Okay, welcome to this Q2 result presentation from SSAB. Especially welcome also to you listening in on the webcast and on the telephone conference. I am Per Hillström of the SSAB Investor Relations team, and we'll have presentations today by our President and CEO, Martin Lindqvist, and also by our CFO, Håkan Folin. And there will be also opportunities to ask questions here after the presentations. But, let's start right away and invite Martin to the stage. Please, Martin.
Thank you, Per, and good morning. I think this report is fairly undramatic, so I will spend some time and talk about... There are some pluses and minuses, and I will try to cover that during the presentation of the divisions. But I would say overall, pretty much in line with what we expected to see, with some pluses and minuses. If we start to look at the prices and start in Europe, and this is spot prices, they were trending downwards during Q2, and that price drop has now stopped at the end of Q2, beginning of Q3. And if anything, we can see the trajectory being positive, going into Q3 or slightly positive, going into Q3. When we looked at Europe, we saw good demand overall.
We saw some higher imports, inventory somewhat high, and as said, spot prices decreasing over during the quarter. In the U.S., and these are plate prices, the prices were more stable and continue to be fairly stable, even though there are some minor price increases announced. The big question mark in the U.S. is, of course, what will happen with Section 232, and to be honest, of course, I don't have a clue, but that will be, of course, important, not only for us, being the biggest plate producer in the U.S., but for the U.S. steel industry. If you look at the key figures at group level, we had an EBIT of SEK 1.2 billion, SEK 0.5 billion better compared to Q1, and SEK 600 million better than Q2 last year.
We had a decent operating cash flow, even though we were building working capital during the quarter, and Håkan will come back to that. We ended up with a net gearing of 30%, which happens to be in line with our financial target. But I said many times, the most important target is the net debt reduction of SEK 10 billion, and we are, as I see it, well on our way to deliver on that target. If you look at the divisions, I think in special steel, demand good, continue to grow. I think the volumes, the shipments of more than 300,000 tons in the quarter was very strong. We did not see the full effect in the P&L of those volumes because we had some production issues.
We were standing still in the steel mill in Oxelösund for two weeks during the second quarter due to a breakdown, and we also had to produce products in U.S. for the European market, so we had higher logistic costs. We had to ship volumes produced in Mobile to European customers, which we usually don't do, and that is, of course, a side effect of the breakdown we had in Oxelösund during the first quarter. But I think we have taken... That is now behind us to a large extent, but that was influencing the profitability in special steels during the second quarter. Europe, strong demand, I would say, and continued good demand from automotive, and I will come back to that on my large last page.
I think an EBIT of just north of SEK 1 billion is quite okay, and an EBITDA margin of 16.5% is also quite strong in an industry like ours. We saw higher prices, better mix, but we also saw the effects, both here and in Oxelösund, of higher raw material costs. Americas, the big thing during Q2 was the maintenance outage, the planned maintenance outage in Mobile. They were also suffering from being forced to produce for special steel. So they had somewhat lower delivery volumes or shipments because they were producing Q&T that is sold by Special Steels. And that's the reason why we saw lower volumes, the main reason.
Tibnor, I think, fairly in line with expectation and a reflection of the Nordic market with an EBITDA of SEK 88 million, and EBITDA margin of just above 4%. We saw somewhat lower margins during Q2 compared to Q1, but that was expected. In Ruukki Construction, we saw seasonally higher demand, and we saw growth in building components. Building components and roofing are the two most important business units for SSAB, taking a lot of the color-coded steel we produce. We saw lower margins in Ruukki Construction because they had higher input costs. The material they were buying for the production, the prices were increased during the second quarter, and they were not fully able to compensate during the second quarter for that to their customers. So we saw a margin squeeze during the second quarter.
But all in all, according to plan and following the long-term plan we have for Ruukki Construction. So that, Håkan, with that short introduction, we open up for more detailed figures.
Thank you, Martin. Good morning, and welcome, everyone. I will, as Martin said, go through some more details on the figures.
