Hello all, welcome to follow Outokumpu's Q2 2021 Results webcast. My name is Linda Häkkilä, and I'm the head of investor relations here at Outokumpu. With me today, we have our CEO, Heikki Malinen, and our CFO, Pia Aaltonen-Forsell. Now, before we start with the presentation, I would like to remind you about the disclaimer as we might be making forward-looking statements. Now, please, Heikki, the stage is yours.
Thank you, Linda. Good afternoon, good morning to everybody, also from my side, welcome to our Q2 event here today. It's really a pleasure for me to present these results, because after a very good start to the year in Q1, actually Q2 was even better. We saw good profitability improvement within the company across all of our business lines. Interestingly, if you look at the first half year result at EUR 400 million, this is actually the second-best half year result since the merger with Inoxum in 2012. Really pleased with how things have progressed in 2021, especially compared to a really tough 2020 year. Our strategy execution is well on track. I'll talk a bit about that. I would say we're a little bit ahead of schedule there.
Overall, if you look at the results, I can say that we also benefited from the market tailwind. In many subsegments of our business, we saw very good demand, which sort of added up even further to the good quarter. Let me jump to the next slide and just look at these figures here. On the left-hand side, you can see the bars on a quarterly basis, EUR 223 million group adjusted EBITDA compared to EUR 177 in the first quarter. On the right-hand side, you can see the bridge. I think the main events here for the quarter were deliveries, which increased about 3%. Our capacity utilization was very high. 3% was sort of a fair number in terms of how full the plants were coming into the quarter.
We also realized price improvements across all of our regions, which is the second green bar. You remember in the first quarter, we had quite material and substantial timing and hedging gains. In the second quarter, those we did not have them in the same manner, that's why we have a red bar there. Overall, EUR 223 million, I feel that was a good achievement from the Outokumpu team. As I mentioned, for us, of course, the very big goal that we're trying to reach here is to deliver on our strategy, which was to get a EUR 200 million EBITDA run rate improvement by the end of 2022. We have a number of initiatives which relate to the cost structure, our so-called lean and agile initiative, which of course relates to our headcount, our plan to reduce our headcount by approximately 1,000 FTEs.
In this area, I can report that we are very well on track in terms of execution. About 80% of the initiatives have now been completed, and by probably early 2022, we should have this stream pretty much ticked off. Obviously, an important part to help bring our fixed costs down and also lower than the break-even point of the company. In terms of cost and capital discipline, you know that raw materials account for over 60% of our cost structure. It's very important that we're able to further improve our raw material efficiency, and I was very pleased with what the organization was able to do in terms of, for example, improving yield levels, making sure we have much less reallocations, reuse of material, returns of material, and scrap. Scrapping was less, so good work in that area.
Then I would just say that a bonus on this, of course, was a strong market, good demand across all segments. Ended up delivering then the results we can see now. The market has changed quite significantly since Q4 of last year. It's evident in the long lead times we have. For example, in home appliances, we are now in the third quarter, where demand continues to remain very robust. Our lead times are taking us into the end of this year. Also in some segments into beginning of next year, which historically seen is, I think, is somewhat extraordinary. Anyway, that is the market. Customers are clearly prioritizing supply. If one has extra capacity, there is clearly demand out there in the market. In terms of raw material costs, nickel continued to be really volatile in the quarter.
We ended up the first quarter, you remember in March, nickel prices fell quite substantially. They were flat for a while, and then they started to rise again as we headed towards the end of the second quarter and early third quarter. A lot of volatility there. We have also seen in many other metals, moly, titanium, iron, et cetera, we've seen price rises, which in other words for us means cost increases, and we work very hard to mitigate and keep those cost pressures intact. On the ferrochrome side, we saw the benchmark price rise as we came into the second quarter. Of course, for us in the ferrochrome business, this is an important part of the profitability story.
Over the last few years, import penetration into Europe has been a very big theme, especially when the market was really weak and imports were adding, let's say, a lot of oversupply into the market. Now when you compare the first quarter and the second quarter to each other, pretty much flat in terms of cold rolled imports into Europe. It seems that the situation has somewhat stabilized, which of course, from the standpoint of having a stable market with a level playing field, this is sort of what we have been expecting from the European Union. Here you can see the measures that the European Union has taken. A very big decision, of course, was that the quotas remained in place now for three years. We were advocating that quite vocally that that should be the case.
The quotas will rise on annual basis somewhat, but still the mechanism itself stays intact, and that is really important. On the anti-dumping side, the investigations by the European Union have led to decisions by the Union, there are now duties in place for India and Indonesia. Finally, this very big decision by the EU to start pivoting to a much more climate friendly, carbon neutral world. That decision, of course, impacts the whole steel industry and us also, to a large degree. One thing I want to raise here is that in the decision or the proposal that the EU has made, they have basically said that it will only include Scope 1 emissions. You may recall that in stainless it is Scope 2 and in particular Scope 3, which are sort of the big emission, let's say pockets or tickets.
It's our view that the Scope 3 should definitely be included in the longer term, when the EU proceeds with that. On the right-hand side here, you can see how the quotas were utilized in the last quarter and nothing major in that area to report. Before we go into the financials, I want to take a few moments to talk about sustainability. The reason I raise this today is, first of all, that we believe that for Outokumpu in particular, sustainability is going to become a key competitive advantage. We're moving into a world where this theme will become a bigger and bigger issue. ESG being the headline, and I really feel that it's important that I just report to you a couple of things. Today I'm going to show a few specific slides.
