Thank you, and good morning. Welcome to this presentation of SSAB's second quarter twenty twenty. And, with me today here is our president and CEO, Marty Linczist and also our CFO, Hakan Folin. And if we switch to the agenda slide, slide number two there, we will start here by Martin giving an overview of the second quarter, and then Hakan 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. And after that, we are prepared to take your questions.
But we will come back to that. And but, 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 by this COVID nineteen or the corona. And it was a quarter with lower demand, lower low prices and high iron ore prices. If we look at SSAB and compared to q one, our shipments were down with 20%, so quite a substantial drop.
And that led to lower capacity utilization, and we saw that in especially in SSAB Europe where we had a very low production rate. And we decided already in during '1 to idle one of the blast furnaces in raw from early April. In special steels, we had stable production and decent production, production, but we also saw lower demand there. So overall, continued pressure on steel margins during the second quarter, and we had an EBIT of minus SEK $251,000,000 drop drop of more than SEK 1,500,000,000.0 compared to Q2 last year. We continue to generate, I would say, given the circumstances, a decent cash flow, not a strong operating cash flow, but a decent cash flow, north of 600,000,000.
Next slide, please, number five. Already in '1, 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. And we managed to reduce our fixed costs on group level with roughly SEK 800,000,000 compared to q two last year and sequentially compared to q one with roughly SEK 400,000,000. And if we take it division by division, in Special Steels, we reduced the fixed cost with SEK 200,000,000. We had short term work allowances and did the planned cost cutting measures in decent way.
We also, in all divisions, decided during beginning of Q2 to move all the planned maintenance stocks that were scheduled for Q4 this year into Q3 given the lower demand and the lower activity on the market. If you look at SSAB Europe, I think we did a decent job there as well. We saved more than SEK 300,000,000 compared to Q2 last year. And as said, we had one blast furnace idle for the majority of it, most of of of q two, 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 go down when activities goes down. But we managed to save more than SEK 100,000,000 in fixed costs as well, which I think was a decent achievement. We moved our planned biannual maintenance in Iowa in Montelier to Q2. It was originally planned for Q4, but we moved it into end of Q2, beginning of Q3. And I think that was a good decision as well.
The common activities we did was, of course, limited 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, I mean, time critical. The group executive committee, including me, reduced salaries, salaries and we did a lot of measures including hiring freeze. These cost savings will continue into Q3 and will continue until we see a pickup in the market and the underlying demand.
We have talked many many times about the importance of having a decent balance sheet. And I think we are getting to that position where we have a decent balance sheet. And I expect, as I usually say, expect us to continue to generate strong cash flows and over time continue to strengthen the balance sheet. But if we look at it as it is of today, we have liquid assets and committed credit lines at the level of 20,000,000,000. We feel that that is sufficient given what we see.
So we have enough liquidity preparedness to handle the coming quarters. And when we have rescheduled the maintenance outages into Q3, three, I think we are also as a company well prepared to see or to meet the ramp up in q four if that comes. So I think we all have, I would say, decent position. If we move to the next slide. If we look at the impact of COVID nineteen on SSAB operation, it has been a very strong focus.
Health and safety is always a strong focus for SSAB, but but this quarter has been very much to 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 We have worked a lot from home. We have reduced the traveling to a minimum. We have carefully been planning now the ongoing maintenance outages to avoid outbreaks at the mills of of COVID nineteen, 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. And and we're working in shifts and and trying to do whatever we can to make sure that we can continue to run operations and run 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-nineteen. Next slide, please.
If you look at the operating profit, and I will go through the divisions in a second. But if you look at operating profit, I think, special deals with SEK $485,000,000 or 12% EBIT margin. I think that is okay given the the circumstances, and they should be performing better when the standard business is more hit in a situation situation like like this. This. Americas, fairly breakeven on EBIT level, which, I mean, is the reflection of the market and the prices and the volumes we saw in q two.
So so I would say extraordinary low results. I think ROCE Construction is keeping up fairly well. It looks like we reduced the the earnings or or or the profit compared to last year. But if you take away the sales of building systems that we did in the beginning of q two, we were actually able to, in Rupee Construction, increase the results somewhat compared to to q two previous year, which I think is also okay. SSAB Europe minus 05/1966 is the where we see the biggest hit, and Orka will come back to the bridge, but we see under unabsorption, of course, when we close one or two blast furnaces in in Oxelosund.
