Good morning. My name is Denise, and I will be your conference operator today. At this time, I would like to welcome everyone to the Professor Second 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 begin.
Good morning, and welcome to the second quarter twenty twenty results conference call of Befesa. I am Rafael Perez, Head of Strategy and Investor Relations of Befesa. Today, as usual, we have with us Javier Molina, CEO of Befesa and Wolff Lehmann, CFO of Befesa. Javier Molina will start with an executive summary of the second quarter covering the main highlights of the period. Then Wolff will review the second quarter financials in total and by business unit as well as cash flow, net debt and capital structure.
Javier will close this presentation providing a more detailed outlook for the rest of 2020. Finally, we will open the lines for the Q and A session. Before getting started, let me remind you that you can find this conference call and the webcast being live in our website. Now let me turn this call over to our CEO. Javier, please.
Good morning, and thank you for attending this conference call. As we expected, the second quarter has been a challenging one for Befesa as well as for the rest of the economy as a consequence of the COVID-nineteen pandemic. The main industries related to Befesa have seen during the second quarter significant reduction in their level of activity. As such, the production of steel has decreased 28% in Europe during this quarter compared to the previous year. Also the sale of cars has decreased by 50%.
In this challenging environment, we have been able to hang our plants at a capacity utilization of around 80% across all our businesses. In the steel gas segment, we have increased steel gas throughput by 5% year on year, driven by the increased capacity in charging. On the other hand, on the solid slag segment, volumes have decreased by 15% in the quarter, impact mainly by a lower automotive activity. However, the main impact of the earnings of Befesa during the second quarter came through the metal prices, which has been affected as a consequence of the pandemic. As such, sea LME average price decreased by 28% in the quarter.
Sea treatment charge increased and powered by $65 per ton as we commented in the previous conference call. Also aluminum oil prices were down 8% versus the previous year. And finally, zinc hedging price this year are slightly lower than last year. As a result, lentil zinc prices decreased 13% in the quarter compared to last year. All these different price companies account for more than 90% of the negative impact on EBITDA, which were partially compensated by the increase in steel gas volume.
As a consequence, second quarter EBITDA has been €22,000,000 which represents a decrease of 41% year on year and which is in line with our internal view as well as the market expectations. First half total EBITDA came at €55,000,000 as expected down 31% year on year. Later, I will provide more details on the outlook for the rest of the year. However, I would like to highlight that despite the uncertainty regarding the evolution of the COVID crisis during the second half of the year, we maintain and confirm the guidance that we provide for the total year with an EBITDA range between 100,000,000 and €135,000,000 At the end of the second quarter, we have a strong liquidity of around €185,000,000 considering €107,000,000 in cash as well as €75,000,000 revolving credit facility full year round. The high liquidity as well as our efficient long term capital structure with no covenant nor maturities until July 26 gives us comfort to navigate the current environment.
Additionally, we have reviewed our dividend payments to adjust to the current environment where liquidity and cash preservation is a priority. As such, we have paid $50,000,000 ordinary dividend in July, equivalent to $44 per share. On China, we continue the construction work of our two steel dust recycling plants in Jiangsu and Henan. Although the COVID crisis has caused a minimal delay in the construction, we expect to have the first plant ready by the 2021 and the second after summer of this year. Now, explain the financials in more detail.
Please turn to page five, the second quarter twenty twenty highlights. As Javier mentioned and explained, the 2020 has been as expected from an operational, financial liquidity and progress in China point of view. Please again note that 90% of the earnings decrease is driven by the continued unfavorable price environment in zinc treatment charges and aluminum due to COVID-nineteen. I will elaborate more on this further on. Turning to Page six, key financials.
In second quarter, consolidated revenue was down by 28% or €48,000,000 year over year to €122,000,000 On the positive side, one main factor. Electric arc furnace steel dust throughput increased 5%, mainly driven by Turkey in 2020 back in operation with the higher expanded capacity. On the other side, this positive effect was offset mainly by three items. First, lower aluminum saw flex and spent wood lining volumes recycled mainly due to the COVID-nineteen COVID-nineteen related restrictions, which have decreased demand from main and use sectors such as automotive as well as scheduled regular maintenance downtimes at our German Salt Lake recycling plant. Second, lower metal market prices in the wake of COVID-nineteen on all fronts.
