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 Fesa Third Quarter twenty twenty Earnings Presentation. After the speakers' presentation, there will be a question and answer session. Thank you.
I would now like to turn the call over to Rafael Perez, Director of Investor Relations and Strategy. Please sir, go ahead.
Good morning and welcome to the third quarter twenty twenty results conference call of BFESSA. I am Rafael Perez, Head of Strategy and Investor Relations of BFESSA. Today, as usual, we have with us Javier Molina, CEO of Befesa and Wolff Lehmann, CFO for the company. Javier Molina will start with an executive summary of the third quarter, covering the main highlights of the period. Then, Ulf will review the third quarter financials in total and by business as well as cash flow, net debt and capital structure.
Javier will close this presentation providing a more detailed outlook for the remaining of 2020 as well as an update of our growth plans. Finally, we will open the lines for the Q and A session. Before getting started, let me remind you that this conference call is being webcasted live. You can find the link to the webcast and the Q3 results presentation on our website, ww.defesa.com. Now let me turn this call over
to our CEO. Javier, please. Good morning, and thank you for attending this conference call. The third quarter has been, as we expected, better than the second quarter, showing what we could be the beginning of a gradual recovery towards the end of the year. In the third quarter, we have achieved an EBITDA of €29,000,000 which is slightly better than the market expectations.
Although this result is 21% lower than the previous year, it represents an increase of 35% compared to the second quarter, which was heavily affected by the COVID pandemic. The main driver for this increase quarter on quarter has been the recovery in the zinc and aluminum prices as well as to volume growth in steel dust and secondary aluminum. The main industries that affect our business have seen during the third quarter some degree of recovery in their level of activity. As such, the production has still has decreased 14% in Europe in September and 17% during the quarter compared to the decrease of nearly 30% that we saw in the second quarter. Also, the sale of cars has decreased by 7% during the third quarter with September being the first month in the year showing positive results with an increase of 3% compared to a 50% decrease in the second quarter.
In this improved, but still challenging environment, we have been able to run our plants at a capacity utilization of around 80% across all our businesses. In the steel gas segment, we have decreased steel gas throughput by 6% during the quarter. On the solid slag segment, volume have decreased by 9% in the quarter impacted mainly by the lower automotive activity. Metal prices are still below the level of last year. However, they have recovered from the low levels achieved during the second quarter as a consequence of COVID.
As such, average zinc LME has been $19.97 euros per tonne, which is 5% lower than last year, but 12% higher than the second quarter. Fin hedging price this year are slightly lower than last year. As a result, our blended Fin price during the third quarter has been very similar to last year. Treatment charge for the full year as we explained is at $300 per ton and the combined effect of Blendacin price and treatment charge results in a negative impact of 3% for the quarter or 15% for the first nine months. Aluminum oil price has been 3% lower than last year and 2% higher than the second quarter.
During the first nine months of the year, we have achieved €85,000,000 of EBITDA, which represents 28% lower than last year, primarily driven by lower metal price. Based on these results and on our view about the last quarter, which we expect to be better than the third one, we can say that we will end the year in the middle of the guidance range that we provided for a full year EBITDA between 100,000,000 and €135,000,000 Later, I will provide more details on the outlook for the rest of the year. The fin price has suffered some volatility over the course of the year caused by the COVID pandemic. It has moved from the $2,500 level at the start of the year down to $17.70 dollars at the March and back in September, again, above $2,500 We have taken the opportunity of the recovered zinc price to extend our hedging book. Today, we are hedged until April 2022 around 65% to 70% of zinc volume output.
Ward Lehman will explain later with more detail. At the end of the third quarter, we have continued to have a strong liquidity of around 183,000,000 proceeding €108,000,000 in touch as well as a €75,000,000 revolving credit facility fully undrawn. The high liquidity as well as our efficient long term capital structure with no covenant, no maturities until July 2026 give us comfort to navigate the current environment. On China, we continue the construction works of our two steel dust recycling plants in Jiangsu and Hainan. Although the COVID-nineteen crisis has caused some minor delay in the construction, we expect to have the first plant ready during the first quarter and to carry out the coal commissioning towards the end of this 2021.
The plan in Hennan is expected to be finished after the 2021. Finally, I would like to highlight that BREPESA has been admitted to the Global Challenge Index in September. We are very proud of this achievement, which is a recognition from the market over the contribution Bessica makes to a more sustainable world. Now Ward Lehmann will explain the financials in more detail.
Please turn to Page five, the third quarter twenty twenty highlights. As Javier mentioned and explained, the 2020 has been as expected and the quarter over quarter recovery is on track. Three items I would like to highlight: one, volume and plant utilization is resilient and around eighty percent two, metal market prices are still below last year but have improved quarter over quarter. More importantly, we have our strong hedge book. Three, as a result, cash and liquidity are, as usual, a strong point at the FISA, which allows us even during this period of the COVID pandemic to go full speed ahead on our expansion in China.
