SSAB AB (publ) (SSABA) Earnings Call Transcript & Summary

Good morning, and welcome to this Q3 presentation from SSAB. My name is Per Hillström. I'm Head of Investor Relations. With us here today is Martin Lindqvist, our President and CEO; and also CFO, Håkan Folin. If we turn to the next slide, we have the agenda and Martin will start here with some comments on Q3 mainly. Håkan will then come in with the financials and then Martin comes back again with the summary and the outlook. And at the end, we will open up for questions. So by that, we can move to the next slide. And please, Martin, the floor is yours.

Thank you very much, Per, and good morning. If you move to the next slide. This is a slide showing the order intake in SSAB Europe, and I use this to show the volatility, the last 5 quarters, where we saw a slowdown during last summer. And a fairly low order intake per month in the second half of last year. And then better to call it short-lived recovery, but we saw order intake picking up in the beginning of 2020. But then into Q2, we had a very, very low order intake, especially in April and May. We had almost nonexisting order intake. And then we have seen a gradual pickup, especially during the latter part of the third quarter. And I will come back to that. But we have seen order intake, not only in Europe, but also in the other steel divisions picking up from very low levels during the latter part of Q3 into Q4. But we also say in the report that the outlook is, of course, a bit or, I would say, uncertain due to the COVID outbreak and potential lockdowns. But we will come back to that. Next slide, please. So if you look at the quarter, all in all, on group levels, group-level shipments remained at low levels, and we had low capacity utilization as well in our mills, and we had one of the blast furnaces in Raahe idled for the majority of Q3. We also adjusted on top of the planned maintenance we had in all 3 steel divisions that costed us -- impacted us with close to SEK 700 million and Håkan will come back to that. We also adjusted production volumes, especially in Oxelösund to lower demand. So we ended up with an EBIT of minus SEK 973 million, which is, of course, a huge drop from Q3 last year. But we managed to keep a positive operating cash flow and -- supported by release of working capital. Next slide, please. And the way we decided -- we managed the downturn was, I would say, extensive cost savings. And if you take Q3 stand-alone, we had fixed cost being SEK 600 million lower than Q3 2019. And if you combine Q2 and Q3 for comparable units, it was SEK 1.4 billion lower fixed costs. In total, it was even lower because we had building systems in Ruukki Construction in Q3 last year, but not Q3 this year. But we have pulled all the levers. We have had short term work. We have used our time banks. We have avoided summer seasonal workers. We have reduced external services. We have conducted our maintenance, to a large extent with own personnel instead of having contractors. We have had a lot of different actions that were planned, both for Q2 and Q3 that we executed. And that's the reason why we have had such a good development on fixed costs. On top of that, we have not changed anything with our strategy. We continue to develop our own channels to the market, stock sales, Tibnor, Ruukki Construction, SSAB services continue to improve the product mix. We have seen growth also globally in high-strength steels. We've seen it in Latin America and Asia. And we also continue, and I will come back to that with the ambition of being the first steel company in the world producing fossil-free steel. Some of these cost savings will continue into Q4. They will not be as big because we expected to see higher activity levels in Q4 compared to Q3. We also pretty early on had committed credit lines at a comfortable level, and Håkan will come back to that. So we had end of September cash and committed credit lines of SEK 20 billion, amounting to more than 30% of sales. We felt that we could go through this period with a decent balance sheet, I wouldn't say a strong balance sheet, but a decent balance sheet and liquid assets and committed credit lines. We have done now with a small exception of Hämeenlinna, all the maintenance in Q3. Usually, we spread them out a bit more over the year. So we are positioned to ramp up when demand improves. Next slide, please. We have been, of course, very, very cautious about the COVID-19 impact on our operation and especially in our industry, when you have these big maintenance stops. You need to take a lot of actions and precautions in order to avoid any outbreaks of COVID-19. And we handled that together with very good cooperation with suppliers and entrepreneurs. So we were not affected during the maintenance stops. We have also taken several other measures to safeguard the health and safety of our own personnel. So we tried to work from home whenever and where