Aurubis AG
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Good afternoon, ladies and gentlemen, and welcome to the Aurubis AG Conference Call on the Quarterly Report First Nine Months 2022-'23. At this time, all participants have been placed on a listen-only mode. The floor will be opened for questions following the presentation.
Let me now turn the floor over to Elke Brinkmann.
Thank you, Angela. Welcome from me as well. I'm sitting here together with our CEO, Roland Harings; our CFO, Rainer Verhoeven; and our COO, Dr. Heiko Arnold, who together will present the Q3 figures and current developments at Aurubis in a moment, as well as there's my colleagues from Investor Relations. Before I hand over to Roland Harings, here's already the key combination for the Q&A session. [Operator Instructions]
And with that, I'll hand over to Roland Harings.
Thank you, Elke. Also from me, warm welcome. Good afternoon, good morning. Welcome to the presentation of our nine months figures. I am pleased that so many of you have tuned in despite the vacation month. We last met in London on June 13 or virtually and to gain deep insights into the progress of our strategic projects. Today, we will focus on the latest figure for the Group and the segments.
But before we go into the numbers and get started, I have asked Heiko Arnold, Elke introduced him here to have a short focus on OHS as you might have seen and heard that we had some very severe incidents in our company, and as our priority is safety, I think it's appropriate also on this call to put this forefront.
So, with this, I would like to hand over to Heiko to make a short statement in this context.
Yes. Thank you, Roland, and hello, everyone. A warm welcome from my side as well. As you are all aware, we did experience a serious and very tragic accident this year. Three of our employees died in May as a result of nitrogen exposure. And last Friday, another serious incident occurred and an employee got seriously injured during a visual check of the main crane in the smelter in Hamburg. At present, the colleague is intensive care in hospital.
The incident has made one thing extremely clear, safety in all aspects has to take the highest priority at all times. What made it even more unfortunate, was, that the lagging health and safety KPIs in form of lost time incidents were moving in the right direction prior to the accident, indicating that we were indeed making progress. Nevertheless, initial immediate measures related to the causes of this specific incident has been launched and implemented since May, not only in Hamburg, but across the entire Group.
Independent of these concrete measures taken, it is important for us to state, in terms of Occupational Health and Safety, we are still far from our target and our vision of zero accidents. All incidents expressed the need, we must intensify our efforts. There can be no business as usual. We need to anchor occupational safety even more firmly in our consciousness. In addition to other topics here at Aurubis, we will have to keep working on our Occupational Safety and Health culture, because at Aurubis, we expect and are responsible for creating a working environment in which everyone can and does work safely.
And with that said, now, back to Roland Harings.
Okay. Thank you, Heiko. Also from me and from the Board, I can just underline that our priority number one is the health and safety of your employees and it's -- it's a bit difficult now to move to operating results and everything, but I just want to underline how serious we take these events and how massive the response and the action and improvements will have to be and will be.
Coming now to the numbers. We are pleased to have achieved an operating result after nine months of our fiscal year '22-'23, almost at a very high level of the previous year. Aurubis again delivered powerfully more precisely over 20% higher earnings in the third quarter compared to prior year Q3, despite the standstill of our major operation in Pirdop during this period. By the way, this standstill was conducted in time in full without any accidents.
Regarding the markets, we see continued good concentrate markets and the increased Aurubis copper premium along with high wire rod demand had a positive impact in the quarter and in the first nine months. However, our metal result decreased compared to previous years. But as you know, this always depends very much on the input materials and the metal price development in the respective period. Sulfuric acid made an extraordinary contribution to earnings last year.
In this fiscal year, prices have fallen significantly, but significantly to a much more known and normal level than we saw in the year before. But overall, I want to underline that the contribution by sulfuric acid is still satisfactory. Of course, we are also confronted with higher costs resulting from inflation. Yes, energy costs in particular, were lower in Q3 compared to the previous years due to a drop in gas and electricity prices, as well as the measures that we have taken in the framework of our energy management.
In addition, in this quarter Q3, an insurance payout of around EUR15 million related to the flooding event in our Stolberg site in July '21 had a positive impact on the earnings. With this payment, all insurance payments from the flooding and then from the flooding event are now completed. While earnings performance remained good, operating ROCE decreased to 15.1% compared to the previous year due to an increase in capital employed from temporarily high inventories and high investment payments from realizing and executing our growth strategy.
However, our target, to remind, is 15%, so also in this month or next quarter with a major standstill, we are still slightly above the target level. Our cash flow is subject to significant fluctuations during the year. This is due to the fluctuations in working capital. The money is tied up in inventories, and the increase in inventories this quarter is due to the maintenance shutdown in Pirdop. This high inventory level that we saw in Q3 will be mainly released in the current quarter Q3 or Q4 through the end of the fiscal year.
Based on the good results, we confirm today our forecast range for this fiscal year '22-'23 of EUR450 million to EUR550 million operating EBT. Let's be more specific. Our revenues are largely driven by metal prices. This was also the case in this quarter and as you all know, industrial metals in particular, were lower than in the previous year.
Gross profit, however, was only slightly below the very good level of the previous year. The reasons were: significantly increased treatment and refining charges for concentrates with slightly reduced throughput; higher earnings from refining charges due to the increased use of recycling materials; significant increase of the Aurubis copper premium; and the continued high demand for wire rod.
