I'll hand you over to Claus Ehrenbeck, who will lead you through this conference. Please go ahead.
Yeah, thank you very much, Operator. Hello, everybody. This is Claus Ehrenbeck from the IR team of ThyssenKrupp speaking. Also, on behalf of the entire team, I would like to wish you a very warm welcome to our today's conference call on Q1 numbers. We released the numbers this morning, and all the relevant documents for this call and for our numbers are available on the IR section on our website. I think with that, I can finish my opening remarks and can immediately hand over to Johannes Dietsch, who will lead you through the slides that we present in the internet. And afterwards, we can then do the Q&A session. Johannes, please.
Thank you for the comprehensive introductory remarks, and also a warm welcome from my side for today's conference call on Q1 figures. Before we have a look at the financials, let me start with a short update on Nucera. At Elevator Technology, we are fully on schedule with our transaction preparations. The decision what we will do ultimately and with whom is targeted to be available at the end of this month. So we are close to the finishing line. At Plant Technology, we stringently work on the turnaround. Nevertheless, we are also evaluating our opportunities to realize best owner concepts also through the pursuit of M&A, either for the individual businesses or for the entity Plant Technology as a whole. The teasers will be sent out shortly once the NDAs with potential interested parties are signed, which is currently happening.
I'm happy to say we have decent interest from high-quality partners. Irrespective of the news flow at the beginning of the week that Premal Desai, a member and speaker of the executive board of Steel Europe, is leaving the company, we will continue with our Steel Strategy 2030. There has been no change in this regard. Not least with Bernhard Osburg. We have an experienced successor who served as the chief commercial officer on the Steel Europe board before. Moreover, with Carsten Evers, a substantial experienced manager, will join, and also with the experience, especially in researching, will support the executive board of Steel Europe as a CFO. As you all know, we are facing major challenges in the steel sector.
As far-reaching measures are necessary following the prohibition of the joint venture with Tata Steel, and in order to return the steel business to its former strengths, a concept for Steel Strategy 2030 was presented to the supervisory board of Steel Europe at the end of December. At the moment, constructive negotiations with co-determination are in an advanced stage. Once a decision on the elevator transaction is made, we will also announce further details on the concept for steel. At Automotive and Plant Technology, we are well on track. Number one, to restructure the management companies and to delayer the organization, and thereby targeting cost reduction on this level.
To counterbalance external factors such as economic strains and market headwinds, we have initiated numerous restructuring measures and capacity adjustments across all businesses and corporates, summing up to more than EUR 500 million in measures excluding elevator technology, out of which 80% are targeted for the full year and are already substantiated, and therefore roughly 60% are currently being implemented. To this end, we already realized personnel restructurings of around 500 headcounts throughout the entire organization the Q1 alone. So let me start with the financials. Overall, order intake was down compared to the previous year. While our industrial businesses developed stable, our materials business faced a significant decrease. Specifically, Materials Services came in lower year over year due to substantial fall in volumes and renewed decline in prices. Steel Europe was significantly lower on the back of decreased prices.
However, volumes came in stronger, rising by 16% to 2.7 million tons on order intake level, driven by the demand recovery from industrial customers, steel service centers, and distribution customers, mainly due to restocking for seasonally stronger quarters ahead, driving hopefully recovery going forward. Despite cyclical headwinds, the order intake profile in our industrial business remains encouraging, supported by a strong order intake at Elevator Technology, marking a new record high, as well as strong order intake at Automotive Technology. Regardless of continued difficult conditions in the automotive sector, which is driven by the continued weak sales in the world's largest market, China, Automotive Technology overall was up compared to previous years due to the ramp-up of production at new plants and projects, in particular for steering, but also for dampers and camshaft modules. By contrast, Plant Technology couldn't escape the overall environment, coming in weaker compared to previous years.
