Good morning, and welcome to the presentation of the SSAB Q3 report. My name is Per Hillström. I am Head of Investor Relations at SSAB, and presenting today we have our President and CEO, Johnny Sjöström, and also our CFO, Leena Craelius. The agenda, Johnny will start by going through the quarter in brief. Leena will present more details on the financials, and Johnny will close up with the outlook and the summary. After that, we will open up for questions. By that, Johnny, please start.
Thank you very much, Per, and good morning to all of you. I would like to summarize the Q3, and I will, as usual, start with health and safety. As you can see on the graph to the left, we have a good trend, where our lost time injury frequency is continuing to go down. A very remarkable work by the whole organization changing the culture related to safety. I also want to point out the total recordable is at 4.8, which is a record low for SSAB, an area we will continue to work on and try to strengthen as we move forward.
When we look at our financial performance, you can see that Q3 ended up on SEK 3.3 billion, which is better than Q3 last year, somewhat lower than Q2, but we have to remember that Q3 is a typical maintenance quarter, and especially for Americas, the financial performance was held down because of the maintenance, but I will come back to that later on in this presentation. I would also like to point out that we were able to grow our shipments even further within the advanced high-strength steel going into autos, but as well as within Special Steels. Those are things that I want to highlight.
If you look at our net cash position, and I guess that Leena will comment on that later on in her part of the presentation, we still have a very good and stable balance sheet, a very strong net cash position. Now, a few comments on our investment program. The conversion or the transformation in Oxelösund, where we are replacing our blast furnace with an electric arc furnace, is progressing really well. We are planning for production startup in Q2 next year, so it is actually around the corner. We also have the work in Luleå with the mini mill, or what I would like to refer to as the mega mill. It remains on time and budget.
But I also want to highlight that with projects of this size, there are a lot of things that is challenging, and we have had some issues in the beginning of the project, things that we couldn't foresee. With projects at this size, there are things that will always come up that we couldn't really prepare ourselves for. I also want to point out that this investment is extremely important for the future of SSAB. It is in line with our strategy to accelerate our premium leadership. It's product that goes directly into the automotive industry, especially for the electrical vehicles, to help them to become lighter, which is a requirement from the market.
Then, of course, we also had a groundbreaking ceremony a few weeks ago in Oxelösund. It was a new quenching line that we are planning to construct. That's going to give us more capacity to produce the most advanced quenched and tempered material within the Special Steels. We have a very strong underlying demand from the defense industry and the mining industry. So it's important for us in order to grow with the customer demand. Also we're expanding the capacity to be able to produce more powder for additive manufacturing. Now if we go into the divisions, we can see that the shipments within Special Steels were higher than they were Q3 last year.
So that's a very good thing. We could also see that the prices were higher than they were Q2 this year. So both shipments and prices are good. But then if you look at the profitability, you might wonder why the profitability is lower than Q3 last year. That's mainly related to cost increases we've seen in alloys, transportation, and to some extent in natural gas, et c. So that has been sort of offsetting. We're not super concerned about this. We know that our prices are going to continue to go up. There is a delay for Special Steels, an even longer delay than there is for other divisions. So we know that the price increases will offset sort of the cost increases going forward.
I think it's still a very stable performance by Special Steels. There's a very strong underlying demand, so I'm very optimistic for the future. Now looking at SSAB Europe, the shipments came out on a higher level than they were Q3 last year. Especially I'm very happy with the amount of premium steels that we're selling, which I commented on in the beginning, the advanced high-strength steels that goes into automotive industry. Automotive industry that is shrinking on the European market, but still we're able to grow on a shrinking market.
So it shows that we have a very good competitive advantage, and that we create unique customer value. Prices have been increasing for SSAB Europe. We came out on a decent financial performance. We have to remember that in Q3, we also have maintenance that's affecting the cost, but as well as affecting the deliveries. I think still a decent performance. Then if you look at SSAB Americas, volumes came out pretty much in line with what it was Q3 last year, stable performance.
For those of you who are following the CRU prices, you can see that the CRU price have been moving up very rapidly. Having in mind that we are the second largest plate producer in the U.S. market, a market with underlying demand is still very strong for heavy industry applications, energy, oil and gas, et c. So we have a good combination of a lack of competition, but at the same time, a strong underlying demand. Our prices went up higher than we guided for. It was a rough 8%. We are not super surprised about that, but also have to remind you, we have a delay because of the contract structure that we have.