The offsetting factors were: lower metal earnings to declining metal prices, in particular, as stated, for industrial metals; significantly lower sulfuric acid earnings due to lower sales prices and production volumes; a lower demand for flat rolled products; and increased inflation-related costs in the Group. Additional we have with the full execution of our strategy now in place, we have launching costs for these strategic projects which we see in our P&L today.
During the reporting period, we saw different developments in metal prices. Metal prices for copper, tin, and zinc were lower during the reporting period. However, precious metals like gold and silver remained at high levels and provided positive momentum for the earnings from the metal gains for the Aurubis Group.
Looking now at the different markets, we continue to see good supply in quantity and quality from the concentrate market, despite some isolated operational problems on the mining side. Spot terms for concentrate subsequently showed again a positive development and currently range above benchmark levels at about $93 per ton, $9.3 according to CRU. The supply situation for our primary smelters remains really good and we have secured the supply well beyond the end of the current fiscal year.
Looking now at the recycling market, during the reporting period, we saw good availability of scrap materials on Aurubis sourcing markets, with good RCs during the first half. CRU estimated an average RC of EUR387 per ton during Q3 for copper scrap number two without logistics. The RCs for more complex materials remained at a high level and on average above last year. Looking forward, our production sites are already well supplied with material up until the end of the current quarter into the beginning of the next fiscal year.
Sulfuric acid. The sulfuric acid market continued to normalize from a very high price level in the two previous years given the reduced demand from the European chemical and fertilizer industries. Spot prices, however, stabilized at a, let's call it, a normal level compared to the longer-term average of the market. Aurubis, as we discussed also in all the other quarterly calls, is today benefiting from good prices given the longer-term orientation of Aurubis contracts. The earnings contribution from sulfuric acid sales were well below the very high level of the previous year, though they remained at a very high level for the Group.
Specific ACP, our Aurubis copper premium for the calendar year '23 was set at $228 per ton and went into effect with this -- with our Q2 of the fiscal year so, the beginning of January. This higher ACP reflects the ongoing strong demand for cathodes in Europe and the Group benefits from the higher premium for the remainder of the fiscal year and also for the first quarter of the coming fiscal year. US dollar, same position as you heard before, we have a long position of approximately $500 million, of which we have hedged for the current fiscal year 70% at a rate of $1.133 and around 85% for the coming fiscal year at a rate of $1.101.
With this, I would like to hand over to Rainer Verhoeven.
Thanks, Roland, and good afternoon also from my side. Let's come to the gross margin, which is almost on prior year figures, but has seen some shift in the three main earnings pillars year-over-year. Earnings coming from the processing of concentrates have increased year-over-year with the increased benchmark despite lower throughput.
Earnings from refining charges and from the variety of recycling materials also came in at higher levels year-over-year. Here we see both volume and the pricing effect from higher specific RCs for the input materials. Subsequently, earnings from that pillar increased year-over-year.
Premiums and products also saw an increase with a higher ACP and ongoing strong demand for wire rod. Sulfuric acid revenues came in at lower levels in comparison to the prior year. Finally, earnings from metal gains were behind last year. Decreased metal prices for nearly all industrial methods from the market had a negative effect. Nevertheless, metal gains remain a significant earnings driver for the Group earnings.
And when you look at the total cost of the Group, they increased by 2% to EUR1,399 million. So, one point -- almost $1.4 billion compared with last year. We have seen increases in almost all Group cost positions, except for energy, which has come down from the very elevated cost levels of the previous year due to active energy management and state refunds, but also the prices were low. All in all, we continue to see cost inflation, though it remains at manageable levels for the Group.
Despite the reduction in energy prices and thus energy costs for the Group, the development of sustainable and affordable energy remains one of the prevailing topics for Aurubis and the energy-intensive industry in Germany. Overall, besides our continuous hedging of natural gas and electricity, we have seen a substantial reduction in energy prices. The input factors for the long-term supplier contract with Vattenfall dropped significantly year-over-year.
On average, pricing during Q3, the API2 index for Coal pricing was at $118 per ton versus $333 per ton in the prior year. CO2 pricing was rather stable year-over-year. Subsequently, electricity costs for our German sites were significantly lower than last year. Additionally, the indirect CO2 compensation and state refunds provided to our site in Bulgaria, as well as good management and the sale of excess energy, helped to reduce electricity costs for the Group to the current level.
Natural gas came in at higher prices than in the previous year. While we were well hedged in the last fiscal year, the level of hedging in the current fiscal year is lower and partialspot exposure is driving gas prices. As in the previous quarters, Aurubis managed to pass higher energy costs for natural gas as one of the main input factors for the production costs on to its customers via the higher surcharges.
Looking forward, we will continue to work on the further electrification of our production processes and invest in decarbonization of all production. A secure and sustainable energy supply though, at reasonable prices, will remain very relevant factors for Aurubis in the coming years.
Looking at the key performance indicators, we continue to show a very solid picture. As mentioned before, at 15.1%, our ROCE is still slightly above our Group target, but down from the previous year, with earnings performance remaining very good. Temporarily, high inventories and high CapEx payments for the implementation of our growth strategy resulted in higher capital employed compared to the previous year reporting date.
