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

Good day, and thank you for standing by. Welcome to the SSAB Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Per Hillström. Please go ahead, sir.

Thank you, and welcome. Good morning, and welcome to this update from SSAB. My name is Per Hillström. I'm Head of Investor Relations, and we've been here with our President and CEO, Martin Lindqvist. The reason for this is, of course, the decision today where we've decided now to proceed with the mini-mill in Luleå. And again, today will be that Martin will make a short introduction, and then we'll open up for questions. So please, Martin.

Thank you, Per, and good morning. And I must say that I'm extremely happy and proud today that we're now announcing that we continue with our transformation with the fossil-free mini-mill in Luleå, Sweden. The new mini-mill will have a capacity of 2.5 million tonnes per year, and it will consist of 2 electric arc furnaces, an advanced secondary metallurgy, a direct strip rolling mill to produce more other things, SSAB's special steel products and the cold rolling mill complex to serve the mobility segment, automotive and heavy transport. So we'll have a much more broader offering of premium products. The total mini-mill investment is estimated to EUR 4.5 billion, including contingency. And by investing in this new technology, we're avoiding quite substantial investment needs in the current and existing plants of around or a bit more than EUR 2 billion for the coming next years. But we're also releasing working capital because we're really building and taking away one of the, call it, obstacles we've had in the Swedish systems already since 1978. With the metallurgy and the slab casting up in Luleå and then the transport of 900 kilometers to the rolling mill in Borlange. This investment will result in a significant value creation. And compared to the current system, the yearly EBITDA improvement is estimated to be more than SEK 5 billion per year higher, given the current commodity forecast. We'll have a much better cost position in the new mill, much less fixed cost. We'll have higher efficiencies, lower shorter lead times, and we'll eliminate the CO2 costs. And the mill itself includes the production increase of 0.5 million tonnes per year. But if you look at the mix and the capabilities and steel grades, which will then give less cyclicality into our earnings, so much better products with higher profitability and more stability. This is a very important step to establish -- to continue our strategy and establish us as a leading supplier of special steel and premium steel with fossil-free contents. And we've until today entered into more than 55 partnerships with leading customers for fossil-free and zero steels. And we see a very strong demand on the market. So that's also very positive. So with this investment, we'll be much more competitive, much better cost position, and we'll reduce lead time substantially. Today, the lead times in the Swedish systems are 6 to 8 weeks. With this new mill, we're talking about -- with the shorter lead times, we're talking about hours. And as said, a great improvement of the product mix directly into the segments that we're focusing on strategically, but also the segments that need or want to have a fossil-free steel. And as said, avoiding 900 kilometers of transport between Luleå and Borlange will make a huge difference when it comes to working capital as well. So as said, the investment is a very important part of our strategy to continue to develop SSAB into a leading company in the steel world. And now with also the very important step of low-emission or emission-free steels. So with that, if you call that a short introduction.

Thank you, Martin. And then we can open up for questions. So please, operator present the instructions and we're ready to take the questions.

[Operator Instructions] And your first question comes from the line of Alain Gabriel from Morgan Stanley.

I have two questions. The first one is on the CapEx profile. So how do you see the CapEx phasing from '25 onwards for Luleå? And then subsequently, what does that mean for the capital intensity you envisage Raahe? That's my first question.

But we'll -- the majority of the money will be spent 2025 to '28 . So that's the CapEx profile. And as we say in the press release, when we look at this, we see that we'll do this within our own financial target or within our financial targets, and we expect to continue to see continued strong cash flow generation from the underlying business. So that's how we calculate it. And then when it comes to Raahe, Raahe will come after this when we need to decide, but the CapEx for Raahe is, of course, substantially lower.

So it's fair to assume equally splits for the next 4 years for Luleå, more or less? That is a starting point.

Yes. So we expect to have the mill ready end of 2028 and then maybe up to a year to get it up and running fully.

Okay. And my second question is on your capital allocation. So your AGM is coming up in a little over 3 weeks, if I'm not mistaken. And the Board is likely to authorize the usual purchase of 10% of your share base. However, how are you thinking about the buyback in the context of this new spending program that you've just announced this morning?

