SSAB AB (publ) (OTC:SSAAF) Q4 2021 Earnings Conference Call January 28, 2022 3:30 AM ET
Company Participants
Per Hillström – Head, Investor Relations
Martin Lindqvist – President and Chief Executive Officer
Leena Craelius – Chief Financial Officer
Conference Call Participants
Alain Gabriel – Morgan Stanley
Tom Zhang – Barclays
Alan Spence – Jefferies
Luke Nelson – JPMorgan
Krishan Agarwal – Citigroup
Carsten Riek – Credit Suisse
Rochus Brauneiser – Kepler Cheuvreux
Patrick Mann – Bank of America
Viktor Trollsten – Danske Bank
Bastian Synagowitz – Deutsche Bank
Andy Jones – UBS
Seth Rosenfeld – Exane BNP Paribas
Per Hillström
Good morning and welcome to this Presentation of SSAB Year End Report. My name is Per Hillström. I am Head of Investor Relations. And with me today is our President and CEO, Martin Lindqvist and also CFO, Leena Craelius. And the agenda today, we will start with the summary of fantastic year 2021 and then the financials with Leena, a little bit more look at the quarter as such. And then, we are also very pleased today to present a plan for much forced transformation of our Nordic production system. So, Martin will spend some time to explain what we are looking at there and at the end, as usual, outlook and summary. And we will also have a lot of time for questions here. So you will be able to ask your questions at the end.
So by that, please Martin start with ‘21.
Martin Lindqvist
Thank you, Per and good morning, everyone. I will start with a brief comment in the summary of 2021. And it was a historical year for SSAB with I would say solid performance in a very strong market. And I will give you a couple of examples of that. But we had an operating profit of almost SEK19 billion or SEK18.8 billion in net operating profit. We had very strong net cash flow and net cash flow, SEK12.4 billion and that meant that we could close the year in a debt free position and the Board decided at the board meeting to propose the AGM to have a dividend of SEK5.25 per share. Of course, a lot of this is due to a very strong market, but it’s also structure. We have seen very strong demand for our niche products. We have seen good and solid internal performance. If we take safety as one example, we have improved the number of LTIs lot during the year and I would say that, that is structured and we still are not at zero, but we are approaching and doing a good job in the organization.
I think also we had the stable and high production. We saw a successful ramp up during the autumn of 2020 after a very challenging 2020. We saw record output in several production lines. We have managed I think in a decent way to handle problems even though they are not fully over with the COVID-19 in the – at the production sites in the organization. We have also had problems with supply chain issues, shortage of railcars, sea transports, trucks and so on both during the full year of 2021 during Q4 and also into Q1 2022. It was a remarkable year in many aspects and I think the first volumes of fossil free products that we delivered, the first fossil commercial volumes, was landmark for SSAB. And we have during the year and are continuing with that to announce a number of strategic agreements with customers and we have or the Board has taken a decision to speed up the transition and taking a directional decision to – for a faster transformation. I will come back to that in the end.
But we have not also market wise only served on a strong market. We have actually been able to continue to deliver on our strategic targets. If we look at the Special Steels in 2021, they almost reached 1.5 million tons and I would say that they would have reached it if we wouldn’t have had the transport call it challenges. So they are going to reach the strategic target of 1.6 million tons at the latest 2023. Services is moving on. We haven’t done any major acquisitions during the year, but we are on our way to reach the strategic targets, America’s premium share improving over the year. And looking at SSAB Europe, we are fairly close to the strategic target we have for 2023, 43% being the outcome of premium share 2021 and still a lot of things to do.
Automotive, of course, a segment affected by shortage of semiconductors, but still a good growth. And if we look at the premium volumes in SSAB Europe, we already ‘21 reached the target for ‘23, so ahead of plan, still a lot to do and a lot of interesting prospects and the Nordic market share in line with our long-term target of between 40% and 45% Nordic market share. As said in the beginning, it was a marvelous year. We had record earnings in all divisions. We had very good EBIT margins, good profitability and altogether the EBIT summed up to almost SEK19 billion, but Leena will give you some more details on the financials.
So Leena, I hand over to you.
Leena Craelius
Thank you, Martin. Yes, it is really a privilege to start in my new role with these kind of figures, which I will go through briefly. In this slide, if we look at the graph on the right hand side on the bottom, we can see the EBITDA improvement quarter by quarter during this year. And definitely, the market was favorable. Prices were increasing throughout the year. Volumes were on a lower side during the second half of the year and the problems already Martin mentioned. But if we say that the market was favorable, I would also highlight the good performance of the whole organization. I already discussed about the premium mix improvement, Europe division, Americas improving the premium portion of the sales and also Special Steels delivered higher volumes this year. So, good work in the sales in that aspect. Also the stable production improvement since last year, that is giving of course, big benefit for the profitability. So, we can say that good achievement also in that aspect and also the cost efficiency, we were sustaining a good cost efficiency during the year, so all that’s shown in the figures related to EBITDA.
And then quarterly figures isolated Q4 comparing to last year telling exactly the same story, prices are much higher level, they are compensating well, the higher raw material, cost based volumes slightly lower compared to last year’s fourth quarter. Fixed cost on a higher level and this is now mainly related to maintenance activities where we had the shift in timing. America’s division did the big maintenance during Q3 last year and this year, we did it instead of during Q4. Also mobile maintenance which was done during Q4 is something we do only second – every second year. And then the other half is related to personnel cost. With these high earnings, we are realizing profit-sharing programs.
And then if we compare Q4 with the Q3 outcome, prices did continue to go upwards compensating again higher raw material cost base, volume slightly lower partially seasonality of Q4 related and also these transportation problems that Martin already mentioned. Fixed cost in this comparison, more related to seasonality, Q3 is a vacation period. And then as you can see the utilization of the capacity was higher, the materials and services also higher in line with that. All this good performance led to a strong cash flow. Q4 cash flow – net cash flow ended on the level of SEK5.34 billion and the full year SEK12.4 billion. Comparison high level with last year, definitely the earnings played important role. They were much higher compared to last year. Some negative impact with working capital, with higher inventories, but nothing to be alarmed about, because the net operating working capital over net sales did develop really well during this year. Maintenance expenditures on a higher level, financial items slightly lower, taxes naturally higher with this level of earnings. Strategic investments were somewhat higher and this is now mainly related to the Oxelösund conversion started and will continue during next year as well.
As said already in the beginning, the target set for year end to be net debt free. We reached and actually exceeded the gearing ratio at the end of the year being negative minus SEK3 billion, while last year it was SEK19 billion. So, the net cash position positive, SEK2.3 billion. Then when we look at the next year forecast on high level, the CapEx activities will increase during next year. And this is now mainly related to the Oxelösund conversion. We were indicating CapEx need for this year, SEK3 billion, SEK3.5 billion and we were slightly below SEK3 billion. Net interest to be somewhat lower for next year and then the taxes higher and that’s due to the incurred taxes this year will be paid out next year. So, on a total level, SEK8.5 billion is the total cash need estimate at this stage for next year.
