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

Good morning, and welcome to this presentation of the SSAB year-end report, another relatively strong year for us. Together with us, presenting today is President and CEO, Martin Lindqvist, and CFO, Leena Craelius. And if we look at the agenda, we will have Martin starting by summarizing the year and the quarter, and then Leena, as always, will present the details on the financials. And then at the end, Martin will come back with the outlook. And then, we will also have good time for questions at the end of the conference. So by that, please, Martin, start the presentation.

Thank you, Per, and good morning. Start with some highlights in '23. We had another strong year, not as strong as the record year last year, but still SEK 16.5 billion in operating results. We continue to generate strong cash flows. We had a cash flow before dividend, net cash flow before dividend of SEK 16.2 billion, and that gives us also a very strong cash conversion. We continue to develop our safety performance. We have, as you know, and we have talked about it before, the ambition to become the safest steel company in the world. We are not there really yet, but we are progressing. And I would say most of our major sites closed 2023 without any lost time injuries. We continue to lead the green transition. We have seen commercial shipments of SSAB Zero during 2023, and we continue with the pilot shipments of fossil-free steel and the transformation of the new Nordic assets have started now with the transformation in Oxelösund, and I will come back to that. If you zoom in then more on Q4, it was impacted by maintenance in both special steels, Europe and America, and we also saw both in Q3, but also in Q4, a weaker European market. And we saw profitability going down in all 3 steel divisions sequentially compared to Q3. If you look at some business highlights and start with the high-strength steels or Q&T, advanced high-strength steels in Q&T. We saw stable prices despite the weaker market. Special steel prices were down 2% versus the record level in '22. We also saw that customers were more and more buying from stocks, favoring short lead times due to the uncertain environment. We saw continued good growth in advanced high-strength steels to automotive, where we were outperforming the general steel market volume-wise. And we are, as you know, the world leader when it comes to the smart and [ safety ] advanced high-strength steels, especially with cold forming. And that is, of course, also helped by the introduction of SSAB Zero and the fossil-free journey that paves the way for new businesses. We are into new platforms, working with new OEMs, and that volume will continue to grow the coming years. Another strong year on the U.S. plate market, we increased our market share to 31%, 1 percentage point compared to '22. And as said, we had a successful ramp-up of the SSAB Zero production in Montpelier during the year. And we launched SSAB Zero as a new unique product in '23. That is a product based on recycled steel using fossil-free electricity, biocarbon, and biogas. So no emissions and we are not using emission offsetting or mass balancing allocation schemes. So this is 0.0 kilo carbon dioxide per kilo of steel. We had the ambition to produce and ship more than 40,000 tonnes in 2023. We ended up shipping and producing 50,000 tonnes. And we have seen a huge interest for this product, not only on the European market, but also globally, and especially I would say in the U.S., and I will come back to that. And this is, of course, also one of the platforms to leverage future growth. When we look at partnerships, we during Q4 announced 3 new partnerships. One together with Scania, where we will decarbonize all steel deliveries from SSAB to Scania's heavy-duty vehicles at the latest 2030. Sandvik, another important partnership, where we will -- they will use fossil-free steel initially in the production of their loaders and trucks, a very important partnership. And then GE Vernova that are now producing wind towers with the lowest carbon footprint in the wind industry using SSAB Zero. So 3 very important partnerships during Q4. And we see, as said, a strong interest from customers for these more environmental-friendly plate products in the North American market. We also see that the underlying demand is helped by the federal programs that drives investments in, I would say, especially energy and infrastructure. And on top of that, the demand for melted in America favors local producers. So when we look at the demand, U.S. plate demand, we expect that to once again in midterm reach historical peak levels of around 10 million tonnes. So very positive view on the North American plate market, medium to long term. We continue to run our transformation. Oxelösund is the first mill out where we are building now the electric arc furnace and that will be up and running 2026. And then, we will close the blast furnaces and the coke oven batteries. We have the environmental permit in place. We have secured the power allocation. And in January, just this Monday, we actually got the final permit for the power lines approved as well. So we are following our plan. And we had the start of the construction work in November visited by the Swedish Prime Minister. We have also now in January gotten the power allocation for our transformation up in Luleå. So I would say that to sum it up, so far so good. We are following our plans and keeping to our ambitions. With that, Leena, I hand over to you for financials.

