Acerinox SA

MAD:ACX

Earnings Call Transcript

[Operator]

Ladies and gentlemen, welcome to the Acerinox Q3 2020 Results Presentation. My name is Breika, and I'll be today's call operator. [Operator Instructions] Today's presentation is now live in the room, and you will here silence until the call begins.

[Carlos Lora-Tamayo]

Good morning, everybody, and welcome to the Acerinox Third Quarter 2020 Conference Call. My name is Carlos Lora-Tamayo, and I am the Head of Investor Relations at Acerinox. Miguel Ferrandis, CFO of the group, will host today's call. And also it's María Uclés accompanying us. First of all, we hope that all of you and your related ones are okay in these difficult times that we are living. After our initial remarks, we will open the line for questions. [Operator Instructions] Before getting started, let me remember to you that this conference call is being broadcast on our website, acerinox.com. Now I would like to give the word to Miguel. Please, Miguel.

[Miguel Ferrandis Torres, Chief Financial Director]

Thank you, Carlos. Thank you, all of you attending this presentation of the results of the third quarter. In the case of Acerinox, I just want to summarize these results with the word satisfaction. And I think this is something which for us is a real fact for being proud about. The COVID, as we have been saying in the last months, more than a crisis as the crisis we have been used in the past of -- passing through has been really a war. And in this regard, it's clear that if we analyze the performance of the company, probably the best word to summarize how we are facing this war and this COVID pandemia is really satisfaction. First of all, satisfaction because of safety. We start with a very, very quick reaction at the beginning of the year. And we adapted all our working centers for protecting the safety for all our workforce. We have been able to keep on working and keeping the activity in most of our working centers in some specific plants, where by government decision has been official closure as was the case in Malaysia for 1 month, also the case in South Africa for 1 month. It's clear that we have to interrupt our activity, but then going back to normality since end of April, going back to normality also in our headquarters since May. What is very, very relevant is that we are working with no high number of cases. Today, we have 25 workers all around the world in the group -- for a total population of 8,331 workers, we have 25 workers remaining at home because they have appeared to be positive in the tests and just keeping on quarantine and remaining at home. And what's more relevant is that all these infections to place out of our working centers. And consequently, there have not been extensions to other friends or colleagues. But any case, just 25 persons keeping on quarantine, remaining at home for a total population of 8,300 is also a strong fact for being satisfied of how we are granting the safety for all our workforce. In addition also, we must keep the word satisfaction when we go through the figures of the year, when we go through the figures of the quarter. In this case, we are keeping our mantra, which at the end, for running the business, is definitely keeping and assuring the profits, having the best cash flow achievable and the proper capital allocation. And these are facts that clearly are being appreciated in the results we are presenting today. We have tried to make a very, very self-explaining presentation of results, so the document that has been released early this morning provide probably the most relevant data for understanding the quarter and the 9 months. In addition, we shall summarize some of these facts in the coming slides. But what is a clear fact for us of success and overperforming, this stress test that has been for every corporation in the world, the COVID pandemia, it's clear that, in our case, we have overperformed. We have overperformed, for example, when we take in place than in the -- in our main markets. In America, in the States, the demand of stainless have fall 13%. In the case of Europe, the correction has been 18%. And when we go to our figures, we see that the sales figures, the net sales figure has corrected as 6%. And what's even more relevant is that when we go to the EBITDA, the EBITDA, we are reporting of EUR 267 million, the adjusted EBITDA is just correcting 8%. And this is we think a very, very strong demonstration of efficiency. We have been able to overperform compared with the corrections that the market was experiencing, especially by 2 ways. It's clear that we have done an absolutely successful performance in cost reduction and the data appeared in this slide in Page #3. We have been focusing on cost reduction. We have experienced a cost reduction of 10% in personnel, cost reduction of 20% in the operating expenses of the business. So as a concentration of all these facts, we have been able to compensate the reduction in volumes. And also with the integration we have done in this year of VDM and also moving through the high-performance alloys, we have been able also to neutralize part of the effects that the pandemia was providing to the business. And this is also what has allowed us to deliver a very, very robust and consistent EBITDA quarter-by-quarter in this difficult 2020. And what's more remarkable is that we have obtained -- or we have been able to generate a strong -- a very, very strong operating cash flow of EUR 167 million. So in general, we have been able to move profits on to cash flow generation. And this is also a very, very high demonstration of strength as it's also that we are keeping probably unique liquidity in our sector up to now of EUR 1.7 billion. So all the facts are probably facts that not only allows us to keep optimistic for the future and demonstrating that probably we shall pass through this war and exit this war probably stronger than when we began it. And just the fact that we are keeping an EBITDA margin of 8%, which is in line with EBITDA margin we have in the year 2019, is probably the best demonstration of how we have been successfully facing all these turbulences in this year. In the Page #4, we try to summarize, as always, what are the main explanations for understanding the circumstances in the market and also the achievements obtained in the quarter. First of all, if we go to the general market circumstances, for just the Q3, what is clear is that in the stainless world, after a collapse that took place in the Q2, there has been a strong recovery in the Q3, especially in volumes. In our actual diversification, with the integration of VDM and moving also through the high-performance alloys, we realize that the cycles are a bit different. And consequently, the correction that took place in the stainless in the second quarter, it started for the high-performance alloys in the second half of the second quarter. But probably, the main impact has been taking place in the third quarter. We shall see it later, its effects on the results of the VDM. But also another fact is the strong nickel prices. In a normal world, as was our world in the previous decades, normally increases in the nickel prices always have, as a consequence, a reactivation of the apparent consumption and apparently were positive for the market. In the actual days, not necessarily the increase in the nickel prices is having this effect. And especially in Europe, the consequences is that this increase in nickel price in the collapse of the actual market is not so simple as was in the past, making a pass-through to the market. And this is something that also is probably damaging the margins in the European market. Moving to the European as we are talking about Europe. Another fact is that in this strong correction, the imports really remain a concerning issue. The market share of the imports are at 25%, which is a proper demonstration that the quota system that the European Union adopted as safeguard measures have not been effective, at the end, have not experienced probably a more correction of the imports on to our markets. And even the effect probably has been the contrary than those that were probably consider or willing to implement through these measures. This has had its effect that we are facing the historical minimum in the base prices actually in Europe, so never we could imagine years ago that we should have seen this equivalent base prices of around EUR 500 to EUR 600 per tonne. At the end, the reality is that with this correction in the market and especially reinforced by the wave of imports that we have been facing in Europe, at the end, we are working more on effective transaction