Good morning, and welcome to this Q3 presentation from SSAB. My name is Per Hillström. I'm head of investor relations. With us here today is Martin Lindqvist, our President and CEO, and also CFO Håkan Folin. If we turn to the next slide, we have the agenda. Martin will start here with some comments on Q3, mainly. Håkan will then come in with the financials. Martin comes back again with the summary and the outlook. At the end, we will open up for questions. By that, we can move to the next slide. Please, Martin, the floor is yours.
Thank you very much, Per. Good morning. If you move to the next slide. This is a slide showing the order intake in SSAB Europe, and I use this to show the volatility the last five quarters, where we saw a slowdown during last summer and fairly low order intake per month the second half of last year. Then we had to call it a short-lived recovery, but we saw order intake picking up in the beginning of 2020. Into Q2, we had very low order intake, especially in April and May. We had an almost non-existent order intake. Then we have seen a gradual pickup, especially during the latter part of the third quarter. I will come back to that.
We have seen order intake not only in SSAB Europe, but also in the other steel divisions, picking up from very low levels during the latter part of Q3 into Q4. We also say in the report that the outlook is, of course, a bit, or I would say, uncertain due to the COVID outbreak and potential lockdowns. We will come back to that. Next slide, please. If you look at the quarter all in all on group level, shipments remained at low levels, and we had low capacity utilization as well in our mills. We had one of the blast furnaces in Raahe idle for the majority of Q3. We also adjusted on top of the planned maintenance we had in all three steel divisions , which impacted us with close to SEK 700 million, and Håkan will come back to that.
We also adjusted production volumes, especially in Oxelösund, to lower demand. We ended up with an EBIT of SEK -973 million, which is, of course, a huge drop from Q3 last year. We managed to keep a positive operating cash flow and were supported by the release of working capital. Next slide, please. The way we managed the downturn was, I would say, extensive cost savings. If you take Q3 standalone, we had the fixed cost being SEK 600 million, which is lower than Q3 2019. If you combine Q2 and Q3 for comparable units, it was SEK 1.4 billion lower in fixed costs. In total, it was even lower because we had the building systems in Ruukki Construction in Q3 last year, but not Q3 this year. We have pulled all the levers. We have had short-term work. We have used our time banks.
We have avoided summer seasonal workers. We have reduced external services. We have conducted our maintenance, to a large extent, with own personnel instead of having contractors. We have had a lot of different actions that were planned both for Q2 and Q3 that we executed. That's the reason why we have had such good development on fixed costs. On top of that, we have not changed anything with our strategy. We continue to develop our own channels to the market, stock sales, Tibnor, Ruukki Construction, SSAB Services, continue to improve the product mix. We have seen growth also globally in high-strength steels. We have seen it in Latin America and Asia. We also continue, and I will come back to that, with the ambition of being the first steel company in the world producing fossil-free steel. Some of these cost savings will continue into Q4.
They will not be as big because we expect to see higher activity levels in Q4 compared to Q3. We also pretty early on had committed credit lines at a comfortable level, Håkan will come back to that. We had, at the end of September, cash and committed credit lines of SEK 20 billion, amounting to more than 30% of sales. We felt that we could go through this period with a decent balance sheet. I wouldn't say a strong balance sheet, but a decent balance sheet and liquid assets and committed credit lines. We have done now, with a small exception of Hämeenlinna, all the maintenance in Q3. Usually, we spread them out a bit more over the year, we are positioned to ramp up when demand improves. Next slide, please.
We have been, of course, very cautious about the COVID-19 impact on our operation, and especially in our industry, when you have these big maintenance stops, you need to take a lot of actions and precautions in order to avoid any outbreaks of COVID-19. We handled that together with very good cooperation with suppliers and entrepreneurs. We were not affected during the maintenance stops. We have also taken several other measures to safeguard the health and safety of our own personnel. We try to work from home whenever and where possible. We follow all the regulations and recommendations in each country where we are. We have travel restrictions. We are very restrictive on face-to-face meetings, and we also have contingency plans and different groups for critical operations so we can continue to run operations.
We also pretty early on focused on securing the supply chain, so far we have only had minor disturbances during the first nine months in the supply chain due to the COVID-19 outbreak. Next slide, please. Look at the overall map of the divisions, we will go into each division separately. We saw Q3 over Q3, in all three steel divisions that the result was going down. The biggest difference is, of course, in the Americas, where we have almost SEK 1 billion in lower results. I will come back to that. In Q3 last year, we did not have any maintenance outages in the Americas. We also see that Ruukki Construction and Tibnor have slightly better profitability than they had in Q3 last year. Move over to Special Steels.