Zinc LME average prices were down 28% year over year. Zinc treatment charges up unfavorable by $55 per tonne to reference finally settled at $300 per tonne. Zinc LME and treatment charges combined represent a thirty seven year over year price decrease in second quarter. Also, aluminum alloy premetabolism prices were down 8% year over year and are all trailing at the lowest price levels over the last ten years. Third, on the price side, our hedging approach works and is clearly beneficial.
Still zinc hedging prices in second quarter were approximately €90 per tonne lower compared to last year, resulting in a 13% decrease in zinc blended prices. Thus, on the revenue side, our operational progress in growth was offset by the COVID-nineteen related metal price pressures. Referring to EBITDA, the lower part of Page six. In Q2, we reached €21,700,000 of EBITDA, very much as expected, down €15,300,000 EBITDA year over year and all in net net price driven. The main price year over year headwinds in second quarter were: first, 9,000,000 due to lower metal prices, 8,000,000 on zinc LME and one of the nine based on aluminum free metal bulletin.
Second, euros 2,500,000.0 due to the unfavorable zinc treatment charges. Third, 2,000,000 due to slightly lower zinc hedging prices, totaling €14,000,000 pressure from metal prices. Main operational year over year impact came from positive €2,000,000 from Stelas volume increase, which was offset by a negative 2,000,000 to €3,000,000 due to lower aluminum salt spec volumes. In summary, again, EBITDA down year over year €15,000,000 primarily or 14,000,000 driven by depressed metal prices due to COVID-nineteen. Finally, on second quarter consolidated net profit, this was one time impacted by two items, which about offset each other: first, CHF 11,800,000.0 from the impairment review, which required a write down of The U.
K. Salt slag plant operations, which was mostly offset by £11,200,000 from the successful debt repricing earlier in the year and related accounting for financial instruments per IFRS nine. Combined, a net a minor impact on net profit of €700,000 on consolidated net profit. Please note, we explain more details about these extraordinary items in Notes five and seventeen of the consolidated financial statements, including adjusting EBIT for The U. K.
Plant impairment. Going now to Page seven, the results of our Steel Dust Recycling Services segment. Q2 twenty twenty revenue decreased by €18,000,000 or 19% to €74,000,000 primarily driven by the price pressure in LME treatment charges and the minor hedge price reduction, as explained, partially offset by higher electric arc furnace steel throughput plus 5% year over year, driven by Turkey capacity expansion. Q2 EBITDA year over year decreased by £9,000,000 to £19,000,000 The main drivers of the £9,000,000 EBITDA year over year decreases are £12,000,000 combined price decreases from LME treatment charge and minor hedging price reduction, partially offset by a positive 2% driven by higher electrical furnace throughput, as explained. As the price pressure falls straight through to EBITDA, the EBITDA as a percent of revenue decreased to 25% in second quarter.
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 this challenging COVID-nineteen times. We are pleased with the operational progress at the expanded plant in Turkey and continue to see high utilization levels in Europe and Korea. Overall, at our steel dust recycling plants have been running at average load factors of 83% in the first half and 76% in Q2 of the expanded latest installed annual recycling capacity of 825,000 tonnes. The zinc prices decreases we already discussed earlier.
Clearly, on average, prices are down in second quarter year over year by 28% and including treatment charges, even 37%. Nevertheless, at least we see recovery away from the lows experienced in March of below $1,900 per tonne to around $2,100 to $2,200 per tonne in the last weeks of June and July. We are monitoring this price recovery closely. Overall, for our Steel Industrial Recycling Service segment, very much as expected. Again, the operational progress in Turkey is delivering, but continues to be offset by the price headwinds in the wake of COVID-nineteen pandemic.
