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

Good morning, and welcome to the presentation of the SSAB Q2 report. My name is Per Hillström, I'm Head of Investor Relations at SSAB. And presenting today, we have our President and CEO, Johnny Sjöström and also our CFO, Leena Craelius. And the agenda is that Johnny will start with an overview of the quarter and also a little bit of update on the transformation. Leena will then present some further details on the financials. And at the end, Johnny will come back with the outlook. And then finally, we will have time for questions. So by that, please, Johnny, floor is yours.

Thank you very much, Per, and good morning. I will start by going through Q2 in brief. First of all, I just want to comment on our safety trend. We continue to show that we've implemented a new safety culture within SSAB and our safety performance shows that we have now implemented a new level of safety within the company. So I'm very, very pleased about that, and good job all of you in the organization that's been working on this. Now going over to the financial performance, then we can see that our operating result was significantly higher than Q1 2025. So we ended up roughly SEK 2.1 billion in the EBIT for the quarter. I think one of the highlights is that we were able to sell more of the advanced high-strength steel to the automotive segment. It was a record level, primarily sold from SSAB Europe. So that is a good performance by them. As you know, the tariffs has been on everyone's lips and have been a topic for some time. I think it's worthwhile to remind us about our position in the United States. We have 2 large production facilities in the United States, and where we have a very good market position in the American plate market. We can produce roughly 2.4 million tonnes. So now when the tariffs are at 50%, the prices becomes more regionalized, have become higher, which is benefiting SSAB at this point. Even though we're not happy about any type of trade barriers, we are dependent on exports. We promote free trade and fair trade. Short term, it still has a positive impact on us. Another highlight for the Q2 report is the Special Steel performance. Even though the revenues were slightly lower, we were still able to have a better profitability than we did in Q1, and operating margin was roughly 22%, which is quite impressive. Since this is the second quarter this year that we are able to supply a good profit in a very demanding market. It shows that we have a unique value that we sell to the market. And then having a look at SSAB Europe, I think the Europe region is probably the region where we have the most challenging market conditions right now. And also now the tariffs talking about that does have a negative impact on Europe. There's a lot of uncertainties, a lot of concerns, but also, we see a spillover material that used to be sold into Americas are now being sold into Europe at prices which are extremely low. And that, of course, is impacting the price of standard material in Europe. The Q2 standard prices went down more than we probably expected. And then we can also see now the operating results for Q2 ended up at around roughly SEK 100 million. And of course, we are now planning to do some cost reduction measures in order to try to balance sort of the weaker demand in the market also the lower prices on standard materials in Europe. On the positive note, in America, the prices went up, and we were able to ship higher volume in Q2 than we did in Q1. I think the production has been above expectations in the United States, and we are delivering above expectations as well. And with higher prices, of course, that generates a higher earnings level. So I'm pleased to see the financial performance in Q2 by SSAB Americas. But of course, then a stronger krona and a weaker dollar, of course, gave some negative effect, but still, it has a very good earning. I'd also like to mention that we were able to produce roughly 65,000 tonnes of SSAB Zero our Montpelier facility during Q2. I think that's also important for us and that our journey for Zero or fossil-free production. Our 2 subsidiaries, Tibnor, they have been working hard on trying to establish a lower cost structure as well as trying to optimize sort of their pricing for the market. I think that the operating result was decent. It is a very challenging market right now. And I know that they're doing everything they can to improve the situation. Ruukki Construction came in on SEK 52 million. I think that's a good performance, even though the construction segment hasn't really developed as we were hoping for. I still think that Ruukki Construction had a financial performance, which was in line with our expectations. Transformation update, it was announced a few weeks ago that we are going to delay our start-up in our Luleå mini-mill, and that is related to the announcement that came from Vattenfall to us, but then Svenska kraftnät to Vattenfall that they need to rebuild the transformation station and the transformation grid and hence, that will have a negative impact on our electricity supply that we are planning to get. We do not see that this is going to have a negative impact on the overall cost. We stick to the forecast that we've given, the EUR 4.5 billion, but it does have a negative impact on our time plan, of course, with 1 year. And we're doing everything we can to mitigate a potential delay. I also want to highlight that the Oxelösund conversion is progressing according to plan. We see now that the building has been fully erected. The big crane is being erected as we speak. And in a few weeks also then the electric arc furnace itself is going to come in pieces and start to be erected. I'm also happy to announce the partnership agreement that we signed with Volvo Cars. It doesn't only mean that we will supply SSAB Zero to them, but also that we will be able to collect their high-quality scrap. So we get a circularity part of that. But also I'm very happy that Volvo Cars and others are still very interested in our Zero material. They're planning to put that into their platform of the electrical vehicles going forward. So it's a very positive signal for us, but also it shows that the market has a big interest of our Zero material, and we have other partners as well going in exactly the same direction. And we were also able to secure our financing package, extended to roughly EUR 2.7 billion, and that was signed in June, gives some stability in that investment as such. With that, I'll move over to Leena on the financials, please?

