SSAB AB (publ)

Good morning and welcome to the presentation of the SSAB Q3 report. I'm Per Hilstrom, Investor Relations at SSAB, and with us today here we have Martin Lindqvist, President and CEO, and also Lena Kralius, the CFO. And if we look at the agenda, Matti will start to go through the third quarter. And then Lena will dig in more into the financial details. And then Matti comes back in the end with a few slides on the outlook. And finally, we will have a Q&A session, both from here in Stockholm in case of any questions, but then also from the phone lines. So by that, please, Martin.

Thank you, Pat.

And good morning, everybody. I will actually spend a second or two on this picture because this bucket, as you see, is called Exmor. It's a very good example of the business model in SSAB special steels. This is a brand we have developed for buckets, among other things. produce prototypes. We design them and produce prototypes in a daughter company in Australia called G&G. and then we license out the possibility to use these buckets or produce these buckets to global bucket producers and they are of course produced in only in our material they are much lighter than an ordinary bucket the life length is typically two times as long as an ordinary bucket there are a lot of benefits and this is one good example of how we develop and drive the special steels market so Remember Exmoor and remember that this is one of many examples how we develop and build the market. If we then move into the third quarter, it was, I would say, given the circumstances, a decent quarter with good profitability in SSAB Americas and in Special Steels. That compensated for a weaker market and a weaker outcome in the European businesses, maybe Europe, Tivnor and Roke Construction. I will come back to that. We continue to develop our safety performance. This is one of the KPIs. We measure lost time injury frequency. We are now at 1.15%. which is not, of course, in line with the target, which is zero, and the ambition to become the safest steel company in the world. We're not there yet, but we are moving in the right direction and see good progress in this development. And this is about building a culture in SSAB, and we are on our way. We continue to have a decent balance sheet, and I will come back to that a bit later. If we then dive into the divisions, I mean, special steels, it is about driving market growth, and that's why I use the example of the Exmor bucket. And we do that by developing new applications that are typically stronger, lighter, and more sustainable, and that customers are willing to pay more per kilo of steel, but at the end pay less for a bucket because of reduced weight and increased productivity. So we do that together with having a leading product offering and developing new grades and new products all the time. And then, of course, a global sales organization with local stocks. And if we look at how we have sold so far this year up until Q3, we have had 40% or a bit more than 40% of the volumes going into Europe. 30% going into North America and the remaining 30% roughly going into the rest of the world with Asia, Latin America, Middle East, and so on. And if we look at the products, the majority is, of course, the QT products produced in Oxelösund and Mobil, but also 20% being advanced high-strength hot-rode steels then produced in Borlänge and Roa. So a fairly good spread of different markets. And as I said, the profit was good. We had an EBIT margin in Q3 22 of almost 29% and had a record operating profit of 2.4 billion. If you look at America's, plate prices started to decrease somewhat during Q3, but from very high levels, and they are still at very good levels. The spread are at historically high levels. we saw and see good demand in several segments and going forward, the infrastructure build and the energy demand could be positive for plate demand over the next few years. So it looks quite okay. And if we look at Q3, we had more than 3 billion in operating profit and an EBIT margin of almost 37%. Then Europe was slightly different. We saw already end of, or beginning of Q2, we saw demand weakening. And we have seen weaker demand in Q3, which is fairly typical because we have the seasonal slowdown in July in the Nordics, August in the rest of Europe, but clearly a slower demand in Q3. We, during Q3, adjusted production, both in color-coating lines, in galvanizing lines, and also in cut-to-length lines. We took down production already in Q3. And looking into Q4, we expect to continue to see a weak demand. And that's why we have taken the decision to put forward a repair of one of the blast furnaces in Rohe. That was originally planned to do end of 23 or beginning of 24. But given the market situation, we took a tactical decision and said this is a good timing. And especially the Q4 is always the Q4 and the second half of December is always the second half of December. Very hard to predict what kind of volumes we will get out the last two weeks of December. So we decided to do this from end of November and take it down six to eight weeks. And that will help us, of course, to do this in a good timing, given the business cycle. But it will also help us not to build more working capital or to release working capital. So I think that is Good decision. Looking into Tivnor, we saw lower shipments. We saw inventory losses and windfalls in inventories due to negative prices for steel. The underlying profit was still positive, but overall, including the windfalls, we had minus 176 in operating profit. Rokey Construction, 160 million SEK. Clearly a slowdown in the construction segment already in Q3. And we saw also the high inflation impacting demand and new builds. And that, of course, affected rookie construction. So all in all, I would say a quarter with fairly few surprises compared to what we planned for. And we saw what we expected to see in Q3. Moving then over to our transition into fossil-free steel. This is one picture from a seminar we held in Stockholm together with POSCO, where we invited all the major steel producers in the world into Stockholm. We had more than 125 participants at Fotografiska Museet in Stockholm on this hydrogen, iron and steel making forum. And we had more than 1,000 participants over the web for two days. So it's a huge interest to inspire each other, learn from each other, and develop ideas and look how we can do this as an industry together going forward. So a very, I would say, inspiring and positive event. If we look at how we work with customers, we continue to see a strong demand for fossil-free steel, and we, during Q3, announced our first North American strategic partnership with Oshkosh, a big producer of commercial vehicles. They are now a partner. We'll get fossil-free steel and start to produce their applications in fossil-free steel. We also, during Q3, saw Volvo Trucks beginning to do small scale introduction on fossil free steel in their heavy electric trucks. So it is moving on. And if anything, the interest and the demand is increasing day by day, week by week, month by month, which is very positive. If we look at our own possibilities then, We got an approved application for the 230-kilovolt cable power lines to Oxelösund from Energiemarknadsinspektionen. That will be most probably appealed, but now the process has started, so we know that we will get electricity. We don't know exactly when. We continue with the feasibility studies for our planned mini-mills in Luleå and Ra, and they are moving on according to plan. What is, of course, important is that this transition, not only for SSAV, but I would say for a large part of the industry, will require sufficient availability of fossil-free electricity, both in Sweden and in Finland and elsewhere. And we need to have that at the right place at the right time. And that is something that we are working very hard with. Another topic that is really hot is what we call level playing field and we work a lot with politicians and we need to intensify that work with the new Swedish government but also with the Finnish government and with the European Union to make sure that there will be a level playing field across Europe regarding state aid for the transition. October, and in conjunction with this conference, I talked about fossil-free iron and steel making. The hybrid development also filed a number of patent applications to the European Patent Office. And what we have done in hybrid together with Vattenfall and LKAB, we have developed a method to produce fossil-free sponge iron that has much better qualities and much better handling properties. than if you produce DRI using natural gas as an example. Those patterns we have filed for, and then we need to decide within Hubrit in the future how we share that and license those findings out. But these are important patterns that saves not only a lot of costs, but also gives a lot of positive benefits to the quality. So with that, Leanna, I hand over to you to go through the financial and come back in a couple of minutes, go through the outlook for Q3 and sum it up.

