SSAB AB
STO:SSAB A
SSAB AB
STO:SSAB A
Price:
82.44
SEK
1.03%
Market Closed
Market Cap:
kr82.2B
Add Note
Add Target
Capture your thoughts and set a target
Decide at what price you'd be comfortable buying and we'll help you stay ready.
Based on
Margin of Safety
0%
10%
20%
30%
40%
50%
Your Price Target
Linked to
current price
· In Buy Zone
Loading
Note attached
Choose the stock you wish to monitor with a price target
Popular Picks
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
Bank of America Corp
NYSE:BAC
|
US |
|
Mastercard Inc
NYSE:MA
|
US |
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
Pfizer Inc
NYSE:PFE
|
US |
|
Nike Inc
NYSE:NKE
|
US |
|
Visa Inc
NYSE:V
|
US |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
Coca-Cola Co
NYSE:KO
|
US |
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
Chevron Corp
NYSE:CVX
|
US |
|
Walt Disney Co
NYSE:DIS
|
US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
Good morning, and welcome to this presentation of the SSAB Q3 report. My name is Per Hillström. I'm Head of Investor Relations at SSAB. And with us today here is our President and CEO, Martin Lindqvist; and also our CFO, Håkan Folin. We have a bit of a hybrid setup today. Martin has a bit of a cold, so he's not here with us in the room, but he will participate over the phone. And again, as usual, Martin will start with the overview of the quarter, and then Håkan will go into the financial details. And then Martin at the end with the outlook and the summary. And then, of course, there will be good ample time to ask questions at the end, but we'll come back to that. So by that, Martin, we can now see your first slide here, another record quarter for SSAB. So please, now you can start with your presentation.
Thank you, Per, and good morning. And I once again apologize for not being able to be in the room, but I have quite cold. So I guess it's better for me to call in than to be in the room, even though I look forward to meet you all for the first time in 1.5 years. But if we start with that picture, I would summarize Q3 and use the word solid internal performance in a strong market. And these are some of the KPIs. And if we start with safety, we are moving in the right direction. This is long-term injury frequency per million working hours, and we are now rolling 12 at 1.9, which is a huge -- much better than we have seen previous year. And if we take it year-to-date, it's even better. If we then move over to Special Steels, we could see that we, during the third quarter, even though we had an outage, we could -- we continue to grow the Special Steel volumes. And this is the best Q3 deliveries we have ever seen for quenched and tempered. We also continue to improve the mix in Europe. Year-to-date, the premium mix is 43% of the premium share. And if we take Q3 stand-alone, it was 45%. And this is also an important part of our strategy to shift the mix towards less volatile and more profitable products. And it all ended up in record high earnings with an operating profit of SEK 5.8 billion for the third quarter. If we take the next slide, Per. Another, I would say, remarkable event during the third quarter was that we rolled the first fossil-free plates in Oxelösund ever during the third quarter. And we didn't only roll fossil-free plates, but we also shipped them to one of our customers, Volvo Group. And they, during the quarter, also came out with a new product, a load carrier for mining and coring, which is made completely out of fossil-free steel. So this is one very important event on our journey to become the first fossil-free steel company in the world. And we have now proven that the technique works. And according to Volvo, the quality of the steel is as good as the steel we usually produce. We have also, during the quarter, signed a number of strategic partnerships. And on this picture, we have Mercedes. It is an important partnership with Daimler Group that in the future, they will use fossil-free steel from SSAB. We'll then take the next slide. If we look at the divisions, I would say that all divisions were performing very well and meeting record levels in profitability. The reason why Special Steel is a bit lower than Q2 is, of course, that Q3 is a quarter with planned maintenance outages. But even taking that into account today, there's SEK 1 billion in EBIT. Europe, SEK 2.5 billion, clearly the best quarter ever. And SSAB Americas almost SEK 1.9 billion in the quarter. Even in Northern and Ruukki Construction did very good profits and record profits and, of course, much better than previous third quarters in the history. If we take the next slide and move into divisions. I'll start with Special Steels. I would characterize the quarter with strong underlying demand, of course, affected by the maintenance outage in August. Then typically, we also see a seasonal slowdown both in July -- partly in July, but definitely in August. Shipments of 348,000 tonnes, which is, as I said, a record for the third quarter. It's 34% higher than the third quarter last year. And then EBIT and operating profit of just north of SEK 1 billion, equivalent to 17% EBIT margin, which was, of course, due to better prices, higher volumes but also very stable production. And as we have discussed before, now since the beginning of Q3, Mobile, the plant in Mobile is also part of Special Steel. So that may move from Americas to the Special Steels from 1st of July. If we move over to SSAB Europe. Strong market