Good morning. My name is Lydia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Befesa Third Quarter 2021 R esults Presentation. After the speakers' presentation, there will be a question and answer session. To enter the queue, you can press star one on your telephone keypad at any point during this call. I would now like to turn the call over to Mr. Rafael Pérez, Director of Investor Relations and Strategy. Please, sir, go ahead.
Good morning, and welcome to the third quarter 2021 results conference call of Befesa. I am Rafael Pérez, Head of Strategy and Investor Relations of Befesa. Today, as usual, we have with us Javier Molina, CEO of Befesa, and Wolf Lehmann, CFO of the company. Javier will start with our executive summary, covering the main highlights of the period. Then Wolf will review the nine months financials in total on the business unit, as well as cash flow and an update on hedging. Javier will close this presentation providing an update on our growth projects as well as an outlook for the remainder of 2021. Finally, we will open the lines for the Q&A session. Before getting started, let me remind you that this conference call is being webcast live.
You can find the link to the webcast and the Q3 results presentation on our website, www.befesa.com. Now let me turn this call over to our CEO. Javier, please.
Thank you, Rafael. Good morning, and thank you for attending this conference call. During the first nine months of 2021, we have delivered the strongest result in the history of Befesa. Not only we have achieved strong financial results, but we have also made great developments in our growth strategy with the signing of the acquisition of American Zinc Recycling, as well as the continuation of our growth plans in China. In the first nine months of 2021, we have achieved EUR 137 million of EBITDA, which represents an increase of 62% compared to last year and 17% compared to 2019 pre-COVID levels. The main driver for this increase has been a favorable market price environment in the period, with a recovery of the price of zinc and aluminum as well as favorable zinc treatment charge for 2021.
LME zinc prices have continued to stay favorable during the nine-month period, with an average of EUR 2,414, up 27% compared to last year. In the case of aluminum alloys, the average price during the nine months has been EUR 1,978, up 47% compared to the same period of in 2020. From the volume point of view, the volume of steel dust treated in the nine months has increased by 12% compared to last year, driven by higher utilization as well as some contribution from the U.S. operations, which we integrate at the end of August. In the aluminum business, the strong volume of secondary aluminum, up 15% in the period, has enabled us to achieve very good results in this division.
These positive trends of metal prices and volume have also continued in the third quarter, resulting in a strong quarter with a total EBITDA of EUR 43 million, representing an increase of 46% compared to the third quarter of last year. Although energy prices have suffered a strong increase in the quarter, especially since September, in particular natural gas and electricity, this dynamic cannot be seen in isolation from the development of metal prices. While energy prices have increased, the reality is that aluminum and zinc prices have also increased, minimizing the negative impact of energy price inflation in Befesa. The market environment in the main industries where we operate have shown different levels of activity during the quarter.
On one hand, the production of steel in the third quarter has shown a strong performance with an increase of 24% in Europe and 29% in U.S. compared to the previous year. On the other hand, the automotive industry in Europe has suffered a slowdown in the quarter after a strong first semester of the year. As such, European car registration decreased 22% in the third quarter after an increase of 25% in the first semester. The production of cars is being affected by the crisis of the supply of microchips, not only in Europe, but worldwide. This is impacting the demand for secondary aluminum in Europe, which we are successfully partially compensating with an increase in export to Asian markets.
The generation of cash during the first eight months of 2021 has been very strong, and this has enabled us to finish the semester with more than EUR 200 million cash on hand and leverage of 2.3x . During the third quarter, we have made great development in our growth strategy. As we announced on June 16, we signed the acquisition of 100% of American Zinc Recycling, the market leader in steel dust recycling in the U.S. The transaction was successfully closed on August 17, and we are integrating part of the operations already in the third quarter. We are already taking the total control of the American operations. We have renamed the company to Befesa Zinc US, and we have appointed a new CEO for the U.S. operations who reports directly to Asier Zarraonandia, Head of the Steel Dust Recycling Division.
Our people will start traveling to the U.S. regularly from next week onwards, when the restrictions on traveling have been removed. Additionally, we are taking the opportunity of attractive zinc prices to hedge the U.S. volume of WOX, applying the same approach than the rest of the company. Wolf Lehmann will provide more details later. The U.S. business is performing as we expected, and we are confident that we will capture the synergies that the transaction will create over the next 18-24 months. Our growth plans in China continue as planned, with the construction of the plant in Jiangsu finished and starting commercial output. The feedback we are getting from the Chinese steel producers is very positive. Although the contribution of Chinese operation will not be material this year, we are very confident about the contribution for next year.
Additionally, we also continue the construction works of our second plant. Regarding the outlook for this year, 2021, as I said, we have reviewed the guidance incorporating the contribution of U.S. since September. As such, we expect to finish the year with adjusted EBITDA around EUR 195 million. This represent a record year in the history of Befesa, and an increase of 54% over the result achieved last year. Additionally, it is consistent with our previous communications, where we said that we would finish the year in the upper part of the guidance, plus the contribution of U.S. Now, Wolf Lehmann will explain the financials in more details.
Good morning. Please turn to page six, the nine months 2021 consolidated financial highlights. As explained by Javier, Befesa delivered strong earnings growth year-over-year, with EUR 136.8 million adjusted EBITDA in the first nine months of 2021, up 62% versus the same period of 2020. Also well above the pre-pandemic levels, up 17% or EUR 20 million, versus nine months of 2019. The main drivers of the year-over-year 52 million EBITDA improvement are mainly price as well as volume driven. The overall 50 million positive price impact has mainly the following four components. One. 19 million, since the reference zinc treatment charges settled favorably at $159 per ton versus $300 in 2020.