Industrial Components came in lower, mainly due to the cyclical downturn in the forging business, especially crankshafts for heavy-duty engines, while bearings showed an overall good order situation, in particular for wind energy in China. Again, to mention, order intake at Elevator Technology marked a new record high with a book-to-bill ratio well above one, and an order backlog also hitting a new record level at EUR 5.7 billion. Overall, those were driven by the positive performance in the Americas, in new installations and modernization businesses, in particular in the U.S. Moreover, there was a positive trend in service, in particular in the U.S. and China. We saw also some major projects across all regions. To mention a few examples, here are passenger-boarding bridges at the Chicago O'Hare Airport, or the new Zhengzhou Rail Transit project in China, or also the metro in Barcelona, Spain.
The largest market for new installation in China, we saw promising growth in units compared to previous year, while price pressure continues to persist in the market. Order intake at Plant Technology was down from the prior year quarter, which benefited from a major order in the mining business last year. Nevertheless, cement was up year over year on the back of medium-sized order for a cement plant in the U.S. and smaller orders for components and services, reflecting the recent pickup in customer activity. Demand at chemical plants was stable, supported by orders for electrolysis plants and equipment, for example, an energy-saving chlorine production plant in Spain. Overall, we are looking into a promising project funnel with several mid-sized projects across all businesses. Finally, Marine Systems came in at prior year level with orders in marine electronics for a German customer and subcontract for a customer in North Africa.
Then let me switch to the EBIT. EBIT adjusted for group, as expected, came in significantly lower compared to previous year, Q1. The overall positive performance of our industrial business could not offset the significant cyclical decline at our materials business, driven by the highly negative earnings contribution of Steel Europe, marking most probably the trough of the cycle. Pre-cash flow before M&A came in negative on prior year level and thus in line with our guidance. We saw operational improvements, especially Plant and Automotive Technology, Marine Systems, as well as Steel Europe. The latter one, unfortunately, burdened by the payment of the cartel fine in the amount of EUR 370 million. Moreover, in line with our seasonal pattern, our materials business recorded a high net working capital build-up in the Q1 .
Given the still limited visibility and therefore limited planning reliability for our cyclical materials and auto business, we maintain our cautious outlook for the full year 2020, expecting an EBIT adjusted to be on the level of prior year and respectively free cash flow before M&A to be lower compared to previous year. Of course, we also have to keep an eye on the developing coronavirus situation, particularly in China, and the potential effects to our business from the virus. As indicated in November, the Q1 saw improvements across all industrial businesses. However, Steel Europe came in rather at the lower end of our expectation, with negative volume and price effects, as well as high raw material costs, particularly in iron ore. Also, business was burdened by costs of lower capacity utilization and increased personnel costs and a temporary higher share of spot market exposure.
Persisting weak trading conditions were also the reason for the Materials Services' lower EBIT adjusted. We suffered from declining prices in both service units, also resulting in windfall losses. Nevertheless, positive effects from derivatives cushioned the aforementioned developments. AST came in lower and slightly negative compared to prior year, mainly due to the downward price trend in stainless steel, but there was also light. Automotive Technology was clearly higher year over year due to the higher contribution, mainly from dampers and camshafts, and supported by a one-time effect of a remeasurement of pension plans outside of Germany. However, the ongoing and more negative performance of springs and stabilizers and from systems engineering remain a burden that we are addressing stringently.
Industrial Components were slightly up year over year on the back of higher earnings from bearings for wind turbines, while the forging business, despite the early introduction of systematic cost deduction measures, was down year over year due to significantly lower demand for components for heavy-duty engines and construction machinery. Elevator Technology's EBIT adjusted and margin are on track, with EBIT adjusted surging to 12% and margin expanded 0.5 percentage points year over year, driven by sales growth and performance programs across all regions. Plant Technology came in negative, however improved compared to prior year, among other things due to a slight recovery in chemical and cement plant engineering and from a real estate disposal in Mexico. EBIT adjusted at Marine Systems came in flat and break even and continues to be burdened by low margins on project build.
