So welcome, ladies and gentlemen, to this year-end report presentation by SSAB. With us today is President and CEO, Martin Lindqvist, and also our CFO, Håkan Folin. We'll have presentation by both these gentlemen, and after that, we will also open up for your questions, both from the floor here and also from the phone lines. So by that, please, Martin, take the stage and-
Thank you .
Start here.
So good morning. Sorry for having a cold, but I will try anyhow. Before we jump into the figures and the quarterly report, I just wanted to take a step back and look at 2016 as a whole, and also what we call internally phase one after the integration or the acquisition of Ruukki and the integration. And maybe successful is a strong word, but I really feel that we have integrated these two companies into one company. I feel that when I'm out in production, meeting our employees. I feel that when I travel with the salespeople, meeting customers all over the world.
This feels like one company, and that makes me, on behalf of the organization, quite proud because, I mean, if you remember, we combined the two toughest competitors on the Nordic market, but also globally on advanced high-strength steel and quench-and-temper. We have also kept focus on the strategic growth areas. We came up with them during that integration. We grew Special Steels to volume over 1 million ton last year, a growth of 8%. Big part of it being Hardox volumes. Advanced high-strength steels in, for automotive was a growth of 28%. We increased market shares for plate in North America. We kept market share in the Nordic market. We continued to expand our aftermarket and service businesses. We had a growth of 48% or 90% new Hardox Wearparts during 2016.
So well in line with the targets to double the number of Hardox Wear parts. When we closed December last year, we had structurally reduced costs with just north of SEK 3 billion, and I will come back to that. And we have improved productivity by taking down structurally the manning in SSAB or in the combined company with approximately 15%, or 2,600 people. And we are today running at a higher capacity utilization than we started—than when we started to count. So, so we have definitely, during these two and a half years, increased productivity. We have today also, compared to year—when we met a year ago, a stronger financial position, and the majority of that is, of course, due to the great trust the shareholders showed in us when they participated and oversubscribed in the rights issue.
We have so far, from second quarter 2016, generated a net cash flow of SEK 2.2 billion, and I feel very confident that we will meet the target of SEK 10 billion until the end of next year. Looking at the cost position, as said, we move into 2017 with a structurally lower cost base of SEK 3 billion, or just above SEK 3 billion, compared to the time when we merged the two companies. The majority is, of course, as we have talked about before, synergies and the synergy realizations. We have done efficiency investments up in Raahe. We have gone from oil injections to coal injection. That gives us SEK 200 million. SEK 200 million on the restructuring of the Ruukki Construction, and then other cost savings, a big part of that being in Oxelösund. So in total, SEK 3 billion.
Okay, let's move into the report and to the fourth quarter. I will start with this picture because I think it's quite interesting. It shows the volatility we experienced during 2017. This is Northern Europe, hot-rolled coil spot prices, and this is North American or U.S. plate spot prices. You see the volatility over the year. When we entered into Q4, we took a lot of the orders for the European business around this time of the year, and we knew that prices in Q4 would be slightly better compared to Q3. On the other hand, in North America, in our U.S. operations, we took the orders here, so we knew that prices would be lower during Q4 compared to Q3. And then raw material prices started to increase.
Steel prices started to increase as well around this time of the trade barriers coming into place in North America. So during Q4, we had very thin margins in Americas. Probably, if you plot it over time, the thinnest margins we have seen for a very long time. I think you need to go back to 2000 or 2001 to find such thin margins if you measure spot prices over scrap. But very low margins. So a volatile and I would say a rollercoaster during 2016. If we look at the full year, we increased profitability with close to SEK 1.5 billion on the EBIT level. I would say it's due to cost-saving programs, higher volumes, and better capacity utilization.
Håkan will come back to the bridge, but on EBIT level, lower prices actually costed us SEK 2.7 billion compared to 2015, and we made up for that by better raw material costs, of course, but cost efficiency measures, higher volumes, and better capacity utilization. We had a decent cash flow, operating cash flow, during the year, and we ended up, to a large extent, of course, due to the rights issue, at a net debt of SEK 7.9 billion and a net gearing of 34%. Yesterday, at the board meeting, the board decided to propose to the AGM that no dividend will be paid for 2016, and the reason for that is, of course, that we are at 34% and not yet in line with our financial target, which is a net gearing of 30% or lower.
We will come in line with that target during 2017, but that was the proposal from the board. If you look at the quarter, compare Q4 last year to 2015, a clear improvement in results. But if you compare with the third quarter, we had a lower result in Q4, which we typically have in the fourth quarter. But that was due, I mean, on the positive side, higher volumes, but overall lower prices, and then the maintenance outage, and last but not least, the breakdown after the maintenance outage in Oxelösund. If you look at the divisions for Q4, Special Steels was very much about the maintenance outage and the breakdown. I will come back to that on next slide.
But as said, during 2016, a fairly decent growth, and the internal target was to reach 1,000,000 tons of shipments and reach a profit on EBIT level at or above SEK 1 billion, and we would have done that without that outage. If you look at the outage, we were, during the outage, changing or replacing the control system for the power supply of the rolling mill. And there was a design error in the control system, and that resulted, when we started up the 15th of December, in a damaged transformer that had to be rewound and sent to Norway for rewinding. We got it back and did a second attempt during January 8 th.
Then we blew two transformers, and then we said that we would be up and running again early February, and we are up and running again, full speed, since early February. But this has been costly and will be costly. We will lose around 70,000 tons in production and delivery. We are trying to make up for that and producing as much of the orders as possible in other production lines, Borlänge, Raahe, and Mobile. But some of the volumes can only be produced in Oxelösund, and the volumes in Oxelösund are typically the most profitable volumes or, or products we have in the group. But as said, since beginning of February, up and running. If you look at Europe, I would say a clear improvement compared to Q4 last year, but also on the full year.
This is lower costs and better capacity utilization. But if you compare to Q3, we had higher raw material costs and higher prices and higher capacity utilization, but we did not get to the same result. But year-over-year and quarter-over-quarter, Q4 for Q4, a clear improvement. And as said, strong growth, especially within the automotive, which we calculate within SSAB Europe, or I would say very strong growth. And given the circumstances, I would say quite okay margins. Americas, what we saw during Q4, and I showed you at the previous slide, we saw prices started to pick up. We saw steel service centers starting to restock. Compared to Q3, we saw higher volumes, lower costs.
Because of the maintenance outage we had in Q3, we saw lower prices, and we saw also raw material costs starting to kick in, so squeezed margins in Q4 compared to Q3. Ruukki Construction, I would say pretty much in line with our internal expectations. We see the difference on the yearly basis, and that is only due to cost measures. Q4 over Q4, we don't see that kind big difference. We had some positive one-offs in Q4 last year, but we also had the cost action started to kick in already Q4. But I would say quite okay. And Tibnor also a decent improvement compared to last year, both full year and Q4, and this is higher volumes and lower costs. Håkan, if you take us through the details.