Thank you, Martin. Good morning, all. Let's go through the familiar slides. And again, let's start with the shipments. Performance Q3, it was 11% lower compared to the previous quarter. or 14% lower compared to previous quarter and 10% lower than last year. In the outlook, we were indicating somewhat higher volumes than what the outcome was. Then if we look at the sales profile or graph, we can see that there was a reduction versus Q2, but it was actually less than the reduction in the volumes. So prices were still holding on average level pretty well. If we compare then to the previous year outcome, the sales is still 25% higher. So pretty different view this year with the prices. And if I summarize the year-to-date volumes all together, year-to-date, we are 10% lower than last year. And if we look at then this so-called division mix, we can see that the special steel division volumes have reduced less than the others. So we could indicate that the mix this year with the product mix is better compared to previous year. And that's, of course, somewhat also visible in the sales graph development. EBIT reduction from previous quarter, but still the second EBIT higher level than last year. And also visible in this graph, we are 1 billion higher than last year Q3. If we then dig into more details, this is now comparing Q3 result compared to last year. Biggest positive impact with price and product mix and all the divisions contributing positively with their price development. Special steel prices are 50% higher. Europe division over 20 and SSA still over 30% higher. So big impact with the prices. Volume asset was 10% lower than last year. And here we have the least reduction in special steel volumes and the biggest reduction compared to last year is now in the America's volumes. And that's mainly related to the maintenance break that we had this year. Last year we didn't have the maintenance break in US. And also here as Martin already indicated that the reduction in demand is hitting the volumes of Europe division. Variable cost, we were telling that there will be an increase in the variable cost for Q3, and that's the reality and the outcome visible here. Iron ore actually is on a bit lower level than last year, but then the coal prices are twice as high, PCI three times higher. And then one question you might have in mind is related to the energy. energy from the total variable cost is less than 10%. And then electricity in that 10% is only 3-4% and gas 3-4%. But yes, we do see an increase compared to year on year. Electricity cost is around 50% higher and gas even 70% higher. So a small portion of this is related to energy cost that we know. But to bear in mind that we are hedging electricity and we are also producing electricity and we are in some cases selling electricity externally. So those should be netted. Fixed cost, yes, somewhat higher level and this is now spread to the personal related cost and also materials and services. We have some 3% higher FTEs this year compared to last year. FX and this is now revaluation of receivables, payables and hedging netted all together, so relatively small impact to the operating profit. Capacity utilization, this is positive and this is now related to the maintenance we had last year in Mobil. That was in the middle of Q3 and this year it is actually starting at the end of Q3 and also continuing for Q4. If we then compare to the previous quarter, as said, prices still on average level holding well, and this is actually now related to this divisional mix, as said already in Martin's presentation. Special steel division still improving, doing well. America's holding well, and then the Europe division, they're taking already the reduction in demand and prices. Volume. Yes, lower than previous quarter. All the divisions had the maintenance outages starting in Q3. Variable cost in this comparison, the negative impact is less than compared to the previous year. And here we do get hit also in the iron ore cost. Europe division was consuming more expensive Indian US pellets, which were compensating the Russian pellets. Coal prices also, depending on the mix, 10 to 40% higher, and the PCI is still twice as expensive compared to previous quarter. So this all summarized together, and also here some increase in the energy cost, but less now quarter on quarter. Actually, the gas price has already sort of leveled out, so the increase is only 10%, and in the energy cost, We are talking about electricity cost increase of 40%. Fixed cost, and this is now related to the seasonality. We have this release of vacation pay accruals having a positive impact quarter on quarter. And then the capacity utilization, that's related to the maintenance breaks. with all the divisions. Maintenance starting in special steels at the end of year three and taking place in Americas throughout the quarter as in Europe division. If we look at then the cash flow, EBITDA quarterly comparison for last year, still on a higher level than last year. And then of course, compared to year to date figures, we are almost doubling. The change in working capital has a big negative impact, and yes, we are aware that we have high raw materials. We have also increased other inventories. We could say that half of this increase is related to the raw materials, and half of that is then volume and harvest value, as already discussed in the previous slides, that the cost of raw material is high. And we were buying excess safety stocks due to the sanctioned raw materials that we were previously buying and then compensating with other suppliers. So we have excess. And also at the time when we were buying, the production plans were on a higher level than what they are now. But the strong focus in the organization is to release the working capital during Q4. Maintenance capex rather well in line with the plan, somewhat higher than last year level. Still high taxes, high level of taxes will be paid also during Q4 that we know already. So just below zero, the net cash flow, it was still improving throughout the quarter, improving in September. And of course the goal is now to improve during Q4. strong financial position. End of Q2, we were on the level of, I think it was 7.2. So we are here seeing now impact of this revaluation of financial assets and liabilities. And those are related to US dollars. So it is now boosting this figure definitely during the quarter. Raw materials, iron ore prices have stabilized a bit already compared to last year level, already lower level. And this we foresee to continue as such. The thing that will impact our result is the coking coal. Here we can see that the increase year on year, remarkable over 300%. we do have high level of inventory. So this will still come through during Q4. So we have not sort of consumed all the inventory, expensive inventory during Q3. So we force it, it will remain high. And also we are not having here PCI coal, which is similar to this graph. And that will also continue on a high level during Q4. Scrap prices, we can see that it has reduced and of course this is then supporting the margin in Americas during quarter four. Then the maintenance, this is something Martin already covered. Yes, we have updated some plans and We have updated also the figures here related to SSAB Europe. We have added the maintenance cost and absorption variance cost related to the blast furnace repair during Q4, which is considered, of course, to be a good decision at this point. But then Martin will continue with the outlook.