The equity ratio is at 57.5%, and the debt coverage remains at zero. This forms the strong foundation for our strategic growth plan. The increase in capital expenditure results mainly from the investments in our new recycling plant in the US, the maintenance shutdown in Pirdop, and the second stage of our industrial heating project in Hamburg. At EUR73 million, the net cash flow shows a positive development and lies above the prior year. We will see an improvement towards approximately EUR500 million towards the end of this fiscal year in net cash flow.
Let's have a look at the segments. As most of the earnings drivers and market developments have already been touched on, let me briefly highlight some financial -- some financial and production figures from the Multimetal Recycling segment. All in all, the throughput volumes and cathode output were above the prior-year levels. Although the segment benefited from slightly higher refining charges for recycling input at EUR143 million, the operating EBT was well below the previous year.
Due to the input material mix, the metal result in the MMR segment was below the prior year level, with reduced metal prices, especially for industrial -- industrial metals on the one side and lower availability of certain materials on the other. For example, tin declined by around 30% on average year-over-year. Zinc declined on average by 37%. Increased costs due to inflation and cost for the implementation of the strategic projects, especially in our Richmond project, weighed on the MMR segment earnings. Lower energy cost due to a drop in electricity prices, along with active energy management, had a positive impact on the results in Q3 '22-'23. As a result -- as a result, we show a reduced EBT and a moderate ROCE of 15.8%, which lies still above our target rate.
In the Custom Smelting and Products segment, the operating EBT increased from EUR290 million to EUR322 million in the reporting period. The segment benefited from higher TC/RCs for concentrate, the increased Aurubis copper premium, and the continued strong demand for wire rods, especially from the energy sector. Positive market conditions led to positive earnings contributions from the concentrate. Concentrate throughput was below the previous year due to the maintenance shutdown in Pirdop. We will come to this in the detail -- in more detail in a few minutes.
Production of our Hamburg Primary Smelter exceeded that of the previous year, where we had the maintenance shutdown in the last year. The negative effect came from lower sulfuric acid revenues, sales prices, and lower production volumes. The lower metal result is due to the declining metal prices and increased costs due to inflation compared to the previous year.
Lower energy costs due to a drop in gas and electricity prices, active energy management and an insurance payments of around EUR15 million related to the flooding at the Stolberg site in July '21, had a positive impact on the result in Q3. Sales from flat rolled products were below the previous year's level. Due to the lower market demand for flat rolled products, the former FRP side are still included in the last year's figures. The return on capital employed increased to 17.5% and is well above the target level of 15%.
Let's move on to the market outlook for the remainder of this fiscal year. The outlook for the concentrate market from CRU and WoodMac continues to foresee a growing market from both the supply and the demand side. Current spot terms are at $93 per ton, even beyond the benchmark terms. We will continue to benefit from higher treatment and refinement charges year-over-year. Both our primary smelters are well supplied beyond the end of the fiscal year.
The markets for copper scrap and complex recycling materials remain short-term and are driven by influences like metal prices, the collection activities from the recycling industry and so forth. We can -- we currently foresee a stable market for both, copper scrap and recycling materials, with good RCs for the remainder of the fiscal year. The availability of shredder, especially in the automotive sector, is improving though it has been subdued over the last months. Our secondary smelters are supplied with recycling materials until the end of September this year.
The outlook for sulfuric acid appears to be stabilizing on a very low level in comparison to the prior year. Both ICIS and CRU expect reduced demand from the European fertilizer and chemical industries due to high input and especially energy costs. As seen in our half year figures, we foresee a reduction in the earnings contribution from sulfuric acid year-over-year. Still, as mentioned earlier, we -- on a long year average, we are still on good terms here.
Given the longer-term contract situation, acid sales are still expected at high levels in '22-'23 in a historical context. Aurubis continued to benefit from the Aurubis copper premium ACP for '23 which has been set at $228 per ton, well above the prior-year level. Concerning our copper products, rod, shapes, and the flat rolled business, we remain optimistic for wire rod despite the slowdown in the construction sector. Production demand for shapes and flat rolled products will continue at levels well below the prior year.
With this, I would like to hand back to Roland.
Okay. Thank you, Rainer. So, coming to the guidance for this fiscal year. After we increased our forecast range in Q2, we are confirming the forecast range of EUR450 million to EUR550 million for the Group operating EBT. For ROCE, we expect a value between 14% and 18%. Looking specifically at MMR, Multi Recycling segment -- Multimetal Recycling segment, we continue to expect an operating EBT between EUR110 million and EUR170 million and an ROCE corresponding between 13% and 17%.
For Custom Smelting and Products, we expect an EBT between EUR390 million and EUR450 million and an operating ROCE between 18% and 22%. Given that we are now reporting about Q3 and only one month ahead, the obvious question and I can take it now, where will we end up, and the guidance is somewhere in the middle is probably not -- not a wrong -- wrong assumption there. And given that we have already July finalized with a very good operational performance, so our confidence is that we will be well within the range of EUR450 million to EUR550 million.
Coming now to the strategy part, and on July the 13, we held our Hybrid Capital Market Day in London, during which we provided a detailed update on key projects of our strategic agenda, which has the highlight -- the headline Driving Sustainable Growth. The investments in Aurubis' global smelter network will ensure the company's continued sustainable and profitable growth in the future. And the Aurubis products and processes are the cornerstone of this transformation to an even more sustainable economy and in Aurubis.