Thank you, Johnny. Let us begin by looking at the steel shipments, the graph on the top right-hand side. The outcome in Q2 was 1,708 kilotonnes. And then compared to previous quarter, it was 32 kilotonnes higher. And then compared to previous year Q2, it was actually 62 kilotonnes higher. If we then reflect that back to our guidance that we gave for Q2, we were guiding that all the steel divisions would be somewhat higher in shipment volumes, and the actuals turned out to be Special Steels was 3% lower. Europe division spot on to guidance with 1% increase and Americas actually slightly higher with 6% increase in shipments. As the graph is illustrating Q2, seasonally, it tends to be the good shipment quarter within 1 year. Then we move to revenue graph. The outcome in Q2 was SEK 25.6 billion, relatively flat with Q1, which was SEK 25.5 billion, but 9% lower than the previous year revenue, which was SEK 28.3 billion. If we then also reflect a bit against the guidance we gave with the prices, we were guiding Special Steels to have stable prices. And the underlying prices were actually 2% higher. But when we take the FX into account, which was then 6% negative impact, the average price turned to negative. Europe division, we were guiding to be somewhat higher and the underlying prices were 1% higher, but offset by the negative impact of FX by 3%. And in the case of Americas, we were guiding significantly higher prices, which means over 10% increase and the underlying prices were 15% higher and again offset by FX with 12%. If we then look at the EBITDA graph on the bottom. Q2 EBITDA outcome, SEK 3.2 billion, improvement compared to Q1, which was SEK 2.4 billion. But again, a bit lower than the previous year, Q2, which was SEK 4 billion, and in relative terms, Q2 was 12%, Q1 9%; and last year was 14%. If we then dive into more details and firstly, compare the operating result Q2 with the previous quarter. The operating result in Q2 was SEK 2.1 billion, and the previous quarter was SEK 1.35 billion, and as the graph is illustrating, there was a big positive impact with the variable cost. The raw material cost was lower in the Nordic mills, while in America, the scrap cost went up quarter-on-quarter. But let's start from the price analysis. Overall, the prices on average were 4% higher. But as said already a few times, offset by the FX impact, which was then a negative 6%. To split this by divisions, the Americas division was still contributing positively SEK 470 million. And then negatively, the other divisions, Special Steels division, SEK 385 million, Europe, SEK 190 million and Tibnor by minor SEK 10 million. To point out that Ruukki Construction also had a positive price impact of SEK 40 million. Already mentioned that the volumes, they were higher. And here, the biggest contribution definitely coming from Americas division, which was 30 kilotonnes higher. Europe division 13 kilotonnes higher and Special Steels was lower by 11 kilotonnes. Big positive impact by variable costs. This is now split between 2 Nordic divisions, Special Steels, SEK 560 million positive, Europe SEK 510 million and Americas having a negative impact of SEK 120 million. Fixed cost in this quarterly comparison. Q2 has higher fixed costs, and that is typical summer season impact, higher cost related to summer workers and also the full effect of the salary index increase. Absorption variance volumes were higher during Q2 compared to Q1, that's the positive impact. And to mention that there were no maintenance outages during Q1 nor Q2. And the revaluated balance sheet items with the FX impact of negative SEK 71 million. If we do the same comparison of the operating result with the previous year, outcome this year was this SEK 2.1 billion against the previous year level of EUR 3 billion. And as the graph is well illustrating the positive impact of variable cost is not fully compensated -- compensating the negative impact with prices. Prices on average were 12% lower than previous year. And a big portion of this is coming through Europe division, SEK 1.3 billion, followed by Special Steels division, SEK 660 million and then Americas, SEK 450 million negative impact. Also, Tibnor and Ruukki Construction had lower prices with the total impact of SEK 85 million. Volumes, 62 kilotonnes higher compared to last year. And here, Americas, again, given the biggest contribution 205 followed by Europe division, 75, while Special Steels had lower volumes with the negative impact of 70, Tibnor also lower 55, while Ruukki Construction actually had higher sales volumes this year than last year, thus positive impact of SEK 15 million, and already discussed the variable cost, they were lower this year. And this is now majority related to Europe division and Special Steels division. While in Americas, the scrap cost was higher. Europe division contributing SEK 1 billion Special Steels division, SEK 435 million, and then Americas having a negative impact of SEK 90 million. Tibnor and Ruukki Construction also had lower cost, so they are contributing positive SEK 130 million. Only very minor impact from fixed cost, but I need to point out that here, we also have a supporting factor from FX, giving a positive impact, somewhat higher processing cost. But then as Johnny already mentioned, we are having savings actions. So the SG&As were actually lower than last year. Capacity utilization, negative SEK 50 million. On average level, slab and rolling production was higher than last year, but the mix between mills was different. So actually, lower production in Nordic mills, while in Americas production was higher, and then the cost of unused capacity is slightly higher in Nordic mills, thus the net impact is this negative SEK 50 million and a minor impact of the effects of revaluated balance sheet items. If we then continue to cash flow, just to point out a few items from Q2 cash flow. We did have a negative impact of the working capital as we were sort of anticipated. That's seasonally very typical. Inventory is developing actually in raw materials, slightly up compared to Q1, but then the slab finished goods and work in progress were rather stable. The value in inventory has gone down with the lower raw material costs. Accounts receivables went up and accounts payable down. Maintenance expenditures slightly lower than last year. And then the other line here is reflecting the swapping of CO2 emissions that we did during Q2, indicating that the forward price was higher than the market price, that's the negative impact. Operating cash flow positive, almost SEK 1.8 billion. If we continue to financial items. Here, we have onetime effect of the fees that we were paying related to Luleå funding that Johnny already mentioned. So we had some upfront fees and arranging cost that has a onetime effect here. Income taxes. Here, we have a positive quarter, and we have done some cumulative corrections for the prepaid taxes. Thus, the year-to-date figure here is on more accurate level. Cash flow from current operations still positive SEK 1.6 million. And then if we continue with the strategic expenditures, here, we have, of course, majority related to Luleå and Oxelösund investments. And the small amount in the acquisition of shares is related to Tibnor acquisition done in Norway as we have reported also in the report and netted with some sales of assets in Poland. To remind that we did pay out the dividend during Q2, almost SEK 2.6 billion and thus, the net cash flow, SEK 2.7 billion negative. This led to the net cash position at the end of Q2, close to SEK 11 billion. And the net gearing ratio is still well within the financial targets minus 16. And if we do a small bridge between the net cash position at the end of last year, SEK 17.8 billion, and the outcome in Q2. The big items, of course, being the dividend we pay out SEK 2.6 billion, strategic investments, cumulative SEK 2.4 billion. And to remind that here, also the FX had a big impact. So the revaluation of cash position items, mainly now in U.S. dollars had a negative impact of close to SEK 2 billion. So all of these together are sort of bridging the gap in between. Then if we move to raw material, we have changed the graph a bit. Here, we have combined iron ore and coking coal raw material prices. And as the graph is well illustrating the prices during Q2 were very stable, a bit more volatile during Q1 and then stabilizing during Q2. We don't foresee any big increase in our raw material consumption cost during Q3 as the lag with this impact of market prices is 1 quarter and with the coking coal quarter and a half. The price trend was a bit different in U.S., where the prices were -- the scrap price was increasing during Q1, but actually coming down during Q2 and being relatively stable throughout the quarter. And also in the case of scrap, we don't foresee big increases. We rather anticipate it to be stable. And to remind the lag in scrap price impact is around 1 month. Maintenance cost table, this we haven't updated since the last time we showed it. So it's exactly the same. But good to remind that during Q3, we already have quite a substantial amount of maintenances happening in Europe division. In Borlänge, Raahe and Tube mills are having maintenance breaks. And in Special Steels division, we are starting up the maintenance preparations in Oxelösund, but the majority of that will take place then during Q4. And in the case of Americas, there is no maintenance taking place during Q3, more so in Q4. And the CapEx guidance already Johnny mentioned that we are rescheduling the Luleå project, but it does not have impact in this year CapEx plan. We are still starting up the project as planned during this year. So thus, we have kept the same SEK 10 billion CapEx estimate for the full year. SEK 3 million belonging to R&C investments. And then if we split the SEK 7 billion, we have just below 3 planned for Oxelösund and then the rest majority of which then planned for Luleå project. But with that, I give it back to Johnny.