Turning to Page six, the consolidated key financials. In third quarter, consolidated revenue remained approximately flat year over year at €145,000,000 The lower metal prices and demand due to COVID-nineteen was approximately offset with positive effects from efficiencies and favorable hedges. Referring to EBITDA, the lower part of Page six. In Q3, we reached EUR29.3 million of EBITDA as expected, down €7,700,000 EBITDA year over year. Nevertheless, the quarter over quarter recovery is on track.
Second quarter was at €22,000,000 now third quarter at €29,000,000 that is up €8,000,000 quarter over quarter or 35%. For third quarter, main EBITDA variance drivers year over year are as follows: Let's start with prices: €1,500,000 from lower zinc LME prices and €300,000 from lower aluminum pre metal bullion prices €2,400,000 due to the unfavorable zinc treatment charges, which combined is €4,200,000 pressure from metal prices. Next, let's review the main volume year over year impacts on EBITDA, euros 4,000,000 from lower volumes in steel dust recycling services, mainly COVID driven similarly, 1,200,000.0 due to the lower Salt Flag and Spanford Lining volumes. This was partially offset by €800,000 from positive volume and efficiency effects in the secondary aluminum business, also CHF 1,800,000.0 due to our hedge book, which helps and is in the money, helping to offset some of the pressures on earnings. Again, overall EBITDA down CHF 7,700,000.0, driven partially by lower metal prices as well as lower demand due to COVID-nineteen.
On the other hand, again, our quarter over quarter recovery is on track and worth mentioning again. EBITDA improved from €22,000,000 in Q2 to €29,000,000 in Q3, and we expect fourth quarter to be better than third quarter again. EBITDA percent profitability improved from 18% in the second quarter to 20% in the third quarter. Our quarter over quarter recovery is on track. Going now to Page seven, the results of our Steel Dust Recycling Services segment.
Q3 twenty twenty revenue decreased by €6,000,000 or 7% to €82,000,000 primarily driven by the price pressure in zinc LME TC and the lower volumes impacted by COVID-nineteen constraints, as explained, partially offset by the favorable zinc hedges in place. Third quarter EBITDA year over year decreased by EUR6 million to EUR24 million. The main drivers of the EUR6 million EBITDA year over year decrease are mainly three factors: $14,000,000 from lower steel dust recycling services volumes due to COVID-nineteen impacted demand $23,900,000.0 combined price decrease from zinc LME and treatment charges, which were partially offset by GBP 1,800,000.0 favorable zinc hedging prices. Notably, the zinc LME decrease was offset by the favorable hedging, thus resulting in an overall positive effect on zinc blended or effective prices. Quarter over quarter, third quarter EBITDA recovered and is up by 30% or EUR 5,600,000.0 to EUR €24,400,000 over second quarter twenty twenty at €90,000,000 As the price pressure falls straight through to EBITDA, the EBITDA as a percent of revenue decreased to 30% in third quarter, but improved for the second quarter at 25% EBITDA percent.
The quarter over quarter recovery is on track, as mentioned earlier. On the right hand side of Slide seven, we show details on plant utilizations and prices. On capacity utilization, we continue to run at resilient utilization levels even during the challenging COVID-nineteen times. Overall, our steel dust recycling plants have been running at average load factors of 81% year to date and seventy seven percent third quarter of the latest installed annual capacity of 825,000 tonnes. Third quarter steel dust throughput is 161,000 tonnes, 6% down year over year due to COVID-nineteen constraints.
Year to date, electric arc furnace dust throughput is still up 3% year over year due to the expansion of Turkey. Referring zinc prices. On average zinc spot prices were down in third quarter year over year by 5% and including treatment charges, 11%. Nevertheless, we continue to see a recovery away from the lows experienced in March of below $1,900 to around $2,400 to $2,500 in the last weeks of September and October. We are monitoring this price recovery closely.
In addition on zinc prices, you can see how our hedging approach pays off. In third quarter, LME was down 5%, but blended prices, thus including our hedges, which are in the money, are even slightly up by 0.5%. Overall, for our Steel Dust Recycling Services segment, very much as expected, our plant utilization is resilient. Also, our hedging rigor pays off and stabilizes earnings. Turning to Page eight, the results of our Aluminum Salt Flags Recycling Services segment.
Q3 revenue improved by 5.4% or €3,300,000 year over year to €64,000,000 mainly driven by three factors: Number one, higher secondary aluminum alloy volumes, up 14% or 5,400 tonnes year over year, driven by the automotive sector recovery and furnace upgrade at the Barcelona plant. This was partially offset by: number two, lower Salt Flag and spent potlining volumes down 9% or 11,000 tonnes year over year, mainly affected by COVID-nineteen, which reduced demand from end use sectors. Number three, the 3% year over year lower prices for aluminum alloy averaging at around EUR $13.12 per tonne in third quarter. Referring prices nevertheless, we have started to see a recovery away from the last ten year trough experienced in June of low EUR 1,200 per tonne, and the aluminum alloy pre mettlebone prices are currently back at pre COVID-nineteen levels of around EUR 1,500 per tonne in the last weeks of September and October. Third quarter EBITDA was slightly down €300,000 or 5% year over year to €5,700,000 Secondary aluminum sub segment, the gray bars, was up EUR 1,100,000.0 year over year to roughly EUR 3,000,000 in third quarter.