Thank you, Leena. So if we look at the segments for Q4, I would say fairly neutral in heavy transport and automotive. Of course, some risks with production stops for heavy trucks in EU and further production stops within automotive. But overall, I would judge it as fairly neutral. Construction machinery, we see a slowdown in Europe. China continues to be weak, but stable underlying demand and stable demand In in us material handling good demand from mining and recycling for the coming quarter Energy we see improve the activity in oil and gas which is important for us in in us and also Good demand in renewables and then construction of course slow in Europe slow in the Nordics and service centers on the sideline with low inventory levels in us and more normal or or slightly high inventories in Europe but overall I would say especially in Europe or in Europe more call it wait and see info in for Q4 and always when you enter into Q4 the million dollar question is what will be the deliveries the second half of December and especially between Christmas and New Year Will the companies take the opportunity to take outages due to high energy costs and so on? Well, remains to be seen. But we have the order book for Q4 pretty much in hand. So we know how it would look in a normal situation at least. So we have a good order book for Q4. If we then look at prices and shipments, we have talked about the weak European market, the stable heavy plate market in North America, and also decent underlying demand in special steels. We expect somewhat lower shipments in special steels, stable shipments in Europe, and higher shipments in Americas due to the outage. Somewhat lower prices for special steels in Americas and significantly lower prices in SSAB Europe. So, to sum it up, strong earnings for special steels in Americas. continued good trend in our journey to build the safest steel company in the world as lena said we were we took decisions this spring to build working capital for raw material and we also during q3 season we build working capital and you should expect us to release working capital in q4 uncertain market outlook. But what we have done the last couple of years is clearly improved our ability to manage downturns. We have flexible manning. We are reducing our temporary employees. We have a better product mix. We have done a lot of things. I would claim that we are a different company compared to five, seven years ago when we will continue to develop those abilities. The plan for fossil-free steel production is on track. We are shipping pilot shipments to partner customers, and they are ongoing. The interest is huge. We could ship much more if we had the ability to produce it. The transition requires sufficient availability to fossil-free electricity, and that is – It is a challenge in Sweden. It looks different in Finland. But I think the new government in Sweden needs to take this seriously and speed up the process. And we will continue to push for a level playing field when it comes to state aid within Europe, with the new Swedish government, with the Finnish government, and with the European Commission and European Union. So with that, Per, I guess there are some questions that need an answer.

