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

Good morning, and welcome to this presentation of the SSAB Q2 report. My name is Per Hillström. I'm Head of Investor Relations at SSAB. And presenting today, we have Johnny Sjöström, President and CEO; and also Leena Craelius, CFO. If we look at the agenda, Johnny will start with an overview of the quarter. Then Leena will present more details on the financials, and then Johnny will come back at the end with the outlook and a summary. And after that, we will have good time for Q&A. So by that, please, Johnny, start the presentation.

Thank you very much, Per. And I will start by summarizing our Q2 report. And as always, we start with health and safety. I'm happy to see that the trend continues and that we improve our safety KPI and the safety culture is further implemented in our company. I think also it's worth highlighting that our total recordable, the TRIF is also on a lower level of 4.1, which is one of the lowest levels that we've had in the past. So a very positive sign and positive trend. Now looking at our financial performance and the EBITDA, we can see that our Q2 result is better than Q1 and also better than Q2 last year. We could see that we have had higher shipments as well as higher prices. But I will be coming back to that. Some of these improvements were offset by higher variable costs, mainly related to transportation costs as well as energy costs and to some extent, alloys. We have a good net cash position, and we also strengthened our cash flow during Q2. It's also very positive. And we have to remember now we did a dividend payment of almost SEK 2 billion or more than SEK 2 billion in Q2 as well. So having that in mind, I also want to emphasize that our strategic direction is firmly on track. The conversion of Oxelösund is continuing. We had some small issues with an appeal, but that has been taken care of now and the power line will be up and running sometime at the end of -- or sometime beginning of next year. So we will be in production a year from now that we will be in production in Oxelösund and that's really a big milestone for SSAB going forward. The groundwork in Luleå for the mini-mill continues. We've had some smaller issues related to the work environment and safety is our key priority. So as soon as we find something, discover something, we will stop the production, look into what it is, make sure that we have the right procedures to continue the production, keeping the workers safe. I also want to highlight that this project is split into 3 pieces. One is engineering, one is procurement and one is construction. And right now, engineering is a big part of the project, and that continues even though the piling, which is just a small part of the construction is where it's been affected right now. Also, we have approved some investments in Q2. And one of those investments is the quenching line in Oxelösund. This is a very important step for Special Steel, but also for SSAB and in line with our strategy to increase our volume of unique steel grades. We have seen an increased demand in the defense industry. We also have a very unique product, which is the Hardox 500 Tuf. The demand is very, very high. We've been fully utilized in the quenching line producing these grades in Oxelösund. With this investment, we will be able to produce significantly more of these unique grades. So important milestone for us and also a clear indication that we're fulfilling the strategy that we have going forward. Some words about Special Steel. We had a good volume. I think the shipments in Q2 was good, much higher than Q2 last year, also slightly higher in Q1. But when we have this Middle East turbulence, it's affecting the freight cost. Special Steel exports most of what they produce. Hence, if the freight cost goes up, Special Steel will be affected by it. Special Steel was also, to some extent, affected by increased energy costs and also alloying costs. So even though the financial performance came in pretty much at the level where we forecasted it, we were sort of hoping for slightly more, but that was offset by increased variable cost. Prices were up a little bit. I think we have sort of a lag in time and prices probably will continue to go up going forward. But it's still a very stable performance. So you have to remember that. Now looking at SSAB Europe, shipments were also on a good and stable level, higher than it was Q1, but also much higher than it was Q2 last year. I think what I highlighted in the beginning was the record high level of advanced high-strength steel sold to the automotive. And that's sold into a segment where it's a little bit constrained right now, it shows that we have a product which is quite unique and is attractive to the market. And you were able to increase the profitability or their earnings compared to Q1 and significantly higher than it was Q2 last year. So still a good trend and prices are moving up. And then we have SSAB Americas, where we can see volumes slightly lower than it was Q2 last year. We have had some transportation issues in the United States, difficulties finding railcars and so on. Hence, are slightly lower. The production levels has been on a good level. The demand is very, very high. It's just that the ability to get all the material out has been a little bit constrained -- being constrained because of railway issues. Looking at the financial performance, prices went up almost 7% which is good, and they probably will continue to go up. But then again, here as well, they were suffering a little bit from higher transportation costs as well as higher energy costs and also alloying came in higher than we forecasted, but still a decent performance. And then we have the 2 subsidiaries, Tibnor and Ruukki, where Ruukki came in slightly lower than Q1, but pretty much in line at where it was Q2 last year. And then looking at the financial performance, you can see that they ended up on almost twice as high level as it was last year and significantly higher than Q1, but some of it was also inventory gains, but they were also able to increase prices, and they have been working on increasing prices in areas where they can. And then we have the Ruukki Construction, where the Construction segment hasn't really come back to the level where it should be. We see that the revenues have increased, but that's pretty much in line with our expectations. And it was slightly higher than it was Q2 last year and also higher than Q1. But then looking at the earnings, we can see that the margins were somewhat lower. We have hopes for the future, and we hope that this is going to improve going forward. With that, I leave the word over to Leena and financials.

