Thank you, and good morning. Welcome to this presentation of SSAB's second quarter 2020. With me today here is our President and CEO, Martin Lindqvist, and also our CFO, Håkan Folin. If we switch to the agenda slide number 2 there. We will start here by Martin giving an overview of the second quarter, and then Håkan will come in and dig into more of the financial details, and then Martin will come at the end with the outlook and the summary. After that, we are prepared to take your questions. We will come back to that. Martin, please.
Thank you, Per. If you could move to slide number four, I think it is. The second quarter was a very different quarter and very much influenced by this COVID-19 or the corona. It was a quarter with lower demand, low prices, and high iron ore prices. If we look at SSAB and compared to Q1, our shipments were down with 20%, so quite a substantial drop. That led to lower capacity utilization. We saw that especially in SSAB Europe, where we had a very low production rate. We decided already during the end of Q1 to idle one of the blast furnaces in Raahe from early April. In Special Steels, we had stable production and decent production. We also saw lower demand there.
Overall, continued pressure on steel margins during the second quarter, and we had an EBIT of SEK -251 million, a drop of more than SEK 1.5 billion compared to Q2 last year. We continued to generate, I would say, given the circumstances, a decent cash flow, not a strong operating cash flow, but a decent cash flow of something north of SEK 600 million. Next slide, please, number five. Already in end of Q1, we started to execute the plans we had and the plans we made up when we saw that this would be, or was supposed to be, a turbulent quarter. We managed to reduce our fixed costs on group level with roughly SEK 800 million compared to Q2 last year and sequentially compared to Q1 with roughly SEK 400 million.
If we take it division by division, in Special Steels, we reduced the fixed cost with SEK 200 million. We had short-term work allowances and did the planned cost-cutting measures in a decent way. We also, in all divisions, decided during beginning of Q2 to move all the planned maintenance stops that were scheduled for Q4 this year into Q3, given the lower demand and the lower activity on the market. You look at SSAB Europe, I think we did a decent job there as well. We saved more than SEK 300 million compared to Q2 last year. As said, we had one blast furnace idle for most of Q2, and that blast furnace will continue to be idled at least during July and August and some part probably of September as well. We had short-term layoffs and moved the planned maintenance outages into Q2 as well.
Americas is a bit of a different story because we have a higher share of variable costs, and we typically see that costs goes down when activities goes down. We managed to save more than SEK 100 million in fixed costs as well, which I think was a decent achievement. We moved our planned biannual maintenance in Iowa and Montpelier to Q2. It was originally planned for Q4, but we moved it into end of Q2, beginning of Q3. I think that was a good decision as well. The common activities we did was, of course, limited the traveling, external services sharply reduced. We have used own personnel to much larger extent than we usually do. We have postponed some projects that were not time-critical. Group executive committee, including me, reduced salaries, and we did lot of measures, including hiring freeze.
These cost savings will continue into Q3, will continue until we see a pickup in the market and the underlying demand. We have talked many times about the importance of having a decent balance sheet, I think we are getting to that position where we have a decent balance sheet. I expect, as I usually say, expect us to continue to generate strong cash flows and over time, continue to strengthen the balance sheet. If we look at it as it is of today, we have liquid assets and committed credit lines at the level of SEK 20 billion, we feel that that is sufficient given what we see. We have enough liquidity for partners to handle the coming quarters.
When we have rescheduled the maintenance outages into Q3, I think we are also, as a company, well prepared to see or to meet a ramp-up in Q4 if that comes. I think we are in a, I would say, decent position. If we move to the next slide. If you look at the impact of COVID-19 on SSAB operation, it has been a very strong focus. Health and safety is always a strong focus for SSAB, this quarter has been very much to make sure that we try to do whatever we can to keep the disease as much as possible outside our own mills. We have taken several measures. We have worked a lot from home. We have reduced traveling to a minimum.
We have carefully been planning now the ongoing maintenance outages to avoid outbreaks at the mills of COVID-19, and we have reduced the number of external suppliers into the mills. We have restricted face-to-face meetings, and we have contingency plans for all critical operations, both out at the mills but also at the offices. We're working in shifts and trying to do whatever we can to make sure that we can continue to run operations around the company. We have also focused a lot on securing supply chains, and so far, we have only had minor disruptions during the first half of the year or up until now due to COVID-19. Next slide, please. If you look at the operating profit, and I will go through the divisions in a second.
If you look at operating profit, I think Special Steels with SEK 485 million or 12% EBIT margin, I think that is okay given the circumstances, and they should be performing better when the standard business is more hit in a situation like this. Americas, barely break even on EBIT level, which is a reflection of the market and the prices and the volumes we saw in Q2. I would say extraordinary low results. I think Ruukki Construction is keeping up fairly well. It looks like we reduced the earnings or the profit compared to last year. If you take away the sales of Building Systems that we did in the beginning of Q2, we were actually able to, in Ruukki Construction, increase the results somewhat compared to Q2 previous year, which I think is also okay. SSAB Europe, minus SEK 566, is where we see the biggest hit.