... also the bridges on how the result has developed, some more information on our balance sheet and our net debt, and then also the raw material situation. We're starting then with a slide, and I'm fairly happy to show some of our key figures on sales, shipments, and EBITDA. We see here that many of these have actually developed in a good direction, and Q2 is actually the strongest quarter during this comparison period. Starting with sales, which is by far the highest end during 15, 16, and so far 17, at SEK 17.1 billion. The increase compared to Q1 is very much driven by higher prices. Shipments were actually in line with Q1 and a bit lower than Q2 last year.
The main reason for that is the outage that we had in Mobile, which it was in the end of Q1 and beginning of Q2, and that means that loss in shipment is mainly in the second quarter this year. EBITDA margin, then, clearly the highest, and especially EBITDA at over SEK 2 billion, definitely the highest we have had so far. EBITDA margin is also one of our financial targets, where we want to have industry-leading profitability, comparing our EBITDA margin with our peers, and therefore, we're very happy now to see that we are about 12% and even close to 13% overall EBITDA margin.
With shipments on the same level, EBITDA increasing, well, obviously, the result is that we do have a clearly higher EBITDA per ton as well during this quarter, at above 1,200 SEK. So all in all, these KPIs are moving in the right direction, but as Martin started introducing, there are some plus and minuses. Some things doing really well, but on the other hand, we had some production issues in Special Steels. We also had the maintenance outage in Mobile, in Americas, so we feel that there are still more things that we can continue to develop.
If we then move into the EBIT bridges, and we start with looking year-over-year, so Q2 this year versus Q2 last year, we see an improvement then from close to 600 to 1200, so SEK 600 million better. We see a very dramatic increase here on the prices, SEK 1.9 billion. Prices also including mix improvements here. This is to a very large extent driven by Europe, but also in Americas, we see higher prices year-over-year. Slightly lower volumes, as I said before, mainly in Americas, also partly a bit lower in Europe. And then the higher prices is, to some extent, then offset by increased variable COGS, almost exclusively, being raw, higher raw material prices. I'll come back and show you that later. Fixed cost on the same level, FX slightly positive, giving a weaker Swedish krona.
Other, slightly higher, that's mainly a better capacity utilization. But all in all, when you compare Q2 last year to Q2 this year, it's very much about, us being able to have a better margin, which is partly driven by the market, but it's also partly driven by a significantly improved mix. If we look sequentially instead, the delta is a little bit smaller. It's SEK 500 million, from SEK 700 million up to SEK 1,200 million. Price plays a big portion here as well, with SEK 800 million. This is basically evenly split between SSAB Europe and SSAB Americas. And even though steel shipments in total were actually on the same level, we do have a positive volume impact, and that's one reason is that it's also Ruukki Construction, in there, which is seasonally low in Q1 and clearly on a high level in Q2.
It's also because within the volumes, Special Steel had an increase in Q2 versus Q1 with 10%, and given then profitability on this product, that also translates into positive volume impact here. Higher variable COGS, very much the raw material side again. It's also somewhat the outage then in Mobile. Higher fixed cost, that's something we keep a very close eye on. There are a few reasons why we, they are higher now in Q2. One is the increased activity in Ruukki Construction, where Q1 is seasonally low and Q2 is higher. A second reason is that within SSAB Europe, although shipments were a bit lower, production were higher, and especially in the mainstream, downstream lines, like in the tubular factories, cut-to-length lines, galvanizing, et cetera. We are seeing a higher production level and somewhat higher fixed cost.
The third reason is that, during Q2, in the Nordic operation, we do take in the summer workers, and we start training them, so they can replace the normal workers when they go on vacation during the summer period. That also has an impact on Q2, but that's usually what we see every year. Somewhat positive impact from FX coming, also from weaker Swedish krona. Then other here, we see a quite big increase quarter-over-quarter, and that's mainly because, in other there, we have capacity utilization. As we had the breakdown, the large breakdown in Special Steels in Q1, and we don't have that in Q2, we have a clearly better capacity utilization now in Q2. All in all, then, that translates into an improvement of SEK 500 million quarter-over-quarter.
