Outokumpu OYJ (OUTFF) Q4 2023 Earnings Call Transcript

Outokumpu OYJ (OTCPK:OUTFF) Q4 2023 Results Conference Call February 8, 2024 8:00 AM ET

Company Participants

Linda Hakkila – Head of Investor Relations

Heikki Malinen – President & CEO

Pia Alexandra Aaltonen-Forsell – Chief Financial Officer

Conference Call Participants

Ioannis Masvoulas – Morgan Stanley

Anssi Raussi – SEB

Tristan Gresser – BNP Paribas Exane

Patrick Mann – Bank of America

Maxime Kogge – ODDO BHF

Bastian Synagowitz – Deutsche Bank.

Moses Ola – JP Morgan

Linda Hakkila

Hello, all, and welcome to Outokumpu’s Full-Year 2023 Results Webcast. My name is Linda Hakkila, and I’m the Head of Investor Relations here at Outokumpu. With me today as our main speakers, we have our CEO, Heikki Malinen; and our CFO, Pia Aaltonen-Forsell.

Year 2023 was good for us. We delivered a strong cash flow and kept our balance sheet strong. Today, as per usual, we will first present to you some slides. And after that, we are happy to answer your questions. Before we continue with the presentation, I would like to remind you about the disclaimer as we might be making forward-looking statements.

But now without any further comments, I would like to hand over to our CEO.

Heikki Malinen

Thank you, Linda. Good afternoon, good morning to everybody. Welcome also on my behalf to Outokumpu’s 2023 and Q4 webcast. Great to have so many of you join us today.

Well, as Linda said, 2023 was a good year for Outokumpu. We made a lot of progress on many fronts in terms of executing our ambitious strategy. And today, I’m really pleased to share with you the main sort of conclusions and outcomes of all the work we did in the Outokumpu team.

Obviously, we know all that we are living through fairly turbulent times in history, but in spite of this volatility and turbulence, Outokumpu as a corporation made good progress moving forward almost like a freight train.

Now, then, moving on to the slides. So let’s start with the first slide showing the main number. And as you can see, our adjusted EBITDA for the whole year was EUR 517 million. If we put this into perspective, we had the 2 COVID years, where we made over EUR 1 billion in EBITDA. But looking further into our past, over the last 10 years, this was the fourth best year. So overall, a good outcome.

Year 2023 was a story of really 2 halves. The first half of the year was still fairly robust. The economy was still moving forward. But in the second half, we could clearly see monetary policy starting to bite. High interest rates were starting to really slow down the economy. And of course, we saw that in the demand for our products.

Now, if you look at the year given the economic backdrop, we have had our own challenges. But I have to say that as a company and as a team, we’ve taken decisive and swift action to take corrective measures, particularly when it came to managing our costs, managing our own production and really trying to activate sales and marketing as best as we could.

And so I think overall I’m really pleased with what the team, Outokumpu team, was able to accomplish. And as I said, as an outcome, good result, strongest balance sheet in the industry. Especially in these times when financial markets are — when monetary policy is tight, interest rates are high, it feels very good to have a balance sheet where net debt is negative. I really don’t need to worry about refinancing like I did some years ago when we were — when we had over EUR 1 billion in net debt.

Our safety performance was extraordinarily good. I’ll come back to that in a moment. And we also made good progress on many dimensions of sustainability.

Then moving on to the next page, a few words about the markets. On the left-hand side, you can see the usual slide on market prices. Again, let me remind all of you this is based on CRU data, so it is directional. And I think you should not look at the — I think the actual data points, but more the direction and the different elements of the curve.

I think the — on the left-hand side for stainless, interestingly you can see that — on the light blue line, which is the one in the middle, you can see that trough point, which was somewhere around June-July of last year. That is when we called that we felt that the market really had bottomed as far as price is concerned.

Then we saw the movement up during the course of Q3 into Q4. And then prices have been fairly stable over the last few months. Although, as you know, we’ve said that from the standpoint of our realized prices due to the certain delay and then invoicing, of course, that price rise comes into the system with some delay. So we had the trough in July in Europe.

Looking then at the United States market, the U.S. market, that light or dark blue line on the top. Price level is still fairly healthy, although we’ve seen sort of a gradual moderation — I would call moderation taking place during the course of 2023.

And then China. Unfortunately, China’s situation from a pricing standpoint continues to be fairly tough. The economy seems to be in the fairly — still in a deflationary situation, whereas the other global economies have been struggling with inflation. So a very different story there.

On the right-hand side, we have the nickel price. I said we’ve seen a lot of volatility. These are quarterly rolling prices, so they don’t really give you the day-to-day variability or volatility we see in nickel. So last year, we had a moment when nickel really went up and down quite a lot.

Interestingly, though, if you look at the last 3 months, let’s say, from October or so forward until today, nickel has been fairly stable at around $16,000 per tonne. So give or take, $500, $600 around that. But overall, nickel has stabilized.

And so some people may have said that, “Well, nickel is going to fall in Q4 a lot.” Well, here we are, we’re still at $16,000, which I think is a positive fact to note.

On the scrap market, we’ve seen some tightness. You could ask, “So how” — “why is the scrap market then tight if the overall stainless market has been softer?” There are probably a couple of things. One, probably main reason could simply be that manufacturing activity overall is quite low. And as people are not replacing their dishwashers and so forth, so you’re kind of lacking that sort of normal circular flow. Hopefully, that will also change and improve as the economy then gradually really starts to recover.

Then if we look at the 2023 figures. And here on the right-hand side, you can see the bridge. You see this fantastic result we made in 2022, really a record outcome. And then EUR 517 million. Of course, when you compare that, you say, “Wow, what a big drop.” But I mean we still have to put 2021 and 2022 into its own perspective. So as I said, I do personally feel that 2023 was a good outcome.

Our deliveries, though, compared to the previous year were down by 9%. We did a lot of efforts to maintain good sales. But in spite of that, deliveries were minus 9%. And then you can see the second red bar, you can see the impact of declining prices, particularly in Europe; it did quite significantly impact the financial results.

And we had some net of timing hedges, which were positive on the green side, cost reduction measures. Ferrochrome fell a bit due to market conditions. And then we ended up with the result as I mentioned.

But as I said, I do feel that without — had we not taken all the, I would say, pretty rapid and strong actions, the result would have been different. So this is an outcome of many, many, many things that our folks have done both here in Europe and in North America.

Then if we look at the fourth quarter, let me start, first of all, on the left-hand side with deliveries. It’s interesting. If you look at the level of volume for the third quarter and the fourth quarter, we’re about 450 KT or 450,000 tonnes. This actually is very close to what we saw during COVID times. So the market really weakened quite substantially.

And if we look at the whole year, my guess is we probably ended up ’23 maybe even a tad lower than 2020, the COVID year. So really, I guess, the central banks with their very significant tightening of financial markets, they really intended to slow down the economy. Well, I think here you can see the result. Clearly, central bank policy is working, if that is the intention.