Thank you very much, Leena. Well, presenting our outlook, it's an extremely turbulent market right now, and things are changing all the time. But based on what we know right now and what we've seen, this is a short summary. So looking at the Heavy Transport, it's sort of neutral. I think that the heavy truck production in Europe is quite stable, but you also see some very good positive signs from the shipbuilding in the United States. It's also very, very healthy. Looking at Automotive, which is a very important segment when it comes to steel demand. I think from a global perspective, it's going to be a slightly lower production than we forecasted at the beginning of the year, maybe down 2% or something like that. But it also varies depending on what geography you're in. Right now, the automotive industry in the United States is rather weak, but we speculated it might come back during the fall. And looking at Europe, it's also quite weak. But there are some automotive companies that are doing quite well, and I've actually met a few of them, and they are actually more positive than some others. Look at the Construction Machinery. I think it's neutral to weak, we see a weak demand in Europe and also in North America. It's a little bit of a wait-and-see mode. And then we talk about Material Handling, which is mainly related to Mining. Mining is still a very strong segment with the increased gold prices, rare earth metals, et cetera, new mines are being opened up all the time. So with that, we see sort of a neutral level on a high level. And then we have Energy. We see a good demand for energy transmission and that's going to take place for a long period of time, all over Europe, but also in United States. So that's more strong than neutral. And then Construction, low activity, especially in Europe, really hoping that the interest rates will come down, so this market will improve and then Service Centers, uncertain outlook, it's more speculative as such. So the sort of the guidance that we give, Special Steels, looking at the shipments is going to be slightly lower in Q3 but the prices are going to be stable. We're looking at Europe, it's going to be significantly lower. But then again, we also have the maintenance outage, which sort of explains a significantly lower shipment level, but prices will be stable. And then SSAB Americas, the shipments will be somewhat lower, but the realized prices will be higher than it were in Q2. I think that pretty much summarizes our outlook for Q3. And if we want to then summarize the presentation, I think the result quarter-over-quarter was better, improved financial performance by SSAB. I think that we have had a strong focus on safety, and that can be seen in the figures. Our transformation project is also progressing. Even though we have a delay in Luleå with over a year, which is not something that we can impact. I still think that what we can control is progressing quite well. And then we have very large local production in the United States, where we see is beneficial for us right now with these tariffs being implemented. I think that was sort of our last slide. I do want to remind all of you that we are planning to have a Capital Market Day on the 4th of November. And we're planning to have this Capital Markets Day in Oxelösund since we are 1 step closer to finalizing our investment in Oxelösund, I think it's -- that's a good timing to get people to come and see what we're working on, but also have a chance to sort of present and update sort of the uniqueness of not only the Zero material that we're planning to produce, but also some of the grades that we have, which are quite unique for the market. So that's the 4th of November. We are all looking forward to that. Any other comments from you guys regarding the Capital Markets Day.