Yes, and then we can start the Q&A session. And for you in the room here, you can present yourself and your company also if you would like to ask a question. So we can start there. Is there any questions here from the floor? Okay, but then we can... turn to the phone lines, and as a general guideline there, you're most welcome to ask several questions, but please state them one at a time to facilitate the process in answering. So by that, I will ask the operator then to please present the instructions.

Excuse me, this is the conference call operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. The first question is from Alan Gabriel with Morgan Stanley. Please go ahead.

Yes, good morning, everyone. I have two questions. My first one is on your green steel transformation. So your peers in Europe are receiving significant financial support for their programs in spite of your hybrids. being probably far more advanced and more viable than most of what is being built on the continent. Is there a reason why grants and other forms of support are lagging your peers? And is there anything that the company should be doing to speed up the process? That's the first question.

No, but you're absolutely right. And we are pushing hard for that. As I said, not only, I mean, now we have a new government in Sweden, we will continue to push hard for the new government. We will continue to push hard in Finland and we'll also continue to push hard for the European level. I think we still think that this could have been done by the industry itself, but it is so important that we have a level playing field in Europe. So If others are getting supports, we need to do that as well. And as you said, I mean, we are developing a new technology, a new way of producing steel. So I think we should be treated at least as everyone else. So it's an ongoing work where we will continue to have a strong focus.

Very good. Thank you. And my second question is on capital allocation. So your cash balance continues to build and you probably have a higher quality and more cash in your business than you have ever had in the past. Given this backdrop, do you think that your capital allocation framework has become obsolete and needs a major revamp?

Thank you. Let's come back to that.

All right. Thank you. That's all from my side.

The next question is from Tom Zhang with Barclays. Please go ahead.

Yes, good morning. Thanks very much for taking our questions. I've got two as well, please. The first one, just on volume and pricing dynamics for Q3, so clearly relative to previous guidance, you had sizable beats on realized pricing, but misses on volume, which sort of implies a value over volume approach. So, A, is that what you've actively been doing? And two, how sustainable do you think that strategy would be into what looks like a weaker market in Q4? You know, what are the risks of losing out on market share?

No, but on the margin, we have done that in America and in special skills, kept up the prices. And we have a strong market position. And I think that was, of course, the right decision to do. And we will continue to monitor that closely. Then, of course, in Europe, we were losing volumes given the market. But I would say in relative terms. We were standing still in some color-coating lines and some galvanizing lines and some cut-to-length lines. But overall, I think we managed Q3 in a decent way, given the circumstances. And we haven't seen the reports from other steel companies. But my guess would be that we have managed Q3 quite okay.

Okay, thank you. And then the second question, Lina, you mentioned you're generating your own energy in some cases, selling it third party. With the Raha outage, are you going to be slowing down sort of coking and similar as well, or will you mostly keep it running to benefit from off-gas generation? And maybe if you could just give an idea of how much contribution to earnings that sort of energy side makes up.

The problem with coke oven batteries is that you start them and then you run them until you stop them, and then you never start them again. So we will continue to run the coke oven battery. We will take down the blast furnace for six to eight weeks, and then we will produce coke, and we can also then produce electricity in our power plant in raw from those gases. So we will continue to do that. So maybe have slightly less consumption of electricity ourselves and then on the margin sell more to the market.

Could you help us with the quantum of how much electricity you're selling or how much revenue you're selling?

No, I can't really, but as Lena said, electricity is around 3% of our total cost, and we produce roughly 50%. If you take away U.S., which is a different story, we produce roughly 50% of what we consume ourselves from using gases, and then producing not only district heating, but also electricity.

Okay.

So what I'm trying to say is that it's not a game changer in any way.

Sure. And with the Raha outage, I mean, if the market stays where it is, would you bring it back today or would you rather keep it on maintenance at the end of that period? six to eight week period.

That of course remains to be seen. What we have decided now is six to eight weeks, which I think, and this is a timing issue. I think the timing is good to do it now. We need to do it anyway and we expect the market to be better within a year or within one and a half years. So it depends. I mean, there is an uncertainty in Europe, of course, given the war, the inflation, the energy prices, of course, for Q4 and We don't really know how Q1 will look either, but of course, if worse comes to worst, we have a possibility to prolong that outage if the market so requires. But that's not the current plan.

Okay, that's clear. Thank you. I'll turn it back.

The next question is from Tristan Gresser with BMP Paribas exam. Please go ahead.

Yes, hi. Thanks for taking my questions. The first one is on the U.S. plate market. We've seen prices come up a bit and they're now stabilizing again. Can you discuss about the dynamics in the market there and maybe is there now a structural reason for higher premium versus HRC than in the past? It's been some quarters we talked about it and every quarter kind of surprised the upside. And also you mentioned the infrastructure bill. Have you quantified the positive impact in terms of demand for this market?