On the bottom left-hand side, you can see our EBITDA on a quarterly basis, EUR 72 million with a volume of 450. And then if you, for example, look at the Q4 2020, there we made EUR 78 million with a volume of 523. So with 73,000 tonnes less, we were pretty much at the same result. So in many ways our relative performance as a company has improved. And on the right-hand side, you then can see the bridge from EUR 51 million in Q3 to EUR 72 million in the fourth quarter.

A couple of things from the fourth quarter. Well, we did see some pickup in demand. I think most notable things here, I will say, are the timing — the lower timing losses. We had a bunch of them in the third quarter. We had less in the fourth quarter. So that’s why you have the green bar up. But then we did have a fair amount of maintenance, both in Europe and in ferrochrome also and somewhat in the United States.

Really, firstly, if I look at it, a lot of the maintenance ended up hitting Q4. Given where we are in the cycle I think actually it was good that we had a bunch of this maintenance work happening now. At least, so to speak, it’s done and we don’t need to come back to those things hopefully in the near future. So that was the fourth quarter.

And Pia, when she is — when it’s her turn, she will then take a more deeper dive into the more finesse of the numbers. Let me say a few words about sustainability, ESG. A couple of numbers which I’m extremely proud about. Well, of course, safety at Outokumpu is a very important thing. It’s always the #1 on our agenda.

If you look at the highlights of 2023, clearly, our total recordable injury frequency rate was at 1.5. This is a world-class result for 2023. Just looking at many other companies, when they ask around other CEOs what is their total recordable in the process industry, I often hear numbers, let’s say, between 2, 2.5, even up to 4. So with the 1.5, I would claim compared to many process industry companies that this is a stellar number.

And so as said, if you look at the history, this is a result of many, many, many years of hard work. And the work continues. Obviously, objective is to have no accidents.

Outokumpu is very deeply ingrained in the circular economy. One element of that is that we try to continuously look for ways to further increase the amount of recycled content. Obviously, objective here is to be as sustainable as possible and reduce our CO2 emissions.

Last year, in ’23, we achieved a recycled rate of 95%. This is an all-time record. The year before we were at 94%. In 2020, we got to 93%. 95% really is a — it’s a very, very strong number.

And then what we like to do nowadays, we also talk about our handprint. So you have the footprint, but then you have the handprint: How much emissions do you overall avoid on the planet if our customers use our stainless steel vis-a-vis some other products?

And compared to the industry average, by using Outokumpu products, our customers were able to cut emissions by 12 million tonnes. So our work actually is leading to a lot of good things for the planet. 12 million tonnes, it’s a big number.

Now, a few words about our emission, our CO2 journey. Obviously, we were the first company in the stainless steel industry to commit to SBTi 1.5 degrees. I’m very proud about being the first — representing the first company to make that commitment on this journey. We’ve now come — compared to 2016, we are approximately about a 27% reduction in CO2. And the work continues. To achieve the SBTi target, we need to reduce our emissions by 42% until the end of this decade.

And on the left-hand side, you can see both the direct, indirect and upstream emissions of Outokumpu. We talk about Scope 1, Scope 2, Scope 3. One little fact I want to mention is that in the dark blue area, which is the Scope 1 or the direct emissions, that actually includes ferrochrome. And if you remember, ferrochrome is a part where most of our emissions are coming from because we use a lot of coke as a reductant.

So in our business, because we actually own the ferrochrome plants, those ferrochrome emissions are embedded in our direct emissions. Other companies who buy the ferrochrome, so for them, those same emissions in their Scope 3 emissions are their upstream emissions, in that green area. So just to make a clear distinction why our blue is higher. We happen to own the asset of ferrochrome ourselves.

Now as part of the journey, if you remember, a year ago in August, we proudly announced that we have brought — we’re bringing to the market a product called Circle Green. This is a product where basically our emissions are now — have fallen to 500 kilograms of CO2. And on the left-hand side, you can see all the fantastic logos of companies, world-class operators who have made a commitment to start buying from Outokumpu. I won’t go through the logos. You know these companies. You know their reputation and their commitment to carbon reduction sustainability.

The work continues. We’re doing active marketing and selling. I’m happy to see — every time I present this, you will see more and more logos. So the journey continues. We’re in a pole position in our industry with the lowest CO2 product available on the market, Circle Green.

So then we have one slide today on CBAM. Some of most — many of you probably know this and have studied CBAM, but we still thought that as it’s a new thing maybe it’s worth just 1 or 2 minutes to explain to those who don’t follow the industry that much what is really going on here.

So as you know, we have a very fundamental issue at Outokumpu, we have very low emissions and we continue further to reduce them. But we have a number of other competitors, primarily in Asia, which basically have very high emissions. I mean if we are doing like 1 to 1.7 tonnes of CO2 per tonne of stainless, I mean, these companies have 5, 6, 7, maybe even higher amount of CO2. So they’re emitting a lot of carbon.

And so for Outokumpu’s standpoint, the issue is we invest a lot to reduce our emissions, but then these companies bring their products to Europe or the United States — but Europe in this circumstance — and they compete against us with very high-emitting products.

And so to mitigate this or to combat this, the European Union has introduced the Carbon Border Adjustment Mechanism. This is a duty mechanism to stop carbon leakage. And so under the EU’s plans, the system will now start coming into place. First of all, for a couple of years this will be sort of practiced on paper, and then gradually the duty comes into play.

And for Outokumpu, of course, this is very important. We take carbon reduction seriously. And especially what I’m really happy about is that we have the only — first of all, only chromium mine in Europe and our ferrochrome has absolutely the lowest CO2 content on the planet. And so for us, of course, it gives us a competitive advantage when we can use our own low carbon — low CO2 ferrochrome, and when this CBAM comes into place, it gives us further advantages.

As part of the sustainability journey, we’re also focusing a lot on our supply chain. Our plan has been to work systematically across our whole supply chain and foster and develop partnerships that aim to not only improve our, let’s say, ESG standards, but also then to cut emissions further.

I won’t go through the list of the different partnerships we fostered and created in 2023. But as you can see from the nice photo with Jurgen Pilarsky, who is the owner of the family company, CRONIMET, that we have formed a very strong relationship with CRONIMET, a partnership that really aims at further taking out emissions from the scrap supply chain.

Another, let’s say, a thing I want to mention was the acquisition of about 10% share in the FPX nickel junior mine in Canada. We’ve been systematically looking around the planet for nickel sources which potentially have very, very low carbon intensity or CO2 intensity when the actual mineral is refined.

And so we found FPX nickel in Canada. And I’m very pleased that the owners of the junior mine then decided to take Outokumpu on board on their journey as they develop this very, very interesting asset in Canada. So these are just a couple of examples of what we’re doing in supply chain, and the work continues.

Then let’s jump to a whole different topic, and that is United States and cold rolling. Well, if you look at last year, of course, the big news for Outokumpu was the question of hot rolling. It had been a fundamental issue we needed to solve one way or another.