Very briefly about the raw material view going forward or actually this is illustrating the history. The iron ore peaked during ‘21 started to come down luckily during Q4, but the latest development is again upwards. So, the outlook for iron ore for Q1 is that it will be on a similar level than Q4 with an upward risk. And then the coal prices, they continued to increase second half of the year peaking upwards and they will continue to increase also during Q1. This is only few of the raw materials, the biggest raw materials. And we know that the alloys, for example, zinc and other materials will continue to go up. So, overall, the cost base is expected to be somewhat higher for Q1.
And very briefly, scrap prices. This is illustrating the U.S. spot prices, they were on a higher level for Q4, coming down mainly seasonality for January and the outlook for February is that it’s stable or might be going upwards. So, that’s still unknown. But then regarding outlook and other issues, Martin will continue.
Martin Lindqvist
Thank you, Leena. So, some words then about the accelerated Nordic transformation and to start to give you some background back in 2017, we formed the hybrid joint venture together with Vattenfall and LKAB. And we also inaugurated the unique pilot plant for producing sponge iron – fossil-free sponge iron in 2020. During last year, we delivered or produced first sponge iron – fossil-free sponge iron in that pilot plant. We also decided to – we plan – started the plan to reach commercial volumes of 1.3 million tons in this project of fossil-free sponge iron in 2026, in line with the need and the demand in Oxelösund. We then in August rolled and delivered the first fossil-free steel and that was delivered to Volvo Group to their new Tata machine. So, in this partnership, we have created the foundation for fossil-free value chain all the way from the iron ore being up in the mountain in the north of Sweden, until finished products in this example, Tata machine from Volvo construction equipment. So, this is what we have created since 2016.
We have also seen a lot of interest from customers in existing customers in our important and focused segments. These are examples of partnerships that we announced during last year. We have also seen that the demand today and especially in the future exceeds the planned supply of 1.3 million tons in 2026. And the demand is not only bigger, but also broader than we currently have the ability to produce. And I would say a big part of it is within the mobility segment, advanced high strength steels for automotive and for heavy transport. And we have had and continue to have and that is only increasing new customers in those segments approaching SSAB wanting to sign partnerships and take part of this development.
So, we have decided or the Board has decided to start a feasibility study with the ambition or to accelerate the Nordic strip production system. And the idea is to build a new mini mill in Lulea and one in Raahe and closed existing blast furnaces and steel shops and so on. So, build two new compact, high efficient mini mills, with the scale of roughly 2.5 million ton each, which is in line with current capacity. We expect to complete this transformation during the coming 10 years and that is – the time is good, because that is before the next scheduled blast furnace relining and the next scheduled invest – big investments in cock oven batteries and so on. So, the timing is perfect around 2013. This will allow us to expand the product range in terms of grades dimensions and quality within current specialty and premium strategy. As one example, we will be able to produce Q&T 2 meter wide with thin gauges, which is asked for by the market. This will also give us capability to run a flexible load of HBI sponge iron and recycled scrap. So, part of the discussions and the partnerships we have with customers is to reuse the virgin scrap so to say. We will leverage existing downstream assets for the new mills, including Borlänge, Hämeenlinna tube mills, Tibnor and Ruukki Construction cut-to-length facilities and we will build both mills fossil-free from the start, including power supply and I will come into some details.
If we look at this graph showing the possibility to reduce with 8 million tons of carbondioxide per year, 15 years earlier than plan, if we just put what the cost might be or where it is close today of 2030 without free allocations, because the free allocations in Europe will go away, that by itself is equivalent to SEK7 billion per year in cost avoidance by doing this fossil-free. But this, of course, overall strengthened our ESG position as a company.
If we look into the benefits with these type of mills, I would claim that this will give us the possibility to have a structural and long-term profitability uplift. If we look and start with the commercial benefits, we will have a broader range of specialty and premium products, we will be able to increase sales to Nordic customers in areas, where we don’t have capacity today and that is asked for. One example is galvanized material. We will have a much faster ramp up of fossil-free steel volumes in line with the market demand.
If we look at the operational efficiencies, we will have a much better cost position. Lead times will be completely different. Today, we have lead times of 6, 8 and sometimes 10 weeks. We will build mills with lead times below 2 weeks. We will have said avoid cost for CO2 emissions and we will de-risk the carbon-dioxide cost exposure and we will also try to take away the small lost part of emissions by also looking into using bio-fuels in Oxelösund to become 100% fossil-free. If we look at the increased operational flexibility and as you know, we are used to run mills like this, we have two of them in U.S. We will have lower fixed costs and much better ability to adopt to swings in demand. It’s much easier with a minimal and electric arc furnace. It’s in practice if you put it bluntly, red and green button. When the business cycle is good, you push the green button and when the business cycle is bad, you push the red button, so much more flexibility than running blast furnaces that are typically built for being run 24/7 in 15 years or 20 years and then you do a relining or coke oven batteries that you run 24/7 in 30 to 50 years without flexibility.
We will also have better raw material flexibility. We can use both fossil-free HBI from the partnership in HYBRIT and we can also use recycled scrap from internal operations and customer, scrap that we are typically today selling on the market. And then of course, we will be able to reduce and avoid reinvestments in existing coal-based operation. And as you might know, many of our operations were originally built during the 60s and the 70s. So, we will have modern mills state-of-the-art mills with much lower CapEx needs.
We expect this when we move now and start a feasibility study to cost around SEK45 billion for the coming 8 to 10 years and that includes Luleå, Raahe, Borlänge and Hämeenlinna, but it is excluding the conversion in Oxelösund that costs SEK5 billion on top of this. And if we look at the investment plan up until 2045, I would say that this is similar or even lower than the existing plan to keep maintenance of the assets we have today and moving into electric arc furnaces. So we will have a much more strategic and future oriented investments in this case. And when we look forward, we see that we have the ability to fund this transition with our own cash flow.
And when we look at and we will come back with updates when we do the FIDs and so on, but when we look at the overall calculation, this is very interesting investment case. But we can’t do this only by ourselves we need help with some things from the society. Of course, we need environmental permit and have an efficient permit process. That is maybe little bit less boring. What is important though is that we have fossil-free electricity at the right time, at the right place. So, we need to work with electricity transmission and make sure together with society that we can deliver that together on time, but if we can do that, we have a very good opportunity to be fossil-free in 2030 in line with the growing market demand. So, the way forward, we have initiated the feasibility study for Luleå and Raahe. We will start immediately the permit process already now. And we will come back with information about sequencing in financial guidance to when it is available. So we will keep you updated as we move on with this project.