conditions during the quarter. Of course, here as well, somewhat of a seasonal slowdown end of July, August. High share of premium. EBIT of SEK 2.5 billion, which is 23% EBIT margin, which is, of course, a record level. Saw the effects of higher prices, higher volumes, better capacity utilization. And also here, we had planned maintenance stops during the third quarter, which we typically have. And you can also see on the lower-right part of the slide, we've tried to describe the development for automotive and advanced high steel strategy we have within automotive, we are more resilient compared to the general automotive market. So we see clearly that the advanced high strength steel part is structurally growing better than the market or less volatile than the average automotive market. Then next slide, please, to Americas. We were, during the third quarter, in controlled order intake, which we typically are when prices are moving up, so we don't want to sell out too early. And I think the Americas organization has that in a very good way. We saw good demand during the quarter, higher shipments, both compared to previous third quarter last year, but compared to many third quarters in history. We had an EBIT of almost SEK 1.9 billion, which is, of course, a record level and an EBIT margin of 31%, which is really good. So a strong quarter from Americas as well. If we take the next slide, start to look into Tibnor. Another strong quarter for Tibnor, and they have really put the organization in place. They are finished with the structural cost efficiency program, and they are doing a very good job. They have saved more than SEK 200 million on an annual basis. And that, of course, is contributing to the record profit. Revenue was up to 75% versus Q3 last year, and we had an EBIT of north of SEK 500 million, equivalent to an EBIT margin of 17% due to higher volumes, better prices and also prices are moving up some inventory gains. But overall, internal performance also in Tibnor was really good during the third quarter. Then next slide, Ruukki construction. They continue in a steady pace to improve operating profit and how they run operations. Had a very solid performance. And nowadays, we fully or they fully focus on the product business, envelope and roofing business. The rest of the business, we have sold. So this is purely in our product business. Revenue increased to 27% compared to Q3 last year. And they had an EBIT of SEK 229 million or an EBIT margin of [30%], which is good. Saw better volumes. They struggled, of course, with higher steel prices. But I think they handled it in a very good way and ended up with a good result during the quarter. So with that, Håkan?
Thank you very much, Martin. And I will give you, as usual, some more details then on the financials in a very special quarter like this one. As a summary picture, this shows to a large extent why this was a really special quarter. If we start with sales over there, we reached a record level of sales with even more than SEK 25 billion in sales. If we look at shipments, well, this is the one where we don't have record levels. We were higher now in Q3 than Q3 last year, which was, of course, very different. But we were in line with Q3 '19 and '18, however, with a clearly improved mix level. As Martin discussed, we had record levels for Special Steel, which is the one we want to grow to improve the mix. And also within SSAB Europe, we are seeing very good development for our premium strategy there as well. So very -- same level of shipments, but clearly with a better mix than we've seen before. On the EBITDA side, we had an EBITDA of SEK 6.6 billion and an EBITDA margin of 26%, also this then a record quarter for us. But actually, the one that really sticks out is down here, EBITDA per tonne delivered steel, given that shipments were lower than previous quarters, but profits were higher, well, you do the math, and we have a very strong EBITDA per tonne delivered steel of around SEK 4,500 per tonne. If we then look what has happened between the quarter and we start comparing Q3 this year with Q3 last year, well, it's almost opposite world. Q3 last year was, of course, very weak, and Q3 this year has been very strong. We have a total improvement going from close to minus SEK 1 billion to close to SEK 6 billion in EBITDA, so almost SEK 7 billion in difference between the quarters. A very large improvement is coming from prices, SEK 8.7 billion when we add it up between the divisions where the biggest items are in Europe and in SSAB Americas. We also had better volumes, and this is mainly coming from Special Steel. And of course, that's, as we said before, that's where we want to see volume growth. Variable COGS impacting negatively with SEK 2.2 billion. We say here higher raw materials, especially iron ore, and that's even actually around SEK 2.6 billion. But given that we were running operations with higher activity level, that also helps in terms of energy efficiency, yield levels, et cetera, so mitigating part of that raw material increase. Fixed costs are, of course, higher now in this quarter than they were a year ago. We are running operations at a significantly higher activity level. We were doing a lot of scrambling last year in terms of saving costs. Internally, we have actually, mainly during this year, compared fixed cost with how it looked in 2019. And when we do that and we look at year-to-date fixed cost '21 versus '19, we are actually clearly