Thank you, Johnny. Let's begin by looking at the overview and reflecting a bit to the historical performance. If we start with steel shipments. Performance Q2 was 1,760 kilotonnes. As already mentioned by Johnny, it was improvement compared to previous quarter by 24 kilotonnes and improvement compared to previous year by 52 kilotonnes. If we then move up to the earnings or the revenue, SEK 27.5 billion revenue in Q2, also improvement versus previous quarter by SEK 2.2 billion and versus previous year, SEK 1.9 billion. So good volume development as well as price development. And if we shortly reflect back to what we guided for versus Q1, all the steel divisions shipment-wise, we were guiding to be stable. We were spot on in Special Steels and even slightly higher in Europe division and Americas. And then comparing the price guidance we gave, we were giving guidance that all steel divisions would be somewhat higher, which means up to 5%. So we were spot on with Special Steels and Europe and even exceeding that in SSAB Americas, where the price increase was 7%. EBITDA performance, Q2, SEK 3.8 billion, as already mentioned, improvement compared to both Q1 and previous year, which both were SEK 3.2 billion. And in relative terms, we see also improvement when Q2 this year was 14% and last year, it was 12%. Let's then move into more detailed analysis. And here, we are comparing operating result Q2 versus Q1. The operating result, Q2 was SEK 2.7 billion and Q1 was SEK 2.2 billion. And here, we can clearly see the positive impact from prices and volume, and they were offsetting the variable cost and fixed cost increase. And also, the activity level was higher during second quarter. Thus, we have a positive impact from capacity utilization. As already mentioned, prices we guided to be somewhat higher. And on group level, average price was 6% higher quarter-on-quarter. Here, we have some positive FX impact supporting. However, the biggest positive impact came from Europe division with SEK 500 million, followed by Americas division, SEK 330 million and Specialties, SEK 235 million. Also positive impact from Ruukki Construction and Tibnor, as Johnny already mentioned as well. Shipment volumes, 24 kilotonnes higher with positive impact of SEK 160 million. As already mentioned, Americas was increasing volumes by 12 kilotonnes, Europe by 11 kilotonnes and Special Steel was relatively flat quarter-on-quarter. And also Ruukki Construction, as you already saw, had seasonally higher volumes. The variable cost, total impact on EBIT of SEK 510 million. And here, we have a few different elements. We have higher cost of CO2 allowances coming active in Q2, also clearly higher cost for logistics, as already mentioned, and also some raw material costs were higher. The consumption cost is here taking into account and to remind that there is a lag in the purchase price and consumption cost. Pretty much all raw material categories were higher in consumption during second quarter compared to first one, iron ore, coal, alloys and also slightly higher in scrap cost. Fixed cost, typical seasonal development compared to quarters. And also here, we have impact of salary index increase that we pay in Q2 onwards, but also retroactively for the first quarter. Of course, the summer workers also shown here to push up their fixed cost. And also the activity level was higher. So we had some higher IT and repair-related cost, also a bit higher travel and training costs. And the higher activity level is visible also in the capacity utilization, contributing positively quarter-on-quarter. And then we have a look at the operating result this year compared to previous year. This year, SEK 2.7 billion and compared to previous year, which was SEK 2.1 billion. Similar trend compared to previous year as was previous quarter, positive impact from prices and volumes, which were offsetting on total, the variable and fixed cost increase and also positive from the higher activity level as capacity utilization is contributing positively. Prices year-on-year on group level were 2% higher. And here, we have opposite FX impact. So FX is impacting prices slightly negatively. But Europe division contributing SEK 300 million; Americas, SEK 265 million and Special Steel division plus SEK 15 million. Tibnor plus SEK 30 million and Ruukki Construction in this analysis has a negative impact, but that's mainly due to a shifted business mix compared to previous year. Volumes, as already mentioned, 52 kilotonnes higher. Special Steels contributing 220 kilotonnes; Europe 120 and Americas 35 kilotonnes. Ruukki Construction also had higher volumes this year compared to previous year. Variable cost impact negative, but less than what it was quarter-on-quarter. In the iron ore, the raw material consumption cost is actually lower this year compared to previous year. However, then the coal price is higher. Alloys already mentioned was