On the cash flow side, Martin was into this a bit before. Operating cash flow of SEK 1.1 billion, net cash flow of SEK 600 million, and then we had, compared to last year, clearly better earnings, but to a large extent, offset then by this increase in working capital. That increase is coming both from increased activity level and also increased prices. We have inventories are up SEK 800 million, very much driven by higher raw material prices. We have accounts receivable are up SEK 500 million, also driven then by the higher sales, we have higher prices, and that's somewhat mitigated by accounts payable, which are up SEK 400 million. I would say it's fairly much expected, given the market development.
Although, as we have said before, now this is a very strong focus area for us, and we expect during the rest of the year to see a more positive development on the working capital side. If we then move into the balance sheet and the net debt situation, excuse me, net debt situation, we have seen a positive development over the last few quarters in the last year, and we have both net debt and net gearing have decreased quite a lot. Our net gearing is now at 30%, which is in line with our financial target. Our net debt is down below SEK 16 billion, at SEK 15.7 billion, and that's actually the lowest since the merger with Ruukki, and it's not too far away from actually where we were before that merger.
We are clearly seeing that both gearing and net debt is moving downwards. Given then the target we have, we'll continue reducing our net debt to SEK 10 billion. We know that also for the rest of 2017, we will see lower net debt and a lower gearing. Coming back to that target then, that Martin also mentioned in the beginning, of SEK 10 billion in debt reduction from the end of Q1 last year to the end of 2017. Given the net cash flow we had of SEK 600 million, we are, have now achieved SEK 8.3 billion up to this target. We have another SEK 1.7 billion to go during the coming 2 quarters, and as Martin said, we are, very committed to and also, we are sure that we will achieve this, ten billion target.
On the maturity profile, we have seen some changes during the last quarter. We now only have SEK 5.4 billion in the rest of 2017 and 2018. That's down SEK 600 million compared to where it was at the end of Q1. And partly, that's because we did the bond issue. We did it in the end of Q1, but it became effective in Q2, where we bought back some bonds in 2017 and 2019, so those bars have decreased, and then we released a new bond maturing in 2022. So that has helped us reducing our, maturities. We do have cash in our account of SEK 3.7 billion.
We know, as said on the previous slide, we will continue to generate cash flow during the rest of the year, so we have the luxury now to choose if we want to refinance this, or if we want to start reducing also the gross debt further. What we also saw during this quarter was a good increase in our duration. We went from 4.9 years up to 5.2 years in duration, partly then due to this bond issue that we discussed and also some other activities. We did see a slight increase in the interest rate from 3.19 up to 3.27%, very much driven by increased underlying interest rates. Moving on into raw material. Overall, over the last few quarters, we have seen clearly higher raw material prices.
Actually, for us, in our purchases, Q2 was not so dramatic. We saw coking coal in Q2 was 9% higher than in Q1. We saw iron ore was basically flat in Q2 versus Q1. So last quarter, no big drama for us. But if you instead compare Q2 this year where we were in Q2 last year, you can actually see that coking coal prices has more than doubled, and iron ore are up around 50%. So it's been a huge increase in raw material prices. However, then, as we saw on the EBIT bridges, compensated by higher sales prices for us. For the US business, the scrap is our main input. There, it has actually not been as dramatic as for coking coal or iron ore.
In the quarter itself, spot market prices went down slightly, and if we go back and compare with one year ago, well, they are up 19%, which is obviously quite a lot. But comparing to iron ore and coking coal, it's actually fairly, fairly low volatility on scrap. Martin, on the outlook.
Thank you. So looking into the next quarter then, if we look, start with, America, we expect the demand for heavy plate to be relatively stable and with some seasonal slowdown, as we see every year. In Europe also, we expect demand, demand to continue to be good, with also some seasonal slowdown, as we see every year in July and, and August. High-strength steels continue to develop, positively, and this we see in the order books. And overall, volumes seasonally somewhat lower compared to Q2, and relatively stable prices for Q2 as well. And then we will have, this year, the planned maintenance outage in the Nordic region during the third quarter. We had it last year in the fourth quarter in Oxelösund, but we will take the maintenance outages in the third quarter, which we typically do.
So this is not any dramatic, this is not dramatic either. This is fairly stable. My last picture during the Capital Markets Day, we presented five targets for growth in SSAB. To grow special steels to 1.35 million tons until the end of 2020. To grow automotive premium to 750,000 tons until 2020. To develop SSAB services with more than 500 Hardox Wear parts until 2020, enhance the premium mix, and have a market share in North America of 30%. We started with the first one during the third quarter. As said, we reached 304,000 tons of shipments in special steels. We feel that we are well on our way to reach this target.