So even if the CRU prices are moving up, it is only 20% of what we sell in United States, which is our sold on spot. So there is a delay for us. Once again, if you compare our Q3 performance, compared to Q3 last year, we have maintenance every other year. So that is the reason why we came out lower Q3 this year compared to Q3 last year. Just worth pointing out. Then we have the two subsidiaries. We have, starting with Tibnor, where the shipments were somewhat lower or in line with Q3 last year. Then if you look at our financial performance, it was considerably stronger than it was last year. But then again, Tibnor is benefiting for prices going up, and that also has an impact on their inventory.
So that is on the positive side. If you look at Ruukki Construction, we have not really seen an improvement in the construction segment. They are still working on a low demand situation in the market. Still the revenues are very much in line with what it has been in the past. I think that they came out on a decent level when it comes to the financial performance, higher than it was last year and also higher than Q2. But they are not having the same benefit from the inventory revaluation. With that, Leena, I leave the word over to you.
Thank you, Johnny. A bit more details and also Johnny mentioned few things that I am going to repeat here, but as the headline is saying, improved earnings versus Q3 last year, all the graphs are illustrating improvement in shipments, revenue and profitability. Let us begin with shipments. Q3 outcome, 1,530 kt. Clear improvement compared to previous year by 64 kt and 4%. The seasonality, as already mentioned, with the maintenance outages, is showing that the reduction compared to Q2 was 230 kt and 13%. We were guiding significantly lower shipments in Special Steels and Europe, as well as lower in Americas, and this was in line with the guidance.
Then if we look at the revenue, SEK 25.6 billion reduction compared to Q2, SEK 1.9 billion and 7%. When shipments are going down 13% and revenue only 7%, it is indicating that the prices did develop upwards during Q3. EBITDA performance in relative terms stable, 13% year-on-year, but in absolute terms we can see the improvement of SEK 0.4 billion, as we can see improvement in the EBITDA per ton performance. A bit more detailed analysis, bridge analysis comparing operating result Q3 versus previous quarter. Seasonality already mentioned, but a good performance with prices.
The biggest increase took place in Americas by 8% and then Special Steels and Europe division increasing prices by 3%. Both Ruukki Construction and Tibnor also increased their prices. Only minor impact here with the positive FX that was only impacting 2%. Volumes lower, already mentioned seasonality. Europe division, 160 kt lower, Special Steels 44 kt and Americas 27 kt lower. As already mentioned, maintenance impacting this. Variable cost, here we see an increase and here a bit sort of a diverse development.
In Europe division, we have seen that the pellet premium has started to climb up. We have higher logistics and zinc and paint cost. In Americas, majority of this negative impact is related to change in inventory. Inventories came down during the maintenance outage. In Special Steels already mentioned here we had higher iron ore, coal alloys and logistics cost while the scrap cost was slightly lower in Alabama. Fixed cost, positive impact seasonally always. Q3 tends to be such. We have lower personnel and external services cost. The capacity utilization, yes, related to maintenance outages. We didn't have any outages during Q2 as we did during Q3.
The crude steel and rolling production was around 10% lower quarter-on-quarter. A comparison against the previous year. Here we can see the improvement in the profitability performance. Prices have developed upwards. Here the biggest increase took place in Americas by 12% year-on-year, contributing SEK 590 million to this positive EBIT impact. Then followed by both Special Steels and Europe division, where prices went up 4%, and impacting both divisions were contributing SEK 330 million here.
Also Ruukki Construction and Tibnor have succeeded to increase prices. Shipment volumes also positive impact by 64 kt, and here Special Steels division has increased by 8%, followed by Europe division 4%. While, as Johnny already referred to, Americas was rather stable year-on-year. Also to point out that Ruukki Construction and Tibnor were somewhat lower in their volumes year-on-year. Variable cost also negative impact in this comparison, especially with Americas with higher maintenance related cost and also higher scrap cost is contributing a big part of this.
In Special Steels, we have seen higher alloys, CO2 emission allowance cost, and logistic cost. In Europe, also higher CO2 cost alloys, zinc, and logistics. Fixed cost, minor negative impact here. We have some higher personal related cost and higher external services and also some higher rental cost. Capacity utilization with positive impact. This is mainly seen in Europe division, where we have around 15% higher crude steel and rolling production. But to remind that last year we had more extensive maintenance outage in Luleå compared to the maintenance outage this year.
If we then continue with the cash flow. If we compare Q3 this year versus previous year, very similar trend when it comes to EBITDA performance, higher this year compared to last year. Similar trend in change in net working capital, positive impact, even better than last year. Maintenance related CapEx was fairly stable and similar compared to last year. To remind that this other item or line here is related to CO2 emissions spend that we are doing throughout the year. The strategic expenditures are slightly higher compared to last year. I will get back to the guidance later on. All in all, good operating cash performance.
