Aperam S.A. (OTC:APEMY) Q3 2022 Results Conference Call November 10, 2022 5:00 AM ET
Company Participants
Tim Di Maulo – Chief Executive Officer
Sudhakar Sivaji – Chief Financial Officer
Conference Call Participants
Ioannis Masvoulas – Morgan Stanley
Patrick Mann – Bank of America
Tristan Gresser – BNP Paribas Exane
Krishan Agarwal – Citibank
Maxime Kogge – Oddo
Rochus Brauneiser – Kepler Cheuvreu
Tom Zhang – Barclays
Operator
Hello, and welcome to the Aperam Q3 2022 Results Call. My name is Laura, and I will be your coordinator for today’s event. Please note, this call is being recorded. And for the duration of the call, you lines will be only listen-only. [Operator Instructions]
I will now hand you over to your host, Tim Di Maulo, the CEO, to begin today’s conference. Thank you.
Tim Di Maulo
Thank you. Good morning, and welcome to Aperam Q3 conference call. I trust you have listened to our management forecast, where Sud and I shared our thoughts on the quarter and the outlook. The podcast is available on Aperam’s website in the Investors section for your reference. As usual, this call will be Q&A only.
I now hand back to the operator for the Q&A.
Question-and-Answer Session
Operator
Thank you, Tim. [Operator Instructions] we’ll now take our first question from Ioannis Masvoulas of Morgan Stanley. Your line is open. Please go ahead.
Ioannis Masvoulas
Hi, yes. Good morning. Thanks for the presentation. A few questions from my side. The first one on Europe.
Given the commentary on the price cost squeeze, they continued destocking and the inventory valuation into Q4, do you still expect Europe to achieve a positive EBITDA in the last quarter of the year? And maybe I’ll stop here for the first one.
Tim Di Maulo
So indeed, all these elements are going to impact Europe. But Europe is still an underlying positive result, a strong one. Then what is the major variation that can be seen is about the inventory and the valuation of inventory. So we will see at the end of the quarter depending on the value of the raw material, how this will go. But at the current outlook, it is positive.
Ioannis Masvoulas
Understood. Thanks for that. And I guess related to this, at the CMD, you talked about higher trough for European base prices versus the last down cycle given the undetermined duties that are in place. But if we look at, for example, CRU, the indication is that spot base prices are around EUR600, EUR610 per ton, which is not far off the trough quarter we saw in 2020. Could you perhaps comment on whether you think this spot price level is what you’re also seeing in the market?
And if so, what might have changed versus your commentary back in September?
Tim Di Maulo
So we — normally, as you know, we don’t comment and we don’t give guidance on the figures of this price because also these are a mix of different way of pricing between alloy surcharge, fixed price, et cetera. What I can tell you is that we are in a completely different situation than in 2019, 2020, where really we had a trough. Now it’s clear that prices have adjusted, but these prices have not been pushed down by the imports as it was in 2019. The situation is completely different. In 2019, we had Indonesia ramping up a plant which represents half of the capacity of Europe without any limit to enter in Europe, and without any market to address in the rest of the world.
And today is a completely different situation. So there is a normalization of prices because the prices were extremely high in the first half of the year. That’s sure, it is normal that at a certain point in time all the conditions, all the staff that were aligned to push up the prices at some historical high level have reversed, in particular with the imports, and we had a strong gap with imports. Now prices are going to be normalized and part of the prices are still good because they’re coming from previous contracts, et cetera, but I don’t see at all the condition of 2019-2020.
Ioannis Masvoulas
Okay. That’s clear. Thank you for clarifying. And maybe a last question for me on spending. And given the current market backdrop, how should we think about 2023 CapEx?
Shall we expect something similar to 2022 or a material step down, which would be more in line with consensus?
Sudhakar Sivaji
Ioannis, you know that we don’t give guidance for next year before the year starts because that’s something which we are doing primarily also because conditions keep changing in our industry and whatever I tell you now is going to be. But in my part of the podcast, we did speak about two things, right? One is the fact that we have set together in motion all these CapEx plans, which we have announced to you in the Capital Markets Day and in the previous quarters for a fundamental improvement in the EBITDA of Aperam by EUR300 million until 2025. So just like we did in 2020, when we invested EUR135 million in a low cycle here because we believe that is the best time to invest when others are all cutting down strategic CapEx. So we see the gains later.