Automotive premium, Q2 was up 22% compared to Q2 last year. And when we closed the book of for June, we had 315 Hardox Wearparts members in the network. The share of premium products also moving according to plan, and we had a market share in North America of around 30%. So, so far, so good, but we feel very confident that we are able to deliver on these targets until 2020. And as said, we are well in line or above the target so far, even though there are a couple of quarters left until we close the books for 2020. So with that, dear friends, we open up for questions.
Okay. And please, we can start here on the floor in Stockholm, and please state your name and company. And also, if you have several questions, just post them one at a time, so it will make it easier here on the stage. So start with Olof there. Thank you.
Olof Grenmark, ABG Sundal Collier. I actually have three questions, but I guess I will have to come back then.
Okay.
Well, the first and most important question maybe is, Martin, that you talked about, if anything, steel prices moving north, you pointed at the chart. At the same time, you're talking about unchanged prices, unchanged realized prices in the third quarter. How should we understand that?
Well, I was talking at the first picture about spot prices. When we give the prognosis for Q3, that is contract prices, our prices, what we will invoice our customers, and then we feel that the prices for Q3 will be fairly stable.
Fair enough.
Please, Olof, you can continue if you had another.
Okay, then it's regarding Oxelösund and the stoppage there. Can you in any way help out to giving numbers to us, what the result effect was from that stoppage?
I don't have the exact numbers, but of course, we should have seen. I would say that all in all, with shipments and everything, maybe 100 or a bit more than 100.
EBIT million.
But then you mean not just the stoppage, but you're also talking about-
The increased freight cost.
Increased freight cost and not producing at the optimal production.
So we could have been, I mean, could have been had a better result in Oxelösund or in specialty.
So a negative effect on the EBIT line of roughly SEK 100 million. Was that the answer, please?
Yes, if you take freight costs and the breakdown into account.
Thank you. May I take the third one?
Please.
Thanks. Regarding volumes and steel shipments, they were very strong year-on-year in special steels, and of course, that's encouraging. Then on the other hand, they're actually down year-on-year in Europe and Americas. How should we understand this in a strong steel market, and what should we expect for the remainder of the year in Europe and Americas?
Overall, you should not expect volumes in Europe to increase. You should expect the mix to increase. So we are not aiming for increased volumes in SSAB Europe. As we have talked about before, aiming for improving the mix, which will give a positive effect. In Americas, we were, as said, producing a lot in QL five and QL six and partly for the European market. And that, of course, I mean, we sell all the Q&T products we sell within specialty steels, even though they are formerly produced in assets in US or within SSAB Europe. So that was one reason for the volumes being a little lower than they could have been. But the biggest change was, of course, the outage in Mobile.
Thank you. That's all for me.
Yes, we have another question in the front there.
I'm Rutger Smith, I'm a private investor. Given the 2020 targets, are you anywhere near the production ceilings for any one product?
Uh, no.
That's a simple answer.
Yes, clear and simple answer.
Do we have any further questions from the floor? Okay, then we might open up for the telephone lines. So, if I ask the operator please, to give the instructions there.
If you do have an audio question for the speakers, please press zero one on your telephone keypad now. We have a question from Ioannis Masvoulas from RBC. Please go ahead.
Hi, good morning, gentlemen. I had two questions on my side. First, on SSAB Europe, profitability significantly exceeded market expectations for a second quarter in a row. EBIT per ton, I guess, was up 16% quarter-over-quarter. But if I look back at your February guidance, I think you were a bit more cautious on the sequential margin development. So can you indicate if the profitability improvement is attributed exclusively on the better mix and cost performance, or is there also reflection of expanded steel spread during the quarter? And that, I'll leave it there for the first question. Thank you.
It's a combination of a lot of things. We have seen margin expansion, but we have also been running production in a stable way, and we have also seen positive effects of the program we run within continuous improvement. So it's a lot of different factors, but I agree, I mean, the profitability in Europe was quite good in Q2 as well.