Despite the continued implementation of measures and the reduced administrative costs, corporate headquarters costs were slightly higher, only reflecting lower positive run-rate effects compared to previous year. Despite the muted start, we maintain our guidance for the full year and forecast sequential operational improvements in the quarters ahead. Specifically, a seasonal upswing at our materials businesses, and we see cautious signs of recovery due to restocking. For example, at Steel Europe, order volumes already came in significantly stronger, supporting a recovery going forward. In addition, we have initiated numerous restructuring measures and capacity adjustments across all businesses and corporates to counterbalance economic and external factors. Already 80% of the measures' targets for the year are substantiated, and 60% are currently in execution. For fiscal Q2, we expect adjusted EBIT significantly below the prior year, with the majority of our industrial business above or bordering at their prior year levels.
The Materials business will show a visible sequential improvement quarter over quarter. However, there will be lower year over year, with Steel Europe remaining clearly negative in the second quarter, while Materials Services could double its EBIT contribution in the quarter. Elevator Technology will continue its positive earnings and margin expansion year over year, while Plant Technology will nearly halve its losses compared to prior year on the back of higher sales from backlog projects and increasingly improved cost base with regard to SG&A. Automotive Technology, Marine Systems, Corporate Headquarters are expected to be flattish year over year, and at Industrial Components, the cyclical lower demand for forged components is expected to outweigh the continued good performance from bearings. In line with our typical seasonal pattern, we expect a significant sequential quarterly improvement of our pre-cash flow before M&A.
However, Q2 will be below the prior year figure and will come in most probably to low to mid three-digit negative numbers. Having said and reviewed our Q1 performance and the outlook, I'm now ready to take your question. Thank you.
Thank you very much, and Operator, please take over for the Q&A session.
Yes, thank you. Then we will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 02 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. And we've already received the first question. It is from Ingo Schachel of Commerzbank. Please go ahead. Your line is now open.
Yeah, thanks very much. My first question would be on the European steel business, on the strategy. You were saying that despite the CEO change, you would expect continuity and should not change the strategy to 2030, but still the performance in the quarter was, I think, quite weak and probably weaker than you would have expected on an absolute as well as relative basis. And then, of course, the CEO departure was also, I think, quite a big event. So I was just curious to understand how you're thinking about the strategy for Steel Europe within this framework has changed incrementally.
Whether during the last few weeks, you've come to the conclusion that you need more restructuring, more plant closures, more CapEx, less CapEx, or a more proactive approach towards seeking partnerships and joint ventures, or whether there's anything else that has changed incrementally during the last few weeks in your thinking on the steel strategy.
Yeah, thank you for the comprehensive question on our steel strategy 2030. The strategy has been developed and still continues to be developed and being discussed within our company. We presented the strategy to the supervisory board of Steel Europe AG at the end of December, and it includes performance programs, restructuring, as well as investments for competitiveness. This strategy will remain and is currently being discussed with co-determination, and here we are going to foresee also an increased level of investments and capacity expansion and CapEx projects, as well as some additional CapEx to maintain the competitiveness and improve the high-quality grades output. This remains unchanged. The difference with the CEO was more on the way towards the goal and not on the target of the strategy.
It's also clearly to be said that the strategy needs to include restructuring and decrease in workforce and needs really to adjust the cost base. This may also include network optimization with some adjustments of production sites, but that is all to be announced once we have reached agreement with the Workers' Council and the unions. And stay tuned on that one. Let me reiterate at the end, the strategy is valid in order to improve the competitiveness and the profitability ultimately at Steel Europe, and this is going to be executed. At the end, we clearly need to have value creation with our steel strategy going forward. I hope it answers a bit to your questions.
Yeah, that answers it a bit. And then, of course, for the rest, I'm happy to wait for the announcement later this year or in May. My other question would be on industrial solutions. And of course, it's early stage in the process, but you were saying that you saw decent interest in the process. I'm just wondering whether you could specify whether you see what you would call decent interest in all business units of plant engineering, or whether that's something where it looks slightly more heterogeneous with regards to the interest in the various units?