No, we wish all of you will join us, you're more than welcome.

You're more than welcome. So with that, we should move over to you, Per.

Yes. Thank you, Johnny and Leena, and we can prepare now for the Q&A. [Operator Instructions] And by that, I will ask the operator, please present the instructions.

[Operator Instructions] We will now go to our first question. And the first question today comes from the line of Alain Gabriel from Morgan Stanley.

I have 2 questions from my side. Firstly, you talked about the phasing of the Luleå CapEx adjusted to the new time plan. Where does this leave us with the spending budget for '26 for Luleå and for the group? And do you see an opportunity to postpone some of the spending in 2027? I know you haven't given any formal guidance, but any color would be much appreciated here. That's my first question.

I would say that we are in the process of doing the detailed planning. But like you said, if -- it doesn't have an impact on '25 figures. It will sort of make the '26 and '27 less intensive with the CapEx plan, but we don't have the details yet.

And my second question is on the plate prices that have been weakening quite a bit as of late and yet you still expect prices to rise Q-on-Q by 5% to 10%. Is this divergence purely lag driven? And when do you expect the price weakness to finally start flowing through your P&L in the Americas business?

Yes. So you're right that we have seen now the recent 5, 6 weeks, we see the CRU indicating that the plate prices have going down a little bit, but we are expecting the prices to come back. And the reason why the prices have gone down is because the demand has been slightly lower than we anticipated. I think that we see a lot of wait-and-see mode right now, especially from service centers and distributors are waiting to see what's going to happen with the tariffs. So that's the reason why I think the price has gone down a little bit. But I think the buying behavior is going to come back after the summer and the price will start to come up again. That is what we are anticipating at least. Does that answer your question?

Yes.

We can get also that also, of course, the lag applies still.

Your next question comes from the line of Adrian Gilani from ABG Sundal Collier.

Yes, I guess following up on plate prices. A question on the indices and why the raise to 50% steel tariffs hasn't really been reflected in the sort of indices that we follow. Do you have any view on if that's going to be the case, if that's going to be seen going forward?

I think when these 50% tariffs were implemented. Then I think we were expecting the prices to come up like it did when the 25% was implemented. But now it seems as if the market is now more speculative that they're thinking that this 50% will be reduced again to 25% or to 0. So that's why we sort of see a wait-and-see mode on the market. But I think with time, customers will learn that the tariffs are probably there to stay on steel, but not maybe 50%, but there will be some tariffs. That's what we believe at least.

Okay. Understood. And then you mentioned sort of a more skeptical view on the automotive market now compared to at the start of the year. I guess does that apply also to your premium high-strength business towards automotive in Europe? Or is that more resilient would you say?

I would say it's more resilient. And we're actually seeing that we have grown our sales of advance high-strength steel this year, even though the overall market is shrinking. I think that what we offer to the market is quite a unique solution for improving sort of the crash barriers, and we see a very high demand and bid large interest from the market on this. Right now, we are a little bit limited with our production capacity. Hence, the reason why we're planning to do the Luleå investment, which is extremely important for our growth of these advanced high-strength steel and the sales that we are planning to increase going forward. We do this in close cooperation with the automotive manufacturers in Europe. So everything that we are designing to do is according to the expectations from the market, from the automotive market.

So I guess, do you feel confident that you will be able to grow those in the second half of the year as well, even if automotive volumes overall are down.

Yes, we are quite confident. And even though -- that's something maybe I should comment on because we also exported the high-strength steel from Europe to U.S.A. And with the 50% tariffs, it's a little bit more challenging. We have communicated the price increase to our customers in the United States. Some of them have accepted it, and some of them have not. And for those who have not probably going to see a reduction of sales from Europe to United States starting sometime later on this year, especially for next year. However, these volumes and this capacity, we will be able to sell it somewhere else in the world because it's such an attractive product that we have.

Okay. Understood. And a final one for me regarding the cost-cutting measures you mentioned in Europe, can you sort of put a number on how much you are able to decrease the fixed cost base on a fairly short notice?

To do these cost reduction activity is something that we're used to. We've done it many, many times. I think it's part of -- especially in SSAB Europe, how they work and how they model. We have these flexible tools that we can work with, et cetera. But it's a little bit too early to put a number to it, don't you really announce.

Yes.

Your next question comes from the line of Tom Zhang from Barclays.

Two for me as well, please. The first one, just on -- so I hear what you're saying around Europe, there's a little bit more uncertainty in the market, a few end markets maybe a little bit soft around auto. Are you seeing anything in the market from, talks around CBAM being introduced around the Safeguard replacement measure being discussed, we hear it could come out in September. Is that creating any tightness or potentially any restock demand into the second half? Or do you think that is also just adding to the uncertainty and sort of accentuating that wait-and-see attitude?