I would say that here we compare with Q4 2019, where we had the yearly maintenance stop. I think that the operating result held up fairly well for a maintenance quarter. On top of the maintenance, that typically takes four weeks. We took a couple of other weeks to stand still in Oxelösund due to the market. Of course, we were impacted by the weak market. Shipments were impacted. The maintenance cost, or the cost of it, was SEK 250 million. We have had better performance than previous maintenance quarters. We have had low -rolling production, we have had very stable production in Oxelösund when we were running the production. We are now, I would say, on a different level when it comes to production stability. We also saw, in all divisions, positive effects of cost savings.
In Oxelösund, or SSAB Special Steels, it was SEK 100 million lower fixed cost compared to Q3 2019. We continue to take actions to reduce market volatility. Typically, stock sales are much more stable and more profitable than OEM sales. We try to continue to grow in markets outside Europe and the U.S. We saw also during the third quarter, in line with our strategy, that the service business and the aftermarket business were much less affected than sales to OEMs, as an example. I would say it's quite okay given the market conditions and a big maintenance quarter for SSAB Special Steels. If you move on to the next slide. In SSAB Europe, we clearly saw weak market conditions, and you saw the first picture I showed with the order intake. Very low shipments, but they recovered somewhat in September.
Here we had the planned maintenance of SEK 250 million. We had a positive effect from cost savings in Q3 of SEK 300 million compared to Q3 last year. As I said, for a large part of the quarter, we had one of two blast furnaces in Raahe idle. We restarted that one according to plan mid-September, and it's now up and running. Next slide, please. In SSAB Americas, we had weak market conditions. We had sales margins impacted by low demand. We also saw that plate prices during the quarter were stable on a low level. At the same time, our scrap started to move up because of the increased demand in strips and especially within automotives. We were in a bit of a squeeze when it came to margins over scrap in Q3.
We had to plan the maintenance in Montpelier, and the cost of that was SEK 170 million. We also had the positive effects from cost savings of a fixed cost of SEK 150 million versus Q3. If you should compare, you should really compare Q3 with Q4 last year when we had the maintenance outage in Mobile. In Q3 last year, we had no maintenance outage. Next slide, please. Tibnor is definitely impacted by lower economic activity. Sales were down 20% compared to Q3 2019. We still managed in Tibnor to increase the result, and that was due to the ongoing restructuring program and some additional cost measures that offset the weak market. Overall, earnings were slightly better than Q3 2019, but the internal work was much better because we managed to deal with the sales decrease of 20%. Next slide, please. Ruukki Construction continues to increase the operating profit.
The core business in Ruukki Construction and the core business for SSAB in Ruukki Construction is what we call the project business, or product business, both roofing and components, and they have clearly improved margins over time. As you might remember, we sold the building system part during Q2, so now we just have the product business left. If you take away that from Q3 2019, the building system business, I would say that revenue was stable compared to Q3 over Q3, and I would say there was good or decent underlying demand and a continued increase in operating profit. Next slide, please. I leave the floor to you, Håkan, to go through the financials.
Thank you very much, Martin. Please move on to the next slide. First, I'll give you a short summary of the quarter. Sales were down 23% compared to last year, largely impacted by shipments, which were down 9%. Prices were down 7%, and the rest came from currency and from mix. On the EBITDA, we had a slightly negative EBITDA and EBITDA margin, and then also we got a slightly negative EBITDA per ton of delivered steel. Next slide, please. If we look at what has happened between Q3 last year and Q3 this year, we see a drop in profitability of close to SEK 1.3 billion. A very large portion of that is coming from price, as much as SEK 1.8 billion. This is mainly coming from SSAB Americas and also somewhat from SSAB Europe.
On the other hand, we see that for special steel, prices have been, as they should be at least as well, significantly more stable. We also have lower volumes. This is SSAB Americas and SSAB Special Steels, not SSAB Europe, actually. Impacted with close to SEK 400 million. We have a positive impact on the variable cost of goods sold, especially raw material, and here it is iron ore and coking coal that is impacting positively. As Martin mentioned before, we continue to have significantly lower fixed costs or processing costs in SG&A this year compared to last year, same period, SEK 600 million this quarter, it was SEK 800 million Q2 over Q2. Somewhat negative on FX, almost SEK 200 million, mainly driven by the stronger Swedish krona. Quite large portion, with a negative impact coming from unabsorption, close to SEK 600 million.