Then, outlook and summary for the year, when we look into Q1, we continue to see healthy demand in many sectors and many areas. And especially for Q&T and advanced high strength steel, we foresee solid demand in Q1. There is always of course in Q1 as it was in 2021 and Q4 questions regarding transport capacity and also the development of the COVID-19 situation. But right now, it’s not worse than it was in Q4. So – and hopefully this will ease up during 2022. So, when we guide and look at shipments and prices, we expect higher shipments in Special Steels Europe and Americas in Q1 versus Q4, stable prices in Special Steels, somewhat lower prices in Europe and stable to somewhat higher prices in Americas. And as Leena said, generally higher raw material costs and fuels and bottlenecks within transportation will continue in Q1.
So, we sum it up before we open up for questions: strong earnings, strong cash flow generation, high and stable production; good work with continuous improvement what we internally call SSAB1; better safety performance and debt-free situation, with a net cash position end of 2021. The Board is proposing a dividend of SEK5.25 per share. And we have a plan for an accelerated Nordic transformation that will meet customer demand and for fossil-free products within our segments. We are doing a step change – planning for a step change when it comes to efficiency, flexibility and cost position and we will be able to eliminate carbon dioxide emissions 15 years earlier than the previous plan.
So with that, Per, I think we open up for – and Leena we open up for questions.
Per Hillström
Yes, we will do. Just a few words. We have good time now for questions, but I am sure there is a lot of questions or maybe in the first round to keep it to a couple of questions. And as always, please state them one at a time to make the process a bit easier here. So by that, then I would please ask operator to present the instructions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Alain Gabriel at Morgan Stanley. Please go ahead. Your line is open.
Alain Gabriel
Yes. Hi, good morning, everyone. I have two questions. I will start with them one at a time. Firstly, on the budget for your green state transition, how much do you expect to obtain in funding from the Swedish or your government knowing that Oxelösund was the only site to have received the EU Innovation Fund backing back in November last year, given that you are also expecting almost 50% funding for their projects, when do you expect? That’s the first question.
Martin Lindqvist
In our calculations, we have done this with own cash flow. And then if we would get some funding, we haven’t calculated with that. So, the SEK45 billion is what we believe it would cost maximum. And we see that we can do this with our own cash flow generation.
Alain Gabriel
Okay, thank you. And the second question is what would be the maximum CapEx that you are willing to tolerate in any given year from now until the end of the project? And whether that means for your capital returns strategy and your dividends, say, for example, in 2022?
Martin Lindqvist
We will not change the dividend policy. We were – the proposal for 2021 is in line with the dividend policy. We will not change that. I think you are in a position with the net cash position, when I look forward and look at demand development, cost development and so on, you should expect us to continue to generate I have been saying this for many years now, but you should expect us to continue to generate strong free cash flow. And then we will use that, and of course, this is money belonging to the shareholders, we will use that to invest and also to pay dividend.
Alain Gabriel
In terms of your maximum CapEx tolerance per annum?
Martin Lindqvist
No, but that will, of course, change over the years and I mean now we start the feasibility study and we are running at Oxelösund projects. So, I mean, it will be a bit call it back end loaded the rest of it so – and we will have possibilities to adjust that over time as well. We don’t have one figure saying that this is the maximum investment level we will have, but what we know is that we instead of investing in old equipment, we will invest in brand new equipment.
Alain Gabriel
Okay, thank you.
Operator
Thank you. Our next question comes from the line of Tom Zhang of Barclays. Please go ahead. Your line is open.
Tom Zhang
Yes, good morning. Thanks for taking your questions. Also two take them one by one. The first question, I was wondering if you could help us understand what sort of the net CapEx is, because clearly you are avoiding, as you mentioned, coking battery CapEx, some other CapEx that you would have needed if you kept the blast furnaces. I was wondering if you had a number on effectively what the net CapEx expenditure is over the next 10 years if you deducted those costs?
Martin Lindqvist
But if you take them as I tried to show out, I mean, what we see running the existing operations for the period I showed on the slide will cost slightly more. And to give you some examples, the relining of a blast furnace is roughly SEK1 billion to SEK1.5 billion – around SEK1.5 billion. Building a new or relining a coke oven battery is much more expensive than that. And then we have steel shops and a lot of other things. I would say this is compared to the previous plan a bit more front loaded, but the absolute terms are actually slightly lower.
Tom Zhang
Okay, fair enough. And second question just on U.S. plate pricing, I am wondering if you are feeling any pressure there given plate looks overshot, HRC quite materially now. Do you think there are any sort of risks that normalizes or do you think this kind of plate HRC spread could and elevated spread could be maintained given sort of infrastructure demand?
Martin Lindqvist
Very good question. But I would say that what we saw regarding the spread of HRC and plate last year was abnormal with HRC being much higher than plate. What we see now is more a historical pattern. Will that stabilize and be there forever? I don’t really know, but we see a good underlying demand for plate in North America and especially for infrastructure purposes and others, but where the spread will go. I was surprised to see the negative spread last year to be honest.
Tom Zhang
Okay, yes, I think this spread now at least from the numbers that I see quite a bit above historic normalized, but it sort of feels like yes, and the market demand is there to certainly stop going negative again. Okay, those are my questions. Thanks very much.
Operator
Thank you. Our next question comes from the line of [indiscernible] from Exane BNP Paribas. Please go ahead. Your line is open.
Unidentified Analyst
Good morning. Thanks for taking our questions. I will take one by one first on decarbonization and second on Special Steels. With regards to the decarbonization strategy, can you just give a bit more color on the raw materials plan? The flexibility between scrap and HBI, perhaps in the HBA side, you are reliant on HYBRIT, can you walk us through the plans for expansion of the HYBRIT green HBI capacity and what the additional CapEx implications would be for your contribution? I will start there please.
Martin Lindqvist
What we have – what we are planning for right now is what we call the demonstration plant, which is a full scale production plant of 1.35 million tons. And we have announced that, that will be built by the partners up in [indiscernible] in Northern Sweden. Then of course, we are discussing other plans also to step up these investments and LKAB is doing. So, we are doing this in a joint venture and a partnership. So, this fits together with the plans for the value chain. So, our ambition is to build the fossil-free value chain and have fossil-free steel available from that fossil-free value chain for our customers and that will of course be dependent on the future demand. But what we see right now is that the demand is stronger than we thought and in the partnerships we have signed, the ambitions are quite strong. So, we have good quality, good prospects for the future in that aspect. Then of course, we need of course power supply in order to do this transformation, the power generation is there and the power generation is being built out, but we also need power supply so that I would say we will be time wise maybe a limiting factor.