I'll show a couple of more generic slides, but my plan here is that as we go forward into the coming quarters, in each quarter, we would like to report on some area of ESG where we have made progress. What I want to talk about today is safety. It's, let's say, part of the S, so to speak, in ESG. From this curve, you can see that we have systematically been able to improve our safety record. The figures for the first half, as you can see from this chart, are absolutely the best we have had in history. We have many plants in the Outokumpu system where we have not had a single recordable incident for a long time. It just shows, I think that underlying inside the Outokumpu system, there has been a remarkable cultural change so that people really take safety very seriously.
It also shows up in the way we operate. I personally, every month I have a CEO safety call. I get reports of every single incident we have globally, and we share the best practices across the whole system. It is really a key part of the CEO agenda, to make sure that this trend continues and that people are safe when they work at Outokumpu. At the Capital Markets Day in May, we announced our plans to head towards or to develop the company towards this SBTI target of 1.5. We already had the 2 degree target, aiming to reduce our emissions so that by 2023, we would have been able to achieve a 20% reduction vis-a-vis a 2014, 2016 level. That target we will achieve.
Now we have a new target, by the end of the decade, working together with SBTI, achieve that 1.5 degree level. Technically that means for us about a 30% approximately reduction in emissions. That will have an impact on where we invest in the company and how we invest. Here you can just see the data on our emissions. I want to draw your attention to the box in the middle where you can see Outokumpu's total emissions in the value chain, 1.5 tons of CO2 per ton of stainless. Then you can see the data for others compared to Asians, for example, our emissions are 80% less. I come back to this EU Fit for 55 CBAM policy, where they only included Scope 1.
Outokumpu, of course, includes all of these emissions and we really would like to see the Scope 3 be part of the policy of EU in the future. Finally, I just want to highlight that we are actively participating in different types of benchmarking exercises that these organizations do, and we have been globally recognized as being really a strong leader in sustainability. I'll come back to this theme in the coming quarters and always highlight something which we think is relevant and important for you to know when you think about different companies from an ESG perspective. Now let's go to the financials in more detail, and I'll hand it over to Pia. Please.
Thank you, Heikki. Good afternoon and good morning to you all. I certainly hope you are doing well and keeping safe. Let's have a look at the financials here, starting first with a few important key figures. If we first look at the stainless steel deliveries, you see we were very much here according to our expectations, a small increase compared also with the first quarter. Let's keep in mind that in the good demand situation that Heikki also has described, we are operating at really high capacity utilization levels. Therefore, I would say a good achievement here with these volumes in the quarter. If we look at some of the other key figures, the EBITDA of the quarter at EUR 223 million. Nice round figure also if you combine it with EUR 177 million from the first quarter, still improving there.
Maybe from my perspective, really on the group level as well, remembering that we had a fairly significant timing and hedging gain in that first quarter, and certainly there back to a low level of that gain in this quarter. Operationally, I think we have really been improving throughout the second quarter here. Net result is EUR 129 milion. The operating cash flow here at EUR 6 million, and I think that's worth some further attention. I will come back to that and the working capital changes here during the presentation. Our net debt is down. We had an equity issue in the month of May, used that to repay debt, and that clearly impacted and really lowered here our net debt level.
Leverage is now at 1.8, and you remember that for the strategy phase I, we set the target of being at a leverage below 3 x net debt over EBITDA or leverage. I would say here we have really been able to accelerate the improvements, and we'll come back a little bit to that as well in the presentation. Maybe then a final just confirmation of something Heikki said earlier, but looking here at the advancements in strategy when it comes to the restructurings. Obviously, from the personnel number, we can now see that we are very close to the 9,000 level already at the end of the second quarter. Certainly this gives good confidence that by the end of this year, we will be clearly below that 9,000 level.
Let's have a look at the BA still with a bit more detail for each of them. Obviously, you see here our Business Area Europe, where the EBITDA for the quarter reached EUR 98 million. Just looking more first from the market perspective, you see that the delivery increase was maybe modest. However, we did have a good step up when it comes to prices. I think this is really reflecting the stronger market environment where we are. First of all, just taking a step back and trying to look at that market improvement, we are clearly still in this rebound phase from the very low COVID levels. That is for sure. This restocking cycle somehow makes an attempt.
If we look at distributor inventory levels, we can see that they are, as they were in Q1, still at the end of Q2 as well. They are at even much lower levels than what they typically are, so lower than average levels. These restocking attempts are, I would say, still ongoing at this point in time. I think that's also visible from the order book going forward. We practically are booking five, six months ahead at this point in time. We have a lot of visibility also towards the end of the year and particularly towards Q3.
When you reflect that into the price here, a final point from my side there would be that even though it looks as if there is a good price increase here realizing the quarter, please keep in mind that this is only rebounding from very low levels. If we just look at where the price levels are right now and back to some of the earlier graphs as well, we are still only rebounding from very low COVID levels there. If we look at some of the other elements here, you see that there's a big negative from the net of timing and hedging. The figure itself was not very big in the quarter, but it was very positive in the first quarter. In that sense, this is more of a bridge impact that you can see here in this slide.
