Morning, everybody, and very welcome to SSAB. We're going to present to you the results of Q3. As you know, this is a webcast, so after the presentations, there will be a Q&A session, and you're most welcome to put your question, both you who are here in Stockholm, and those of you who are following us from outside.
We will appreciate if you use the microphone that will be handed out, and also that you introduce yourself with your name and your organization. Once again, very welcome, and now I give the floor to our CE O, Martin Lindqvist.
Thank you, Helena. Good morning, and once again, welcome. I will start with some highlights. The results for Q3 amounted to SEK 502 million on EBIT level, healthy improvement compared to Q3 last year. The EBIT this quarter was, compared with the second quarter this year, of course, impacted by a seasonal slowdown, which we usually see, but also longer than normal and planned outage, both in Borlänge, in Oxelösund, and in U.S.
The strongest results and cash flow this quarter, as we have seen previous quarters, came from our American operations, and I will come back to that. We were able to, during the quarter, increase prices for our niche products. For ordinary steel, the development were a bit more mixed.
We were able to increase prices slightly in North America, and the prices for ordinary products in Europe came down during the quarter. The share of niche products increased with 4 percentage points compared to the third quarter last year and amounted to 37%, in line with what we had at the end of Q2.
The work to install the new quenching capacity goes according to time schedule, and I will come back and cover that in just a bit. So sales of almost SEK 11 billion, and as said, a result of SEK 502 million. I think one important graph is the one EBITDA per tonne delivered steel. It was just north of 1,000 SEK per tonne. A bit lower, of course, than during Q2, but still better than the same quarter's previous years.
In the key segments where we work, we see a somewhat mixed picture. Heavy transport still fairly strong in North America, Latin America, and Asia, but cooling down or slowing down in Europe. We have seen that from the reports of some of the big truck producers. Automotive, also a bit of a mixed picture, still strong in North America and in Asia, and especially China, but lower demand in Europe.
Construction equipment also a bit mixed picture. Yellow goods still strong, but the lifting segment in China is slowing down, and the main reason for that is the Chinese attempt to cool down the economy, but overall, still a strong segment. Mining continues to behave in a very positive way, and you probably all saw the report from Caterpillar with a strong outlook going forward.
Energy is an important sector, as you know, for mainly our American operations, and it continues to be on a very good level, and especially for oil country tubular goods, the prospects going forward looks positive. U.S. service centers, which are - they are a big outlet for us or a big taker of our volumes in North America.
They have been quite reluctant to place orders, and they are in a bit of a wait-and-see mood in North America right now. The good news is, though, that the inventories in the supply chain or at the service center are at decent levels.
End of September, the inventory amounted to 2.8 months of supply in the service center sector in the U.S., compared to 2.9 months end of August, and this is historically on a, I would say, decent or low level. Going into the business areas, in EMEA, we had a result of -SEK 3 million .
Shipments were 4% higher compared to the same quarter last year, but 25.5% lower compared to Q2. Niche products accounted for 45% of the shipments, compared to 40% a year ago, and local prices for advanced high-strength steel and quenched steels increased with 2% during the quarter. But as said, local prices for ordinary steel decreased with 4%.
We had a big outage and a relining of a blast furnace in Oxelösund this summer, and we have not started that blast furnace yet. This is a picture showing one of the big investment projects we finalized this summer, is the new quenching line and quenching capacity in Borlänge. The quenching line will be commissioned early next year and will allow us for an initial capacity of 300,000 tonnes.
That is measured over the bottleneck, and the bottleneck, in this case, is cutting capacity, but the line itself has a nominal capacity of more than 2.5 million tonnes. The installation was completed during the summer, this summer, according to plan, well in line with budget, and last but not least important, without any lost time injuries, and I think that is a major achievement.
We have now started to produce and test thin Hardox 450, and we have tested it with very good results. So this is, and I'll come back to that, but will give us great opportunities going forward. Another very important investment we did this summer in Oxelösund was sort of a revamp of one of the casters to be able to produce slabs, thick slabs with even better quality.
This is a very important part in our continuous development of thick plates, that is plates up to 160 mm. This will, with this new caster or revamped caster, we will be able to produce slabs, and at the end, thick plates with much fewer inclusions a nd we will be in a place where very few competitors can manufacture at this dimension, and especially at these qualities.
This is, among other things, mainly related to the mining industry. Americas, a very strong result and a very strong cash flow. SEK 744 in EBITDA and SEK 652 in EBIT, with an EBIT margin of 14%. Shipments were 5% higher compared to Q3 last year, but 3% lower than the second quarter.
Niche products in the third quarter accounted for 28% of the volumes, and we were able to increase local prices for advanced high-strength steel by 5%, for quenched steel by 3%, and for ordinary steel with 4%. We had a big outage at the end of Q3 and beginning of Q4 in Montpelier. To improve, we did some investments to improve productivity.
That, mill is now, according to plan, up and running from the 19th of October, and it turned out the way we planned. I will also here show you and share with you a beautiful picture. This is as beautiful as a painting, almost. It's the new quenching line in, in Mobile. Fantastic piece of equipment that we are now finalizing and will be up and running beginning of next year.
H ere we will have an initial capacity of 200,000 tons on top of the 100,000 tons we already have in U.S., and also possibilities to further, develop, that capacity. In APAC, the EBIT amounted to SEK 59 million, with an EBIT margin of 9%. Shipments were 5% higher compared to the third quarter last year, but 28% lower compared to Q2.