But there we see the biggest hit from from the market and then ignore on the same level as q two last year, which I think is also given the circumstances okay. Next slide please. So as said, Special Steels, an EBIT margin of 12%, which is a slight improvement compared to Q2 last year. And we have had fixed cost reduction with, as mentioned, 200,000,000. We have seen a positive small positive effect on the product mix with a higher share of volumes from oxalazone, then they are typically the more advanced products with higher margins.
So that has helped, of course. And we have, as said, now we are right now standing still in oxalisone for for the annual maintenance that was originally scheduled for Q4. And typically, we schedule the maintenance outages as much as possible in Q4 because that is a normal year, typically a slower quarter than the first three quarters. But I think the decision we took to take the maintenance outage is already in q three this year was 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 in in shipment. And that leads, of course, to weaker capacity utilization, unabsorption costs, and it was only partly offset by cost savings. But I think reducing fixed costs with more than 300,000,000 in a quarter, I think that is good achievement from the organization. As said, we have moved the maintenance outages into q three, and we are now ramping up in the Swedish operations after the maintenance stops. And and so far, it has followed plan both time wise and and and cost wise.
And as said, the the blast furnace in Roa will be kept idle for most of q three. If anything, we will then if the market requires opening up the September or something like that. Next slide, please. In Americas, lower shipments affected the earnings. And as said, we were barely at breakeven on operating profit minus 10,000,000 for the quarter.
And the shipments and prices and margins were affected by much lower demand. But we managed to meet that with partly with the use fixed cost and also the flexibility we have with the high portion of of variable costs. And the maintenance outage that started in Iowa in June is now being performed, and we will start to ramp up production end of this week or beginning of next week. And so far, it has gone according to plan and no LTIs during the maintenance. Next slide, please.
Sidney, what I 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, and 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. And sequentially, q two was a stronger operating profit than than q one. Next slide, please. Slide number 12 and ROCE Construction. ROCE Construction was the only division or daughter company where we saw a stable underlying demand.
And as said in the beginning, we divested the building systems in q two and and and got demanded for that during q two. And if we compare both revenue and and and especially operating profit, there was slight increase compared to due to last year if we clean for for building systems. So I think, yeah, Rookie Construction is now what we wanted to be, a big customer and consumer of color coded material, an important part of the integrated supply chain of SSAV, and they continue to develop their business, and and they are doing it in a decent way. Hakan.
Thank you
very much, Morten. Good morning, everyone. And as I 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, by COVID nineteen, and they were down by as much as 27% versus second quarter last year and 90% versus q one. And shipments also dropped, for the same reasons.
And actually, when we look in this growth, you can see shipments were actually the lowest we've had since 2017 at least, down 17% versus last year and 20% versus two point. EBITDA margin, 5%, and EBITDA per ton delivered steel over 500 Swedish krona per ton. Next slide on page 15. Then we look at the result development. We start with comparing year over year.
The drop in earnings were, as Markus said, a bit more than 1,500,000,000.0 Swedish krona. Very big change in terms of pricing, and this is mainly coming from America. Actually, even majority is coming from America. There's also some coming from, it's impacting earnings by 1,700,000,000.0. Since volumes were down 70%, we also get a big volume impact on the earnings, almost 900 millions related to COVID nineteen, mainly impacting, as I said, Europe, Also in special steel, the drop in shipments in absolute tons were not at launch 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, but also then on the fixed cost. And fixed cost being as much as 800,000,000 lower in q two this year compared to last year. Somewhat negative FX, close to 200,000,000, weaker Swedish krona than dollar, and then on absorption given the lower volumes then we had low production rating, especially, let's say, in Europe. On the other hand, we had very strong and high level of production in specialty in some of the positive item on other release to a large extent to lower amortization of surface values.
But all in all, a drop of 1,500,000,000 coming from the the price level, the volume, doing an absorption, somewhat mitigated them by our lower cost level, both on the level and on fixed side. If we then instead compare sequentially, it's not as big figures. We are moving from 343 to positive to minus two fifty one. Pricing here is actually impacting Istanbul positively. It's Europe and specialty positively and slightly negative for Americas.