Håkan will come back to the bridge, but we see unabsorption, of course, when we close one of two blast furnaces in Oxelösund. There we see the biggest hit from the market. Tibnor on the same level as Q2 last year, which I think is also, given the circumstances, okay. Next slide, please. As said, SSAB Special Steels, an EBIT margin of 12%, which is a slight improvement compared to Q2 last year. We have had fixed cost reduction with, as mentioned, SEK 200 million. We have seen a small positive effect on the product mix with a higher share of volumes from Oxelösund, and they are typically the more advanced products with the higher margins. That has helped, of course. We have, as said, right now, standing still in Oxelösund for the annual maintenance that was originally scheduled for Q4.
Typically, we schedule the maintenance outages as much as possible in Q4 because that is a normal year, typically the slower quarter than the first three quarters. I think the decision we took to take the maintenance outages already in Q3 this year was a good decision. Next slide, please. If we look at Europe, we see that shipments decreased with as much as 24%, which is a huge drop in shipments. That leads, of course, to weaker capacity utilization, unabsorbed costs, and it was only partly offset by cost savings. I think reducing fixed costs with more than SEK 300 million in a quarter, I think that is a good achievement from the organization. As said, we have moved the maintenance outages into Q3, and we are now ramping up in the Swedish operations after the maintenance stops.
So far, it has followed plan both time-wise and cost-wise. As said, the blast furnace in Raahe will be kept idle for most of Q3. If anything, we will then, if the market requires, open it up the second half of September or something like that. Next slide, please. In Americas, lower shipments affected the earnings. As said, we were barely at break even on operating profit, minus SEK 10 million for the quarter. The shipments and prices and margins were affected by much lower demand. We managed to meet that partly with reduced fixed costs and also the flexibility we have with a high portion of variable costs. The maintenance outage that started in Iowa in end of June is now being performed, and we will start to ramp up production end of this week or beginning of next week.
So far, it has gone according to plan, and no LTIs during the maintenance stop. Next slide, please. Tibnor has said on the same level as last year, which I think is okay given the circumstances. We saw weaker demand impacted by the lower economic activity in the Nordic region, we compensated lower sales by both the ongoing restructuring program that is going according to plan, and where we will see the full effect of that program during the second half of this year, but also additional cost measures. Sequentially, Q2 was a stronger operating profit than Q1. Next slide, please. Slide number 12, and Ruukki Construction. Ruukki Construction was the only division or daughter company where we saw a stable underlying demand. As said in the beginning, we divested the Building Systems in Q2 and got demand for that during Q2.
If we compare both revenue and especially operating profits, there was slight increase compared to Q2 last year if we clean for Building Systems. I think Ruukki Construction is now what we want it to be, a big customer and consumer of color-coated materials, an important part of the integrated supply chain of SSAB, and they continue to develop their business, and they are doing it in a decent way. Håkan?
Thank you very much, Martin. Good morning, everyone. As Martin said, I will dig into some more of the details on the financials. Starting with an overview then on page number 14. Sales were down in the quarter, of course, impacted by COVID-19, and they were down by as much as 27% versus second quarter last year, and 19% versus Q1. Shipments also dropped for the same reasons. Actually, when we look in this graph, you can see shipments were actually the lowest we've had since 2017, at least. Down 17% versus last year and 20% versus Q1. EBITDA margin, 5%, and the EBITDA per tonne delivered is over SEK 500 per tonne. Next slide on page 15. We look at the result development. We start with comparing year-over-year.
The drop in earnings were, as Martin said, a bit more than SEK 1.5 billion. Very big change in terms of pricing, and this is mainly coming from Americas. Actually, even majority is coming from Americas. There's also some coming from SSAB Europe, but it's impacting earnings by SEK 1.7 billion. Since volumes were down 70%, we also get the big volume impact on the earnings, almost SEK 900 million related to COVID-19. Mainly impacting SSAB Europe, also in Special Steel. The drop in shipments in absolute tons were not as large in Special Steel. On the other hand, for every ton we lose there, we also lose more earnings.
The drop in price and volume were compensated on the cost side, both on the variable cost with lower raw material cost, also then on the fixed cost, fixed cost being as much as SEK 800 million lower in Q2 this year compared to last year. Somewhat negative on FX, close to SEK 200 million, weaker Swedish krona than the U.S. dollar. Unabsorption, given the lower volumes then we had low production rate in especially SSAB Europe. On the other hand, we had very strong and high level of production in Special Steel compensating somewhat. The positive item on other relates to a large extent to lower amortization of surface values. All in all, a drop of SEK 1.5 billion coming from the price level, the volume during unabsorption, somewhat mitigated then by our lower cost level, both on the variable and on the fixed side.
If we then instead compare sequentially, it's not as big figures. We are moving from SEK 343 million positive to minus SEK 251 million. Pricing here is actually impacting somewhat positively. It's Europe and Special Steel positively, and slightly negative for Americas. The big drop in earnings is in terms of volume, which has an impact of SEK 800 million, mainly in SSAB Europe, but also Americas and Special Steel. Variable cost, slightly positive, related mainly to scrap and coke and coal, and then fixed cost being close to SEK 400 million lower in Q2 than in Q1. One of the reasons why there's a big change, it was SEK 800 million when we compared Q2 to Q2, and now SEK 400 million when we compare Q2 to Q1.
