Outokumpu Oyj (OUT1V) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Outokumpu's Q1 2025 Pre-Silent call. [Operator Instructions]. Please be advised today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Linda Hakkila. Please go ahead.

Thank you, operator. Hello all, and welcome to Outokumpu's Q1 2025 Pre-Silent Call. My name is Linda Hakkila, and I'm the Head of Investor Relations here at Outokumpu. With me today, as our main speaker, we have CFO, Marc-Simon Schaar. As per usual, we will first give you a short update, and then we are happy to answer your questions. But now without any further comments, I would like to hand over to our CFO.

Thank you, Linda, and thank you, everyone, for dialing into our pre-silent call today and a warm welcome also from my side. In this call, I would like to summarize the main points of the first quarter before we step into our silent period. Always good to remember when we gave our guidance for the first quarter, we expected our group stainless steel deliveries to increase by 10% to 20% compared to the fourth quarter, while pressure on realized stainless steel prices was expected to continue. This is still valid. And I would like to inform that we see higher volumes for both business areas, Europe and Americas. However, our deliveries on a group level are expected to be closer to the lower end of the given range and the pressure on realized stainless steel prices continued in line with our guidance. The operating environment in the first quarter has been impacted by economic and political uncertainty, mainly driven by the announcement and actions by the new U.S. administration. In this context or in this current geopolitical situation, I'm very pleased that we have geographically diversified assets and strong positions in both Europe and the U.S. But maybe first, a few comments on our business area Europe. Given the current market situation, we have seen some tentative signs of economic recovery in Europe, but overall, end-user demand remained soft. The manufacturing and construction sectors show signs of improvement, which is reflected in rising PMIs and better sentiment data. However, the European Union consumer confidence, which impact our consumer goods sector remained largely flat in the first quarter. Looking at distributors, we have seen some restocking activities in line with our earlier communication during our webcast in February, but inventories remain slightly below the average levels. However, given the relatively low demand situation, their days of inventory are considered rather high. Looking at imports into Europe, they increased in the beginning of the first quarter, particularly in January. And here, in particular, Taiwan's quota for cold-rolled flat stainless steel was fully booked immediately during the month of January. Overall, we can say that imports are expected to remain relatively stable in the first quarter compared to quarter 4 of last year. Next, a few words about the labor union strikes, which have taken place that impacted us in January. Due to the strike, our operations in Finland were down for one week, as communicated earlier. And as we stated in our Q1 guidance, the impact on our adjusted EBITDA was approximately EUR 15 million negative. In this context, I am pleased to share that we quickly reached an agreement with the labor unions, avoiding any additional weeks of strikes affecting Outokumpu. And I also want to highlight that this agreement has now a term of 3 years, which ensures operational stability moving forward. So far on BA Europe, if we now move on to business area Americas. Regarding the tariff policies, we are well positioned, as mentioned earlier, as the second largest domestic stainless steel producer in the U.S. Our imports from our Mexican mill to the U.S. are minimal. So the recent tariffs have had no significant impact on us as we also mentioned earlier. Additionally, our customers have confirmed their willingness to continue buying from us even if tariffs do apply. In general, tariffs on imported goods benefit us as the large volumes of low-priced stainless steel imports from Asia and other regions into the U.S. have negatively affected our business. Where appropriate, we will continue advocating for stronger trade protection measures to ensure a [ level ] playing field going forward. As U.S. trade policy evolves, we are closely monitoring the situation, both domestically and globally to assess potential impacts and determine necessary actions then going forward. Overall, we can say that uncertainty prevails in the North American market with consumer confidence falling as we have seen in the first quarter, driven by fears over tariff-driven inflation. The demand in business area Americas has remained relatively soft and distributor inventories are below average, but given the low demand, the days of inventory are still relatively high, similar to Europe. Meanwhile, import penetration from Asia into the North American market has somewhat reduced towards the end of the quarter, given the discussion around potential tariffs. Looking at the segments, there has been no increase in underlying demand being observed across the border. Only oil and gas is running better as already indicated earlier. After discussing the development in business area Europe and Americas, I would like to briefly touch on our Ferrochrome segment. We delivered strong results in the fourth quarter and demand for our low-emission European ferrochrome remains solid. So we are confident on the further progress and development of our ferrochrome business. And this is probably as much as I would like to comment on the different business areas. Coming back to our Q1 guidance, we also stated that our maintenance costs are forecasted to decrease by approximately EUR 10 million in the first quarter compared to the fourth quarter when we had a significant maintenance break in Tornio at the end of last year. And this commentary is still valid. Now turning to our financial position and cash flow. As mentioned in February, we anticipate a seasonal net working capital buildup due to increased activity, leading to a somewhat higher net debt. However, I want to emphasize that our liquidity position remains strong and is expected to stay that way going forward. While we are still in a relatively weak phase of the stainless steel cycle, we are well positioned to capitalize when the market rebounds. As mentioned in our Q4 results commentary, we have implemented strict measures to strengthen our cost competitiveness in the current market environment. And we also said that we aim to achieve an additional EUR 50 million in cost savings by the end of this year. And I can confirm today that we are making strong progress according to plan. Now with that one, I would like to conclude my update and open the floor for any questions.