higher. CO2 emission cost was higher and the logistic costs were also higher. Fixed costs higher than last year. And here, we have majority related to salary index increase, only some higher manning and higher IT-related activities, and capacity utilization, positive SEK 155 million. So improvement in operating result compared to previous year and previous quarter. Then continuing with the cash flow analysis, strong performance during Q2. If we compare with the previous year, we have higher EBITDA level contributing positively. We have also positive impact from change in working capital. But if we then look at the running rate, this is sort of a typical first half of the year development. First half of the year tends to be negative, which is turning then towards more positive going forward. Maintenance CapEx, really similar trend compared to last year. And then the other line, which is mainly related to CO2 emission allowance transactions, we had quite a few of them during Q2, and we will continue doing the hedging going forward. If we then jump to the strategic expenditures line, here, we see that the trend was lower than last year. And the running rate compared to last year, we see that it's on the same level. This will naturally pick up towards second half of the year. And the biggest deviation here is actually delayed payments that we have done in the Oxelösund project, but those are mainly related to vendor performance rather than any actual delays. Acquisition of shares. This is related to Ovako Metals transaction Tibnor did in Finland during Q2. And then the dividend payout just below SEK 2 billion also took place in Q2. Really good performance and compared to previous year, the first half of the year was better and deviation mainly from earnings, lower dividends and good working capital performance. This will then lead to a net cash position end of Q2, SEK 8.6 billion. And as already mentioned, the dividend payout took place during Q2. The gearing ratio is still well in line with our financial targets, plus/minus 20%. End of Q2, it was minus 12%. And we are really, really pleased also to mention that Moody's gave a credit rating for SSAB during this week. Baa2 investment grade with the outlook of stable. We have had good discussions with Moody's, and they are understanding the steel industry really well, and they are supporting our strategy and trusting our financial capabilities. More information on that, you can find on our website. Raw material already briefly discussed, but here, we can see the development of iron ore price, and this is purchase price. It has gone down compared to previous year, and it was also contributing positively in the bridge analysis. However, the cost of iron ore has increased quarter-on-quarter slightly. Coking coal prices, we can see that have started to develop upwards already during Q1, continued during Q2. And to bear in mind that in the coking coal, the logistics also plays important element. And as they were going up, it will also impact the cost of consumption going forward. Scrap prices in U.S., as the graph is illustrating, they were higher than previous year during the second quarter. And as this is the purchase price, the consumption cost comes with the lag, and we saw a minor increase in the scrap cost in Q2 compared to Q1. However, then the outlook is that Q3, the scrap cost -- consumption cost should be somewhat lower. We already mentioned also the alloys cost that has climbed up during this year, and it was higher in Q2 also compared to Q1 and already mentioned higher logistics costs and also the cost related to CO2 emission allowances, we have seen that is impacting the variable cost. Good to remember that Q3, we have a lot of maintenance activities starting and ongoing. All steel divisions will have maintenance activities and then the estimated total impact on the result is around SEK 800 million. Fairly similar trend cost-wise, the full year cost-wise compared to previous year. CapEx guidance, no changes compared to what we have been informing previously. We are still sticking to this annual CapEx plan. Maintenance CapEx will be on a similar level as last year, around SEK 3 billion. Strategic CapEx going up, both in Luleå and Oxelösund and then also other smaller strategic investments starting to take place end of this year. We have also indicated that the emission allowance-related transactions that took place last year will be on the same level this year. So the estimated purchases is on around SEK 700 million as it was last year. And no changes either on the IT-related cost estimate. The biggest projects, of course, are related to Luleå mini-mill investment and preparation for their ERP system. And the estimate for the full year operating expense compared to previous year is around SEK 200 million higher. So this we have kept also the same. And I end my part here and give the floor back to Johnny.