Unidentified Analyst
Okay. Just to follow-up on that, if by 2030 you are using exclusively green inputs, how much HBI do you expect to be consuming compared to about 1.3 million tons currently under development?
Martin Lindqvist
Of course much more, yes. We haven’t said – I mean, we are moving now into the feasibility study and we can flex between HBI scrap and recycle the virgin scrap so to say. So as said we are not using the scrap today, we can get scrap back from customers and use internal scrap. So, the exact balance we need to come back to.
Unidentified Analyst
Okay, thank you. And I guess one last question please on Special Steels, can you just talk us through the medium-term outlook for price realizations. This is a business that historically been a lot less volatile than the Americas or Europe businesses with some price pressure being realized today in the spot market. How do you think about Special Steels going forward?
Martin Lindqvist
If we take a step back and look at the EBIT margins that I showed on the first – one of the first pictures, you saw that Europe and Americas had better and higher EBIT margins than Special Steels, which is typically the case in a very strong market. So you are right, Special Steels is they are much more stable, margin wise and price wise, less fluctuations and less volatility. What we see and what we saw during 2021 is structurally increasing underlying demand and we have seen that for quite some time and that is the important part. So, they will continue to grow. And I would bet you that we will meet the strategic target of SEK1.6 billion at the latest 2023. So, we are following the plan and we are actually a bit ahead of plan, but less volatility and more stable margins over time, but the underlying demand is structurally growing.
Unidentified Analyst
Okay. Thank you very much.
Operator
Thank you. Our next question comes from the line of Alan Spence, Jefferies. Please go ahead. Your line is open.
Alan Spence
Yes, thanks guys. Similarly, two questions. Take one at a time. The first one on decarbonization, how long do you anticipate the feasibility studies to take and what is your assumption around through cycle profitability that allows you to finance out of cash flow?
Martin Lindqvist
I must apologize.
Per Hillström
The first question was on how long before we can see the feasibility study?
Martin Lindqvist
We have started a feasibility study and we will gradually get more and more educated but I will say maybe 1.5, 2 years maximum.
Alan Spence
Okay. And the second part of that one was, what is your assumption around through cycle profitability so that you can finance the CapEx out of cash flow?
Martin Lindqvist
When we look at the long-term profitability and cash flow generation, including these investments, we see that we can finance this over this period. That’s our base assumption. Then of course, when you do projects like this in Swedish, we say [indiscernible], you need to be really sure about that and we are very confident that we can do that.
Alan Spence
Okay, thanks. Second one on Europe in 2021, you achieved your tonnage target per premium volumes, what’s kind of upside target for 2030, where do you see that going?
Martin Lindqvist
No, I see we have a lot to do on that target. And especially within automotive, where the demand has been affected by shortage of semiconductors, we have excellent products and some products, they are high. The martensitic steel is up to 2,000 megapascal, which where we are word unique, we know the platforms we have are into and so on. So I see a lot of growth prospects for the automotive part as one example. And we have also invested in Borlänge in the continuous annealing line to take up the capacity. So, we have plenty of opportunities to continue to grow that premium mix above the target of 2023.
Alan Spence
Thank you. And just if I have one last one just quick confirmation, if the feasibility studies take 1.5 to 2 years, can you just confirm that there will be no CapEx spent on those projects until those studies are done?
Martin Lindqvist
No. But there will be some costs I mean, with consultants internal work and so on. So – but to be honest, I am not sure it will take – I don’t have the exact days and months it will take the feasibility study, but a fair guess from the top of my head would be 1.5 to 2 years and then we know the cap and then we will take the decisions mill by mill, so to say.
Alan Spence
Okay, thank you.
Operator
Thank you. Our next question comes from the line of Luke Nelson at JPMorgan. Please go ahead. Your line is open.
Luke Nelson
Hi, thanks for taking our questions. Two for me. Take them one by one. Firstly, again, just on decarbonization, maybe just more around the funding side of things. And follow on from the prior question that it sounds like CapEx is probably going to ramp up in a year or two time. So, 2022 will sort of still be a CapEx light year – from that side of things. I suppose in that context, it’s likely going to see a significant increase again in terms of balance sheet strength and the net cash position. How should we be thinking about that surplus capital over the very short-term? Is it likely that it’s sort of going to be kept more as a war chest in advance of that CapEx spend or is there still an ability to maybe return surplus capital back to shareholders in the near-term after that without?
Martin Lindqvist
I think we have clear dividend policy and we will follow that dividend policy. And we are obviously in a different position right now with the net cash position. And as I said, I have said it many times and I have a tendency of repeating myself on that issue, but you should expect us to continue to generate from operations, strong cash flow and have a good cash flow generation. And we are not done even though, I think Leena was rightly so impressed with the development of net operating working capital over sales, we actually had lot of inventories at the end of the year, because due to transport problems and so on. So I think we will have solid cash flow generation for the coming years and for the future and then we will use that cash flow wisely. As I said, it belongs to the shareholders. We will live by the dividend policy and we will do investments that we believe is good investments for the future. So, it will be a combination.
Luke Nelson
Thank you. Second question is more just on the CapEx figure itself, can you maybe clearly this subject to a feasibility study and confirmation of that? Maybe can you just talk about to what extent this continued to build in within that figure from things like cost inflation and overruns? And then maybe just in terms of how much of that budget is fixed versus still subject to change? And maybe assumptions around things like…
Martin Lindqvist
Of course, we have done our homework and done our calculations and we are of course not willing to put ourselves in a situation where we would over exceed that call it round and rough figure. So there are contingencies built into that number, yes.
Luke Nelson
Okay, great. I will leave it there. And I will jump back into queue. Thank you.
Martin Lindqvist
Let’s come back to the issue when we have the FIDs and the investment cases ready and then we can talk about profitability, internal rate of return and so on.
Luke Nelson
Okay, great.
Operator
Thank you. Our next question comes from the line of Krishan Agarwal of Citigroup. Please go ahead. Your line is open.
Krishan Agarwal
Hi, thanks for taking my question. Couple of questions have already been asked. But a follow-up on CapEx. So I mean, with the Nordic system plan in place, we can see four large bucket of the CapEx, which is sustaining CapEx contribution to the hybrid development Oxelösund conversion CapEx and then on top of that Nordic system CapEx. So, is that a fair way of looking at your CapEx pipeline for the next 10 years? And then can you help us estimate the CapEx for beyond 2022 in terms of all these four buckets, how should we think about kind of incremental CapEx in 2023, ‘24, ‘25 in these four buckets?