To start with, I mean, last year we saw, which is typically abnormal, we saw strip prices being higher priced than plate prices. Now we see a more normal pattern. But I agree, I mean, the difference is, at least from a historical perspective, quite high. We have seen plate prices coming off a bit, but we have also seen raw material prices coming off. So we still have good margins in North America. I would say historically high margins. That will, of course, I mean... To be honest, the most volatile business we have is typically over time at least the US standard plate market. But we have seen some changes also structurally in US. We have some of our competitors that are dependent on imported slabs that used to take it from Russia. That is not possible anymore. On the other hand, we have in end of Q4 or beginning of Q1, a new course, new facility coming on stream, not mainly targeting our segments and customers, rather some of our competitors. But it is hard to see exactly whether this will go midterm. For Q4, we are fairly confident because we have the order book. And when we look a bit more long-term, we see possibilities without having quantified them externally. We see possibilities with this infrastructure build and also need for other types of segments to invest that requires plate.

Okay, that's very clear. My second question is if you can discuss a little bit the patents. You flagged with hybrid technology. Am I right to understand that anyone using a DRI plant with hydrogen will do something similar to what you've been doing? And how does that work with those patents? And also, it was pretty interesting the press release you had on the superior mechanical and properties using hydrogen products. with the DRI facility, if you can also comment about that and give us some details on what the findings are, that would be appreciated.

Thank you. First of all, we have filed for a patent. We haven't gotten the patent yet, but we have filed for a patent. And exactly as you're alluding to, I mean, these are very much about mechanical properties. And typically when you produce this type of material, DRIs, you briquette them. So it's called HBI, hot briquetted iron or HBI. So you need to briquette them. And we have developed a technique where the mechanical properties and other properties are also good, so you don't have to do that. So you can skip one step. And then you have a much easier to ship it because it will not fall apart and it will not either take back any oxygen into the iron. If everyone else needs to use this or not, I'm not sure. There are probably other techniques, but this is a very cost-effective technique developed by hybrid with good mechanical and other properties. That's why we thought it was so important. And we thought a bit about if we should keep it secret or try to patent it. And we decided to patent it because that also gives a possibility if we would so decide in the future for hybrid to license out the technique.

Very interesting.

Thank you. It is very interesting. And we are, to be honest, extremely proud of it. the hard development and we have put a lot of efforts in together with Vattenfall and LKAB into R&D and a lot of money into it. So we are quite proud so far. Thanks.

The next question is from Rohus Brownizer with Kepler-Schebre. Please go ahead.

Yes, good morning all, and thanks for taking my questions. I have a follow-up question on your Q3 production. I think looking at the Europe segment, it appears that you have overproduced crude by some, let's say, 200 KTs. To what extent is that higher crude production attributable to, you know, weaker production apparent in coming from destocking and to what extent have you been surprised negatively on the end customer demand? So a bit more flavor, what went wrong on the volume side would be appreciated as first question.

No, but we have been having stable and good production in the hot end and we have been producing slabs in advance of outages. I would say on the margin, two high slab stocks. And that's why we also took the decision to take this outage in Q4 and to consume the slab stock. And we can, if the market improves, we can improve slab production in Oxelösund and Luleå to some extent to mitigate that. But I mean, this is a decision of that... We took because we expect the market to continue to be weak. We have good slab availability, and the timing was good to do that 12 to 18 months in advance of the plan to handle, among other things, the slab inventory and to release working capital.

Okay. Great, Martin. And would you expect, based on the real-life decision in Rohe, that the excess slabs you're holding are being removed by the end of the year, which would then lead to corresponding working capital releases. Is that what we should expect?

You should expect decent working capital release in Q4, not only from slabs, but also to some extent from finished goods and from raw material. Because as I said, we have been buying, we took the decision to be better safe than sorry during the turbulence this spring where we decided to stop buying PCI coal and coal and pellets from Russia and We had to find new suppliers, and then when you also find new suppliers, you need to buy a bit more than you actually need because you need to test the material in the blast furnaces and so on. So that was a decision we took at that time, and that was the right decision. Now we have slightly higher stocks or higher stocks than we need, as Lena said during her presentation, and we will now consume that in Q4 and partly in Q1.

Right. Looking at the European market a little bit more holistically, I think you're now joining the party of others who have already taken decisions to take out capacity and it appears that probably most of this is now concentrating on the Q4. What is your sense about the market evolving from here? I think some marginal production in Europe is taken out wherever the energy costs leading to negative contribution margins. Do you think this can be handled by the market itself, or is there the risk that the imports are pushing more into the European market? So how do you think this is playing out into the first part of next year?