Thank you very much, Leena. So then we move on with some outlook and summary. Last time, we spoke about the regionalization that happens both in United States as well as in Europe. And I think it's worth mentioning that and also highlighting that. We see clear signals of the Section 232 impact on the market, which is strengthening our position. We have less imports coming into the United States. And as it is right now in the plate industry, there's a bigger demand than supply, hence, forcing customers to use sheet steel instead of maybe using plates. So it is beneficial. And also, as I said last time, derivatives are included in this Section 232. That means even if you bring in a bucket, it's made of steel, that means it will be subjected to a tariff. When it comes to the trade measures in Europe, we have the safeguards implemented from the 1st of July. That was also sort of announced last time. We have seen prices moving up because of this, but we've also seen a lot of imports coming into Europe and then prices have dropped a little bit. And we believe that as soon as these inventories are gone, prices probably will be moving up again. And on top of this, we have the CBAM. The CBAM was implemented from 1st of January, making it a little bit difficult to bring material into Europe for administrative reasons. The tax itself maybe is not as high, but the administrative things around it will make it more difficult. Then there was a new proposal from the European Commission on the ETS structure. We have to remember that the ETS structure we've had, it was implemented in 2005, and it's been there for quite some time, and now it's being revised. I think our position from the very beginning was that we don't want to make any changes. We have made sort of an investment plan for both Oxelösund and Luleå based on existing ETS system and now it's being revised. I think that the proposal that came out, it looks fairly good. We understand it. It was also a little bit expected because we have to adjust the ETS system to where Europe is right now and also looking at the infrastructure and the availability of fossil-free electricity and so on. So I understand that this change was made and it's going to have a very little impact on SSAB. And then there were some highlights to it as well. I think one of the highlights was that the linking, the free allocation to the investments done in transforming your production into a more fossil-free production. And then also the ability or possibility to get financing from the European Investment Bank as well as also get some funding. So I think this is a good step, and I think it's the right measures in that sense. Now when it comes to the outlook, we are -- just like Leena said, Q3 is the quarter where we do a lot of maintenance. Hence, we will not be able to ship out the volumes that we normally do like in Q2. So our ability to produce will be limited. But the demand is still there. I think prices will continue to move up, but our ability to ship as much as we did in Q2 will be lower. So the guidance in this case is that we will have significantly lower volumes coming from Special Steel in Europe and then some lower for Americas. And then looking at the prices, it will continue to go up. We know that. And here, we're guiding for somewhat higher. It's between 0% to 5%, I guess, maybe it will be closer to 5%. But yes, it's remaining to be seen, but that's what we anticipate at least. I think that is all for the outlook. And just to summarize this presentation, we have to remember that we do have still a lot of geopolitical turbulence. The Middle East situation is not over yet. It has had a negative impact on our variable costs. We're hoping that this will be over, that it will be stabilized. But now things are as they are, makes it a little bit more difficult to predict. I think also our transformation projects, they are on plan still, and I think they are very important for us. And we have to remember now that it's going to be almost impossible to have blast furnace production in Europe after 2040. So this is necessary, and I think it's a good plan that we have. We also made the decision to invest in another quenching line, which is in line with our strategy. I think that's also a very important step for us going forward. And we see profitability earnings improvements, both in Europe as well as in the Americas. And we also see prices are going up and will continue to go up. And then that our shipments will be somewhat lower in Q3 because of the maintenance that we have in Q3. But all in all, I would say that it's a stable quarter. I think that we performed. We were sort of taken a little bit off guards with the higher variable costs, but still we came out on a decent level. I have high expectations going forward. I think that we are present in the most important segments, markets, and we have a good position for the future. But that pretty much summarizes it, Per, and I'll leave the word over to you now.