prices rather than keeping the structure of base price plus extra alloys that prove to be in the past so efficient for making a pass-through of the fluctuations of the raw materials to the final prices. This is not working in Europe. And as a consequence, all the European players are facing strong pressure on their margins. Having said that, it's clear that at least in volumes, the situation has improved. And the apparent demand in the third quarter coming from the strong correction in the second has been positive in terms of 14% still with very, very low prices but at least with higher reaction in demand and consequently in productions, which obviously have had a positive effect in the third quarter. We are very, very, in this regard, critic with the non-effect of the quota system for protecting the European market. But fortunately, I think there have been 2 effects recently announced that, at the end, the European Union is adopting antidumping measures, mostly against hot-rolled, in terms of hot-rolled, against China and Indonesia. We are talking about antidumpings of 19% and 17%. We think that, no doubt, the antidumping probably has a much more better effect than the quarter 1. So in this regard, we are positive on what this may bring for the future as especially in the hot-rolled and especially from China and Indonesia and also on Taiwan. But mostly China and Indonesia, we have seen a real wave of massive imports of hot raw materials that have been distortioning the European market for the last year. So this is a very, very positive measure. And in addition to this, very recently also, it has been announced that it's being studied, antidumping against India and Indonesia for cold-rolled. This may be also positive for the future. At the end, what we are seeing is that the trade protections, the antidumping are almost facing almost in every real market. And it's clear that what we have found is that we have much more entry barriers in several of the markets outside Europe. And at the end, Europe has been a highway for bringing material coming from our other areas, mostly Asia. So I think it's fortunately that at the end, the European Union is also reacting, which at the end is equivalent to the measures that other countries are implementing. So in this regard, it's nothing to be alarmed about. And in our case, with the geographical diversification of our production, it's something that definitely we are probably better than others also to react. When we have 4 different facilities, it's clear that we are less exposed to single trade barriers than other players, who are more exposed to 1 single or 2 locations. The situation, as we have been mentioning, Europe has not been very, very successful up to now. We hope that with these new measures, it shall come. But in the States, where we have seen is a proper reaction of the market and especially in the third quarter, the imports remain well controlled in the American market. And with this and with the high performance of -- in this regard, especially in the third quarter, of several end users, we are seeing high levels of activity and we are keeping stability in prices. So the only market in these days where the price formula of base price plus extra alloys is being respected is America. And consequently, this is one of the most relevant facts for keeping probably the high price position in America in all the stainless world. And consequently, with this, we are keeping stability in prices. The imports are under control. And the inventories in absolute terms also remain relatively low. So we are seeing, more than any other geographical position, we are Americans. And consequently, it's clear that in our case, our best plant is placed in the best market. And consequently, this is a very, very satisfactory fact also for us. In the case of Asia, what we are seeing is that the production rates have remained higher than demand. So the correction that we are seeing and we have seen quarter-per-quarter in other markets in production have not been taking place in Asia, even though also the correction in demand was there. So at the end, in these last quarters, it's clear that this overproduction on the actual circumstances in the market has created that is material available, material remaining in that area. And finally, at least in the case of Europe, it's beginning to be more difficult to play that material and to export it to Europe. But consequently, the inventories remain high. And the fortune fact that appears with a green light is the prices, as the effective transaction prices there, reflecting the increase in the nickel prices, prices in Asia have increased a bit in the last month. And this is mostly positive for Europe because one of the other circumstances that is impacting Europe is that the gap between prices in Asia and Europe is extremely narrow now. So on this basis, the fact that prices are improving in Asia probably should mitigate this fact. And consequently, we hope that it shall be probably less attractive to export material into Europe. These are the facts that more or less are probably being shown in the market. When we move to analyze how Acerinox has faced them in the Q3, what we need to remark again is the flexibility in adapting ourselves to the COVID environment. The good performance and activity of the market has allowed us to increase production in terms of 21%. So as a consequence of that, we have had a very, very robust EBITDA of EUR 87 million in the quarter. The stainless has been doing better in the Q3 than in Q2, but not in the case of the high-performance alloys. And consequently, the contribution of VDM to the profits has been positive but has been lower. This is -- this, in the case of the high-performance alloys, it's probably the red light that must be also put in connection with extreme relevant green light, which has been the strong cash generation that VDM has been able to achieve in this quarter. We shall talk later about that. But I think it's remarkable that even though the contribution in profits is low, but the cash generation has been very, very high and the cash generation contribution to the group also has been very high. So in this regard, the high-performance alloys have other variables and other structure than the commodity stainless. But what the VDM team is doing is a very, very remarkable performance in terms of making a positive cash generation. We have done inventory adjustments at the end of the quarter of EUR 18 million. This is obviously affecting more the circumstances in Europe, also in Malaysia and also in the performance alloys, which is the ones that are having lower margins. But at the end, these results have been achieved after making this inventory adjustment of EUR 18 million at the end of the quarter. I remember that at the end of the second quarter, we made one of EUR 20 million. And actually, when we have made all the adjustments of our inventory to net realizable value, we have done one of EUR 18 million. The working capital has been reduced in EUR 74 million in this quarter. This is also absolutely remarkable. And with this, we have been able to report an operating cash flow of EUR 91 million with a net reduction of EUR 31 million. So we keep our huge liquidity of EUR 1.7 billion, which is something that whatever are the concerns of what may occur, the second wave, the extension of the COVID, the vaccines and so on, what we definitely keep is a very, very safe position in terms of our liquidity. And keeping obviously our mantra of the capital allocation, our Shareholders' Meeting that took place last week approved a dividend of EUR 0.50 per share. which is a dividend yield of 7% even in the circumstances that we are describing on the year 2020. If we move to Page #5, we see the evolution in the financial figures of the group. And I think it's remarkable also to show the 3 quarters one aside the other. When we announced the Q1, it's clear that we were experiencing the way -- the COVID wave, there was a lot of uncertainties of what should be at the end the effects of the pandemia. So more or less, at that time, what we explained you was our quick reaction, how we were preparing ourselves not only for the safety of our workforce but also for assuring the proper supply of all our procurements and not experiencing pain on the supply chain for our procurements and also for keeping definitely our figures, our production as much as possible, our sales and as our margin. So what we announced as our preparation in the first quarter with an EBITDA figure of EUR 85 million, then we went to the second quarter. And probably, the effect of the second quarter results that we announced in the