And then the big drop in our in terms of volume, which has an impact of 800,000,000, mainly in Europe, but also Americas and specialty. Variable costs, slightly positive, led to mainly scrap and cotton codes, and then fixed cost being close to 400,000,000 in lower in q two and q one. One of the reasons why there's a big change was 800,000,000 when we compare q two to q two and now 400,000,000 when we compare q two to q one. 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, and we have made an agreement with you.
You have to mitigate. We are actually able to run production production with much lower level or almost no level of summer workers and thereby able to save more. FX, almost no change, and then on absorption, close to 500,000,000 coming mainly from SSAV users, including them having one of the blast furnace item in law. So in summary then, it's volume and unabsorption impacting negatively from q one to q two, but compensated the by the cost level and especially the the fixed cost. Okay.
If you go to page 17, then we have the overview of the cash flow. We had an improvement in operating cash flow from q one, more than 1,000,000,000 better, and lower earnings than, of course, as we just looked at. But instead of gaining working capital as we did in q one, we now have a release of working capital of more than 200,000,000. Also, if we compare with q two last year, we had a buildup of working capital, but in this quarter then a release of working capital. So not a great cash flow, but a positive operating cash flow and also on the last line as well, a slightly positive net cash flow.
If we then move to the balance sheet and we look at our debt situation, we have a net debt now of 12.8 Swedish kronor. 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. But it's been more than five years. And we are at the comfortable level with our liquid asset and committed credit lines of around 20,000,000,000 Swedish krona at the end of the quarter, which is almost 30% of rolling twelve month dates.
If we look at the maturities then, we have maturities remaining for this year of around 2 and a half billion Swedish krona. Most and almost all of that refers to commercial papers. And 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 8 and a half billion maturity. And to put that in comparison with the cash in the backup facilities of 20,000,000,000, we are we're very comfortable with the liquidity situation we have in relation to the upcoming maturities. And we did take a lot of actions during March before COVID nineteen fully started to have an impact to make sure that we we are able to sit in this comfortable situation right now.
If you go down to page 19, where we have the cash needs of the business on top of the maturity stand, where we have cash needs of around 3,000,000,000 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 tamper material and also the start of the to some 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 We will have lower taxes in 2020. We have quite high tax in '19 paid tax, but it will be lower in 2020 also because of lower earnings. So around 3,000,000,000 in cash. If we then 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 Swedish krona and dollars. However, we did see iron ore spot prices that started to increase in May, and they're all currently at the high level. And that will have an impact already in q three mainly for SSA and Europe where we for the lulu production where we have low level of inventory of iron ore, and we basically buy it on a on a daily basis from LTAD. So 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 q one.
Here, spot prices have actually they have for a long time being on a slightly downwards trend, and they have continued like that also into q three. On page 21, then we have the scrap spot prices, which is scrap is then what we buy for our operations in New Zealand. Our own purchase prices for scrap were basically unchanged as well in q two compared to q one. And the scrap spot prices are at the fairly low level in The US, and we have seen for the July buy that they have started they have continued actually to downwards. Okay.
On page 22 then, and finally from my side, a few words on our planned maintenance outages in 2020. We have changed the timing. They most of them were to be performed in q four, and we have moved almost all of them to q three. Reason is then as we expect that demand doesn't as a consequence of COVID nineteen will continue to stay around the week in q three. We'd rather do the maintenance outage now, and we're ready then if there is an improvement in demand in q four.
All in all, the cost for maintenance outage will be around 900,000,000 this year versus 1,100,000,000.0 in 02/2019. And we will, of course, in q three, 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, Hakan. If you move to the next slide, slide 24. So so what we tried to do during the second quarter was to focus on things that we could influence ourselves with cost savings and and running operations in a as in a as decent way as as possible without losing focus on long term development and without slowing up the development of long term of of SSAB. And the q three will be a very important quarter for for for SSAB because we will start production of fossil free steel in our plant up in Lulu in in the hybrid plant in Lulu during the third quarter according to plan and according to schedule. And we will continue to develop the road map and execute the road map to be the first steel company globally with the fossil free steelmaking at the latest 2026.
