Good afternoon. This is the conference operator. Welcome, and thank you for joining Outokumpu's second quarter 2022 pre-silent call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Miss Linda Häkkilä, Head of IR. Please go ahead, madam. Thank you, operator. Hello, all, and welcome to Outokumpu's Q2 2022 pre-silent conference call. My name is Linda Häkkilä, and I'm the head of investor relations here at Outokumpu. Our main speaker today is our CFO, Pia Aaltonen-Forsell. We will first start with a short update from our CFO, and after that, we are happy to take your questions. Without any further comment, I will now hand over to our CFO. Thank you, Linda, and good afternoon, good morning, everybody. This is Pia Aaltonen-Forsell. Let me just start with a few comments about demand situation and markets and observing some of the recent situations here. First, if I focus a few minutes on European market situation, if we talk about the end user demand, it seems to be remaining solid at this point. Here I also refer to our capital market day we have hosted rather recently about two weeks ago. I think we have also there discussed some of these topics even more in depth, but still just confirming that if I look at, for example, white goods in Europe, it's clear that there are still backlogs prevailing and listening to, for example, automotive, it even seems that due to improved supply chains and less problems, even second half could be better than the first half. Turning attention to distributors. From our perspective, this has been a weaker segment. We have talked about distributors more sort of sitting on the sidelines, waiting. I think what we can observe now is that import levels have been high, particularly in April, maybe then stabilizing a bit more to more normal level again in May. It seems obvious that there have been some imports into the distributor segments. This certainly also is now visible in higher inventories. It really seems that at least from what we can observe, that distributors are really focused on sort of eating through those inventories at this point. Finally, in Europe, we have talked about good demand in investment cycle related products. From our perspective, for example, the Pro Grade, and this indeed has continued, which obviously is also good for us as these are our more higher margin products. Briefly turning to Americas. What we can see here, our demand from the distributors still remaining confident in the market development and remaining strong as well. Maybe there are some signs from our perspective smaller segments in the U.S., for example, white goods, as direct end user sales of some weakening. This is maybe something that we will be observing quite carefully. Then finally, just to say I will come back to ferrochrome even a bit more on the cost side. Just from a demand side perspective, I think you may have seen that the new benchmark price for Q3 is now out. It's at EUR 180. Clearly there is a bit of pressure downwards right now on the pricing. Maybe also the spot markets have been a little bit softer. If those were my opening comments on the sales and demand side, maybe then turning the attention still to Q2 and maybe just more of a reminder that what we observe in our invoicing in the second quarter will really be a lot of deliveries of orders that we have actually received five-six months ago. Obviously, you know, looking at the price development five-six months ago, it was clearly on an upward trend. With that said, I also wanted to confirm a few things that we have maybe debated also earlier. One of them being that from a margin perspective, I mean, it's not a squeeze. It is not a squeeze in the second quarter exactly because, you know, orders received five, six months ago now being invoiced. Indeed, there is cost inflation, but the balance is still favorable. Maybe out of the items around cost inflation, I would just sort of briefly comment around energy. I don't think it's huge for us, but with ferrochrome, I would maybe still raise that there is some increase overall in the quarter-over-quarter on electricity. I mean, it's not a huge figure, but the reason that I bring it up is still that ferrochrome is such a big electricity consumer. This is maybe just the business area where we can see some impact there in the end. Okay. Maybe kind of final comments from P&L perspective. Indeed, you know, nickel prices and changes in those are always of interest. Earlier when we gave our guidance and when we talked about what we expected for the second quarter, we also for maybe a bit sort of emphasized timing and hedging. Inventory-related metal gains and losses and then also the hedging. This is the nickel-related hedging gains and losses. Still on the balance of things and sort of looking at nickel remaining high through most of the quarter, even though now we have definitely seen some down tick there. I said earlier that we are indeed expecting a