SSAB AB (publ)

Good morning and welcome to this presentation of the SSAB Q2 report. My name is Per Hillström. I'm Head of Investor Relations at SSAB. Presenting today, we have Martin Lindqvist, President and CEO, and also CFO, Leonid Trejalius. If we look at... Oh, sorry. If we look at the agenda, here we have the agenda. Martin will start with a brief overview of the quarter. Then Lena will come with some more details on the financials. And then Martin will close up with the outlook and a summary. And at the end, we will have time for questions. for your questions. So by that, please, Martens, start.

Thank you, Per, and good morning and welcome to this quarterly presentation. We start with some highlights. We saw somewhat higher earnings in Q2 compared to Q1, but of course a big drop compared to the very strong or exceptionally strong second quarter last year. We saw continued good results in special steels in Americas, but we also saw the European market weaken during the quarter and getting an uncertain outlook for the rest of the year. And in order to meet that and mitigate that, we focus on two things, cash flow generation, I will come back to that, and then actions to lower costs. And we have, during the last couple of years, built a flexible system or a more flexible system. where we can take away temporary employees, we can do some structural changes, we can work our banks, we can reduce new hires and other fixed costs. So the target is to reduce, on a group level, costs by more than 500 million SEK on an annual basis. We saw a continued good trend in safety, and this is lost time injury frequency per million working hours, including contractors. We are just north of one lost time injury per million working hour, which is good development compared to the last number of years. And we continue to focus on the ambition to become the safest steel company in the world. We continue to generate decent cash flow and we had a decent cash flow generation during the second quarter as well. The reason why the balance sheet is slightly weaker than the end of 2022 was that we paid out 9 billion SEK in dividend during Q2. But as I said, strong balance sheet within our financial targets. If we look at special steels, earnings continued on a good level. We had an operating margin or an EBIT margin of 23%. We saw in Europe for strip-related products, slightly weaker market, or we expect slightly weaker market than in Q2. No big changes, but some hesitation. But overall, a good and strong performance. Americas continued with earnings on a good level. We had an EBIT margin of 34% during the quarter. The shipments were somewhat lower than in Q1, and we experienced some bad weather conditions during the end of Q2. We had some thunderstorms and other things happening, so we missed the shipping targets. With a couple of days or a week, and that will come back in Q3 then, but that led to somewhat lower shipments in the second quarter compared to our internal plan. We saw stable market pricing during the first half of the year, so on good levels and stability for plate prices. In Europe, we had a better result than previous quarter, but of course a big drop compared to the very strong second quarter of last year. Here we see the measures to become more cost effective or to lower cost and meet slower European market. We had stable production, we had stable shipments. Automotive advanced high strength steels continue on a high level. We also see that we had very low shipments to construction-related products, and that is also visible in rookie construction. And we saw spot prices moving down during Q2, and that will be visible in Q3 in our P&L due to the normal lag. If we look at Tibnor, we met weaker market conditions. Q2 last year we had record high earnings, including inventory gains. This quarter we had inventory losses when we revaluated the inventories. Here we also do measures to lower costs in line with what we do in SAV Europe. And then rookie construction, we usually see a seasonal improvement compared to the winter season in the summer half year, so to say. And we saw that, but that was much less pronounced than a normal year. And we do cost savings there, and we saw some of it visible already in Q2, but the majority will come in Q3 and Q4. And as I said, All in all, on a yearly basis, we aim to reduce costs with more than 500 million. If we look at the transition, the green transition and sum up Q2, we continue to ramp up the production and the sales of SSAB0 with the big and huge interest from the market. We formally and the board took the decision of the transformation in Oxidescend during end of May. And we have started a project to explore eventual possibilities for DRI production in Ra in the future. And this fantastic picture is from end of May or beginning or in June when the TTC meeting was held in Luleå. So we had Secretary Blinken and some other high-ranked politicians and officials visiting our hybrid plant and giving us the opportunity to explain what we are doing and what we are aiming for. And if we look at the plan to convert SSAB into a fossil-free steel company, I would say that we are on track. We are ramping up the zero steel production with the ambition to produce and sell at least 40,000 tons this year. We took the decision end of Q2 to convert Oxelösund And the next step will be the two mining bills, one in Rohe and one in Luleå, and those decisions will be taken 24 and 26. And if we look at what we are aiming for, and this is repeating a bit from the Capital Markets Day, but still, we took the policy decisions in January 22 to convert SSAB into fossil-free steel production. And in Luleå, We are aiming for building a mini-mill with melt shop, hot strip mill, finishing and shipping, cold mill complex, an integrated process with melt shop, hot strip mill, cold mill complex in one facility there. We are very dependent on grid connections and electricity. We have discussions with relevant authorities when we will get that possibility to get electricity. In Ra, we are also planning to build a mini mill and close the existing blast furnaces and strip mill and coke plants and so on. We are also aiming to build an integrated process with steelmaking and direct rolling in one process line. And we are also looking into the option to add hydrogen DRI production. Here we have positive signals on grid connections and electricity. So I would say overall, we are following our plan. The challenge is, of course, grid connections and electricity. With that, Per.