possible. We follow all the regulations and recommendations in each country where we are. We have travel restrictions. We are very restrictive on face-to-face meetings and we have also contingency plans and different groups for critical operations, so we can continue to run operation. And we also pretty early on focused on securing the supply chain. And so far, we have only had minor disturbances during the first 9 months in this supply chain due to the COVID-19 outbreak. Next slide, please. If you then look at the overall map on the divisions and we will go into each division separately. We saw quarter -- Q3 over Q3 in all 3 steel divisions that the result was going down. And the biggest difference is, of course, in Americas, where we have almost SEK 1 billion in lower result. But -- and I will come back to that. In Q3 last year, we did not have any maintenance outage in Americas. But we also see that Ruukki Construction and Tibnor have a slightly better profitability than they had in Q3 last year. So if we then move over to Special Steels. I would say that -- and here, we compare with Q4 2019, where we had the yearly maintenance stop. And I think that the operating result held up fairly well for a maintenance quarter. And on top of the maintenance, it typically takes 4 weeks. We took a couple of other weeks to stand still in Oxelösund due to the market. So of course, we were impacted by the weak market. Shipments were impacted. The maintenance cost or the cost of it was SEK 250 million, but we have had better performance than previous maintenance quarters. And we have had low rolling production, but we have had very stable production in Oxelösund when we were running the production. So we are now, I would say, on a different level when it comes to production stability. We also saw in all divisions, positive effects of cost savings in Oxelösund or Special Steels, it was SEK 100 million lower fixed costs compared to Q3 2019. And we continue to take actions to reduce market volatility. I mean typically stock sales much more stable and more profitable than OEM sales and we try to continue to grow in markets outside Europe and U.S. and we saw also during the third quarter according to our -- in line with our strategy, that the service business and the aftermarket business was much less affected than sales to OEM as an example. So I would say quite okay given the market conditions and a big maintenance quarter for Special Steels. If you move on to the next slide. In SSAB Europe, we clearly saw weak market conditions, and you saw the first picture I showed with the order intake. Very low shipments, but they recovered somewhat in September. Here, we had planned maintenance of SEK 250 million and we had a positive effect from cost savings in Q3 of SEK 300 million compared to Q3 last year. And as I said, a large part of the quarter, we had 1 or 2 blast furnaces in Raahe idle then we restarted that one according to plan mid-September, and it's now up and running. Next slide, please. Also in Americas, we had weak market conditions. We had sales margins impacted by low demand. We also saw that plate prices during the quarter was stable on a low level. At the same time, scrap started to move up because of the increased demand in strip and especially within Automotives, we were in a bit of a squeeze when it came to margins over scrap in Q3. We had a planned maintenance in Montpelier, and that -- the cost of that was SEK 170 million. But we also had the positive effects from cost savings of fixed cost of SEK 150 million versus Q3. And if you should compare, you should really compare Q3 with Q4 last year when we had the maintenance outage in Mobile. In Q3 last year, we had no maintenance outage. Next slide, please. Tibnor, definitely impacted by lower economic activity. Sales were down 20% compared to Q3 2019. We still managed in Tibnor to increase the result and that was due to the ongoing restructuring program and some additional cost measures that offset the weak margins -- the weak market. So overall, earnings were slightly better than Q3 2019, but the internal work was much better because we managed to deal with the sales decrease of 20%. Next slide, please. And then Ruukki Construction continued to increase the operating profit. And the core business in Ruukki Construction and the core business for SSAB and Ruukki Construction is what we call the project business with -- or product business, but roofing and components, and that they have clearly improved margins over time. As you might remember, we sold the building system part during Q2. So now we just have the product business left. And if you take away that from Q3 2019, the building system business, I would say that revenue were stable compared to Q3 over Q3. And I would say, good or decent underlying demand and continued increase in operating profit. Next slide, please. And then I leave the floor to you, Håkan, to go through the financials.