month of July was that we have delivered on our promises. We have passed over the exam. We have keep stability in earnings. In this regard, as appears in the slide, we obtained an EBITDA of EUR 80 million, adjusted EBITDA of EUR 94 million. So even though in these circumstances, even though in the big collapse that took place in the stainless, we compensate that with the integration of VDM and also the EBITDA coming from VDM but also with a strong cost reduction plan that we had implemented. So in this regard, I think that Q2 was a proper demonstration, as has been the Q3 that, at the end, still we are working on controlling the controllable aspect of our business and what's more important, turning into our results into free cash flow generation. So we are keeping stabilities of EBITDA. You see this EUR 84 million, EUR 90 million -- EUR 85 million, EUR 94 million and EUR 87 million. Remember, when we make the second quarter presentations, we announced -- we try to avoid surprises and we try to give you the proper guidance. And at that time, we said, "Okay, we expected that the third quarter shall be in line with the Q2." And several of your questions was, "But in line with the adjusted EBITDA or in line with the reported EBITDA?" I say, "Come on, we cannot be so precise still at these days, maybe any time between both." And at the end, the between both has been EUR 87 million, which no doubt is between EUR 80 million and EUR 94 million. So it's clear that the guidance was the proper one. And consequently, I hope that these results achieved, which were in line with what we anticipated to you 3 months ago, probably are more or less demonstrating that we can trust on how we are handling our business and how we are facing the difficulties that we are passing through. So this stable EBITDA, even though the collapses and the corrections that are occurring in the market for us is a fact of satisfaction as it's also the strong free cash flow generation in the 6 months, March to September, which in most of our business in Europe and in America has been the big effect of the COVID, you can see that we have been able to generate an operating cash flow of more than EUR 200 million. You see the operating cash flow was EUR 111 million in the Q2 and EUR 91 million in the Q3. So I think there is no better demonstration of how we are running this war that this convey of profits into cash flow generated for the business. If we talk about the different business line, first of all, in the stainless figures, what appears in this chart is their reactivation. So we experienced in the Q2 a big correction in the melting production. You see from 599,000 to 420,000, so we have a correction of 30% in our melting production. But the better environment in stainless in the third quarter move us to an increasing 21%. So in this regard, it's more or less a demonstration of the higher volumes and activity that we have experienced. The worst in terms of productivity and volumes for the stainless world was the Q2. And then even though that, as we have been mentioned, we keep our consistent EBITDA. We keep our consistent EBITDA margin of 8% in the second quarter, which at the end in the stainless mean EUR 71 million. If we exclude the EUR 14 million of extraordinary expense, in which we incurred for the acquisition of VDM, so in this regard, the evolution of a normalized EBITDA in the stainless world was EUR 85 million first quarter, EUR 71 million in the second and EUR 86 million in the third quarter. So at the end, the EBITDA improvement in the third quarter compared with the second one has been 21% if we part from the adjusted EBITDA in the second quarter or 51% if we part from the reported EBITDA. So this is probably a good demonstration of where we are. And what's more relevant is that even though, as we are mentioning, the circumstances we are passing through and the collapse that has been experienced in the market, at the end in the 9 months of the year with a reduction of net sales of 18%, we have been able to experience a lower reduction in our adjusted EBITDA of 17%. This is the demonstration of the extreme efficiency in the reduction in cost and especially the variabilization of fixed costs we have been able to achieve. When we make our last presentations, we ask you for trusting us. We have been facing a crisis all about our history. The management team in Acerinox has experience of facing difficulties. And I think this is the best demonstration that, at the end, we were able to compensate the correction in volumes by keeping margins or even being able to improve relatively the margins and then having this just correction in EBITDA of 17% but keeping the EBITDA margin of 8% in line with that we achieved January to September in the previous year. In the case of the high-performance alloys, we see the effect in the Page #7 of what we have been mentioning. The effects of the COVID start being appreciated in the Q2, but the real impact has been coming in the Q3. You can see that the melting production of VDM has go down from 25,000 tonnes to 14,000 tonnes. And the EBITDA contribution of VDM has been positive in terms of EUR 2 million. It's relevant that it has been positive. And at the end, for understanding the correction in the high-performance alloys division and in VDM, you must also keep in mind the volumes we are talking. So the world of stainless, where we are seeing a quarter production of 500,000 or 600,000 tonnes compared with the world of the high-performance alloys and VDM, where we are talking about productions of 14,000 or 25,000 tonnes per quarter, it's clear that in the niche of the high-performance alloys, which is a very, very high value-added product, the productivity and the production is low, but it's a high-margin production. But these 14,000 tonnes are the ones that must cover all the structural costs of all the 5 facilities of VDM. And consequently, in that circumstances, the EBITDA contribution is low. It's clear that the effect has -- must be higher than the effect of the commodity stainless. But what's more relevant to probably remark is that even though the contribution in terms of profit is low, the cash flow contribution to the business has been EUR 64 million in the quarter. So at the end, even though the pain is there, and I think probably the worst -- we consider the worst in the high-performance alloys and in the VDM, in this case, has been experiencing in the third quarter. But even though in that circumstances, the running of the business and the management of the business has provided this cash flow generation of EUR 64 million, so through a very, very strong reduction of working capital. I think this is also a strong fact to keep on mind for efficiency of the business. In this regard, the cash flow generated in the 6 months of this year that VDM is in the umbrella of Acerinox Group has been operating cash flow of EUR 72 million. We -- as we have said, it's clear that the main impact has been taking place in the third quarter. We now are seeing in the performance alloys a reactivation in certain end users. We are seeing now some relevant orders coming in the oil and gas, in the appliances and in the car industry. So consequently, still some sectors are not so fine as it should be, the marine scrubber or still we are cold-rolling less for other players. But in general, what we are seeing is that it's gradually coming a reactivation of the market, so this keeps our comfort that the worst is over also in the high-performance alloys world. So all this is more or less what we wanted to show in this slide of Page #8. At the end, the melting production has been substantially affected by the COVID, it's no doubt, quarter-on-quarter, recovering from the collapse of second quarter but still keeping low levels of melting production as a consequence of the COVID. But even though the correction in production, we are seeing consistency in the EBITDA, and this is very, very relevant, so we are running the business and we are controlling the business and keeping EBITDA, even though the reduction in volumes and demand. And in addition to this, the strong cash generation is allowing us to reduce the debt. In this regard, in the charts, you can see that we express in other color what is the pure debt incurred for the acquisition of VDM. We paid EUR 313 million in March. And also, we incorporate, in addition, EUR 85 million of the net debt at VDM had at that time. So the total effect of the acquisition of VDM in the group in March/April was EUR 398 million. If we exclude that, what we -- you can see is that in our running business, we have been able just to reduce the debt quarter-per-quarter. So