Welcome to SSAB Capital Market Days of 2023. My name is [Karin Hibbenette], and I'm gonna be your host today. It's great to see so many people here in Stockholm, and there are also several attendees online. A very warm welcome to you as well. We have an interesting and hopefully inspiring day ahead of us, so let's have a look at the agenda. We're starting with Transforming the Future of Steel, an introduction by the CEO, Martin Lindqvist, and then we'll have A Steel Industry Outlook by Viktor Strömberg. Moving on to the divisions, starting with Global Leader in High-Strength Steels by Johnny Sjöström, Nordic Leader in Premium Steels presented by Olavi Huhtala, and then moving on to Market Leader in North American Plate by Chuck Schmitt. After that, you'll have the opportunity to ask your questions.
There'll be a Q&A, and then a coffee break, app roximately around 2:45 P.M. After that, it'll be mostly all about sustainability. Leading Sustainable Product Offering by Tony Harris, Future Production Footprint by Carl Orrling, and Sustainable Raw Materials, Viktor Strömberg is coming back, followed by a Q&A. And then Leena Craelius will present a more profitable SSAB. Martin is coming back, followed by a Q&A with Leena and Martin, and then a summary in the end. I think there's gonna be lots of interesting, and as I said, hopefully inspiring information. I'd like to start by welcoming the CEO of SSAB, Martin Lindqvist. Give him a warm welcome. Hi, Martin.
Hi, Karin.
We've been waiting quite a long for this day, but finally we're here. How does it feel?
We're here. It feels great, I mean, to see all of you here and that you took the chance to come to Stockholm. To our big surprise, we have winter this year as well, but the room is full, so I think that's great.
That's great. Let's not waste any more time. Please, Martin, the floor is yours.
Thank you very much. My starting point would be where we are today, then I will try to describe the journey we have ahead of us, we will deep dive into most of the areas I'm going to present by the divisions or by Tony and Carl and Viktor. Last year, we delivered 3 million tons of Q&T and premium steel, which was a record. We also delivered 500 tons of fossil-free pilot shipments to customers. We saw the first commercial vehicles produced by fossil-free steel on the market. We kept the market share, the important Nordic market share, at or above 40%, and if we take the core markets in the Nordic, Sweden, and Finland, it is well above 50%. We had a market share in U.S. at or above 30% when it comes to commercial plate.
I would claim that we have a strong starting position. If we look at profitability, last year was obviously a record year, almost SEK 33 billion in EBITDA, and that was the second year in a row with record profit, and we were able to already 2021 close the year with a net cash position. Last year, the net cash position ended up at 14.3%, and we will come back and discuss cash conversion possibilities and future cash flow development later today. Another important part or target that we did not fully reach was to become the safest steel company in the world. I would, though, say and claim that the progress we have seen, especially since 2018 when we started to work with this in a more structured way, has been very positive.
We closed last year, this is lost time injury frequency per million hour at 1.1, so far this year, we're at 0.9. Clearly a good development, not yet the safest steel company in the world, but well on our way to reach that target. Why is that target so important? This is KPI also including contractors and sub-suppliers. First of all, we are in an industry where you can hurt yourself every day if you don't pay attention, so it is very important. Secondly, the correlation between a safe company and a well-run company and a profitable company is very, very high. That's why this, for many obvious reasons, is a very important KPI for SSAB.
What have we then been focusing on the last couple of years as part of the plan of keeping or putting SSAB in shape to take the next step on our transformation journey? We have focused on resilience, and with resilience, I mean lift low point profits to make sure that we don't only earn a lot of money when the business cycle is strong, but we also lift the low point profit points. We have focused mainly in four areas: mix improvement, channel development, structural synergies, and continuous improvements. The good thing with these areas are that we can focus and work within these areas independent of business cycle. Sometimes it's even easier in a tough cycle to do changes, but these are the areas we have been focusing on.
If we start with channel development, I'll give you some examples. We know that when we sell our steel directly to end users and skipping the middleman or the, the man in between, and especially when we do that to the small and fragmented market or small and fragmented segments, we earn more money per ton, and we have less volatility in our earnings. We have been selling and closing Ruukki Construction in Russia. We have been selling Ruukki building systems. We have been closing businesses that were not core within other parts of Ruukki. We have been investing in outlets. We have been investing in a broader product portfolio in Ruukki Construction. We have in Tibnor bought the second biggest distributor in Denmark, Sanistål, which is now fully integrated into Tibnor.
The last years, we have opened in the Nordic regions more than 20 outlets under the umbrella of Handelsstålsgruppen. We bought Abraservice, and we are building out the service and aftermarket network within specialist steels, and I know that Johnny will come back to that. We have today well over 500 Hardox wear parts suppliers in our network. This is a way of having control over the channels to mainly the small and fragmented market. Structural synergies, very important. I mean, the cost-saving programs that we are running in the group, we do that in Ruukki Construction. We have done it in SSAB Europe. We have done it in Tibnor.
Continuous improvements or what we call internally SSAB One, the way we work with continuous improvement, where we set the target from group level with the ambition of reaching SEK 1 billion per year, break it down to divisions. The division breaks it down all the way down to shift teams. We work with it bottom up in order to achieve those targets. We have a small group of controllers following this up and tracking it to the P&L, because if it's not visible in the P&L, we don't deem it as existing. This is also a way of building a culture of doing things slightly better today than yesterday and better next week compared to this week. I will give you some examples.
If we start with mix improvement, this is starting 2016, we had 2/3 of our volumes to the market was standard steel. If you look at the outcome of 2022, roughly or a bit more than 50% of the volumes to the market was standard steel. If we look at the average gross margin indexed, and these are our gross margins, 2016-2022, and put standard steel at 100, then premium steel would be at least 120, and special steel would be at least 200. Every kilo we can move from this gray area into this area or even into this area makes a huge difference when it comes to profitability. That's very important. The second important part is that this also reduces volatility.
The standard products are the most volatile products we have in our portfolio. We take the premium products, they' re less volatile and also over a business cycle on a higher level. We take special steel products, they are, if not flat over the business cycle, but much less volatile and always on a higher level. Every kilo we can move from standard products into premium or special steels makes a big difference in profitability and makes a big difference in volatility. Two real examples. This is standard hot-rolled coils outside the Nordic region. I would claim our least profitable product in the portfolio, with over a business cycle close to zero in gross margin and in tough business conditions, negative gross margins. 2016, we had 400,000 tons or a bit more than 400,000 tons of these volumes in our portfolio.
2022, we had just below 200,000 tons. Makes also a big difference when it comes to profitability, but also volatility. Another example is sales channel or sales model in U.S. Back in 2016, we sold 1.2 million tons of steel via service centers. Last year, we sold 1 million ton, and you could claim that, well, 200,000 tons is not a big difference. It is 17%, and the good thing is that when we sell it directly to end user, instead of going through steel service centers, we have better profitability and less volatility. The funny thing with steel service centers segments, they also speculate with the stocks. When prices are moving up, they are restocking. When they expect prices to move down or when prices are moving down, they are destocking.
This segment actually adds to volatility. Every kilo we can move directly to end users gives better profitability and less volatility. I would claim, if we look at this, what we structurally have achieved, and using 2015 as a starting point, we have structurally, with the cost programs, with the channel development, with the continuous improvements, with the mix improvement, and here using 2015 prices and margins, we have structurally lifted our profitability with more than SEK 5 billion per year. This is, of course, a never-ending journey. This job is far from done. We will continue to focus in these areas and develop the profitability and reduce the volatility.
If we then look into the future and look what we are aiming to do and start to discuss that, I would like to use this picture and clearly say and state that the strategy of SSAB clearly remains. We will continue to focus on global leadership in high-strength steels, improving the mix, develop new products, and you will hear a lot of examples from the division heads today. Keep focus on the very important Nordic home market, the North American home market, continue to develop channels and sales models in order to have a better penetration within our core segments. To that, we will add the transformation into fossil-free steel making. I will give you a number of KPIs and examples, and we will deep dive into this later today.
This transformation, everything else equal, will give us a lower cost per ton, better efficiency, shorter lead times, improved flexibility, and also higher capacity or capability of advanced high-strength steels and premium products than we have today, and I will come back to that. One way of looking at the transformation plan and looking how we develop the portfolio is this one. We are here today. We have started with the pilot shipments for fossil-free steel from sponge iron. We are today introducing SSAB Zero, and I will come back to that on next slide. Then you can see how we gradually plan to take away the production system emitting carbon dioxide, coke oven batteries, blast furnaces, and so on, and we plan to be fossil-free somewhere around 2030.
That journey, as said, started in the film, started already 2021 with the first shipments to customers. Today, we are launching SSAB Zero, which is a steel produced in Iowa from scrap using fossil-free electricity, biocarbon, and biogas. Zero emission Scope 1 and 2, 0.0 kg carbon dioxide emission per kilo produced steel, and this is third party verified. No allocations, no mass balancing, nothing, just taking away the emissions. We have produced the first batches. Our ambition is to produce at least 40,000 tons this year. The interest from the market is very big, and we have actually sold the first volumes or the first tons. This is important because we have also established a premium for these kind of products of EUR 300 per ton.
You could say EUR 300 per ton, that's a lot of money. Yes, it is a lot of money. To put it in perspective, if you would take, just as an example, a typical car in Europe that consists of roughly 1.5 tons of steel and put these margins on, in order to cover the increased cost for the OEM for this SSAB Zero steel, you actually only have to increase the price with 1%. In the big scheme of it, EUR 300 per ton might sound like a big premium, but for the end user and for the consumer, the end consumer, it's not that big. This is important, and as said, available from Q2 on the market. Tony will come back to it, but a lot of orders on it, those kind of volumes already today.
This is an important part of our journey towards fossil-free steel production and fossil-free products. Moving into that journey, I use this picture and call it a stepwise transformation until 2030, with, as said, the production of Zero steel in Iowa already today, or actually during Q1, continue with pilot shipments of fossil-free steel from the HYBRIT demo plant and available now. Next step, Oxelösund, where we will replace the current blast furnaces and the current coke oven batteries with electric arc furnaces, where we will be able to melt scrap and or sponge iron. That step by itself will take away roughly 1.5 million tons of our carbon dioxide emissions as a company. We plan to have it up and running 2026, and the formal decision of the EAF investment will be taken during second quarter of 2023.
We have already started the investments. We are doing some pre-work. The decision will be taken Q2 2023. The next important step is the first mini mill. That mini mill will be either in Luleå or in Raahe, where we have the best conditions to start. We will, with the mini mills, build them in parallel with the existing blast furnace-based system. We will invest in them, ramp them up. When they are up and running, we will close the existing systems. We plan to have the first mini mill operational 2028. In order to have that, we need to take the decision, the investment decision during 2024. That first step will take away another 4 million tons of our carbon dioxide emissions. The last step or the next step is the second mini mill, either in Luleå or Raahe.
The same idea, close the current coal-based system, invest in a state-of-the-art mini mill, take away another 4 million tons of carbon dioxide emissions, and have that up and running operationally around 2030. In order for that to happen, we need to take the decision sometime during 2026. We'll do this step-wise. We will learn from every step, and we will bring that knowledge into the coming step. We already have a lot of knowledge because we are running mills or at least mini mills, not strip mills, but plate mills in U.S. already today. This is a picture how it will look in Luleå and Raahe, and Carl will deep dive into this during his presentation.
We are building them on our own land, on our existing facility with a lot of existing infrastructure, very close to the sea and close to the harbors. As said, the good thing is that we will build them as we are running the current system. When these are qualified up and running, we will close down and tear down the existing systems. What will this give us then? We see several benefits. If we look at the mini mills as such, we see the possibility to reduce the total costs of around 12%, and we see the possibility to move a lot of the fixed cost of 50% of the fixed cost into variable costs.
We're going to build the mills at similar size or installed capacity as we have today, but with the difference that we can build them for much better volumes and much better capabilities for quenched-and-tempered and advanced high-strength steels. That's why we also set the target of the mix for 2030 being 2/3 special steels shipments and premium shipments, and that will be possible. As one example, and I guess, Johnny will come back to that, but w e will be able to produce 2-m wide, very thin Q&T in these mills, which we don't have today and which is asked for by the market. One key to this and a prerequisite to invest in these mini mills is, of course, the HYBRIT project and the sponge iron production.
Oxelösund we can do regardless because that we can fuel with scrap as we do in U.S. today, and we have already qualified a lot of the products we produce in Oxelösund today already in Mobile. That we know is possible. In order to build the mini mills, we need to continue to develop the HYBRIT project. We are now together with our partners planning for, we call it a demonstration plant with an installed capacity of 1.3 million tons of sponge iron. We do that in the HYBRIT JV company. HYBRIT JV company is also the owner of all the intellectual property and all the patents we have applied for and gotten. That will be important.
We are pretty confident or very confident that this will work because we have tried it in pilot scale, we have tried it with customers, and we see the first, as said, applications out on the market using this kind of steel. Of course, there is always a step change when you go from a pilot scale to big scale production plant, but we are very confident that that will work. To summarize it, we feel confident of the things that we can control ourselves, but there are some areas where we don't have full own control or where we need help in order to make this happen. I've divided it into three parts: environmental permits, grid connections, and electricity. If we start with environmental permits, we have the environmental permit already in place for the Oxelösund transformation.
In Luleå and Raahe, it is well on its way. When it comes to grid connection, we have the decision from Energimarknadsinspektionen in Sweden that we will get the grid connection in Oxelösund. That is appealed to Mark- och miljööverdomstolen, but the process is ongoing and moving on. In Luleå, we still have a question mark when it comes to grid connection, and this one we are working hard with to get the decisions for the grid connection in place. In Raahe, grid connection is not finalized, but well on its way. We need not only grid connection, we need electricity in these grid connections as well. That means power allocation. In Oxelösund, we have, and in total to do this transformation, excluding the HYBRIT demo plant, we need 4.5 TWh more than we consume today.
If you include the demonstration plant, it goes up with more 5 TWh to 9.5 TWh. In Oxelösund, we have the electricity. In Raahe, it is well on its way, and in Luleå, it's still a question mark that we are working with. All in all, Oxelösund seems to be on track. We need to see what happens in Mark- och miljööverdomstolen and Miljödomstolen, and see if that is even further appeal to Mark- och miljööverdomstolen. Raahe, well on its way, Luleå, some question marks that we have to continue to work with. Of course, another important factor, which is also still a question mark, is what we call level playing field. We see now that competitors in Europe are getting funding, state aid, to investing in existing technology.
We also see the movement in U.S., that we need to continue to work with and also remind the political system of the importance of a level playing field. When we look at this and do the math, and start with where we are today and the structural improvements that we still can do, then add on the benefits we see with the transformation, net cost benefits, the potential of producing more advanced high-strength steels and quenched-and-tempered, and also some kind of premium, even in the future for fossil-free steel, we see the possibility that we can increase profitability, everything else equal, with around SEK 10 billion per year from 2030. In order also to do this journey and to mirror SSAB where we are today, we have updated our financial targets.
We have updated the dividend target, where we used to have dividend of 30%-50% of net profit. We have qualified that and say we should have a dividend target of 40% of profit after tax. We used to have a capital structure target of not normally above 35% in net gearing. We have qualified that and said that we will allow ourselves to have a net gearing ratio between -20% and 20%, meaning a net cash position of 20% or a net debt of 20%. With today's equity, this is roughly ±SEK 13 billion. We have kept the target of industry-leading profitability. I think this is maybe not a huge game changer, but it reflects and mirrors SSAB today and what we are aiming for in the future.
If I would sum this up and give my view of SSAB, I would say that the strategic direction not only remains, it continues, with focus on advanced high-strength steels and Q&T, the important home markets. To that, we add the green transition and have the ambition to build a superior portfolio of Zero steel products. I think we have a good starting point, not only financially, but when we look at our mills, because the size of the two systems, the Swedish and the Finnish systems, are roughly 2.5 million tons each, which is perfect for the mini mills that are today being built. They are typically at 2.5 million tons. We have the synergies and the knowledge from running mini mills and electric arc furnaces in U.S. since many, many years.
We have been being part of developing this new technique within hydrogen-based DRI production in HYBRIT. If I would look at SSAB 2030, I would say that we will be a company with even a better cost position than today. 2/3 of the volumes being premium and high-strength steels, reduced volatility, and much better low point profit performance. I would look at the investment plan, I would describe it as a stepwise investment program with decision points this year, 2024, 2026, and the ability and flexibility to adapt to changing conditions, whatever that could be.
If I would look at the starting point, I would say that we are a company with a strong balance sheet, with a good historical cash flow generation and good prospects for future cash flow generation, no goodwill in the balance sheet, and new targets for capital structure and dividend that better reflects SSAB. I would say and claim that we have a very good chance to achieve this because we have the knowledge, we have the competence, we have the raw material supply, we have the customer, we have the segments, we have the perfect size, and we have a good starting point. With that, my introduction, Karin.
Thank you, Martin. You'll be back to take questions in a little while.
Yes.
Right now we'll zoom out and get some insights from the steel industry, and I'm happy to welcome Viktor Strömberg, Head of Strategy and Digitalization. Welcome.
Thank you, Karin. Oh, I'm on again. Yeah.