Very good, Martin. Thank you. And then we invite Lena here to discuss a bit more the details of the financials. So please, Lena, go ahead.

Thank you, Per. Let's start with the group overview, shipments, revenue and EBITDA. As already Martin mentioned, these shipments were slightly lower during Q2 compared to Q1, 15 kilotons to be exact. And here the graph is summarizing the steel shipments and it looks like we would be on the similar level compared to previous year. but we need to add here the Tipno and Ruki construction volumes, which is then illustrating that we are on a lower level, as already mentioned in the previous slides. Revenue trend well in line with the shipments, quarter on quarter, and yes, lower than last year, mainly driven by the 12% lower average prices this year compared to last year. And no need to remind that last year was exceptionally good. EBITDA development, on the other hand, slight improvement in Q2 compared to Q1. Let's dive into more details. Quarter on quarter operating result improvement at 230 million SEK. Prices compensating for the higher cost. Mainly improvement in SSAB Europe. Maybe to mention that during Q1, we were delivering spot deals that were impacting the average price. We had no spot deals during Q2. So the product mix was improving on top of the underlying price development. Prices in this graph does include the positive impact of the FX, which on the other hand is then opposite impact in the variable cost. Inventory adjustments, inventory value went down and some higher cost when it comes to CO2 emission rights. Volume, minor impact, negative impact, quarter on quarter. Fixed cost higher during Q2 and that is mainly seasonal impact with summer workers and also the salary index impact is coming through in Q2 in the salaries and some higher cost of materials and services. Minor positive impact of FX and then the capacity utilization also contributing positively to the result. So the utilization rate was slightly higher during Q2. Comparison to the exceptional year last year, Q2, we can see that the price is clearly lower. And this is now mainly Europe division and Americas, while special steel division is still holding prices rather well compared to last year level. Here also the effects have a positive impact in prices while negative impact in the variable cost analysis. To remind that last year we were building up inventories with rather expensive raw materials and we were building safety stocks and this year we are actually reducing the inventories so in the bridge analysis it is then impacting negatively. and also some higher CO2 costs compared to last year. Fixed cost here we have some higher FTEs, higher salaries and also we can see that the cost of external materials and services is higher. So on a total level this is around seven percent higher fixed cost compared to last year. And the capacity utilization here also positive. And we can mention that during this year, during the first half of the year, the production has been more stable compared to last year. Solid cash flow already mentioned. Earnings as illustrated in the previous slides. Good performance in the working capital, positive impact, mainly due to inventories. And you can see last year it gave a big negative impact with the piling up of the inventories. Somewhat higher maintenance cost. The other line here is related to purchase of CO2 emission rights. Financial items positive with interest income. Taxes on a similar level as last year. Strategic expenditures lower than last year, but this will pick up now with the Oxelösund conversion project going forward. And then positive 61 here is related to a sale of G&G mining entity in Australia, deal done by Special Steel Division. And the dividend close to 9 billion at the bottom of the table. End of Q2, still very strong financial position, net cash position 11.7 billion and the net debt equity ratio minus 17, which is in line with our financial targets, plus minus 20%. In June, we were issuing two new sustainability-linked bonds in line with our EMTN program. Five years maturity, a total of 2.1 billion. And at the same time, we were buying back around 900 million SEK worth of bonds, so the net of 1.2 billion. We were rather moving this short-term bond portfolio to be longer-term. Raw materials, the iron ore has been fluctuating, but all in all during Q2 it has been rather stable. The consumption cost has been rather stable, somewhat lower compared to Q1. The outlook with the iron ore is that it will remain to be stable and somewhat lower cost in Q3. Coking coal, it was peaking during last year, has been leveling out. We had expensive raw material inventory, but as a trend, we can see that it's also coming downwards in cost and volume. And the outlook for Q3 is that it will be somewhat lower. to bear in mind that the PCI coal inventory we still have rather high and compared to the latest market prices it is still a rather high cost for us. Scrap costs stabilizing and the outlook is that it will remain stable also going forward. This slide we haven't updated for quite some time. We still anticipate the cash need for this year to be around 11 billion. And compared to last year, the increase in the capex is related to oxalozone conversion project. And this is actually my last slide, just to remind that we are starting the annual plant maintenances during Q3. Q1, Q2, we didn't have these big maintenances, but in SSAP Europe, we are starting maintenance in Raahe, Luule, Hämeenlinna and Bolenge. And then in special steels, Oksalösund is starting their annual maintenance at the end of Q3. And naturally this will have an impact to the outlook when it comes to volumes.