You see it in leadership journey now, right? We will continue to do the strategic investment towards our plan for 2025. However, we also know that if demand remains sustainably low, our sustenance CapEx, because you are actually operating at a lower level, your sustaining CapEx also goes lower, just like we did in 2020. So those are the guidelines I can give at this point of time before I give you a number or a bandwidth, I hope you understand.
Ioannis Masvoulas
Okay, great. Thank you, both, for your answers.
Operator
Thank you. We’ll now move on to our next question from Patrick Mann of Bank of America. Your line is open. Please go ahead.
Patrick Mann
Hey, good day. Thanks for the opportunity. In terms of the destocking period, I mean, what’s your best estimate of what’s the kind of current excess inventory? And how long we take to get to sort of chew through it because it does seem to be a very aggressive destock that’s happening. So I’m just wondering if possibly it’s a shorter-than-normal inventory destocking cycle or whether real demand maybe comes off a little bit and it ends up being the same length.
But if you could give us any color around what you think and what you’re seeing, that would be very helpful. Thank you.
Tim Di Maulo
So it is simple. So to understand based on fact. So in the first six months imports have been at the level of a full year, okay? So this means that all of a sudden everybody has discovered a huge inventory and started to restock. Now from September on the imports have significantly reduced and going back to historical level.
And we believe that the window to import has completely closed with the normalization of prices, which means what? Means that one full year of imports versus one full year of apparent demand are more or less consistent to the view of destocking, which will end in the Q4, in the runoff the Q4 at the end of the year, at the beginning — just the beginning of the year. But at the end of the year we will see that the stock will — will be normal.
Patrick Mann
Thanks very much. And then maybe one other question. I mean, just with the increase in energy prices and the impact on the cost of production in Europe, do you still feel that the trade barriers are sufficiently high enough to keep imports at the level they’re at? I suppose, yes, the price differential has changed, but possibly Europe has gone higher up on the cost curve. Thanks.
Tim Di Maulo
So the barrier that you are describing on trade has a very significant impact on the level play field. Now once you have a level play field and you have a strong protection against import, so you have a balanced level of quantities coming from Europe and from imports. Now when European has all the same, let’s say, kind of constraint on the energy, on the cost that you are referring to, we think that the market will be at the equilibrium. And so prices, which are the most important point in this kind of situation will stabilize, okay? So the trade barrier are indeed important and enough to protect Europe even at the level of today’s cost but, of course, not on dumping — further dumping, and so we are very attentive to eventual further dumping from Asia, which are not happening today.
Patrick Mann
That makes sense. Thank you very much.
Operator
Thank you. We’ll move on to our next question from Tristan Gresser of BNP Paribas Exane. Your line is open. Please go ahead.
Tristan Gresser
Yes, Hi. Thank you for taking my questions. I have 2. The first one, can you explain a bit what happened in Q3 within the other and elimination segment that swung to — sorry — into a large positive number and also your expectation for that segment into Q4?
Sudhakar Sivaji
So, hi Tristan. So let me take that one. So in Q3 what has happened is that — if you look at it specifically over the last few quarters, you would see that there has been a steady creep up of this position in terms of negative effects. If you add that up over the last three quarters, you will come to a figure, which has started reversing now. Now operationally what is this?
We have significant deliveries inside the Company between segments, right? And these sit in stock and the profit gets eliminated when you do it at a company level. Now in regular quarters, the profits do get eliminated. And as a result, you see a negative number, right? However, as prices went up significantly over the last nine months, we eliminated more than necessary profits between our segments — sorry, not more than necessary, but more than normal between our segments, right?
So this intercompany elimination. So it is basically inventories, which — where the profit is. Now because of the sudden drop in profitability and prices because of the cost and the import situation which has been discussed before, these losses have to be reversed. So basically in this case, the elimination goes down and turns positive, right? Now compared to inventory valuation, this is an effect which happens due to real cash release reasons. So that’s the difference you have to understand.
Because the elimination reverses because of two points, one is the fact that the prices go down so there is a price effect. And the other one is because, as you remember, Aperam has started, as always destocking before the rest of the industry because we have this principle, the same or next quarter when the market turns we start destocking net working capital. So when we start destocking, obviously the profits which have been stored there get released. So these are the two effects and as a result, also translate into cash, right? So this is an elimination effect.
