SSAAF - SSAB AB (publ) (SSAAF) Q2 2023 Earnings Call Transcript
2023-07-21 08:03:09 ET
SSAB AB (publ) (SSAAF)
Q2 2023 Earnings Conference Call
July 21, 2023, 03:30 AM ET
Company Participants
Per Hillström - Head, Investor Relations
Martin Lindqvist - President and Chief Executive Officer
Leena Craelius - Executive Vice President and Chief Financial Officer
Conference Call Participants
Alain Gabriel - Morgan Stanley
Tristan Gresser - BNP Paribas
Tom Young - Barclays
Patrick Mann - Bank of America
Christian Kopfer - Handelsbanken
Moses Ola - JP Morgan
Maxime Kogge - ODDO BHF
Krishan Agarwal - Citigroup
Presentation
Operator
Per Hillström
Good morning and welcome to this presentation of the SSAB Q2 report. My name is Per Hillström. I'm Head of Investor Relations at SSAB. Presenting today, we have Martin Lindqvist, President and CEO; and also CFO Leena Craelius.
If we look at the agenda here, we have the agenda. Martin will start with a brief overview of the quarter, then Leena will come with some more details on the financials, and then Martin will close up with the outlook and a summary and at the end we will have time for your questions.
So by that, please Martin start.
Martin Lindqvist
Thank you, Per, and good morning and welcome to this quarterly presentation. Let me start with some highlights. We saw somewhat high earnings in Q2 compared to Q1, but of course a big drop compared to the very strong or exceptionally strong second quarter last year. We saw continued good results in Special Steels in Americas, but we also saw the European market weaken during the quarter and getting an uncertain outlook for the rest of the year.
And in order to meet that and mitigate that, we focus on two things; cash flow generation, I will come back to that and then actions to lower costs. And we have during the last couple of years built a flexible system or a more flexible system where we can take away temporary employees. We can do some structural changes, we can use work our banks. We can reduce some new hires and other fixed costs. So the target is to reduce on a group level cost by more than SEK500 million on an annual basis.
We saw a continued good trend in safety, and this is lost time injury frequency per million working hours, including contractors. We are just north of one lost time injury per million working hour, which is a good development compared to the last number of years and we continue to focus on the ambition to become the safest steel company in the world.
We continue to generate decent cash flow and we had a decent cash flow generation during the second quarter as well. The reason why the balance sheet is slightly weaker than the end of '22 was that we paid out SEK9 billion in dividends during Q2, but as said, strong balance sheet within our financial targets.
If we look at Special Steels, earnings continued on a good level. We had an operating margin on an EBIT margin over 23%. We saw in Europe for strip related products slightly weaker market. Would we expect slightly weakened market than in Q2? No big changes, but some hesitation, but overall, a good and strong performance.
Americas continued with earnings on a good level. We had a EBIT margin of 34% during the quarter. The shipments were somewhat lower than in Q1, and we experienced some bad weather conditions during the end of Q2. We had some thunderstorms and other things happening, so we missed the shipping targets with a couple of days or week and that will come back in Q3 then. But that led to somewhat lower shipments in the second quarter compared to our internal plan. We saw stable market pricing during the first half of the year, so good levels and stability for plate prices.
In Europe we had a better result than previous quarter, but of course a big drop compared to the very strong second quarter of last year. Here we see the measures to become more cost effective or to lower costs and meet slower European market. We had stable production, we had stable shipments. Automotive advanced high strength steels continue on a high level. We also see that we had very low shipments to construction related products and that is also visible in Ruukki Construction. And we saw spot prices moving down during Q2 and that will be visible in Q3 in our P&L due to the normal lag.
If we look at Tibnor, we met weaker market conditions. Q2 last year we had record high earnings including inventory gains. This quarter we had inventory losses. When we reevaluated the inventories, here we also do measures to lower costs in line with what we do in SSAB Europe. Then Ruukki Construction we usually see a seasonal improvement compared to the winter season in the summer year, half year, so to say and we saw that, but that was much less pronounced than in normal year. And we do cost savings there and we saw some of it visible ordered in Q2, but the majority will come in Q3 and Q4 and as said, all-in-all on a yearly basis, we aim to reduce cost with more than SEK500 million.