This is mainly then because we had the maintenance outages in SSAB Special Steels and in SSAB Americas and, in general, low capacity utilization. Then around 100 positive others. In some way, this SEK 1.3 billion is coming from a weaker sales margin, somewhat lower volumes, and higher unabsorption, mitigated to some extent by significantly lower costs. If we take the next picture then, we instead compare this quarter we just passed with the second quarter, the difference is around SEK 700 million. Again, we have quite a big portion coming from price, SEK 600 million. Also, this time it's mainly Americas and, to some extent , Europe. We have somewhat improved volumes. This is in SSAB Europe, where we had the hardest stop in Q2, especially for automotive business and also heavy transport, from very low levels that have somewhat improved during Q3.
Small positive impact on volume. Quite small on variable costs. On the fixed cost side, we have a positive impact of a bit more than SEK 300. That's mainly because of the seasonal impact we typically have in the Nordics during the summertime. Here we have negative on FX, a bit less than compared to the previous comparison, SEK 70 million, but then a big portion of unabsorption. Here it's to a small extent Americas, given the outage there in Montpelier, but it's to a very large extent SSAB Special Steels, where we both had the maintenance outage, and then, as Martin said before, at the same time as we had the maintenance outage, we also stood still for a few more weeks in order to adjust production to the demand situation.
We were producing more in Q2, building some inventory, then we could stand still longer during Q3. All in all then, a drop of around SEK 700 million. Next slide, please. Cash flow in the quarter was positive, supported by the release of working capital. We were releasing around SEK 700 million in Q3, and as said, we were building a bit of inventory ahead of this maintenance stop, and some of that was then being reversed during Q3. We also had a slight positive net cash flow, SEK 27 million, which was more or less in line with what we had in Q2 as well. Next slide, please. On the balance sheet side, given that we had more or less zero net cash flow, it was quite stable development on the debt side.
Net debt, slightly below SEK 13 billion, is roughly in line with Q2, somewhat higher than the same period last year. Same thing goes for the gearing then. It's 22% now, stable compared to Q2, somewhat up compared to one year ago. Clearly lower than last year. That's mainly because we have been taking up commercial paper this year with shorter maturity than we had not before. These commercial papers are part of the liquid assets and committed credit lines of SEK 20 billion. That amount is roughly the same, but given that sales have gone down, the relation , then, to sales is now 31%.
As you remember, we did this late in Q1 in order to make sure that we could secure significant liquidity regardless of how this COVID-19 situation would develop, and we are now sitting on a comfortable level here. If you look at the graph on the right-hand side of this picture, you see the quite big amount of cash and backup facilities, SEK 20 billion. You also see the maturities we have for the coming years, wherein in one quarter, +2 years, and in the remainder of 2020, 2021, and 2022, we have less than SEK 9 billion in maturities. For 2020, the vast majority of this is in commercial papers. That's all I plan to say about the balance sheet, given that there are no dramatic changes.
If we move on, then to the next slide, we see the cash needs of the business, where we are at the same level as we said last time, between SEK 2.7 billion-SEK 3.2 billion. Significantly lower than last year, then, partly because of slightly lower investment but mainly because of lower taxes paid. The investment side: we are at the same level as we have talked about for a few quarters now, between SEK 2 billion -SEK 2.5 billion for the full year. We have postponed some of the project capacity expansion in Montpelier, the start of the Oxelösund conversion. We are not postponing the R&M investments. We are making sure we are investing as needed in the operations to be able to continue to run them in a good and stable way. We move on again, please.
On the raw material side, for the iron ore and coking coal, we have seen them go in different directions during the quarter, where iron ore prices, the spot prices, have been moving upwards, and also our purchase prices have been moving upwards. They were 8% higher in SEK in Q3 versus Q2, and 17% higher in dollars. Coking coal, on the other hand, went in the other direction, and it was lower by as much as more than 30% in SEK, 26% in U.S. dollars compared to the previous quarter. If we add this together and think about the P&L impact for Q4, it's going to be fairly unchanged on the raw material side, given that we have iron ore going in one direction and we have coking coal going in the other direction. Next slide, please.
If we look at the U.S. operations and how the scrap prices have developed, our average purchase price for scrap was fairly stable but slightly lower in Q3 compared to Q2, 4%. What we saw on the spot market was that scrap prices increased in September and stabilized in October. Even though on average our purchase prices were slightly lower, last month's buying then had been a bit higher, which we'll see somewhat in Q4 as well. Okay. Next slide, please. On the planned maintenance outages in 2020, we have revised the forecast now down to SEK 800. Q3 was a very maintenance-heavy quarter where we did most of the maintenance for the year. We have some left in SSAB Europe, but the majority was actually performed now in Q3.