Just one question before you do your presentation. What would you say are the most significant or the most important development in the steel industry in the last, say, five, 10 years?
Well, well, if I go back to when, w hen I joined this company in 2011, when I joined this industry as well, we were still suffering from the fallout from the financial crisis. Things were not so hot, China was still going live with big plants of 10 million tons, and the world markets were flooded with cheap steel being exported at cost. I think there was a sense, is this gonna be a healthy industry going forward? Is this a industry that will earn its cost of capital and attract people? I'm happy to say that the developments we've seen over the last 10 years now leads me to believe that in fact this is a healthy industry and will so remain, in only increasing in important.
We'd love to hear more about that.
Mm.
Please take it away, Viktor.
All right. Thank you. I like to start with this, why I'm optimistic about this being a healthy industry going forward. Let's see. There we go. I look at four things that I think determine the healthiness of this industry, the demand side, the supply side with the capacity, what's happening on global trade, and what in the raw material space. In all these areas, I see good things. First of all, demand. Demand is not bad. Demand is, actually g lobal demand is on an all-time high and has been so for a couple of years now. We're at 1.8 billion tons globally, and we see especially good demand in our product range when it comes to, driven by infrastructure, driven by defense spending, and others.
In high-strength steel, but also in green steel, a very positive outlook. This is despite automotive not firing on all cylinders in recent years. On the supply side, capacity is now in check. Global steelmaking capacity has not grown for the last few years. In fact, it has been in some regions reducing quite a bit. Also, the recent conflict in Ukraine sort of has kept Russia and unfortunately also Ukraine out of the world steel market, which gives a favorable outlook, at least for Europe. More importantly, we also see CO2 cost really impacting now how companies think about the global output, and I'll come back to that. Trade, we've been on a path of regionalizing the world steel markets for some years.
Global trade is falling year-over-year and has been doing so for many, many years now, partly driven by better, you know, situation in each region, but also because of the introduction of trade barriers, with perhaps the U.S. leading the way, but also in Europe, we've taken a different stance towards this on the policy side. Raw material, we saw a bit of a surge last year driven by the Ukraine situation, but that is now stabilizing. Things are slowly getting more manageable around that, and I think we will return to a more sort of traditional split in the value chain, in the sort of the balance of power. All in all, I think this provides for a positive industry context for SSAB.
Just to illustrate with a few facts here, I talked about world steel demand being at an all-time high, around 1.8 billion here for a number of years. Yes, China has been dropping, but it has been picked up by other regions in Asia. All in all, not a bad situation. On the supply side, on the capacity, if we just plot three lines, the demand, the capacity, and the division between the two, we're now operating as a global industry above 75% utilization, which is not bad. Which is not bad at all. That is a very clear difference to when we were in the 60s for a number of years.
The rise in demand has been met by, you know, a rather modest increase in global capacity. An industry, steel industry being above 75% utilization is some industry with some pricing power in the market, I would say. A very good job. Why is this? Well, we have seen, and I wanna you know, a lot in this industry is driven by China. Let's have a look into China, what has happened in China in recent years, comparing 2015 with today. Before 2015, they had a very impressive journey to build up this almost 1.2 billion tons of steel-making capacity, you know, remarkable achievement over 20 years.
As impressive as that was, I think it's equally impressive that they, in fact, were able to take away more than 150 million tons in recent years. Closing down obsolete capacity, they plan to do more of it. That sort of changed the dynamics, I think, on the world steel market. They've also consolidated. We used to have a situation where the top 10 companies in China produced some 270+ million tons. The largest top 10 companies in China today produce almost half of what China produces in total, which is not too bad of an industry structure, I would argue. This has also contributed to a very reasonable trade pattern out of China. They used to export more than 100 million tons because 98 is not even the peak.
Today, or sort of rather last year, they were at +38, which is not an unreasonable trade balance, I would argue, for China. The world markets are no longer flooded with cheap Chinese steel. Very good development from that side. Closer to home, if we look at Europe, I also think we've done things in Europe if you compare with the situation after the financial crisis. Steel demand is up some 10%, and capacity is down, with also about 10%. You know, this, the split between the two has moved in the right direction also in Europe. And there isn't any more a lot of talk in Europe around overcapacity, which was the talk of the town a number of years ago.
The thing now in Europe is a lot about the policy angle when it comes to the green steel and the CO2. We now have a clarity on this new directive from the EU on the termination of the free ETS allocation that will be phased out starting in 2026 to be fully phased out by 2034. They have now agreed, the Commission and the Parliament, around this proposal. Obviously, and as all you analysts know, it's combined with this CBAM cross-border adjustment mechanism to avoid that this whole thing leaks into imports. I think everybody is sort of eager to see how this is gonna work in practice, at least the ambition is there. As all of you know, the ETS price is now no longer cheap.
You could easily see a situation where it, you know, is at EUR 100 per ton. This would mean, with SSAB emitting 10 million tons per year, that we would have a bill every year for EUR 10 billion to pay for our CO2 emissions. EUR 10 billion. That obviously helps any investment case to get rid of that bill. No surprise that everybody is now running and thinking about how to get rid of these, this cost going forward. I would say that CO2 has an impact already today, and I apologize for being a bit theoretical here, but bear with me.
If you look at the typical cost for an EU blast furnace-based producer, you know, the average cost, if you spread it out over all volumes, the CO2 cost is not that big today. We have a lot of fixed costs, then you have some variable costs. The last ton you produce, you have to buy a full emission right, so for that emission. If you ignore the fixed cost, it means that the last ton produced is more expensive to produce than the average. This used to not be the case for any steel company. It used to be that the more you produce, the cheaper it got. This leads to a steeper industry cost curve. It leads to a situation where it is no longer profitable to grow with the existing technology.
Taking that last volume does not help you if you're a blast furnace-based producer. As anybody who remembers their microeconomics class from university, a steeper cost curve is good for the industry because it supports healthier dynamics. I think this is already taking place in Europe today. Everybody is thinking about how to get, how to decarbonize, and we will talk more about this. I think it's no surprise that more and more are coming to our corner of the world here. If you think about the simplicity, the carbon capture and storage, a lot of talk about that a number of years ago. The plan that is still for natural gas direct reduction was the way, was the solution and still is for many players.
We have the hydrogen-based direct reduction, which we sort of, w hen we announced this 2016, I think we were considered naive at best. What we now see is more and more people are starting to see hydrogen as the solution to decarbonize. Why is that? Well, some of the disadvantages of the others are becoming very apparent. If you look at CCS, yes, you can keep everything you have today, and you don't have to invest in new technology, but keeping what you have today is expensive. In addition, you have to add a lot of CapEx and OpEx to just do the CCS. Nobody has really sort of proven this at scale in the steel industry.
I don't say that it can be a solution for some industries, but I think fewer and fewer in the steel industry is now looking at CCS as the solution. Natural gas, yes, that is a technically mature process. It's been around for quite a while. Recently, the whole sort of topic of natural gas is taking a bit of a hit, the cost and the availability of it and sustainability aspects of it. It is also does not eliminate all CO2. It does not create a fossil-free product or with zero emissions. Your ability to charge a premium for that is not as strong as with if you can go the full elimination, which is the promise of the hydrogen reduction. You get the full reduction.
The shortcoming is that hydrogen is still expensive, and it is a process that still needs to be industrialized, and we are working with our partners to achieve that. It is a new technology. We need to scale this up. I'm happy to say that more and more are running into our part of the. So, Karin, that was a little bit of an introduction.
Before you leave the stage, you've chosen the path going towards hydrogen. As you say, many of your peers are following along your footsteps. What would you say is the big advantage of doing that in Sweden, especially?
Well, producing hydrogen is electricity intensive, and we have a competitive advantage in the Nordics when it comes to electricity. We have a fossil-free electricity system, I think decades ahead of many other geographies. Also the cost levels, even though they are high, this is a relative game, the cost level for electricity in this country is lower. I think we'll come back to that later.
Yes, we will.
Mm-hmm.
Thank you so much for now, Viktor.
Thank you.
We'll see you later on today.
Mm-hmm.
It's now time to look deeper into the steel divisions. We'll start with Special Steels. I'd like to welcome Johnny Sjöström, Head of SSAB Special Steels. Welcome.
Thank you very much.
One, initial question: how would you describe your market position globally today?
Humbly, I would say we're a market leader, and we're quite unique. I was sitting there in the chair thinking, "What message do I wanna convey?" It's, for me, it's clearly how special we are, how different we are, and also explain why we are a market leader in what we do.
We'd like to hear everything about that.
Thank you very much.
Please, Johnny, go ahead.
Thank you. All right, good afternoon, everyone. I'm Johnny. I'm the Head of Special Steels. I've been with the company now for four years in this role, and one of the things that surprised me when I joined SSAB in this role is how unique we are, how different we are, and actually how good we are. I'm gonna try to explain that to you during my presentation today 'cause we are not just another steel company, and I hope that you will understand that during my presentation today. All right. This is just an overview of Special Steels. We have two main production sites for plates, and one is Mobile, Alabama, and one is in Oxelösund, Sweden.
When you look at the number of employees, 4,100, you will start to think, "You know, that's a lot of people. Why do you have so many people?" Well, because this map does not contain, for example, the G&G production site here in Perth, where we do trays and buckets. It does not include the tipper manufacturing that we do together with Scania in India. It doesn't include the tray manufacturers we do in South Africa. It doesn't include the pieces and parts that we supply to Metso in Chile. It doesn't include sort of the carbon chromium overlays that we do in North Port and all other subsidiaries we have all over the world. We are different. We are not just a steel manufacturer that supply the distributors.
We develop the market, we grow the market, we also do the downstream activities, and hence the reason why we have that many employees. We are selling all over the world. We have 90 stock locations around the world ourselves, and we sell into 150 different countries. Last year we had a turnover of SEK 34 billion, and we have been growing with 68% year-over-year. The material, the majority of the material that we sell is quenched-and-tempered. What is this quenched-and-tempered? 'Cause I'm gonna say that a couple times during my presentation. What it really is, if you look back in history, you can see this smith working on an iron ore. It's glowing, and you put it into a bucket of water.
That's actually quenching. It's not that simple, but I hope you understand what we mean. What we do is that we quench it with water at a very high rate, and that makes us very unique. The uniqueness of my division is something I wanna emphasize 'cause we develop unique production processes, we've developed unique products, and we also sell it in a very unique way. The main segments that we operate is trailer and body builders, raw material handling, and yellow goods. I would say roughly 55% of our market goes into the mining in one way or another. As long as mining is going well, we are doing well as well.
We talked about market leadership in the beginning, and we are truly a market leader, and I will show that to you in a slide further on. The reason for us being a market leader is 'cause we have these unique grades, but we also have developed the market. We have grown the market. We teach our customers how they can benefit from our grades, and hence the reason why we've become the market leader. We develop new grades every year, and we launch new grades every year. Even though they're called Hardox, it could be a different type of Hardox. It's a Hardox 45 0 or 500, 500 Tuf, et cetera, and now we developed the Hardox HiAce. We do develop new grades all the time which are advanced, and we develop these channels to the market. This is one example.
This is an XMOR bucket. We have designed it, we have built it, and we have sold it. We wanna demonstrate to the market our value proposition. You know, what you can do with our advanced high-strength materials, with our Q&T material, and the benefit of it. Of course, the green transition that Martin Lindqvist initiated. Actually, this was way before I started. He's been pushing this all along, and I'm really happy to see the progress we're doing in this. This green transition will not impact only our production, but also our products, and of course, our customers' value proposition to the market. Yeah. Martin also presented in one of his slides, volatility. He had in his slides saying that we have higher margins in the specialty grades, and that's actually true.
If you look at the EBITDA development we've had through the years, you can see it's pretty much stable. Especially if you look at the EBITDA per ton, the development, it has been stable. Even during 2020 when we had the pandemic, where most of the steel companies actually were making a loss, we were not. We were stable, mainly because we are very unique. The customer needs our material. If you look at our revenues, you can see that clearly 2022 was a unique year. It's not likely we'll maintain, but it's gonna maintain on a very good level. We've also had a very good development when it comes to shipments, and I'll come back to that in my slide later on.
We are a global market leader, and I will try now roughly to explain the different segments we're working in because we do operate in a lot of different segments. Our most important segment is the wear Q&T. This is the wear quenched- and- tempered material. This is our biggest segment, and our strongest brand name is Hardox. In the Hardox family, we have a lot of different grades. We have the Hardox HiAce, the HiTemp, the 500 Tuf, et cetera. It's like Volvo name, but then you have different types of Volvos. This is our strongest brand name, and if you go to an exhibition, like a Bauma, you will see our brand name pretty much everywhere. It mainly goes into dumpers, tippers, trays, et cetera. Everywhere where you need wear resistance.
I would say this is roughly 60% of our sales. Then we have the structural Q&T. This market size is roughly 30%-34% of our market. Here we do extreme high-strength materials. We do more high-strength material than all our competitors. If they wanna have a strength 1,300, there's only one supplier in the market, it's us. The customers are trying to catch up, but we're way ahead of them. We supply to lifting industry, and we're quite unique in that area as well. Also forestry and agriculture is another area where we're pretty strong. We have a segment that has been growing a lot lately. It's protection. On these two pictures you see civil applications.
This is the Swedish Embassy in Washington, D.C., and this is for a car. But everywhere you need armored steel, you would buy it from us. If you are in Europe and you wanna buy an armored vehicle, the steel is guaranteed from us. Cause our competitors do not stand the testing from the impact, the explosion. And here I dare to say that we are roughly at 80% market share. We hardly have any competitors. Thyssen was one of our competitors in the past, but they've stopped producing it. Thyssen heavy plate doesn't exist anymore. Here we are a very unique position. When Russia attacked Ukraine, we delivered plates for body armor. Even the one that Zelenskyy is wearing in one of the pictures is actually body armor from us.
They're using our material because our material is so strong and so good that you can have lower thickness. It's heavy to walk around with, but you can use our material at lower thickness, and it has better properties than the competitors. This segment has almost doubled last few years. We have the tooling, and here we also try to be unique. We try to do pre-hardened material. Maybe that doesn't say anything to you, but most of the times you need to do, after you've done the machining, you have to do a new heat treatment. In our case, you don't. This material is almost as clean as the ESR melted material from Uddeholm. We have a very unique material here as well.
Then finally, we have the newest segment to our family is the additive manufacturing. This is something which I am very interested in myself, I strongly believe that the future of manufacturing is gonna be in additive manufacturing. For those of you who doesn't know what it means, is where we actually, in this case, we're using laser printing. You take powder, you sinter it together with a laser beam, you put another layer on, then you build another structure, another layer of powder, then you laser it together. You build layer by layer the structure you want. That's why it's called additive manufacturing.
We have been working on this for three years now. We have been patenting materials. Now in May, the patent will go through. We will start selling a little bit more aggressively than we've done before. We couldn't sell it when the patent wasn't approved, but in May, it will be. Then we will start selling it. We're aiming for the tooling business, the automotive industry. The truth is that we can produce any type of part completely fossil-free even today using additive manufacturing.
But, you know, there are a lot of companies in Sweden working with additive manufacturing, but we're focusing on the high-strength material side of this, we're gonna do it much cheaper than our competitors, which means that we think it's gonna attract automotive as well, 'cause we've seen in trials and tests that it's superior to all other production techniques, but also the properties are superior. This is something we expect is gonna grow in the future, and we're on top of that. All right. I spoke about market leadership, uniqueness, and this is something I really wanna emphasize, and I hope I can do that by showing this slide. This is the Q&T wear, you know, where I talked about Hardox. This market, the Hardox market, the cutting wear market, and this is mainly plate.
There are some strip here as well, but mainly plate. What you can see here, that this is what the market looked like 2006. I hope you can see in the back there, but in back then, the market size was 800,000 tons. Back then, we had 30% market share, and here were the competitors we had. We had Algoma, Cleveland-Cliffs, they are both in North America. You had Dillinger and Thyssen both in Germany. Those were our sort of our main competitors back then. Now, look at the market 2021. The market size is much, much bigger. It's 2,100, roughly. Or 2.1 million tons, roughly. We have a roughly a market share of 40%. Look at the number of competitors.
They have increased by 2.5 times. These competitors are mainly from Asia, mainly from China. If you would look at where is Algoma and Cleveland, well, they've actually decreased their market share. If you look at Dillinger, they've also decreased their market share. Thyssen is even gone. It means that if from, you know, from the sense of looking at, you know, who's our biggest competitors, it's really hard to say. You can't really tell just by looking at this. If you take North America as an example, there we have 53% market share. I hope you're starting to understand how good we are, you know, when we talk about market leadership. 53% market share. Here you have, what was it?
Algoma, they were at back here, they were like 80,000 tons. They're actually lower now. They're not producing that much anymore. We have actually grown our market size and defended our market position. This is a market that we have developed, and I will explain that later on in my presentation. We have South America. You know, South America is pretty far away from Sweden and Mobile, Alabama. We have 57% market share in South America. All these mines, they wanna have Hardox. They wanna buy our material because they know that they can rely on it, they can depend on it, and it actually saves them money. We have Europe. Here we have 59% market share. The question is, who is our biggest competitor? 'Cause I don't really know.