Second, EUR 18 million from higher zinc LME prices at average of EUR 2,414 per ton, up 27% year-over-year. Three, a negative EUR 5 million due to lower zinc hedging prices, partially offset the zinc LME price increase. Number four, EUR 19 million, higher aluminum alloy Metal Bulletin prices, which averaged at EUR 1,978 per ton, up 47% year-over-year, as well as better aluminum metal margins year-over-year. Looking at the volume lever, which was also positive by around EUR 6 million year-over-year. One, EUR 5 million since the electric arc furnace dust throughput was higher year-over-year, plus the positive contribution from the acquired U.S. operations delivering as expected. Please note we have consolidated approximately six weeks in the third quarter financials, which both drivers partially offset the impact from stainless.
Number two, EUR 1 million positive from higher secondary alloys, partially offset by lower salt slag and spent pot lining volume due to the U.K. plant closure at year-end 2020. Overall, good volume performance with overall solid plant utilizations at pre-pandemic levels. Steel dust at above 80%. Aluminum salt slag and spent pot lining at or above 90%. The approximately EUR 3 million negative cost and other lever reflects the higher inflation energy cost trend, the China expansion cost partially offset by operational excellence. On a third quarter standalone view, we continue to deliver strong earnings growth with third quarter adjusted EBITDA at EUR 42.7 million, up 46% or EUR 13 million year-over-year. Also growing 15% compared to third quarter 2019 pre-pandemic. The third quarter EBITDA is normalized EUR 48 million of one-time American Zinc Recycling acquisition related cost.
In summary, Befesa delivered solid pre-pandemic plant utilization levels and benefited from a strong and favorable market price environment in the first nine months of 2021, which enabled us to deliver our all-time high nine months adjusted EBITDA of EUR 137 million at a strong 24% adjusted EBITDA margin. Net profit was up EUR 30 million or 96% year-over-year, basically doubled to EUR 61.5 million in the first nine months, equal to EUR 1.69 earnings per share based on weighted average number of shares of 36.4 million in the first nine months of 2021. We also improved cash on hand to a new high of EUR 201 million, which I'll explain later together with the net debt and leverage performance on page nine.
As always, please note in the appendix of this presentation, you will find various financial and operational data tables with quarterly, annual, and multi-year views for your reference. Now turning to page seven, the steel dust recycling services results. Steel dust recycling services continued to perform at strong earnings levels and achieved EUR 102.7 million adjusted EBITDA in nine months, up EUR 34 million or 49% year-over-year. As well as 12% up or EUR 11 million up versus nine months of 2019, clearly demonstrating the recovery to and above pre-pandemic levels. The corresponding adjusted EBITDA margin amounted to 34%. The net price lever was positive by EUR 29 million year-over-year. The volume lever was also positive by approximately EUR 5 million EBITDA year-over-year impact.
As explained, the higher electric arc furnace dust throughput year-over-year and the positive contribution from U.S. operations were partially offset by lower stainless operations. The cost and other levers had a minor EUR 0.5 million year-over-year impact, with the higher inflation, including energy and China expansion costs, mainly offset by operational excellence and other. Looking at selected operational metrics on the lower part of the page. Volume of electric arc furnace steel dust throughput increased by 12% year-over-year to 563,000 tons, mainly driven by the contribution from the acquired U.S. recycling plant, but also by the better performance of existing operations year-over-year.
Overall, plant utilization continued at solid pre-pandemic levels of around 81% of the extended approximately 1,555,000 tons installed annual recycling capacity, which includes approximately 620,000 tons annual capacity contributed by the acquired US recycling assets. Taking a more detailed look at prices at the bottom of page seven. One, the zinc LME market prices continue at high levels and averaged EUR 2,414 per ton in nine months, up 27% year-over-year. Second, our zinc hedging prices in nine months were lower year-over-year. On average, EUR 2,170 per ton in nine months 2021, versus EUR 2,232 per ton in nine months 2020. As well as compared to the strong LME spot prices in nine months 2021, they were slightly below.
Combined, the resulting zinc blended price came in at EUR 2,241 per ton, up EUR 152 per ton or 7% year-over-year. Correspondingly, the positive EBITDA effect from the higher zinc LME market price of gross positive EUR 18 million was partially offset by a negative EUR -5 million due to the hedges, resulting net in a positive around EUR 13 million EBITDA effect. In addition, as explained, the zinc reference treatment charge favorably impacted our nine-month EBITDA by circa EUR 19 million year-over-year. As you know, treatment charges were settled at $159 per ton for 2021. Overall, steel dust recycling services delivered a very strong EUR 103 million adjusted EBITDA in nine months with a high 34% EBITDA margin and solid plant utilization at around 81%.
Going now to page eight, the results of our aluminum salt slag recycling services segment. Aluminum salt slag recycling services delivered EUR 34.1 million EBITDA in nine months, a new high level, up EUR 16 million year-over-year and almost doubling earnings year-over-year. Compared to the same period of 2019, also up 38% or EUR 9 million, clearly demonstrating the recovery well above pre-pandemic levels. The EBITDA increase was primarily driven by the price lever with aluminum alloy premiums, metal bull market prices showing a 47% year-over-year increase, as well as better aluminum metal margins, which combined drove a positive net circa EUR 19 million EBITDA effect year-over-year. The volume level was slightly positive by EUR 1 million EBITDA effect year-over-year. Overall, higher secondary aluminum alloy, partially offset by lower salt slag volumes due to the U.K. plant closure at year-end 2020.