Maybe one word more from the risk side. Through the quarter, and I would say increasingly through the quarter, we have seen that supply chain issues are also visible through many of, for example, consumables that we are using, or if we think about freight availability, logistics, etc. It is clear that the whole market and the system is under more pressure. I think we have been successfully mitigating those. If you look at the European figures, there's really not any inflation to really mention in the realized figures here yet. Obviously, these are themes in the market that we continue to follow. I would then like to really speak a bit more to the BA Americas.
Here also, the market rebound from COVID is really visible, and at the same time, a very strong macro environment generally in the market, particularly in the U.S. I would say we are in a good market position right now, and that has clearly also been an opportunity for us to operate on a high capacity utilization level and to really give us that opportunity to have a good look at our portfolio, be able to address a number of leakages, continue with really important yield improvements, which gets more and more importance here as we are fine-tuning and improving. I think overall, if I look at the result that we have here, EUR 65 million in the quarter, yes, we had a little bit of positive boost from net of timing and hedging as well.
Not as much as in the first quarter, still a good figure. The underlying performance has certainly improved. I think by now, with many quarters of positive development, I think we have also shown the strength of the underlying improvements that we have been working with over, of course, an extended period of time. Clearly, a very strong market situation here. Maybe a final word on the market situation, also here, inventories at distributors remain at lower level than average as we speak. From the cost side, you can see that some cost increases have indeed already occurred, and that's, I would say, particularly highlight the freight costs here. That has been something where we have already observed prices going up. Okay. Over to ferrochrome, and certainly a different type of market here.
Very tight market still, even as we speak, looking at spot prices in China increasing. I think it's important to look here at both sides of the equation. Obviously, demand side is there as you look at the stainless and observe the good market momentum there. From the supply side, I think certainly, a number of issues have occurred, and I think that's still really impacting the market and the prevailing price level that we can observe. You can see that also during the second quarter, these positive price improvements impacting our results. On the other hand, from our own internal performance, some cost increases, some of them related to the overall EUR 10 million maintenance increase that we had throughout the group.
There is a small section here on ferrochrome, but certainly also a number of other fixed costs have increased throughout this quarter in particular. I think that's a bit of a mixed bag of several items. Maybe that's just worth a more general comment that you can see overall the cost increases here were negative, about EUR 8 million compared with the first quarter. Finally, Long Products BA. Yet again, especially if you look at the year-on-year figures, comparing the second quarter of last year, well, that's a very weak comparison point, but the delivery increase has been very significant. If you look into the details, compare with the first quarter, you even see that this has really been the core product offering of Long Products as well, and less of the semis, the slabs, which is good also from here, a mixed perspective, certainly.
You see also here in Long Products, some cost increase. I would here say it is clearly on the back of the growing volume. Overall, if I look at the success of the turnaround program that Long Products management is working with, I think we are making good progress there, and actually, particularly on the cost side, have already made a lot of those advances. They are already now baked in here in the figures that are clearly improved. Let's change gears here a little bit and talk about our cash flow. Maybe still the starting point, obviously for the cash flow being that we have good profitability in the quarter. That is certainly the first cornerstone here. We have a pretty significant investment into working capital.
If I put that into perspective, I would say during COVID, during particularly the year 2020, we were really driving inventories to very low points, reflecting the market that was slower, the demand that was slower. If we now compare the situation where we have seen an improved demand throughout the first quarter and into the second quarter, obviously, gradually, we now try to build up a bit higher inventory position to be better able to serve our customers. A part of this inventory increase for sure is something we would also like to sustain going forward. I just want to say that out of this Q2 impact, we had about EUR 96 million of inventory increase, and 40% of that was purely from the higher metal prices.
Even just comparing quarter-on-quarter, and particularly if you look from a year ago or from year-end, there is really quite a significant delta from the price level alone. Another important part here is obviously the accounts receivables. If I just look from the health of the business and the health of the balance sheet in particular, of course, I think we have extremely good control of our overdues. This is really a function of prices increasing, volumes being strong through the quarter, and I would say particularly towards the end of the quarter as well. We clearly have realized a lot of sales where we now have the receivables building up.
Then again, if I just look a bit forward and look into the development into the third quarter and into the fourth quarter as well, then clearly, I would say we need to be prepared to make some investment into working capital for the full year as well to be able to serve our customers. However, we still have the seasonality in our business. That typically means that we build working capital in the first half of the year, and we have some releases in the second half of the year here. Well, you do see some other facts in this picture as well. I'll touch them really briefly. The provisions, obviously, on the back of the big restructuring that we are also now seeing, giving us some lower cost levels. Clearly, there is a price to be paid for that.
We have had quite significant provision payouts early in the year, this will become a little bit easier towards the end of the year. We still have some, I would say, maybe EUR 20 million, EUR 25 million remaining for the rest of the year there as well. Finally, you can see our CapEx has been very much aligned with the annual target of EUR 180 million that we have here. From the strategy execution side, actually, I think Heikki really gave super good highlights of it. Just looking at overall here, the elements of it. If I look at the EUR 123 million cumulative run rate savings that we have until the end of June, I would first say, restructuring is really the change where the execution was very early in this program.