Thank you, Martin. Good morning, everyone. I will talk some more about the details of the figures, also go through the EBIT bridges, cash flow, and balance sheet and the raw material side. Starting with a bit of a summary year-over-year then, and if we look here on sales development, shipments, EBITDA, and EBITDA per ton, quarter-on-quarter since 2014, the picture you get is that it is a strong improvement in 2016 versus 2015. If we look on EBITDA, we started the year at a fairly low level on an EBITDA margin of around 5%. We saw a good pickup in Q2, in Q3, and then slightly down in Q4 again. But all in all, we had an EBITDA margin in 2016 of 9% versus 6% in 2015.
If we look at it per ton delivered steel, we can clearly see we started the year slower, Q1 2016 and 2015, gradually improving, and clearly the second half of 2016 was at a totally different level than 2015, both due to slightly improved market conditions, but also due to our own actions. And we reached over SEK 1,000 per ton during the third quarter. Coming to the bridges then, and starting by comparing Q4 versus Q3, and we see that we went from a profit of SEK 700 million down to SEK 100 million, roughly, so a negative development of SEK 600 million, where a very big contributor is on the price side. And as Martin showed on the slide in the beginning, this was especially, or rather, it was only due to the negative price development in Americas.
If you look at Europe, it was actually slightly up, and if you look at special steel, you can say it was basically flat, but clearly negative development here in Americas. Volume-wise, we saw Q4 versus Q3, better volumes in Europe, and actually also Americas. When it started to pick up during the second half of the quarter, we had good shipments during that period. Lower variable COGS, to a large extent due to lower realized cost of scrap for us, consumption cost, and also that we had the maintenance outage in Montpelier in Q3. Then on the fixed cost side, it's quite negative here in Q4 versus Q3, with SEK 400 million. But this is, if you remember when we talked about Q3, we had a very good improvement versus Q2.
It's a seasonal thing, because in the Nordic operations, during the third quarter, when most people take vacation, we have this element of vacation reserves. So we look at this when we compare Q4 over Q4, you will see a totally different picture. So it's not Q4 that was high, it's more Q3 that was that is seasonally low. No major thing on FX, other minus SEK 150, and here we have the under absorption, especially coming down from special steel, both the planned part, but also then some extra under absorption costs due to the breakdown. And all in all, then moving from SEK 700 down to SEK 100.
If we instead compare Q4 to Q4, we get a much more positive picture, where we had a very tough Q4 last year with an EBIT of -SEK 800 million, and now then slightly above 100 million, so more than SEK 900 million improvement year-over-year. Somewhat better price. This is almost exclusively coming from SSAB Europe. Volumes, we see positive development in all three steel divisions, and also Tibnor having clearly higher volumes Q4 2016 and 2015. Variable COGS, somewhat positive, and this is despite that on the raw material side, we had a very negative, big negative deviation, 2016 versus 2015 of roughly SEK 150 million. But again, our own actions there have given us the positive improvement. Fixed cost, it's actually on the same level, 2016 versus 2015.
And then one can ask: Well, why isn't it better, given the improvement actions you have taken? There are a few reasons. First of all, already in Q4 2015, we had done quite a lot of improvement. Second reason is that we have moved the outage on the Finnish side in SSAB Europe, which in 2015 were in Q3, are in 2016, in Q4. And then thirdly, coming back again then to the breakdown in Oxelösund, which has impacted fixed cost as well. FX, clearly positive year-over-year, very much due to a weaker Swedish krona, so we get more back when we sell in euro and dollar. And then other slightly positive, also to a large extent due to, capacity utilization. So all in all, you can say almost all factors contributing positively to this improvement of more than SEK 900 million.
This time I also included, not just the quarterly bridges, but also the year-over-year. We moved them from -100, a bit more on EBIT level, up to SEK 1.3 billion, so it's an improvement of more than SEK 1.4 billion. This is, as Martin mentioned in the beginning, despite then, that on the price side, we lost year-over-year SEK 2.7 billion. More than half of this is coming from Americas, where we saw prices really going down during the first half of 2016. Slightly positive development from volumes, and this is mainly special steel volumes. Clearly positive development on the variable COGS. Roughly half of that is coming from raw material, or actually less than half, and the rest of it is coming down from our own actions.
Year-over-year, when we look at fixed cost, we have a positive development of close to SEK 800 million. So, when we have been following this cost savings program that Martin talked about in the beginning, with SEK 3 billion that we achieved, we've also been very careful that it's not only followed on paper, but that we actually also see it in the P&L. And we do clearly see it in both on the fixed cost and on the variable cost side. Year-over-year, we also had a quite big positive FX impact. It's again, the weaker Swedish krona. It's also, for those of you with good memory, we had a big FX hit in Q2 2015 in Brazil, which we did not have again in 2016, so therefore, year-over-year, we get this impact.
Another, to a large extent, also, better utilization rate in 2016 than 2015. So all in all, they're moving from slightly negative result in 2015 to SEK 1.3 billion positive EBIT in 2016. On the cash flow side, we had a, I would say, decent operating cash flow in Q4 of a little bit more than SEK 1 billion. We had a net cash flow down here on slightly below SEK 1 billion in Q4. We did this despite that we were building some inventories, which were more related to the significantly higher raw material cost than we were actually building in tonnage. But we had other factors compensating for that, so we had a slightly positive impact on the working capital... If we instead look at the full year 2016, we are close to SEK 2 billion in net cash flow.
I highlighted here the capital expenditure part. We said in the beginning of this year that we will keep CapEx on a very low level. We will limit it to SEK 1.5 billion, and if you add the maintenance part and the strategic part together, well, we ended up the year of around SEK 1.3 billion. We did this to show that if, if needed, we can keep CapEx low to really make sure we squeeze out some cash flow. SEK 1.3 billion for a company with our size and operation is not long-term sustainable, and we have said that for the coming years, we will be at or around SEK 2 billion.
Okay, moving into the balance sheet side and on the debt, start comparing then where we were at the end of 2015 versus where we are now. Net gearing, one of our financial targets, we decreased it from 52% to 34%. We also decreased it slightly during Q4 from 35% to 34%. And on the net debt side, we decreased the net debt by more than SEK 5 billion, down to below SEK 18 billion, and that's obviously to a large extent, supported by the rights issue we did then during the second quarter of the year. And both of these aspects show that we are, we are on our way of realizing the target of 30% and also then the target of, SEK 10 billion net debt reduction.
If we look a bit more carefully where we are on that target, well, we did the rights issue SEK 4.9 billion. We generated SEK 2.2 billion between Q2 and Q4 in net cash flow. So after 2016, we have realized SEK 7.1 billion, and obviously, if you do the math, it means we have SEK 2.9 billion left then during 2017 to get to the SEK 10 billion. And internally, we have a very, very strong focus on making sure we realize this, and we are confident that we will get at least SEK 2.9 billion to reach in total SEK 10 billion in generated net cash flow.