If you could be a bit more specific, is there an element of steel spread expansion, or is it just your own performance on better mix and-
Well, as Håkan showed that the waterfall, we have had margin expansion during the second quarter. So, steel prices went up more than... Well, our contract prices went up more than the input costs.
Okay. Thank you. The second question on the net debt reduction target. You've only got SEK 1.7 billion left in the second half, which looks conservative and easily achievable, given profitability and your expectation for our net working capital release. Why don't you take the opportunity here and upgrade that guidance, or is there any concern around the second half?
No, not really. But the promise we gave in conjunction with the rights issue was SEK 10 billion, and what we say today is that we feel very confident that we will deliver on that promise. We haven't said that we need to deliver exactly SEK 10 billion, but at least SEK 10 billion.
Okay. If I can push a bit on that, do you think you can deliver SEK 1.7 billion without any working capital release?
We think that we can deliver SEK 1.7 billion, yes. To-
Okay, fair enough.
Including, profitability and working capital release.
Fair enough. Thank you. Thanks very much.
We have a question from Alain Gabriel, from Morgan Stanley. Please go ahead.
Yes. Good morning, ladies and gentlemen. Just, two questions, if I may. I'll start with the first one. On your SSAB Americas, are you able to quantify the cost impact of the stoppage? Not the profit, but just the cost. That's my first question.
We have that in the report.
Yes. SEK 230 million.
Is that just the cost, excluding the profit impact of the stoppage?
Yes, it's direct cost and also the under absorption impact, but it's not including mix, margin. Lost margin.
Okay, fine. My, my second question... Sorry, my second question is on your outlook guidance for Q3. You mentioned, you mentioned prices stable, you also mentioned volumes. What about the cost of goods sold? If I can refer to the waterfall chart in slide 14, do you expect more margin exp-- or spread expansion between prices and costs, or, or is it otherwise? Thank you.
We don't give any guidance on that. We only give the guidance on price and volumes.
All right. Thank you.
We have a question from Luc Pez, from Exane BNP Paribas. Please go ahead.
Hi, gentlemen. Two questions, so I'll start with the first one. You're guiding on your Q3 on relatively stable realized price. Could you maybe elaborate a bit more? Because when I look at spot prices, these have clearly come down, whether you look at Europe, U.S., and we haven't seen that in your Q2 realized prices. So would expect this to have some impact in your Q3?
What, what-
Therefore, could you explain if maybe the guidance is attributable to better mix conditions?
No. But what we talk about is our contract prices or selling prices, and that, of course, includes also mix and everything else. So contract price over contract price, so to say, we expect them to be relatively stable and we have some visibility into Q3, so that is not just a wild guess.
So your comment is related to the average price for the whole company or just to these contract prices?
No, the average price for the whole company.
But then there, there is somewhat of a difference between different geographies as well. When you say spot prices are down, I would assume that you mainly refer to Europe. And if you take the division SSAB Europe, yes, there we will most likely see slightly lower prices. On the other hand, if you take the other divisions, we might not have seen the full, impact of price increases yet during the second quarter. So when we say overall stable prices, it is, as Martin says, for the whole company, but then there might be differences between the divisions and also between geographies.
Okay, very clear. And second question relates to CapEx. You seem to be running, currently, much below what was guided for the full year. Are you sticking to the CapEx guidance for the full year, and therefore, should we expect some catch up over H2?
Are we?
Sorry.
We haven't changed the guidance for the full year.
When we have the maintenance outage now in Q3, in SSAB Europe and SSAB Special Steels, and also in Europe in part in Q4, that's also a time when we will do some of the planned CapEx projects. No, we are sticking to the full year forecast.
Okay.
What I-
Thank you.
What I said when we had the Capital Markets Day was that we are saying SEK 2 billion for this year and also for the coming years, and it might be ± a few million SEK, a few hundred millions SEK. It's more likely this year that it will be slightly below SEK 2 billion, given the focus we have on this SEK 10 billion debt reduction, and maybe next year or the year ahead, it might be a bit above SEK 2 billion. For this year, SEK 2 billion is still our guidance.
Okay, very clear. Thank you.