Normally during the second quarter in the Nordic operations, we take in a lot of summer workers, and we start training them already in the second quarter of the year. This year, given that we have moved the maintenance outage, we have also changed the vacation plans, we have made an agreement with unions how to mitigate. We are actually able to run production with much lower level or almost no level of summer workers, and thereby able to save more. FX, almost no change, unabsorption close to SEK 500 million, coming mainly from SSAB Europe, including having one of the blast furnace idle in Raahe. In summary, it's volume and unabsorption impacting negatively from Q1 to Q2, but compensated by the cost level and especially the fixed cost level. Okay, if we go to page 17, we have the overview of the cash flow.
We have an improvement in operating cash flow from Q1, more than SEK 1 billion better, of course, as we just looked at. Instead of building working capital as we did in Q1, we now have a release of working capital of more than SEK 200 million. If we compare with Q2 last year, we had a buildup of working capital. In this quarter then, a release of working capital. Not a great cash flow, a positive operating cash flow also, on the last line as well, a slightly positive net cash flow. If we move to the balance sheet, we look at our debt situation, we have a net debt now of SEK 12.8 billion. We have a net gearing. It's been fairly stable for a while, around 20%, this quarter 21%.
Duration of the loan portfolio, it's rather long, it's more than five years. It's lower compared to last year. One reason is one year has passed, but also we have more commercial paper at the moment. It's been more than five years. We are at the comfortable level with our liquid asset and committed credit lines over around SEK 20 billion at the end of the quarter, which is almost 30% of rolling 12 months sales. If we look at the maturities then we have maturities remaining for this year over around SEK 2.5 billion. Most and almost all of that refers to commercial papers. If we look at the coming three years or two and a half years, the rest of this year, 2021 and 2022, we have in total SEK 8.5 billion maturing.
To put that in comparison with the cash in the backup facilities of SEK 20 billion, we are very comfortable with the liquidity situation we have in relation to the upcoming maturities. We did take a lot of actions during March, before COVID-19 fully started to have an impact, to make sure that we are able to sit in this comfortable situation right now. If we go then to page 19, where we have the cash needs of the business on top of the maturities then, where we have cash needs of around SEK 3 billion for this year, and cash needs then consisting of CapEx and net interest and taxes. We have postponed some of the CapEx program. We talked about that last time as well, and the capacity expansion in Mobile or quench and temper material, and also the start of the Oxelösund conversion to electric arc furnace.
We have not postponed the end date, but we have postponed the start. Interest rates will be fairly stable year-over-year. We will have lower taxes in 2020. We have quite high taxes in 2019 paid tax, but it will be low in 2020 also because of lower earnings. Around SEK 3 billion in cash needs. If we move on to raw material on page number 20. Our purchase prices for iron ore and coking coal, they were stable during the quarter. For iron ore it was basically unchanged both in SEK and USD.
We did see iron ore spot prices that started to increase in May, and they are currently at a high level, and that will have an impact already in Q3, mainly for SSAB Europe, for the Luleå production where we have low level of inventory of iron ore and we basically buy it on a daily basis from LKAB. There we'll see an impact on the cost side as well. Coking coal, average coking coal prices were basically also stable, unchanged compared to Q1. Here spot prices have actually for a long time been on a slightly downwards trend, and they have continued like that also into Q2. On page 21, we have the scrap spot prices. Scrap is then what we buy for our operations in the U.S. Our own purchase prices for scrap were basically unchanged as well in Q2 compared to Q1.
The scrap spot prices are at the fairly low level in the U.S., and we have seen for the July buy that they have continued actually to move downwards. On page 22 then, and finally from my side, a few words on our planned maintenance outages in 2020. We have changed the timing. Most of them were planned to be performed in Q4, and we have moved almost all of them to Q3. Reason is then as we expect that demand as a consequence of COVID-19 will continue to stay rather weak in Q3. We'd rather do the maintenance outage now and be ready then if there is an improvement in demand in Q4. All in all, the cost for maintenance outage will be around SEK 900 million this year versus SEK 1.1 billion in 2019.
We will of course in Q3 see the impact both on the cost, the unabsorption, but also on impact on shipment in all three steel divisions during the third quarter. Okay, back to you then Martin for the outage.
Thank you, Håkan. If you move to the next slide 24. What we tried to do during the second quarter was to focus on things that we could influence ourselves with cost savings and running operations in as decent way as possible without losing focus on long-term development and without slowing up the development of long-term of SSAB. The Q3 will be a very important quarter for SSAB, because we will start production of fossil-free steel in our plant up in Luleå, in the HYBRIT plant in Luleå during the third quarter, according to plan and according to schedule. We will continue to develop the roadmap and execute the roadmap to be the first steel company globally with fossil-free steelmaking at the latest by 2026. This pilot plant will now be inaugurated and start to produce fossil-free steel.
We will also continue to focus on developing the special steel business. For Q3, this is for SSAB a very big event, and we will now be ready to start to do prototypes and work together with customers to develop their applications with fossil-free steel. We are in that process, discussing with customers how to help them to get the best possibilities out of this fossil-free steel going forward. If we move then to slide 25, we don't see many segments or any segment with strong demand. We see fairly weak demand in most of the segments. If you take heavy transport and automotive, underlying better than Q2, mainly automotive industry and a big part of the heavy transport industry were more or less standing still in Q2, and they are opening up now and start to produce.
