Earnings call: SSAB reports resilience amid Q1 challenges, plans green future

SSAB, the Swedish steel manufacturer, has reported an operating profit of SEK 3.157 billion for the first quarter of 2024, showcasing resilience despite facing headwinds such as strikes and lower plate prices in North America.

The company, which trades under the ticker SSAB-A.ST, demonstrated strength in its niche products, particularly advanced high-strength steels and Q&T, and is progressing towards its goal of zero accidents and incidents. While the operating profit and EBITDA of SEK 4.1 billion marked an improvement from the previous quarter, they were lower year-over-year, primarily due to lower prices and volumes. SSAB's CEO, Martin Lindqvist, emphasized the company's commitment to becoming a decarbonized steel company and building a competitive green value chain.

Key Takeaways

• SSAB achieved an operating profit of SEK 3.157 billion in Q1 2024, with resilience in niche products.
• Special Steels division performed well, with increased shipments and the launch of emission-free steel powder.
• SSAB Europe improved seasonally but faced costs from a political strike in Finland.
• The Americas faced cautious markets and weather challenges, but demand for SSAB Zero was strong.
• SSAB is progressing in its investment projects, including the transformation of the Lulea mill for fossil-free steelmaking.
• Financials show increased shipment volumes but only a 3% revenue growth due to lower prices.
• SSAB plans to pay a dividend of SEK 5 per share in Q2 and maintains a strong net cash position.
• The outlook for Q2 includes stable demand in several sectors and expectations for higher shipments in Special Steels and Europe.

Company Outlook

• SSAB expects stable demand in Heavy Transport and Automotive, and good demand for wind power in the Energy sector.
• Weaker demand is anticipated in Construction Machinery in Europe.
• Higher shipments are expected in Special Steels and Europe in Q2, with somewhat lower prices in Americas and Special Steels.
• SSAB is interested in the U.S. DRI investment but has no clear plans yet.
• The company aims to decarbonize and build a competitive green value chain.

Bearish Highlights

• Strikes and lower plate prices in North America impacted Q1 results.
• Seasonal improvements in Europe were offset by additional costs from a political strike.
• The market in the Americas remained cautious with no significant restocking.
• EBITDA and operating profit were down year-over-year due to lower prices and volumes.

Bullish Highlights

• Special Steels division saw increased shipments and successful product launches.
• SSAB Zero's green solution ramp-up showed strong demand.
• The transformation of the Lulea mill is expected to improve profitability and cost efficiency.
• Partnerships for green steel are growing, with broad interest in HYBRIT and Zero steel products.

Misses

• SSAB missed roughly 100,000 tonnes of finished goods inventories due to increased inventories and lost production from a strike.
• The decline in apparent demand in the plate market was noted in Q1, but real demand is expected to increase over time.

Q&A Highlights

• CEO Martin Lindqvist discussed the company's focus on decarbonization and green value chain partnerships.
• Lindqvist expressed optimism about the structural growth in demand for advanced high-strength steel products.
• The potential impact of U.S. infrastructure spending on plate demand is expected to increase over time.
• SSAB plans to ask for a renewal of the buyback program at the AGM and aims for more investment while maintaining financial targets.
• The environmental permit for the new mill in Lulea is expected by the end of the year, with a planned EUR 4.5 billion in capital expenditure.

SSAB's CEO Martin Lindqvist highlighted the company's resilience in the face of Q1 challenges and its strategic focus on niche products and green solutions. With a strong net cash position and plans for future investments, SSAB is setting the stage for a sustainable and profitable future in the steel industry.

Full transcript - None (SSAAF) Q1 2024:

Per Hillström: Welcome to the presentation of the first quarter 2024 from SSAB. My name is Per Hillström. I'm Head of Investor Relations. And with me today here is our President and CEO, Martin Lindqvist; and our CFO, Leena Craelius. And the agenda, we will start with Martin giving a brief overview of the quarter. Then Leena comes with the financial details, and then Martin will close with the outlook and summary. And after that, we will be able to have a Q&A session as well. So by that, please Martin, begin.