Thank you. Let us start by looking at the steel shipment performance. As the graph is illustrating, the outcome in Q4 was 1,491 kilotonnes, which was deviating 19 kilotonnes from Q3, and 11 kilotonnes from last year or the previous year, quarter 4. So, rather stable performance in this comparison. And if we briefly do the analysis versus the outlook we gave, we were indicating special steels to have stable volumes and Europe and America somewhat lower volumes. And the outcome was that Europe and Americas was relatively stable, while the special steels was 11% lower. And the reasons being that the demand in the European market was lower than anticipated. To mention on top of that, we did have some logistic challenges at year end related to weather conditions and that was causing some delays in special steels and Europe division. Then if we look at the revenue performance, SEK 26.5 billion in Q4, which was then drop of 10% compared to Q3, 13% compared to previous year. And again, if we do a quick analysis compared to the outlook that we gave, we were indicating that special steels division will have somewhat lower prices. Europe division significantly lower and Americas lower. And the outcome was that with special steels we were spot on with the outlook while Europe division was slightly better compared to outlook and Americas slightly lower compared to outlook driven by the market price development. EBITDA performance Q4, SEK 3.4 billion compared to SEK 5.3 billion in Q3 and compared to SEK 4.6 billion in previous year. So let's have a look more detailed analysis in the quarterly comparison. We start by comparing Q4 operating result of SEK 2.4 billion with Q3, SEK 4.4 billion. The drop of SEK 2.6 billion and as you can see from the graph, the biggest impact was with prices. All divisions had lower prices in Q4 compared to Q3. Biggest impact coming from Europe division and Americas, which both were contributing slightly below SEK 1 billion negative impact while special steel division was still holding prices slightly better and the impact was less than 400. Volume was 19 kilotonnes lower and this was coming mainly from the special steel division as already commented. Variable cost, Nordic mills had lower raw material and energy cost and they were contributing positively while the scrap and alloys in Americas was slightly higher during Q4. Fixed cost, negative impact but that was mainly due to the more extensive maintenance activities during Q4 compared to Q3. We had maintenance activities in Oxelösund, Mobile and Raahe strip mill. And on top of that smaller maintenance activities at other sites. Also to bear in mind that Q3 is seasonally lower when it comes to personnel cost, that is the holiday season and Q4 thus more normal quarter when it comes to personnel-related cost. Minor impact of the FX related to balance sheet re-evaluated items and the capacity utilization also giving a negative impact with lower production, which was then again mainly related to the annual maintenance outages. We were also running a bit lower pace to keep the inventory levels in good control for year end. The other in this graph is related to insurance compensation in U.S., which was actually related to the incident during '22 with the burn through in the furnace. Then, if we compare Q4 '23 versus previous year, the drop is SEK 1.4 billion and again fairly similar graph as previous slide, biggest impact coming from the prices. On average prices were 10% lower during '23 than '22. The biggest impact coming from division Americas with over SEK 1 billion negative impact. Europe division slightly less than SEK 1 billion impact and again special steels division holding prices better than other steel divisions. Also Ruukki Construction and Tibnor had lower prices. Volume deviation 11 kilotonnes again related to special steels and also in this comparison the raw material in Nordic mills and energy cost was lower than the previous year, and scrap cost was slightly higher. Fixed cost higher, we had more extensive maintenance during '23 compared to previous year, and also personal cost slightly higher with index increases. Also transformation office related cost were slightly higher. Minor impact with the FX and the capacity utilization in this graph actually positive impact. We had higher production in Q4 during '23. Just to remind that '22, we had the blast furnace repair in Raahe and the other similarly related to the insurance compensation. If we then have a look at the cash flow performance table comparing year-on-year, quarters and full year and maybe just to pick some -- some things from Q4. First of all, of course, stating that the good performance with working capital target set in the divisions to reduce the inventories. The targets were met, good performance by the organization. The acquisition of shares and operations was related [indiscernible] acquisition done by Tibnor and the contribution to affiliated companies was related to HYBRIT. And on a separate line item you can see the purchase of own shares which is then related to the share buyback program we started at the end of October. Briefly comparing full year performance, lower earnings were well supported by the positive impact in the working capital. Other is related to purchases of a CO2 emission allowances. Previous year, we were swapping forward and this year we were purchasing more of the allowances. Strategic investments slightly lower than previous year, but this is not related to any delays in the projects rather the timing of the costs. And we were indicating that, we would be spending SEK 5 billion a CapEx this year, but we turned out to spend only SEK 4.5 billion, but these costs will be moved forward to next year and as in the report stating we estimate to spend SEK 5.5 billion next year. Dividend paid close to SEK 9 billion and the purchases of own shares as already comment related to share buyback program and the net cash flow performance was close to SEK 6 billion, which is then leading to net cash position SEK 18.2 billion. The frame set for the share buyback program was SEK 2.5 billion and we will continue the program during Q1, and we will finalize it before the coming AGM in April. And the idea is to propose to renew the mandate for the share buyback program also next year. The dividend proposal is SEK 5 per share and this would mean around SEK 5 billion payout in the second quarter this year. Raw material view, iron ore as well as coking coal prices were increasing during Q4 as did the scrap price picking up towards year-end leveling out in January. And the outlook for Q1 is that the cost of consumption when it comes to raw materials is somewhat higher. And I will end my part with this maintenance cost estimate updated for this year. The difference compared to '23 is that we will have more extensive maintenance in Americas at Montpelier mill. Last year, we had the maintenance in Mobile mill, but this year it will be in Montpelier, and a bit more extensive maintenance in Luleå coming summer. But otherwise, fairly similar timing-wise and plan-wise with maintenance this year as was last year. And then I give it back to Martin.