And as you know and you heard from our previous announcements, I was, of course, very, very pleased when we were finally able to find a solution that really takes away the hot rolling question for a long time. So we now have an agreement with AM/NS until 2051. So we don’t need to worry about this matter. We have a strong competent partner, AM/NS, with whom we’re working. They’re next to us in Calvert. And so hot rolling will not be sort of the area where we need to put capital in the coming years.

However, we do have 950,000 tonnes, even almost 1 million tonnes of melt capacity in Calvert. And historically, since the merger of 2012 with Inoxum, we have had a deficit; we’re cold rolling short, so to speak. We have almost 1.950 million capacity to melt, but we don’t have enough capacity to cold roll all of that. So somehow we need to solve that. And so we have kicked off a project to systematically analyze what is the best way how we can close that gap.

We do see that the American market, of course, the U.S. market is very exciting for us. It’s a growing market. Many, many, many elements from geopolitics to the U.S. stimulating its economy to being very dynamic, all of these are driving stainless steel demand. So by — within about a year, we believe within the next 12 months, we foresee to then make a decision on how we go forward. So we will keep you up to date as the year progresses on how our thinking evolves.

But as said, within about a year, we foresee that we will then be in a position to make a decision on how to move forward. So stay tuned and keep following how our U.S., Mexico journey progresses.

And then, finally, before I hand the presentation to Pia, let me just say a few words about shareholder returns. You remember that in June of 2022 when we had our CMD, we announced — or the Board made a decision to modify our financial policy with respect to dividend. And we stated at that time that our plan is really to focus on improving, increasing shareholder returns, and that with respect to the dividend, we are aiming to maintain a stable and gradually growing dividend.

And so last year, we paid 25% — sorry, EUR 0.25 what I would call base dividend, and then we paid EUR 0.10 on top of that an extraordinary dividend for a total of EUR 0.35. And so with respect to this base dividend, we are now increasing that by EUR 0.01 from EUR 0.25 to EUR 0.26 for fiscal year ’23. And so given where the share price was on Monday, that gives about a 6.6% dividend yield, which we think is competitive in the marketplace. And we hope that is going to be pleasing to our shareholders.

In addition to that, of course, we continue with our share buyback. Last year, in 2023, we returned EUR 70 million back to shareholders through share repurchases. So we are very focused on improving our shareholder returns. It’s on my mind constantly. And the whole team is — will do their best to meet these targets going forward.

So with those introductory words, let me hand it over to Pia. And today, we are going to have a bit of a different setup here. Pia will be joining via video. She is not standing next to me as usual. But I hope everything will go well.

So Pia, I’m handing it over to you. Thank you.

Pia Alexandra Aaltonen-Forsell

Well, thank you, Heikki, and good morning, good afternoon, ladies and gentlemen. And I do hope you are all keeping safe and well. And Heikki, of course, a pleasure talking about shareholder returns. And I can ensure that those also stand on a solid basis in our balance sheet and from a financials perspective.

So if we could move maybe 2 slides — one more, please — and I can just start by sort of reemphasizing the basis also for the shareholder returns in our balance sheet. At this point in time, we are net debt free. We actually have negative net debt. So we further improved that during the year where we actually paid out both the base dividend, the extraordinary dividend and the share buybacks for EUR 70 million.

So I do think we have a good standing here. Our cash position was strong and our liquidity reserves were up to EUR 1.3 billion. How is that possible? Of course, the operating performance stands a basis there, but we have continued our capital discipline. I will talk you through some more details. But obviously, our annual CapEx has kept well within those boundaries that we set when we started the Strategy Phase 2 that we are now working on.

Perhaps if we move to the next slide, I can take you through really my only table format presentation today, and just to highlight a few key topics really from a P&L and balance sheet perspective.

Well, first of all, the basis for all of these figures is one of the best years still in Outokumpu’s history in terms of adjusted EBITDA at EUR 517 million, as Heikki has just talked about. And that’s a starting point in a year where still volumes were maybe a bit subdued, particularly in Americas, as you can also see from these group-level figures here.

When we then consider the net result and the EPS, there was one one-off item or adjustment item that was fairly significant. It does relate to what Heikki was talking about, the major agreement that we reached in Americas relating to hot rolling.

But in relation to that, we reassessed some of the cash flows. And we have also then booked an impairment loss of EUR 264 million. Obviously, for those of you familiar with accounting practices, you know that these are noncash items. This is purely an accounting item. But obviously, it does impact here the net result as well as the earnings per share as well as the return on capital employed. In the absence of those, I think the figures would have looked much more reasonable.

There is one item from the P&L that I want to highlight that’s maybe not in this already detailed table. And that is our interest expense along with overall the net financial expense. That ended up at, let’s say, roughly EUR 37 million worth of expense of last year.

And I still recall a couple of years back with a higher debt burden how we were approaching and hovering the EUR 100 million mark in terms of expenses. And I just want to highlight that as being one of the contributors that has certainly also enabled the shareholder returns to now stay and improve further.

From this slide, of course, I would like to put some attention as to the operating cash flow. But I think I will have a chance in some of the next slides to talk more about that. So maybe we will take the opportunity to go to the next slide now and talk a bit about our strategy execution.

We are well on our way on the Strategy Phase 2. And from a margin improvement perspective, I just put here still on the slide also what we achieved in Strategy Phase 1. We achieved EUR 260 million worth of run rate improvements. And now we are really well up to speed with Strategy Phase 2.

We are already cumulatively actually fairly close to our initial target of EUR 200 million worth of margin improvement. But the external environment has been challenging and particularly the lower price level in Europe has wiped out some of the benefits just in terms of then looking at our overall result. So it’s clear that we will need to keep on working. And I think we have a really good pipeline of plans. So we will continue pushing for this, even though we are already close to the target.

I also want to say that we have done some projects in Phase 2. You may recall that for BA Americas, we said that we would reach up to 80 kilotons of capacity expansion with very modest investments and we also said that we do throughput optimization in business area Europe. And both of those, kind of the background work, the enablers, the investments have proceeded well. But we are still waiting to see the commercial benefits of those. So those are not yet in the figures here.

There is another important part to our Strategy Phase 2, and that relates to sustainability. But I will choose today to talk about the energy efficiency, which is a good mix of profitability elements and, of course, as well CO2 reduction.

So if we could take the next slide, please. Energy efficiency improvements are additional targets that we put into this phase of the strategy on the back of the energy crisis that occurred in Europe earlier. But these are holistically and for the longer term as well very good targets for us because we are using a lot of energy in our production.

And you recall our very ambitious target to improve our energy efficiency by 8% until the end of 2024. I just want to say we are — at least I am overwhelmed and so positive by the really good response we got from within our organization. And we have some important projects here that require CapEx and where simply the throughput time will be taking a little bit longer than what we initially thought. So we will not be quite up to the 600 gigawatt hours worth of savings by the end of 2024, but we will overshoot the target by the time we’re done. And we already got EUR 10 million worth of improvements into our results in 2023. So overall, I’m still really happy with this.

This does give me a chance to talk still a little bit more about energy and energy cost and about our position there. So if we could please take the next slide. This is a slide we have shown before. And obviously, that was also on the back of the energy crisis in Europe, comparing price levels in different countries.