The other cost lever, about EUR 3 million EBITDA effect year-on-year, was driven by the higher inflation energy cost trends. Overall, Aluminum Salt Slags Recycling Services delivered the highest nine months EBITDA on record at EUR 34 million, benefiting from the strong base metal price environment, which more than offset the higher inflation energy cost trends by far. Plant utilization continued at strong pre-pandemic levels at 90% or above. Turning to page nine, the cash flow net debt and leverage results. On the EBITDA to total cash flow bridge, starting with EUR 136.8 million adjusted EBITDA on the left and walking to the right. Working capital and other was up by EUR 35 million year-over-year. Included in the EUR 35 million is the EUR 8 million one-time AZR acquisition cost adjustment. Also EUR 10 million working capital from the acquired AZR American Zinc Recycling operations.
The EUR 17 million remaining is mainly driven by higher receivables, driven by higher sales. Just like in previous years, seasonality-wise, working capital is expected to further improve in fourth quarter versus third quarter, driven by seasonality. Interests are mostly already paid for the full year with the two biannual payments in January and July. Taxes of EUR 13 million also as expected, resulting in an operating cash flow of EUR 73.9 million for the nine months, up EUR 36 million year-over-year, close to double versus the EUR 37.8 million at nine months last year. In nine months, we spent maintenance CapEx of approximately EUR 22 million, plus growth CapEx of approximately EUR 35 million for a combined EUR 57 million total CapEx, partially funded through approximately EUR 22 million China local loans for our two plants at Changzhou and Henan.
As you know, on the 17th of August 2021, Befesa successfully completed the acquisition of 100% of American Zinc Recycling's AZR's recycling assets for a purchase price of $450 million and a minority stake in its zinc refining business for $10 million. The AZR acquisition has been financed through a capital increase of new ordinary shares from the existing authorized capital and a term loan B add-on of EUR 100 million. The 330.6 million of net funds raised through the accelerated equity offering got reflected already in our second quarter cash flow. The 100 million term loan B add-on got reflected in our balance sheet at third quarter close. On dividend, we distributed 46.8 million in July.
Thus, after funding working capital interest, taxes, CapEx, the AZR acquisition, and also the EUR 47 million dividend, total cash flow amounted to a positive EUR 26.8 million in the first nine months. Together with the EUR 19.3 million cash and cash equivalents incorporated from AZR, our cash on hand improved to EUR 200.7 million at third quarter closing, a new high for Befesa, up from EUR 155 million at year-end 2020. The cash on hand of EUR 201 million, together with our entirely undrawn EUR 75 million revolving credit line, provides Befesa with a strong liquidity of more than EUR 275 million. This is supporting Befesa's credit ratings assigned by Moody's at a Ba2 and Standard & Poor's at BB+, both unchanged from June.
Net debt increased to EUR 482 million versus EUR 394 million at year-end 2020, mainly due to the EUR 100 million Term Loan B add-on to partially fund the AZR acquisition, which got reflected in our balance sheet at third quarter closing, as well as some China local loans. The EUR 207 million last twelve months rolling EBITDA incorporates full twelve months rolling for the U.S. operations and is adjusted only for the eight million euros one-time AZR acquisition-related cost. The EUR 482 million net debt with EUR 207 million last twelve months adjusted EBITDA results in a 2.33 net leverage at third quarter closing, improving from 3.31 at third quarter 2020 year-over-year, and 3.1 at year-end 2020.
Including synergies, leverage is even lower, rather around 2.2 for debt covenant reporting purposes. We continue to be compliant with all debt covenants and have no applicable covenants. The capital structure remains unchanged, and long term all set to July 2026, and we cannot be charged more than 2% interest. Furthermore, we made good progress on hedging, which we review on the next page. Turning to page 10 on hedging. In third quarter 2021, we continued our hedging rigor and extended our zinc hedge book further up to and including October 2024 for the non-U.S. operations. Thus, with approximately three years of hedges on the books.
The acquired Zinc US operations came with a hedge book in place up to and including the first quarter of 2023, at hedging prices around $2,500 per ton for the remaining of 2021 and around $2,750 per ton for the full year 2022 and first quarter 2023. Following the closing of the acquisition and under Befesa's competitive hedging program, we extended the hedges for the US operations up to and including April 2024, locking in 15,000 tons of zinc equivalent output per quarter at approximately $2,950. We continue to work on extending the hedge book for the US operations to be fully synchronized with the hedging of Befesa's European and Asian operations up to October 2024.
Overall, considering the combined global hedge book, Europe, Korea and US operations, the year 2021 is hedged at around EUR 2,150 per ton, sold forward prices. The year 2022 at around EUR 2,250 per ton. The year 2023, as well as the first three quarters of 2024 at around EUR 2,350 per ton. As always, the hedging provides Befesa with improved pricing earnings and cash flow visibility to allow to fund our growth initiatives organically. Our hedging strategy remains unchanged. First, we hedge one-three years. Second, we target 60%-75% of our global zinc equivalent volume. Third, Befesa provides no collateral. The risk is transferred entirely to our hedging partners. Referring to nine months, the lower left section on page 10.