Martin Lindqvist
No, but I – what we are saying is that the transformation or the building of two modern, high efficient mini mills in the Nordic production system, including investments in Borlänge and Hämeenlinna and some other that will cost roughly SEK45 billion. We have also said that the conversion of Oxelösund will cost roughly SEK5 billion. So, these are the two main buckets. Oxelösund will, as communicated earlier, be up and running and ready 2026. But then also, when you know that we are not going to run the existing facilities with the blast furnaces and coke oven batteries and so on for the long-term future, there will also be a bucket of CapEx avoidance in existing facilities. I mean, right now we – or up until now we have been running them as going concern, meaning that they would run forever. So, we have a bucket of CapEx avoidance as well. And then how that plays out every year and so on is a bit too early to say. But in the SEK45 billion, we have contingencies and we will come back to call it FIDs for each investment. This is a directional decision. And this is the starting point of a vision and an idea of speeding up the transformation of the Nordic strip system, where we have done a lot of home work, of course.
Krishan Agarwal
Sure, sure. Thanks a lot. And then a quick shorter term question on working capital. So you have already invested close to SEK6 billion in working capital in 2021, what should be kind of from a modeling perspective, what should we be thinking in terms of working capital in Q1 at least from a directional point of view?
Martin Lindqvist
We will of course be dependent on the market, but you should not expect us to massively invest in working capital, quite the opposite.
Krishan Agarwal
Okay, okay. Thanks a lot. Very clear.
Operator
Thank you. Our next question comes from the line of Carsten Riek at Credit Suisse. Please go ahead. Your line is open.
Carsten Riek
Thank you very much. Two questions from my side. The first one is on the current order backlog in Europe and North America do you see any change in patterns currently, probably for second quarter, given the high steel prices still in your order book means is there any standoff or do you think the good water intake will also continue into the second quarter? So the first half is pretty much is done. That’s the first one.
Martin Lindqvist
And typically we have to guide for the coming quarter and the order book for Q1 gives us the courage to give the guidance we have. Then I said COVID, there is a question mark, the transportation system is a question mark, but the order book gives us clarity in Q1. Am I expecting the world to breakdown 1st of April? It doesn’t look like that right now.
Per Hillström
No – also, Martin, we believe that these shortages will probably ease during the first half, at least that’s our base scenario. Then as you said, we don’t hold.
Carsten Riek
Okay, perfect. That helps already. This second question I have is also on the CapEx for 2022, you mentioned around SEK5 billion at the same time we see that your targets for SSAB Services, for example, to achieve SEK4.5 billion in sales and out of it, SEK1.5 billion through acquisition is still on. So ideally, you need to actually execute on this within the next 24 months. Is this SEK5 billion CapEx number including any exhibition CapEx?
Martin Lindqvist
Yes.
Carsten Riek
Is it already included?
Martin Lindqvist
Yes. And I was partly wrong during my presentation, because we actually did some acquisition within SSAB Services during 2021 as well.
Carsten Riek
Okay. Perfect. Thank you. I just want to clarify that. Thank you very much.
Operator
Thank you. Our next question comes from the line of Rochus Brauneiser of Kepler Cheuvreux. Please go ahead. Your line is open.
Rochus Brauneiser
Yes. Good morning. Thanks for taking the question. Maybe let me get back to this decarbonization plan, which I guess is pretty impressive for the rest of the industry. When you talk of automotives to advance that much, I take the point on the demand, but I guess with the longer term perspective, this is probably what you expected anyway that the green state is becoming, but the main product in market is demanding for. Are there any other points why this is being accelerated that much looking at Oxelösund? Do you have been discussing these issues with infrastructure and permitting and the power cables and so on for quite some time? So what is giving you the confidence from that background that you can move that much faster than previously anticipated?
Martin Lindqvist
I think it is a bit less complicated up in Northern Sweden and Northern Finland for one reason. We have learned a lot as well during this process, but the underlying factor is the increased demand. And when we started this project, together with LKAB and Vattenfall, we are not really foreseeing how the demand would develop. And I think also we have a unique position here up in the Nordics, because we have surplus of fossil-free electricity. We have the right iron ore. We have the knowledge and we have now also proven that we can produce the steel and that is good – have been asked for by the market and has been creating a lot of interest in the market. I also think that we have with those prerequisites, the possibility to bring and start to bring mini mills to Europe, which has not been the case before and we have experienced since 20 years of running mini mills and you see the development in North America now with quite, I mean, take Steel Dynamics and Sinton as an example quite impressive mills being built with capacity and cost position and capabilities that fits us very well. And we see the possibility to broaden our product offering. One example was 2 meter wide Q&T with thin gauges that is asked for by the market, but we don’t have the ability to produce today with good cost efficiency and productivity. So, it’s a lot of reasons, but it starts with the increasing demand from the market and the marketplace. And if you should do this anywhere in Europe, I think you should do it in Northern Sweden and Northern Finland.
Rochus Brauneiser
Okay. I think there is a fair point and also maybe can we come back to the CapEx figure? Maybe I will – in the time we must ensure that I got it right. Is the plan including any incremental DRI investments or would be the base case that this could be done by LKB? And is this – are you having now a different stance on the whether you want to be part of this or do you want to have that outside of your core competencies? Is this acceleration or changing your stance on what is your core business and what is outside of your core?
Martin Lindqvist
No, it hasn’t and we haven’t to be honest really decided. What is important for us is the partnership with LKAB and Vattenfall. And the ambition or the – yes, the ambition to create the fossil-free value chain and to optimize that value chain and then how we will invest or not in that we need to figure out over time, but we have been investing in the pilot plant and we are now in the HYBRIT in the final stages of the FID with the demonstration plant.
Rochus Brauneiser
So, is the DRI included in the SEK45 billion?
Martin Lindqvist
Now, the SEK45 billion is what is currently the Nordic strip system. So, the answer is simple and the answer is no.
Rochus Brauneiser
Okay. And finally, on the ramp up of the – this green steel shipment, fossil-free steel shipments, you are saying that you want to have the commercial push already from the very start. So is there – are you seeing a fair chance that a mill can deliver the full volumes from the very beginning or shall we expect there is a multiyear ramp up?
Martin Lindqvist
There is always on investment ramp up. The good thing with this is that we can build the mills in parallel with the existing mills. And then when the new mills are ramped up, we close the existing mills. And we can do that before the next blast furnace relining or before we need to spend a lot of money in coke oven batteries and others. So from a risk perspective, I think this is also a way of mitigating risks. So, we will not go to any customers in jeopardy.
Rochus Brauneiser
Okay. Maybe I was unclear. What I meant is on the demonstration plant is first 1.3 million tons of fossil-free steel. What kind of timeline do you think you need to fully push and establish that tons in the market? Is this just a one year process or is this rather a multi-year ramp up phase?
Martin Lindqvist
No, we are getting more and more, sure that we will be able to deliver volumes from that plant, Oxelösund in 2026.
Rochus Brauneiser
Okay, okay, that’s clear. Thank you very much.