We have shared in this presentation in London in quite some detail, but the feedback was very, I'd say very encouraging as we have shown where our investments do fit in our overall flow sheet, and how we are improving and enhancing our capabilities and capacities there. Therefore, we do encourage you to review the Capital Market Days event and go through the material and please feel free, you have the contact names, in order to ask certain specific questions and some additional remarks that you have to this point. We are happy to share this with you because it's a fascinating story how the strategic elements, how the projects do fit in the smelter network that we have established here.
Having said this, I would like to move on, to put a spotlight on another project in the topic of sustainability, which is the Anode Furnace 2.0 as we call it here in Hamburg. On top of our strategic investments for growth in recycling and securing and strengthening the core business, we have also, as you all know, new projects under the title Industry Leadership in Sustainability.
And one I want to share with you today is the investment that we are going to conduct in Hamburg here in the next standstill in May '20 -- May-June '24. With this construction of the new anode furnace, we will be one of the first, probably the first copper smelters, who will be able to use hydrogen instead of natural gas in the anode furnace reduction process.
With this investment, we will again demonstrate and put another milestone in the execution of our sustainability strategy and decarbonization strategy in place. This investment not only brings the capability of what I'd say H2-ready as we call it today, but it also comes with an increase in process flexibility and it will allow a more complex feed of input materials while keeping these resources, these materials specifically in the German market and making our metal extraction even more efficient.
Let's have a closer look at some of the project details. Aurubis will invest about EUR40 million and will replace the existing anode furnaces with two new vessels with increased diameter and length. With this investment, Aurubis will be able to reduce natural gas consumption due to state-of-the-art burner technology, making the process already with the use of natural gas more energy-efficient.
The conversion of the furnaces will take place next year during the shutdown and the rebuild will enable us to use more nickel-bearing input materials in particular. This is also an impression and underlines our multimetal strategy and it's important to the battery industry, for example, as the nickel -- the crude nickel sulfate that we are producing is one of the highly attractive input materials for this industry.
With this investment next summer, we will be ready for the use of hydrogen and accordingly achieve our decarbonization targets. However, hydrogen today, green hydrogen is not available at competitive costs. So, here the main challenge going forward is all the discussion with, let's call it, the politics is, how will be the supply and also the cost position of hydrogen be developed over time in order to make it competitive and also to change the use from natural gas more and more to this new fuel. But we are very optimistic with all, specifically, the discussion and developments which are taking place here in Hamburg and with the harbor position that is excellent, that we will have very soon a clear pathway how we can move from natural gas to hydrogen.
But before we close today's call, let's have also look at the executed -- well-executed shutdown in our plant in Pirdop in Bulgaria. Our primary site successfully completed the plant maintenance shutdown in scope and budget and could restart even one day ahead of the already ambitious timing. During the 40 days of the maintenance shutdown, more than 130 maintenance and repair activities were carried out in all the major production areas of the plant. At large, the large number of components were renewed and repaired as part of the technically and logistically extreme complex large-scale project.
The maintenance shutdown was also an opportunity to execute investment projects and optimizations that will raise the plant's energy efficiency even higher. Additionally, a second anode casting wheel with all the feed lines to the anode furnaces was installed. This will further improve the plant availability and production stability along with it and is also part of our growth strategy for the Pirdop site.
In addition to safety and process efficiency, the large-scale shutdown in Pirdop also focused on enhancing the site's environmental performance. Efficiency measures realized as part of the ongoing project will lower the plant's CO2 emissions by another 2,100 tons per year, while also improving the energy efficiency of production. So, this was a very successful project and I would like to thank here also the colleagues from Pirdop for this very, very good execution and again, accident-free execution of this very complex stop and standstill in Pirdop.
For Hamburg, as mentioned, with the anode furnace, the major shutdown will take place in May and June. You will see this also in the documents. This will be a shutdown which will have all the elements of the smelter itself, but additional, we will also -- and that's in the anode furnaces as described and we will also build the industrial heating heat project in what we call Phase 2 and 3 at the same time. So, it's the project which has the, let's say, a high impact on the site in Hamburg and will bring many benefits after execution, to the site.
And with this, I would like to hand back to Elke. Thank you.
Thank you, Roland, Rainer, and Heiko. I would like to provide you with an outlook on the next events that follow our Q3 publication. Our annual report will be released on December 6th, and next year's AGM is scheduled for February 15th in 2024. More information will be shared with you in due course on the website and by email.
With this outlook, we would like to thank you for your attention, and I would like to ask the operator to take over for your questions.
Thank you. We will now begin the Q&A session, and I already see some questions in line. [Operator Instructions] And the first question comes from Ioannis Masvoulas, Morgan Stanley. Please go ahead with your question.
Yes. Hi there. This is Ioannis Masvoulas from Morgan Stanley. Thank you for the presentation. I have a couple of questions, please. The first is on the cathode premiums. We are running at very high levels this year, partly due to the good demand and also sanctioning against Russian metal, but how should we think about next year's dynamics in light of the recent tank house fire at one of your competitors? Could we see premiums moving even higher in '24 or would you expect some -- some moderation from these levels?