Continuing on the balance sheet on the debt side, the coming two years, now 2017 and 2018, we have a little bit more than SEK 6 billion in maturities. We have been working during the whole year of trying to prolong or pay back whatever we have maturing in 2016, 2017, and 2018. We will continue now with 2017 and 2018. We will also start looking into 2019 to make sure that we continue having evenly spread of maturities over the coming years. Out of the maturities in 2017, around SEK 900 million of that is commercial paper. We used to have a bit over SEK 3 billion, but given the rights issue and given the cash flow we generate there, we simply haven't had that need, and that's why we have decreased that to SEK 900 million.
On the duration on the debt portfolio, we are now here, slightly above five years. We are down a little bit compared to where we were at the end of Q3, but still, I would say, at a comfortable level. On interest rate side, we are slightly below one year at 0.8 years. We have deliberately kept it low in order for us to be flexible in terms of either prolonging or repaying debt. We have seen here over some time that our average interest rate has been going up. It's now at 3.5%.
During the last few quarters, it's been both the reduction of the commercial paper, which comes at a very low interest rate, but also the underlying U.S. dollar interest rate that has been, and especially last quarter, it's the U.S. dollar rate that has increased our average interest rate. Then moving over to the raw material side, and here we have seen quite the, call it interesting or at least bumpy development over the last year, especially for coking coal, where we had an enormous peak here during the fourth quarter, where the coking coal price was actually above $300 per ton, coming from being here around 100 or below 100 previously. It was a quite short peak, and we are now below 200 again. It's at 175 or something like that.
For us, it implied that in Q4, our average purchase price was up 65% U.S. dollar and 75% in Swedish krona. It's quite amazingly high figures when you compare only Q4 versus Q3. We actually don't buy that much in Q4, because for Luleå and Raahe, we have, we need to take the material in earlier to have winter stockage. We do buy still to Oxelösund, but the main coking coal buy, buys we do in Q2 and Q3. We haven't so far seen a cost impact. We've seen a little bit of it, but the most of it will come during the first half of 2017. On the iron ore side, it doesn't look as dramatic here, but that's just because the coking coal is extremely dramatic.
But if you compare with beginning of 2016, iron ore was at $50 or something, then it was creeping upwards. It felt like it had plateaued and ended around $80, but then just, yesterday or the day before, it actually broke $90 again. So also, iron ore has increased enormously if you go back one year. And if you look for our purchases, then, well, in Q4, we were buying iron ore 20% higher price in USD, and given the weaker Swedish krona, then 24% higher in SEK. In North America, then, where we buy scrap, scrap has also increased along with the other raw materials, and the figures are quite dramatic here as well. If you compare where we are at the end of 2016, we're almost 40% higher than we were, after Q3.
We always see an uptick due to seasonality in Q4, but this time it was clearly more than it used to be. If you compare to one year back, we are actually 54% higher on scrap…. And if you remember the slide, or if you go back in your papers and look at the slide Martin showed on plate price development, well, you can see it's somewhat higher in the U.S. in the end of 2016 than where it were at the end of 2015, but it's definitely not 54% higher. And that's why we see very, very slim or almost non-existing margin on plate in North America. Finally, then from me on the outages in 2017 that we have planned.
Before going into the figures, first of all, we have restated these now, so they include both the direct costs, which we used to have, but we also include the under absorption cost to hopefully make it more clear and transparent. It's still not included the margin loss we get for not being able to produce and sell at the same time. In Q4, we had planned cost of SEK 350 million, 250 in special steel and SEK 100 million in Europe. And then, of course, on top of that, we had some additional cost for the breakdown. In Q1, we're expecting to have around SEK 180 million, for the full year, SEK 930 million. We will have a big outage in Mobile.
It will be partly in Q1 and partly in Q2, and we haven't had the major outage in Mobile for three years. We've been doing a bit smaller ones just to do some temporary fixes, but now is the time to have a major outage in Mobile. And that's also the reason why you see 2017 is $90 million higher than 2016 in terms of outage cost. Okay, Martin.
Thank you. Before we open up for questions, in North America, demand for heavy plate is expected to be good or will be good. We see that in the order book. Low stocks are expected to result in increased purchase from distributors. We see that as well. In Europe, demand expected to be good, and halfway into Q1, that will be the case. We don't expect any major inventory levels, changes in inventory levels. Fairly unchanged or stable demand for high-strength steels. Oxelösund will impact Q1, and overall, we think that shipments will be slightly better than during Q4, and realized prices are expected, of course, to be higher than in Q4. To sum it up, I think it's fair to say that we have now finished phase one on our journey towards the industry-leading profitability.
We have kept market shares or even increased market shares. We have the new organization up and running. We have delivered the synergies and workforce optimization. Now we move into phase two. We call it continuous improvement and selected growth areas. We will, in more detail, go through that during our Capital Markets Day. That will be in June, and you will get an invitation today. Then we will talk about the strategy, execution, and the taking the lead strategy, how we now at continue to attack efficiency and cost measures by continuous improvements. We call it internally, fix the basics, sell, produce, and ship on time. And then, of course, very strong focus on selected growth areas, special steels, automotive, services, and mix improvements.
But we will come back to that in June and open up the discussion and hopefully also show some targets. So with that, dear friends.
Yes, we open up for questions, and we start here with the audience in Stockholm. Please state your name and company, and also, if you can stay, if you have several questions, please state one at a time to give the gentleman time to think. So please, we can start, Olof.
Olof Grenmark, ABG Sundal Collier. Well, if I only have to limit myself to one question, it would be regarding the overall market situation. On one hand, you're giving an outlook that we're seeing increasing prices in Europe and the U.S. On the other hand, you're saying that iron ore prices are moving north, met coal prices come with a lag. What's the net effect? Are we seeing higher profitability as we speak?
We will be at least able to compensate for increased costs, yes.
Hi, hi, it's Johannes Grunselius here, Handelsbanken. If I can continue on Olof's question and ask you what you foresee behind February, March, and in going into Q2. I mean, one of your competitors was very clear that they saw expanding margins in Q2, well, for Europe. Could you give some color on what you see there in the second quarter, please?
It's early to tell, but I'm not that negative for the first half of 2017. I think if that big competitor sees margin expansion, I guess other steel companies will see that as well.
If I can add just one more question on the U.S. market, and I know you're out with your competitors with a number of price hikes. If you can give some color on that, I understand from, well, the news flow, industry data points, et cetera, that it seems that prices are gaining traction in the U.S. Would be interesting to hear your thoughts there.