Heavy transport, some recovery, automotive production gradually started, we continue to see an underlying structural growth in advanced high-strength steel. Construction and machinery, another important segment, we see relatively low production levels or expect relatively low production levels in Q3, both in U.S. and E.U. Material handling, low demand for new equipment, yes, will continue, on a healthy level. Mining operations continue at a fairly stable level in Q3. Energy, oil price continues to be under pressure. Wind power and transmissions segments are more stable. Construction held up fairly well with a healthy demand and stable development, support from some seasonality, typically better in Q2 and Q3 than Q4 and Q1. We see some risk of some kind of slowdown. Service centers, always the swing factor. Generally fairly cautious sentiment.
When we look at inventory levels, and especially in the U.S., we see that the inventory levels are on very low levels. All in all, uncertainty into Q3. If anything, we expect demand to pick up from very low levels, at least towards the end of the third quarter. Next slide, please. If you then take that into SSAB, we expect shipments in SSAB Americas to be roughly at the same level as Q2. Shipments in SSAB Europe and SSAB Special Steels are expected to decrease because of the maintenance outages and so on. If we look at prices for Q3 compared to Q2, we expect somewhat lower prices in SSAB Europe with lower contract prices, partly mitigated by a positive product mix. In SSAB Special Steels, prices are somewhat lower, and in SSAB Americas, relatively stable prices.
If we move to the last slide before slide 27, before we start to take questions and comments, I think as said in the beginning, fairly different quarter, the second quarter, with a lot of internal focus and a lot of focus on things that we can influence ourselves without short-term survival, without losing focus on long-term development. I think we did a lot of actions to reduce costs during Q2, and that will continue into Q3. The outlook is, as always, uncertain, but this time maybe a little bit more uncertain than previous. We see some signs that demand could start to improve late in Q3. We continue to try to take care of our balance sheet, and we have, if not a strong balance sheet, but a decent balance sheet, and over time it will get stronger.
We have liquid assets and committed credit lines of SEK 20 billion, which, as Håkan pointed out, will more than cover all the cash needs we have for this year and also for coming years. We continue to focus on two things long term: to develop the specialty steel business and then the transitioning to fossil-free steel making with the ambition to be the first steel company with fossil-free steel to the market, and also to start during this fall to, together with customers, develop fossil-free steel applications and start to do prototypes and work with customers. With that, Per, I think we are finished with the presentation.
Yes, we're ready then to move into the Q&A. As always, I would just like to remind people that if you have more than one question, please state them one at a time to make.
The process as smooth as possible. Operator, please present the instructions for the Q&A session.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name's announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Oscar Mashirin of Handelsbanken. Please go ahead. Your line is open.
Yes, good morning. Oscar Mashirin, Handelsbanken. Three questions from my side. I'll take them one by one. Firstly, on your deliveries in Americas, only down 3% year-on-year in Q2. Is there anything specific distorting the picture? Have service centers needed to restock a bit? I'm positively surprised by that number.
Oscar, your line is quite bad. Could you repeat the question? Try to speak more closely to the microphone or something.
Sure. Is it better now?
Yes.
Okay, great. Yeah. Firstly, on your deliveries in Americas for the quarter, only down 3% year-on-year. I'm wondering if there's anything specific distorting the picture here. Have service centers needed to restock a bit? I'm positively surprised by that number.
No, what we have done during the second quarter, we have not seen much of restocking in service centers. As said during the presentation, the inventory levels of service centers are at the historically low numbers. We have actually been taking market share during the second quarter. That's the explanation.
Great. Secondly, on the visibility now in your order books for second half the year. I understand it's quite cloudy, but any comments on that? Are you chasing spot volumes now to fill your mills?
As I said, the picture is a bit blurry and also the visibility is not so good. We are taking some volumes. During Q2, there were no volumes available. If that's spot volumes or not, well, maybe some smaller batches of spot-related volumes, yes. What we expect is what we presented about the volumes. As always, July and August in Europe will be July in the Nordic region will be very slow. In August, in Europe will be very slow. We have an order intake that makes us believe that we can have deliveries in line with what we give as an outlook for Q3.
Great. Then lastly, can you comment a little bit on how you have seen the import situation develop during the quarter, perhaps, well, specifically in Europe, I guess?
Right now, I would say that price levels in Europe are so low, so we don't see right now much of import. It's a very limited import now, end of Q2, beginning of Q3.
Perfect. Thank you very much.
Thank you. Our next question comes from the line of Alan Spence at Jefferies. Please go ahead. Your line is open.
Thank you. I have two questions. The first is on M&A and consolidation. Not necessarily large potential corporate transactions, but actually more of potential bolt-ons or smaller. Given the current market, are you seeing good opportunities out there to perhaps improve your share in either particular products or geographies?
Yes, as we have said before, we are looking at these small and mid-sized acquisitions like Sanistål like Abraservice, and we are looking into some possibilities. If anything, you could say that it might be even more interest when the market is, or call it slightly more attractive when the market is a bit slower than normal. We haven't changed our mind. We focused to continue to develop the company long term and try to get the balance sheet where we can do this small and mid-sized acquisition, and we will continue to do that.
Thank you. The second one on cash flow for Q3. You've clearly flagged the headwinds for maintenance and seasonality. Are there decent inventory levels going into the quarter that will support perhaps a decent working capital release? How perhaps negative do you expect cash flow to be for Q3?
It was a bit hard to hear your question, but I'll try to answer it. We have been building some inventories during Q2, given that we will have the maintenance outlook now in Q3, especially in Special Steels. From that point of view, we definitely do expect that we will release some working capital in terms of inventory during the third quarter.