I think it's very good to have that mandate, and we'll ask for it. We'll stay very firm when it comes to our financial targets to have a net gearing between plus 20% and minus 20%. And if we're -- as we showed this fall, if we're above that, we'll make sure that we handle that in a correct way or in a good way, and that's why we've the share buyback program. So we expect to continue to pay dividends, and we expect to stay within our financial targets. That's the simple answer.

Your next question comes from the line of Tristan Gresser from BNP Paribas.

Also two, and if I may just follow up on the CapEx time line. So can you confirm then that Raahe will come after Luleå, meaning we won't get an overlap in 2027, 2028 of Luleå and at the same time, which I think initially was the base case when you presented it at the Capital Market Day. That's kind of my first question.

No, but as we said in the press release, we say that we see Oxelösund as the first step, then Luleå as the second step. And then we say that as a third step, we'll do -- transformation for Raahe in Finland is planned. The timing for the project will depend on SSAB's financing and execution capacity as well as the learning from the Luleå project. So we will not run them in parallel.

Okay. That's clear. And also on the time line, I mean, initially, the time line to wrap up those 2 minimal projects was 2030, the end of the free allocation is 2034. So do you have some wiggle room there, some flexibility of pushing out some CapEx further down the line? Is that feasible? And also, when you say that Raahe is substantially less expensive, I understand there's less downstream investment roughly speaking, can we think about a 50% less expensive, 30%? Can you give us a sense?

No, but what we've said from the beginning was around 2030. So, that's of course, gives some wiggle room. And now we take this decision, we'll execute on this one and it will be up and running 2028 and then we see when we take the next step. But as said, what we'll be very firm to is our capital target. So we'll do it within our financial targets, and that will also determine -- and the learnings, of course, from this project will determine when exactly we do the third step. But you're right. I mean, there is much less downstream operations in the Raahe mill. And we've also changed the scope from -- since the beginning when we started to think about this. So we've a broader scope now in Luleå with much more or more downstream and processing. We've a cold rolling complex, galvanized and so on. And that will not be the case.....

Okay. So all right. And lastly, maybe on the DOE announcement of a new HYBRIT facility in the U.S., I mean, I understand the funding is not final, but it looks like there could be a new investment. Can you discuss that a little bit if you're going that path to build a HYBRIT facility in the U.S. How will that be financed between the partners? How we should think about it? Now that we've more visibility on Luleå with Oxelösund and potentially this HYBRIT facility if we want to calibrate CapEx for the next coming years?

No, but we see this as a very positive sign that there is a huge interest for this technique, not only from U.S., but all around the world. We see this as something we need to, of course, think about. But it's very positive and it shows the strong interest, I would say, especially from customers in U.S. and the strong focus globally on these kind of products, the combination of advanced products with zero emissions. So I mean, now we're selected and invited to this and then we'll see where this goes. But overall, a very positive sign and a strong sign of the huge interest, and we see that from government, we see that especially from customers and not only European customers, but global customers, among them U.S. customers. So it's only -- for us, it's only the positive.

But if the project goes forward, being a partner of the -- you'll need to finance 1/3 of the net CapEx. Is that correct?

We haven't come that far at all. We were, as I said, very happy with this announcement. And as I said, we took it as a strong sign of confidence in our technique and our ability to do this with our partners. So that's where we're. Now we're focusing on taking the very important step in Luleå. And Luleå is very important, as I said, because it is, to a large extent, towards mobility, but it's also towards special steel products. It's in and wide -- or dimensions that we can't produce today in the existing mills, but also dimensions that will ease up or free up capacity in Oxelösund, where we've a mill. So this will give us the possibility to really change the mix in the company. As we've talked about many, many times, we focus a lot on reducing volatility, and this will be a very important step to continue that journey. So 1 million tonnes of product mix change will make over time a huge difference. So that's what we're concentrating on now. And then we're, of course, happy, as I said, for the huge interest for this technique and the possibilities with fossil-free steel.

And your next question comes from the line of Patrick Mann from Bank of America.