Yes, they are. And, and but as said in the beginning, and I think it's important to remember, from very, very low levels. And, and prices is one thing, but we typically follow margin over scrap, and they have been at historically low levels. So even though we have been able to increase prices more than, than, the cost of scrap, and, and to some extent, much more, but, but, but still from very, very low levels. But, so far, the, the price increases has got traction in the market.
... Olof Grenmark, ABG again. Regarding net debt, it hardly improved quarter-over-quarter, just a little bit, and, on page nine, you have something called revaluation of liabilities against equity, SEK -657 million. Could you, could you please explain that one again?
Yeah, we have a strategy to have a Net gearing hedge. So it means that we have equity in dollar and in euro, especially since the acquisitions of IPSCO and Ruukki. In order, regardless if the dollar strengthens or weakens or the euro goes either way, our strategy is to the Net gearing, since that's one of our financial targets, should not be impacted. Therefore, we have loans in dollars and in euros. Thus, for this quarter, when the krona has weakened against the dollar, since we have loans in dollars, the net debt in absolute terms then will increase when the dollar strengthens.
Okay, fair enough. Finally, you guided regarding CapEx to be around SEK 2 billion in the coming years. How many years do you foresee in that outlook?
Oh, but I think it's a fairly normal level for the coming two to three years, and then it doesn't necessarily be, I mean, SEK 2 billion. But for 2017, I would say at or slightly below SEK 2 billion.
Is it possible to quantify the financial impact of the breakdown in Oxelösund in Q1 and Q4?
We have said externally that we will lose roughly 70K tons. Then we don't really know yet. We are taking the gross costs of this right now, and then at the end, in the future, there will probably be some kind of insurance claim as well. So I think it's too early to tell. But we have taken all the costs we knew in Q4, and we will take the other costs and so on for in Q1, and that will be lost volumes, under absorption and so on, and was that as well in Q4.
The total estimate of the costs?
I don't have a good answer on that, simply because I don't know ... yet.
Okay. Should we then invite the telephone conference to ask questions, please, operator?
Thank you. Ladies and gentlemen, if you have a question for the speakers from the phone lines, please press zero one on your telephone keypad now. We have our first question from the line of Alain Gabriel from Morgan Stanley. Please go ahead. Your line is now open.
Good morning, ladies and gentlemen. If I may go back to your comments on the margins for Q1. You do expect to push through the higher costs. How should we think of the margins as compared to Q4? And does your outlook include the impact, the financial impact of the stoppage at Oxelösund? Thank you.
Sorry, I mean, our expectations for Q1, of course, includes the breakdown in Oxelösund, because we were standing still the full period of January. I said we were ramping up or starting up beginning of February, so of course. Then when it comes to prices, yes, we expect to at least compensate for increased raw material prices in Q1, and that would mean that the margins would be at the same level or better.
Very clear. Thank you.
The next question comes from the line of Ioannis Masvoulas from RBC. Please go ahead. Your line is now open.
Good morning, ladies and gentlemen. There's just one question on my side. Just in the Ruukki Construction division, the Q4 performance was somewhat weaker year-over-year. So could you quantify the positive one-offs that you flagged for Q4 2015? And because at first glance, it would seem that you couldn't fully maintain the good cost progress you delivered in the previous quarters. Thank you.
First of all, we had the effects of the cost restructuring program already in Q4 2015. It started in Q4, and then we had some positive, call it one-offs, but some positive things, I think amounting to EUR 1 to EUR 2 million or something.
Thank you. And just to follow up on the divestment program, should we expect you guys to make some progress with divesting parts of the business this year?
I think I pass on that question because we'll come back if and when.
Thank you.
The next question comes from the line of Seth Rosenfeld from Jefferies. Please go ahead. Your line is now open.
Good morning. I have a couple of questions on the North American market, please. First, when it comes to U.S. heavy plate, can you just give us a sense of where lead times currently stand and how those have shifted since the trough in November? Second question, your planned Mobile outage for late Q1 and early Q2 seems to come at a somewhat surprising time, given the recent strengthening of the domestic plate market and at a seasonally strong period of demand. Why are you planning the outage now, and is this in any way kind of an effort amongst you and other peers to kind of help strengthen the market, sustain the recent price hikes? And then third question-
Sorry, if you can take those two to begin with.
Okay.
Lead times, I think they differs maybe between the producers, but we have also given the outage, fairly long lead times right now in our plate business in North America, so we have had good order intake. And then when it comes to the outage, as Håkan mentioned, we have not had a big outage in Mobile for three years, and we typically have an outage every 18 or every one and a half year or so. So we need to take that outage. Then you could, of course, say that it would have been maybe from a market point of view better to have it in Q3, Q4 than Q1, Q2.
But we need to take the outage because we have been running the mill now for three years without any major outage. So that was planned for a long time, and it's not those slightly bigger outages is not so easy to change short-term. And to be honest, end of Q3, we were not having the visibility into Q1 and Q2 either. So it's a combination of a long-term plan and also very hard to short-term change it, but we need to take the outage. Then maybe you're right, that the timing could have been better from a market point of view.
Okay. I mean, I guess on that point, perhaps it'll be good for the market by taking some volumes out. I guess the last question is, when it comes to the US scrap market, can you just give us a sense of your own outlook for scrap, pricing or supply-demand conditions over the next couple of months? Obviously, there was a quite severe wobble in late January, led by weaker export demand, primarily, bit of strength in the last couple of weeks. So how do you see that progressing in the medium term, please?
It's a good question, but very hard to answer. It's so dependent on a lot of things, but my guess would be, without knowing, that with a strong U.S. dollar, scrap export to Europe and to... I mean, Turkey is typically importing a lot of scrap, as one example, from North America or from U.S. My guess would be that scrap export will not be very high on the agenda. On the other hand, I think the volatility we have seen in raw material prices, I mean, to be honest, I couldn't foresee the price hike in coking coal, as one example. I don't really have a good answer on where scrap prices will go. I think it will continue to be volatile. I don't think it necessarily will skyrocket.
The latest buy, I think, was down somewhat compared to the previous one, but as Håkan showed, year-over-year, quite large price hikes. So I don't really know.
Okay.
I think it's hard to predict.
All right. Thank you very much.
The next question comes from the line of Carsten Rie from UBS. Please go ahead. Your line is now open.
Thank you very much. The first question is on the 70,000 tons you lost. Is there any insurance policy behind it, and could we expect some recovery of the losses you incurred on the back of it? I probably stop here, and then I have two more questions.
Yeah. Yeah, yes, we have an insurance, and we have concentrated 100% so far to get the mill up and running and together with ABB, fix the problem, and we have worked well together. Then we have an insurance, and now the work starts to discuss with the insurance company and so on, and that will probably take some time. But meanwhile, we are taking all the costs, and then we'll see at the end, and we will keep you—try to keep you updated about what could be recovered from the insurance.
Okay.