Thank you very much, Martin. Please move on to the next slide. First, I'll give you a short summary of the quarter. Sales were down 23% compared to last year, largely impacted by shipments, which were down 9%, also prices were down 7%, and the rest coming from currency and from mix. On EBITDA, we had a slightly, slightly negative EBITDA and EBITDA margin. And then also, we got a slightly negative EBITDA per tonne delivered steel. Next slide, please. If we look at what has happened between Q3 last year and Q3 this year, we see a drop in profitability of close to SEK 1.3 billion. A very large portion of that is coming from price as much as SEK 1.8 billion, this is mainly coming from SSAB Americas, also somewhat from SSAB Europe. On the other hand, we see that 4 Special Steels prices have been -- and as they should be at least as well significantly more stable. We also have lower volumes. This is Americas and Special Steels, not Europe actually, impact of which was close to SEK 400 million. Then we have a positive impact on the variable cost of goods sold, especially raw material, and here it's iron ore and coking coal that's impacting positively. And as Martin mentioned before, we continue to have significantly lower fixed cost or processing cost and SG&A this year compared to last year, same period, SEK 600 million this quarter, it was SEK 800 million Q2 over Q2. Somewhat negative on FX, almost SEK 200 million, mainly driven by the stronger Swedish krona. And then a quite large portion negative impact coming from an absorption close to SEK 600 million. This is mainly then because we had the maintenance outages in SSAB Special Steels and in SSAB Americas and in general, low capacity utilization. And then around SEK 100 million positive in others. But in summary, this SEK 1.3 billion is coming from weaker sales margin, somewhat lower volumes, higher unabsorption, mitigated to some extent and by significantly lower cost. If we take the next picture then, then we instead compare this quarter, we just passed with the second quarter. And then the difference is around SEK 700 million. Again, we have quite a big portion coming from price, SEK 600 million. And also this time, it's mainly Americas, to some extent, Europe. We have somewhat improved volumes. This is in SSAB Europe, where we have the hardest stop in Q2, especially for Automotive business and also Heavy Transport. And from very low levels, that have somewhat improved during Q3, so a small positive impact on volume. Also quite small on variable cost. On the fixed cost side, we have a positive impact of a bit more than SEK 300 million. That's mainly because of the seasonal impact we typically have in the Nordics during the summertime. Also here, we have negative on FX, a bit less than -- compared to the previous comparison, SEK 70 million, but then a big portion of unabsorption. And here, it's mainly -- it's to a small extent, Americas, given the outage there in Montpelier, but it's to a very large extent, SSAB Special Steels, where we both had a maintenance outage. And then as Martin said before, we also, at the same time, as we had the maintenance outage, we also stood still for a few more weeks in order to adjust production to the demand situation. We were producing more in Q2, building some inventory, and then we could stand still longer even in Q3. But all in all, then a drop of around SEK 700 million. Next slide, please. Cash flow in the quarter was positive, supported by the release of working capital. We were releasing around SEK 700 million in Q3 and as said, we were building a bit of inventory ahead of this maintenance stop, and some of that was then being reversed during Q3. We also had a slight positive net cash flow of SEK 27 million, which was more or less in line with what we had in Q2 as well. Next slide, please. And on the balance sheet side, given that we had well, more or less 0 net cash flow, it was quite stable development on the debt side. Net debt slightly below SEK 13 billion, roughly in line with Q2, somewhat higher than the same period last year. Same thing goes for the gearing then. It's 22% now, stable compared to Q2, somewhat up compared to 1 year ago. On the loan portfolio side, we have an average duration of 5 years, clearly lower than last year. That's mainly because we have been taking up commercial paper this year, which -- with shorter maturity that we did not have before. And this commercial paper are a part of the liquid asset and committed credit lines then -- of SEK 20 billion. That amount is roughly the same, but given that sales have gone down, the relation then to sales, is now 31%. So as you remember, we did this late in Q1 in order to make sure that we could secure significant liquidity regardless of how this COVID-19 situation would develop, and we are now sitting on a comfortable level here. If you look at the graph then on the right-hand side of this picture, you see the quite big amount of cash and backup facilities of SEK 20 billion. And you also see the maturities we have for the coming years, wherein 1 quarter plus 2 years, then the remaining of 2021 and '22, we have less than SEK 9 billion then in maturities. And for 2020, the vast majority of this is in commercial papers. And that's all I plan to say about the balance sheet, given there's no dramatic changes. So if we move on then to the next slide, we see the cash needs of the business, where we are at the same level as we said last time, between SEK 2.7 billion to SEK 3.2 billion. Significantly lower than last year then, partly because of slightly lower investment, but mainly because of lower taxes paid. On the investment side, we are at the same level as we have talked about a few quarters now, between SEK 2 billion and SEK 2.5 billion for the full year. We have postponed some of the project, capacity expansion in Mobile, start of Oxelösund conversion. We are not postponing the R&C investments. We are making sure we are investing as needed in the operations to be able to continue to run them in a good and stable way. If we move on again, please. On the raw material side, we have seen for the iron ore and coking coal, we have seen and gone in different directions during the quarter, where iron ore prices, the spot prices have been moving upwards. And also our purchase prices have been moving upwards. They were 8% higher in Swedish krona in Q3 versus Q2 and 17% higher in dollar. Coking coal, on the other hand then went in the other direction, and they were lower by as much as more than 30% then in Swedish krona, 26% in U.S. dollar compared to the previous quarter. So if we add this together and think about the P&L impact for Q4, it's going to be fairly unchanged on the raw material side, given that we have iron ore going in one direction, and we have coking coal going in the other direction. Next slide, please. And then if we look at the U.S. operations and how the scrap prices have developed, our average purchase price for scrap was fairly stable, but slightly lower in Q3 compared to Q2, 4%. But what we saw on the spot market was that scrap prices, they increased in September and then they stabilized in October. So even though on average, our purchase prices were slightly lower. The last month buying then have been a bit higher, which we'll see somewhat in Q4 as well. Okay. Next slide, please. On the planned maintenance outages in 2020, we have revised the forecast now down to SEK 800 million. We have -- Q3 was a very maintenance-heavy quarter where we did most of the maintenance for the year. We have some left in SSAB Europe, but the majority was actually performed now in Q3. We lowered the forecast somewhat. And I want to point out here, it's not because we have done less maintenance, but it's because we have both renegotiated contracts with our external suppliers, but also because we have done more of the work ourselves than we were planning to do, given that we have had available capacity to do so. So the forecast now for this year is SEK 800 million versus SEK 1.1 billion last year and versus the previous forecast of SEK 900 million. Okay. Next slide, please.