That's actually what I wanted to ask was how should we think about the change in the group mix of products, given this investment sort of versus what you presented previously? Maybe at the Capital Markets Day last year, I think we had a certain mix and does this investment in the downstream change that? And then what happens to the existing rolling capacity in, I'm going to butcher the name, Borlange with this downstream investment, does that become surplus to requirements? Is there a sort of cost saving on that side? That's my first two questions.

We will close the hot strip mill. When this new mill is up and running, we will close the hot stip mill in Borlange.

Got it. And then in terms of the group mix, should we think 1 million tonnes of additional specialty versus what the previous target was?

No, but this gives us the possibility that over time, increase the mix or enriching the mix with 1 million tonnes. So we've given targets for 2026 and those targets are still valid. And then beyond that, from '28 and afterwards, we can move another 1 million tonnes. I mean, we'll increase the capacity with 500,000 tonnes. And then we'll have -- so in total, we'll have 1 million tonnes of more mix than we've capacity or capability of today.

But Patrick, in the same limit, you've the direction there. So that would be a good idea.

Got it. Yes. Okay. And then, sorry, the last question. If we just think about the raw material source, so you've obviously said iron units from HYBRIT and also from scrap. Do you have an idea at the moment sort of what that looks like on ramp in 2028, given what you know of Hybrit's ramp-up and scrap availability, how should we think about the sort of raw material basket?

But HYBRIT, we'll have the plant up and running late 2027, at the latest, early 2028. And we'll consume all of that. And then we'll also have a scrap. We've internal scrap. We've also sourced scrap. So the raw material situation is under control. We'll have available raw material to run also the mini-mill in Luleå and that was, of course, a very important precondition.

And the capacity of the demo plant from LKAB is roughly 1.45.

Million tonnes. And then they came out with the press release today stating that they'll gradually build that out in the southern system or the Malmberget system to 5.4 million tonnes.

Okay. So more than enough. Okay. Got it.

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

Perhaps still thinking around the annual investments going forward, thinking around Luleå, Oxelösund and perhaps also the maintenance CapEx level that we should expect. So firstly, on Oxelösund, could you remind us of where we're in that investment. Is 2024, the pre-CapEx year for Oxelösund? Or will investments accelerate for that also in 2025? That's the first.

Maybe not accelerate in '25. We expect roughly SEK 2 billion this year for Oxelösund. So maybe something in next year.

Okay. That's super. And then on maintenance CapEx, I think it was around SEK 2.5 billion, SEK 2.6 billion in 2023. Does this investment mean that we'd expect lower maintenance level ahead or is sort of the level you think of up until 2024 or whatever?

Maybe something similar or slightly lower, yes. I mean, of course, if you know that the mill will be closed, then on the margin, you can do something less. But I'd say something similar until this is up and running. Is it all right?

That's super. That's super. And then perhaps if I may, please correct me if I'm wrong, but it's still -- I guess that the Luleå investment of EUR 4.5 billion now is higher than your first assessment. And can you help us with what has driven that if you ask to describe that?

It's mainly 3 parts. First of all, I'd say, inflation and also inflation among equipment providers. Then we've a broader scope than what we originally presented, more downstream activities and so on. And then, of course, we've also put in higher contingency. We've quite a high contingency figure into this to make sure that we definitely deliver within the frame.

And your next question comes from the line of Moses Ola from JPMorgan.

So the first question I've, please, is just on the logistics here for FID. You stated that environmental permits are expected by the end of 2024. But just on your power allocation, it continues to remain under potential dispute by H2 Green Steel who essentially have communicated that they aim to dispute that power allocation at Luleå. Just wanted to understand what visibility you currently have on them, if you've proceeded today with full confidence that despite any potential dispute on that power allocation, you retain your current allocation at Luleå?

No, but we've a contract for the power allocation. So we've a good full visibility and full confidence. We've a written confirmation and agreement on the power allocation.

And this is regardless of if there is a legal dispute by H2 Green Steel?

I don't know if there is any legal dispute, but we've, as I said, a valid contract with Vattenfall Eldistribution, and we know that we'll get the power allocation.

And then just secondly, on the potential DRI investment in U.S.A. Of course, it's early to discuss any details on that. But just is it safe to assume that any investment that would be outside of the previously guided SEK 50 billion envelope. And then also, would this potentially be an investment within 2030?