We lowered the forecast somewhat, and I want to point out here it's not because we have done less maintenance, but it's because we have both renegotiated contracts with our external suppliers and also done more of the work ourselves than we were planning to do, given that we have had available capacity to do so. The forecast now for this year is SEK 800 versus SEK 1.1 last year and versus the previous forecast of SEK 900. Okay, next slide, please.
Thank you, Håkan. If we move to another slide. During the quarter, SSAB's climate goals were approved by the Science Based Targets initiative. We have committed as a company to reduce our greenhouse gas, mainly CO₂ emissions, by 35% by 2032. That is based on 2018 figures. This includes both Scope one and Scope two. These are in line with the objective of keeping global warming well below 2%. The objective is scientifically based and in line with The Paris Agreement. We have also stated that we aim to be the first to offer the market fossil-free steel in 2026.
On that note, if you move to the next slide, one important event for SSAB during Q3 was, of course, the inauguration of the pilot plant for fossil-free steelmaking up in Luleå. This is a world -unique pilot plant for fossil-free steel production, where we will produce sponge iron by using hydrogen instead of coal to reduce the oxide from the iron oxide. We are now starting it up. We are running it with natural gas to do performance tests and also to get comparable production results. The idea is then to move over to 100% hydrogen during the beginning of 2021. We have also got some more funding from the Swedish Energy Agency in order to do the pre-study of establishing a demonstration plant. For us, a demonstration plant is a full-scale production plant.
We have the ambition to have that up and running in 2026, in line with when we have rebuilt Oxelösund, so we can have the first site globally producing fossil -free steel using this hydrogen-based or used sponge iron and melt that in electric arc furnaces in Oxelösund. This is an important project, and this is, I would say, the most important business development project we are running within SSAB. Next slide, please. This is the outlook for the main customer segments, and as you can see, there are slightly fewer red dots compared to last time. If we look at heavy transport, we see some recovery of heavy truck production.
Automotive, we see some recovery in production. Construction machinery: still low production levels in main markets, especially for lifting, but some improvements compared to Q3. Material handling and mining continue at fairly stable levels. Not fantastic, but stable levels.
Energy, the first red dot, shows low activity in oil and gas, but we see more stability when it comes to wind power and transmission towers. Construction, fairly stable underlying demand. We expect to see, of course, the usual seasonal slowdown moving from Q3 to Q4. Service centers have been very cautious. We expect them to continue to be cautious. If you look at the inventories in the supply chain, and especially the inventories among steel service centers in North America, they are definitely on the low side. We still keep that dot red. Not a great market outlook for the segments, but sequentially, not getting worse, but rather improving in many segments. Next slide, please. If we then try to sum that up and take an outlook for SSAB, in Q4, we expect steel demand to recover somewhat following two weak quarters.
This is something I stress: the increased spread of COVID-19 makes it hard to fully predict and makes it hard for us to understand where this actually will end up. Underlying, we see sequential improvements with that, call it a caveat or whatever you call it, of any potential lockdowns due to COVID-19. Of course, we, as always, expect to see a normal seasonal slowdown towards the end of Q4. When we look at shipments, we expect shipments in all three steel divisions to increase somewhat versus Q3. When it comes to pricing in Q4, they are, for Europe, expected to be somewhat lower, and that is because of the typical weaker product mix we have in Q4, with less color coating. Product by product, we expect prices to move in a slightly positive direction but, overall, slightly lower prices.
For Special Steels and Americas, we expect relatively stable prices in Q4. Next slide, please. If we sum it up, Q3 was affected by lower demand and planned maintenance outages, and that affected earnings in Q3. We did a lot of internal efforts and tried to influence what we could influence ourselves, meaning cost savings and a reduction of working capital, and reduced fixed costs by SEK 600 million compared to Q3 2019. I said a couple of times now, SEK 1.5 billion year -to-date. We saw demand, and as you saw in the first slide I showed, the demand is picking up at the end of Q3, especially in Europe, and the underlying activity level is expected to continue to improve slightly into Q4.
We continue to try to run operations in a flexible and responsible way but also continue to focus on developing the special steel business, the service and aftermarket business, and, of course, last but not least, the transition to fossil -free steelmaking. With that, Per, I'm done with the presentation. I guess we open up for questions.