It's clear that we are now approaching about EUR 50 million run rate impact from that. That's also something that will start to fade out now. What I mean is that we are starting to reach the targets that we set initially here. Another important portion of this is clearly what we call cost and capital discipline. That's really the cost side of the equation. We have here seen the improvements, quite a lot actually from the melt shop, and then also yield generally. I would say throughout the categories and the work that we are doing there on the cost side, and we are getting almost as much, so almost EUR 50 million as well then from this on a cumulative basis. From those commercial initiatives that we have described earlier, it is a little bit more than EUR 20 million in this time period.
I really think, going forward now, we will see more and more delivery out of the commercial initiatives, and we will also continue to see a strong delivery from the cost initiatives, whereas the restructuring is not yet fully done. Certainly, we have reached most of the targets there already now. Generally, I would say, we have had a very prompt and actually even early delivery on many of these. On the right-hand side, just wanted to share with you the implementation pipeline in terms of the number of initiatives that we already have implemented. That's 707, and then 1,007 initiatives that we have in progress as we speak. Then maybe a few concluding slides on the balance sheet side. I still wanted to recap first on the equity issue.
I think it’s also important to link that now to the lower debt level that we have, and then also to the positive impact that we have to our cash flow and profitability, as on a run rate basis, we are now able to lower our interest cost with EUR 80 million. We have also subsequently seen the Moody’s upgrade of our credit rating, which certainly is also a good step forward. When you look at the net debt development here on this slide, you can see that we now reached a level of EUR 897 million at the end of the quarter.
Just linking back to my earlier comments about seasonality also from a cash flow perspective, obviously, this is something where we will continue to ensure that we can deliver cash flow and continue to reduce the debt also throughout the remaining part of this year. You see that our leverage here is at 1.8x net debt over EBITDA. My final slide, really on the funding structure. Still think it's a super relevant thing, but happy to report, of course, that if you look at this slide, you see that we have extended maturities of our revolving credits facilities.
We have a lower amount of commercial paper issued at the moment, and you can see it in our debt maturity profile here, where clearly now, a lot of the maturities into the year 2024, and you can also see that a fairly significant part, actually, of our facilities are undrawn at this point in time. Generally, from a debt structure perspective, I think we have a balanced mix of various instruments here. With that said, I think, a positive development when it comes to our financing and certainly, we continue to be active in this area and fine-tune and make sure that we have the best portfolio possible also on the funding side.
The seasonal pattern. The European ferrochrome benchmark price remains stable at $156 per pound for the third quarter. Planned maintenance cost in the third quarter expected to increase by approximately EUR 10 million compared to the second quarter. With current raw material prices and exchange rates, significant raw material-related inventory and metal derivative gains and losses are not expected in the third quarter. Adjusted EBITDA in the third quarter of 2021 is expected to be at a similar level compared to the second quarter. That is the outlook for the third quarter, and now Pia and I are pleased to take any questions you may have. Thank you.
Thank you for the presentations, Heikki and Pia. Please, operator, we are ready to take questions from the line.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad now. The first question comes from Luke Nelson from JP Morgan. Please go ahead. Your line is now open.
Hi. Good afternoon. Thanks for taking my questions. Three from me. I'll take them one after each other. Firstly, on pricing, and mix, the waterfall chart, Pia, you talked us through for Europe and Americas, maybe looked like a bit more of a larger price effect than I was expected in those two segments, for Q2. Can you maybe just talk about to what extent there was a mix effect, helping, within that, the waterfall quarter-on-quarter? Then, secondly, just in terms of underlying base price or price improvements, how much can we expect to see in Q3? You talked about more pricing to come. Can you maybe give a sense on what we can expect in Q3? That's the first question.
Certainly. Thank you, Luke. First, on the pricing and mix, I think the really short answer there would say that for Europe, it was really about pricing and actually, we were not, in a significant way improving the mix. Even, I would say on the contrary, maybe slightly weaker than in the first quarter overall. In Americas, on the other hand, I would say that we were able to do some optimization in this good demand situation, and it means for us, from a portfolio perspective, a little bit of actually positive mix there. Even though when we talk about mix in Europe, we really typically tend to talk about the value-added grades, the Pro grades, et cetera, how we can add them, and that plays less of a role certainly for Americas. Within the Americas portfolio, we have been able to make some improvements there.
I would say that would be the short answer to it. Obviously, when we talk about pricing going forward, I would say the visibility that we have obviously is into the order intake. Certainly, I think our comments are also, if you look at CRU data or any data out there, it's clearly visible that there has still been order or price increases also occurring during the second quarter, and with the long order books that we have right now, I think it's just good to keep in mind that any orders that we would have booked in Q2, we would be delivering them towards the end of Q3 or maybe into Q4. In Americas it goes a little bit quicker, it's between three and four months, this lag. There is like, this whole sort of motion moves a little bit quicker there.
Overall, just still keep in mind that we do have a number of longer-term contracts that some of them even agreed late last year. That's why when you observe the improvements that we had during the second quarter, I think it's just from the order intake obvious that sort of positive movement can continue, also into the third.
Okay. That's very clear. Thank you. Second question on inventory, hedging gains, which I think was around EUR 7 million, which implies a fairly big quarter-on-quarter headwind. Can you maybe just break out what was an inventory effect and what was a hedging or derivative effect? It just seems at odds with one of your peers that reported recently, where they guided to more of a positive effect in Q2.