I visited a lot of customers in Europe now the last 3, 4 weeks. They all raised the question on the CBAM. They want to secure a European supply. They're a little bit concerned what might happen, especially if they import material from outside Europe. Hence, the reason why they're talking to us. And some of them are talking about putting up some buffers, et cetera, to be ready just in case something happens. But it's a little bit vague, but it also -- to your point, it also adds some uncertainty because the CBAM as such is not super clear. And that also is making the market a bit confused and some of these question marks needs to be cleared and straightened out. So that, I think, is a comment on the CBAM. Did you -- what was your other?

And expectations of further safeguards. We have heard from the steel action plan that there might be additional things, your take there?

Yes, exactly. So together with our colleagues in the European steel industry, referring to other large manufacturers in Europe, we've been to the European commissioners, and we have spoken with a few of the European commissioners about the situation. There is a spillover material that used to be sold in the United States is now being sold into Europe at a very low price, extremely low price. This is hurting the price on the standard material in Europe, and also squeezing the margins for the steel manufacturers in Europe to very low levels or negative levels. There's a great concern about the future of the steel industry among the European steel manufacturers, hence, the reason why we're working together with Eurofer to communicate this with the European Union. We also know that this overcapacity being moved over to Europe are subsidized, and is not a fair trade, hence the reason we believe the European Union need to do something to stop this unhealthy nonmarket economy approach to selling material into Europe.

Okay. No, that makes sense. I was -- so maybe just following up on that point. I mean, with your conversations with customers, you say they will raise the topic of CBAM. Have your customers been raising the topic of a safeguard replacement? Or is that still a little further away?

I think the safeguard, as such is probably more for the steel industry and also this tariff quota system that we are suggesting to the European Union. But other than that, I think that's the more thinking about how the CBAM is going to work and also securing that they can secure volumes within Europe going forward?

Okay. Got it. And then the second question, just maybe sort of a small follow-up, sorry, on European capacity adjustments. So as you say, you take advantage of these time banks, I think, normally in Q3 anyway when it's seasonally weaker. But I guess you mentioned it explicitly in the press release today. So are you expecting the measures this year to be much more significant than usual? Are you expecting a sort of stronger than usual seasonality? Or are we reading too much into that?

We start with the normal procedure of using these time banks, both in Finland and Sweden. And to remind that, yes, we have the maintenance activities that we still need to carry through. So -- but of course, if the market saw demands, we cannot extend the measures, but we start with the normal procedures.

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

Just maybe a quick follow-up on the CapEx. I think before you mentioned that 2026 and 2027 would be peak CapEx now with the updated project. Is it a certainty that 2026 will be a peak CapEx year now?

Well, I said that we don't have the detailed plan ready yet, but they will have significantly higher CapEx '26 and '27 and of course, spillover then to '28, but I said that we are still planning with the details.

All right. No, that's fair. Maybe just then on Special Steels. I was a bit surprised by the volume performance. So from where did the pressure came from especially if you saw and if you still see mining demand being stable. And with the large maintenance taking place then in Q4, is it fair to see volumes being down year-on-year for both the next 2 quarters?

I think compared to 2024, I think the volumes are going to be slightly higher. That is our assumption. That's what we believe. The demand from our products is still very, very high. I think that we are more constrained from the capacity point than actually the demand side of it, especially for the unique rates like Hardox 500 Tuf and also the Armox and the Ramor grade that goes into defense and protection. So there's a lot of demand for these kind of products. Yes, then, of course, there are the market behaviors and also the dynamics regarding the buying behavior and also stocking sometimes that's a little bit hard to foresee in 1 quarter. But I think the underlying demand is still very, very strong. Hence, you can see that on the pricing and the earnings that we have.

Okay. That's clear. And then a question on Europe. I mean, we've seen spot steel prices falling quite a bit, but your guidance implies some -- actually some improvement in spreads. I was just wondering what makes you confident in your ability to preserve margins into Q3? And also, when you look at the outlook into Q3, Q4, it doesn't look like demand. I don't know, I would like to have your view if demand should improve in H2, but otherwise, why -- if the visibility is quite poor, why not take a bit more drastic measure in terms of capacity adjustment? And as you've done in the past, shutdown blast furnace have you considered that?

I think the demand is still -- I mean we're not near talking about shutting any blast furnaces. That's quite clear. We still see -- we've had a very good order intake. We've been able to fill the mills, et cetera, there is sort of slightly weaker demand now towards to 4. But then again, we have the maintenance outage that naturally balances sort of the supply and demand from our perspective. I think what's important for us is continue our uniqueness strategy thinking that we want to create a superior value to the market and the customers, something we've done really well in Special Steels, but also within SSAB Europe and the Automotive segment and advanced high-strength steel that they are manufacturing producing and selling, that's an area we want to grow even further. We are dependent also right now on the standard material. I think 50% of SSAB Europe sales is standard material. And that, of course, is heavily impacted when the market price goes down. And the reason for the market price is going down is because it's very import sensitive. As the import increases, we see movements immediately. If there will be any new safeguards, which is on the agenda right now and being discussed, then prices will move up very, very fast. We have our hopes up and I think it's extremely necessary for the future of the steel industry that there will be some new updated safeguards implemented by the European Union. Otherwise, it's going to be a really challenging situation for the European steel industry. We, however, will be coming out in a much better position. We have a special steel division that is performing really well. We have an Americas division also performing really well, that we also believe is going to continue to perform well. Where we are more sensitive is the 50% of the standard steel sales that we do within SSAB Europe. And the only measure we can take is to work on the cost structure and the cost side of it. And of course, we're looking at all the areas of the cost side as we speak, which we've done in the past, and we can do it again, and we will take as much necessary measures as we can try to balance the Europe's financial performance.