[Operator Instructions]. We'll now take our first question. This is from the line of Adahna Ekoku from Morgan Stanley.

I have 2 questions. Just first on the shipment guidance. Could you share any more color as to how we should think about the quarter-over-quarter uplift in terms of Europe versus the U.S.?

Yes. Good afternoon, Adahna. On the shipment side, as I said, we guided for 10% to 20%. And now the update is that we are more towards the lower end of the guidance, and it's both driven by Europe, I would say, Europe and the U.S. here as well, both. And maybe to give a bit more color, this is not market-driven as such. In the U.S., for example, we have faced some supply chain disruptions from weather conditions, and this is more a shift from Q1 into Q2. This is as much I can say right now.

Perfect. No, that's helpful. And in terms of European imports, European Commission recently came out with the safeguard review, but there were quite limited changes to the safeguard to the [ same ] the safeguards. So do you expect any more assertive measures to come from the commission perhaps from the mechanism to replace the safeguards is introduced?

Well, yes, you're right. The revision was limited in terms of any changes. The relaxation rate has been taken down from 1% to 0.1% and some further countries to be included to the main changes over here. Overall, while certainly we need more measures, definitely, I think the outcome itself shouldn't be too surprising for us given the relative short period and also the period being analyzed in here, meaning the second half of 2023, first half of 2024 and not taking the significant increase, which we have seen towards the end of 2024 into account. Having said that, and also referencing to the European Steel Action plan, which has been announced, definitely, I do see that there is an understanding about the critical role of the steel industry for Europe and the understanding for appropriate measures to be taken.

We'll now take our next question. And this is from Bastian Synagowitz from Deutsche Bank.

I have a question also maybe starting on volumes. So just I guess, from what you're saying, it bodes pretty well for your, I guess, order book also for Americas in the second quarter. Now what have been the dynamics which you've been seeing throughout the quarter with regards to your European business, i.e., is your March order book for Europe also indicating the same seasonal upswing for the second quarter? So how have volumes basically evolved throughout the quarter? That's my first question.

I think -- I mean, I'm not in a position, as you know, Bastian, to already give guidance on the second quarter right now. We need to wait until the beginning of May when we give our new guidance. But probably I would like to continue on what we have been guiding for the first quarter. And here is that we have seen an uptick and a stronger order -- an uptick in our order intake in our order book, and that is still valid over here, and that is what we have observed right now. Overall, it's important, as I said earlier, to understand that there is not a fundamental improvement in the underlying demand from the end user side. And here, still in line with our earlier comment, that is then something we -- given all the different dynamics which we see in the -- on the geopolitical side, on the market side, the different infrastructure programs more to see towards the end of this year, so second half.

Okay. Understood. Okay. Then just briefly following up, just on the metal effects, apologies if I missed that, but could you quantify maybe the broad impact of possible metal effects versus the EUR 4 million gain, which you, I guess, booked in the fourth quarter?

I think relatively small here on that one. We have stated some losses in our guidance for Q1, but those are really single-digit numbers.

Okay. Okay. So that's good. Now with the uptick in volumes, I guess you have the strike, which goes against you on the other side with a little bit of relief at least on the -- I guess, on the maintenance side, do you think there is a chance that Europe could come back to breakeven in the first quarter on EBITDA level?

Yes.

We'll now take our next question. This is from Maxime Kogge from ODDO BHF.

So just 2 questions on my side. So the first, I was a bit surprised when you said earlier that you now purchased limited amounts of labs in Mexico from your U.S. mills. So does it mean that you are sourcing them from the market, I mean, from Asia, in particular, in Mexico?

Good afternoon. Sorry, there might have been a misunderstanding. I'm not saying that we are purchasing less or differently feedstock for our Mexican mill. It's just that a minimal amount. And I think last time I mentioned around 10 to 20 kilotons maximum is going back from the Mexican production site into the U.S. market, and that is what I was referring to. But we are not sourcing slabs externally.