If we look at the transition, the green transition and sum up Q2, we continue to ramp up the production and the sales of SSAB Zero with the big and huge interest from the market. We formerly in the board took the decision of the transformation in Oxelosund during end of May and we have started the project to explore eventual possibilities for DRI production and roll in the future. And this fantastic picture is from end of May or beginning -- or in June when we had the -- when the TTC meeting was held in Luleå. So we had Secretary Blinken and some other high ranked politicians and officials visiting our HYBRIT plant and giving us the opportunity to explain what we are doing and what we are aiming for.
And if we look at the plan to convert SSAB into a fossil-free steel company, I would say that we are on track. We are ramping up the Zero steel production with the ambition to produce and sell at least 40,000 tons this year. We took the decision end of Q2 to convert Oxelosund and the next step will be the [indiscernible] and one in Luleå and those decisions will be taken '24 and '26.
And if we look at what we are aiming for in this is repeating a bit from the Capital Markets Day and but still we took the policy decisions in January '22 to convert SSAB into fossil-free steel production. And in Luleå, we are aiming for building a mini-mill with melt shop, hot strip mill finishing and shipping cold mill complex, an integrated process with melt shop, hot strip mill, cold mill, cold complex in one facility there.
We are very dependent on grid connections and electricity. We have discussions with relevant authorities when we will get that possibility to get electricity. In Raahe [ph] we are also planning to build a mini-mill and close the existing blast furnaces and strip mill and coal plants and so on. We are also there aiming to build an integrated process with steel making and direct rolling in one process line. And we have also said looking into the option to add hydrogen DRI production. Here we have positive signals on grid connections and electricity. So I would say overall we are following our plan, the challenges of course grid connections and electricity.
With that, Per?
Per Hillström
Yes, very good Martin, thank you. And then we invite Leena here to discuss a bit more the details of the financials. So please Leena, go ahead.
Leena Craelius
Thank you, Per. Let's start with the group overview, shipments, revenue and EBITDA. As already Martin mentioned, these shipments were slightly lower during Q2 compared to Q1, 15 kilotonnes to be exact. And here the graph is summarizing the steel shipments and it looks like we would be on the similar level compared to previous year. But we need to add here the Tibnor and Ruukki Construction volumes, which is then illustrating that we are on a lower level as already mentioned in the previous slides.
Revenue trend well in line with the shipments quarter-on-quarter and yes, lower than last year, mainly driven by the 12% lower average prices this year compared to last year and not to, no need to remind that last year was exceptionally good. EBITDA development on the other hand slight improvement in Q2 compared to Q1.
Let's dive into more details, quarter-on-quarter operating result improvement SEK230 million. Prices compensating for the higher cost mainly improvement in SSAB Europe. Maybe to mention that during Q1 we were delivering spot deals that were impacting the average price. We had no spot deals during Q2, so the product mix was improving on top of the underlying price development.
Prices in this graph does include the positive impact of the FX, which on the other hand is then opposite impact in the variable cost. Inventory adjustments, inventory value went down and some higher cost when it comes to CO2 emission rights. Volume minor impact, negative impact quarter-on-quarter. Fixed cost higher during Q2 and that is mainly seasonal impact with summer workers. And also the inflation or the salary index impact is coming through in Q2 in the salaries and some higher cost of materials and services, minor positive impact of FX and then the capacity utilization also contributing positively to the result. So the utilization rate was slightly higher during Q2.
Comparison to the exceptional year last year, Q2, we can see that the price is clearly lower and this is now mainly Europe division and Americas, while Special Steels division is still holding prices rather well compared to last year level. Here also the FX have an impact, positive impact in prices while negative impact in the variable cost analysis. To remind that last year we were building up inventories with rather expensive raw materials and we were building safety stocks and this year we are actually reducing the inventories. So in the bridge analysis, it is then impacting negatively and also some higher CO2 costs compared to last year.
Fixed cost, here we have some higher FTEs, higher salaries, and also we can see that the cost of external materials and services is higher. So on a total level, this is around 7% higher fixed cost compared to last year. And the capacity utilization here, also positive. And we can mention that during this year, during the first half of the year, the production has been more stable compared to last year.
Solid cash flow already mentioned. Earnings as illustrated in the previous slides. Good performance in the working capital. Positive impact mainly due to inventories. And you can see last year it gave a big negative impact with the piling up of the inventories. Somewhat higher maintenance cost. The other line here is related to purchase of CO2 emission rights.