positive impact, a net positive impact from the timing and hedging. I can certainly confirm, you know, exactly what I have said before, that this is even a significant positive figure in the quarter. Then I think I will sort of conclude here by still two remarks on working capital. One of them does relate to the situation in Ukraine and the war, and that has indeed led to some increase in working capital for us, because there are some supply chains that we have had to rearrange. I have, I would estimate at the moment that this could have a negative impact in the quarter of about EUR 100 million on the working capital. On top of that, obviously, there is kind of normal seasonal pattern. Usually, working capital is fairly high in the second quarter. This is seasonally still a quarter with high activity inventories and also with the higher price levels, accounts receivable, for example, being on a high level. Should be nothing new compared to what I have said before, but maybe just to confirm that as well. With that, operator, I would like to complete my short presentation and go to the Q&A part of the meeting. Thank you. This is the operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone with a question may press star and one at this time. The first question is from Anssi Raussi of SEB. Please go ahead. Hi, and thank you. It's Anssi Raussi from SEB. The first one would be a rather basic question about lead times. What kind of lead times you have at the moment? I guess you're booking Q4, but is it still early Q4 or how is it? Yes. Hi, Anssi. Great question. I think the change that we have seen in the recent months have been towards somewhat shorter lead times. We are still, you know, finalizing bookings for Q3 and then into Q4 when it comes to more commodity grades. Obviously, on average then when we look at the Pro Grades and the value-added grades, the lead times are fairly long at this point. We are talking five months, six months there. We start to maybe see a bit of a split here, sort of by segment. Okay. Thanks. The second one would be that if we think about Q4 this year, maybe a bit ahead of time here, but how should we think about the mix between Pro Grades and basic stuff? You have been saying that, for example, energy sector could be offsetting some of the consumer application demand destruction. How should we think about this at this point? Yes. Thanks, Anssi. Obviously, sort of the core balance for Q4 is still to be seen. So, you know, this is probably a question we need to get back to. Particularly on the energy sector, I would say that I and we see this also as, you know, a longer term development, not only over one or two quarters, but the energy transition in Europe in particular, I mean, I think it's an impact, you know, potentially for many years even ahead, with stronger demand into those sectors. Nevertheless, I would say based on the order intake that we see right now, we definitely see still a strong investment cycle-driven demand. For us, usually that then means that the mix goes more into the direction of, you know, more Pro Grades. But as said, you know, Q4, it may be still a bit early to make the final conclusion for the quarter. Yeah, I understand. Maybe finally, I assume that you haven't seen any changes in industrial demand since Q1 call, or how is it? No, I don't think so. What maybe becomes evident looking at the import statistics, et cetera, is really that there has been probably from the distributor segment very strong imports into Europe, particularly in April, and then sort of evening out a little bit in May. As far as we understood, there could still be you know something some sort of deliveries even on the way to Europe from a distributor segment. Sector perspective, you know, imported goods. It really seems that from our perspective, this segment has weaker demand, you know, from our perspective at the moment. Okay. In Europe. Uh, may- In Europe. Yeah. Maybe one more about nickel price as it has been coming down in recent- Yes. days and weeks. How do you see the situation at the moment? Do you see that it could be positive, negative, or how do you see the impact of, nickel price coming down? Yeah. What I would expect, broadly, is that, you know, when nickel price is increasing, usually we have still seen, you know, fairly positive impacts on, you know, really just, inventory-related gains, and then somewhat offset by hedging. Now we should, on the way down, potentially see it in the other way. Of course, we will still come back with the Q3 guidance, and clarity on this if it's relevant, you know, on a bigger scale, in Q3. Similarly as we saw the positive in Q2 based on the fact that, you know, timing was very positive, and then we had some negative, in the hedging. Obviously, with a lower nickel price level on the way down, I would just mathematically expect the opposite to occur. Of course, I don't know yet, I don't have yet sort of a