Thank you, Leena. So looking into the near-term future in the coming quarter or Q1. When we look at the market we see that the underlying demand is fairly stable with 2 exceptions. We expect or I would say that construction is also stable, but on weak levels, especially in the Nordic region. But heavy transport in Europe slowing down from very high levels, slowing down a bit positive in the U.S. for rail cars and vessels. Automotive signs of a slowdown in car demand in Europe, but structurally growing advanced high-strength steel markets. And as I said, we're into new platforms, into new OEMs, ramping up in front of fossil-free and zero deliveries. Construction machinery, more mixed pictures, strong demand and stable demand in North America, slightly weaker in Europe and China. Material handling, stable demand, mining, recycling, energy, very good demand for wind power and other renewables, especially in the U.S., which is, of course, a very important segment. And then the swing factors, steels service centers, I would say a neutral underlying but potential for some restocking in Q1 compared to Q4. So when we sum it up, we expect to see seasonal improvement which we typically see in Q1 both for Europe and special steels, and Q4 were, as Leena mentioned, impacted by planned maintenance. We will have no planned maintenance in Q1. And we guide for significantly higher shipments in special steels, higher in Europe and America, and somewhat lower prices in the 3 steel divisions. And the market prices or the spot prices started to increase again end of Q4, end of December. And we will have some delays as always in that because we only sell on quarterly prices, half-year prices and yearly prices. So we will have some delay, but the market prices will impact the realized prices with a certain delay, as said, typically between a half and a quarter and 1 quarter. So if we sum it up, I would say that '23 was a good year, good level of earnings, Q4 planned maintenance and a weak European market, continued to generate strong cash flows. Cash conversion, which is one of the internal KPIs, came out very good at 107%. We continue with a share buyback program. And as Leena said, the Board will propose to the AGM to pay out SEK 5 per share in dividend, which is exactly 40% or around 40% according to our financial targets. We continue to lead the green transition into fossil-free steel. All required permits in place for the Oxelösund transformation. Also, now the power allocation in place for Luleå. And we continue to see strong demand for SSAB Zero. Actually stronger demand than we were hoping for. So that's very positive as well. So all-in-all, we close a good year, good performance, and we continue to focus very much on low point profit, becoming more and more flexible, more and more agile when it comes to cost, continue to develop the product mix into more stable products. And that work is far from over. And we will continue to work with that as continuous improvements. And that will, in relative terms, continue to strengthen SSAB. So with that, Per.

Thank you. Thank you, Martin and Leena, for the presentations. And now we can open up for the Q&A. And before that, I just remind people, it's perfectly okay to ask more than 1 question, but please state them 1 at a time to make the process run a bit smoother here. So by that, I will ask the operator now to present the instructions. So operator, please.

[Operator Instructions] And now we're going to take our first question, and it comes from the line of Adrian Gilani from ABG Sundal Collier.

Yes. A couple of questions from my end. First of all, I wanted to start in Europe with I think most of us expect a negative operating profit here and use the prices on the upside. But looking into Q1 with somewhat lower prices but on the other hand higher volumes and no maintenance, do you expect that that profitability can be maintained in Europe into Q1 as well?

Well, as you said, we guide for volume and prices, and that's what we guide for. But we saw that spot prices in Europe started to move upwards towards the end of Q4, and then, as I said, we will have, as always, some lag. You saw that on the downside, you also see that on the upside. So we have a certain lag in the P&L due to that we are selling the majority of the volumes on quarterly contracts.

Okay, I understand. And a bit more of a long-term question. Also, I know you don't guide for CapEx more than 1 year ahead. But given that you are now going to be taking the investment decision for the first mini mill at some point this year, can you say anything about whether we will start seeing much of that CapEx already in 2025? Or are we talking sort of '26 and beyond for that?

Let's come back to that guidance when we are ready to take the decision. But we are lining up now to get the preconditions in place to be able to take that decision during 2024. So far, so good. And one important step was, of course, the power allocation in Luleå, but another very important step even though we have already taken the decision was, of course, the final decision of the -- for the power line in Oxelösund as well. So, so far, so good would be the conclusion.

Okay. I understand. A final one from my end as well. With -- following a strong cash flow now in Q4, you once again go below sort of the lower end of that gearing target that you set-up? And given that you have the mandate, I believe, to buy back SEK 5 billion in shares. Is there any reason you chose to sort of not increase that the ongoing program that you have right now?

No. But we took the decision after Q3 when we were reaching the financial targets. And now we are aiming to pay out around SEK 5 billion as well. So you should expect us to stick to the financial targets and act accordingly. And as Leena said, we -- the Board is planning to ask the AGM for another mandate -- or a prolonged mandate. And I guess, we will try to do that most of the years or every year. So I think we have the instruments to tackle the balance sheet, if and when it becomes too strong.

Now we're going to take our next question. And the question comes from the line of Alain Gabriel from Morgan Stanley.

Yes. I have 3 of them. Firstly, the pricing in the Americas, the price outlook seems to be a bit out of sync with the prices reported by Platts. How can we reconcile the divergence there? And can you give us some color on the near-term market dynamics? And in the U.S., you've clearly elaborated on the medium to long term. But how are you seeing it in the short term, given the lower lead times? That's the first question.

No, but I think we are positive to the U.S. plate market. And if anything, I mean, prices are -- spot prices are moving up a bit now from very high levels. So we are positive both short-term, mid-term and long-term. And as a market leader, I think we have benefited, of course, from the strong underlying demand. And then, of course, one important part is this SSAB Zero steel that we are now shipping and producing in the U.S. and the huge interest for that. And that is also helping us to grow market presence, grow interest from new and existing customers, of course. And that is very positive, both short, mid and long term.

My second question is slightly longer term. I guess LKAB has taken over the implementation of HYBRIT. It's true that you have access to technology, but why is this sudden change in strategy there? And how can you ensure that you get your fair share of the economics when it comes to securing green sponge iron, when your larger shareholder is sitting on the other end of the bargaining table?

No, but as you know, HYBRIT is a joint venture together with LKAB and Vattenfall. And we said from the beginning that we will optimize the synergies within the value chain and share the synergies in a good way. And it makes a lot of sense for LKAB to build a pilot plant up by their mine in Gällivare. And we will get the volumes from that pilot plant. So I'm not worried about that. So I think for SSAB and for the joint venture, it's a very positive thing.