Yeah, I would say the timing component is here really, it's the bigger one, clearly. Yeah, I actually noted the same. The hedging component is not big here. Sorry, I don't have figures top of my mind, but EUR 7 million comes to mind. Just to say, the hedging impact was not significant at all. This was really more around what we call timing impacts. Maybe to answer to your question, because I did note the same, just need to say that, of course, it depends on the metals that you have and the particular impact, whether it's more nickel, whether it's more ferrochrome or whether it's maybe more moly or something else even that we would have built into our mix. Then it also just depends on where we have the inventory, when did we actually book it in, et cetera.
Still keep in mind that the gross value of the inventory is actually huge. Just look at the balance sheet, talking certainly above EUR 1 billion. Even these small changes have a big impact. I understand your question, but I think as per se, the fact is we had more of the timing had a little bit more impact here than the hedging.
Okay. That's clear. Final question from me is just maybe more for Heikki on ferrochrome and more on ferrochrome market. Obviously, we're seeing a lot of changes, which I think you alluded to, Russia export tariffs, China issues and in Mongolia. I think recently Zimbabwe banned the chrome exports as well. Can you maybe just give a sense around how you see this market developing over the medium term? Are you seeing any additional opportunities to extract some more value? Obviously, development at Kemi will provide some optionality there, sort of opportunities from a market perspective that were not otherwise there. Be interested to hear your thoughts.
Right. Thank you. Well, first of all, I have to say that coming into Q2, we were wondering how the ferrochrome price would ultimately develop because historically it has been quite volatile. I think at least we were somewhat surprised that the price, the market really tightened again in the second quarter as much as it did, and that has seemed to continue even into the month of July, through the supply issues you mentioned, electricity power shortage, power cuts in Mongolia, the Russian attacks, different types of cyber-attack in South African ports and rioting and so forth, which all of that has sort of constrained further the supply of ferrochrome. Obviously, what happens in the third and fourth quarter will be, I think, very much impacted by supply side issues. If the supply constraints remain in place, obviously that would probably maintain the situation as it is.
There is sufficient global supply of ferrochrome to meet the demand. If those constraints go away, of course, then the market would be in a different level of balance. I think overall for Outokumpu, our mine and ferrochrome smelting is running at full capacity. We are pretty much sort of near a point where we are maxed out. We are trying to, in our long-term strategy, to readjust the mix so that we would have more value-added in even higher margin, higher value-added ferrochrome grades. I think in the short term for this year, those product development initiatives will not bear fruit, and we are pretty much going to be just sticking with our current product line. I think kind of the performance we had in Q2 is sort of indicative of how the business is performing probably this year. We'll see.
Thanks a lot.
Thank you. Our next question comes from Carsten Riek from Credit Suisse. Please go ahead.
Thank you very much. Two from me. The first one is actually on your ESG measures, because you mentioned, you want to invest in CO2 reducing measures. My question is, what will be the investments, at least monetary-wise, and when will you actually recognize them in the CapEx? That's the first one.
Thank you. I want to revert to the conversation we had during our Capital Markets Day in May. At that stage, we indicated that we had just sort of made a decision. We have made preliminary calculations about what the journey, assuming that the 1.5 degrees will mean a roughly 30% reduction in CO2. Assuming that's kind of the baseline case, then we had calculated that this is probably going to be somewhere in the EUR 300 million-EUR 400 million range. We obviously are going to look at will the European Union want to contribute in any way to some of these investments. That remains to be seen. Also in some areas, we would see that some of our suppliers would be making the investments.
Of course, from that standpoint, we would pay through the price of the raw material or service, we would then cover that capital outlay. In terms of timing, I think it's realistic to say that we will use the whole decade for this journey. I think, in the strategy as we've launched it, we have been very explicit that for 2021 and 2022, our focus is very much on just getting now the Kemi mine, deep mine investment completed. We have some CO2 reduction initiatives underway for the next couple of years, but nothing major. The more substantial investments will probably come in the mid, halfway through the decade, and then as we head towards the latter part of the decade. That's the current view, subject to change, one thing is certain.
For 2021 and 2022, be it all the EUR 180 million CapEx, and we are sticking with that.
Perfect. Thank you very much. The second one is probably one for Pia. Because you mentioned, in your presentation a few times, fixed cost increases. Do you see the cost inflation as a trend rather than a one-off, or do you think it will reverse?
Yeah. I think what particularly happened in this quarter, if I'm sort of looking at the full group, is also that we are recognizing somewhat higher STI levels, somewhat higher production bonus levels. Also if I look to, for example, Long Products, it is clear that we have been able to ramp up some shifts, et cetera, to support the higher volume on a temporary basis. I think the nature of these for me is not a trend, but rather recognizing higher production levels, et cetera, as higher production bonuses, for example. Not a trend there. I do think that we are observing extremely carefully, what's happening in our environment, because clearly, on a macro level, there is inflationary pressure. I'm not sort of ruling out that there is pressure on the cost side that could also be a trend going forward.
For these particulars, I would say no, more of sort of particular events in the quarter.
Perfect. That helps a lot. Thank you very much.
Thank you.
Thank you. The next question comes from Ioannis Masvoulas from Morgan Stanley. Please go ahead. Your line is now open.