view on exactly what that would be in Q3. You know, if it's a big number, we will come back to it. It obviously depends also on, you know, how much we see of this up and down of the price and what will happen. Probably we'll come back to that one as well and see later. Yeah. To clarify myself, I think that I was talking more about, like, demand side. Do you see that? Yes. Lowering alloy surcharges could help the demand for? Yeah. Well, you know, I think it's also from a pricing perspective, you know, certainly we observe this a lot and certainly want to make sure that we stay competitive. I think it certainly brings the best balance, potentially it being positive for the demand, but remains to be seen. Okay. Thank you. That's all from me for now. Thanks, Anssi. The next question is from Harri Taittonen of Nordea. Please go ahead. Yes. Hi, good afternoon. Yeah, to follow on this, sort of earlier questions. You mentioned the import pressure from Asia being high, and particularly in April. I suppose, I mean, these volumes have been shipped very early in the year when the European prices were still very high. Now that the- You're right. European prices have come down. Just wondering what's the latest on your sort of view on like after the declines in Europe. You indicated that the May volumes could be normalizing already. How does it look like, you know, the kind of a likely import activity, let's say, towards the second half if prices are at this sort of levels where they are now? Yes. Yes. Harri, thanks. I think it is a good question. Maybe to some extent, you know, a really important question also to have the full transparency. Of course, I cannot have that. I mean, we don't know about all the ships that are on the way or not, et cetera. I think, you know, what we hear is that there might still be some distributors who have also ordered, you know, not only sort of late Q4 or very early in the year, but may still have ordered, you know, during the spring, whereas others for sure have observed the price level. I think there is a risk that there is still some material flowing in also in Q3. Obviously, now this is kind of more anecdotal than really sort of, you know, numbers and fact-based. The dynamic in the end should be, you know, pretty clear that there was a sort of a bigger price differential observed, and this has led to more orders from Asia. The price differential for sure at the moment is decreasing. No, that's absolutely makes sense. There's no change. For the near term in any of the EU kind of import control mechanisms, as I remember. No. There is no, as far as I know. No. Yeah, yeah. Okay. Then on ferrochrome, of course, I mean, the price level for Q3, the benchmark is still fairly high, but of course a fairly substantial drop from Q2. Given that the spot prices have been, I mean, staying fairly high levels, so I don't know if you can give any color on what you saw there in the market, you know, driving the benchmark price, given that the spot prices have come down but not a lot. I agree. They have not come back, you know, they have not come down that low, that much. There has also been quite significant challenges still on the supply side as well. I guess this is sort of maybe then to some extent sort of keeping still the pricing momentum. Even though of course, you know, China has been through this cycle of sort of clearly lower stainless steel demand. I think we have observed that sort of until now. Now obviously, maybe China is at the turning point, remains to be seen, but at least, you know, some economic indicators seem to be kind of again going in a stronger direction. However, you know, China is a big producer here in stainless and when the demand has now been slower. Mm-hmm. One of the kind of key balancing facts here. Yeah. I would say 180 is from a historical perspective a fairly high sort of not maybe not elevated level, but still we can go sort of you know we can look pretty long statistics and still say okay you know kind of reasonable. Absolutely. Reasonable levels. Yeah. Absolutely. I mean, do you already know the kind of the maintenance schedule and the impact? I mean, not now, in the ferrochrome side for Q3, there was some- Yes. Just sort of re- Yes. Refresh the memory there. I think you have talked about it, but. Yes. Indeed. We will have the second biggest furnace on maintenance August, September. Sort of typical historical impact have been maybe sort of EUR 10 million-EUR 15 million. We will come back to that later as what it is exactly this time around. We are indeed scheduling maintenance in ferrochrome in the third quarter, and actually the third quarter will, for us, be an important maintenance period also on the stainless side. We are trying to realign here the schedules, for example, in Tornio, so that we can have, you know, optimal use of CO gas, et cetera. Trying to sort of schedule in a fairly similar timeframe also the stainless maintenance