Ladies and gentlemen, thank you for standing by. I am Paulina, your Chorus Call operator. Welcome, and thank you for joining the Erdemir conference call and live webcast to present and discuss the third quarter 2026 financial results. All participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. Please note, Eregli Demir ve Çelik Fabrikalari T.A.S., Erdemir, may, when necessary, make written or verbal announcements about forward-looking information, expectations, estimates, targets, assessments, and opinions. Erdemir has made the necessary arrangements about the amounts and results of such information through its disclosure policy and has shared such policy with the public through the Erdemir website in accordance with the Capital Markets Board regulations.
As stated in the related policy, information contained in forward-looking statements, whether verbal or written, should not include unrealistic assumptions or forecasts. It should be noted that the actual results could materially differ from estimates, taking into account the fact that they are not based on historical facts but are driven from expectations, beliefs, plans, targets, and other factors which are beyond the control of our company. As a result, forward-looking statements should not be fully trusted or taken as granted. Forward-looking statements should be considered valid only considering the conditions prevailing at the time of the announcement. In cases where it is understood that forward-looking statements are no longer achievable, such matter will be announced to the public, and the statements will be revised. However, the decision to make a revision is a result of a subjective evaluation.
Therefore, it should be noted that the party is coming to a judgment based on estimates and forward-looking statements. Our company may not have made a revision at a particular time. Our company makes no commitment to make regular revisions, which would fully cover changes in every parameter. New factors may arise in the future, which may not be possible to foresee at this moment in time. At this time, I would like to turn the conference over to Ms. İdil Önay Ergin, Investor Relations Director. Ms. Ergin, you may now proceed.
Thank you very much, Paulina. Good afternoon, and welcome to Erdemir's third quarter 2026 conference call and webcast. I will start by taking you through our investor presentation, which is available on our website and is also being displayed during the webcast. Following the presentation, we will open the floor for our Q&A session and take your questions. As you know, our presentation is structured in two main sections. We will begin with an overview of the market environment, followed by our financial performance. Let us begin with the commodity price developments. On page three, you will see the prices of steel-related commodities and HRC. In the third quarter of 2026, coking coal prices were supported by supply constraints in China, while weak global steel demand limited further gains. Following mining accidents, tighter safety inspections, and production cuts in China curbed domestic supply.
From August onwards, prices climbed to around $285 per ton, driven by tighter supply in China and stronger import demand. Although the upward momentum eased in September, limited physical supply kept prices at elevated levels. Iron ore prices fluctuated within the $92- $100 per ton range in the third quarter, remaining volatile and generally subdued. As the anticipated increase in demand failed to materialize in September, prices fell to around $92 per ton CFR China by the end of September. In July, scrap prices fell to as low as $370 per ton CFR. In September, prices gained momentum as steelmakers resumed purchasing and geopolitical developments drove up logistics costs. As a result, imported scrap prices ended the third quarter at $404 per ton CFR. In the third quarter of 2026, global HRC market trends were shaped by rising production costs and regional supply constraints amid weak end-user demand.
In China, high inventory levels and subdued domestic demand put downward pressure on prices, while trade measures and limited import options in Europe supported domestic producers. As a result, price disparities between regions became more pronounced. On page four, you will find an overview of the Turkish steel markets, including production, consumption, export, and import figures. In the first eight months of 2026, Türkiye maintained its position as Europe's largest and the world's seventh largest crude steel producer. In the January-August period, Turkish crude steel production increased by 7% to 26.6 million tons, and this growth reflects resilience in domestic outputs despite the challenging global steel market conditions. Going back to the slide, while production rose by 4%, consumption and exports increased by 3%. Imports decreased by 3% over the same period.