So 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 and work together with customers to develop their applications with fossil free steel. And we are in that process discussing with customers how to help them to get the best possibilities out of this fossil free field 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. But in if you take heavy transport and automotive, underlying better than q two, I mean, the automotive industry and a big part of the heavy transport industry were more or less standing still in in q two, and and they are opening up now and and start to produce. So heavy transport, some recovery. Automotive production gradually started, and we continue to see an underlying structural growth in advanced high strength field. Construction and machinery, another important segment.
We see relatively low production levels or expect relatively low production levels in q three both in US and EU. Material handling, low demand for new equipment, yes, will continue, but then on a healthy level and mining operations continue at a fairly we expect it to continue at a fairly stable level in q three. Energy, oil price continues to be under pressure. Wind power and transmissions segments more stable. Construction held up fairly well with a healthy demand and stable development and and support from some seasonality, typically, better in q two and q three than q four and q one.
We see some risk of some kind of down. And then service centers, always the swing factor. Generally, it's fairly cautious sentiment. But when we look at the inventory levels and especially in US, we see that the inventory levels are on very low levels. So so all in all, uncertainty into q three.
But if anything, we expect demand to to pick up from very low levels at least towards the end of of third quarter. Next slide, please. So if you then take that into SSAB, we expect shipments in Americas to be roughly at the same level level as as q two. Shipments in Europe and specialties are expected to decrease because of the maintenance outages and so on. And if we look at the prices for Q3 compared to Q2, we expect somewhat lower prices in FEV Europe with lower contract prices partly mitigated by a positive product mix, especially steel prices somewhat lower and in relatively stable prices.
So if you move to the last slide before slide number 27, before we start to take questions and comments, I think I 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 the short term survival without losing focus on long term development. I think we did a lot of actions to reduce costs in in during q two and that will continue into q three. The outlook is, as always, uncertain, but this time maybe a little bit more uncertain than than previous. But we see some signs that demand could start to improve late in in q three. We continue to try to take care of our balance sheet, and we have a it's 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, so the 20,000,000,000, which as Wakan pointed out, will more than cover all the cash needs we have for this year and also for coming years. And we continue to focus on two things long term, to develop the special steel business and then the transitioning to fossil free steelmaking with the ambition to be 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 and and work with customers. So with that, Per, think we are finished with the presentation.
Yes. I'm ready then to move into the q and 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. So operator, please present the instructions for the Q and A session.
Thank queue. Once your name's announced, you can ask your question. If you find it answered before it's returned to speak, you can dial 02 to cancel. So once again, that's 01 to ask a question or 02 if you need to cancel. Our first question comes from the line of Oskar Mecharin of Handelsbanken.
Please go ahead. Your line is open.
Good morning, Oskar Mecharin, Handelsbanken. Three questions from one side. I'll take them one by one. Firstly, on your deliveries in Americas, only down 3% here in GRE in q two. Is there anything specific distorting the picture here?
Have have service centers needed to restock a bit? Because I'm I'm positively surprised by that number.
Gustav, your line is quite bad. Could you repeat the question? Try try to speak more closer to the microphone or something.
Sure. Is it better now?
Yes.
Okay. Great. Yeah. So 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 the service centers needed to restock a bit? Because 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. And as I said during the presentation, the inventory levels of service centers are at the historically low numbers. So we have actually been taking market share during the second quarter. That's the explanation.
Great. Then secondly, on the visibility now in your order books for second half of the year. I mean, understand it's quite cloudy, but any comments on that? And are you taking spot volumes now to fill your mills?
I mean, as said, I mean, the picture is a bit blurry and not so the visibility is not so good. But but we're taking some volumes. I mean, during q two, there were no volumes available. Is that spot volumes or not? Well, may maybe some smaller batches of of spot related volumes, yes.
But what we expect is what we presented, I mean, we we about the volumes. And as always, July and August in Europe will be July in in in in the Nordic region will be very slow, August in in Europe will be very slow. But we have have an order order intake that makes us believe that we we can have deliveries in line with with what we we give us an outlook for Q2.
Great. And 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. And 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 and 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. And as we have said before, we are looking at these small and mid sized acquisition like Sanistor, like Agra Service, and and we are looking into some possibilities. And and if anything, you could say that it might be or or even more interest when the market is or quality, slightly more attractive when the market is a bit slower than than normal. So so we haven't changed We focus to to continue to develop the company long term and and try to to get the balance sheet where we can do this small and midsized acquisition, and we will continue to do that.
