SSAB AB (publ)

Good morning and welcome to this presentation of the SSAB Q3 report. My name is Per Hillström. I'm Head of Investor Relations at SSAB. And with us today here is our President and CEO Martin Lindqvist and also CFO Håkan Folin. We have a bit of a hybrid setup today. Martin has a bit of a cold, so he's not here with us in the room, but he will participate over the phone. And again, as usual, Martin will start with the overview of the quarter, and then Håkan will go into the financial details, and then Martin at the end with the outlook and the summary. And then, of course, it will be ample time to ask questions at the end, but we'll come back to that. So, by that, Martin, we can now see your first slide here, another record quarter for SSAB. Please, now you can start with your presentation.

Thank you, Per, and good morning. And I once again apologize for not being able to be in the room, but I have quite a cold, so I guess it's better for me to call in than to be in the room, even though I look forward to meet you all for the first time in one and a half years. But if we start with that picture, I would summarize Q3 and use the word solid internal performance in a strong market. And These are some of the KPIs. If we start with safety, we are moving in the right direction. This is long-term injury frequency per million working hours, and we are now rolling 12 at 1.9, which is much better than we have seen previously. If we take it year-to-date, it's even better. If we then move over to special steels, we could see that during the third quarter, even though we had an outage, we continue to grow the special steel volumes. And this is the best Q3 deliveries we have ever seen for the quenching temper. We also continue to improve the mix in Europe. Year-to-date, the premium mix is 43% of the premium share. And if we take... q3 standalone it was 45 and this is also an important part of our strategy to shift the mix towards less volatile and more profitable products and it all ended up in record high earnings of an op with an operating profit of 5.8 billion sec for the third quarter if we take the next slide pal another i would say remarkable event during the third quarter was that we rolled the first fossil-free plates in Oxelösund ever during the third quarter. And we didn't only roll fossil-free plates, but we also shipped them to one of our customers, Volvo Group, and they, during the quarter, also came out with a new product, the load carrier from mining and quarrying, which is made completely out of fossil-free steel. So this is One very important event on our journey to become the first fossil-free steel company in the world. And we have now proven that the technique works. And according to Volvo, the quality of the steel is as good as the steel we usually produce. We have also, during the quarter, signed a number of strategic partnerships. And on this picture, we have Mercedes. And it is an important partnership with Daimler Group. But in the future, we will use fossil free steel from SSAB. If we then take the next slide, Pat. If we look at the divisions, I would say that all divisions were performing very well and meeting record levels in profitability. The reason why special steel is a bit lower than Q2 is, of course, that Q3 is decreasing. quarter with planned maintenance outages. But even taking that into account today, did a billion in EBIT. Europe, 2.5, clearly the best quarter ever. And as I said, the Americas, almost 1.9 billion SEC in the quarter. Even Tidnor and Ruki Construction did very good profits and record profits. And of course, much better than previous third quarters in the history. If we take the next slide and move into divisions, Start with the special steels. I would characterize the quarter with a strong underlying demand, of course, affected by the maintenance outage in August. And then typically we also see the seasonal slowdown both in July, partly in July, but definitely in August. Shipments of 348 ktons, which is a record for the third quarter. It's 34% higher than the third quarter last year. And an EBIT or an operating profit of just north of 1 billion, equivalent to 17%. EBIT margin, which was of course due to better prices, higher volumes, but also very stable production. And as we have discussed before, now since the beginning of Q3, mobile, the plant in mobile is also part of special steel. So that mill is moved from America to special steels from first of July. If we move over to SSAB Europe, Strong market conditions during the quarter, of course, here as well. Somewhat of a seasonal slowdown, end of July, August. High share of premium, EBITDA 2.5 billion, which is 23% EBIT margin, which is, of course, a record level. Saw the effects of higher prices, higher volumes, better capacity utilization. And also here we had planned maintenance stops during the third quarter, which we typically have. And you can also see on the lower right part of the slide, they've tried to describe the development for automotive and advanced high steel trucks. are more resilient compared to the general automotive market. So we see clearly that the advanced high strength steel part is structurally growing better than the market or less volatile than the average automotive market. The next slide, please, to America. We were during the third quarter in controlled order intake, which typically our prices are moving up, so we don't want to sell out too early. And I think the Americas organization handled that in a very good way. We saw good demand during the quarter, higher shipments, both compared to previous third quarter last year, but compared to many third quarters in history. We had a need of almost 1.9 billion, which is, of course, a record level. And we did margin of 31%, which is really good. So a strong quarter from America as well. If we take the next slide and start to look into Tidnår, another strong quarter for Tidnår, and they have really put the organization in place. They are finished with the structural cost efficiency program, and they are doing a very good job. They have saved more than 200 million on annual basis, and that, of course, is contributing to the record profits. Revenue was up with 75% versus Q3 last year, and we had an EBIT north of 500 million, equivalent to an EBIT margin of 17%. Due to higher volumes, better prices, and also prices are moving up some inventory gains. But overall, internal performance also in Tidnor was really good during the third quarter. Then, next slide. Rookie Construction, they continue in a steady pace to improve operating profit and how they run operations. They have a very solid performance, and nowadays they fully focus on the product business, envelope and roofing business. The rest of the business we have sold, so this is purely now product business. Revenue increased with 27% compared to Q3 last year, and they had a new bit of 229 million, or a new bit margin of 13%, which is good. So better volumes. They struggled, of course, with higher fee prices, but I think they handled it in a very good way and ended up with a good result during the quarter. So that's what comes.