Yes. Thank you, gentlemen. Before we start with the questions, I just want to remind you, as always, if you have more than one question, please state them one at a time. It will make the process much smoother then. With that, please, operator, give the instructions for the Q&A.
Absolutely, gentlemen. Ladies and gentlemen, if you have a question for the speakers, please press zero, one on your telephone keypad. We're just going to take a little while as the questions come in. Okay. Our first question comes in from Alain Gabriel of Bernstein. Please go ahead.
Good morning, gentlemen. Just one question from my side is, you seem to have realized some impressive cost savings year -to-date, mainly from the fixed cost reductions. Looking at the profit bridges into 2021, if we were to do the same exercise that you've done on slide 16, how much of those cost savings that you've realized will eventually reverse into next year?
No, what we have tried to do in a system that is typically very inflexible is to build in flexibility so we can. Fixed cost is, of course, fixed cost, but we can reduce manning, we can use time banks, and we can do a lot of things. This, given what we expected to see into Q2 and Q3, we were really hitting, I would say, the brakes. Some of it, a small part, is structural. The part in Tibnor, where they have been running a structural cost program, taking down costs with approximately SEK 200 million on a yearly basis. Some of it is, of course, or the majority is, call it flexibility measures. You should expect some cost savings into Q4. Then we will, as always, try to increase productivity and reduce cost structurally over time.
This, I would say, you should not expect SEK 800 million or SEK 600 million. This was, I would say, if not an exceptional effort, a very good effort from the organization.
If I may add one thing, though, that is fully structural is the cost reduction program we've been running in Tibnor.
Yeah
Which is part of the savings you're seeing now, and that's SEK 200 million on a yearly basis, so that should fully follow into 2021.
Okay. Thank you. Greatly.
Our second question comes in from Seth Rosenfeld of Exane. You have the floor.
Good morning. Thank you for taking our questions. I can ask a follow-up with regard to the Q4 guidance. I think your commentary on shipments increasing somewhat, I believe, was the language. It might be a bit confusing for those of us trying to model. Can you please, perhaps, give us some range, perhaps, of outcomes you're expecting within that? From a quantitative perspective, how should we think about that scale of what somewhat means, please?
What I try to choose, and we typically don't show order intake figures, but I try to, the first slide I show is increasing order intake into Q4 or end of Q3. The underlying demand is improving. We have two things that are, one is not maybe that hard to predict. That is the seasonal slowdown at the end of Q4. As you know, typically, if the prices were to have a negative trend into Q1, the seasonal slowdown would be bigger. If prices have a positive trend into Q1, the seasonal slowdown will be much less. On top of that, there's the big uncertainty of potential effects of the increased COVID-19 cases or if we will see any lockdowns or anything.
I would say that the visibility is less than it is usually going into a fourth quarter, and that is mainly due to potential effects of the COVID-19 outbreak. Underlying this, we have seen a positive trend in order intake in all three steel divisions at the end of Q3, beginning of Q4, and so far into Q4. That's why we are a bit, call it, critical then and can't give clear guidance because we don't know if there will be any lockdowns or if there will be no lockdowns or what will happen. That's the honest answer.
Thank you. I think that's clear, and we can take a closer look at the order intake on that basis. If I get just one follow-up, please do so with regard to the price commentary as well on the guide. I think your comment that obviously Q4 in Europe is impacted by a negative mix shift with lower paint sales is correct. Assuming that we see continued strength in the spot steel market going through the next couple of months, would we then expect something of a snapback in price realizations into Q1? Thank you.
For standard products, we follow the market. As I said, we don't expect any lower prices if you compare product by product. We saw price increases last week in North America for plate, and we see that spot prices in Europe are at least not trending downwards. I would say the opposite. Relatively stable. What is that? That's ± 5% or something. You should expect us to behave with some lag due to contracts and so on, but you should expect us, on both standard plate in America and standard steel in Europe, to behave as the market.
Great. Thank you very much.
The next question comes in from Alan Spence of Jefferies. You have the floor.
Thanks, and good morning. I've got two questions. The first one is a bit of a follow-up to Seth's last question there, just regarding those coated products. Can you remind us of the end markets that are being serviced and then how strongly from a seasonality perspective that demand usually comes back in Q1 versus Q4?
Color-coated is typically for the building industry, and the biggest customer segment, or the biggest customer, is actually Ruukki Construction. We see a strong summer season and then a slower Q4, and then normally up here in the Nordics, an even slower Q1 due to winter conditions. If we have a mild winter, the slowdown is less, and if we have a strong winter or cold winter, you will typically see fewer buildings. Ruukki Construction is not the only customer, but it's typically the building segment building related products.