Don't you see a risk of imports surging in September, October as distributors kind of preempt the CBAM and hence, make the next 2 quarters even more challenging than what you're seeing at the moment?

That risk, that's a potential risk. I think the CBAM works in our -- long term in our favor. There might be some short-term initiatives. You're right about that. We don't have any numbers or figures on it. We haven't seen much activities in this direction. But you're right, there is a risk of this, of course.

Your next question comes from the line of Krishan Agarwal from Citigroup.

The first question is on the volumes. I mean, as you just specified for Special Steels that you're expecting the volumes in the second half to be better year-on-year. Do you mind talking about the volume expectation for Europe? Is it fair to assume that the year-on-year weakness would be a kind of a fair assumption for the volume in Europe for the second half, while in Americas, a better second half would be a fair assumption?

Yes, I think it's a fair assumption to say that the demand in the United States is going to be higher. We have segments like a shipbuilding, but also the defense industry, which is a very strong segment for us in the United States, and we're talking both the Navy and the Army, it's going to be increasing the demand of our material in the United States. Look at Europe, it's a little bit uncertain. But then again, if the tipper market in Germany would come back, that would be an additional 30,000, 40,000 tonnes of sales. So things can happen really, really fast. So it's really hard to predict right now what's going to happen. And this infrastructure package that was announced for Germany. We haven't seen much of it yet, but it's around the corner. So there are a lot of initiatives in the European Union that will have a positive effect on our sales. The question is when is that going to happen? So yes, we're reluctant to see. But I mean, looking at the track record, we lost maybe in total 100,000 tonnes when Russia attacked Ukraine. That was the market both in Russia and Belarus and also some neighboring countries that was sanctioned that we used to sell to. So if we compare historical sales with the situation right now, it's really hard. And then on top of that, we had the energy crisis during the beginning of the attack from Russia that had a very negative impact on a lot of manufacturing in Europe. If some of these areas would come back, it can go really, really fast. And I mean the utilization level that we're at for Special Steel is a very, very high level. So from that perspective, it doesn't take much until we are fully utilized.

I understand. The second question is on the Europe. I realize that there has been a lot of questions about Europe, but this is a special one for me. You are saying about production curtailments and sort of cost variabilization through staff adjustment. But then you have kept your guidance for the maintenance cost around SEK 400 million unchanged. Is there a possibility that with higher variabilization of the cost you end up minimizing the impact on the cost in Q3?

With the maintenance, these are planned annual maintenance. So there's not all that much you can do with the existing plans. Of course, like Johnny said, that we are looking into all possible options to do cost savings. So -- but for time being, we have an updated maintenance cost downwards. And I doubt that there is not much room to do that, unfortunately.

I understand. And then finally, on the CapEx, I mean, you've maintained the guidance for the SEK 10 billion. The run rate for the second half is a big ask. Are you comfortable of spending that much money in the second half?

Well, taking into account the net cash position we have and then to get the project up and running, I feel comfortable of spending that during second half, yes.

Your next question comes from the line of Anders Akerblom from Nordea.

So first one from me is on your just what you said now on defense in the U.S. It would be interesting to hear if you're seeing increasing competition for these volumes from, for example, Nucor in their Brandenburg facility ramp-up?

Well, as of right now, we haven't seen much competition from their side. And I mean if you look at the Europe -- sorry, American plate market, there are 2 active players. It's us and Nucor, that's clear. And even though the situation isn't like that right now, but the speculation of how much can actually Nucor Brandenburg produce? And what is sort of the targeted market. Nucor is setting up a new transformation tower facility, trying to do that in-house. There are a lot of value-added initiatives ongoing. As far as we see it, they haven't really targeted the shipbuilding industry yet. And there are some qualifications that they need to pass in order to sell to some of these customers. So, so far, we haven't seen much of their competition.

Okay. Interesting to hear. also looking again at the U.S. and also referring to CRU, I mean, looking at inventory levels, it seems as though they remain quite elevated, especially if you consider kind of the more active service centers in the market that kind of contribute with the incremental volume changes. How much would you say that you've considered this in your outlook for continued healthy sequential price development in the U.S.?

We always look at sort of the CRU reports and we'll try to get a better understanding of the service center stock levels, distributor stock levels, et cetera. I think our view of it is that there's still room for restocking. And we, of course, we look at this but it's -- that becomes more speculative. I think for us, it's better to look at underlying demand. And for us, it's more industrial. That means energy, gas, these kind of segments that we still see a very strong demand, a lot of projects still ongoing. The onshore wind power is still very, very strong. We see transmission towers. Pipelines, we've never had as much pipeline orders that we've had this year, and we're actually fully book when it comes to pipeline orders. So there is a very strong underlying demand. I think that is more important for us then to look at sort of service centers stock level right now.

