Ladies and gentlemen, welcome to the Befesa third quarter 2026 results conference call. I am Valentina DeCoro, Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rafael Pérez, CFO. Please go ahead.
Good morning, and welcome to the third quarter 2026 results conference call of Befesa. I am Rafael Pérez, CFO of Befesa, and this morning I'm joined by our group CEO, Asier Zarraonandia. Asier will start addressing the critical minerals grant in the U.S. related to the Inflation Reduction Act Section 45X, followed by an executive summary of the period. After that, he will cover the business highlights of the Steel Dust, as well as Salt Slags and secondary aluminum recycling business. I will then review the nine-month financials by business, and will cover the evolution of commodity prices, our hedging program, and finally, cash flow, net debt, leverage, and capital allocation. Asier will close this presentation providing an update on the outlook for the rest of 2026 and an update of our growth plans. Finally, we will open the lines for the Q&A session.
Before getting started, let me remind you that this conference call is being webcast live. You can find the link to the webcast on your website. Now, let me turn the call over to our CEO. Asier, please.
Thank you, Rafa. Good morning to all. Moving to page five of the U.S. critical minerals grant. Let me briefly walk you through the details of our IRA Section 45X filing and the expected financial implications. After a detailed and rigorous assessment, we have concluded that our U.S. zinc business is eligible for an advanced manufacturing production credit according to Section 45X under the Inflation Reduction Act. Based on that, we have filed our claim to the Internal Revenue Service of the United States for the 2025 year. The credit is worth 10% of the operating cost of producing our special high-grade zinc at our zinc refining plant in Mooresboro, which has a purity of more than 99.9%. The grant does not require any further capital investment to be eligible going forward.
The benefit will be recognized as a lower operating cost according to the IFRS, as well as our corporate auditors, therefore increasing our operating income and making it an EBITDA contributor. As a result of the grant, we expect a positive impact on our adjusted EBITDA of $25 million- $30 million per year for the period of the program, which runs for nine years, stepping down from 2031 to 2033. Approximately EUR26 million will be already recorded in the Q4 2026 adjusted EBITDA, and we expect the first cash in the first half of 2027. Overall, the program strengthens both our earning profile and our cash generation in the U.S. business. Furthermore, it confirms the right strategic decision to expand our business into the U.S. market. Moving on to slide six, business highlights. Starting with the outlook.
We have specified our guidance for the fiscal year 2026 to arrange for adjusted EBITDA between EUR 260 million and EUR 270 million. We lifted the lower end of our guided range by EUR10 million, as we expect a stronger contribution in the Q4. This is the operational part of our guidance, as it was defined at the beginning of the year. On top of that, we now expect an additional contribution of approximately EUR26 million of adjusted EBITDA from our filing related to the Inflation Reduction Act Section 45X. Including this financial impact of the 45X, our new guidance for adjustment EBITDA is EUR286 million- EUR296 million. Let me now continue with our operation business performance. Befesa continued delivering solid EBITDA growth in the third quarter and in the first nine months of the year.
Total adjusted EBITDA in the first nine months was EUR192 million, up by 10% compared to the same period last year. Adjusted EBITDA margin of the group was 22% in the Q3 2026, compared to 21% in Q3 2025. The deleveraging trend continued with financial leverage reduced to 2.16x in September 2026, compared to 2.6x in September 2025. The increase in net income and EPS of 12% year-on-year reflects our improved profitability. In the Steel Dust business, nine-month EBITDA was slightly up, driven mainly by higher zinc spot prices. To summarize, despite mixed business environments in both business, maintenance-related and some difficulty in the markets in the Steel Dust on one side and better metal margins in aluminum on the other side, EBITDA increased significantly year-over-year.
Moving on to page seven, with the business highlights for the Steel Dust business, where the expected recovery in end markets in Europe and Asia was slower than anticipated. In Europe, the combination of weaker construction activity with a continuous softness in the automotive sector, as well as higher electricity prices, were a drag for the steel production. Despite this challenging environment, our operation continued to perform strongly, with a load factor increasing to 90%, up by 2% this point year-over-year. In the U.S., volume growth is much stronger than in all the other regions. Steel production increased year-over-year and was supported by demand driven by investment in data centers, energy infrastructure, and industrial projects. While maintenance shutdowns temporarily affected plant performance during the third quarter, utilization improved meaningfully versus last year, and our new electric arc furnace supply contracts are ramping up as expected.