Turning to Page eight, the results of our Aluminum Salt Flags Recycling Services segment. Q2 revenues were down €31,000,000 or 39% year over year to €49,000,000 mainly driven by two items. Firstly, the lower volumes in both subsegments: Sulflex and Spend Pot Lining volumes down 15% year over year secondary Aluminium Alloy volumes down 32% year over year, mainly affected by COVID-nineteen related restrictions, which reduced production levels and demand from end use sectors, especially from automotive secondly, the 8% lower prices for aluminum alloy, currently still depressed at around $1,200 to $12.50 dollars per tonne and at the lowest level over the last ten years. Q2 EBITDA was down €6,000,000 year over year to €4,000,000 Secondary Aluminum sub segment, the gray bars, was down 3,500,000 year over year to roughly €1,000,000 in Q2. Main drivers are: million euros negative from lower secondary aluminum alloy volumes affected by COVID-nineteen as explained €1,000,000 from lower aluminum alloy average prices and €1,000,000 from reduced metal margins.
The sulfate sub segment, the orange bars, down €2,700,000 year over year to 3,000,000 mainly explained by €1,000,000 negative from lower aluminum alloy average prices and €2,000,000 from lower sulphide volumes affected by COVID-nineteen, as explained. On the right hand side of Page eight, we show plant utilization and prices. Soft Flex and spent potlining volume and utilization levels continued at a resilient 80% on average quarter. On the other hand, in secondary aluminium, volumes were especially hit by COVID-nineteen related restrictions, which lowered demand from end use sectors, especially automotive, as explained. Market Market prices, on the other hand, decreased.
Alloy free metal bulletin prices in second quarter averaged $12.82 euros per tonne of aluminum alloy, down 8% year over year, as mentioned currently at the lowest price levels over the last ten years. Overall, a challenging second quarter for the AluminiumSulfate Recycling Services segment with COVID-nineteen further crushing aluminum prices to tender low levels and lowering demand, especially in the automotive sector. Turning to Page nine. On the left hand side, net debt, cash, capital structure. We closed second quarter with a continued strong level of liquidity of approximately €185,000,000 readily available, $1,077,000,000 of cash on hand and €75,000,000 entirely undrawn revolving credit facility.
Our capital structure is strong, as explained at our last call. It is the strongest one that it's ever had. It is a simple Term Loan B fixed until July 2026, thus another six years to go. No maturities and no covenants applying. We repriced in February and reduced the interest rate to an attractive 2%.
On the right hand side of Page nine, the total cash flow after funding working capital, taxes, interests and CapEx investments was a negative CHF19 million in first half. Working capital was temporarily impacted by CHF24 million, mainly due to receivables, more back end loaded in second quarter versus year end 2019 as well as €10,000,000 less factoring and confirming. Furthermore, a lower payable balance with COVID-nineteen related decreased operations. Taxes and interests are as expected for midway through the year. On CapEx, as explained at our last call, we plan to spend CHF70 million total CapEx for the full year, of which CHF20 million are for maintenance and CHF50 million on growth, primarily China.
Halfway through the year, we are on track having spent CHF31 million, CHF11 million on maintenance and CHF20 million on growth, mainly China, all in resulting in solid cash in the bank of €107,000,000 The operating cash flow during Q1 was a positive €8,000,000 in Q2, a positive €3,000,000 amounting to €11,000,000 positive operating cash flow in first half, also in a very challenging COVID-nineteen environment. Consequently, the last twelve month period stands at €65,000,000 operating cash flow. Summarizing the high liquidity, strong and long term capital structure as well as our hedging book forms the backbone of the VCSEL's financials and serves us very well to weather the COVID-nineteen pandemic period. Turning to Page 10. Our hedging approach and book are the same as during our last update.
We are hedged up to and including October 2021. Zinc spot prices have been gradually recovering from levels below $1,900 per tonne seen in March and April, pressured by COVID-nineteen to around $2,100 to $2,200 per tonne over the last weeks in June and July. In the blue box, we quantified approximately how much our hedges, the 104,000 tonnes of zinc we sold forward up to October 2021 at fixed prices, are in the money against the Q2 average spot price of $17.80 euros per tonne or about $19.60 dollars per tonne. This represents €46,000,000 of value or buffer in profit and cash over the next quarters to come. Overall, our hedging book continues to reduce our earnings variability and allows us to plan our cash flows better to ensure we can fund our growth initiatives.