I can't see from this slide who's our biggest competitor. You know, that's how good we are. We have Middle East and Africa, 53% market share. To the question, how come you say you have only 40% market share? The reason is China has grown significantly. This is mainly China. It has grown significantly. You have a lot of new Chinese competitors coming out on the market, and here we only have 21% market share. China is a very special market, and we've been active there for years, but the problem is if the government recommends to the companies producing yellow goods in China to use Chinese materials, it's difficult to compete. It's difficult, if that's the case.
I hope this gives you a better understanding of our market leadership and you know, how good we are. We do have a unique business model, and I have a, I am an Associate Professor of Material Science. I get a little bit excited about stuff like this, and I clearly understand if you don't. Anyway, to produce something hard is easy. You know, hardness, anyone can do that. It's like this here is also very, very hard. When I drop it's gonna crack. It doesn't have any impact toughness at all. The problem is, how do you produce something hard that's tough at the same time? 'Cause what you wanna achieve is something that can withstand an impact. If you have a bucket, you drop a rock on it's not gonna crack.
If you have an armored vehicle and there's a projectile hits the vehicle, you want it to absorb the energy and not crack. It's the impact toughness which becomes the most important property combined with the hardness, and this is measured in -40 degrees Celsius. For us, what is the sustainable competitive advantage of special steel? It's right here. It's right here. It's because we can combine the toughness, the impact toughness with the hardness much better than all our competitors by far. We started off developing this 400 grade in the 1990s, then we developed the 450 beginning of 2000, and then we replaced the 400 with the 450. Now we have developed a 500 Tuf that's gonna replace the 450. No one else can do this.
No one else on the market can do the 500 Tuf. If someone else supplies a 500 Brinell hardness plate, it's gonna crack. Ours is not. This material you can actually bend any way you want to, and it's not gonna crack. That's where you have the difference. These, my friends, this is where we are unique. It's because the way we produce it and the way it has been developed. We talk about being unique. None of our competitors are global as we are. Here you can see our stock sales location. All these orange circles shows where we have stock locations. The dark blue shows where we have our own sales representative. The lighter blue shows where we are selling, but we don't have our own sales offices.
We used to sell a lot into Russia and Belarus, we're not selling anything there anymore. For natural reasons. It shows how global we are. You know, we sell 40% in Europe, we sell 30% in this part of the world, and then we sell 30% to the rest of the world. We're spread out. That makes us less vulnerable. We also do downstream activities. Why do we do that? What's the benefit of doing downstream activities? Well, we wanna demonstrate to the market the benefits of our material, of our advanced high-strength steel. Also it generates more value. If we sell directly from the mill, we get maybe one time. If we sell from the stock, we get more paid for it.
If we sell it as a part, we get even more paid for it. If we sell it as a solution, we got even more paid for it. One illustration of this is, this is 25 tons of Hardox 500 Tuf. If we would sell it like this, we would get a certain amount of money for it, but if we would sell it like this, we would get five times more. Don't get me wrong, we're not doing this to compete with our customers 'cause that wouldn't turn out too well. We're doing this to demonstrate to the market you can actually do with our material. In this case, we reduced the weight of this tray by 40%. Now the market is thinking, "40%?
If you decrease the tray by 40%, I can actually load a lot more on that tray." That's the end user benefit. That's how you create end user value. Here I'll try to give you one explanation, we do a lot more applications than this, I'll try to explain to you the value proposition that we do for our customers. What's the value proposition of a steel plate or a wear-resistant plate? You know. I'll try to explain it to you. The value proposition is, this is the way a tipper was produced in the 1990s. It's a box-shaped tipper with a lot of stiffeners, you know, and this would weigh roughly 4.5 tons, and the thickness you would use in the walls 8 mm-10 mm.
Well, SSAB back then developed a new design together with a customer called the U-shape design, this one has fewer stiffeners, it has a completely different design. This one is it's lighter, it's stronger, and it's more sustainable. You recognize those three words? It's our vision of SSAB. We were able to reduce it to 3 tons. That means we saved 1.5 tons per tipper, and we can reduce the weight of the walls. This is a value proposition. Not only the manufacturer of this, he can weld together 30 pieces, and then he get a tipper body. Here it was 267 pieces needed weld together. Here's only 30 pieces. The manufacturing time is much, much faster. For the end user, he gets to carry around less weight, 1.5 tons.
Recently, we have now the Hardox 500 Tuf, which is even stronger, it's more wear-resistant, and by doing that, we can actually reduce the weight further to 2.3 tons. There's a lot of savings in this. We have an app that you can download if you want to. Once it's called SSAB EcoUpgraded, you can download this, and you can then see how much you will save. In this case, we're looking at the carbon dioxide. We have supplied 620,000 tippers since the year 2000. If they would have used this design, it would have been roughly one million tippers. Selling it to this design, we saved 3.4 million tons of CO2.
The biggest CO2 saving is actually in the carbon dioxide for the fuel saving. Here we have saved 54 million tons of carbon dioxide because we made it so much lighter. Even here, SSAB have been working on a sustainable approach for a very long time, and this amount here is equal to 1.2 million cars on the street that we actually reduced, which is a significant amount. All right, we have a very aggressive growth strategy. We started the year 2000 selling roughly 300,000 tons. Look at the growth. This is a growth that we have developed this market. We have trained our customers, we've showed them the benefits, we redesigned it for them, we've grown the market, and we continue to grow the market.
The truth is, we've been sold out from the plate side the last three years. We've been sold out. Now we need to increase our capacity to continue to defend our market share. When we talk about market position, I said, how are we unique? We are unique in the way we produce, these are the quenching lines, not only the quenching lines, we have a clean steel practice as well that I will not talk about so much. Here are the quenching lines that we have, these quenching lines are unique. No one else in the world can build a quenching line like this. Companies have tried, they cannot. We have our own Q&T center that developed this technique and they further refine it.
If you look at the number of quenching lines that we have, you see we have nine of them. Most of our competitors have maybe one or two , but they're not so good. These ones are unique. For us to continue to grow the market, we need to continue to invest in this kind of capacity, 'cause this makes us very unique. During my presentation today, I did not talk about digitalization, I did not talk about operational excellence, I did not talk about commercial excellence, but these are things that we also do, and we're very good at it. I think I wanted to just communicate to you the essence, the fundament of Special Steels in SSAB and what we're really good at. I hope you get the bigger frame, the bigger picture of it.
Oh, this is my final slide. The objective we have is to reach 2.2 million tons in sales by 2030. It's a very aggressive growth. This is sort of the plan we have for it. As I see it, the demand is there, the customer wants it's just make sure that we can produce it and have the capacity to produce it. I think that was pretty much the end of my presentation.
Thank you so much, Johnny. Unique market position, unique products, that's what we should remember.
That's a good summary. Thank you.
You'll be back to take questions in a little while.
Yes.
Thank you for now.
Thank you.
We're moving on to SSAB's main market, the Nordics, and welcome Olavi Huhtala, Head of SSAB Europe. Welcome, Olavi.
Thank you. Thank you. Thank you.
A starting question to you as well. You've made a strong performance compared to your competitors in the recent years. In a few words, how would you describe the reason to this success?
Well, quite often, the answer is combination. Also in this case I would like to say combination. It's a combination about good product mix, strong in home markets. Then I would say that we have really good customers and really good segment mix from the customers. I would not forget, for example, what Martin already mentioned, this continuous improvement inside the company. We have the last three years achieved the targets. It is a combination of many things.
Okay. You were gonna tell us a little bit more about that. Please, go ahead.
Yes. Good afternoon, everybody. Hello, everybody. New start. What's our contribution? Sorry, it's too technical for me, man. The market leadership in Nordic, really important, and I would highlight also that work together with Tibnor and Ruukki Construction. That's the strength what we have and what is our role to take care about the home markets. We all know that if you don't have a strong home market, it's quite tough to expand the business. The key is home market. Also what I'm going to touch today is the premium mix change, what we have been doing the last couple of years.
Of course, the really real big project, if I say it that way, the transforming our Nordic strip assets to fossil-free, it is Luleå and Raahe, as Martin already say, that is really the big project. That's what we have as our contribution. What are we? About SEK 50 billion, 6,700, and about 5 million tons of steel production. What I like with this picture is that we are not only one product or one segment. If you look about the customer segments, automotive, heavy transportation, construction, industrial application, it's quite nicely divided. The service centers are still a bit high, 32%, but we have to keep in mind that quite many of those service centers, they are more like a partners. We create the business together. They are stockholding our materials for certain customers, et cetera.
Quite good combination. The same from the product mix. We have tubes, coated, cold rolled, hot rolled plate, and hot rolled strip. Once more somebody can say that, "Why do you say that it is good if you have 42% of hot rolled coils?" The thing is that quite big part of that is landed in Nordic countries where we have the strong home market, but also we have quite many premium products or hot rolled products like laser, weathering, boron steel, et cetera. I would say that we are quite good in balance in many areas, customer segments and products. Last two years has been really good. If I look about the profitability the last two years, record after record, it has been a volatile market, really tough one.
If you look the numbers, they are nice, but if you look about all the work, what has been done, first of all, the COVID came end of, end of 2019, then it was really collapsing or more or less difficult market at first half of 2020, and then after that it was ramping up. I would like to say thanks for everybody in the Europe's organization that the question is how fast you react. If you miss the price increase, then you miss the price increase. If you miss to ramp up the production at the right time or lower the production at the right time. I think that if you look about this volatility and now of course the high interest rate in the end of last year and of course impacting and there was a lot of destocking.
I would say that in this volatile market to make profit about SEK 10 billion each year, it's really good result. If I go further, one picture tells more than what I maybe say because if you look about SSAB Europe compare to our main peers. We are on top of the peers. Last two years, clearly about 8% best than the six, second best. Also in this time, all the time we have been more or less beating our peers. Why we are successful in home markets. Trusted partner. I would underline long-term relationships, working together, not just going in and delivery products and then go out when the market is tougher or the demand is better in Europe. We still allocate the volumes to Nordic because we want to take care about our home markets. We are trusted partner.
We have good offering for the market. We are offering all the products and of course we are close by, which means that the sales model together with Tibnor and Ruukki Construction and logistics is more or less, I would say, unbeatable on that part. Very important that we take care about this market. Our share is about 40%. You see here under by some of our competitors who are delivering the Nordic market. Strong in a home market, which is the base. When you go to the other side, how to grow into premium. If I go back, as Martin already mentioned, 2015, we make a decision that we have too much standard grades in our product portfolio. Then we made a decision that we need to increase the premium share.
Not only automotive but other premium products too, like color-coated, boron steel, whatever that is. If I look about now, the trend has been good the last couple of years. Of course, there are some years that the market has been really difficult as in, as in 2020 with the COVID. I would say that it is a steady growth what we have now in our premium products, and that's what we are going to continue. At the same time, you see that the volatility, it's not that strong as already said today, like in special steel what Johnny was explaining. We have, of course, I would say time after the war started that it was really a strange situation in standard steel grade markets.
For me that is logical because Russia, Ukraine and Belarus was out from the market and they are the ones who are delivering the standard grades. There were a lot of supply chains which were empty in a minute, which means that it was a lack of supply. Overall, as you look about the last year or so, we can say that the profitability for premium products is better. What we have been doing that is successful, there are couple of things. First of all, product development together with our customers. Of course, for automotive, that's really essential that you start it as early as possible. Many times we work years before the SOP is going to happen. It's also we have learned and done the same for other segments than automotive.
Earlier you go and talk with the customers, you have these product development projects together, then you find the best way with the best product and best manufacturing system. Working hard to get this one systematic. We have one called organization business development. It is a really systematic way to look about what products, what customers, what segments. Not bouncing all over the places. It has to be an systematic and structural way to look about to whom and what and then build up that project together. It is something what is not often seen in the companies, but you need to have this as a structural way to operate. We have been investing from the premium products like continuous annealing line in Borlänge more or less all to automotive and then metal coated.
Galvanizing line number three in Hämeenlinna, which is I would say almost to automotive and then color-coated which is the premium. Of course we are reducing all the time capacity from the standard grades to the premium. If I go to automotive, the fundamentals are quite clear. Weight reduction and better safety. What we are working for automotive is the safety, is the world. I'm always saying that if our products are used in the car something bad has happened because we are in the safety side impact beams, crash boxes, A and B pillars and now the last one is the battery protection for the EVs. We are in a passive safety. We are concentrating the market. What we have is maybe 5% from the whole automotive. Really niche player.
Advanced high-strength steel is having strong position, and then we have well-known products all over the places. I would say that we are not that strong as Johnny is with Hardox, but Docol is well-known in automotive when we talk about high-strength steels. The market is helping us to grow because if you look about what's happening in the market, and first of all, the mild steel in the next years, it's going to reduce, and then the advanced high-strength steel is going to increase, and the others are more like aluminum and carbon fiber and things like that. They are more or less a bit higher. Also what you can see that inside the car, in the car body, it's going to be changed from mild to advanced high-strength steels.
Together that with a good project, with good customers, and also with the market, we have a solid growth. If I add that steel, compared to many other materials, is already today, I'm repeating, it's already today way better with the carbon intensity than the others. It's something what many don't realize, but that is the case. Okay. Carbon fiber, maybe Formula One is the good one for that one. If you look about steel, it's way located, 100% recyclable. We know that more than 90% of the steel is recycled, and it's recycled more than all the others together. Steel is having its good, I would say, position. Then when we get what Tony is going to explain later today, the SSAB Zero, it's even going to set a new benchmark. Couple of examples.
Shape Corporation, U.S., roof rail, 1,700 martensitic steel. I would highlight here, it's not only the steel, it's also the shape and how they build it because the driver is having a better visibility. This is something which is very interesting that we need to work together and find a way. It's not just the weight or the strength of the steel, it's also how do you manufacture that. The same as here from Gestamp, the lower control arm. Earlier, this was two pieces welded together. Now it's single shell. By the way, this is a finalist for Swedish Steel Prize, which is going to be announced in middle of May. What I want to say here is that there's a lot of things. It's not only the product. It is how do we develop things together. How do we work together.
Is it the welding, manufacturing? How is the steel used? We have the new area what I'm myself expecting to be a good one and expanding quite much is the EV-related, like battery protection, things like that. That's going to be the new one. Today, we know that from Europe's about nine, 10 million vehicles, about 10%, 12% is EVs. That's going to increase. The battery protection part is going to be bigger and bigger. This is what I mean that we need to be early enough to develop the products together with our customers, so when we get when we get our foot on the EVs, then it looks even better. Growth targets. 2030, automotive almost three times higher than we are today. Is that doable? Yes.
We have good products, we have good customers, we are going to have more new products and more new customers. From the premium products, a little bit more steady growth. All in all, if you look about today, premium, 0.8 and 0.5 compared to 2.6 million tons, it is a huge change. In the end, Nordic leader, I say, home market is important. There we have the wide product portfolio. Allocate more capacity to premium and advanced high-strength steels, then reduce shipment from the standard products. The picture is telling it all. If you look about the premium, 2016, 2022, 2025, and 2030, we are looking about almost 60% of our sales is either premium outside and including automotive. Then standard outside Nordic, it was 31% in 2016.
We are aiming something less than 10%. It is a big change. We take care about our home markets. Something what I want you to remember is that strong in Nordic, we have to mix change. Of course, we have the transformation to get the blast furnace to effective EAFs and mini mill integrated.
Thank you so much.
Thank you.
Olavi.
You will also be back and take questions. Now we have the third division, the last one for the day. We'll dig into North Americas and what can be expected from the future there. Please welcome Chuck Schmitt.
Thank you.
Head of SSAB Americas. All right, Chuck, what would you like to tell us about the development the last few years?
I think, in short order, it's a very good time to be part of SSAB in the North American plate business. I'll discuss why with a number of success and leadership examples we have going on.
Okay. Please take it away, Chuck.
Okay. Thank you. Good afternoon, everyone, good morning for anyone in the U.S., an early morning. As I get started, I do have this little sinus thing going on, may have caught, so I apologize ahead of time if spare me with a little cough or so. I'll get through it and I have some water here. I'll start with discussing our contribution to strategy. The framework looks a lot like what Olavi discussed, but our content is a bit different. When we talk about market leadership, I think Martin kicked it off very well. It is led by a 30% market share that we've had over time.
We've been traveling at or over 30% for the past few years. We don't see that changing anytime soon. There are the other KPIs and fundamentals that we measure within SSAB and also in the industry and has also covered safety in the Americas, as measured by Steel Manufacturers Association. We led the industry with zero lost times and an excellent recordable, as well as the severity of injuries. Also, we talk about in other KPIs, how we take care of our customers. I'll touch on that in just a bit with third-party survey information.
Finally, and most importantly here, in recent years, we've been recognized quite well for our stewardship in environmental sustainability, both by customer groups as well as industry associations. As we talk about product mix improvement, more detail on that, but we have a very inspired group, motivated group of technical experts, application engineers who are developing, working with customers, working with universities on new applications, on new steel grades that contribute to our growing premium portfolio. Developing channels to the market here, and I'll talk about these market segments, but as Martin described, we are constantly adapting and actively managing these channels.