Yes. Thanks very much for taking my questions. I'll start with the first one. As activity returns, you mentioned that you're looking to invest in working capital, particularly inventories. If we were to assume that spot market dynamics persist, what sort of investment should we expect for the full year, including obviously some of the release that you're expecting towards the end of the year? The second question is around Europe. If I look at EBITDA, we're still far below the 2017 quarterly peak levels despite exceptionally strong base prices on the spot market and the headcount reduction that is progressing well. I appreciate the negative volume seasonality in Q3 and the fact that spot prices are feeding through with a lag.
Could you give us a sense on when we should expect to see a step change in profitability in Europe should the spot dynamics persist, and do we need to possibly wait until the first quarter of next year? I'll stop here. Thank you.
Thank you, Ioannis. Indeed. First, let me address the working capital question. I still think that there are a few things that we are following up extremely closely before we take the final decisions on how we run the inventories towards the end of the year. That's really also a lot to do with the market visibility into the first quarter, which I think as per our earlier comments, we are clearly today at least experiencing customers asking for contracts even into 2022. As always, this is something we need to monitor really carefully. Let's say on the assumption that the market continues on a strong note, it is clear that let me just take it as a euro amount. Big picture, 2019, we brought home EUR 219 million cash from working capital.
2020, we did the same and a little bit more, so it was close to EUR 250 million that we brought home, cash in from working capital. We have significantly reduced those levels during two last years. At the same time, obviously, market was going down and down. If I look at the first half, now in a better market situation, we have invested cumulatively EUR 255 million in working capital, and really the big-ticket items from inventory, with also a lot of value change, and then the second big one from accounts receivable. My best assessment of it with the current knowledge that I have, but this is still subject to the final decisions that we will take towards the end of the year, it is that for the full year, we will need to invest somewhere between EUR 100 million-EUR 150 million.
If the market is really strong, it could certainly go up even to EUR 150 million. That would imply that we would have a little bit of cash in from these in Q3 and Q4, but those would not be significant amounts. I think that's the order of magnitude, where we can see it or where I can see it right now. Still subject to, basically, from my perspective, not daily, but a weekly review of how things are proceeding. Maybe then further to the BA Europe question, I think that you did pick yourself on one really key item there, which is the lag in when the pricing is actually visible in the P&L.
I think that's just down to the fact that, okay, first of all, with the five to six months order book, it just means that we see those realized prices at a later point in time. Another point that I think is important is also mix. The value-added grades are still at lower level than what we have seen in 2017 or in 2018, or even in 2019. I think particularly, that value-added impact also the profit is quite significant. I think those are two key elements that at least I would immediately say that we have to observe how the development of the mix continues. I think in the order intake, we have seen a gradual uptick. I think as I also said quite carefully in some earlier calls, as this gradually really means gradually to be seen in the invoicing.
We are maybe from the interest in the market and the dialogue with the customers, approaching more normal levels, but we are not yet there when it comes to the value added. At least those from the revenue side, I would say immediately comes to mind. Obviously, 2017 that you compared with also was a really different year in the sense that the first half was really strong, then we really had a dip towards the second half. Now it seems that the annual dynamic is a bit different this year.
Just to kind of build on that value-added grade. You remember that, for example, in 2018, 2019, we had a very strong scrubber business, and the scrubber business at the moment is pretty much not active. When will that return? Hopefully soon. These are sort of sub-pockets of the Pro grade business, which are important for our profitability, and at the moment they're missing, and the order book has had a very high weight of these so-called flat stainless Classic grades.
Understood. That's very clear. Thanks for the comments. Maybe one more question on the Americas division, if that's okay. You guided to mid-term EBITDA potential for this division in the order of $150 million-$200 million, which translates to around EUR 200 per ton at the upper end of the range. The fact is, if I look at H1, your EBITDA per ton has been north of EUR 300 per ton, and U.S.-based prices continued to rise into the second half of this year. Shall we expect even higher profitability per ton in H2 this year versus H1? Is there a case for revisiting your medium-term guidance, or is that upside fully a function of better market dynamics, hence there's no reason to change your medium-term outlook? Thank you.
If I start answering the question just from the perspective of the medium-term outlook with the $ 50 million-$ 200 million, obviously we want that to be sustainably strong on an underlying basis. In the realized EBITDA that we see right now, obviously we've still had some timing and hedging gains both in the first and in the second quarter, order of magnitude closer to $20 million. Just to keep that in mind, but I'm sure you already did. Overall, of course, now the market momentum is good and the macro environment in the U.S. is really good right now. Can we assume that this is a sustainable position? Well, we have visibility with the order book, et cetera, and clearly, we are all following the market dynamics in the U.S. How long will this last? We will see.
What is really important for us is to build that underlying sustainable strength in the overall platform that we have there. I think we are making a lot of good progress there, but certainly, not yet at the point where we would change that midterm view of the potential. As to your more specific question also about margins in the second half, obviously we are not guiding for the full second half, just the components that we can see right now really from a volume perspective, obviously. Historically, there has not been seasonality in the U.S. the same way as for Europe. The seasonality with lower volumes has historically really been more a European phenomenon based on just how markets operate here. As well in the U.S., we have seen in the order intake the pricing momentum.
Obviously there are some key components, and then as to development throughout the rest of the year, we will continue to observe.
Understood. Thank you very much.
Thank you.
Thank you. The next question comes from Patrick Mann from Bank of America. Please go ahead. Your line is now open.