Thank you very much, Martin. And I will give you, as usual, some more details on the financials in a very special quarter like this one. As a summary picture, this shows to a large extent why this was a really special quarter. If we start with sales over there, we reached a record level of sales with even more than 25 billion in sales. If we look at shipments, well, this is the one where we don't have record levels. We were higher now in Q3 than Q3 last year, which was, of course, very different. But we were in line with Q3 2019 and 2018. However, with a clearly improved mix level, as Martin discussed, we had record levels for special steel, which is the one we want to grow to improve the mix. And also within SSAB Europe, we are seeing very good development for our premium strategy there as well. So very... Same level of shipments, but clearly with a better mix than we've seen before. On the EBTA side, we had an EBTA of 6.6 billion and an EBTA margin of 26%, also this then a record quarter for us. But actually, the one that really sticks out is down here, EBTA per ton delivered steel. Given that shipments were lower than previous quarters but profits were higher, well, you do the math and we have a very strong EBTA per ton delivered steel of around 4,500 Swedish kronor per ton. If we then look what has happened between the quarter and we start comparing Q3 this year with Q3 last year, well, It's almost opposite world. Q3 last year was, of course, very weak, and Q3 this year has been very strong. We have a total improvement going from close to minus 1 billion to close to 6 billion in EBITDA, so almost 7 billion in difference between the quarters. A very large improvement is coming from prices, 8.7 billion when we add it up between the divisions, where the biggest items are in Europe and in SSAB Americas. We also had better volumes, and this is mainly coming from special steel. And of course, that's as we said before, that's where we want to see volume growth. Variable cogs impacting negatively with 2.2 billion. We say here higher raw material, especially iron ore, and that's even actually around 2.6 billion. But given that we were running operations with higher activity level, that also helps in terms of energy efficiency, yield levels, et cetera. So mitigating part of that raw material increase. Fixed costs are, of course, higher now in this quarter than they were a year ago. We are running operations at a significantly higher activity level. We were doing a lot of scrambling last year in terms of saving costs. Internally, we have actually mainly during this year compared fixed costs with how it looked in 2019. And when we do that and we look at year to date fixed costs, 21 versus 19, we are actually clearly lower despite higher activity levels. So a lot of the savings we did last year We have actually – they were not just temporary. We have managed to establish a lower cost level in the company. Some negative on FX, better capacity utilization. We took some prolonged maintenance out this last year, given the market situation, and then some other. But all in all, it's, of course, a very different situation now in Q3 versus last year. We see it in better volumes, and we see it especially on the margin and the utilization side. If we instead then compare Q3 now with Q2, we compare two really good quarters. We still have an improvement of around 1.7 billion. And also here, prices are impacting significantly, mainly again for Americas and for Europe. We have a negative impact on volume of close to 800 millions. This is because we have a season slowdown in Europe and we had a plain maintenance outage in Europe. So it's a natural and traditional pattern that we see. Variable cost higher, you know, the development within iron ore, that's the main impact we see there. And then on fixed costs, they're basically at the same level in Q3 as in Q2. Usually we see lower fixed costs in Q3 because we have these vacation reserves. This year they are on the same level, mainly because we've had accruals for performance-related projects salaries both