This led to strong net cash position, SEK 8.4 billion, which leads to the gearing - 11%, which is still very well in line with our financial guidance, ± 20%. To remind that we did pay out the dividend during Q2 amounting to SEK 2 billion. Raw materials, as the graph is illustrating. Let's start with the iron ore has been rather stable throughout the year, but to point out that the pellet premium has been going up quarter- by- quarter. We see that it continues to go up also during Q4. Coking coal prices, as the graph is illustrating, have been developing upwards during the year.
Perhaps starting to move more sideways, but definitely this is impacting the cost of all the Nordic mills. The scrap cost also, illustrated in the graph, has been higher this year compared to last year. It tends to be that towards year end, the trend as also last year shown, it tends to go upwards just before year end. Perhaps to point out, which is not illustrated on this slide, we have seen rather significant increase in alloys cost during this year.
Zinc and paint cost, and of course, the logistic cost has been going upwards. Also to summarize the cost impact of CO2 emission allowances. On group level last year, the cost impact was around SEK 600 million, while this year the cost impact will be close to SEK 2 billion. So there is a significant increase in CO2 emission allowance cost. Mainly, of course, hitting the Europe division and to some extent Special Steels division as well. Maintenance cost. This table we have not updated since last time we were showing this during Q3.
The planned maintenance outages have been going according to plans. To bear in mind that these will continue during Q4 in all steel divisions, and thus impacting the volumes as well as the cost. The CapEx guidance. This time, we actually updated the guidance for this year. Previously, we've been guiding for SEK 13.5 billion, and we have reduced it for this year by SEK 2 billion. If we split this strategic CapEx SEK 8.2 billion, biggest portion is then related to Luleå, SEK 4.2 billion, and Oxelösund just below SEK 3 billion, Alabama mill SEK 0.3 billion, and then the rest is split to other smaller strategic investments.
To highlight that this update is related purely to the timing of the invoicing. Also no change in the net cash impact when it comes to CO2 emission allowances. We continue to purchase the allowances, and the estimate is that it will be on a similar level as last year, around SEK 780 million- SEK 800 million. No change in the digital roadmap plans that we have around IT projects. We continue to spend around SEK 200 million more compared to 2025. So that continues to be the same as previously communicated. But with this, I give it back to Johnny.
Thank you very much, Leena. I will give a short outlook and summary. If we look at the global market for high-strength steel, this is mainly related to Special Steels. We can see that their strongest segments, such as mining and protection, are still very strong. Roughly you can say that 50% of what Special Steels sells goes into rock moving or earth moving in one way or another. So mining is extremely important for Special Steels, and that segment is still very strong. Now protection is picking up, but it has a long lead time. It is also an area or segment where we have lower volumes, but just a big demand.
If we look at the geographies, I think that if you talk about the overall plate market in Europe, it is very strong, and it is going to continue to be very strong. Of course, that has a positive impact as well on Special Steels. But the underlying demand for plate in Europe is not super strong, but the supply situation is very favorable. For Special Steels, we believe that it is going to continue to be strong. Same thing with the U.S. plate market. We are the second-largest plate supplier into the U.S.A. market. Here we have very strong underlying demand segments such as energy, oil and gas, transmission towers, wind, heavy transport.
All of those segments are going really well. We see a large demand. Customers are concerned that they are not going to be able to get the availability that they need. So here we have a very strong position, very optimistic. I think that the Section 232 and the melt and pour works in our favor. We have now recently seen some imports starting to increase on plate, mainly from POSCO. But it shows that there is not enough availability on the American plate market, and prices have been moving up. Then if you take a look at the European steel market, the tariffs and the CBAM are working in our favor.
I also want to point out that recently we have seen companies such as ArcelorMittal reopening up idled capacity. I think there is an additional 10 million tons of capacity coming online. They have some production startup issues, but once they are online, then that will close the supply-demand gap on strip. But if you look at the plate, there is no idle capacity to open up. So from that perspective, there is still a very strong demand and limited supply on the plate market in Europe. The construction segment, we do not see any improvements yet, unfortunately.
There are some infrastructure projects, but not to the extent that we were hoping for. I think the Nordic infrastructure market is quite strong, but for the rest of Europe, it is still very low activity. The automotive industry, as you all know, has a challenging situation. Now we also can see a lot of Chinese car manufacturers settling down in Europe. That, of course, will increase the demand of steel because it most likely will be locally supplied steel. So that, of course, is beneficial for us. That pretty much summarizes it.