Good day. All of my questions have been answered except for just one, which I maybe wanted to ask Heikki a little bit more about. You spoke about how the CBAM doesn't particularly help stainless if it excludes the Scope 2 and Scope 3 emissions. Can you just talk a little bit about why they've been excluded from your perspective, and what is the difficulty in getting them included? Yeah, it does seem like quite a glaring omission if you only look at Scope 1. To compare the products, it seems pretty meaningless. Why has this situation developed this way? What does the EEC or EU need to see in order to expand it to include Scope 2 and Scope 3? Thank you.
Yes. Thank you. It's a very important question. I am not able fully to answer that in particular because we don't have visibility on the, let's say, decision-making process within the European Union and the specific thinking that would have gone through. If we look at, for example, the Scope 2 piece, there we know that there is a link also to these energy, let's say, energy cost compensation mechanism that we have in different countries like in Finland, where basically the government is compensating for part of the extra energy costs that we are incurring. The thinking there is that if Scope 2 were to be included in CBAM, then that energy piece would be taken away. On Scope 3, my guess, and this is purely a hypothesis, my guess is that this CBAM in itself is quite a complex animal.
The next couple of years, they will be testing how the system works. Getting the reporting going will be probably, I would assume, a bit of a challenge. For that reason, probably just doing Scope 1, because that is also the same for carbon steel, that was probably easy, straightforward mechanism how to move forward at this stage. I do want to underscore that as you saw from that ESG slide I showed where we have our one and a half tons of CO2, this is a fundamental issue for us. The overall carbon footprint difference between us and the Asians is so dramatic. It's almost 4x- 5x that if one wants to really have CBAM with some validity and some teeth, one has to include it. This is my personal view, and let's see what time will bring.
Thank you.
Thank you. The next question comes from Lukas Blaimschein from Kepler Cheuvreux. Please go ahead. Your line is now open.
Yes, thanks for taking my questions. First one, let me go back to the previous question on inventory gains. I want to get a better feeling about what's happening in Europe, actually. I think you had a negative effect of EUR 13 million in the quarter from timing and hedging versus a benefit in Q1. I think that was pretty much in contrast to what your competitors were reporting, also the outlook for Q3, where you're not expecting any meaningful effect. There seems to be some difference. Can you explain us what is running differently? Is it just the mixed metals in the quarter, or how shall I think about that?
Thank you for the question. I think it's a fairly detailed question, but let me try to make a few observations. I think first of all, looking back at the first quarter, where from our figures as well, you can see we had really significant gains in this area. At that point, it was really we could see nickel running through the system. Anymore, on average level, that significant a difference. Obviously, also, we haven't had, let's say, the same boost in that sense, as we had in the previous quarter through all. We had all of the three, and now we just have smaller movements. The other part of the equation that I think is more company specific, it is of course, the mix. Do you have more austenitic? Do you have more ferritic?
What sort of metals do you actually have there? Obviously as well, where do you keep your inventory? When were you pricing in? There's a lot of detailed differences that still, if I look at the significant amount of money that we have tied in these metals through the chain and in our inventories, it is just that that underlying amount is so big that the level of changes that we see right now are still, at least for me, understandable that they could vary and that they are not necessarily in the same direction.
Right. With number this time, like EUR 19 million versus EUR 7 million, EUR 8 million in previous quarters. Can you help us a bit how we shall understand the changes and what we shall think about the run rate for the second half year?
Indeed. I think the biggest impact that we have here, the delta in this others, is relating to the internal inventory. Should I call it gains or inventory valuation gains that occur through our chain if we are selling goods between our business areas, and then need to eliminate it on the top? I think there's just been a little bit more of this cutting the inventory values on the group level in this quarter. I don't think that you should interpret this as a trend, but rather, of course, if you look at historical averages, how this has varied. Now we, I think, ended really at the top end. I wouldn't expect us to always be at the top end.
This is maybe one of those areas that is even internally really getting the estimate right on this one would require to know exactly at the end of the month, exactly where we have the goods and whether they passed on already to customer or were still in-house.
Right. Understood. Certainly, again, on the fixed cost item, maybe specifically on ferrochrome. When I look at your performance, I think volumes were in line, and I think your average realized prices were pretty strong, actually. In contrast to that, I think there is obviously some effect coming from the cost side running against it. Can you explain us, is this the same story? Is it the bonusing and I don't think there's so much of an element of dealing with higher volumes. What is the nature of the fixed cost increases at ferrochrome?
No. You are absolutely right that really from a production bonus perspective, the impact is not as significant in ferrochrome. There is some from the more general STIs obviously as our profit levels are improving and we are hitting some of those trigger levels and also some other KPIs that we have. I think we are having good numbers, showing good numbers at this point in time. Yes, indeed. Out of this EUR 8 million in total, not more than one quarter was from slightly higher maintenance in the sintering plant. Some of these STI related accruals, but that's not even a quarter of that. That's maybe slightly less of that. There was just a number of, let's say, other fixed cost increases in the quarter here. I would say, certainly an area that we are paying attention to.
There was actually even a little bit of variable cost increase because that EUR 8 million is the overall cost increase there. I would say a number of cost increases across the range in this quarter in ferrochrome.
Okay. Then on the whole 2021 and beyond, how we shall think about your actual cash taxes? How long can you run with such low cash taxes and from your loss carryforwards?