You know, clearly, we have always ambitions of direct relationships with OEMs and the end users. Also, we have a very strong downstream group that represents a little over 10% of our shipments, where we also work with the end users. Then, we have a fair bit of exposure to service centers, but then we balance that out between what is actually truly transactional and reducing the transactional business, as Martin described, for more of the contractual. Lastly, the green transition. Everything's on the table right now, I think, for us, for our competitors. In Americas, right now, it is more than just EAF technology steelmaking right now.
It is more than just about recycling. I'll talk about that success. We're not nearly done there, and it certainly complements everything else we're doing at the group level. If I talk about just quickly an overview of the company, SEK 32 billion that's driving in 2022, a 40%, almost a 40% EBITDA. We operate with a very strong lean mini mill culture in the U.S. with 600 people. We make a little over 2 million tons. Added to that is about 300,000 tons of downstream processing as well. As we talk about these segments and these channels here, it certainly represents and looks like a traditional plate market, led by energy.
Energy has two components to the old traditional oil and gas, now complemented by the renewables, with a great deal of activity in wind towers, onshore, offshore, as well as transmission towers that is expanding the grid in the U.S. Heavy transport, barges, shipbuilding, including military shipbuilding, construction equipment, the Volvos, the Caterpillars, and in agriculture like such as John Deere. We have the transactional business that again, we manage actively and also developing sort of some avenues where end users require certain services in geographical areas. We manage, although it's within service center business, it has a clear line of sight to a certain application, if not specific customer.
Then, I'll touch on it in just a bit. As far as in plate is considered in North America, hands down the quality leader at SSAB for quite a number of years. As we look at earnings here, we have delivered on steady profitability here, interrupted somewhat by the COVID pandemic. Then likewise in the earlier years, represent a period where there were record high level of imports to the United States. When we talk about pricing, particularly over the last couple years, where we saw these historical peaks being reached, right now we're in a bit of normalizing, if you will.
It in fact does look like a new normal in that even in recent months here, you may have seen that both on hot-rolled coil as well as plate in the U.S., there have been recent price increases in hot-rolled coil now moving up a bit rapidly, plate as well as finding a bit more stability. We're seeing that in our own order book right now, driven a lot by restocking. Leading margins and within our plate business right now, we are outperforming our hot-rolled coil peers as well as our plate peers right now. For us, this is exactly as Martin described now.
At this point in a cycle right now, we have a huge demand for our products. Where are we gonna move our products for the long term? Where are we going to move our products for the best return? We're doing that through managing these channels and how we're looking long term with short-term contracts, midterm contracts, particularly focused on the energy segment right now, which is quite active as well as construction equipment. Likewise, as we bring on more of these products around Zero steel and fossil-free steel, adding to our portfolio of premium products will also provide us a stable market, stable pricing level, if not continuing on a upwards trend.
When we talk about our culture, our mini-mill culture, it certainly begins with a very competitive cost position. We start with a very modern EAF, but it certainly doesn't stop there. We have done recent investments in digitalization capabilities to also be an EAF of the future and compete with some of these newer mills that are coming on. These digital capabilities are bringing on and showing us more reliability in performance, in production stability and increased productivity.
We also combined as we ship product, get product out in the market and between our mills and our downstream process, sort of a provides a one-two punch, if you will, and that allows us to be not only flexible, but we can actually optimize how we get products to smaller customers in some of our local markets. The last one is our DC furnace design in the Iowa mill allows us a great deal of flexibility in the raw materials that we use.
Anything from DRI, particularly where we can balance between low-cost scrap or low-grade scrap or high-grade scrap, depending on the products that we make, and also depending on given a particular month or quarter where some scrap grades are more costly than others. We have that flexibility in delivering most all of the products that we make. In addition to our cost position, we have a very long history of taking care of our customers, certainly better than our peers here. You know, this is a benchmark study that's been provided by Jacobs over the past 30 years.
I'm extremely proud to say within that period of time, we have been second to none in terms of quality. Our performance on customers' overall satisfaction has also received very high marks through that period. Outside of this study, despite showing outperformance and on-time delivery, you know, we've coming through these two years of a very strong order book, very strong demand, which has also challenged us with very high backlogs at times. While it's nice to outperform the competition when it comes to delivery, internally, we have our own measurements and, most importantly, our customers' demands on delivery is becoming more sensitive and more urgent.
Our priority for this year and next year is to become even much better at that. As we talk about the home market dynamics right now, what is driving plate demand, I probably don't need to explain it to too many of you in here. With recent U.S. federal legislation, i.e., the infrastructure bill that has passed and now more recently, the Inflation Reduction Act. What this, what this boils down to is a much-needed lift and spending on highway construction, much more and needed bridge building. Then the component for renewables.
As I've described, the boom expected and conversations we're already having today for the next, at least the next several years of supply to offshore wind tower projects as well as expansion of onshore wind in t he U.S. And so you combine that demand scenario now with a supply picture on a regional basis where tariffs are still in place for a number of countries right now, even though quotas have increased. B ut also a component of these projects, at both the federal and state level that have a requirement for melted and imported in the U.S. So, the demand also has a very strong component for Made in America.
The question and appropriate question at that is what's going on with the new capacity coming online both in hot-rolled coil and plate eventually. As we see this demand scenario picking up and whether you choose a plate market at eight to historically 10 million tons and what we're seeing from new programs over the next several years, it is fairly comfortable that this consumption, partly with the lack of imports and partly with new demand, would be easily consumed in the marketplace.
This is just one example as calculated from coming out of the infrastructure bill by the American Iron and Steel Institute of generating as much as 40 million-45 million tons of new plate, new steel demand over the next 10 years. The numbers around the Inflation Reduction Act aren't terribly different than these. You know, you can really get an idea of being somewhat excited in the steel business, looking at the demand pictures over the next five to 10 years.
As I mentioned, imports have really not been a factor of recent years, even seeing a slight increase with tariffs being dropped and some of the quotas being renegotiated. There certainly is no expectation that it would factor and imbalance what we see as the current supply and demand ratios right now in North America. This is CRU's forecast. I'm not gonna go through this blow by blow, but it's a well, a tough picture on the eyes. It breaks down these segments here even further and then likewise the consumption numbers between mill plate as well as coil plate.
You know, my key point here is that we are the number one or number two supplier in virtually all of the growth segments that you see represented here, through relationships with the largest and some of the most successful companies that serve each one of these segments. As I described within our configuration of that, we make both coil plate as well as cut-to-length mill plate off of our operations and then further downstream.
We have the ability to balance this, as I described, in how we serve certain local markets, how we serve certain customers, whether a customer is requires a two-week delivery or a customer is certainly okay with large quantities that are delivered off the mill in two months. We certainly can outmaneuver a number of our competitors that we can offer that flexibility through a number of different channels in getting the plate, what plate they want and when they want it. Let's talk about something, you know, new and unique for us.
That is the start of SSAB Zero, as was announced here recently and Martin described. As I said, it begins with an EAF operation, but through our partner in Mid-America, that we have the luxury of operating in one of the biggest states in the United States for wind energy. With that good fortune that right now we have renewable electricity almost up to 90% with expectations by later this year, at the end of this year, that will be close to 100%. But it doesn't start there.
Of course, we use about 98%, 99% recycled product, but it's more than just recycling. In full credit to our operators and supply chain, the people that jumping into this opportunity, you know, really being driven not only by customers, but the vision that SSAB had even back in 2016 and Martin Pei's work on HYBRIT and fossil-free steel making to come up with a product that we could bring to market even sooner with the technical work that we had.
The operators engaged and in a number of external partners to look at where do we and how do we move natural gas out of primary steel making, which isn't a easy task.
Not only that, in certain products that charge carbon is required and both through our reputation and people around North America and around the world that not only heard about our journey, wanted to be part of our journey, to come and partner up and in finding biogas, amounts of biogas, right as a neighbor partner, coming from corn stalks and agriculture, as you might imagine, and finding sources of biocoal for charge carbon, you know, to really bring to fruition what we were able to do just a month ago, and putting in temporary delivery systems and literally bringing some of this product in by the truckloads while we were operating in order to get to this first ever product that's been made at zero emissions.
We're very excited about that and being part of the journey. But it doesn't just stop in Iowa by any means or even with North America customers. This system is intended certainly in the short term in working with our other divisions in Special Steels and Europe, offering Zero plates down to Johnny's Q&T line, Zero slabs that will go to Europe and support Olavi and their needs for automotive and heavy equipment and so forth.
That transformation, this collaboration that's going on as well as Martin described, the technical exchange between our mills, between our people and so forth, and Carl Orrling is going to talk about that here in just a minute, is pretty exciting times and it's a great activity. In terms of our discussions with customers right now and their demand for lowering the carbon footprint, the companies here are within the targeted segments that I've shown and in strong relationships that we have today. We're talking about truck manufacturers. We're talking about heavy equipment.
These are rail car manufacturers, the largest transmission tower fabricators that operate in the U.S., all sharing the same ambition that we have on decarbonization and eliminating greenhouse gases in our product and ultimately their products. Okay, I've hit a stall here.
There's no more slides for you.
Okay. That's the last one. Oh, right. I thought it was.
I'm sorry, Chuck.
Summary slide.
No more slides for you right now.
Very good. All right.
Stay, please stay.
I guess I'm done.
Stay on stage.
Okay.
Stay on stage, please, Chuck. Welcome back, Olavi, Johnny, and Martin, 'cause this is the time for Q&A. I hope you are taking the opportunity to ask your questions to the head of the divisions and Martin as well. We're gonna pass microphones around so that our audience that's following in the webcast can hear you. Does anyone care to start? Yes, we have a question here in the front row. Please take one question at a time. You'll get much better answers. Go ahead.
Yes. Hi. Hello. Yes. Hi, it's Tristan Gresser from BNP Paribas, I have one question for Chuck immediately. We talked about the green steel premium in Europe being quite high. When you look at the U.S. market, obviously there's demand, is there some willingness as well to pay for green steel with a premium?
No doubt. I mean, a willingness and an expectation, you know. To be clear, and you'll be hearing from Tony Harris and so forth, I mean, we have a very well-aligned marketing as we bring Zero steel into the market and through the partnerships that have already been announced. So clearly, at this early stage, we have far more demand than we have supplies Martin described. I mean, just in trial quantities and so forth. The short answer is, you know, absolutely yes, that, you know, our premium would be consistent within the different markets and that's what Tony's gonna talk about.
Okay. Another question. Please.
Thank you very much. It's Christian Kopfer from Handelsbanken. Also a follow-up for Chuck . I think on one of your, on your slides, it seemed like you have a little bit higher earnings volatility than the best peer, I guess, Nucor. My question is, are you fine with that little bit higher volatility, or are you considering or trying to get that down? If so, how will you do it?
No, that's his. I'm not, and more importantly, Martin's not. I think he made that clear. You know, that is the work because of our historical exposure to just basic carbon plate. We've also, although I didn't have a slide for it, we have been ramping up our volumes of premium plate to provide that stability Martin described. I think our, you know, our volumes now pursuing 30% of that, as well as how we manage that or reduce that transactional business should also improve the earning stability.
If you want to add something, please feel free or otherwise.
I think the answers so far are quite good.
So far, so.
Far so good.
So far so good. That sounds great. Another question, please. I have. Where is the microphone? Can you pass it around? Over there.
I have the microphone.
Perfect.
Yes.
There you go.
Martin and the team, thanks for the presentations. My first question is on the volumes you're now talking about SSAB Zero. What is happening on the competition? Are you the first one being out with a product like this?
Yes.
You are. When do you see any competition coming out?
You have to ask them, but we have ambitions this year to deliver 40,000 ton and ramp it up until 2020. As Chuck said, I mean, we see huge interest, the more we can do, the quicker, the better. It is a unique product, and that's why we can also sell it with the premium. As I said, the demand is there, so it's more about our own capabilities.
Yeah. Then I have a question on the premium. How did you come up with that? Was that in discussions with clients? Should we see this as an established premium for sort of this type of product, or how should we view it?
Yes, on both questions.
Okay. It's like a fixed premium going forward for the years to come. That's how you view it?
It was important for us to establish a premium for a unique product. As said, I mean, it could sound a lot or a little, but, I mean, if you look at the end products, it's not a game changer. It is a unique product. We are first on the market with it, that's how we decided to price it in discussions with customers.
Okay, great. Let's move on. Next question. Where do we have it? There in the middle, please.
It's Bastian Synagowitz from Deutsche Bank. Actually also wanted to follow up just on that price premium, if that's if that's okay. Could you give us maybe a little bit more color as to what the end markets are, where you're selling this into? Are these like niche grades and niche end markets? Because I think the feedback we're hearing from at least some of the end markets is that depending obviously on which group, there is not yet like a very clear consensus and willingness to really pay up for it. I think that really differentiates customer by customer. Maybe if you could talk about that'd be great.
I think, the majority of the products will go into the broader mobility segment. It will be, as Chuck showed on his picture, it will be heavy equipment, it will be trucks, it will be automotive. We have that flexibility. As said, I mean, the 40,000 tons we are aiming for this year is already spoken for. It is from different segments, yes.
With the EUR 300 per ton, you're being really precise here, I've got to say. I'm impressed by that. This is what you're seeing today. How do you think that how that will evolve over time, particularly as there are more volumes pushing into the market? Quite clearly, initially, the market is likely going to be very tight. I guess we've seen first projects from companies, for example, even such as Baowu in China, now aiming for full decarbonization. How do you expect that to develop?
I think that will of course, develop and evolve over time. What will be the premium in five to 10 years? I don't really know. I think it was important for us to establish some kind of premium on a premium and world unique product, and then how that develops over time with different competitors. I mean, as I said in the beginning, we are not changing strategy here. We are aiming to continue with the current strategy and continue to produce advanced high-strength steels and Q&T, but in a different way, without emitting any carbon dioxide. We establish a premium now. It is important also for what is to come 2026 when we move into electric arc furnaces in Oxelösund.
How that will evolve over time will be very dependent on how the industry evolves or develops.
Thank you.
Okay, thank you. I have a question over there, I think. Yes.
Yes, thanks. From [audio distortion]. First question is for Martin. I think you made clear today that you want to go further in your premium niches as one of your targets. You're still reiterating the old qualitative margin target, what is keeping you away from getting more specific or numerical in what you're aiming for in the next couple of years?
I mean, margins differ over time because this is, w e are in a very cyclical industry, and we need to recognize that, and that's a fact. Whatever we can do to lift low-point profits and stabilize margins over time, we will try to do, and that's what I tried to describe at least in the beginning of my presentation. It is still a cyclical industry and with cyclical margins, and that will be the case even going forward. We are aiming for these niche products because they are higher priced and have less volatility. I mean, we want to be a stable company in a very cyclical industry.
Mm-hmm.
On the cyclicality.
Thank you.
Yeah.
Okay.
I have another one.
Yes. I think it's. Shall we stick one question in between?
Okay.
All right. Just pass the microphone on.
Hi, thanks. It's Patrick Mann from Bank of America. I had a question for you, Martin. You said you see a cost advantage to the mini mill EAF process, and I think that's probably a little bit different to what some of your peers are saying in Europe that they think it'll cost a little bit more per ton. Can you maybe unpack that a little bit more? Is it around are you taking into account the carbon emissions costs in that? Or is there, you know, if you exclude those, what do you think the cost is? I also had a question for Johnny. Sorry.
Could you, if you hold that.
Okay.
We'll take first question.
A part of it is cost avoidance for future carbon dioxide emission costs, of course. That's part of the equation.
Excluding that, how would you compare the costs between your integrated route today and the mini mills?
That will be very dependent on electricity prices, raw material prices and so on. We have used external figures, prognosis for the future, and then we will see. For us, I mean the alternative, and we'll come back to that later today in the presentation, there is no alternative for us to build new coke oven batteries or realign blast furnaces. We are convinced, and I think Viktor showed a slide on that as well, that it will continue to cost money to emit carbon dioxide, and that's part of the equation. For us, it's not an alternative to continue with the current production system.
Okay, one question for Johnny, I think. Should you take that right away?
Okay. I just saw the emergence of the Asian players in the Q&T. I mean, what makes you confident that they can't ultimately copy your process and commoditize the industry?
That was actually my concern, I think seven, eight years ago, when I was working there in China. We had one of our employees actually active in China, putting up a quenching line. Turns out it didn't work. They never got it to fly. That makes me less concerned. I mean, quenching line is one technology that we have where we are unique, and we continuously develop it because we have a Q&T center with our, you know, researchers that continue to develop this. You also need to have a good material going into the quenching line. We've looked at, I don't know if I can say that.
We looked at investing in China many times, you know, but the thing is, the only way to benefit from it is you get green plate from a Chinese supplier, but then they need to have good quality, and that wasn't really the case. You know, then it doesn't really matter if you have a good quenching line if the material is bad when it goes in there. Until now, they have not been able to produce a quenching line that actually is equal to ours, so maybe they will in the future. You never know, but yeah.
Okay, thank you. Yes, please. Go ahead.
Hello, I'm Dominic O'Kane, JPMorgan. We've seen from some of your competitors in Europe in recent days, big increases on decarbonization CapEx numbers, and that's clearly not the case with SSAB. As we think about your long-term targets out to 2030, how should we think about the risk to the numbers that you've laid out in terms of the SEK 50 billion ? Are there any obvious sort of challenges for things like permitting or that might delay the timetable that you've set out?