The process is such that we have been successful in preparing the financial teasers and the information memoranda. Then we are going to approach market participants and potential partners, first of all, for signing an NDA, a non-disclosure agreement, before they receive the information memoranda. That is currently ongoing. From the feedback on the NDAs, the interest looks promising, but I can't tell you anything at this point in time then about details, and especially not with non-binding bids to come in. That takes a couple of weeks before we can give you a first indication here. Again, for me, it's important that Plant Technology continuously works on the turnaround management to improve the operational performance.
On top of that, we will then explore opportunities for best owner concepts for the interest of our customers, but also for the benefit of creating additional value for our shareholders.
Okay, that's very clear. Thanks for the update. And I'm looking forward to the next updates on the next call. Thanks.
Stay tuned.
Thank you. Then we go to the next question. It is from Sylvain Brunet of Exane BNP Paribas. Your line is now open. Please go ahead.
Good afternoon, everyone. Charles. First question on the utilization rate that you factored in the guidance implicitly for your new automotive plants, and related question to that, if you could give us another visibility, it's poor at the moment, but the status of your plants in China, what are the challenges your teams are echoing, and what are the remedies around that, and lastly, obviously, you left guidance unchanged. It's dating November 19. Is it fair to say that it's under review? Thank you.
Okay. Can you repeat the second question, Sylvain? Sorry, I didn't get it.
On utilization rates or on the guidance?
Second question, guidance.
Guidance. Just wondering how much faith you would put in the November 2019 guidance, given the developments in your exposure to China and also the uncertainties around the automotive cycle.
Yeah, good. Thank you very much. Question on automotive technology and our situation with regard to production in China. Actually, after the Chinese New Year's holidays, we started up most of our plants already in China, and we are ready to produce and operational. However, a few of our customers have not yet started their production, and it cannot be excluded that we will see disruptions, actually, in production and supply chains. We are cautious on that one. Currently, we cannot quantify any impact from an increased spread of the coronavirus in China and what this will mean for supply chain overall. Therefore, we currently are observing carefully the situation, more or less on a daily basis, but we have started up our production in China, and therefore, on the back of this current situation, we have not adjusted our guidance.
Okay. Thank you.
Thank you. Thank you. The next question is from Carsten Riek of Credit Suisse. Please go ahead. Your line is now open.
Thank you very much. And good afternoon. I have two questions from my side. The first one, you still seem to be quite negative on the steel materials market, even though I believe they are in a better shape, or at least with regard to improvements, than the capital goods markets over the next 12 months at least. Where do you see the main risk for your technology business in 2020? And what is currently covered in your technology business with regard to order intake for 2019-20? That's the first one.
Well, yeah, for steel markets or for the materials markets overall, we also hope on a cyclical recovery. We said sequentially, quarter on quarter, we would see improvements in this fiscal year. And of course, we are coming out from a very low level. Carsten, please understand that we were clearly not satisfied with the performance in Q1. We were burdened with lower shipments, lower prices, and higher raw material costs. This was a pretty unusual and unique situation. Now we see some recovery. We see some light at the end of the tunnel with regard to pricing. We see also some restocking, but visibility still remains low, and I cannot give you a precise outlook for the full year. Nevertheless, we hope that we can improve here in our materials business as compared to Q1, or it will clearly be better.
There are risks, definitely, with regard to the cyclical recovery. There are risks with regard to our customer, especially the automotive industry. And I believe that you know even more and better about the automotive sector than we do. And it's an important customer segment for us, the automotive industry. And also, European makers are somehow dependent on the situation in China. And in China, of course, we need to be cautious also in the development for this year. That can be a risk factor for our automotive technology business overall. Currently, with the Q1, which also was not in a favorable market environment, we recorded relatively strong sales increases in order intake. And that is very helpful and makes us very much confident in confirming our guidance.
