Welcome to this presentation of SSAB Q4 post 2011 results. As usual, our CEO, Martin Lindqvist, will take us through the report, together with CFO, Marco Wirén. After the presentation, we will open up for questions, both from the floor and from those calling in. We appreciate if you could use the microphones when asking questions, and also if you can state your name, and also the company that you represent. Martin, please go ahead.
Thank you. Good morning, and once again, welcome to this Q4 presentation. Start with some highlights. The result improved somewhat compared to Q4 2010. We had also during the fourth quarter, I would say, a strong operational cash flow of SEK 1.7 billion . What also was significant for the quarter was that the demand in Europe was weak and also affected by, I would say, a significant destocking among our customers all over Europe, but also in other parts of the world. In SSAB Americas, volumes were more stable, and we were, as you know, affected by a planned outage, quite a big outage in the beginning of October, that took down volumes. But apart from that, the market and the production were very stable.
Prices for standard steels were lower in Q4 compared to Q3, and prices for high-strength steel were also somewhat under pressure during the quarter. Included in the results for EMEA is a gain of SEK 270 million from disposals of emission rights. And the reason for that is, of course, that we have idled one of the blast furnaces in Oxelösund since this summer. So these are excess rights that we don't need or needed for our production. We had a sales of almost SEK 11 billion during the quarter, and we had an EBITDA per ton of SEK 600 . And if we take the average EBITDA per ton for 2011, it amounted to roughly SEK 1,000 per ton, and that is compared to a lot of other steel companies, a very good figure.
Taking a look at the different segments, and these are the segments that are important for SSAB. When it comes to heavy transport, we see in Europe a somewhat mixed picture among our customers, some of them being a bit more cautious and reducing volumes a bit, while others are more positive and are taking out more volumes. Another important subsegment within heavy transport is barges in North America. We see a very positive development there, and we have landed quite a few interesting contracts in that area. Automotive, we foresee continued positive development in Asia, and especially China, for 2012. A somewhat slower demand to start with, at least in Europe, within automotive. Construction equipment, the yellow goods outlook is, I would say, very stable. The Chinese lifting industry is picking up.
They have somewhat high stocks in the producers, but we see clear signs of that segment picking up. The demand for mobile cranes has started off and ended last year a bit weak, but the outlook going forward looks better. Material handling continued strong, and especially within mining. The demand for QT material within mining and mining-related equipment is still very strong, and that goes for all regions: China, Australia, Indonesia, Latin America, Africa, and other parts of the world. Energy is a very important segment for us in North America. We see that line pipe projects in both U.S. and Mexico remains healthy, and we have secured quite a few interesting orders there as well.
The wind tower industry, as we expect it, will be or will remain strong, at least until the election this year, or at least during the first half of 2012. So that is also performing in a very good way. Service centers, they are still, as we talked about last time, cautious when it comes to order placement, but we see improved confidence, and we see improved activity. The good part is that the inventories in the service segments, service centers, are still on low levels. EMEA had a result, sales of SEK 5.8 billion during the fourth quarter, with an EBIT of SEK 248 million, and that is included the sales of the emission rights. Shipments were lower than Q4 2010, and 9% higher compared to Q3 2011.
As you know, in Q3, we had an extended summer stop for strategic investments at our Swedish sites. Niche products accounted for 42% of the total shipments. Prices for standard steel decreased during the quarter with 7%, and for quenched and temper steels and high-strength steels with 2% during the quarter. We still have one of the blast furnaces in Oxelösund idled. This is a picture of the new quenching line that we are commissioning right now during the first quarter in Borlänge, with an initial capacity of 300,000 tons. That is measured over bottleneck, so the installed capacity in this quenching line is 2.5 million tons in the line itself. This will broaden our product offering.
This line will be focused on narrow, thin material, and we will more and more focus the quenching lines in Oxelösund and Mobile for thicker and wider material. So this will be a very good new product, a series of product that we will now start to introduce to the market. We will produce Hardox and Weldox quenched plates in this facility. Another interesting thing that we're doing right now is we're starting up a new container terminal in Oxelösund, and we will start to ship, or we have started to ship, during this quarter, plates, and we keep them upright in containers, and that reduces the risk of damaging the plate a lot.
But this helps us to reduce lead times to Asia from 8 weeks to 4 weeks, and we will reduce the transportation cost with between SEK 500 and SEK 1,000 per ton, depending on destination. We are building up the terminal in Oxelösund. We have this kind of equipment in Kunshan. We will have it in Singapore, in Mobile, and in Latin America. So this is the way we are going to ship material, to reduce lead times and to reduce transportation costs going forward. In EMEA, they have initiated a, I call it efficiency and flexibility program. The target is to lower the cost base with SEK 800 million.