Now if we go into the outlook and the guiding, if you look at Special Steels, we have guided for somewhat lower shipments. That is mainly related to the maintenance that we are doing. The Oxelösund mill has a longer maintenance period now, and that will have an impact on the shipments. Prices, we guided for somewhat higher. The contract structure we have for Special Steels is normally longer-term contracts. There is a long lead time for when we had an order intake price until we have an invoice price.
If you look at SSAB Europe, we believe that the shipments will be higher. I think that their bigger maintenance is over. So they have the ability to increase the shipments compared to Q3. Here we also guide for a somewhat higher price situation. Then we have SSAB Americas, where we believe we are going to be stable on the shipments. But we also guide for somewhat higher prices. I think that is probably the summary of the outlook and the guidance. I think that we are getting closer to opening up for questions. Per, what do you think?
One more slide.
Oh, we have a summary, but we can skip that. Actually, I pretty much covered everything in my presentation. So if there are any additional questions, we can take it during the calls instead.
Indeed. Thank you, Johnny and Leena. Then we are ready to go into the Q&A. May I just suggest before we start that in the first round we limit to two questions each. We let as many as possible get the chance to ask questions. Please state them one at a time to facilitate the process here. May the please operator present the instructions.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now take the first question from the line of Kaleb Solomon from SEB. Please go ahead.
Hi, and thank you for taking my questions. Maybe first on your Americas price guidance. I appreciate there is a lag, and you explained that the sort of gap between market prices and your realized prices mainly due to the contract structure with, I think you said 20% being sold on spot. For the remaining 80%, can you give us a rough split between the sort of quarterly and longer-term contracts? Just trying to understand how much pricing upside is still to coming at the beginning of next year beyond what you guided for in Q4.
Well, in Americas, we also have so-called annual contracts, which are then index price. There is sort of a delay also when we are updating the prices according to index. Then, as you said, there is a combination of annual quarterly contracts and sort of a smaller part is something that is actually then reacting to prices more rapidly. It is a mixture of all these different contract structures.
But I would also like to add that we have a tendency to be a little bit conservative. We would rather be safe than sorry. So I think we had the same guidance in Q3 and you know where we ended up.
Yeah, that is fair. Thank you. On Special Steels, you shipped 9% more than last year and achieved higher prices, but earnings were still a bit lower. I know you have highlighted freight and energy costs and alloys, but can you give a rough sense of how much of that cost pressure you are able to recover through pricing and what the timing of that is?
I cannot give you any numbers, but we are quite optimistic, and we are not losing market share, we are not losing momentum. The demand is there. Our prices are continuing to go up for Special Steels. Some of the cost increases that we could see in Q3 were slightly higher than we expected. We do not believe that they are going to continue to go up at that pace and our price increases are going to be higher than the cost increases. We are certain of that. Then again, we are living in a world now where things are changing so fast.
The war in the Middle East, we could not foresee that. We could not foresee that all of a sudden there was a freight limitation and the cost went up 700% just to be able to find a ship to ship it on. This is more sensitive for Special Steels than it is for others. That also has an impact of other costs like alloys, et c, because they need to be transported quite often as well. This is the tricky part in the world we are living in right now, the things are happening. It is very unstable in that sense.
Okay, thank you. That is clear. That was two questions, so I will get back in line.
Thank you. We will now take the next question from the line of Adrian Gilani from ABG Sundal Collier. Please go ahead.
Yes, hello. I will use my first question on Americas, where you seem to have taken the vast majority of your maintenance shutdown costs already in Q3. You are saying you have strong end market demand, but still you are only guiding for stable deliveries into Q4. How come you do not expect deliveries to come up into Q4?
As I mentioned, of course, a big portion of these Q3 deliveries were taken from inventory, and that also had the impact on the profitability on top of the maintenance cost. Thus we think that the shipment volumes will be relatively stable also for Q4. As you said, there will be still continuing the maintenance outage activities during Q4, even though the majority of the cost related to that was impacting Q3. That is the reason for the stable.
Understood. Then we saw some speculation just the other day about the U.S. and Canada being in talks to ease these Section 232 tariffs. I guess, what are you hearing on the ground regarding the likelihood of this going through, what people are saying, and what is the talk on the ground regarding these discussions?
I think the market, everyone is convinced that the tariffs between Canada and the United States is not going to hold for a longer period of time. We do not think that there is going to be any agreement within this year. If there is going to be agreement, it is probably going to be next year. That is the talk on the town. But then again, if you look at the plate market, the demand is so high now locally and even if, let us say Algoma would start shipping into United States, it would not have a big impact on the pricing. That is according to our estimates. They still need to import material from outside North America to fulfill the demand that we see right now.
Okay. That is very clear. I guess that was mine too, so thank you.