Martin Lindqvist: Thank you, Per, and good morning. The super summary of Q1. It wasn't an easy quarter. We had strikes and so on and I will come back to that. But the super summary is that we see clearly that we have more resilience in our niche products, the advanced high-strength steels and the Q&T. They are holding up volume-wise and price-wise in a fairly good way. But if we look at the total quarter, we had a lower result than Q1 '23 and that was, to a large extent, due to lower plate prices in North America coming down from a very high level. We made almost SEK 3.2 billion or SEK 3.157 billion in operating profit which is quite good. What is also very satisfying is that we continue to develop towards our targets to have 0 accidents and 0 incidents at our mills. We are now at an LTI frequency of 0.81, not at 0, but approaching and with the ambition to become the safest steel company in the world. And that work is ongoing and this is way -- work of changing or continue to enhance the culture within SSAB. If we look at the division, Special Steels holding up quite well, increased sequentially, shipments compared to Q4. We had an operating result of almost SEK 1.8 billion, so on a good level. Prices were slightly down, 2% versus Q4. One very important part of Special Steels during Q1 was the launch of the world's first emission-free steel powder for commercial deliveries. So this is a new product where we produce in Oxelosund to start with fossil-free steel powder. And that powder combines the properties of our high-strength steels with the light structural possibilities of 3D printing. And I'm convinced that this will over time grow into a very important and profitable product segment for SSAB. So that's really good that we have launched that on the market now with big interest from potential customers and already existing customers. If we look at SSAB Europe, we saw, as we usually see, a seasonal improvement versus Q4 when it comes to shipments. We were -- or we were not having, but there was a political strike in Finland and the cost of that strike for Q1 in SSAB Europe was around SEK 350 million. We will also see a lag effect and see another roughly SEK 125 million affecting Q2. I think we handled it in a good way, but the strike with harbors being closed for 4 weeks, reduced the shipments by 100,000 tonnes. Leena will come back to it, but we also, without being able to produce fully and definitely not ship from our Finnish operations. We were also building more working capital than we should have been doing under a normal situation. So more slab stocks, more work in progress and so on and also more finished goods at the sites. But all in all, I think Europe handled it very well and the operating result of SEK 163 million given that is quite okay. What is important to mention is that we also see when we now experience a slightly tougher European market or have experienced a tough -- slightly tougher European market, the automotive shipments continue to develop positively. So compared to Q4 '23, the increase was 10% and we are really good at these high-strength martensitic steels for cold forming and we have a very strong -- compared to competition, very strong and sometimes very unique product offering. And this is also an effect of building up and starting to qualify material in advance of the fossil-free steel offering. So this will continue to grow over time and this also show the strength of the strategy with mix improvements in SSAB. If we look at Americas, cautious market without any meaningful restocking. Stocks are on low levels, but no meaningful restocking in Q1. We also had in the beginning of the quarter where the related problems with cold weather and snowstorms in Iowa that affected it. Price is down 3% versus Q4, but they have decreased from a very high level. As we saw on the film, the ramp up of SSAB Zero continues. We produced 21,000 tonnes of SSAB Zero in Q1 and we are now ramping up the deliveries to customers and the demand is really, really good for this kind of green solution. So that's also very positive. If we look at the big investment projects, Oxelosund continues according to plan and within budget. We have the environmental permit in place, the power allocation is secured and we had got the power -- permits for the power lines approved in January 2024. So it's moving on quite nicely. And on this picture, you will see -- you see a picture of how it will look in the future and we are now starting to erect the building for the electric arc furnaces. When we started the HYBRIT project back in 2016-2017, we thought or the idea was that this would mainly be a product for the automotive industry where we would see the biggest interest and also mainly for Europe. When we now look at the interest and the demand, we see a strong demand and a huge interest from, I would say, very broad variety of different sectors, automotive, of course, but also heavy vehicles and construction equipment, also construction and industrial equipment, but also distribution partners and consumer products. So a much broader interest and a much bigger interest than we could anticipate and that's, of course, very positive. I've showed this slide before and it's growing day by day, but we have today 55 established partnerships for green steel and for HYBRIT steel and Zero steel and that is growing. We have quite a few blue-chip world-leading companies that are now getting more and more volumes, which is also very positive. During the beginning of the second quarter, we took a decision to -- for the next step. The first step was to transform Oxelosund into fossil-free steelmaking. We took the decision now to, as the next step, transform the Lulea mill into fossil-free steelmaking, meaning that we will build a completely new mini-mill and the investment is estimated to be EUR 4.5 billion including contingency. But it is very important to remember as well that we will, by doing this, avoid replacement investments of around EUR 2 billion that would otherwise be needed to sustain the current system. And with this, we will take away another 7% of the Swedish carbon dioxide emission. So in total together with Oxelosund conversion, we will be able to take away 10% of the carbon dioxide emissions in Sweden. This mill will give us better profitability, much more flexibility and less costs. But it will also allow us to continue to develop the product mix in a meaningful way. So we will increase the total capacity with 500,000 tonnes, but have the possibility to shift the mix with 1 million tonne into more advanced high-strength steels and thin and wide Q&T, which is very important for the future. And this will also allow us to use a flexible mix of 100 -- fossil-free sponge iron and recycled scrap as raw materials. So the raw material flexibility will also increase for SSAB. This is the setup we are building. So we will build a new melt shop, a complete mini-mill with a melt shop with an advanced metallurgy, including vacuum tank degassing, 2 electric arc furnaces and a total capacity of 2.5 million tonnes. We will build a hot strip mill with a coaster and a direct rolling mill. And here, we will have capacity for thin and wide high-strength steels, 2-meter wide thin Q&T, which is becoming more and more important product on the market. And then we will build also a cold mill complex, a tandem mill with pickling, a galvanizing line, and a combined galvanizing and annealing line. So a very compact state-of-the-art, highly automated mini-mill. And that means that we will start to ship ready products or finished products from Oxelosund -- from Lulea instead of shipping slabs 900 kilometers down to Borlange. There will still be volumes going to Borlange to the downstream processing to the tandem mill, the annealing lines, the pickling lines, and the cut-to-length lines. But this will be a very cost-effective competitive green setup up in Lulea. Leena?