Yes. Thank you, Johnny. Thank you, Leena. Now we can prepare for the Q&A. And I would suggest initially in the first round that we limit to 2 questions to get as many people as possible the chance to ask a question. And as usual, please ask the questions one by one to give time to answer in between to make the process smoother. So by that, please, operator, present the instructions for the Q&A.

[Operator Instructions] And your first question today comes from the line of Andrew Jones from UBS.

So just firstly on the ETS, Europe's response to it was actually pretty negative, I guess. I mean you gave some initial thoughts on that. I'm curious where you can potentially benefit from this. Is there any scope for maybe some more CapEx support at the Luleå project? Or I guess that Raahe would qualify at this stage, is that possible? And also on price hikes, I mean, as you noted, maybe it is a bit conservative here. And I guess there's lags that impact on the 3Q guidance, but I saw that Mittal was aggressively hiking HRC prices already in response to the quota cuts. I'm curious if you see potential for HRC to sort of get into the high 700s in the not-too-distant future? Or do you think the summer seasonality is going to negatively impact the ability to achieve those sort of price increases?

All right. So if we start with the ETS, I think that our initial stand is that we don't want any changes because we made our business case based on the existing ETS system and uncertainty is not good. Now when we've seen the proposal, and we have to remember, it's still a proposal, we don't think it's that bad. I think linking the free allocations to the investment ability, but also giving the market a chance to get funding both in the sense of loans as well as getting real grants, I think these are good things. A lot of details need to be worked out. We also need to look at the timing. But I think there should be an opportunity for us to get some benefits from this. Otherwise, I would be surprised. So it's too early to draw any conclusions, but I think my -- our initial reaction is not a bad proposal as such. And then to your questions regarding the pricing, it is -- these safeguards implemented 1st of July will help the market and will help the prices to go up. We are certain of that. But then as I said before, we saw a lot of inventory coming into Europe. Inventories went up. But we also believe we have a rough idea of what kind of volumes we're talking about here, and we have a rough idea of how much time it will take before these inventories are sold out. We think at the end of Q3, these stocks will be sold out and then prices will start moving up again. So what happens now is that we are negotiating quarterly contracts, half year contracts, et cetera. Here, we have a good idea of what the market is expecting. So hence, we know that prices will be moving up. But since -- the way we work now, we can't guide for any higher price increases because it's -- the model makes it such that it's a slow progress for us. We're not selling so much spot on the spot market. I think the spot market prices will move up in the end of Q3. And to your question, is it going to be above 700? I guess your guess is as good as mine. But there is some likelihood that, that will be the case. But prices will be moving up. And you say that are we conservative? I'm saying like we said last time, it's -- we have a lag in the system. We are negotiating prices now and some of it is -- some of the contracts will be higher and somewhat it's just somewhat higher. But in average, maybe it will be 4% to 6% or something like that in average. It's hard to say, but in that frame, in that ballpark.