Operator
Thank you. And our next question comes from the line of Patrick Mann at Bank of America. Please go ahead. Your line is open.
Patrick Mann
Good day, guys. Thank you very much for the opportunity to ask the question. A bit of a follow-up question just on the possible funding for this and apologies if I misunderstood the answer or – but I understood that at the moment you are planning for the SEK45 billion to be funded internally from cash flows and you are confident that you can generate that?
Martin Lindqvist
Yes.
Patrick Mann
I mean is there not government funding or government support or European funds or even low cost financing available that can help offset some of this CapEx flow and will you be looking into that or is it the case that you looked at it and decided to do it yourself?
Martin Lindqvist
No. But of course, there could be possibilities like that, but that we have not taken that into account when we have done our calculations, but we see lot of interest of funding these kinds of projects. But as said when we look at the future, we see that we have the ability to fund this with our own cash flow and then how we finally finance it, we – let’s take that decision when we come to the investment decisions.
Per Hillström
And last year, we already then have this sustainability linked bond, where we had good conditions on the back of the earlier plan. Now, this is much more aggressive. So, we will not be in a worse position on that as well.
Martin Lindqvist
But I think the starting position is decent with the net cash positions and good cash flow generation prospect. So, it’s I think, yes.
Patrick Mann
Thanks. I think the reason there is so many questions on this is because your peers say, they are expecting up to 50% of government support, right. So, I think that’s where that’s all coming from. I mean, and then maybe just one follow-up.
Martin Lindqvist
But – yes, okay, yes, yes, sorry. Please go ahead.
Patrick Mann
I beg your pardon, but I don’t want to interrupt you.
Martin Lindqvist
Yes, I know. I was trying to think out loud and that is not always a good idea. So please continue.
Patrick Mann
The other second question, I just wanted to ask you did speak a little bit about how this could be positive for margins in terms of the different grades and quality of steel that you are able to output? Can you may be just help us think through the economics, the unit economics of this a little bit more, so should we be thinking about this as higher cost steel, although you avoid CO2, but at the end of the day, you are getting a premium or a higher price on average, a higher realized price? Is that the way to think about it?
Martin Lindqvist
The way we have looked at this is that we will have a much more cost efficient production with a broader product portfolio and then of course, as you mentioned, some future cost avoidance that is how we have done the calculations. I think there will be most probably a premium to start with on fossil-free, but I think and hope that fossil-free will be the new normal and because customers and consumers are demanding that. So over time, I think this will be a very cost efficient, effective way of producing fossil-free steel products within our niches and our segments.
Patrick Mann
Understood. Thank you very much.
Operator
Thank you. Our next question comes from the line of Viktor Trollsten of Danske Bank. Please go ahead. Your line is open.
Viktor Trollsten
Yes. Thank you, operator and good morning Martin and Leena.
Martin Lindqvist
Good morning.
Leena Craelius
Good morning.
Viktor Trollsten
Just firstly, could you please remind us on maintenance CapEx modes that are coming sort of 5 years or 10 years, at what level it is up?
Martin Lindqvist
But I think we have had fairly the last couple of years fairly normal maintenance CapEx level. So, if I remember it correctly, after around a couple of billions.
Per Hillström
SEK1.8 billion to SEK2 billion expense.
Martin Lindqvist
And that of course, we see the possibility to gradually then decrease when we are not – when we know that we will not run the existing system forever. So, it will be gradually lower and lower.
Viktor Trollsten
Okay. That’s about SEK3 billion, I just think something quite strong. In terms of cash flows, I suppose we are talking about CapEx of let’s say SEK5.5 billion per year in the coming 10 years, maintenance CapEx of SEK1.6 billion. Historically SEK3 billion of free cash flow oversight, and that would imply SEK10 billion in operating cash flows for the coming 10 years. What’s behind that, we have talked about more…?
Martin Lindqvist
I think it’s a combination. If you look right now and compared to a number of years ago, I think that the steel market is more in balance. I think also, with this 54-55 in Europe, there will be no possibilities for steel companies to hunt volumes, because they will have to pay emission rights. I think structurally, maybe healthier from an output point of view, and demand and supply balance a healthier market. But we are also looking into our ability to continue to shift the mix to less volatile products, more profit generating products. Then of course, we will still have volatility, but the ambition is to reduce the volatility as much as possible. And that is done with a couple of things. Of course, the most important part shifting the mix towards more stable price, stable and modern, stable products. Continue to work with the continuous improvements in order to increase productivity, reduce costs, and reduce lead times. And so we have a number of programs that we are running. And I think that when we look at that we see and do the calculations, including continuous and so on, we see that this is clearly a good opportunity and possibility for the future.
Viktor Trollsten
Yes, brilliant, strong message, obviously, I just thought implies normalized earnings of less than SEK12 billion, so…?
Martin Lindqvist
2021 was obviously a very good year. You shouldn’t take as to generate more than SEK12 billion of free cash flow every year. But I have been with – like a food repeating myself that we should be able to continue to generate strong cash flow, and we are not ready. I mean, yes, we were investing a lot in working capital towards the end of the year. Yes, for sure, we will be continuing to do that. No, we still see opportunities to become more capital efficient. And the example with mini mills if you reduce lead times from just a simple calculation from eight weeks to less than two weeks that is also a huge possibility of releasing working capital.
Viktor Trollsten
Yes. But I guess the question in terms of your Q1 guide, more short-term, and just to be clear, what you are saying is the cost could come up a bit, prices basically flat and then you have no maintenance in Q1. So, I suppose, mixing that together, Q1 earnings will be higher than Q4, is that correct?
Martin Lindqvist
We don’t give any figures or guidance. That’s your job to figure out. But we are also saying that we see problems in the supply chain. We had end of Q4 and we still have problems with getting large trucks, getting containers, railroads, shipping away shipments, boats and so on. We don’t know where the COVID situation will end up and when it will end. We had problems in Q4. We still have problems with a lot of people with a high short-term leave, people being in currently quarantine, being sick or taking care of sick family members. So, it’s too early to say. There are still some quality problems, like we had in Q4, and they persist into Q1 so far.
Per Hillström
Remember, Viktor, the prices in Europe will be lower.
Viktor Trollsten
Yes. That’s clear. And just a final very quick question, just in terms of returns on the capital, you mentioned SEK7 billion in [indiscernible] cost, so I guess no incremental?
Martin Lindqvist
That was one example. But when we look at the calculation, we need to assess, we need to come back to that when we come with the FIDs, but we see this as a very interesting investment opportunity. And when we look at the calculation so far, otherwise, we wouldn’t propose it. But let’s come back with more detail.
Viktor Trollsten
Okay. Thank you very much, guys.
Operator
Thank you. Our next question comes from the line of [indiscernible]. Please go ahead. Your line is open.