And last quick question is on the insurance payment in the Americas. Can you reiterate how much you said was the insurance payment in Q4?

It was around SEK 200 million.

Now we're going to take our next question. And the next question comes to the line of Krishan Agarwal from Citi.

I actually, if I can. The first one is on Europe. So, I mean, the volumes in the Q4 was better and then you're guiding for significant increase in the Q1 as well. Can you walk us through which of the industries that are contributing to this positive outlook on the volumes? And then have you taken the possible restocking into your guidance for the Q1?

Q4 is always, and especially I would say the second part of December, is always hard to predict. And typically what you see, if spot prices are moving down, apparent consumption or apparent demand is very slow during the second half of December. If spot prices are moving, and companies are typically restocking. And typically, you see restocking in Q4, but if prices are moving down, you see that more pronounced. Now, spot prices started to move up towards the later part of Q4 or second half of December from very low levels, but still. And then you typically don't see that call it destocking or as pronounced as when prices are moving down. So it was more effect of that apparent demand slightly better than we feared.

I understand. And the second question is on the special steel where, I mean, the guidance, medium term guidance is 1.5 million tonne, prices are still holding better. 2023, you are running at 1.3 million tonne and probably some of the volumes will come back up in 2024. So does it sound kind of a positive thing for the pricing, given that the mix will get better and then the spot is still holding well? Is that a fair way to look at the special steel pricing dynamics?

Sorry, Krishan, we did not fully catch you there. Were you asking about the second quarter prices or?

Special steel.

In general, I guess.

Special steel for the second quarter?

Or in general?

In general.

No, in general.

In general. No, but I mean, special steel prices -- prices for special steel products, they are much more stable over the business cycle than any other prices. And I think that is visible if you compare '23 to '22. And then there is always, of course, a mix within special steel. I mean, typically we have stronger prices on stock sales than direct mill. If you take Hardox 500 Tuf, the prices are much higher than for Hardox 450 and so on. So, it's a mix within there as well. But overall, the prices and the margins are much more stable and should be much more stable over the business cycle. And then, of course, when we see a slowdown in Europe, you can see some volumes or you can see a volume drop, which is fairly typical. But that usually comes back. And if you look at special steel long term, we have since 2000 been able to grow the volumes with 7% to 8% per year on average. Not every year, but some years slightly more, some years slightly lower. So it is volume wise still volatile, but slightly volatile. But the overall trend is 7% to 8%. And that is what we are expecting as well going forward as an average or around that number with more and more call it stable margins and stable prices. So that's the whole business model. And that's also an important part when we talk about mix shift in our product portfolio. So every kilo we can have into 500 Tuf will make a huge difference compared to other kilos or other volumes.

I understand. And then the third and the final question is on the timing of the buyback. So just a clarification from my side. You have the accrual for the 10%, while the SEK 2.5 billion is almost like 5%, something like that. So once you finish the SEK 2.5 billion buyback, should we assume that the next round of the buyback will automatically get started or you will have to have mid-quarter announcement or something like that?

No, but you should expect us to finalize the buyback program of SEK 2.5 billion. And why did we choose SEK 2.5 billion? It was a combination of things. I mean, we are sticking to our financial targets and we want to give you confidence in that we are sticking to the financial targets. And then also, there are limitations how many shares you can buy of the traded volumes. And the traded volumes are typically a little bit lower in December and so on. So SEK 2.5 billion until the next AGM was a good number that we will execute on. And then I said the Board is planning to ask the AGM for a renewed mandate. And if they get that, we will come back if and when we launch the next share buyback program. So no drama. It's fairly, I would say, straightforward, at least from my point of view.

Yes, I understand.

Now we're going to take our next question. And the question comes from the line of Johannes Grunselius from DNB.

Yes. It's Johannes here. A few questions. My first question is on your comments about significant better volumes for special steel Q1 versus Q4. If you can elaborate a little bit what's behind this, any particular end segment, or is it more about the inventory cycle? And also perhaps, if you can give us some idea what you mean because significant is, I guess, more than 10% up, right?

That's the definition we have. I mean, it's seasonality is, we don't have any maintenance outages. We had it both in Mobile in Q4 and we had it in Oxelösund. So I would say, the underlying trend is definitely there, as I said. We expect the underlying trend to continue with call it, 5%, 6%, 7%, 8% growth over time per year. Will differ between quarters, will differ between years, but we see no reason to doubt the underlying trend. And that's what we expect and that's what we see on the market. And then we are guiding for the volumes in Q1. But it's a combination of seasonality, strong, good underlying demand and no maintenance outages at the special steel mills.

Okay, got you. Then I have a question on advanced high strength steel. Apologies, if you said this before, but I might have missed it. But could you remind us about the share you had of AHSS steel in the fourth quarter and how you see this ratio is developing because you are heavily alluding to good growth there?

Maybe Per, you have the.

Yes. Johannes, you can see in the slide the total shipments for the year. And those are fairly stable over the quarters. And we can come back also with the number, but that will give you an idea roughly how much. If you divide it by 4, roughly also what…

Sure, sure.

So what we see when it comes now, we are launching a number of new grades and new products for these advanced high strength martensitic steels. We have also invested in capacity in the continuous annealing line in Borlange that we are ramping up. And as said, this SSAB Zero and the fossil-free journey and the partnerships with big OEMs has also helped us into new platforms. So we are quite positive when it comes to the development of automotive volumes in the coming years.