this time. Exactly. Last year there was not really major maintenance affecting ferrochrome. No. Yeah, exactly. No, no. Okay. Thank you very much. It was so. Yes. Yeah. Thanks, Pia. Thank you, Harri. The next question is from Ioannis Masvoulas of Morgan Stanley. Please go ahead. Hi, Pia. Thanks very much for the presentation. Few questions left from my side. The first one on U.S. demand. Is it you suggested it is stronger than Europe, but just to get an idea, are there any customer industries where you're seeing some indications of softness as compared to three or six months ago? Yes, thanks. Indeed, you know, if I look at the distributor segment, we really seem still to get these very confident signals. I would say that white goods is an area where some softening can be observed. I don't know if I should really call this. Maybe I would call this sort of early signs of softening, but white goods is the one that I would mention, really nothing else. Okay. Very clear. Second question on the import situation. You mentioned the elevated levels in Europe during April. Yes. Did you see a similar trend playing out in the U.S.? No. Not similar. I think in the US, the market dynamics are, you know, somewhat different. The constraint there obviously has been that, you know, domestic production has been running on such high capacity utilization that imports have then been used to balance, you know, overall demand and supply. I do think there has been a bit higher import levels, but not of the significance as in Europe. I see. Very clear. On the same topic on imports and turning to Europe, yes, we have seen European-based prices coming down, but at the same time, as nickel prices come down, I guess Asian material will start to become again more competitive. How do you feel about the export arbitrage from Asia to Europe? Is there any indication that this is closing in a way that we should be confident about normalization in imports into the second half? I think it depends really a lot also on the nickel price development going forward. How big is then a potential advantage of NPI-based raw material? With the lower levels that we have right now, I think- Hello? Just one moment. I think the line dropped. Just one moment. I'll call her back. Results online, the conference will resume shortly. Thank you. She's back in. Hello. I'm sorry, Ioannis, I was dropped off the line. Yes. At what point did you drop me? Now, I don't know, maybe I was speaking for myself for several minutes. I don't know. Sorry. Can you help me by repeating? It was at the beginning that you mentioned. Yes. Yes, of course. You mentioned about. Maybe if you can repeat the question. Yes. Yeah. The question was around the fact that nickel prices are now coming down, and I'm wondering whether- Yes. That's going to keep Asian material competitive in the European space into the second half. Yeah, I think with the lower nickel price, you know, clearly it should be closing the gap. Then other important factors remain, you know, whether there's any problem with transport, which is logistics, and then obviously also how strong is local demand in Asia, and particularly in China. All of those would have an impact. Certainly if I just look at the second quarter, you know, we had a lot of kind of pressure here because logistics weren't working, Chinese demand was weak locally, and then at the same time, obviously nickel prices were high. I think it was a bit of a perfect storm in that sense. Maybe at least from what we observe right now, clearly that advantage is decreasing. But is it gone? I don't know. I see. Okay. Thank you for that. Maybe just a last question from me, if I may. On the energy side, you mentioned about a modest increase in electricity costs, quarter-over-quarter, but what about the gas supply risks that have been in focus over the past few days, and thinking more about, you know, second half of the year and not just, I guess, Tornio, you have the, I guess, LNG capacity there, but more thinking about your operations in Sweden or even Germany. I'd be interested to hear any feedback there. Thank you. Yes, indeed, as you said, when it comes to Tornio, we have our LNG terminal. Plus, we have also now set up a backup with propane. We are ordering and sort of stocking up propane as a backup, to really make sure that we are at all conditions able to run Tornio. The gas dependency in Avesta is less and we also have some backup opportunities. I would not flag real risks for Avesta. For Germany, I think I need to flag the risk that we are dependent, you know, the German sort of typical industrial picture is we are dependent on pipe gas and certainly this is something that we are, you know, making appropriate backup plans for. Let's see how the situation develops. Obviously what we have is cold rolling and finishing capacity and to some extent we have the opportunity always to have internal backups from other facilities. Clearly