Niche products accounted for 98% of the shipments, and local prices for advanced high-strength steel and quenched steel were up 8%, respectively, 4% during the quarter. We are right at the end of finalizing the new finishing line and the R&D center, and that will be commissioned late in this quarter.
I have also a picture on that to share with you. This is the new finishing line in Kunshan and the new R&D center. It's actually built out of panels from Plannja as well. So this is also a very important investment for us that will help us to reduce lead times and increase service to our Asian and Chinese customers, but it will also help us to reduce working capital.
Tibnor had an EBIT of SEK 12 million and an EBIT margin of 1%. They were hit by writing down of inventories, lower volumes for strip products, and also customer that went bankrupt during the quarter and affected Tibnor with SEK 14 million negatively. We had a negative operating cash flow in Tibnor during Q3 as well.
So if we take a look at the market environment and the outlook before I hand over to Marco to go through the result. Global steel production increased with 8% during the first nine months of this year, up to a record level of one point... More than 1.1 billion tonnes. Steel customers have adopted the wait and see approach, and they have a short planning horizon ahead.
The strongest segments are material handling and the U.S. energy sector, and in some parts of the world, heavy transport. As said, construction machinery and especially lifting has softened somewhat in China compared to the first half of the year. Prices for ordinary steel have been under pressure during Q3. Prices for advanced high-strength steel has shown signs of weakening, but prices for quenched steel are much more stable. By that, I hand over to you, Marco, to go through the result.
Yeah. Let's see if my pictures are like paintings as well or not. Just some summary about the financial first. Just like Martin mentioned, the net sales was increased to SEK 10.9 billion, about a 10% increase compared to same period a year ago. At the same time, the operating profit increased by 74% to SEK 502 million.
We had a positive cash flow, operating level, SEK 300 million, and we still continue to work with refinancing our debt portfolio, and I'm gonna show you a couple pictures of that as well. Just some key figures. You can see here that earnings per share was SEK 1.19 , and net gearing was unchanged compared to last quarter, actually 65%.
If you just look at the operating profit of SEK 502 million and compare that the same period a year ago, SEK 289 million, and see what are the largest items that affected the change, actually. Go to the next slide, you can see here that prices increased and affected positively by SEK 1.3 billion. At the same time, as you know, the raw material prices has hiked as well, and that was a negative impact of SEK 1.3 billion at the same time.
While volumes had a positive impact of SEK 300 million. O f course, FX had a positive impact as well. As you know, we always hedge our raw material contracts, and last year when we signed our contracts, the same time we hedged, and last year, the U.S. dollar was quite high.
Compared this year, the U.S. dollar is much lower. Just looking at the operating cash flow, and just like Marty mentioned, American business unit has since the acquisition, actually, had a very good cash flow generation, and also EBIT generation.
They are very good on continuously, regardless what kind of cycle, business cycle we're into. A s here as well, SEK 677 million positive cash flow operating level. Then we continue with our strategic investments to secure that we will capture the opportunities within the niche areas that we've seen.
That affected negatively our cash flow during the third quarter by SEK 652 million, and that is also included minor acquisition of minor company, which is also in our niche steels area. Just like Marty mentioned, the big investment period is actually coming to end, and during the first quarter next year, those big investments ar e actually finalized during that period.
Net cash flow was negative, about SEK 600 million, and together with a negative FX impact that we had in our debt portfolio, the net debt increased by SEK 1.3 billion to SEK 19.9 billion . But as I mentioned, the net gearing was unchanged compared to last quarter.
We still have excellent liquidity preparedness, and it's about 28% towards our net sales a nd the average term of the loan portfolio is 2.7 years, and commercial paper amounted to SEK 3.1 billion. When it comes to the terms of the loan portfolio, I'm gonna get back to you as well to see the maturity first.
We've been actively working on postponing and rolling over our maturities, and in the left-hand side, you can see the picture in the end of last year, and the right-hand side situation at the end of September a nd just look at 2011, and most of that is commercial papers, and also about 700-800 in 2012 is commercial papers.
We actually have already refinanced 2012 maturities, and as you can see, if you compare with the December last year picture, the bar is much lower, and the rest of that, we also have secured refinancing for that. We are in negotiations when it comes to 2013, and I would say that those negotiations are going very well, so I'm not worried about that either.
This, the duration and debt cost. Here, if you look at the bars, you can see that the average duration is 4.1. The reason is we have one 30-year bond in our debt portfolio. It's backed up with a bank guarantee, which is a short-term bank guarantee.
And that's why we, in the books, we calculate that as a short-term debt a nd that's why I mentioned that the average term is 2.7 years. But if you calculate that as a 30-year bond, then you see that it's 4.1. I nterest rate, you can see that we have pretty good interest terms in our debt portfolio as well. Just a couple words about raw materials, and as you've all seen, just past weeks, both coal and iron ore prices have gone down quite heavily a nd one reason for that is, of course, the Chinese has lowered their purchasing on those materials.
When it comes to SSAB, we have on iron ore, we buy all our iron ore from LKAB, and we have settled contract for Q4, the same level as Q2 and Q3, which meant about 8% increase compared to Q1 prices in Swedish kronor. Coal, we purchased about 60% from Australia and about 40% from United States.
