Outokumpu Oyj (OUT1V) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Outokumpu Q3 2022 Pre-Silent Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Linda Hake. Please go ahead.

Hello, all, and welcome to Outokumpu's Q3 2022 Pre-Silent Conference Call. My name is Linda Hakkila, and I'm the Head of Investor Relations here at Outokumpu. With me today, we have our main speaker, our CFO, Pia Aaltonen-Forsell. As per usual, we will first start with a short update from our CFO. And after that, we are happy to take questions from the line. But now without any further comments, I would like to hand over to our CFO.

Thank you, Linda, and welcome, everybody. September is almost over. I guess we have only a few hours left. So it's a good time to host our Pre-Silent call. Obviously, a period of time when a lot of things are changing and uncertain but hoping to be able to share some of the sort of recent events and topics from an Outokumpu perspective, as we usually do before the silent period starts. So without further ado, I think I would like to touch a bit on market, a bit on cost position, predominantly energy, timing and hedging, then a few words, especially on ferrochrome because I think this energy and electricity is pretty linked to that. And then sort of end up with a few remarks on a more general level, at least I'm pretty excited about one of the press releases we had out today relating to potential biocoke and biomethane investment. But maybe I'll start first with the market. And this is sort of a continuation of what we have seen and what we have talked about since the Q2 report. So obviously, sort of the big frame here is a seasonally weaker demand, but also broadly market situation that has shifted from this sort of hyper hot that we had still earlier in the year into something more normal and maybe even further from that, if I should describe what we see right now, obviously, starting with Europe, a really big topic has been the higher import levels. And obviously, as we have discussed before, those have been on the back of the probably orders put in for sort of Asian imports already earlier in the year and maybe continuing early in the year. And we have still seen peak levels of imports certainly in July. As far as we can understand now this sort of arbitrage and the price differential has really been diminishing and is very small or not existing. So would expect certainly those flows to become smaller. You know October is the first month in a quarter. So maybe that is still a month with some activity, but certainly, that period of time now seems to be more history. But it has resulted in higher inventory level, particularly at distributors in Europe. And I mean this is the situation at hand right now, thinking about inventory and destocking seems to be on the mind of a lot of distributors. However, we do see some signs of sort of normalizing. And this is not sort of evenly distributed so that all would be the same. Rather, we see a bit of a mixed picture, but certainly with some signs of sort of returning to buying European. I would broadly then comment on the end-user market that despite the sort of turbulence in the world around us. It is still -- the message has not changed from when we have talked before, we actually still see sort of a normal or kind of -- in some cases, I would say kind of a normal good level of demand really from end product perspective or end user perspective and particularly for advanced materials, our order book is strong and we see a lot of these segments still in a very good shape. I move quickly over to Americas. I think the sentiment is the same when it comes to distributor, more of a destocking sentiment clearly with high inventory levels at the moment. And I think there is sort of a sentiment or a need to flush out inventory given that some of the inventory for sure, has also been purchased at a higher cost compared with where the levels are right now. So maybe those are really sort of the broad strokes of the market. And -- then I would move over to some of the cost elements and maybe I'll really focus on energy and then electricity, in particular, as this really has been the big topic and certainly impacting particularly Europe at this point. So looking then into our ferrochrome operations, we have taken some action here to optimize our production. And just to be clear what this optimization means is that we have found ways to steer the use of power in a way that we cut off, we don't produce at those peak prices. So I'm sure that all of you are following the markets, and you know that there's a really extreme volatility also in the spot prices, so that we have these very high peaks. And then we have ours, particularly nighttime, but also otherwise, or when there's a lot of wind, for example, where we can see considerably lower prices. You know from what we have communicated before that we are still fairly well hedged when it comes to electricity and energy more broadly until the end of this year. But nonetheless, with the significant electricity consumption, particularly in ferrochrome, you know ferrochrome is using more than half of the electricity that we consume in Finland. We have found, I would say, good ways to stabilize the cost situation. But of course, this optimization at the same time then means that we are cutting some production. So this is kind of the balance that we need to strive for there. But I think it's good to find ways. It's both good for us because it's a way for us to control the cost side. And probably it's also really good for Finland because in this case, we have really been cutting production at those sort of peak hours of consumption and price. And there's more good news from Finland actually, Olkiluoto [ 3rd ] reactor. I was reading today that now we are, from a test usage perspective up to the maximum power of 1,600 megawatts. So I think that is good and reassuring news in sort of -- in the midst of a lot of other maybe more sort of disturbing news such as, for example, the sabotage on the Nord Stream gas lines. So maybe that's ferrochrome. There's still no benchmark price for Q4 or at least there wasn't 15 minutes ago when I was checking. So it seems negotiations there are really sort of taking their time, but not much more I can really say about that. Then finally, over to net of timing and hedging. And at our Q2 report, we already said that with current raw material prices back then, we did expect significant raw material-related inventory and metal derivative losses to be realized in the third quarter and just try to be sort of really explaining that we had this big positive in the second quarter, and then we thought we could expect sort of the same figure, but negative in the third quarter. And I have to say there's been some more negative moves in metals, such as we have in iron and in molybdenum that are sort of -- have been even sliding further compared with what we saw at the point when we talked after the Q2 report. So that could have even a little bit still more sort of negative impact for that portion in our P&L. Okay. Credit rating we have news from Moody's mid-September. They did affirm the BA3 corporate rating, but changed the outlook to positive from stable. So again, a bit of sort of good news on that side. And then I'll just wrap this up by saying that we have a press release out today about our plans for an investment in biocoke and biomethane in Finland, in Tornio. And these are still plans. So we do not have an investment decision yet. I mean this needs to be further prepared, but we wanted to be sharing this news -- we have applied for some subsidies. So we are really sort of seriously taking this process further, and there are clear benefits. On one hand, for our CO2 journey, this is a really important part of reducing our Scope 1 emissions and at the same time, obviously, and a sort of good opportunity for us to become more self-sufficient on energy and particularly then on gas in this perspective. So I think that was also some good news here still for the month of September. But with that said, maybe I'll stop here and we start with the Q&A session.

