Hello, ladies and gentlemen, welcome to the Befesa first quarter 2023 results call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Rafael Pérez, Head of Investor Relations and Strategy.
Good afternoon, welcome to the first quarter 2023 results conference call of Befesa. Good morning to all from the U.S. Thank you for attending this conference call. I am Rafael Pérez, Head of Strategy and Investor Relations of Befesa. Today, we have with us Javier Molina, Executive Chair of Befesa, Asier Zarraonandia , CEO of Befesa, and Wolf Lehmann, CFO of the company. Today, we're hosting this conference call from the recently acquired zinc smelter facility in North Carolina in the U.S., which is the reason this call is taking place at an unusual time. Javier Molina will start with an executive summary of the first quarter. After that, Asier will explain the business highlights of the period, covering steel dust and aluminum salts like recycling.
Wolf will review the financials in total and by business unit, as well as cash flow and an update on our hedging program. Javier will close this presentation providing some thoughts about the outlook for 2023 and our growth plan. Finally, we will open the line for the Q&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 first quarter results presentation on our website, www.befesa.com. Now, let me turn this call over to our Chairman. Javier, please.
Thank you, Rafael. Good morning. As Rafael has explained, today we are hosting this conference call from our zinc smelting facility in North Carolina in the U.S. Yesterday, we held the meeting of our board here and all the board of directors of Befesa had the opportunity to see and to visit the smelting facility, which is the only one in the world producing zinc from recycled materials. As we have explained, the plan is still in ramp-up mode, and although during the first quarter the plan has not delivered positive earnings, we are confident that during the year, the contribution of the plan will be positive. The first quarter of the year has been a challenging one for Befesa.
Although revenue increased by 23% compared to the last year, driven by the integration of the smelter operations in North America, EBITDA was EUR 50 million, which is stable compared to the previous quarter, but 18% down compared to the previous year. The main drivers for this decrease are higher zinc treatment charge, which have been settled at $274, representing an increase of 19%. Lower zinc prices, which are down 13% compared to the same period of last year. Lower volume of steel dust, down 19%, driven mainly by the earthquake in Turkey, as well as lower volume in North America as expected, as well as higher coke prices, which have remained at the same high level than in the last quarter of last year.
On the other hand, the aluminum business has performed very positively in the quarter, benefiting from strong margins and a decrease in the energy prices in Europe. Asier will explain the performance in the steel and aluminum businesses in more detail later. In this environment, our earnings outlook for the full year 2023 is between EUR 200 million-EUR 230 million of EBITDA, representing a -7% to a +7% compared to the previous year. I will provide more details about the outlook for the year at the end of the presentation. From the strategic point of view, during the first quarter, we have continued the integration in the US with the zinc refining plant that we acquired on September 30th last year and which is still in ramp-up mode.
Our expansion in China continued to progress with ramping up of the operation at the second Chinese plant in Henan. The two existing plants in Jiangsu and Henan are operating and will contribute to earnings in this year. Asier will explain the business performance in more detail.
Thank you, Javier. I will provide an overview of the performance of the business during the first quarter of 2023. Overall, the first quarter has been a challenging quarter, as explained by Javier, impacted by a combination of lower metal prices, high energy costs, and lower volume. The strong performance of the aluminum business has partially compensated the weak performance of the steel dust business. Starting with the steel dust recycling, in the first quarter, total steel dust throughput was down by 19%, reaching 274,000 tons, mainly due to Turkey and the U.S. Compared to the previous quarter, volume of steel dust in the first quarter decreased by 8%. In Turkey, where we have a plant in the Iskenderun region, as you all know, 2 terrible earthquakes took place at the beginning of February.
The impact of the earthquake in the region around the plant has been severe. We are grateful that none of our employees and contractors were injured. However, the humanitarian situation is dramatic, with many people lives lost and many houses ruined. The full recovery of the area will take time. There are now some industries coming back to work gradually. Among them, some steel makers in the area. Although we have suffered some volume decrease in the first quarter, the plant has been back to operation since March. We expect the plant to continue operating as normal for the rest of the year. In the U.S., the integration of AZR into Befesa is developing well.
As we already anticipated, volume of steel treated in the US has been lower compared to the last year, driven by the loss of one contract which volume we expect to recover over time. The refining facility which we acquired last September is also being integrated in Befesa. The plant is completed, fully commissioning, and it is still in ramp-up mode. Our contribution in the first quarter of the year has been EUR 2 million negatives, mainly due to the high inflation. Nevertheless, we expect a small positive contribution to EBITDA in the full year 2023. Additionally, in the US, we are working on the operational efficiency projects that will drive synergies to be captured during the second half of the year.