in the nordic system but also in america's where we have quite a large portion of the salaries being variable depending on production and market situation fx quite minor capacity utilization again it's a planned maintenance outages and then we have some others but all in all the improvement from q2 to q3 is mainly because we have better margins we have A strong net cash flow also for this quarter. It's 2.8 billion, despite that we were actually building as much as 2.7 billion in working capital. Why were we doing that? Well, because of the increased sales prices, we're building AR and we're also building inventory, especially on the price component side, given the iron ore development and lately actually also the coke and coal development. Year to date, we are at net cash flow of as much as 7 billion Swedish kronor. And of course, the net cash flow has an impact on our net debt. We are seeing a significant reduction in net debt. So far this year, if we compare to one year ago, we are down from close to $13 billion to almost down to $3 billion. So it's almost a $10 billion difference compared to a year ago. And we are net gearing at only 5% now, 22% one year ago. In terms of our... Our debt, well, for the coming plus two years, we have maturities of 3.4 billion. And, of course, you've seen the cash flow generation. So this is very much under control. This might stick out a bit. Our duration of the loan portfolio has increased. The reason is that we have used the cash that we have generated to pay back short-term debt. And, therefore, the overall duration has increased. Our forecast for cash needs of the business is basically unchanged. It's around five billion for the year. We are saying that CapEx three to three and a half is what we have guided for throughout the year. We can see now that with only one quarter less left, it's more likely we'll be closer to the three billion than to the three point five. And otherwise there is no changes. So around five billion in cash needs. If we then move to the raw material side, here there has been quite, if the previous picture was unchanged, here we have seen a lot of development. This is showing our purchase prices. And for iron ore, our purchase prices were 13% higher in Q3 versus Q2. But for those who follow the spot market, you know that the sharp increase we have seen from iron ore all of a sudden turned in Q3 and then dropped significantly, now re-established somewhat, but still it's a, On spot market, iron ore is much, much lower than it was a quarter ago. So our purchase prices are up. But for the coming quarters, if the situation is the same as it is right now, we will definitely see lower purchase prices for iron ore. For coke and coal, on the other hand, they were not moving so much for a long time while iron ore was moving up. But now during the last quarter, spot prices have moved up a lot. Our own purchase prices were actually 34% higher in Swedish krona. So we have seen a huge increase, and if this continues, our increased purchase prices will also continue for Coke and Coke. Scrap in the U.S., on the other hand, there we have seen a much more stable development. Our own purchase prices in Q3 was more or less unchanged versus Q2. We saw a slight, this is spot market, we saw a slight decrease in October, but all in all, not huge changes on the scrap market in the U.S. Finally, then for me, a few words about the maintenance outages remaining in 2021. Usually we only show this picture maybe for the coming year and then we have it in the appendix. But the reason I brought it out now is that we have a change here because since we have moved the ownership of the mobile mill from Americas to Special Steel, we also have a change in split of the cost for this outage between Americas and Special Steel. And given that so far the majority of the products produced in Mobil is still standard plate, we also have the majority of the cost being with Americas. But the cost for the outage as such in total is the same, but just a split between the divisions. And with that, Martin, back to you.