Yes, thank you, Lena. And then we can invite Martin back again to close the presentation part.

Thank you, Per. So if we then look into the third quarter and look at the market segments and start with heavy transport, we see signs of slowdown in heavy trucks in Europe. We see very healthy demand from rail cars and shipbuilding in the U.S. overall, I would say neutral quarter over quarter. Automotive, we see structurally growing market for advanced high-strength steels, but we also see signs of slowdown in car demand, and that is of course due to inflation and higher interest rates, but overall I would say quarter-on-quarter neutral. Construction machinery, good demand in North America, somewhat weaker demand in Europe, and China continued to be weak demand, so somewhere between weak and neutral. Material handling, somewhat cautious sentiment within mining, stable demand in recycling, so overall I would say also neutral. Energy being strong, good demand from wind power and other renewables and that is especially I would say for our US operations. Construction continues to be weak and we expect the Nordic construction market to continue to be weak throughout 2023. And then the swing factor, service centers. In the US, we see low inventories in the supply chain, but we also see service centers being hesitant due to price levels, but overall very low inventories. In Europe, the inventories are more normal, and we see a wait-and-see mood among service centers, so somewhere between neutral and weak. overall neutral to slightly weakening segments with the exception of energy. If we sum that up then to our outlook, we say that demand in Europe weakened during Q2 and there is a risk of a more pronounced downturn than normal in Q3 because we typically see a seasonal slowdown. Demand on the heavy plate market in North America is expected to continue at a good level. And for high strength steels, the market has been good. It will continue to be good, but we see some small signs from customers of a more cautious sentiment. So when we To sum it up, for special steels, we expect somewhat lower shipments and prices. For Europe, we expect significantly lower shipments and lower prices. And for Americas, we expect somewhat higher shipments and stable prices. So to sum it up before we open up for Q&A, continue good trend in safety. Weak European market, we have taken measures to reduce costs. We continue to have good cash flow generation and we should continue to generate good cash flow and have good cash conversion. We have a strong financial position and we are following our plans when it comes to the green transition with the decision in Oxelösund, the ramp up of SSAB 0 and so on. So far, so good when it comes to our green transition. With that, Per.

Thank you, Martin. Then we can prepare for the Q&A session. As always, I'd just like to remind the people calling in, it's perfectly fine to ask more than one question, but please state them one at a time to make the process smoother. By that, please, operator, can you present the instructions for the Q&A session, please?