One of the big exporters into Europe is gone now. I mean, there is no Russian material in Europe. We still have slab imports, but that will gradually be taken down due to the new sanctions to the re-rollers. Yes, there could be from time to time import, and there will always be import into Europe. But I think the steel industry as such has learned a lot over the last number of years. And in a normal business cycle, there is a very limited structure of capacity left in Europe. So I think... My guess would be without knowing that the steel industry can handle this in a much better way than we did a couple of years ago at least. And then it will be dependent. What will the demand be then? What will be, I mean, especially during the winter with energy prices and especially during the second half of December, will customers take the opportunity to stand still due to high electricity prices and so on? I mean, that is what we are preparing for. And then we'll see how it plays out. But We have a decent order book for Q4, so for us it looks, I would say, almost okay in Europe in that aspect.

Yeah, got it. And maybe last, final one on special steel. Compared to what you guided, volume turned out to be weaker. Pricing came in quite strong, actually. Can you explain a bit more in detail the moving parts, how – why the quarter came out turned out to be a bit different to what you expected.

And we took a decision during the quarter to focus on price efficiency and did the calculation and the math, and this was how we decided to run it. For Q&T, the underlying demand is still very strong, and we have a strong order book for Q&T into next year. What we have seen, some effects is on advanced high-strength steel and hot-rolled products, where we have seen a slowdown. But apart from that, for Q&T, very good demand.

Okay, excellent. Many thanks.

The next question is from Patrick Mann with Bank of America. Please go ahead.

Thank you very much. I wanted just to maybe come back to Elaine's question on capital allocation. So big net cash position, working capital release into Q4 and Q1. What are you going to do with all the cash?

Thank you. Well, as I've said many times before, that is a very positive problem. And, of course, at the end, decision for the owners because this is not our cash. This is the owner's cash. And there are different techniques for that. And all of them requires a decision at an EGM or an AGM. So that is still my answer. But you should expect us to, over time, even though we didn't do that in Q3 for obvious or explained reasons, continue to generate good cash flows. That is what we are focusing on. And then the rest is fairly easy to solve and a positive problem to solve.

Okay, so we should wait for an AGM or for... No, I'm not saying that.

I'm saying that some of the decisions to... use that is decided by the agm but i mean as i see it my responsibility and the company's responsibility is to continue to generate strong cash flow and that's what we are focusing on got it and if there were to be an update to capital allocation policy can you give us any idea on timing or as i said let me come back to that okay

And then maybe just a follow-up on the hydrogen DRI, and I agree with the previous caller who said it was very interesting. I mean, these mechanical properties and what you're patenting, is it specific to hydrogen DRI, or do you think it could be applied to even natural gas DRI as well? Could you end up licensing this?

To be honest, I don't know. I know it is attributable to hydrogen production and that we get better mechanical properties than if you would do the same with natural gas. I need to check with Martin Pei and the technical doctors. I'm not an expert, but I know that the patents and the technique we have developed is very promising. And as I said, we are happy and proud about it within the hybrid project. But if that could be used, if I would guess, and I shouldn't guess, but if I was forced to guess, I would say probably not. But I don't know, to be honest. So take my guess for what it is.

Okay. Thank you. Very interesting. Thanks very much.

The next question is from Moses Ola with J.P. Morgan. Please go ahead.

Hi. A strong set of results, but the only thing that obviously sticks out is the working capital build, and you touched on it briefly. You mentioned 50% of that is high raw materials, and you spoke on you know, releasing finished good inventories over the next few quarters. But how much of a release in finished goods could we realistically expect? You're guiding for low shipments, which will probably continue for the next few quarters. And once Raihi comes back online, you're again probably producing where you're tracking higher productions than shipments. So how much of finished goods release could we expect realistically over the next few quarters? And then also, could you give any color on the volumes from the Volvo uptake and any guide on volumes for possible pre-steal near or mid-term?

First of all, we are not guiding for any working capital release. We have, of course, internal targets that we are following up every week with the divisions, and Lena is leading that work. We have these operational call, as always, every Monday. 4 o'clock with the division heads, me and Lena, and this is on top of the agenda. I'm not super worried because we have managed to do this before, and we have good plans in place to do this. Exactly on the crown, how much it will be, let's come back to that, but it will be a working capital release in Q4. Then when it comes to the second question, volumes, we are – The problem we have today with fossil-free steel volumes, we are using the pilot plant, and then we are melting the produced fossil-free sponge iron in electric arc furnaces, but we only produce one ton per hour when we are running the campaigns. And there is, I would say, a huge interest among our partners to get those volumes. And we have started with Volvo and some others. But we're also building up the market for 2026 when we are going to produce in a larger scale than to start with in Oxelösund and to some extent in Borlänge. We're building up that market together with partners as well, starting to qualify products and volumes and so on. Then we have also developed a small scale, but very interesting, own production of fossil-free steel powders. So we are now with customers also starting to 3D print prototypes and so on in fossil-free powder, where we use offcuts, which you always will get from when you produce steel. And we use the offcuts for fossil-free steel, produce powder, and then work with customers We have invested in 3D printing. We are not going to become a big 3D printer, but we are going gradually to increase our capabilities of producing fossil-free powder for 3D printing. So it is a struggle to find the best homes for the volumes we produce today and at the same time build the market for 2026 and onwards. And unfortunately, we don't have yet the capacity in the pilot plant, of course, to fulfill the demand we have with among our partners. Thank you.