Turning to Page 11, our midterm growth roadmap. Upfront, it is important to understand that also during this COVID-nineteen pandemic, we stayed the course on our strategic and growth roadmap. As we continue to execute our initiatives, we target to get out of this COVID-nineteen crisis with a stronger portfolio when we entered. In the graph, Level one hedging, I already explained on the prior page. Level two organic growth completed last year on time and on budget delivering in 2020, including Turkey, Korea washing and alloy furnace upgrades.
Level three, China, as mentioned by Javier as well as shown on Pages 12 to 15, where we show the latest progress in construction and pictures, are on track. Now back to Javier, who will cover outlook and closing remarks.
Thanks, Wolfgang. I would like to finish the call providing more details on the outlook for the rest of the year. As I said earlier, we maintained the guidance of 100,000,000 to €135,000,000 of EBITDA for the total year. Second quarter came as we expected at 22,000,000 expect to be the weakest quarter of the year, driven by low volume as well as weak metal prices. On the volume side, we have brought forward most of the annual maintenance shutdowns that were scheduled for summer and autumn.
This decision together with the stock of raw material that we have in each of the plants will capacity utilization up in the second half of the year. The level of deliveries of the steel dust that we are receiving from our steel maker customers have significantly decreased during the second quarter. However, already in July, we are starting to see indication of high slight recovery in the production levels. On the metal price side, the combination of high zinc treatment charge with low LME zinc price is putting pressure on the less efficient zinc miners. And over the last few weeks, we are seeing the announcement of zinc miners operation being shut down.
This has made LME prices to slightly recover since the lowest level achieved during the month of March in the midst of the COVID crisis. This also reference our thoughts about the feed price floor. On the aluminum business, the weak situation of the automotive industry in Europe is affecting the demand for secondary aluminum as well as the production of solid slag. Although we are starting to see a slight recovery in this quarter in the third quarter, there is still a lot of uncertainty about the development of the auto industry during the second half of the year. This combination of volume and price indicate to us that the third quarter should be better than the second one.
However, there is still a lot of uncertainty about how the fourth quarter will evolve, which will depend on the evolution of the pandemic. I would like to highlight that in the Pesa, we serve the part of the civil industry that is more stable and resilient, which is the electric car furnace steel producers. In many crisis in the past, this way to produce steel has demonstrated to be more stable and resilient than blast furnace producers. As an example, during the first half of this year, the total steel production in Germany has decreased 16%. However, this decrease has been different between electric arc and blast furnace.
While blast furnace steel production has decreased 19%, electric car has decreased only 8% in the period. This again proves the resiliency of our business model. Even though we currently enjoy a comfortable and healthy liquidity as Wolfgang explained, we keep on ensuring that any decision we make takes liquidity into consideration. We have reduced maintenance investment by 20% and we are keeping our growth plan in China, which will deliver attractive return for our shareholders. We have presently closed the financing of 50% of the investment of the first plant in China with the local debt, which also will contribute to preserve our liquidity.
Finally, I would like to highlight that during the second quarter, we published our new sustainability report, which explain in more detail why DFSSA is a great example of circular economy. One of the main levers that we drive the recovery of the global economy from the current sanitary crisis is sustainable development. And one of the pillars on which sustainable development must be based on is the circular economy. Befesa is part of the circular economy and contributes with its business to environment protection by recycling more than 1,500,000 tons of hazardous residues annually, producing more than 1,200,000 tons of new materials, reducing the consumption of natural resources. This has been the backbone of the business and the company started more than three decades ago.
The circular economy not only reduced the generation of waste, but also avoids the spectrum of new resources from the herd, avoiding the great environmental and financial costs that these produce. A transition to a circular economy represents a great opportunity to exit this crisis. Thank you very much. Thank you, Javier. We will now open the lines for your questions.
The first question comes from Ingo Sahel from Commerzbank. And
my first question would be on the situation of your French competitor and partner, Recyclex. I was just wondering that they seem to have filed for insolvency of their German subsidiaries and protective shield proceedings. And I guess I would be interested in three aspects. First of all, what does this proceeding mean for the competitive landscape in Germany? It's something like Haasmetall, which would go out of business, which customers just send their dust instead to your other plants or to this work, and you could benefit from that?
Or would you see other dynamics? I would also be interested in the aspects on M and A opportunities for you. I think a few years ago or a decade ago, you quite opportunistically bought the aluminum recycling business out of insolvency. I think it was something like a visor metal or something and another metal like lead recycling. It's now insolvent.