Thank you, Håkan. And if we move another slide. During the quarter, SSAB's climate goals were approved by the science-based targets initiative. And we have committed as a company to reduce our greenhouse gas, mainly CO2 emissions by 35%, by 2032, and that is based on 2018 figures. And this includes both Scope 1 and Scope 2. And these are in line with the objective of keeping global warming well below 2%. And the objective is scientifically based and in line with the Paris agreement. And we have also stated that we aim to be the first to offer the market fossil-free steel in 2026. And on that note, if you move to the next slide, one important event for SSAB during Q3 was, of course, the inauguration of the pilot plant for fossil-free steelmaking up in Luleå. And this is a world unique pilot plant for fossil-free steel producing -- where we will produce sponge iron by using hydrogen instead of coal to reduce the oxide out of the iron oxide. We are now starting it up. We are running it with natural gas to do performance tests, but also to get the comparable production results. And the idea is then to move over to 100% hydrogen during the beginning of 2021. We have also got some more funding from the Swedish Energy agency in order to study -- do the pre-start of establishing a demonstration plant. And for us, demonstration plant is a full sale production plant, and we have the ambition to have that up and running 2026, in line with when we have rebuild Oxelösund, so we can have the first site globally producing fossil-free steel with using this hydrogen-based or used sponge iron and melt that in electric arc furnaces in Oxelösund. So that -- this is an important project, and this is, I would say, the most important business development project we are running within SSAB. Next slide, please. This is the outlook for the main customer segments. And as you can see, slightly less red dots compared to last time. If we look at Heavy Transport, we see some recovery of heavy truck production. Automotive, we see some recovery in production. Construction Machinery, still low production levels in main markets, especially for lifting but some improvements compared to Q3. Material Handling and Mining continue at fairly stable levels, not fantastic, but stable levels. Energy, the red -- first red dot, we see low activity in oil and gas and -- but we see more stability when it comes to wind power and transmission towers. Construction, fairly stable underlying demand. We expect to see, of course, the usual seasonal slowdown moving from Q3 to Q4. And then service centers, we expect them, they have been very cautious. We expect them to continue to be cautious. But if you look at the inventories in the supply chain and especially the inventories among steel service centers in North America, they are definitely on the low side, but we still keep that dot red. So not a great market outlook for the segments, but sequentially not getting worse, rather improving in many segments. Next slide, please. So if we then try to sum that up and take an outlook for SSAB, in Q4, we expect steel demand to recover somewhat following 2 weak quarters. However, and this is something I stress. The increased spread of COVID-19 makes it hard to fully predict and makes it hard for us to understand where this actually will end up. But underlying, we see sequential improvements with that, call it caveat, whatever you call it, of any potential lockdowns due to COVID-19. And of course, we, as always, expect to see a normal seasonal slowdown towards the end of Q4. So when we look at shipments, we expect shipments in all 3 steel divisions to increase somewhat versus Q3. And when it comes to pricing in Q4, they are for Europe expected to be somewhat lower. And that is because of another typical weaker product mix we have in Q4 with less color coated. So product by product, we expect prices to move in a slightly positive direction. But overall, slightly lower prices. And then for Special Steels and Americas, we expect relatively stable prices in Q4. Next slide, please. So if we sum it up, Q3 was affected by lower demand and planned maintenance outages, and that affected earnings in Q3. We did a lot of internal efforts and tried to influence what we could influence our sales, meaning cost savings and a reduction of working capital. We reduced fixed costs with SEK 600 million compared to Q3 2019. And as I said a couple of times now, SEK 1.5 billion year-to-date. We saw demand. And as you saw in the first slide I showed, the demand picking up at the end of Q3, especially in Europe. And the underlying activity level is expected to continue to improve slightly into Q4. And we continue to try to run operation in a flexible and responsible way. But also continued to focus on developing the Special Steels business, Service and Aftermarket business. And of course, last but not least, the transition to fossil-free steelmaking. With that Per, I'm ready with the presentation. So I guess we open up for questions?