Out of that, 500 is a permanent reduction of fixed cost, and SEK 300 million is what you call, making fixed costs into variable cost, depending then on, of course, utilization rates in the mills. The program includes a review of the structure, increased cost flexibility, and a reduction of white-collar employees. The impact will be fully seen during 2013, and the full year impact will be seen during 2014. Americas had sales of SEK 4.2 billion, with an EBIT margin of 10%. Shipments were lower than Q4 2010, and they're lower than Q3 2011, and that was due to the outage we talked about in the beginning. Niche products accounted for 26%, and local prices for advanced high-strength steel and quenched steel decreased during the quarter with 4%, and for ordinary steels with 7%.
This is a picture of the new quenching line that is finished now and will be commissioned during early Q2 in Mobile. That will give us another 200,000 tons of quenching capacity. The line is able also, that line, to produce Hardox and Weldox material, measured from 4 millimeters up to 50 millimeters thick and up to 3.1 meter wide. That will further strengthen not only SSAB Americas, but also SSAB's position within these areas. And with these two new investments and the new thick plate investment in Oxelösund, we will be able to produce quench and temper material between 0.3 millimeters up to 160 millimeters. We will have a very broad product offering. APAC had sales of just over SEK 700 million, with an EBIT margin of 14%.
Shipments of niche products, because we only sell niche products in these areas, were 18% higher compared to Q4 2010, and 16% higher compared to Q3. Local prices for advanced high-strength steel increased by 5% during the quarter and were unchanged for quenched steel during the quarter. We are right now, as we speak, commissioning the new finishing line in Kunshan, K2, and the new R&D center, and that will, on top of the transportation, the terminal I showed you, help us to reduce lead times, and most importantly, increase service to our customers. Tibnor had sales of SEK 1.7 billion, with an EBIT margin of 1%. We had lower volumes compared to Q4, but higher volumes compared to Q4 2010, but higher volumes compared to Q3 2011.
We had lower prices and volumes that affected sales negatively compared to Q4 2010, and we also had a write-down of inventories of SEK 35 million during the quarter. Tibnor had a strong cash flow during the fourth quarter. If we take a look at the market environment and the outlook, global steel production increased in 2011 with 7%, but we also see in Q4 that capacity utilization in the global steel industry came down, and production decreased by 5% compared to the third quarter. Uncertainty over the macroeconomic outlook, particularly in Europe, led to a significant destocking during Q4. However, early in 2012, we have seen signs of recovery, especially in U.S., fueled by expectations and signs of inventory restocking. The strongest segments for us remains material handling and the U.S. energy sector.
Prices for hot rolled coils in Europe appear to have bottomed out, and prices in the US are expected to increase during the quarter. So, Marco?
Thank you.
... Good morning. Just a couple of highlights first when it comes to Q4 figures. The net sales was about SEK 10.9 billion, and that's an increase of 7% compared to same period a year ago. As Marty mentioned, in the operating profit of SEK 50 million, we had a sale of emission rights amounting to SEK 270 million. Reason for that is as we have had one of the blast furnaces idled during the fall, so we had excess emission rights, and that's why we decided to sell those. Those different programs that we have put in place when it comes to efficiency of working capital has given a result as well. As you can see, our operating cash flow amounted to SEK 1.7 billion during Q4.
Of course, net gearing was positively affected as well and went down by 5%, this point, to 60. Here's some key figures. You can see the net gearing figure, 60, and this proposal of dividend of SEK 2. The full year EBIT amounted to SEK 2.5 billion, and that's a clear improvement compared to a year ago. For Q4, the result was quite close to last year's results. If you just look at largest items that affected the result, we see the prices improved the result by SEK 750 million, while costs took down. Of course, in the cost, we have different items.
Outage is one, of course, and the reason that we have been running our facilities in Sweden at the 7% utilization ratio is one cost reason as well. The rest of that is, of course, raw material increases compared to a year ago. FX impact, and that's FX, if you take the rates that we had a year ago and compare that with the rates we have this year. So this is not a gain, it's just comparison between two periods. In the others, you see also the emission rights. Here is a couple of figures about the cash flow. I mentioned SEK 1.6 billion operational level for full year, operational level was SEK 2.8 billion.
Considering also that during this year, we had investments and acquisitions amounting to SEK 3.6 billion totally. We have strategic investments about SEK 1.9 billion, and we had also the acquisition of Tibnor, 15% of that, those shares, which was affecting negatively cash flow. So the full year net cash flow amounted to SEK -800 million, while the Q4 net cash flow amounted to SEK 1.4 billion, and that's why our net debt decreased to SEK 18.5 billion. And still, the liquidity preparedness is excellent. We still have a lot of backup lines and also cash in hand.
We have worked quite a lot with our debt portfolio during the quarter, and we have been able to increase the average term from 2.7 in the end of Q3 to 5.1 in the end of Q4. And here you can see the picture of the terms. What we've done is that we actually pushed most of those maturities to 2007 and beyond, 2017 and beyond. So the maturities we have, the light blue bar in the table, you can see, is commercial papers, and the dark blue color in 2012, those maturities we actually have already negotiated as well.