And I still want to kind of reassure. My best understanding of looking into the energy markets is that the Nordic energy markets still have a very beneficial balance of hydropower, of nuclear, so we have a good base energy as a starting point. We do have important projects in terms of wind, also solar. So the renewable energy part is also being built up.

And after the start of the third reactor of Olkiluoto 3, the energy balance situation in Finland is basically again — or the energy balance is again restored. However, towards the end of 2023, we had some remarkably cold weather, some really cold spells — I mean it was seriously cold here — and on top of that, some of the nuclear assets, for example, under maintenance. So there were days when the electricity prices locally were quite peaking.

And this is maybe in the future what we will see, that there will be occasional peaks because of extreme conditions. And that is why Outokumpu’s policy to hedge energy is important. So we are only to a limited extent dependent on the spot market of today.

So for example, right now, when it comes to the winter of 2024, we have in Europe hedged about 80% and we are still considering some additional deals. When it comes to the full year of 2024, we have hedged about 70% in Europe. So that makes us, let’s say, less vulnerable for any sort of daily movements. And we have also taken as a part of our toolbox flexibility and optimization of our energy consumption. Happy maybe to talk more about that at another occasion.

But now I want to go just a little bit still into the BA results. So let’s talk on the next page about BA Europe first, please. And 2023 was really a story of seeing the low point in terms of the market but only also seeing a slow recovery after that.

So if you compare our results in BA Europe in Q4 with Q3, you will see that we had a little bit of an uptick already in the results from prices improving. But it was maybe still a fairly modest improvement overall if we consider the current price levels of, for example, energy, production costs, broadly scrap with the scrap market tightening as well, as Heikki has talked about.

So it’s clear that we have only seen a part of the recovery until now. And I won’t repeat what Heikki said about the macro situation. But clearly, there is really a link here, particularly on the more consumer-oriented segments.

So when we talk maybe about the more commodity consumer-oriented segments, demand is still impacted by consumer confidence not being restored. We have low distributor inventories, but we don’t really quite see the restocking yet.

On the other hand, if we talk about more industrial customer segments, energy, oil and gas, many others, here we can see more activity. We see an improved order intake as well in terms of our more specialized advanced materials portfolio of products.

So clearly, it’s a little bit a mixed picture at the moment and probably we have to wait until interest rates get lower until we will really see the consumer boost coming up. But you can see this also in our guidance for the volumes increasing as well seasonally into the first quarter.

Maybe still just 1 or 2 more words about the fourth quarter. We did indeed have a fairly maintenance-heavy quarter also in BA Europe. And I would dare to say there were a couple of these that were more one-off of nature. So we’re taking care of some things, for example, in Tornio that I think should be fixed for a fairly long period of time right now.

And then I want to give some credit to the team here in BA Europe. I think that Strategy Phase 2 throughput optimization also included improvements in supply chains and reductions in inventory, et cetera. I think the team here has done a really good job with that. And that actually helped also in Q4 to reduce timing losses a bit compared with what we had actually foreseen initially. So a good job here by the team. Thank you.

I will then move on to next page and BA Americas. And here, year 2023 was the year of distributor destocking. And even in the absence of sort of the clear restocking signal, we can still, I think, conclude that inventories are on a low level.

So we did see some softening in the market really towards the end of the year. But if we look at order intake right now, I think it is somewhat improving. So I think it just shows that we are not anymore in this destocking sort of a period. And then let’s see when the restocking really would start.

Really important, of course, for us are these more longer term considerations that Heikki has spoken about and assessing our cold rolling capacity for the longer term.

Maybe that’s all, and I will move on to ferrochrome. Ferrochrome has been impacted by the lower demand of stainless steel certainly in the second half. We do have one of the furnaces on a longer shutdown right now to reflect this weaker market situation.

We are also a bit reducing our inventories here. So all in all, of course, that did make the year 2023 more challenging. But the team has done a good job in terms of the other operational targets that we have and particularly the targets also for carbon reduction. So I think we are in a good position here keeping our costs and keeping our sustainability commitments and then ready for when the market will turn to the better.

I would then move to my final slide for today, which is really on this operating cash flow and related topics. And maybe I will start by saying that particularly in Q4 we were able to bring home a lot of working capital improvements. And they did relate to inventories, where I gave some credit to BA Europe team in particular. But I would say also broadly we were able to keep a good control of the working capital in the fourth quarter. If you look at the full year, you see that it’s slightly down compared with the previous year. So I would say good work here.

And looking then at the cash flow from CapEx, we had a quite big part of the annual CapEx of EUR 170 million coming in the fourth quarter. And I think it’s also visible when you look at those bars on the right-hand side, where you see that a fairly big part of what we did as CapEx in ’23 was focused on what we here classify as maintenance.

Well, what that means is that according also with our strategy Phase 2, we are focusing here on strengthening our core. And as said, there were pretty many things that we were looking at and fixing into the fourth quarter.

So from OpEx side, maintenance costs were all in all up maybe EUR 15 million quarter-on-quarter. But there were also quite a few CapEx things put in during the quarter. So both in cash flow and then in terms of the annual CapEx, I think, visible here.

Maybe more importantly now sort of looking at this good performance, you might ask that what do you think about Q1 and how does this continue? And I think we have a good sort of momentum right now for still keeping working capital tight under control. So a typical seasonal pattern would be some investment in working capital in Q1. I think it will be modest. So that’s probably not going to be any significant amounts of building up.

But we do have some of the provisions relating to restructuring from last year, where we will have cash outs during the first quarter. So I just wanted to say that’s probably in the range of tens of millions. So maybe something to take into account here.

So maybe with those years, I just — final remarks from my side. I would just say we have had a strong operating cash flow even in this year, which ended from a market perspective on a bit lower level. And I think we are in a good position now should the market rebound.

So with those words, Heikki, back over to you, please.

Heikki Malinen

Thank you. Thank you, Pia. Let’s see for the — okay. Am I on, excellent, yes, so I’m back here. Thank you, Pia, for those confident words about how the company is progressing.

Let me focus then on a couple of more slides from my side. At the end, I usually like to give you a bit of a bigger picture perspective here on the situation in the auto company and the industry.

Obviously, from our standpoint, given our strong position and given where we are in the cycle, we’re sort of, I would say, mentally, as the new year starts, we are preparing for the next upturn. We’re in a very strong position. So the whole Outokumpu team is gearing up for the eventual move upward in the cycle.

Now, a slide here for your consideration. Let’s see if I can make that flip exactly here. So I wanted to share with you this one slide that a little bit talks about positive operating opportunities, positives and then uncertainties.

So a couple of commentaries how I see the situation based on the data available and that’s coming in. Obviously, if you think about it from the standpoint of positives, we are at peak rates. Fed funds, 5.3%, European rates fairly high. I think there’s no indication that rates would be really going up anymore from here.

So we are at peak rates and the trajectory of rates eventually during the course of 2024 is going to be downward. Obviously, we don’t know the trajectory, the speed. They came up very rapidly highest interest rate increase probably ever in the shortest amount of time, how will we come down remains to be seen. But anyway, we are at peak rates.