No, that's clear. And the second one is on the imports, blanket tariffs has applied since the 12th of March in the U.S. at least, have you seen some deflection of imports from the U.S. to Europe? Is that a risk according to you? Or is the European system sufficiently defensive and protective to prevent that?

Yes. No, we haven't seen any imports from the U.S. into Europe or see this as a critical element here. Certainly, we need to observe. And here, I think I really want to highlight and to make clear that we still live in uncertainties. While a lot of comments being made maybe on -- or even on a daily basis, we're not yet in a position to have a very clear picture of what tariffs will look like and to what products they apply, for what regions they apply and so forth. I think what we need to do is to observe the situation daily. At the same time, what is clear is that the European Union, the European Commission needs to react if we do see circumvention from -- or redirected volumes from Asian material not entering into the U.S. market, but then maybe being circumvented into Europe. But coming back to your question on the U.S., Europe, no. However, what we have seen is probably some more activities around the -- or inquiries around material, which has -- which are melted and poured in the U.S. given all the announcement of potential tariffs.

[Operator Instructions]. We'll now take our next question. This is from Tommaso Castello from Jefferies.

I only have one, which relates to the German funding, the announcement of EUR 500 billion for infrastructure and military spending. Could you help us understand a little bit better what kind of exposure Outokumpu has and which kind of positive impact we could expect from that?

Yes. First of all, good afternoon Tommaso. Of course, I think as much as we can say, overall, the announcement of the infrastructure program and the associated investment will -- is expected to increase industrial activities in Europe, which we have been suffering for quite a longer period of time, particularly by a weak German economy. And as such, be it on construction, be it on projects in various areas, but new investments also in areas such as appliances, I think we have a good opportunity to benefit from those programs. On the defense side, certainly as well, main components are being produced out of carbon steel, but there is opportunities also and benefits for using stainless steel, but that is activity ongoing. So overall, I would expect here a positive impact for the economy in general and stainless steel benefiting given the wide range of applications for which you can use stainless steel.

We'll now take our next question. This is from Igor Tubic from Carnegie.

I just have one question in terms of the Ferrochrome business. You said that the demand for certain products remains solid. I just wonder if you can say anything also about the -- should we expect that the prices are also fairly stable? Or how should we think about that?

Yes. Thank you, Igor. Unfortunately, I'm not in a position to talk about prices in here. But however, let me comment as follows with our product on the one hand side, a product being produced in Europe and having the only Western mine chromite ore mine. And on top of that, with a very low CO2 footprint, one of the lowest globally, that basically distinguish our ferrochrome product pretty much from the rest of the world, which then also leads in our ability to have, so to say, green premium for this product here on top.

Okay. Great. And just a follow-up also quickly. I just wonder in terms of CapEx and how we should think about '26, '27 going forward. Should we expect that you will comment anything about that once this CapEx program is coming to an end in Q2 already? Or will this come later on this year?

This will come during our Capital Markets Day on the 11th of June, where we give more color then also on our next part of our strategy.

Next question is from the line of Krishan Agarwal from Citigroup. Next question from the line of Tom Zhang from Barclays.

Two for me, please. First one, maybe just some color around U.S. pricing. You spoke a little bit already about EU pricing, but I guess the dynamics here are slightly lower import pressure versus still a lot of tariff uncertainty. Can you just give us a little bit of color on how U.S. pricing has moved and how you're looking at that going into Q2, please?

Tom, sorry, but I can't talk about prices. But I think you captured the points very well. and I would please ask you to draw your conclusions from there.

Okay. Fair enough. Well to try. And the second one, just it's not discussed a great deal, but around ferrosilicon and ferromanganese, I guess it's not a huge part of your cost base, but just cognizant there is an antidumping duty -- antidumping investigation now into those materials. Do you source any of that outside of Europe? Is any of that a potential cost risk that we should be thinking about for this year?

No. I can clearly answer with no. Good question, good point, but no.

We have a question from Bastian Synagowitz from Deutsche Bank.

Just I want to get back briefly on the scrap market. I guess when we look at European scrap price, it seems like we've seen actually a little bit of an easing here, which obviously is a relief for you and goes in your favor. The recent, I think, U.S. prices from what I understood until end last year have still remained reasonably stable on the scrap side. Can you maybe just update us on the recent dynamics on the U.S. scrap market? So has it been -- has it started to ease a little bit towards the beginning of this year? Yes, if you could maybe comment on that, that would be great.

We haven't seen any changes here at the beginning of the year really on the situation. And that's then also reflected on the pricing level as well. But as you know, Bastian, as well, we need to see what's going to happen then also on the second of April with new announcement around the tariffs, what's included, what's excluded and so forth and then also how that might impact then the scrap movements within the North American market. But as I said, that needs to be seen then when we have more clarity around this topic. But I think we are very well positioned, and the team is doing a fantastic job with our suppliers over there in the U.S.