The next question is from Christian Kopser with Handelsbanken. Please go ahead.

Yeah, thanks for that, operator. on the parallel. So, I apologize, Martin, and I have already answered these questions. But still, a couple of questions you might have. Firstly, it's about specialty in the mid-term, 2023, 2024. So, maybe for you, Martin, are you still sticking to your target to ship 1.6 million tons of specialty volumes next year?

Yes.

Thank you for that. Secondly, it's about hybrid and those sponge iron volumes that you plan to feed into Voxelos in 2026, if I remember correctly. Are those sponge iron volumes fully expected to come from hybrid or are they expected to come also partly outside of hybrid?

know from the hybrid project and then we'll see who will be the actual producer, if it will be hybrid or LKAD, but it will be hybrid technique and it will be hybrid sponge iron. So we're not planning to buy any external fossil free sponge iron. We will produce it within the corporation of hybrid and use this new technique and these patents and use that sponge iron. And then of course we have the possibility also to use scrap if so required.

I just wondered, Martin, when you will decide if the production will be in hybrid or if it will be in LKAB, when you will decide that.

Well, we are discussing that within hybrid and no decisions taken yet. It could be either or.

All right. And for the full CAPEX program for oxalicin, that's still valid as you have seen previously?

Yes. Yes.

Right. Just to follow up on that, because we have seen, you know, giant cost inflation across the industry. So how are you able to maintain the CapEx budget despite everything going up?

Well, budget is always a budget, and we have seen cost inflation. We will see also, I mean, prices are moving up and moving down. We haven't – but so far, we have not really – change the big picture when it comes to the budget. And that means, of course, that we had in that budget some contingencies and other. Of course, yeah.

The next question is from with Deutsche Bank. Please go ahead.

Yes, good morning, all. I've got a couple of questions left, and I'd like to start with costs, please. So you say costs are going to be stable, and of course there's still more expensive inventory you will have to chew through. But overall, I guess the raw material basket and also energy costs will give you some relief over time. I understand you probably have also built in a bit of cushion for scrap prices, which may typically rebound for seasonal reasons. But would you still describe your cost guidance as conservative from today's point of view? And I'm asking because in each of the last quarters, You kept part of your guidance framework on the very conservative side and then basically kept delivering better. That would be my first question.

Well, I don't know, Liana. Are we too conservative?

I like to be conservative.

No, but I don't think that we are too conservative. I mean, we are trying to describe... the situation we see and the outlook we see and then obviously we miss some volumes in Q3 and that happens but we are not sandbagging or trying to be conservative or anything we try to describe what we see and what we expect and I would hope that we are often right and sometimes we are slightly wrong

Fair enough, thanks for that. Then secondly, could you give us some sense on how far you're currently utilizing your capabilities on the defense-related segments, and do you still see a growing order book on that front?

Unfortunately, we see a growing order book on that front, and that is not, I mean, it is positive for SSAB, of course, but not positive for the world, but And we expect to deliver somewhat more to that segment next year compared to this year. It is, I mean, we are fully booked in, we're fully utilized in Oxelösund, so it's about also shifting the mix. And even though we talk a lot about special steels, there are a lot of different products within special steels as well, where we try to improve the mix all the time. So we divide it into what we call specialty products and call it mainstream, then the hard oaks and the ones. And within specialty products, Armox is one example with, I would say, good profitability. So we are trying to meet the market demand, but also over time, not only for Armox, but for the specialty products, increase the volumes, which makes a difference, also in specialties.

Yes, of course. I think it's obviously much, much more profitable. Can you give us a little bit of sense on the quantity of the volume growth? Is this going to be Maybe even like 100,000 tons? No, no, no. Could be showing here over here?

No, not that much. It's more on the margin. I don't know what did we sell last year. Was it 10,000 tons?

Yeah, something like that.

10,000 to 20,000 tons. So it will not be another 100,000 tons.

And then lastly, coming back on your green steel strategy, we obviously have seen electricity prices have increased a lot, even in the northern parts of Sweden. And as you say, availability of large amounts of cheap and green energy will also be key for your decarbonization plans. What is your view on the current situation? Do you see more competition for this cheap electricity already? And also, have you already signed any larger PPAs, and what would you pay if you were bidding in the PPA today?

No, but we have a fairly good idea of what we would pay if we signed it today, but this is premature. We have not done anything like that yet. I mean, this will require, and the plans in Sweden and Finland are to build out fossil-free power generation and also build out over time transition capacity. So the biggest question is the relative price in the future in the Nordics compared to, call it mainland Europe or Germany, France and so on, so that we're looking into as well. We are pushing hard for now that, I mean, not only SSAB, but the industry needs more fossil-free power generation. And I think the new government has recognized that as well. So it will be a continued intense dialogue with the Swedish and Finnish governments.