And then, secondly, question on your net cash flow. One thing to clarify, I think at the CMD, we were talking about the net cash flow for the year of between EUR450 million to EUR550 million, am I right in thinking that now you're guiding at something close to EUR400 million? Thank you.
Yes. Hi Ioannis, Roland speaking here. Thanks for your questions. Yes, regarding cathode premium, I think, as you -- as already pointed, there are some -- some positives, some questions there. Overall, we see a continued megatrend confirmation. There is electrification, renewable energy, e-mobility, all the things we have intendedly talked and discussed also in the Capital Market Day about. There is no change. It's rather the opposite. It's an acceleration. And on the other side, we see a strong demand for metals in the North American market, which is much more the competing market for us for attracting cathodes into Europe than the Asian market there.
So, Boliden (ph) you mentioned the point, there is a lack of 200,000 tons of capacity for cathodes in Europe and we see that less and less customers are willing to buy Russian cathodes. So, the volumes of Russian cathodes going into -- into Europe, into Western Europe has declined, the official numbers are there, have declined significantly. So, I think with this kind of cocktail, let's call it the cathode cocktail, there is a lot of -- lot of I think arguments that we will see rather good premiums in the coming year.
But I think you understand that I'm not at this point in August, able to make any kind of direction. But demand will be good, supply will be -- I would -- challenged and therefore there is a although the need probably in this cost inflation environment which we are still in, to have an ACP at a decent level. I know you would like to have a number from me, but I think you understand that this is not possible at this point in time.
Regarding cash flow, I think Rainer can.
We can, however, give some guidance on the cash flow. So, you talked about the EUR450 million to EUR550 million. We remain very optimistic that we will have landing somewhere in the middle there, that looks quite good. Even though we only have net cash flow after Q3 of EUR70 million, a bit more than EUR70 million, there is quite a rally still to go even if you think that we will have a CapEx of let's say EUR670 million, something like that.
So, also there, a lot of investment cash flow still to come. However, as said and as inherent in the business model of Aurubis, we do have our standstills in the primary smelters, we do have our buildup up in the net working capital always throughout the year, and then towards the end of the year, we'll always stream the inventory down and we are very confident that we are achieving levels of EUR450 million to EUR550 million. More specific, it will be somewhere in the middle.
Perfect. Thank you, both. I'll join the queue.
The next question comes from Jason Fairclough, Bank of America. Please go ahead with your question.
Good afternoon, gentlemen, and thanks very much for the presentation. Look, two questions from me. One is on just acid prices and thinking about how that flows through into the -- into the financials, and then, second one on hydrogen. So firstly, just on the -- on the acid prices. I mean if we look at spot, I think spot prices have gone from $260 a ton down to $60 a ton. How should we think about that flowing through from this year's financials into next year's financials? In other words, if we -- if we stayed at spot levels next year, how much of an EBT headwind is -- is the acid price for you?
And then secondly, just on the hydrogen. I'm wondering if you could give us some color here around the interplay between the higher cost for hydrogen versus the saving on CO2? Okay. I'll stop there.
So, hi, Jason. This is Rainer speaking. I'll take the acid topic. So, we have been -- and repeatedly saying that in good years in the past, Aurubis earned something like EUR50 million, 5-0, on acids. In the last year, we have been by far higher than that level, something like EUR170 million. This year, we will be slightly below EUR100 million as earnings contribution from acids. Why is it so? We do have not only spot business, so we are not fully exposed to spot business. We do have our chemical industry in Europe, we do have smaller contracts, we have fertilizer industry in the Eastern part of -- of Europe, and so forth.
So, it is always a mixed basket of contracts longer-term, different price -- pricing agreements, and so forth. So, we are not fully exposed to spot business. Though, we will not remain also at the levels that we will see this year. So, this slightly below EUR100 million, we need to face the fact that we will see and are exposed to headwinds coming from acid, but it will also not be completely desperate as we also had it in the past where we even had negative prices. We are still enjoying positive spot prices here FOB Europe. If we ship overseas, there is a freight cost differential between the Asian, so the Chinese smelters and us. So, therefore, we will not see that very low prices. Nonetheless, we will not stay at a bit lower than EUR100 million that we will see this year.
Okay. Thanks, Rainer. Then I take the point on natural gas and hydrogen. As I pointed out in my short presentation, today hydrogen is too expensive by factors. So, we are talking about, if I look at today's natural gas price, let's say the month's forward curve, and you mentioned the number compared to what you can source as hydrogen, even limited quantities of green hydrogen, it's multiple higher costs than what we have in natural gas. Having said this, there is a high incentive now by specifically the German government and also in Europe, to build a model of what's called carbon contracts for difference.
So, there is the idea of separating the supply of -- or the production of hydrogen of green energy versus the demand and the possibilities of the industry to pay for it. So, it's a bit of chicken and egg, what is first, demand and production. So, that's the idea behind. We have intensive discussion here also driven by the steel industry which with the investment positions taken, will need significantly higher amounts of hydrogen going forward.