Yes. Yes. Thank you, gentlemen. [Operator Instructions] But with that, please, operator, give the instructions for the Q&A.

[Operator Instructions] Our first question comes in from Alain Gabriel of Morgan Stanley.

Just one question from my side is, you seem to have realized some impressive cost savings year-to-date, mainly from the fixed cost reductions. But looking at the profit bridges into 2021 and if we were to do the same exercise that you've done on Class 16, how much of those cost savings that you realize will eventually reverse into next year?

No, but what we have tried to do in a system that is typically very inflexible is to build inflexibility. So we can -- I mean, fixed cost is, of course, fixed cost, but we can reduce mining. We can use time banks. We can do a lot of things. And this given what we expected to see into Q2 and Q3, we were really hitting, I would say, the breaks. Some of it small part is structural, the part in Tibnor, where they have been running a structural cost program, taking down costs with approximately SEK 200 million on a yearly basis. Some of it is, of course, the majority is it, of course, call it, flexibility measures. So you should expect some cost savings into Q4, and then we will, as always, try to increase productivity and reduce cost structurally over time. But this, I would say, you should not expect SEK 800 million or SEK 600 million. This was, I would say, if not an exceptional effort, but a very good effort from the organization.

If I may add one thing though, that is fully structurally is the cost reduction program we've been running in Tibnor, which is part of the savings you are seeing that now and that's SEK 200 million on a yearly basis, so that should fully follow into 2021.

Our second question comes in from Seth Rosenfeld of Exane.

If I can ask a follow-up with regard to the Q4 guidance. I think your commentary on shipments increasing some, I would agree with the language. It might be a bit confusing for those that are trying to model. Can you please perhaps give us some range perhaps of outcomes you're expecting within that from a quantity perspective, how should we think about that sale of what somewhat means, please?

What I tried to choose, and we typically don't show order intake figures, but I tried to -- the first slide I showed was increasing order intake into Q4, end of Q3. So the underlying demand is improving. Then we have 2 things that are -- I mean, one is not maybe that hard to predict, that is the seasonal slowdown at the end of Q4. And as you know, typically, if the prices would have a negative trend into Q1, the seasonal slowdown will be bigger. And if prices have a positive trend into Q1, the seasonal slowdown will be much, much less. And then on top of that, the big uncertainty of potential effects of the increased COVID-19 effects or if we will see any lockdowns or anything. So what we really -- so I would say that the visibility is less than it is usually going into the fourth quarter, and that is mainly due to potential effects of the COVID-19 outbreak. But underlying, we have seen a positive trend in order intake in all 3 steel divisions end of Q3, beginning of Q4 or so far into Q4. That's why we are a bit, call it, critical then and can't give a clear guidance because we don't know there will be any lockdowns or if there will be no lockdowns or what will happen. So that's the honest answer.

I think that's clear. And we take a closer look at the order intake on that basis. If I can ask one follow-up, please, with regards to the price commentary as well on the guide. I think you commented that, obviously, Q4 in Europe was impacted by negative mix shift with lower paint sales. Assuming that we see continued strength in the spot steel market going through the next couple of months, would we then expect something of a snapback in price correlations into Q1?

No, but I mean we follow for standard products, we follow the market. And as I said, we don't see any -- we don't expect any lower prices if you compare product by product. And I mean, we expect -- we saw price increases last week in North America for plate, and we expect -- we see that spot prices in Europe are at least not trending downwards, I would say, the opposite. So -- and then relatively stable. What is that? I mean that's plus/minus 5% or something. So you should expect us to behave with some lag due to contracts and so on, but you should expect us on both standard plate in America and standard steel in Europe to behave as the market.

The next question comes in from Alan Spence of Jefferies.