Thank you. And the second one on cash flow for q three. You clearly flagged the headwinds for maintenance and seasonality. Was there substantial you know, are there decent inventory levels going into the quarter that will support perhaps a decent working capital release? You know, how perhaps negative do you expect cash flow to be for q three?
It was a big part of your question, but I'll try to answer it. We have been building some inventories during Q2 given that we really have the maintenance outage now in Q3, especially in special steel. So from that point of view, we definitely do expect that we will release some working capital in terms of inventory during the third quarter.
And how long or how large perhaps would that working release will be just given the 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, but, of course, we will have maintenance outages in all steel divisions, which will impact the earnings. And then somewhat, we will offset that by having some release of working capital.
But without going into a specific quarter, you should expect us to continue to generate free cash flow and and continue to strengthen the balance sheet over time. That's for sure. And we have plans for that, and we are working with with things to to make that happen.
Okay. That's great. Thank you very much.
And our next question comes from the line of Safra Rosenfeld at Exane BNP Paribas. Please go ahead. Your line is open.
Good morning. Thank you for
taking my question. If 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 $800,000,000 highlighted savings in Q2 seemed to come significantly above the earlier guidance for 1,000,000,000 on annualized basis.
Can you just walk us through some of
the moving parts for what drove that beat? In particular, if you can quantify approximately how much was tied to the furlough schemes? And then 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. But 800 is compared to second quarter last year. If you take it sequentially, it was 375 or close to 400,000,000. And when you plan for for for the cost program, you have a lot of activities, and then you typically take a haircut and say, well, we will not be successful in in all aspects, and 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.
And we have had a very strong focus on two things, safety and then cost savings. And I think the outcome is maybe slightly better than I expected or hoped for. So so, yes, we we have done it has gone slightly better than than than than we expected. And then what what will happen in q three? I think depending on the market, I mean, we have set up one important part of acquiring Rokki was to get flexibility into the system.
I mean, as I say, the standalone or the old Rokki standalone would not have been able to mitigate this turbulence in such a way that we could do as a combined company. I mean, would have been impossible to close the blast furnace for Roy or close the blast furnace in Lulea for the old SSAB. So we have built flexibility into a very rigid system. And we will continue to do cost measures and cost activities as long as the market makes it necessary to do. And then, of course, part of it is things that we do when the market is very tough.
And then parts of it is the things that we will I mean, structural cost savings, so to say, with with reduced manning and and fewer white colors and so on. And that will be also visible over time. But but parts of it is is not one off, so 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 majority at all. It was more related to that we were doing other things such as, you know, hiring freeze, not taking summer vacations, reducing the external, consultant or maintenance work to the maintenance work ourselves, etcetera. So 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 100,000,000 of those 800. Look, going forward, at least in Sweden and Finland, we would expect those to be in place also for q three. And then after q then we're back to the visibility into q four if we would need them or not. But for q three, we are expecting to continue using them.
That's great. Thank you very much. I'll jump back in the queue on UF plate. Thank you.
Thank you, Seth.
Thank you. And our next question comes from the line of Tom Sang 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 on the Americas, please. So you mentioned you were gaining share in the market. How confident are you that you can, maintain that share?
Because I noticed that pricing has already come down quite a lot in 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?
I mean, market share typically differs quarter by quarter But 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. And typically, we lose less when the market is tough. So in q two, we were taking market share. How that will look, it depends, I mean, in q three, depends on the total market, but we expect fairly stable volumes in q three compared to q two.
That is what we are guiding for. And what that will end up in market share wise, it's too early to tell. But I think q two, we took market share. That's why we kept up volumes compared to many others.
Okay. Understood. And, just a second question, please, on Tibnor. So you flagged that you're going to be reaching, the full benefits of restructuring from h two. Could you give a sense of what level we are now and as a result, what we can expect incrementally from, from q three?
We haven't been explicit of that, but but we I thought that the profitability over time in in Tin Norway was too low, and we we needed to increase that over time and and and change ways of working, reduce the manning structurally and do things smarter. But apart from that as well, combination with taking market share in the Nordic region because we should as I mean, TIGNOR is mill connected, and they should be able to be the best supplier over time. And in what we have seen now in the first half of the year and especially during Q2 is execution of those actions in the structural cost reduction plan. And that has been following plan, we will see the full benefits of that during the second half. But have also seen that we are taking market share.