At the same time, we are preparing the Palmerton plant for the refurbishment to free up capacity and be able to capture future growth in the market. In China, the plant of Jiangsu has been operating at a low capacity utilization during the first quarter. Our second plant in the province of, in, of Henan is completed, and commissioning of the plant is finished. The plant is operating now. Our view is that China is gradually recovering from COVID, and we are optimistic about how the country will develop over the coming months as we see higher levels of deliveries from our customers. In the traditional business of Befesa like Europe, we are achieving good levels of utilization, and volume has been very stable in the period.
From the prices point of view, LME prices decreased by 13% in the period from 3,330 EUR last year to 2,900 EUR this quarter. The increase in the hedging price has not been enough to compensate the decrease in the LME prices. Inflation in general went up in the quarter across the Steel Dust business, in particular coke prices, which increased another 6% compared to the previous quarter and more than 40% compared to the previous year, producing a negative impact of EUR 5 million in the quarter. Coke price remained very high across all the region at historical high levels, and so far, we have not seen a decrease in the price like we have seen in other energy commodities like electricity or natural gas.
coke today represents more than 50% of the total energy cost in Befesa. As a result of all the above, total EBITDA in the Steel Dust business has been EUR 37 million in the first quarter of the year, down 32% compared to the previous year, and flat if we compare to the previous quarter. Moving now to our Aluminium Salt Slags and secondary Aluminium business. Our Aluminium business has delivered another very good quarter in a still challenging macroeconomic environment. During the first quarter of the year, we have recycled 82,000 tons of salt slag, representing a decrease of 6% compared to last year, driven by the temporary shutdown of the plant in Hanover, which was still under repair during the majority of the first quarter. The plant has been fully refurbished, commissioned, and the ramp-up has been completed.
The plant is now back to operations. The production of secondary aluminium alloys in the first quarter was 44 million tons, an increase of 3% over the previous year. The aluminium price has decreased 12% in the quarter compared to last year to EUR 2,300 per ton. The strong metal margin of aluminium has represented an important increase compared to last year. The high prices of energy that we suffered last year in Europe for electricity and natural gas have reduced significantly during the first quarter of the year, representing a positive impact on the business. In the aluminium business, we have achieved a total EBITDA of EUR 14 million, up 82% compared to last year.
All in all, a very challenging quarter in the steel dust impacted by lower metal prices and high coke prices, partially offset by a strong performance of the aluminium business. Wolf will explain the financials in more detail.
Thank you, Asier. Please turn to page eight, the first quarter 2023 consolidated financial highlights. As mentioned by Javier, Befesa delivered an adjusted EBITDA of EUR 50.1 million, approximately flat quarter-over-quarter, with its first quarter at EUR 50.7 million. Nevertheless, down EUR 11 million or 18% year-over-year, with its first quarter 2022 at EUR 61.1 million. Overall, on the year-over-year adjusted EBITDA walk, the EUR 11 million development was mainly negatively impacted by the lower zinc LME market prices, including the unfavorable zinc treatment charges, up 19%, partially offset with stronger aluminum prices, metal margins, and lower volumes, including Turkey's earthquake. Reviewing the main drivers of the year-over-year EUR 11 million EBITDA development in more detail. On volume. Overall, approximately EUR 4 million negative volume year-over-year impact.
As explained by Asier Zarraonandia, mainly coming from the earthquake impacting operations in Turkey, the US operations, and the Hanover plant ramping up in Q1, partially offset with higher secondary aluminium alloy volumes. On price. The overall approximately EUR 4 million negative price year-over-year, it's about EUR 9 million negative from the steel dust business, mainly due to lower zinc prices, including the impact of the higher TC, and around positive EUR 5 million from the aluminium salt slags business. I will explain in more detail on the following pages. On cost other. The approximately negative EUR 3 million cost other lever reflects mainly the continued record high coke prices, partially offset with year-over-year lower gas and electricity prices.
Total revenue increased by EUR 60 million or 23% year-over-year, plus EUR 27 million or 9% quarter-over-quarter to EUR 322 million in the 1st quarter of 2023, driven mainly by the U.S. operations. Cash stands at EUR 143 million, which together with our entirely unused EUR 75 million revolving credit line, provides more than EUR 200 million liquidity and net leverage at 2.8 times, which I will explain later together with the net debt and leverage performance on page 11. Note, as always, in the appendix of this presentation, you will find, as usual, various financial and operational data tables with quarterly, annual, and multi-year views for your reference. Turning to page nine, the steel dust recycling services results. Steel dust delivered EUR 37 million EBITDA in the 1st quarter, approximately flat quarter-over-quarter, with this Q4 2022 at EUR 37.6.