Makes sense. But with -- just following up on that commentary, I mean, is it reasonable to expect possibly some negative mix effects in that case in the coming quarters in the U.S.?

Can you be more specific when you say a negative mix effect? What do you mean by that?

Yes, in terms of you selling to your different sort of end markets in the U.S. and how that will impact product mix and thus, profitability. Not talking about market prices, but in terms of the product mix, profitability.

Yes. I think if anything, it might be on the positive side, I think, first of all, the orders that we've received in the beginning of the year extends through the whole year. I'm not talking referring to the pipe orders and some of them are normalized and there, we usually have a better margins. And we have a very -- I mean when it comes to SSAB Americas, we have a lot of yearly contracts. So from utilization point of view, I'm extremely optimistic for the rest of the year based on what we have on our order books and the contracts that we have and so on. And also then to your question, then the mix, we have a pretty clear picture of what it is that we're going to sell, and it's not going to be negative. That's our assumption.

Okay. And just one final one for me. So looking at Ruukki showed it quite healthy, both year-over-year and sequential development despite sort of your commentary about seasonal construction improvement in Europe being less pronounced than usual. So it would just be interesting to hear your view of these sort of diverging trends in a bit more detail. And what's been driving that as opposed to the Europe division?

So when it comes to Ruukki Construction, first of all, we have worked intensively on our cost structure. I think Sami has done a lot of automization initiatives moving some production, closing down some production, trying to optimize the fixed cost. He's done an excellent job on this. That gives us a better platform to get the better underlying performance. And now going forward, we see that the demand is slightly higher than it was previous year, slightly 2%, 3%. But still -- and we were hoping for a much higher demand, but still. So I think that we've done our homework. I think we've done create a good platform for the future and really hope that this will continue going forward.

Your next question comes from the line of Christian Kopfer from Handelsbanken.

One a little bit more longer-term perspective, I mean Special Steels is doing great profitability wise. But I think you only typically talk about the underlying demand on those kind of end markets or those kind of products are growing by 5%, 6% underlying per year or something like that. And if you look at where Special Steels are delivering today, you are basically at the same levels as in 7, 8 years ago. So maybe a little provocative, but does that mean that you are basically losing market shares? And the second question is to really see volume growth for you in Special Steels, what do you need to see, is that -- is that, yes. So that's the second question.

But it is a very relevant question, Christian, and I understand why you're asking that question because we've had in our strategy material, a very aggressive growth. So I understand where you're coming from. And I think -- if it wasn't for these rare events like Russia-Ukraine situation, like I said before, we lost 100,000 tonnes there. And then we had this energy crisis in Europe that has affected the demand. And it's -- and the European demand is down. We used to be very strong in the tipper market. Tipper market is down on very low levels, very low levels. And we're hoping it -- for it to come back. I think when it comes to yellow goods, it's -- the demand globally is still very, very strong. So what does it take for us to grow to 1.5 million tonnes of QT materially? I think that -- I honestly think that when the construction segment in Europe comes back, and it will, it's just a matter of time. Then that's going to bring us significant new volumes into Special Steels. I don't know if you can say, but if I can guess 100,000 tonnes only in Europe. And then on top of this, normally, we don't speak too much about it, but the defense industry, the reports that we have received recently indicates that the demand for the type of material that we produce, manufacture and sell, it's going to be significantly higher than we anticipated before including Navy. That means frigates and other ships, but also submarines, where we have a very unique position, but also armored vehicles. I think that we have been maybe looking a little bit too much on Europe's demand when it comes to defense industry. I think a lot of growth is going to come in the United States as well. And there, we have a very unique position. So I think to answer your question, Christian, are we going to actually see the growth that we've been talking about? The answer is yes. We're going to see that growth. It's just a matter of time. We need to be a little bit patient. And to your question, are we losing market share? We do these kind of analysis all the time, and we do not lose any market share. Because if we would have lost market share, we probably would have looked at the pricing. But my rule of thumb is that as long as we're not losing market share, we do not change the prices, hence the reason we maintain our prices on a fairly good level.

Your next question comes from the line of Viktor Trollsten from Danske Bank.

So perhaps as a follow-up to that question on Special Steels volumes. And you mentioned that you expect year-over-year growth in volumes in the second half which would be obviously the first time since 2022. So is that sort of the inflection point of what you just described that you see better market prospects of actually growing those volumes. And the follow-up to that is what would be the expected impact on sort of profitability and mix from that? Would that be incremental to profitability? Or could it be some dilution effects from that? That's the first.