So as prices continue to be low and our supply chain is longer, as you know, compared to others in the industry, we do have inventories stored across our supply chain in which profits have been canceled before and there will be a reversal effect. Now to answer your question on Q4. Current outlook, it again depends on how prices develop and how Tim answered that already and how raw material prices develop, right? But if — at the current outlook, if I look at it, this is not going to turn negative in Q4 as well. So because if you remember, across 18 months, we have subsequently eliminated profits, right? So between one division and another division over this.
And as you move, and this is just the five months of the year, there will be also not a negative effect for end of the year. Now in regular pricing circumstances, and that’s my sentence — in regular pricing circumstances which we saw before the artificial speculation run driven raw material price increase. What happened is, end of the day, a cycle would end probably over six months and every year there was approximately — sorry, 6 to 12 months, approximately these positions reverse and keep balancing positive and negative, okay? But now because of the huge inventory effect, right, prices are still 40% above that of Q1 2021. So that’s the reason and the scale of the change you’re seeing, okay? So two key messages for you.
This is real cash that is getting released and it’s not really just the inventory valuation effect because it’s the price of the net working capital going down and we are destocking faster than usual or faster than what is considered industry standard. And second thing is that Q4, we still expect that to be positive.
Tristan Gresser
All right. That’s really helpful. And just a follow-up on that. Could you give us a sense of how much maybe in percentage, how much is coming from ELG and from service and solution and inter-elimination? Is it more tied to ELG?
Sudhakar Sivaji
Tristan, I can say that there has not been a huge change in our business model and how our supply chains operate, okay? So it happens at, at length. I cannot give you specific numbers or percentages because it gives then clearly to our competitors what we use as inventory for short-term deliveries to our customers. I hope you understand.
Tristan Gresser
All right. Thank you. My second question is regarding the guidance. If I look at the historical Q4 pre-COVID, maybe around EUR100 million mark, adding recycling, I don’t know, maybe getting to EUR130 million. Is that the correct way to think about it?
I know in past quarters you provided some helpful kind of range, so would be interested to hear your thoughts on that. Thank you.
Tim Di Maulo
See, I think you are in the right range. So we are expecting and we will — we give a guidance in the range of EUR100 million, EUR150 million. This, as you have understood is due to the effect of the inventory negative evaluation, which is still still the most important effect in Q4. And then there are some cost inflation and some normalizing prices as we have discussed before. But you are indeed in the right range.
Tristan Gresser
All right, perfect. Thank you very much.
Operator
Thank you. [Operator Instructions] we’ll now move on to our next question from Krishan Agarwal of Citibank. Your line is open. Please go ahead.
Krishan Agarwal
Hi. Thanks for taking my question. My question for Tim is on the destocking. I mean, you’ve given a good color that destocking most likely will end by this year — end of this year. So if I can push you a little bit on that.
I mean, you have good visibility especially with your trading business as well. Would it be fair to assume that the peak of the destocking or the pace of destocking — incremental destocking has come down and then now you’re still destocking but at a lower pace.
Tim Di Maulo
As usual. So you have the first phase is everybody stops to buy. And then once everybody has stopped to buy, then progressively there is a question of mix, which is going down. So this is a typical effect of the destocking. So we — what is clear is that with our business model, we have the advantage that we can offer at a very short term.
And whenever there is a new demand for any kind of mix, we can supply our customers in a very short term.
Krishan Agarwal
Understood. Understood. So it is that short-term demand which is basically leading some kind of a volume optimism for the Q4? I understand. The question…
Tim Di Maulo
Please go ahead.
Krishan Agarwal
Yes, it’s a question on energy cost. I mean, you’ve alluded to that, energy costs will also be lower in Q4. So can you give us a sense as in how — how much of the increase quarter-on-quarter was there for the energy cost in Q3? And is kind of a spot price a good indicator for your normalization of energy cost in Q4? Or should we consider some kind of a lag there?
Sudhakar Sivaji
So Krishan, I can give you — so it’s a lower middle double-digit range Q2 to Q3. And spot price is not an indicator.
Krishan Agarwal
So there should be some lag in that case.
Sudhakar Sivaji
Sorry?
Krishan Agarwal
So should we consider some lag effect? Or in terms of your normalization on the net cost into Q4?
Sudhakar Sivaji
No. See, the thing is that the lag effect is not different to anybody in the industry. It is the same lag effect because you produce, your store the slabs, you make it into hot-rolled coil and you anneal it, then you send it through cold rolling mill and then ship it to customers. So the lag effect is not different from anybody else in the industry.