In nine months 2021, our zinc hedges were locked in at approximately EUR 2,170 per ton on average. Underwater compared to the strong zinc LME spot prices, which averaged around EUR 2,414 per ton over the same period. Overall, the zinc blended price in nine months averaged EUR 2,241 per ton, up 7% or 152 EUR per ton year-over-year. Summarizing the financial section before we turn to the growth and outlook, three points. Number one, Befesa delivered in nine months 2021, the highest earnings in the history of the company at 137 million EUR EBITDA, up 62% over last year, which translated into very strong development in terms of operating cash flows, cash and leverage. Secondly, our financial backbone is strong.
We extended our hedges out to April and October 2024. Our capital structure is efficient and long-term, resulting in stable and strong liquidity. Three, based on this strong backbone, we funded our expansion in China, even during the challenging pandemic, full speed. In China, we are progressing on target and entered in the U.S. market through the acquisition of AZR. We have achieved record financial results, and even more important is the strategic progress in China and the U.S., setting us up for even more accelerated growth going forward. Back to Javier, who will provide you the latest on our China expansion, our Zinc U.S. operations, and the outlook for the year.
Thanks, Wolf. I would like to finish the call providing some more details and thoughts on the outlook for this year. 2021 has been an exciting year for Befesa, and truly an important milestone in the development of the company. We expect to achieve record financial results with an annual EBITDA around EUR 195 million. We are entering in a new market like the U.S., and at the same time, completing the construction and starting operation of our first two electric arc furnace steel dust recycling plants at Jiangsu and Henan in China. Regarding the full year EBITDA, as explained, we expect to finish around EUR 195 million.
This considers the upper part of the guidance previously provided and additionally four months of our US operations, which will provide around EUR 10 million of EBITDA, in line with the pro forma that we provided when we explained the acquisition of American Zinc Recycling. As such, we expect the last quarter of the year to be the strongest one with an EBITDA around EUR 58 million. Volume in steel dust, secondary aluminum, and salt slags are expected to remain strong for the rest of the year, supported by strong underlying industries. Despite the current environment dominated by high energy prices, we are confident in achieving the right guidance. As previously explained, the high energy prices are also related with high aluminum and zinc prices, which we expect to have a net positive effect in this year, continuing the trend seen in the first nine months of the year.
For 2022, we are currently in the middle of the budgeting process, and we are considering different scenarios and sensitivities regarding metal prices and energy inflation. We have to be prudent and see how energy price evolve over the coming months. As you know, we will provide 2022 guidance when zinc treatment charge has been settled in the industry around April next year. In the U.S., everything is developing as expected. We will consolidate around four months of operations in 2021 after the signing of the acquisition. As explained, we have taken full control of the operations, and we are implementing an integration plan covering all areas of the organization, with a focus on starting to capture the short-term synergies in the next 18- 24 months.
In China, at Jiangsu province, we have completed the construction of the plant, and we have finished the hot commissioning of this plant. After that, we are starting with trial production for which we have already secured the steel dust volume from customers. Based on the positive feedback from steel makers, we are confident to get the high capacity utilization in Jiangsu already for next year of at least 70% or 80%. Our second plant in the province of Henan is also on schedule, with construction due to be complete by the end of 2021, and ramp up, including commissioning, is scheduled during the first semester of 2022. Moving to the market environment, we have seen over the first nine months of the year a continued recovery of the steel production in Europe.
We expect the current levels of steel production to be maintained throughout this 2021, which will represent a strong production. Regarding the automotive industry in Europe, we will see how this develops over the final two months of the year, especially with regards to the microchip situation. Cash flow generation is expected to be very strong for the full year, and we expect to end the year with a leverage ratio of around 2.2x .
Finally, on ESG, I would like to stress once again that we are doing a lot of efforts to make sure that the markets understand how Befesa is part of the circular economy, and contribute with this business to environmental protection by recycling more than 2 million tons of hazardous residues annually and producing more than 1.5 million tons of new materials, reducing the consumption of natural resources. This has been the backbone of the business since the company started more than three decades ago. Thank you very much.
Thank you, Javier. We will now open the line for your questions.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press zero one on your telephone keypad. The first question comes from Jack O'Brien from Goldman Sachs.
Good morning. Thank you for taking the question. I've got three. I'll take them one at a time, if that's possible. The first is just on the energy backdrop. Obviously, you mentioned that Befesa has some natural hedges through the zinc and aluminum price, but clearly it's front of mind at the moment with most investors. As I understand it, you have energy makes up roughly 20% of operating costs, so on a sort of annual basis, that could equate to, you know, over EUR 100 million. For the third quarter and perhaps into the back end of this year, how should we be thinking about this sort of sequential move there in the energy costs that Befesa will be facing? That's the first question.
Okay, thanks. Well, this is a hot topic, as you can imagine, and we are thinking a lot about that. This year, frankly speaking, we have been able to offset, let's say, totally the energy increase impact in our P&L. Based on that, we will be able to finish the year in the upper part of the guidance that we provided at the beginning of the year. It's true that the positive impact of the metal prices started before the impact of the increase of the energy cost. All in all, we have been able to compensate both things.