As a result, the export-import coverage ratio increased to 84% in the first eight months of 2026, higher than the previous year. In the January-August period, China remained the leading supplier despite an 18% year-on-year decline, followed by South Korea and Russia. Asia continued to be the largest import region, supported by an 8% annual increase, while the CIS ranked second on the back of higher imports from Russia. Despite an annual decrease, the EU remained Türkiye's largest export market, followed by MENA and CIS. Italy was the top destination by volume. As we shared on the previous call, EU's Carbon Border Adjustment Mechanism entered its definitive phase on the 1st of January. In addition, the EU's new steel import regime took effect on the 1st of July 2026, replacing the previous safeguard system.
These changes increase carbon costs, quota availability, and pricing risks for Türkiye's steel exports to the EU. Overall, the Turkish steel industry recorded higher production and consumption alongside improving export-import dynamics. Nevertheless, sustaining domestic demand, managing import competition, and maintaining access to export markets will remain critical for the sector in the coming months. Let's now turn to our financial and operational performance. On page six, you will find a summary of our key results for the first nine months of the year. We achieved $4.3 billion revenue. Also, we generated $490 million EBITDA and $245 million net profit. On page seven, you will see the operational indicators of our company. Following the commissioning of the final two investments in our previous investment package during the second quarter of 2025, our crude steel capacity utilization ratio gradually increased since then and reached the 96% level.
Accordingly, sales and production levels returned to their normal levels in 2026. Supported by strong demand in Türkiye, we achieved sales of 6.4 million tons in the first nine months, and we aim sales volumes of 8.4 million tons in 2026. Let's take a look at the segmental breakdown of domestic sales and export volumes on page eight. As you can see from the pie chart, there has been a slight change between sectors when we compare it to last year's breakdown. There has been a transition from distribution chains, general manufacturing, and auto to pipe and profile on a percentage basis. We see similar changes between sectors in the long products, although its share in the total sales is relatively small. Our export volume was 916,000 tons in the first nine months, representing around 14% export share in total sales.
Although our focus is the domestic market, we also consider export as an alternative market. This year, we aim to keep the share of exports in total sales in the 13%-15% range. Due to strong domestic demand and our flexibility to shift to other markets, we expect the impact of the EU's new steel import regime on our company to be limited, which I mentioned the details in the fourth slide. On page nine, you can find a breakdown of revenue for domestic and export sales. 84% of the revenue comes from domestic sales in line with the domestic volume. Despite import pressure in the domestic market, we achieved to generate $490 million EBITDA, and EBITDA per ton reached $100 in Q3, marking the seventh consecutive quarter of improvement since the low point in Q4 2024.
Our EBITDA per ton guidance for 2026 stands in the range of $75 and $85 per ton. In the fourth quarter, we expect EBITDA per ton to decrease through increasing coal prices. In terms of profitability, we closed the first nine months of the year with a net profit of $245 million. On page 10, you can see how we reached a net profit from EBITDA. One of the largest items was depreciation, which was $249 million in the first nine months. The other major item in this chart was financial expenses of $159 million. The tax income amounted to $196 million due to deferred tax income. After other expenses, net profit was $245 million. In the graph below, you can see EBITDA to change in cash bridge. Our net working capital in Q3 decreased compared to the second quarter due to the increase in inventories.
Also, we spent around $300 million to investment activities in nine months. This amount also includes CapEx and advances paid for the capital expenditures as well. The reason for the change in credit payments is that we paid off our maturing financial debts to reduce our credit interest costs. We also paid dividends of $95 million in June. On page 11, you will see the historical trends of financial borrowings and net debt. As you can see from the financial borrowings chart, our financial borrowings have decreased by the amount of our credit payments. When we look at the third quarter, our net working capital increased compared to the second quarter due to the increase in inventories. We've managed to achieve a net debt EBITDA of 1.54 x at the end of the quarter. We expect not to exceed 2 x in 2026 at the maximum level.