So that work has not really started. I think it was so important to concentrate the full organization to get the mill up and running, because this is not only of course, I mean, the costs are quite big, but it's also challenging for the organization and challenging for customers when we don't produce.
Okay, that helps already. Second question I have is on the SEK 2.9 billion net debt reduction you aim for 2017. How much of that do you expect will come out of the net working capital? Because I expect that inventories will go up, receivables might go up as well, and you, you had a bit of a swing in the fourth quarter in payables. So I'm just trying to get a feeling how much has your operating performance to go up in order to make it?
Now, as Håkan pointed out, we feel confident that we will reach that, and we are running. I mean, during the integration between SSAB and Ruukki, we have been focusing a lot on operational efficiency and operational performances, and not neglecting working capital, but maybe not have had such a strong focus as we could have had. So we are running a project now, a net working capital project in the company and in the organization. So part of it will come from that, and then we expect to generate and continue to generate positive net cash flow from operations. So we feel very confident to reach that remaining SEK 2.9 billion.
Good, because I also asked from... When you look at the CapEx guidance, that actually you guide for SEK 600 million-SEK 700 million more, which has to be compensated to start with, from the operating cash flow in order to make it. So therefore, I just trying to get a feeling how much you have to get up, but I think I got a little bit. The last question I have is on the U.S. What I hear when I talk to the Russian companies is, it looks like as plates are not yet banned from the U.S. market, or at least Russian CS plates, that they shift some volumes because they were-... CIS Russia is very weak.
Is that a source of concern, or do you think this kind of additional volume will have no knock-on effect on the U.S. market?
To be honest, maybe they are right, but we don't see any Russian plate when we are out on the market. They ship slabs to one of the mills in Oregon, the former Oregon Steel from Russia, and those finished products we see. But apart from that, we don't see on the market any Russian heavy plate. And we are a fairly big producer in North America. With a strong market share, we are the biggest producer, so if they were shipping substantial volumes of plate into the U.S. and North America, we would for sure see that.
Maybe a final question on the scrap prices, because scrap prices seem to have peaked at least, as Turkey is very, very, I believe, slow in the market of picking up volumes here because of the domestic issues they have. Usually scrap leads a plate prices quite, like, like a month or two in advance. Do you see that you could actually see an easing in your cost situation, and you have enough power to keep the prices stable in the U.S.? Or do you think there's, we, we shouldn't actually calculate with a margin ex- well, too much of a margin expansion in the U.S.?
I think over time, there is also always a very strong correlation between iron ore prices and scrap prices. Then it can differ from quarter to quarter and month to month and week to week. But, as Håkan said, iron ore is now at or above $90 per ton. And for me, it's very hard to predict where raw material prices would go. If you look at analysts more specialized than me on raw material, I've seen expectations of iron ore being at $40 per ton as an average this year, and we are currently at $90. And I think it's so hard to predict where scrap prices will go.
But I agree with you that export from U.S. to Turkey and consumption in Turkey will not, most probably not drive scrap prices in U.S. But apart from that, I think it's very hard to have an educated even an educated guess on where scrap prices will move.
Oh, that's a fair point. Thank you very much.
The next question comes from the line of Luc from Exane BNP Paribas. Please go ahead. Your line is now open.
Hi, gentlemen. One follow-up, maybe on the working capital requirement. Given the fact that you're pointing to this extreme volatility in steel prices, raw material prices, could you help us understand what is within your control? And, basically, what could lead working capital requirement down, as I understand from your statements? That would be my first question. Thank you.
What we can control to a large extent ourselves is stock turnover, work in progress, and those kind of things. Then, of course, if steel prices and raw material prices move up, working capital will increase. If sales moves up, but continuity moves up, working capital will increase. But we will focus on what we can control, stock levels and stock turns.
Does this mean that you're not that confident to see working capital requirement down, given the fact that you seem a bit on the 2017 outlook and have seen cost move up so far?
What I'm confident in is the target of SEK 10 billion. Then we haven't been very specific what will come from, from operations, what will come from net working capital and so on. But, but, but, the overall conclusion is that we feel confident in the target of SEK 10 billion.
Okay, fair enough. Now, looking at the more specifically on the outlook for your U.S., maybe more specifically at end markets, when I listen to Caterpillar call and overall caution about 2017 and H1 in particular, they are pointing to a large availability of used equipments, heavy machinery equipments. Could you therefore help us understand what makes you confident about U.S. demand, and what are the segments where you're going to face a positive trend? And if you could try to best qualify H1 versus H2, please. Thank you.
No, I can't, because we don't have that visibility. What I'm talking about is Q1, and there we have visibility, and we have order books. So, how it will look in H2 is, I think, impossible to say because we typically don't have that visibility, to be honest. We have visibility Q1 and a small bit into Q2.
Thank you.
The next question comes from the line of Oscar Lindström from Danske Bank. Please go ahead. Your line is now open.
Yes, good morning, gentlemen. I have two questions. The first one is around the Oxelösund breakdown. Now, you mentioned a volume loss of 70,000 tons over Q4, Q1, and I believe that's a net figure. That you will, you know, part of the loss will be made up by higher production in other units, you say. Now, is the benefit from higher production, sort of a fixed cost coverage, et cetera, going to be accounted for in those divisions or in the Special Steels division? And the second part to that Oxelösund question is, to what extent can Oxelösund make up for the lost volumes in Q1?
... during the rest of the year, or even during February, March?
If you take the first one on capacity utilization. If there is a benefit of that, in the other, in producing in, Borlänge, Raahe, Mobile, that will be, to that division running that production, so in that case, Europe or Americas. But actually, as we pointed out before, order books looks pretty good, so it might not be that we get better capacity utilization at those sites. It might rather be that Europe has to step back a bit from the ordinary plate business in order to produce the special steel volumes.
Ability to make up for that lost production, either during the remainder of the quarter or remainder of the year?
I'm looking at PO ahead here, is in the room as head of Special Steels. But, I mean, of course, we are trying what we can and, and, have high ambitions, but, but to make up for all it, of it, is completely impossible. I mean, we were standing still from fifteenth of, of, December until beginning of, of, February, and that is impossible. But we will do our utmost, and the organization will do the utmost to, to try to make up for as much as possible. But for me, to make up for all of it is completely impossible.
My second question is regarding the demand outlook for Hardox and your other-
Mm-hmm.
Sort of high margin products. And, and you mentioned that you'll talk more about this during your, your upcoming Capital Markets Day. But just if you could, you know, have any comment about demand from mining and construction equipment and markets, the ones that usually consume your high margin products. What's that looking like?
First of all, overall, I think that the underlying demand during 2016 was fairly stable compared to the year before, and we increased volumes with 8% in special steels and had a good growth in Hardox. If I would guess anything, I mean, some of the segments you mentioned have been stable on almost non-existing levels, and if anything, you can see some small positive signs that those segments, like mining, is starting to show some interest. So when we look into Q1, we say that we will see stable demand and stable, which is a bit unfair, because we typically always say that. But I mean, we see fairly stable demand, and we don't see any massive swings in underlying demand or apparent demand.