lower despite higher activity levels. So a lot of the savings we did last year we have actually -- they were, not just temporary. We have managed to establish a lower cost level in the company. Some negative on FX. Better capacity utilization. We took some prolonged maintenance outage last year given the market situation and then some other. But all in all, it's, of course, a very different situation now in Q3 versus last year. We see it in better volumes, and we see it especially on the margin and the utilization side. If we instead then compare Q3 now with Q2, we compare 2 really good quarters. We still have, an improvement of around SEK 1.7 billion. And also here, prices are impacting significantly, mainly again for Americas and for Europe. We have a negative impact on volume of close to SEK 800 million. This is because we have a seasonal slowdown in Europe, and we had a planned maintenance outage in Europe. So it's a natural and traditional pattern that we see. Variable cost, higher. You know the development within iron ore, that's the main impact we see there. And then on fixed costs, they're basically at the same level in Q3 as in Q2. Usually, we see lower fixed cost in Q3 because we have this vacation reserves. This year, they are on the same level, mainly because we've had accruals for performance-related salaries, both in the Nordic system but also in Americas where we have quite a large portion of the salaries being variable depending on production and market situation. FX, quite minor. Capacity utilization, again, it's the planned maintenance outages and then we have some others. But all in all, the improvement from Q2 to Q3 is mainly because we have better margins. We have a strong net cash flow also for this quarter. It's SEK 2.8 billion. Despite that, we were actually building as much as SEK 2.7 billion in working capital. Why were we doing that? Well, because of the increased sales prices, we're building AR and we're also building inventory, especially on the price component side, given the iron ore development and lately actually also the coking coal development. Year-to-date, we are at net cash flow of as much as SEK 7 billion. And of course, the net cash flow has had an impact on our net debt. We are seeing a significant reduction in net debt. So far this year, we have actually -- if we compare to 1 year ago, we are down from close to SEK 13 billion to almost down to SEK 3 billion. So it's almost a SEK 10 billion difference compared to a year ago. And we are a net gearing at only 5% now, 22% 1 year ago. In terms of our debt, well, for the coming plus 2 years, we have maturities of SEK 3.4 billion. And of course, you've seen the cash flow generation. So this is very much under control. This might stick out a bit. Our duration of the loan portfolio has increased. The reason is that we have used the cash that we have generated to pay back short-term debt, and therefore, the overall duration has increased. Our forecast for cash needs of the business is basically unchanged. It's around SEK 5 billion for the year. We are saying that CapEx, SEK 3 billion to SEK 3.5 billion is what we have guided for throughout the year. We can see now that with only 1 quarter left, it's more likely we'll be closer to the SEK 3 billion than to the SEK 3.5 billion. And otherwise, there was no change, so around SEK 5 billion in cash needs. If we then move to the raw material side, here, there has been quite -- if the previous picture was unchanged, here, we have seen a lot of development. This is showing our purchase prices. And for iron ore, our purchase prices were 13% higher in Q3 versus Q2. But for those who follow the spot market, you know that the sharp increase we have seen from iron ore, all of a sudden turned in Q3 and then dropped significantly. Now reestablished somewhat, but still it's -- on spot market, iron ore is much, much lower than it was a quarter ago. So our purchase prices are up. But for the coming quarters, if the situation is the same as it is right now, we will definitely see lower purchase prices for iron ore. For coking coal, on the other hand, they were not moving so much for a long time, while iron ore was moving up. But now during the last quarter, spot prices have moved up a lot. Our own purchase prices were actually 34% higher in Swedish krona versus Q2. So we have seen a huge increase. And if this continues, our increased purchase prices will also continue for coking coal. Scrap in the U.S., on the other hand, there, we have seen a much more stable development. Our own purchase prices in Q3 was more or less unchanged versus Q2. We saw a slight -- this is spot market. We saw a slight decrease in October, but all in all, not huge changes on the scrap market in the U.S. Finally then for me, a few words about the maintenance outages in remaining in 2021. Usually, we only show this picture maybe for the coming year, and then we have it in the appendix. But reason I brought it out now is that we have a change here because since we have moved the ownership of the Mobile mill from Americas to Special Steel, we also have a change in split of the cost for this outage between Americas and Special Steel. And given that so far, the majority of the products produced in Mobile is still standard plate, we also have the majority of the costs being with the Americas. But the cost for the outage as such in total is the same, but just a split between the divisions. And with that, Martin, back to you.