Financial items positive with interest income. Taxes on a similar level as last year. Strategic expenditures lower than last year, but this will pick up now with the Oxelosund conversion project going forward. And then positive 61 here is related to a sale of G&G Mining entity in Australia, deal done by Special Steels division and the dividends close to SEK9 billion at the bottom of the table.
End of Q2, still very strong financial position, net cash position SEK11.7 billion and the net debt equity ratio minus 17, which is in line with our financial targets plus minus 20%. In June we were issuing two new sustainability linked bonds in line with our EMTN program, five years maturity, a total of SEK2.1 billion and at the same time we were buying back around SEK900 million worth of bonds, so the net of SEK1.2 billion. We were rather moving this short-term bond portfolio to be longer-term
Raw materials. The iron ore has been fluctuating, but all-in-all during Q2 it has been rather stable. The consumption cost has been rather stable, somewhat lower compared to quarter-on-quarter. And the outlook with the iron ore is that it will remain to be stable and somewhat lower cost in Q3. Coking coal, it was peaking during last year, has been leveling out. We had expensive raw material inventory, but as a trend we can see that it's also coming downwards in cost and volume.
And the outlook for Q3 is that it will be somewhat lower. To bear in mind that the PCI coal inventory we still have rather high and compared to the latest market prices, it is still rather high cost for us. Scraps, scrap costs stabilizing and the outlook is that it will remain stable also going forward.
This slide we haven't updated for quite some time. We still anticipate the cash need for this year to be around SEK11 billion. And compared to last year, the increase in the CapEx is related to Oxelosund conversion project.
And this is actually my last slide, just to remind that we are starting the annual plant maintenances during Q3. Q1, Q2, we didn't have these big maintenances, but in SSAB Europe, we are starting maintenance in Raahe, Luleå, Hämeenlinna, and Borlänge.
And then in Special Steels, Oxelosund is starting their annual maintenance at the end of Q3 and naturally this will have an impact to the outlook when it comes to volumes.
Per Hillström
Yes. Thank you, Leena. And then we can invite Martin back again to close the presentation part.
Martin Lindqvist
Thank you, Per. So if we then look into the third quarter and look at the market segments and start with heavy transport, we see signs of slowdown in heavy trucks in Europe. We see very healthy demand from rail cars and ship building in the U.S. So overall, I would say neutral quarter-over-quarter. Automotive, we see structurally growing market for advanced high strength steels, but we also see signs of slowdown in core demand and that is of course due to inflation and higher interest rates. But overall, I would say quarter-on-quarter neutral.
Construction machinery, good demand in North America, somewhat weaker demand in Europe and China continue to be weak demand, so somewhere between weak and neutral. Material handling somewhat cautious sentiment within mining, stable demand in recycling, so overall I would say also neutral. Energy being strong, good demand from wind power and other renewables and that is especially I would say for our U.S. operations.
Construction continues to be weak and we expect the Nordic construction market to continue to be weak throughout 2023. And then the swing factor service centers in U.S., we see low inventories in the supply chain, but we also see service centers being hesitant due to price levels, but overall very or low inventories. In Europe the inventories are more normal and we see a wait and see mood among service centers, so somewhere between neutral and weak. So overall neutral to slightly weakening segments with the exception of energy.
If we sum that up then to our outlook, we say that demand in Europe weakened during Q2, and there is a risk of a more pronounced downturn than normal in Q3 because we typically see a seasonal slowdown. Demand on the heavy plate market in North America is expected to continue at a good level. And for high strength steels the market has been good. It will continue to be good, but we see some small signs from customers of a more cautious sentiment.
So when we sum it up for Special Steels, we expect somewhat lower shipments and prices. For Europe, we expect significantly lower shipments and lower prices and for Americas, we expect somewhat higher shipments and stable prices.
So to sum it up before we open up for Q&A continued good trend in safety. Weak European market, we have taken measures to reduce costs. We continue to have good cash flow generation and we should continue to generate good cash flow and a good cash conversion. We have a strong financial position and we are following our plans when it comes to the green transition with the decision in Oxelosund, the ramp up of SSAB Zero and so on. So, so far, so good when it comes to our green transition.
With that, Per.
Per Hillström
Thank you, Martin. And then we can prepare for the Q&A session. As always, I'd just like to remind the people calling in, it's perfectly fine to ask more than one question, but please state them one at a time to make the process smoother. So, but please, operator, can you present the instructions for the Q&A session, please?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And your first question comes from the line of Alain Gabriel from Morgan Stanley. Please go ahead.