But we will keep that debt until maturity in the end of 2012 due to the very good terms that we have in that debt portfolio. And commercial papers is about SEK 1.9 billion at the end of, at the end of the year. Here you can see the average cost in our debt portfolio, and I believe that 2.5% is quite good compared to many other companies. And here you can see also the duration increase and jumped between Q3 and Q4. Couple words about the raw materials.
We've been negotiated iron ore with LKAB, and due to the fact that prices went down on the spot market during Q4, so we're able to decrease our purchase prices for Q1, which means that deliveries during Q1, but that will actually affect our P&L first in Q2 positively. So prices went down 12% for Q1 purchases compared to Q4 purchases. And going forward, we'll see, and we get back to you as well, if we're going to have quarterly prices or something else. When it comes to coal, we have deliveries from America is on an annual basis, so no change in there. Contract is going to end in the end of March this year, while purchase from Australia is on a monthly basis.
So the prices in Q4, when it comes to purchase prices, and compared to Q3, went down about 20%. And scrap in our American facilities, which are mini mills, we buy continuously, and prices actually went down first and then up again. In mid-November, they bottomed and went up heavily again. And now in just last week, the first week of February, we have seen that prices drop a little bit in North America. Usually, you can see a seasonal trend just after the year, and prices usually go up a little bit when the collection is getting more difficult in North America, when winter season starts. And then I'm gonna hand over to you again, Martin.
Thank you.
Thank you.
So we are right now, as said, commissioning our new facilities in Borlänge and Mobile and Kunshan, this quarter or early next quarter. We see signs of, recovery in the U.S. with announced price increases, and we have been leading those price increases. In Europe, the market continues to remain uncertain, although some restocking is seen and expected. European price contracts for Q1 will be at a lower level compared to Q4. We will have 2012, a substantially lower CapEx in SSAB compared to 2011. We are increasing focus even more on, R&D and marketing and sales. We have done a change in the organization. We have today appointed a new CTO, focusing and responsible for R&D and technical development.
We have also appointed a new executive vice president, responsible for marketing and sales, so we will increase our efforts in these two important areas even more going forward. As said, we have initiated an efficiency program within SSAB EMEA to lower the cost base by SEK 800 million . So to sum it up, SSAB Americas continues to perform well. The weak market situation in Europe had a negative impact on SSAB EMEA and Tibnor during the fourth quarter. The situation in APAC is stable, and I've said it before, I mean, you should expect APAC to deliver EBIT margins between 10%-15%, and that's where we are in Q4 as well. Although we had a very weak Q4, we had a very strong cash flow or a healthy cash flow.
The strongest segments remains material handling and energy in the U.S. And, the investment program that we are now commissioning or starting up will give us a very solid platform to meet future demand and, and to increase the growth within our niche segments. Last, but not least, I would like to show you or share with you a beautiful picture. This is a harvester produced by John Deere. It was actually the Swedish Steel Prize winner, 2011. They have been able, with this new design and construction, to increase productivity with 50%. They have been able to, in selected part, where they changed from ordinary steel into advanced high-strength steel, to reduce the weight with 50%. They have also, on top of that, reduced, the number of weldings with more than 70% in this construction.
So this is not a typical application, but a very interesting application that they have developed together with us. So by that, we open up for question, I guess.
Very good. We'll start with the questions coming in from the floor, and then continue with those calling in. Fredrik, please go ahead.
Yes. Hi, Fredrik Lundberg from Handelsbanken Capital Markets. Thanks. I have three questions. First one on the cost savings program or efficiency measures. Are these gonna cost you anything? Are you gonna take a charge for it?
We have not taken a provision for it, but there will, of course, be probably some costs related to this program. But what we have said is that the payback time for those costs is much less than a year, so we haven't been very specific about the costs.
Okay. You can give any guidance on numbers?
Well, the guidance we can give is less than one year payback time or-
Okay. All right, thanks. On the second question on your investments and the mix effect we can expect going forward. Given what you see today in markets in U.S. and Europe, what can you say about the expected effects of these in 2012 on earnings? Are you likely that you sell more niche products?
We will now, as we speak, start. We are starting to ramp up or commissioning the investment in Borlänge. We started the production facility itself after the summer stop, but then we need to qualify material, test it with customers and everything. So we will see a gradual ramp up. You shouldn't expect the massive effects during 2012, but gradually, improved product mix, improved profitability, and improved cash flow.
Is that similar for U.S. and Europe?
Yes.
Third question then on-
Well, I mean, the both investments, QL 6 in Mobile and QL 7 in Borlänge, they will not only service Europe and U.S. respectively. This is part of a global production system, so they will. We will produce material there and ship to China, among other areas.