How long or how large perhaps would that working capital release will be? Just given everything else that's happening, do you think you'll be free cash flow negative or/and to what extent?
We typically don't guide for an exact number. Of course, we will have maintenance outages in all steel divisions, which will impact the earnings. Somewhat, we will offset that by having some release of working capital. Without going into a specific quarter, you should expect us to continue to generate a free cash flow and continue to strengthen the balance sheet over time. That's for sure. We have plans for that, and we are working with things to make that happen.
Okay. That's great. Thank you very much.
Our next question comes from the line of Seth Rosenfeld at Exane BNP Paribas. Please go ahead. Your line is open.
Good morning. Thank you for taking my questions. I can start out first with the outlook for fixed cost savings and then come back to the U.S. plate market. With regards to fixed cost, the SEK 800 million highlighted savings in Q2 seem to come significantly above the earlier guidance for SEK 1 billion annualized basis. Can you just walk us through some of the moving parts for what drove that beat? In particular, if you can quantify, approximate how much was tied specifically to furlough schemes. Sorry, last part of this is, looking forward, if you can give us an update on the continuity of furlough schemes, when you expect that policy support to expire. Thank you.
No, SEK 800 million is compared to second quarter last year. If you take it sequentially, it was SEK 375 million or close to SEK 400 million. When you plan for a cost program, you have a lot of activities, then you typically take a haircut and say, "Well, we will not be successful in all aspects, and maybe we'll reach 75% or something like that." I must say that the response from the organization has been, first of all, very quick, and people have really put their best efforts into this. We have had a very strong focus on two things, safety and then cost savings. I think the outcome is maybe slightly better than I expected or hoped for. Yes, the outcome has been slightly better than we expected. What will happen in Q3?
I think depending on the market, we have set up one important part of acquiring Ruukki was to get flexibility into the system. SSAB, the standalone or the old Ruukki standalone would not have been able to mitigate this turbulence in such a way that we could do as a combined company. It would have been impossible to close the blast furnace for oil or close the blast furnace in Luleå for the old SSAB. We have built flexibility into a very rigid system. We will continue to do cost measures and cost activities as long as the market makes it necessary to do. Of course, part of it is things that we do when the market is very tough. Parts of it is structural cost savings, so to say, with reduced manning and fewer white collars and so on.
That will be also visible over time. Parts of it is, if not one-off, so things you do when the market is very tough.
Thank you. With regards to furlough, is it possible to strip out or just to highlight what portion of those savings came specifically from the government furlough schemes, and at what date you expect those tailwinds to potentially subside?
It was actually not a huge portion. It was not the majority at all. It was more related to that we were doing other things such as hiring freeze, not taking summer vacations, reducing the external consult or maintenance work, doing maintenance work ourselves, et cetera. Furlough schemes was mainly in Sweden and Finland. We were doing it elsewhere as well, but in terms of money-wise, it was mainly coming from Sweden and Finland and being around SEK 100 million of those SEK 800 million. Look, going forward, at least in Sweden and Finland, we would expect those to be in place also for Q3. After Q3, we're back to the visibility into Q4 if we would need them or not. For Q3, we are expecting to continue using them.
That's great. Thank you very much. I'll jump back in the queue on U.S. Plate. Thank you.
Thank you, Seth.
Thank you. Our next question comes from the line of Tom Zhang of Credit Suisse. Please go ahead. Your line is open.
Yes. Hi, gents. Can you hear me?
Yes.
Yes.
Thanks. I just had two quick questions. First one, a follow-up on the Americas, please. You mentioned you were gaining share in the market. How confident are you that you can maintain that share? I noticed that pricing has already come down quite a lot in the Americas, but you're now guiding to both flat pricing and flat volumes. Is there a risk that competitors might be catching up on any price declines?
Market share typically differs quarter by quarter and over time. We have, in our Americas operations compared to most of the competitors or all of the competitors, a decent cost position and a very good quality position. Typically, we lose less when the market is tough. In Q2, we were taking market share. How that will look, in Q3, depends on the total market, but we expect fairly stable volumes in Q3 compared to Q2. That is what we are guiding for. What that will end up in market share-wise, it's too early to tell. In Q2, we took market share. That's why we kept up volumes compared to many others.
Okay, understood. Just a second question, please, on Tibnor. You flagged that you're going to be reaching the full benefits of restructuring from H2. Could you give a sense of what level we are now, and as a result, what we can expect incrementally from Q3?
We haven't been explicit of that, but I thought that the profitability over time in Tibnor was too low, and we needed to increase that over time and change ways of working, reduce the manning structurally, and do things smarter. Apart from that as well, in combination with taking market share in the Nordic region, because Tibnor is merely connected, and they should be able to be the best supplier over time. In what we have seen now in the first half of the year, and especially during Q2, is the execution of those actions in the structural cost reduction plan, and that has been following plan, and we will see the full benefits of that during the second half. We have also seen that we are taking market share.
We are following the plan that we have put up, and then of course, the absolute result will be dependent on the market sentiment. What I've seen so far, we are following the plans, and I'm satisfied with the work they are doing, and we will see effects of that not only in this quarter, but in the coming quarters as well.
Okay.
Actually profitability of Tibnor with a couple of percentage points.