Alain Gabriel
Yes, good morning everyone. Two questions from my side. So I'll start with the first one. Martin, your outlook and price volume comments for Special Steel were not particularly bullish for Q3. How confident are you about the margin resilience of that business in the next two quarters of the year? And if we look at 2021, the EBITDA run rate of that business was half of what you have achieved in Q2. How different is the environment now versus then? That's the first question.
Martin Lindqvist
Oh, I'm very confident that we will have more stable markets margins in Special Steels than Europe as an example. They will be on a higher level over time and much more stable. We have seen that after a very strong couple of quarters, we see some hesitations on the European market, and I guess that's due to high interest rates and inflation and so on. And but overall, underlying good demand and structurally the demand will continue to improve. And we have had, when it comes to the Q&T products, we have had challenges to meet the demand with production. So we are have been producing at very high levels. And so it's more the strip related parts of the Special Steel business where we see some hesitation.
Alain Gabriel
Thank you. That's clear. And the second question is on the gearing ratio that the net cash to equity ratio is at 17%, which is very close to the 20% lower band of your gearing target. Should we see the 20% as a trigger point for the buyback?
Martin Lindqvist
No, but I said we have the mandate now, and for me it's more about timing. So we will come back to that, but we have a decent balance sheet than I've said many times we should, this business should continue to generate strong cash flows the independent of business cycle.
Alain Gabriel
Thanks.
Operator
Thank you. We'll now go to our next question. And your next question comes from the line of Tristan Gresser from BNP Paribas. Please go ahead.
Tristan Gresser
Yes. Hi, good morning. Also two questions from my side. The first one is on the plate business. You're guiding for stable prices, higher volumes there. The market environment seems to remain supportive. Do you believe that the stability of this business and the prices we're seeing at the moment is due already to the increased demand from higher infrastructure renewable demand as well, or have those pockets of demand yet to materialize? And as of today, do you see any reason for those market dynamics to materially deteriorate in coming quarters? That's my first question. Thank you.
Martin Lindqvist
I mean, we see strong underlying the demand than, and the U.S. plate market is structurally on the supplied. And what you typically would see in a situation like this, with a strong U.S. dollar currency, or a strong currency, would be higher import. We see some import, but I think this smelted in Americas, these programs that are introduced gives us confidence in the coming quarters as well. So we expect, as said, well, I mean, the visibility we have in the order intake, in the order book we have for Americas is for Q3, and that we see stability when it comes to pricing and volumes. If anything, I mean, if you look at the underlying sentiment on the market, it remains positive.
Tristan Gresser
Yes. But have you seen a pickup from infrastructure and wind power over, let's say the past two quarters or…?
Martin Lindqvist
I think the pickup there are a lot of especially offshore wind projects being planned and that will materialize. We see a strong demand from energy and but the big projects are yet to materialize.
Tristan Gresser
Okay. That's clear. And my second question is more on the decarbonization. I mean, we've seen some of your peers unlocking very large CapEx and now OpEx subsidies as well. And I know you're still in discussion for the next year, I plan. But is there any reason why you would not ask for some level of public funding more directly for the DRI plant or the EAF? Is that in the cards when you make that decision?
Martin Lindqvist
No, we have asked for help with to develop the DRI plants and we have also got them from the European Union some positive signs. So we are working with that question. And it is of course an important topic, but I think the most important topic is to be quick to the market and be able to supply the demand we see and the interest we see. And that's also why we introduced this SSAB Zero product where we produce steel not from virgin iron ore, but from scrap, but without any emissions. And there has been a huge interest on that. And we need to ramp up that and we need to continue our journey according to our internal plans because the demand on the market is definitely there.
Tristan Gresser
Alright, thank you.
Operator
Thank you. We will now go to our next question. And your next question comes from the line of Tom Young from Barclays. Please go ahead.
Tom Young
Hi, morning. Thanks very much for taking our questions and two from me as well. And the first one just on the cost savings and so you're trying to get to a SEK500 million annualized run rate. Maybe if you can just help, first with the timing and then two, just how structural those elements are. I mean, I already see in Q2 there's SEK20 million in Ruukki Construction and maybe you can just give an idea of how much of the additional cost savings are coming in Q3 and then more in Q4, and then just an idea on whether those are mostly temporary or more structural? That's the first question.