Thank you. The second one is regarding Special Steels. You referenced some better performance compared to prior quarters that took a lot of maintenance. What's actually been implemented that drove that better performance?
I would say a couple of quarters is not a trend maybe, but we have, I dare to say, much more, and now I really need to say, knock on wood, much more stable production. I think we have changed a lot of practices. We have a fantastic site manager in Oxelösund and a fantastic team there. I would say it's production stability. When we look at all the KPIs, they are moving and have moved in the right direction. I think myself that one important KPI that typically shows if you are running the company in a decent way or not is, one of many KPIs, safety, and we are now at very good levels. I must admit that every KPI we look at, they have improved, and they have stabilized, so far at least, on much better levels, including production stability.
We have had quarters in the past where we have had big negative hits on poor production performance. As Håkan said, even though we have been a bit, call it, not cautious, but yeah, maybe cautious when it comes to some of these strategic investments. We have not taken down any maintenance CapEx because we know that we can't afford to make any mistakes when it comes to production stability because the positive effects and the negative effects of production stability is so big.
Okay. Very helpful. Thank you very much.
We continue with Victor Trollsten of Danske Bank . Please go ahead.
Yes, good morning, Håkan and Martin. Thanks for taking my questions. I would just like to ask you a bit about your order books, because I note that in Q2, you guided for relatively flat prices in the Americas. That obviously decreased a bit, which to my mind indicates that maybe your order books weren't full for the quarter. Could we expect a similar dynamic going into Q4, where the prices we're seeing on the screen now actually flow into Q4? How should we think about that?
Your observation is absolutely right. We were more positive on the price development in North America than, in the end, the result was. That's correct. If we look at Q4 now for the Americas, we are guiding for relatively flat prices. They were going down in the beginning of Q3, coming up then in the end of Q3, and spot prices have continued up so far in Q4. That's why we are guiding them for flat prices in Q4 versus Q3. I would say, and I would knock on wood as Martin did before, when we were guiding last time around, we had made some price increases. We hadn't really seen the price start moving.
This time, we have made some price increases, and when we look at how the spot market has developed, we have also seen that the spot market has started to move upwards for plate. That's why we are now a bit more confident that we will see more or less flat prices in North America.
Okay, could we even see increased prices, or are you already booked for Q4, so to speak, at flat prices?
No, we're not fully booked for Q4 yet. I wouldn't dare say that we could see increased prices. Given what happened last quarter, I would say relatively flat.
Okay. No, that's fair. On the same discussion for Europe, at least what I am hearing is that Q4 is basically already fully booked and that most steelmakers are selling for Q1 now. Does that mean that the prices we are seeing now will flow wholly into Q1, or how should we think about that?
I would say that that's more or less correct. Yes, we are to a large extent booked for Q4. The recent price increases that are being seen on the spot market will not impact us in Q4. As Martin said, even though we are guiding for slightly lower prices in Europe, if we compare product by product, we will see somewhat higher prices. When we do an average, on average, it will be slightly lower.
Okay. No, that's helpful. Also on Raahe. I think we've talked about around SEK 200 million in negative impact from idling it for a whole quarter. Is that the positive impact quarter-over-quarter we should think about going into Q4?
Yeah, I think that's a fairly reasonable assumption, yes.
Okay. Brilliant. Maybe finally on my side, the demonstration plant that you will perhaps soon start working on for HYBRIT, should we expect another pre-feasibility study ahead of that? Will you update us on the potential OpEx cost for HYBRIT in that?
Yes, we will update you on the OpEx cost in that. We are now in the process of having, I don't know the English word, but in Swedish, [Non-English content], where to place it and see where we can get electricity. It's not completely uncomplicated. It's quite a big type of equipment and a big building, so we need to have these permits, and we are working with that now together with authorities and other stakeholders. We are in that process. We have decided that we will build one, but exactly where and exactly how is still under negotiations.
Okay. Just finally, on the timeline for that update on OpEx, when in time could we expect that, do you think?
I don't exactly know that, but the ambition is to have the demonstration plant run and be ready in 2026, but that will be, of course, dependent on the process of getting permits and getting a power supply. We will come back in due course.
Okay. Fantastic. Thanks a lot. Thanks.
Before we continue, ladies and gentlemen, it's just a quick reminder that as we are on a time constraint, you could please politely remember to limit yourself to one question per opportunity. The next question comes in from Carsten Riek of Credit Suisse. Please go ahead.