Slide 12 represents our cost of sales breakdown. There has been no significant change in our cost breakdown since Q2. In the fourth quarter, we expect higher coking coal prices to put upward pressure on our total costs and increase the proportion of raw materials in our cost structure. Page 13 represents the historical capital expenditures. Total CapEx was $775 million in 2025, and $315 million in the first nine months. We expect our CapEx to accelerate in the fourth quarter, driven by our solar power plant investments. The total CapEx will be approximately $600 million in 2026, with maintenance and other ongoing investments. As you already know, this figure is accrual based, and the cash outflow will be lower due to advanced payments. On page 14, just as a reminder, we announced our net zero roadmap in 2024. The roadmap remains unchanged from what we previously shared.
The first investment under this package, the solar power plant, is expected to be partially commissioned by the year-end 2026. We will now move on to the Q&A session. We look forward to answering your questions. Thank you for listening.
Ladies and gentlemen, at this time, we will begin the question-and-answer session. Anyone who wishes to ask a question may press star followed by one on the telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your headset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of Jason Fairclough with Bank of America. Please go ahead.
Yep. Good afternoon. Thanks very much for the presentation as always. Very thorough. I had a question a little bit about the profitability outlook. The EBITDA per ton was very high this quarter, and it, I think, took a lot of us by surprise, so positive surprise. I am just wondering, how should we think about Q4 and into next year? Was there anything unusual in the profits this quarter that won't be repeated?
Hi, Jason. Thank you for the question. I think this quarter's EBITDA per ton a little higher than we expected. The reason is that our analysts calculate the EBITDA per ton from the total EBITDA. Actually, we use only the main, our core business from our main product, our steel products, EBITDA divided to the total sales. Our EBITDA per ton calculation relates to our core business of steel sales. By the way, there is an NRV adjustment in this quarter. Yes, there is a one-off item. This NRV adjustment related to raw materials has been excluded from total EBITDA as it is a one-off item. The difference arises because of the one-off NRV adjustment is excluded from the $100 per ton EBITDA, as our calculation is based on finished steel product EBITDA. Therefore, only EBITDA generated from core operations is included.
That makes the difference between your calculation and our calculation. Yes, as you mentioned, it is a one-off item and actually we expect lower EBITDA per ton in Q4 due to increasing coking coal prices.
Just to follow up if I could, İdil. If we were to strip out the non-recurring item, what would the EBITDA per ton actually be for the quarter? What do you guys think?
Sorry, I couldn't get the question.
Yeah. If we take out the one-off effect, what do you think the right EBITDA per ton is? Like last quarter, I think we were $75. For this quarter, you think it should have been something similar? Hello?
Actually, Jason, this is what we did. We took out the one-off item from the EBITDA calculation. This is what we are doing actually. But when you take the total EBITDA from what we announced, you actually include that one-off item to your calculation. This is exactly what we did. We took out the one-off item from our calculation of EBITDA per ton.
Okay. And sorry, maybe I missed it, but your guide into Q4 is that EBITDA per ton should be down, yes?
For Q4, yes because of the increasing coking coal prices. As you already know, there is a four-month lag in our raw materials. So although the coking coal prices is normalizing right now in the spot prices, but it was higher than right now. So you will see the high coking coal prices impact in our fourth quarter EBITDA per ton and the profitability in general. So it is going to be lower, but I can assure that we will reach to our guidance. We will keep our guidance because our guidance was $75- $85 per ton for the whole year, and it was like that at the beginning of the year, and we still keep that guidance for the end of 2026. So although we are expecting a decrease in the fourth quarter, we are still will be between $75- $85 per ton for the whole year.
Okay. My other question is just on cash flow. For several months or several quarters, several periods, we had big inflow from working capital. Finally, that seems to have reversed. Are we now at a stable level for working capital, or do you think we need more working capital outflows to normalize the level of working capital?
In Q3, our net working capital increased compared to the second quarter due to the increasing inventories, not the tonnage, but the prices. Both raw material and finished goods inventories. Considering that Q4 becomes clearer in terms of both price and costs, we expect to see increasing figures in Q4 compared to Q3 in net working capital. In Q4, raw material inventory costs will rise due to an increase in coal prices, therefore working capital will increase in Q4.