But, as I said, I mean, we're not there yet at all. We've -- we're very happy, as I said, for the huge interest and the strong interest from the U.S. government and from U.S. customers. And they really see this as cutting-edge technologies, that's very positive. But this will lead at the end. It's way too early to say. But as I said, extremely positive signals from the U.S. government and from customers in U.S., and we're really happy that they acknowledge what we've developed within the HYBRIT corporation together with Vattenfall and LKAB. So that's where we're.

So Moses, there's nothing included in the frames so far.

This is about Luleå.

Yes. Yes. That's understood. And then finally, you've talked about a potential release in working capital. Once Luleå is up and running, could you perhaps maybe guide to the potential cash flow improvement as well?

But, I mean, it is about -- today, we've quite big slab stocks in order to handle the distance and the unsecurity in Sweden with the railroads and everything else. Transporting the slabs 900 kilometers that we'll not transport slabs. I mean, we've -- in the system today, we warm up and cool down in multiple steps. This will be an integrated process. So the lead times will be much, much lower and the need of security stocks in both Luleå and Borlange with slab stocks and slab yard will not be necessary. There will be less working capital needed in the new integrated system.

And is this to the range of hundreds of millions or more?

We haven't really said that, but it's quite a decent amount.

And your next question comes from the line of Johannes Grunselius from DNB Markets.

My question is on the SEK 5 billion step-up in EBITDA that you're highlighting in the press release, if you could elaborate a bit. I mean, what's behind it, perhaps give some numbers on mix improvement, lower fixed costs than also the CO2? That's it.

But it is exactly as you said, I mean, it's a much better cost position with lower fixed cost and lower cost for CO2, shorter lead times, less transports with about the 900 kilometers between Luleå and Borlange. And then, of course, the better product mix and increased volume. So it is a combination of -- I mean, overall, we increased the volume with 500,000 tonnes, but the shift is 1 million. So it's a combination of, I'd say, mainly these 3 areas that has up to more than SEK 5 billion in EBITDA improvement compared to the current system.

Yes. I don't know if you can share that, but what's your assumption on the fixed cost reduction?

We haven't said that. But, I mean, these mini-mills, these mills, they're at a much lower portion of fixed costs, higher variable costs. Yes, but the total is a better cost position. So I think we've talked about it before. But the good thing is that we've developed segments, markets and products, given the size we've today, which is -- I mean, with blast furnaces and coke oven batteries, we've been having a, call it, compared to competitors, a weak cost position. So in order to make any money, we've to develop product segments, customers and so on. I mean, we're talking about premium products and specialty products to justify that cost position. Now we can have more or less the same volume, but at a much better cost position. So it will be for the future, very, very important in order to not only stay competitive, but become more competitive. And I think one very important part also with the mix shift is -- and the lower fixed cost is to reduce volatility so much more stability over time in the system. And this is not -- I mean, one could do mistake and say that this is only product for, let say, the Europe, no, it's not. As I said, we're also talking about here premium wide Q&T, 2-meter wide Q&T, which can't produce today and thin Q&T, which we can't produce either. When we produce 4 millimeter in Oxelösund, that's needs a lot of capacity. Here, we can go even further down 3 and then 4 millimeters. It's in the nature of a lot of things that start to the figure I've given.

Then I want to go back to one of the first questions in the Q&A, and it was basically about dividends and buybacks. And did I get you right that you're still committed to buy back shares if the gearing falls below this minus 20% that you're committed to?

No. But as I said, I mean, we're committed to stay within our financial targets. And I think we've showed that we updated the financial targets to a net gain of plus to minus 20%, and we'll stay within those targets. And if we go outside or if the balance sheet becomes too strong, we'll do exactly what we should -- did this for. We'll make sure to continue to pay dividend.

Right. Okay. Yes. Just the final one also from my side. You mentioned also that you raised the assumptions for contingency in the project. Could you share what billions we're talking about there, please?

No, it's a part, but a bigger part than before. But we've -- call it, a decent part being contingency.

There's several billions in actual.

And your next question comes from the line of Bastian Synagowitz of Deutsche Bank.