[Operator Instructions] We will now take the first question. And the first question comes from the line of Anssi Raussi from SEB.

Thank you, and it's Anssi Raussi from SEB. I have a couple of questions, and I go one by one. And I start with the one regarding your customer activity. So have you seen any customers coming to you instead of your competitors as they think that you could have a better delivery reliability at this point?

Anssi, thanks for the question. I mean, that would always be a joy to see such activity. But what I can say broadly, I mean, we are definitely -- we are looking for Q4 at the moment still. In advanced materials, we are having a longer order book. So I will talk about from our perspective, sort of satisfactory activity at this point in time. I cannot really comment. I didn't ask them whether they are happy with our competition or not.

Okay. Understood. And I'm not sure if you're able to comment the next one either, but I will ask it anyway. So have you been able to use alloy surcharge-based pricing, or are your customers demanding so-called all-in pricing?

I think we have seen a movement towards all-in pricing. Maybe what has been sort of historically the trend as well when the import levels have been higher and uncertainty has been high. So certainly, there has been, let's say, pressure in that direction.

Okay, yes. And sorry if I missed this one, but did you say that your energy costs are well hedged until the end of this year? And if so, what will happen then if the electricity prices remain where they are currently?

Yes. Anssi, it's a good question, and maybe it's good if I can illustrate that or be a little bit more detailed on that. So I think the starting point first is that you know we have this sort of funnel of energy hedging, and we always take a view 24 to 36 months ahead. And with that, we sort of typically have the situation that for periods closest to us, our hedging level is the highest, and then the further we go to the future, the lower the hedging levels will be. But one of the sort of particular themes of almost full year of 2022 has been less liquidity in the market and a lot of volatility in the pricing as well. So I would say we are more in the sort of lower funnel of our typical sort of hedging activity. And with that said, I think that we are sort of -- we are absolutely never fully covered in terms of hedges. We always have a sort of a fair portion for also spot business. But maybe sort of with the -- how to sort of give the correct expectation of where our levels are, I can only say that when it comes to '23 and further, we are more in this lower funnel of what is possible for our hedging. So that would sort of mean a notch lower than where we would normally hedge. But I cannot give you the percentage even though I would love to do but that I cannot share so.

Okay. But can you comment like do you have to take some additional measures like you did already with 1 ferrochrome furnished.