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. If you wish to ask a question, please press star 1 and 1. We will now go to your first question. One moment please. And your first question comes from the line of Alan Gabriel from Morgan Stanley. Please go ahead.

Yes, good morning, everyone. Two questions from my side. So I'll start with the first one. Martin, your outlook and price volume comments for Special Steel were not particularly bullish for Q3. How confident are you about the margin resilience of that business in the next two quarters of the year? And if we look at 2021, the EBITDA run rate of that business was half of what you have achieved in Q2. How different is the environment now versus then? That's the first question.

I'm very confident that we will have more stable margins in special steels than Europe, as an example. They will be on a higher level over time and much more stable. We have seen that after a very strong couple of quarters, we see some hesitations on the European market. And I guess that's due to high interest rates and inflation and so on. But overall, underlying good demand and structurally the demand will continue growing. to improve. And we have had, when it comes to the Q&T products, we have had challenges to meet the demand with production. So we have been producing at very high levels. And so it's more the strip-related parts of the special steel business where we see some hesitation.

Thank you. That's clear. And the second question is on the gearing ratio. The net cash to equity ratio is at 17%, which is very close to the 20% lower band of your gearing target. Should we see the 20% as a trigger point for the buyback?

No, but I said we have the mandate now. And for me, it's more about timing. So we will come back to that. But we have a decent balance sheet, and as I said many times, this business should continue to generate strong cash flows, independent of the business cycle.

Thanks. Thank you. We will now go to your next question. And your next question comes from the line of Tristan Gressa from BNP Paribas. Please go ahead.

Yes. Hi. Good morning. Also, two questions from my side. The first one is on the plate business. You're guiding for stable prices, higher volumes there. The market environment seems to remain supportive today. Do you believe that the stability of this business and the prices we're seeing at the moment is due already to the increased demand from higher infrastructure, renewable demand as well, or have those pockets of demand yet to materialize? And as of today, do you see any reason for those market dynamics to materially deteriorate in coming quarters? That's my first question.

I mean, we see a strong underlying demand and the U.S. plate market is structurally undersupplied. And what you typically would see in a situation like this with a strong U.S. dollar currency or a strong currency would be higher import. We see some import, but I think... They're smelted in America. These programs that are introduced gives us confidence in the coming quarters as well. So we expect, I said, I mean, the visibility we have and the order intake and the order book we have for America is for Q3. And there we see stability when it comes to pricing and volumes. But if anything, I mean, if you look at the underlying sentiment on the market, it remains positive.

But have you seen a pickup from infrastructure and wind power over, let's say, the past two quarters?

I think the pickup, there are a lot of especially offshore wind projects being planned, and that will materialize. We see a strong demand from energy, but the big projects are yet to materialize. Okay, that's clear.

And my second question is more on the decarbonization issue. I mean, we've seen some of your peers unlocking very large CAPEX and now OPEX subsidies as well. And I know you're still in discussion for the next DRI plan, but is there any reason why you would not ask for some level of public funding more directly for the DRI plan or the EEF? Is that in the cards when you make that decision?

Now, we have asked for help to develop the DRI plants, and we have also gotten from the European Union some positive signs. So we are working with that question, and it is, of course, an important topic, but I think the most important topic is to be quick on the market and to the market and be able to supply the demand we see and the interest we see. And that's also why we introduced this SSAB Zero product, where we produce steel, not from virgin iron ore, but from scrap, but without any emissions. And there has been a huge interest on that. And we need to ramp up that and we need to continue our journey according to our internal plans, because the demand on the market is definitely there.

All right. Thank you.

Thank you. We'll now go to your next question. And your next question comes from the line of Tom Yang from Barclays. Please go ahead.

Hi, morning. Thanks very much for taking our questions. Two from me as well. The first one, just on the cost savings. So you're trying to get to a 500 million annualized run rate. Maybe if you can just help First with the timing, and then two, just how structural those elements are. I mean, I already see in Q2 there's 20 million in rookie construction. Maybe you can just give an idea of how much of the additional cost savings are coming in Q3 and then more in Q4. And then just an idea on whether those are mostly temporary or more structural.