My first one is just kind of coming back on the CapEx side as well. So I'm wondering, is there any funding support or anything meaningful you would expect for this investment? And then also is there anything which may be creeping into your 2024 SEK 5.5 billion CapEx budget? That's my first question.

No. But I mean we've taken this decision in order to finance it within our financial targets, and to a very large extent by our own cash flow and by freeing up the working capital and avoiding other investments in the current system. Then if we would, in the future, get some kind of support that would be icing on the cake.

Yes. But we'll not -- as you saw the environmental permit, we expect late this year. So there will not be meaningful CapEx already now. It will for '25 more.

Okay. Cool. Very clear then. My next question is on the SEK 5 billion EBITDA uplift you're talking about. What is the CO2 price level you broadly, which you need to get at those levels? And I guess that, I guess, the SEK 5 billion number is probably like something where you're basically working with a certain bandwidth, but obviously, a year ago, we've been at EUR 100 per tonne CO2, now we're closer to 50. So what is the CO2 price level you really need to get to those levels?

But I mean, this is not the exact figure in that aspect. But roughly where we're today or have been. So no huge increases of CO2 cost. But of course, it's in the calculation. We've counted on these 3 allocations being withdrawn over time as the current decision is in the commission.

Okay. Great. And then just on your, I'd say, your operational reshuffling, given that you're closing the hot strip rolling mill in Borlange, is there any restructuring effort needed at the site? And is that included in your -- in the contingency budget?

No. But of course, there are some restructuring, which is part of OpEx, some of it and some of it in CapEx, but that is handable there. We'll be less people, of course, in total, but that's part of the plan.

And could you give us the number roughly of the amount of people, which you're aiming to downsize there?

No, we haven't gone out with that.

Okay. Okay. No problem. And then last question is just coming back on shareholder returns, sorry for being the third person to follow up on that. But I guess if we take you by the word, right, you basically above your gearing threshold already. So you're obviously very comfortable on your balance sheet, which means technically, fully funded the dividend, which you're going to pay later? And technically, again, that means that there's going to be another buyback that next year? And I guess the environment at the moment is still decent. Obviously, you're still making very good margins in many parts of your business, generating decent cash flow. So visibility is quite favorable. But on the other side, of course, CapEx budget has clearly higher than what I guess most people would have expected. And I guess, probably slightly higher at least versus what you were indicating earlier as well. And at least if we look maybe 2, 3 years out at the moment, we can probably argue, there's definitely still a higher level of uncertainty also on the operating side. So are you leaning to potentially even run with a bit of more balance sheet buffer here to basically hold that buffer for what is still due to come on the CapEx side? Or do you see another buyback also to be firmly in your toolbox for this year? What will be the expectation from your management?

We had a mandate and we used that mandate. And as I said, we're committed to stay within the updated financial targets. We're committed to stay within the financial targets. And then, I mean, we expect to continue to generate strong cash flows. And we're saying that we'll be able to finance this with own cash flows within our financial targets. So as I said, I think a year ago, let's take that question if and when it is necessary. But the strong message is that we're committed to our financial targets.

And your next question comes from the line of Ola Soedermark from Kepler Cheuvreux.

A follow-up on the practical or should I put it, how is the investment provided in groundwork, in infrastructure and buildings and equipment? And I mean, the construction market in the northern part of Sweden is quite hot right now. Do you see any risk or have you already signed contracts so far?

But it's a combination of equipment and groundworks and civil engineering and so on. And this actually splits. Ola, there are some other things that continues is an internal engineering and others and so on. But I'd say a rough split, a rought split between equipment and construction and installation is 50-50 maybe. If you exclude contingency in some other parts.

Yes. And the groundwork and infrastructure work, is it already signed? And do you see any risk there, of course as supposed that's the bottlenecks?

We've very good -- put it like this, very good discussions with suppliers. We're not...

And also on CO2 allowances, and CO2 emission allowances. Even Oxelösund is up and running in 2 years. And I suppose you still have inventories of it. How do you expect that you've to buy any CO2 allowances coming years?

We're buying already today. We've been buying since, I think, 7, 8, 9 years.

Yes. But to inventories, I suppose you've inventories as well?

Yes.

So can we expect any material cost for CO2 allowances in coming years?