Main drivers are EUR 700,000.0 from the covenant positive volume and efficiency effects in secondary aluminum and €400,000 positive from improved metal margins. The Salt sub segment, the orange bars, are down €1,500,000 year over year to €2,600,000 in third quarter, mainly explained by €1,200,000 from lower Salt Lake volumes affected by COVID-nineteen, as explained, and a negative €300,000 from lower aluminium alloy average prices. Yet again, the quarter over quarter recovery is on track. Third quarter EBITDA improved by 58 or €2,100,000 over second quarter twenty twenty at €3,600,000 underlining the recovery trend. On the right hand side of Page eight, we show plant utilization and prices.
Salt Flags and spent hotlining volume and utilization levels continued at resilient 80% on average in third quarter. In secondary aluminum, volumes improved, driven by the automotive sector recovery and furnace upgrade at our Barcelona plant. Market prices are still below last year. Aluminum alloy pre metal bulletin prices in third quarter averaged at $13.12 euros per tonne of aluminum alloy, which is down 3% year over year. Nevertheless, again, alloy F and B prices recovered from the trough in third quarter and especially in the last weeks are currently trading at pre COVID-nineteen levels of above €1,500 per tonne.
Overall, third quarter has improved over second quarter for the Aluminum Salt Flags Recycling Services segment. And just like for Steel Dust Recycling segment, the quarter over quarter results have improved. Turning to Page nine. On the left hand side, net debt, cash, capital structure. We closed third quarter with a strong and stable €183,000,000 liquidity readily available.
Two components: number one, 108,000,000 of cash on hand even after paying €15,000,000 dividend distributed in July and while funding China expansion. Secondly, a €75,000,000 set and ready to go and highly undrawn revolving credit facility. Referring our capital structure, no changes. It is long term efficient at 2% interest and no maturities, no covenants. On the right hand side of Page nine, the total all in cash flow after funding working capital, taxes, interest, CapEx investments and also the GBP 15,000,000 dividend was a negative 18,000,000 year to date.
Looking at selected elements. Working capital has already improved versus second quarter as expected, also just like in previous years, 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 usual twice a year January and July payments. On CapEx, year to date, we have spent €39,000,000 €16,000,000 on maintenance and €23,000,000 on growth, mainly China. We expect to spend approximately €60,000,000 total CapEx for the full year, approximately 20,000,000 on maintenance for the full year and approximately €40,000,000 on growth, mainly China.
All in, at third quarter, we achieved a solid cash in the bank of €108,000,000 The operating cash flow for the first nine months in 2020 is 38,000,000 positive operating cash flow despite a challenging COVID-nineteen environment. The last twelve months LTM period stands at CHF 93,000,000 operating cash flow. Summarizing, three key elements: one, high liquidity two, long term and efficient capital structure as well as three, our strong hedge book. Those three elements form the backbone of Perfesa's financials and serve us well very well to weather the COVID-nineteen pandemic impact. This allows us to continue to go full speed ahead on our growth expansion in China.
Turning to Page 10. During third quarter, zinc hedges were further extended up to and including April 2022. Hedges on the books for 2022 are at €2,150 per tonne sold forward prices. The hedging provides BFFA with improved pricing, earnings and cash flow visibility to allow to fund our growth initiatives. Zinc spot prices have been gradually recovering from the levels below $1,900 seen in March and April, especially pressured by COVID-nineteen to around $2,100 to $2,200 per tonne in June and July and further to $2,400 $2,500 per tonne levels seen in August, September and October.
Summarizing the financial section before we turn to the growth road map, three points. First, our quarter over quarter recovery is on track. Second quarter was below at €22,000,000 In third quarter, we delivered €29,000,000 and we expect fourth quarter results to be better than third. Second, we extended our hedges out to April 2022. Our capital structure is efficient and long term, resulting in stable and strong liquidity.
Third, this allows us to fund our expansion in China even during this pandemic. Turning to Page 11, our midterm growth roadmap. Quite frankly, no changes. We stay the course on our strategy and growth roadmap. In the graph, see lever one, hedging, already explained on the prior page Level two, organic growth, completed last year on time and on budget and delivering in 2020 and 2021, including Turkey, Korea washing and the aluminum furnace upgrades.
Level three, China, as mentioned by Javier as well as shown on Pages 12 to 14, where we show the latest progress in construction and pictures, we are on track and looking forward to start offering our market leading steel dust recycling services to the Chinese market from 2021 onwards. We target to get out of this COVID-nineteen crisis with a stronger portfolio versus when we entered. Now back to Javier, who will cover outlook and closing remarks.