I would say Germany is for us the bigger country of risk. Obviously you can also have a look at our capacities, et cetera. This is a smaller part of our overall footprint, but still relevant. Understood. Thank you very much. Thank you. The next question is from Luke Nelson of JP Morgan. Please go ahead. Hi. Thanks for taking our questions. A follow-up just on the cost question, just more broadly, power, natural gas and ferrosilicon in the past, you've talked about the sequential impact. Can you maybe just talk through what the sequential hit will be from those Q2 on Q1? Yeah. Thank you, Luke. I would say on gas, thanks to our hedging and contractual situation, I really wouldn't flag any significant increase from Q1 to Q2. Ferrosilicon, I think in the past that was sort of EUR 10 million-EUR 20 million, or it was. Yes. Is that in a fully inbuilt now in the Q1 base? I think it's fully inbuilt. Last time I was looking, we had maybe, you know, a couple of, you know, single millions EUR, you know, hardly worth mentioning of course, as an increase. However, still the higher price level has prevailed in the second quarter. Okay, that's clear. Just on the Tornio maintenance, you talked about the ferrochrome cost in Q3. Can you maybe just talk through what sort of planned maintenance is at the furnace there and potentially what the cost is? Is there any maintenance at all in Q2, just to get a sense of what sort of Q3 relative to Q2 maintenance costs will be? Yes. I think our most significant maintenance will be in Q3. There's been a little in Q2, but it's been more at the kind of odd line here and there, not at the main lines or the main facilities. There will be an increase into Q3. We probably still need to come back with a bit more detailed thinking on that. Sort of from an operational perspective, the most important ones will be the maintenance that we do on the second biggest furnace in ferrochrome. The reason that we do it now is that the furnaces are up for maintenance every fourth year. There is just this rhythm where you need to do a bit more work. 2021 was, that's, you know, because we have three furnaces, you know, every fourth year you have the year where you don't have big maintenance. It's only sort of smaller scale. That is the reason why comparing with 2021, there will indeed be an increase. I don't have yet now the exact magnitude, but I would say order of magnitude, EBITDA impact, for example, in 2020, was somewhere between EUR 10 million and EUR 15 million. That was, by the way, our biggest furnace at that point. Probably it's not the upper end of that, but still, we will come back to this, when we have the more exact data. Okay. In total Q3. Go ahead. Sorry, just to confirm, that's EUR 10-EUR 15 million just for Tornio? Then the ferrochrome furnace. Or was that the ferrochrome furnace? That is the ferrochrome maintenance EBITDA impact. Okay. In total, how it was in 2020. It was more to sort of bring the scale. I guess Tornio's maintenance will also be in Q3, and we will also have Avesta in maintenance in Q3. just to level up, that will be. That's included in that EUR 10-EUR 15 million number that you talked about or some additional- No, it is not. That is additional. Okay. Is it sort of order of magnitude of that, is it sort of a similar amount on top or? It is probably a similar amount than we talk both about, Tornio and Avesta. I would assume it's a similar amount or, you know, if you look back at historical periods, it could be a similar amount. Okay. Excellent. Just final question from me, again, just back to the natural gas and German exposure. Can you maybe just talk through exactly what the plans are if it does go to level three restrictions? Just maybe talk about how you are thinking about the direct impact on production, whether you have sort of stockpiles or additional sources to maintain production. Are you having any conversations with end customers? To what extent do you see that as a risk on your customers? I suppose maybe if you could frame that in terms of a shipment risk as well. Yes. Thanks very much. Look, indeed, we absolutely do have discussions with our customers. I think the difficulty in assessing the situation from anyone's perspective right now is that both timing, magnitude, who would be impacted, how the political decisions be drawn, all of that remains under a lot of uncertainty. I don't think we have like a clear message that we could share. Obviously we are gathering information also when it comes to the customer end here. If I then come back to our situation, obviously we have focused a lot to have certainty that we can run operations in Tornio and Avesta, and that also gives us, you know, some flexibility in resetting, for example, cold rolling or finishing between countries. I think that's one important part of the backup plan. Obviously we are also looking into other opportunities there. Some of them will take more time to implement