In Asia, market condition remains challenging. Volumes were lower year-over-year, particularly in Turkey and Korea, while China continued to operate at low utilization levels and around breakeven profitability. Looking ahead, while we remain cautious only from the near-term outlook as industry sentiment seems to improve. Steel demands for infrastructure, defense, and energy-related projects appears to be a solid contributor for 2027 steel demand. Moving on to page eight, business highlights for the aluminum salt slag recycling and secondary aluminum recycling business. In secondary aluminum, the key message is that the recovery in metal margins in the second half of 2026 is materializing as we anticipate early this year. Salt slags recycling volumes remain stable year-over-year, and looking at the Q4, we expect stable volumes overall. In secondary aluminum, metal margins improved significantly year-over-year from the low levels seen in the Q3 2025.
The general business environment remains, however, challenging to the tight aluminum scrap feedstock availability in Europe. Now, I will hand over to Rafael, who will explain the financials in more detail.
Thank you, Asier. Moving on to page 10, the financial results for the Steel Dust segment. Adjusted EBITDA increased in the first nine months by 2% year-over-year, or EUR 4 million- EUR 158 million, while the margin improving to 27% from 26%. While Waelz volumes declined by 3%, the according effect on EBITDA was - EUR 4 million. The decline is explained by the development in the third quarter, as explained by Asier, driven by a combination of maintenance activities and challenging market conditions. Last year, Q3 volume was extraordinarily high.
The price-related contribution was strongly positive, with EUR 22 million. While hedging and the impact from treatment charges was, in combination, just slightly negative, the entire price-related increase was related to our unhedged zinc exposure. Of course, it became more of a headwind in the third quarter, resulting in a combined negative effect of EUR 14 million in the first nine months.
FX was particularly a headwind at the beginning of the year. In contrast, the effect from energy prices and inflation became no more pronounced as we anticipated early this year. One word of energy prices. We indeed see now a headwind year-on-year, but as can clearly see in this chart, the effect from higher energy prices is more than offset by higher metal prices. On general inflation, this is mostly driven by ongoing high fuel costs, for example, diesel. Given the currently tight supply situation for diesel fuel, we anticipate that the fuel will remain a driver for general inflation, at least in the short term. Moving on to page 11, financial results of our aluminum segment. Adjusted EBITDA increased by 52% year-on-year to EUR 34 million, driven by the early expected improving pricing and margin environment.
In Salt Slags, revenue increased by 10% year-over-year to EUR 93 million, despite volumes being down slightly, reflecting the tight feedstock availability in aluminum recycling. The effect from lower volumes was more than offset by better prices, and EBITDA increased by 25% year-over-year to EUR 29 million, with according margin expanding by 370 basis points to 31%. In secondary aluminum, revenue increased by 3% year-over-year to EUR 268 million. Production volumes declined by 6% year-over-year, reflecting the feedstock availability as well as maintenance-related stoppages during the period. A significant expansion of the metal margin compensated for the lower volumes. Secondary aluminum delivered a strong improvement, moving from a negative EBITDA of EUR 0.6 million in the prior year to a positive EBITDA of EUR 5.4 million this year. Moving on to page 12, zinc price and treatment charges.
The average LME zinc price was, during the first nine months, $3,512 per ton, representing an increase of 27% year-on-year. The zinc price development gained momentum during the year. In the third quarter, year-over-year increase was even stronger. The average zinc LME price was $3,830 per ton, up 36% year-on-year. The trading range in the quarter was between $3,474 and $4,186 per ton, reaching a peak in late September before correcting towards the quarter end. The underlying market fundamentals remain supportive. Zinc concentrate supply continues to be tight and inventory levels remain exceptionally low, reflecting ongoing supply constraints. This development is also reflected in the current level of spot treatment charges, which is currently at historical low level of around -$150 per ton.
Of course, the spot treatment charge must be taken with some caution and although it's not an indication of what the annual benchmark will be for 2027, is clearly showing a downward trend. Turning to page 13, hedging. We have continued to take opportunities in the market to extend our zinc hedging book until the end of the third quarter of 2029.
Our hedging book covers three years of hedges and the entire fiscal year 2027, 2028, and three quarters of 2029. We have done this at record high levels of $3,000 for the next year, $3,100 for 2028, and $3,200 for the first nine months of 2029. Now turning to page 14, Befesa energy prices. Starting with coal, which remains our largest single energy cost component. Prices increased modestly during the third quarter of 2026. The average coal price was EUR 156 per ton, slightly upward trending most recently.