Thanks, Wolf. I would like to finish the call providing more details on the outlook for the rest of the year. As I said earlier, we expect the full year EBITDA to be in the middle part of the guidance of 100,000,000 to €135,000,000 that we provide in the first quarter. This is based on our expectation to achieve in the last quarter better results than in the three quarters, which would mean that we will continue the path of moderate recovery from the low level we achieved in the second quarter. On the volume of steel dust, we expect to continue the path of recovery on the production of electric car furnace steel that we have seen in the third quarter, which will drive capacity utilization up during the final quarter of the year.
On the other hand, we don't have any maintenance shutdown during this quarter. Over the last quarters, we have been able to confirm that the electric car furnace steel production is much more resilient than the blast furnace steel, which powers BEPEZZA as we already serve the secondary steel makers. During the third quarter, the blast furnace steel production has decreased in Germany 20%, while the electric car furnace steel production has decreased only 5%, which confirms our theory. On the aluminum business, the automotive industry in Europe is also showing some signs of slight recovery and September has been the first month in the year with positive car sales compared to the previous year. We expect this to continue into the last quarter and support secondary aluminum as well as solid slag volume.
This recovery in Europe should be supported by a strong demand from second aluminum alloys in Asia, a market we are serving to compensate part of the lower demand in Europe. In general, we expect the smooth recovery seen in the market to continue into the end of the year, although we have to be cautious given the increasing part of the pandemic in recent days, which could affect the economy with more lockdowns. From the price point of view, we believe that the current levels of zinc price around $2,400 to $2,500 represents a more sustainable level than the 2,000 level. We have taken the opportunity of the recovery on the zinc price to extend our hedging book, and we continue to monitor the market to further extend our hedging to be consistent with our approach. Even though we currently enjoy a comfortable and healthy liquidity, we keep on ensuring that any decision we make takes liquidity into consideration.
We have reduced maintenance investments and we are keeping our growth plan in China, which will deliver attractive return for our shareholders. We have recently closed the financing of 50% of the investment of the first plant in China with local debt, which also will contribute to preserve liquidity. On China, we expect to carry out the coal commissioning of the plant in Jiangsu during the first quarter of next year and start with pilot batches from the potential steelmaker customer already in the second quarter. The plan in Enan will follow the same plan schedule just around six months after Yazoo. And finally, I would like to highlight that we are doing a lot of efforts to make sure that the market understand how VESA is part of the circular economy and contribute with this business to environmental protection by recycling more than 1,500,000 tons of hazardous residues annually and producing more than 1,200,000 tons of new materials, reducing the consumptions 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 very much, Javier. We will now open the lines for your questions.
The first question comes from Inger Sechel from Commerzbank.
Yes, thanks very much. My first question would be on your cost base and collection fee or all earnings drivers excluding metal prices for next year. I think we all make up our own expectations regarding metal prices and treatment charges. But I was wondering, I think this year, you've seen a very good progression of costs if you adjust for metal prices. Just wanted to understand whether you think that's sustainable into next year or whether you think that if metal prices improve or treatment charges go down, clients will also push you to lower collection fees?
Or you might have to pay a bit more in terms of the labor costs and so on? So just wanted to understand the other swing factors that you're seeing or whether we should expect it rather stable and make our forecast regarding volume and metal prices?
Thanks, Ingo. For next year, we don't expect big change in the collection fee, neither in our cost basis. We think that will be very stable in year. We don't see any signs to get a change in these details. Regarding zinc price, well, let's see what's happening.
But I would like to do some comments on the treatment charge. We expect good reduction in the treatment charge for next year. Today, are at levels of $300 per ton. And signs in the market show that next year it should be around or below $250 per tonne. That will mean a significant reduction for the face of cost.
Okay, thank you.
Yes. That's very clear. And maybe one question on the again, the market environment in Europe. I think one of your global Mexican competitors has made an acquisition in Europe. Just wanted to understand if you already have a perspective on what his ultimate plans are, whether you think they're just going to operate this one plant or whether they're interested in more?
And if so, whether you would at all consider selling selective plants that you have in Europe to a competitor to accelerate your growth in emerging markets or whether you think for you your European footprint is set in stone?
Okay. Good question, Ingo. We've seen that Europe is a total and absolute stable market. We have seen a change of property in a small German plant. But in our opinion, this is not going to affect or this is not going to change the framework of the market.
This plan has its own customers in around the plan. And as you know, Europe is a very stable market with the main plans in the middle of the most relevant areas in terms of steel production. We have our Spanish plant, which is in the middle of the Basque country and collect all the steel dust in Spain and Portugal. The same happened with our plant in North Of France or the same happened with the plant in the North Of Italy. So frankly speaking, I don't see that this M and A deal in this small German plant through the Mexican people is going to change the face of the European market at all.