If you analyze the rally of the energy cost, but you compare with the rally of the metal price, there is, let's say, a great correlation. Thinking in the next year is something very difficult to forecast. We don't know, we know now the energy price for 2022, the future curve, but we don't know if that will be the real price for the full year. The same happened with the metal prices. It's difficult to forecast this correlation.
Any case, our feeling is that in a big part, the energy price will be able to offset the increase of the energy cost, at least in our case.
Okay, thank you. Perhaps a follow-up, just flipping it around to more on the demand side. In terms of your sales volumes of Waelz, have you seen any impact from reduced activity at zinc smelters?
Not really. We have read the announcement of Trafigura and Glencore. As you can imagine, we entered in contact with our customers, and the answer we have got is that they will maintain the forecasted volume for the full year. I don't know if they are going to reduce really the production, but if this is the case, that will be reduced on the side of the mine concentrate, not on our products.
Understood. Thank you. Second question. Clearly, you know, as a group, you've got very exciting plans in China. Just trying to understand, based on your sort of initial discussions with customers and initial explorations, obviously it sounds like you're expecting strong utilization into 2022. In terms of the zinc content of the steel dust, have you got any further ideas or clues on as to how that might sort of play out versus your more traditional business, your existing business, I should say?
Well, again, it's something which is difficult to forecast because one thing is to know the zinc content of the samples you take from customers, and a different thing is to really evaluating in a long period the zinc content on the dust. As you can imagine, when the dust is waste for the customer, so they don't know exactly which will be the zinc contained in the dust.
any case, as of today and based on the samples and on the first trial we are doing, we expect to have an acceptable zinc content similar to the one we get in other geographies like South Korea, for example, but slightly smaller than the one we get in Europe. To confirm that figure exactly, we need more time.
Okay. Thank you. Just final question on AZR. Now that the acquisition's completed and you have the keys, so to speak, do you remain firmly confident in achieving the cost synergies target and improving the utilization now that you actually own the business?
Great. We are in the middle of the process of the integration, which has been a very complex process, especially because of the travel restrictions. Hopefully, from November the eighth, we will be able to travel to the U.S., and we will start to confirm everything. Regarding your two questions, we are very confident that we will get the expected synergies in the 18-24 period that we were thinking about. After the one month and a half of being owners of the company, we can confirm that we expect to get the figures.
Regarding the second part, to increase the utilization capacity, the answer is, again, yes, we will improve the utilization, but it's something that is, as you can imagine, cannot happen in a very short period of time. We need time to do that, and probably we are not going to see any effect in 2022. We will start to see the increase of utilization in 2023 and 2024.
Okay. Thank you very much.
Thank you. Thank you.
Thank you. The next question comes from Oscar Val Mas from JP Morgan. Please go ahead.
Yes. Good morning, Javier and Wolf. A couple questions from me. The first one is, in your release, you talk about a scheduled plant overhauls in the U.S. and a mismatch between throughput and Waelz. Can you just remind us of what that impact was in Q3 and how and if there are any scheduled plant overhauls in the next year? That's the first question. My second question is a question that we've asked in the past is around how utilization in steel dust is going in Turkey and South Korea versus Europe. Are you improving utilization in Turkey and South Korea? My third question is just on secondary aluminum.
Given you are exporting to Asian markets, how should we think about the impact there on margins, and how much lower margins are your exports in secondary aluminum? Thank you.
Great. Hey, good morning, Oscar. I think in terms of the scheduled shutdowns, you know, we have a set schedule of maintenance overhauls for all our plants, one of which also happened in the third quarter for the U.S. operations. Yes, when you have that, there was more Waelz produced than finally sold, and this is how we manage the overhauls. I think part of you saw that working capital went up when you compared the second quarter to third quarter, and part of that, in the tune of EUR 5 million-EUR 10 million or so was in inventory, which, as I mentioned in the call, that's usually part of the seasonality when you look at our usual third quarters.
In the fourth quarter, we bleed that down again and improve working capital, and we expect to do the same in the fourth quarter. Nothing unusual.
Okay, great.
Okay. Oscar, regarding your second question, the utilization rate in Turkey and South Korea, nothing special. We are running both geographies at very high load factors in our plants. The load factors are slightly below the European operations. The reason is that Europe is a totally consolidated market with more than 30 years of maturity. Turkey and South Korea are modern markets. Anyway, we are running our plants at very high and stable utilization rates on the average of the load factors of the whole company. Regarding your third question, yes, it's true that we are in the last month, fortunately, we are doing a strong export to Asia. Basically, I can...
What I can say is that the margins we are achieving in our second aluminum division are basically the same in the exporting sales than in the internal sales. There is today a premium in the prices in the Asian market that offset totally or near totally the logistic cost to export the aluminum to those countries.
Great. Thank you very much. It's very helpful.
Okay. Thank you, Oscar.
Thank you. The next question comes from Michael Hoffman from Stifel. Please go ahead.
Hey. Good morning, and thank you for taking the questions. Could we take the revised guidance and just parse a little bit how to think about how the original legacy of Befesa 165, 190 reflects in the new 195 versus the addition of the Befesa USA?
Thank you, Michael, for the question. Our original guidance was EUR 165-EUR 190. We have said, and we confirm that we will finish in the upper part of the guidance. Then we will have the contribution from the U.S. operations. For the U.S. operations, the forecast that we provided when we analyzed the acquisition was that without considering the pro forma impact of the poor hedging they had, the EBITDA contribution from the U.S. for this year would be around EUR 32 million. This is what we are going to achieve. We can confirm that. Taking into account that we are talking about four months, we expect around EUR 10 million from the U.S. operations.