I think we are sticking to our prognosis of around SEK 50 billion for the full transformation. The challenges is electricity supply and grid connection, and I would say especially in Luleå. In Oxelösund, as I showed on one of my slides, we are well on our way. In Raahe, we are well on our way. We need to continue to work with the external factors for Luleå. We need also to decide, I talked about mini mill number one and mini mill number two, in what sequence we do it, and that will be very much dependent on the external factors. Of course, if something spectacular would happen, the closest number of years, we might come back then with an updated investment figure.
So far, we stick to the SEK 50 billion because we think it is in line with what it would cost. When we came out with a figure, we took a round number, with some headroom.
Okay, thank you. Another question, please.
Hi, Tom from Barclays. Maybe just a quick follow-up on that. I have two questions. The first one just on the electricity issues you mentioned on that slide. Luleå was probably one of the ones that there are external issues. You also mentioned HYBRIT is going to basically double the amount of electricity you need, and it's in the same area. Would you say electricity issues for HYBRIT is a green tick, or is it also a sort of orange question mark?
I mean, today in that area of Sweden, we have a surplus of 15 TWh. As a country, we were exporting last year more than 33 TWh. There is electricity. It's more a matter of deciding how to use it. I mean, we don't need all this electricity day one, we will also gradually in the Nordic region build out power generation and grid connection. I'm just showing a picture how it looks exactly today. We don't know how exactly it will look 2030 or 2028 because this is work in progress. I was more trying to point in areas where we still have work to do and some areas that are already green or almost green or soon to be green.
Thank you. Then the other question was just on the, going back to SSAB Zero. It looks like the volumes are ramping up pretty gradually out to 2028, which is I suppose when your new EAFs would potentially be coming on. The initial plan it seems is produce out of Iowa and ship across to Europe. If the profitability, you know, this premium is so strong, EUR 300 per ton, what's the bottleneck to producing more than 40,000 tons now and maybe taking production out of U.S. plate?
First of all sorry.
There you go.
We need to make sure that we get biocarbon and biogas. We are working with that. During this fall, we have been investing quite a lot in our Iowa facility in order to be able to use biocarbon and biocoal. That is one bottleneck that we need to continue to work with. As you said, Chuck, we are having partners. We are increasing the volumes. I've said to Chuck it is not a given that we need to stop at 40,000 tons this year. It could be more, but that will be dependent on how we can ramp up biocarbon and biogas. When it comes to electricity, we have more than 90% of the electricity in Iowa today being fossil-free.
We had a meeting a couple of weeks ago with the Governor of Iowa, and she was promising that they will be pretty soon at 100%, so that will be helpful. It's more about the availability of biocarbon and biocoal.
Thanks.
Okay, one last question before the coffee break. I, maybe you want to come back. I took away one, your second question there just ahead. Okay? Maybe it was already answered. Yes.
I had one question, for Special Steels. I think you showed about the market structure in China or in Asia, where you have a relatively smaller share because there's such a growing amount of.
Competitors.
C ompetitors there. You just said, you know, there are more competitors, but not competing in terms of quality to what you do. How do you see this new competition evolving in the global marketplace? Will this be a local competition for the Asian market, or what do you expect that those can become also global players and be more present in your core markets?
It's a relevant question. I mean, first of all, we do test our competitors' material from coming out of China all the time. So far, touch wood, we haven't seen anyone which is near our quality. That's, you know, the first thing that they need to do is improve the quality. If they manage to do that, we have seen a lot of competitors trying to establish around the world, never been able to do that. I think the stock locations we have is a very good entry barriers for a lot of competitors because there's a lot of costs related to, you know, establishing this stock locations and the service network that we have. If you look at Klöckner, for example, where they've tried to establish in South America, never really succeeded.
I'm not saying it will not happen, but so far we haven't seen. I'm not concerned. That's, I think, the short answer.
Okay, there'll be two more Q&As after. Will you take one last or?
Yes, please.
Yes.
We have received two questions.
Oh, okay.
Online as well, of course. The first one is, what's the progress with HYBRIT? We haven't heard anything on that for some time.
As I tried to explain, I mean, we are now in the phases of planning the demonstration plant. The pilot plant is working. Martin and his team, they are constantly finding new opportunities, and we have decided to patent all of that, and we are sending in patent applications, receiving patents, and developing that process in a very interesting way. The next big step will be the demonstration plant that we will build together and that will be up and running around 2026.
All right.
Okay.
To be said as well, and the shipments of the pilot volumes continues to our customers and partners.
Excellent. The second question is, it's easy to build an EAF. Access to the sponge iron is the scarce source, resource. Where do you plan to source this material if the 1.3 million ton HYBRIT plan doesn't happen?
We plan for the 1.3 million ton HYBRIT demonstration plan to happen, and that is a prerequisite to do the mini mills. Oxelösund we can do anyway because we can run that out of scrap. We have, as I said already earlier, already qualified the majority of the products we produce in Oxelösund today, we are able to produce in the mill in Mobile. There is still a small number of specifications that we need to continue to qualify, but that work already started back in 2016, 2017. In order to transform into the mini mills, we need the demonstration plant, but Oxelösund can be done anyway.
Okay. There will be, as I said, there'll be two more opportunities for Q&As later on. Now I think we all are in some sort of need for a nice coffee break. The webcast will take a pause for 20 minutes. Please be back here at 3:00 where the program will continue. Thank you. Ladies and especially gentlemen today, please take your seats. We're about to start and resume the program as soon as we have everyone ready for that. All right, welcome back. I hope you all had a nice break and some coffee here in Stockholm, hopefully even for you following the webcast. We'll start the afternoon with focusing a bit on steel and fossil-free steel in particular. The demand, as you know, is increasing, not least from trucks and car manufacturers.
Now we'll hear Martin Lundstedt, President and CEO of the Volvo Group, sharing his opinion of the advantage of steel.
Steel, of course, has a lot of advantages. First and foremost, well-known and very competitive and good properties. It is about wear and tear. It is about durability. It is about flexibility. It is about strength, torsion qualities, and it's of course also about different methods to do assembly or to make it come together with other materials. In addition to that, it is also very competitive when it comes to cost and maybe today, the most important property for future benefits, and that is 100% recyclability. Now, first and foremost, it is a must for us in order to achieve our sustainability targets. We are already now getting started.
We have a very good cooperation with not at least SSAB on this. Number one, really achieving our own sustainability target. As I said, we are part of different very important value chains that need to be decarbonized. I like this combination that what the world are perceiving that two of the hard-to-abate sectors when it comes to decarbonization, both steel and transportation, by joining forces, we can show the way that it is possible for this value chain, but also further downstream then when it comes to the use of our products in transportation, in infrastructure, in logistics, and thereby making sure that these value chains will be decarbonized. That is the priority, and we see also that customers are ready to invest in this also from a product and solution perspective.
Yes, the availability of fossil-free steel is crucial for other businesses to enable the reducement of their carbon footprint and to stay profitable. So is SSAB able to ramp up to meet this demand? Here to reassure us about this is Tony Harris, Head of Sales and Business Development. Please welcome up on stage, Tony.
Hi.
Well, we heard Martin Lundstedt describing their view on this. How would you describe the demand for fossil-free steel?
Well, I think Martin put it really well that.
I think he said at the end there consumers are prepared to invest in this, and this is what we see now. They're investing in their own future. We see that all the time now that the demand from the market is higher and higher, and they want it sooner and sooner in greater and greater quantities. That's why we looked at, is 2026 soon enough for us, or do we need to do something quicker than that? That's why we've come to market with Zero today because we know that there is a demand from it and the customers want it.
We'd love you to elaborate a bit on that, please.
Thank you.
There you go.
Good afternoon, everyone. Just before I start, a little admission. I'm 56 years old. Today is the first day I've ever worn makeup. Yeah, there's a 61-year-old in there with the same problem, but it's quite liberating actually, but no. I came yesterday for a rehearsal, as soon as I left, they said, "We think you need to come and have some makeup," which I thought was a bit of an insult. It's necessity is the mother of invention, and when you get to 56 and you have a face like this, you need to cover it up a little bit. If you think about necessity being the mother of invention, I'd just like to take you back one week to the IPCC report on climate change.
What they said was that global greenhouse gas emissions must peak on or before 2025 and must reduce from the 2019 level by 60% by 2035. If we can do that, that will limit global warming to 1.5 degrees Celsius. Just think about that. If we decide to wait to introduce new products for another 10 years or so, if the market isn't pushing us to introduce new products in the next 10 years, what future does this planet have? What future do we have? Maybe when you hear that, and you think that people are reading it, and people are prepared to invest in it, you understand why there's a demand for this product that we're taking to market now. As I said, I think in [audio distortion]. Does this work? Yeah. Yeah.
I think, in the past, the division heads talked about it really well. We have a vision of a stronger, lighter, more sustainable world. How do we get there? In the past, we had the most efficient blast furnaces. We were better than the peers in Europe. We were better than the competition from Americas. We were better than the competition from Asia. We emitted less CO2 from our blast furnaces than all of our competitors. That was great. We were 1%, 2%, 5%, 10% better. That was great. That was delivering something. That was producing better steel. At the same time, we went to the market, and we, they, the guys talked about it earlier on today, and they talked about mix enrichment strategy. How we can take more special and premium products to market, more high-strength steels.
How do we introduce customers and upgrade customers to stronger and lighter materials, so they get more benefit in the use phase? Johnny sort of cheated my statistics by using this huge million tons of CO2 savings. What I wanted to say was that we've been working on that for the last 20 years. This is, y eah. We've been working on that for the last 20 years, and that is the way that we've been delivering a stronger, lighter, and more sustainable world. In the last half of the last decade, we recognized marginal benefits will not deliver what the planet needs. I think great credit to the people who saw this well before, well before I did, but we came with the idea and the initiative of HYBRIT.
Now we're in a situation where we have HYBRIT as a concept, and we have a pilot plant that is producing steel. That pilot plant has enabled us to deliver plates of material to Volvo Construction already, and it's allowed us to trial products with a lot of our customers through pilot shipments of 500 tons in 2022. We're getting product to market quite quickly, but probably not quickly enough. While we talk about fossil-free steel, the opportunity for us to take those 500 tons to market gives us the chance to create stronger relationships with our customers, be their partner of choice on their decarbonization journey. That's been really good for us.
What it's meant is that we've been able to secure volume commitments going forward, supply agreements in place, and then also in terms of product qualification, we've been working with customers to upgrade projects so that what they buy in the future will match what we want to sell because they want to be part of the fossil-free journey. As Olavi showed earlier, we will not be selling exactly the same product mix in the future that we sold in the past. The customers need to upgrade. We have a lot of projects ongoing with customers where we're upgrading that product already. Of course, synergies, marketing benefits. We're raising awareness in the market together for our mutual benefit of how we can take CO2 out of the value chain.
This picture here is a 30-ton dump truck produced by Volvo from fossil-free steel. I think many of you may have seen this picture before. It was sold to NCC, a Swedish construction company. This picture was taken in June last year at a UN environmental conference in Stockholm, Stockholm+50. On the picture, you can see various dignitaries. We've got the CEO, Martin Lundstedt, who you just heard from Volvo, the CEO Tomas Carlsson from NCC, Melker Jernberg from Volvo, and Martin as well. We have a UN special climate change envoy, John Kerry, and then the Swedish Minister for Climate. Now, I apologize for anybody Swedish in here, but Annika Strandhäll.
Okay.
Not bad. Not bad. Okay. I was sitting trying to think of how I could incorporate a joke in this really, and I couldn't do it very well. This truck, this vehicle, I think has probably been photographed with more dignitaries than Lewis Hamilton's Formula One car. Because there are people visiting this truck all the time. That's how we're managing to raise awareness. Do we see just awareness from mobility? Just automotive? No, we don't. It's very true to say that when we started this outset, we're constantly assessing our customers' demands and needs and what they're trying to, how they mature they are in their own sustainability journey. Automotive are very much at the forefront of that progression and still are.
They are the ones with the toughest decarbonization. As this slide shows, this is Peab from construction, Cargotec, lifting and handling equipment as well, what we see is that all segments now are moving along this decarbonization journey at one pace or another. They're all setting themselves very ambitious decarbonization targets that you can see there. Mercedes-Benz Group is a great case of ours. This is how we leverage fossil-free steel to grow our customer base with selected partners. In the past, I think it's fair to say that we were too small. We weren't important enough for Mercedes-Benz to be a partner.
Now we're in a situation where they really recognize the value of what we're bringing to them, and in order for us to increase the volumes of the products that we supply to them, we are now trialing and validating multiple parts for future platforms. As Oliver said earlier, we're getting in at the design phase so that when they go to serial production, we'll be in a position to supply Mercedes-Benz with a very large volume of steel. Here's just some automotive, some industrial, and some construction companies that are partners with us. These are the ones that are our strategic partners up to this point, I would say. We are signing up many more customers as partners for distribution. I can say there's a huge queue of customers who want to partner with us for supply from 2026 onwards.
The problem we're gonna have is not about a demand from the marketplace. The problem we're gonna have is the limitation of our supply, as Martin has shown you, as we progress, as we go forward. The demand from the market is greater than our ability to supply. If we think about what we can do to bring the product to market a little bit quicker, here we look, we project forward that by 2050, the global market for steel will grow by 1 billion tons. Not all of that can be produced through recycling, so we need a solution that involves both recycled material and iron ore. At SSAB, we want to be part of that solution in both parts. Fossil-free steel, HYBRIT, that gives us that virgin iron ore material in 2026.
We want something sooner in 2023, and that's why we're going with recycled material with the SSAB Zero product that you've heard about already today. This is what it looks like. From today, SSAB Zero will be commercially available for ordering. We will supply that to the market during Q2. From today, we're able to supply, as Martin already said, we're able to supply pilot shipments of fossil-free steel. That will not be commercially available before 2026. We've got two offers, one available now, one available for trialing, for use for piloting, but not commercially available. Each of those products will have 0.0 CO2 equivalent emissions per ton, 0.0 equivalent CO2 emissions per ton.
They will be produced in slightly different ways or using slightly different raw materials. They'll be produced in the same way, but the raw material base will be different. Zero will be produced from high-quality recycled material, whereas fossil-free will be produced from fossil-free sponge iron based on HYBRIT technology. What makes SSAB Zero unique? Zero carbon emissions in our own operations. We're not just claiming it. We're not just giving you a certificate that says it. This will be third-party verified by DNV. We will be using fossil-free electricity and fossil-free fuels. We will be transporting internally with fossil-free diesel. There will be no carbon emissions. There'll be no carbon offsetting and no mass allocation to achieve zero.
When you buy a ton of, or a plate, or a sheet, or a coil of SSAB Zero, you can know that when you receive that coil or sheet or plate, that it has been produced with 0.0 CO2 per ton. It's not gonna be benefiting from planting trees in the Amazon. It's not gonna be benefiting from allocation of marginal benefits spread over a whole volume. It will have 0.0 kg/kg . The route, I think, this has already been touched upon, but it will be melted in our arc furnace in Iowa and cast to slabs there. If it's destined for the U.S. markets, it will be rolled and finished. The accumulated CO2, there'll be some residual elements still, but will be below 0.05 kg/kg of steel.
You're all better with numbers than me, I do remember from my school days the principle of rounding, we're below 0.05. If it's destined for European markets, it will be shipped across the Atlantic using biodiesel as the fuel, and it will be rolled and finished in our European plants. Again, a cumulative CO2 output of below 0.05. I'm very proud to say today that no coincidence that Martin Lundstedt was the customer that we took the video with. I'm very proud to say today that our first customer has signed a purchase agreement with us, and that is Volvo. They're gonna buy a substantial volume of SSAB Zero product from us. They're gonna start receiving material during quarter two.
And we're very, very proud that they're on this journey together with us, and we're helping them to achieve their targets. They're by no means the only customer that we're talking to, and it's by no means the only segment. We have other partners that we are currently talking to who are specifying volumes for Zero in quarter two. I think it's really important for you, I know I heard the questions before, and I guess I'll probably get some more questions. How much demand is out there? There is more demand than we can meet. I think Martin already showed this a little bit earlier, but how does it look now? Between 40,000 tons this year of Zero, 100,000 in 2025.
Once Oxelösund is converted, we will have a mix of products that we can sell from there that will be either fossil-free steel or Zero. By 2030, when the blast furnaces are transformed into mini mills in Luleå and Raahe, we will stop blast furnace production, and everything will be produced with arc furnaces. Thereafter, and this is, this is an illustrative guide, thereafter, we will have the flexibility, depending upon market demand and the cost base and the access to biofuels and biogases, we'll be able to make a choice about how we supply, in what proportions, the green steel that we're offering. After 2030, nothing through a blast furnace, everything will be green. I think my final slide. From today, SSAB Zero is available. From 2026, SSAB fossil-free is available. We see a need for SSAB to embrace both steel-making processes.
One from virgin iron ore, because there won't be enough recycled material available for the challenges that the industry faces. Also then from recycled material. With both products, 0.0 emissions, we will have the greenest steel offer in the world. That's it.
Thank you so much, Tony. Do you mind if I ask you a personal question? It's not about the makeup. How does it feel to present SSAB Zero today?