Krishan Agarwal
I meant to say the lag effect on the energy cost decline.
Sudhakar Sivaji
No. I’m saying the lag effect on energy cost is the same as that of the industry. So that was the reason why Tim said that if the energy costs go up, it affects the industry as such.
Krishan Agarwal
Understand. Fine. And my last question is on the inventory valuation. So I mean, you’ve guided in the Capital Markets Day at high double digit, probably wil be the impact in the Q3. So can you confirm that it was indeed the case and Q4, the — it is negative, but then it is going down versus the Q3?
Sudhakar Sivaji
Yes, Krishan, we absolutely confirm that.
Krishan Agarwal
Fantastic. Okay. Thanks a lot.
Sudhakar Sivaji
Thanks, Krishan.
Operator
Thank you. We’ll move on to our next question from Maxime Kogge of Oddo. Your line is open. Please go ahead.
Maxime Kogge
Yes. Hello. I have a first question on Alloys & Specialties because EBITDA was very weak in Q3, and that was despite very good selling prices and decent volumes. So I wonder whether you could be more specific on the severe weather conditions that you pointed out? And what made you confident that, I mean, this should reverse in Q4?
Sudhakar Sivaji
So, thanks for the question. So, in terms of Alloys & Specialties, you have to keep in mind there are two effects. One is the fact that seasonally always Alloys & Specialties has had a much weaker quarter in Q3 because of summer shutdowns. Now remember, these are assets which actually produce on an order book of 12 to 18 months. As a result, the summer shutdowns are longer, and that is the reason typically at Aperam with our portfolio, summer shutdowns has a seasonal dip.
That’s the first one. The second one you specifically have asked for is correct, that we did have a severe weather event. These were torrential rains with hailstorms in the middle of August in south of France, which actually led to, for us, a shipment delay. So there is no substance effect in terms of EBITDA when seen over the year. However, when such an event happens, you stop, you check all the inventory that they are not damaged. And thankfully, we can confirm that they are not.
However, this process has led to a delay, and this will transfer to the next quarter. And that is the guidance we’ve given. And — on the year as such, we should have a normal strong Q4 for alloys.
Maxime Kogge
Okay. And just a last one here on cost inflation because you point out increased energy prices or costs for — at least for Q4. So what are the other areas of cost that are, I mean, expected to increase on top of inflation in Q4?
Sudhakar Sivaji
You’ve covered inflation and energy costs. At this point in time, I do not know any other costs. So I mean, that’s our outlook. You have confirmed both the specs, and I don’t see any other aspect right now. So I’m looking at term, right so.
Tim Di Maulo
No, no. The — and the cost of products, there is a raw material, energy and all the rest which are, let’s say, under inflation chapter. So raw material is easy to see that raw material has normalized compared to the very high level that reached during the first half of the year. And for the — on the opposite, inflation is what we see every day. And energy is what we have seen every day.
Of course, energy has had, let’s say, a peak during — in a couple of months ago. And then now it’s a little bit better due to the weather due to the new supplies, et cetera.
Maxime Kogge
Okay, that’s clear. Thank you.
Operator
Thank you. [Operator Instructions] We’ll now take our next question from Rochus Brauneiser of Kepler Cheuvreu. Your line is open. Please go ahead.
Rochus Brauneiser
Yes, hi. Good morning, guys. Just a few follow-up questions from my side. Maybe you can touch on one by one. The first is on the volumes.
I think I’ve taken the comments on the destocking, how you see that. How shall we think directionally about your shipment volumes? I think we saw quite a massive decline in European volumes in the third quarter. So have you gone a bit ahead of that? And we should expect to be more flattish in the fourth quarter.
And in that context, it appears that your shipment performance was much weaker than some of your competitors. So maybe you can put it a little bit in a context.
Sudhakar Sivaji
Rochus, that’s an important point. Somebody else asked that before as well. So you have to see it in context with cash release from net working capital, right? So end of the day if you look at it, our shipments happen. And in this case there is a seasonality effect, right?
So where we say that we have in Q3 the typical seasonality. But the second thing is also in terms of how we operate our business model. Tim has explained that before. So let me try to give the color on that in terms of shipments. With S&S, you have a segment with which you can react short term to price movements, to volume movements. So when an event like this occurs, when prices drop suddenly or when imports go up, we react faster.