Okay. Thank you very much, İdil. I'll let somebody else ask a question now.
You're welcome.
The next question is from the line of Evgeniya Bystrova with Barclays. Please go ahead.
Yes. Hi, İdil. Thank you very much for the presentation and congrats on the results. I have just two questions. My first question is a follow-up on the working capital. You just mentioned that inventory increase in Q3 was due to higher prices. Is that higher prices of steel and raw materials? Also just to double-check, you are expecting another increase in Q4, so when we will look at the cash flow statement, we will see an outflow on working capital side. Is that correct?
Oh, hi, Evgeniya. Thank you for the question. If you are asking for the cash base, obviously the free cash flow remained positive, but we expect negative free cash flow at the end of Q4 due to CapEx. If you are going back to working capital, yes, because of the increasing inventories, and it was because of the prices, not the tonnages, our working capital increased compared to the second quarter. Yes, we are also expecting another increase in Q4 due to increase in coal prices.
Okay, got it. My second question is on steel prices in Turkey. What is the environment like in Q4? Also, if you could share any color or views for 2027, that would be also helpful. Are there any other maybe protectionist measures that will be implemented in Turkey to protect against imports maybe further down the line in Q4 or next year? Thank you.
We haven't heard from the government, from the ministry yet, although we've heard that they are working on it to imply some additional protection. But as we shared from the beginning of the year, we did not add any additional protectionist measures to our guidance. When we said we are expecting $75-$85 per ton as EBITDA per ton, it wasn't included really any additional protection from the government. In our position, in our world, nothing has changed. But if they announce additional protection, of course, it's going to be positive for the local producers. But we are still waiting. This is the latest news, actually. And the prices. Unfortunately, for 2027, it's really difficult to give some kind of view, because obviously our sales order book is full for two and a half months, which is full order book, actually.
This is how much we have visibility. So we have around two and a half months visibility for the sales prices. And yes, it's increasing. Of course, it's a good news for 2027. But we can just see the very beginning of the year. When we start to 2026, we were very optimistic. But with the Iran-U.S.-Israel war, everything has changed. The logistic cost and the insurance cost has rise up. If nothing happens unexpected, we can say, it looks positive, 2027, but it's quite early to make any comments on the prices yet. Q4, the first two months of Q4, we have experienced decline in the sales prices. But starting from the last month, December, last month of the quarter, we have seen increase in sales prices. Generally, the sales prices in the quarter, we're going to see just a slight decrease.
But when we said we are expecting lower EBITDA per ton, the major reason is the coal prices, not the sales price.
Yep. Thank you very much. Clear. Thank you.
You are welcome.
The next question is from the line of Cemal Demirtaş with Ata Invest. Please go ahead.
Thank you for the presentation. My first question is related to inventory loss, the sites in fourth quarter. Every year in one quarter or two quarters, we see such adjustments, and maybe because of the nature. But should we expect another stock-taking loss in fourth quarter, or is it only for the third quarter? That is my first question. The second question about those spreads. Your spread with Europe widened significantly, by the way. But the north spread with China is still flat. It looks like in the global market, Turkey is the big player, and special among the producers. You mentioned that. Do you expect any urgent action on that? Because that might put Erdemir also and the Turkish industry in danger if this trend continues. And $75 per ton, EBITDA, you might be very much when one can take his sight on trend.
Maybe this will be a little bit elaborated. And the last question about the board side. It looks like no report yet. At least an update on that. Thank you very much.
Hello, Cemal. Although I had very difficult time to hear you, but I will just go through your questions. If I miss anything, please remind me any of your questions. I am going to start with NRV. I think your first question was about the NRV. It was one-off. Company has provided provision for impairment on the inventories of raw materials, which net realizable value is below their cost. The NRV write-down was recognized because the combined cost of extracting the raw materials and processing them into products exceeds the current sales prices. This matter is unrelated to steel operations and stems from our mining subsidiaries. This has only happened in Q3. Yes, it is a one-off, and we will not see anything similar in Q4. We are not expecting any provision for impairment in Q4.