Unidentified Analyst
Yes. Hello everyone. This is [indiscernible]. Yes. I have a question on what you showed on basically, Slide 18, in your slide package about premiums on the first green steel that you are aiming for, I think 2026 or so. Could you elaborate a bit on how you see the price premium series? It’s sort of one premium from everyone buying fossil freed steel or is it sort of different case-by-case? And I would so much appreciate if you could give us any sort of help in the magnitude of future price payments that you are projecting? That’s my question.
Martin Lindqvist
No, not really. I mean we think the market is very interested. The market is willing from start to pay a premium. I honestly believe that, well, there will be – might be a price difference between carbon fossil free steel, and usual steel, where margin difference, or however you put it. But I think and hope that this will be the new normal. So, I think it’s very hard to say what will the premium be over time and how do you calculate the premium. So, let’s come back to that. I don’t have a good answer. But we see that the current demand is exceeding the planned capacity. And our base case guess and I would say that this is a fairly educated guess is that that demand will not lower over time. And you have seen announcement from companies like Daimler what kind of pressure they put on their sub-suppliers when it comes to stop free emissions. And my guess would be, and I would claim that this is an educated guess, as well, is that that pressure will not decrease, I would say quite the opposite.
Unidentified Analyst
That’s helpful anyway.
Martin Lindqvist
What I see and what I am trying to say, honestly, is that I see an opportunity because the location and the knowledge and the partnership we have within HYBRIT and with customers makes this. I mean if you should do this, you should do it in Northern Sweden and Northern Finland.
Unidentified Analyst
Yes. Got it. I can – I mean, everybody assumes I suppose that the premium will be highest in the first years when this is a revolutionary product. Let’s see if it becomes a new normal or not. Then I have a question. Also, you mentioned a few times in the presentation margin about that scrap availability seems to be pretty good for you in the Nordics. I mean would it be possible to run the new SSAB setup with the sort of scrap in the Nordics and is it enough scrap basically that you can be using locally or how do you see that?
Martin Lindqvist
We could potentially do that. Yes, run it on scrap as we do in U.S. And there is scrap availability in the Nordics and we are one big producer of scrap and our customers using our material. So, then we could also use it with scrap from the market today. We are selling scrap to the market. So, there is possibility and that’s what we try to call flexibility then between HBI and scrap. So, we will in practice have higher flexibility than raw material flexibility today – than today.
Unidentified Analyst
Okay. Got it. Thank you.
Operator
Thank you. Our next question comes from the line of Bastian Synagowitz of Deutsche Bank. Please go ahead. Your line is open.
Bastian Synagowitz
Good morning and also thanks for taking my questions. I have got only two quick ones left. I will also take them one at a time. Martin, could you briefly talk about the new product segments which you aim to enter please?
Martin Lindqvist
We have fairly good idea about that and it is within the mobility sector. And one good example and I won’t bore you with too many examples, but one good example is 2 meter wide Q&T which is – and thin gauges which is asked for by the market and we are not in a cost efficient way able to produce that today. I mean the 0.25 million Oxelösund is not an optimal setup to produce I would say thinner gauges than 4 millimeters. And with these mills, we can produce 1 millimeters, 2 millimeters, 3 millimeters up to 4 millimeters. So, we will have a broader product offering. Also with this mill what we are lacking today and what is asked for is and where we have a fairly low market share is galvanized products, especially within advanced high strength steel. We don’t have the capacity today that will be another example.
Bastian Synagowitz
With that, I guess you are really entering a new product spectrum in that sense that you are basically entering the surface market in automotive, right?
Martin Lindqvist
Not necessarily. But we are focused to stay within our niches with advanced high strength steels and Q&T. And there we will see possibilities, both for as I have said with the example of Q&T, new grades and new gauges and widths, but also other parts where we are either producing today, like galvanized advanced high strength steels we are not being able to produce at all.
Bastian Synagowitz
Okay. And then just to briefly explore…
Martin Lindqvist
Just to be clear, I mean we are not changing the strategy or the focus on these products, that’s still the foundation and will continue to be the foundation of SSAB.
Bastian Synagowitz
I think that’s very clear that you are pursuing that. But just to explore briefly how you mentioned strong demand, and I guess we all were able to see a very strong demand from automotive I guess those are this is the segment, which you are emphasizing at the same time only at the moment, automotive relative to other steel companies are underrepresented in your end market. Are you seeing that pool for fossil free steel from other end market segments as well, such as white goods or whatever?
Martin Lindqvist
Yes, we see that from a lot of segments and segments that we are not active in today and the segments where we will not be active, but we see it from heavy transport. We see it from other segments where we are active today. So, I would say to be honest, we see it from most of the segments want to have fossil free steel in the future, with very few exceptions.
Bastian Synagowitz
Okay, perfect. Thanks, Martin. And then I have one follow-up question on CapEx and sorry to come back on that. Obviously, there have been a lot of questions around that already. Leena, you were showing some charts on CapEx, I think on Slide 22. And I guess before, you have always been talking about SEK3 billion to SEK3.5 billion CapEx over the cycle, as the rough guidance to keep things simple, and instead of talking about peak CapEx, or nailing things down to one specific year, which I appreciate it’s very difficult to do. What would be the new normal effective over the cycle CapEx for the rest of the decade, which we should be factoring in? And again, I am conscious that may be subject to change, because if electricity isn’t there SEK45 billion will obviously be split maybe over a longer time span. And maybe there will be some funding, but what is the broad number we can work with versus the SEK3 billion to SEK3.5 billion before?
Martin Lindqvist
It’s a very good question and let’s come back to that, because as we said, I mean we have the maintenance CapEx level today that will over time then in existing facilities go down. We have the Oxelösund conversion, which we have said will cost until 2026, roughly SEK5 billion and then we have this new program. So, it will be a combination of that and it will be dependent on when we start. But for the coming years, you should expect us to move on with Oxelösund and then gradually then start to invest in our Nordic mills. But at the same time, we will start to reduce maintenance CapEx and call it other strategic CapEx in those facilities. So, let’s come back to that with when we move on with this feasibility study and have more clarity. But we have said a round figure of SEK45 billion, including contingencies and in order not to disappoint anyone with that figure.
Bastian Synagowitz
Okay, it sounds good. Okay. At least I tried my best.
Martin Lindqvist
And you tried on Leena’s first meeting to see if you could convince her to answer something that you knew that you wouldn’t get an answer from me.
Bastian Synagowitz
Okay. Thanks so much. All the best.
Operator
Thank you. And our next question comes from the line of Andy Jones at UBS. Please go ahead. Your line is open.