And on the Zero products, that's my final question actually. I think you said here in the presentation 50,000 tonnes delivered this year. How do you see that for the next few years and maybe more emphasized on 2024? And if you can remind us about the premium, if that has changed compared to what you've indicated before?

No, we have the same premium. And the problem we have, or the problem and the challenge we have is the bottlenecks are biocoal and biogas. And to get enough of that, the demand is clearly there. And I'm really happy that we managed to do 50,000 tonnes with the target of producing at least 40,000 tonnes. And I've said to the American organization that we should do whatever we can to increase the volumes, because the market and the interest is definitely there. And now, we are, to be honest, allocating volumes to customers. Unfortunately, we are working hard with biocoal and biogas to get the preconditions in place. And as we have said before, we invested a year ago in Montpelier quite a lot in order to be able to do this. So it has been -- actually, the interest has been beyond my expectations, which is positive.

Okay, interesting. But how much can you actually make practically of this product?

As I said, it will depend on volumes of biocoal and biogas. And we are working hard with that. Because I said, I mean, we are taking a very hardcore definition. So it's 0.0 kilo carbon dioxide per kilo steel. No mass balancing, no allocation. So this is the way we have defined it and the way our customers and partners like to see it.

Now we are proceeding to the next question. And the next question comes from the line of Patrick Mann from Bank of America.

I just wanted to ask about the Nordic transformation plan now. Am I right that with the power allocation at Luleå now, that's probably the preference for which one gets invested in first? I seem to remember that was the preference, but possibly power allocation meant you might have to go for Raahe first. Is that not an issue anymore? Is it now fully up to just the economics of the investment case as to which one goes first? That's my first question.

That's a very correct description. Now, we have the preconditions in place with the exception of, of course, environmental permits. But that work is ongoing both in Finland for Raahe and for Luleå. So we wanted to have them standing at the same starting line. So we will be able to take the best financial decision. I mean, look at the RFEs, look at the payback, look at the internal rate of return and what makes most sense. And that stage, as you said, we have reached now during Q1. So that's very positive. So now we will be able to take that decision during 2024, how we sequence, which one we actually start with. And that's positive. That was not the case last time we met. Then we knew that we wouldn't, the formal answer was that we didn't have any power allocation for Luleå. Now that's in place.

Okay, great. And then the second question is just, can you remind us with HYBRIT, how the contribution will work from the JV partners and when you would expect to put anything in and what you think that could be?

No, but as Leena said, during Q4, I think we paid…

SEK 20 million.

SEK 20 million or something as contribution into HYBRIT. And we continue to run these pilot trials and developing the IT, sending in patent applications and so on and learning more and more day by day. Quite interesting findings in this very important R&D project. But the good thing is that we are not just doing R&D, we are actually using also, as you know, the volumes coming out from the pilot plant to produce pure fossil-free steel and shipping that to customers like Volvo, Volvo Cars and others, so they can start a prototype and even do low serial productions of fossil-free or equipment produced by fossil-free steel. So it has been really, really a positive development so far.

Okay. So just so I'm 100% clear, so with LKAB deciding to build the plant next to the mine, that's on their balance sheets, on their books, there's no capital call on SSAB, is that right?

That's not the current plan, no.

Okay. Got it.

But the volumes will go to SSAB.

Yes. Yes. Got it.

Now we're going to take our next question. And the question comes from the line of Andrew Jones from UBS.

Just as a follow-up on the earlier question about U.S. plate lead times, I mean, clearly, they're pretty low at the moment. I'm wondering what your expectations are for the demand pickup you would expect to see from some of this IRA spending? I mean, I'm guessing not much of that is in the current demand stats. But could you give us an idea for what sort of demand uplift you expect through 2024? And how we should see that phased? And like, when do you expect to see that pickup in demand really coming through?

As I tried to explain in my presentation, my part of the presentation, we see a combination of things. I mean, Inflation Reduction Act is favoring infrastructure and energy. It will be bridges, it will be wind tower, it will be offshore wind, it will be a lot of other areas that are smack in the middle of the plate market. And that in combination with the requirements of not only produced in Americas, but also melted in Americas, leads us to believe that it's far from impossible that we will see the U.S. plate market coming back to historical peak levels of around 10 million tonnes. And that's what we are expecting to see in the coming years. Exactly when that happens and how this will be phased quarter-by-quarter is, of course, impossible. But we have a strong belief in the North American plate market.

And just -- but nearer term, do you expect some further deterioration in spot prices in the coming months, potentially before that demand comes through?

What we see right now is spot prices moving up into Q1. And we are also guiding for higher volumes in Q1, and that's what we are guiding for. And as said, the spot prices started to move up late Q4, and that's why we have a bit of a delay in the P&L, which we typically have. But apart from that, no drama at all on the market. And we need to remember that, if you compare plate prices and plate margins spot on spot, they are moving up from high levels. And our capacity utilization has been, if you compare it with the overall North American steel market, it has been quite good in relative terms. Coming back to that once again, with the risk of repeating myself, one driver on top of the Inflation Reduction Act and all the others is, of course, the launch of SSAB Zero and the huge interest of SSAB Zero, also in the North American market.

Now we're going to take our next question. And the question comes from line of Christian Kopfer from Handelsbanken.

Just a few questions from my side. Firstly, on the balance sheet, I can see in the balance sheet that you have an exceptionally strong net cash position, obviously, but you still carry some SEK 6 billion in long-term debt. What's your thoughts about that? I mean, take that down. I guess you have to pay a lot of interest on that.