That's the first question. What we have done during the last couple of years is to set up the organization and the operations with... I would say, compared to the history at least, the larger portion of temporary employees. So we meet high demand situations with more temporary employees, and then when the market softens a bit, we don't prolong those contracts. We have also created a system in Sweden with time banks so we save time or utilize the time more than normal in a strong market and then reduces the working hours and cost during a lower market. Our ambition has been the last number of years, and that will continue because it's so important, is to increase flexibility and internally we call it lift the low point profit. That's one of the main targets we have. So in a rigid system and a volatile industry, to be as agile as possible to be able to adjust costs. the ambition is to reduce cost and with a bit more than 500 million sec on an annual basis and the full run rate i think will be seen in in q4 we saw some effects in rookie construction and there they also do structural changes because we expect the construction market to continue to be weak throughout at least this year And then in other parts of the organization, it is a combination, but it goes for the whole group. But the majority will be in Europe, TIP Norden and rookie construction for obvious reasons, but also on group level and in other divisions. So it is more about utilizing the systems, the system we have built in recent years.

Okay, got you. And then the second question, just on sort of inventories, actually, so interesting you mentioned they look normal in Europe, which is probably a bit higher than I think some of your peers have been flagging. Just wondering whether that comment is very Nordic-specific or you think it's true more broadly, and then also how you think about inventory levels at customers as well, so not just service centers. Clearly, real demand is not great, as you say. Do you think customer inventory levels are low, or do you think they're also fairly normalized?

I wouldn't say that they are higher than normal, at least. I would say maybe on the low side. What we comment is what we call the swing factor in terms of the steel service centers, and they are typically opportunistic. They try to... adjust inventories in line with what they expect for steel prices so I would say our comment when it comes to steel service centers it's on a European level and what we have read and what we have understood and in US it's for the US steel service center market where we see that because these are official statistics that the inventories are on the low side. That's very clear. Thank you. I'll turn it back.

Thank you. We will now go to your next question. One moment, please. And your next question comes from the line of Patrick Mann, Bank of America. Please go ahead.

Thank you very much. Good morning, Martin and team. I just wanted to ask a little bit more on the outlook for Europe in particular. And I suppose I'm thinking back to last year where in the second half of the year when apparent demand was very weak, we saw some capacity closures and sort of production curtailment in Europe. Do you think we might see something similar this time around or is it too early to see? Do we need to see what real demand is doing after the sort of seasonal summer break in the third quarter? That's my first question. Thanks.

Without having the answer to that question, just allow me to speculate a bit. What has changed now compared to a number of years ago is that the European steel industry have higher marginal costs because of buying emission rights. So I think the... interest to adjust production in line with the underlying demand is bigger so no one is really hunting these marginal volumes to the same extent as they did a couple of years back and and so so my guess would be that we will see if the market deteriorates we will see capacity adjustments in the european steel community We also need to remember that we have also, due to this very terrible war in Ukraine, we have lost a lot of imports from Russia and other parts. And we will also see a ramp down of semis coming out of Russia until the end of 2024. So I think maybe the volatility on the European market for those reasons have decreased a bit.

Thank you. And then the second question, just on working capital, you had a release this quarter. How should we think about it for the full year and for the next couple of quarters? Thank you.

No, but you should think about, we call it cash conversion internally, and we have a high target for this year when it comes to cash conversion. So the profit should to a very large extent come out as free cash flow. And then we went into this year with high raw material inventories because a year ago or a bit more than a year ago when the war broke out, as everyone else previously bought a lot of raw material from Russia and we stopped that the same day as the war broke out and we had to look for other suppliers and when you do that you're not used to using different type of PCI coals and so on so you need to test it out and then you need to be We did at least buy more than our needs. That's why we entered this year with high raw material inventories. You should expect them to normalize during this year. That will give the possibility to reduce working capital further. Thank you.