Thank you. We will now take the next question from the line of Alain Gabriel from Morgan Stanley. Please go ahead.
Yes. Good morning, Johnny. Good morning, team. A couple of questions as well. I will ask them one at a time. The first one is on Oxelösund. So you are adding 100 kt of advanced high-strength steel capacity, which will come on stream at some point next year. Presumably this capacity or these volumes are higher margin products as compared to your current output. Can you help us think about the EBITDA bridge or upside to the earnings as your mix improves at Oxelösund? Maybe we can take the Q3 run rate as a baseline, and if we hold everything on spot, any guidance on that would be much appreciated. That is my first question.
Well, thank you for asking regarding our new quenching line in Oxelösund, and that investment will take more than three years to be up and running. So it is not going to be any additional capacity for next year.
No, Alain, I think you think about the mobile investment we are running at the moment.
Oh, yeah. Okay.
That will start up Q2 next year.
That is correct.
But that is not the same magnitude in terms of—
No.
—capacity. It is more maybe product mix.
Exactly. We have been, first of all, extending the quenching line number six that we have in Mobile. That is going to be able to take more capacity. But also we are doing a tempering loop. That means we are doing a tempering furnace. That tempering furnace, most of our advanced high-strength steel grades needs to be tempered as well. We have been using the quenching line for tempering. Now with the new tempering furnace, we will relieve some of the quenching capacity. That will happen in Mobile. We have been able to increase the capacity in Mobile.
Can I say the exact numbers or is the From 280,000 tons now we are getting closer to 330,000 tons, 340,000 tons. That is an increase of 50,000 tons, 60,000 tons. That is what we have as an increase for next year. The quenching line in Oxelösund, that will take three years, but that investment also have the potential to reach another 300,000 tons. But initial, what we have communicated is 100,000 tons because we will be using that furnace as well for tempering.
It is designed for being able to quench more than 300,000 tons. That is more of a future project. Then to your question, what kind of financial impact this is going to have? I think it is a little bit too early to say because it is a few years away. But also want to highlight that this investment is also approved to be able to supply and support the defense industry in Europe, where the demand is going to be significantly higher in three years' time than it is today.
There is a surprisingly long delay from when there is an order placed on, let us say, a military vehicle, until we actually supply the steel. It takes several years, actually. Now we see an increased order intake, but it is not near, as we believe it is going to be, let us say, in three years from now when we have that quenching line up and running. Those orders typically comes at good margins.
Thank you. Yes, I was referring to Oxelösund. Apologies, it is not one, but three years ramp up. My second question is on the CapEx. You have deferred quite a big chunk of CapEx out of 2026 into 2027. Does this mean your budget for 2027 will go up or is it fair to assume a similar deferral of magnitude out of 2027 into 2028? I am trying to get a sense if this is going to be additive to your 2027 or we would have the same mechanism in 2027 as well. Thank you.
Yes. Thank you. This is purely a timing issue, and at this stage, you can move this SEK 2 billion to next year. But of course, we will get back to more detailed guidance during Q4 when it concerns next year. So at this stage, it moves between years.
Understood. Thank you very much.
Thank you. We will now take the next question from the line of Tristan Gresser from BNP Paribas. Please go ahead.
Yes. Hi. Thank you for taking my questions. First one is on the Q4 guidance. You guide for somewhat higher prices across all divisions and also higher cost. Can you tell us if you expect actually margins to improve in Europe, Special Steel Americas, and would you expect Q4 to mark the peak of operational quarterly performance for the year? That's my first question.
Well, we don't guide the margins, first of all. Of course, the uncertainty, Q4 is always a bit difficult to predict because it is the year-end quarter. We continue to have the maintenance outages. Of course, the production performance is in focus that we succeed in that. We have sold majority of the order book in Q4, so we are quite certain about the price development during that quarter. Then the cost, like Johnny said, some of that cost we know and foresee that will remain stable or slightly increase. So it is a combination of all these, and as said, we don't guide for the margins as such.
The cost outlook across division, if raw material is somewhat higher, that's the same kind of magnitude that for price, so that 0.5%, and then you flag additional cost to that. Is that correct?
Well, I don't sort of flag for more additional costs as such for Q3, but somewhat higher as—
No, Tristan, as you can see in the outlook statement, we expect freight and those costs to remain on a high level. So we are not speaking about any significant delta on that account. But raw material, as Leena showed, is moving up.
Yeah.
If you include the base.
The pellet is included.
Yep.
Yeah.
The pellet premium is included in the raw material. That's—
Yes. Premium goes up—
Yep.
—quarter-on-quarter.