Thank you, Håkan.
Now you have your first slide also, the outlook for the main customer segments.
Thank you, Per. And if we take a look at the outlook, I would say that Q4 underlying demand looks okay. If we take -- start with heavy transport and automotive, the question is, of course, what will the impact be from the shortage of semiconductors? That is, we don't really know. But we see the underlying demand being continued on good levels. If we look at the Construction Machinery and Material Handling, very good demand, good level in main markets, strong demand from mining and so on, so moving on quite nicely into Q4. Energy, we see modest improvement in oil and gas and good activity within wind power and transmission, which are 2 important segments for us. Construction also good underlying demand. But as always, we will see a seasonal slowdown depending on the winter weather in Q4. And then service centers, I would say, fairly normal inventory levels in Europe and maybe on the low side in North America. And we'll see how they take out volumes in Q4. But overall, I would say, a decent outlook for Q4 as well. And then we'll see, as always, second half of December, how the volumes goes out and if customers take stop -- production stops due to lack of semiconductors and so on. But for us, the majority of Q4 is already in the order book. And if we look at the outlook that we described it, we expect the demand for steel to be good. And as said, a question mark regarding the semiconductor shortage and seasonal slowdown. We see also that the global demand for high-strength steels and QT is structurally growing. And we compare Q4 versus Q3, we say in Special Steels, we will have stable shipments and higher prices. In Europe, we will have higher shipments and somewhat higher prices. And in Americas, we will have significantly lower shipments due to the outage Håkan mentioned, but significantly higher prices in Q4. So to sum it up before we open up for questions. I would say that the market is what the market is. But we have seen also during the third quarter, a very solid internal performance in a strong market, which is very positive. We've also seen that we are -- despite the market, we are able to continue to move the product mix short term and long term in our favor. We had record earnings and continued strong cash flow generation. And we have seen also, during this quarter, a significant reduction in net debt. And I expect us to continue to generate strong cash flows going forward as well. And last but not least, one of many important events, of course, during the third quarter was that we rolled the first fossil-free steel in Oxelösund. We shipped it to Volvo. And we have now proven that we have developed a technique. It works. And we have proven that we can supply customers with a fossil-free value chain. So all in all, I would say, a good quarter with good profitability, good cash flow generation and a solid internal performance. With that, Per, I hand back to you.
Thank you, Martin and Håkan. And now we will be ready for some questions. [Operator Instructions] But we can maybe start here in the room and see if there is any opening questions from here. No, I guess not. Then we will please ask the operator to present the instructions for the Q&A. Thank you.
[Operator Instructions] The first question comes from Alain Gabriel from Morgan Stanley.
I have 2 questions, and I'll ask them one at a time. The first one is for Håkan. Looking forward into Q4 and 2022, what are the big changes to your cost base that we need to look out for? Especially electricity, natural gas prices and other raw materials that have been increasing in cost quite considerably. Would you be able to quantify the increase in energy costs or at least give us the ingredients to calculate it ourselves going forward? That's the first one.
And I don't take iron ore then and coking coal or scrap since you didn't mention them and we saw them before. But for electricity, which has moved especially in Europe, not that much in Americas then, but in the Nordics, we are hedging our electricity costs, so you will not see any major difference in the P&L for electricity cost for Q4. We are roughly hedged to around 90%. So that's not going to have a significant impact. Also for other energy types, like natural gas, for example, that has already increased quite a lot. And we have had higher costs for natural gas in our P&L already now 2021 versus 2020. But it's not going to be, if we compare only Q4 versus Q3, that will be slightly higher but not a significant impact either.
That's very clear. And for 2022, we haven't mentioned on the electricity costs.
There, we are not hedged as much. But still, we have a quite high hedging grade, so let's say, roughly around 75%, 80%. So also there, it's not going to be a huge impact. And I mean of course, as you know, for our production in the Nordics where we have blast furnace base, electricity is normally not a very large cost portion. It could be higher now given the situation we have. But since we are hedged to, let's say, 75%, 80%, we don't expect that to be a major issue in 2022 either.