it was EUR 541 million in Q1; EUR 475 million, Q2; EUR 443 million, Q3. So I think we are making a constant effect of reducing debt through the positive cash flow generation we are making quarter-per-quarter as appears detailed in the Page #9. So with an EBITDA of EUR 87 million, we have been able to achieve an operating cash flow of EUR 91 million. So at the end, this is probably a good demonstration of the efficiency we are describing. We have obtained that through this reduction in working capital of EUR 74 million in the quarter. And then the amount of taxes, financials and others is increasing this year in this quarter. And at the end, probably we are concentrating, one of the reasons is that the taxes that has been appearing in the third quarter is the addition of the taxes that were paid mostly in America in the third quarter, aggregating those of the second quarter. So part of the measures adopted in the States were delaying the taxes' payment. And consequently, in the third quarter, it has been paid, the taxes corresponding to second and third quarter. Because of that, the taxes figure is a bit high, even though that we have reached this operating cash flow of EUR 91 million. And what's more remarkable in our business is that obviously keeping absolutely focused on those investments, which are needed both for environmental or also for increasing productivity but assuring a quick return, we have made payment CapEx of EUR 29 million. And at the end, we have obtained in the quarter a free cash flow generation of EUR 62 million. If we move to the 9 months that appear in the Page #10, you can see that with an EBITDA generation of EUR 252 million, the reduction in working capital in the whole year has been of EUR 39 million. And we have obtained EUR 167 million of operating cash flow. As we said priorly, for us, the capital allocation is one of our mantras. So with this EUR 167 million, we can -- we have been able to pay CapEx of EUR 80 million. If you compare more or less the equivalent free cash flow or operating cash flow minus CapEx, at the end, the equivalent free cash flow, if not were through the investment in VDM, in the financial acquisition of VDM, we should have obtained up to September a free cash flow of EUR 87 million. You know our business. You follow us. Normally, our most seasonal cash generator quarter-per-quarter normally is number 4. So with this, we are fully confident that the figures we have provide you in February for the whole year 2020 should show cash generated in the business and not only to keep the dividend and keeping that dividend yield of 7% that we have mentioned before and in addition, being in position of reduced debt. So this, for us, is one of the most remarkable areas for be satisfied of the figures we are providing you in these 9 months. And at the end, liquidity still remains the best-in-class. When we start the COVID, we keep you comforted with the issue that we have liquidity in hands of EUR 1.5 billion. Actually, what we have is EUR 1.7 billion. So with the liquidity actually we have, we cover all our maturities for the next 10 years. So this is something also, I think, that it's unique. So it's a strong fact of comfort. Who knows where we shall return to the levels we had previous to the COVID? We hope that it shall be a matter of certain quarters. But in any case, a part of the demonstration of cash that we are generating in this quarter, what is clear at us with the liquidity we have in hand, we can cover maturities of the next 10 years. So it appears that in the COVID, we have passed the worst and the worst is over. But what's more relevant is that we have been able to pass the worst, not consuming our liquidity. And in the contrary, we have able to increase our liquidity through this cash generation and debt reduction. What's also relevant when we analyze our debt, not only is that our debt is extremely competitive. The weighted average cost of our term debt is below 1.5%, including all the issues and all the fees and so on. So it's a very, very competitive term debt. And what's more relevant is that most of it is free of covenants. So our sector is cyclical. We know that. But we have no specific concern to be more or less actually keeping our energies as much as we have no covenant related to profitability. The only -- we say that we have 94% of the gross debt free of covenants. Still, there are some covenants in the term debt that actually VDM has in place. And this is something that probably in the coming months shall be now rediscussed and renegotiated with the bank pool financing VDM, which is in line with the bank pool financing the rest of the group. And then reaching the conclusions before giving some time for the Q&A, just some of the facts we want to remark that have been recurrently appearing in the presentation. It's clear that we have focused on controlling the controllable aspect of the business. And in this regard, I think we must be satisfied as we said initially. The fact that the results have been very, very consistent in the same range all over the year, facing corrections of the stainless in Q2, corrections of the alloys in the Q3. But at the end, the consistency in the results is also a strong fact of comfort. The liquidity and the balance sheet is something that, as you know, we are very, very proud and we think it's unique. We keep the capital allocation of providing dividends and investing. Because at the end, in this business, investing now and keeping the state of the art, keeping productivity, protecting the environment is necessary in this business. If we were forced to cancel every investment just because a crisis or just because of correction, we have -- we shall lose the trend of competitiveness. And at the end, what this shows is that regardless how challenging 2020 has been, we have never taken our eye of the long-term strategy. I also want to remark in this regard that not only we have been facing this war. But in addition, we have faced this war and probably won the war. We have made an extraordinary performance in the integration of VDM to be as quick as possible. We have kept the very, very ambitious targets. We plan to assuring the integration of VDM. And in this regard, every team and both teams of not only the stainless' responsibles but also the high-performance alloys' responsibles have done in the distance and through video conference and through telephones and not having the possibilities and the higher value of face-to-face discussions. But we have made our remarkable work in assuring a smooth integration. We are keeping and we are overperforming the ambitious targets that we planned. So as a consequence of this, we can see that we are reporting in huge detail all the figures of VDM as we shall continue doing. And now we reach the outlook for the quarter. And for the coming quarter, it's clear that the visibility is reduced. And there are facts definitely that may provide some uncertainties. But the -- well, the pandemic still is there. Now the concerns are for the second wave. We are following our most reliable consultants and advisers in this regard. We think for economics, SMR, all are stating and realizing that it's clear that this second wave that now we are suffering probably the effects are much more higher in the service sectors and in the manufacturing one. So in this regard, we are not -- up to now, we keep alert that we are not strongly concerned that this may have impact in the production. For the coming quarter, we still see that the demand is reacting. We are seeing in Europe, in America also, for November, appears to be high levels of output and the demand remains strong. Even though every 4 years, the election period provides some [ uncertainty ] that is in November. But now we are seeing a high level of activity in the market also in the States. The recovery in the European market in terms of activity, sooner or later, shall be followed by an increase in the prices and consequently in the margins. This shall be also very relevant for us. And then in the high-performance alloys, as we have been saying, the worst is over. We are seeing now a reactivation of orders. This provides us a lot of guarantee and comfort for the coming quarters. And in this basis, but what we must keep in mind is that the Q4 EBITDA shall be in line with the reported Q3. I think this stability and consistency we have been appreciating in the last 3 quarters probably shall remain in the fourth. So on this basis, this is the best guidance we can provide you in these days. Okay. Thank you for your patience. And then we are absolutely open to the Q&A, which also Carlos and María shall participate as usual.