Thank you, Håkan.

And now you have your first slide also, the outlook for the main customer.

segments thank you pat and if we take a look at the outlook i would say that q4 underlying demand looks okay we if we take start with heavy transport and automotive the question is of course what will the impact be from the shortage of semiconductors that is we don't really know but we see the underlying demand being continued on on good levels If we look at the construction machinery and material handling, very good demand, good level in main markets, strong demand from mining and so on. So moving on quite nicely into Q4. Energy, we see modest improvement in oil and gas and good activity within wind power and transmission, which are two important segments for us. Construction also good underlying demand, but as always, we will see a seasonal slowdown depending on the winter weather in Q4. And then service centers, I would say fairly normal inventory levels in Europe and maybe on the low side in North America. And we'll see how they take out volumes in Q4. But overall, I would say a decent outlook for Q4 as well. And then we'll see, as always, second half of December, how the volumes goes out and if customers take stock Production stops due to lack of semiconductors and so on. But for us, the majority of Q4 is already in the water book. And if we look at the outlook, how we describe it, we expect the demand for steel to be good. And as said, question mark regarding the semiconductor shortage and seasonal slowdown. We see also that the global demand for high strength steels and QT is structurally growing. And when we compare Q4 versus Q3, we say in special steels, we will have stable shipments and higher prices. In Europe, we will have higher shipments and somewhat higher prices. And in America, we will have significantly lower shipments due to the outage Håkan mentioned, but significantly higher prices in Q4. So to sum it up, before we open up for questions, I would say that the market is what the market is, but we have seen also during the third quarter very solid internal performance in a strong market, which is very positive. We've also seen that we are, despite the market, we are able to continue to move the product mix short-term and long-term in our favor. We had record earnings and continued strong cash flow generation. And we have seen also during this quarter a significant reduction in net debt. And I expect us to continue to generate strong cash flows going forward as well. And last but not least, one of many important events, of course, during the third quarter was that we rolled the first fossil-free steel in Oxelösund. We shifted to Volvo, and we have now proven that we have developed the technique, it works, and we have proven that we can supply customers with a fossil-free value chain. So all in all, I would say a good... good quarter with good profitability, good cash flow generation, and a solid internal performance. With that, Per, I hand back to you.

Thank you, Martin and Håkan. And now we will be ready for some questions. As usual, if you have several questions, please state them one at a time. We also urge you to be Maybe a bit brief in the first round. There will be time for a second round of questions as well from the phone lines. But we can maybe start here in the room and see if there is any opening questions from here. No, I guess not. Then we will please ask the operator to present the instructions for the Q&A. Thank you.

Thank you. If you would like to ask a question via the phone line, please press 01 on your telephone keypad. If you need to withdraw your question, you may do so by pressing 02 to cancel. There will now be a brief pause while questions are being registered. The first question comes from Alan Gabriel from Morgan Stanley. Please go ahead, your line is open.

Yes, good morning, gentlemen. I have two questions and I'll ask them one at a time. The first one is for Hakan. Looking forward into Q4 and 2022, what are the big changes to your cost base that we need to look out for, especially electricity, natural gas prices and other raw materials that have been increasing in cost quite considerably? Would you be able to quantify the increase in energy costs or at least give us the ingredients to calculate it ourselves going forward? Thank you. That's the first one.

And I don't take iron ore and coke and coal or scrap since you didn't mention them and we saw them before. But for electricity, which has moved, especially in Europe, not that much in America, but in the Nordics, we are hedging our electricity costs. So you will not see any major difference in the P&L for electricity costs for Q4. We are roughly hedged to around 90 percent. So that's not going to have a significant impact. Also for other energy types like natural gas, for example, that has already increased quite a lot. And we have had higher costs for natural gas in our P&L already now, 2021 versus 2020. But it's not going to be if we compare only Q4 versus Q3, that will be slightly higher, but not a significant impact either.

Thank you. That's very clear. And for 2022, you haven't mentioned on the electricity cost.

There we are not hedged as much, but still we have a quite high hedging grade. So let's say roughly around 75, 80 percent. So also there, it's not going to be a huge impact. And I mean, of course, as you know, for our production in the Nordics, where we are blast furnace based, electricity is normally not a very large cost portion. It could be higher now, given the situation we have. But since we are hedged to, let's say, 75, 80, we don't expect that to be a major issue in 2022 either. Thank you.

Thank you. And the second question is for Martin. First, I hope you feel better soon. My question is, you will be at close or at net cash position by year end. Besides the potential dividend that you could announce at the full year results, are you interested in stepping up your Bolton acquisitions? And if so, would you consider any blast furnaces in Europe where you can replicate your successes at hybrid there? Thank you.

No, we will continue to do these smaller mid-sized Bolton acquisitions, but that is what we are going to do. So no major acquisitions or no blast furnace acquisitions. Thank you.

Thank you. The next question comes from Jack O'Brien from Goldman Sachs. Please go ahead. Your line is open.

Hi, good morning. Thank you for taking the question. Clearly, you're seeing fantastic cash flow and you have a very strong balance sheet. Is that or might that encourage you to bring forward your green plans, which are obviously gaining some traction? You talked about some of the positives you're seeing with the relationships there. So, yeah, interested to see whether you might look to convert some of your other plants more quickly, given that traction there.