Down EUR 17.8 million or 32% year-over-year. The year-over-year EUR 18 million EBITDA- development was mainly impacted by lower zinc LME market prices, including unfavorable TC at $274 per ton, which is up 19% year-over-year. Continued record high coke prices, as he mentioned, up 6% quarter-over-quarter or 41% year-over-year, and lower electric arc furnace steel dust volumes. The volume lever was negative by around EUR 3 million EBITDA year-over-year impact, as explained, mainly impacted by the earthquake impacting operations in Turkey and the U.S. operations. The net price lever was negative by about EUR 9 million year-over-year, with main price components being - 10, lower zinc LME prices down 13% or approximately EUR 400 per ton to around EUR 2,900 per ton on average.
Up to higher zinc hedging prices, up 3% year-over-year to around EUR 2,350 per ton on average. A - 2.5, driven by the higher annual zinc treatment charge, which was set at $274 per ton versus $230 per ton last year. Further pressure came through the cost other lever with approximately EUR 5 million year-over-year impact, mainly due to the continued record high coke prices, as explained, up 41% year-over-year. Revenue in the steel dust recycling business increased by EUR 60 million or 39% year-over-year to EUR 260 million, driven by the U.S. operations. Consequently, EBITDA as a % of sales stands at 17% versus 35% last year.
The year-over-year profitability decrease is mainly driven, as explained, by the lower zinc market prices, including the unfavorable zinc TC increase, record high coke inflation, as well as the zinc refining acquisition contributing to sales, but not yet to EBITDA in first quarter, as explained by Asie. Going now to page 10, the results of our Aluminium Salt Slags Recycling Services segment. Aluminium Salt Slags delivered a record 13.8 million EBITDA in first quarter, up 82% or EUR 6 million year-over-year and up EUR 2 million quarter-over-quarter. The year-over-year EUR 6 million EBITDA improvement was mainly due to strong metal margins with lower gas and electricity prices. The volume lever was slightly down by about EUR half a million EBITDA effect. As explained by Asie, this was primarily due to the Hanover plant ramping up in the first quarter, which was partially offset by the higher secondary aluminium alloy volumes.
The price lever was positive, about EUR 5 million, with aluminum alloy pre-Metal Bulletin market prices showing a - 12% year-over-year or 326 per ton decrease, which was more than compensated with strong aluminum metal margins. The cost other lever with around EUR 2 million EBITDA positive effect year-over-year was driven by the lower gas and electricity prices. EBITDA as a percent of sales in Salt Slags remains strong at above 30%. Turning to page 11, the cash flow, net debt, and leverage results. On the EBITDA to cash flow bridge, starting with the EUR 50.1 million adjusted EBITDA on the left and walking to the right. Working capital was up by about EUR 28 million year-over-year, very much driven by the usual first quarter seasonality and timing impact.
In addition, remaining approximately EUR 10 million in final process insurance recovery proceeds for Hanover are expected to be collected during the second quarter. Interest at EUR 6.8 million as expected, with the first of the two biannual Term Loan B interest payments made in January. Taxes at EUR 2.4 million also as expected, resulting in an operating cash flow of EUR 13 million in the first quarter. Normalized for the pending final Hanover fire insurance proceeds, expected in the second quarter, the year-over-year performance was approximately stable. CapEx-wise, in the first quarter, we spent EUR 27 million maintenance CapEx as well as CapEx related to the final recovery of our Hanover plant, approximately EUR 9 million, where we expect the final EUR 10 million insurance proceeds in this quarter, in the second quarter. Related to the operational excellence synergies projects in the U.S., about EUR 4 million.
Normalizing for Hanover recovery and US operational excellence CapEx, regular maintenance CapEx amount to roughly EUR 14 million in the first quarter as usual. Growth CapEx of EUR 5 million, including the remaining expenditures for the Henan project. Overall, total CapEx of about EUR 32 million in the first quarter, normalized for EUR 9 million Hanover spend to be refunded is circa EUR 22 million-EUR 23 million times four equals the approximately EUR 85 million-EUR 95 million CapEx guidance, which we'll talk later about for the full year 2023. After funding working capital, interest, taxes, and CapEx, total cash flow amounted to - EUR 90 million in the first quarter. Cash on hand stands at EUR 143 million, which together with our entirely undrawn EUR 75 million revolving credit line, provides Befesa with a strong liquidity of more than EUR 200 million.
The EUR 572 million net debt with the EUR 204 million last 12 months adjusted EBITDA results in a 2.81 net leverage at Q1 closing. Turning to page 12 on hedging. Our zinc hedge book is up to and including July 2025. That's approximately two years of hedges on the books. Our hedging strategy remains unchanged. Overall, considering the combined global hedge book, Europe, Korea, U.S. operation, the year 2023 is hedged at around EUR 2,400 per ton or $2,650 per ton. The next year, the year 2024, at around EUR 2,500 per ton or $2,750 per ton.