So we are following the plan that we have put up. And then, of course, the absolute result will be dependent on on on the market sentiment. But what I've seen so far, we are following the plans, and I'm satisfied with the work they are doing, and and we will see effects of that not only in the this quarter, but but in the coming quarters as well. Approximately bit more 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.
Yes. 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.
So can you just give a little bit reason 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. And based on that, then we are guiding for stable prices. Then, of course, if spot prices would if you look last week, spot prices continue to increase somewhat in The US. If they would, from now onwards, start to decrease, then, of course, it might be different. But as as far as we what we see right now, we expect rather stable price.
And what what what's the typical price like price like now in The US, would you say?
It's around it depends on how long our order book is. So, typically, in a strong market situation where we have longer order book, then it takes longer time. And in a more weaker situation, it goes quicker. So maybe on average, you can say half a quarter or so.
Yeah. And and in Europe, we have started to see prices coming up, of course, from a very low level. But 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, you know, there 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. And then finally for 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 on the magnitude on how much cost savings you expect to realize over time?
No. No. No. Not really. That will be so dependent on the market.
But, of course, there is a structural part in this as well. I mean, Tidmore is a good example for 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.
Yep. Okay. Thank you very much.
Thank you. Our next question comes from the line of Victor Trollstein of DNB. Please go ahead. Your line is open.
Yes. Good morning, Martin and Horkian. This is Victor at DNB. So 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 stools.
And the way I look at it, capacity utilization should be up closer to 90% now on a twelve 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?
But as Hakan said, we were building inventories before the maintenance stop in Oxelosund or in all divisions, but especially in Special Steel. So we were producing more than we were selling and building inventories. And then we during the the the the maintenance outage, we will consume those inventories, both work in progress and and and finished goods. And so far now we are standing still and doing the maintenance stop, and we'll continue to do that during July and August and consume from the stocks we have built up. So far, we are following that plan.
And then as said, I mean, q July, August, the capacity utilization will be much lower due to the annual maintenance stops.
Okay. But 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 and that yes, could you comment if this is the new normal level,
so to speak? I would be extremely happy if I could promise that. But no, but the production has been stable this year. And I think we are the organization in Oxelosund has so far at least run the production at a much more stable level. And that is visible in in if you measure whatever you measure, I mean, equation hours in the rolling mill or another good KPI is LTIs.
We are at 0.9 LTIs per million working hour, which is, I would say, best in the West, more or less. And and so they are running operations in a very good way. And and, hopefully, we learned a lot, and we did learn a lot during the difficult times where we had the production issues. But can I promise that we will never ever see production disruption in oxalisone again? No.
Of course not. But but so far so good, I would say. And they are at the better level. We have and 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. I mean, the new head in Oxelosund, Dira Kasrammis, she's doing a fantastic job. So so it's not pure luck, I would say.
We have done a lot of of of things ourselves, but we we we will 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 I still
yeah. But we are currently running production at a different level, and we have learned a lot and and taking measures from those learnings. That's what I
can Okay. And also a question related to fossil free steel. I mean, we have received some news on some of your competitors also going, you know, the hydrogen well for producing fossil free steel. But I note that in terms of costs, guided for much higher costs related to what you have communicated previously.
Could you
comment something about your cost forecast 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 of producing fossil free steel. I think it is extremely important and and 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 as said, we are taking a very important step now in in q three with the with the starting up the pilot plant. So we will actually be producing fossil free sponge iron.
And and we have already today electric arc furnaces in in in America. So we can start to do trials together with customers and help them with prototypes. And we are in that process now discussing with with very interested customers and trying to figure out where we should best use these batches of of of fossil free sponge iron and fossil free steelmaking that we can do already today. Then, of course, the huge and and most important step will be taken in advance of 01/01/2026 when when the whole site of Oxelosund will be fossil free, and we will also be able to produce fossil free slabs for for automotive as an example to be rolled in in in. Laingen.
So we are on that journey, and we haven't changed our mind. And I think if you compare us, at least up until now compared to a lot of competitors, we started earlier and and we are, as I know, the only only company that are starting now with with actual production. So 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.