Leena Craelius: Thank you. Let us start the financials review, firstly, with shipments. Steel division shipment volumes in Q1, 1,583, compared to Q4 was an improvement of 6%. And as Martin already mentioned, that is driven mainly by the seasonality. To remind that in Q4, we also had the annual maintenance outages. The biggest ones were in Oxelosund and Mobile mill. We didn't have maintenance in Q1. As already mentioned also, the cold winter weather conditions in the beginning of Q1, that was impacting the production in U.S. and also in Sweden. And then the political strikes in Finland were impacting the latter part of Q1. And already mentioned, the impact of the strike was 100 kilotonnes. If we do a brief comparison of the shipment performance to our outlook that we gave, we were in line with the guidance in Special Steel division and Europe divisions, while in Americas, we were slightly lower and already mentioned that that was market-driven. The restocking anticipated for Q1 remained modest. If we compare the shipment versus the previous year Q1, the drop in volumes was 9% and 154 kilotonnes. And if we exclude the impact of the strike, that is market-related drop. Then if we look at the revenue in Q1, the revenue of SEK 27 billion, increasing compared to Q4 only 3%, which is less than the increase with shipments, indicating that the prices were lower. And also a brief comparison of the prices against the outlook we gave, we were indicating somewhat lower prices in all the Steel divisions. We were in line in Special Steel division and Americas, while the prices in Europe were actually slightly better. And that is mainly due to the fact that the product mix was better. Shipments lower, but the mix was stronger and, again, supported by the strong demand from the Automotive segment. The EBITDA in Q1, 4.1; compared to Q4 of 3.4, improvement, but lower than the previous year level of 5.6. If we then dive into more details, firstly, comparing Q4 with -- Q1 with Q4. Here you can see that the operating result ending up on a level of SEK 3.2 billion compared to previous quarter SEK 2.4 billion. Deviation with prices already mentioned, Special Steels with 2% lower, Europe division flat, and then Americas with 3% lower. And to remind that in this analysis, we include also the pricing, product mix, and FX impact. With volumes increase and this is now split between Special Steel division and Europe division, which were growing in volumes, while Americas was flat. Minor impact with the variable cost. Nordic mills had relatively stable raw material cost. In U.S., scrap cost was slightly higher, but then all the other consumables were netting this impact, so SEK 170 million positive. Fixed cost clearly lower than Q4 and this is mainly due to the maintenance outages in Q4. There were none in Q1. So much less materials and services spend in Q1.Capacity utilization, positive impact regardless of the strike. It could have been more positive. But this is, again, driven by the fact that there was less maintenance activities in Q1. Minor impact of FX and then the other here is related to the insurance compensation in U.S. related to furnace burn-through incident that actually took place already during '22, but the compensation was received during Q4 last year. And to remind that the strike impact was this SEK 350 million in Q1.And then the comparison with the previous year, the drop is SEK 1.6 billion and both price and volume having a negative impact. Prices in Special Steels were 5% lower, in Europe 3%, and the biggest contribution, as already mentioned, coming from Americas with 10% lower prices. Volume also lower as a total of 154 kilotonnes, and this is now spread between all the Steel divisions, volumes were lower in all the divisions, Special Steels 6%, Europe 10%, and Americas 8% lower volumes. Variable costs contributing SEK 1 billion positive. We can see that especially the Nordic mills having much lower raw material and energy costs compared to previous year. Small deviation with fixed cost and the capacity utilization is lower this year, and that is driven mainly by the strike in Finland. Operating cash flow analysis. Here, we are comparing Q1 this year against previous year. You can see that the earnings were lower. And Martin already mentioned that we had a negative change in working capital. Inventories were going up. We have rather high slab and work in process inventory. The value chain is a bit unbalanced due to these challenges in production. And the target, of course, is that we will balance it during Q2.Maintenance CapEx, slightly higher than last year, and the other here is related to emission purchases. Positive finance items related income here. Strategic CapEx majority related to Oxelosund conversion. And then on the last line, purchases for our own shares, that is the share buyback program we launched at the end of October last year. We were finalizing the program early March and summing up these last year figure and Q1 figure. The total is SEK 2.5 billion, which was the frame given to us, and we filled it early March.Net cash position compared to end of the year on a very stable level, SEK 18.2 billion as the net cash position. The net debt equity ratio, minus 25%, exceeding our financial targets and the comparison here is against the Q1 last year when the net cash position was SEK 15.6 billion. And later today in the AGM, the proposal is to pay out a dividend of SEK 5 per share, which is then leading to around SEK 5 billion payout in Q2.Raw materials during Q1, both iron ore and coking coal were developing downwards in prices and we don't foresee a big peak going forward in near-term. Some increase was seen in April in iron ore prices. But the outlook when it comes to second quarter is that the cost of raw materials would be somewhat lower. And then the price of U.S. scrap illustrated next to the other graphs and that was also developing downwards during Q1.Maintenance table, we have not updated this, but just to remind that during Q1, no maintenance outages, nor there will be during Q2. Most of the big maintenance is then happening during the second half of the year, but there hasn't been change to these plans since last time. That was it. Martin continues with the outlook.

Martin Lindqvist: Thank you, Leena. So if we look at the outlook for the main customer segments for Q2, I would say, underlying demand fairly stable. Heavy Transport, Automotive, stable. We continue to see structurally growing market for advanced high-strength steels and quenched and tempered. When it comes to Construction Machinery, we see somewhat weaker demand in Europe, China stabilizing on low levels, and more stable demand in North America. Material Handling, stable demand in Mining. Energy, very good demand for wind power. We saw it in the beginning of the presentation, the film. Good demand, strong demand for wind power and other renewables all over the world, but I would say, especially in North America.Construction, a very weak Nordic market, stable on very low levels. And then Service Centers, still cautious, waiting on the sideline, both in Europe and the U.S. But I would say that the inventory levels in the supply chain or among Service Centers are on normal or -- normal levels or on the lower side. So we will eventually see restocking. If we then look at the shipments. As we have said, we expect higher shipments in Special Steels in Europe in Q2 and somewhat higher in Americas. Realized prices, somewhat lower in Americas and Special Steels in combination with somewhat lower raw material costs and stable prices in SSAB Europe. So I would say stability is what we expect for the coming quarter. So if we sum it up before we open up for Q&A, I would say that good levels of earnings in Special Steels, good volume development for Automotive. So our strategy, advanced high-strength steels and Q&T shows stability during these, call it, slightly tougher market conditions. We continue to lead the green transition. Oxelosund transformation moving on quite nicely. We took the decision to build the first mini-mill in Lulea and we see a strong and increasing demand for SSAB Zero and we are ramping up production of those products.So with that, Per?

Per Hillström: Thank you, Martin and Leena. Then we can get ready to open up for the Q&A. Just before we ask the operator for the instructions, I will just, as usual, remind you that, yes, you can ask more than one question, but please state them one at a time to make the process a bit smoother.

Martin Lindqvist: For Martin to remember them. Yes.

Per Hillström: That always helps. So by that, the operator, please, present the instructions.

Operator: [Operator Instructions] And the first question comes from the line of Alain Gabriel from Morgan Stanley (NYSE:MS).

Alain Gabriel: I'll ask them one at a time. Martin, the first question is for you regarding your decision to leave SSAB at this very important juncture in the company transformation. You have been the architect of the most significant investment cycle in the company's history. Is there anything you can share with us as to why you have made this decision right now? That was my first question.