The first half of 2025 at around EUR 2,650 per ton or $2,900 per ton, sold forward prices. Here we used an updated and estimated foreign exchange dollar to euro of 1.10 for 2023, 2024, and 2025. Summarizing the financial section before we turn to the outlook and growth, three points. One, Befesa delivered in the first quarter EUR 50 million adjusted EBITDA, stable with the fourth quarter 2022 results, although impacted by the lower zinc market prices, including the unfair zinc TC and the record high coke prices. Secondly, our financial backbone is strong. Our hedge book covers up to and including July 2025. Our capital structure is efficient and long-term with more than EUR 200 million liquidity.
Three, the financial backbone supports us well to self-fund our growth roadmap over the next years. Now back to Javier on outlook, growth, and ESG.
Thanks, Wolf. I would like to finish the call providing some more details and thoughts on the outlook for the year 2023, as well as the new five-year growth plan. As we have explained during the call, the first quarter was a challenging quarter with many drivers putting downward pressure on the business, like treatment charge, zinc price, and coke price. In general, as we already explained it in the previous call, we expected 2023 to be another challenging year, and we expect volatility. As a result, we expect the full year 2023 EBITDA between EUR 200 million-EUR 230 million. Treatment charge for zinc, as we expected, has been settled at $274 per ton, compared to the 230 level on the previous year.
This will have a negative impact of around EUR 10 million EBITDA in 2023. Zinc price hedging will clearly be a positive impact this year, and the hedging level for 2023 is higher than the 2022 level, as Wolf has explained. LME price and exchange rate are less favorable than last year. Average price, average zinc price in the first quarter has been around EUR 2,900, compared to more than EUR 3,300 last year, representing a decrease of 13%, and today is even lower. We expect negative contribution for lower blended zinc prices, which include hedging, LME, and exchange rate.
On energy, in the first quarter, we have seen historical high levels of coke price across the markets where Befesa operates. Coke represents more than 50% of the total energy cost in Befesa. Today, we have not long-term contract in place, which means that we are exposed to the spot price. It is difficult to anticipate how coke price will evolve during the year. In North America, the recently acquired zinc refining plant is still in ramp-up mode. Although the contribution in the first quarter of the year has been negative, we expect an small positive contribution to earnings growth in 2023. Additionally, in the recycling plants, we have some operational synergies coming from the recently acquisition, which will partially materialize in the second part of this year.
In China, we want to be optimistic, but it is still very uncertain how the country will open and evolve during the year. We are seeing a gradual recovery during the first part of the year. In the first quarter, the volume of steel dust processes has been low. We are confident, and we are starting to see increased levels of steel dust deliveries in the second quarter. The second plant in Henan is fully commissioned and in operation. We have two plants complete, commissioned, and in operation, which will increase the utilization as soon as the market recovers. We expect positive contribution from China in the range of high single-digit EBITDA.
In the Aluminium Salt Slags and secondary aluminum business, which is a purely European business, despite the automotive industry continues to face a challenging situation in Europe, the strong result of the first quarter make us be optimistic for the rest of the year. The business is clearly benefiting from a decrease in the energy prices in Europe on natural gas and electricity. We expect a stronger volume in 2023 compared to the previous year, driven by the restart of operations in the Hanover plant after the repair of the plant. Summarizing these dynamics into the outlook for the year. The lower end of the guidance range at EUR 200 million EBITDA represent a decrease of 7% year-on-year. Although there are many moving parts, in this scenario, Befesa would continue delivering an average run rate of around EUR 50 million per quarter.
Zinc prices would remain around EUR 2,800-EUR 2,900 for the rest of the year. Coke price would remain high. The recovery in the Chinese economy will be delayed, which is translated into a small contribution for our operations in China. In North America, the contribution of the smelter would not be material. Synergy would be delayed to the next year due to high inflation. The higher end of the guidance range at EUR 230 million EBITDA represent a growth of 7% year-over-year. In this scenario, Befesa would benefit from a gradual increase in earning through the year. Coke price are expected to decrease in the second part. China momentum accelerates through the year. In this scenario, Zinc price would improve in the second part of the year.
The U.S. would deliver the expected synergies, and the Zinc smelter would also deliver positive earnings. Volume in the rest of the traditional markets of Befesa will remain similar to the last year. Finally, on future growth, as we explained at the Capital Markets Day we celebrate in London last quarter, despite the short-term challenging situation we are facing, we have an strong growth plan to invest around EUR 400 million over the next five years to grow earnings at a high rate. This growth plan is based on global mega trends like decarbonization and a transition to electric vehicles, which are not going to go away and will drive market growth where we operate in our core businesses.