So I’ve been trying to a little bit think about is there any parallel to the past. And while, of course, we know that forecasting is difficult and especially the future, I looked at some data from 2016 and ’17. And if you remember, 2016 was an election year in the United States. Exactly at this point in time in Q1, the U.S. started to cut rates. The dollar started to devalue quite a lot actually as we headed into the autumn of 2016 before the election and then gradually, the commodity cycle started to pick up.

China, after the U.S. cut rates, China followed fairly quickly and then the cycle turned. And you remember for us, 2017 was an interesting year as well. So obviously, who knows how the future will prevail. But I do think that there are some interesting parallels just in terms of the positioning of rate structures where the cycle is and also what the currency markets are looking for or looking at and also the demand supply balance. So let’s see. But I do think that we are — we may be close to some kind of a turning point here.

And so therefore, for that reason, we do believe that there is a fairly good chance that the macro cycle will start to improve in 2024. And if we just look at the order inflow during the first weeks of January, we do see that no orders are coming in. So it’s not like a massive big start in the first weeks of January, but still orders are clearly starting to flow in.

So we do believe global trade will accelerate as we head into the latter parts of 2024. We know that we’ve now had inventory destocking or I would say, from about August 2022 onward. So if you just calculate that’s almost 18, 19 months of inventory reduction.

And last year, you may recall, I said at Q2 results that we had calculated that in the United States, probably inventories were mathematically achieving sort of a replenishment point sometime in May of 2023. And then, basically, inventories have continued to come down. So how much inventory is there really left in the supply chain. And so it raised the question when the cycle turns, when the demand picks up, what is the starting inventory among our customers, distributors and their customers.

So let’s see, but I think just mathematically, it would seem that inventory levels down the supply chain must be fairly low. Pia talked about the structural advantages in electricity prices. I think this is sort of given where the rest of Europe is at the moment following the Ukraine-Russia war and the fact that there’s no more gas coming from Russia.

I think that does put Finland and Sweden in a fairly nice structural position with respect to electricity prices and not forgetting that our electricity by and large, is carbon free.

On the uncertainties, of course, we see the situation in Red Sea is still evolving. Where will it go from here? Not sure. But we do see, of course, from the maritime traffic that a lot of cargo from Asia to Europe actually is going via South Africa.

And I’ve seen some news that it adds about 2 weeks to the ocean time. We know that sea freights have risen over 100% to 150% since the mid of January, when you look at, for example, Asia, Europe cargo costs. And I just happened to talk to one very large retailer CEO a while back. And he told me that actually, for them, it isn’t like a 2-week delay from Asia, it’s actually 4 weeks.

So there is congestion in ports and that basically leads to even more delays. So why am I telling you this? Obviously, in our business, it’s relevant to understand what are the amounts of imports of, stainless steel coming from Asia; obviously, with the CBAM question. But then on top of that, the logistics issue is potential bottlenecks there that should keep at least for a time being, imports from Asia into Europe at modest levels.

I talked about the speed and magnitude of U.S. rate cuts. We’ll see what happens. I’m optimistic. Hopefully, things will move in a positive direction quickly. China stimulus, they did not take any massive steps in July as we had been assuming. But eventually, of course, China will need to stimulate its economy and get things going.

And then, on CBAM, of course, I think net positive for us. However, at the end of the day, remains to then be seen how well the duties, what the level of duties are going to be and how effective are they in the end. But anyway, I think the direction decision from the EU is a very positive factor indeed.

So with those sorts of general big-picture comments; let me just summarize or read actually to you the outlook for the first quarter. So the group’s stainless steel deliveries in the first quarter are expected to increase by 5% to 15% compared to the fourth quarter.

The market environment started to weaken at the end of the fourth quarter for business area Americas. And in Europe, a slow recovery is expected to continue. Also scrap market has recently tightened.

Ferrochrome production is running at about 80% of its full capacity as 1 of the 3 ferrochrome furnaces and 1 of the 2 sintering plants were closed in January 2024 due to weak ferrochrome market conditions.

Our maintenance costs in the first quarter are expected to decrease by approximately EUR 20 million compared to the fourth quarter. And with current raw material prices, some raw material-related inventory and middle derivative losses are expected to be realized in the first quarter.

And when you add all of this together, our guidance for Q1 2024 is that our adjusted EBITDA in the first quarter of 2024 is expected to be at the similar level compared to the fourth quarter. So that is the information package for you.

And my last slide before we go in Q&A is simply to show you these fantastic awards we are getting on sustainability. And of course, I’m super happy with the Ecovadis Platinum rating because only 1% of the top companies, who actually compete for this, get Platinum. So Outokumpu is among the top 1.

So thank you. And now I guess I hand it back to the operator for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] The next question comes from Ioannis Masvoulas from Morgan Stanley.

Ioannis Masvoulas

Thank you very much for the presentation, a few questions from my side. First, on the regional outlook. You guided for a group outlook overall flattish EBITDA for Q1 despite the seasonally higher volumes.

But on a regional basis, can you perhaps talk about what you expect on ASP, both in Europe and the Americas. And we think that is it fair to expect Europe to be EBITDA positive again in the first quarter?

Pia Alexandra Aaltonen-Forsell

Right, Ioannis. And I think, first of all, I mean, seeing the rebound of Europe from Q3 to Q4, I think it’s fair to assume that we are continuing on somewhat of an improvement trajectory. But as you have seen, prices in Europe were slightly improving quarter-on-quarter from Q3 to Q4. And I think as a sort of overall market dynamic, we are still on that sort of slight upward trajectory, just looking sort of at what we know today in terms of order intake.

If you look at market data from U.S., you can see a little bit the opposite. So you can see based on recent market data that there was a bit of pressure on the prices towards the end of the year and early in this year. But I wouldn’t talk about any sort of significant differences there.

But nonetheless, the dynamic is a little bit different. So I think one of the key topics to consider on top of the pricing, the volumes is the scrap market tightness and how that will play out. And obviously, that puts some pressure on the margin in case that realizes it.

Ioannis Masvoulas

Second question, you talked about the Red Sea situation and mentioned the trade frictions that you’re seeing. But has there been any positive effect in terms of any opportunistic restocking among some of your customers? Or any improved price momentum in Europe when you look at your most recent orders?

Heikki Malinen

So I don’t want to comment on the pricing for the first quarter at this stage. It’s early — too early to go into that. But I want to — I think if you look at the types of orders which are coming in, I think what we can see is they’re coming from many customers. And so that probably indicates more restocking still for the time being.

So not like big swing, big volumes, but more like many customers buying smaller amounts. So that would indicate to me early signs of restocking.

Ioannis Masvoulas

And last one for me on business area ferrochrome. You have mentioned material destocking in Q4, which aided profitability. But can you comment on whether that continues into the first quarter of ’24? And also what was driving the positive pricing in Q4? As you’ve shown your EBITDA bridge; I thought that the pricing was relatively stable during the quarter.