And the second question is for Martin. Firstly, I hope you feel better soon. My question is you will be at close or at net cash position by year-end. Besides the potential dividend that you could announce at the full year results, are you interested in stepping up your bolt-on acquisitions? And if so, would you consider any blast furnaces in Europe where you can replicate your success at that hybrid there?
No, we will continue to do these smaller and midsized bolt-on acquisitions, but that is what we are going to do. So no major acquisitions or no blast furnace acquisitions.
The next question comes from Jack O'Brien from Goldman Sachs.
Clearly, you're seeing fantastic cash flow, and you have a very strong balance sheet. Is that -- or might that encourage you to bring forward your green plans, which are obviously gaining some traction? You talked about some of the positives you're seeing with the relationships there. So interested to see whether you might look to convert some of your other plants more quickly given that traction there.
To give you an answer on that question, we will clearly have a balance sheet. So it's possible to do. But the problem is that, that decision is not fully in our hands. We need both environmental permits, and I think that is maybe the easy part to converting, but then we need electricity and power supply. And we are now focusing on the first mill in Oxelösund 1st of January 2026 after the [ late ] full production only fossil-free steel. We think that, that is more than possible, and we are aiming for that. But I mean we don't have full control of the power supply. And that can typically to get the power line in place and typically take a number of years. So the planning time is quite long, and you need to do a lot of work together with lot of stakeholders in order to get that in place. But if the market continues to develop in the direction we see right now and we have all the responsibilities that we will, of course, look into the possibility to be somewhat quicker than 2045, which is the target we have today to be completely fossil-free 2045. But that will be dependent on a lot of things. And I would say power supply will be one very important part of it.
And just one follow-up, if I may, looking at the cost of carbon, which has clearly been increasing in Europe. As I understand it, you've got a roughly SEK 200 million cost for CO2 in 2022. But perhaps you could just talk through the latest there based on sort of deficit and inventory of certificates and so on.
Do you want to take that, Håkan?
Well, there's no real, latest update for the coming year. We will have a cost for it. But actually, the rights we have already purchased, but now they're sitting on inventory and then we [ will ] move them to the income statement. So there's no change in -- even though the cost as such on the spot market has increased, the cost for us for the coming year, there's -- it will be a few hundred million kronas, but not much more than that. And then we'll see long term, like you said, there are discussions about what EU will do in terms of reducing the fee allocations, et cetera. But for the short term, we don't see any difference for us.
We have been buying emission rights for a number of years. Thank you.
Next question comes from Alan Spence from Jefferies.
I've got 2, and I'll just take them one at a time. The first is on Americas. In terms of the development and plate prices there, do you view that might be able to regain premium to HRC? Or do you think the discounts might persist for a couple of quarters?
Over time, plate has always had a premium compared to HRC. And that's -- we haven't seen, I think, in the last 3, 4 quarters. If that will normalize or not, I think it's a good question, and I can't really answer it. But over time, there has always been a premium for plate. But having said that, plate prices are as they on are very high levels as well. So I don't have the visibility if and when that will change.
That's fine. Okay. And then my second one is just around automotive. Can you perhaps quantify how much shipments to OEMs have been deferred or lower versus indications?
Can you take that, Håkan?
I don't have that from the top of my head, actually. And it hasn't been, I would say, it's been some impact now in Q3, but we also had some delays that we've been catching up. It probably will be a higher impact for Q4. But I don't have the figure in my head, actually.
The next question comes from Carsten Riek from Credit Suisse.
Two questions also from my side. The first one, Håkan is on the iron ore. You mentioned already that it's very likely to see the iron ore prices rolling over. But looking at this from a coking coal perspective as well because we have a counter movement here, do you expect that your raw material impact in the European operations will be net positive for the P&L or net negative or neutral?
It varies a bit actually by site. As you know, we have -- in Luleå, we don't have an inventory of iron ore. So in Luleå, for that production, we expect that iron ore cost in the P&L will actually be lower in Q4 than in Q3. For the other side, [ Raahe ] and Oxelösund, it takes a bit longer before we get that impact. That might come to -- if prices remain as they are, we would have lower iron ore cost than maybe towards the end of the quarter rather than maybe even beginning of Q1 next year. But also for coking coal, as we saw, there was a huge increase in our purchase prices for Q3, but that also has a delay before we see it in the P&L. So it -- I would say it -- again, it depends on how they develop, but not a huge difference actually Q4 versus Q3.