The market growth opportunity is translated into a tangible plan consisting of nine projects across the three main markets we operate, Europe, North America, and China, which will be funded organically with our own resources. The first of this project was the acquisition of the Zinc Refining asset, which we already execute in September last year. The next two projects we are already working on are the refurbishment of the plant in Palmerton in North America and the third plant in China. In China, in February, we signed the investment agreement with the local authorities in the new province of Guangdong. We have identified the land lot to build a new plant, and we are preparing the basic engineering of the plant while we have started negotiations with the local steelmakers. In North America, we have already started the refurbishment of Palmerton plant.
The engineering and design are in process, the request for quote with suppliers has started. The refurbishment will be carried out in 2023 and 2024. In summary, 2023 will be a transition year for Befesa. The first quarter was challenging, and we expect the rest of the year to remain so. We expect, as I have said, 2023 to be in the EUR 200 million-230 million range of EBITDA. We will navigate through this inflationary period successfully like we have done in the past. We are executing our growth plan that will deliver higher growth over the coming years. We will keep our dividend policy of distributing between 40%-50% of the net income.
We are executing our ESG strategy to reduce our emissions by 2030 and 2050. Thank you very much.
Thank you, Javier. We will now open the lines for your questions.
Ladies and gentlemen, if you would like to ask a question now, please press 9 followed by the star key on your telephone keypad. In case you wish to cancel your question, please press 9 followed by the star key again. The first question comes from Michael Hoffman Stifel.
Thank you very much. Sorry, lost my voice at WasteExpo. Javier, I might have misunderstood, so I'm just asking for clarification. Do you expect the U.S. to be profitable overall, or was it the comment that the smelter wasn't a contribution? I misunderstood.
Asier is going to answer the question, Michael.
Yes, Michael Hoffman. I think it's, we are in the final part of the ramp up or the commissioning, how to say. It's a complex plant, and it's all delay in the reduction of the final cost, but I think that, it's changing, and the second part of the year is gonna be able to overpass the losses of the first quarter. With a small positive contribution of the EBITDA level for the plant. Yes. This is the idea.
Overall North America is profitable and then the smelter could be incremental to that. Just want to be clear.
Right. Right. Absolutely.
Okay. Okay. Okay. That's what I thought. I kinda misunderstood that. I just want to clarify that. Then when we are watching your business from a macro standpoint, what should we be watching at this point by geography? Is it overall industrial production in China and watch that trend, or is it a consumer spend? Then in Europe, are we only really focusing on the auto industry at this juncture and seeing what turn they're making? How do we think about the things that move you from the low end to the high end that drive demand that helps improve fundamentals?
Well, it's a very, very good and, but difficult question. Let's analyze by geographies. We see Europe, quite stable, frankly speaking. We don't see big changes in our main market during the year. We, in regarding North America, as Asier has explained before, our recycling business is as well stable. The market is quite stable with all the investment plan of the Biden administration. We see very positive signals in the short and medium term. That's why we are investing in some new projects in North America. Well, what we need is time for two things.
First, to recover some customer that the company lost before our entry, as all of you know, and we are doing a good job in that sense. We are confident and positive that we will increase volumes 24, 25. We need some more times, first, to get all the synergy we can get in our recycling business, doing all the changes in the processes, etcetera, that we are executing right now. We need some more time, as Asier has explained, to finish the ramp up in the smelting business. I feel that North America is a clearly a growth market for us for all the reason I'm explaining.
Asia, except China, is quite stable, which we will see recovery especially in Turkey after the terrible earthquake. South Korea is a very stable market. We have China. In China, we are very optimistic. In the short term, we are still seeing the recovery of the market. The global figures of the Chinese economy are very positive and everybody's talking about recovery. We are not seeing still a total recovery of our deliveries. We expect some improvement in the deliveries from our customer. Clearly, China will be a growth market. Overall, we feel positive.
As I have to repeat, 2023 is a transition year. We have some headwinds in front of us, especially coke price, treatment charge, and lower zinc price. We expect that our, we feel confident and positive that our, all our markets will evolve in a positive manner during this year and the and the followings.
Okay. Thank you. One last one. Philosophically, given this challenging year, would you expect the dividend, the forward dividend to still be flat on a EUR basis, that you'll seek to try and at least do that regard despite the challenge?
Yes, Michael. We are proposing to distribute just like last year, EUR 50 million or EUR 1.25 per share. That's what we're proposing to the AGM. Great.
Okay. Thank you very much.
Thank you, Michael.
Thank you, Michael.
The next question comes from Amit Lahoti, Citi.