Yes, maybe that was a correction I need to make. But I was referring to the total volumes for '24 with '25. That means that for Special Steel, the volumes will not be lower in '25 compared to '24 and that we're quite certain of. And then where is this demand going to come from? I think that goes a little bit hand-in-hand with the discussion we had previously with maybe some segments will be stronger, segment that hasn't been as strong in the past. And it's like I said, defense will be one of them, I'm certain of that. But I see -- so the -- and I just want to highlight the grade Hardox 500 Tuf, that's a grade that we launched maybe 3 years ago, and it's growing really fast. I mean, we're reaching over 100,000 tonnes only on this grade, and it's growing very, very fast. And it's a grade that we don't have much competition on. And it's a big interest from the market. I think from us -- from our side, it's more a capacity constraint. And that's the reason we also took the investment decision of a new tempering furnace in Mobile, Alabama to give us capacity to produce even more material. So we want to speed up this investment and do it very, very fast. I think also another action we're doing is that we have invested in sort of a welding line in Oxelösund. And the concept here is that we take sheet material from Borlänge, weld it together, then we do the quenching and tempering. That means if you take a cross section, you're not going to be able to see the weld at all. It's completely harmonized or homogenized. You can't see the weld. It gives -- it give very unique properties all over the plate and it's got the same properties all over the plate. That's another way for us to capitalize on the capacity being produced in Borlänge, then using the quenching and tempering facility in Oxelösund, so we can supply wider and thinner material to the market where we have a very, very big demand for. So we are doing some initiatives that hopefully are going to be realized very, very soon. So I'm actually very optimistic for the remainder of the year and also going forward.

And could you perhaps just remind us what's sort of your view on a normalized or normal profitability in Special Steels, because I guess that typically, you would have quite high volume leverage in this business. Now you obviously have very, very good profitability despite, call it, low volumes. So would you expect growing volumes to build margin accretive? Or is it normalized margin below current levels, so to speak.

Well, I think the growth that we want to have is profitable growth. Where we're going to grow is in what we call strategic products, and that's typically high As, it's a high -- it's a corrosion-resistant, wear-resistant material. Also in the 500 Tuf, which I talked about before, it's also in the Armox, the defense material that we are -- that we have is very, very unique in that sense. It's all in these unique materials where the profit margins are very, very good. So to your question, what is the normal profitability level then for Special Steel? I think that the levels we're on right now is -- and I'm afraid to say it because I would jinx it, but I think we are at a point where it becomes sort of stable or normal to that extent. If we sell more to the defense industry, it does have a positive effect on the overall margin because of the mix. So it's going to be very mix sensitive going forward, but I see more upside than I see a potential downside going forward.

Just to be mindful of the time, operator, time is running quickly. We can take one more question now.

We will now take your final question for today and your final question comes from the line of Bastian Synagowitz from Deutsche Bank.

I'll keep it very brief. Just a few quick ones, and sorry for following up. But my first one is just a quick follow-up on the -- on your price guidance for Europe which, I guess, reads pretty constructive in the context of the strong price decline, which we've seen on the spot market and also the 50% spot exposure you talked about earlier. So what's driving, I guess, the stable pricing in Q3? Is it basically better product mix and higher share of color coated, which is helping you to buffer the spot price pressure? That's my first one.

Well, in Europe division, of course, we have quarterly contracts and annual contracts, keeping the price rather stable and compensating for potential further decrease of the prices. So on average, we consider that the stable is a good guidance. Of course, the current levels are already rather low. But there is a combination of contract structure, which is then compensating for potential spot price drop further. So that's on average.

So you say, it's not mix basically. Mix is not the driver here, basically into the next quarter?

We don't see sort of a big change mix wise for the coming quarter. So that doesn't have such a big impact.

If I may speculate, I think the drop of prices occurred in Q2. And from what I'm hearing from our colleagues in the rest of Europe, they are saying that they will rather shut down capacity because the thing is that now they also have to pay for their CO2 emissions. And that's -- and if you put another EUR 100 on top of per tonne produced steel on top of this, you're going to lose a lot of money. So they said, we're going to rather close down capacity. Hence, we don't believe that the prices will go down so much more. I think the drop came in Q2.

Fair enough. Okay. And then next one, just on Americas. I think here, you're guiding for scrap price to be slightly lower. How far is the 50% tariff for Brazilian pig iron something which is on your risk radar? Is this something which could be slightly more disruptive to your scrap supply or metallic supply? Or does it not really impact you that much?

You mean Bastian, do we have an exposure to any Brazilian material in the U.S.

Yes. I would say like what is your view on in terms of what the sensitivity to your own business would be if U.S. would basically put 50% import tariff on Brazilian pig iron. Would that be a risk to you?

No, not at all. I mean occasionally, we are using Brazilian pig iron, especially to our Mobile facility. But we have learned through the years that use clean scrap, we don't need pig iron. So the majority of the heat that we produce, we don't use any pig iron at all. It's more preferred to use the clean scrap, so that is our normal practice sort of.

All right. And then just last one on working capital. I guess, I know you will have probably slightly better visibility. So maybe you can give us some color on whether you expect to reverse the full SEK 3 billion working capital increase, which is built until today by end of this year?

Well, if you look at the reports, we can see that there is a seasonality with our working capital behavior, and it tends to be that the first half is negative and then it will turn more positive. So my guess is that -- or my expectation is that Q3 will be more neutral than Q2 was.

And any color on the fourth quarter and whether you're confident to fully reverse this SEK 3 billion you've built so far?

Well, that's too early to say. But of course, we target to have sort of the full year being as neutral as possible when it comes to working capital.

Okay. Then we can conclude. Thank you for the attention. Thank you for all the good questions. Thank you, Johnny and Leena and we wish you a pleasant day.