Okay. Yep. Okay. That's clear. Just on the European supply and demand outlook, I think you mentioned inventories are normal, so do you think that overhang is behind us? Why would you explain steel prices not moving higher, faster given the plunge in imports? You mentioned 10 million tons of capacity restarts. I'm struggling a bit to see that. I'm seeing the three blast furnaces from ArcelorMittal, but HKM has lost one furnace. Ilva is about to shut down. Can you help me understand a bit why do you think that we'll have enough capacity restart to fulfill the plunge in imports? That would be great. Thank you.
I think you're right that there are startup problems. Ilva is another question mark in what's going to happen to that and so on. There are idle capacity coming back online that's going to give additional capacity, but then you're absolutely right. The question mark is, kind of startup problem issues that they have, and what kind of capacity will be closed down and not be utilized. We've also seen political influence on steel production, where governments have taken a bigger initiative to support the steel industry.
You know Ilva since past that the Italian government has stepped in and supported it. What's going to happen to Ilva, it's not a simple answer to give, if they're going to close down or not. My guesses are maybe that they're not going to close down, but it's remaining to be seen. Then we have also the Eastern Europe countries where also the governments are stepping in and supporting, and here we see some other smaller mills with idle capacity starting up again. We know that they have starting up problems. It's not easy.
I think that my number was more theoretical, but it's a fact that we have some idle capacity coming back online, mitigating some of the supply and demand gap, but that's primarily on the strip side. Hence, I'm not as maybe so optimistic when it comes to price increases on the strip as I used to be because of this additional capacity. But then again, as I've been saying on the plate market, we believe that there is a shortage already.
We see it already when it comes to steel structure that goes into data centers and also steel piles that goes into a lot of construction work. There is a lack of capacity, forcing companies to look outside Europe to get the availability that they need, and that will for sure drive up the prices. So a little bit hard to predict. I am a little bit more cautious when it comes to price increases on strip than I am on plate.
All right. Thank you.
Thank you. We will now take the next question from the line of Boris Bourdet from Kepler Cheuvreux. Please go ahead.
Hi. Good morning. Thank you for taking my questions. Two questions. The first may be with the other segment. I remember that you guide for something around SEK 1.4 billion negative contribution for the year at the EBITDA level. The run rate is well above that level. So do you stick to that guidance of SEK 1.4 billion per year including 2026, or should we shoot at a lower level? That is the first question.
I think we will stick to the guidance that we have given.
Okay. So that would mean a big catch up in Q4, like SEK 0.6 billion in Q4. What would be the reason for that?
Well, year end, we need to see how all the costs develop and, of course, the programs continue, IT related programs. During Q3, of course, the IT activities related to these projects was lower. We had the summer break taking place, and now we have more activities during Q4. But this, of course, remains still to be seen how the cost will develop.
Okay. Thank you. The second question is on Luleå. Johnny, you mentioned in the introductory remarks that the project is running according to budget and timing, but you also hinted at some structurally potential challenges coming with big projects. So where do you see the main risks? If there is any specific early signs of coming challenges there?
Yeah. So we are in the beginning of an extremely large project, and there are a lot of regulatory factors impacting the progress of that investment. We have learned from Oxelösund that the power line was delayed because of an appeal to the environmental court, and that came at the end of that investment. We were not able to foresee it.
We were not able to forecast it. This is the sort of regulatory environment we have in Sweden. Maybe for other countries it is hard to understand, but that is the way it is. We are very much dependent on regulatory approvals for a lot of things that we do and a lot of things that we are planning to do. Hence, the reason, based on experience from Oxelösund, we are highlighting the regulatory risk that we have with this large project.
Okay. That is clear. Thank you very much.
Thank you. We will now take the next question from the line of Bastian Synagowitz from Deutsche Bank. Please go ahead.
Yeah. Hey, good morning all. Thanks for taking my questions. Actually, I only have a quick one left on the ramp-up in Oxelösund, which is not too far away, I guess second quarter next year. I am just wondering, have you refreshed numbers here on how the costs will look like in the current environment compared to your existing blast furnace operation as that new EAF is ramping up? Then also, how long do you expect to take until you are being fully ramped up? We will also have the full, or most of the product spectrum available there.
Well, for the cost side, of course, there will be some additional cost always with the ramp-up. As you know, it is more like a trial period, so not optimal energy efficiency and production efficiency from the beginning. Of course, the net working capital we have started to revise and plan that there will be some higher scrap inventory while we still continue with the blast furnace. So those we need to take into account during next year. But of course, we will get more into details during Q4 when we have more calculations ready. Maybe Johnny can then comment on the timing.
So for the time frame, we are planning for six to nine months, double production and ramp-up. That is the plan we have right now.