No, but we have a positive financial net, as you see. But, I mean, we have decided that it is prudent for us to have, as 1 example, a sustainability linked bond that is appreciated by the market and by investors and so on. And you could always, of course, argue about that. Do we really need to carry any gross debt at all with the balance sheet? But that is the decision and we think it is important and that helps us also in discussions with investors and so on. And it seems like a positive thing. But of course, we have a strong balance sheet and we are not yet mentally used to that being a problem. But we are trying to be clear and try to stick to our financial targets. And that's why we launched a share buyback program. That's why the Board is also proposing a dividend according to the financial targets. So you should expect us to stay true to the financial targets and act accordingly. And then we just want to make sure that we have all possibilities to do that.

All right. Then on the real-life prices in Europe, it was definitely better than I expected here. And I think you said it as well.

There is -- that it's always a slight delay and it's hard to predict exactly how that delay comes. But when prices are moving down, they are slightly slower to move down in our P&L and vice versa. And that's what we saw, I guess, in Q4 in Europe and that's what we are guiding for in Q1 as well. That delay factor, which is typically half a quarter over a quarter.

Yes. And then special -- maybe one follow-up on special steels. My feeling is that, this area continues to call it outperform when it comes to prices versus your guidance or expectations. Is that fair to say that? Because previously you have said that in your guidance you are not including mix. And as I remember, Martin, you always talk about that you should more or less always continue to improve mix over time. Not quarter-over-quarter, but over time. Is that also what we are seeing?

No, but that is what we are seeing over time. And as I said, if you take one of the, I would say, many very promising products that are now ramping up, Hardox 500 Tuf, of course the prices are higher than for Hardox 450. Hardox 450 is an excellent product, but Hardox 500 Tuf is something completely different with very good bendability, very good weldability. We can, compared to Hardox 450, maybe decrease the weight with another 30%, 40% or up to 40%. We can decrease spendings, we can decrease. So there is a huge difference. I mean, of course, when you sell thinner and thinner, more and more high-performing plates, there will be, call it, less tonnes than compared to standard products. But the profitability per tonne is very different. And of course, the stability or the volatility is much, much lower. So that's the day-to-day work that you are referring to. And that's what we internally call when we focus on low point profit. Mixed improvement, cost efficiency, capital efficiency. As I said, we measure cash conversion and so on. I wouldn't call it a daily struggle, but we call it continuous improvement. Try to do things slightly better today than yesterday, slightly better this week than last week. And that's a never-ending story, and we are far from done and still see potential. And that's what you will gradually see. Not huge differences quarter-by-quarter, and sometimes we might see a slight backlash. But as I said, we have been able to grow the special steel volumes with 7% to 8% for now more than 20 years. And we expect to do that over time. And then, of course, we need to invest and we need to do de-bottlenecking and so on. But that comes with it.

That's good. Finally, for Leena, I see that you managed to release a lot of working capital for 2023. Of course, you tied up a lot in 2022. But on the point where you are now, I call it rolling pork walkers or whatever. Do you see continued potential to take out working capital, or will it be tough from here?

Well, quarter 1 usually is the season when we are also restocking. To mention that we also...

Just talking about overtime, I mean, not quarter 1, I understand, but overtime.

Overtime, of course, we want to improve, as Martin already said, that continuous improvement. But if we compare now the outcome in the '23 and then plans going forward, for sure, still try to push the improvement through. But just to comment that Q1 is usually the quarter when we are also restocking. And this is going higher up, so it will have an impact in the accounts payable or the receivables. So we don't see the performance to continue on the Q4 level.

No, no, no, of course. I just looked at what you did. The amount you tied up in capital in 2023 was more than SEK 8 billion. And you freed some capital of SEK 4.8 billion, that's what we guide. That was just, should you be able to return to the level that you were by 2021 when it comes to working capital overtime?

Overtime, yes.

Yes, we -- yes, yes. But I mean, we need to remember that in '22, the war in Ukraine started and all of a sudden we had to find new sources for PCI coal, for a lot of other things. And in that turbulence in the beginning, we did what we thought was right at that time. And I still think it was the right decision. We had to qualify new materials. We had to buy from new vendors. We had to buy more than we needed. And then, as we have talked about during 2022 and 2023, it takes some time to sweat it out. And the cash conversion for 2023 was 107%. You should not expect us to have cash conversion above 100%. But we should be coming better and better when it comes to working capital efficiency. And then, of course, the biggest shift will be when we have the mini mills up and running. Because then we will be able to release a lot of working capital. Work in progress and so on. But it is, as Leena said, part of the continuous improvements.

Yes, got it.

Now we're going to take our next question. And the question comes from the line of Bastian Synagowitz from Deutsche Bank.

I just have 2 quick follow-ups actually. The first one is on the pricing dynamics in Europe. And I guess, Martin, you've been outperforming your own pricing guidance in Europe quite a few times in a meaningful way over the last few quarters. I guess you've been talking about these pricing lags. But would you say that, I guess, in the context of the current price dynamics in the spot market, I guess also given the fact that usually automotive is actually one of the very strong sectors in the first quarter, that your pricing guidance for Q1 may again be a little bit on the conservative side? That is my first question.