So, therefore, we will a bit kind of, how you called this, jump on the developments or be part of these developments will be driven by the -- by the steel industry mainly and let's say in a bit of a statement, if there is a solution for the steel industry to be competitive with hydrogen, it will be definitely a case for Aurubis to be also competitive with the use. I cannot give you a hard number here because it's very much in progress. The important thing is, we are H2-ready next summer. And we know the technology. We are able to manage hydrogen in our process and I think that's the most important step that we can take, the rest is going to come, but will be not directly in our responsibility.
Okay. Thanks for that color, Roland. Rainer, if I could just follow up then. So, without putting words in your mouth, if it's a EUR100 -- EUR100 million this year from acid and normal is EUR50 million. It sounds like EUR100 million minus EUR50 million is EUR50 million, so we should be looking at about a EUR50 million hit year-on-year from acid, is that the right way to think about that?
That would be a reasonable guess.
Okay. Thanks, both. Appreciate your time today.
And the next question comes from Bastian Synagowitz, Deutsche Bank. Please go ahead with your question.
Yes. Good afternoon, all. I've got a couple of questions. Maybe firstly, a follow-up on your guidance, which seems to be adjusting fading in the underlying performance in the fourth quarter despite the end of the large maintenance break, and I guess when we look at next year's EBT expectations in midEUR500 million, it probably makes them look quite ambitious here. So firstly, I'm wondering, what is driving the failing performance in the fourth quarter, please? And could you maybe also give us at least a broad sense for the launching costs which you mentioned? And then how much do you expect for this year in total and whether they will also continue next year? That is my first question.
So, thanks, Bastian for the question. Rainer here. Fading performance, it is a bit hard word. If you see that we are still looking from last year to the best result ever this Group has achieved. So, if we look to fading results then in the fourth quarter, we are looking to metal prices. All industrial metals are drastically down. We have seen that. Fading in the last quarter is also our gas hedging. We had enjoyed quite interesting hedges over the past, which are, let's say, gradually fading.
Still, we are not breaking our neck with it, but it has an influence here. The acid prices we have mentioned, we have enjoyed pretty much high prices on the acid throughout even the first nine months, which are also gradually going down. We are again not plummeting to the spot market level, but we are having an influence and therefore we will -- or we are a bit cautious on the fourth quarter in our year.
Now I know -- If I add here to Rainer's point, I think we are running the company now at a very high level of profitability on performance and we are in full execution of our growth strategy and projects will kick in in the coming years. And you have seen those who -- and you have participated in the Capital Market Days. We are making very good progress on all fronts here. So, that's the perspective that you should look at.
And I think focusing on one quarter up and down is a misleading -- misleading view. The views that we are growing as a company, we're becoming more international, we are executing our strategy with multimetal strengthening the core, growing in recycling in a highly even more attractive market in US, but I think Bastian, I would like to draw your attention on this facet of the point and not so much on the Q4.
Okay. No, that's perfectly fair enough and I don't object at all, again it's just since that at least next year's expectations still seem to be a little bit on the high side maybe looking at the fourth quarter exit run rate potentially. Just a quick follow-up on the hedges, if I may. If you look at the duration and the current I guess spot pricing here of the future pricing, when do you expect to see the peak in the headwinds from the gas hedges as they roll into your P&L? Is this happening in the fourth quarter already, i.e., will we have seen the main effect of the hedge roll over?
So, I wouldn't -- I wouldn't say it's headwinds. In general, we enjoyed over the year, if we take the Vattenfall contract for instance, we enjoyed quite positive electricity prices. Gas prices, yes, where we had hedges there, they are going away now, I would say pretty much in the next couple of months as we talk. However, we are now entering into new hedges. The point is, we are no longer hedging at let's say EUR20 per megawatt or EUR15 per megawatt for gas megawatt hour. We are hedging for prices like EUR45 which is the, let's say, new gas prices that we are seeing in the markets, that is what I'm saying here.
Yes. If I -- perhaps I might add a point here to Rainer's fully correct statement. Natural gas, the major consumption of natural gas is for the production of products. That's what we are using for wire rod and for shapes. That's where mainly we spend natural gas. And as we discussed in when the whole energy crisis started, we have now changed with the majority of our customers and many new contracts are now in place, a kind of pass-through mechanism. So that means, we are not exposed to the gas prices as we have been in the past, in the future. Now we are doing this on behalf with different models with our customers and we are going to see no gains, but also no losses in the same extent from the gas price development going forward.
Okay. Thank you. Then, my second question is on your equity line, which I think has actually gone up quite a bit this year and also in the last quarter and I suspect, that's for you from the contribution from share metal, but I'm wondering if there are the more structural element here, is it really -- is it the good performance in share metal and can we expect that to last? That is my second question.
So it is -- yes. Rainer here again. Share metal, of course it is share metal which contributed here on the at equity. We have seen pretty good results in the last nine months. However, we do see that order intake is now really subdued, it has reduced drastically I would even say. So, going forward, I would not take that for granted, so we will see lower results from our equity share metal participation.
Okay. Thank you. And then my last question is just around the press release you've been sending out a couple of weeks ago on the FRP situation. Can you maybe give us a little bit of color around that? And also maybe help us a little bit on how you treat that in your financials? The amount is, at least in the press release, quantified so I would have thought that you would have to provision for this, but I guess it's still uncertain. Maybe you can just help us a little bit how we should consider this or how you'll be reflecting that in your numbers, if at all.