Martin Lindqvist: It's a very simple answer. I mean, as you said, I've been part of this company for 26 years. I've been the CEO when I leave, almost 14 years, turned 62 recently. So for me, I think it's a good timing. I wouldn't be around anyway to see the Lulea mill up and running. I will follow it from somewhere else, but I wouldn't be around as a CEO. So I mean, you can always discuss timing, but I felt that the timing was good. The decisions are taken. We know the strategy. We know where we are heading. And this is far from a one-man show. We have a fantastic organization in a very, very eager company that wants to develop not only SSAB, but this fossil-free competitive value chain together with partners. So I felt it was, after almost 14 years, time for me to stop working maybe 60, 70 hours a week. Nothing more than that. But I've also promised to stay until we have a successor in place. So you won't get rid of me yet. We will most probably hear from each other 1 or 2 more quarters at least.

Alain Gabriel: Very good. Glad to hear that. My second question is on the U.S. DRI investment. Can you elaborate a bit more on your intentions with respect to that potential investment there? There's a grant for up to $500 million, which is presumably based on some initial study that you have conducted. So based on that study, is it fair to assume that your thinking is of around maybe $1 billion of investment there? Is there any deadline or timeline by which you have to make that investment for the grant to be valid?

Martin Lindqvist: First of all, I mean, this -- we see this as a very positive thing that there is a huge interest not only in Europe, but also in U.S. and other parts of the world of the technique we have developed. We see that as a possibility. We have no clear plans in that aspect. We have no decisions. So we just realized that or conclude that there is a huge interest for this development of the steel industry. And I usually say that I've been traveling around for many, many years as a representative for a hard-to-abate industry, meaning in an industry where it was impossible to do anything. And now we have shown and developed a technique, a patented technique that it is actually possible. So I'm extremely proud and happy of the huge interest and that's what it is. So we see how we develop in the future. Now we are -- we have taken the vision to decarbonize SSAB as a company and we have decided on the first step, Oxelosund; the second step, Lulea; and then we'll see where we go from there. But the ambition is clearly to be a decarbonized steel company and build this competitive green value chain together with partners.

Operator: And the next question comes from the line of Adrian Gilani from ABG Sundal Collier.

Adrian Gilani: A couple of questions from my end. I'd like to start off in Europe. Typically, you talk about having roughly a 1 quarter lag in Europe to the spot prices. And then in Q1, the HRC price was up roughly 10%, yet you expect to realize flat sales prices into Q2. So I guess can you add some color on why you don't really expect that the higher market price will materialize for you in Q2?

Martin Lindqvist: But I mean, we have the visibility of not 100%, but 90% of the coming quarter, so -- given the order book. So we have a pretty good view where we will end up in Q2, as Leena alluded to. And then, of course, what makes it slightly trickier is, of course, the mix effect. Also, we don't separate the mix effect. So with stronger mix, better price and a weaker mix, better price, but then you also have seasonality. So we are pretty sure when we say that we will have stable prices into Q2 because we can see that in the order book.

Adrian Gilani: And just, I guess, a follow-up to that. Excluding the normal seasonality, do you expect sort of similar growth as you saw in Q1 on the Automotive premium segment as well?

Martin Lindqvist: It's always hard to tell quarter-by-quarter, but we see a structural growing demand for these kind of advanced products, which helps you to increase safety, reduce weight, and so on. And we are now ramping up more platforms, new customers. So some of these partners we have within fossil-free, we have not been a huge supplier to, but now we are within the partnership frame, so to say, ramping up volumes. We're into new OEMs, new platforms. And then, of course, it depends how they develop quarter-over-quarter. But I must admit that I'm quite positive when it comes to the structural underlying growth for our products, advanced high-strength steel products for Automotive.

Adrian Gilani: And then a broader question for me on the U.S. market. I guess, can you update us on the big infrastructure spending programs in the U.S.? And to what extent that money has already reached the market and driven plate demand and perhaps how you expect it will develop during the year?

Martin Lindqvist: I think it will continue to ramp up. We see now, I would say, bridges, infrastructure projects being quoted, we see also wind projects and so on. So I think that will over time help the market and continue to ramp up.

Operator: And the next question comes from the line of Tristan Gresser from BNP Paribas (OTC:BNPQY).

Tristan Gresser: The first one is on capital allocation. Could you just confirm that you'll ask for a renewal of the buyback program at the AGM today? I did not see a mention in the press release, but I just wanted to confirm that. And also, in the end, given the large CapEx you're going to have in the coming years and would it make more sense to keep the cash instead of having this kind of strict capital allocation policy on the gearing target you've had again? So yes, just color there, that would be appreciated.

Martin Lindqvist: The material for the AGM that is taking place this afternoon is sent out since a couple of weeks. And there we are asking or the Board is asking for a new mandate. So that's clear. Then we'll see what the shareholders say, but my expectation is that we will get that mandate. And then, of course, yes, we are going to invest more in the future. We have a good starting point. We should be also able to continue to generate good cash flow. It was flat or slightly negative in Q1, which is typical seasonality when sales increase, but we also had this effect of -- that Leena talked about the side effects of the political strikes in Finland. We were building a little bit too much working capital. But we -- there is still possibilities to become more capital efficient. And we will stick, as I've said many, many times, we will stick to our financial targets. So then for me, it's pure mathematics. I mean, continue to take care of the balance sheet in order to be able to invest for the future and create an even stronger company, and then we'll see where it ends up.

Tristan Gresser: And when you look at the free cash flow outlook, when you put the CapEx number for '25, '26, '27 and the CapEx avoidance, you mentioned, maybe some green steel premium with your SSAB Zero that comes in as well. What are you seeing? Do you see years where you could be free cash flow negative? Is it something you prepare to go for? Or yes, basically a little bit on the normalized free cash flow outlook, what you're seeing with the assumptions you're currently making?