Yes. Well, I do think that for electricity, ferrochrome is really important because we use most electricity in Finland. And out of that, we use a bigger share for ferrochrome and for stainless production. So therefore -- and ferrochrome also from a cost structure perspective is much more sensitive to electricity than what our stainless production is. So it is clear that we have taken very active control of the costs now by the optimization. And the earlier announcement that we made also around the second furnace. So this is about 30% of the capacity in ferrochrome that we are not [ restarting ] after the maintenance. It's along the same lines of that sort of optimization and finding a sweet spot of where we have hedges at good price levels and where we can then find these hours to run with spot prices at very reasonable levels or even cheap levels at point because the spot prices really vary a lot. So we will -- I think from our perspective, we have sort of a clear path in mind what we can do to control costs. And in that sense, sort of stabilize the results, I would say, understanding that the electricity is such a significant cost factor in ferrochrome. So maybe if I still try to illustrate that a little bit, if I think of -- when I was speaking about Q3, I said, well, electricity costs really seem to increase, and it could be even EUR 30 million more quarter-on-quarter for ferrochrome. And you know that after I said that there's even been further pressure on electricity prices even in Q3. I mean we saw this August sort of huge pressure on electricity price also in Finland. And if I look at the situation right now, with our optimization, we have been able, starting from August, so in August and September to kind of balance the situation so that I would assume at this point in time, I don't have the final figure yet, but sort of assumes that maybe we didn't increase electricity by EUR 30 million, maybe we increase with half of that. But on the other hand, we also lost some production. But we did this to really kind of stabilize the results in a difficult situation, and I don't mean to stabilize on a high level. But I mean stabilize so that it makes sense to run what we run. And -- and with that said, we have lost production, maybe compared with our sort of normal quarterly plan what we would have had. Well, in percentages, it's a double-digit figure, but it's a low double-digit figure. I honestly don't have really the final figure yet. So with this long explanation, I'm trying to say that we have ways of managing, but it is not easy with high electricity prices, and we will sort of find those ways to operate that makes sense. And when it doesn't make sense, then we have to take steps like we have now said for the second furnace that we don't restart after the maintenance.

Thank you. We will now take the next question. One moment, please. And it comes from the line of Ioannis Masvoulas from Morgan Stanley.

I have a few questions from my side. I'll start with the one on Europe. One of your peers this week has been talking about severe destocking in Europe during Q3. Is that what you've seen so far in the quarter? And do you think your -- as a result, your shipment guidance for Q3 is still appropriate? And are there any signs of improvement [ sequentially ] into Q4?

Ioannis, thanks for the question. And I mean, broadly, we still see that the distributor inventories are at a high level and destocking is sort of the theme of the quarter clearly, because I think this high inventory levels were very much driven by these high import figures as well. So definitely, we see a connect between those two. But on the other hand, I mean, when we gave our guidance, we said volumes are down 10% to 20%. That included the view of kind of the destocking mentality and the low distributor activity. So we are definitely -- that is our guidance, the same as we gave before.

Great. What about Q4? Do you expect the destocking activity to continue, at least from what you're seeing today?

Well, maybe a few facts I can say around that. One of them is that inventory levels are still high at distributors. So normally, they would like to drive them down to something more sort of historically sort of -- more historical levels, I assume. So that would sort of be a factor that could drive further destocking. But what I wanted to share was that we start to see sort of -- not sort of one united picture of all distributors be exactly the same. There seems to be a bit of differential between distributors, some of them have maybe already destocked -- others are still having a lot of really high inventories. So we see a little bit more variation, but certainly, there are -- we are also aware of distributors who definitely have very high stock levels, and that could mean that they just have to digest that. And that probably continues well into Q4, maybe even until the end of the year. So that's sort of the best I -- that we can see right now.

Great. That's very useful indeed. And the second question is around ferrochrome, where you're running at 70% of capacity utilization. Are you effectively producing only what for internal needs for your stainless business? And how does that work in practice? Because I know that over the past few years, you've been working really hard to build your contract business with external partners.

Yes, yes, indeed. It is a balancing, absolutely. And one of the things, obviously, has been that also internally aligned with our guidance of 10% to 20% down, we have had lower volumes in the third quarter. So I mean, this is sort of all a balancing act. But our sort of basic attitude is always that we own our contracts, and then we do our best to balance the situation. But as you can understand, several contracts for the year '23 are also under negotiation, so we will keep a very close eye on this. And certainly, both logistically and for CO2 reasons, we want to give priority to internal deliveries, so.