I think based on the balance sheet from the end of last year, where I think we are also sharing the country by country. We still are running more than 500. In the U.S., we do have a long tax loss history without even recognizing them in the balance sheet. I would say that we still have some runway ahead of us. We are speaking years more than months. From a cash perspective, tax is not likely to be high. We do have some kind of in the near term future. I am trying to see if there is any significant operating country where we would be running low, no, not yet.
Okay. That's pretty helpful. Finally on the CBAM proposal and further pathway, what kind of view do you have until that whole European framework in regard to CBAM, EU funding, et cetera, is being fixed in a sense that you could start investing into the decarbonization projects you're having in mind? Is this kind of a two-year story where we don't actually know exactly what's happening? Do you expect this to be clearer with the test phase of the CBAM? What's your thinking on that?
With this whole program, very quickly, but I think reality is that, as part of the political will, things just take their own time. As we see, the next couple of years on CBAM will be simply reporting, and then really the rubber will hit the road after that when the moment comes that you act as credits or put money on the table, if you are importing. That moment will be critical, and we will then see what happens when we get to, is it 2023 or 2024? In terms of EU willingness to support industry, of course, EU has made very bold statements about their willingness to allocate quite substantial amount of capital. If there are opportunities for us to participate in applying for those types of EU funding, we will indeed explore that.
I think, as I said to your colleague earlier when he asked about CO2-related investments, the next couple of years for us are times when we're doing a lot of research and exploration. The time for larger investments around carbon will be in the future. When we start talking about step 2 of the strategy, and particularly step three of the strategy, then we will bring concrete ideas to the market on what we intend to do. The time for that is not yet.
Okay. Got it. That's clear. Thank you very much.
Thank you. Next question comes from Anssi Kiviniemi from SEB. Please go ahead.
Hi, guys. Thanks for taking my questions. I have three of them left. First, looking at the mix in Q2, it was weaker in Europe. Could you elaborate a little bit why is this, and what should we expect in Q3? That's the first one. Thanks.
Yeah. Thanks. Hi, Anssi . I think, why is this? I would say generally when we've seen the rebound in volumes, it's been extremely strong in the kind of consumer-driven or closer to consumer appliances, automotive, and a sort of almost like later wave of more the industrial, the big projects is probably only starting or maybe even somewhat ahead of us. Heikki spoke about the scrubber business. That business is certainly not alive yet. It has been extremely still now for a year. I would really say we are at a lower level than normal in the value-added grades in Europe. Compared with Q1, the change was not significant, but there was a little bit more of the standard grades for sure. In the order intake, we can see more interest, and also we are booking orders.
I would expect that already for the third quarter, we have a step up, but this is not a huge step. This is more of a gradual increase, that we will then more see also in subsequent quarters.
If I just build on that, we have to recognize that we have a lot of demand now for also these Classic grades. In order to make Pro grades, we will then have to take out capacity for Classic grades and reallocate that to Pros. When you're full as we are, that's not an easy choice because you will probably disappoint some customers who want Classic if we start producing pro. I think we cannot make a dramatic shift here quickly, even if we had customer demand for pro. We have to make sure that we first take care of the commitments we've made with our existing clients and then gradually pivot more to value-added when that market starts to move.
Okay, thanks. It makes sense. On volumes and guidance on Q3, how will Europe and Americas contribute to that? Is the kind of idea right that in Europe perhaps the volumes will decline more, whereas Americas will be quite stable, or how should we read that situation?
Thanks, Anssi. First of all, I would just say that based on the fact that we are already on high capacity utilization levels, it's clear that there's a limit to what could actually grow basically throughout the flat business. Again, we do not give guidance per business area, but I still think it's fair to say that we do observe these typical patterns where in Americas, if you look at seasonality, it's really usually the fourth quarter, with Thanksgiving and maybe even Halloween, Thanksgiving, Christmas, that tend to be a somewhat slower quarter. Whereas in Europe, really Q3 is all about summer holidays throughout the European countries. Obviously, we are observing that same pattern, I would say, as has historically been there.
Okay, thanks. The last question is on the market balance. Looking at the stainless spot prices in U.S. and Europe, the latest moves up have been basically driven by the expanded steel margins or base prices for the producers. You have quite a lot of pricing power currently. In your view, what are the most relevant risks for this situation to end or unfold? What do you see in the market?
Obviously, if you look at the market dynamics from a supply-demand standpoint, of course, when it comes to imports outside of Europe, which would bring in substantial excess capacity short term, we have now the EU's decisions on quota. We have the anti-dumping duty. Those are enforced, they're valid. I would pretty much take that risk out. There is, of course, just how consumers are behaving. What we're basically seeing from different EU countries is a quite strong economy. Consumer confidence is very good, actually. There's a lot of liquidity in the market. Asset prices are going up. It would have to be something, really a shock of some sudden nature for this to change short term. Of course, we know that we live in a world where sudden shocks can come. We've seen them in the past. Impossible to project.
At the moment, I would say, situation looks quite good for us, and it's very much now just to make sure that our mills run effectively, we manage costs, and we complete now the strategy project towards EUR 200 million that we promised, and we will definitely do that.
Okay, great. That's all from me. Thank you.
Thank you.
Thank you.
Thank you all for your very good questions, and thank you, Heikki and Pia, for the presentations. Now, thank you once again, and have a good day. Before we close the event, I would like to remind you that Outokumpu will publish its Q3 result on November 4th. Now, thank you once again and have a good day.