Would you ever consider the option to maybe also recycle other metals that are aluminum and steel dust? Maybe just as a quick confirmation where they could tell us there's no impact on your partnership with them in your French ResiTech plant.
Okay. Thanks, Ingo. Well, know as you have explained the situation of Retilex is well known. Let me explain the different aspects in or effects in the face up. Regarding the competition situation in Europe and especially in Germany, what we see right now is somebody will take care of harsh metal.
So in our opinion, the plant will continue operating. So we don't see any relevant change in the competitive situation in Europe in the steel dust recycling. Regarding the possible M and A opportunity, well, you can imagine, we have analyzed deeply harsh metal opportunity. But frankly speaking, we are still on the process. But frankly speaking, we don't see that we are a real candidate because from a market point of view, we have a very strong position in Europe and anything that we ask for the competitions authority.
Regarding the possibility to enter in other metals, it's something that we our strategy is very clear and well defined. While we have the opportunity to grow into in new geographies in our one in our covering business that this is a steel gas recycling and solid slabs recycling will be totally focused in that. So we are not considering at least in the short term the possibility to entering the recycling of of
our metals.
And I don't know the third I don't know if you have asked something more.
No. Think Yeah. About France, whether there's any impact on your cooperation with them in France?
Oh, no. I we don't
think so. We don't think so. At the
end of the day, as you know, Refilix is part of or is participate by Glencore group. So we see that we feel that we have at the end a very stable partner in our operations in France.
Okay. Thanks. And maybe just on your steel dust throughput volumes. I think they were, I think, pretty strong even if you strip out the effect from the tonnage that you had in Turkey. It looks like your European and Korean volumes were only down quite moderately.
I was just wondering on the third quarter, I guess everyone is expecting steel production recover by maybe 10% or so. In such a scenario, would you also expect your European and Korean volume to recover by a similar magnitude? Are there other factors to keep in mind, for example, that you've worked off lots of inventories and that even if electric arc furnace steel production recovers by, say, 10% in the third quarter, you would rather see stable volumes in Europe and in Korea?
Well, I can explain what has happened in the past more than what is going to happen in the future because we never know. But I can give you provide you some figures about the second quarter. For example, the steel production in Europe dropped by 28%, while our deliveries dropped only by 21%. We have said many times that we are more resilient than the industry and this is because we serve as I have tried to explain during the presentation, we serve the electric afferentate producers that are doing much better than the local industry. So in that sense, we feel that if as you said, there is an improvement in the production of the steel in the third quarter, we will enjoy this recovery at least in the same proportion.
Okay. Thanks very much. Okay.
Thank you. The next question comes from Michael Hoffman from Stifel. Please go ahead.
Thank you for taking the questions this morning. I'm going to sort of do them one at a time. Could we talk about what your thoughts are about Turkey ramping up and therefore the utilization moving from mid-70s back in towards the 80s in steel bus going into the second half if in fact steel production continues a slow gradual improvement?
Well, in Turkey, are running at basically as expected. The production of steel in the country is suffering like in the rest of the world. In the first in the second quarter, the production in Turkey has dropped 17%. Our feeling is that we will see similar levels in the second part of the year. Taking account the tariffs from U.
S, etcetera, we don't see any strong recovery in Turkey in the second part of the year. So based all in all, we are running the plan as expected and I think we will be finishing utilization levels around 70% in the whole year.
This is in Turkey. So the blended average would be about 75 to 80 then for the for the remainder of the year?
You mean the in the in the whole company?
Yes. Steel dust.
For steel dust, sorry, even slightly better than that. We have finished this first six months around near 80% and we expect to get better levels in the second part of the year. What's happened Michael is that we don't have we have some visibility for the third quarter. And clearly, the third quarter will be better, at least slightly better than the second one. And we have a big uncertainty about the last quarter.
We don't know if the last quarter is going to be a gain depending on the pandemic and if we enter in a new lockdown period, a very weak quarter as the second one or at contrary, we can see a strong recovery and get be again a strong quarter like in the previous year. We don't know that. And we talk our customers don't know that. That's why we are only confirming the wide range we provided at the beginning of the year.