Okay. Perfect. The second question I have is more on the value-added share, which like actually increased quite a bit compared to what we have seen last year. The question is how do you want to make sure that the high level or high share value-added products stays at this level once the market is cooling? Is there enough customer relationship or already built? Or is there a chance that we actually drop back to levels below 40%?
I think we are not where we would like to be. We have the ambition to have the strategic target is to have 50% of the volumes being premium. And of course, it varies between quarters. But over time, we see the possibility to reach that, of course, and we see also structural growth. So trick for us in order to reduced volatility and increased profitability is to keep the total volumes on a fairly the same level and then even more to grow Special Steels more into premium in Europe and in North America. So it can vary between quarters. But the ambition is to reach 50%, and I think we have a very good chance to reach that.
The next question comes from Anssi Kiviniemi from SEB.
It's Anssi from SEB. I have 2 of them. I will take them one by one. First of all, Q4 demand comments. You highlight the uncertainty in Europe. But then again, you indicated that the deliveries will increase in Q4 versus Q3 in the region. So how should we read the situation? Do you think that the kind of uncertainty in the market will be more visible in Q1? Or is this kind of only you being a little bit more cautious on the market outlook?
But as said, I think we have a fairly decent visibility in the order book, and that's why we say this. But then you never know because we don't have visibility into, I mean, the possibilities for automotive and heavy transport to get semiconductors and if they take outages or not due to that. So that's what we are talking about. But if we look at our order book, it's, I would say, fairly okay or okay for Q4. But then it depends on what will happen, especially, I would say, the second half of December due to other reasons. But when we look at the underlying demand in our order book, it looks good.
Okay. And that was basically the second question. In the appendix, you once again highlight the SSAB Europe monthly order intake. And it seems that September is clearly down from previous year. So kind of my question is that is this due to the fact that the underlying demand is weaker compared to last year? Or is it due to the fact that the kind of your order book is in a much more higher level, and thus, you're not taking as many orders as last year? Or kind of how should we read the situation?
The order book for SSAB Europe for Q4 is in quite good shape.
And kind of the reason for order intake decline in September, could you elaborate a bit on that?
It's not any big deals. I mean we have also some delays. We have had very good order intake. So it's a combination of managing the order book, I would say. That's the main reason. And then a single month, no, we have the order book we would like to have for Q4 in SSAB Group. That's the clear answer. Then there were some pluses and minuses. But we have the order book we want to have for Q4.
As you can -- I was just going to add, Anssi, that you should also think about last year September, we basically almost went into September with an empty order book, which meant that we were chasing all the orders we could get to fill up the order books. Now we enter September with clearly a different situation. We have quite a strong order book for Europe. And therefore, the delta between Q3 this year and last year in terms of -- or September this year and last year should not be seen as that the market is much weaker. It's more a matter of the size of the order book entering the month.
The next question comes from Luke Nelson from JPMorgan.
My first one, sort of a bit of a follow-up to the prior question, just on lead times and if you have any visibility at all heading into Q1 2022. I know you don't guide that forward, but if you have any sort of qualitative comments on potentially how volume shipments could be looking Q1 versus in Q4 assuming your assumptions around autos hold for this upcoming quarter? That's my first question.
As you pointed out, we don't typically have that visibility. What we see is that the structural growth for high-strength steel is continuing into next year. That's what we see.
Okay. And then on -- in terms of the moving parts for cash needs into 2022, could you maybe just give some qualitative comments around CapEx? Specifically, I think before you guided to around the SEK 3 billion level next year, off the top of my head. But maybe some comments or thoughts around how that could be moving year-on-year.
Håkan?
We guided for roughly SEK 3.5 billion next year. We have said given that we will probably come out a bit lower this year, I would say, and we are really -- one reason we're coming at lower risk, we're not spending that much money yet on the conversion in Oxelösund. So a large portion of that will probably be transferred into next year. So there could be slightly higher CapEx need for next year. On the other hand, given that we're at a much lower net debt and also gross debt, we should see lower interest costs for next year.
Okay. Very clear. And final question for me. Just on -- again, on a prior question talking about green steel conversion, and I think you explicitly mentioned in the release again around potentially fast tracking. And I know I take onboard your comments around permitting and there are other things you need to have in place to fast track. But taking that all in context, I think in the Q2, you explicitly mentioned Luleå as a site that could be -- has that potentially changed? Or given the change in shareholding with one of your major shareholders in [indiscernible] does that potentially bring forward the opportunity at Raahe as well? I'm just trying to get a sense if -- how you're thinking about the different sites in Europe being converted has changed relative to that Luleå comment in Q2.