The reason we react faster is because we don’t just look at this quarter shipments, we also see next quarter shipments, and that’s why we have given the outlook for next quarter that shipments will be stabilized and come back to Q4 levels in Europe or in terms of Brazil there will be a seasonal low, right? So what happens is you prepare for the next quarter. So in this case, what you do is you, say, okay, in this quarter there is production happening and shipments are going down. So you manage your inventory. And in S&S, since it is closer to the market and we do get margins for that, we spoke about that in Dusseldorf office, right?
They experience, and that is one of the reasons you see also a negative EBITDA on them on the quarter. They experience the first and the more drastic impact because they are closer to the market. Now in Q4 that should normalize again. The shipments should go up for S&S. So basically it in short supply chain and how we manage our business model.
That’s the data you see between us and our other market participants.
Rochus Brauneiser
Right. Maybe, Sud, maybe I’ve got something wrong here, yes. When I looked at your shipments which were down 20% quarter-on-quarter and Brazil was kind of flat. So I consider or I assume that Europe was down like 30% in the quarter. And so I was a bit surprised that it exceeded eventually S&S performance.
And I took your point on working capital, so I thought in working — if you want to take your inventory down, then you try to sell more rather than say less than, this is why I’ve got a bit confused there.
Sudhakar Sivaji
No. Okay, Rochus, that’s an excellent follow-up question. Thanks for asking that because you do understand that 70% to 80% of our volumes from Europe go to S&S. So you cannot evaluate Europe stand-alone and say the shipments have gone down. That is what I was trying to explain.
Is that clear?
Rochus Brauneiser
Okay.
Sudhakar Sivaji
So when you do working capital optimization inside the Company, I’m going to call my S&S person and my Europe person and tell them, Hey, Europe, you are the higher end or the upper end, okay? So now let me add on one more thing. Because we are now integrated backwards into scrap, we have a much more organized and earlier net working capital release detection system because across the cycle we can realize this and look at it. So if you look at segment by segment, it looks a little odd. But if you look globally at the Company, that is the reason.
That’s the connection to net working capital release. Is that clear now?
Rochus Brauneiser
Yes, I think this is — you’re making a good point. Then on the numbers, it’s quite amazing how strong Brazil was. So maybe can you remind me why they are not subject to the same kind of destocking cycles we are seeing in other parts of the world?
Tim Di Maulo
There are different reasons. First, you see that Europe has been flooded by imports. And this is a major factor of the Q3 in Europe. The second point is that Brazil remains extremely competitive, extremely competitive because they have their own energy, their own, let’s say, labor costs. They have always been competitive and so they can fight with any kind of imports.
Third, it is a season for Brazil. The season is the good season. And fourth is that the economy of Brazil is running well. And this is something good news. So Brazil remains unfortunately — unfortunately a small country because the internal consumption of Brazil is less than what it is in France.
So the consumption per capita is still, let’s say, 5x, 6x lower than Europe. This is unfortunate for the short term. For the long term, there is a fantastic opportunity for growth, and this is what we see and why we are continuously investing in Brazil. On top, Brazil is ramping up the specialty grades in electrical steel, which support their activity and go well. Also, last comment. Europe, you see, Europe is — Brazil is much better, but Europe was good in the sense that you have a huge inventory effect.
And despite this the competitiveness of Europe means that the, let’s say, underlying EBITDA is in line, okay? So when you compare all this in a period in which you say, okay, we are in low cycle, the performance also of Europe are impressive.
Rochus Brauneiser
Right. Then the final point is on your backward integration. So high level, looking at your numbers, I think they were quite okay in this kind of context. What is interesting is that one of your competitors have massively beaten expectations because of certain sourcing effects, I guess, coming from the scrap side. So why shouldn’t we have seen similar things on your side?
Is this something where you are acting differently in the scrap market than maybe others?
Tim Di Maulo
I think the, the — I cannot comment on what are the comments of other peers. So — but what I can say is that the scrap is — the scrap market that we know very well, there is no disadvantage for any, lets say of, participant on the purchase of scrap. So it is normal. I don’t know if they were referring to date or not and which region they are referring to. So I cannot comment and only saying that from what we see in our scope, scrap is indeed very important as a competitive lever and against Asia.
So it is our local raw material. It is a material which is competing at par and even better with nickel pig iron. So we are very happy of being integrated in the scrap and the synergy out there.
Rochus Brauneiser
Okay. Thank you very much.