[Operator]

[Operator Instructions] And the first question we have today comes from Tom Zhang of Crédit Suisse.

[Tom Zhang, Research Analyst]

Yes. I've just got two about again. So number one, you stated in the release that you still see high inventory levels in Europe heading into 4Q. Clearly, you had a very productive quarter in terms of melt shop production. How much of a risk do you see the inventory levels? Are they going to be able to hang into Q4? And what kind of risk is that to your pricing power?

[Miguel Ferrandis Torres, Chief Financial Director]

Well, in Europe, what we have seen is after the summer, as we have mentioned, we have seen an increase in activity, an increase in orders. The Northern Europe is performing better than the Southern one. So the higher activity these days take place in the Northern Europe. At the end, coming from collapses occurring in the second quarter, it's relatively spread, more or less, the effect in the demand in the different types of our products. What is occurring is still the prices are horrible. So in these circumstances, we think everybody is experiencing pain. There is a big flow of imports that we have been doing probably in the month of October as a consequence of the new quotas, also additional imports maybe realizing. And as a consequence of this, this still appear to be in the stocks and in the distribution side. So we are seeing high level of activity, especially improving from the second quarter. It's still at a very, very low level of prices. At the end, this is not allowing probably us just to go back to reasonable levels of transaction prices through the way of improving base prices. As I said before, if we summarize what we have seen in base prices in the summer, they have been around EUR 400 below what historically were the level of base prices. We have seen an effect in prices in the last month as a consequence of the activity but still not enough to assuring a reasonable level of margins in Europe. But the volumes are there and the activity is there. We are seeing this in most of the sectors. Appliances is doing fine. Construction is doing relatively robust also in Europe. And this is probably the sector which in the accumulated figures up to now is overperforming. But for the coming months and also 2021, what we are realizing is improvements, especially in the sector of the transport. And consequently, the car industry is experienced to have a good performance on the coming quarters as well also as the consumer goods. So these are probably the ones that more or less shall drive us for higher comfort in the coming quarters. So this is what we achieved. And this is more or less what we are realizing. But still, we are seeing better performance in the Northern Europe, weaker performance in the South and coming from incredibly low levels of prices. In general, this is more or less what we are seeing. Probably, with this presence of the high level of imports, there is some fierce also competition for trying to gain market share from imports. And consequently, if some of the producers are facing this competition and gaining market share from imports, this is not allowing us or allowing the price situation in Europe to move up. We hope that this maybe coming. As we said before, the fact that prices have also moved a bit up in Asia shall, at the end, have its contribution of less attraction to imports. And with the addition of all this fact, we think that we should go back gradually to a more normalized level of prices in Europe. But still, we are not there.

[Tom Zhang, Research Analyst]

Okay. That was very clear. My second question, just on VDM. Could you help us through how the earnings progressed through Q3 on a month-by-month basis? I think you previously said EUR 7 million a month would be a normalized level. I assume we're clearly not quite there yet. But have earnings troughed through August or September? And are we seeing a better exit rate into Q4?

[Miguel Ferrandis Torres, Chief Financial Director]

For the Q, we have been stating that the worst is over. The Q4, we think shall be better. The contribution has been low. This is something that we anticipate in July, when we make the results release of the second quarter, we anticipate that the contribution of VDM shall be low in the third quarter as has been the case. I think in general, probably for the VDM contribution, we keep on the long-term run, we keep more or less the basis that we always mention to you. What's clear is that what we more or less agreed and we announced in November for the acquisition of VDM and took place in March, the first 6 months of the VDM contribution have been affected by the COVID issue, in addition, that the oil and gas sector also at the starting part of the year also was being weak. So we assume that the contribution in this first year of the VDM business is lower than what should be in a normalized scenario. We are doing our best in the proper integration in the whole Acerinox structure of VDM. And in this regard, we are extremely satisfied of how smooth the integration has been. And we are absolutely focused and VDM team is absolutely focused in the cash generation. So I think what must be remarked more than the fact that the contribution is as low as EUR 2 million, because at the end, as we have mentioned before, we are talking about a very, very reduced level of figures with a melting production of 14,000 tonnes. It's very, very difficult to implement high margins when the melting production is 14,000 tonnes in a quarter. And those should absorb all the cost structure. But it's clear that VDM is very, very sensible to that. So as soon as the volumes are normalized, and we are seeing now the volumes coming in the market, we think that this should be there. The fourth quarter shall be better, no doubt. And especially, what we consider is for the coming quarters, these new orders entry that we are mentioning, those shall be reflected in margins in the 2021. So gradually, we shall see that. But as I said, in terms of purely if we just analyze EBITDA, the contribution has been weak. But we are seeing new orders coming, higher volumes, higher activity. And as a consequence of that, we think that the contribution should improve gradually in the coming quarters but starting from the Q4, which -- where that shall be higher.

[Tom Zhang, Research Analyst]

So maybe if I could ask in a slightly different way, the COVID impact was seen in stainless in Q2, whereas we're seeing more for VDM in Q3. If I think about the speed of the recovery for VDM, would it be a similar speed or slower to how stainless recovered in Q3 versus Q2?

[Miguel Ferrandis Torres, Chief Financial Director]

Because at the end, the volumes are much more different. In the stainless, we work on commodities. And the volumes of VDM obviously need a higher level of output to absorb all the fixed costs of the business. So the huge performance we have done in reducing the operating cost in the stainless is not so simple. In the high-performance alloys, where the volumes are much more lower and these tonnes and this low level of tonnes need to absorb the cost, so consequently, the recovery shall be gradually, less quick than what has been in the case of stainless.

[Operator]

We now have next question from Alan Spence of Jefferies.

[Alan Henri Spence, Equity Analyst]

So I've got two questions and I'll just take them one at a time. The first one is on guidance. I mean you just highlighted to Tom an expected improvement in VDM in Q4. And it sounds like on the stainless side, demand is coming -- things aren't getting worse. So given the fact that you had quite a sizable negative inventory adjustments in Q3, is it perhaps reasonable that there's some upside risk to what you've kind of communicated guidance being flat quarter-on-quarter?

[Miguel Ferrandis Torres, Chief Financial Director]

We think, as we said before, the contribution of VDM shall not be huge for the fourth quarter. But the contribution of the stainless shall be consistent in the States. Figures for October and November in the States are going to be fine. Normally, you know that the fourth quarter in the States is normally the seasonal slowdown. But this year, obviously, coming this year, everything is a bit unique. So the business and the parameters of the business this year are facing in a different way. And we are keeping for October or November good performance in America. Normally, in America, from Thanksgiving to Christmas, there is low level of activity. But this year, even though some months ago, we considered that maybe the uncertainties of the elections should make a softer November, this is, by far, not what we are seeing. And in addition, we are keeping very, very high levels of output in America. And the prices in the respect of the extra alloys formula is allowing us obviously to have proper margins in the States. So consequently, the contribution of America shall be also consistent for most of the quarter. In the case of Europe, just with the reactivation of the market and the higher volumes, we are also experiencing a higher contribution in Europe and in South Africa. So consequently, as a combination of all these facts, we are very, very comfortable that the fourth quarter shall be in line. Reactivation of the European business and higher volumes is relevant for us. But the contribution, by far, is clear. That is good in terms of activity. But we are less exposed to the one coming in -- coming from America, which is our main contributor. And America is keeping very, very robust. So we hope that we shall obtain better margins in Europe and in South Africa. Also in VDM, but we shall keep the consistency also that the America is doing fine. And at the end, as you know, 50% of our sales comes from North America.