We have a question from Carsten Riek, from UBS. Please go ahead.
Thank you very much. Also, two questions from my side. The first one, on the guidance. Have you seen already the peak in your raw material costs? Because I know that you actually lag a little bit there, from the, from the spot prices, and we still have seen some increases in the second quarter. So do we expect some, or do you expect some increases in the raw material cost also to come across in the third one? And then my, I'll leave it like that for the first question.
If you look at, if we take the three different parts, you saw scrap, spot price for scrap was slightly down, so there, that will not have an increase next quarter, that will have peaked. Iron ore, what we have bought in Q2, was fairly flat compared to Q1. So that will... Even though there is a lag, it was very fairly unchanged.
... But then for coke and coal, we have seen both it's a longer lag before that hits the PNL, and also we have seen increases there, quite big ones, both in Q1 and Q2. For coke and coal, you will see an increase in the PNL in Q3. All in all, you can say that, yes, for the iron ore-based production or for the blast furnaces, there will be somewhat of a raw material, slightly raw material increase in Q3.
Okay, perfect. So together with the volume reduction, which is seasonally, I would expect that actually sequentially, the third quarter will be somewhat below the second quarter with regard to EBIT?
Well, that's your conclusion, yes.
Okay. No, that's, that's fair.
Mm.
The second question I have, it's rather on the net working capital. If we have seen recently that raw material prices actually moved up again. Could that impact your fourth quarter with regard to inventories? Because it gets back to one of my competitor's question, whether net working capital release will be part of the equation or not. We might actually see some increase in net working capital towards the fourth quarter, not because you're not trying to do the same as you do every year to reduce inventories in the fourth quarter, but simply because raw material prices are higher.
Okay, that-
Is that part of your equation when you actually guide for the relatively cautious SEK 10 billion reduction or at least SEK 10 billion reduction in net debt?
That's part of the equation.
Okay, perfect. That's what I thought so. Thank you very much.
We have a question from James Gurry from Credit Suisse. Please go ahead.
Yeah, thanks very much for taking my call. Congratulations on a decent quarter, especially the EBIT margin in, EBITDA margin in Europe. Just thinking about, potentially what might happen next week with Section 232. Obviously, in your presentations, imports are about 23% of the heavy plate market, in the U.S. Depending on what is announced specifically, how should we react in terms of, if it comes out as a quota system, or if it's, just a, a penalty, system that they announce there in the U.S., if anything, pertaining to heavy plate? Because it's probably more likely that, yeah, it, it relates to HRC and, and, you know, standard products rather than what you produce. So what are you expecting in terms of your product suite there in the U.S.?
To be honest, we don't know. Let's take that question when we have seen the announcement. I don't know if the announcement will come next week or not, but let's wait with that question until we have seen what they decide to do.
Surely, yeah, you guys have been broadly spoken to by interested regulatory bodies there in the U.S. to ask you what potential production upside you've got, you know, what more investment you could do in general in your plants in the U.S. Would that be a good assumption?
That we have been spoken to?
Yeah.
That would be a good assumption, yes.
Okay.
But to be honest, I don't know what will come out of this.
Okay.
So, I mean, it will be pure speculations, and that's not worth anything. So I don't know. I'll wait with that question until we know.
Can we expect to hear anything from you guys, if something is announced that relates to your products?
At least next time we meet.
Okay. Thank you.
We have a question from Christian Kopfer, from Nordea. Please go ahead.
Thanks very much, operator. Just one quick follow-up for me. Looking at Americas, we have seen, we've seen the producers, including you, have been successful in establishing price increases. And it also looks that demand is developing pretty solidly over there. So why are you seeing volumes staying at pretty much quite low levels? I mean, you have previously been able to deliver some 500,000 tons per quarter, and now you're around 450,000 tons.
Two reasons, as mentioned, the outage in Q2, of course, and then that we have been producing more in QL 5 and QL 6, and that takes volumes from standard plate to cover up for the European demand and to cover up for the breakdown in Oxelösund during the first quarter, in the fourth and fifth quarter—first quarter. That's the main reason.
Right.
Those two.
Right. So Martin, do you expect deliveries in Americas to come up to around 500,000 tons per quarter again, in the next few quarters or?