Okay. That's very clear. Maybe a quick last one to Volt regarding the dividends because last time, I think we spoke about this in detail, you explained that it's a very cash flow driven decision. I think you were referencing €100,000,000 of cash you wanted to after the second dividend payment. So I guess earnings were quite strong in the first nine months.
Cash flow, not yet. So at least suggesting that if you follow the 100,000,000 calculation, would only pay out, let's say, half of what you paid out earlier this year. Is that maybe a too mechanical thought? And maybe because earnings are good and things are looking better for next year, you'd pay a bit more than this €100,000,000 number would suggest?
Ingo, thank you very much. Good question. Quite frankly, as we said in our Annual General Meeting in June, we will make the decision about the additional dividend in November after the third quarter results publication. A decision has not been taken yet. As such, within the next few weeks, we'll make the decision.
Many of the points you mentioned are correct. As you know, we have a dividend policy that tries to balance three aspects: dividend stability over the years, ensure that all key growth initiatives are funded and also manage the leverage at a moderate level. So we are as promised, we are carefully reviewing these aspects. Also, we will finish the year in the middle of the guidance range and liquidity remains strong. We should be prudent, especially given the current environment with COVID, which is worsening across Europe with further lockdowns.
But again, as promised, we will make that decision about the additional dividend in November over the next few weeks. Thank you.
Okay. Thank you.
Thank you. The next question comes from Michael Hoffman from Stifel. Please go ahead.
Hi, thank you Just very to be clear on the guidance outlook, if we take the midpoint, that means you're talking about approximately $33,000,000 of EBITDA, adjusted EBITDA in the fourth quarter. Is that we're I just want to make sure we're on the same page?
Yes. Thanks for the question, Michael. We cannot precise exactly which will be the we had at the end thinking only October. But our view is that second quarter will last quarter will be better than the third one, which was 29%. For sure, better than above 30 depending how the quarter evolves, depending how strong is the pandemic, we will be close to 35.
So in line with what have commented.
And at that point, can we think about that as an annualized rate and sort of that sets the basis for how to think about 2021? That we're somewhere around 135,000,000 to $140,000,000 next year?
We are working right now in the preparation of the budget for next year. It's probably too soon to answer this question. But for next year, we have 7065% to 70% of the seen price hedge. So from the seen price view, we are more or less covered. The big doubt will be in terms of volume.
And today, it's difficult to forecast what will be the steel production and the aluminum production of the industry worldwide next year. It will depend in our opinion very much about the evolution of the pandemic. And on the other hand, we have two positive things. One is treatment chart that we expect to be better, clearly better than this year. And we will have our at least one plan in China at least for the half year running normally.
So let's wait, Michael, please to the first quarter of next year to have a better view of the guidance for the total year.
Okay, fair enough. And then at what point, Wolf, will you start incorporating China capacity in your hedging strategy?
Well, it's something that we are running a lot out hedging in China. Probably we are going to sell our works in China and China has its own rules. For example, there is a Shanghai Metal exchange market similar to the London one, which has a certain correlation, but it's not exactly the same. I would say that probably in 2021, it will be very soon to start hedging in China for two reasons. To start hedging, we need to stabilize totally our production.
And second, because we need to learn more about the hedging Chinese market. Okay.
Thank you very much.
Thank you, Michael.
Thank you. The next question comes from Oscar Vall from JPMorgan. Please go ahead.
Hi there. Good morning. Hope everyone is doing well. Two questions from my side. The first one on utilization rates.
Could you maybe talk about how that 77% has been through the quarter or what the exit rate was? And I think Turkey was a bit of a drag in Q2. Has Turkey improved in Q3? And then the second question is the usual question on China. How are the negotiations with your customers going?
And maybe if we think about next year and the plant ramping up in Q2, should we expect it to kind of be fully ramped up in Q2? Or how long will it take for the volumes to kind of ramp up in China next year? Thank you.
Thank you, Oscar. Regarding your first question on utilization rates, 77%. Well, it has been a normal and good utilization rate. In the case of the steel business, the main points in the regarding utilization rate has been that we have realized what has happened year over year, the steel production in Europe went down 9% and we went down only 6%. And in the if you compare quarter on quarter, we have growth our utilization rates 3%.
On top of that, we have had in the third quarter, the maintenance shutdown of our Bilbao plant, which is one of the most important plants in terms of production. So nothing special, quite good utilization rates. And what we can say and confirm is the utilization rate in the last quarter will be much better than in the third quarter. So and will be quite a normal production quarter. Turkey, yes.
In Turkey, as you know is a very particular market. It's the only market where we pay for the raw material and it's probably the most competitive market in the steel gas world. Any case, Q3 will be has been better than Q2 and Q4 will be better than Q3. So we will finish the year critical growth 70,000 tons of steel gas production, which were more or less pretty close to our expectation for the year. And then China, well, this is a good question and a big question.