Martin Lindqvist: We will have to come back to that a bit more in detail. But I mean, there are other effects as well with these investments. I mean today, we have 900 kilometers between the slab machine and the rolling mills in Borlange, and that forces us to have quite a big stock of slabs as one example. And when I was running the strip division, we had 200,000 tonnes. That was the normal slab inventory and that's not the case anymore. But we still -- the setup we have, which is a quality compromise since SSAB was founded back in 1978. We have the possibility now to take that away. And I've learned something at least over my 26 year. And that is that, I mean, debt capital and transports doesn't add any value. So there is also good possibilities to reduce working capital needs and become more efficient in this short -- in this new minimis. And we will also reduce lead time substantially, take a hot-rolled coil, I would guess, the average today is maybe 6 weeks. We can take that down to 6 hours. So there will be a lot of moving parts. But we -- I guess we need to come back to that and share some more light.

Leena Craelius: For the CapEx.

Martin Lindqvist: Yes, for the CapEx plan, yes.

Tristan Gresser: And maybe last one on the Q2 guidance. I think you just mentioned you see some stability. But if I look at Europe, costs are down, ASP stable, volume up, smaller strike impact, you have prices down, small -- for the plate divisions and shipments up and cost down. So it looks to me that it is more a case of potential slight increase more than a stable kind of setup for Q2. So what am I missing there?

Martin Lindqvist: I was more maybe referring to underlying demand when I said stability. So I'm not expecting any huge changes in the underlying demand. Then, of course, apparent consumption can change, but underlying demand stability, I would say.

Operator: And the next question comes from the line of Patrick Mann from Bank of America (NYSE:BAC).

Patrick Mann: The first one is, could you just update us on the situation in Finland? Could there be further disruptions? So my understanding is that the strike has obviously been called off for now, but that there hasn't been really any agreement between the union and the government. So what is your view on the situation? Could we see this flare up again? That's my first question.

Martin Lindqvist: A very good question that I really can't answer because you never know, but there are political decisions on its way also to prevent, as I understand it, political strikes in the future. It is unfortunate and the strike had nothing to do with SSAB or our relation with our employees. I would say quite the opposite because they are really good. But it is what it is, and it's unfortunate and we just have to deal with it. But it created a lot of problems. And hopefully, there will be no more political strikes and we have been -- since we merged Ruukki and SSAB, I think we have been very fortunate or lucky when it comes to strikes. But it is a slightly different system in Finland compared to Sweden. But hopefully, it's over for this time. And there will be also agreements and decisions that will make it more predictable in the future.

Patrick Mann: And then the second question, the last question is just around CapEx phasing. So could you just remind us, I think we -- there's an environmental permissions you're expecting to get this year before you start. Could you just remind us when that is? And even if there's any realistic chance of delays or whether that's just file the paperwork and get it through? And then assuming that goes through, how should we think about that EUR 4.5 billion spend over the period of the project? So my sense is that 2025 is still relatively low and then it really steps up in '26 and '27. But yes, if you could just give us a bit more color on that, it could be really helpful.

Martin Lindqvist: I think that is a fair assumption. As I said, I think we need to, together with Q2, Q3, come back with more details on the CapEx plans. But we are expecting the environmental permit towards the end of this year. And of course, you never know. It could be delays, but you need to remember that we are already today having an environmental permit for the mill up in Lulea. And in all aspects, the environmental performance will be much, much better. So I would be -- I'm not an expert, but I would be very surprised if we wouldn't get the environmental permits without saying that it's 100% sure and already in the bank. But we have a very positive view, very good cooperation with the authorities with the legal system and so on. So as it looks right now, positive and definitely doable within -- before the end of this year.

Patrick Mann: And then is that -- do you start deploying that EUR 4.5 billion very aggressively and immediately? Or is there a bit of a preparatory period where it's maybe more sort of construction and preparing a site?

Martin Lindqvist: First of all, we can't do anything more or less before they have gotten the permit. Then you could always, of course, start to secure long lead items. But I wouldn't use the word aggressively, but we will do it in a smart way and we will also need to come back, of course, with a more updated and more granular view on the CapEx plans. But the assumption that the big dollars will not be spent until '24.

Operator: And the next question comes from the line of Viktor Trollsten from Danske.

Viktor Trollsten: Firstly, on Special Steels volumes, if I may, were up 17% quarter-over-quarter, let's say that that's sort of more than you guided for up more than 10%. That is definitely more than how Q1 versus Q4 tends to look historically. And I guess the same goes for your Q2 guidance of higher volumes where, the way I look at Q2 historically has been rather flat quarter-over-quarter. So I guess the question is, would you agree that our current volumes are more than driven by just seasonal patterns? And can you, in that case, elaborate on what areas are driving that strength within volumes for Special Steels? That's my first question.

Martin Lindqvist: What I mean, we are ramping up quite interesting products now, among others, Hardox 500 Tuf, which we think will be very important and big products over the years. So we are coming with more and more advanced products. We are shifting the mix also within Special Steels and moving away from, call it, Hardox 400, 450, maybe more and more into more advanced products, and that drives demand because the possibilities with these products are much bigger in order to extend life length, reduce weight, reduce thickness and so on. And I said, that's also a very important part of the mini-mill in Lulea, where we can, for the first time, in a very cost-effective way, produce 2 meter wide, the Q&T 2, 3 millimeters, which is impossible today. And so that also opens up capacity in Oxelosund because when we today produce 3, 4 millimeter, that eats a lot of capacity in Oxelosund.So I would say it's the underlying structural growth in Special Steels, but we have also been, I would say, not prioritizing volumes. We have more been prioritizing mix and price and margins, as I see, it's a very good way. So it will be a combination of a lot of things, but I expect Special Steels to continue to grow over time, volume-wise, and we need to continue to debottleneck and do bigger investments like in Lulea but also smaller investments in order to debottleneck because the demand is definitely there. How that will differ between 1 or 2 quarters, hard to say. But over time, underlying, the demand is definitely growing.

Viktor Trollsten: And is it possible also to shed some light on, let's say, legacy end markets for Special Steels where demand is for that currently? I guess you know what, at least, I have been a bit concerned about is looking on Volvo (OTC:VLVLY) Construction Equipment, volumes down quite significant, et cetera. Where would you deem that, call it, legacy demand is currently? Are we on low levels or medium levels or, I guess, what I'm after is where we are in the cycle for that sort of demand?