Andy Jones
Hi, thanks for the opportunity. My question is regarding priorities, I guess the very low power costs in Northern Sweden, a huge advantage for making low cost sponge iron. And clearly you are dedicating a huge amount of capital to AX and basically sorting out the steel facilities, but it doesn’t need a huge amount to potentially invest in hybrid going forward. Can you just talk a bit more about how you see the returns on producing sponge iron given the economics, the power costs and so forth, that you see now, compared to the investments you are making here, because obviously, the majority of the CO2 reduction comes from the sponge iron part? And that seems to be where the value is. So, I am quite surprised the magnitude of spending here compared to the focus on hybrid, are you giving up an opportunity, potentially to LKB, who might wish to and you seem to want to accelerate this, are you essentially losing some of the value of your location? That’s the question.
Martin Lindqvist
But what I trying to explain is that we will do this in a partnership in the hybrid partnership together with LKB and Batanfale. And I think it will be dependent on electricity prices. I think the good thing with this product is that we will also have hydrogen storage, so we can use wind power as an example and then store energies in the hydrogen storage and then produce sponge iron 24/7 regardless of peaks or troughs in electricity prices. So, what I am trying to say and let’s come back to that, but we are trying together to optimize then value chain. And then exactly who will do what and who will own what, we haven’t really decided that we have the partnership, we are now investing or planning to start to invest in the demonstration plant and then we will take it from there. So, I am talking about the full value chain, together with LKB, SSAB, Batanfale and then customers. So, what we are trying to see this fossil free products out at end users in a cost efficient way.
Andy Jones
That makes sense. I guess I am kind of asking, can you really afford to commit much more in terms of capital to hybrid, given these huge CapEx investments that you are putting here?
Martin Lindqvist
That will of course depend on cash flow generation and so on. But now we are taking this decision and directional decision and we will take the decisions one-by-one. But it goes together because we are now investing in fossil free value chain. And I think that is what is appreciated by the market and what the market wants to see. And I think the feasibility of doing that is better in the region and we are in – than in other regions and with the knowledge and experience we have, we are very well suited for this. And we have a strong belief that this is the future, not maybe the full future, but this is what the market is asking for.
Andy Jones
I completely agree. And just to clarify something on the SEK45 billion, obviously the capital intensity is a lot higher than the Oxelösund cleaning because the scope is larger, aside from just building, could you just give us an idea for what other facilities are included in that SEK45 billion for example…?
Martin Lindqvist
No, it’s complete mini mills like I think Sinton in Texas is a good example completed, completely integrated mills starting with electric arc furnaces outcomes finished products of the rolling. So, this is a complete mini mill. In Oxelösund, we are closing the coke oven battery and the blast furnaces and moving over to electric arc furnaces, but we keep the steel shop the rolling mill, because they are state-of-the-art and very well fitted for those kinds of products. This, I mean you should compare it with Mobile or Sinton.
Andy Jones
Okay. That’s great. Thank you.
Operator
Thank you. And our next question comes from the line of Seth Rosenfeld at Exane BNP Paribas. Please go ahead. Your line is open.
Seth Rosenfeld
Good morning. I had just one follow-up question please. I appreciate your comments earlier on the improved efficiency of the new capacity, better product mix, lower fixed costs, etcetera. But in the past, you have given an explicit figure for the higher operating costs of greenfield I believe there was 30% to 40% above traditional technologies. As you go forward and kind of dive into the sort of broader scale, what’s your confidence in the like-for-like operating cost component, I recognized I think all of the other mitigating positives, but how do you think about the cost of production? What’s your assumption, for example, cost of that DRI substrate? Thank you.
Martin Lindqvist
No. But we have been become more and more sure about the cost and efficiency and so on. And that has not increased over time, when we have become more and more sure.
Seth Rosenfeld
I am sorry that cost inflation, you are more…
Martin Lindqvist
I know about it. And the cost of producing steel like this has not increased when we have gotten more and more educated. I would say the opposite.
Seth Rosenfeld
Okay. Can you confirm an updated expectation for how much your operating costs will increase like-for-like with the new technology?
Martin Lindqvist
They will not increase.
Seth Rosenfeld
Okay. So, compared to prior guidance of an over 30% increase, the new guidance has no increase?
Martin Lindqvist
Let’s come back to that. But it is not 30% increase for sure.
Seth Rosenfeld
Okay. I think that’s something that the market definitely want more color on recognizing how much capital is being allocated to the shift in technology?
Martin Lindqvist
And we need to come back to that when we come up with the FIDs and so on and take it mill-by-mill. But the operating costs will be – we will be much more cost efficient.
Seth Rosenfeld
Okay. Thank you very much.
Operator
Thank you. And we have one final person in the queue that’s Alan Spence of Jefferies. Please go ahead. Your line is open.
Alan Spence
Thanks. Appreciate answering last couple of questions The SEK5 billion Oxelösund conversion CapEx, can you just confirm how much that will be done by the end of 2022? And then how the remaining will be split, ‘23 to ‘25?
Leena Craelius
I think for ‘22 it’s around SEK1 billion.
Martin Lindqvist
SEK1 billion in 2022.
Alan Spence
That’s the total amount…?
Martin Lindqvist
For Oxelösund conversion.
Leena Craelius
Now, that’s for the ‘22 year.
Martin Lindqvist
For ‘22.
Alan Spence
And how much was spent in ‘21?
Leena Craelius
I don’t have the exact figure. But part of the cost is already occurred during ‘21, yes.
Alan Spence
Okay, and the second one is just on the down – the blast furnace realigns and new coke ovens for Luleå. Were those scheduled to be done before 2030 or after 2030?
Martin Lindqvist
I would say around 2030, then you can always flex. Sometimes you can prolong it a year, and sometimes you need to do it a year earlier. So, I would say around 2030, the two blast furnaces in row, one of them slightly later and Luleå in that region as well. So, I would say around 2030, all the three of them.
Alan Spence
Okay, so, but effectively within the timeline of the SEK45 billion.
Martin Lindqvist
Yes.
Alan Spence
Not afterwards, is that the correct way to think about it?
Martin Lindqvist
Around that time, I say that around 2030, because it’s not an exact science. You can sometimes you are lucky and you can run the blast furnace one more year than planned. Sometimes you are unlucky you need to do it 1 year earlier. It depends so much of the wear and tear in the blast furnaces and also if you have had to stop them or not. So, it is not an exact science, but around 2030, all the three of them.
Alan Spence
Okay. Thank you.
Martin Lindqvist
So, the idea is to avoid that, of course.
Operator
Thank you. And I am showing no further questions on the line. At this time, I will hand back to our speakers for the closing comments.
Per Hillström
Okay. Thank you. Thank you for all the interest. And by that we close today’s conference call and we wish you all pleasant day. Thank you.
Martin Lindqvist
Thank you very much.
Leena Craelius
Thank you.
Be the first to comment