So I guess the conclusion is that, you know, you will get more of a cost advantage if, you know, the industry goes more towards fossil free steel. Is that correct?
But Okay. Yeah. But This will be a premium product at least to start with. I think the industry needs to go this way. But in the beginning, this will be definitely a premium product with with a premium pricing.
That's my personal view.
Fantastic. And 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 you know, what segments that sticks out right now?
Oh, but, I mean, I mean, we are not going to experience hay days at the end of of Q3. But what we see, I mean, if you take automotive as one example, they were standing still in q two. 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 in q two. Now they are opening up and and and and start to produce.
So so, I mean, that's what we see. So so to take out the multi from from from zero order intake to something, it is at least some difference.
Okay. Yes, brilliant. Thanks a lot. That's all from me.
Thank you. Thank
you. Our next question comes from the line of Bastian Sonagowicz 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 €800,000,000 cost savings, which you mentioned. So 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? Or for how long could you basically fully retain those savings? And 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. And and so we will adjust to demand and and to the need we see in the market. And and, I mean, of course, there are some things that we can't keep on doing or not doing for 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 will go away or say some of the actions will be taken away. I mean, if you take it as what I mentioned, we have a very limited number of summer attempts this summer.
We are doing lot a lot of more things with our own personnel where we typically use the sub suppliers or contractors, not only in North America, but also in the European mail. So so we are trying to push or utilize every lever we can see, and and we will continue to do that as long as the market sentiment requires. And then there is some structural components in in HIBNOR and other parts of the organization that we will benefit from over time, even with with full production or or or a more normalized market. But we are prepared to to continue to do whatever we can to to try to mitigate the weak market with with with the internal actions that we can fully control ourselves. I mean, the 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 cash flow generation and the cost side of the business.
And then, but again, just a reminder, for Q3, yes, we will continue with the savings action for sure, but we do have the maintenance outages in Q3, and those will, of course that will be quite extensive cost for those.
Yes, sure. No, absolutely. That is actually my next question. Now 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 costs as a benefit. Now could you please let us know, will you get the same magnitude of compensation this year given that ours across the European business probably have been slightly less this year?
Will have roughly the same that kind dissolvement of vacation reserve, we will have the same roughly in Q3 this year. But then normally, we don't have this much maintenance cost in Q3, but that effect will be roughly the same.
Okay. Okay, good. And then very lastly, on volumes in Special Steel, as what I understood, you overproduced volumes in the second quarter just for the third quarter maintenance break. And I think if I look at the numbers, production ran almost flat out, while shipments were down, obviously, 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 in from a production point of view, we produced as much as we could And then we said, you know, the better we produce in q three, then we will, sorry, in q two, 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. So we will now have a few weeks longer main the original, the maintenance, that was planned to be roughly four weeks. We will now have it a few more weeks where we will not run production at all. And then instead, once we start up again, then we will continue to run at full speed.
So you will see the opposite effect in q three compared to q two. In q two, you saw production not going down, but shipments going down quite a lot. And then in q three, you will see that production will go down more than shipments.
Okay. And 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 like eight weeks or so? Or
We were already 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. And our next question comes from the line of Olo Sodermark of Kepler Cheuvreux.
Most of my questions have been answered, but I have a follow-up on the M and A question earlier in the call. They said that you're looking at small and midsized acquisitions, as you always do. But, your name have been mentioned in certain news media during quarter, regarding maybe a little bit bigger consolidation of the European steel industry. Have you any comments on it?
No. We we I mean, I I read those articles as well, and we never comment on on rumors. The only comment I can make is that I'm happy that at least some that we are in a position that that some companies could see us as an attractive partner, and I think that is that is the positive thing. But but then, I mean, there are always a lot of speculations and rumors, and and we we never never comment on them. If and when we have something to say, we will do that, but these are 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 are diluting the impact of hybrid in the longer term?
What what if sorry. If you
are dilute if you are diluting the impact of hybrid in the longer term, that you are diluting your your capability to be fossil free if you're participating in a larger European consolidation?
I I haven't thought about that. I mean, we have said we we we we have the ambition to be the first wholesale PET producer in Oberton, and then we have a plan for the other mills. And that time plan is fairly long, but but this is well received That time plan originally was made up to when we when we are at the end of the economic lifeline at certain equipment. But if this will be would be very well received on the market, we can we can speed up that time.