We are currently seeing a rational price development for coal. Electricity prices, however, increased more visibly recently and follow the price development of natural gas. Average electricity costs reached EUR 130 per megawatt hour in the third quarter of the year, reporting a stronger increase than what we have monitored at coal. The rise was driven by tight power markets and high energy price volatility. Finally, natural gas experienced a stronger year-over-year increase. Average natural gas prices reached EUR 79 per megawatt hour in the third quarter. Prices have increased into autumn as the northern hemisphere is entering the heating season and low levels of European gas storage facilities are meeting limited supply resulting from the war damages on natural gas infrastructure in the Middle East. Turning to page 15, cash flow results.
Operating cash flow in the first nine months reached EUR 128 million, which represents an increase of 11% compared to the previous year. On the EBITDA to cash flow bridge, starting with EUR 192 million of adjusted EBITDA, working capital-related cash amounted to EUR 54 million, about EUR 16 million higher than the same period of last year. The increase in working capital was predominantly due to aluminum business with Bernburg starting operations recently. We expect working capital to normalize in the fourth quarter, following a similar trend to previous years. Taxes paid was EUR 9 million compared to EUR 17 million last year, which is purely related to timing of tax payments. As a result, operating cash flow was EUR 128 million higher than last year's figure of EUR 115 million. CapEx was EUR 60 million, slightly higher than last year's figures of EUR 53 million.
The growth CapEx is related to the expansion of our secondary aluminum business in Bernburg. For the full year, we continue to expect total CapEx to be around EUR 70 million. Considering a normalization of working capital, lower CapEx and the expected strong operating fourth quarter, we expect a strong free cash flow generation in the last quarter of the year. For 2025, the annual general meeting approved in June 2026 to pay a dividend of EUR 1 per share, equivalent to 50% of the 2025 net income, which was paid in the third quarter. In summary, total cash flow amounted to - EUR 17 million in the first nine months after paying the dividend. Cash on hand stood at EUR 126 million, which together with our EUR 100 million fully undrawn revolving credit line, provides Befesa with almost EUR 230 million of liquidity.
Gross debt at the end of September 2026 stood at EUR 690 million, and net debt stood at EUR 564 million compared to EUR 610 million in the same quarter of last year. This results in a net leverage of 2.16x at the closing of the quarter, a strong improvement compared to 2.6x in September of last year. Turning to page 16, debt structure and leverage. The deleveraging trend that we started 2.5 years ago has continued for the tenth consecutive quarter, marking a remarkable achievement and demonstrating capital allocation discipline and a clear commitment to strengthen our balance sheet. With a leverage now of 2.16x and being already in the last quarter of the year, which will be the stronger quarter of the year regarding earnings and cash flow generation, we are well on track to reach our target leverage of between 1.5x and 2x .
Please follow me to page 17. Let me turn to capital allocation. The slide illustrates our capital allocation policy, where cash is deployed in a very clear order of priority in five steps. First and foremost, maintenance CapEx. We keep our assets safe, reliable and compliant at about EUR 45 million- EUR 50 million per year. Second, dividend. We pay out 40%- 50% of the net income, a commitment we have kept since the IPO. We paid EUR 1 per share last year, up from EUR 0.64 in 2024, and next year it will also increase significantly. Third is about the balance sheet strength. We are fully committed to keep our net leverage between 1.5x and 2x through the economic cycle. We are going to achieve this target already in this fourth quarter of the year. Fourth is growth.
We only fund projects that will deliver high returns with an IRR above 20%. The only growth project in the pipeline at the moment is the expansion of our Steel Dust recycling plant of Recytech in France, which will be executed once we have visibility of volume growth in Europe. Fifth, and finally, excess cash. Once we are within our leverage target range, all the excess cash will go back to the shareholders by increasing shareholder remuneration. We can do that through buybacks or special dividends, depending on the company valuation. Next year, 2027, will be the first year where we will deploy excess cash to shareholders. Even more now that we will have the additional cash coming from the critical minerals grants in the U.S. However, details of the deployment are still under internal review.
In short, we invest first in safe operations, we pay a consistent increase in dividend, we protect the balance sheet, we grow only at high returns, and we return the surplus cash to our shareholders. With that, I will hand over to Asier.
Thank you, Rafael. Moving on to page 19, 2026 guidance. The financial year 2026 was so far in line with our expectation. We expect 2026 to be another year of strong earnings growth. On EBITDA level, we specified our guidance for adjusted EBITDA to EUR 260 million and EUR 270 million, excluding any contribution from IRA 45X. Including the potential contribution from this IRA 45X related to fiscal year 2026 of approximately EUR 26 million, the accounting guidance range would be EUR 286 million- EUR 296 million.