To give you an answer on that question, we will clearly have a balance sheet that's possible to do. But the problem is that that decision is not fully in our hands. We need... both environmental permits, and I think that is maybe the easy part in converting, but then we need electricity and power supply. We are now focusing on the first mill in Oxelösund, 1 January 2026, up and running, full production, only fossil-free steel. We think that is more than possible, and we are aiming for that, but I mean, we don't have full control of the power supply, and that can typically, to get the power line in place, can typically take a number of years. So the planning time is quite long, and you need to do a lot of work together with a lot of stakeholders in order to get that in place. But if the market continues to develop in the direction we see right now, and we have all All reasons to believe that we will, of course, look into the possibility to be somewhat quicker than 2045, which is the target we have today, to be completely fossil-free 2045. But that will be dependent on a lot of things. And I would say power supply will be one very important part of it.

And just one follow-up, if I may, looking at... the cost of carbon, which has clearly been increasing in Europe. As I understand it, you've got a roughly 200 million kroner cost for CO2 in 2022. But perhaps you could just talk through the latest there based on sort of deficit and inventory of certificates and so on. Who wants to take that?

Well, there's no real Latest update for the coming year, we will have a cost for it, but actually the rights we have already purchased, but now they're sitting on inventory and then we will move them to the income statement. So there's no change in, even though the cost as such on the spot market has increased, the cost for us for the coming year, it will be a few hundred million kroners, but not much more than that. And then we'll see, you know, long term, like you said, there are discussions about what EU will do in terms of reducing the free allocations, etc. But for the short term, we don't see any difference for us.

We have been buying emission rights for a number of years.

Thank you.

Thank you. The next question comes from Anne from Jefferies. Please go ahead. Your line is open.

Hi, morning, guys. I've got two, and I'll just take them one at a time. The first one's on Americas. In terms of development and plate prices there, do you have a view that we might be able to regain premium to HRC, or do you think the discounts might persist for another couple of quarters?

All the time, plate has always had premium compared to HRC and that's we haven't seen I think it's the last three four quarters if that will normalize or not I think it's a good question and I can't really answer it but but all the time there has always been a premium for play but having said that play prices are as they are on very high levels as well so I don't have the visibility if and when that will change that's fine okay and my second one's just around automotive um

Can you perhaps quantify how much shipments to OEMs have been deferred or lower versus indications?

I don't have that from the top of my head, actually. And it hasn't been, I would say, it's been some impact now in Q3, but we also had some delays that we've been catching up. It probably will be a higher impact for Q4, but I don't have the figure in my head, actually.

Okay, that's fine. Thanks, guys.

Thank you. The next question comes from Carsten Rieck from Credit Suisse. Please go ahead. Your line is open.

Thank you very much. Two questions also from my side. The first one, Hakan, is on the iron ore. You mentioned already that it's very likely to see the iron ore prices rolling over. But looking at this from a Coca-Cola perspective as well, because we have a counter-movement here, Do you expect that your raw material impact in the European operations will be net positive for the P&L or net negative for neutral?

It varies a bit actually by site. As you know, we have in Luleå, we don't have an inventory of iron ore. So in Luleå, for that production, we expect that iron ore cost in the P&L will actually be lower in Q4 than in Q3. For the other sites, Ra and Oxelösund, it takes a bit longer before we get that impact. That might come if prices remain as they are. We will have lower iron ore costs then, maybe towards the end of the quarter, rather than maybe even beginning of Q1 next year. But also for coke and coal, as we saw, there was a huge increase in our purchase prices for Q3. But that also has a delay before we see it in the P&L. So I would say it's... Again, it depends on how they develop, but not a huge difference actually, Q4 versus Q3.

Okay, perfect. Thank you. The second question I have is more on the value-added share, which I'd like to actually increase quite a bit compared to what we have seen last year. The question is, how do you want to make sure that the high level or a high share of value-added products stays at this level? once the market is cooling? Is there enough customer relationship already built, or is there a chance that we actually drop back to levels below 40%? Thank you.

I think we are not where we would like to be. We have the ambition to have the strategic target of 50% of customers. the volumes being premium and of course it varies between quarters but over time we see the possibility to reach that of course and we see also structural growth. So the trick for us in order to reduce volatility and increase profitability is to keep the total volumes on a fairly the same level and then move in more to grow special steels, move more into premium in Europe and in North America. It can vary between quarters, but the ambition is to reach 50%, and I think we have a very good chance to reach that.