Yes. Okay. That's clear. And just one quick follow-up on the CapEx guidance. You've maintained it despite obviously having the safety stoppages in -- as a result of issues at Luleå. I mean, have you -- was the reason why that wasn't maybe deferred partly to next year because of the delays? So why was it maintained rather than cut?

As Johnny was referring, in Luleå project, we have different sort of streams. Engineering has continued and will continue and also the procurement stream has continued and will continue. The standstill was mainly related to the ground preparation work and then we are now sort of rescheduling that. But there is, of course, room to reschedule and catch up. And so far, we haven't updated our budget or schedule. So we are sticking to the CapEx guidance as we presented.

Your next question today comes from the line of Kaleb Solomon from SEB.

Maybe starting off with the inventory levels in Europe. They're still somewhat high, having sort of continued to build up ahead of the new quotas in July. But first, did I hear you right in saying that you expect that to be normalized by end of Q3? And sort of as a follow-up to that, have you -- or do you sort of expect to see any impact on the demand side as a result of the sort of positive price developments in Europe given the just general economic climate, especially if they, as you sort of said earlier, continue to move up after inventories normalize? So just interesting to hear your reasoning on that part.

Yes. I mean, the underlying demand is what it is. I don't think that's going to increase or improve in Europe in the second half of this year. It's just a rebalancing. That means of this 36 million tonnes of imports, half of that will be probably sold from European sources instead. So the demand for European steel will increase, and that's also going to make the prices go up. And to your initial comment, yes, our assumptions are that those inventories that was built up prior to 1st of July, looking at the volumes, it's likely that they will be sold out at the end of Q3. That's what we are anticipating at least.

Okay. That's clear. And just a second on Oxelösund. You're expecting to start production in Q2 next year. Can you give some color on roughly how long you expect that ramp-up to take before reaching some sort of satisfactory utilization level? And as a sort of second question, will you be providing any sort of guidance on what the ramp-up cost will be for that period as we get closer to that date?

Yes. So in Oxelösund, we are only replacing the blast furnace with electric arc furnace. The rest will be the same. So as long as you have the right chemistry from the primary production, you will have the same quality through the rest of the operations. We have a rather large product portfolio in Oxelösund, which means that each product needs to be sort of qualified in a way. So -- but this will probably go pretty fast. We have a very good experience from this. We've done it in the United States with electric arc furnace. And some of these operators will be moved over to Sweden during the ramp-up phase. So we believe it's going to take less than 6 months and some of the grades will be available through the fossil-free route already after 2 months. Not the whole portfolio, but some of them will be available already after 2 months. And then we will continue the qualification. But 6 months is what we're anticipating. And then regarding the cost, Leena, could you help me out here?

Well, we haven't really calculated that. And of course, it's difficult to calculate. I would say that there is already some higher manning working with the project, and that will sort of continue, but then level out eventually. And then maybe to remind that we do have blast furnace functioning while we are doing the ramp-up. So we most likely see some higher slab inventories as a preparation for the start-up. So all in all, in big picture, the ramp-up impact should be rather modest, I would say. But we will get back to that when we have a bit better plans at the later stage.

Yes. I can second what you said. I think that those costs will be rather modest. And when I saw some figures myself, I was surprised that they were as low as they were actually.

Exactly. But we will get back to that a bit later.

Your next question today comes from the line of Alain Gabriel from Morgan Stanley.

A couple of questions from my side. First, on the U.S. plate or the Americas business, the typical one quarterly lag suggests a low teens ASP for Steel Americas as we head into Q3. Johnny, how do you explain the somewhat lower guide than the lag spot market would suggest? And more broadly, if we look past Q3, where do you see the most exciting end markets for the U.S. plate business? That's my first question.