... Okay, thanks. Just a question then on U.S. Looking at volumes, because U.S. seems to be improving, demand-wise, but looking at the shipped volumes, they're down quarter-on-quarter and year-on-year, in America.
Yes, we had, as we have said before, we had a big outage during Q4, end of Q3 and during Q4, so we were standing still for 20 days in Q4. Apart from that, we have been running production full speed. What we see in our facilities in North America, they are very cost-effective facilities, very competitive, and we see also possibilities going forward with, I would say, quite cheap debottlenecking. So we can take up capacity with another 200,000 ton when needed, and then when we want to do that, for a very interesting, I would say, investment. But we are running them full now, and we have been running them full during Q4. So the difference is that big outage.
Okay, thanks.
The next question, Alexander?
Thank you. Alexander Vilval from Carnegie. Continue on the new investments in Borlänge and Mobile. As the steel markets looks now, I mean, obviously, it's very weak at the end of last year, but as it seems now, after now February, is there demand for these new products as the steel market looks now?
Definitely. We, I mean, we are ramping up. We won't have 500,000 tons from tomorrow, but we see a clear demand for that ramp-up plan we have, yes.
And also, regarding the efficiency measures, with regards to transportation costs, that mainly affects APAC, I guess.
You mean that terminal we are-
Yes, exactly.
No, we actually, as said, we will have possibilities to ship to APAC, but also to U.S., because we export or produce a lot of quench and temper in Sweden, shipping that to U.S.
Okay.
So that will affect, and Latin America and other areas in the world.
Okay. When it comes to the profitability in EMEA, given what you see right now, obviously, you wrote that the standard product prices fell 7% in Q4. First, from what you see right now, how much more are prices down in Q1 based on your contracts? And, given the numbers that you see right now, do you expect to show an operating profit in Q1 in EMEA?
We haven't specified exactly, but I think you get a good picture if you look the spot price development during Q4. And as Martin mentioned earlier, we signed most of the contracts for Q1 in November and December. So you have that as a base and compare that with the Q3 spot prices, you get a good picture. And of course, there's always a mix impacts as well, so you have to consider that as well.
But on the outlook to post a profit in Q1 in EMEA?
We haven't specified any profit levels.
Okay, thanks.
Next question, please.
Yes, hello, this is Oskar Lindström from Danske Bank. I have a couple of questions on, well, both the cost program and the Borlänge ramp-up. First of all, the cost-saving program, you mentioned a divestment of non-core assets. Have these been identified, and will they in any way affect the top line? Now, what are we talking about?
We are talking about minor things, here. So we not have a huge impact, no.
Should we expect any sort of immediate cash flow impact from a divestment, sort of?
We haven't said that. I mean, we are right now finalizing a minor divestment.
Okay.
You shouldn't expect a major cash flow impact or any major changes in top line either.
All right.
So, it's a lot of things. I mean, we will focus even more on our core business, and we will focus on... This is about increasing flexibility, being more flexible and more cost effective. It's a combination of reducing fixed cost with SEK 500 million, then on top of that, create as much flexibility as possible. It's about, we call it, taking away complexity in the production structure.
Okay, sounds great. Are any of the SEK 800 million related to continued sort of non-production of the blast furnace in Oxelösund?
No.
So, I mean, it's not as if you would—if you decided to start up that blast furnace, you would have to scale down the SEK 800 million figure to a lower number?
No.
Okay, well, thank you. The Borlänge ramp-up, have you started depreciating that fully?
We are going to commission that in Q1 now.
So from starting Q1, we should expect full depreciation or,
Correct.
Half or?
Yeah. In-
Starting in-
After commissioning, we start to depreciate, and so in Q1, we don't have a full depreciation, but in Q2, you can see that.
Could you give any guidance for what that number will be?
Uh, we-
Roughly.
invested about SEK 1.5 billion in that facility, so.
Depreciating over 20 years or?
Yeah.
Okay. Well, thank you.
More questions?
Ola Södermark, Swedbank. When it comes to blast furnace in Oxelösund, is it realistic to see a startup of them before the summer, the slower summer season? What you are seeing now?
We haven't really decided. We are in the middle of that discussion.
Okay. And when it comes to the cost savings, I think you mentioned in the report that you are eventually going to sell some assets.
And what kind of assets is that?
As said, I mean, minor parts, things that we don't really feel is core business. It's not sales of any companies, such things. It could be minor, minor parts; it could be sales or outsourcing or stuff like that.
Okay, thank you.
And that is not mainly about cost saving, that is about flexibility.
Should we take a question now from, those calling in? Please go ahead.
Our first question comes from Mr. Anindya Mohinta from Citigroup. Please go ahead.