Martin Lindqvist
No, what we have done during the last couple of years is to set up the organization and the operations with I would say compared to the history, at least the larger portion of temporary employees. So we meet high demand situations with more temporary employees, and then when the market softens a bit we don't prolong those contracts. We have also created a system in Sweden with time banks. So we save time or utilize the time more than normal in a strong market and then reduces the working hours and cost during a lower market. So our ambition has been the last number of years, and that will continue because it's so important is to increase flexibility and internally we call it lift, low point profit. That's our one of the main targets we have.
So in a, I would say a rigid system and a volatile industry to be as agile as possible to be able to adjust costs. The ambition is to reduce cost and with a bit more than SEK500 million on an annual basis and the full run rate, I think will be seen in Q4. We saw some effects in Ruukki Construction and there they also do structural changes because we expect the construction market to continue to be weak throughout at least this year. And then in other parts of the organization, it is a combination, but it goes for the whole group. But the majority will be in Europe Tibnor and Ruukki Construction for obvious reasons, but also group level and in other divisions. So it is more about utilizing the systems, the system we have built in recent years.
Tom Young
Okay, got you. And then the second question just on sort of inventory is actually, so in interestingly, you mentioned they look normal in Europe, which is probably a bit higher than I think some of your peers have been flagging. Just wondering whether that comment is very Nordic specific or you think it's true more broadly? And then also how you think about inventory levels at customers as well? So not just service centers clearly real demand is not great, as you say. Do you think customer inventory levels are low or do you think they're also fairly normalized?
Martin Lindqvist
I wouldn't say that they're higher than normal at least. I would say maybe on the low side what we comment is what we call the swing factor into under the steel service centers and they are typically opportunistic. They try to adjust the inventories in line with what they expect for steel prices. So I would say our comment when it comes to steel service centers, it's on a European level and what we have read and what we have understood and in U.S., it's for the U.S. steel service center market where we see that because these are official statistics that they are on the inventories are on the low side.
Tom Young
That's very clear. Thank you. I'll turn it back.
Operator
Thank you. We will now go to our next question. One moment please. And your next question comes from the line of Patrick Mann, Bank of America. Please go ahead.
Patrick Mann
Thank you very much and good morning Martin and team. I just wanted to ask a little bit more on the outlook for Europe in particular. And I suppose I'm thinking back to last year where in the second half of the year when apparent demand was very weak, we saw some capacity closures and sort of production curtailment in Europe. Do you think we might see something similar this time around or is it too early to see? Do we need to see what real demand is doing after the sort of seasonal summer break in the third quarter? That's my first question, thanks.
Martin Lindqvist
I mean, without having the answer to that question, just allow me to speculate a bit. I mean, what has changed now compared to a number of years ago is that the European steel industry have higher marginal costs because of buying emission rights. So I think the interest to adjust production in line with underlying demand is bigger. So no one is really hunting these marginal volumes to the same extent as they did couple of years back. And so my guess would be that we will see if the market deteriorates we will see capacity adjustments in the European steel community.
We also need to remember that we have also due to this very terrible war in Ukraine; we have lost a lot of imports from Russia and other parts. And we'll also see a ramp down of semis coming out of Russia until the end of 2024. So I think maybe the volatility on the European market for those reasons have decreased a bit.
Patrick Mann
Thank you. And then the second question, just on working capital, you had a release this quarter. How should we think about it for the full year and for the next couple of quarters? Thank you.
Martin Lindqvist
No, but you should think about we call it cash conversion internally, and we have a high target for this year when it comes to cash conversion. So the profit should, to a very large extent, come out as free cash flow. And then we went into this year with high raw material inventories because a year ago, or a bit more than a year ago, when the war broke out, we as anyone – everyone else previously bought a lot of raw material from Russia, and we stopped that the same day as the war broke out, and we had to look for other suppliers and when you do that you are not used to using different type of PCI calls and so on. So you need to test it out, and then you need to be then you need, well, we did at least by more than our needs, and that's why we entered this year with high raw material inventories, and they you should expect them to normalize during this year. So that will give the possibility to reduce working capital further.
Patrick Mann
Thank you.
Operator
Thank you. We will now go to our next question. And your next question comes from the line of Christian Kopfer from Handelsbanken. Please go ahead.