I've got 2 questions. The first one is a bit of a follow-up to Seth's last question there. Just regarding those coated products. Can you remind us the end markets that's being serviced? And then how strongly from a seasonality perspective, that demand usually comes back in Q1 versus Q4?

I mean, color coated is typically for the building industry and the biggest customer segment or the biggest customer is actually Ruukki Construction, and there we typically see compared to -- I mean, we see a strong summer season and then a slower Q4 and then normally, up here in the Nordics and even slower Q1 due to winter conditions. And then if we have a mild winter, the slowdown is less and if we have a strong winter or cold winter, you will typically see less buildings. But Ruukki Construction is not the only customer, but it's typically the Building segment -- building-related products.

And the second one is regarding Special Steels. You referenced some better performance compared to prior quarters that took a lot of maintenance. What's actually been implemented that and drove that better performance?

No, I would say a couple of quarters is not a trend maybe, but we have -- I dare to say much more. And now I'd really need to say not gone, but with much more stable production. I think we have changed a lot of practices, we have changed the site. We have a fantastic site manager in Oxelösund, a fantastic team there. So I would say its production stability. When we look at all the KPIs, I mean, they are moving and have moved in the right direction. I think myself that one important KPI that typically shows if you are running the company in a decent way or not, this one of many KPIs, it's safety, and we are now at very good level. So I must admit that every KPI we look at, they have improved. And they have stabilized on -- so far at least on much better levels, including production stability. And we have had quarters in the past where we have had big negative hits on poor production performance. And as Håkan said, even though we have been a bit, call it not cautious, but I may be cautious when it comes to some of the strategic investments, we have not taken down any maintenance CapEx because we know that we can't afford to do any mistakes when it comes to production stability because the positive effects and the negative effects of production stability is so big.

We continue with Viktor Trollsten of DNB Markets.

I would just like to ask you a bit on your order books because I note that in Q2, you guided for relatively flat prices in Americas that obviously decreased a bit, which, to my mind, indicates that the order books was on full for the quarter. Could we expect a similar dynamic going into Q4 that the prices we're seeing on the screen now actually flows into Q4? Or how should we think about that?

Your observation is absolutely right. We were more positive on the price development in North America than what we actually, in the end, what the result was. So that's correct. If we look at Q4 now for Americas, we are guiding then for relatively flat prices. They were going down in the beginning of Q3 coming up then in the end of Q3. And spot prices have continued up so far in Q4. So that's what we are -- why we are guiding them for flat prices in Q4 versus Q3. And I would say, and I would not conclude as Martin did before. This time, we are -- when we were guiding last time around, we had made some price increases. We hadn't really seen the price started moving. This time, we have made some price increases. And when we look at how the spot market has developed, we have also seen that the spot market has started to move upwards for plate. So that's why we are now a bit more confident that we will see more or less flat prices in North America.

Okay. But could we then increase prices? Or are you already booked for Q4, so to speak, at flat prices?

We're not fully booked for Q4 yet. I wouldn't dare saying that we could see increased prices given what happened last quarter, so I would say, relatively flat.

Okay. No, no. That's fair, that's fair. And on the same discussion for Europe, what -- at least what I am hearing is that Q4 is basically already fully booked and that most steelmakers are selling for Q1 now. Does that mean that the prices we are seeing now will flow wholly into Q1? Or how should we think about that?

I would say that that's more or less correct, yes. We are, to a large extent, booked for Q4. So the price -- the recent price increases that are being seen on the spot market, they will not impact us in Q4. And then as Martin said, even though we are guiding for slightly lower prices in Europe, if we compare product by product, we will see somewhat higher prices. But when we do an average -- on average, it will be slightly lower.

Okay. That's helpful. And then also on Raahe, I think we have talked about around SEK 200 million in negative impact from idling it for a whole quarter. Is that sort of the positive impact quarter-over-quarter, we should think about going to Q4?

Yes. I think that's fairly reasonable assumption, yes.

Okay. And maybe finally on my side, the demonstration plant that you will perhaps soon start working on for hybrid, should we expect another prefeasibility study ahead of that? And will you update us on the potential OpEx cost for hybrid in that?

Yes, we will update you of the OpEx cost in that. We are now in the process of having, I don't know the English word, but in Swedish [Foreign Language], where to place it and see where we can get electricity, where we can get -- it's not completely uncomplicated. I mean, it's quite a big, big type of equipment and a big building. So we need to have these permits, and we are working with that now together with authorities and other stakeholders. So we are in that process. But we have decided that we will build one, but exactly where and exactly how is still under negotiations.