Okay. No, that's clear. And then the other question I had was on working capital because at the last call, you talked about potentially building stocks of finished material in Germany in case -- to avoid any gas-related challenges. Has this transpired, and what would the impact be on the working capital?

Yes. I think we are still considering some pre-production, as we would call it, potentially during Q4. But I would say, if we do that, we do it really to support our customers. And at the moment, I don't see it being so significant that I could like give an amount here. But I usually don't talk here about some tens of millions. You may recall that I talked about that we have sort of had a step up in working capital because of the Ukraine war and because of changed supply chains and some extra inventory, and that sort of step-up I mentioned that it's about EUR 100 million. And that did not include this possible pre-production for Germany. But I think with that, I want to say we are definitely still considering it. I don't see that the risk has completely vanished, even though there have been maybe some bit more positive signals. So it's still potentially in our plans for Q4, but not so significant that I would have a figure to give to you, that.

That was very clear. And I guess with that in mind, Q3, you can still deliver some working capital release?

Yes. Seasonal, yes. I mean, we have always done that, and I don't see any reason why this would be different.

Okay. Great. That's very clear. And just a last question from me, if I may. On this biocoke project. So just to clarify, the EUR 25 million, this is the -- you're applying for a grant. But what is the total CapEx associated with this project that you have in mind?

Yes. I mean so far, we haven't given the CapEx simply because we are still planning. But there is maybe one thing that I do want to share. I mean, as part of our sustainability journey, we did about a year or 1.5 years ago already -- no, sorry, it was in December, Linda is laughing when I'm saying this. Well, we did, in our sustainability journey, share that we will invest around EUR 160 million for reduction of Scope 1 emissions. And clearly, this CapEx is one very important part of that Scope 1 emission.

That's very helpful. Great year.

We will now take the next question. And the next question comes from the line of Krishan Agarwal from Citi.

Pia. Following up on Ioannis's question. I mean, a couple of your competitors in the region they're saying that the demand has been weakening and destocking going on, the trend which you have also confirmed. So in the context of your guidance, like 10% to 20% decline in the delivery, would it be fair to assume that we are more towards the upper end of the guidance? And then just like in ferrochrome, you are reducing the capacity utilization. Did you also take some measures in European production base in stainless?

Yes. Thank you, Krishan, for the question. So what should I say? What I should first say is that a normal seasonal decline in Q3 for us has been more like minus 10% over a longer period of time. Well, there have been so many abnormal years that it depends on what time period you take but that has been more like minus 10%. So it's clear that the minus 10% to minus 20% also speaks to this lower demand that we can see during the quarter. But then, in terms of where in that spectrum do we land, I mean, I -- usually, ideally from my perspective, we would be in the middle. But I think that's sort of as far as I can go today.

Understood. But then you're confirming that okay you did not had any production stoppages in the Europe as your competitors had?

No. For Spain, let's no -- I mean, obviously, we have had maintenance taking in actually all of our major sites during the quarter. And that was planned, and that was also a part of the guidance, and we have restarted after the maintenance breaks. But we have had sort of -- we have had in Tornio maintenance, we have some maintenance Avesta. I mean we've had basically summer maintenance stocks throughout Europe, because we had a very long period of this very high demand where we sort of try to avoid any unnecessary maintenance. So we have definitely taken the opportunity during this quarter to get some maintenance done, but we have restarted after maintenance.

Understood. And then, I mean, we are at the end of the quarter. So if I were to ask for your views in terms of base prices have come down, electricity prices are staying very high, nickel not necessarily coming down that much. Would you agree -- would you confirm that your operation, stainless operation in Europe are profitable even today at current kind of a price cost dynamics?