United States prices and contracts are on an annual basis. So in Q3, we didn't have any change compared to that when it comes to purchases that we had in Q2. But when it comes to Australia, those contracts are on a monthly basis. So if just compare that, we had a decrease of 4% in Swedish kronor compared to last quarter.
U.S. scrap prices has actually gone up a little bit and down again, so they ended the quarter at the same level as last quarter, a nd we actually buy scrap on a spot market in North America continuously. So we just follow the spot prices. T hat's all from my side. Back to you, Marty.
Thank you. So, t o sum it up, uncertain outlook. Steel users, as said, they have a short-term planning ahead. Ordinary steels, prices that we foresee in Q4 on lower levels compared to Q3. As said, niche products more stable and more stable, quenched steel.
The planned outage that we said would affect Q4 with between SEK 275 million- SEK 300 million has already affected Q4, and it was successfully started the mill again, October 19. One of the two blast furnaces in Oxelösund is currently idle, and has been so since this summer. We have a very strong focus internally to reduce working capital and improve cash flow.
To sum it up, again, market uncertainty has increased, not only in Europe, but also in North America, and to some extent, also in China, at least during Q3 and Q4. Americas continue to show a very good result and a very strong cash flow. The strongest segments remains material handling, heavy transport, and energy in U.S.
Current production in SSAB EMEA is run at reduced utilization rates. I mean, I said one blast furnace idled. The work to install new quenching capacity goes according to time schedule, according to budget, and according to what we want to achieve. Last, instead of showing you a picture of, as I usually do, customer cases, I will talk a bit about what we are right now achieving with our production platform.
I said, the quenching line in Borlänge, that is now up and running, will broaden our product portfolio and offering to the customers from the beginning of next year, a very important step for SSAB. The new quenching line in Mobile will enhance the offering of the quench plate in North and Latin America, but also in Asia. That will also be up and running beginning of next year.
The finishing line that I showed a picture of in Kunshan will significantly reduce lead times and increase service to our Asian customers and Chinese customers, but will also help us to reduce working capital within SSAB. We have the organization in place, well-positioned to explore new market opportunities with a broadened offering to customers and all the new products.
We feel that we are very well-positioned in SSAB for the, ahead of the, of the coming years. I will share with you one example of what we are achieving and have achieved. This is, Hardox 450 and Hardox 500, which we today can produce at all our three sites. We can produce the same steel with the same distinctive and excellent properties, with the same superior quality, under the same brand name.
We can produce it in Oxelösund, in the Quarto mill , and that mill is a very cost-effective way of producing thick, wide, quenched materials. We can produce it in our Steckel mill in Mobile and the quenching lines in Mobile, and that setup is a very cost-effective way of producing medium thick, wide, quenched materials.
We can produce it in our hot strip mill and the quenching line in Borlänge, and that setup is a very cost-effective way of producing thin, narrow, quenched material. So there will be a possibility to optimize production and also optimize cost of production in a better way going forward after this full investment program is finalized beginning of next year. So by that, I thank you, and I guess we hand over for questions.
Well, who would like to start? Christian, he's over there.
Thanks, Christian Kopfer for Nordea Markets. Three questions, if I may. Firstly, if you can say anything about, I mean, considering the information you have so far about shipments in Q4 in relation to Q3?
It's a bit hard to say, actually, because the order book is quite short. As said, I mean, customers tend to wait longer and longer before they order materials. I would rather not try to speculate on that.
But can you say anything about the mix? I mean, are customer orders holding up better on quenched and tempered, for example, than in standard products?
Yes.
Okay. Secondly, I mean, as you mentioned, iron ore prices, in particular, have taken quite a serious beating lately. Is it fair to say if we stay at current levels, will that have an impact on your prices paid for the first half of 2012?
I t could have, yes.
When do you think you will communicate that kind of?
I mean, we don't know. I mean, what we can see now and what we can, we know the prices for the fourth quarter.
Okay. F inally from me, can you say anything about what you see on your customers regarding the ability for you to continuously roll out additional quenching tempered steel from your new capacity? What is the reaction from your clients?
Well, I mean, we have a stronger market share in Europe than we have in other parts of the world. We see good possibilities, very good possibilities going forward with, with our types of steel. I mean, it's about not only the steel itself, but the ability to design out way to in- I mean, increase load capacity, decrease fuel consumption, extending life length, and we see very good prospects for that, going forward.
I would say that especially when you're lifting and moving material, you could gain a lot of benefits by using our-- not only our, our products, but also the knowledge we have, how to use those products, to bend them, how to weld them, and also how to, to design to really get all the benefits out of it. We are very positive, and that's why we have been investing, and that's why we are so proud that we, and happy that we have this capacity going forward.
Okay. Thank you.
You can hand over to your colleague, please.
Oscar Lindström at Erik Penser Bank here in Stockholm. A couple of questions. First, regarding the investments that you are completing now in the second half of the year, should we expect any material impact on your earnings from those investments already during the first half next year, second half? Will we notice a difference?
Well, it always takes time to ramp them up, but you should expect us to start to ramp them up in the market during Q1 next year. T hen that will be a gradual change, of course, because you can't just push a button and then-- But you should expect us, you should expect us going forward to... You should expect to see if positive effects of that going forward, yes.