The IRA Section 45X contribution would not have any impact on this year operating cash flows, as we do not expect payment within the fourth quarter. Our assumption for CapEx is also unchanged at around EUR 70 million. We expect to improve our leverage toward a level of around 1.8x by the year-end, including the contribution of the 45X. Our EPS guidance is also positively impacted.
Including the contribution for 45X, EPS will be above EUR 2.9. Moving on to page 20 with the main elements for our outlook for fiscal year 2026. We expect the dust volumes in Europe to remain at solid levels and the U.S. to grow, driven by new contracts with the steel producers. In the rest of the world, dust volumes are expected to be below last year's level. Overall, we expect similar or a slightly higher total volume of steel dust than last year, but with a different mix. Salt slags is expected to maintain broadly stable volumes compared with the second part of 2025, enjoying some tailwinds from higher collection fees. The metal margin for secondary aluminum is expected to continue improving in the last quarter of the year. For energy costs in Q4, we expect a slightly higher coke price and higher electricity and natural gas prices.
General inflation is expected to continue to be a headwind due to ongoing high energy and fuel prices. These impacts, mainly transport, maintenance, auxiliary materials, and personnel costs across all regions, creating a negative pressure point in the cost structure. As explained by Rafa, due to the ongoing tightness in the zinc concentrate market, the benchmark treatment charge settled at $85 in 2026, was slightly up compared to last year $80. Hedging activity for zinc remains stable, with the average 2026 hedge price set at approximately $2,990 per metric ton, consistent with 2025 levels, suggesting a neutral hedging contribution. Total CapEx for the year will be around EUR 70 million, with around EUR 45 million for regular maintenance and the remaining for growth in the expansion of Bernburg. We are continuing following our disciplined capital allocation strategy and ongoing focus on free cash flow generation.
Finally, on slide 21, let me provide a final update of our growth project in Bernburg. We are currently ramping production after the new line has hot commissioned at the end of September. The growth project is now complete, and we expect an increasing contribution after we have completed the ramping phase this quarter. In summary, we expect a strong Q4 underpinned by a strong volume and incremental cash flows. Additionally, the critical materials minerals grant in the U.S. for the next nine years will improve even further of cash flow profile, providing greater flexibility in our capital allocation priorities, with a clear focus on additional shareholder remuneration via additional dividends and share buybacks. With that, I hand over back to Rafael.
Thank you, Asier. Now we will open the line for your questions.
We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Lasse Stüben from Berenberg. Please go ahead.
Hi, good morning. The first question would be around Steel Dust recycling volumes in the third quarter. I know you mentioned you had lower volume in the U.S. from maintenance and also Turkey. Could you touch on that effect in Turkey a little bit more and also the potential magnitude just to understand what happened in Q3? I understand Q3 last year was super strong in the U.S., but just to get an understanding of that would be good. The second question is on energy cost. That was quite a big negative swing in the third quarter. I think in Steel Dust recycling it was about EUR 12 million. I am just thinking how you think about this going forward?
It obviously Waelz when zinc is trading very well, but is there anything else that you are thinking of doing to try and manage that as we go into winter, as you say, with low storage and the heating period coming up? The final question is, can you elaborate what the driver is of the improvement in the metals margin in the secondary aluminum business? That would be useful. Thank you.
Thank you, Lasse. Well, interesting questions. The volumes is true that the third quarter has been a little bit softer that probably we hope. But I think that the comparison with last year, if you recall to the quarters of production of over the quarters of 2025, the Q3 was very high, unusually high because they stand still on what we do. Now comparison is pulling a little bit more difficult. What we hope is the Q4 more strong than the third quarter. At the end of the day, the total volume for the year is not going to be a big increase over the last year, but I think that still we will end above the Q4.
The problem is the maintenance stoppages and in the case of the second, or the question about the Turkey or whatever it is, when you stop the plants and in those cases when you are running plants in 70% or even those levels, you have to adequate the running of the kiln with the deliveries as well. So sometimes you grow inventories and then you put. So the different moments you do those standstill, affects to the corporations. In Turkey, well, the problem, it is basically the steel production is not very high and we are anticipating more the suffering, more imports from China and from this area. Well, the production is lower and well, it is not a drama for us because we are having a slow, but as I say, it is more a matter of timing rather than a big reduction or dropping in the dust production.
With regards to the energy cost, yes, it is true that the last part of the year it was anticipated that no one can doubt that the energy costs are affecting everything and the electricity bill and the gas bill. Well, which are not very important for us. The most important is the coke, but it is affecting the rest of the things like transporting fuels, diesels and everything. The costs are higher and as well, the coke is under pressure, but we do not expect to be a pressure like in 2022. It is probably Q4 is going to be in the same line because, we have some contracts closed over the year, but we think that there are going to be some inflation pressure on the coke in the next quarters. We do not see a rally.