Okay. Fair enough. And then given that auto production has come back online, and while I get the second quarter had a meaningful impact on new car sales, the rate of production going into the second half would suggest pretty good demand for both steel and aluminum. What's your view of that being?
Well, Michael, it's really a difficult question. I would like to be able to answer properly. What we have seen in the first part of the year has been a very weak situation in the automotive industry. 50% production a car registration decrease. In our view is in June, the automotive plants in Europe were running at 50% of capacity.
We see we are seeing some recovery in July. And this month, we feel that the levels of activity they have are more in the range of 70%. For sure, July and August will be more or less in this range, but we don't know what is going to happen later on. We hope to see a strong recovery because all the government stimulus that the automotive industry is receiving will support this recovery, but we need to confirm. Let's see what's happening.
Thank you very much for taking my questions.
Thank you, Michael.
Thank you. The next question comes from Sylvia Barker from JPMorgan. Please go ahead.
Hi, thanks. Good morning. Some of questions have been answered, but if I can just double check, you mentioned one kind of number around steel volumes in Europe, but could you maybe just spell out again the volume trends in Q2 in steel by region as I couldn't quite catch that? And then secondly, just on the guidance, so I guess the lower end of the range was implying some very kind of sharp reduction, very kind of dramatic price action as well. So do you think that, that end of the range is still plausible?
It doesn't seem like it is. Just wondering whether you were considering kind of moving the range up at all. And then finally, on cash flow, could you maybe talk about any of the government kind of deferral schemes? Obviously, a lot of companies have been using the VAT or Social Security deferrals. Just wondering whether there was any impact on your working capital in the first half?
Thank you.
Thank you, Sylvia. Regarding the production for planks is an information that is very sensible. We don't like to enter in these details because we manage the company as a whole. Sometimes we our logistics send the raw material to different plants depending on the market situation, etcetera, etcetera. So I would like I think it's better for us to enter in these kinds of details at the end.
They could be could confuse our view all the analysts and all the investors. I think that the message is that we have finished the first part of the year as a strong 80% of load factor. For sure third quarter will be better and let's see what happened in the last quarter. And this is the same answer for the guidance. First half, we finished at €55,000,000 Second quarter we finished at 22,000,000 I said that third quarter will be slightly better than the second quarter, but it's not going to be a strong quarter.
So let's say that we finished around €26,000,000 €27,000,000 So we will have finished probably the first nine months above 80,000,000 80,000,000 80 something million euros So the question Mark is what is going to happen in the last quarter? If we have again a weak quarter like the second for example, we will be in the low part of the range. But if the recovery comes and we have a strong quarter, we will be in around the middle part of the range. Clearly, to be in the upper part of the range taking account the situation we are living today will be very difficult, will be quite impossible because we need to be a very strong recovery starting immediately. Probably this is not the case.
Walf, don't you mind to answer the question about cash flow?
Sure, absolutely. Thank you, Silvia. So on you had mentioned VAT. Obviously, yes, that's by law. We apply that, but it's only a very minor impact.
Social Security deferrals, we're not aware of. Rather, what works for us is where allowed and where applicable, if we are in temporary low volume situations, we use the government programs in Germany, Kurzarbeit short work or in Spain, similar programs called ERTEP. So we use that, but overall, I would describe the impact on the financials very minor. And then, Sylvia, in terms of volume by region, if you are looking for crude steel production volumes by region, we do provide those. Those are on Page 15.
You see them for EU, Turkey, Korea and China.
Okay. Great. Okay. I was just wondering about your own. But that's clear.
Thanks very much.
Thank you.
Thank you. The next question comes from Jaime Cugano from Banco Santander. Please go ahead.
Hello. Good morning. One question from my side. Regarding the Chinese projects, could you give us an update on the negotiations with with the steelmakers? Where where are you?
Whether you have already closed some kind of terms and conditions or when this will will happen? And when do you plan to to start operations of the first plan? If there is any any change, any if you have a plan to to start production earlier or if there is any further delay? Thank you.
Thank you, Jaime. The effect of the pandemic in China from a construction point of view is quite as we can say, it's quite small. But we have released a delay of one month, let's say, at maximum six weeks. So from a construction point of view, we maintain our goal to start production in the first quarter at the beginning of next year. What's happening is that we will start coal commissioning of the plant after the European holidays Christmas holidays.