We have that production capacity.
Yeah, but do you expect you to increase shipment as well?
That's a very interesting question, but, I mean, we could have... If we wouldn't have had the outage and also the production for specialty, we could have produced and sold more in Americas during Q2, yes.
Okay. Thank you very much.
We have a question from Oskar Lindström, from Danske Bank. Please go ahead.
Yes, thank you, operator. A couple of questions. First, regarding Americas, you mentioned that the steel service centers are in a wait and see mode, with fairly low inventory levels. I mean, if you see demand in Americas, in North America, continuing at the current sort of level, which is your guidance. What does that mean for sort of inventory restocking? And, to what extent do you believe that they're looking forward to sort of tariff or quota decisions by the U.S. government?
I don't know, but what we saw during Q2 was a wait-and-see mode, and as you said, I mean, the inventories in the steel service centers are not extremely high. I would say they are rather, if anything, maybe on the low side. And I guess a lot of actors on the North American steel or the U.S. steel market is waiting to see what comes out of the Section 232. But, yeah. I don't know-
But you-
I don't know exactly how they will behave in Q3. I think that will be dependent on what comes out from the Section 232.
But it's the 232 issue, rather than any sort of market uncertainty, which has been behind the wait-and-see mode?
I don't have a clear answer on that either, but when we look at other customers, direct customers, we have not seen the same pattern. So my guess wouldn't be that it was necessarily low demand.
Okay. And second question is, I mean, we now have pretty good markets. You're operating at, well, fairly full capacity, and your balance sheet is quickly strengthening. I mean, are you anywhere near starting up, you know, idled blast furnaces or and/or investing in new capacity?
Uh, no.
And why not?
No, we... I think we, as I said, I mean, Europe, we are running at good capacity levels. We have a strong focus on shifting the mix. I think that is more profitable for the company than increasing volumes. When it comes to special steels, we have been, to be honest, maybe investing a bit too much, too early in capacities. We have capacity enough to meet the target of 1.35 million tons. So, I wouldn't say that we have any huge bottlenecks. We have some things that we are working on, small bottlenecks, but we attack that with continuous improvements, and we have seen productivity in those bottlenecks moving up in a very good way, the last six to nine months.
So, we are not planning any major capacity investments, and we are not planning any major, I mean, except for special steel, obviously, capacity increases.
Okay.
So it's more a way mix shift that I look see going forward.
Right. And a final question from my side. Any residual or, you know, any impacts from the Mobile stop in H2?
No.
No?
No.
I mean, you didn't make any upgrades or sort of changes. It was just a standard maintenance stop, which is now,
On the margin, I mean, of course, the equipment you install during a maintenance outage, and especially in U.S., are more modern and more productive. So on the margin, I mean, it should be better, yes, but nothing big.
Okay. That's interesting. Well, thank you.
I remind you that if you have an audio question for the speakers, please press zero one on your telephone keypad now. We have a question from Kevin Hellegaard from Goldman Sachs. Please go ahead.
Good morning, guys. Most of my questions have already been answered, but could you maybe give some quick comments about current lead times in Europe and the U.S., both for HRC plate and also for your Special Steels?
Oh, but I think fairly stable for HRC, and I think for special steels, we see good demand and an improving demand. We see some segments improving that we have not seen much activity from in recent years. We see yellow goods improving somewhat, we see mining improving somewhat, and so on. So I would say stable, and then on special steels, I would say some slight improvements.
But where would you say lead times are versus sort of normal levels? Are they longer or shorter at the moment or normal?
I would say a bit longer, but that is also due to the effects of the breakdown we had in Q1. We lost in I think in Q1, 70,000 tons of production volumes, and that we could have sold. So we are still having longer lead times than normal.
Okay. Thank you very much.
We have a question from Johannes Granselius from Handelsbanken. Please go ahead.
Yes. Hi, everyone. It's Johannes Granselius here, Handelsbanken. I have a question regarding the volume outlook, because you're talking more on the group here. Could you say something about what kind of volumes we should expect for specialty steel in the third quarter?