Operator
Thank you. We’ll now move on to our next question, again from Tristan of BNP Paribas Exane. Your line is open. Please go ahead.
Tristan Gresser
Yes, hi. Just one quick follow-up. I think in your prepared remarks you flagged some reduction of downstream lines in Europe. I just want to be sure I understood that correctly and if you can talk a little bit about that? And if it’s temporary measures?
Or that’s part of the initial leadership journey initiatives? And also…
Sudhakar Sivaji
Yes. Go ahead, Tristan. Sorry.
Tristan Gresser
And if it had — if you would be able to quantify that impact as well.
Sudhakar Sivaji
So Tristan, the — this is — if you take our presentation from November 2020, we announced the leadership journey Phase three and — sorry, Phase 4. And in that we announced EUR150 million gain. And past of that, we said that we will actually reduce the number of downstream cold rolling mills in Europe. And this is the same thing. This was just a reminder that, that plan is ongoing and it will come on board and it is — that will be a contributor.
It has started ramping up and it is a contributor to our leadership journey gains. That’s it. It’s not a new path or it’s not temporary reduction or anything. It’s the structural improvement we have followed as part of leadership journey. And the numbers haven’t changed, what the split we have provided between the different parts.
Tristan Gresser
Okay. Fair enough. Is it fair also to say that those gains or those maybe optimization measures have been accelerated given market conditions?
Sudhakar Sivaji
Look, the thing is that you don’t plan such a thing based on one quarter results, okay? When we had the strategic discussion, we always said that we are not going to increase volume but improve the mix. When you improve the mix and implement more efficient assets, what happens is end of the day you have lesser FTEs. And it has nothing to do with current market conditions. It is a part of our strategic leadership journey what we took.
Tristan Gresser
All right, perfect. Thank you.
Sudhakar Sivaji
Thanks.
Operator
We’ll now take our next question from Maxime Kogge of Oddo Maxim. Your line is open. Please go ahead.
Maxime Kogge
Yes. I have a general question about energy and energy intensity because one of your competitors, I mean, announced plans to decrease significantly energy intensity, and that comes apparently at relatively limited CapEx. So on your side, I mean, do you see room to go beyond your own objectives which thought to reduce energy intensity by around 15% — sorry, 11% by 2030 versus 2015, now which is relatively muted. And do you see room to go beyond that, notably in terms of gas consumption, given the market prices versus, I mean, your ESG road map?
Tim Di Maulo
So, yes. This is the way we are doing, in fact. So it is something which is normal. Whenever you have this kind of spike of energy, you sought your investment in a way that those who give you an advantage on energy today are on the top of the list. So we are speeding up.
I suppose that this was what you have — we are referring to. All the investments which are related to energy, to lower consumption of energy, et cetera, are speeding up. And by the way, it is interesting that the investments are also, in general, at 90% participating to the reduction of CO2. So these are part of our plan of EUR200 million. which we had in put in 10 years at EUR20 million per year.
So there will be, let’s say, we will pull those which are the most efficient in terms of energy reduction, energy — electrical or gas reduction. And then the other one will be more structural and will be done later. This will not change dramatically our CapEx. We will anticipate some CapEx, yes. This is correct.
And we will speed up at the maximum speed, but there is a limit to which — so you cannot invent a nuclear plant in a couple of months. So you can do a certain number. And I can grant you that we are to the maximum speed there, at maximum industrial speed as every participant.
Maxime Kogge
So should we see energy intensity, already declined quite significantly in 2023? Or will it be rather backloaded in 2024, 2025?
Tim Di Maulo
So it will — there will be a decrease which is progressive because I repeat, you cannot invent something which was — that does not exist. There is no solution that you can implement in one month, and you say, okay, I reduced by 10%, 20% in one month because this is, I mean, so that you are stupid, you have not done this before, okay? So it is a question of doing at the maximum speed, what is already in the plan to reduce the consumption of energy, and there is an industrial road map. This industrial road map has been totally reviewed, as I told you, and we have pulled all the investments that were possible and efficient for the reduction of energy. In this, I think our team has a list of 96 ideas to do this.
And probably they will continue to bring other ideas and they are implementing progressively.
Maxime Kogge
Okay, okay. Thank you.
Operator
And we will take our last question from Tom Zhang of Barclays. Your line is open. Please go ahead.
Tom Zhang
Yes. Hi, gentleman. Thanks very much. Two just clarifying questions, please. First one on the guidance of slightly higher shipments.