Thank you. We will now go to your next question. And your next question comes from the line of Christian Kopfer from Handelsbanken. Please go ahead.

Thanks. Good morning. Just a few questions from my side. Firstly, just so I interpret your short-term guidance fairly here. So my read is that if I take into account the price guidance and the raw material guidance, for special steels and Americas, it seems that you expect rather stable margins sequentially in the Q3. Right. That's good. And for Europe... Is it the same or should the underlying market come down a little bit because of... No, but we have seen, as you know, Christian, spot prices coming down in Q3.

And then, of course, the summer season in Europe is always hard to predict. I mean, July means that the Nordic market is very slow. And then followed by August, which is typically slower than in Europe due to vacation. And then it all starts again on a quality more normalized level in September. But spot prices have come down during the second quarter. And that will be with the lag we have visible in the P&L in Q3.

Yeah, that's right. Okay. All right. I mean, special steels are delivering very, very strong profitability today. What do you think, if anything, would bring that profitability down in next year? Is it primarily about Q&T demand or what do you think?

No, but when we look at this midterm and long term, we see a structural growth of Q&T demand and demand. because customers want to have more effective products that last longer, that can load more and so on. So the structural demand is growing over time, and it has been growing with 7-8% if you go back a number of years and take that, annualize that. We expect that to continue. What we also see, unfortunately, is due to the war, of course, increasing demand for armoured plate. So we will need to have, with the production system where we are producing for plate Q&T, At maximum, we need to figure out a smart way to deal with that demand. So, as you know, Armos, as an example, has very good margins for us, but requires longer lead times and takes more production. So it will be a balancing between different product groups. But when it comes to Q&T, I'm still very positive. And the underlying demand is strong. Then it can vary, of course, between a quarter or two. But the underlying demand, we expect to continue to grow in line with what we have seen historically. And that would speak for the possibility to have good and stable margins.

That's very good. Thank you very much, Martin.

Thank you. We will now go to your next question. And your next question comes from the line of Bastian Sinigowicz from DB. Please go ahead.

Yes, good morning all. Two quick questions left from my side here. And the first one is also on the third quarter outlook. I just want to follow up on costs where you single out the cost relief from Coca-Cola. But I guess there should be some relief from iron ore in Europe and then scrap in the U.S. as well, which you don't mention. So I'm wondering, have you already realized part or most of the iron ore price decline, which you show on your chart here? And maybe you can put that into context for us. That is my first question.

No, but I mean, I think we guide for a slightly lower raw material cost or stable raw material cost. So we... But you never know. I mean, scrap prices are set every month. So you really don't know. But what we guide for is slightly lower raw material prices.

Okay. But just to be 100% clear, I suppose you have not yet seen the major benefit from the lower iron ore prices.

We have a lag of between a month to two months. What we are saying is that due to what I discussed earlier, the inventory buildup of especially PCI coal, we will not see that effect yet because we are still consuming PCI coal that we bought a year ago.

Got you. Sounds good. Okay, then my second question is with regards to mix in Europe. So typically color-coded used to be a good support factor for you into the third quarter. I'm wondering how does your third quarter order book for color-coded compare versus the one, for example, you had last year, just given the softness in construction, will you still see a relatively decent support in mix? How does mix look like in the third quarter?

Well, typically we see that, but with the weaker construction market, that help is less pronounced than a normal year. But we already saw that in Q3 last year because the construction sector was slowing down, and then it has been gradually slowing down. So we are, I mean, compared to a normal year, you will see less pronounced help in mix from the construction segment because they are the ones taking color-coded. So Q3 last year, we started to see the slowdown, but there were still projects in the pipeline. They will come back, but what we are planning for, as said, is the construction market to continue to be on a low level or be tough during the rest of this year. So that's our planning horizon. If we are wrong, we would be happy, but that's what we are planning for.