Perfect. Thank you. The second question I have is on the target of lowering your overhead cost. I believe you have these ambitious targets of getting, I think, down to EUR 200 million. The question I have, because last time in the call, you also mentioned that some of the costs are going back to other segments. Can you give us a little bit of color how much of the cost reduction is purely from cost cutting, and how much of the cost do you think will have to go back to several of the divisions, such as elevator, in order to get a better understanding here what's happening on the cost side? Thank you very much.
Yeah, that's of course very much helpful. And the first remark I would like to make is that our G&A costs overall are spread across all businesses and all VAs, and it's not only in the corporate center. So we are talking about G&A costs in roughly the amount of EUR 2.4 billion, including back office locations for elevator service engineers. And those G&A costs, EUR 2.4 billion, just EUR 400 million out of this was in the past with the corporate center. And in the corporate center, we said we want to reduce the pure governance task. And for those tasks which are important for the board of management to steer the business and to execute the portfolio measures, and all the service part of the corporate center should be relocated back either in the service entities or into the VAs in the business areas.
On the way in restructuring the services, we have clearly also a reduction in workforce and also a reduction in headcount, whether it's at the level of services or in the business itself, and currently, we are still working on the concept and aligning all the service lines and the demand from the internal customers, but you can expect that we have significant cost reductions in this respect. For example, with our IT environment, we also are foreseeing reduction in cost. That means I cannot give you a precise number here, but please expect that a majority of the reduction of the corporate center will ultimately also result in an overall cost reduction for the group.
Okay, that helps already. Thank you very much.
Thank you.
Okay.
Thank you. The last question is from Bastian Synagowitz of Deutsche Bank. Your line is now open. Please go ahead.
Yes, good afternoon, gentlemen. My first question is just following up on the CapEx in steel. I guess we can separate the CapEx into two buckets besides maintenance, one bucket being upgrades and efficiency, and then the second bucket being mostly CapEx for technological changes to improve your emission profile. Can you please talk about these two buckets and how they will impact your CapEx numbers? Maybe also give us some numeric guidance on the CapEx requirements for the outer years? That would be my first question.
Yeah, thank you on this question. Actually, yeah, you're correct. In the past couple of years, on average, we invested roughly EUR 470 million in Steel Europe compared to roughly EUR 420 million in depreciation. So we are above depreciation level in the investment mode in Steel Europe continuously. Out of the EUR 470 million, we have the majority in maintenance CapEx, but also a good extent, certainly, in capacity expansion. The EUR 470 million is foreseen to be higher in the coming years to go above EUR 500 million. And then, on top of that, we are discussing currently about additional investments in the facilities here in Germany, especially in Duisburg. This could be up to EUR 800 million to be spread over six years.
Again, this is still to be discussed and needs to be negotiated and can only come in with the restructuring at the same time, as well as a business case, a solid business case behind it, that those investments are reasonable on a payback period or return on investment. But we clearly see the necessity and the opportunity to improve our capacities, also in terms of high-grade quality for the automotive industry with additional investment in our Duisburg plants.
Okay, thanks for the color. Just following up, if I understand it correctly, that does not then include any portion for the emission-related investments, which you may have to take just depending on whenever you plan to start. Is there any plan to kick off with this in the next one, two, or three years?
We are continuously, of course, exploring the possibilities to replace coke and coal with hydrogen. However, this is a pretty long-term vision. We announced a target to reduce CO2 emissions by the year 2030 by 30% compared to last year's level. But it's really long-term. And we need support also from politics and government. And we need a solution for the question where to get green hydrogen from at reasonable costs and competitive prices. Otherwise, it would be very difficult to execute such a program as a company alone.
But can we infer then that those investments will not impact your CapEx budget in the next three years or so?
It will be a very limited impact on these in the next three years. Yes, you can imagine this.
Perfect. Okay, thanks for clarifying. Then I've got another question just on the materials production of your materials services business. If I look at the business cash flow here, I was just wondering why it has been so negative in the Q1 , given that we've seen a huge decline in nickel prices. And obviously, all of your peers surprised positively on working capital here. Have there been any restructuring effects or other components in these numbers we should be aware of? Or is that mostly a function of a very strong Q4 window dressing, which just caused this working capital rebuild in the Q1 nevertheless? And maybe you could also let us know what your plans are for AST. At this stage, it's obviously not the largest asset, but I guess it's still peripherally non-core. So if you could just give us an update on that front.