We will have the maintenance outage in Oxelösund, and that will, of course, affect, but what we say that the underlying demand is still moving in the right direction. But we will have, as always, a seasonal slowdown in July and August in Europe, and then the normal pattern with the maintenance outage.
Okay. And when you have that, you will fill up maybe those partly lost volumes with volumes in America, so that will also spill over to US. Was that what you meant with on another question that was discussed before?
In Q2, we had to produce volumes in the U.S. or in Mobile for the European market, which we typically don't do. I mean, we produce the European volumes in Europe and the U.S. volumes to a large extent in the U.S., and then we ship some products we are not capable of producing, especially very thin plate and very thick plate. We ship from the Nordic system to the U.S. market.
Okay, but, we won't see this in the third quarter?
Not to the same extent, no.
Okay, okay. Then I was also a bit curious on how we should see the mix, because as you highlighted in the call, you're much more focused on mix than volumes in SSAB Europe. How should we view mix here in the third quarter? Or, are there also seasonal variations on the mix?
Yeah, typically, there are some seasonality. I mean, the third quarter is probably the strongest quarter, typically, for construction material as one example, so you will see some mix effects. But I would say you should expect normal, call it seasonality, in Q3.
Okay. I also have a question on how to view cost in the third quarter, but because I, as I recall from last year, you showed unusually... Well, temporarily low cost in the third quarter due to wages and so forth, cost wages in the Nordics. Could you just remind us how we should view that for this year?
We did that last year, and we have done that also the years before.
Sure.
So yes, you will see the same situation in Q3 this year as well, Johannes. If I remember the figure from last year, I think we had fixed cost was around SEK 300 million, lower in Q3 than in Q2, which is very much then, that we have a large workforce in the Nordic region, and then we have the dissolution of vacation reserves in the third quarter. And yes, you should see the same pattern. There's nothing different with this third quarter.
Okay. And then also on Oxelösund and the situation, you had some new disturbances in this quarter. What's the outlook for the third quarter and beyond that? I mean, should we see this as very unusual, or is it the... Or are these things that happen from quarter to quarter? Are you sort of-
What?
Were you very surprised to see this?
Surprised over time, not disappointed, yes. I mean, the breakdown in Q1 was, more or less, never heard of before. But, you have these type of disturbances in a process industry, and they are costly. I mean, as you know, we are geared to produce 24/7 all year around. So, when we have a fire, like we had in the converters in Oxelösund, we stand still for two weeks, and that is, of course, very costly, something we are not, the only thing we know that it will sometime in the future, most probably happen again, but it will not happen every quarter. So, it's fairly unusual, but it's painful when it happens.
Mm-hmm.
The good thing is that no one of our employees or anyone else got hurt during that breakdown, and that is the most important thing.
Okay, thanks for taking my question.
We have a follow-up question from James Curry from Credit Suisse. Please go ahead.
Yeah, thanks for taking my follow-up. I just had two specific questions. Just in relation to non-core asset sales, I think it's quite specific in the commentary there. So the construction division, is this something that maybe you're saving for the next downturn, and we should keep this out of our minds for the next 12 months or something like that? And just secondly, on your commentary around the U.S. mills in a wait-and-see mode, if you're expecting some sort of market intervention in the U.S. and higher prices in the months ahead, wouldn't these mills be stocking up, or are we reading the situation incorrectly?
To answer the first question, we haven't changed our mind when it comes to non-core assets. The reason why I took it away from the quarterly report this time was to make it even clearer that we will meet the SEK 10 billion net debt reduction target, regardless of selling non-core assets or not. So we haven't changed our mind yet.
Okay.
We will come back to that question if and when...
Okay
... we do something. And then, sorry, your second question regarding U.S.?
U.S. service centers, if they, if we're expecting some type of market intervention, should they be buying? Shouldn't they be buying now? Stocking up.
That, that's a fair question.
Okay. Yeah.
One would assume so.
They haven't reached capacity or anything like that?
No.
No.
No. Yeah. Thank you.
There are no questions at this time. So I return the conference back to the speakers.
Okay, thank you. Do we have any final follow-up from the floor? No? Okay, thank you, gentlemen.
Thank you very much.
- for this presentation.
Thank you for coming.
We surely have to have a nice day. Thank you.