Pia Alexandra Aaltonen-Forsell

Yes. Thanks, Ioannis. I think when it comes to ferrochrome pricing, I mean there are maybe a few different mechanisms at play there and currency differences could also play into that in the end. So I think that’s sort of all I can say about the pricing dynamic.

Obviously, we had part of the maintenance really affecting our production. So that gave us some opportunity to offload some of the inventory during the quarter. And we are not — I mean we are having the longer term shutdown now of one of the furnaces.

So our production is lower. But we are not having specific maintenance work during the quarter. So I think there could be a gradual reduction of the inventories, but maybe not with that big impacts really then as to the absorption of fixed costs.

Operator

The next question comes from Anssi Raussi from SEB.

Anssi Raussi

Thank you Heikki and Pia for the presentation. So if I still continue on business area of ferrochrome and maybe the outlook for full year 2024. I mean you cut your capacity by 20%. But I think your delivery volumes have already been below 8% for some time now compared to your like full production capacity. So how much of savings you think this capacity cut will bring in starting from Q1?

Pia Alexandra Aaltonen-Forsell

Anssi, I think there’s a reason also why we haven’t specifically sort of highlighted a saving amount there. It is important to have the right balance between input and output. And we will have some fixed cost savings. But the fixed costs per tonne, in terms of the furnaces are not that significant.

So I wouldn’t — I don’t think there is an amount that we would have communicated. But it’s, we are not talking about sort of high 2-digit millions.

Anssi Raussi

That’s clear. And about your Q1 guidance still like have you included any, let’s say, extraordinary items like do you see that high electricity spot prices would have a significant impact or, for example, strikes in Finland or anything like that?

Pia Alexandra Aaltonen-Forsell

Yes. Thanks, Anssi. That’s actually a really good question. I mean the strikes that already occurred were a part. We knew about them when we made the forecast. So those were there. Now I think there is already talk about new strikes and there’s some uncertainty, of course. There is a risk if there would be a significant amount of new strikes.

Those are not a part of the forecast. Nonetheless, those that occurred are already in there. So obviously, we hope that this situation would somehow come down and there would be other ways of solving then these strikes.

Nonetheless, you asked about one-off items. I think there were more one-off items in the fourth quarter. And we had especially in the maintenance really some higher one-off topics during the fourth quarter. So we have more sort of the regular rhythm of maintenance, no big stops planned there in the first quarter.

And when it comes to electricity, then as I said; we have hedged more than 80% in the first half. So the hedging levels are good. I would say, to my understanding, as high as they should be when we enter such a quarter. And we also have the optimization or like flexibility in place if we would have days like the 5th of Jan when prices were really very high, I would say, outrageously high, of course.

So we do not have, I think, a need to plan in our forecast for really kind of consuming those extreme peaks. I hope that gave a little bit of color. Really the main impacts in the forecast, it’s the higher volume. It’s kind of how the prices are developing and then it’s the scarp market tightness.

Anssi Raussi

That’s helpful. Maybe could you give us any estimate about the impacts from the first strike in Finland, as you mentioned that one?

Pia Alexandra Aaltonen-Forsell

I think — I don’t have a figure that we would have communicated, but certainly, it’s millions. But we are trying to balance the lack of production still with other measures during the rest of the quarter so as to minimize those impacts.

Operator

The next question comes from Tristan Gresser from BNP Paribas Exane.

Tristan Gresser

I’ll start with the U.S. In your presentation, you fact that the market has softened and we’ve seen oil prices fall. But base prices have reportedly held up. And there is now some talk of restocking.

So is the market still in contraction now? Or things have actually improved over the past months? As we’ve seen it in the past as well, the U.S. market tends to react and recover a bit faster than Europe. Do you believe that could still be the case?

Heikki Malinen

Yes, Tristan. Yes, it’s an interesting question. I guess overall, of course, the U.S. has been, I think, surprised us positively throughout the whole year. Shouldn’t follow what the newspapers are riding because they’ve been really calling the recession now for, I guess, 2 years.

Just looking at, as I think I talked about the restocking in Europe; of course, here; we have a lot of customers. In the U.S., it’s much more — we have 2 dozen maybe large distributors as the primary clientele base.

I would say that probably the sentiment among the larger distributors is a tad more positive coming into Q4 than it would have been somewhere in August or September of last year. So I think that we are seeing a reasonably good order inflow.

Again, nothing like — we had such a couple of very, very strong years. But still, I would say, compared to the speed we’ve had, in the more recent past, I would say stable, stabilizing and maybe a tad improving, but not yet like rebound, but I said tad improving.

Tristan Gresser

That’s helpful. And my second question is on the raw material headwinds. I think initially, you were expecting some negative impact in Q4 and we’ve seen nickel prices fall. So it looks pretty straightforward. So you did manage to avoid any inventory losses or maybe the split is different. But what kind of catch-up effect do you expect in Q1. You flagged some losses. But in terms of scale, trying to wrap my head around that and with the guidance, any color there would be great.

Pia Alexandra Aaltonen-Forsell

Yes. Thanks, Tristan, fair question, absolutely. And I mean, we were expecting a modest negative in the fourth quarter from timing and hedging and it turned out to be fairly neutral. And therefore, I think as well, I don’t expect kind of a backlash or, in that sense, kind of a rebound.

I think why we managed well in the fourth quarter was really the patterns of buying and selling and managing to, reducing our inventory. So kind of having this healthy throughput helps as well, even though we have fairly long supply chain. But it does help in terms of controlling any losses in inventory.

And I think that with sort of the somewhat improved volumes as well, I think we are able to manage. So it’s not a backlash. It’s not a rebound in that sense. But it is indeed still, I would say, just from a sort of overall kind of momentum or sentiment perspective.

I think there is a risk of us seeing some pressure on the timing. So it’s probably — we wouldn’t talk about it unless it would be at least some tens of millions, but it’s probably not a high number.

Tristan Gresser

That’s helpful. And maybe just a quick follow-up then. The reason you’re not guiding for, I think, like you have in the past of at least stable or higher EBITDA in Q1. It’s not being driven by this uncertainty on potential raw material losses, but more tied to the scrap element you mentioned. Is that the right way to understand it?

Pia Alexandra Aaltonen-Forsell

Yes, in combination with how the sales prices are developing, I mean, it’s kind of the rhythm of the 2.

Operator

The next question comes from Patrick Mann from Bank of America.

Patrick Mann

Thank you very much for the presentation, 2 questions from me. One, can you just talk a little bit about what you’re seeing in the scrap market that it’s tight given that Europe is still, demand is still fairly weak. Just maybe explain what’s tightening the scrap market or what you think is driving that?

And then, the second question, I mean, I know you’ve concluded is on the U.S. and the possible investment in cold rolling. I know you’ve now concluded this agreement. I think it’s still 2051 on the hot rolling side. But how do you think about committing more capital to the U.S. when you don’t have control over that hot rolling mill?

And I’m just thinking now in terms of the contract a little bit more onerous, we had an impairment. So in future, is they’re not the risk that you commit capital and then the contracts becomes more onerous or less favorable, let’s say, and do we end up impairing it again? And maybe the return is not as good as you think or how do you think about that or think about that risk?