Hi. Thanks for taking my question. Could you provide a breakdown of EBITDA contribution from U.S. operations and the rest? How do you see the path to profitability, especially in terms of timing in the U.S. operations? Second one is on hedging. Is the company able to hedge coke prices and reduce volatility there? Like, any thoughts around that?
Thank you for the question. As we used to repeat every quarter, we don't provide the EBITDA level by regions for. The reason besides that is always the comparison with the competitors and so on, so it's too much information. Sorry for that, I think it's that. I think it's a general guidelines that we are talking about U.S., and I think it could be enough, no?
Hedging. Yeah. Hedging, we hedge zinc, and we're not yet hedging coke, and are currently, it also would be difficult to do. As such, we're sticking to hedging zinc as explained very rigorously, but not coke.
No, no. The coke issue is that the... Well, the correlation between the coke that we use in the operation like petcoke, met coke or even anthracite, do not follow the thermal coke that is normally, which is in the hedging side. No sense to that. The other thing that we have to have an idea about the headwind of the coke is like, normally we use in the range of 270,000-280,000 tons of coke every year. The current average price of those kind of coke that we are using is in the range of 248, 200 EUR per ton. In 2021, that was not the best year.
That was 137, and even in 2022 was 110 as an average. That means that the EUR 100 which, we are sure that it will come back to the normal prices of the, of this level of 100, means that the headwind of the coke price is just in the price in the range of EUR 30 million, 28, EUR 30 million per year. This is the real reason why we are now facing the guidance that we are putting. Normalizing the coke price, we should be in the range of EUR 30 million up in both part of the guidance. Yes, that could be a good idea to hedge the coke price. Not possible, basically, but no correlation. In any case, it's not now the current time. I think it's the...
We have to wait that the volatility of the coke price get down and stay on the same level that it was in the past.
Okay. Very helpful. Thank you.
The next question comes from Lasse Stueben, Berenberg. Please go ahead.
Hi. Good afternoon. Just a quick follow-up. I think you just answered it, but when we spoke last in March for the full year results, you kind of said that 2022 adjusted EBITDA was, you know, the floor that you saw for 2023. I'm trying to figure out what's changed since then. Is it the coke price, which you just sort of alluded to, the EUR 30 million, or is it, you know, China being, you know, a bit slower in recovering than you perhaps expected? That'd be the first question. The second question is, could you maybe comment on, you know, European steel production and how that impacted utilization in Q1 because it was down again quarter-on-quarter. It'd be interesting just to hear how that's developed versus Q4 last year. Thank you.
Well, thank you for the question. Probably, yes, we were waiting for that question about the floor and so on. Well, the reality is that, this is, this is something that is alive and, and TC has been set finally. Prices are, are down. coke price are now showing reduction. All, all together has made us to put the range that we are putting here, no? In reality, they are not a big difference in the, in the, in the floor for... or the result of last year with a medium turn of the guidance. Basically I think that the message is that. I think it's a, it's a period, as Javier explained, of a transitional year with a lot of headwinds, everything moving parts and so on.
This is why we think that this is more, well, probably realistic guidance that we are doing now, no? This is the idea.
Yep.
Regarding the second question. In Europe in particular, the production of steel in the first quarters has been down 10% but is showing signals of recovery because it's higher than the last quarter of 2022. How we see? Obviously we have not the crystal ball here to see the steel production, but what we see every day is the deliveries that are coming to the plants. In the case of the European steel production, what we see is that the starting of the year, January, was a little bit lower than we expected after coming from the normal December Christmas standstill of the steel makers. End of February, March, they are recovering normal rates.
nowadays, second quarter, we see that they are in the normal recovery rate. Well, I think that the production could be, as Javier say, stable in Europe and in the range than normal place. We don't see a big problem there.
Okay. We should see utilization rates and steel dust recycling tick up again as we move into Q2 and Q3. Is that correct?
That's correct. Considering always, don't forget, please, the yearly standstill that we used to do during normally second quarter and third quarter. In general, yes, we don't hope extraordinary stoppages for the plant. I think that is gonna be normal.
Okay, great. Just one more, if I may, then I'll jump back into the queue. You already mentioned the really strong quarter in the aluminum business, you know, EUR 14 million of EBITDA. Is that, you know, everything seems very favorable there at the moment? You know, what's sort of a comfortable run rate or a run rate you feel comfortable with for the remainder of the year? Is that EUR 14 million sort of, you know, as good as it gets for aluminum?