Okay. Just finally, on the time line for that update on OpEx, when in time, could we expect that, do you think?

I don't exactly know that. But the ambition is to have the demonstration plant run ready 2026, but that will be, of course, dependent on the process of getting permits and getting power supply. But we will come back in due course.

[Operator Instructions] The next question comes in from Carsten Riek of Crédit Suisse.

Quickly, the first question I have is on the lower maintenance cost, you had almost SEK 100 million lower maintenance costs and you thankfully already commented on it, that at least quite a portion was actually because you undertook the maintenance yourself. But could you just give us a little bit more feeling how much still has to catch up in 2021 out of the SEK 100 million you had at a lower level now? Is it 50-50? Or is it somewhere less?

No, I wouldn't say there's anything to catch up actually, Carsten. I mean we were doing what we were planning to do. We were not doing less work, but then we were -- there were 2 reasons why it was lower. We were -- we had renegotiated some of the contracts beforehand or renegotiate rather, when we make the estimate, we haven't even negotiated. So given the situation, we -- we were in discussion with our suppliers, how can we get the cost down, given that we're in such a tough market. So that was one reason. And the other reason was that we were doing part of the work more by ourselves than using external suppliers. And if you look at SEK 100 million in total, yes, but if you look at it by division, it's quite a small amount for each divisions and then it adds up to SEK 100 million. So there is not that we have -- we are waiting with doing another SEK 100 million next year, no.

Okay. Good. Then maybe just a very quick follow-up on the networking capital because you had almost SEK 700 million networking capital release, which was a quite sizable number for the third quarter. How much more is actually possible in the fourth?

Yes. It's -- typically, Q4 is the quarter where we release working capital when we have this normal seasonal slowdown towards the end of the year. This year, as we have guided for, we are expecting some higher volumes in Q4. So from an AR side, we're not going to release as much as we normally do. On the other hand, we have been building inventories ahead of the maintenance stop, et cetera. So it's not going to be a typical Q4 quarter in terms of working capital, I would say. But still, it doesn't have to be very bad either or bad at all either.

Our next question comes in from Bastian Synagowitz of Deutsche Bank.

I've got one follow-up on volumes. And I thought that the numbers for September order intake, which you have been showing for Europe here were pretty impressive. So firstly, which are the end markets driving this? And maybe also how has October been trending so far? From what you can see, are we heading for run rates similar to September? And maybe in that context, you could also just remind us how long it takes for your orders to convert into shipments at this point?

If I answer the first part of the question, I guess it is, I mean, partly or to some extent, the catch-up as well. I mean, some of the big OEMs have been standing still in Q2 and part of Q3, and then it's a catch-up. So I mean, you shouldn't mix apparent demand with real demand. But what we see is that the underlying demand is also picking up. We have seen so far, what is it, 2 weeks into October, we have seen a similar trend.

Okay. Okay. And how long would it take for that to convert into shipments?

That normally depends on the size of the order book. The shorter order book we have, the faster we can convert it. But -- and it also depends a bit by division. It's usually a bit faster actually in the Americas with the EAF based system than it is in the integrated system. But let's say, on average, maybe 2 months or so.

Okay. Got it. And then maybe secondly, very quickly, if I may. Could you give us an early update on the CapEx budget for next year? I think earlier, you indicated we may be turning towards like rather slightly above the SEK 3 billion average run rate. Have you been sharpening that number a little bit?

No, not yet. But your -- I mean, we were saying SEK 3 billion for this year, and then we lowered it then when we got into this COVID-19 situation to SEK 2 billion to SEK 2.5 billion, but given that we have postponed some major projects, I think it's fair to assume that it's going to be somewhat slightly above the SEK 3 billion, yes.

We continue this afternoon with Luke Nelson from JPMorgan.

My question is on -- just following up on your comments on under-absorption, specifically at Oxelösund. Is it possible to break out the additional under-absorption costs for the months that it was idled outside of the maintenance?

Yes. Well, it was idled more or less 3 to 4 weeks, depending a little bit on operations. But first, the maintenance outage was about 4 weeks, and then we idled it for another 4 weeks. So the figure you have in the maintenance table for Special Steels, that's only related to the kind of planned maintenance outage and not the additional 4 weeks that we had on top of that, and those are additional nonabsorption costs. And we haven't specified them clearly, but they are definitely substantial and impacting then, of course, the profitability of Special Steels.

Okay. And then just a follow-up to Bastian's question on CapEx. Does that -- I know it's not going to be major, but does the CapEx budgets that you guide to, does that include or exclude your share of hybrid CapEx?