Heikki Malinen

Thank you, Patrick. Thanks for those 2 questions. So maybe I’ll start with the scrap market. So indeed, I think it is a bit surprising that the scrap market is tight, given that the standard of the stainless market is fairly — has been fairly soft.

But I mean, so are the circumstances. We are able to get all the scrap we need. So if I just look at the availability of scrap for Outokumpu, as you know, we have now this partnership with CRONIMET. If we need scrap, we get it. So there’s no supply issue per se.

But clearly, from the standpoint of pricing of scrap, the ultimate holders of stress that scrap, there are probably hundreds or even, I don’t know. Thousands of companies out there, deepening the supply chain who are providing their scrap.

That pipeline is not feeding as much maybe there is scrap down there somewhere and they just don’t want to sell until prices they believe prices are going to go higher. I mean, I cannot say that for sure. Or then, as I said, I mean if you look at — I just looked at one data piece in Germany, for example, chemical industry utilization or production levels I the past. I think it was down 26%; so manufacturing activity in Central Europe in some areas is very weak.

And so also, if consumers are not replenishing their goods because consumer credit is so expensive then the natural flow of scrap is, it’s getting tighter. I really don’t have any other data to share with you. It is probably a sum of those 3 things. We’ve seen in the past that when things change, they can change rapidly, but that is the situation at the moment.

Now, then, to your second question about cold rolling and the AM/NS agreement, so we’ve shared with you in detail what the deal with AM/NS is. I mean from our standpoint, as said, we are very pleased with the arrangement and it takes us well into the future.

So I mean we’re now living at 2024. So let’s say, we get the cold rolling up in some years’ time. We still have well into 2050 — 2051. That’s a long time to depreciate and run a cold rolling sign. So I really don’t see. I don’t know what the risk would be for us from the standpoint of the hot rolling.

Now of course, if AM/NS had a production, major production failure, then of course, we would have a problem. But that could happen even if we owned the hot rolling ourselves. So I don’t see that an issue.

And as I said, we have a good working relationship with AM/NS. They listen to our needs. And we work together to solve problems. So I don’t see. I don’t see the risk of committing capital into the U.S.

Now, if you — I just want to say about the U.S., I’ve been very explicit many times that if I just look at geopolitics, I believe actually that we are moving into a de-globalized world. Some people disagree with me. That’s any way how I read the tea leaves.

So we are in a unique position as a company to be so well located in the U.S. I’m very pleased with that position. And we intend to take full advantage of our unique position in this very attractive market.

Operator

The next question comes from Maxime Kogge from ODDO BHF.

Maxime Kogge

It was striking to see import pressure in Europe fall so much in Q4. This is a close to 10% tailwind for the market, but still, you didn’t benefit from that at all. I mean your shipments were flat. I think that will be the same for your competitors.

So yes, do you expect this tailwind somehow to crystallize this year now? And do you see this 10% market share as sustainable given the inquiries that is still ongoing? That would be my first question.

Heikki Malinen

Thank you, Maxime. I think as I’ve said before in many with respect. It was a bit surprising that import levels were so low, in particular, given how we — Asia is. And we’ve seen the macro data from China, China real estate market, et cetera, which is like a fourth of China’s economy, how weak it’s been.

But yes, I mean, we have not seen those imports coming. There could be a multitude of reasons why customers are not buying. It could relate to CBAM, of course, CBAM will be a major headwind for companies with high emissions into Europe.

Now, we have the Red Sea issue that probably isn’t sort of greasing the wheels on imports into the European market either. But as said, European economy is weak in many areas. Services seem to be fairly strong in some areas. But manufacturing and buying durable goods, in particular, with the expensive credit is weak.

And then I think for that reason, of course — and by the way, I think some of our customers, especially the SMEs, the small and medium-sized companies are probably also having some issues with credit availability, working capital financing is probably fairly expensive.

So you don’t want to front load your inventory; by buying ahead of potential demand pick up until you really see the customers ordering. So that would be sort of my read on why demand was weak and why the imports didn’t really trigger more orders for us.

I said, when the cycle turns, I think it would be quite interesting because the supply chain will be fairly empty. If inventories — if imports are impacted by the Red Sea situation, as said, we’re here to supply our customers whenever they really went to place orders.

Maxime Kogge

And continuing on the import topic. Previously, you had highlighted the industry’s efforts to include not only scope 1, but also scope 3 emissions into the CBAM mechanism, given how critical it is for the stainless steel industry.

Are you still confident that this will be the case that, or is it still being discussed actually? Because I mean it will make a big difference for your industry?

Heikki Malinen

Well, I hope it will all be a positive outcome. I think, as always, with these situations, Europe is, of course, it’s a sum of many different countries who have very different objective functions at times. So I’m hoping that in the end, the outcome will cover everything and this will be very positive for us.

But, we, for example, don’t know ultimately what the so-called duty is going to be on CBAM. And if that number is very, very small, CBAM will be more of a bureaucratic thing and not sort of have a financial cost. So I think most important is what will be ultimately the duty on the carbon and that remains to be then ultimately seen.

Maxime Kogge

And perhaps the last one, yes, some of your competitors have developed quite significant alloy activities, high-performance alloy activities. This has been rewarded in the surprise recently with some acquisitions. I mean you had in the past highlighted, outlined some ambitions there in not has been combined alloys. How do you view this market now? Are you going to accelerate the expansion in that area given you on the financial structure?

Heikki Malinen

I think from the standpoint of our business, of course, we have within BA Europe, we have what we call the Advanced Materials business line. And the core asset, of course, there is the Avesta mill in Sweden. And then we have Nyby, Degerfors and Dillenburg in Germany. So that is kind of the Advanced Materials ecosystem or supply chain within the Outokumpu family.

So we are systematically developing new products with higher nickel content. We are having very good success in selling those with high margins into the oil and gas industry, into heat exchangers, the hydrogen market, et cetera. We are also looking at new interesting segments where we have not operated, but I can’t really share more about that.

I would say in the near term, our growth will be primarily driven organically. As I said, when we look at the more visible growth initiatives, it is solving the Calvert problem or if I call the problem, the covered opportunity that lies ahead of us. That is really, we need to get that first solved. And then, the other area that you’re referring to, will be more of an organic journey; for the short or medium term.

Operator

The next question comes from Bastian Synagowitz from Deutsche Bank.

Bastian Synagowitz

My first question is a quick one actually on maintenance, where you said that you don’t need any further breaks near term. But I guess there’s usually some at the back end of each year.

So just to understand, is there anything we should be factoring in or will you actually not have any material maintenance later on in 2024? That’s my first question.

Pia Alexandra Aaltonen-Forsell

Thanks, Bastian. We will still come back to that in later guidance. I think what I can say for sure, it’s not going to be early in the year. I would expect either in Q3 or Q4 that we will still have some of the maintenance.

This is related to Heikki’s earlier comment that we really want to be in shape for the upturn. So that’s why we are still considering some of the timings. Usually, we have had some stocks both on one of the ferrochrome furnaces as well as then on our bigger sites towards the end of the year.