But we feel confident with the products we have and the products we are launching, that we can continue to grow special steels. And for me, special steels is so important because that is really, I mean, call it the swing factor of SSAB, and we'll talk, as I said, more about that during the Capital Markets Day in June, and also share ideas about segments and how we will continue that growth.
If I may follow up on that, I mean, the 8% volume growth that we saw in Special Steels in 2016, is that, you know, under overall sort of fairly stable market conditions or underlying market conditions? You know, is that a volume growth that you see that you could repeat again in 2017?
Well, I will be careful not to answer that question. But when it comes to these high-end products and especially Hardox and those kind of products, I think it's about building market. It's about designing out weight, increasing life length. It's about reducing fuel consumption, increasing payloads. So it's a longer sales cycle, and it's about, I mean, convincing a customer that it's extremely cost efficient to buy a steel that is much more expensive than an ordinary steel. So it's we call it internally upgrading, and we are constantly running those kind of projects with end users and big OEMs, trying to convince them that it is actually financially sane to buy a more expensive steel grade, because the payback time of that, so-called investment, is instant or very, very short.
That's the sales model of SSAB, and definitely the sales model of SSAB Special Steels. So that's why I expect to see further growth in special steel, and that's why we also target that as a very important segment. Will we be able to meet 8% every year for eternity? To be honest, I don't know, but I think 2016 was a good achievement from Special Steels.
All right. Thank you.
The next question comes from the line of Bastian Sinagowitsch from Deutsche Bank. Please go ahead. Your line is now open.
Yes, good morning, gentlemen. I've got three quick questions left. Just firstly, following up on the years where I was really impressed by your fourth quarter volume performance, but you obviously now run into the maintenance. Could you please give us some brief understanding what exactly you're doing this time, and how this maintenance is different versus the last years, as the costs are obviously more than 30% higher? And then secondly, to what extent is this impacting your volume performance in the first and the second quarter? I read a lot of articles which suggest that the U.S. plate prices are high because you're taking the orders and lead times along.
I just fear that the first half prices are higher, and you don't have the full volumes available, and once you're full back up and running, prices will fall into the second half, just like they, like they did last year. I'll stop here before taking my last question. Thank you.
...If we start with then the first question on the timing of the outage, if, or the cost of the outage. The reason why it's more costly than a normal outage in the US is that we haven't had the main outage in Mobile for three years' time. We've had a few smaller ones, but we haven't had a large one, so therefore, this cost, excuse me, this outage is more costly than the one we had in Montpelier in Q3 last year. And if I understand you correct, then Bastian, you asked about the volume as well, and basically, we're dividing the outage, so we have two weeks in the end of March and two weeks in the beginning of April, so half of it coming in Q1 and half of it coming in Q2.
Basically, you can say we are losing then, two weeks of production in Q1, and in the U.S., our business model is more selling directly from the mill, not delivering to our own stocks. So therefore, you can say that these two weeks' production loss will be, you can fairly, fairly much say that it will be two weeks' loss of deliveries as well.
Okay, so that means probably just taking the strong fourth quarter volume performance as a base, is it fair to assume that your first, probably quarter and probably second quarter volume performance in the U.S. will not be higher? So the, the better volumes you're guiding for essentially are going to be driven mostly out of Europe?
Well, I would say it's fair to say, if you take Americas in the third quarter, sorry, in the fourth quarter, the fourth quarter started out fairly slow, and then when we had these, import duties announced on, I believe it was ninth of November, after that, we definitely saw a pickup in both order book and in our own shipments. So you can say in that sense, fourth quarter wasn't, the full quarter wasn't great. It was basically the second two months of it. So therefore, you know, it's, it's not necessarily, that they will have lower shipments in Q1 than Q4.
Okay, perfect. And then just, thirdly, just coming back on, special steel. The maintenance schedule, which you lay out in your report, does not include any component for the outage in Oxelösund, while the mill obviously has been completely offline in January. And you then mentioned the 70 kilotons volume loss, which will be mostly coming via shipments. But will this lower delivery be the only negative impact in Q1, or will there also be some extra component for repair and under absorption cost on top, we should have on the radar, which is, which you obviously not mentioned. So if you could clarify that briefly, that would be great. I understand you don't—you cannot quantify the, the total numbers, just if you could let us know whether there will be some extra component on top of the volume loss.
Thank you.
Yeah, yeah, for sure. I mean, we were standing still the full January, so, so that will be under absorption, yes.
Okay. And then probably, I guess, given that the outage has been probably comparable to Q4, it's fair to say it's going to be roughly on the levels which you had in the fourth quarter, which was SEK 250 million, roughly?
Well, I think, in the fourth quarter, we would also doing the planned outage in the steel mill as well. Now it's only the rolling mill that's been standing still, so the steel mill has been running the whole, or is running, and hopefully will be running the whole first quarter. So in that sense, you cannot really compare it directly, but you can say that we have not been running the rolling mill for the whole of January, and when we started up in the beginning of February, we did it very carefully and increased day by day, basically, to make sure we did not have an additional disruption. So you can say it's probably around, on average, then five weeks, not running the rolling mill.
But just maybe, so the fourth quarter number, taking that as a basis, the SEK 250 million, you think we're likely to end up rather on a lower level than that? Just very ballpark, or rather the same or higher. If you could just give us any indication, given that it's obviously extremely difficult to assess from anyone standing outside.
If you take the capacity utilization as such, that's clearly lower than that level. But then in Q4, we did not have the volume loss. We had maybe a slight loss in terms of deliveries, but not that much, but that will instead come now in Q1.
Okay, all right. Thanks so much.
The next question comes to the line of Robert Radin from Carnegie. Please go ahead. Your line is now open.
Yeah, hi, just, just another follow-up on that, Oxelösund thing. I mean, if you think you'll have 70,000 tons of delivery losses, could you say how much you had in Q4 and how much remains for Q1?
It was a small part in Q4. It will be seen in the volume, the delivery, lower deliveries, or delivery will to a large majority be affected in Q1.
Oh, okay. Also, one small follow-up on those maintenance outages in the U.S. So, you have this big one now and then, I guess we can expect that you have another one in two years or something. What about your other mill? Is that one then due for a similar-sized outage in 2018, or what would the progression be?
Yeah, we typically have them either every 18 or every 24 months, and we had the Montpelier one in Q3 2016. So, it will not be during 2017, but it will be sometime during 2018, yes. But then, in terms of size, if you compare them, what we had in 2016 in Montpelier, that was smaller than what we have now in Mobile in 2017, again, because we're taking so long until we had this outage in Mobile. So for your estimation, you should rather look at what we had in 2016 in Montpelier and say, "That's probably what we're going to have in Montpelier again in 2018.