Yes. I'm sort of -- I'm thinking here sort of how to best -- I understand why you ask, and I think it's a fair question. But on the other hand, I mean, if I sort of look at the underlying operation, I mean, just looking in Europe. And if you follow sort of the price trend of, for example, just look at where our result was in the second quarter, and then understanding that the timing impact of lower nickel price could have some negative, and [ the lower ] metal prices could have some negative impact, not being fully offset by hedging in any way. So clearly, there is a downward pressure potentially still from there, but we also have a high starting point in the second quarter. So kind of taking then a step down in the third quarter as per our guidance. And if we still see lower metal prices, well, obviously, it depends on how low. But I think it's a little bit too early to try to sort of foresee the Q4 result when it comes to timing and hedging. There are some uncertainties, obviously, related to that, as always. But when it comes to energy, I think we have sort of found the way to operate. And in the fourth quarter, our hedging level is still sort of following our sort of normal pattern. As I said, for the first quarter, our hedging level is then somewhat lower at this point in time, so I see that sort of a more pressure on the result. But on the other hand, I mean, if you have a look at the forward prices, you will see that there is still a relative -- relatively lower price in the Nordic region compared with the rest of Europe. Maybe that is all that I can say. I don't really want to give guidance yet, and I -- probably will come back with a little bit more detail then in our Q3 release.

I understand that. So basically, if I assume -- if I understand correctly that, okay, yes, you are profitable because you are protected from hedging. Probably the situation would have been different if you are on spot electricity prices?

And with spot also, I mean, we have found some ways, particularly in ferrochrome, to optimize. But the optimization always comes at the cost of lower production. So that's kind of the [ phase ] we have to make.

Got it. And a slight clarification for ferrochrome energy cost. You said EUR 30 million quarter-on-quarter increase in Q3 and something around EUR 15 million net of production [ cut ] increase in Q4. So this is -- these cost increase we are talking when you have hedging in place for ferrochrome energy cost as well, right?

Yes. So first of all, I was trying to explain Q3, so thanks for the question. I was really trying to say that when we gave the guidance for Q3, we were foreseeing about EUR 30 million cost increase. Then we even suffered a huge spike in electricity prices in Finland, but we started this optimization. So I wanted to be specific around energy costs. As far as I understand them today. I think we would rather see an increase quarter-on-quarter of about EUR 15 million. So that's less than we were foreseeing, but it comes at the price of lower production, and that's all for Q3. So I wanted to explain sort of the dynamics of the decisions that we have taken.

Okay. And this is -- the question is, this -- these are cost increases after hedging? Electricity?

Yes, yes. Correct, yes.

We will now take the next question. Please stand by. And the next question comes from the line of Harri Taittonen from Nordea.

Well, one thing, I mean, with these prices, the market price is going, I mean, they've been coming down for stainless on the one hand but also for scrap quite steeply. And just sort of -- I mean, I don't know if you can give any kind of color on how it works in your universe? I mean -- and sort of how the sort of timing of the raw material cost versus your end product price? I know that you can't go all the way with explaining that, but still, how do you see that?

Harri, thank you. I think what you described is sort of really testimony to sort of the market dynamics. I mean, obviously, if there is a lower demand in stainless, it has an impact on the scrap market as well. And usually, that is somewhat then kind of working in the direction to offset the negative impacts of the lower prices or lower demand. I mean, it's kind of market than dynamics just kind of usual. Supply and demand, what we learn in the macroeconomic course or whenever that was a long time ago at university, so.

Very long.

Yes, and that is fair to think about. But yes, you are right. So with that in mind, I think that dynamic is there. But then what can sort of potentially make it a bit more difficult to analyze is exactly that we always have sort of the inventory cycle to think about. And in order for us to produce and to sell, I mean, you can look at our figures. I mean, our inventory turn is more like 3 months. So that's just -- kind of keeping that in mind is maybe sort of the trick here to try to understand the dynamics.

Yes, yes. Okay. Then on the -- I mean, the thing that you said about ferrochrome and it seems like, I mean, you are guiding sort of -- steering the energy consumption versus the hedging, and sort of timing optimization mainly through the ferrochrome operation, as it looks. But I mean, any indication how long is sort of maintenance might be sort of extended? And technically, how flexible is this sort of production? And I mean, by the sound of it, you can sort of control production. That's really frequent or sort of a short cycle as it were?