[Alan Henri Spence, Equity Analyst]

Okay. So just a quick following-up, it seems like a fair conclusion that as long as there's amount of further write-down in Q4, perhaps -- we'll see how it goes, but perhaps there could be better EBITDA quarter-on-quarter?

[Miguel Ferrandis Torres, Chief Financial Director]

We think that with EUR 18 million of inventory adjustment we have done, obviously this is taking care mostly in Europe, mostly for the alloys and also a certain extent, in Malaysia. We think with this, we are well covered. So this also shall contribute to the fact that the EBITDA for the fourth quarter shall be in line with EBITDA we are having.

[Alan Henri Spence, Equity Analyst]

Okay. And you have significant liquidity and deleveraging is ongoing. Can you just remind us of any formal net debt targets and then how you think that might change kind of your view on capital allocation once you get there?

[Miguel Ferrandis Torres, Chief Financial Director]

Well, we have -- as we said before, as we are not having covenants, we are a bit more flexible on the targets on net debt. This year, it's clear that even though we are reducing our net debt, we -- is the year in which we have made a huge acquisition as has been the case of VDM. Consequently, we raised additional debt for the group or we included additional debt of EUR 394 million, which we already are reducing. But it shall be done gradually. So it still is very, very soon to consider that when are we expecting, realizing a normalized target net debt. We are above the levels that we normally are. But because we must obviously integrate VDM and with the good cash they're generating, they are diluting this effect. But still, it's a bit soon, as we have been mentioning, in regarding of when the business in general shall be normalized. What is good for us is that our debt is not a headache. The covenants are not a headache. And consequently, what we have is obviously more liquidity than the next maturities of debt in the next 10 years. In addition, keep in mind that there is our strategy developed in the last year. Our debt is mostly euros-related. But we have a very, very strong position of cash, mostly in the States. And at the end, in this regard, we have keep this strategy that our debt and our increases in debt was very, very well balanced with the levels of cash we were keeping in dollars, mostly in the States. In this regard, we have seen in the last months some depreciation of the dollar against the euro. So consequently, when all -- most of our cash is in dollars, the contribution of these dollars, when we move them to euro, provide some reduction in the cash on euros base. And consequently, the effect in this -- in the net debt shows an effect of our EUR 31 million as appears in the presentation. This is something that has no other relevance for us as much as we have no -- any covenant as we are indicating. That's just the pure face figure we are providing of our debt is a bit affected by this soft weakening of the euro in the last 2 months. This is something that may change or not. Who knows? But we have no specific fact of concern. As much as we are saying, it's not related to covenants. And at the end still, even how it's lower these times and what was the remuneration to this cash deposits in the States, but still are better than the equivalent we could have in the euro. So in this regard, we feel very, very comfortable having this position of matching our maturities of debt with our cash and the fact that our cash generator is mostly in the States. And consequently, we have a very, very strong cash position there.

[Operator]

We now have another question from the phone lines from Seth Rosenfeld of Exane BNP Paribas.

[Seth R. Rosenfeld, Research Analyst]

If I may, I also have two questions, first, on working capital and then secondly, on the outlook for cost control. On working capital, you commented earlier, obviously you achieved particularly strong working capital at least at VDM in Q3. Can you just touch on again to what degree the sort of structural in nature post acquisition just running inventory is better or more cyclical element because of the depressed volumes in Q3? And at the group level, can you please touch on what your expectations would be for group working capital in Q4? Would we expect a normal kind of seasonal release or given the structural demand recovery, something different? I'll start there, please.

[Miguel Ferrandis Torres, Chief Financial Director]

In general, we also are making a good exercise and good efforts all over the group in terms of reducing working capital for the fourth quarter. So consequently, this is something that is going to be there. As we normally -- as I previously said, we normally -- the fourth quarter for us with the big effort we make at the year-end in inventories reduction, and so normally, it's a good cash generator. And this year, we think that we shall remain being there. So we also expect to have a strong working capital reduction in the fourth quarter. And consequently, this is something that, for us, allows us to be very, very comfortable. In the case of VDM, it's not necessarily a seasonal issue. I think it has been done a very, very strong commitment and performance in order to be generating cash and providing cash in the actual circumstances. So it's not necessarily a fact to be seasonable -- seasonal. VDM, obviously, its production structure is more or less related to have high inventory levels. And what's very relevant is that they have concentrated most in reducing that inventories. So this is providing cash. It's clear that in the actual circumstances, it's not providing huge profits. But at the end, it's a proper demonstration of adjusting inventories, reducing inventories and working capital consequently for providing cash of the business. I think that is something that is there. The discipline is also there. And in this regard, the VDM organization is very, very committed to this. And we think still there is work to do. And definitely, we are working in that work to do, establishing the targets, not only for VDM but also for the rest of the group. So now since the last quarters, and I think we always indicate that this is, for us, is part of our priorities. So still, I think, even though the work up to now has been remarkable, I think for the whole organization, still we have improvements that we can achieve. And we are establishing -- as a consequence of the expertise also, we are taking in the last -- in this last more world crisis, we are developing new levels and new targets for being efficient. And this not only in VDM but also for the whole organization. Still, we have areas to improve. And still, we have more discipline to probably achieve all over the group for reducing inventories and also working capital.

[Seth R. Rosenfeld, Research Analyst]

That's very clear. And I guess a follow-up going into 2021, where if you could see a recovery in VDM volumes as you're now guiding to plus potentially some strength in European price or demand, would you expect the need for some of that cyclical working capital investment to offset the structural measures? Or do you think that still we could see incremental working capital relief in '21?

[Miguel Ferrandis Torres, Chief Financial Director]

Well, I think in this regard, we are now obviously taking that orders. This may [ show ] its effect, but we shall -- keeping more or less the targets for assuring that it's absolutely the necessary one. But in any case, what's more relevant in these days for us is obviously the volumes and taking the orders. We are seeing orders in oil and gas. And oil and gas has been quiet for almost a year. And this is very, very relevant. We are seeing the components for the car industry now appears also to be reacting good. We have seen in the -- for the appliances were mostly related to this new high-definition TVs. It appears also new components. And those orders already are there. So in this regard, we are seeing the volumes. And then we shall face that this should not mean necessarily a destruction of cash by increase of working capital. I think we can face that properly. We are not concerned about that.