Thank you. Good morning. I've got two questions, please. The first one is on Oxelösund. Oxelösund had quite a few stoppages last year. I think, if I remember correctly, there was 3, and you also had some issues earlier on this year with the chilled hearth . Is there something of a recurring problem? Is there anything—is there any one particular issue that's causing these stoppages? That's my first question. My second question is on a comment you have on page 5 of the report on your coal purchases. It seems what you're saying is the impact of the lower coal price will not impact you until the end of Q2. That seems like an awfully long supply chain in terms—most people seem to be saying the sort of 3 months at most in terms of getting the new lower prices through.
Can you maybe explain why this, why this duration is so long? Six months seems to be a long time for spot prices to feed through. Thank you.
Well, to start with the first question, unfortunately, in process industry, you from time to time get some production problems. We don't have any right now, as I know at least, or at 8:00 A.M. this morning, we didn't have any problems in with production. So but unfortunately, things like that happen from time to time. When it comes to the second question, I mean, the reason for the long lead time is, of course, that we are not able to bring in ships during the winter to Luleå due to the ice situation. The ships where we bring in coal are not ice-classed, and to be able to go in with ships in Luleå during the winter, you need to have an ice-classed, smaller ship.
So that's why we are building up an inventory of coking coal that helps us to survive until the ice goes away, so to say. That's why we have a, compared to many other companies, longer lead times when it comes to coal.
Thank you.
Andy, I just wanna add, when it comes to those outages that we had in 2011, they were actually planned outages, and one big part of that was due to the investments that we're doing now to add quench and temper capacity. So it's not only due to the fact that something happens in our mills.
Sure. I guess my question was if normally you typically have a maintenance outage once a year, but in Oxelösund, it seems to keep happening quite frequently. So the question was just, is there any specific problem that's causing this, or is it just sort of course of normal business?
We had some problems before in one of the blast furnaces with hot stoves, but since one year, we have new hot stoves. So, I mean, that blast furnace is running in a totally different and much more stable way nowadays.
We usually call that we have a campaign length of 15 years in a blast furnace, and then you have to reline it, and that's one of the relinings we've done now in one of the blast furnaces in Oxelösund. Usually in the end of the campaign length, there might be some issues that you have to do. But, for example, the blast furnace number 4 now, which is idled, that's totally relined now. So we believe that we don't have any issues with that in quite a long period of time.
That's very clear. Thank you.
Thank you.
Next question then, please.
Our next question comes from Mr. Alexander Hässel from Cheuvreux. Please go ahead.
Yes, good morning. This is Alexander Hässel from Cheuvreux in Frankfurt. I have three questions. Can you give us an indication what you target basically in terms of output in Europe? Can we expect utilization being back at least 75%-80%? The next question is on the efficiency program. What is your overall target to bring down breakeven? Does it imply in some kind of normalized world with no lagging effects for raw material costs and steel prices, you could be breakeven between 70%-75% here? And the last question is on working capital.
Can we expect some of the gains you had in terms of, working capital release in the fourth quarter to reverse, during the first half 2012, or is it sustainable, at that level? Thank you.
To start with the second question then. Oh, to the first question, capacity utilization in Europe going forward. I wish I could answer that one for the whole steel industry. I don't know, to be honest, but we are seeing our capacity utilization going up somewhat, but we still have one blast furnace idle. So, as said, I mean, the situation in Europe is a bit uncertain, so the total capacity utilization, I have no clue where that will go. When it comes to the efficiency program, the whole idea is, of course, to take down the break-even point for the system in EMEA and make it more flexible. So we will, everything else equal, be more profitable at lower levels compared to today.
Then working capital, I mean, the biggest part in the working capital reduction is inventories, and we are on good levels, and we expect those levels to stay.
... We work not only just taking down the inventory, but also, seeing that we work in a better way, so it's, it should be sustainable going forward as well.
Okay, and then, just a last follow-up question. Can you give us an indication of CapEx for the first half compared to the second half? Is it more first half loaded?
We will have some spillover. As said, I mean, we are commissioning now the investments during the first half of the year, or I would say the first four or five months. And that will, of course, everything else equals mean that CapEx will be lower during the second half. And as for the full year, the CapEx will be substantially lower than the figures Marco mentioned.
Okay, excellent.
Thank you.
Right. Should we continue with the next question then, please?
Next question comes from Miss Cedar Ekblom from Bank of America Merrill Lynch. Please go ahead.
Thanks very much. Good morning. I've got one question on your iron ore agreement. We've seen spot iron ore prices, pellets and fines coming off by sort of 20% from the peaks that we saw during Q3. However, you've only been able to negotiate a 12% decline in iron ore pricing, which will only come through in Q2 of 2012. So compared to your steel peers, it looks like at the moment, you're being disadvantaged in terms of your iron ore agreement. Would you consider, you know, pushing for a change in the way your iron ore is priced from the annual contracts at the moment to a more quarterly-based contract like your peers see?