Bastian Synagowitz

Then my second one is on strategy and CapEx. Could you briefly confirm your CapEx budget for 2024? Are we around the EUR 200 million level and I guess as you keep talking about projects and the cold rolling project, in particular, is there a moment when we may see you taking a leap on the CapEx side beyond the EUR 200 million threshold, which you’ve been committing to so far?

And if so could that even happen before 2025 and 2026, given your sound financial situation because, I guess if these are must do and high-return projects, why would you be waiting?

Pia Alexandra Aaltonen-Forsell

Absolutely. Bastian, thanks very much. And as Heikki was describing, we are now assessing opportunities in Americas. And we do think that the time line we set for ourselves is to really come back with clarity on that within a year’s time.

So I think when we have clarity on that that could obviously then trigger investment decisions that might be more significant of nature. But we stay committed to this EUR 200 million now for the year 2024. So we are still aligned with that Phase 2 of the strategy at this point in time.

Operator

The next question comes from Moses Ola from JP Morgan.

Moses Ola

So my first question, please, just on the Q1 guidance. Obviously, you don’t really break down the shipment guidance by region. But could you just perhaps maybe speak to the strategy in the U.S. in 2024 with pricing coming a bit lower? Is there perhaps an opportunity to offset this with higher volumes? That’s my first question.

Pia Alexandra Aaltonen-Forsell

Moses, thanks. It’s an intriguing question actually, because I think the pricing dynamic and the volume dynamic, of course, to some extent, they go hand-in-hand. I don’t think that we have been so specific on the pricing looking forward. So I have to say, we’ll have to wait to see the actual results to comment that more.

Moses Ola

And my second question is on ferrochrome. So you’ve taken volumes out of the market. I believe some of your peers did as well in the previous quarter. Do you now view that the market is quite balanced here? Or do you still see potential for more supply to come out of the market?

Heikki Malinen

Maybe if I comment, if I can maybe start with that, Pia. So, I think when you look at Ferrochrome globally, a lot has to do also with what’s happening in China and that part, what their production and consumption is.

In Q4, the spot market for ferrochrome was quite weak. There wasn’t really a lot of buying activity happening in Q4. I think we will need to see a more global rebound in the industry to start seeing that pick up. Don’t forget, a good part of that ferrochrome is used by us internally and then the residual we sell outside.

And so when we reduce production is primarily, of course, with respect to that residual part. So I think less if I look at the stainless market, there are more sort of — it looks a bit more stable than the ferrochrome at the moment. That would be kind of my read on where we are just now.

Moses Ola

Okay. And then finally from me, just the strategy on excess shareholder returns in 2024. The balance sheet remains net cash, seems any further investment decisions or at least a year away. Perhaps what could we expect maybe on the potential for a top-up to the existing share buyback?

Pia Alexandra Aaltonen-Forsell

Moses, thanks very much. It is, of course, a question that we continue to assess. But that’s a question we probably need to come back to later. I mean just in terms of reaching the number of shares that would be required for the convertible. I think we would still be some 10 million to 11 million shares short for that after this current program is concluded.

Operator

The next question comes from Ioannis Masvoulas from Morgan Stanley.

Ioannis Masvoulas

I just had one follow-up question, actually, on Moses’ question around the buyback. If we look at the balance sheet today, again, net cash position. Is there an absolute level of net cash that you’re willing to build as you are working towards an eventual decision on the U.S. cold rolling expansion? Or is that not — is there no really hard number from your perspective? And clearly, that has big implications for the buyback prospects?

Pia Alexandra Aaltonen-Forsell

Yes, it does. And obviously, I mean, the financial target that we set out there was to keep leverage below 1x. Well, that’s — I mean that we are sort of very, very, very safe and secure I that. And obviously, the cash balance.

I mean, historically, if I look at cash balances in Outokumpu, we used to have maybe EUR 200 million, EUR 250 million as a typical sort of how much we needed in terms of managing daily fluctuations and just being comfortable in terms of really kind of operative flows. So clearly, we are some hundred million above that right now.

But we do have the convertible that is then having the due date in July of 2025. And we also still have one part of a very long-term loan that we have taken for the deep mine expansion project.

So I think, let’s say, also on the financial structure side. We have maybe a few elements that we could consider kind of how we move them and when kind of in terms of finding the optimal solution. But I think it kind of ties nicely together here that we have a strong cash balance just given maybe from a micro perspective, still sort of awaiting those positive signals that might be out there to actually materialize.

So I’m pretty comfortable where we are right now. And I think we’ve also done a good job in terms of just optimizing what is financial expense so that we also get some returns if we have good cash balances.

Operator

The next question comes from Maxime Kogge from ODDO BHF.

Maxime Kogge

Just the last question on my side. Regarding the CRONIMET investment and especially against the backdrop of tight scrap markets. Do you see it as an opportunity to lower your purchasing costs in terms of scrap or perhaps to access better grades of scrap? Or I mean now that they disclosed can you talk a little bit more about the synergies you envisaged in that respect.

Heikki Malinen

Yes. Thank you, Maxime, for the question on the CRONIMET partnership. Obviously, scrap, if you look at our cost structure, of course, raw materials are 60% and scrap is a vital part of our sustainability journey with 90% recycled content.

Really, the underlying sort of thought here with CRONIMET is that, we are working closer together. And we’re working systematically to find ways how to create value. Value comes from better inventory, from better planning. It comes from our ability to more finitely get the type of scrap we need for each melt.

So a lot of this value may — it’s difficult maybe to put a euro number on it. But it does concretely develop our business. And so it’s impossible to say over the longer term, whether you actually ultimately how much of a relative benefit you get on the price, markets are competitive and transparent.

But I think it’s more from the fact that we’re just going to run the whole supply chain much more efficiently, have the right stuff in the right place at the right time and that in itself is already a value worth capturing.

Operator

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Heikki Malinen

So once again, thank you for spending the hour and 30 minutes with us here at Outokumpu. I mean, to recap, first of all, for us at Outokumpu 2023 was a good year. We ended up with a solid EBITDA result. As you saw, our cash flow in the fourth quarter, in particular, we had a nice strong finish. And we end the year with a really strong balance sheet. We have negative net debt. It’s an extremely strong position to move forward as the cycle then turns.

On the second note, I want to make a comment back to our dividend policy and paying the EUR 0.26 or proposal to the Board to the AGM EUR 0.26, a dividend yield of over 6% based on Monday’s share price and EUR 70 million worth of share buybacks. I hope that demonstrates management’s commitment to delivering on our promise and commitment of good shareholder returns.

And then, finally, I try to give you the big picture read that management has on where the macro economy is and how we see the potential cycle turning here. I can tell you our whole team at Outokumpu is very committed to getting ready that when the cycle turns, we will be there to supply our customers better than ever.

So with those words, I wish all of you a very, very continuation of this winter hopefully doesn’t get too cold where you are located. And Pia, Linda and I look forward to seeing you then in the early days of May. Take care.