Yes. The point is, it's an ongoing investigation. So, therefore I think you have full understanding that first of all, we don't have all the details from the public prosecutor's office. And secondly, some things we are not entitled to share. The attained attachment orders was amounting to around EUR20 million. That's what we also wrote in our press release, and which was also stated by the prosecutors, and as long as the investigation is ongoing, we are unable to provide any further information about the exact amount of damages. We have obviously some ideas what -- about the duration and also the size of the impact, but it's all well in the past. So, therefore we are still looking at this.
As you can imagine, we have taken immediate action. So there is definitely nothing -- nothing in this area. We can't make a statement beyond this point yet and improved prevention and safety have been implemented as far as we -- as we could at this point in time. We will continue internal investigation and any more that we can share, that we can share publicly or with our investor community, we are going to do so.
But important is and it was our prime foremost focus, that we fully understand the network which has been established there and that the -- so the persons involved were arrested and they are still in arrest, which is one of the -- of the main objectives that this fraud, this kind of depth is not continuing and responsibilities our people are taking to their respond -- ultimate responsibility to charge.
Okay. Thank you all. I'll go back into the queue.
And the next question comes from Christian Obst, Baader Bank. Please go ahead with your question.
Yes. Thank you and good afternoon. So, first two questions about the P&L, more or less below EBITDA, depreciation -- depreciation moved from approximately EUR49 million in the second quarter to EUR54 million, what do you expect as the run rate going for the next coming quarters, having in mind that you are investing the approximately EUR700 million this year? The second one, maybe I'll follow that, is the net interest line. You were positive in all the three quarters. This year so far, when do you expect to turn negative on the net interest line? These are the first two questions.
Yes. So, Christian, Rainer here. Hello. So, difficult questions because they go very much into the nitty-gritties. So, for the current quarter, we are expecting a depreciation level of EUR52 million in the forecast, which will be rather a bit higher I guess because we are continuing to invest for the next year. Of course, this is rising. I mean we are -- we have been constantly increasing investments and you take those invests, divide them by I don't know 20 years, whatever you take for those long-term investments and then you have the annual depreciation, roughly.
So, there will be -- and we have been talking about the strategic investments, EUR1.1 billion that we are investing over the next four or five years. So, this will add on top of the normal running investments and will also lead to much higher depreciation. But to be very honest, I don't have the figure for next year either really available at this point in time, we are still in the planning process, finalizing it.
The second question was then on the net interest, yes, we had the positive contribution of [indiscernible], which hurts us a lot on the net interest line. On the other side, we are now entering into, let's say, higher indebtedness. We are still above the zero line. We managed to do so. We will be definitely above the zero line with the net financial position, which is, let's say, above EUR100 million positive, so we are still in net depositing money at banks at the end of the year.
However, throughout the year and with the high net working capital needs that we have with the standstill, big standstill ahead of us in May-June next year, we will be seeing a hell of a rally with regards to annual build-up, with regards to inventory build-up, which will lead to high -- higher indebtedness, which will lead to let's say turning this figure negative.
Okay. Thank you. I have another question concerning the others line, as we've moved of course, you talked about the strategic costs from EUR17 million, EUR18 million, up to close to EUR30 million in the third quarter. Will this be some kind of a new run rate going forward, or is that more a short-term effect? Hello?
We need to -- we need to take that offline. We need to take this separate. We can't answer it on the spot here.
Okay. And then I have a last question, again on gas, you mentioned that it's mainly for the production -- product production. So, nevertheless, we have seen with fading hedging already that gap what you paid for gas increase from EUR51 million to EUR58 million approximately. So, this will increase going -- going forward, but we will not have any kind of impact on profitability, is that right? Because of the debt structure of -- with your clients?
Yes, that's right. This conclusion is correct.
Okay.
Because we did have a counter position on the revenue side.
Yes. Okay. Thank you very much.
The next question comes from Maxime Kogge Oddo. Please go ahead with your question.
Yes. Good afternoon. So, first question on your guidance. I am actually quite stricken to see that you have already achieved your full year guidance for the MMR segment in the nine-month result, while you are struggling a little bit more in the main CSP segment. So I was wondering whether that was because of the reflection of your maintenance activity in CSP or if the CSP segment was underperforming versus MMR won so far this year? That would be my first question.
And the second question is on finished products. So if we look at shapes and flat rolled products, they seem to have been stabilizing in terms of volumes in Q3 versus Q2. So would you see the current volume for these two segments for these two finished products category as the right ballpark for the future? You said previously this had been struggling, but they seems to be stabilizing. And regarding wire rod, you're running at around 250k tons of sales in Q3 that is, which is also stable versus Q2, do you see room for expansion there or are you more or less saturated in that area? So that's it, thank you.
Yes. Sure. If you allow, Maxime, I take the second point first, regarding finished goods. Yes, I can confirm that the run rate we have seen now in the last quarter is kind of a similar level to be expected for the current and say, even for the next quarter. So, it seems that the market has settled on this level. And on wire rod, we have a strong demand. However, the 250,000 tons per quarter is not completely correct. If you look at the numbers, the first nine months, we had 693 tons. So, for nine months so this doesn't correspond to 250,000 tons run rate.
Okay. Q2 and Q3 actually, yes, indeed. I was talking actually indeed Q1 was at around 200,000 tons and Q2 and Q3 was at -- were at around 250,000 tons.