Christian Kopfer
Yes, thanks operator. Good morning. Just a few questions from my side. Firstly, just so I interpret your guide, your short called short-term guidance fairly here. So my read is that if I take into account the price guidance and the raw material guidance for Special Steels and the Americas it seems that you expect rather stable margins sequential in the Q3. Right? That's good. And for Europe is it the same or should down the line more come down a little bit before, so…
Martin Lindqvist
No, but we have seen, as Christian spot price is coming down in Q3 and then of course the summer season in Europe is always hard to predict. I mean, July means that the Nordic market is very slow and then followed by August, which is typically slow than in Europe due to vacation. And then it all starts again on a quality more normalized level in September. So, but spot prices have come down during the second quarter and that will be with the lag we have visible in the P&L in Q3.
Christian Kopfer
Yes, that's right. Okay, all right. And I mean Special Steels are delivering very, very strong profitability. What do you think if anything would bring that profitability down in next year? Is it primarily about Q&T demand or what do you think?
Martin Lindqvist
No, but when we look at this midterm and long-term, we see a structural growth of Q&T demand and because customers want to have more effective products that last longer that can load more and so on. So the structural demand is growing over time, and it has been growing with 7% to 8% if you go back a number of years and take that annualize that, so we expect that to continue. What we also see unfortunately is, due to the war of course, increasing demand for armored plate and so we will need to have, with the production system where we are producing at for plate Q&T at maximum, we need to figure out the smart way to deal with that demand.
So as you know, armors as an example has very good margins for us, but requires longer lead time and takes more production. So it will be a balancing between different product groups, but when it comes to Q&T, I'm still very positive and the underlying demand is strong, then it can vary of course between a quarter or two. But the underlying demand, we expect to continue to grow in line with what we have seen historically and that would speak for the possibility to have good and stable margins.
Christian Kopfer
That's very good. Thank you very much, Martin.
Operator
Thank you. We will now go to our next question. And your next question comes from the line of Bastian Synagowitz from DB. Please go ahead.
Bastian Synagowitz
Yes, good morning, all. Two quick questions left from my side here, and the first one is also on on the third quarter outlook. I just wanted to follow up on cost where you single out the cost relief from coking coal, but I guess there should be some relief from iron or in Europe and then scrap in the U.S. as well, which you don't mention. So I'm wondering, have you already realized part of most of the iron ore price decline which you show your chart top here, and maybe you can put that into context for us? That is my first question.
Martin Lindqvist
No, but I mean, I think we guide for a slightly lower raw material cost or stable raw material costs. So we, but you never know, I mean scrap prices are set every month. So you really don't know, but what we guide for is slightly lower raw material prices.
Bastian Synagowitz
Okay. But just to be a 100% clear, I suppose you have not yet seen the major benefit from the lower iron ore prices which you are showing on the chart.
Martin Lindqvist
We have a lag of between a month to two months. And what we are all saying is that due to what I discussed earlier, the inventory buildup of especially PCI coal, we will not see that effect yet because we're still consuming PCI coal that we bought a year ago.
Bastian Synagowitz
Got you. Okay, sounds good. Okay then my second question is with regards to mix in Europe. So typically color coded used to be a good support sector for you into the third quarter. I'm wondering how does your third quarter order book for color coded compare versus the one, for example, you had last year, just given the softness in construction, will you still see a relatively decent support in mix? How does mix look like in the third quarter?
Martin Lindqvist
Well, typically we see that, but with the weak construction market that that help is less pronounced than a normal year. But we already saw that in Q3 last year because the construction sector was slowing down and then it has been gradually slowing down. So we are I mean compared to normal year, you will see less pronounced help in mix from the construction segment because they are the ones taking color coded. So Q3 last year we started to see the slowdown, but there was still projects in the pipeline they will come back. But what we are planning for as said is the construction market to be, continue to be on a low level or be tough during the rest of this year. So that's our planning horizon. If we are wrong we would be happy, but that's what we are planning for.
Bastian Synagowitz
Okay. Well thanks for the color. Maybe one very quick follow up if I may just on the volume side in Europe where you talk about possibly weaker third quarter than normal, and let's say normal is typically around say minus 12, minus 15%. So I'm wondering, is there a risk in your eyes where you see your numbers falling significantly short of that level, i.e. minus 15% at the upper end? What is your current order book telling you? I appreciate there's a lot of uncertainty, but maybe there's some early stage color you could give us when it comes to the amplitude.