Johnny, that is obviously, I would say, by industry standards, a pretty ambitious plan. I think we have been seeing some of the peers which were probably aiming for similar, say 12 months, now it took them at least 24, and they are not fully up and running operationally, and then there is the product spectrum question. So do you think that that is realistic for your product spectrum, or why do you think you will be doing better than those? Is it an easier ramp-up process in terms of the product specifics?
Yeah, your conclusions are right. Normally it takes longer. But then again, we are just replacing a blast furnace with an electric arc furnace. The rest of the production is actually exactly the same, which means that if the chemistry from electric arc furnace is right, then everything should be the same. So that should not be any changes. We have been training our staff in Mobile to run an electric arc furnace, and we will have staff from Mobile coming over to start up the production. Unless we run into any startup problems with the equipment as such, I do not think that the qualification period should be longer than six to nine months.
We do not have too many customer qualifications that we do. The products that we produce do not have those specific customer standards or specifications. It is actually our own specification and our own quality guarantees, and that makes it a lot more simple. If it would be grades and material that we sell to the automotive industry, then you are absolutely right, then it takes 24 months, and it is rigorous testing and evaluation that needs to be done. But in this case, it is more simple.
Okay, thanks. Thanks for this.
Thank you. We will now take the next question from the line of Andrew Jones from UBS. Please go ahead.
Hi, Johnny and Leena. Thanks for the color. I just wanted to get a bit more detail on energy costs and sensitivities and things like that. In terms of the actual 3Q headwind versus 2Q, can you just quantify how much energy, power and gas and so forth, added to your cost base and maybe if for like a rule of thumb you could give us in terms of sensitivity to the power price in Sweden or the price on TTF? Any sort of color around that to help us for Q4 helpful. Thanks.
How we interpret the cost category when it comes to energy, we are not talking about coking coal or CO2 emission allowances, but we are talking about oil and gas and electricity. We can see that, of course, the natural gas prices have developed upwards, but in the big portion of this raw material impact on our profitability, it is still minor. It is less than 10% increase or in relative terms.
It has gone up for sure, and I think that the biggest impact is in Europe division, definitely, while Americas and Special Steels when it comes to gas prices is less. But from the cost elements that have developing upwards during this year, I would say that the CO2 emission allowance cost is definitely the biggest that you need to take into consideration. Also alloys and the logistic cost is much, much higher.
Yeah. Okay. Can you just put any numbers around, in Europe how much was your total, excluding coking coal, your energy bill in the third quarter?
Yeah, unfortunately I do not have that figure in my head right now, so I cannot give the exact figure.
Okay. No worries. And just second question on the market. Johnny sounds quite doubtful or less bullish maybe than some on pricing outlook on strip. Are there any particular customer segments or areas where you are seeing weakness on the demand side that might be informing that relative caution? I guess I kind of echo what Tristan was saying about it seems like the market situation on the supply side is tighter than you were implying with the sort of 10 million tons restart idea. Unless demand is super soft, would prices not continue to move up pretty materially into the start of next year?
I think the difference between Europe and the United States is that in the U.S.A., we have strong underlying demand. In Europe, we do not really see the strong underlying demand. When it comes to steel consumption, it is within construction, which is the largest segment for consuming steel, and then we have autos. Both of these segments are down on low levels. If there will be any change in any one of these segments, of course, the demand would go up and then the situation would change. I am not really seeing that to happen, at least not in the beginning of, or first half year next year. I was more optimistic when it comes to the supply situation before than I am now.
That is based on theoretical calculation on capacity coming online. But then again, I think one of the previous questions we got, it depends on what happens to a few of these mills and how successful they are. That is also remaining to be seen because if Ilva is closed down, let us say, that will be a game changer because it is a lot of capacity coming through that mill.
Then we also have Thyssen, et c. All other investment we are talking about HKM and electric arc furnace and so on, that is going to take a few more years. We will run on blast furnaces primarily during next year. A lot of the companies are trying to maximize their output to secure they get free allocations for the future. That is what we have seen. It is a little bit changing the game a little bit.
Yeah. Okay, fair enough. Cool. Thank you.
Thank you. As a reminder, to ask a question, please press star one and one on your telephone. We will now take the next question from the line of Maxime Kogge from Oddo BHF. Please go ahead.
Yeah. Good morning, team. I have the first question on U.S. plate pricing because it seems at this level, the current spot level, which is extremely high, there is a big incentive for imports now to flow into the U.S. If you look at where Chinese or South Korean plate prices sit, if you add 50%, it seems it is still interesting for them to land in the U.S. Do you expect that this big arbitrage window that we have right now in the U.S. plate market be closed anytime soon, or can it be sustained for some time?