Okay. Well, thanks for the color. Maybe one very quick follow-up, if I may. Just on the volume side in Europe, where you talk about a possibly weaker third quarter than normal. And let's say normal is typically around, say, minus 12, minus 15%. So I'm wondering, is there a risk in your eyes where you see your numbers falling significantly short of that level, i.e. minus 15% at the upper end? What is your current order book telling you? I appreciate there's a lot of uncertainty, but Maybe there's some early stage color you could give us when it comes to the amplitude.

No, I don't really see that risk, to be honest. Okay, perfect. Thanks, Martin.

Thank you. We will now go to your next question. One moment, please. And your next question comes from the line of Moses Ola from JP Morgan. Please go ahead.

Hi, thank you very much for taking my question. I just wanted to focus on your utilization rates. So in Q2, we've seen stable to higher capacity utilization rates. But how should we expect this to trend into year end and the potential impact on net costs? Obviously, guided for lower raw material costs, but potential fixed cost impacts from lower utilization, second half versus first half. And then I'll ask my second question after this.

No, but I mean, as Lena alluded to, we will have the planned maintenance outages during the second half of the year, and we will have that in the Nordic system. We will start in Q3, and we will have it in Q4 as well, and then we will have it in Americas as well. We have that every second year, so we will have Montpelier in Q4. But apart from that, you should expect us, or at least we are expecting to have stable and decent production, and then, of course, adjust to to the market situation. So nothing abnormal, I would say.

Okay, thank you very much. And then the other question from me, what are you currently seeing in terms of import penetration in Europe, specifically from Asia, China, currently?

Imports have increased. during the year, and we expect them to be on a higher level also going forward, what we can see now into Q3. So a bit more supply on imports coming.

Is that versus Q2 or year-on-year?

That's the question.

Thank you.

Thank you. Once again, if you would like to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. We will now go to your next question. And your question comes from Maxime Kogge from OdoBHF. Please go ahead.

Yeah, good morning. Sorry, good morning. So my first question is on the SSAB, you pointed to transportation issues that affected your shipments at the end of the quarter, and I was wondering whether you would be able to catch up on that in the third quarter, and to what extent this effect was incorporated in your guidance. What could be the impact of this resolution of transport issues?

I mean, to predict weather is always, of course, impossible, but we had some shipments that were supposed to go out in June that went out in July instead. So, I mean, it was a delay of a couple of days or up to a week, so nothing major, but that affected shipments in the U.S., and that was due to weather-related issues. I think it was some thunderstorms and some other things that made it impossible to ship out from, I think it was mobile, standard material from mobile.

Okay, okay. And if we look at energy prices, I mean, they are falling even more, especially in Sweden now. And Finns are particularly low compared to what they used to be. So they used some upside on that front in Q3 and Q4 results? Or is it already totally included in the Q2 results?

No, but as I said, the spot prices in Europe, including the Nordics, fell in Q2. And we typically see that in our quarterly prices then with a quarter. quarter of a lag, and that's why we are guiding the way we are guiding. And of course, we have the order booked for a large part of Q3, so we are quite confident in our guiding for the third quarter. When it comes to the fourth quarter, we haven't opened the order books yet. All right.

And perhaps, Leslie, you had a quite positive working capital variation in Q2. Does it mean that we should expect a big outflow then in Q3?

As I said, we went into this year with quite substantial raw material inventories. So I wouldn't say that you shouldn't expect a big outflow in Q3. We took away some of it in Q2 because we consumed it. And we will continue to consume, especially the PCI code, where we had quite substantial inventories moving into this year. And that's also, as said before, we are consuming now PCI code that we bought in a very, I would say, turbulent market a year ago. So we are still consuming PCI coal at a higher cost than the current market price. And that should be, you expect us to continue to sweat out during the rest of this year.

Okay, thank you very much.

Thank you. We have one or two further questions. We will go to your next question. One moment, please. And your next question comes from the line of Patrick Mann, Bank of America. Please go ahead.