But it will gradually go up because it is periodically reduced. But as you know, it's a benchmark system. So we're in relative terms, better than competitors, given our low -- comparably low CO2 footprint, but we've been buying, since I think, every month since 8, 9 years.

But still, Ola, we still haven't secured all the future needs. So there will be some more. We'll have to do some more purchase as well.

And your next question comes from the line of [indiscernible].

I was wondering what's the increased availability of the electricity and designing factor to choose Luleå before write-down?

No. But I think I mean it was a precondition of course, so that we had the power allocation. Then as I said in the beginning, I think it was quite natural to choose Luleå because then we can take also way a lot. First of all, a lot of, call it, compromises that was made back in 1978, when the company was formed. So we can take away 900 kilometers of transport and so on. But also the mini-mill Luleå was always designed for what we call the mobility and more, call it, specialty and premium products. So it was a natural shows, but to have the power was, of course, the precondition.

Great. Does the investment in Luleå in need of change of the current detail plan in Luleå?

We'll plan for -- we'll build it on the same site as we've today.

Yes. Okay. I understand. Today, SSAB has about 1,100 employee in Luleå. Is it possible to say how many will be needed?

Roughly the same amount. But it will much, call it, more advanced production and a longer, call it, production line.

During the building phase, it should be much more, right?

We need to, of course, during the building phase, there will be a lot of contractors, of course.

And lastly, is it decided what's going to happen with the old mill?

But the old mill will be closed and taken down when the new mill is up and running. So we'll close the blast furnace and the coke oven battery and everything that is on site today. We'll use the infrastructure and some other parts, but the production equipment will be closed.

And your next question comes from the line of from Hannah [indiscernible] from Yle Radio Finnish Broadcasting Company.

It's [indiscernible] from Yle Radio Finnish Broadcasting Company. Of course, I'm interested in Raahe. I'm asking now, do you have any plans for Raahe now? What are the plans because I got this idea that you're planning to close first blast furnace in 2030. So what's happening in Raahe now?

No. But Raahe is and will always be a very, very important part of our system. Raahe is about a million in many ways because it's completely integrated, and we've the steel shop and integrated production at the same site, which is more cost effective and that we also have better equipment in Raahe. So it was quite natural to start with Luleå and Raahe. We will continue to run Raahe and we haven't at all given up our ambitions to transform Raahe as well. So it's quite the opposite. So nothing will change in Raahe, and we will give time also to the Raahe transformation.

So did I get it right that after 2028, you'll make decisions about getting CO2 free production in Raahe also?

But as I said, the ambition is to transform the whole SSAB into fossil-free steelmaking, exactly when that decision will be taken, we'll need to come back to. But as I said, Raahe is a very important part of the SSAB system.

And your next question comes from the line of Krishan Agarwal from Citigroup.

My question is on the split of the CapEx between the mill and the downstream. And my apologies if you already answered the question. I joined the call a little bit late.

Krishan, do you mean the split between downstream and upstream when it comes to the investment?

Yes. Yes.

We haven't specified that, but of course, it's a fair amount when it comes to the downstream part, since you have cold rolling and have galvanizing, et cetera. So that is a substantial part of the total, but we haven't given a clear numbers for each of the -- for each of the steps. No.

I understand. And then is there a kind of a better way to read across for Raahe CapEx because the rebuild of the Raahe is probably on the similar lines between the upstream and the downstream. And the capacity is also going to be similar, 2.5 million tonnes for both the blast furnaces.

Agarwal, as Martin said, it will be substantially less due to the fact that we'll most likely do not have any sort of advanced downstream in Raahe. It will be more like hot-rolled strip production. And we might also keep the pate that we've currently. So the scope will be much, much less, but we now updated number to Raahe, but it was much less than this number today.

Okay. And then the last question is on the planting of this investment. So should we assume that '25, '26, '27, '28 takes some of the bulk of the CapEx and then remaining CapEx in 2029?

Yes, exactly. You would see 4 to 5 years now, from '25 up until '28, maybe perhaps also some in '29. Yes.