I do not see that there is going to be a big increase in the short term. But yes, the next quarter of 2026 and the first quarter of 2027 are going to be under pressure for the coke, and we will see how the things evolution of the rest of the years. So once again, it is coming to the, how to say, normal evolution of the coke, sometimes up and down, but we are not talking about 3x cost or 3x prices like we are talking in 2022, 2023. Or at least is what we can say today. In the case of the alu margins, I think we explained it a little bit in anticipation, but I think that the aluminum manufacturing or the cars manufacturing, aluminum production is not recovery still. I think they are under pressure, the situation of the car manufacturers in Europe.
But the question here is more solving by the side of the offer where some players are stopping operations. Secondary alu producers. This is forcing or this is coming back to the possibility to do or to work with better margins in the alu because the side of the offer, right? The demand side is not still recovered. We will see what is coming on in the future in 2027 onwards, because probably it is a medium-term, everything has to be normalized. But the reality is that the margins are coming better for the side of the offer of the secondary aluminum.
Thank you.
The next question comes from Adahna Ekoku from Morgan Stanley. Please go ahead.
Good morning. Thank you for taking my questions. I have two. First on the U.S., are you still expecting the 60 KT-70 KT uplift for this year? Just given you just mentioned that group volumes will now only be slightly higher year-over-year. Do we still have that same U.S. uplift? Then on the uplift into 2027, how much of your expected improvement is already secured through contracted volumes versus being dependent on new contracts or higher production from your existing customers? Then just second on your kind of medium term adjusted EBITDA ambition of around EUR 300 million, how should we think about that now that we have the Section 45X adding EUR 25 million-EUR 30 million? Can we simply add it on top, or has anything else in the underlying bridge changed? Thank you.
Thank you, Adahna. Yes. Well, very well-focused question on U.S. Yes, we do hope that the U.S. is going to be as scheduled in the 60,000 tons-70,000 tons up from last year. Production in U.S. is coming, I would say, stronger in our proper customers and the contract we already signed last year are affected. It is true that some deliveries from Canada, they are having some troubles because the tariff issue or whatever, but in general, I think that we can talk about this level. For 2027, we do hope that it is an increase in around 50,000 tons as well, because again, new contracts and probably potentially for that. But it is a transitional year because the new projects that we hope are coming into place in U.S. are coming more for 2028.
You probably have listened about some steel production or steel capacity increase in those years coming in 2027. So, on a continuous basis for 26,000 tons, 70,000 max, then 50,000 tons and perhaps another 60,000 tons, 70,000 tons in 2028 to be confirmed, right? Basically, yes, we are okay with the U.S. and probably the mixes that are coming lower, at least the nine months in the other geographies, especially in Asia.
With regards to the medium term, well, basically, there are nothing changing in our strategy on ideas of the operation, and now we have to up EUR 30 million for the next six plus three years. So we were talking about the EUR 300million in two years, in three years, or well, it is depending on as well when we finally increase capacity in France. Simple is nothing, but at the end, we should add EUR 30 million for the Inflation Reduction Act. This is basically the fact. It's EUR 30 million extra EBITDA and cash. This is something that is reinforcing our U.S. operation, for sure.
Thank you. That's very helpful. Just confirming there, the Recytech project, the expansion is included in that EUR 300 million?
Yeah. I think the tool, how we get the EUR 300 million, depending on all the variables that are affecting, perhaps we could get before or later, but at the end of the day, the EUR 25 million, something like that, that the Recytech project is going to contribute was making to come to the idea of the EUR 300 million, normalize it in a year, and now it's EUR 330 million, of course.
That's very clear. Thank you very much.
The next question comes from Juan Rodríguez from Kepler Cheuvreux. Please go ahead.
Hello. Thank you. Good morning. Thank you for holding or taking our questions. I have two on my side, if I may. The first one is on the margin improvement that we have seen of the Salt Slags activity. Can you give us more detail on what happened here and what is expected going forward in terms of the performance and margin of this activity? The second is on the U.S. grant cash coming in. You signaled that the one for 2025 is expected in H1 2027. What will be expected for 2026? This will be in 2027 or will be 2028? Because you are already signaling that, okay, if leverage might reach 1.8x, but this is going to be in a reported number, not in a cash number.
If you get to the 1.5x-2.0x, and given that there is no additional organic CapEx in the coming years, we get back buybacks and special dividends by 2027, 2028, depending on the cash when it is coming in. Thanks.
