Outlook for Q1 2023
Group stainless steel deliveries in the first quarter are expected to increase by 10–20% compared to the fourth quarter.
Ferrochrome production continues at 50–60% of its full capacity as a result of the planned optimization due to high electricity prices and recent disruptions in one of the three furnaces.
Inflation in energy and consumable prices is expected to continue in the first quarter.
With current raw material prices, no significant raw material-related inventory and metal derivative impacts are expected to be realized in the first quarter.
Guidance for Q1 2023
Adjusted EBITDA in the first quarter of 2023 is expected to be higher compared to the fourth quarter.
Short-term risks and uncertainties
The prolonged war in Ukraine and related adverse economic development have increased the uncertainties and risks to which Outokumpu is exposed. The far-reaching direct and indirect consequences of the prolonged war and the possible further adverse development of economic and geopolitical tensions could further impact Outokumpu. The cost and availability of energy and raw materials, the weakened economic outlook with indications on recession, and continued overall high cost inflation are all considered to be significant risks to Outokumpu.
As a result of the continued energy crisis in Europe, electricity prices have been exceptionally high and volatile. Most affected among Outokumpu´s entities is business area Ferrochrome, due to the high consumption of the electricity needed in ferrochrome production.
The uncertainty surrounding energy gas availability continues to posses risks for Outokumpu's operations in Europe. In Germany, the tightened global energy gas supply still poses a risk for the continuity of operations, although the likelihood of interruption has decreased in the fourth quarter as the level of gas storages are considered to be at adequate levels in Europe for the winter. The main challenges are related to managing the negative impacts from rising energy costs.
High energy prices and uncertainty surrounding energy gas supply in central Europe may also impact Outokumpu through its customers and suppliers if their businesses and operations are negatively affected. There are also uncertainties concerning how the planned energy support schemes in each European member state will ultimately impact business and markets.
Raw material availability risks have been mainly related to sanctions imposed due to Russia's invasion of Ukraine. As a result of the continuous effort to reduce the dependencies on Russian origin raw material, the exposure and risk of supply chain disruption due to sanctions at the end of the 2022 are considered limited. The further change in suppliers could expose Outokumpu to increased costs and risks related to raw material sourcing in high-risk countries, including environmental-social governance risks and dependencies on certain critical suppliers, remain high.
The continued rise in global inflation may constrain Outokumpu's competitiveness. This is not only due to high energy prices but also overall cost inflation, such as in freight and consumable prices. The weakened economic outlook and uncertainty concerning the timing and severity of a possible recession could negatively impact stainless steel demand and Outokumpu's operating environment.
The company is also exposed to risks related to volatile metal prices, especially nickel, which may impact Outokumpu’s result, among other financial risks. The uncertainties related to the spread of COVID-19 and its variants, especially in China, and cyber security risks remain as they could also impact Outokumpu’s business and operations.
Outokumpu is a minority shareholder in Voimaosakeyhtiö SF, which is the majority shareholder of Fennovoima. In May 2022, Fennovoima announced that it had withdrawn the Hanhikivi 1 nuclear power plant construction license application as a consequence of the termination of the EPC (Engineering, Procurement and Construction) contract with RAOS Project Oy for supplier-related reasons. Several arbitration and other proceedings among the parties involved have been initiated. The contractual framework in the matter is complex and lengthy legal proceedings among the relevant parties are to be expected. The role of Fennovoima has turned from a nuclear power plant project company into an asset and litigation management company. At year-end 2022, Outokumpu was not a party to any of the legal proceedings.
However, on January 27, 2023, RAOS Project Oy and Rosatom Energy International JSC filed with the ICC International Court of Arbitration a request to join Outokumpu Oyj and certain other parties into the arbitration proceedings related to the termination of the EPC contract. As Outokumpu is not a party to any of the underlying contracts related to the disputes over the termination of the EPC Contract, it sees no basis for the joinder request, and will correspondingly strongly oppose it.