You mentioned that the steel sector in Turkey is a kind of danger. I think I pick up the word danger, if I am not wrong—
You know, the spreads between the HRC price in Turkey and Europe—
Yes.
—just wider over the last several. It got wider because of the protections in Europe.
Yes.
But the Turkish market is not protected. When you look at the spreads between Turkey and China, it still goes at the same level. There is a widening in the pricing between Europe and Turkey, and Turkey continues to suffer from that. Possibly, the regulators are seeing the same picture, so at some point—
Yeah.
—it might get unsustainable. That is why I want to understand whether we think the urgent action on this, because the effect of actions will be seen not this year. Maybe it might take six, seven months at least.
Yes, you are right. If a country is, the more you protect, the higher your sales price gets obviously. We have seen this scenario in U.S.A. Right now we are seeing that in Europe. When you increase the barrier, of course, you protect more your local producers. There is not anything surprising in that case, obviously. But yes, I believe the ministry also knows that, and that is why we have heard that they are working on it. But of course, these kind of regulation changes takes time. We are expecting and waiting to hear from them. Yes, you mentioned the difference between Europe prices and Turkish prices. Yes, there is almost like $200 gap between Turkish HRC average prices and Europe local HRC prices.
Yes, it is a big gap, but it also helps us kind of in a way that we can make exports to Europe because although they increased the out-of-quota duty from 25% to 50%, also they implied CBAM, the carbon tax. The European customers still prefer Turkish steel products. Of course, the quality and everything matters, but also the price difference is important. Also, I just would like to remind that Turkey has the highest quota in Europe, so we are the primary importer for EU market. Anyway, I agree, yes, there should be some additional protection. But we also know that it is going to take time, and we are still waiting and expecting to hear. The gold mine, yes, actually, there is nothing new from the gold mine. We announced the inferred resource in November, and there are no new developments regarding the matter.
But when the further developments, of course, will be shared with the public simultaneously.
Thank you. And one last thing, İdil. About the investments, you have a low level of investments so far, around $300 million. I do not know if I missed it, but what might be the rest in the last quarter, how much more you are going to spend? And, of course, in 2027, what might be the amount of investments you needed? Thank you.
We expect our CapEx to accelerate in the fourth quarter, driven by our solar power plant investments. So the total CapEx will be approximately $600 million in 2026, as we shared starting from the beginning of the year. So yes, it is going to be higher in the fourth quarter. And at the end of the year, we are expecting approximately $600 million CapEx. Yeah. Any questions that I have not answered?
Also in 2027, you expect $600 million next year?
Well, we haven't finalized the budget yet, but in our long-term projections, we are expecting similar levels of 2026, which is $600 million. Most probably a couple of years, we're going to see around $600 million, $650 million levels during the years in 2027, 2028. This is what we see in our projections right now. But of course, when we finalize our budget for 2027, we will also update this number.
And maybe very last question about the prices. We see the prices at around $635 level, and you had two and a half months of the order book. Do we see the impact of those prices in the fourth quarters, or we are going to see in the first quarters? Thank you.
As I mentioned earlier, in the first two months of last quarter, we're going to see lower prices. But in December, we have seen higher prices. As we mentioned, we are full for two and a half months, and there is a lag two and a half months in our sales prices. Starting from December, we are seeing higher prices, and it continues like that to January. But as I mentioned, the visibility is quite low. We are just seeing the beginning of 2027. And yes, we see higher prices, higher sales prices.
Thank you.
Ladies and gentlemen, this concludes our Q&A session. I will now turn the conference over to Ms. Ergin for any closing comments. Thank you.
Thank you very much for joining us today. We hope to meet you again at our fourth quarter conference call. Have a nice day. Thank you.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.