Well, I would like to ask yes, but, to answer yes, but, it will dependent as well on the evolution of the prices of aluminum at the global margin of the business. Has been very, very good, and I think it's following the trend of the aluminum businesses in general, primary aluminum and so on. We don't know if this can be possible to keep the whole year at this level. We do hope to have a very good year, but probably not multiply by 4 the aluminum the first quarter. We have to be a little bit more conservative there. In any case, we do hope a really good year in the aluminum business.
Great. Thank you very much.
The next question comes from Moomal Irfan, Goldman Sachs.
Hi. Thanks for the presentation. My question is on energy costs in the aluminum business. When gas prices increased last year, the business was significantly impacted. Going into winters this year, how are you thinking of managing your natural gas exposure in case prices increase again? I understand why you aren't hedging coke and coal right now, given high prices, but wondering why not natural gas. Thank you.
Thank you very much for the question. We can tell you the idea, but it's difficult how the gas prices are gonna evolve, especially in Europe, where we are located in the, in the aluminum business. Yes, you are right that the first part of the year or what the first two have saw a big decrease or decrease considering 22 prices. Where it's gonna stay the whole year, difficult question. We would like to say that at least on that level, but there are many voices saying that it's gonna be back on increase because pressing from China and the recovery. Others they say that it's gonna be lower because it's stable and the warehouses in Europe are supporting not so high dependence from the Russian.
Many, many ideas. We cannot answer exactly what is happening, but I think we would like to see those prices the rest of the year. That's why in the previous answer of the question, we are telling that we are not sure that we can repeat the 3rd quarters in the aluminum business like this year. In any case, we do hope positive evolution of the business based on those things. If the gas prices increase, well, we probably have to play with the, with the margin as well and pass through to customers as we did 2022. I think in any case, it's something that we can more or less manage.
Muma, I think we had the discussion before on hedging natural gas prices, electricity or even the question on coke. It's exactly as he said, we're coming out of or still in the middle of the European energy crisis. Yes, gas and electricity prices have moderated are further down. The question is what's the new normal? Because they're still higher than what they were two years ago. That's what we're monitoring, and then we'll make the right decision. For now, we have not yet put any hedges on the books. Thank you.
Thanks for that.
At the moment, there seem to be no further questions. If you would still like to address a question now, please press 9 followed by the star key. There's 1 question coming in from Anis Zgaya, ODDO BHF. Please go ahead.
Yes. Hi. Thank you for taking my questions. I have two. The first one is regarding coke. We've seen a quite strong decrease in coke and coke prices in China, Australia and India in the recent weeks. Is this something you start seeing in your outsourcing of coke in your different markets? My second question is on guidance, on the upper endpoint of the guidance. What are your underlying expectations for the zinc prices and coke prices? Thank you.
It's very difficult to understand you, Anis. There is a lot of noise in your phone.
Yes. Hello. Could you hear me now?
Yes. Now, yes. Let's try.
Yes. The first one is regarding coke. We've seen quite strong decrease, I said, in coking price in China, in Australia, in India, in the recent weeks. Is this something you start seeing in your outsourcing of coke in your different markets? My second one is on the upper endpoint of the guidance. What are your underlying expectations for zinc prices and coke prices for the upper endpoint of guidance? Thank you.
Now, yes, thank you very much for the question. Regarding the first question, as I said before, I think it's our coke, the coke that we use, petcoke, is not following the same correlation of the normal thermal coke, which is used in the, in the, in the power plants or whatever, which is normally the thing that you are watching that is decreasing. In the reality in our case, there are not decreasing signals. We are on a spot basis, basically, but the spots means at least 2, 3 months for the organization of the deliveries of the quantities to the plants. We don't see signals of the decrease of the prices now.
We probably hope that is not gonna happen perhaps at the end of the year, but not in the next two quarters, probably. This is the idea. I would like to say the contrary, but we are not watching signals to decrease. Regarding the outlook, Javier, do you want to-
Yes. Regarding the second question, to be in the upper part of the guidance depends on several factors, not only zinc prices. It depend on zinc prices, evolution, coke price evolution, and the performance of our business, basically in China and in North America. If you want to be more precise, regarding the zinc prices, to be in the upper part, we should expect better prices than 3,000 EUR per ton. It's more a combination of all the different factors than only which will be the zinc price.
Okay. Thank you. Thank you very much.
Thank you. Thank you.
The next question comes from Jaime Escribano, Banco Santander.
Hi. Good afternoon. A couple of questions from my side. Regarding coke prices, maybe you can help us to understand what needs to happen to see lower coke prices, and I explain myself. What is driving the demand of this kind of material? How is the supply according to the internal information you have? Is there new capacity coming into the market that can suggest lower prices at some point? Why suddenly the demand of this particular coke are more expensive than in the past? Yeah, just for us to better understand this market, which seems to be a little bit of a local niche market in its region. The second question is more in the long run.