Which is the situation right now? We are in permanent contact, especially in Yansu province where we are going to start the production first with all our future customers. As I have explained many times, we are not talking with 1,000 people or with 100 people. We are talking with fifteen, twenty big steel makers. And we have conversation with all of them.
What's happening is that we are it's difficult in China to sign agreements before to have the construction totally finished. Position of the steelmaker is, hey, guys, finish the construction, start operations, let's do the trials and then we'll be the moment to sign long term contracts. So based on that, we expect to start to do the coal commissioning during February, March. So to start ramp operations basically after the Chinese New Year at the March and at the April. And probably this quarter, the second quarter of the year will be batch quarter.
We will do trial with all the customers, etcetera. And we expect to start normal operations in the second part of the year in the third quarter.
Perfect. That's very clear. Thank you very much.
Thank you, Oscar.
Thank you. The next question comes from Benjamin Sansaro from Berenberg. Please go ahead.
Hi, morning everyone. Most of mine have been taken already actually, but maybe just a follow-up on the progress in South Korea. I think we haven't touched on that yet. Perhaps you could shed some light on the how the capacity utilization there has progressed and maybe what you see into Q4?
Thanks, Benjamin. Well, South Korea, as you know, we have two teams with a total capacity production of around 200,000 tons. 60 of the production in South Korea is from the internal market and 40% are imports from all the countries in the region. The summary is that in the internal production, we are doing quite well with very good levels of delivery. The internal market is recovering quite well and we feel positive.
On the other hand, in the imports from the neighbor countries, have had some logistic problems and some delivery issues. So we expect to finish the year around 180,000 tons or around that figure instead to achieve the 2,800 tons forecasted for the full year. But again, summarizing a strong internal market and some more difficult in the imports from the neighbor countries.
Thanks. And I noticed just a point on Q3 that the Vauxhall declined versus Q2. Could you shed some light on this development?
Can you repeat again? Didn't understand very well the question. Sure.
Sure. The WOX sold in the third quarter was lower over the second quarter of this year. Is there any particular reason for that? No, any any Any
particular reason. We follow more the throughput than the gross sales. The gross sales sometimes we account the work sales in the moment we serve to the customer and sometimes you can have at the end of the quarter the works in a vessel, in a harbor and that makes the difference. Nothing special to comment.
Okay. And in terms of stockpiles of steel dust in case of maybe a further dip in volumes in light of COVID, do you still have sufficient stockpiles there across the group?
Not really. We clean our inventories of steel dust basically in the second quarter and we have three practically all our deliveries in the third quarter. Now in the last quarter of the year, if the activity in the steel industry followed the recovery, we will start to create again inventories. But this is not the situation today.
Okay. And the last question just on guidance, the midpoint, does that also apply to the free cash flow guidance as well?
Absolutely. Yes, yes, yes.
Okay, perfect. Thanks very much.
Thank you, Benjamin.
Thank you. The next question comes from Jaime Scribano from Banco Santander. Please go ahead.
Hello. Good morning. A couple of questions from my side. The first one is regarding the Salt and Flags division. The margin in Q3 was EBITDA margin of around 16% versus Q2 19%.
Could you give us a little bit more color on the dynamics because the volumes were higher and the aluminum average price was also higher just for better understanding?
Okay. In the solid slide region, we have suffered a slight reduction of margin as you are commenting. In terms and you have said that the volume were better than and the price better, but it is not what I have in my mind Jaime. I think that we have better volumes in the second in our division second quarter of the year than in the third quarter. The reason was again following the answer of the question of Benjamin, the inventories in the second quarter, the deliveries were poor, but we have the opportunity to clean our inventories.
In the third quarter, we didn't have inventory. So we have freed only the deliveries we have received during the quarter. And on the other hand, the prices in the third quarter, there is an in the aluminum prices, we have a delay of one month to apply the aluminum prices. So effectively, the prices in the third quarter has been worse than in the second quarter. The good viewpoint is that last quarter is being a strong quarter in the solar slag divisions.
We are having a strong delivery based on on two reasons of the recovery of basically on the recovery of the automotive European production and second to the export to the Asian automotive industry. And we have seen as one of us explaining during his explanation, there has been a strong recovery of the aluminum prices that we will enjoy in this quarter. So I expect to have a very good last quarter in solid slag division.
Okay. Thank you. Yes, you were right. Sorry, it was my fault. The volume was slightly lower in Q3.
And yes, the second question is regarding the hedging. Because in the first half, the average hedging in 2021 was €2,200 per ton, and now it's €2,130 Is this because you have done more hedges in 2021 at lower prices? Or why is the decline?
Worf, do you want to Yes. Sure.
I'll answer that. Thank you, Jaime. Yes. The last hedges that we put on the books, it was a set of hedges. If you remember, the 2021 was not yet entirely hedged.
When I say entirely hedged, I mean we do 92,400 tonnes per year or 7,700 tonnes per month. So there were still some residual hedges to complete, which we put on the books. Also, higher than the entire 2021 was put on the books. And on top of that, then the first four months of twenty twenty two were put on the books. Those additional hedges obviously change the average hedge price.