Okay. And the last question is, I mean, with this large CapEx approved, I mean, do you want to give us a kind of an advanced estimate of what kind of annual CapEx we would be looking for say '25, '26, and including the Oxelösund normal CapEx and when we'll get the latest CapEx approval? Are we looking more like SEK 10 billion of annual run rate on the spend for the next 3, 4 years?

Yes, of course, it will be double digits. I'll try to update this also on an annual basis. We usually present the CapEx for the next year a bit more in detail, so we've no details today of '26 or '27. But of course, it will be high numbers due to the fact that we'll spend this EUR 4.5 billion over this period.

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

Apologies if you've answered this, I've a few connection issues, but just on the assumptions behind the SEK 5 billion EBITDA and assumption on the green premium that you're assuming in there? And also, I know someone was asking already about sort of breakdown on CO2 cost assumptions and so forth. I mean, do you -- can you give us a number in terms of the CO2 cost you're saying at current commodity prices, does that include sort of CO2, we're talking somewhere around EUR 50 a tonne for the CO2 price be assumed or it's a different number?

But we've -- if we start with the premium, it's fairly limited and it will fade out in our calculations over time. We think that this will be then you -- hopefully, the new way of producing steels. So that will -- in the beginning, a premium, and we've established a premium in the market, but that will gradually then shrink and fade away in our calculations. Then when it comes to the CO2 costs, they're of course a bit volatile and hard to predict, but we've, call it, a normalized figure in there. So now it doesn't require any huge difference compared to what we see and have seen.

Right. Okay. But when you say you've established a price on the market, you were talking about EUR 300 a tonne assumption before? Or are you assuming that at the start of this SEK 5 billion? And just so to be super clear on the CO2, are we talking....

We're assuming fairly low premium in the calculation.

If moved this premium in the SEK 5 billion, Andrew. Yes.

So double digit or triple digit?

Now, we're negotiating the price and they're not doing that.

And the CO2, might be what we're talking, EUR 50 a tonne or EUR 100 a tonne?

Maybe somewhere in between.

Okay. Cool. I'm just hoping it's just useful to understand the broad breakdown between those buckets between the fixed costs and the CO2 green premium sort of mix.

The big parts are mainly divided into 3. It's cost efficiency, volume effects and mix effect.

Right. Okay. Got you. And just on the -- you mentioned, obviously, you're assuming the CO2 cost falls away. Are you saying that, I think, the CO2 cost, maybe the green premium falls aways. Are we saying that SEK 5 billion at the start, then maybe that gets lower over time? Or is that being like offset by the sort of gradual increased saving on the CO2, like how should we think about that as probably our static number? Should it be going up or going down over time?

Yes. Of course, Andrew, we've used a conservative approach. And as Martin explained, the green premium is where you move this within that. So we're not seeing that get sort of worse over the years or there might be some upside to it.

And your next question comes from the line of Tom Zhang from Barclays.

Just one final question for me. With the existing blast furnaces at Luleå, you mentioned you're going to avoid SEK 2 billion of CapEx costs, I guess, sort of realigning. Are you confident that if there were delays to the EAF build-out that you had to keep running these blast furnaces for longer, there wouldn't be any sort of any risks that come up in 2028 or 2029 where something you would have to keep reinvesting into these things because obviously, I guess, even once you ramp up the electric arc furnaces, you need to keep blast furnaces going for a while, while you get product qualified and everything. I'm just trying to figure out if there's any CapEx risks that could be associated with blast furnaces?

If there is a very, very very long delay, yes, but we can handle a couple of years without any risk. But if it would be a delay of 10 years or 5, 6, 7 years, then of course, we need to look into that.

So the SEK 2 billion that you're avoiding that's sort of like a light for realign or effectively sort of light realigns the blast furnace?

No. But if we would continue to run the blast furnaces, we had to realign in 2030 or something. And of course, I mean, even though we've decent mills today, they're old and require a lot of maintenance and investment. So I mean, it's compared to running, I mean, if it would continue to run the system, which is obviously not the plan, we would have to continue to invest in realigning. We need to do things with the coke oven batteries and other things. And of course, hopefully, mill in Borlange originally will fix this.

And with the sort of requalification process and product, I mean, do you think it's just going to be standard? Or do you think it might take longer because it's a totally different supply chain. It's HYBRIT, hot iron, it's new melts and it's also new hot-rolling, new cold rolling. I mean, there's a normal sort of 9 months to get things qualified reasonable? Or is there a risk of this?