I mean, we are guiding, as said, not about mix. We are guiding about prices and what we expect, what we see and what we expect to see in the order book. But of course, as said, we expect to continue to see good demand for our automotive products. And they are not standard products. They are niche products, advanced high-strength steels. So we expect to continue to see that those volumes being much more resilient and growing over time. So then how that exactly will play out in Q1 or a single month or a single quarter is, of course, hard to predict. But over time, you should see that effect.

Okay. I guess most of your peers would see typically like a seasonally lower fourth quarter in auto and then like a pretty strong pickup actually into Q1. But you say that that is difficult for you to say at this point?

No, but we are guiding for a seasonally stronger quarter in Q1 compared to Q4, volume-wise.

Okay.

Then, as said, we have a certain lag when it comes to prices when they are realized in the P&L compared to where the spot market prices are moving. But we also need to remember that in Q4 we were -- I mean, if you take into account the average cost, marginal cost for emission rights, we were -- and that is typically for a standard -- for average European producer is around EUR 200 per tonne with the current emission prices. Then we were at just above EUR 400 per tonne or so for hot-rolled coals, which is typically or historically at least has been around the rock-bottom prices.

Okay. All right. And then my second question is just on the timing for the decision for Raahe and Luleå. I think last quarter you said that you expect the feasibility study at least for Raahe, I guess, to conclude in the first quarter. Could you give us a bit more color? Like, when do you actually expect to decide on whether you go ahead with Raahe or Luleå? I mean, is this something which you basically have in mind for the first half, maybe second quarter or rather later this year?

No, but I think we have said that during the first half of '24, and we still stick to that, so no updates. I mean, we are working with the feasibility studies for both Raahe and Luleå. And as I said, what is new compared to when we met last quarter is that now the preconditions with, as I said, the exceptions of environmental permits both for Raahe and Luleå is in place. We know that we have power allocation. We will have a power line in place in both Raahe and Luleå in time, so to say. So it's ongoing work and no changes. So I mean, as I said before, we wanted to have them standing at the same starting line and then look at the calculations and sequence them in the best possible way for SSAB long term.

Now we're taking our next question. And the question comes from Tristan Gresser from BNP Paribas Exane.

Just 2 quick follow-up and maybe I missed that, but I saw your guidance for CapEx for next year. Well, this year SEK 5.5 billion, but could you provide the total cash needs for the year, including interest and taxes?

Yes, we didn't include a slide, Tristan, but we said also, I mean, you have the CapEx. And then, Leena, we don't expect anything on interest, really, plus or minus.

No, minus.

And then we have the tax and that will depend on the result. So you have the CapEx need and then you have some tax payment. That's what we look at.

Nothing specific to flag there. Okay.

No.

And my second question is on the special steel business again. So yes, the volume missed. Could you discuss more precisely about the demand trends you're seeing by end markets, notably the mining segment? And just wanted to confirm then with you, with the volume, the starting point you will have, do you view the 7%, 8% volume growth as still a likely scenario for this year? But yes, first, maybe a bit of color on the demand by end market, given the weakness you flagged.

No, but we saw weaker demand apparently in Europe during Q4 and during the second half. We see other regions with stronger demand, but overall, the underlying demand is increasing. I mean, the interest of gaining productivity with lower weight, higher payload, less fuel consumption and so on, is definitely there. Even maybe more pronounced than historically. And then on top of that, the possibilities when we can start to produce fossil-free and zero-steel in Oxelösund in 2026 also gives a lot of possibilities. And these partnerships with big blue-chip companies, big OEMs using also a lot of Q&T is positive. So I'm saying that when we look into it, we see no reason at all to doubt that we will continue to grow over time in the same, I would say, phase, or the same pace, with the same pace as we have seen historically. Then that can differ one year compared to the previous year, or one quarter compared to the previous quarter, but the underlying trends are definitely there. And we are not working with a static product portfolio either, and that's why I'm talking about 500 Tuf, which is a fairly new product now that is ramping up on the market. It has been there for a couple of years, but it always takes time to ramp it up. But now we see possibilities. We see, unfortunately, you can say from another perspective, we see interest for Armox and armored plate growing around the world. So the structural underlying demand is definitely there. And then when we can introduce new and more advanced products and products where we are clearly unique, like the 500 Tuf globally, that also helps the growth. And then, of course, we need to match that with deeper bottlenecking and further investments. And we have been investing quite a lot in Mobile to take up capacity. So it is, in that sense, an iterative development, but it goes hand in hand. And we don't want to have -- I mean, we will continue to grow capabilities and capacity in line with how we are building the market.

Okay. That's clear. Maybe a quick follow-up, then, just to clarify. So you're not seeing that weaker demand in Europe further deteriorating into entering 2024? Is that correct? Is it stable?

No, but apparent demand is, of course, so dependent on a lot of other things. I'm talking more about the underlying real demand and the growth of real demand. The parent demand will be impacted by geopolitical turbulence, by problems with freights, not being able to use the Suez Canal and so on. So that will be ups and downs. It will be dependent on weather conditions, a lot of other things. But I'm more talking about the structural underlying demand growth. And there we haven't changed our mind. We are still very positive.

Now we're going to take our next question. And it comes from the line of Moses Ola from JPMorgan.

I just have 2 questions here, please. I'll take them one at a time. So first one, again, it's also just on the pricing outlook. Obviously, your guidance here in Europe is a bit more cautious. But I just wanted to actually more discuss on the overall pricing power that you see here in Europe. You've talked about how you see potential demand risks from ongoing geopolitical tensions, specifically at the Red Sea. But do you actually also see that that perhaps can contribute to lower supply here in Europe due to lower imports? And in that scenario, do you believe that the pricing power here in Europe can be strong despite weaker demand? That's my first question.