Harri, I think it's correct. So the reason why we have more done this for ferrochrome is, first of all, that the cost impact of electricity is so significant in ferrochrome versus the stainless. Of course, it's important in stainless, but in stainless, you still have important raw material costs, et cetera. So you -- it's not the same relative size at all. But in ferrochrome, it's extremely significant. So it's clear that for that reason, it's kind of the natural place where to go. And obviously, also with sort of the way how the operation itself works, I think our ferrochrome team has been able to, so they've done a really good job. Our energy team has done a splendid job in sort of coordinating the efforts here, but it is also possible with that sort of production to actually kind of turn the power up and then turn the power down if the electricity price is [ spiking ]. And I think it's more difficult to reach the same in the stainless production, but it's definitely possible to do some optimization in stainless production. And those are topics that we are considering, but it is not straightforward in the same way as in the furnaces in ferrochrome where you can literally turn the power up and then you can turn the power down. And when you turn the power down, it takes longer and then you lose production. So that is kind of the key that we have been able to do this. But this is the first time that we have done it, and we have started in August. So now we have 2 months experience, I think the experience has been positive. But it still doesn't sort of rule out that if electricity prices are high like they are in Q4, like they are in forwards for Q1, then there might also still be reason to sort of continue having some capacity kind of completely shut down because, of course, it takes effort. Of course, it takes sort of more manpower than in a normal situation to have this focus on turning sort of our -- in different electricity price situations to a different level.

Okay. And at least, it would help you sort of in not having to sell ferrochrome to the spot market, so I think there were a couple of quarters in 2020.

Yes. But they're not usually and the spot was really low, so now we have sort of the opposite in that sense, so.

Exactly, exactly.

We will now take the next question. And the next question comes from the line of Tristan Gresser from BNP Paribas Exane.

Yes. The first one, if I may push a little bit on the guidance. I mean, 2 of your peers have provided clear quantitative guidance for Q3. One of them has also commented about being comfortable with 2022 full year consensus. Given the extreme volatility in energy costs, et cetera, I mean, when I look at Q3 consensus at [ EUR 240 million ] and full year consensus of EUR 1.3 billion, is that a level that you're fairly comfortable with?

Well, again, I understand the question, and I have not been in the habit to make that sort of statements, and my IR is looking at me and shaking her head like Pia, don't do it. But what could I say now to at least partially answer your question? I think we have sort of kept firmly with our guidance and we have tried to provide additional color where there has been some change such as the ferrochrome electricity position, for example, and this optimization that we have been able to do. And I think for us, at least for now, that's kind of the way how to do it. Then obviously, if I would be extremely concerned for something, I would probably try to raise and to sort of pinpoint facts where it seems that our message has not sort of been flowing through. So we are not ignorant to sort of external facts, and we are in fact following really closely. But I usually rather than saying that, hey, you are right or you are wrong, I tried to comment on sort of things and facts and parts that we usually are guiding on. And I hope you sort of hear from me that we really haven't changed our guidance despite the very turbulent situation that we are in.

All right. Fair enough. And my second question is more on the U.S. market. We're starting to see a bit of weakness there from the data providers and looking at -- I see base prices are falling as well. I'm seeing also [indiscernible] cutting production guidance, et cetera. So when you comment about still-healthy underlying demand regarding the U.S. market. What is driving the weakness? And are you seeing -- it's not just about imports, inventories being high, but also maybe some underlying weakness as well?

Yes, I think we see in the distributor behavior really a need to reduce inventory, sort of this destocking. And obviously, uncertainty could be a background driver to that high inventories, could be another background driver to that. So I do think that this sort of destocking sentiment talks to some sort of uncertainty in the market. So I don't think this has been growing sort of to a more positive direction. Rather, I think that the uncertainty has increased. And this is where we are. And then you know in the U.S. also, we typically see a Q4 that is kind of the weakest of the year. I mean, kind of a seasonal slowing down that we see in Europe more for Q3, in the U.S. market that goes more for Q4, with Thanksgiving and Christmas and so on. And last year was maybe a bit abnormal that with the sort of really hot market, even Q4 was a fairly strong -- strong from a volume perspective. But I think this is clearly now talking to sort of a more normal seasonal development this year.

We will now take the next question. One moment, please. And it comes from the line of Bastian Synagowitz from Deutsche Bank.