A couple of percentage points. Okay. Thank you. Very clear.
Thank you. Our next question comes from the line of Christian Kopfer of Nordea. Please go ahead. Your line is open.
Thanks, operator, and good morning, everyone. Just a few questions from my side. Firstly, just a clarification on Americas, where you guided for pretty much stable prices into Q3. While we have seen spot prices deteriorating during the second quarter, which should, I guess, in normal circumstances, also affect the next quarter, which is Q3. Can you just give a little bit reasoning behind seeing stable prices while spot prices are down?
Well, spot prices on average are down, but on the other hand, they started to increase somewhat during the latter part of the second quarter. Based on that, we're guiding for stable prices. Of course, if you look last week, spot prices continue to increase somewhat in the U.S. If they would from now on will start to decrease, of course it might be different. As far as what we see right now, we expect rather stable prices.
What's the typical price lag now in the U.S., would you say?
It depends on how long our order book is. Typically in a strong market situation where we have longer order book, then it take longer time. In a more weaker situation, it goes quicker. Maybe on average, you can say half a quarter or so.
Yeah. In Europe, we have started to see prices coming up, of course, from a very low level. Have you seen any reasons behind that? Is it demand driven or is it more supply response in the market?
I would say it's more supply response in the market and also increase in raw material. There's basically a need for an increased plate and strip prices in Europe because the margins for the steel producers are very slim.
Yep. Then finally from me on the cost savings, I think Martin, you mentioned that you will see some of the cost savings being visible over time. Can you mention something on the magnitude on how much cost savings you expect to realize over time?
No, not really. That will be so dependent on the market. Of course, there is a structural part in this as well. Tibnor is a good example, doing some other structural things, but that is typically what we do in this industry. We are getting better and better and fewer and fewer.
Yeah. Okay. Thank you very much.
Thank you. Our next question comes from the line of Viktor Trolstén of DNB. Please go ahead. Your line is open.
Yes. Good morning, Martin and Håkan. This is Viktor at DNB. I'm a bit curious and interested in if you could talk a bit about capacity utilization in the quarter. I note a very positive trend in the rolling production in Special Steels. The way I look at it, capacity utilization should be up closer to 90% now on a 12-month rolling basis. Could you comment a bit on how we should look on cost absorption and maybe the impact on the mix also going forward?
As Håkan said, we were building inventories before the maintenance stop in Oxelösund or in all divisions, but especially in specialty. We were producing more than we were selling and building inventories. During the maintenance outage we will consume those inventories, both work in progress and finished goods. So far now we are standing still and doing the maintenance stop, and we'll continue to do that during July and beginning of August, and consume from the stocks we have built up. So far we are following that plan. As said, July, August, the capacity utilization will be much lower due to the annual maintenance stops.
Okay, I remember or I recall that you have had some historical issues in the rolling production. Is this a sign that things are, let's say, normalizing? Could you comment if this is the new normal level, so to speak?
I would be extremely happy if I could promise that. No, the production has been stable this year, and I think the organization in Oxelösund has so far at least run the production at a much more stable level, and that is visible in whatever you measure. Equipment hours in the rolling mill or another good KPI is LTIs. We are at 0.9 LTIs per million working hours, which is, I would say, best in the West, more or less. They are running operations in a very good way, and hopefully we learned a lot. We did learn a lot during the difficult times where we had the production issues. Can I promise that we will never, ever see a production disruption in Oxelösund again? No, of course not. So far so good, I would say. They are at the best level.
We have worked with it. We have changed operation practices. We have changed maintenance practices. We have done a lot of changes. We have done a lot of personal changes. The new Head in Oxelösund, Ira Kapramlis, is doing a fantastic job. It's not pure luck, I would say. We have done a lot of things ourselves. Will we never, ever see a production disruption again? Well, I would be extremely happy if I could say it, but I can't promise that.
No, I see.
We are currently running production at a different level, and we have learned a lot and are taking measures from those learnings. That's what I can say.
Okay. Also a question related to fossil-free steel. We have received some news on some of your competitors also going the hydrogen way for producing fossil-free steel. I note that in terms of costs, guided for much higher cost related to what you have communicated previously. Could you comment something about your cost for producing fossil-free steel, if that still stands, and what's your relative comparative advantage versus competitors?
First of all, I think we haven't changed our view on the cost of producing fossil-free steel, and I think it is extremely important and more and more asked for by the market, and that's maybe why some of our competitors have recently changed their view. I can only comment on what we are doing, and I said we are taking a very important step now in Q3 with starting up the pilot plant. We will actually be producing fossil-free sponge iron. We have already today electric arc furnaces in America, so we can start to do trials together with customers and help them with prototypes. We are in that process now, discussing with very interested customers and trying to figure out where we should best use these batches of fossil-free sponge iron and fossil-free steel making that we can do already today.
Of course, the huge and most important step will be taken in advance of 1st of January 2026, when the whole site of Oxelösund will be fossil-free, and we will also be able to produce fossil-free slabs for automotive, as an example, to be rolled in Borlänge. We are on that journey, and we haven't changed our mind. I think if you compare us, at least up until now, compared to a lot of competitors, we started earlier and we are, as I know, the only company that are starting now with actual production. I think we have, call it a time advantage, and we are trying to make sure that we increase that time advantage and not lose it.