For standard strip in Europe, we don't have any pricing power, to be honest. We follow the general price trend. Then the power we have is to continue to improve the mix. So we are following the market price development when it comes to strip in Europe. And that is typically led by ArcelorMittal and others. And then, of course, that pricing power is, of course, dependent on, as you said, import volumes and things like that. So I don't have a clear answer to your question, but our pricing power for strip in Europe is very limited. And then in the Nordic region, we have somewhat of a pricing power due to proximity, due to quality, and so on. But Northern Europe or quality Nordics is still a reflection of the general pricing in Europe. But as I said, I mean, the prices bottom out at levels that has at least historically been trough levels. Because you have to nowadays also add the marginal cost of emission rights because there is no steel company in Europe having 100% or free allocations covering 100% of the production capacity. And that's why we also saw a weak quarter like Q4 this year -- Q4 '23, and also Q4 2022. We saw companies idling blast furnaces.

And then the other question I had was just into your AGM because obviously you've already talked about seeking a mandate for share buyback, but also with the ongoing progress at Oxelösund with FID to Raahe and Luleå and the opportunity to bring low CO2 steel volumes to market, do you view now it could be the right time to further strengthen the links between your CO2 emissions targets with executive compensation? Is this something that you will also be looking to present to shareholders at the AGM?

That's already implemented in the long-term incentive program. So there we have targets not only on TSR and relative TSR, but also on volumes of SSAB Zero.

Okay. Good. Anything in terms of guiding towards the actual CO2 reduction targets themselves or more on the volume side?

No, it's more about the volumes. I mean, we know the CO2 reduction, we will take away roughly 1.5 million tonnes of carbon dioxide emissions in Sweden 2026. And then when we do the first mini mill, we will take away another, is it 2.5 million tonnes or something. I mean, that is what we have promised to execute. And then finally, we will take away all 10 million tonnes of carbon dioxide emissions that we are emitting. So in the LTI program, the way it's structured, it's 1 component, I wouldn't call it an ESG component, but a quality sustainability component, and it's the volume of SSAB Zero.

Okay, understood.

Now we're going to take our next question. And the question comes from a line of Cole Hathorn from Jefferies.

Just like to get some color on what you're seeing in your auto contract negotiations for 2024. And then following up on the last question regarding shipping impact into Europe, do you see any impact from the shipping potentially supporting prices, or as another derivative, potentially supporting your customers looking at getting more safety stocks or kind of building some of their supply chains for steel at all?

I think what we see is, we clearly see, I would call it for more, I wouldn't say only standard products, but for more standardized products, we see more and more regional supply and a bigger interest since the COVID, since the war in Ukraine, since the turbulence in the world. We see more and more interest of regional supply in Europe and other parts of the world. In the U.S., it's pretty obvious with this demand of melted in America. So the import is still visible, but is, I would say, less and less of a factor. And then the first question.

Sorry, Cole, can you repeat the first question?

I'm just wanting to know any color you can provide on your annual auto contract negotiations.

No, but we don't guide for that. We guide for the coming quarter. But what we are into, I mean, we are gradually growing the number of platforms and the number of OEMs where we are in. And that's why we expect the volumes to continue to grow in a decent way the coming years. But commenting, we don't comment on, what do you call it, price negotiations. We just comment on realized prices the coming quarter.

And then maybe just one follow-up. I mean, on the demand for SSAB Zero, am I right to assume that the majority of that customer demand is from the auto end markets or are there other areas that are seeing the pull-through demand for SSAB Zero?

No, but our guess was that both for fossil-free and Zero would be mainly Europe and only automotive. Now during Q4, I think, or beginning of Q1, we saw the first building built in the Nordics out of fossil-free steel. So construction is definitely very interesting. Heavy transport, lifting, wind towers, as said. So if anything has surprised us in a positive way, it has been a huge interest from many regions and many segments that we didn't really put into our call it, calculations. So it's much broader than automotive, but a strong interest from automotive, definitely. But I mean, if you take even one example, building now wind towers out of SSAB Zero, you see rail cars and tank cars built out of SSAB Zero, you see construction equipment built out of SSAB Zero, you even start to see now bridge contracts asking for fossil-free steel or SSAB Zero.

And now we're going to take our last question for today. And it comes from the line of Andrew Jones from UBS.

Just to follow-up on the Red Sea issues. I mean, you didn't comment on the sort of impact on the overall market, which I guess is probably a margin positive. But in terms of your costs with shipments out of Europe and in terms of sea freight, can you just remind us approximately what your costs were in the fourth quarter or maybe in 2023 overall? In terms of sort of international sea freight. And if you have any sort of guidance around some cost pressure that you could see on the business coming from that issue in the near-term.

I don't have a figure to give for the sea freight cost regarding last year, but for sure, if we comment that, of course, these Suez Canal challenges is also impacting our cost when we import the raw material from Australia. But we don't have now figures to give related to freight cost or estimates even.

But of course, we are impacted as anyone else.

Yes.

There are no further questions. I would now like to hand the conference over to our speakers for any closing remarks.

Okay. Thank you very much. So this, we can conclude the conference today. Thank you, Leena, thank you, Martin, thank you, the audience, thank you for listening in, a lot of good questions. But thank you for us and we wish you a nice day.

Thank you.

Thank you.