So basically the increase is nothing which varies your view. What you're sort of betting on is the spread versus mainland Europe. That's what is ultimately relevant for you.

No, betting and betting. But I mean, there are so many factors you need to take into account. Costs of emitting carbon dioxide, the relative electricity price the cost of producing sponge iron so there are a lot of factors to take into account and and that we are drawing different scenarios and different to call it different scenarios on and and when we do that we see that for ssab and also given what you can get for fossil free in the steel in the future compared to the cost and what you can get for non-fossil free steel in the future compared to the cost of producing it. We think this is the right way to go for SSAB. And we also need to remember that over time we talk about more or less the same amount of money with the two options of investing in new production sites, mini mills, or to keep the existing production sites alive. And we'll get much more flexibility and much more effective production with much lower lead times. So there are a lot of moving parts in this calculation that you need to take seriously and do a lot of different scenarios and thinking around.

Okay, perfect. Thanks, Martin.

The next question is from Grant Sporey with Bloomberg Intelligence. Please go ahead.

Good morning, and thanks for taking my question. I've just got two. The first one is on Tidnor, and you obviously had sort of an inventory revaluation loss in the third quarter. So my first question is, Is this, you know, is this done? Do we sort of get a return to more, I can use the word, more normal inventory position and let's say repricing environment for the fourth quarter?

Well, that will of course depend on the price, where the price is moving in Q1. I mean, what we have seen during the first half of the year is positive revaluation of inventories, which is typical in a wholesale business like Tivnor or a stockholder business like Tivnor. And then we saw a reverse of that in Q3 with windfalls and negative revaluations. And then in Q4, it will be dependent on where the prices will move in Q1 when you do the revaluation at the end of Q4.

Okay, got it. All right, got it. Thank you. And then my second question, and Lina alluded to it, in terms of on your cash flow statement, there is the other financing activity, and I think that refers to the revaluation of some of your U.S. assets. I just want to make sure that I understand that dynamic correctly. Okay. And let's, for instance, say we had a revaluation of the Swedish crown versus the dollar. Would that turn negative going forward?

Well, depending on the effects rate development, yes. If we compare to last year, year-to-date outcome was negative. And this year, now that the Swedish crown is weaker, it's the opposite impact. So that is depending on the effects, definitely. And I said it is mainly US-based assets that are bringing this positive impact in this quarter. So that is a quite substantial positive impact, yes.

Got it, okay. Thank you very much.

The next question is from Andrew Jones with UBS. Please go ahead.

Hi, Martin. I'm just curious about the progress of this 1.3 million tonne spun jam project. You talked about it still being up in the air as to whether hybrid or LKAB operate the project, but given the fact that you've all jointly funded this, jointly agreed some European financing, and the IP is within hybrid, Is there a risk that you do not see a third of the profits from this project? I mean, could LKAB essentially do it all on their own? And how do you get compensated if they do operate the project alone? And fundamentally, I mean, how do you see yourself as a company going forward? I mean, do you see... where you add value as being on the steel side, or are you very keen to move upstream and do more on the sunshine going forward? Thank you.

First of all, I mean, regardless of who will actually operate the demonstration plant, all the IP and all the knowledge will be within hybrid development, the company that we founded together with LKAB and Vattenfall. Secondly, I think it's so important to remember that SSAB has not changed our strategy. We will still continue to focus on mixed improvement, on special steel volumes, to grow special steels where we have much more resilience over the business cycle, where we have better profitability over time, and where we have a very strong position globally. So what we are changing is the way of producing steel in order to get rid of carbon dioxide emissions, which is one of the biggest problems within the steel industry. And as you know, the steel industry stands for almost 10% of the global emissions for carbon dioxide. And we need to do our homework. But we have not changed our strategy. We will continue to focus on special steels. We will continue to focus on advanced high-strength steels and other niche products within SSAB and continue to shift the mix to more and more profitable and advanced products. But we will change the way of producing it. And we will do it in a more flexible and cost-effective way and also in a way that avoids carbon dioxide emissions. So that is SSAD and that will continue to be SSAD strategy.

So you don't see it as a priority to control the upstream. You potentially would be happy to buy it.

We are buying pellets today as iron units. And for me, that's not the big question. The important part is that we are part owner of the technique and the patents that we are developing within hybrids. And then we need to discuss within hybrid and together with our partners who will actually operate. And that could differ. I mean, we have all three of us or both SSAB and LKAB have the possibility to operate plants like this. It could look one way in Sweden, another way in Finland, and a third way in U.S.

Okay. Cool. Thank you.

Gentlemen, there are no more questions registered at this time.

Okay, then we can conclude today's conference. Thank you, Martin and Lena, and thank you all the audience for listening in. Thank you for all the attention, and we wish you a nice day.

Thank you very much.

Thank you.