[Seth R. Rosenfeld, Research Analyst]

Great. And one last question, please, on cost control. Obviously, in Q3, you've highlighted, I think, provisional cost down 10% and operating cost in total down 20%. To what extent would you argue these are kind of structural improvements? Or rather, as volumes recover, we expect the fixed cost to also come back going into Q4 and into 2021? And in Spain, specifically, can you clarify what the contribution was from state-backed furlough schemes and when those might expire?

[Miguel Ferrandis Torres, Chief Financial Director]

I think what for us has been probably the key issue was variabilizing as much as possible our fixed cost. And in this regard, it's clear that whenever the increase in production may come, part of this savings we have been doing shall be obviously going back to the business. So I think what definitely we need is to having that flexibility. And I think in this regard, the most relevant is the flexibility. If the volumes come and if the margins are there, that volumes by far should accept that the variable costs are in line with this increase in the volumes. But what for us is more relevant is not being absolutely prisoner of fixed cost structure when the market corrects as has been the case. So for us, in this regard, we think that this variabilization of the fixed cost is the most important. If there is reactivation of the market, by far, it shall be there. But just coming for -- as a consequence of that reactivation, we prefer a reactivation of the market, even though this strong 20% reduction in cost that we are so proud in the variable cost that should increase. But our margins should much more than neutralize this increase in the cost. But it's clear that we are -- is in a world economy. And in this world economy, what we have done is variabilizing our cost. And then for the full year, we're open, obviously keeping an eye on the business and keeping an eye on efficiency but adapting our variables to the new circumstances.

[Operator]

The next question comes from Luke Nelson of JPMorgan.

[Luke Nelson, Research Analyst]

Firstly, on cash tax paid, can you confirm that deferred tax payments in Q3 should return to normalized levels in Q4? And as a follow-up, just to Seth's question before, the effects from government aid in Europe, is that -- to what extent will that be an impact on cash generation in the upcoming quarter? That's my first question.

[Miguel Ferrandis Torres, Chief Financial Director]

Well, in the case of the taxes, as we said, the taxes paid in the third quarter correspond to 2 quarters in the States. Because it was a delay on the taxes adopted by the authorities in the second quarter. And consequently, we have paid taxes corresponding to 2 quarters. This is a simple fact. And consequently, in the fourth quarter, it shall be substantially reduced. So in this regard, there is nothing special to be concerned about. And the other question was regarding Europe. Sorry, I didn't understand exactly. Yes. Sorry, it was regarding the temporary layoffs in -- at the end, in Spain, what we obtained from the authorities is more or less the flexibility to keeping it temporary in terms of adapting it to the productivity. So as much as the volumes come and there is a reactivation of productivity, we can gradually go back to it. We -- as you remember, we made -- on the year-end last year, we made a retrenchment program in the plant of Spain. And with this, we are optimized in terms of labor. What we are doing now is adapting to the actual levels of underactivity. But it is something that if gradually it's normalized, we are open just to normalize it consequently. In this regard also, I think that almost everywhere, we have -- obviously, we are very, very committed and consistent to our stakeholders. And definitely, our stakeholders, among others, are our workforce. We have kept our workforce and we have had a proper commitment of all our workforce almost everywhere. And also where we have unions, also the unions have been also working all together, trying to flexibilize and adapting at sort of the circumstances. But if the situation normalizes, we shall then obviously normalize the production figures for all our workforce, which is mostly affected in Europe and in the plant of Spain. In the case of America, we are, by far, keeping all our workforce working and committed. And maybe part of the work that previously were done by subcontractors in the worst months, which in America was the month of June, for example, our workforce was doing part of the work that previously were done by subcontractors in order for keeping all our work positions in place. And this is something which we are committed. And consequently, we think part of the flexibility and part of the partnership we are having with the workforce almost everywhere is related to that. So when we think about the stakeholders, the stakeholders is workforce, stakeholders is shareholders, is suppliers. And also keeping the stability in suppliers, this is one of the reasons why our supply chain has not been affected. Because for years and for decades, we are keeping long-term relations with suppliers, with customers. We are very, very consistent with our workforce. And these facts probably allows us to not be so exposed to other fires when the crisis or the corrections come.

[Luke Nelson, Research Analyst]

Okay. I suppose I was getting more in terms of sort of any deferred tax payments or pension contributions that could reverse. But it sounds like it's probably not going to be a big effect.

[Miguel Ferrandis Torres, Chief Financial Director]

Nothing is special on that, no.

[Luke Nelson, Research Analyst]

And my second question is just on the U.S. And with the upcoming elections and given your large exposure, I'd just be interested to get your views on the upside/downside risk from either a Trump reelection or a Biden Democrat victory. And I suppose specifically on a Democrat victory, any thoughts you have on the likelihood of Section 232 potentially being reversed at some point?

[Miguel Ferrandis Torres, Chief Financial Director]

This is something -- the States is the States. And in this regard, maybe the parameters of the States are different than those that we may see in Europe. In this regard, it's true that the 232 Section was implemented by Trump administration. But 2 years earlier, Obama administration with Biden as Vice President also established the antidumping against China. So in this regard, there is no serious concern that any change or not in the Presidency of the States should have an impact on that. We -- the American administration always has been very, very efficient in this regard and smart on protecting their production against unfair imports. And we think that this is not going to be a substantial change. The Republican administration has more or less stated that this should remain. And I think even in the case of the Democrats, we have no fear that this should be canceled. And even some of the statements coming from the Democrats, which also are environmental-focused, are talking also about possibilities of carbon taxes and so on. So we don't think that from that level and from the trade barriers, it's going to be big changes. It's clear that the Trump administration has been business-supportive. But also all the environmental policies that the Democrats are announcing in the Biden campaign also shall mean investments on the stainless shall be needed for that. So in that regard, we don't think that the American election should mean a big change for our plant there. I think we are running in Kentucky since the year '90. We are having the Democrats and Republicans in the government in the States. And always, we have found all the American administration very, very business-opportune. We are not concerned about that.

[Operator]

We now have a question from Bastian Synagowitz of Deutsche Bank.

[Bastian Synagowitz, Research Analyst]

I have a couple of questions left. And just maybe starting quickly with a housekeeping one, could you please let us know how much of the EUR 18 million in impairment you took in the third quarter were actually allocated to VDM?

[Miguel Ferrandis Torres, Chief Financial Director]

Yes. It has been EUR 8 million to VDM and EUR 10 million for the stainless. It's clear that those areas suffering more are the ones that clearly are obviously under this inventory adjustment.