I would say not at all relative to that. The plans have not changed. We want to become a fossil-free steel company. We are looking into opportunities when it's rather when we can do that. And we are encouraged by the interest and the demand from the market. So we have not changed our plans, no.
The next question comes from Krishan Agarwal from Citigroup.
Most of the questions have already been asked, but if I can push Håkan a little bit on the CapEx. There is looking a bit of undershot for this year CapEx. So is there any possibility for you to quantify your revised guidance for 2021 CapEx? That's my first question.
I think we have to come back on that question. As I said before, we have said around SEK 3.5 billion. If we end up this year a bit lower than -- and a large portion of that is related to the commercial in Oxelösund, that will then spill on into next year. But we will -- we'll get back to that after year-end when we know the exact outcome for this year as well.
Sure. My second question is a bit of a follow-up from Carsten's question on raw material costs. You generally do that winter stocking for coking coal ahead of the winter. And given the higher price or significantly higher prices, has there been any kind of a rethink in terms of buying lower quantities for winter stocking for coking coal?
We are doing it in the same way. The reason we do this winter stocking is that we cannot get these big boats up to Luleå and Raahe in the wintertime. We can get into Oxelösund, but not to Luleå and Raahe. So we're doing it exactly the same way. And one might speculate and say that we should buy lower and transport in different ways. On the other hand, last time I checked, at least, coking coal prices were still on the way up. And we have not a crystal ball how they will develop during the winter time. So no, we're doing it in exactly the same way.
The next question comes from Rochus Brauneiser from Kepler Cheuvreux.
It's Rochus Brauneiser from Kepler. I have 2 follow-up questions. The one is maybe back to your outlook commentary on auto. I think you're flagging auto demand weakness more than in the previous quarters even though I think the Q3 was already bad enough for the industry and probably a bit disappointing. Is the fact that you're flagging it, is this -- does it -- that you expect a further weakening of the auto demand in Q4 versus the third quarter? And at that stage, can you already give us a sense how you think the looming magnesium shortage could impact your customers' business? That's the first question.
No, I mean what we are saying is that we are -- the order book for Q4 is, to a very large extent, already there. So it's more about the ability to take what we are flagging for. There could be some production stops due to shortage of the semiconductors and then we will not be able to ship. That's maybe what we are flagging for. We don't see, I mean, any demand issues for Q4 because the order book is impact is there already.
How do you think -- can you share your thoughts on the magnesium side? I think with this production cuts in China, which could mean that the volumes from there are significantly lower than normal. To what extent is that impacting your business? And are you getting any signals from your auto clients that they are eventually impacted in due course?
Not for the coming quarter, no, I would say. I don't know, Håkan, if you have any more updates than I have.
No. For us, this is short term, at least not an issue. We have secured the volumes we need. Long term, well, if this continues, then we'll see. But short term, we don't see it as an issue. And we have not heard from our customers that this will be a reason for not -- for delaying orders or not booking orders. No.
And to what extent is that an issue for your metal production, your diesel authorization process? Can you switch whenever it is needed to other materials like lime or cut some [indiscernible]
I don't know exactly. What we have checked is that we have significant -- we have all the materials we need for the coming quarter or 2. So short term, it's definitely not going to be a problem. And procurement is making sure that it's not going to be a problem long term either. Then in terms of switching to alternatives, I don't know.
Okay. And then finally, on the green steel development, I think you have a very clear path until 2026 to turn Oxelösund for fossil-free. Are there -- what is your flexibility in the meantime? I think your clients are demanding you to reduce steel more and more. Do we have any flexibility to come up with some synthetic quantities of green steel with a reduced carbon footprint until you have more of the genuine product?
We have this so-called pilot plant up in Luleå that is producing 1 tonne per hour, and we will use that to produce fossil-free steel. And then the next big step will be when we have the demonstration plant up in the Northern Sweden in [indiscernible] beginning of 2026, the end of 2025. And then we will also have Oxelösund revamped or electric arc furnaces in Oxelösund from 1st of January. So the big step will come 2026 when we will be able to produce up to 1.5 million tonnes of fossil-free steel. But journey towards that will be fairly small or smaller volumes to strategic partners.