And on top of that, we always say we have the majority of our hedges in euros and a smaller portion is in Korean won. And so there, we also update on a regular basis to reflect the latest exchange rate, euro to green one.
Yeah. Mhmm.
Okay. And just just up on you?
Overall, nevertheless, we're very, very pleased with the hedge book because if you look at the first quarter twenty twenty two, that is EUR 2,150 per tonne. If you convert that at the forward exchange rate, EUR one point of, let's say, point two, two, you get to $2,560 per ton. And this is as Javier explained, this is a good level of zinc price and also fits very well our thought about where the marginal cost is to produce a ton of zinc. We see we saw that in the first half. The market prices were well below that and were not sustainable, And the zinc prices have now recovered to more sustainable levels, as Javier mentioned, and our hedges reflect that too.
So those are good and sustainable zinc prices and hedge levels that we find in the books.
Very good. Thank you very much.
Thank you, Jaime.
You. The next question comes from Olivier Calvert from Kepler Cheuvreux. Please go ahead.
Yes. Thanks. Good morning, everyone. I'll ask my questions one by one. Could you just come back to the German the hard metal plant in more details?
I know I think I understand that you had operating issues. Do you think that this is something that your Mexican competitor will be busy with for the next few half a year or a year?
We don't have thanks for the question. We don't have a direct information. The rumors in the market are that our Mexican friends will be very busy with the issues for probably a big part a good part of 2021. But anyway, we have had the opportunity to buy this plan, But we didn't analyze the deal basically for two reasons. On one hand, all these environmental initiatives are on the plant and second because our market share in the European market is so strong that we thought that we could have even competition problems if we try to do the acquisition.
But again, our conclusion is that this acquisition is not going to change the structure of last European market.
Yes, sure. Makes sense. Second question would be on China. I was just wondering, so could you confirm or just give us information if there is activity on in terms of competitors entering the market so far as well as another question on China, just when are you going to accumulate the steel dust from surrounding mini mills next year?
Okay. The first part of the question, competition in China. We are we know that there are probably two local people doing some kind of activities in the steel as a business are two companies that we know well, we have good relationships with them. They are not doing any significant investment in that sense. They are preparing some old plants and old equipments to do some kind of activity.
Regarding and that will be probably the main competitors who will have in China at least in the next month. We are not seeing any foreign competitor yet. We know for example that the Mexicans have have visited the country, but in our opinion, they are not preparing any investment in at least in the next future. And then regarding when are we going to start to collect still that, we need to finish totally the construction of the plan. In that sense, the Chinese authorities are very strict and we will have we will once we finish the totally the construction of the plant and we get the final permit from the environmental authorities, we could get the permit to start to collect.
So that will happen at the end of the 2021. For legal reasons, we cannot start before that.
Okay, understood. And then I was just wondering if you could you talked about the circular economy, your 2025 target is to recycle over 2,000,000 tonnes of hazardous materials. I'm just wondering if you could remind us what's the timing for or the key, let's say, trigger for you to decide on exercising the option to build the extra kilns you could build in your two plants in China?
Okay. This is a very, very good question. Very good question. Well, we our initial idea perhaps, let's say before the pandemic was once we start normal operations of in the first plant, in the Jiangsu plant, we could then take the decision to build the second kiln in Jan two. That would happen, let's say, 2021.
Well, now we need I think we need to do a second analysis. Let's see the consequence of the pandemic. Let's see how is the situation mid-twenty twenty one and we will then take the decision. But perhaps the decision can suffer some delay in improvising from mid-twenty twenty one to the 2021.
Okay. Okay, understood. And could you comment on the evolution, if any, of your collection fees in sole slags and steel dust, please? Anything being renegotiated there?
Nothing special. There is a very stable situations in both business, still that some solid slack. We don't expect any big change in the collection fee for 2021 in both business.
Okay. And then final one, just hedges. I mean, we obviously saw that the hedges were extended, but the situation hasn't changed from what you did in September. So I was just wondering, is there any reasons? I mean, we see the zinc price right now, at least in USD, at a pretty nice level, where you did not extend hedges further in 2020 Is there any, let's say, guidance that you could give us in terms of the USD, euro exchange rates that may offset some of the positive momentum for the zinc price that you see?
No, not at all. We our strategy regarding hedging remain exactly the same. We have our and what we can say is that we are monitoring the market. We are not in a hurry to extend the hedge because now we have again eighteen months in front of Hatch hedge, which is a good period of time for us. We feel comfortable with that figure.
What I can confirm is that we are monitoring the market every day and we will take the opportunities to do this extension. Don't worry about it.
Okay, all right.
Thanks a lot.
Thank you. Thank you.
Thank you. The next question comes from Michael Hoffman from Stifel. Please go ahead.