Martin Lindqvist
No, I don't really see that risk to be honest.
Bastian Synagowitz
Okay, perfect. Thanks Martin.
Operator
Thank you. We'll now go to our next question, one moment please. And your next question comes from the line of Moses Ola from JP Morgan. Please go ahead.
Moses Ola
Hi, thank you very much for taking my question. I just wanted to focus on your utilization rates. So in Q2 we've seen stable to higher capacity utilization rates, but how should we expect this to trend into year end and the potential impact on net costs, obviously guided for lower raw material costs, but potential fixed cost impacts from lower utilization second half versus first half? And then I'll ask my second question after.
Martin Lindqvist
No, but I mean as Leena alluded to, we will have the plan maintenance outages during the second half of the year, and we will have that in the Nordic system. We will start in Q3 and we will have it in Q4 as well. And then we will have it in America's as well. We have that every second year, so we will have Montpelier in Q4, but apart from that you should expect us or at least we are expecting to have stable and decent production and then of course adjust to the market situation, but so nothing abnormal, I would say.
Moses Ola
Okay. Thank you very much. And then the only other question from me, what are you currently seeing in terms of import penetration in Europe specifically from Asia, China currently?
Per Hillström
Imports have increased. During the year end we expect them to be on a higher level also going forward, what we can see now into Q3. So bit more supply on imports coming.
Moses Ola
Is that versus Q2 or year-on-year?
Per Hillström
That's sequential.
Moses Ola
Thank you.
Operator
Thank you. [Operator Instructions] We will now go to your next question. And your question comes from Maxime Kogge from ODDO BHF. Please go ahead.
Maxime Kogge
Yes, good morning, sorry, good morning. So my first question is on the SSAB Americas, so you pointed to transportation issues that affected your shipments at the end of the quarter, and I was wondering whether that would be, whether you would be able to catch up on that in the third quarter? And to what extent, I mean this effect when incorporated in your guidance, what could be the impact of this resolution of transport issues?
Martin Lindqvist
I mean to predict whether is always of course impossible, but we had some shipments that were supposed to go out in June that went out in July instead. So I mean, it was a delay of a couple of days or up to weeks, so nothing major, but that affected shipments in U.S. and that was due to weather related issues. I think it was some thunderstorms and some other things that made it impossible to ship out from, I think it was [indiscernible] standard raw material from [indiscernible].
Maxime Kogge
Okay. And yes, if we look at energy prices, I mean, they are falling even more, especially in Sweden and [indiscernible] particularly now compared to what they were, they used to be. So they used some upside on that front in Q3 and Q4 results or is it already totally included in the Q2 results?
Martin Lindqvist
No, but as said, the spot prices in Europe and including the Nordics fell in Q2 and we typically see that in our quarterly prices than with quarter of a lag and that's why we are, guiding the way we are guiding. And of course we have the order booked for a large part of Q3, so we are quite confident in our guiding for the third quarter. When it comes to the fourth quarter, we haven't opened the order books yet.
Maxime Kogge
All right. And perhaps lastly, so you had a quite positive working capital variation in Q2. So does it mean that we should expect a big outflow than in Q3 or do you…?
Martin Lindqvist
As said, we went into this year with a quite substantial raw material inventories and so I wouldn't say that you should expect a, you shouldn't expect a big outflow in Q3. We took away some of it in Q2 because we consumed it. And we will continue to consume especially the PCI code where we had quite substantial inventories moving into to this year. And that's also as said before, we are consuming now PCI coal that we bought in a very, I would say, turbulent market a year ago. So we are still consuming PCI coal at a higher cost than the current market price. And that should be, you expect us to continue to sweat out during the rest of this year.
Maxime Kogge
Okay. Thank you very much.
Operator
Thank you. We have one or two further questions. We will go to our next question. One moment please. And your next question comes from the line of Patrick Mann, Bank of America. Please go ahead.
Patrick Mann
Thank you for taking a follow up. I just wanted to ask on the green steel and the, and looking at DRI at Raahe. I mean everybody else is now, I feel like SSAB led the way with HYBRIT and with kind of using green hydrogen to make the green DRI. But now the other, your competitors have really stepped up the, their investments and have obviously, received these big government grants. Here, is there a risk here that you get overtaken or do you think the market is really looking for 100% fossil free green steel and that, this strategy of your competitors for using natural gas first and in hydrogen later is not really a concern for that 100% profit…
Martin Lindqvist
I think the market as such are looking for more environmental friendly products. You need to remember that we are a fairly small steel company, so I think I'm a 100% convinced that the route we have chosen to and the hardcore definition, we have chosen and what we have developed will be very much appreciated by the market. And you need to remember that we are already producing fossil free steel and delivering fossil-free steel out of the pilot plant in Luleå.