Okay.
But we haven't yet decided exactly when that will be.
Perfect. Those are my questions. Thanks.
The next question comes from the line of James Curry from Credit Suisse. Please go ahead. Your line is now open.
Yeah, thanks for taking my question. There's a lot of focus on the maintenance outages. I just want to ask why are you expecting another maintenance outage in special steel in the third quarter of this year, given that you've been offline for five weeks already in Oxelösund. Is that related to that site, or is it related to something else in the third quarter of this year? And is it right to say that the CapEx and the free cash flow guidance is unchanged pretty much compared to November or December, despite what's happened in the special steel division in January?
To ask the second question first, that's correct to say. I mean, the CapEx and cash flow guidance is unchanged. And then when it comes to the ordinary outage in Oxelösund, in special steels, we need to take a yearly outage. Then, of course, we have not been sitting on our hands during this breakdowns. We have tried to do things that we were expecting to do in the ordinary yearly outage, so to say, but we need to take an outage. But, I mean, part of the recovery plan is, of course, to be as effective and as quick as possible during the yearly maintenance outage.
Okay. All right. So that's gonna be in the normal summer season, yeah?
Yeah.
Can I also just follow up on raw materials? I know they're quite volatile. And can you just remind us of the contract structure in iron ore? 'Cause I think previously you used to talk about a contract structure that was longer in length, maybe quarterly or annually, but also included a provision to renegotiate on either side if the iron ore price moved by a certain percentage. Is that still the case, and are we sort of hitting those triggers right now with how iron ore's traveled so far in 2017?
We buy iron ore from LKAB and from Severstal, and the majority is from LKAB, and that contract we have ends at the end of March. And it composes of a pellet component, and then also of the normal, call it, iron ore component. And it's a quarterly contract based, but it's also based on how the spot market fluctuates for iron ore. So no, there is no such renegotiation clause now. We used to have it before, and we used to have a long time back, we used to have annual contract, as you say, but right now you can say we are basically quarterly contract, and it's also fairly much linked to the spot market.
All right. That's good to know. Thanks.
The next question comes from the line of Alessandro Barte from Berenberg. Please go ahead. Your line is now open.
Hi. Good morning, gentlemen. I have three questions. The first one is related to the alloy you have for the U.S. pipeline. Whether you see an uptick in demand, as some of your competitors are seeing. And related to this matter, there are a couple of new entrants in terms of competition for large diameter pipe, especially for the X-70. If this can actually support a little bit demand for your own products there. The second one is related to the penetration to the automotive business. If you could actually give me a little bit more details, how much you sold to the automotive business in 2016, and what plan you have for 2017. The third one is related to maintenance outage.
I mean, most of my colleagues have basically asked for this question, but I was wondering why you basically sustaining higher than peers maintenance outage, overall, on a similar, downstream operation, especially in place. And then, related to the, the outlook that you gave for 2017, if I can expect something similar in 2018, and, for the following years. Thank you very much.
We start with a question regarding U.S., then. Well, we have seen increasing demand, apparent demand, as said, during second half of Q4 and so far into Q1. And that is, of course, a combination of a lot of things, but the trade barriers being now in place, the preliminary trade barriers in North America, has obviously stopped a large part of the subsidized export into the North American market. And that has, of course, been helpful for domestic producers. And so that has been positive. And I would, my guess would be, as being the biggest plate producer in North America, we see more or less exactly what the other ones see on the market. When it comes to automotive, we are very, very small within automotive.
We are only focusing on the most advanced, cold-rolled and galvanized high-strength steel products. The main, or what we concentrate on, is safety details, like seat rails, crash boxes, side impact beams. And the reason why we have had good growth is that we are working then together with some companies on cold forming or cold forming safety details, which is a different technique and with different requirements compared to hot stamping. So that's why we have taken good market share in that. And then when it comes to 2017, we have a target, and you know, in automotive, contracts are pretty long.
So, when it comes to 2017, I would say I will not, of course, be able to reveal the target, but we are very confident that we will meet that target for 2017 as well, because we have those models already. And then the third question was maintenance outage.
I think your question was that you say that we have higher cost of maintenance outage than peers. Was that correct?
... Yes, slightly higher and also significantly more frequent than those, the Europeans are sustaining.
One big problem, or one problem or challenge we have is in Oxelösund, the two casters are very close to each other. I mean, if you take Luleå as one example, we have two casters up there as well. Then we can keep the blast furnace running and then use one caster and slow down the speed in the blast furnace. In Oxelösund, that's not possible because even though it is two casters, they are so close, so they are performing like one caster when it comes to maintenance. We can't run the blast furnace and then use one caster while repairing the other one, so to say. So we need to stop both casters, and then we also need to stop the blast furnace for two weeks.
That is, of course, more costly compared to competitors and also more costly compared to the situation we have in Raahe or in Luleå. In Luleå, typically, we don't stop the blast furnace. We run it for 15 years, and then we do a revamp, and then we run it for another 15 years. But in Oxelösund, we have to stop it every year for maintenance in the steel shop.
For your plants in the U.S., I mean, the rationale is pretty much the similar to the one you have in Europe, or there is something different?
Our plants in U.S., they are electric arc furnace-based, so that is, to put it very simply, a red and a green bottom. So, I mean, you switch on the power, and then you melt scrap, and then you switch off power if you don't need to. So, I mean, of course, we need to also stop them when we have maintenance, but we do the maintenance at the same time, and it's not as complicated at all as starting and stopping a blast furnace.
In the U.S., we have the outages less frequent. In the Nordic operations, we basically have them on a yearly basis, while in the U.S., then I said, either every 18 or every 24 months.
And then just can you give me-
The biggest difference is then in Oxelösund, and that is due to that the two casters are very close to each other. Apart from that, I can't see any other differences, either in U.S. compared to other electric or furnace-based producers or in the Nordic region compared to any other European producer or with blast furnaces. The exception would be Oxelösund.
Thanks a lot, Martin. Just one follow-up. I mean, what kind of planned maintenance outage we can expect for today, for example?
I would say pretty similar to 2016, from the top of my head. Ordinary maintenance outages in the Nordic system, and then, as Håkan said, most probably another scheduled maintenance outage in Montpelier at this, roughly the same size and magnitude as we had in Q3 2016.
Okay, thanks a lot for the clarification.
We have a follow-up question from the line of Yannis Masoulas from RBC. Please go ahead. Your line is now open.
Yes, thanks very much. I had two questions, actually. First, on coking coal. You indicated the average purchase cost for the quarter was up 65%, which is actually a good outcome, given that you avoided the peak from mid-November to December. Could you perhaps give an indication on the average purchase price for the coal that sits in your inventories currently? And I'm referring to SSAB Europe, and that would be the first question.