So you're not foreseeing maybe having to do a slower startup than initially planned because of the weak demand environment, and that you would rather be sort of hit by full depreciation from the projects and, and-
We see good prospects for those investments going forward. These are long-term investments, of course, but we see very good prospects going forward long-term in these with these investments.
Okay. A second question regards the sales mix in this quarter, what we should be looking at in the fourth quarter. Any material changes there in North America? I mean, you've had historically some long-term contracts which have had an effect on margins there.
Just like Martin mentioned, that we have outage in North America in one of our mills, and of course, that's gonna affect our sales in America. So just comparing between different business areas, we're gonna have a mixed change in there. T hen, when it comes to Europe, it depends totally, for example, yesterday's decision in Europe, how that's gonna affect the mode of our customers going forward and when they're gonna place their orders.
But there's no sort of long-term contracts which are coming to an end with a specific customer or-
No.
... such, which we should be aware of? Finally, back to iron ore pricing contracts, are there any—I mean, if iron ore prices continue to decline sharply, it's a hypothetical scenario, would you be in a situation whereby you could have sort of a rebate versus the contract price which you've agreed on already, or?
We have an annual contract with LKAB, and as we've said before, we have a lock-up clause in that, but unfortunately, we cannot comment any details in that agreement.
All right. Thank you.
Okay, we continue on the same row, I think.
Thanks. Claus Rasmussen, Swedbank. But on iron ore, then, you will renegotiate prices from the beginning of next year?
Yeah, we will definitely renegotiate prices from the second quarter next year.
Okay.
Then it depends on that clause that Marco talked about.
Right. When it comes to capacity utilization, how likely is it that you will start up the blast furnace in Oxelösund this quarter?
Depends on the market.
Are you still running at reduced capacity in Luleå?
Y es.
Which is-
Right now.
One day, one day off.
No, no, no. We, we just... I mean, this is a flexible system, and it, actually it's more flexible than we ever thought. I mean, during 2008, the end of 2008 and beginning of 2009, we were probably beating the European record in running that blast furnace. So we-- It's, it's actually quite flexible. We, we... during 2009, we, we were down at 50%. We are not at that low today, but, but it's a flexible system, so we continuously adjust, as we always do, our production to, to, to market needs.
Just to add, also, in Oxelösund, we have invested more last summer when we had outage, and we replaced, for example, hot stoves, which means that also that blast furnace is much more flexible now than it was before that.
We have a much more flexible system today than compared to 3-5 years ago.
You can run that sort of a reduced capacity without any-
Yes
... any major negative-
Yes
... drawbacks?
Yeah.
W hen it comes to North America, I mean, you can run now when you've done this outage, is it full speed ahead for the two plants that you have?
They are running at good levels, yes.
But not full?
I didn't say that.
North America market, or North America mills are much more flexible than traditional blast furnaces. So they can go up and down and even take shorter maintenance outages in very short term. So it depends totally how the market is developing, and we can adjust our production volumes totally on market demand.
That is an extremely flexible system.
Yeah.
Finally, if you could give us some guidance on what you see with your hedges, currency hedges here in the fourth quarter?
As I mentioned, we signed the annual contracts, and at the same time we hedged those contracts. As you remember, U.S. dollar was much lower during the summertime, for example, than it is now. It's the summer U.S. dollar on the annual contracts that we sign up, for example, with LKAB. When it comes to purchasing of coal from Australia, which is on a monthly basis, that depends on the U.S. dollar development. But remember also that we have a time lag. If we buy coal today, it takes some time before we have that impact in our P&L.
All right. Thank you.
Okay.
John Godsman , DBG here. A few questions on the U.S. business. First of all, you say in the report that you, or in the presentation, that you achieved price hikes for ordinary steel. Can you elaborate on that b ecause what we see in the industry data is that price is actually falling in the third quarter. So can you elaborate on that, please?
Well, we only produce and sell plate in the U.S. What we have seen during Q3 is mainly ordinary steel products. Plate prices have been more stable, and we have also been able to increase plate prices.
Yeah, but still, it looks like plate prices, given industry data, are down somewhat in the U.S. So I'm just curious if you have seen, if you're, I mean, having the right customers or you're writing also in the report that you have seen very strong demand from mining's related sectors, for instance, that you're in the right segments.
No, but I mean, mining is important for us, and energy is important for us, in U.S. These are two big sectors that has been performing, as I said, fairly well.
I mean, if you look then into Q4 and beyond that, maybe, I mean, the price hikes you have achieved both for ordinary steel and your special steel, do you think they will stick or?
As I said, we expect prices for ordinary steel to come down in Q4. But as always, we expect prices for niche products to be more stable, which they usually are over a business cycle a nd I would say they vary, of course, over the business cycle, but on a higher level and with a lower amplitude, so to say a nd the most stable part of that is for quench and temper.
Sure. Sure. Then you also say, I mean, you're highlighting the mining segment, energy segments, et cetera, that are very strong in the U.S. Are you still seeing that going into fourth quarter?
Y es.
Yeah. Then a question on, on China and you, how you view that. I've heard when, when Rautaruukki reported, they were stating, or they, they indicated that there were some policy decisions that had impact imports of, of steel, into China. Have you seen anything of that?
Not to a major extent. What we have seen, and what you typically see in the second half of the year in China is, I mean, at least historically, slower a nd what we also have seen, and what I try to explain, is construction equipment and, especially lifting industry. So Chinese trying to cool down the construction industry in China.