I think, w ell, I will answer it, but I'd just say that in 2015, 2014. In 2014, I was working for a different company, we merged with SSAB. I remember I went to the Swedish Steel Prize, I remember thinking, "How is it possible that I could be working for a company that could put on an event like this?" It was such a great event, I thought, "How is it possible I could be working for a company that could put on an event like this?" That was 2014. 2016, I'm introduced to HYBRIT, I'm just a stupid salesman from England.
I sit there and think, "Well, that's a lot of money for nothing." I didn't have the vision to see it, so I'm very proud to work for a company that has individuals in it that are, first of all, competent to sort of reinvent the whole steel production process, but then also to understand and to be such a good global citizen that they are taking upon themselves to solve some of the challenges that much bigger companies than us could have been at the forefront of. No, we did it, and I couldn't be more proud.
That's so great to hear, Tony. You'll be back to take questions.
Yeah.
A bit later on.
Right.
Thank you for now.
Thank you.
We're moving on to the production footprint, the opportunities and the challenges ahead. Please welcome Carl Orrling, Head of Transformation Office.
Thank you.
Carl, speaking about challenges, in a short way, how would you describe them?
Well, of course, we have to be humble. SSAB, we haven't built a factory or plant of this scale in the last 50 years, so we really have to have good control and manage all the full scope of this transformation project. As all of you know, the devil is in the details.
Did you sleep well at night?
Yes, I do. If I have some concern, you know, there's great AI tools that you consult nowadays.
For sleeping, I guess. There you go, Carl. Please.
Thank you. I will take you through a tour of our future production footprint, and we'll start with introducing the existing SSAB production system. SSAB today, we operate steel mills in Sweden, Finland, and the U.S. If we start in the U.S., we have very cost-efficient and relatively modern scrap-based electric arc furnace mills, one here in Iowa and one in Alabama. If we then move on to the Nordics and starting in Oxelösund, roughly an hour and a half south of here, we have an integrated plate mill. As Johnny already explained, this plate mill is 100% focusing on quenched-and-tempered product, and I would say they are religiously devoted to this type of product here.
If the strip production system in Sweden is consisting of slab production in Luleå by blast furnace, we have rolling and finishing in Borlänge. In Finland, we have an integrated mill in Raahe that ships its hot-roll coils down to a cold mill complex in Hämeenlinna, where we make cold-rolled, galvanized, and also tubular products. If we look now ahead and SSAB's transformation to fossil-free steel making based on electric arc furnace, we have a very good starting position. We have vast experience of operating electric arc furnaces in the U.S., and also in the last decade, we've introduced some of the most advanced quenched-and-tempered products into this production system. We have also, starting last year, with pilot shipment of fossil-free sponge iron into the system.
What it allows us to do is already ahead of the Nordic transformation to qualify the product by this production route in combination with electric arc furnace. That gives SSAB a unique starting position when we're now transforming the Nordic production system. Speaking about the transformation, we will start with Oxelösund. Oxelösund, the conversion of Oxelösund is the first transformation project of the three ones. The Oxelösund conversion will basically be taking place by closing down the existing coke plant and the two blast furnaces, maybe it's noteworthy that this coking plant is the world oldest operating coking plant from the 1950s. We will construct a new electric arc furnace that will be placed outside the existing steel plant.
Because we have such a big site, we will then be able to run the old facility, the old production route, in combination with the new one during the transition period. Those we can minimize any disruption to delivery of supplies. We will also expand the infrastructure for biofuels, and we will also build a more efficient scrap and material logistics. The world-class rolling mill and our quenched-and-tempered line that is based on proprietary know-how will remain on this site. Just wanna point out that you can see where the harbor is located and how close it is to the new electric arc furnace shop, which allows for very efficient material handling from delivery of sponge iron and scrap into the melt shop.
This is another view of the Oxelösund site. You can see in the red building the new electric arc furnace shop. Although we consider this to be the small transformation project, you can still see it's a relatively large building that will be built here outside of the existing steel plant. A further way to illustrate what we will do in Oxelösund and how we will convert the site is this production chart. This production chart starts with metallurgy, and then it goes through the rolling process all the way to the delivery. What will happen here is basically we will decommission the coking mill, we will close the blast furnaces, we will take away the hot metal handling, we will take away the oxygen steel making.
We will put in a new electric arc furnace that will replace this. This electric arc furnace will be powered by a new power line that is also being in planning for being built. We will also add an infrastructure for biofuel and also handling steel and scrap and sponge iron, and that basically illustrate the conversion of Oxelösund. As said, we will keep the very powerful rolling mill and all the quenching lines that Johnny already presented. If we go to the mini mills, we were thinking that in order to explain the SSAB mini mill and the new concept, we will show a short movie that will take you through the new production and production flow.
In SSAB's new electric steel mill with integrated hot rolling and further processing, we are changing raw materials from iron ore, coal, and coke to sponge iron, scrap, and electricity. This results in a 90% reduction in carbon emissions. Scrap is transported to the facility by train or boat.
Sponge iron is transported to the facility by train. Scrap or sponge iron are melted into liquid steel using fossil-free electricity. Slag formers and alloys are added. The steel is tapped into a ladle. The steel is heated to higher temperature. Slag formers and alloys are added, and impurities are removed. The composition and temperature of the steel are fine-tuned. Nitrogen and hydrogen are removed from the liquid steel. The carbon level is adjusted with oxygen. The steel is tapped for casting. The strand is cooled with water and cut into sections. The temperature is evened out in a tunnel furnace with electric heating. The slab is rolled thinner, and oxide scale is removed with water. The hot strip is then cooled. The strip is rolled into coils. The hot rolled coils are transported by train or boat, or further processed in the integrated facility.
Here, the steel can be processed and final products with different properties can be created. Finished coils of premium high-strength steel with virtually no carbon footprint can be delivered for various customer applications worldwide. Buildings, bridges, vehicles, railways, and much more. The transformation means that carbon emissions decrease by 90%. When coal and coke are replaced with fossil-free electricity, the emissions to air and water decrease. The value chain is expanded, and the product range is broadened in line with market demands.
Thank you. Of course, our production in the real world operates as smoothly as seen on the movie. The mini mill concept, as we see it's an electricity-based process. It's well integrated. It's under one roof. It's very short lead time, basically three hours from starting of the smelting process of the raw material until we have a hot rolled coil on the ground. We also have a very high energy efficiency because we preserve the temperature or the high temperature from the casting into the rolling. Also by building new facilities, SSAB can achieve the highest degree of digitalization and automation without considering any legacy. Also, we are also building the mills to be designed to handle a variety of raw material scenarios, so basically 0% to 100% sponge iron or scrap.
We have also decided to build the new mills on our existing sites. Why is that? Well, it turns out that we have relatively large sites in both Luleå and Raahe, we can actually, on the existing site, fit in a new plant without interrupting or disrupting the existing operation. That means that SSAB will be able, during the transition period, to run the new and the old facilities in parallel. Of course, if you look from a disruption point of view or delivery point of view, this minimize the risk. The other thing which we have in advantage to our projects is that on these sites, we already have established logistics. We already have direct access to harbors, railways, road transportation, that is the necessary infrastructure to feed the mills.
We also have existing raw material handling capability that we can utilize today. We also, as presented before, are designing the mill in line with existing capacity. We're targeting in the first phase of the transformation to have a nominal capacity of 2.5 million tons for each mill. Actually turns out that this size is relatively ideally suited for the mini mill concept, both from a OpEx point of view and a CapEx point of view. Actually, the current relatively small size of SSAB works in our advantage in this case. Of course, you know, when you're building new mills, you have to think about future opportunities. We will of course add potential for further additions. We will add more advanced processing opportunities as well to integrate these facilities with local DRI production. This is a beautiful aerial shot of our Raahe site.
In Raahe, today we have. Here, we have the harbor area. We have the existing coke plant over here, existing blast furnaces over here, steelmaking, rolling mill. This mill was taken into operation in 1964, and the hot strip mill was, I think, started in the 1970s. What we will do at the Raahe site is basically close all of these old existing facilities and replace them with a new mill that you can see here in the yellow area. It will be an integrated process with a melt shop over here, the hot strip mill, and the finishing and shipping bay here. Very high efficiency, and we will basically eliminate all of these internal material movements that we have in the existing facility.
In the Raahe project, also a bit unique maybe for European perspective, but we are managing our own 400 kV power line project. That's an SSAB project that is approved, and there is plenty of effect available for further expansion at this site beyond this first investment. Moving on to Luleå, basically what we will do in Luleå is close all of the existing facilities, the coke plant, the blast furnace, and the steel plant. We will, similar to Raahe, replace them with a melt shop and a hot strip mill. We have also added a new cold mill complex to the Luleå facility. Why is that? Because we see we want to take a bigger part in the automotive market and the mobility market, but we needed to expand our product offer.
With this new facility, we will be able to be producing third generation of advanced high-strength steel products for the automotive sector, but also expand the dimensional offer of both AHSS steels, but also quenched-and-tempered steel products up to 2 m wide. Of course, with new facilities comes new abilities, and therefore, we will also be able to expand our offer in terms of improved tolerances, but also new type of coatings. Also, this facility will deliver products for further downstream processing. Just to show you a little bit on the layout, and how, I would say it's a relatively large mill. I think it's roughly 1.5 km long, but you have the melt shop, the strip mill, finishing shipping bay, and the cold mill complex in one line basically. Extremely high efficiency, short lead time.
In the lower picture, you can see the placement of the Luleå future mill in location to the harbor, and it's roughly 700 m for bringing in scrap by vessel. We saw we will have train coming in, and then there's roughly the equivalent distance of the shipment of the finished product. There will be a very high material flow efficiency of incoming raw material and outgoing finished products. Maybe we are, of course, we are SSAB, but we think that these two sites, Raahe and Luleå, they are probably, when you take all of these factors into account, the best places in Europe to build new, efficient, fossil-free steel mills. Also, the new mills will give us a new level of operational flexibility.
If we take lead time, in the mini mill, basically when you turn on the furnace, you will roughly three, two hours later start the rolling. That means that you will have the first coil on the ground within roughly two and a half hours. We will be able to produce hot strip coils at a rate of roughly 240 tons per hour. This lead time reduction in the production, we estimate, will be able to reduce the delivery time to customer from six weeks to two weeks, and that would be a game changer. The other game changer is the time it takes to adjust the production. Today in the current system with a blast furnace, if you wanna stop a blast furnace two or three days, you need two shifts to prepare.
If you wanna stop it for a longer period, you need two weeks of preparation. In an electric arc furnace shop, you can stop it without one heat within four hours. Our future ability to adjust to market demand or for instance, if, or business cycles will be much more flexible than what it is today. Maybe the most important contribution to society and to the, to the reduction of climate, greenhouse gases is the reduction in CO2 emission. As stated before, we will by this transformation, reduce the emissions of CO2 from Raahe and Luleå by over 90%. I think it's fair to say that this will be the single biggest contribution to the climate targets of Sweden and Finland as nations.
If we look at the energy consumption by this mill, just the internal mill, it will also reduce the mill consumption if we exclude sponge iron production by over 75%. It's fair to say that we will replace 4 equivalent TWh of carbon energy with 1 TWh of fossil-free electricity. Even if we add the sponge iron production, I think Martin said 5 TWh, you can still see how much more energy efficient this process is versus the existing one. Cost structure is of course also important part of the business case, if we take a 2030 scenario, where we also have the impact of cost of CO2 emission, we estimate internally in SSAB that we will have roughly 12% lower cost of the new production system versus continue with the blast furnace and BOF.
Maybe more important is also the reduction of the fixed cost proportion down to 12% and less. With this change of production setup, SSAB will be effectively moving its cost structure out of the carbon economy, we will have more flexibility, and we will also have an improved cost position in relationship to our European peers. To summarize, with the U.S. mills, we are in a very good starting position. We have, I would say, a continuous exchange of information, technology, experience with our U.S. operations, so we are sort of experience a second wave of synergy from the IPSCO acquisition that we did in 2007. As stated, we have very good site. They're well suited for the EF mills. There is plenty of fossil-free electricity in both areas.
We have harbor access, railways, everything is existing, and we have a skilled workforce also in place. The new mills will lead to a step change in efficiency. We will build them from fossil-free from the start, and in addition, with more capacity for high-strength and premium steel, supporting the SSAB's strategic growth targets.
Thank you so much, Carl.
Thank you.
You'll be back in a short while to take questions. Now we look into a concrete existing example of the transformation of SSAB. Let's go to Mobile, Alabama.
This first heat of fossil-free steel, it's an honor for us to be able to do this and to be on the forefront of sustainability in our field. It's very exciting.
It feels, it feels good. I was glad I wanted to do it. Feel very accomplished.
The reason that I started at SSAB was because we were already then the leader. You know, we were taking those steps with the HYBRIT project and that initiative, and I think it's important that we continue to be a leader. Because of course we wanna do this, and we wanna be the first, but we also want all the other steel companies to do the same thing because in the end we're all working towards the same goal. This is the first time that we'll be making a full-scale heat from these fossil-free materials, and we'll also be making an SSAB branded product which shows that we can really do this for real.
To say that you're the first melt shop manager to ever produce a, you know, a ton of steel with these types of raw materials, it's very exciting. We have three grandchildren, you know, and to leave this earth, you know, better than we found it's exciting. It's. That's what it means to me.
Inspiring images from Mobile, Alabama, for sure. Well, this is of course one of the most radical changes in producing fossil-free steel, the use of sustainable raw materials. We'll dig into the SSAB strategy around this.
Mm.
I'd like to welcome back Viktor Strömberg on stage.
Mm.
Welcome, Viktor.
Thank you, Karin.
All right. We'll do this a bit together.
Uh.
Let's start with the major changes, if you were to describe them.
Well, it has been mentioned, on and off here during the presentations what we're shifting out. Essentially it's a big shift from what we buy today, what we're gonna buy in the future. Just to illustrate it, if we can get that on screen. Here we go.
There we go.
Yeah. At the highest level of simplicity, we're gonna go from buying iron ore and met coal in very large amounts to a combination where we use sponge iron, recycled scrap, electricity, biogas, and biocarbon. Those are the most important changes. It is an important one.
Mm.
You know, it has been mentioned, the sort of value-based argument around it because we burn about 2.5 million tons of metallurg coal. We're not a very large steel company, but is that a lot? That is quite a lot. We burn 5 tons every minute around the clock, every year in our blast furnaces of coal.
Mm.
We don't wanna continue doing that for the next 40 years.
To be flexible, you'll need to use both sponge iron and scrap.
Yeah.
Please explain a little bit about your strategy around this.
Yeah. We are combining some of the commercial elements that we've seen as well as with the sourcing strategy. Let's dive in a little bit to the sponge iron scrap balance. Today we buy 3.5 million tons of scrap, including the U.S. and about 7 million tons of iron ore. This sequential transformation will phase out the iron ore, and instead we will introduce a mix of sponge iron recycled scrap. Where this line is, we are a little bit flexible around. We wanna increase both of them. I think both will have to go up, I wanna just show that the our strategy around sponge iron revolves around sort of three avenues, you could say.
The first one is the HYBRIT pilot and demonstration plant, that fantastic cooperation that we have together with our partners. Now we're in full speed planning for the 1.35 million ton HYBRIT demo plant. Of course, we have the exclusive right to source that material from these plants. Beyond that, we have a fantastic, very rewarding, unique partnership with LKAB, the mining company, that is, you know, it goes back decades. We have together optimized this value chain for many, many years. LKAB has made it their strategy to transition into sponge iron, which is very helpful for the whole transformation of SSAB.
They're planning to start by converting what they call their southern system, which is the one rolling around Malmberget and Gällivare, to 5.4 million tons of sponge iron. That is essentially we take all that output today to our blast furnaces. They're intending for that to be used in our electric arc furnaces, which is very helpful. As was also been mentioned, we still have the option to build own DRI plants based on the hybrid technology that we have together developed. You know, everybody has that option in the partnership, and you know, that could be relevant as well for SSAB, for instance, in other geographies, like in the U.S., and/or depending on what happens with this sort of LKAB roadmap going forward.
That's about the sponge strategy. Let's talk a bit about scrap because.
Mm.
As we have heard, there are different kinds of scrap, so please elaborate a bit on that.
Yeah. Let's talk about scrap. There's a difference between scrap and scrap. There are many different classifications of scrap, but if you were to simplify it at the highest level, which I intended to do here, let's call it high-quality scrap and lower quality scrap. What do we mean with high-quality scrap? Well, high-quality scrap is essentially when we know what it is? It is pure and not so many residual elements in it that we don't want. Little bit more expensive, a little bit rarer, not fully available on the market in the same quantities. Lower quality scrap can be anything, bicycles, you know, different car parts, train wheels, you know, you name it. That is generally available.
If you look at what we have on the Nordic market. Before I wanna go into this, I also wanna make a point around sponge iron and how it relates to the quality of scrap that you need. This is just one example. When we produce in Mobile today, one of our sort of high-end products, we have to use high-quality scrap. We cannot use very much low-quality scrap because of the quality elements of the product. In fact, we have to use some pig iron, maybe sometimes, to complement that. The more you get sponge iron into the equation, the cheaper scrap you can buy. We can see if we were to have 50% sponge iron, which is a pure iron, then we don't need very much high-quality scrap at all.