And then we will have the Chinese New Year holiday. So that as you know produce a big shutdown of the country. So we the idea is to start hot commissioning of the plant in March 2021, which is one with a delay more or less for one month or one months. Point So nothing dramatic. From the contract and from the supply side point of view, we are suffering slightly more from the pandemic.
What has happened is that until one month ago, even the pandemic was going better in China has been impossible to travel, to make trips. So we have some delay in the contacts with the steelmakers. Our year we are really starting the contract right now when our year was to have started the contract three, four months ago. So today is too soon. We as you know, because we have explained in our different meetings, we know very well all the steel makers in the region.
And we are starting to have the contacts right now. So probably after summer, we will start to have some more visibility about when we will start to sign contracts later. Anyway, as we have explained sometimes as well, we don't expect to sign the contracts before to finish the construction of the plan. I think the process will be slightly different. We will finish the plan with a lot of contract with customers, but the process will be first to do trials to convince them that our technology ranks and everything goes as expected.
And then we will start to sign contracts probably more in next year, okay? Okay. Very good. Thank you. Thank you, Jaime.
Thank you. The next question comes from Clarissa Quigg from M and G Investment. Please go ahead. Hi, good morning, Javier, Wolfe and Rafael. Thank you for the presentation.
Just two questions from me. The first is on hedging policy and if you've got any plans to extend the hedges? And the second, can you just remind me what your exposure to the automotive sector is, please? Thank you.
Thank you, Clarissa. Regarding the hedging, our hedging policy remain totally the same. So we hedge we want to hedge in euros. We want to hedge from one to three years in front of us. What's happening is that we have a solid view about the we don't know as we said many times, we don't know what is going to happen with the zinc price, but we have a solid view about the zinc price floor.
And based on this view, we are not in a hurry to extend our hedging if the zinc price that we can achieve are below €2,100 or €2,200 per ton. So again, the policy is the same and we are monitoring what's happening with the zinc price and to take the opportunity to increase the hedging when the situation start to change. Second part, you mean our exposure to automotive industry. Well, in our secondary aluminum business is depending, let's say, 80% of the automotive industry levels. So that but our solid track business is more resilient.
It's something like the what's happening with the steel gap business. And the best example is what has happened in the first half of the year, while the automotive production has dropped or at least the car registration has dropped around 50%, our solid stack production has reduced only by 15%. And this is because we can't manage our raw material stock, maintenance shutdown, etcetera to be more resilient than automotive industry. But at the end, we have a, let's say, high dependency on the automotive industry.
All right. That's very helpful. Thank
you. Thank you.
You.
Thank you. The next question comes from Oliver Calvert from Kepler Cheuvreux. Please go ahead.
Yes. Hi, good morning all. To start off, just a follow-up just to be very clear on the zinc hedges. So you said you're hedged until October 2021. And obviously, from next year onwards, your zinc content will further increase with your two plants in China going online.
What is your level of comfort in terms of getting closer to 10/20/2021 without further hedging? And would you be looking to maintain a stable share of zinc content hedged in proportion of your production volume? Or would you stay closer to the sort of more usual running rate of a full year hedging content of 92,000 tons?
Oliver. We very confident with the level of hedging of around 70% of our production levels. We would like to be below that figure, but we don't want to go over that figure. So around between 65% to 70% is a very good figure for us. And then regarding the price levels, again, we have we do a permanent analysis about the zinc price floor based on the cost to extract zinc from mine.
And based on that, we established our strategy. And today, feel that this cost will be around $2,000 per ton that is difficult to precise plus some premium. That's why we are not in a hurry to extend our hedging below the price level of EUR 2,100, 2,200 per ton.
Okay. Thanks. Very clear. And then just on China, a follow-up on what you just said. You just to confirm, you probably are not going to see EAF dust.
I saw in the picture Page 13, I think, that the Slack storage is I mean, it looks ready, at least, on the picture. Is this you're not seeing any EAF dust coming for you to store in this year or even at the beginning of next year until March or so?