Martin Lindqvist: It differs, of course, between segments. You can see, as you said, for some yellow goods producers in Europe, slightly lower and the opposite may be in U.S. is driven by mining. It's driven by recycling, everywhere where you need abrasive-resistant steel. So it differs a bit globally, but it's also I mean -- and the construction market, the overall construction market in Europe being quite weak. So that, of course, affects yellow goods. But as I said, for the second quarter, it's not that bad if you look at it globally in different segments. And we have -- when it comes to abrasive-resistant steel, according to our own calculations at least, and with a lot of intel put into it, we have a global market share of around 40%. So we are developing the market. There is no defined market, but we are developing that by introducing new products and better products like the 500 Tuf to the market. So there should be structural growth in all segments. And then it will vary over time due to business cycles and so on, but that we need to adapt to. And that will also be more possible now with better flexibility in Oxelosund with electric arc furnaces.

Viktor Trollsten: And perhaps just the final one on my side. On CapEx in the quarter, when I look on your maintenance and strategic CapEx, it's basically a SEK 1 billion in Q1. But in the cash flow statement, you have investments in intangible and tangible fixed assets of SEK 2 billion. Could you just explain the difference there, if possible?

Leena Craelius: Well, the difference is that the report layout is a bit different. The other figure is containing the sales of emission rights. So the figures can't be matched. We were discussing [indiscernible] that we might change the report to be followed a bit easier. The cash flow statement that I was showing, that is telling the CapEx spend for R&D and strategic investments. That's the figure to use.

Viktor Trollsten: And that's still within the range that you guided for, I think it was SEK 5.5 billion this year.

Leena Craelius: Yes.

Viktor Trollsten: But I guess that in the cash flow statement, that figure can be higher than for 2024?

Leena Craelius: Yes. We still have the plan for SEK 5.5 billion. And we will come back, as Martin said, during Q2, if that needs to be changed.

Operator: And the next question comes from the line of Christian Kopfer from Handelsbanken.

Christian Kopfer: Two questions from my side. Firstly, on North America -- or sorry, SSAB Americas, when it comes to your deliveries because if I look at your deliveries in the last 8 quarters or so, it seems that you are structurally or you are at least meaningfully short of your nameplate capacity when it comes to deliveries in the Americas. So the question is, is this structuring or how do you see your deliveries? And do you expect deliveries to come back to nameplate capacity eventually?

Martin Lindqvist: No. But I think you should expect us to run our U.S. mills on high-capacity utilization. We had some problems in, as Leena said, with very, call it, difficult weather conditions in the beginning of the quarter. But we should continue given the cost position, given the quality, given the leadership, the Jacobson leadership, you should expect us to continue to run at high capacity utilization. Then of course, the more we ramp up Q&T in Mobile, that will mean also lower volumes over time of standard plate.

Christian Kopfer: Right. So given -- what would you say, Martin, if the -- over time, next couple of years, delivery plans for Americas or what to say perhaps…

Martin Lindqvist: No. But I said, we are usually running at a capacity utilization above 90% in our U.S. mills. And then we will gradually, as you know, Christian, increase the volumes of Q&T automobile with the ambition to, over time, take that 1 million to more and more Q&T. But you should expect us to run stable production over time with high-capacity utilization.

Christian Kopfer: And finally for me on Special Steels, I mean, this business area is doing great, obviously, you still expect the realized price is perceived to come down somewhat in Q2. What is driving that lower price? Is it the lower end product, if we call it as, Hardox 450 or that they try to go away from?

Martin Lindqvist: No. But I mean, the -- I mean, the prices in Special Steels is a combination of a lot of things, mix and so on. But they are not completely immune against spot prices. They are moving much, much less and on a higher level, as you know. But there is some correlation to spot prices as well, so -- and to raw material prices, I would say. So what we are guiding for is somewhat lower prices, which is not from very good levels, I must say. And that could, of course, over time, be mitigated with a richer and richer mix, but that's what we are guiding for in Q2.

Operator: And the next question comes from the line of Bastian Synagowitz from Deutsche Bank (ETR:DBKGn).

Bastian Synagowitz: My first question is on Americas, where, I guess, we've seen a slightly stronger market deceleration versus at least what was implied in your original Q1 shipment guidance. And I guess it's also reflected obviously in the weaker pricing environment. So I'm wondering what other than the weather situation has been driving this? And also, do you believe that we've already been hitting the bottom here in terms of the price cycle when it comes to U.S. plate? And then maybe also, can you explain us what will be the impact of the lower U.S. plate prices on your realized prices in Special Steels, whether this is more like an immediate translation or whether that would typically be felt just a couple of quarters later. That is my first question.

Martin Lindqvist: I mean, the correlation between standard plate prices in U.S. and prices for Q&T is fairly low, if not very low. So that's for sure. I mean, apart from the weather condition, it was market demand and it was, as Leena said, we're expecting some destocking in Americas amongst Steel Service Centers that didn't happen in Q1. It will happen eventually, but it didn't happen in Q1. So it was a combination. But I would say it was apparent demand.

Bastian Synagowitz: And any particular subsector? I guess, commercial construction still being strong, infrastructure still being strong, agricultural weak. Was there anything which has been standing out in terms of the deceleration trend in Q1?

Martin Lindqvist: I wouldn't say so. I mean, we don't have 100% visibility. We say roughly over time, we sell 50% of the standard plate volumes in U.S. via Steel Service Centers. It differs between 40% and 60%, depending on the business cycle and other things. And we don't have full visibility, 100% visibility where those volumes to Steel Service Centers segment ends up at the end. But I would say the Steel Service Centers segment was lower than expected and that was due to -- I mean, if you look at the statistics, you would imagine that there would be some kind of a restocking and we didn't see that.

Bastian Synagowitz: And then moving on to the European business where I thought your performance was really pretty decent despite the fact that you obviously were impacted by the strike. So what -- other than the automotive business has been supporting it, was there anything else? Because I guess you really have been improving your margin even year-over-year in what is an overall tougher market environment. And then maybe also coming back to one of the earlier questions, can we expect that Automotive will be at least pretty stable and your mix be also pretty stable into the second quarter?