That's another value element of sponge iron, is that it enables the purchasing of cheaper scrap on the market. Our strategy around scrap then, we're in a good position here also with sort of three sources. The first one is the scrap that we generate ourself. In our global production network, we actually generate a whole lot of scrap, about 1 million tons, and this is high-quality scrap. We know exactly what it is? It hasn't been out there circulating. This is just coming out of our own processing. This will of course circulate back. We also have partnership with customers, where we ship the steel to them, they do some stamping on it or whatever, and we get it back. That's also about 0.50 million ton of that type of high-quality scrap.
The remainder, depending on the level of sponge iron we have in the system, we will then partner up with scrap collection companies to source on the open market. It could be, you know, assuming we have very little sponge iron, it could be up to 6 million tons, including the U.S. If we are fully industrialized, and LKAB succeeds with their roadmap, it could be not so much.
The crucial question that's been mentioned before is of course the availability of fossil-free energy.
Mm.
Will there be enough? Sort of SEK 10,000 question.
I assume we will talk a little bit about that. Let me just start by on the electricity side of this equation by it's obvious maybe to many people in the room, but we have very favorable conditions in the Nordic, as I said in early. We have a fossil-free energy generation about decades before some of our other competitor countries in Europe. This is also typically lower priced in the Nordic Region and has been even though we have high prices at the moment, this is still a relative game versus continental Europe, especially.
Let me clear up a little bit what we need, and there has been lots of newspaper articles around it, and people like to throw around big numbers when they wanna throw a wrench into our sort of transformation agenda. Just to be explicit, we need, including HYBRIT, about 9.5 TWh. 4.5 TWh for our own operations and 5 TWh for the first HYBRIT demo plant. We don't need it tomorrow. We need it sequentially over the coming years. In our base plan, the main part is 2026, around three years from now, when we will have converted Oxelösund and starting to ramp up a HYBRIT demo plant. The second jump in this picture comes when the first mini mill, which needs 2 million tons, 2 TWh more, around 2028.
The last mini mill or the second mini mill need another 2 TWh more than what we buy today. Forget other numbers, this is what we're talking about, 4.5 TWh plus 5 TWh.
Okay, great. Thank you so much, Viktor. Please, anything more you'd like to add before we go to the Q&As?
You know, you asked also will this electricity exist?
Mm.
And, and I think Martin mentioned that, w e need to build our electricity generation in the Nordics for sure if we're gonna succeed in decarbonizing our society. In the end, it is a regulatory and a political issue on, you know, how do we allocate this sort of resource. I don't wanna precede that discussion, whatever. Let me just offer two observations that I sort of picked up here. The first one is Sweden is a net exporter of electricity, and in fact, it peaked last year at 33 TWh of exports to continental market, and it has been growing over the years.
Another observation that I picked up, a few months ago was, the huge projects that exist for offshore wind in Northern Sweden and Finland, there are a number of wind parks being planned with a total capacity of over 70 TWh for offshore wind. Maybe not all of these will materialize, but there are certainly big ambitions over the coming sort of decade for building out electricity generation in our part of the world as well.
Thank you for adding that, Viktor. Please stay on stage, and I'd like to welcome back Carl and Tony for another opportunity of questions and answers.
Mm-hmm.
As before, we'll pass microphones around. We have a question there in back line, please. In the middle, sort of. Yes. Let's see if it's on. Try again, please. I think it works now.
Hello, I'm Maxime Kogge from ODDO . You have a number of your competitors who have their own internal scrap collection capabilities, and they have made some M&A in that direction too recently, like ArcelorMittal. Can you perhaps first spell out what are your internal capabilities and whether you plan to make M&A in that direction to secure scrap, especially high quality scrap that you highlighted was necessary for your processes?
As I pointed out, we have these three avenues, our internal, our customer return flows, and then partnership with scrap companies. And, we have, you know, we did in part of our distribution business, Tibnor in the Nordics, we have some sort of scrap collection capabilities there, but we are working actively with sort of scrap collection companies to partner up who wants to be part of this fossil-free roadmap together. There are, t hat's all I have to say about that.
Okay, great. You can step up a bit in the light.
Mm-hmm.
That'd be perfect. Okay, next question.
Especially if the makeup is still on.
Yeah.
You know?
Yeah, they all had makeup, I just wanna say that. Yes, please. Do you have a microphone over there?
Yes, I have a microphone.
In the middle.
Yes.
Sorry. There you go.
Hi. Hello, this is Alain Gabriel at Morgan Stanley. I guess from the slide, the area slide that you showed, looking at the scrap versus sponge iron needs, should we infer that around 70% of your needs would be from the scrap? If I put a more skeptical hat on, it looks like the key bottleneck or one of the key bottlenecks will be the availability of metallics, whether it was scrap, high quality scrap, or sponge iron. Do you see this as a key source of value leakage that will probably force you to invest more upstream in DRI or scrap collection?
I don't think it's gonna be about value leakage. I think everybody, every participant in the value chain will earn their sort of fair share in this, I would expect in the end. That has certainly been the case until now. There were a few slides I didn't show now, but one is, you know, sponge iron will, I think, eventually be a liquid market. There are big plans over the world to build out a sponge iron capacity, both captive but also from the mining companies. So I imagine over the coming years, a more liquid market will emerge around that. Scrap will obviously, and that scrap has been very volatile, and that sort of had historically followed the sort of steel prices in that sense.
The other thing I wanna point out is that Europe is already today the world's largest exporter of scrap outside of the region. I think scrap will eventually become more of a regional market and a critical resource that will be seen as such in the transformation of our industries.
If you would like to add something, please do so.
No.
Otherwise, we'll continue. Okay, next question over there, and then we have one up front. There you go.
Thank you. [audio distorion] . The one question is for Tony. I think you talked about the great interest of your customers in the green steel product. Can you give us a very high level view what the clients really think? To what extent are these clients really into the green steel, the true offering like you have? How much are the clients just looking at the CO2 reduction and would take everything with a certificate, a bundled product, as you mentioned? How do the green steel premier differ for that kind of two buckets of products? The other question for.
Can you start with just one? I promise you'll take the another one afterwards.
I think it's a good question, and I think that's why we are going to great lengths, or I've just been to great lengths to say that if you buy a sheet or a plate or a coil from us, it is absolutely with zero CO2 footprint. I think as we're at the sort of this outset of decarbonization, as we're at the starting point, people have been taking whatever they can get.
If you can buy a certificate that is, that has, that is brought about through an allocation process, it's of great interest to you at the start because you can buy it and it can contribute to your decarbonization targets. In the fullness of time, I think what's really gonna be important to people, consumers, customers, the people that own those companies, is really what the CO2 associated with that material is over time when there is a differentiation. I think that's why we went to the market. The question was said earlier, "Why, why do you go with EUR 300?" As far as I'm aware, nobody has gone with a number as high as EUR 300 yet, but we're not offering what other people are offering, and we think it has a value.
Okay, great. Your second question?
Yeah, the second question is on the, for Viktor, on the production system. I think you're boldly talking about EAF rollout. What we see in the last couple of years, there's a growing discussion about using a melting furnace as an alternative approach to deal with all kind of steel grades. Obviously, this has not been a discussion at SSAB so far. Can you maybe give a bit of color why this is like this and why you don't need kind of other melting technologies?
Well, I can say we have actually also looked into that option, but I think that the main difference between us and some of our European colleagues are that we already have existing electric arc furnaces within our company, and we have tested them, and we have all that experience, and that has made us feeling quite comfortable. Also we see that there's a greater flexibility and, I would say, opportunity for future growth with this route.
Thank you. We have a question over here. Just pass the microphone. Or someone just have the microphone already. This second row has been waiting for a while, so afterwards, take that. Please go ahead.
Hi, it's Patrick Mann from Bank of America again. Can you just talk a little bit about the sponge iron with LKAB, the southern system doing sponge iron outside of HYBRIT? Are they using the HYBRIT technology for that? I just wasn't 100% clear on that. Does that take up all the capacity to potentially scale up sponge iron production within HYBRIT later? If you know what I mean. Thanks.
I think I know what you mean, but yes, LKAB is also fully committed to the HYBRIT technology, and as far as I, y ou should ask them. You know, this sort of initial transformation is around the HYBRIT technology. LKAB also has a long-term plan to convert what they call their northern system, which is the Kiruna system, going out there, and that's further ahead, so to say. They will still, even after having converted the southern system, sell pellets to the market.
Maybe.
Did I answer your question? I hope so.
I mean, maybe another way to ask it is, what's after the demonstration plant at HYBRIT? Does LKAB going on its own to make sponge iron on the southern system mean we're gonna pause at 1.3 million tons on HYBRIT, and they're gonna make sponge iron themselves?
The initial HYBRIT agreement, so to say, is a three-step rocket where we first did the R&D, then we did the pilot plant, and then we're gonna do a demonstration plant. That's sort of what we have agreed as a roadmap. Whether there's a continuation after that, we will have to then agree on, so to say.
Thank you.
Okay, thank you. I think, the guy here in second row has been waiting for a while. Please.
Hi, Tristan Gresser from BNP Paribas Exane. Maybe a follow-up on that. Can you tell us when do you expect to make a decision on what's happened after the demonstration plant? Also, do I understand correctly, as other peers, you would be looking potentially at buying externally in countries that have natural gas resources to procure your sponge iron needs and so forth?
We don't have that in our sort of base case that we will go out and buy natural gas to produce sponge iron. We are committed to our sort of fossil-free journey here, if you want. You know, our immediate focus now is to get the demonstration plant, the investment case sort of locked up for that, including, you know, who invests and how that all is gonna work. Then, you know, eventually there will be more investments by, I think, what is the next step after that, but we'll have to revert on that.
All right. Question over there. Yes, please go ahead.
Yeah. I guess this is to you, Viktor, or anyone else. You mentioned that SSAB has then the exclusive right for the iron sponge in the demonstration plant. I was j ust curious about have you talked about the pricing model? Are you seeing, I mean, you and HYBRIT, will you have arm's length distance on the pricing? You mentioned also that there might be a pricing for iron sponge to emerge. Will your pricing follow that?
Yes. I mean, at the moment, we are convinced we're gonna build the most efficient value chain when you look at all the way from the iron ore all the way to the finished it. That's what we're working together with as a sort of a partnership. Yes, you know, we need to agree on the transfer pricing, and it needs to be a win-win for everybody. It also determines who in the end sort of invests in the who contributes to the sort of the demonstration plant. We are, yes, in discussion, but nothing to be announced yet.
All right. Another question over there. All right.
Hi, it's Christian from SMBC. Question to Viktor, and I appreciate its early days, but switching your discussion from sponge iron to scrap metal, you're gonna be expecting to source between 2 million and 6 million tons of scrap metal in the future, if I understood your chart correctly. What's the sort of recyclable scrap metal capacity per year in the Nordics, and how much of it you would source from Europe or Turkey even? Well. Depending on the quality of the scrap.
Yeah, the Nordics is still a net exporter of scrap as well, as is all of Northern Europe in fact, so, you know, there is scrap around. If every, you know, if every initiative out in Europe succeeds, then obviously the scrap would be a, you know, a more in tight supply, so to say, and that's why. We still think we are in a relatively good of terms with our sort of internally falling scrap, with our customer partnerships, and with the sort of partnership we're establishing with scrap collection companies.
Let me push you a little bit there, Viktor.
Yeah.
You might be short, and therefore have to reach out to outside the Nordics for purchasing scrap. Appreciate its early days, where would you go?
Well, I think Northern Europe is a very big area, right? You know, I don't actually see it as a problem. I mean, we export more than 20 million tons out of Europe today, outside of Europe, and the total scrap generation in all of EU is more than 100 million tons.
Okay, thank you. Do we have someone else who didn't have a. Yes, please, opportunity to ask anything?
Yes, hello. [Mattia Gargiulo] from Lombard Odier. A question on HYBRIT. You said that the agreement today is to do the R&D, then to do the pilot and the demonstration. Just to be clear, all the patents, they will stay within HYBRIT, right?
Yes.
So, if LKAB then scales up plants elsewhere, you will get the share of the economics?
The IP sits with HYBRIT, and then it needs to be licensed to whoever uses it.
Okay. Can I do a follow-up?
Of course, as an owner of HYBRIT, we have the right to license it, so.
Okay. Secondly, you mentioned particularly in Finland you have quite a lot of space. If you dream like now 10, 15 years down the line, if HYBRIT is successful, what would be like the technical limit you think that your sites would have in terms of, say, million tons of production fitting on 2040? It's not a forecast, just what will be a technical limit?
We are targeting, I would say an expansion of maybe + 40% above the first phase.
Okay.
And what that would be exactly, I mean, you can see some of the U.S. projects where they are targeting, say, 4 million tons in the second phase.
Okay.
It all depends on the product mix and also on the configuration.
Okay. Thank you.
Okay, thank you. There will be a third Q&A, so, don't be so disappointed right now. Thank you.
Thank you.
As I said, there'll be possibility again to ask questions. Now we have the final section of the presentation, and we're looking into SSAB's financials and the outlook to reach industry-leading profitability. Very welcome, Leena Craelius.
Thank you.
CFO.
Thank you.
A warm welcome, I guess. Yes. There is an exciting future ahead, and lots of questions and curiosity how you will manage this. How would you describe the journey looking backwards that sort of make this possible? In a short word, 'cause you're gonna elaborate on that.
I'm gonna elaborate, definitely. We've been hearing fascinating stories by the divisions, and as Martin said, that the strategy we have, it's not changing, it will actually continue. We have proven that the strategy is working. When I look at the figures on group level, I can see that it truly is working, and I will also show you guys.
Great. Please do. There you go then.
Thank you. Good afternoon. It's been a long day. I already apologize. I have no pictures. It's only graphs and figures. If Jouni gets kicks out of these megapascals or whatever thickness measures, I do get kicks from figures, and I hope that you as well after this presentation. Yes. Let's have a look a bit backwards where we started. 2014, Ruukki, SSAB merged. I have been throughout the whole journey, so I have sort of some credibility of telling the story as well. First few years focused on the synergies delivering. Martin already mentioned today that there was around SEK 2 billion synergies reached after the merger.
At the time, as Viktor already elaborated, global overcapacity, that has actually changed. The regionalization has been ongoing, we can tell that the steel market supply-demand balance is much healthier today. At the time, around 2016, we have been discussing a lot today about this continuous improvement program. That's when we started the program, target to get SEK 1 billion- SEK 1.5 billion savings every year. We have proven to do that. We have a lot of activities, projects ongoing still today. Just to mention few, we have the raw material mix improvement, raw material utilization improvement, energy efficiency, logistic savings, yield improvement, reduction of waste, preventive maintenance, just to name few. It is kind of part of the DNA of SSAB that we are seeking for improvement and also the innovations that we have been discussing today.
Johnny has been discussing about the innovations. It is part of the sort of the daily operative way we think. Of course, the stronger product mix. All the divisions are striving to improve the premium product mix because we know that it is more resilient in this volatile steel market that we have been discussing today. Already Viktor touched the topic of tariffs and quotas. First started in U.S. with tariffs, EU import quotas, restructuring in China. Following this COVID lockdown, we can see that all the divisions were hit and suffering from this. We had the time for the recovery. Also mentioned here, Ruukki Construction, Tibnor went through some structural changes to gain some cost savings. Maybe to mention that during 2022, these divisions were more bringing small entities in the Nordic market to support their growth strategy.
Yes, recovery, two exceptionally good years. One could claim that this is only market impact, we know that it is not only that. We know that the activities and the strategy we started here is working, it's also embedded in these figures. Few more financial KPIs. These are very familiar for some of you who are following us on regular basis. Earnings per share improving, two very good years. The number of shares has remained the same here. EBITDA per ton, yes, improving. If we compare year 2022 versus 2021, we can see that the sales price was well compensating the increase in raw material cost, energy cost. We were also producing less during 2022 versus 2021, we were even compensating for the lower capacity utilization and also higher fixed cost. Good year. Return on capital employed, 2021, exceptionally good.
2022, still on a good level. Here we can see that, yes, COVID, here we of course, yes, we had some might claim a bit too low inventory levels even. Yes, sales was developing heavily upwards. Here, I think it was Viktor already mentioning that the war in Ukraine caused this unbalance in the raw material market. We were also, like many others, securing raw material supplies to secure our production. We were buying a substantial amount of PCI coal. That's partially impacting the inventory levels even still going forward. All this good financial performance led us to the situation that we were able to pay the debt. Martin set the target to be debt-free end of 2021.
We actually exceeded that with SEK 2.3 billion and continued very strong cash generation during 2022, ending up on a level of SEK 14.3 billion. Good performance. Net working capital over net sales. This is one of the KPIs that we follow together with the divisions. Lot of activities around inventories. We are, let's say, heavy with the inventories. We have, lot of raw material inventories, partially due to our location up north, we need to do winter stocking. We are buying from long distance, coal from U.S., Canada, Australia. We need to be really good with the inventory efficiency. We know that. We started on the level of 26.2, and we have started to trend in a good direction. Here we can see the impact of COVID. Here we actually see that the recovery started to took place.