But the first important step is now q three with the private plant, 01/01/2026 in Oxelosund. And if the market really like these products, we can take the the the next mills quicker and quick quicker than the original time time. So so as always, we are trying to focus on on our operations and what we can do ourselves. And that's then you can always reflect on on what other companies are doing, but that doesn't help us. The only the only thing I I I see right now is that more and more companies are talking about hydrogen and cost cutting steelmaking, and that I'm convinced that we are moving in the right way for SSAB.
But if anything, that makes me even more sure that this is the right way to go. And I'm happy for SSAB's sake that we are first in line, and and we started already three, four years ago. And we are now executing those plans.
Okay. Thank you.
And we can we can also afford to do it, and we continue And we are following the time plan. We are following the investment budget. So so we haven't scaled down anything when it comes to hybrid or our ambitions when it comes to fossil fuel making. And if anything, I would say quarter by quarter and day by day, the interest from the customers customers and the market increases.
Yes. Thank you.
Thank you. Our next question comes from the line of Luke Nelson at JPMorgan. Please go ahead. Your
Just two questions. First one is circling back on the fixed cost reduction, which you mentioned before. So if I just think on Q3 relative to Q2, should we actually be expecting sort of 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 $350,000,000 quarter on quarter. So so is there additional capacity for for, I guess, a fixed cost reduction quarter on quarter? That's my first question.
I mean, as Wolfgang said, we will have all the maintenance stops in in q three, and that will cost and we have guided for for what it will cost, but it will cost a lot of money. Last year, if you compare q three to q three, last year, we had majority majority of the maintenance outages in q four. So so that will be a huge difference if you compare q three to q three.
And also, if you compare with q two, The US can it be more than It will be roughly that number you said, around 300,000,000 extra. But on the other hand, we will have the maintenance outage, which will cost more than that, so in that sense, no.
Okay. That's that's clear. And then just on that that topic of maintenance in q three, if there are still clearly sort of restrictions on personnel, to what extent is that a risk around conducting maintenance in q three? I do you have the ability to to get the right personnel in and to do these planned stockages on time and on on budget in q three?
Yes. And and if we have learned anything over the years, it is that production stability is extremely important, and you saw what production stability gives us during the first half of this year in in Oxelosund as an example. So we will we will not I mean, in order to save costs, we will not jeopardize production stability. We will get the manning we need. We will get the the contractors we need, and we will do all the work we we deem necessary necessary to to keep a stable production over time.
So we will not try to do any stupid savings.
But we are doing it, in terms of from a COVID nineteen 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, etcetera. No.
We are seeing the same, exactly locker rooms, something 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. And so far, so good. And we are doing that together both in US and Finland and Sweden together with the authorities to to do whatever we can to to mitigate this big outbreak.
Okay. That's clear. Thanks a lot.
Our next question comes from the line of Lukas Andreessen of Sommelnens Media. Please go ahead. Your line is open.
Thank you. I have a question about the task for phosphate free steel production in Oxelosund. Do you have any notice about when the process to to convert to phosphate free production will start? And will will the delay result in any any increased costs costs for the change? No.
But we are I mean, our plan is to start production 01/01/2026, and we haven't changed that plan. That is what we are still aiming for and I think it's possible to do. So so when Oaken said we were delaying some things, so I mean, when when you do big projects, you always do a lot of things in advance. And and we still have in our GAN scheme or or in our time plan room for for for different things to happen. But but we haven't changed the the ambition to to be up and running 01/01/2026, and we think that is definitely possible.
Thank you.
And the last question in the queue so far comes from the line of Ansu Kintfjerne of SEB. 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. So two questions related to this. Where does the positive mix effect comes from? Is it coated products or something else?
And the second question is that, do you see a possibility that the net net effect of this could be, as a matter of fact, flat quarter on quarter? So could you help us on that? 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. And automotive volumes are which are typically then processed more than hot rolled coils sold at a higher price. So that's mainly the positive mix effect we are expecting. Could it mean that prices are flat quarter on quarter? Potentially, yes.
I mean, we obviously don't know exactly. But right now, the way we look at it, we believe the prices will be somewhat down, not a lot.
Okay. That's very helpful. Thank you.
Thank you. And 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. And 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.