We're already today qualifying new products. We're delivering steel produced from sponge iron to customers and have already started that process.

And your next question comes form the line of Patrick Mann from Bank of America.

Follow-up question, obviously. Probably a quite basic one, but pulling it all together, right, the CapEx investment, the lower CapEx in the existing and the improve cost position, lower working capital, et cetera. Have you guys -- are you willing to share a return metric for this investment? And sort of how you thought about hurdle rates or required returns on investments in making this decision?

No. We haven't said that officially, but of course, we do this investment if the return on the investment wasn't attractive as we think it is very attractive. And compared to running the current system, this is -- gives us a lot of benefits. And I think cost position is one important part, I'd say mix is also very important. This will allow us not only to earn more money, but earn more money over the cycle and continue on our strategies. We're not changing strategies, we're changing production system, but that new production system allows us to speed up our ambitions when it comes to premium products and specialty product. So when we look at this and as Per said, we haven't been overly optimistic. I think we've as always taken a fairly conservative view. We look at the calculation, and I think it is a very, very good investment for the future and in line with the strategy and the demand in the market and the returns are good.

The next question comes from the line of Bastian Synagowitz from Deutsche Bank.

Quick follow-up from my side, please. Just on the DRi supply. so given that LKAB will be owning and running DRI mill, have you already defined the exact terms for the transfer pricing for the green DRI? And will that happen on a cost-plus basis?

We're already in those discussions and have very good and open discussions. And what we've decided together is to create a cost-effective competitive green value chain. And then, we'll come back to the exact details, but I mean, we're doing this. I mean, it's about creating a decarbonized cost-effective value chain for our customers. So -- but we'll have to come back to the exact details.

Okay. But, I mean, just given the fact that you're not taking this decision for this very big investment, I guess now when it comes to the green DRI, it's also a little bit about how do you split the actual value of your green product of which I guess part is tied into the green DRI. And then part of that is obviously tied into you basically placing that product at the customer. And so I guess, it's really about that. So how will you make sure that you can actually capture your right share of that value, if that's not decided at this point?

I think we've together a fairly common understanding on that.

We will now take our final question for today. And your final question comes from the line of [ Malene Johansen ] from [indiscernible].

I hope you can hear me all right. I was just wondering with this next step, will this create any new job opportunities? Or what can you say about that?

But, as I said, we'll have roughly the same amount of employees up in really, but there will be much more production. So then, of course, the skills that we need to develop now. We said we've a very good base of employees up in Luleå, extremely committed of working and talented people. Now of course, part of this will also be -- I didn't call it rescaling, but competence development. But in absolute terms, there will be no huge difference up there.

Okay. Okay. And just to double check, the power supply needed for this secured, right, for all of it?

We've a contract on the power allocation, yes.

Yes. And also finally, when the mill is up and running, do you see it having any effect on the prices on electricity focused units?

That will depend on a lot of other things. I mean, we'll use what is that to terawatt hours. So in today in a system where we've a first 15-terawatt hours. So it will, of course, be dependent on what other kinds of projects you see out there. And what kind of build-out you see also for power generation.

I will now hand the call back for closing remarks.

Yes. So thank you, operator, and thanks all for a lot of good questions. Martin, do you want to sum up?

Well, I think, I say the same. Thanks for a lot of good questions. And for us at SSAB, this is a very important day. And we're extremely, as I said in the beginning, happy and proud that we now continue our transformation with mini-mill in Luleå. It's off by the market from our customers. And we see a huge interest in the technique we've developed within HYBRIT, and this will create a much stronger SSAB with less volatility, but the mix, lower costs, lower working capital needs. So we're now really building for the future and continue our journey to build a competitive and stable SSAB. So at least from my side, I thank you to all the good questions and your interest. And so again, stating the obvious, we're extremely happy now to able to move on and continue to deliver on our strategy.

Yes. Thanks, Martin. So this concludes today's conference. Thank you for your attention, and I wish you a pleasant day.

Thank you. This concludes the conference call. Thank you for participating. You may now disconnect.