I guess the conclusion is that you will get more of a cost advantage if the industry goes more towards fossil-free steel. Is that correct?
Yes.
Okay. Yeah.
This will be a premium product, at least to start with. I think the industry needs to go this way. In the beginning, this will be definitely a premium product with a premium pricing. That's my personal view.
Fantastic. Just lastly, in terms of what you're seeing for end Q3 in terms of underlying demand, could you just give some flavor what you're seeing in your order books and what segments that sticks out right now?
We are not going to experience heydays at the end of Q3. What we see, if you take automotive as one example, they were standing still in Q2. Now they are opening up. Producing at lower levels, but still opening up. If you take heavy transport, a lot of them were standing still in Q2. Now they are opening up and start to produce. That's what we see. If you take automotive from zero order intake to something, it's at least some difference, as an example.
Okay. Brilliant. Thanks a lot. That's all from me.
Thank you.
Thank you. Our next question comes from the line of Bastian Synagowitz of Deutsche Bank. Please go ahead. Your line is open.
Yes. Good morning, gentlemen. I've got three quick questions as a follow-up. I'll start with one on the SEK 800 million cost savings, which you mentioned. You will obviously be able to keep those, and retain those savings in the third quarter. Now, in a scenario where demand also remains weak even beyond the third quarter, would any of those savings come back? For how long could you basically fully retain those savings? Is there maybe anything in there also which has a bit of a permanent nature, even if demand is coming back? Thank you.
Given the demand we saw in Q2, we were able to run operations with those cost-saving actions. We will adjust to demand and to the need we see in the market. Of course, there are some things that we can't keep on doing or not doing for forever, but I would say that a large portion of them would stay if the market stays on the same level. If the market improves, some of the cost savings will go away, or say some of the actions will be taken away. If you take, as Håkan mentioned, we have a very limited number of summer temps this summer. We are doing a lot more things with our own personnel, where we typically use sub-suppliers or contractors, not only in North America, but also in the European mill.
We are trying to push or utilize every lever we can see, and we will continue to do that as long as the market sentiment requires. Then there is some structural component in Tibnor and other parts of the organization that we will benefit from over time, even with full production or a more normalized market. We are prepared to continue to do whatever we can to try to mitigate the weak market with internal actions that we can fully control ourselves. The external market pricing and raw material costs and the underlying demand and so on, that we can maybe reflect over, but we can't influence. What we can influence is capital generation and the cost side of the business.
Okay.
Boxi, just a reminder for Q3, yes, we will continue with the savings action for sure, but we do have the maintenance outages.
Yes
in Q3, and those will of course, that will be quite extensive cost for those, as we have specified.
Yeah, sure. No, absolutely. That is actually my next question. Usually when we look at the third quarter, you're usually able to compensate a significant amount of these maintenance costs with these overtime accounts, which you usually charge against the cost as a benefit. Could you please let us know, will you get the same magnitude of compensation this year, given that hours across the European business probably have been slightly less this year?
We will have roughly the same. That installment of vacation reserve, we will have the same roughly in Q3 this year. Normally we don't have this much maintenance cost in Q3. That effect will be roughly the same.
Mm-hmm. Okay. Okay, good. Then very lastly, on volumes in Special Steels, as what I understood, you overproduced volumes in the second quarter just for the third quarter maintenance break. I think if I look at the numbers, production ran almost flat out while shipments were down obviously a bit more than 20%. Is there any color you could give us in terms of the magnitude of the volume decrease we should expect in the third quarter on the production side? From the numbers, it suggests that volumes may potentially halve in terms of steel production, or is that too aggressive as an assumption?
What we did from a production point of view, we produced as much as we could in Special Steels, and then we said, the better we produce in Q2, then we will take a longer maintenance, or we will stop the mill for a longer time period, because we deem that it's better to run as full as we can. We will now have a few weeks longer. Originally, the maintenance outage was planned to be roughly four weeks. We will now have it a few more weeks where we will not run production at all. Instead, once we start up again, then we will continue to run at full speed. You will see the opposite effect in Q3 compared to Q2. In Q2, you saw production not going down, but shipments going down quite a lot.
Then in Q3, you will see that production will go down more than shipments.
Okay. In terms of the length of the outage, is there any color you could give us, versus what you were originally planning for? Is it eight weeks or so?
We were originally planning for four weeks, and it will be a few weeks longer, so seven, eight weeks, something like that.
Got it. Okay. Thanks so much.
Thank you. Our next question comes from the line of Ole Södermark of Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Good morning, thanks for letting me ask the question. Most of my question are answered, I have a follow-up on the M&A question earlier in the call. They said that you're looking at small and mid-size acquisitions, as you always do. Your name has been mentioned in certain news medias during the quarter, regarding maybe a little bit bigger consolidation of the European steel industry. Have you any comments on it?
No. I read those articles as well. We never comment on rumors. The only comment I can make is that I'm happy that at least we are in a position that some companies could see us as an attractive partner. I think that is the positive thing. There are always a lot of speculations and rumors. We never comment on them. If and when we have something to say, we will do that. These are rumors.
A follow-up again, and maybe another angle on the question. Do you see if you participate in a bigger European consolidation that you're diluting the impact of HYBRIT in the longer term?
What? Sorry.
If you're diluting the impact of HYBRIT in the longer term, that you're diluting your capability to be fossil-free, if you're participating in a larger European consolidation.