Gracias, Juan. Thank you. I take the first part and leaving Rafael for more the financial and cash flow implication. For the Salt Slags, what is coming is basically two things. Some better Alu prices because Salt Slags business that we have the income coming, well, with the fee that we collect for the secondary aluminum producers, with the metal sales that we do for the metal that we recover in the process, and then the others, the salt and the byproducts that we sell. Those kind of incomes are affecting to our incomes. We made a good job increasing the fees at the end of the last year because the higher cost, and we transfer some of the cost to the secondary aluminum.
But it is true as well that the aluminum rally prices that happened, especially second and third quarter, is making the sales of the aluminum more profitable. So yes, there is something conjuncture with the Alu prices, but it is not the important part of the income. More for that is coming from the fees, which are strong, and we were waiting for this increase during 2026. In the case of U.S. grants and so on, Rafael, please.
Yes. Basically, the first cash coming from the Section 45X grant is expected in the first half of next year, 2027, and then every year thereafter, according to the program, which as we have explained, is for nine years. And regarding the
The remuneration of shareholders via dividend and share buybacks, I have tried to explain that in detail on page 17 of the slide. We have outlined very clear capital allocation priorities, and the next step is reaching the target leverage, as you said, which is below 2x. We are going to achieve that already in this quarter, the fourth quarter of 2026. And then the next point will be to evaluate and to decide what to do with the extra cash, which will be to remunerate the shareholders via dividend or share buybacks, depending on the valuation of the company. Clearly, we see the first additional remuneration for shareholders happening next year, 2027. Okay? More details to come. We still have to finalize the budget for the year, but clearly 2027 will be the first year shareholders will be remunerated additionally.
Thank you. Quite useful. Just as a follow-up, if I may. What is the expected CapEx for the French asset expansion?
Yeah, completely right. Yeah, EUR 60 million- EUR 70 million, something like that, in two years. Split in two years, which is the normal timing for build a plan like this. So we hope EUR 60 million- EUR 70 million among two years, or EUR 30 million- EUR 35 million per year, or perhaps one year a little bit more. But, well, the reference is that. In two years, EUR 60 million- EUR 70 million.
Perfect. Quite useful. Thank you.
Thank you, Juan.
The next question comes from Fabian Piasta from Jefferies. Please go ahead.
Hey, good morning, gentlemen. I got only two questions left. One, could you maybe shed some light on the EBITDA contribution from the smelter business in the U.S. as per nine months? Whether this has turned profitable and how much we can expect for that in 2027? The second one is related to the recent dynamic in the zinc price market. We've seen it basically declining from the peaks, end of September, and now a sharp spike back up again. Maybe you can give some color around what you see in the market. Thank you.
Fabian, you know that well. Thank you for the question, obviously. In the case of the EBITDA, the most broad, I think that we have explained it, that it's better to approach the business in U.S. as a whole, because sometimes, depending on the transfer pricing with the TCs of the Waelz coming from the furnaces to the refineries, at the end of the day, it's not something that could have some importance. The case is that whatever you consider in U.S., and by that, we have to include EUR 30 million more. This is basically the effects of the EBITDA contribution in U.S. because it's the grant affectation. The question of the zinc price is something we are basically following and living in this world, but we are not having big, how to say, big players in that world.
What can read is that there was a peaking, as you said, two months ago, basically, or one month ago even, in October, it start to decline. Now, yes, those days are picking up again. We will see up to now. Basically the fundamentals are there. The minimum inventories, some pressure because the mining are not coming, probably the mining are affecting for the higher cost because it's affecting to the operation as well. China situation is not very buoyant in the production. All in all, it's making the pressure on zinc prices are needed to overcome with all the higher cost they have. I don't see really a so clear picture to have in maximums for the history, the $4,000. But it's true that is there and sometimes, we have to adapt.
My summary is that this is time for seeing high zinc prices because the economic situation. But where to put this high price is difficult to me to say if I see this roughly $3,900 or $3,800 as going to be for a while. It's difficult for me to see like that. But it's clearly time for the zinc price up because cost in mining, cost in refineries are very high now.
Okay. Thank you. That is very useful. Maybe one last follow-up, and then I am going back into the queue. You are talking about an EBITDA run rate in the Bernburg expansion, EUR 6 million-EUR 7 million, with the ramp basically completing or ongoing in the fourth quarter. When do you think you are going to achieve the run rate? One half 2027, and full contribution sort of in the second half? Is that the right way to think about it?