Thank you.
Yeah, we see these significant swings in Q1 in Materials Services and MX every year, actually. And you're absolutely right that it's due to the optimization of our balance sheet date on September 30. So we usually experience a pretty strong cash inflow in the Q4 and a relatively weak performance in Q1. And especially if you look at our working capital in the supplier side, the liabilities really significantly came down. Therefore, we clearly adjusted our payment side, which means, yes, it is the effect because of year-end optimization of September 30. We have not included a significant amount for payouts on restructuring at MX.
Okay, thank you. And then just on your plans for AST?
AST in Q1 was slightly negative, but performed relatively well to peers. There is currently no news I can share with you. Overall, we optimize the plant. We do our efficiency measures here in order to stay competitive. But should there be options for partnerings or for supply chain partnerships, we would explore those options, but currently no news on that.
You're basically not actively soliciting this at the moment. Your focus is obviously on elevators and the industrials part?
Yes, correct, and some of the business under review businesses are also on the desk of our M&A department.
Okay, very clear. Thank you. Thank you.
Thank you. The next question is from Rochus Brauneiser of Kepler Cheuvreux. Please go ahead. Your line is now open.
Yes, hi. Rochus Brauneiser at Kepler Cheuvreux. A few follow-up questions. The one is on the comments you just made on the improved order situation on the steel side. I think we all know that seasonally, the Q2 is one of your strongest quarters in terms of steel shipments. And I guess on average, this has been always up like 15% over the average. Would you agree that this time, well, maybe more in the kind of 20% range and exceeding the usual seasonality pattern in terms as there might be a restocking component? That would be the first question.
I'm a bit cautious here to give you a very precise guidance on Q1. What we can say is that the quantities in order intake in Q4 was 16% up, which should lead them to higher sales in Q2, which is now generally too much. It is a usual pattern that we have the upswing in spring here and that we see also some restocking after Christmas. I wouldn't say that this is more than usual. It is foreseeable, understandable after the pretty weak Q1. From the 16% order intake, we can also imagine a 20% more shipments in Q2 now.
Okay, makes sense. Then secondly, when I'm looking at your crude steel production in the Q1, it was unusually high compared to your shipment levels. So I would guess the steel inventories have gone up now. What does that imply for your crude production in the Q2 ? Is there any pressure to adjust the inventories? What shall we expect on this side?
You are absolutely right. If I look at my DIOs in days for inventories for steel at the end of December, it's higher than usual. Actually, yes, we were burdened by the lower demand and lower shipments in Q4 before the end of last calendar year. We need to have higher shipments now in order to reduce the inventory levels, which we foresee. We have no plans to adjust the capacity to a large extent at our crude steel production.
Okay. Then on your process for Plant, I think you said is fact books are being sent after the signings, and then you get in a couple of weeks a first indication of what could be the kind of indicative valuation. What I'm curious about, how shall we think about potential asset impairments for the Plant Technology business? What kind of evidence you need in terms of valuation that this is becoming a triggering event?
Well, number one, we see that our turnaround problem is being improved and that we are working towards a positive yield and cash flow in this business. Secondly, we don't have significant assets on our balance sheet for PT. It's more a people business and not a CapEx-intensive business, which means there are no need for any impairments of assets and nor inventories. Of course, if we are not able to achieve a positive purchase price, then there might be an impact on our shareholders' equity to come in negative. But I don't see impairments in this business.
Okay, that's good. Thank you very much.
Good.
Thank you. The next question is from Alan Spence of Jefferies. Go ahead. Your line is now open.
Hi, thanks, guys. Just one quick one left from my side regarding the restructuring. If I added up, it looks like there was about EUR 122 million in restructuring that ran through the P&L in Q1. First, if you could just confirm if that is the right number. Second, how much of that was a cash expense? And as we think about the difference between that EUR 122 million number and guidance for mid-three-digit million EUR this year, how should we think about the phasing in the remaining quarters in the year?