You started giving group shipments that includes the recycling renewables. When you say slightly higher shipments in Q4, is that for the group level? Or is it just stainless and electrical?
Sudhakar Sivaji
So we are talking about stainless and electrical, but we do also have the breakup of shipments in the current quarter by every quarter. So we are talking about stainless.
Tom Zhang
For the guidance, sorry. So when you say Q4 2022 shipments at a slightly higher level, that means group or it mean stainless and electrical?
Sudhakar Sivaji
It has to be — if you wanted, its group and you can say it’s group minus the recycling revision, if you so want.
Tom Zhang
Right. Got you. That makes sense. And then the other one was just on Slide 4. You gave the increasing distributor inventory chart.
And then you were speaking earlier that you expect destocking to be done by the end of the year, so basically over Q4. If you look over the history, it looks like it normally takes at least two to three quarters before you start reaching a trough in inventory. Why do you think this destock will be so much quicker than previous cycle?
Tim Di Maulo
It’s a simple number. It’s simple a question of figures. So I told before, we have imported in six months the equivalent of one year, okay? So then this has meant that in Q3 there has been a very important destocking and the domestic demand has dropped significantly. We have seen it in the figures to compensate this stocking.
Now as the prices have normalized and the trade difference is efficient, what we are anticipating is that there is no — any more, let’s say, close to no more big imports in the rest — for the rest of the year and also for the beginning of the year. So the inventory will normalize due to the simple mathematical effect between what is coming in Europe, which has been the first part of the year and what is the apparent demand. Remember also that in our guidance we have seen that we have a very important effect on apparent demand that is due to distribution, okay? Distribution is destocking, so they are not asking for volumes. But on the real demand, the consumption is still there.
We don’t see — we don’t see really a drop in any segment or in any of our important segments of the demand, okay? It is not booming, okay? We are not receiving a booming demand like at the beginning of the year because everybody was tight in the supply chain and there was disruption to supply chain. But the real demand is still more than decent. And this means that with no imports and with the stock which are going down, the domestic demand will come back to the normal level.
Tom Zhang
Right. But again, with that distributor chart, the days inventory is basically at the same level as Q2 ’20. So the peak of COVID and the absolute levels of inventory are basically the same. So you not — does that not suggest a real demand as bad as it is in Q2 ’20? Or am I reading that wrong?
Tim Di Maulo
Yes, but, sorry. I don’t know if we are comparing the right — the comparable quarters because…
Tom Zhang
Slide 4 on your presentation is what…
Tim Di Maulo
. No, no, no. But what I’m saying is the following. So every quarter — every quarter is different, and there has been in 2020, the second quarter has been the moment in which everybody has stopped the plant, okay? So the inventory stayed there.
Nobody was consumer [Indiscernible] I mean, you had the peak there. And then on the contrary, once everybody had stopped the plant, including the stainless steel producer, then everybody started to consume back. And so in Q3 and Q4, you had a very tight supply chain because there was no production of stainless steel. There were no imports. All the transport from Asia to Europe had been disrupted, also due to the logistics of the Suez channel, and the fact that all the ports were completely overloaded.
Okay, all these supply chain has pushed down the level of inventory during the first half of 2021. Only at the end of 2021 it has been possible to restore the supply chain. And at that moment, the gap with Asia was extremely high in terms of price, and this will have attracted a lot of imports, which have arrived progressively in Q2 and Q3. And Q3 is the starting of the stock, okay? So I will not take the chart of inventory saying this is the normal, this is not the normal.
The normal subject to the history of this month of this quarter, which has been a very, let’s say, new story, a completely new between COVID, between the logistics, between the price, between the spike of nickel. All these events have had an impact on what could have been seen as a normal level of inventory.
Tom Zhang
All right. Okay. Yes, that makes sense. Thank you.
Tim Di Maulo
Thank you.
Operator
Thank you. That’s all the time we have for Q&A. I will now hand it back to Tim for closing remarks.
Tim Di Maulo
Okay. Thank you very much for your questions. And I think that consensus in this day and these challenges at times will likely get even tougher. Aperam has a clear improvement strategy and a strong efficient balance sheet. Together with our flexible business model that delivered during the last recession, Aperam will emerge as a stronger company whatever the future brings.
We’ll be on the road in the next weeks. The preliminary schedule show very solid interest and we are happy to collect your first time feedback. So thank you for attending the call, and see you soon.
Be the first to comment