No, no major impact then on what you see looking into fourth quarter, then? No major change. Okay, thanks.
Okay. Any further questions? If not, we will turn to those of us, those of you who are calling in. Please go ahead.
The first question comes from Alessandro Abate, J.P. Morgan. Please go ahead.
Good morning to everybody. Just two questions. You're basically flagging kind of weakness, commercial quality, grade three price into Q4, and better resilience on each product, especially quench and temper plates. This is something historically approved, but what about the level of demand for quench and temper plates versus the better resilience of prices?
I f you can actually give a little bit more color, just basically a bit more details about the extra ramp-up schedule in 2012 of your quench and temper plates in Borlänge, Montpelier, and the China Kunshan service center. Thank you.
Well, to start with, if you take Montpelier, that's up and running, I mean, after the outage. If you take Mobile and the quenching line, well, we have a ramp-up plan, and, I don't know the exact detail, tons per week or whatever, but that will gradually be ramped up, starting in Q1, and the same goes for the quenching line in Borlänge.
We have so far successfully tested to produce material in that quenching line, branded material like Hardox 450 and Hardox 400, and so far so good. It has been actually going very well. So in that respect, we are a bit ahead of our internal time plan. But then at the end, in the short run, of course, this will be a complex thing to ramp up.
We need to run the production, of course, but we also need to short term see the demand. But I'm not worried, and these are investments that will give us a very good opportunity to serve the market a nd my belief is that we will successfully ramp it up, and so far, so good, ahead of time plan.
What about the second question about shipments of quench and temper plates into Q4? You're flagging kind of pressure on both prices for commercial quality grade and shipments, high resilience of prices of quench and temper plates. Can you just give a little bit more color about your expectation of shipments into Q4 for quench and temper plates? Thank you.
I would say that quench and temper, the big machines, yellow goods, for example, that's good. That's going pretty much to mining, mining. But when it comes to smaller machines in yellow goods, more to construction industry, that's, we see a weakening of that market. It's slowing down a little bit.
Okay. Thank you.
Thank you. Next question, please.
The next question comes from Mr. Julian Beer at SEB Enskilda. Please go ahead.
Yes, very good morning to you. I have three questions. The firstly is regarding inventories. How confident are you that you'll be able to reduce slab and raw materials inventories by the end of the year?
Very confident.
Okay, which leads on to the next question. Do you expect Q4 crude steel production in Europe, or Sweden, I should say, to be similar to the total Q3 level, or will it certainly be a little bit higher given the Q3 maintenance downtime?
T ake that. I don't-
Yeah. The crude steel production, as we said, we are adjusting our production continuously a nd just like Marty mentioned earlier, our production system is much more flexible today than it was actually pre-crisis. So it depends totally how the volumes, how the decision yesterday is gonna impact our customers in Europe and how North American market is gonna develop a nd that's actually totally depending on that.
Okay, I was talking specifically about Sweden. I guess my point was that, you always have substantial downtime because of maintenance anyway in Q3. But, you're still not quite sure that, you know, given market uncertainty, that you'll definitely be producing higher in Q4 than Q3?
In Sweden, we still have the blast furnace. One of the blast furnaces in Oxelösund is idled a nd depending when we're gonna take that in production again, that's gonna pretty much determine the amount of crude steel we're gonna produce.
But you also need to remember that during Q3, I mean, we, before that relining of the blast furnace, we built, we were also stopping the second blast furnace, as we do every year for a couple of weeks in Oxelösund. We were building up a slab inventory, and sometimes those blast furnaces just start as they are supposed to, and sometimes it's a bit more troublesome.
This summer, the blast furnace in Oxelösund started even better than it was supposed to. So we have also, during Q3, been taking down that slab inventory that we usually build up at occasions like this, like an insurance premium.
Continue to do so during the fourth quarter as well.
Okay. I mean, I guess I get the impression from that that you're suggesting that crude steel utilization will be no lower than Q3 anyway. Maybe I should move on. In EMEA, do you expect to see last year's Q3 - Q4 shipment trend or have things fallen off a cliff in October?
As said, I mean, we have a short order book, and we don't speculate in this at this time.
Sure. I get, I guess you've seen the last couple of weeks at the end of September.
Now, I was extremely lucky because we lost you there, so I couldn't hear what you said.
Has the early October pace of orders been similar to the end of September?
We haven't specifically commented on that.
I know. That's why I was asking.
I won't give you an answer.
Okay, my last question. I understand that you've got a SEK 10 billion krona standby facility with your banks. Is that drawn at all? When is it due to mature, and are you looking to extend the maturity of that as well?
Which one was that?
Your standby facility.
Backup. Yeah, we... That's the big one. We have actually three different backup facilities, and the largest one is $1 billion, and that's maturing in 2013.
Yeah. I s that at all drawn, and are you looking to extend the maturity of it?
That's unutilized totally, and we will start discussing with the bank group in due time, and of course, we can have a new facility or roll out the old one.
Okay, great. W hen you talked about the 2013 maturity discussions that you've been having, when do you expect to be able to close those off?
I think that, as I said, negotiation is going very well, so I, I believe I can, I can give you a very good message about those in the next presentation I'm gonna do.
Okay. That's wonderful. Thanks very much. Congratulations on the result.