The next question comes from Tristan Gresser from Exane BNP Paribas.
The first one on working capital. You had a record capital -- working capital goal in Q3. Was there any one-off involved there, maybe some inventory build due to lower steel offtakes from the auto customers? And also, what would you expect in Q4? I mean given the development in prices, is it really feasible in Q4?
There was not any real specific one-offs in Q3. No, I wouldn't say that it was a higher inventory coming from higher prices and also higher AUR coming from significantly higher prices out to the market. We have seen a large, as you also could see in the graph when I showed the delta in terms of EBIT, we have seen huge price increases. We are still flagging for that within Americas. We'll continue to see price increases, but lower both in Europe and Special Steel. So it will not be the same working capital buildup in Q4, but there are no real one-offs that will immediately lower it. But it will definitely be, if any, it will be a lower working capital buildup than it was in Q3.
All right. That's helpful. And my last question is on Tibnor. Could you quantify the inventory gains in Q3 for us to give a better sense of what Q4 did look like given the development in steel prices?
We normally haven't actually quantified those. We don't quantify actually when we talk about the result development. We don't quantify any of the components for each of the division. But I guess you can say that it was -- given the price development, it was quite significant for Tibnor, and we would not expect the same development in Q4.
The next question comes from Bastian Synagowitz from Deutsche Bank.
My first question is just on strategy and your metallic supply in the U.S. market. So we've obviously seen some further announcements here of some players, which are adding further electric [indiscernible] capacity? And then one of your blast furnace peers also tapped into the scrap market with an acquisition basically taking some control of that market there. How are you thinking about the situation here? Do you still see sufficient supply? The U.S. market is obviously in principle still in excess of scrap supply and a net exporter. But obviously, there is massive growth in demand for scrap as well. So it's an upward integration on scrap something you may be thinking about as well? That would be my first question.
You're completely right. We've seen our announcement of companies building out strip production. And that will, of course, effect scrap availability. But U.S. is a net exporter of scrap. So of course, it can influence prices. But we think that we'll get, with the partnerships we have, sufficient volumes of scrap. And we're not thinking of or contemplating doing any integration into the scrap market because it's a fairly fragmented market and availability is there. So we don't see it as a huge problem and nothing that drives us to start to acquire scrap connectors or something like that.
Okay. Very clear. And then just lastly, and more like a short-term question, but obvious been very successful with your mix development in the European business and also for your company overall. Just with regards to Europe, is there any major mix change we should be expecting with regards to the fourth quarter?
You should expect that to continue to improve the mix. And I said, the target is to have [50%] because we also have the very important Nordic home markets. So it will be a balance between premium products and also keeping a good market -- a decent market share in the Nordics and trying to find that, call it, optimal combination. But the ambition and the strategy -- the strategic target is that 50% of the volumes being premium, and we are getting there. And then it can differ between months and different between quarter. But clearly, the underlying growth is there, and that's what we are aiming for and what we will reach.
If you said -- short term, Bastian, for Q4, we have a seasonal impact in SSAB Europe where we sell less color-coated material in Q4 to the construction industry than we do in some other quarters. So from that point of view, you get some -- a temporary seasonal quarterly worse mix in SSAB Europe than Q3.
So you should rather compare the previous year than sequentially compared to previous quarter because you have the seasonal mix. But apart from that, you should expect it to continue to grow.
And the final question comes from Patrick Mann from Bank of America.
I think most of my questions have been asked. I just wanted to follow up a little bit more on your capital allocation. So as one of the earlier analyst asked, strong balance sheet deleveraging. How do you think about allocating between dividends and reducing gross debt? And also, I think you've spoken already about your opportunities to accelerate the decarbonization. So kind of -- I think we can park out one to the side. But just in terms of thinking about what to allocate the dividend and what to allocate towards reducing debt further.
Well, first of all, the recent much debt less of the SEK 3.3 billion, SEK 3.4 billion we have is roughly SEK 2 billion is IFRS 16 related. So that gross debt, we can't really take away. But apart from that, I mean, let's come back and discuss that when we have the Q4 report.
We have no further questions, so I will pass back to the speakers for any closing comments.
Okay. Thank you. By that, we can conclude today's conference. Thank you, gentlemen, and thank you for many good questions, and we wish you a nice day.
Thank you. Bye-bye.
Thank you. Bye-bye.