That means that in the classic business, we will finish, let's say, around EUR 185, something like that, as expected in the upper part of the range. Probably without the rally of the energy prices, we could have finished slightly above that. All in all, we feel very happy to be able to confirm the guidance that we provided at the beginning of the year.
Okay, that's very helpful. Just to be clear, the $30 million-$32 million from USA, the annualized number, you assume that is the right way to think about 2022, all things considered currently?
Can you repeat the question, Michael, to be sure that what we are-
Yeah. Yeah, sorry. That's I apologize for confusion. You gave us an annualized rate for the Befesa USA of EUR 30 million-EUR 32 million potential contribution.
Okay.
Does that improve going into 2022 based on improving hedges and utilization, or is that the good number for 2022 as well?
Okay.
Except in terms of change.
Well, we are now in the middle of the budgeting process, Michael. One thing is what we have analyzed during the due diligence, which I have to say that we did a very deep due diligence, and we are not discovering any surprise, nor positive nor negative, which is important. Well, a different thing is to prepare our first budget. For next year, we will have, in the negative side, a decrease in the production levels. It's something that we knew during the due diligence process. Now we are accounting all the amounts we have for the full year.
On the positive side, we will have a much better hedging because the hedging we have in the U.S. for 2022 is much better, as a normal condition, hedging. That will produce an impact of, I don't know exactly, but around EUR 50 million, something like that. On top of that, we are putting in place a lot of new ideas, changes, etc., that will have an effect as well in the P&L.
The starting point would be EUR 32 million less some decrease in production plus some improvement in hedging conditions, plus the new, let's say, actions that we can put in place, and we will have some effect in the next year P&L.
Okay. There's been a lot of turmoil and discussion about things that are going on in China, rolling blackouts and the like, but not the least of which is the discussion about their magnesium production and the impact that it could have on European aluminum production. Are you all comfortable, given your export market opportunity, that no matter what happens with the ongoing issues around magnesium production out of China, that won't impact your own aluminum business?
Frankly speaking, we are very confident about the evolution of our business in China, no matter what happened in the country. I think no matter China grow at 6% or at 3%, they will produce huge amount of steel. And only without any growth with the production of steel that we know they are producing today in Jiangsu and Henan, we will be able to get the volumes we are talking about.
My concern about the macroeconomic situation in China is more taking into account the effect that this could have in the global economy and in the price of the commodities and et cetera, et cetera, more than in the effect that this decrease or slow growth can have directly in the production of steel in the country.
Yeah, that's fine. I was more concerned about your overall aluminum business. China's reduced magnesium production by 50%, which, you know, the media is saying that if Germany doesn't successfully negotiate something about that, you could shut the auto production down in Germany by the end of November because of.
We have
The lack of magnesium to make aluminum. I was asking about your aluminum business, too.
Sorry, I didn't understand properly. Well, about magnesium, we know more or less the same than you guys. I know that could be a problem. Again, if it is, at the end of the day, this is a big issue. It will be a big issue not only for Gestamp, but it will be a big issue especially for the whole automotive industry worldwide. Well, it could affect Gestamp because we are at the end of the value chain, but it will affect more basically the automotive industry.
I think it could be something very challenging, but I'm sure that the automotive industry, the European authorities must try to solve in a way or other.
Yep.
Okay.
Okay. Yep. Thank you.
Thank you. The next question comes from Olivier Calvet from Kepler Cheuvreux. Please go ahead.
Yes. Hi, Javier, Wolf, and Rafa, good morning. I would have a few questions left. First one on the aluminum segment. Could you give us a sense of how much impact you see on a gross basis in the segment, and maybe break that down between salt slags and secondary aluminum from the higher energy prices, please?
Okay. In our Alu segment, we have a clear impact in the energy prices. Until now, as we have tried to explain to you in the presentation, we have been able to offset totally with the metal prices in that case, with the aluminum prices. As you know, in the production of primary aluminum, about 90% of the cost is energy. I'm totally convinced that if we see growth in the energy price, you will see a high correlation in the aluminum prices, more than in any other metal, probably. We have had the opportunities recently to close energy price for the full year.
Our idea is that we will do that only if we will be able to hedge the aluminum price in the same way, because we are totally confident that we will see a high correlation between the energy prices and the aluminum prices. It's something that we cannot forecast, this is what we thought about it. The best example is this year, in 2021, despite the strong rally of the energy price, we will do record incomes and earnings in our aluminum division.
Yeah. Yeah. No, that's fair.
Okay.
I just was wondering on the, you know, we saw in Q3, EUR 3 million adverse impact from the higher energy prices. This is offset by some of the efficiency measures that you took. I'm just wondering if you could give us some color on what is the growth impact that you saw in Q3 from those higher energy prices.
I don't have these figures exactly on my mind. Jose can confirm that we have offset totally the energy price impact with the metal price impact.
Yeah.
Okay?
Yeah, sorry. Second question also on the aluminum segment. I was just also wondering about the magnesium sort of situation. Can you explain again, can you detail again, you know, what is your exposure here? Is there any way to alleviate the supply concerns or, yeah, anything, any color here would be quite helpful.