Perfect.

Thank you very much.

Thank you. The next question comes from Ansi Kiviniemi from SEB. Please go ahead. Your line is open.

Hi, guys. It's Anson from S&P. Thanks for taking my questions. I have two of them. I will take them one by one. First of all, Q4 demand comments. You highlight the uncertainty in Europe, but then again, you indicate that the deliveries will increase in Q4 versus Q3 in the region. So how should we read the situation? Do you think that the kind of uncertainty in the market will be more visible in

in q1 or is this kind of only you being a little bit more cautious on on the market outlook oh but as said i think we have a fairly decent visibility in the in the water book and and that's why we say this but then you never know because we don't have this ability into i mean the possibilities for automotive and heavy transport to get semiconductors and if they take outages or or not due to that so That's what we are talking about. But if we look at our order book, it's, I would say, fairly okay for Q4. But then it depends on what will happen, especially, I would say, the second half of December due to other reasons. But when we look at the underlying demand in our order book, it looks good.

Okay, thanks. And that was basically the second question. In the appendix, you once again highlight the SSAB Europe monthly order intake, and it seems that September is clearly down from previous year. So my question is that is this due to the fact that the underlying demand is weaker compared to last year, or is it due to the fact that the kind of your order book is in a much more higher level and thus you're not taking as many orders as last year. How should we read the situation?

The order book for S&P Europe for Q4 is in quite good shape.

And kind of the reason for order intake decline in September. Could you elaborate a bit on that?

it's not any big deals. I mean, we have also some delays. We have had very good order intake. So it's a combination of managing the order book, I would say. That's the main reason. And then a single month. No, we have the order book we would like to have for Q4 in SSA Europe. That's the clear answer. Then there were some pluses and minuses, but we have the order book we want to have for Q4.

I was just going to add, Ansi, that you should also think about last year, September, we basically almost went into September with an empty order book, which meant that we were chasing all the orders we could get to fill up the order books. Now we enter September with a clearly different situation and with a quite strong order book for Europe. And therefore, The delta between Q3 this year and last year in terms of September this year and last year should not be seen as that the market is much weaker. It's more a matter of the size of the order book entering the month.

That's very clear. Thank you. That's all for me.

Thank you. The next question comes from Luke Nelson from JP Morgan. Please go ahead. Your line is open.

Hi, morning. Thanks for taking my questions. My first one is sort of a bit of a follow-up to the prior questions, just on lead times and if you have any visibility at all heading into Q1 2022. I know you don't guide that far forward, but if you have any qualitative comments on on potentially how volume shipments could be looking Q1 versus Q4, assuming your assumptions around autos hold for this upcoming quarter? That's my first question.

As you pointed out, we don't typically have that visibility. What we see is that the structural growth for high-strength steel is continuing into next year. That's what we see.

Okay, and then in terms of the moving parts for cash needs into 2022, could you maybe just give some qualitative comments around CapEx specifically? I think before you guided to around the $3 billion level next year off the top of my head, but maybe some comments or thoughts around how that could be moving year on year.

We're guided for roughly 3.5 next year, we have said. Given that we will probably come out a bit lower this year, I would say, and we are really, one reason we're coming out lower is we're not spending that much money yet on the conversion in Oxelösund. So a larger portion of that will probably be transferred into next year. So there could be slightly higher CapEx need for next year. On the other hand, given that we are at a much lower net depth and also gross depth, we should see lower interest costs for next year.

Okay, very clear. And final question from me, just on, again, on a prior question, talking about green steel conversion. And I think you explicitly mentioned in the release, again, around potentially fast-tracking. And I know I take on board your comments around permitting and there are other things you need to have in place to fast-track. But taking that all in context, I think in the Q2, you explicitly mentioned Malaya as a site that could be. Has that potentially changed or given the change in shareholding? um with one of your your major shareholders in finland does that potentially bring forward the opportunity at raw as well and just trying to get a sense of if the how you're thinking about the different sites in europe being converted has has changed relative to that um literally a comment in q2 i would say not not at all relative to that the plans have not changed we we want to

become a fossil-free steel company and we are looking to opportunities when it's rather when we can do that and we we are encouraged by the interest and the demand from the market so we have not changed our plans no very clear thank you thank you the next question comes from krishan agarwal from city group please go ahead your line is open

Hi, thanks for taking my question. Most of the questions are already being asked, but if I can push through a little bit on the CAPEX, there is looking a bit of an undershoot for this year's CAPEX, so is there any possibility for you to quantify your revised guidance for 2021 CAPEX? That's my first question.