Yes. Just had a few questions. Maybe following up briefly on the demand side, maybe first, I guess, you talked about the underlying demand still being fairly okay. But then obviously [indiscernible] through this inventory which obviously may still take some time, and I guess, given the current situation and I think perceived risks in the market, it seems like the inventory destocking could obviously will last also a little bit into Q4. From the volume comments with regards to your guidance, even though you obviously haven't been like overly specific, but it seems we are maybe not really towards the upper end, the softer end of your volume guidance, which would be minus 20%. Is that maybe more closer to the midpoint of that guidance? And I guess most people probably would have seen you, if that's fair to say, probably closer to the lower end, so that seems like you're actually doing a little bit better. But then we obviously, if we think about Q4, we've got [ obviously ] the softness in the U.S., which is seasonal, and that's normal. And given that maybe we are ending up on a slightly higher Q3 basis, is it fair to assume that there is a pretty fair chance that volumes for your whole group will potentially slip further in the fourth quarter? Is that like a fair assumption without obviously going too much into detail at this point?

Yes, that is a tough question because the normal European pattern would be -- will be a little bit up from Q3 to Q4. But given the whole sort of market and the war and everything, obviously, that is not given yet. But I hope that this will be sort of clarified in the next week when we really can also kind of finalize the bookings, et cetera, to really see where we end up for the quarter. So with the U.S. and with the Americas market, I think it's clear that we will see the seasonal pattern down. And then it's probably not -- I cannot move sort of one clear answer to that yet. I'll have to get back when we give really the Q3 report and the Q4 guidance, because I think the market is still in a state of uncertainty in Europe because of the war, so.

Okay. Okay. Fair enough. And then Pia, just on maintenance breaks. So in Q3, obviously, your maintenance charges are rising by EUR 10 million versus the second quarter. Is there -- with regard to Q4, is there still any larger maintenance break coming? Or will we see an easing in the maintenance budget? Or is it going to be stable? Is it going to be up further?

Yes. I think we will have some maintenance in the U.S. around the breaks in November, December. But I feel think broadly, it will probably be a little bit easier. So we don't have that significant maintenance plans for the fourth quarter.

Okay. Okay. Great. And then lastly, coming back on costs. Just in terms of the way, first of all, maybe you procure electricity. So in ferrochrome, in particular, 100% of the electricity you buy is renewables, I guess, as we probably referred to nuclear power here. Is this an entirely spot-based contract? Or is there, I guess, is there any fixed cost, sort of fixed electricity cost contract portion in your energy supply for either ferrochrome or stainless?

I understand where the -- where the question is coming from. And it's actually some detail that I cannot rule out that there would be in one of our sites somewhere, some fixed cost portion. But we are such a big electricity user that I would really say that from any material respect, it is really a valuable sort of cost that we have. And so our sort of hedged portion comes from a number of really long-term procurement agreements and also actually wind power. But those are all more like 5 to 10-year deals that we have actually announced many of them early this year. And then we have other contracts running over a sort of mid-term period. We can talk about 1 year or something similar to that. With nuclear, for example, could be kind of a critical part of the mix there. And then we always need something for the spot. And with the spot, this is where we also now can utilize these optimization opportunities because spot prices are varying really a lot between different hours of the day and between the [ days ].

Okay. Okay. But that obviously means that you do have a certain portion of your business where, in fact, you hedged for this year, and you're also going to be hedged for the next year and pretty much in the next 5 to 10 years after whatever -- whatever happens?

Absolutely. That's like the base, but it's a fairly sort of thin layer. So I think all of the recent years, we have given really sort of press releases. I think late last year, early this year, for example.

Yes, okay. Okay. Got you. And then if you look at ferrochrome and stainless, and I guess, again coming back a little bit to the questions we've had earlier. And actually unfortunately I dropped out of the call, so maybe some of that has been covered in the question Krishan has been asking. But if you look at the hedges, and some of them will obviously roll out over the next couple of months, do you still see stainless and ferrochrome separately still being a profitable business for you whenever these hedges are rolling over your mark-to-market to spot?

Yes. So I think if I would only kind of consider the electricity perspective here, I think in stainless, just to try to put it into perspective, even with the levels of higher prices that we have seen now that clearly are higher. But on a relative basis, Nordic prices have still been more sort of -- well, you can look at the spot prices and other prices and you get a view. But with that said, I mean we have been happy to continue our operations for sure in stainless because other [ cost ] elements are also so significant. And this goes sort of for the total picture of energy. So including gas and including electricity, with the combination of the hedges that are continuing and then long-term contracts, and then spot. We have certainly been able to sort of find the balance, at least, under the kind of current circumstances with even quite high peaking prices in, for example, August. But with ferrochrome, I think this optimization method we have really created to ensure that we can run a profitable operation because we are really -- what we want to make sure is that independently, we have a ferrochrome operations that, so to say, makes sense. But on the other hand, we run always when we plan because we have demand internally and we also have demand, of course, to some contract customers. So we really -- we work very hard to find that sort of optimal balance. But it's obvious that there is a high cost pressure from electricity even with the optimization. So the whole target of the exercise, which is kind of define that balance where we can produce, but not make losses.