Thank you.
Thank you very much.
Thank you.
Now we go to the next question, please.
The next question comes from Vincent Lippens at Barclays Capital. Please go ahead.
Good morning. I had three questions, if I may. The first one, they're kind of nitty-gritty, but when I look at the realized price that you had in Europe, actually, not just in Europe, but in EMEA and in APAC, if I take sales and I divide them by shipments, I find that in EMEA, the realized price was up 14% in Q3 versus Q2, and then at APAC, it was up 10% over that period. W hen I look at the price analysis that you give for each division in the report, I can't really reconcile the analysis with the actual increase that you had.
I mean, you're saying that you had, you know, obviously, product mix impacts, FX, et cetera, but I, when I add everything up, I can't really, you know, sort of get to 10% for APAC or 14% for EMEA. So I was wondering if you could help me understand or reconcile these things? T hen I just wanted to clarify on the cost increase.
I mean, you said obviously for coal, there's a time lag between the time you actually buy the coal and obviously, the time it has an impact in the P&L. Just wanted to ask you if you could just remind us of what is this time lag in terms of how many quarters?
When you say that the coal price in Q3 is dropping by 4% in krona terms, when will you have that impact? Is it gonna be in Q1 or in Q2 next year? T hen again, just one on iron ore cost, just to clarify, since you've now kept the Q4, I guess it's Q4 and Q1 purchase price pretty much stable versus the Q2, Q3 of this year, then should we consider that in terms of cost in your P&L, the iron ore cost is not going to drop or change, let's say, before Q3 next year? Thank you.
When it comes to prices, price table that you see in our report is only on our steel products, but in our sales, there's other sales as well, like byproducts and that kind of things that we sell, that we get out of the steel production as well a nd that's why it's not easy to get that exactly the same.
When it comes to coal purchasing, as you know, we purchase most of our coal from Australia, and just shipping time is quite long, and then when it's coming here. So usually I say that before, from the time we purchase coal, it takes up to nine months before we can see that in our P&L.
When it comes to iron ore, we have a much shorter delivery times, of course, because we are buying from LKAB. So usually if we buy iron ore during the third quarter, usually you get that in a P&L in just three months time, it's starting to kick in.
So just to confirm, that means that if your Q4 and Q1 prices for iron ore are now set, and again, stable versus Q2 and Q3, then the earliest time you'll see a possible decline in your iron ore cost is in Q2 next year?
That's correct.
Okay. T hat's fine. On the just to follow up on the, you know, byproducts that you mentioned that are included in your sale, can you just tell us how these things have evolved? They must have gone up versus in terms of prices, at least versus the prior quarter, yeah? Can you give us a bit more color on this b ecause it seemingly makes a big difference, or it can, and it did in Q3?
Yeah, byproducts goes up and down, actually, depending on what we are producing and also the market development. But also we have slab sales, and of course, foreign exchange is gonna affect also the difference in sales. So it's a lot of different factors that affect.
I understand that these things can move, but specifically in Q3, what happened versus Q2 for these things, which you're not really commenting on in the quarterly report?
I would say it's the slab sales has increased.
The volumes?
Yeah, that's correct.
Okay. Okay, thank you.
Thank you very much. Next question, please.
The next question comes from Mr. James Gurry at Credit Suisse. Please go ahead.
Hi, guys. Thanks for that. Just wanna talk about the debt. The debt seems pretty high, I think, compared to your long-term target. Can you guide us as to when you might achieve that long-term target? Just confirm if there is or isn't any covenants attached to the debt.
No covenants, and, as said, I mean, we have a net gearing of 65% at the end of this quarter. It's the same net gearing we had at the end of quarter two, and we are right now in the peak of the investment program, and that is fading out, so to say, cash-out wise. So, from beginning of next year, it will be finalized, and then we will start to earn money on those investments, and that would, everything else equal, help us, of course, to generate good cash flows.
But nothing specific?
What do you mean with specific?
Like, I think your... Is your target about 30%, is it? Net debt to equity?
Yes, it has been over a business cycle. Yes.
Yeah. Okay. What do you think the level of ongoing CapEx then is after this investment cycle is over?
Well, it's, I mean, we have a maintenance CapEx of roughly SEK 1 billion per year or something, give or take something, but this year is, I would say, in a CapEx way, extreme with these three, four big investments that we talked about a nd you shouldn't expect us to continue to do investments every year like this. So it will be closer to maintenance CapEx. Then, of course, I mean, there will always be interesting opportunities to continue to develop the company. We will do that, but you should not expect us to stay at current levels.
Yeah. Okay. J ust on the iron ore question, if there is a cause to potentially renegotiate the long-term contract, what's the trigger of that cause, and is it a movement in the spot price by a certain percentage compared to what you've locked in last year?
Unfortunately, we are not able to comment the details in our agreement.
Okay. Thanks, guys.
Thank you.
Thank you very much. Next question, please.
The next question comes from Bastian Synagowitz at Deutsche Bank. Please go ahead.
Yes, good morning, it's Bastian Synagowitz from Deutsche Bank. Two questions from my side. First, again, on prices, you said that niche product prices will be more stable. Does more stable mean Q4 prices still down versus Q3 a nd how does that differentiate between the U.S. and Europe?