And then can we also assume that your profits will be worse than your peers on a sequential basis in Q1, probably down quarter on quarter in EMEA, because you are likely to have prices which are quite sticky at higher levels in Q1?
To start with, I mean, you could, of course, compare with spot prices, but we were not paying spot prices during the when spot prices peaked. So we had a yearly contract with the possibility to renegotiate the last quarter or any quarter when spot prices came down under a certain level. And we did that during the end of Q4, and the outcome was minus 12%, which is in line with the, I mean, the market and the peers. When it comes to contract length, going forward, I mean, with a renegotiated contract, we have a quarterly contract now. We will see the effects in purchasing already Q1, but given the lead times and the inventories, we will see the P&L effect first in the second quarter.
The next contract, we will hopefully sign with LKAB, if that will be a yearly contract or a quarterly contract or something else, we haven't started to discuss that, but we will probably start to. That contract will be valid from the first of April, and we need to start that discussion, of course, together with the suppliers in advance of that time.
Okay. Thank you.
Right. Please go ahead with the next question.
Our next question comes from Mr. Julian Beer from SEB Enskilda. Please go ahead.
Very good morning, everyone. Four questions, starting with EMEA. You had a poor mix in all of your product lines, in the fourth quarter. What are the reasons for that, and would you expect that mix issue to continue on top of the, like, price issue as well?
If we start with the mix issue, we saw heavy destocking during the fourth quarter, and that, of course, affected the mix as well. Quite a many companies, not only in Europe, but also outside of Europe, didn't want to have much inventories by the end of the year. And that, of course, affected. They want to buy only the cheapest one, and that's, of course, affecting our mix. What comes going forward, I believe that in general, in the steel market, you might see some rebound after a heavy restock destocking during Q4. And, of course, what kind of mix we're going to have depends totally on our customers' demand going forward as well.
Okay, but, what you're saying is that if there's no further destocking, even though the like-for-like prices might be down Q4 to Q1, your, your realized pricing, could actually be somewhat better if the mix, stabilizes.
No, we have said that all our contracted prices in Q1 will be at a lower level than we had in Q4. And-
But the mix will obviously, either way it goes, affect that.
Yeah.
Okay. Second question, how do you expect fixed cost under absorption in Europe to look Q1 versus Q4?
It depends totally how we're going to run our businesses, and we still have one of blast furnaces idled in Sweden, so that's a big question. So we haven't given any volume guidance yet for Q1. In Europe, as we said, the market is a little bit more uncertain and more difficult to predict than it is outside of Europe.
So, what we conclude, if you don't switch on that idled Oxelösund furnace during Q1, similar fixed cost issues?
Well, we will have at least the under absorption as long as the blast furnace is idle, yes.
Okay. Number three, in China, many companies are talking about slow demand at the moment. Does that make it a difficult environment to grow your steel volumes?
We don't see that, and we are a small, volume-wise, a small producer, very focused with quenched-and-tempered and Advanced High-Strength Steel into certain segments. We see a very strong demand in Asia in general, and China in particular, from mining industries and some other industries. And we have not, I mean, we have just started to scratch the surface in those areas. We are not everywhere with our material yet.
Okay. Well, that sounds like some good news anyway. And then lastly, two small housekeeping items. Americas, did you say that maintenance costs in Q4 were lower than what you guided going into the quarter?
It was somewhat lower. We were, I would say, very successfully in starting up after that outage.
Okay, so, the report said SEK 200, and you guided SEK 300. Lastly, emission rights sales, do you expect more in Q1, given your shutdown furnace?
I had problems to hear you there.
Yes. Do you expect further sale of emission rights in Q1, given the shut down furnace?
I mean, it depends on of how long the blast furnace will be shut down, but, but we haven't thought much about that yet.
Fair enough. Thank you very much indeed.
Okay.
All right. We can continue then with the next question from those calling in.
Our next question comes from Mr. Neil Sampat, from Nomura. Please go ahead.
Hi there. So I think that question might have just been answered. Just to clarify, because the blast furnace at Oxelösund will stay idled, during Q1, does that mean you'll still get a, kind of, offsetting benefit from those, CO2 emission sales?
I mean, we haven't decided when to start exactly the blast furnace. Right now, it's still idle, and we haven't said when we start it. It's going to depend on market conditions and what we see going forward. But, I mean, as long as it stays idle, we will not use all the emission rights, or the emission rights we have.
Would you then sell it? I mean, it's obviously discretionary when you sell them, but would you look to do that in Q1 if it remains idle in Q1?
As said, I mean, we haven't discussed that any or even given it any thoughts. So we did that during Q4 because it was obvious that we had the, would have the blast furnace idle for the second half of last year. Then we take that decision when it's, when we need.
Okay, thank you.
All right.
Yeah.
Please go ahead with the next question.
Our next question comes from Vincent Foley from Barclays. Please go ahead.