I don't have that from the top of my head, to be honest, but, as I said before, for SSAB Europe, for Luleå and for Raahe, we did these purchases, especially during Q3, and then, prices had already started to increase clearly from where they were at the beginning of 2016, but not as high as they were during Q4. So, I would say higher, higher than Q2 and Q1, but, lower than what we bought in Q4. Sorry, I can't give you a more precise answer than that.
Okay. And in terms of, I guess you're going to resume shipments by probably April this year. So in terms of using that higher cost coal into your SSAB operations, should we expect an impact for the full second quarter or just the beginning of the second quarter?
You should expect an impact of higher coking coal prices already in Q1, as what we bought in Q3 came at a higher price than in Q2. So also, we saw some of it in Q4, but we'll continue to see more of it in Q1, given that there's a lag from when we buy until we actually see it in the P&L when we sold the material. So you will see it in Q1, and then, yes, we will start buying again, and we'll get the ships coming in in March or April up to Luleå and Raahe again. And then that will come with, probably with an additional slightly higher cost, which will impact Q2 and Q3.
The timing for that will be fully dependent on the ice situation in the northern part of the Baltic Sea.
Okay. Thanks for that. Then maybe just a second question on the interest cost. You clearly managed to extend your debt maturity profile, then moved away from commercial paper funding, and obviously, the higher U.S. LIBOR rate has had an impact in your average cost of debt. But going forward, and assuming that U.S. LIBOR stays where it is, where it was, let's say, at Q4, should we expect the average interest cost to stay stable or increase further?
I'd say that depends a bit on what type of funding we do. I mean, we could, as I said, we could increase the commercial paper funding, which would come with a clearly lower interest rate, but then with a shorter maturity, or we could aim to continue to increase our, maturity rate. So I would say it depends on which type of funding we choose to do.
... Okay, so using more commercial paper funding going forward is still an option for the company?
Yes, it's still an option.
Okay, thanks very much.
The next question comes from the line of Anssi Kiviniemi from SEB. Please go ahead. Your line is now open.
Yes, good morning, gentlemen. Perhaps one question left from my side. There were good shipments and nice development in Q4, and now you guide for higher shipments for Q1, despite Oxelösund incident. There's probably an element with customers acting on price increases and expected price hikes. Kind of, do you have a view on that? How big is that effect? And follow-up on that, how do you see the underlying demand in end markets in Europe and Americas division? And now that you have a kind of some visibility also on Q2, is this are the cards in favor for good volume development to continue from underlying demand perspective? Thank you.
But the big year price increases will be Q1 compared to Q4. We don't have a full visibility into Q2 yet, so we see where the prices will go. I read the same business press as many of you in the steel press, and it seems that prices are not... When you listen to the big producers, prices are not necessarily moving downwards in Q2. On top of that, I think it's very hard to predict. And what I wouldn't see—I mean, what we might have seen was some people or some customers buying ahead of price increases in Q1, end of Q4. And as you remember, we saw the absolute opposite of it, Q4 for last year.
So maybe some better apparent demand than underlying demand, so to say, end of Q4. I really can't see that in Q1. So I would say it's demand. And of course, supply and demand balance, less import both in Europe and in U.S.
Okay, great. Thank you.
We have a follow-up question from the line of Bastian Sinagowitsch from Deutsche Bank. Please go ahead. Your line is now open.
Yeah, thanks for that. Sorry to follow up very quickly. Just on iron ore, pellet premiums have obviously been going up significantly, and they obviously come on top of the base price. Can you just give us some color on whether the pellet premium you pay to LKAB is on an annual contract basis, or is this just being renegotiated every quarter along with the normal iron ore price? Thank you.
It's on, it's on an annual basis.
I assume that has been reset in January?
No, it will, it's a fiscal year, so it will be reset from first of April.
That means as of first of April, you're probably gonna see a relatively big increase from this pellet increase, pellet premium as well.
Well, we haven't started the negotiations yet, so that, of course, remains to be seen, but I guess that is a fair assumption.
Okay. Okay, very clear. Thank you.
We have another follow-up question from the line of James Curry from Credit Suisse. Please go ahead, your line is now open.
Thanks. I just wanted to ask, strategically, you know, you had a big rethink of the whole company in April last year when you did the recapitalization, and you set a pretty clear plan, and you presented a lot of slides. It seems that your CapEx guidance over the next couple of years is quite flat at around SEK 2 billion. And we've got an update coming up when we visit some sites in March in the US, and obviously you've got the Capital Markets Day in June. I mean, what do you want us to start thinking about in terms of what could possibly be different about the future, other than, you know, running your current operations a little bit better?
No, but I think we have, to be honest, maybe invested too much too early, and we have capacity to grow, and we don't need to meet our strategic goals and targets, we don't need to invest a lot in capacity. We are not expecting the total volumes to increase. We are now working to call it, shift the mix within SSAB Europe and within SSAB Americas. When it comes to special steels, I would be extremely happy to do capacity investments, because that means that we have grown into the capacity we have already invested in.
So when I look for the coming two, three years, which is typically the horizon we plan for, then we have, of course, longer plans than that, but I don't see any need for any major strategic CapEx to be able to live up to the strategic goals.
Okay. So, and in that sort of period, you could get back to having, like, a previous target. Before the merger, you used to have a target of getting 50% of your volumes being niche products.
Mm-hmm.
Is that the type of pathway we should be seeing?
We will rather target what we call selective growth, and that is special steels, automotive services and mix improvement. And I think we could, we will use the Capital Markets Day to share more, some more light on that and also be more specific and go into segments and targets and so on. So let's have that discussion in June, if you are able to come to the Capital Markets Day, and hopefully we'll be able to give you better and longer answers.
Great. Look forward to it. Thanks.
There are no further questions at this time. Please go ahead, speakers.
Yes, thank you. Do we have any final follow-up in Stockholm?
Okay, so final question from me, Johannes Granstell, here, Handelsbanken. Could you give some color on what you see in terms of the U.S. market for the energy segments? I mean, there has been talks about infrastructure investments, big ones, pipelines investments, and also that shale oil producers are much more busier now. Yeah, I guess that could have a bearing on your business. Could you talk about that just a bit?
Well, if that would be the case, definitely that will be very important for, for us as a big plate producer. I meet a lot of... I was in the U.S. a couple of weeks ago and met a lot of customers, and, and, they seem to be not extremely negative, but, but, I would like to see it in the order book first, and then, I mean, but, but, I think, and it all depends, I mean, what will happen and what the government, or, or the current government will do, and so on. But, but, I could see a scenario where we could see some increased demand for, for, for heavy plate in North America.
Okay, but by that, we conclude this conference. Thank you, Håkan and Martin.
Thank you very much.
Thank you for coming, and, we wish you a pleasant day. Thank you.