels are on a low level here right now, but also in terms of days, rather on a lower level, given also the weak demand which we currently face in the European market. What we have seen in the U.S. is that there is an improvement, quite a substantial improvement, also in the manufacturing PMI data, which we have seen going above 50, 52, 53 in the first quarter. And there is an increase in business activities. And I would say that inventory levels are more or less on a more moderate level in the U.S. compared to...

Some selected restocking in the US, more in the US than in Europe.

My final question is, I wondered if I, it's maybe too early, but yesterday there was the announcement about the European Commission's change to the ETS variables, including the benchmarks. I just wondered if you had any observations on those changes and how it may affect the European stainless steel market, including the confirmation that ferroalloys, ferrochrome, sorry, ferrochrome will be a mandatory inclusion within CBAM.

Yeah, I have to be honest, I have missed that message from yesterday. So I don't know exactly what it's been saying, but I can give a bit like what is the Outokumpu stand on certain things. So for instance, if you look at ferroalloys, what we would find very important regarding CBAM is that ferrochrome, the scope 2, which is the purchase electricity that you have, what you purchase from the market, that that would be included because that makes a big difference indeed between, for instance, Africa and Europe. And if the African production will be now clearly subsidized by the country, then we maybe have also an anti-dumping case here, at least what we could look at it from a European perspective. But I don't know exactly what you refer to, because I have not seen the message. And then on ETS, I would say Autocompo is clearly a supporter of the ETS system. Since 2005, the whole ETS system has brought investments of about 110 billion euros to Europe to green transition. We are some of the first movers. I think a lot of Scandinavian companies have been. There's now a clear price on the European border for carbon. And it's really important that we maintain the ETS system because it makes Europe more competitive and it ensures that there continues to be a carbon price. I understand that there is some discussion whether some of the free allowances schedule could be slowed down to help the current industrial situation. But I think Europe's energy. problems and energy price problems are not coming from the ETS system. They're coming from the fact that we are still dependent on fossils and too much in Europe, and we don't have that supply from Europe. So that's the Autocompo standpoint. But unfortunately, I don't know exactly what message you refer to, so that we will need to check.

Okay, thank you. The next question comes from Maxim Kogi from AutoBHF. Please go ahead.

Good afternoon. So my first question would refer to a comment made by one of your competitors regarding Europe. They said that they were able now, thanks to the improved market momentum, to switch back to transaction prices, I mean, now from transaction pricing. which was a norm too recently, back to base price plus a low surcharge, a bit like in the US where it's still the dominant mechanism. Are you seeing the same phenomenon at play? I think you said previously that the proportion of base price was just 30% of European activity. Has this ratio evolved recently and do you expect it to increase?

Right now, and given what we see in our order intake and order book, is not reflecting that one yet. But there are indeed opportunities and discussions here to look forward into it, into this pricing opportunity.

Okay, and likewise, considering the improved market momentum, are you reactivating your plans potentially to build a new annealing and pickling line in Finland? This was a plan announced last year and it has been shared in the meantime. Same question on the high-performance alloy investment that you were also contemplating last year, which has not yet been announced. Your main competitor in Europe actually announced significant investment plans recently to fully capture the benefits from the improved trade defense framework in Europe. So what are your thoughts on that?

So maybe starting with the annealing and pickling line, possible investment in Tornio. So it is purely a cost competitiveness investment, how we are looking at it. So the purpose is not to increase the overall capacity, but to increase capabilities. And then if capacity increases in our biggest integrate, then we would take capacity down somewhere else. So it's a cost competency investment. And now that we got in Finland now, higher mining tax, the removal of the electrification aid and also. For the mines and higher electricity, like electricity kind of tariff, all these impacts are about 30 million on annual basis. So we are looking at the investment case again. It's still under review, so we have not therefore made a decision, but it's a cost-competence investment. Then regarding the potential investment in Avesta Melt Shop to arrive at high nickel alloys, it is very much valid and very much alive. Again, we are still reviewing the investment case and we are also looking at other opportunities on the market. So we'll come back on those when the time is ready for that.

Okay, that's clear. And just the last one is on the scrap market, because as you said, yeah, stainless steel prices are increasing, but scrap prices also, so the net impact on margins is perhaps not that big. And starting the 1st of July, yeah, we should help for... perhaps up to 10% increase in volumes for stainless steel. Do you think that the scrap market in Europe can absorb that? Isn't there the risk of a structural tightness? And I was curious to know if your partnership with Cronymet was allowing you already to somehow manage this situation.

Yes, I think important here to highlight is that we don't have any issues in terms of availability and access to scrap. The price increases, which I highlighted before, are fully reflected also in our guidance now going forward for the second quarter. I think what it requires also on the scrap market is that industrial activities do pick up and therefore also increasing the supply of scrap over here. Yes, as I said before, I don't see any shortage for us. And as I said, everything what we do see right now is being properly reflected then also in the guidance which we gave today.

Okay, and regarding the partnership with Cronymet?

The partnership with Cronymet is working very well and also with all our other scrap suppliers which we have. And this basically, through these very strong partnerships which we have, allows us also to have this access to the scrap which I just mentioned before.

Okay, thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Tristan Gresser from BNP Paribas. Please go ahead.

Yes, hi. Just two quick follow-ups. The first one is on America. I think you mentioned that for UQ2 guidance, most of the volume kind of tailwind will take place in Europe, so leaving maybe a little bit less in the U.S., I was wondering why we're not seeing a better volume performance in America. I think volumes are down year on year. I think your commentary on the demands were pretty positive on imports as well. So what is holding back a bit on the volume performance there? Is it more regional, Mexico, U.S.? Any color there? And then I have another question on Europe.

Maybe one comment there. What is good to understand is that in the past, when we didn't have the tariffs in the same way between US and Mexico, and when the melted and poured was still kind of applied, we, of course, could use much more the Mexican capacity also for the benefit of the US market. So we don't have that lever at the moment. So we are somewhat restricted also in the capacity we can bring to the US market. Yeah, our volumes are not on the top currently. I would also say that our operational performance could have been better in Q1. That's what we're very much working to be able to max our volumes in the US. Order books are strong and delivery time is quite long right now.

Okay. No, that's clear. And then if we look back a bit further up down the year, let's say, end of this year when you have the implementation of the fully, well, the CBAM, the quotas, you have some volume increase. Let's see what the spreads end up. Maybe you get back to this dual pricing system for more orders in Europe. Is the target to go back to some sort of historical margin level in Europe, or can you aim even to go above that historical average level?

Well, what I can say is that certainly all the aspects which you just mentioned are favorable in a way that the market environment is improving for local producers in Europe through CBAM safeguards coming up, etc., as well. And then certainly also that, given that there is... then also a certain assumption that also margins do improve. However, in order to recover to historical levels, what we also need to see in Europe is a recovery in the underlying end-user demand, really.

Okay. All right. That's very clear. Thank you. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So thank you, everyone, on behalf of me and Mark Simon today for participating in our Q1 result call. We're working towards a better result in Q2, and we'll then talk more about that when it's time for that to present the Q2 result. Thank you for being with us today. Thank you for good questions, and see you then soon when we talk about Q2.

Thank you.