Good morning, gentlemen. I had two quick questions, please. The first one had to do with the new cost savings programs. You said that out of the 800, 300 depended on utilization rates, and I was wondering if you could tell us from what sort of level of utilization would the 800 decrease to the 500, so we get a little bit of a sense? And also, you mentioned that U.S. plate prices had increased a little bit, or at least we had seen some price increases being announced in the past few weeks. Now, if you look at plate prices in the U.S. versus, for instance, what they are in Europe, there's a big gap.
To what extent, at least on the commodity grade, do you think U.S. plate prices are sustainable at the current level? Thank you.
To start with, with the program, I mean, the whole ambition with the program is to lower the cost base and to be profitable at lower levels. We are aiming for being profitable at 70%-75% utilization rate. Then, of course, part of those costs, I mean, of the program is, of course, making fixed costs into variable costs, and the total amount of those costs will depend due to utilization rates. But it is that's the way we think, at least, and that's what we are going to do. I'm sorry, I didn't fully hear your question regarding prices in US.
Yeah, it had to do with U.S. plate prices versus prices, for instance, in Europe or other parts of the world. So to my... My question is: how sustainable do you think U.S. plate prices are? Because they're, they're very high right now versus other regions. Do you think there could be import pressure at some point?
Well, I guess from time to time, there is import pressure on plate prices and all steel prices in U.S. What will happen the coming weeks or months or quarters, I don't really know.
But then conceptually, can U.S. plate prices remain at a very big premium to other regions on a sustainable basis?
I mean, the most important for us is that we have the most cost-effective production system when it comes to plate in North America. We are also in independent customer surveys regarded as in 9 out of 10 things the best producer, quality-wise, and everything. So we are quite confident with the production we have there. And regardless of price levels, we will be one of the profitable, most profitable plate producers in North America.
Thank you.
All right. Should we continue, then?
Our next question comes from Mr. Christian Kopfer, from Nordea Markets. Please go ahead.
Thanks, operator. Just a number of follow-ups. Firstly, on that you say that you see slightly higher prices on the spot market. Does this mean that the trend that you see for Q1 is more of a lagging effect, as you set the prices already in November?
... I mean, spot prices is a good indicator where contract prices and prices for standard steels are heading. And then, of course, there is always a lagging effect. But when spot prices are under pressure, you could expect prices, everything else equal on standard material to follow the same direction.
Okay.
But with the lagging effects.
Yeah, sure. So if the price-
Exactly.
Stay at approximately this level, that would mean slightly higher prices for Q2, then?
Mm, yeah, that would, that's what the math says, yes.
Yeah. Also on the rolling out of the new quenched volumes, I understand that you feel quite confident of that. Could you just please elaborate a little bit on where do you see the new customers and in what areas and so on?
As said, I mean, we are now extending the product program. If you talk about thicknesses from 0.3 millimeters up to 160 millimeters, which is, I mean, unique in the world. You typically see other producers being able to do 400 material at 8-10 millimeters. We also have a more effective way of producing it. I mean, the 250,000 in Oxelösund is a very cost-effective way of producing thick, wide plates. The Steckel system in Mobile is a cost-effective way of producing medium thick and wide plates. The system in Borlänge is a very cost-effective way of producing thin, narrow material. We will be able to... I mean, we are targeting our segments with new products and new gauges and new widths.
As far as we can see, we are very confident that we will be able to meet our internal targets. The target we have communicated externally is that 2015 50% of our volumes will be within our defined niches, and I have no doubt whatsoever that we will meet that target.
Okay, thanks. Just finally for me then, the start-up of the final blast furnace in Oxelösund. As you seem a little bit uncertain there, does this mean that if you're not starting that up, you will gradually phase out the standard products on the benefit of the new quenching capacity then?
We will do that regardless of if we start up the blast furnace or not. I mean, we are currently selling 37% of the volumes within our defined niches, and the target is, as I said, that 2015 to have 50%. So regardless of blast furnace capacity, we will phase out standard products.
Okay, that's great. Thanks.
I think we have one or two more questions, calling in, please.
Our next question comes from Mr. Bastian Synagowitz from GEO. Please go ahead.
Yes, good morning, gentlemen. I've got one quick question. I was actually wondering again what your view on the U.S. market. Where do you see utilization rates for heavy plate production in the U.S. market as a whole at the moment? And also to come back on Vincent's question earlier, do your European operations already get more requests for plate shipments into the U.S.? Thank you.
If we start with U.S., I have—I don't have the exact number of capacity utilization, but as said, I mean, we are running our capa—we are running at full capacity. And on top of that, we are looking into some interesting debottlenecking opportunities. But being the most cost-effective and highest quality producer, we typically run on a higher utilization rate than the average.
Okay. Just to come back on that, what would be the possibilities to debottleneck that, and how much time would that take?