I haven't thought about that. As I said, we have the ambition to be the first fossil-free producer in Oxelösund, and then we have a plan for the other mills. That time plan is fairly long, but if this is well received by the market. That time plan originally was made up to when we are at the end of the economic life length of certain equipment. If this would be very well received on the market, we can speed up that time plan. The first important step is now Q3 with the pilot plant, 1st of January 2026 in Oxelösund, and if the market really like these products, we can take the next mills quicker than the original timeline. As always, we are trying to focus on our operations and what we can do ourselves.
You can always reflect on what other companies are doing, but that doesn't help us. The only thing I see right now is that more and more companies are talking about hydrogen and fossil-free steelmaking, and that I'm convinced that we are moving in the right way for SSAB. If anything, that makes me even more sure that this is the right way to go. I'm happy for SSAB's sake that we are first in line, and we started already three, four years ago, and we are now executing those plans.
Okay. Thank you.
We can also afford to do it, and we continue to invest. We are following the time plan, we are following the investment budget. We haven't scaled down anything when it comes to HYBRIT or our ambitions when it comes to fossil-free steelmaking. If anything, I would say quarter by quarter and day by day, the interest from the customers and the market increases.
Yeah. Thank you.
Thank you. Our next question comes from the line of Luke Nelson at J.P. Morgan. Please go ahead. Your line is open.
Morning, everyone. Just two questions. First one is circling back on the fixed cost reduction, which you mentioned before. If I just think on Q3 relative to Q2, should we actually be expecting a similar quantum of fixed cost reduction, just in the context of your comments around the vacation reserve release, which I think last year was around SEK 350 million quarter-on-quarter. Is there additional capacity for a fixed cost reduction quarter-on-quarter? That's my first question.
As Håkan said, we will have all the maintenance stops in Q3, and we have guided for what it will cost, but it will cost a lot of money. Last year, if you compare Q3 to Q3, last year, we had majority of the maintenance outages in Q4. That will be a huge difference if you compare Q3 to Q3.
Also, if you compare with Q2, you ask can it be more than Q2? It will be roughly that number you said, around SEK 300 million extra. On the other hand, we will have the maintenance outage, which will cost more than that. In that sense, no.
Okay. That is clear. Just on that topic of maintenance in Q3, there are still clearly restrictions on personnel. To what extent is that a risk around conducting maintenance in Q3? Do you have the ability to get the right personnel in, and to do these planned stoppages on time and on budget in Q3?
Yes. If we have learned anything over the years, it is that production stability is extremely important. You saw what production stability gives us during the first half of this year in Oxelösund as an example. We will not, in order to save costs, we will not jeopardize production stability. We will get the manning we need, we will get the contractors we need, and we will do all the work we deem necessary to keep a stable production over time. We will not try to do any stupid savings.
What we are doing is, in terms of from a COVID-19 perspective, we are taking a lot of actions that we obviously have not taken previous year, that maintenance workers are from different companies, there are different locker rooms, and they are not living at the same place, et cetera.
Not using the same exactly locker rooms and sitting together.
We are taking a lot of actions to do everything we can to make sure that we don't get any outbreaks at the sites.
So far, so good. We are doing that together, both in U.S. and Finland and Sweden, together with the authorities to do whatever we can to mitigate a big outbreak.
Okay. That's clear. Thanks a lot.
Thank you. Our next question comes from the line of Lucas Andreasson of Somnalys Media. Please go ahead. Your line is open.
Thank you. I have a question about the transfer of fossil-free steel production in Oxelösund. Do you have any notice about when the process to convert to fossil-free production will start? Will the delay result in any increased costs for the change?
No. Our plan is to start production 1st of January 2026, and we haven't changed that plan. That is what we are still aiming for, and I think it's possible to do. When Håkan said we were delaying some things, when you do big projects, you always do a lot of things in advance, and we still have, in our Gantt chart or in our time plan, room for different things to happen. We haven't changed the ambition to be up and running 1st of January 2026, and we think that is definitely possible.
Thank you.
The last question in the queue so far comes from the line of Anssi Kiviniemi of SEB. Please go ahead. Your line is open.
Hi, guys. Thanks for taking my question. One question left, and it's related to Q3 outlook for SSAB Europe. You highlight that prices are expected to be somewhat lower, but mix to be positive. Two questions related to this. Where does the positive mix effect comes from? Is it coated products or something else? The second question is that, do you see a possibility that the net effect of this could be, as a matter of fact, flat quarter-on-quarter? Could you help us on that? Thanks.
The mix effect is mainly coming from automotive, where we sold very little material to automotive in Q2, and we don't expect huge volumes in Q3 either, but we at least expect somewhat of an improvement. Automotive volumes, which are typically then processed more than hot-rolled coils, sold at a higher price. That's mainly the positive mix effect we are expecting. Could it mean that prices are flat quarter on quarter? Potentially, yes. We obviously don't know exactly, but right now, the way we look at it, we believe the prices will be somewhat down, but not a lot.
Okay. That's very helpful. Thank you.
Thank you. As there are no further questions in the queue at this time, I'll hand back to our speakers for the closing comments.
Okay, thank you. By that, we thank you for the attention, and that concludes today's conference call, and we wish you a nice summer. Thank you.
Thank you. Bye-bye.
Thank you. Bye.