Frankly speaking, for us, it's really very difficult to provide some color on that. We don't have a direct exposure to magnesium. It's an indirect exposure because the problem would be that difficult to do the aluminum alloys. Everybody is in the same situation because everybody is starting to learn, magnesium oxidizing three months, and apparently, after seeing it's difficult to have more than three months of storage. We are in the same situation than everybody, that we don't have any special solution to solve this problem that could happen in the future.
Okay. Fair enough. I was just wondering, moving on to the steel dust segment, what's the EBITDA contribution you would expect for next year in China, based on the two kilns? If you can give us a sense, maybe.
Well, if perhaps we are in the middle of the budgeting process. Today is especially difficult because this year probably we have more question marks than in other years. Let's see, we have some local question marks, which is to try to forecast which will be the zinc content we will have on average at the end of the year, which is today difficult to forecast, as I explained in one of the previous questions. Second, we have a very important question mark, which is what is gonna happen with the TC, treatment charge. I'm starting to read something about that.
Some people say that we will see an increase of $10-$15 per ton. Some other people are talking about $30. Difficult to say today. That's why, Olivier, we don't want to provide a guidance until April, more or less. On top of that, we will have same price, et cetera. That's why we are talking in considering full utilization of one of our plants. We are thinking in a EBITDA range between, let's say, EUR 89 million- EUR 140 million per plant. On top of that, we hope to run the Jiangsu plant in the full year at a load factor of at least, let's say, 80%.
We are thinking to run the Henan plant half year, more or less, at a, again, at a high utilization rate, in that case, 70% or something like that. Based on that, you can try to make the calculations.
Yeah. Okay, I just wanted to follow up on this. You were talking about the treatment charge. Do you expect that the treatment charge to be applied in China is the domestic treatment charge or the benchmark, let's say, ex world, ex-China treatment charge?
What we expect is to have, at the end of the day, the same treatment charge in all the geographies. No matter that in China, they use more the spot price. The conversation we are having with the smelter in China is we are talking about annual treatment charge for all the contracts.
Okay. That's great. Okay. Yeah, then, let me just check. That's been answered. On the... Yeah, on WOX shipments in Europe, I mean, you evoked it. I just wanted to follow up on the earlier question. Can you help us understand why smelters would maybe or why your WOX shipments would not be as impacted by smelters' production cuts as other, you know, as zinc mines? Is it? Does it have to do with the fact that you do this, you know, I mean, that WOX is a powder, stable, high zinc content, or does it have to do with the fact that-
Yes.
The mines have.
I think this is-
shipment issues.
Olivier, I think this is the reason. As we have explained many times, the combination between zinc concentrates and our WOX is very interesting for industrial potential reasons. What I can confirm is that, despite the shutdown announcement that some smelters have done, they have confirmed to Befesa that they will sell 100% of our WOX production without any problem. The reason is that they like our product and it's very beneficial for industrial reasons.
Okay. That's great news. The last one would be on your feed. Could you give us maybe an update on where you are here in Europe, as well as in Qinhuangdao in China? Are you seeing an impact of the EAF production cuts that we've seen? Where are you in terms of storage? Are you seeing a drawdown of the storage, or is storage remaining roughly level? I think I have in mind a level of one to two months of feed, is what you typically talk about. Yeah. Could you give us an update on both China in Q1 and Europe?
In Europe, especially, the production levels of the steel industry has been really very strong. We have seen an increase of 25% or something like that in the third quarter. Based on that, during the shutdown, you know, of 2020, we finished with our stocks and but we have again the normal stock over one month or something like that that we used to have, you know. On the other hand, the levels of deliveries we are receiving are really very high.
What we can forecast for Europe in the first quarter is that we are not going to have any problem of production, and we will run our plants at very high utilization rates. This is in China. Well, the knowledge of the market we have is, as you can imagine, smaller than the one we have in Europe. What we have in front of us is a huge production of the steel. The problem is that to be able to close good contract with the different producers to choose the steel dust with the best quality of zinc, et cetera, et cetera. We don't have any problem of quantities, let's say.
Okay, great. Thanks a lot, Javier.
Thank you, Olivier. Thank you.
Thank you. The next question comes from Benjamin Gough from Berenberg. Please go ahead.
Hello. Hi, good morning. Just a few more from me as well, please. Firstly, just to clarify on the Jiangsu plant. You mentioned hot commissioning has finished there. Did I understand correctly that you have started commercial operations at the plant or what's the status at the current time?
Just to be precise, I don't know if we have explained, it's something that we have learned during the process. In China, and this is different than what we have seen in Europe, while you do in Europe, when you do the cold commissioning and the plant starts, you don't know when, really when the hot commissioning finishes and then the commercial operations start. It's a process. In China, you do the hot commissioning, then you need to stop the plant to call the equipment, et cetera, and then the environmental authorities give a new review and give you the final, a very final permit. It's exactly in the moment we are. We have finished the hot commissioning.
We are now stopped, waiting to get the final permit that we expect to get in the next day. We expect November and December to start commercial operations.
Okay, understood. Is there any risk to not receiving that permit?
No. Not really.
Or are there any-
Any.
Yeah.
It's just tick the box. We have, let's say, suffered many different reviews, visits, et cetera, and everything is okay, not any concerns about it.
Okay, understood. Looking into next year for Jiangsu, maybe just to dig a little bit into what gives you confidence to hit that utilization level. I think you mentioned 70%-80% utilization. Can we assume that that's contracted to some extent?