Martin Lindqvist: No. But I mean, what we have been doing in Europe as well, the same as on group level, the same as in Special Steels. We have been day by day, week by week, month by month, improving the product mix. And there is a huge difference between the profitability or the margins if you sell a hot-rolled coils to, I don't know, somewhere in Midland Europe or if you sell it to automotive or any other of the niche products. So it's about constantly improving the mix. And if you look at the long trend, you see that, as I say, Europe has become, in relative terms, more profitable and with more stability, but still very volatile and that work will continue.The good thing and why I talked so much about these partnerships and fossil-free steel in the future is that we are already now starting to qualify volumes and we are already now starting to deliver to customers that we -- within Automotive where we didn't deliver a kilo before or very small volumes in order to ramp up and start to qualify. So we are into new platforms, new customers, new OEMs, new Tier 1 and Tier 2 suppliers and that should mean over time that we should continue to improve the volumes, to grow the volumes within Automotive. And that in combination with the unique products we have. If you take these martensitic advanced high-strength steels up to 2,000 megapascal, I would say that we are unique in the world with that for cold forming. And that drives demand. So necessarily, I mean, it will, everything else equal, the volumes will continue to increase even though the total automotive volumes might not. So we will take market shares in those segments with those products.

Bastian Synagowitz: Then one last question actually on the constraints which your supplier currently faces within its rail logistics. So Martin, are there any direct or indirect implications on your business at all?

Martin Lindqvist: They have 2 systems. They call it a Northern system that is the railway between, to put it simply, Kiruna and Narvik and that's where they have had problems. We are taking all our volumes from the Southern system from Malmberget directly by train to Lulea where we haven't knock-on-wood seen any problems. Then of course, that is a fully packed railway as well, but the conditions are slightly better because the Northern system goes to the mountains over to Norway and that's where they have had problems. So we have not yet knock-on-wood been affected at all by that because we take it another way.

Bastian Synagowitz: And also not on the pricing side where maybe an increased realized pellet premium or so, I guess?

Per Hillström: No, we have not seen any real uptick in pellet premium so far. No. As you know, demand -- steel demand is a bit weak in Europe, so.

Martin Lindqvist: And in other places in the world, so.

Operator: And the next question comes from the line of Andrew Jones from UBS.

Andrew Jones: Just on the U.S. plate business, you're guiding to prices down 0% to 5%. Obviously, the Platts index is down about 18% from January high level. I guess I'm just wondering if we should use that index generally as a benchmark for this business or if there's any longer-term contracts or reasons why we should think about it differently. I think there's been some debate among investors about how valid the index is when like Platts will report that some producers are selling discounts to that index. Others are selling at a pretty different price. I mean how should we, in your view, think about your pricing versus the index? And how should we think about the lax and broadly? I'm just curious if you're seeing any signs of inflection or stabilization there?

Martin Lindqvist: Well, I mean, we have a mix of a lot of different setups when it comes to pricing. We have quarterly contracts. We have half year contracts. We have project contracts. We have, call it, more spot-related business. So I guess over time, it is valid to follow the index. But it can differ between quarters as well. So I mean if you have certain contracts for big, call it, wind farms or something that will be not following the index. And then if you look at the U.S. steel industry, a large part of the volumes still goes via Steel Service Centers. And I said, we have, over time, I would say, roughly 50% of the volumes going via Steel Service Centers and 50% going directly to end users and that complicates the picture a bit as well because I would say -- now, I'm just guessing, but I would say that the average U.S. steel producer, they have larger share going via Steel Service Centers. So that could also complicate. But over time, I think if you want to do predictions, the index is not a bad proxy. Then when we guide for prices now in Q2, we have the order book for at least April and May. So we are pretty certain that for the coming quarter, we will be around where we expect -- where we guide.

Per Hillström: What we can add also, Andy, on the index is maybe that we would see maybe CRU as a better gauge. You can actually see that also in Q1 where CRU prices may be down more like 10% versus, you mentioned, the Platts 18%, 20%. So we would maybe say that CRU maybe has a little bit more refined model to estimate the market price.

Martin Lindqvist: To be honest, when we look at it, we look at CRU.

Per Hillström: Yes.

Leena Craelius: Yes, yes.

Andrew Jones: And just on Special Steels as well, the -- obviously, the price guidance, you were saying that obviously typically that's more of a stable business. You're also talking about raw material cost deflation. You're saying that pricing quite often follows the cost of raw materials. I mean, if we look at the relative magnitude of those changes in terms of the 0% to 5% decrease in pricing versus the drop in raw materials, are we thinking that those are broadly offsetting? Or should we see some margin contraction there?

Martin Lindqvist: That's your math to do. I mean we are guiding -- we're trying to guide without telling exactly what we think. But we have a view on that. But I think your view is as good as ours, so.

Andrew Jones: And the downdraft in pricing beyond this quarter, I mean, we recently visited the site at [indiscernible] your colleagues were all pretty bullish on the idea that pricing should be far more stable in the Special Steel division?

Martin Lindqvist: Which it is, which it is. I mean, over time, there's a huge difference. But it's a combination also about -- with the product mix as we have talked about. And you should expect us to over time get a richer and richer product mix. There is a huge difference when it comes to price stability and margins if you take Hardox 500 Tuf compared to Hardox 450, if you measure it per tonne, there is a big difference. There are other segments that are very stable and where demand is growing, protection plates and so on. So there is -- even within Special Steels, there is nothing as quenched and tempered or even abrasive resistant steel. There is a variety of different products.

Operator: The next question comes from the line of Tom Zhang from Barclays (LON:BARC).