Yes, a quick update on the restructuring. EUR 120 million is the correct number. I think it was EUR 124 million to be precise, out of which EUR 84 million was with systems engineering. That was our plan that we announced already in November, which included 640 positions here in Germany. Here we set up the provision, and the cash out is to come in later. Another bucket was with corporate center, where we have also the reduction in workforce and positions. And here we caught also more than roughly EUR 20 million. And the cash out was very limited. It was just EUR 30 million-EUR 40 million in the quarter, around that number.
For the full year, we set a mid-three-digit million EUR number. I also said before that the effect on the P&L for provisioning will be higher than the cash out because there's always a lag and a delay in the cash out. But both numbers, we said in both parts of mid-three-digit million number.
Perfect. Thank you very much.
Okay, good.
Thank you.
Thank you. The next question is from Luke Nelson of JP Morgan. Please go ahead. Your line is now open.
Afternoon. Just to follow up on Steel Europe. In November, you announced that you'd started trialing direct hydrogen injection at Duisburg. Is it possible to give an indication of how successful that's been? I know it's still early days, but just anything in terms of the relative cost for that process or how you see that cost evolving and what cost of hydrogen is being used for the process, and to what extent that will play a role in the division's goal to decarbonize over the next couple of decades? That's my first question.
With regard to the strategy of green steel, there are several technologies which we can offer. Number one, we can replace coal with hydrogen. We can replace partly in the existing blast furnaces, and this is what we are currently testing. However, to be very honest and very clear, it's a very costly exercise with regard to hydrogen. The next step would then be to really build new blast furnaces on the direct reduction model with hydrogen to completely replace and not only to adjust and complement coal. This is still years out to come. Another technology we are offering currently is that we are using CO2 as a feedstock for chemical raw materials in the so-called Carbon2Chem process. We can offer certainly several solutions in order to arrive at green steel.
But as I mentioned before, the key obstacle is currently clearly how and where to produce hydrogen with green energy or renewable energy. And that is a need to be solved to some also by the politics and governments. Does it answer your question?
Yes, it does. Thank you. Just as a follow-up, do you have any indication at what cost of hydrogen direct injection would be competitive?
I only heard that it is significantly more expensive and that certainly it would be difficult to convince our customers to pay the higher price for the end product. Therefore, that need to be solved, and I cannot give you any more information.
Okay, no problem. No problem. And my final question is just, again, on Steel Europe and the thoughts on EU ETS going forth from the start of next year, how that business is positioned, any impact from an earnings perspective that we should be aware of, and then longer-term sort of conversations with the EC about carbon border adjustments as well. Thank you.
Now becomes a little bit more tricky for me. Thank you for the question. We are challenging now the CFO, to be honest. My discussion with our colleagues from Steel Europe clearly that they don't indicate any issue with the EU ETS in this current period where we are covered, and we have not earmarked this as a major problem for the next period, which will start in 2021, I guess. Overall, the other aspect is clearly with the level playing field with regard to imports. Once we are priced with higher CO2 costs, either on EU ETS or CO2 taxes or whatever it might be, then of course we will request also Brussels to make sure that imports are burdened in the same manner that we can stay competitive here in Europe.
I guess it will be tricky to find a scheme on import taxes or import carbon border duties in order to manage this. For this aspect, we are also curious to see. We are debating with the politicians in Brussels. We are giving our input, but at the end, we need a system where we can compete here with European production compared to global imports.
Thanks a lot, Johannes. Appreciate it.
Thank you.
Thank you very much. Are there no further questions? I would like to hand back to you.
Yeah, thank you very much, Operator. And also, our thanks go out to all the participants in this call here. We, of course, are as always available for you after the call and, of course, also in the next days to come. And yeah, we look forward to staying in touch with you and to continue our conversations. Thank you very much, and bye-bye for so far.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.