T hen secondly, again, coming back, on raw material costs. The raw material costs, which are affected in your fourth quarter P&L, can you confirm that they will not rise further versus the third quarter, also taking into account the average price of your, for example, iron ore stocks, or will there still be an increase in average raw material prices? Than k you.
To start with the raw material prices, they will be on roughly the same level as in Q3. When it comes to prices for niche and standard products, as said, I mean, niche prices are always much more stable than standard prices or spot prices or however you measure it then. But there is a difference within what we call niche as well.
Advanced high-strength steel is more stable on a higher level, but still varies with the business cycle and also with the standard steel, so to say. But quenched steel, the pricing model is different, and they also vary a bit over time, but they are much more stable a nd that's what we foresee also for Q4.
Stable prices, basically no down prices in these segments?
We will see down prices for ordinary steel and what we say also price pressure on advanced high-strength steel.
Okay, perfect. Thank you.
Okay, next question, please.
The next question comes from Mr. Alexander Vilval at Carnegie. Please go ahead.
Good morning. I have three questions, please. First, regarding deliveries in APAC, the low deliveries in Q3 versus Q2, is that production driven or demand driven? That's the first one. Second one, just to confirm, given the previous question regarding local prices in the U.S. for commodity plate, and that they were up in Q3.
You comment very broad on prices, but can you confirm that you see price pressure on that in Q4 on commodity plate in the U.S.? T hirdly, regarding Borlänge, when, sort of, in time would you expect to make another investment in a cutting line, a cut-to-length capacity a nd sort of, what magnitude in terms of CapEx would that be, and then what kind of time lag would that entail?
To start with the last question then, I mean, we will do that investment when we have filled up the cutting capacity we have today. When we invested in this quenching line, we also invested in additional 300,000 tons of cutting capacity.
T he market plan we did was, I mean, to calculate that investment was that bottleneck, so to say. The next investment in additional cutting capacity will be quite easy. It will be another cutting line somewhere, and the cost of doing that is not even close to the cost of doing this big investment. So that will be, I mean, debottlenecking in a cost-effective way, and we will do that as soon as we see the market requirements for it.
Then we have d eliveries in APAC. Well, you can't really measure APAC quarter- by- quarter when it comes to deliveries. It's long lead times, and this quarter, I mean, if you're unlucky with the boat going beginning of October instead of end of September, that will affect the lead times.
You should look at the APAC in a longer perspective than just quarter by quarter. But as said, I mean, parts in China, lifting is slowing down somewhat, and you typically see this pattern also every year with a somewhat slower second half of the year compared to the first half of the year.
Then when it comes to plate prices in North America or in U.S., well, it's of course a mix, depending on what kind of markets and segments you serve. But for us, there has been price pressure mainly on ordinary strip and strip products, which we don't produce over there, and plate prices have been more stable or not as affected of price pressure a nd we were, as said, able to increase prices with 4% during the quarter.
But you do see price pressure now or?
Yes, we see price pressure on standard products, yes.
Okay. Also, were you unlucky with a boat leaving in the beginning of October, or was that just an analogy?
Sorry, that was an example.
Oh, okay. Okay, thank you.
Okay. Thank you very much. Next question, please.
The next question comes from Mr. Nils Bachelier at Nomura. Please go ahead.
Good afternoon. Just two questions. First one on your raw material costs. Am I right in thinking then, that if your iron ore costs won't change until Q3 2012, and the Australian coking coal impacts with a nine-month lag, you basically shouldn't see any change, any material change in your raw material costs other than scrap in the U.S., I guess, for the next three or so quarters?
T he second question, at your recent Capital Markets Day earlier this year, you mentioned that there was growing competition in the APAC region. I was wondering if you're seeing any impact on this. I know you mentioned that niche product prices are more stable, but are you seeing any increase in pricing pressure in the APAC region?
What also could change, of course, in other important raw material is alloys, where we have shorter contracts. That could, of course, change over time also. We haven't talked so much about that, but that we have more short-term contracts. Well, we have seen, as we said, during the Capital Markets Day, increased competition when it comes to advanced high-strength strip material, yes.
Thank you.
Thank you very much. Next question, please.
The next question comes from Mr. Vincent Lippens at Barclays Capital. Please go ahead.
Good morning again. I had just two other questions. One follow-up on the slab volumes that you said impacted results in Q3. I was wondering if you could just tell us how much slabs you sold volume-wise in Q3 and Q2 also, just so we can compare. Also, if you at present expect to sell any slab to third parties in Q4, given the current market environment.
T he second question has to do with the pricing policy for niche products. You've said, obviously, that prices have been more stable for these products, but what about the EBITDA per ton, and how do you price these things? Is it - do you want to keep a stable EBITDA per ton, no matter what raw materials might do o r do you just keep the absolute price stable, and therefore, obviously, your margin, you know, goes up and down, depending on what happens with the, the raw material costs?
I mean, just to... I can take the last question. When we sell quench and temper, as one example, we typically sell that out of a life cost discussion with a customer. We sell-- we don't sell a ton of steel or a kilo of steel. We sell rather properties, I mean, ability to reduce weight, ability to increase life length, ability to decrease fuel consumption.
That, of course, in that business model, where you talk to customers and help them to redesign applications, you sell it of-- I mean, it's a saving for them or a productivity increase, and that makes, of course, the whole sales model makes the prices much more stable.
Okay.