I think we have to come back on that question. As I said before, we have said around 3.5. If we end up this year a bit lower than a large portion that is related to the conversion, that will then spill on into next year. But we will get back to that after year end when we know the exact outcome for this year as well.

Sure. My second question is a bit of a follow-up from Karsten's question on raw material costs. You generally do that winter stocking for cooking coal ahead of the winter. And given the higher prices or significantly higher prices, has there been any kind of a rethink in terms of buying lower quantities for winter stocking for cooking coal?

We are doing it in the same way. The reason we do this winter stocking is that we cannot get these big boats up to Luleå and Rae in the wintertime. We can get them to Oxelösund, but not to Luleå and Rae. So we're doing it exactly the same way, and one might speculate and say that we should buy lower and transport in different ways. On the other hand, last time I checked, at least coke and coal prices were still on the way up, and we have not a crystal ball how they will develop during the wintertime. So no, we're doing it in exactly the same way.

Okay, very good. Thanks a lot.

Thank you. The next question comes from Rojas Brandheiser from Kepler Shoei. Please go ahead. Your line is open.

Yes, hi, morning. It's Rojas Brandheiser from Kepler. I have two follow-up questions. The one is maybe back to your outlook commentary on auto. I think you're flagging auto demand weakness more than in the previous quarters, even though I think the Q3 was already bad. bad enough for the industry and probably a bit disappointing. The fact that you're flagging it, is it that you expect a further weakening of the auto demand in Q4 versus the third quarter? And at that stage, can you already give us a sense how you think the looming magnesium shortage could impact your customer's business? That's the first question.

No, I mean, what we are saying is that we are... The order book for Q4 is, to a very large extent, already there. So it's more about the ability to take what we are flagging for. There could be some production stops due to shortage of semiconductors, and then we will not be able to ship. That's maybe what we are flagging for. We don't see, I mean, any... demand issues for Q4 because the order book is in practice there already.

Can you share your thoughts on the magnesium side? I think with these production cuts in China, which could mean that the volumes from there are significantly lower than normal, to what extent is that impacting your business and are you getting any signals from your order clients that they are eventually impacted in due course?

not until the coming quarter now, I would say. I don't know, Håkan, if you have any more updates than I have.

No, for us, this is short term. It's at least not an issue. We have secured the volumes we need. Long term, well, if this continues, then we'll see. But short term, we don't see it as an issue. And we have not heard from our customers that this would be a reason for delaying orders or not booking orders. No.

And to what extent is that an issue for your metal production, your desulfurization process? Can you switch whenever it is needed to other materials like lime or calcium carbide?

I don't know exactly. What we have checked is that we have significant, we have all the material we need for the coming quarter or two. So short term, it's definitely not going to be a problem. And procurement is making sure it's not going to be

problem long term either then in terms of switching to alternatives uh i don't know okay and then finally on on the green steel uh development i think you have a very clear past until 2026 to turn actual zone uh fossil free um are there what is your flexibility in the mean term i think the your clients are demanding the co2 reduce still more and more Do we have any flexibility to come up with some synthetic quantities of green steel with a reduced carbon footprint until you have more of the genuine product?

No, we have this so-called pilot plant up in Luleå that is producing one ton per hour, and we will use that to produce fossil-free steel. And then the next big step will be when we have the demonstration plant up in the northern for sponge iron, beginning of 2026, end of 2025. And then we will also have Oxelosund revamped or electric arc furnaces in Oxelosund from 1st of January. So the big step will come 2026 when we will be able to produce up to 1.5 million tons of fossil free steel. But the journey towards that will be fairly small or smaller volumes to strategic partners.

Okay, understood. Thank you very much.

Thank you. The next question comes from Tristan Gresser from Exxon BNP Paribas. Please go ahead. Your line is open.