The margins of this company in the last few years, group level has been at around 23%-24%. In Q1 obviously have gone down to 15.6%. I wonder how much is because of this temporary high coke price, and what other moving parts like geographical mix or maybe lower margin in the US or China are diluting the margin, and how do you see these margins recovering in the long run? Be more precise, my question is, what needs to happen to see margins again of 23%, 24%? Is this something doable in the mid run? Thank you very much.
Hi there. Very complex questions as always, but well, we will try to address something. The coke price, or the coke, you know, market that you are asking for guidance of those is quite complicated. There are, as a kind of summary is that depending where you are talking about, the petcoke is basically coming from oil refineries and depends on the situation of this business. Depends as well where we use these because sometimes they are residual coke and we cannot use in every country. Depends on the availability of these. As I say, the drivers are different probably than the others.
The others, the met coke is more connecting with the steel makers production of the blast furnaces and so on and the variation of the energy prices. The anthracite as well has another variables and in particular in Europe is following what it was in coming from Russia, Ukraine, and obviously the area is now under pressure still. There are many factors. I think it's very difficult for us to summarize what happened there, no? The question here is that one can think that if the energy prices in general are coming down, the coke price will come down. It's just a matter of the raw materials in general, no?
Sulfuric acid and other raw materials that has been high and all of them are showing signals of being reduced because the volatility there. We think that that will come as well to the coke sooner or later, no? What we don't see is now, because we are in May, we don't see signals that that's gonna happen probably in 2023 or at least at the end of 2023. This is summary. It's difficult for us to explain all the drivers that can happen to that. There are traders in the middle, there are, you know, that can play with quantities, they can play, I don't know, the timings of delivery. There are many factors.
The fact is that it's true that everything is going down, so this should be, or we think that it's gonna be down because always has been volatility in that market, not so high like today. In the past, the volatility of the coal prices were in the range of up and down per year, 20%. This was not killing our business. In this case, we are talking about volatilities of 100% or more than 100%. That's why the headwinds that we are having, as explained before, is in the range of EUR 30 million per year, which is affecting to the margin as well. Now, Javier is gonna answer the second question.
All in all, difficult to answer what are the drivers, but the summarizing is that the coal price is gonna be down for sure. Question mark is when. This is something that we don't see immediately, but we see it in medium term. This is the idea.
Okay, Jaime. Regarding your second question. If we normalize the last the year first quarter, EBITDA margin, the steel business was 35%. In this year, normalizing, taking out the revenues coming from the smelter and the EBITDA contribution of the smelter, this margin has been 28%. There is a difference of 7%. This difference of 7% is basically because the combination of coke, high coke price and high treatment charge. The effect of the coke price in the first quarter has been more than EUR 5 million. With EUR 5 million more, the margin would be pretty close to the normal, no, to the normal margin.
Regarding the long-term margin of the company, taking account that we have acquired a new business with a different EBITDA margin, margining approach. At the end, you need to consider that the revenues contribution of our smelting plant net will be around EUR 200 million. We are talking about a business which, once the ramp-up is finished, should have a margin between 5%-10%. It's something like our secondary aluminum business. Now Befesa is a different animal. Our sales will be higher. We will be more a company with around EUR 1.5 billion sales.
Our portfolio is composed by two businesses with an EBITDA margin between 5%-10%, which is the smelting business and the secondary aluminum business. Two businesses, steel dust recycling and solar dust recyclings, with EBITDA margins around of above 30%. All in all, my view is that we will be more in a company that with EBITDA margin in a normal situation, close to 20% than above 20%. Okay?
Okay. Thank you very much.
Thank you, Jaime.
The next question comes from Hinesh Mehta, Permira Credit.
Hi, guys. Thanks for the presentation. I'm quite new to the company, so I just wanted to ask a clarification question. On slide 9, you show the EBITDA bridge for steel dust recycling, so I can understand sort of the dynamics there. I wanted to just drill down for steel dust recycling on what drove the revenue increase. Was this the acquisition you did in the US, and is this sort of expansion in the US that's driving the revenue increase? I just wasn't clear on the disconnect between revenue and EBITDA.
Yes, exactly this. The business of the smelting sales are influencing the increase of the sales, definitely.
Okay. That, am I understanding it correctly that that is EBITDA-, which is why you're sort of not seeing that come through on EBITDA?
Temporarily, this is the reason, yes. In the first quarter, the contribution has been negative, so this has affected the margin, clearly.
Thank you very much.
As there are no further questions at this point, I'd like to hand back to Rafael Pérez
Thank you all for your questions. You can also contact the investor relations team of Befesa for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference call on our website, www.befesa.com. Thank you very much to all of you, and have a good day.