Thank you very much. Quickly, the first question I have is on the lower maintenance cost. You had almost SEK 100 million in lower maintenance costs. You thankfully already commented on it that quite a portion was actually because you undertook the maintenance yourself. Could you just give us a little bit more feeling for how much still has to catch up in 2021 out of the SEK 100 million you had at a lower level now? Is it 50/50 or is it somewhere less?
No, I wouldn't say there's anything to catch up on, actually, Carsten. We were doing what we were planning to do. We were not doing less work. There were two reasons why it was lower. We had renegotiated some of the contracts beforehand, or renegotiated, rather, when we made the estimation, we hadn't even negotiated. Given the situation, we were in discussion with our suppliers, how can we get the cost down given that we're in such a tough market?
That was one reason, and the other reason was that we were doing part of the work more by ourselves than using external suppliers. If you look at the SEK 100 million in total, yes, but if you look at it by division, it's quite a small amount for each division, and then it adds up to SEK 100 million. It is not that we are waiting to do another SEK 100 million next year, no.
Okay, good. Maybe just a very quick follow-up on the Net Working Capital, because you had an almost SEK 700 million Net Working Capital release, which was quite a sizable number for a third quarter. How much more is actually possible in the fourth?
Typically, Q4 is the quarter where we release working capital, when we have this normal seasonal slowdown towards the end of the year. This year, as we have guarded for, we are expecting some higher volumes in Q4. From an AR side, we're not going to release as much as we normally do. On the other hand, we have been building inventories ahead of the maintenance stop, et cetera. It's not going to be a typical Q4 quarter in terms of working capital, I would say. Still, it doesn't have to be very bad either or bad at all .
Okay, good. That helps already. Thank you very much.
Thank you, Carsten.
Our next question comes in from Bastian Synagowitz of Deutsche Bank. Please go ahead.
Yes, good morning. I've now got one follow-up on volumes, and I thought that the numbers for September order intake, which you've been showing for Europe here, were pretty impressive. Now firstly, which are the end markets driving this? Maybe also, how has October been trending so far from what you can see? Are we heading for run rates similar to September? Maybe in that context, you could also just remind us how long it takes for your orders to convert into shipments at this point.
If I answer the first part of the question, I guess it is partly or to some extent the catch-up, as well. Some of the big OEMs have been standing still in Q2 and part of Q3, and then it's a catch -up. You shouldn't mix apparent demand with real demand. What we see is that underlying demand is also picking up. We have seen so far, what is it, two weeks into October, we have seen a similar trend.
Okay. How long would it take for that to convert into shipments?
That normally depends on the size of the order book. The shorter order book we have, the faster we can convert it. It also depends a bit by division. It's usually a bit faster actually in SSAB Americas with the EAF-based system than it is in the integrated system. Let's say on average maybe two months or so.
Okay, got it. Thank you. Maybe secondly, very quickly, if I may, could you give us an early update on the CapEx budget for next year? I think earlier you indicated we may be trending towards , like, rather slightly above the SEK 3 billion average run rate. Have you been sharpening that number a little bit?
No, not yet. You're asking, we were saying SEK 3 billion for this year, and then we lowered it when we got into this COVID-19 situation to SEK 2 billion-SEK 2.5 billion. Given that we have postponed some major projects, I think it's fair to assume that it's going to be somewhat slightly above SEK 3 billion. Yes.
Got it. Okay. Thank you.
Thank you, Bastian.
We continue this afternoon with Luke Nelson from JP Morgan. Please go ahead with your question.
Hi, thanks for the call. My question is on, just following up on your comments on underabsorption, specifically at Oxelösund. If it's possible to break out the additional underabsorption costs for the month that it was idled outside of maintenance.
Yeah. Well, it was idle for more or less three to four weeks, depending a little bit on operations. The first maintenance outage was about four weeks, and then we idled it for another four weeks. The figure you have in the maintenance table for Specialty Steels, that's only related to the kind of planned maintenance outage and not the additional four weeks that we had on top of that then. Those are additional underabsorption costs. We haven't specified them clearly, but they are definitely substantial and impacting, then, of course, the profitability of Specialty Steels.
Okay, thank you. Just to follow up Bastian's question on CapEx. I know it's not going to be major, but does the CapEx budget that you guide include or exclude your share of HYBRIT CapEx?
Excludes. It includes the conversion that we will do in Oxelösund, but it does not include the CapEx part for HYBRIT, no.