Tom Zhang: Two slightly longer-term ones for me. The first one, just on the Lulea expansion plan. You're obviously adding, as you mentioned, 500,000 tonnes of capacity. You're adding net capacity at a time when some of your peers are thinking about cutting capacity pretty drastically against risks of sort of broader European steel demand whether structurally were ever going to go back to where we were sort of 5, 6, let alone, 10 years ago. How do you weigh that up internally? I mean I know you sort of talked about upgrades to mix within your capacity expansion. But is there any reason beyond that for sort of why you decided to increase crude capacity and what's the sort of read across to the Raahe conversion, please?

Martin Lindqvist: No. But it is the demand for these kind of products. And as you said, I mean, the total capacity will increase with roughly 500,000 tonnes. But the possibilities is to shift the mix with 1 million tonnes where we today are capacity constrained. So that will help us in the future. And then we strongly believe after a lot of discussions with our partners and customers that the uniqueness of this will be the fossil-free component. So this will be fossil-free steel produced from sponge iron and scrap. So we see -- we are very, very positive when it comes to end-user demand and the possibilities to fill up this mill. So we don't see that as a huge risk at all.

Tom Zhang: And then the second question, just on your LKAB and your sort of iron ore partners. I understand they have quite a lot of issues with rail capacity, cutting production risks of them actually closing sort of pelletizing as well. Just -- one is that, can you rule out any direct impact on your operations? And then, two, do you see any risk that more of the CapEx burden for the transition might land on yourselves, for example.

Martin Lindqvist: No. But first of all, you can never ever out rule any risk at all. I mean black swans appear, but LKAB consists of 2 systems; the Northern system, which is centered around the Kiruna mine that is transported by rail to the harbor in Narvik and shipped out on the market. We take -- and that's a big system. Then they have a Southern system with a pelletizing capacity of something north of 5 million tonnes and that is in Malmberget and that railway goes to the forest and down to Lulea, where we consume the majority or almost 100% of that system in [indiscernible], Lulea, and Oxelosund. So the problems they have had has been in the Kiruna in the Northern system and in the railway system from Kiruna to Narvik. Does that necessarily mean that there will never ever be any problems, logistical problems in the Southern system? Of course, not. But so far, it has not been the case. And we have been sitting together since we built the first mill up in Lulea. So for, is it 50, 60 years and we have never, during my 26 years at least in the company, experienced any force majeure or any problems. That is not, of course, a good proxy for the future, but you could at least say so far, so good, and the cooperation with LKAB has always been and will continue to be very, very good.

Tom Zhang: And then on CapEx risks, nothing that you foresee either just on risk that given its impact on their cash flow, any potential that the sort of DRI build-out, which they are committing to get slowed or that you have to start contributing quarter towards that?

Martin Lindqvist: Of course, you never know, but they have been quite clear in their plans. And we have, of course, possibilities to mitigate short delays or delays. But what this will give us is also, which is important to remember, raw material flexibility because we can use 100% sponge iron or 100% scrap or a combination of that. And that raw material flexibility we don't have today. And that is on the margin positive because today, we use 100% pellets. We closed our sinter plant, is it 30, 40 years ago. So I would say that we are one of, if not the only steel company in Europe, 100% dependent on pellets. So with 0 raw material flexibility.

Per Hillström: Operator?

Operator: Yes, hello.

Per Hillström: We are a bit time constrained today due to the AGM later on as well. We can take maybe one more question, and then we probably need to close. So thank you.

Operator: Okay. [Operator Instructions] And the next question comes from the line of Moses Ola from JPMorgan (NYSE:JPM).

Moses Ola: So just 2 questions, if I may, please. I know you're time conscious, but they're very quick. So the first one, just on working capital. So you talked about 100,000 tonnes of finished goods inventories. So should we expect essentially working capital unwind into Q2 as you run down some of these finished goods inventories?

Martin Lindqvist: I think what Leena said was that we missed roughly 100,000 tonnes. You said that's right.

Leena Craelius: Yes. It was related -- yes.

Martin Lindqvist: So it's a combination of increased inventories, but also lost production due to the strike. But of course, I mean, having the harbors closed and not running production at full speed during the latter part of Q1 meant that we were building more working capital than we should have done in a normal situation. So you should expect that to normalize, come out as finished goods at stocks close to customers and being shipped. So we have slightly high -- we have higher in the finished system, slab stocks and work in progress than we typically would have in a normal situation.

Moses Ola: So you would expect that to normalize and unwind into Q2, essentially?

Martin Lindqvist: Yes.

Leena Craelius: Yes.

Moses Ola: And then secondly, just again on the plate market. So if I look year-on-year, shipments are down 8%. Just to really understand here what's the breakdown between your sell-in and your sell-out volumes in America. Could you perhaps maybe just give us more clarity in terms of the decline in consumption inventories versus your active customer base?

Martin Lindqvist: No. But I mean -- as I said, we saw a lower apparent demand in Q1. I wouldn't say to a large extent any differences in real demand. And if we look forward and look at real demand and look at the infrastructure spend and Inflation Reduction Act, we expect that the real demand will increase over time. But apparent demand, we were expecting some restocking in Q1 that did not occur and mainly among Steel Service Centers.

Moses Ola: Just because -- just on that in terms of the infrastructure spend from what we see, if you look at maybe Bloomberg New Energy Forum, et cetera, it looks like that impulse for wind capacity really isn't…

Martin Lindqvist: I think we see increasing activity when it comes to bridges, which is spot on where we are. So bridge building, onshore wind, we start to see also some signs of offshore winds. So over time, that should be beneficial for the U.S. plate market. Then how that plays out in a single quarter is, of course, very hard to say and predict. But then these swings in apparent demand plays a bigger role in a single quarter.

Operator: Due to time constraints, we will not be taking any further questions. And I would now like to hand the call back for closing remarks.

Per Hillström: Okay. Thank you very much for listening in and all good questions. And if you have questions we haven't answered now, please contact Investor Relations. We will try to help you sort them out as well. So by that, thank you, Martin and Leena. Thank you, the audience.

Leena Craelius: Thank you.

Martin Lindqvist: Thank you very much.

Per Hillström: Wish you a good day.

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