Our confidence is very high, Benjamin. I said 70%-80% just to be prudent. We have the possibility to contract full utilization for the plant. On the other hand, we must be prudent. We are starting operations and we prefer to contract only, let's say, 80%, something like that, just to have some room to improve and to solve problems, technical problems of the first year, et cetera. We have signed some MOUs, memoranda of understanding, and once we get the final permit, we will be in a position to sign the contract.
Today we are very confident that we will be able to feed the plant totally.
Okay, understood. Does that level of confidence, you know, would that influence your decision as well to hedge volumes potentially into next year? Or is that something you wait to do until you run the plant?
Hedging in China is not only a matter of confidence in the volumes, which is one of the reasons, but at the same time, we are learning about the hedging market in the country. We are discovering that we cannot use the same counterparties that we have in the rest of the world. We need to follow the Shanghai Futures Exchange or London Metal Exchange. We need some time to be able to do a good hedge in China.
What we are trying to do as Rafael commented previously is to get our, let's say, 65% on average of hedge level considering globally, not only China, globally. Probably that means that we'll increase the volumes in U.S. or in other Europes to offset the volume we are not taking directly in China.
Okay. Understood. Just moving on to energy co-
Benjamin? We have lost the communication. Operator?
Yes. Benjamin's line just dropped out. Let me give the floor to Mr. Jaime Escribano from Banco Santander for the next question.
Okay. Thank you.
Hi. Good morning.
Good morning, Jaime.
Two questions from my side. The first one is more of a broad, big picture question. With the greenfields in China, American zinc recycling potential synergies, and the overall legacy business, how do you see the EBITDA trending towards 2022 and 2023? Of course, I'm not asking a commitment in terms of guidance, but maybe on a pro forma basis, where do you see the EBITDA trending in the next couple of years?
Well, clearly we see a growing trend, no matter about that. I think we will see in the next year clearly double-digit growth. Then, to be more precise, we, I think we should wait until April. In April, I think we will have a much better view regarding different topics. Normally we wait to know the TCs, which is key, because every year this figure is more important for us as we are increasing our production levels, so the impact of the TC, positive or negative, is higher.
This year I hope that in April we will have a much better view on the energy prices. Today it's very difficult to forecast which will be the energy price for the full year. I think to use the current prices for the full year is too pessimistic, but on the other hand, to say which will be or which could be the average energy price is really difficult. Trying to summarize: clearly positive trend, clearly double digit trend, and yeah, just to be more precise, we need some more time.
Okay. Okay, that's fine. My second question is regarding potential M&A or greenfield opportunities. Is there anything out there that could be of your interest in terms of M&A and also in terms of greenfield new plants in China, also not only in steel dust, but also maybe in salt slags or aluminum or in other countries.
What I can say today is that in the M&A side, as always, we are monitoring what's happening in the world in our activities. If there will be any opportunity in front of us, we will try to take the opportunity, you know? But nothing special on the top of the table today. Clearly the big opportunities has been done in the past, no?
Regarding greenfield projects, we are working both in the steel dust business. We have commented many times, we would like to build more than two plants in China, and we are working both in the province we are present today and in new areas in China. During 2022, we hope we will be able to say something about that, probably more in the second part of the year than in the first part. In aluminum, we are working and we are trying to, and we are looking for opportunities.
The pandemic and the restrictions to travel to the country are making extremely difficult to develop new opportunities without the possibility to be there, to talk with the people, to it. This is very difficult, but anyway, we are trying to keep alive some, let's say, ideas or projects in China in the aluminum side.
Okay. Thank you very much.
Thank you, Jaime.
Thank you. We have recovered Benjamin's line. Please, Mr. Benjamin Gough.
Yeah, sorry for that. I lost connection. I just had a follow-up on energy cost into next year. I'm not sure if this was asked already, but are there any potential hedges or existing hedges already on the books for next year in terms of energy costs?
Frankly speaking, today is very difficult to do it, Benjamin, because taking into account the prices we have today, even if we get some discount, the hedge price will be really, really very high. We are not considering this possibility today. I'm not an expert in energy, but I expect that in some moment during 2022, we will see a serious decrease in the energy price.
Okay. We can assume then it's full spot exposure basically on the energy. There's no existing-
Yes.
hedges, but yeah. Okay.
Yes.
Second, related to that topic, are there any kind of positive levers that you can pull other than the obvious, commodity prices, to offset inflation into next year? With regards to operational excellence or other kind of pass-throughs, maybe with the collection fee or things like this.
Well, in the case of the salt slag business, we will have the strong possibility to improve our collection fees to offset at least partially the energy cost increase. On top of that, we have a better hedging in 2022 than in 2021, as you know. Commodity prices, and as you said, our traditional operational excellence, where we are now in the budget processes, again, and we will get something from that in that sense, no?
Finally, just a clarification point on the guidance for 2021. Can you let us know the adjustments in there so that I can quantify the total adjustments on the full year number?
I think the only adjustment we are including is that our
EUR 8 million. This is purely one-time acquisition costs. Yeah, for the lawyers, investment banking fees, et cetera. Other than that, no.
Okay. That's very clear. Thank you.
Thank you, Benjamin.
Thank you. Ladies and gentlemen, there are no further questions in the conference call. I will now give back the floor to our speakers. Thank you.
Thank you all for your questions. You can also contact the investor relations team of Befesa for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference call in our website, www.befesa.com. Thank you very much.