Yes. So related to the price, I emphasized it last time, we have a lag in our system. It takes a little bit longer for us to implement price increases. But it is happening, and we see it happening. And we had a price increase of 7% in the second quarter. And we already now negotiate quarterly contracts, et cetera. We know prices are moving up, and we have also announced price increases. And I know that there could be a deviation from what CRU is indicating and that we are a little bit behind. But we will have significant price increases in Q3. And I guess, looking at the guidance that we gave, we were higher than previous guidance, and it could be the case that we end up here this time as well. But from what we know right now, I think that we're between 4% to 6%, and that gives us a somewhat lower -- sorry, somewhat higher price increase, yes.

And which are looking the most attractive there in U.S.

Thank you for reminding me of that. I think it's very much similar to what I said last time -- last quarter. It is the industrial segments, everything which is related to energy, it's growing, transmission towers. And if you look at these server halls, that's being erected pretty much everywhere. We don't sell maybe so much steel into those service halls, but the transmission of electricity to those service halls, they need transmission towers, et cetera, there we sell a lot to. And then you have wind power, we have oil and gas, we have pipes, tubes. We sell a lot into this, and that demand is still very, very strong. We see some also improvements in the railcars production. Crane business is also improving. We see Mexican capacity moving back to United States. That's just reallocating because we were still selling, let's say, John Deere as an example, we were selling most of what they consumed in Mexico, they will still consume even though they move their manufacturing to United States. But we see some improvements there as well. So -- but in general, those are the segments that we mainly are focusing on.

And a follow-up on that question is on the lead times for plate. Typically, you've always guided for a quarter lead time. The current stretch lead times, does it mean that the lags will hit your P&L much later than what they have done in the past? That's a follow-up on that question. And my second question is on the costs which seem to have come through a bit higher than what you had initially thought when you've given your guidance for Q2, and you've singled out the logistics and alloy prices. How much visibility do you have into Q3? And how confident are you that your cost guidance on these aspects on logistics and alloys is in the right place today?

I guess maybe Leena, you can answer on the...

Maybe I'll start with the cost guidance. Of course, we know that the raw material consumption cost is -- I assume it's not going down. It's continuing on a stable level. As you saw, the U.S. scrap cost or the consumption cost, however, will be slightly lower during Q3 versus Q2. But all in all, all these much higher logistic costs, high alloys cost and also the elevated cost for CO2 emission allowances, that will be visible in our figures for Q3 and not to underestimate the cost related to the maintenance. So that's good to also bear in mind that cost -- we don't see a big drop. That's my view going forward, rather stable.

And I guess for the first question here, what's the lag between us and the market price. And I would say, it's at least a quarter because we negotiate -- majority of what we negotiate is quarterly contracts. And then we have half year contracts. And sometimes we have yearly contracts. That means that we should be half -- sorry, 1 quarter behind. And if you backtrack where we are now compared to the first quarter, you can see that we are 1 quarter behind. So it's likely that will be the case in Q3 as well.

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

Just a quick follow-up on the Q3 guidance. You flagged that you have those higher prices offsetting higher costs. You guide for raw material costs, and you touched a little bit on energy, alloys and logistics. So you implied it relatively steady, not increasing, not falling. But when you say higher prices mitigate higher costs in Q3, that include both raw material and other costs, right? So is this kind of a neutral margin outlook for Q3? And is that valid for both Europe and Special Steel alike? Or there are differences by division?

So my assumption is that in the United States, the price increases will, for sure, cover for all the cost increases. For Europe, I think it's a little bit more uncertain, especially when we talk about energy as well as when we talk about transportation costs. But the way we see it, it will be covering the costs. I guess, Leena, if you have any other comments on that?

No. But then to remind that then we have the maintenance cost impacting the results. So in relative terms, yes, of course, we always try to compensate with the pricing. Now we had this sort of the lag and mix in Q2. But going forward, it should be sort of more compensating, but reminding the maintenance cost will definitely hit the Q3.