Excludes. It includes the conversion that we will do in Oxelösund, but it does not include the CapEx part for hybrid, no.

Okay. I suppose then let's follow-up. Is it possible to just remind us what the, I suppose the cost of the Mobile and Oxelösund projects that were postponed this year that were meant to be in the CapEx, sort of what we should expect to be put into 2021? And then also the sort of additional spend at hybrid?

For Oxelösund and Mobile, you can say, in total, around SEK 700 million. And then for hybrid, so far, we have the major part -- so far is this pilot plant, which is SEK 1.4 billion in total. We've been getting some support for that. And then we are, of course, sharing it then between the 3 owners. So our share has been around SEK 300 million for building this pilot plant.

We continue next with Kevin Knitterscheidt of Handelsblatt.

I just have one short question, I want to ask. Your competitor ThyssenKrupp is selling its steel business and the first competitor has made an offer. Are you planning to engage in the bidding process?

I saw that -- no, we are not engaging in any bidding process and I saw that in the news that Liberty Steel was bidding for ThyssenKrupp.

The next question comes in from [Michael Pilate ]. I think, unfortunately, we may have lost Michael. [Operator Instructions] And we have Bastian Synagowitz from Deutsche Bank once again.

Yes. Sorry, me following up. Just briefly so. Just one of your competitors just announced also plans to bring green steel volumes on the market, I think, to some extent this year and then in a larger volume size by 2020 to '23. Now when you say -- or when you talk about being the first with fossil-free, do you think you just use a different definition with regards to the actual product?

I don't know because I don't know what definition they used. But what we are talking about is a complete fossil-free value chain all the way from the iron ore is in the mountain and being brought up until we have delivered the steel to the end-users. So not only taking away the carbon dioxide in the steelmaking by using hydrogen instead of coal, but also having a fossil-free mining operation in LKB and fossil-free transports. And we are -- that's our definition. Then is it completely fossil-free? There will be some carbon, of course, in it because otherwise, it's not steel, but there will be no CO2 emissions.

And also remember, Bastian that we have also fossil-free electricity from Vattenfall.

That's a big, big difference. So according to our definition, and I don't know the other company's definition, but according to our definition, everything needs to be fossil free, including power generation.

Okay. Okay. That's very clear. And then even though I know that obviously, sort of the commercial sort of discussions may be still somewhat like undefined at this point. But I mean, what you're hearing from customers, have you seen a larger receptiveness or maybe paying the avoidance of CO2 in the product? I remember before, I thought customers were maybe not that willing to proactively pay for it, but have you been seeing any change in it?

We see a constant or an increasing development, an increasing interest. We have obviously not started to discuss pricing because we are not producing it yet. But we are now discussing partnerships, the possibilities to do prototypes already during next year together with customers. So we see an increasing interest, and it's building up from customers. It's building up from owners. It's building up from a lot of different stakeholders. So we've seen increasing interest, and that's very positive.

Okay. Then just very lastly, on the -- just on Ruukki, which I think performed really well. I mean, revenue is down significantly, yet your margins obviously were up and I think earnings were stable almost and up in absolute numbers. So this effect has this been also mostly driven by just lower input factor costs from steel? And may it be somewhat reversing now that the fuel prices are actually on the way up again?

I would say, not at all. I mean, they have been doing a great job. And we have said, we have been assessing Ruukki many times. But this is for us, what we have left in Ruukki Construction is a core business. They are the biggest customer of -- for us of color coated steel. They have been streamlining and fixing the operations. They have sold not only building systems. They have sold the Russian -- Russian assets with the Russian company. They have been selling the assets in Romania, closing down and focused on core products in core markets. And then they have also done an acquisition of Piristeel within roof safety. So they are building out the network and they're doing a great job. So it's not about steel prices up and down. They have a target of a certain profitability level. And then we know that when we sell color coated by Ruukki Construction, the long margins or the combined margins for SSAB is very attractive. So they have an agenda of having a certain profitability and then organic growth -- volume growth.

We have one final question in for [Michael Pilate ], who I think we've lost earlier. Unfortunately, it seems that we have lost [Michael Pilate ] once again. So with that, ladies and gentlemen, there are no further questions at this time. It is now my pleasure to return the floor to the speakers for their closing remarks.

Okay. Thank you. Now that concludes today's conference then. So we just say thank you for all the questions, and wish you a nice day.

Thank you very much.

Thank you. Bye-bye.