Yes. Thank you for the follow-up. I realize I'm asking you to do a little bit of crystal ball, but how do you think Europe will react this time given the resurgence versus the first time? Will we get whole industry shutdowns or this time it will be much more focused, more rifle shot as opposed to a shotgun in their reaction to parts of the economy being turned on or off?
Okay. This is a very difficult question because we have the crystal ball to see what is gonna happen. But we our expectation is that this second wave, this second lockdown will be less strong than the first one. Perhaps this is what we hope. But anyway, what we have seen especially remember, we have compared many times the two thousand eight, two nine crisis with this one.
In two thousand and eight crisis, the decrease in the production of steel worldwide in Europe In that cases, we are more in the figures of 18%, 15%. So we cannot compare the deep of both crisis. And frankly speaking, we expect that the second wave, the production will stay will remain at better levels than in the first wave. But at the end of the day, we need to confirm that expectation.
Okay. And then following up on an answer to a a question earlier, I I'm a little confused. I the China plant move is all about China wanting to recycle more of the electric arc furnace dust, and they're increasing more electric arc furnace capacity as a percentage of total. And their steel production is at virtually back to pre COVID levels. So what what has you concerned that you're pausing your your thoughts about the timing of a second kiln?
Oh, well, wanted answering the question about the timing of the second kiln, I only wanted to be prudent. As you said, the big trends of the Chinese market remain very, very positive. What we are seeing is that China the Chinese steel production is moving from blast furnace to electric arc furnace as expected. So China the steel gas market in China will grow clearly. The only thing that is that when we are in the middle of a big crisis and for example, we anybody from BFS has been the possibility to travel to China during this year.
This week we are sending a team to help in the ramp up of the Jiangsu plan and they will need to do a fourteen days quarantine in a medical hotel in China. So we are living difficult times worldwide. And that's why I wanted only to be prudent. Don't worry that our approach to China remains exactly the same that it was before the pandemic. We are totally confident about the evolution of the Chinese steel gas market.
And we feel that we have a great opportunity in front of us that for sure we will try to do our best to take the opportunity of this to take advantage of this opportunity. So answering a specific question about the timing, I perhaps it could be prudent to to delay the decision some more, but that's that's that's all.
Okay. Alright. So the market conditions still support why you should do it. It's just being
appropriate. Without without any doubt.
Okay. Thank you.
Thank
you. The next question comes from Tobey Hansen from Sculptor Capital. Please go ahead.
Hi, morning. Thanks very much for taking my question. The first one was just on the personnel cost base. It's been up kind of 4%, 5% in the first half of the year, and then Q3 seems to have jumped to a bit more, up 15%, 16%. So I was just looking for a bit more color as to what's driving that.
Wolf, do you want to answer this question, please?
No. No particular no particular drivers, Toby. Let me look it up, and maybe we can get back to you. Nothing in particular stands out. We follow everywhere the statutory rules around salary increases, etcetera.
Our personnel is stable. So maybe send us the question, and we can look it up.
Sure. Okay. Thanks. And then just a clarification on on the CapEx guidance of the 70 for the year. So far, you spent 40,000,000 So are you still expecting to spend 30,000,000 in Q4 on CapEx?
Good question, Toby. So in when I commented on the net debt, cash flow, etcetera, I already mentioned that we expect to spend 60,000,000 not 70,000,000 anymore. So, so far, we spend roundabout EUR 39,000,000, call it EUR 40,000,000, yes? And for the remainder of the year, we're going to spend another EUR 20,000,000 in the fourth quarter to come in overall for the year at 60,000,000. And the split is 20,000,000 on maintenance and 40,000,000 of the 60,000,000 is on growth, and the majority of that 40,000,000 on growth is in China.
Great. Thanks. Sorry, missed that before. Thanks very much.
No worries. Thank you. Thank
you. The next question comes from Julien Wether from Pascal Agrax. Please go ahead.
Yes. Two really quick ones for me. The first one on the impact from the Bilbao maintenance shutdown, is that included in the negative volume impact on Q3 on the €4,000,000 that you mentioned? And the second question is on the maintenance CapEx, euros 20,000,000 for this year. Can you keep it as low as this for next year?
Or should it go back to normal 25,000,030 million dollars Thank you.
Thanks, Julian. Yes, the maintenance shutdown of the business plan is included in the figures of the Q3. And on top of that, in the Q3, we have suffered a poor performance of our stainless steel plant. We have had some supply issues for cost reasons. The production of stainless steel in Europe has declined.
And based on that, we have had less volume to fit our stainless steel plant. So those have been the main reason to justify the 70% the figures in the third quarter. And regarding maintenance CapEx, well, again, are in the middle of our budget period. And I think taking account the uncertainties we are facing in the market, we should be as prudent as possible regarding CapEx, maintaining CapEx for next year. I think for us will be difficult to keep the figures at the same level than this year, but we will try our best to don't increase so much any case.
Okay. Thank you.
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 EFSA for any further clarifications or questions. We will now conclude the conference call and the Q and 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