Yeah. Fabian, good question. We do not think that the fourth quarter is going to go, hopefully, but at the end of the day, the plant is ramping up. Probably we are not able to capture all the potential there. For 2027, we are, after the ramping up in the Q4, for sure it is going to start the contribution, and will be in that range. A little bit up and down, depending the availability of scrap, of product at the end of the day, because I would say the aluminum is not buoyant, but I think that is in that range of EUR 6 million is a good reference for 2027.
Thank you very much.
Fabian.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from Olivier Calvet from UBS. Please go ahead.
Yes. Hi, good morning. Thanks for taking my questions. I have just a couple left. Firstly, on volumes, could you come back on your expectation for volumes for this year? You said solid or stable Europe, the U.S. could be up 60,000 tons- 70,000 tons, rest of world down. What is the magnitude of the cut you would expect in Turkey for the full year to offset some of the growth we are seeing in other geographies? Secondly, just on energy, obviously we have moved from sort of EUR 144-EUR 156 for coke, electricity to EUR 130 per MWh , gas as well, increasing quite a bit. If those levels in Q3 persisted through 2027, what would be the annualized EBITDA headwind versus your current cost base? Thirdly, on the TC, you have discussed it, essentially, last year at this time of the year, you gave a range.
I was just curious if your comment is essentially currently, you expect it down year-over-year, but no specific range being discussed at the moment that you would like to point to? That would be my three questions. Thanks.
Thank you, Olivier. Talking about volumes. Again, we see that at the beginning of the year, probably we were telling that we see the increase on volumes base basically and decrease in U.S. As I said before, in a question from Ana, we are talking about 60,000 tons additional in U.S. But the reality is coming through, we are basically the same level of 2025, although I think that probably for Q4, we are going to be in levels slightly higher than the 2025. In any case, it is clear that we are going to maintain the volumes, and the reason for the dropping is that, well, basically Asia is not getting the same level of last year. But nothing remarkable in terms of Turkey, Korea, and it is a splitting on China even.
It is a splitting an amount of 50,000 tons or something like that less on the two and three, and some European minor quantities. So nothing dramatically. In Turkey, it is just perhaps something about 10,000 tons or maximum. But the point is that it is a stable volume instead of having a very, very slight increase. So at the end, we did not expect a higher volumes increase in total. But now we are, well, 50,000 tons of a total of 1,350,000 tons, I think it is not something dramatically. It is like it is. Well, energy and the idea, Rafa can have some color of that. But I do not know what is going to happen, but for sure, the short-term is going to be affected. Rafa?
Yeah, I think that we need to separate, Olivier, as we have always explained, electricity and natural gas impact more our aluminum business and our ability to pass through metal margins and prices is higher. I would separate that from coke. Coke, as you know very well, we need to absorb. It is true that the trend the third quarter, and we see that trend continuing or staying high in the fourth quarter and the beginning of next year. Let's see how it evolves. Just to give you a reference, the average coke price in 2025 was EUR 160. Now we're seeing EUR 186 in the third quarter. We see that increasing, not dramatically, but it's clearly that there's an inflation point in the cost price reduction, which has been happening already since 2022. As Asier Zarraonandia said, let's wait and see.
In any case, we don't expect a very significant impact. Obviously, it's going to be a headwind, part of the inflation, but we probably can anticipate in the mid-single digit impact.
The last question, you were touching the matter of the treatment charge or how is that or how is expected. Well, obviously, once again, it's a little bit early to see, but it's true as well that the last week or a couple of weeks has been the London Metal Exchange week for all the metals and zinc, and the rest is starting to be all the things are moving on. What we can anticipate, it looks like it's not going to be on favor of the refineries. It's still on the side of the miners. But what that means is difficult to know. The spot TCs are very low, negative side, and well, this is marking a trend. It's early to say, but, well, doesn't looks like it's going to be a big change for our treatment charge.
If they are coming, looks like it's on the correct side. But we will see. It's a little bit early, Olivier, to have a clear idea for 2027.
Okay. Thanks. Can I just follow up on the volume side, maybe for Q4? If I hear you correctly, Asier, basically what you are saying is you will be perhaps slightly higher than Q4 last year, which was around a group level 320,000 tons. So that is sort of the minimum that you see for Q4?
Yes.
Just curious. Yeah.
Yes. Definitely. I think that a little bit higher than the Q4 of last year. This is the idea that we have now, and with October running and the deliveries in front of us, I think that is a tight moment for many steel makers, especially in Europe. Because the electricity prices and they are running differently, the kilns. But all in all, in Europe, we have enough and yes, I think that is the reference. It is a good reference, 4 Q of 2025, a little bit higher.
Okay, thanks.
Thank you, Olivier.