So that's why it's also, I mean, when raw material prices goes up, it's a bit tougher to momentarily, I mean, cover those cost increases. Not only the cost increases, but also the margin and vice versa.
Right. W ould you not—I mean, is it impossible to think that given the pricing power that you have on these niche products, that you could try to sort of incorporate elements which would eventually mean your margin is less volatile?
That could be a possibility, but we don't think that is the right way to go.
Okay.
W hen it comes to slab, slab volumes, we normally do not sell slabs. That's not our business. But just like Martin mentioned earlier, we build up slab inventory before the outages, so that we are prepared to see that our customers are getting those volumes that are needed a nd usually we have a margin there as well, so that we don't run out of slabs. O ccasionally we sell slabs, and I can't remember by heart exactly how many tons we did during Q3, but during Q2, we didn't have much slab sales.
But, I mean, typically, when you start a blast furnace, sometimes it takes two weeks, and sometimes we have seen that in the history, it takes 8-12 weeks or even longer, and this summer, it took, I think, five days.
Right. So essentially, you had stocked up slabs, which you didn't need for your own purposes, because the blast furnace rented better and also probably because you didn't want to produce as much of finished products. But so, I mean, it's probably a difficult one, but to what extent, or what would you say the impact of slab sales has been on EBITDA in EMEA in Q3?
Normally, you don't get that much profit on slab sales, so I wouldn't count on that much profit on those.
Okay. Thank you.
Thank you very much. Next question, please.
The next question comes from Mr. Sampsa Karhunen at DNB NOR. Please go ahead. Samsa, the line is open.
Yes, thank you. Good morning, and congratulations for a very good result. I was just wondering, I wanted to go back to what Vincent Lippens was asking on the slab volumes. Do you think that you would be able to provide us the figures for the Q3, possibly going forward for Q4, later on after the conference call? That's my first question. I think that it would be nice to know.
Secondly, I wanted to ask on the EMEA operating profit. I wanted to know, are we seeing the full effect of iron ore and coking coal price hikes that we saw in the spring now in the Q3 operating profit o r are we going to see on coking coal some increase for the Q4?
Thirdly, as you're saying that, possibly the raw material prices are going to stay put for the couple of quarters to come, and at the same time, we see that the ordinary steel prices are falling. Does that imply that we will be seeing margins falling, Q4, Q1? Thank you.
The last one, if, of course, raw material prices would stay and selling prices would go down, that would, of course, affect the margins. When it comes to slab volumes I mean, it, it's a combination of selling slabs and also running our own slab production on lower levels to, to eat up the inventory, so to say. So you saw that combination during, during Q3. A s Marco said, I don't remember the volumes either, but, but this is not the-- this is more, some margin, but mainly covering full costs of producing slabs. Then the third question was?
About your raw material in full effect in Q3?
Yes. We saw that full effect in Q3.
Thank you. Just to follow up a little bit. Are you seeing a possibility of some write-downs on the inventory now that the raw materials are falling?
No, we don't see any possibilities or risk for that.
Thank you.
Thank you. Next question, please.
We have a question from Mr. Alessandro Abate at J.P. Morgan. Please go ahead.
Just a follow-up question on the effect of the currency in Q3. If you can give us a breakdown of the impact for each division in Q3 versus Q2? Thank you.
In our report, you have a bridge, and you can see the FX impact in each division. The largest impact we had in EMEA, of course, the fact that U.S. dollar and both euro have changed a lot compared to the levels we had a year ago.
In U.S., it's only U.S. dollar and it affecting both cost and sales prices, so net is not that big. While in APAC, we actually sell a lot of our products there in U.S. dollars as well, but the cost is also coming from U.S. dollars when it comes to raw materials. So, it depends how those timing-wise are correlating. But you see the effect in each business area in our report.
I see the effect on a quarterly basis, but compared to 2010, not Q2 2011.
Oh, compared to Q2, the impact wasn't that big at all.
Oh, okay. Thank you.
Yeah.
Thank you very much. Do we have any additional questions from you here in Stockholm? If not... Well, yes.
Perhaps on the details, but, for Tibnor, was a lot of write-downs here. Do you foresee that coming in the fourth quarter as well, given what you see today?
One reason why the write-down was that Tibnor bought products during Q2, and during the summer the prices went down and quite heavily, and that affects, of course, their write-down need. It depends totally how the prices are developing going forward.
Have you sort of marked to market value the inventories in Tibnor by your best guess on prices by the end of Q3 then, or?
Yeah, it's mark to market. So if the sales prices go down, then we write down as well.
I mean, previous quarters, turbulent quarters, Tibnor have held up very well.
Yeah.
I mean, I'm just after how should we view the fourth quarter? Should—I mean, given that the third quarter was so weak in Tibnor, but also on the, I mean, also underlying, will you basically see a recovery from the third quarter?
As we guided, we see that prices on the standard products are going down. But remember, Tibnor is not only selling the products that SSAB is producing, but also a broad range of other products. So it totally depends how those products and their volumes and prices are developing during the fourth quarter.
Okay, thanks.
We have one more question calling in. Go ahead, please.
We have a question from Mr. Alexander Vilval at Carnegie. Please go ahead.
Yeah, it's regarding Tibnor. I just answered the last question. Thanks.
Okay, thank you. If we have no further questions, we thank you so much for your attention.
Thank you.
Thank you.