And now we have also introduced this SSAB Zero steel with zero emissions produced from scrap, yes, but with zero Scope 1 and Scope 2 emissions, and the bottleneck there is our own production capacity how it will look in the future? Impossible to tell. I guess there will be customers perfectly happy with using DRI produced by Natural Gas and there will be other customers perfectly happy with using steel imports of the world.
We produced from blast furnaces with coking coal. So it will be a combination. And then hopefully in the future more and more customers will choose more environmentally friendly produced deal. But for SSAB and the segments and the customers we have we, I think we will have a very good chance to continue to lead this development with the two products that we are aiming to continue to produce the fossil free from fossil-free sponge iron or actually fossil-free steel from a fossil-free value chain and then the SSAB Zero products. And that's what we are investing for, but we are already on the market with those products, not to a large scale. And I said the SSAB Zero, we are aiming for 40,000 tons this year. Internally I've been clear and said that it's not a bad thing to overachieve that target, but that's the target we have for the year and that we is what we will deliver on.
Patrick Mann
Got it. And then if the DRI study for Raahe is, I see it's scheduled to be completed early next year, if that is a favorable outcome to the study, do you have any kind of idea on timeline for that?
Martin Lindqvist
It's too early to say, but we need to look into options and possibilities. You always need to have a plan A, a plan B, and then a plan C. So that's what we always do and that's what we are doing here as well. I mean, we have fairly substantial production in Northern Finland and now we look at the possibility how it would look to produce DRI there as well. And that study, as you've mentioned, will be read in next year and then we'll come back with the outcome and the conclusions. It's too early to say.
Patrick Mann
Brilliant, thank you.
Operator
Thank you. We'll now go to the next question. And your next question comes from the line of Krishan Agarwal from Citigroup. Please go ahead.
Krishan Agarwal
Hi, thanks for taking my question. Most of them have been answered two follow up. So the steel prices in Europe are coming down in Q3 as well as we speak. So is it fair to assume that the trading business and Tibnor will continue to see those negative and fall losses from the price negative revaluations in Q3?
Martin Lindqvist
Sorry, we had a very bad connection, so I had a hard time hearing your question. Could you please repeat it again?
Krishan Agarwal
Yes, so my question is more on Tibnor, that given the steel prices are still coming down in Europe, is it fair to assume that you will continue to realize those negative windfall losses in the Tibnor in Q3?
Martin Lindqvist
That will of course depend where the prices are heading in Q4, but I think the majority of the revaluation of the stock as we see it right now was in Q2.
Krishan Agarwal
Understand. And then the final housekeeping question, I mean, I can see there's a little bit of a change in the maintenance schedule for Special Steel between Q3 and the Q4 more in the Q4 now. Is there any change in the operating plan or?
Martin Lindqvist
No, we try to be as agile as possible when it comes to the plant maintenance and how we schedule them, they are typically of course, better to having Q4 and towards the later part of Q4, because in a normal year you typically see a slowdown towards the end of the year. But that of course is a bit complicated due to weather conditions and so on. So we try to and the planning horizon is of course, I mean you can't just decide one day to do it the next day because you will need to have people and you need to have equipment and so on.
So we try to be as agile as possible and as part of the flexible system you're trying to build do that, when the market situation is I mean giving possibilities so to say, but we need to do it every year. That's the problem. We need to take this the maintenance outages every year in order to run, continue to run the mills 24/7 all year round. So it's more a timing issue that we try to balance, which is not, it's not an agile system in that way, but we try to balance as much as possible.
Krishan Agarwal
Understood. Okay, that's it for myself.
Operator
Thank you. There are currently no further questions. I will hand the call back to Per Hillström.
Per Hillström
Okay. Thank you. And I guess then we can conclude this today’s conference call. We’d like to thank all participants’ good questions and then wish you a nice day. Thank you.
Martin Lindqvist
Thank you.
Leena Craelius
Thank you.
For further details see:
SSAB AB (publ) (SSAAF) Q2 2023 Earnings Call Transcript