and that's why I would say it also depends here on the timing of any potential sort of class three status, how sort of what the impact would be. I think there are simply too many unknowns in this to give a volume estimate or a volume impact. More broadly, I can just say that we do have opportunities then to also leverage our other production sites. Okay. That's useful. I suppose maybe just a different way. I think last year, there was around EUR 4 billion of sales within Europe to other Europe, just from the annual report. Yes. Can you give sort of very high level what proportion of that would be Germany? I think it's easier to look at one of our capacity slides and then look at the balance there. Now I don't have that in front of my eyes here. But I would sort of think of it that way. Kind of look at the share of capacity that we have out of Germany. Maybe if I have time during this call, I could come back, or then that's part of our typical backup slide in our investor presentations. Okay, great. Yeah. Understood. Thanks a lot. The next question is from Carsten Riek of Credit Suisse. Please go ahead. Thank you very much. Just one question left from my side. It's on the demand side as well. Pia, can you remind us how much you are exposed to the chemical sector? I think it's mainly through the duplex grades. Do you see any reservations here from the chemical customer side with placing new orders? 'Cause they are the ones which actually are screaming loudest with regard to natural gas or potential natural gas shortages. Just trying to guesstimate. Yeah. whether it's already coming along to you or not. Yeah. I really couldn't say or tell. You know, maybe they have raised something at some point, but it has not been. At least it has not become visible, would say to me at this point. That maybe it's also a result of a lot of what we would do for chemical industry would perhaps be tied to projects with a little bit sort of more longer-term pipeline and maybe that's also a reason then that it has not surfaced to me. You know, chemical and energy in Europe in 2021 was like, more like 1% or 2%. Okay. It's also a fairly small of kind of the industry segment that we are selling to in Europe. Got it. Then maybe one on the net working capital, because I read that you divested a plate service center in Altona, one in- Yes. Castiglione delle Stiviere and so on and so forth. Is that another step in order to streamline your working capital further? What is exactly behind those kind of steps, saying goodbye to the service center, what some of the service centers in your portfolio? Yes. These service centers have been plate service centers. They have maybe been, you know, one of the more specialized segments that we have. I think that's the reason to say, you know, with slightly smaller volumes, they are probably better owned by now the new owners who are, you know, more active than broadly in those areas and have some, maybe sort of more specialization into that. You know, from an overall perspective, these are fairly small parts of our footprint, or actually very small parts of our sort of global footprint or even European footprint. Okay. That's absolutely fair. Thank you very much. Thank you. The next question is a follow-up from Anssi Raussi of SEB. Please go ahead. Thanks. It's Anssi from SEB again. Hi. Just one more question from me about Q3. Could you maybe describe like expected mix in terms of timing of orders being delivered and the order book? Like, are you delivering orders mainly from April and May, and the demand was still probably a bit higher, or how is it? Anssi, I think you know based on the order intake I would say this as pretty much as you described that you know even the lead times on the commodity side is getting shorter. It is still clear that you know what we will deliver during Q3 is probably a lot of orders received during the second quarter. And then also or perhaps even a little bit earlier. But then as it comes to the mix I think we have now been reporting over a longer period of time that we have constantly seen this share of the pro grade you know getting stronger. So I think you know with that in mind we certainly I would expect that this is visible also in the invoicing. Okay. That's clear. Thanks. At the moment, we don't have any other questions registered. Thank you, operator. Thank you all for participating in our call today, and thank you for your questions. Before we close the call, I would like to remind you that we'll be starting our silent period on July sixth, and we'll then publish our January/June results on August fourth. Thank you from my side once again, and maybe, Pia, do you still want to add a few words from your side before we close the call? Thank you, Linda. At this point, I would just like to wish everybody a great summer. I hope you do get a little bit of a summer relaxation, and I wish you a great time. Thank you very much. Thank you.