And maybe just for our understanding, is the U.S. a net exporter of stainless scrap as well as it is on the carbon steel side or is it a net importer?

No, I would say rather net importing than exporting.

Understood. Okay. Great. And then lastly, I think on the last conference call, you mentioned that the Mexican government may be looking into possible tariffs as well. From my understanding, it's still a slightly more open market at this point. So what's the situation here? Has anything changed? Is there any antidumping process or trade mechanism, which is currently being discussed or even formally even considered? What's the situation on the Mexican market?

Yes, we haven't heard any definite announcements on those. But certainly, we are in the discussion with the Mexican government here as well. The only thing I can say is that Ms. Sheinbaum is handling the situation very well, being very moderate, not immediately going into any trade war with the U.S. And I think from that perspective, I think this is a good sign that we need to see how things are developing. And to my understanding is that Ms. Sheinbaum also mentioned that she will announce something new in the area of tariffs and also the relation with the U.S. during this week, but remains to be seen.

Okay. Understood. And last question. So I guess from the picture you're currently drawing, you're seeing obviously that I guess you're taking back market share from impaired imports on the U.S. market, I guess, probably together with your second local peer, which generally sets you up pretty well there. Do you think that there is a risk that some of the other stainless steel assets, which are, I think, currently basically not operating in the market because they've left the market some time ago that they may possibly come back. Do you see any hurdles or thresholds for those assets to come back? I guess maybe they need some investment. They have not been running for some time. So maybe you could just share your view on this.

Yes. Certainly, it's difficult for me to speculate on someone's else movements in the market. But maybe as a good reference, when we have seen the introduction of Section 232, even in that time back in 2017, those assets have been idled back at the time. We have seen how the market has developed and those assets kept being idle. Maybe that is as much as I can say and probably also would then try to think about going forward.

Okay. Okay. Fair enough. And maybe without you giving obviously any comment on what the actual commercial strategy looks like. So you're taking back market share. So you're clearly gaining on volumes, I guess, your second peer does so as well, you're protected incrementally more and better on tariffs via tariffs. We're seeing the same picture in a much more fragmented U.S. market for carbon steel and prices have obviously gone up significantly. So when we look at the stainless side, at the moment, it seems to be mostly a market share game, not so much a pricing game. So what do you think is needed for prices actually to move up as well? And why do you think they don't in contrast to the carbon steel market, which, I guess, generally from a market structure is probably not as well set up as you are in stainless.

Again, on pricing, very difficult for me to comment. But if we look back again after Section 232, I think we have seen price increases, but not drastic price increases. And if you have drastic price increases, then this would then also attract, again, imports here into the market because that there might no margin erosion for those imports coming in. So I guess it's more on the capacity utilization side. Probably that is as much as I...

Perfect. And maybe briefly as long as you have any insights into that, I guess, there's only a couple of layers on how you may benefit from the current U.S. trade policy. Pricing would be one market share, direct market share is another. But what do you see currently in terms of your, I guess, your indirect market share? So do you already see any impacts on -- within your customer universe, i.e., I guess we've seen reasonably significant increase of white goods imports throughout the last couple of years. And now given that obviously there is an approach, which is not only tackling your direct business, but also your customers' business, do you already see that basically your domestic customers are basically taking market share back from imports as well and that actually this is reflected in the current order activity as well? Because I guess you were referencing to not see any real demand improvement and maybe real demand does not improve, but if your customers basically gain big market share from imports, that obviously could be positive for you as well. So how do you see that situation?

What you mentioned is probably one element. The other element is then certainly the demand for melt and pour in the U.S. And if you think about Section 232, right, at the moment and the exclusion, which is in there is that any material, which includes melted and poured in the U.S. as being exempted, that might give you another element in here, in what we should consider. But as I said, this is -- this call here is a pre-silent call around the Q1, and we need to wait until the webcast in May when we then also give our guidance and more color on the way going forward.

We will take our next question, and this is from Krishan Agarwal from Citigroup. Seems the question is not coming through. In this case, this concludes the question-and-answer session. I would like to hand the call back over to Linda Hakkila for any closing comments.

Thank you, operator, and thank you, everyone, for participating in our call today. Before we close the call, I would like to remind you that we will start our silent period on Tuesday, April 8, and continue until our Q1 results are published on Thursday, May 8. Now thank you once again, and have a great week.

Thank you. This concludes today's conference. Thank you for participating, and you may now disconnect.