And on that point, in particular, and I guess it's really about ferrochrome. As you mentioned because in ferrochrome, you're really probably in a more global -- you're basically sitting on a more global cost curve rather than, first of all, European cost curve and then whatever imports are doing. So it's a more globalized market. And so if your hedges run out, is this basically a business where you would -- would basically see indeed challenge to keep it running?

Well, not all hedges are running out. I mean, just to be clear, but we are on a lower heading level for 2023. So I think it puts more pressure. I mean, we will optimize for sure. We will continue with the strategies that we have now developed, and the sort of kind of the price we pay for that is then potentially lower volume. But at the same time, obviously sort of ensure that we have an operation that we can run with some level of kind of reasonable profit. I mean, this will not be -- it really then depends on other factors. And as we speak, we don't have the benchmark price for Q4, so there are factors we think we don't know yet.

Okay. And then very lastly, and sorry to keep you on this topic. But if we go towards like the, I guess, the approach of which the European countries may be taking, i.e. introducing a mechanism where [ inframarginal ] producers of electricity will basically receive a different pricing instead of like charging the spot prices, which is basically charging the price of the marginal electricity generators. If I look into your portfolio, you've got nuclear power, you've got lots of renewable energy, so that actually puts you into a very good situation should the government basically force the utilities into a pricing mechanism, which is basically rationalizing the market in a better way. What is the discussion locally in Finland? Could you maybe just bring us briefly up to speed maybe in 2 sentences on what's going on here? Whether you see that we are also potentially migrating to such a pricing mechanism and what may be is the timeframe needed for that?

Yes. I mean, there is very little electricity in Finland produced based on, for example, gas. I mean, it's literally nonexistent. So I think the discussion in Finland really has been on one, on, first of all, Russia cut off all electricity export to Finland already in May of this year. And we kept very calm and we carried on, and we have been helped by an investment decision into nuclear that was taken a very long time ago, and Olkiluoto 3 is now produced in 1,600 megawatts. So I mean, that is more or less replacing so that Finland is at least on a more balanced level, especially on days when there's wind. So the wind power capacity has also really been built up. So I think there is more this -- the public debate is more one-off sort of keeping calm, carrying on, not wanting to sort of use all language. But just really, hey, we somehow got to get through this. People, I think, are ready to save electricity. Many consumers are highly alarmed, and it's very cold in Finland during winter, and you really need to heat your house. There really is no alternative. So there are indeed consumers that are worried. The state is providing some support, but I think it's more like a subsidy of maybe EUR 2,000, EUR 3,000 for a person. So that's not helping very much if you have a sort of super high electricity bill. So I think some of the more negative debate has been more around why are we paying for problems in some other countries. And unfortunately, I don't think that refers to the war and Russia. I think that also points to the dependency on gas from Russia. And to somehow kind of curve that sentiment, I think it's good if there are some [ European ] decisions in this area. But I think Finns are generally very grateful for the Olkiluoto 3 power that is being generated now.

And -- but if they are, again, if they are -- also [ here ] the idea of making sure that the electricity price levels are somewhat kept towards where it maybe should be instead of really charging for gas, or something close to gas, instead of basically where inframarginal costs or generation costs would be?

Yes. And I think the way how people understand this is that electricity prices are set on a European level still. We all understand the complexity of what that means with transmission cables, and that it's not exactly the same, and so on. But nonetheless, people understand the dependency and they are looking for some political solution to curve the price increase for sure. So I think people just want there to be some reasonable approach for private individuals, and that has not yet been reached, so people still wait for that.

Thank you. There are no more questions at this time. I would like to hand back over to Linda Hakkila for final remarks.

Thank you all following our Pre-Silent call today. Before we close the call, I would like to remind you that we will start our silent peer next week on Tuesday, October 4, and then publish our Q3 results on Thursday, November 3. Thank you once again, and have a great weekend.

That does conclude our conference for today. Thank you for participating. You may all disconnect.