It's, I would say, a fairly, time-wise, compared to a greenfield or anything, a fairly short investment and a very cost-effective investment. And we could potentially take up the capacity with another 200,000 tons.
Okay. And then on my, on the second part of my question, do European operations already get more requests for shipments into the U.S.?
As said, I mean, what we saw in Q4 was substantial destocking. After destocking, I mean, customers starts to at least buy what they really need when they have stocks in, as they feel imbalance. You also typically see a restocking. So that is what we expect to happen going forward.
Okay. But, I mean, given the price differential of roughly $250 a ton, it clearly makes sense for players, of course, to arbitrage on the price differential between Europe and the U.S. And I was wondering whether you already basically actively participate in that, and whether you get more interest in basically shipping some materials from Europe into the U.S.
I mean, we are always shipping material from Europe, to U.S., regardless of arbitrage possibilities. And on top of that, we are the biggest local producer in North America of plates, so we are always very active on that market.
Did your volumes from Europe into the U.S. pick up already recently?
I mean, we have, as said, I mean, we have been shipping volumes from Europe to U.S. for 25 years or something, and we have a ramp-up plan for that as well, and we are following that plan. Not only to U.S., but to Latin America and other parts of the world.
Okay. But, I mean, in the last couple of weeks. Did you get a larger interest, and did you increase the volumes over the past couple of weeks for shipments from Europe into the U.S.? I understand that this is our-
We don't ship any regardless of arbitrage possibilities. We don't ship any ordinary plates to U.S. Have never done and will not do.
Okay. All right, thank you.
Okay, I think we have the final question.
Our next question comes from Miss Cedar Ekblom from Bank of America Merrill Lynch. Please go ahead.
Thanks very much. Just one quick follow-up question. Do you undertake any currency hedging on your raw materials? And, if you do, would you disclose those details?
Yes, we do. When we signed a raw material contract, we always hedge the currency. And at the same time, we have also been hedging the sales, which is referred to that purchase part of raw materials that we have in Europe.
Okay.
So we try to always hedge between U.S. dollar and euro for the European business that we have.
Okay, perfect. So you just hedge for the term of the contract, and then you'll hedge on an ad hoc basis as that goes forward?
Yeah, that's correct.
Okay. Thanks very much.
I think we have one or two more questions from the floor here in Stockholm.
Yes, hello, Oscar Lindström at Danske Bank here. Two questions about the emission rights. First of all, the emission rights that you sold during the fourth quarter, were they relating only to lower production in the fourth quarter, or was it actually sort of an accumulated lower production during the latter part of last year?
It was, I mean, we have had the blast furnace idle since this summer, so it was not only Q4.
So you were actually selling second half 2011. Were you also selling sort of part of the emission rights that you would have used for the beginning of this year?
No.
Okay, so you haven't sold those. And I read in your report that the emission rights that you will be given for the period 2013 to 2020 will be lower than for the previous period, though the final decision will come later in this year. Could that result in yous having to have sort of a continual expense of buying additional emission rights compared to what you've had previously?
I mean-
Could you put a number on that or?
We don't know the exact... That's our best guess right now. That could change, and we need to come back to that when we see the final allocation, and how we were going to act then.
But-
This is our best guess right now, but there is no real decisions taken within the European Union.
Okay. And, but the expense, if that were the case, the expense for that, would that come up front, that you would have to sort of buy already now or-
No, no.
Take a write down because you know that cost would come up?
No.
No.
Okay, thank you.
I think we have a final one from Alexander here.
Thank you. Just a quick follow-up on the cost savings program. First of all, the possibility to reduce transportation costs, is that a part of SEK 800 million?
No.
So that's additional?
Variable costs, as we regard it.
Yes, but 300 of the 800 was variable costs.
No, it was shifting fixed costs into variable.
Yes. Okay.
So the cost base, SEK 800 million, is a fixed cost. 500-
As it is, as it is now?
Yes.
And it will-
500 of them is a permanent reduction, and 300 is making fixed costs into variable costs.
Yeah. And with regards to the debt maturity, the a little bit less than SEK 2 billion, which still stands at, as maturities, this year, which will be...
As Marcus said, I mean, that loan is already prolonged.
Yeah. To what time, and what will be the difference on the interest rates on that loan once it is prolonged?
It's no big difference that we have in the portfolio.
Okay. But will it shift to, I mean, how many years...?
Just 2012 maturity.
Yeah
... or, that's actually. We have different maturities on the new debts that we have signed. So we have taken a bulk of new maturities, and all of those are for the coming years, and in 2012, 2013, that we have moved now forward. And the only one is 2012, and we said that the interest rate is that attractive, so we're going to keep that until maturity in the end of this year.
That small loan for 2012 already prolonged, so to say, is prolonged a couple of years. Yes.
Okay. Thank you.
Okay. If we don't have any more questions, I think we conclude here today, and we wish you all a good day.
You me as well.
Thank you.