Okay. I suppose let's follow up. Is it possible to just remind us what the, I suppose, cost of the Mobile and Oxelösund projects that were postponed this year that were meant to be in the CapEx is, sort of what we should expect to be put into 2021? Also the sort of additional spend at HYBRIT.
Yeah. For Oxelösund and Montpelier, you can say in total around SEK 700 million. For HYBRIT, so far, we have the major part , which is SEK 1.4 billion in total. We've been getting some support for that, we're, of course, sharing it then between the three owners. Our share has been around SEK 300 million for building this pilot plant.
Thanks a lot.
Thank you.
We continue next with Kevin Knitterscheidt, of Handelsblatt. Please go ahead.
Hello. Thank you for taking my question. I just have one short question I want to ask. Your competitor, thyssenkrupp, is selling its steel business, and the first competitor has made an offer. Are you planning to engage in the bidding process?
I saw that. No, we are not engaging in any bidding process. I saw in the news that Liberty Steel was bidding for thyssenkrupp.
Thank you.
The next question comes in from Michael Pilati. Please go ahead. In case you haven't heard, the next question comes in from Michael Pilati. The floor is yours. I think unfortunately, we may have lost Michael. If you would like to ask a question, there is still a little bit of time. Please press zero one on your telephone keypad. We have Bastian Synagowitz from Deutsche Bank once again. Please go ahead.
Yeah, sorry for me following up. Just briefly, just one of your competitors just announced also plans to bring green steel volumes on the market, I think to some extent this year, and then in a larger volume size by 2022, 2023. When you say or when you talk about being the first with fossil-free, do you think you just use a different definition with regard to the actual product?
I don't know because I don't know what definition they use. What we are talking about is a complete fossil-free value chain, all the way from when the iron ore is in the mountain and being brought up until we have delivered the steel to the end user. Not only taking away the carbon dioxide in steelmaking by using hydrogen instead of coal but also having a fossil-free mining operation in LKAB and fossil-free transports. That's our definition. Is it completely fossil-free? There will be some carbon, of course, in it because otherwise it's not steel, but there will be no CO₂ emissions.
Also remember, Bastian, that we also have fossil-free electricity.
Yeah
From Vattenfall.
That's a big difference. According to our definition, and I don't know the other company's definition, but according to our definition, everything needs to be fossil-free, including power generation.
Okay. That's very clear. Even though I know that obviously some of the commercial discussions may be still somewhat undefined at this point, what you're hearing from your customers—have you seen a larger receptiveness for maybe paying for the avoidance of CO₂ in the product? I remember before I thought customers were maybe not that willing to proactively pay for it, but have you been seeing any change in that?
We see a constant or an increasing development and an increasing interest. We have obviously not started to discuss pricing because we are not producing it yet, but we are now discussing partnerships and the possibility to do prototypes already during next year together with customers. We see an increasing interest, and it's building up from customers, it's building up from owners, and it's building up from a lot of different stakeholders. We see an increasing interest, and that's very positive.
Okay. Thank you then. Just very lastly, just on Ruukki, which I think performed really well. Revenues were down significantly, yet your margins obviously were up, and I think earnings were almost stable and up in absolute numbers. This effect—has this also been mostly driven by just lower input sector costs from steel? May that be somewhat reversing now that steel prices are actually on the way up again?
I would say not at all. They have been doing a great job. We have been discussing Ruukki many times, this is, for us, what we have left in Ruukki Construction , the core business. They are the biggest customers for us of color-coated steel. They have been streamlining and fixing the operations. They have sold not only building systems, they have sold the Russian assets or the Russian company. They have been selling the assets in Romania, closing down, and focused on core products in core markets. They have also done an acquisition of Piristeel Oy in roof safety. They are building out the network, and they're doing a great job. It's not about steel prices going up and down.
They have a target of a certain profitability level, and then we know that when we sell color-coated via Ruukki Construction, the long margins or the combined margins for SSAB is very attractive. They have an agenda of having a certain profitability and then organic growth, volume growth.
Okay. Sounds good. Well done there. Okay, thank you.
We have one final question in from Michael Pilati, whom I think we've lost earlier. Michael Pilati, you have the floor. Please go ahead. Mr. Pilati, are you there? Can you hear us? Unfortunately, it seems we have lost Mr. Pilati once again. With that, ladies and gentlemen, there are no further questions at this time. It is now my pleasure to return the floor to the speakers for their closing remarks.
Okay, thank you. That concludes today's conference, then. We just say thank you for all the questions and wish you a nice day.
Thank you very much.
Thank you. Bye-bye.