Yes. That's really -- it's more a stable, let's say you have some seasonal ups and down, but you cannot extrapolate one seasonal up as the run rate for the total year. So, I think we see now a demand which will not be on the same level like our Q3, slightly below, but still very healthy. So this -- this is what we -- what we see today. And regarding the guidance, if I look at our numbers, we have, if I take the MMR segment, we have achieved an EBT of EUR143 million in the first nine months and our guidance is a range of EUR110 million at EUR170 million. So, therefore, we are still well within the range and the same is also the case for CSP. So, I think looking at the numbers, I cannot reflect why you think we are already out of the guidance, this is from our numbers, not the case.
Now, maybe on the MMR, we are a bit cautious there. I mean we are already at EUR143 million, while the upper end of the guidance is EUR170 million that this might be a bit cautious, that's true. However, let's wait until we really have the full year behind us, there might be some effects here and there coming, which we are currently not foreseeing actually.
But again, we also have explained a bit that we are cautious with regards to the Q4, with regards to how the product business will develop and so forth. But for CSP for sure, we have the big smelter standstill in Pirdop behind us, so the EUR322 million that we have achieved, there will be some EBT contributions coming from the CSP segment. So we will be definitely getting into the guidance range of EUR390 million to EUR450 million, that should not be a big problem, I'm sure.
Okay. Thank you.
And we have one follow-up coming from Ioannis Masvoulas, Morgan Stanley.
That's great. Thank you for taking the follow-up. Just a few remaining questions from my side. The first on energy costs. You talked a lot about the rolling off of existing hedges, but can you perhaps give us an indication on what do you expect to be the energy costs for the full year 2023? And then can you remind us about the hedging ratio for the next fiscal year, please?
Ioannis, we are just looking at the numbers, so please give us a second. Yes.
So, for the full year, you can expect something around EUR250 million, yes, which is then definitely, definitely below the last year, due to the fact that the prices, especially for electricity have come down quite drastically. And regarding the outlook, I think we explained that we have taken some significant steps in our energy management to hedge pricing.
We talked about the customer side, in the product area, where we have more and more pass through also combined with hedges. But for our own consumption, we have about, let's say two-thirds already hedged for the next year. So where we have a very good predictability of the pricing that we're going to see. And so, assuming that there will not see significant moves in pricing compared to this current fiscal year, is a fair assumption.
Okay. That's great. Very helpful. And then another question on the following the CMD where you show a couple of slides around the CapEx and the depreciation, and how that evolves over time? Could you perhaps provide some color on what's going to be the new sustaining CapEx run rate and a new depreciation run rate once the current strategic projects in the pipeline are concluded? So, beyond 2026, I'm assuming nothing else is being sanctioned beyond what you already reflected at the CMD?
So, you will not be happy with the answer, but I'll still try and give you one. We are implementing the EUR1.1 billion as we have just mentioned. You know the current run rate, you know what it -- or you can roughly calculate what that means, if we implement at EUR1.1 billion, yes. If you ask us now, what will be the depreciation in 2032? We don't know. Why? Because we have repeatedly stated that the EUR1.1 billion is not the end of the strategic growth part Aurubis, there is more to come. So we don't have this figure currently at hand because we are still in let's say in different stages, though not yet approved. But we are looking to further growth projects in the Aurubis Group. Yes.
Okay. But if I ask this differently. Based on the existing footprint you have today, plus the strategic projects that are already under delivery and under construction, could you perhaps give us an indication on what the sustaining CapEx is going to be, because clearly as you keep adding more projects, whether it's an expansion of Richmond or a project on the battery side, things will -- numbers are going to change, but just given all the current footprint plus the current projects in execution, an indication sustaining CapEx is going to help us a lot in terms of valuation for the business today?
So we can answer with regards to the depreciation, so this is going up by EUR100 million roughly. So we are coming from EUR200 million, EUR220 million going to EUR300 million, EUR340 million in a couple of years from now, if that helps.
That's helpful. Thanks for that.
At the moment, there seem to be no further questions. [Operator Instructions] And we have one follow-up coming from Bastian Synagowitz from Deutsche Bank. Please go ahead with your question.
Yes. Thanks for squeezing me in. Once again, I've got a quick follow-up actually on Jason's question to better understand the investment to make Hamburg compatible to hydrogen. Firstly, can you please tell us how many megawatts of natural gas you'll be saving with this, i.e., how much will be the 30% you're saving in megawatt terms? And then secondly, can you maybe also tell us how many tons of hydrogen you will actually need to achieve the full 5,000 tons of CO2?
Here, Roland speaking, Bastian. We have stated the numbers in tons, now, how much CO2 we are saving? And if you would allow, we could do this in a follow-up call. We don't -- I don't have here these-- kind of translation from tons into megawatt hours. I don't have it here at my fingertips and also the other saving potentials that we are looking and replacing other natural gas, like in the shaft furnaces for products rolled out, with the potential there in energy, we have it all obviously, but I don't have it here with me.
Sure. No problems at all. Perfect.
And now, there are no further questions from the audience. Okay. Then that brings us to the end of our today's analyst call, and thank you again for your attention. We wish you a nice afternoon and one of the rest of the summer. Goodbye.