The next question comes from Anis Zgaya from ODDO BHF. Please go ahead.
Yes. Good morning, gentlemen. Thank you for taking my question. I have only two questions. First one is on the Section 45X. I have just a question on your confidence or how confident are you on that EUR 25 million-EUR 30 million annual contribution will be recurring, and what are the main remaining risks regarding IRS approval, eligible production costs or future, maybe regulatory changes? Second one is on the FX, and given the recent strengthening of the U.S. dollar, should we expect the negative FX impact seen in nine months sustained in going forward? Thank you.
Thank you for the question. On 45X, well, I have to say that it's a very high or full confidence it is happening. Obviously, the assessment is being done with tax advisors, and we know that we are eligible, and we have to cover ourselves because at the end of the day, it's something that we are putting for the first time to the authorities, but basically it's done. No other remaining things are coming. It's the same that when you do an income tax, you are subject to the review and the final approval for the authority, in this case, tax authority of the federal government there. But we don't hope it's going to be big changes. In any case, on some remarks on numbers or whatever, but it's a very high. Really, we are putting this because it's basically done.
Unless in the future or something change in the legislation, you can never know. What we are informing now is what it is for the next nine years. FX, Rafa. On FX, Anis, basically, yes, it is true that recently we have seen the devaluation of the U.S. dollar. I think the average so far in the year is still well above the average of last year. We are talking about an average this year of 1.16x versus last year average of 1.12x in the first nine months of the year. That is making a negative impact of around EUR 6 million-EUR 7 million in the year so far. Let us see how the evolution is. As you know, we are seeing great deal of volatility in the FX. We have to wait and see the impact.
But obviously, as we have explained many times, we are better off with the stronger U.S. dollar.
The last question for today comes from Jaime Escribano from Banco Santander. Please go ahead.
Hi, good morning. A last question from my side. Guidance 2029 of EUR 300 million, with this tax credits announcement, how should we think about these targets? Should we anticipate to 2028, or how should we think about this guidance? Thank you.
Well, Jaime Escribano, guidance for 2029, if I do not remember, we have put on the table never. We have put some ideas, right? Now, it is true that always we have said that probably around 2029 or 2030, with the Recytech contribution, the Recytech increased capacity, we will be for sure in the range of EUR 300 million. It is true. Now, where we are anticipating this is basically with this year, the guidance we are putting is EUR 296 million in the high part. We will see we are there, but we are going to be obviously close to the EUR 300 million already this year. As I said before, what I think that we have to consider is whatever you are considering for the years is to put EUR 30 million more.
This is basically EUR 30 million or EUR 25 million, depending the conservative you can be, or we could be, but it is true that it is an extra contribution. The remaining and operations of the challenge and whatever we have in front of us and the business model. I do not know which zinc price you are using for getting this in 2029, with the treatment charge will be, quantities, whatever, but at the end, operationally, I think that we are driving our navigation well in this challenging period because it is true that it is not perfect in other geographies. They are still making car manufacturing, well, all the things that we have discussed.
But we are doing and performing very well, helped by the zinc price, but on the other hand, offsetting by the energy and other inflation cost. But we will see. I think we will see 2027, 2028.
For sure, adding in Recytech, is clear that will be there. What we can for sure anticipate, and I think that probably something that we have to put more color is, ahead of us, we have a five years fact to six period, with this effect of the grant even higher, but the cash generation is going to be very strong over this period because the growth CapEx has been done. And out of this $60 million-$70 million of Recytech, the rest is going to be the maintenance CapEx, so the cash generation should be whatever the years you take in, very strong. And this is basically the period that we are entering in, once we get the leverage below 2x, I think that the idea is to generate a lot of cash or to put the value to the shareholders.
Thank you. One follow-up, Asier, if I may. Building on what you just said, on top of Recytech, anything extra projects or interesting projects that you are scoping that we should know about?
No, Jaime, I think we have always in the pipelines some ideas, but they are not still mature to put in those five years. If something will change, we will see, but basically not. The idea is the only project we are contemplating in the next two, three years, and again, depending on the steel projects, that's what we see now, perhaps 2028, 2029, the construction, but could be even postponed one year more because we are now expecting the dust volumes growth, and then we will do the project. Again, the five years period I see is here just generating cash without other projects. We will see during those five years what is the strategic plan or whatever in the future, but now, no.
Thank you.
Thank you, Jaime.
Ladies and gentlemen, that was the last question for today. I would now like to turn the conference back over to Rafael Pérez for any closing remarks.
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. Thank you to all of you, and have a good day.
Ladies and gentlemen, the conference is now over.