No. We have enough travel enough problems in constructing the plant, so we would like to start to storage at the same time that we are constructing the plant. But we are not this is going be a problem. We have we are in the middle in Jansen, we are in the middle of very strong area in terms of steel gas production. We are in close contact with all the steel producers.
And now is the time to start the negotiations about terms, conditions, etcetera on the future contracts. But step by step, we first, we need to finish totally the construction of the plant. And once the plant is constructed, we could start to storage still that.
Okay. And then finally, just on the question on the secondary new aluminum business. I think in the previous call, were talking about the an overcapacity expansion plan being on hold. I'm just wondering, considering what's happening in the auto industry and the outlook for the next few years in Europe, would you say it's still on hold? Or what is the status of that project at this stage?
Let me say that you are right taking into account the current environment. What we can say is that we are not in a hurry to start the construction of the capacity increase very soon. We are still in the process to obtain all the permits, etcetera, from the environmental from the local authorities, which is not easy because our plan is located pretty close to the center of the city. And we need to first finish all the permits administrative, environmental, etcetera. And then once we have all these on our hand, we will review again the situation to take the final decision.
Okay. Thanks very much.
Thank you, Oliver.
Thank you. The next question comes from Sylvia Barker from JPMorgan. Please go ahead.
Hi, sorry. Just a quick follow-up. Just on the Chinese financing that you said you've secured for the first plant. Could you maybe talk about kind of the size, terms, who it's with as well? Thank you.
Gurlf, please.
Sure, Silvia. As we mentioned, we're looking for the first two plans roughly at a fifty-fifty loan equity structure. Equity we already provided. So now on the first plan, the 50% of the loan is secured, and we're also actively working already for the second one on the same. So with the investment, if you remember, the first two plants cost each €42,000,000 total.
So half of that approximately is loan, and half of that is equity.
And is that with the local bank? Or
Yep. Yep. So it's with Bank of China, which is excellent local bank, but quite frankly, by now also one of the top, in terms of size and assets under management, etcetera, etcetera, one of the top banks in the world. So we're very pleased with conditions we achieved. And it is just like our term loan b, Sylvia, as you know, runs until 02/1926.
This is also long term financing also running all the way until 02/1926.
Okay. Great. Thank you.
And sorry, Sylvia. As you know, in our capital structure, we had already included the local loan basket, general use basket. So the entire China China growth initiative, those local loans fit perfectly into those baskets and fit to our capital structure. All of that was already organized middle of last year when we refinancing of the capital structure.
Thank you very much. The next question comes from Andrew Bansant from Ambienta. Please go ahead.
Yeah. Good morning. Thanks for taking my questions. On treatment charges, these are hurting you this year. Well, they hurt you for quite some time, actually.
The spot rate in China is about half the annual rate. Just what was your strategy with your approach to treatment charges prospectively? And will you continue to seek an annual price negotiation? And secondly, just as the Chinese plants start up, I mean, I've known with steel, with your various commodities, that the Chinese much prefer to deal on a spot basis than an annual negotiations. Do you think that your approach to treatment charges with the Chinese expansions will be different?
And how do you see that in the future? And how do you think that would impact your profitability? Thanks.
Thank you, Andrew. Regarding our strategy of fee main card negotiations, let me start out of China. Our idea is to keep the same policy that we have done in the last, I would say, twenty years. I think we shouldn't enter in a spot price negotiation. We are happy to know at the beginning of the year, which will be the treatment charge for the full year.
And this is the idea we have. We want to maintain our annual negotiation for shipment charge because that give us a big stability and a strong relationship with our customers. China is different as you say and we are learning about it right now. We are dedicating a lot of time. Our commercial people is analyzing what's happening.
My first idea would be we would prefer probably to if possible to keep the same policy that we have in the rest of the world. But let's see if we do we must do some changes in the Chinese operations in the future. But this is something that we have not defined today. I think we are in a bad moment regarding treatment chart for mining or for companies like VESA, but we are totally sure that this situation will change sooner than later. Okay?
Thanks very much.
Thank you, Andrew.
Thank you. There are no further questions. Dear speakers, back to you for the conclusion.
Thank you all for your questions. You can also contact the Investor Relations team of VESA for any further clarification. 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 on our website at www.vecesa.com. Thank you very much.