Yes, hi. Thank you for taking my questions. The first one on working capital. You had a record capital, a working capital build in Q3 2020. was there any one-off involved there maybe some inventory bill due to lower steel off-takes from from diodo customers um and also what would you expect in q4 i mean given the development in prices uh is really feasible in q4 thank you there was not any real specific one-offs in q3 no i wouldn't say that it was a higher inventory and coming from higher prices and also

higher AR coming from significantly higher prices out to the market. We have seen a large, as you also could see in the graphs when I showed the delta in terms of EBIT, we have seen huge price increases. We are still flagging for that within America's will continuously price increases, but lower both in Europe and in special steel. So it will not be the same working capital buildup in Q4, but there are no real one-offs that will immediately lower it. But the it will definitely be, if any, it will be a lower working capital build-up than it was in Q3.

All right, that's helpful. And my last question is on Tibner. Could you quantify the inventory gains in Q3 for us to give a better sense of what Q4 did look like given the development in steel prices?

Okay. We normally haven't actually quantified those. We don't quantify, actually, when we talk about the result development, we don't quantify any of the components for each of the divisions. But I guess you can say that it was, given the price development, it was quite significant for Tibnor, and we would not expect the same development in Q4.

All right. Thank you.

Thank you. The next question comes from Bastian Sinagovic from Deutsche Bank. Please go ahead, your line is open.

Yes, good morning all and thanks for taking my question. My first question is just on strategy and your metallic supply in the US market. So we've obviously seen some further announcements here of some players which are adding further electric arc furnace capacity and then one of your blast furnace peers also tapped into the scrap market with an acquisition, basically taking some control of that market there. How are you thinking about the situation here? Do you still see sufficient supply. The US market is obviously in principle still in excess of scrap supply and the net exporter, but obviously there is massive growth in demand for scrap as well. Is an upward integration on scrap something you may be thinking about as well? That would be my first question.

Oh, you're completely right. We've seen our announcement of companies building out scrap production and that will of course affect scrap availability but US is a net exporter of scrap so of course it can influence prices but we think that we will get with the partnerships we have sufficient volumes of scrap and we are not thinking of or contemplating doing any integration into the scrap market because it's a fairly fragmented market and the availability is there so we don't see it as a huge problem and us to start to acquire scrap collectors or something like that.

Okay, very clear. Thanks, Martin. And then just lastly, and more like a short-term question, but obviously you've been very successful with your mixed development in the European business and also for your company overall. Just with regards to Europe, is there any major mix change we should be expecting with regards to the fourth quarter?

You should expect that to continue to improve the mix. And as I said, the target is to have 60% because we also have the very important Nordic whole market. So it will be a balance between premium products and also keeping a good market, decent market share in the Nordics and trying to find that, call it optimal combination. But the ambition in the strategy is The strategic target is that 50% of the volume is being premium, and we are getting there. And then it can differ between months and differ between quarter, but clearly the underlying growth is there, and that's what we are aiming for and what we will reach.

If you said short and busty for Q4, we have a seasonal impact in SSAB Europe where we sell less color-coded material in Q4 to the construction industry than we do in some other quarters. So from that point of view, you get some, you know, a temporary, seasonally, quarterly, worse mix in SSAB Europe than in Q3.

So you should rather compare it to previous year than sequentially, compared to previous quarter, because you have this seasonal mix. But apart from that, you should expect it to continue to grow.

Okay. All right. Okay. Thanks so much.

Thank you. And the final question comes from Patrick Mann from Bank of America. Please go ahead. Your line is open.

Good day. Thank you very much for the opportunity. I think most of my questions have been asked. I just wanted to follow up a little bit more on your capital allocation. So, you know, as one of the earlier analysts asked, you know, strong balance sheet, deleveraging. How do you think about allocating between dividends and... reducing gross debt and also you know i think you've spoken already about your opportunities to accelerate the decarbonization so kind of i think we can park that one to the side but just in terms of thinking about what to allocate dividends and what to allocate towards reducing debt further thanks well first of all the reason much debt left of the 3.33.4 we have is

Roughly $2 billion is IFRS 16 related, so that growth step we can't really take away. But apart from that, I mean, let's come back and discuss that when we have the Q4 report.

All right. Okay. Thank you.

Thank you. We have no further questions, so I will pass back to the speakers for any closing comments.

Okay, thank you. By that, we can conclude today's conference. Thank you, gentlemen, and thank you for many good questions, and we wish you a nice day.

Thank you. Bye-bye. Thank you. Bye-bye.