What we see is on the market that customers are extremely concerned about the availability. I do not see that the market has restocked or replenished their inventories and they have not been able to because there is not enough capacity within the country. Recently, we have seen that imports have started to increase. It has been mainly from South Korea. Prices are on a level where it is starting to be interesting to look at imports. We do not believe that prices will go down, but then immediately we will see less imports coming in.
I think rather that the prices will stabilize on a higher level, and that it is very likely that we are going to see more imports coming in to supplement the shortage on the market. Then we also have to remember that there is still anti-dumping duties on countries like China, et c. We are not going to see any Chinese material coming into the country. But it is likely that we are going to see more material from Canada, likely we are going to see more material from South Korea, and also some material from Europe. That is more likely now.
Okay. No, interesting. Second question is on EU regulation, because CBAM and the new tariff quota system have been very powerful and effective. But there are still talks around extending CBAM to downstream processes, introducing melt and pour. I think slabs are not yet really incorporated in the TRQ system, so that is a loophole. Where are the areas that you think should deserve attention from the regulators and need to be improved further to really make the market watertight? Not going as far as the U.S. perhaps, but still having a strong system.
These will be more my personal reflections on your question. Then I think it's absolutely critical that we include the slabs into the tariffs, that melt and pour is included. Otherwise, Europe will be just a re-rolling country, clearly. So that is a must, and it's also very likely that that will happen, and those discussions are ongoing as we speak. Then we talk about derivatives, products produced out of steel. I think also this is important because if that is not included, then production will move out from Europe. So then it will be a deindustrialization situation, and no one really wants that. I think that we're going to follow what U.S.A. have done. That is my prediction at least.
Okay. Thank you. And perhaps just the last one as I'm perhaps the last in the queue. So it's about your auto contract. What's your first views? Because a lot of them will be renegotiated in the coming weeks. At the same time, the market remains quite weak in Europe. So how do you balance in your negotiation the very strong spot prices against the subdued volume trends and also pricing trends for autos in Europe?
Now, we have been negotiating Q1, and we've been doing that for quite some time. I think that we've closed most of the Q1 contracts already, and we already seen that we have price increases for Q1. So the market is accepting a price increase, which is clear. But then again, what's going to happen around that corner, it's hard to see and hard to predict now, and this is mainly related to strip. Did I answer your question?
No, that's clear enough. Yeah.
Thank you.
Thank you. We will now take the next question from the line of Krishan Agarwal from Citigroup. Please go ahead.
Hi. Thanks a lot for taking my question. Most of them have been answered, and I have a last one pending. The carbon cost in the quarter was slightly higher than what we expected. Is there any way you can help us in terms of how should we look at the carbon cost for the full year and more importantly, for next year, given that Oxelösund EAF will come on stream, and then in theory, that should lower your carbon cost? Just looking for some kind of pointers just for this year and the next year.
Yes, I mentioned the cost related to CO2 emission allowances has been now increasing for this year significantly. We see SEK 1.4 billion higher cost compared to last year. This year, there has been combination of issues impacting the cost. Of course, the free allocations are lower, and they will also be lower for next year. The reference point for free allocation, our production volumes in the reference period has been low. Now they are higher, so we will benefit from higher production. So that will partially compensate for the lower free allocations.
Also as you mentioned, Oxelösund EAF will be going live next year, so we are reducing hopefully the blast furnace production, and that will have a positive impact. The issue is that how the emission allowance price will behave. We have some of the trades for next year planned are fixed, but the remaining part is uncertain how the price will develop. At this stage, I would give a guidance that it is fairly similar to this year level, plus, minus something, but it is really hard to predict at this stage.
I understand that. Just a quick clarification. You mentioned the reference point is higher, so allocation will improve, for example, in 2027. Once you switch from blast furnace to EAF, does that production level continue to be the reference point, or because the blast furnace is going down and hence your reference point for free allocation also goes down, that means allocation in 2028 or 2029 goes down significantly?
To be completely honest, we are still uncertain how the free allocation will be treated when we are closing the blast furnace in Oxelösund, because it might be that we still keep it mothballed for example, defense need purposes. We are still looking into this, so I do not have, unfortunately, answer to you at this stage.
No problem. Okay, thanks a lot.
Thank you. There are no further questions at this time. I would like to hand it back over to the speakers for closing remarks.
Okay. Thank you, Johnny. Thank you, Leena. Then we can conclude today's conference. If you have anything further, you are much welcome to contact investor relations. By that, we wish you a nice day.
Thank you.
Thank you.