Here we can see the impact of the unbalanced raw material market situation when we were piling up the raw materials. We continue to work with this. It is part of the continuous improvement program. As Carl mentioned, when the transformation has took place, this will also improve. Much shorter lead times with the new mini mill production program. Also as Viktor was showing, the raw material base will also change. This will improve with the transformation implementation, as discussed today. Are we good in cash generation? We claim that yes, we are. We have done comparison. We have done cash conversion, which is actually in a formula operative cash flow over EBITDA.
We took cumulative reported figures with our peers, we put together from 2017 onwards up until end of 2022 cash conversion, and we are here right behind the best in peers. We can see that we are actually much better than the worst in this peer group. How does it then look going forward? Here we can see our performance looking backwards since 2014 merger, as we discussed in the previous slides, exceptionally good years. We know that we have, as a company, become stronger. We have grown the premium mix. We have done a lot of efficiency improvements and all the innovations to be mentioned as well. We are better, the industry has changed, as Viktor illustrated. We estimate to be on a level of 10.4 going forward. That's what we believe.
It is a really good starting point for the transformation journey or actually we need to continue the journey we have already started. This is illustrating from CapEx need point of view, the three different options. We had option, and this is the analysis done around 2021, to continue with the current technology. We could have started to rebuild coke ovens, continue realigning blast furnaces, maintain our rolling mills. We would have been burdened with the CO2 emission allowance cost that we've been discussing today quite many times. If we then look at this CapEx need for the time period of 2021-2045, the estimate is that we need to do this R&C, maintaining the current setup investments around SEK 70 billion.
We would have been very limited with the improvement in the, in the earnings, actually turning eventually to the negative directions with the limited product portfolio and such. The other option was to replace the blast furnaces with electric arc furnaces and then modernize a bit the existing rolling mills. Yes, we would have limited the R&C CapEx and done some strategic investments. Looking at the same time period and the CapEx need, it ended up being on level of 80. At the same time, we would have been limited with the potential for the improved earnings. The analysis was done on this mini mill setup with fully integrated production process, with the broader product portfolio. On a total level, 85, split between strategic and R&C, a bit different, but then the opportunity to gain with these earnings improvements.
Obviously, I could say no-brainer, this one made sense. At that time, board actually did the decision. We call it the policy decision to go for the mini mill setup. That is where we are going today. Sequencing already discussed. Oxelösund, this project has started, but still to highlight that we are needing the board approval for the EAF investment, and we plan to have that during this spring, and then we can continue the implementation. Plan is to be ready around 2026. The mini mill programs to Raahe-Luleå, Luleå-Raahe. We haven't decided which one goes first. Similar kind of projects, our plan is to have the decision done for the first project next year, in the middle of next year. To sequence the other project decision needed 2026. Financial risk profile we consider to be in a good position.
We have very strong, healthy balance sheet. We recognize that there is opportunity for financing with sustainability and green financing options. We are able to adapt the roadmap if, when, if needed. The financial framework that we launched today is supporting this strategy going forward. We still take the look where we landed with our financial targets end of 2022 in our newly published annual report. Profitability compared to peers, we can see here that SSAB is in the middle here, and end of 2022, we were number two, right behind the best one, and clearly higher than the worst peer. The capital structure, the target to be normally not exceeding 35%. We actually, as already illustrated before, we were cash positive at the end of 2021 and continued the same during 2022.
Dividend financial target to be providing dividend between 30%-50% of the net profit. 2021 dividend, which was SEK 5.25 per share. It's representing 37%. That was paid out this year. Now the proposal to be approved in the AGM is to pay out SEK 8.70 per share, which is then representing 36%. Then the new targets. Martin already presented these, but maybe just to repeat that we want to be the industry leader when it comes to profitability among our peers, which are listed here at the bottom of the slide. That we want to keep. We don't want to change this. This we keep unchanged. With the dividend, we have the frame between 30-50. We define it now in the middle, straight in the middle we wanna be providing dividend with 40%.
The capital structure, there we want to do an update which is more supporting and illustrating the current strategy. We are setting the frame to be ± 20% when it comes to net debt to equity. Already mentioned, it is monetary terms, it's around SEK 13 billion . Of course, all these decisions when it comes to dividend and capital structure management and the Board of Directors will evaluate those when it comes to the investment CapEx needs for coming years and of course, the market outlook. I hope that I conveyed the message that we are really strong when it comes to financial position.
I think you did, Leena.
Yeah.
Otherwise we'll have some questions. Please stay on stage and welcome back Martin for our third and last. You can just stay here in the middle. Q&A. I hope you still have some questions left. Here. One at the second row. Please.
Yes. Hi. Tristan Gresser from BNP Paribas Exane. One question. I haven't seen a mention of the buyback. Can you tell us a little bit how you think about it from a strategic perspective as you have updated your capital allocation strategy? Maybe following up to that, why not coming out with a free cash flow payout ratio after dividend like other peers have done?
The thinking, I mean, we are asking now the AGM for a mandate to buy back shares. I think that makes a lot of sense, and that's why we are asking for it. With the frame we give when it comes to the capital structure, we also say that we want to be in the range of -20% to +20%, so we will allow ourselves to be in that frame. If we are above that frame, having a stronger position or net cash position, meaning outside that frame, we have then shown that we are willing to take measures to adjust the capital structure or the balance sheet. I think what we clarify also with the dividend target is that there is always a lot of speculation. Will it be 30%, 35%, 40%, 45%, 50%?
We say it will be 40%. I think we try to clarify the dividend target, and we try to update, as I see it, an obsolete capital target with not normally above 35%. I don't see a possibility for SSAB to go back to the net debt levels we had historically.
Okay, thank you. Another question. Let's pass the microphone. Can start over there. Yes?
Thank you very much. I have a follow-up on the share buyback. I think I fully appreciate that you consider now share buyback as one of the tools to give money back to shareholders. When it comes to the timing after the AGM approval, what is your thinking about the, you know, relative return on your different ways to consider investments when the share has rerated significantly? Would you consider buying back shares even though the stock looks more fairly valued compared to maybe back in October times when there was probably a good opportunity? What is your thinking about when to use such tools?
That we need, of course, to determine. I mean, the most important part is to have a mandate. We need to ask the AGM for such a mandate. I can foresee that we will have that mandate. Then we can in a smart way, decide how much of that mandate we are actually using. We are asking for a mandate to buy up to 10% of the shares. That's step one. That will be hopefully decided now at the AGM in April. Then we'll take it from there. This is also showing that we are committed to our financial targets. We don't want to either become a company with a huge net debt or a company with a strong net cash position. We'll take that into consideration.
As Leena showed, we are fairly good at, not perfect, but fairly good at cash conversion. Going into 2023, we did during 2022, for the reasons you described, piled up a lot of working capital, that we need now to sweat out. That we know how to do. We have set the plans in action.
Mm-hmm.
We will do that. You should expect us, as I've said for many, many years, to continue to generate strong operating cash flows over the cycle. We focus a lot on what we call cash conversion and what you showed, how can we make sure that the EBITDA ends up in operative cash flow, and then we decide what do we do with that operative cash flow. Strategic investment's part of it and then, taking care of the balance sheet as well.
Do you want to add anything or?
No, I fully agree with that.
You fully agree. That's a great signal.
I'm stealing the show, but.
No. No, no. Like you said, that we continue to focus on the cash generation. The investments are not yet sort of the big investments we need to wait with, but we focus still to generate the cash and be ready for the money need. Of course.
We have internals for each division and from group level, internal, cash conversion targets.
Yeah.
That we follow at the weekly meetings, at the monthly meetings. We follow that every Monday. We have the operational call, me and Leena and the division heads, 4:00 every Monday.
To remind that this year we also need to pay out the dividend, and if it's approved, it is around SEK 9 billion, so it is also a big amount of money.
For sure. All right. Do we have a microphone? Can pass away or pass further on?
Yep. Bastian from Deutsche Bank. I just wanted to come back on the decarbonization budget. I guess most of us will be probably pretty surprised just from listening to the competitors, obviously, and seeing the expansion of the decarbonization budgets which have been announced in the last two weeks, basically between like 30%-50%. Obviously you're telling us the decarb budget remains stable. Just wanted to check, how much of the first phase have you already been contracting?
How closely are you in discussion with your suppliers, or are you basically just telling us, "Bear with us, and we'll be firming up the budgets obviously once we get closer to signing for the really key parts of the equipment." I guess the big difference for you obviously is that you have part of the transition budget basically sitting within HYBRIT. That's actually not included, which is obviously alleviating it. That's the big difference. But maybe you could just still comment on how much you have contracted and how we really should be thinking about it.
Yeah. We are in constant dialogue with the suppliers. We have not yet firmly any firm contracts. I mean, the first decision point will be in during Q2 2023 for the electric arc furnace in Oxelösund. We have, in all fairness, already spent more than SEK 1 billion in Oxelösund in preparation. We know we have built the media, whatever it is in English, media stroke. We have done a lot of investments already, we are fairly or we are very confident that the Oxelösund calculation will stick. When we came out with the SEK 45 billion for the mini mills, we allowed ourselves some headroom. Of course if something extreme happens on the market, if World War III breaks out or, I mean, you never know. Predicting the future is always hard and then that might change.
What we know today is that we stick to that target of around SEK 50 billion.
Thanks for that. Maybe a quick one for Leena as well. You showed that chart on just the phasing of the CapEx. Could you give us a better sense for when you expect CapEx to peak and where you expect CapEx to peak? Seems to be 2026 when you have the overlay of the three phases, but maybe you could give us a bit more color. Every time we speak to Per, he's telling us CapEx go up a little, but the budget seems to suggest there is more to come.
I think it then depends on the final technical solutions and then the contracts with the suppliers, how the CapEx will actually behave. Unfortunately, I don't have a good answer for you at this stage. We will get back to that.
A good guesstimate would be then after 2026, because then Oxelösund is finalized 2026, and then we start with the first mini mills around there. Then we'll finish the first mini mill and then start with the third. I would say maybe not evenly spread, but increasing from 2026.
Thank you.
Okay. A question next to you. Do we have a microphone anywhere else? Yes, please. Go ahead.
Do you mind commenting a bit on the policy support for the three different projects you have? Is it fair to assume that the Nordic system will get limited grants, given that it's purely an investment in a mini mill? What about the OpEx, policy support, grants towards OpEx?
I think the mini mills and the OpEx for the mini mills, we have not applied for any support. We have applied for support on EU level for developing the next phase of the HYBRIT technology and the demonstration plant. Apart from that, we haven't applied for anything. What we discussed, though, is the importance of a level playing field, and we see that some competitors get support. I think, first of all, I mean, you can't create competitiveness with support. That is typically over time backfiring. Secondly, I think, we need as a society also to be aware of the importance of a level playing field and the inner market in Europe.
I had that as a question mark on my first presentation as one of the issues we are working with. In these calculations, and what we have shown, there is no government support for the mini mills, either for investments or OpEx.
Okay, I think it's you in the middle. There you go.
Hi there. It's Grant Sporre from Bloomberg Intelligence. Are you able to share a little bit more in terms of the assumptions that you've used for the 12% OpEx reduction? In terms of what are you assuming in terms of coke, coking coal prices, et cetera, if you can?
We are using external figures. We have our internal view, but for the simplicity, we have used external figures and figures in the market for coking coal, electricity in Sweden, electricity in Finland and so on.
Okay.
Yeah, one question for Leena on your working capital chart you were showing early on. We've seen recently working capital requirements went up. I think you have a few maybe structural things like change in the supply chain away from Russia.
Mm.
Maybe you have some longer term buffer stocks here and there, then maybe some higher requirements because of the Oxelösund conversion. What shall we think about the working capital to sales ratio, l et's say, for the next two to three years before you have this?
Mm.
Gap change into a lower level? That would be quite interesting.
You're absolutely right that the raw material inventory is on a high level. It continues to be, but target is to make it normal. I would say that as a target, we should be around 20%. That should be sort of a healthy level for net working capital over net sales. Yeah.
Okay, any more questions? You answered all the questions there is. There's a dinner ahead, so you might get.
You're not off the hook yet. Is that what you're saying?
You're not off the hook yet. That's perfectly true. If there's no more questions in the room, I take it it's not. Thank you so much, Leena and Martin.
Thank you.
It's been a long day, lots of information.
Yes.
You promised to summarize it up so we know what to remember, right?
Did I? Okay.
Yes. Yes, you did.
Okay.
Yes, you did.
I'll try to do that.
Thank you.
Repetition is the mother of knowledge or whatever you say in English, but in Swedish, "Repetition är kunskapens moder." I will use some slides. I think we have built a more resilient SSAB, and that has been and will continue to be a very strong focus to lift low point profit because we are not, I mean, making money on the top of the cycle is of course easier than at the bottom of the cycle. We are not, as a company, valued on top cycle performance. We are valued at peak or downturn performance or average performance. It is so important to lift low point profit, as we call it internally.
We are even internally saying that we are from time to time willing to suffer an extra krona on the top of the cycle and then gain that krona on the bottom of the cycle. Moving as much as possible from fixed cost into variable cost makes a lot of sense for our company and our industry. This is an illustration what we have achieved so far, and this is our ambitions where we will continue. We have ambitious targets for growing special steels, premium products, and advanced high strength steels to the automotive sector.
As Johnny and Chuck and Olavi has described, this we can do not fully independent on business cycle, but we can do this because we have this shift of mix, shift of efficiency, shift of fixed cost into variable cost to large extent in our own hands. This is an important part that we will continue, we will continue to set ambitious targets, deliver on them, then set even more ambitious targets. We are aiming, as said, for 2/3 of the volumes being premium and advanced high-strength steels in Q&T. You remember the slide I showed with the difference in profitability and the difference in volatility, that's what it's all about. Another important takeaway from this way, this day is the launch of SSAB Zero.
We have been talking a lot about it. The reason is that we are extremely proud to be first on the market with this steel without any emissions from operations, and this is third-party verified. We are also happy that we have been establishing a premium for these kind of products. We are now focusing on delivering at least 40,000 tons this year of SSAB Zero products. As Tony said, the market is there, the interest is there, the willingness to have these products and pay the premium is there. The more we can get out to the market, the better, and the quicker, the better. What is the bottleneck is of course biocarbon, to get that in, get enough biocarbon and enough biogas.
This is an important milestone, I would say, on our journey to move into fossil-free steelmaking. We talked about the potential earnings uplift and the main components. Carl went through how we see the cost benefits of moving into mini mills, but also the benefits of reducing fixed costs and go more into variable costs. We talked about the commercial strategy and the possibilities with the new mills and the ambition to have 2/3 into premium and advanced high strength steel in Q&T, and continue to reduce the standard volumes, but keeping a strong focus on our two important home markets, and do this in the future without any carbon dioxide emissions.
When we sum this up, everything is equal, and compare it to the existing system using external figures for carbon dioxide cost for carbon dioxide emission, coking coal cost, electricity cost, and so on, we see the possibility with this transformation to lift the profitability with 10 or more than SEK 10 billion per year, which is very appealing in a transformation like this. On top of that, we will reduce the lead times, we will improve efficiency, we will reduce the need of working capital. We talked a lot about the future production footprint, and to be honest, Carl, I haven't seen that film before. I think it was quite interesting. We are starting from a good starting point. We have built the foundation, we have the knowledge and the experience of running these mills in the U.S.
We know how to run mini mills with flexibility and cost efficiency. We have the European sites, as Carl explained, very well suited for this transformation in scale, in location, in size. We have the possibility to see a real step change in flexibility, efficiency, and cost improvements. They will be built fossil-free from the start and give us capacity for a lot of new interesting products that we'll lack today. As one good example, which I usually mention, is the 2-m wide, very thin Hardox. Johnny, you talked a lot about the demand for abrasive resistant steel in the world, and this is smack in the middle where the demand is developing quite rapidly. This is an illustrative picture of what we are aiming for.
After 2030 sometime, we will not produce any steel anymore emitting carbon dioxides. We will have a product range of environmental friendly products, both from SSAB Zero, recycled scrap with no added emissions, Scope 1 and Scope 2. We will also have hybrid steel or fossil-free steel produced out of fossil free sponge iron to the market, which is very important. To sum it up, and to be, once again, shortly mention the main, as I see it, some of the main points. We have built a more resilient SSAB. We are far from done. Still a lot of opportunities to lift profitability and reduce volatility, and reducing volatility as the main topic. The mix improvement continues. We have set new ambitious growth targets both for 2025 and also for 2030. We are launching SSAB Zero.
We have shown you the roadmap and the benefits and the costs of transforming SSAB into a fully sustainable steel portfolio. We have talked a lot about the future production footprint and the benefits and the costs and the risks with that footprint. With that, Karin, I think we have filled the day, and hopefully this was interesting. You got a lot more to think about. Hopefully, we were able to answer some of your questions, probably not all of them. As I said in the beginning, it's always hard to predict the future, but we have at least tried to the best of our knowledge to do that and show you our roadmap and our ideas and the benefits of that.
Thank you so much, Martin, and thanks to the rest of the management team. With that, the webcast ends. Thank you so much to the one who has been following us online, and goodbye from Stockholm to you. The presentation of today is finished, but as you may know, there is still something happening tomorrow in Luleå.