Thank you for taking a follow-up. I just wanted to ask on the green steel and looking at DRI at Rahi. I mean, everybody else is now, I feel like SSAB led the way with Hebron and with kind of using green hydrogen to make the green DRI. But now the other, your competitors have really stepped up the their investments and have obviously received these big government grants here. Is there a risk here that you get overtaken? Or do you think the market is really looking for 100% fossil-free green steel and that this strategy of your competitors for using natural gas first and in hydrogen later is not really a concern anymore?

I think the market as such are looking for more environmental-friendly products. You need to remember that we are a fairly small steel company. I'm 100% convinced that the route we have chosen and the hardcore definition we have chosen and what we have developed will be very much appreciated by the market. You need to remember that we are already producing fossil-free steel and delivering fossil-free steel out of the pilot plant in Luleå. And now we have also introduced this SSAB Zero steel with zero emissions. Produced from scrap, yes, but with zero scope one and scope two emissions. And the bottleneck there is our own production capacity. How it will look in the future, impossible to tell. I guess there will be customers perfectly happy with using DRI produced by natural gas, and there will be other customers perfectly happy with using steel in parts of the world produced from blast furnaces with coking coal. So it will be a combination, and then hopefully in the future more and more customers will choose more environmentally friendly produced steel. But for SSAB and the segments and the customers we have, we i think we we will have a very good chance to continue to lead this development with the two products that we are aiming to continue to produce the fossil free from fossil free sponge iron or actually fossil free steel from a fossil free value chain and then the ssab zero products and that's what we are investing for but we are already on the market with those products Not too large scale, and as I said, the SCB0, we are aiming for 40,000 tons this year. Internally, I've been clear and said that it's not a bad thing to overachieve that target, but that's the target we have for the year, and that is what we will deliver on.

Got it. And then if the DRI study for Rahi is, I see it's scheduled to be completed early next year, if that is, a favorable outcome to the study. Do you have any kind of idea on timeline for that?

It's too early to say, but we need to look into options and possibilities. You always need to have a plan A, a plan B, and then a plan C. So that's what we always do, and that's what we are doing here as well. I mean, we have... fairly substantial production in northern finland and now we look at the possibility how it would look to produce dri there as well and and that study as you've mentioned will be ready next year and then we will come back with the outcome and and the conclusions it's too early to say brilliant thank you thank you we will now go to the next question

And your next question comes from the line of Christian Agual from Citigroup. Please go ahead.

Hi, thank you for taking my question. Most of them have been answered. To follow up, so the steel prices in Europe are coming down in Q3 as well as this week. So is it fair to assume that the trading business and people will continue to see those negative and fall losses from the prices?

Sorry, we had a very bad connection, so I had a hard time hearing your question. Could you please repeat it again?

Yeah, so my question is more on the tip, that given the steel prices are still coming down in Europe, is it fair to assume that you will continue to realize those negative windfall losses?

That will of course depend where the prices are heading in Q4, but I think the majority of the valuation of the stock as we see it right now was in Q2.

Understand. And then the final housekeeping question. I mean, I can see there's a little bit of a change in the maintenance schedule for special steel between Q3 and Q4. and more in the Q4 now. Is there any change in the operating plan?

No, we try to be as agile as possible when it comes to the plan maintenance and how we schedule them. They are typically, of course, better to have in Q4 and towards the later part of Q4 because in a normal year you typically see a slowdown towards the end of the year. but that, of course, is a bit complicated due to weather conditions and so on. So we try to... And the planning horizon is, of course, I mean, you can't just decide one day to do it the next day because you will need to have people and you need to have equipment and so on. So we try to be as agile as possible and as part of the flexible system we are trying to build, do that when the market situation is... giving possibilities, so to say. But we need to do it every year. That's the problem. We need to take the maintenance outages every year in order to continue to run the mills 24-7 all year round. So it's more a timing issue that we try to balance, which is not an agile system in that way, but we try to balance as much as possible.

I understand. Okay, that's it from my side.

Thank you. There are currently no further questions. I will hand the call back to Per Hilstrom.

Okay, thank you. And I guess then we can conclude today's conference call. We'd like to thank all participants, good questions, and then wish you a nice day. Thank you.

Thank you.