[Bastian Synagowitz, Research Analyst]

And now if you look at the fourth quarter, I mean, is it fair to assume that we basically can just cancel out the EUR 8 million, which would basically take us to EUR 10 million run rate? You indicated some improvement. But I guess most of that improvement will obviously fall into the first quarter. But is it fair to assume that in the fourth quarter, we should be back to about EUR 10 million run rate in VDM?

[Miguel Ferrandis Torres, Chief Financial Director]

I don't think -- still is a bit premature for us just to analyze that, keeping on mind that, at the end, the orders are coming. The volumes' effect in profitability may more come for the coming quarters. Still, I -- keep in mind that with the levels of production of VDM, it's very, very sensible to the output and consequently still is a bit earlier. I think they're doing a good work. But still, I prefer just to not commit to any specific figure. And we shall see the evolution from the business from now to the end. I think with this inventory adjustment, I think VDM also face properly the circumstance of the fourth quarter. As a consequence of this, we consider the worse is over, and we are seeing the volumes coming. But when they are in position of normalizing their contribution, still we need certain quarters. So with the sizes and with the figures we are commenting, Bastian, I don't think it may have a big effect on all the group figures. So keep on mind that it shall not be lower than the one of the third quarter and the group figures shall be in line with the third quarter. And then whatever is VDM, this effect of [ 3% ], [ 5% ], up or down, should not have a big relevance.

[Bastian Synagowitz, Research Analyst]

Okay. I understand. And on the order development and the evolution of your order books, could you give us any indication in terms of the fourth quarter versus third quarter trajectory, which you're seeing in your order books in the Americas and also in Europe? So if America is down [ 5% ] and maybe Europe up [ 10% ], what are the numbers -- percentage numbers you're seeing? And maybe also let us know whether you've actually built any of the price improvement in Europe, which you've talked about into your fourth quarter guidance?

[Miguel Ferrandis Torres, Chief Financial Director]

Thank you, Bastian. In terms of sectors, first of all, America, one of the sectors, which is doing best and consequently we are absolutely following it properly, is the appliances. As you know, our main investment in the last year was through the bright annealed. And then the sector of the domestic appliances is doing very, very strong and keeping very, very high levels of volumes and even contemplating that good performance in the second semester maybe compensate the correction that was experienced in the Q2. So the appliances in the American sector is doing very, very robust. All the construction there is doing fine. In terms of -- there is clearly -- the car industry also is, at the end, appears to be in good shape, the trucks and so on, which is a sector that we are also exposed. Oil and gas still is the one that appears to be not performing in line with normal levels. And this probably shall be the ones that may come a bit later. But the others, more or less, still are okay. Let's keep on mind also the effects of the COVID. And this is something that also occurs in Europe. At the end, there appear to be less investments in big infrastructures. But at the end, the domestic economies are replacing appliances. And this is, by far, coming. And this is something that we are seeing. And we are seeing it in the States as we are seeing it in Europe. So this is something which is having its effect. So in general, we think that in the States, most of the sectors are relatively okay, maybe the oil and gas, which obviously, in our case, is more related to the long products, is a bit more weak. But the other, in general, we think that are in good shape. In the case of Europe, we are coming from very, very low levels in the Q2. And at the end, what we are seeing and what we are facing is these orders coming. For the next year, we are more or less now in discussions with the car industries, with the appliances. Those remain relatively positive. But we are coming from very, very low levels. And at the end, the distortions still are there. So it's very difficult to make reliable statistics. And at the end, still the contribution mostly in Europe is very low. The contribution of the orders are high in the States but are very, very low in Europe in these days. So consequently, what we hope is that this should be normalized anytime in the coming future. And we need prices to go back. We have seen better prices. And at the end, the fact that the prices in Asia are going up, it may have its effect. But still, we are having incredible margins in Europe. So we hope that this situation should be normalized. We hope that with this antidumping of hot-rolled from Indonesia and China and cold-rolled in Indonesia, even though it may come later in 2021, but the effects, we should see them. Because the quotas are not working. And consequently, starting October, with the new quota system, we see new material entering in the ports. And this is the fact which is pushing strong for prices and consequently for margins in Europe. The volumes are there, coming from the strong correction. But still, the margins in Europe are unsustainable. We think that sooner than later, we hope that we shall start to see more or less improvements there.

[Bastian Synagowitz, Research Analyst]

Okay. So it seems like the margin improvement in Europe from the price side is really more a 2021 event. But it does seem like in the Americas, you actually are fairly confident on volumes, i.e., you're not really expecting a significant decline in volumes because of the usual seasonality of volumes, maybe actually a bit more flattish as what I would infer from your comments.

[Miguel Ferrandis Torres, Chief Financial Director]

This is absolutely okay. So the one which actually remain worse in America. And also in Europe, it's obviously more or less regarding bars, restaurants, all the catering. This is a sector which is out of the scope in these days. But this occurs both in the States and in Europe. We are not so highly exposed to aerospace. But this is something that still is not there. It's clear that part of our future strategy in the VDM growth in the aerospace industry, mostly in the States. But this is something that still is not there. So we can -- and we are not waiting for that in the short term. So -- and this is mostly the fact. The oil and gas, we hope that in America shall come back for the sales. But in the oil and gas, in the performance alloys, we are seeing already the recovery. So this gives us the confidence that if we are participating in the projects for oil and gas and VDM is starting to see that, this shall come later on in the commodity stainless. And also, obviously, Kentucky plant shall benefit. So this is something for us for keeping comfort. But still even, we have no really reliable statistic sector-per-sector. What we have is assumptions because we are coming from such a correction that any reactivation of the business provides in 1 month or 1 week a very, very distortion figure. And we must just analyze things properly.

[Bastian Synagowitz, Research Analyst]

Okay. Then I have one very last question. And this is actually a slightly higher level one. It seems like South Africa has now eventually suggested the chrome export tax. And firstly, do you know how large this suggested tax is and when the decision on it will be taken? And then secondly, maybe could you give us your assessment and view on what the implication for the industry would be?

[Miguel Ferrandis Torres, Chief Financial Director]

Well, I think South Africa, yes, South Africa obviously has been strong affected. We are seeing the local market in South Africa, I think, is reacting and performing better in the last month. But what's more relevant, and this is the reason why we indicated in the presentation, is this fact of the chrome ban for exporting the chrome from South Africa, this is something that has been killing, in our opinion, the South African industry, mostly the mining industry. And then most of the value added in the money has been moving from South Africa in these exports and benefiting obviously all the Chinese procurement. And this has provided a big pain to the South African mining industry. So the fact that is establishing such measures, still we need to define them. We think the announcement was done on the 22nd, which was last Thursday. So we still we are waiting for, say, all the details. But what's relevant is that as much as this take place, most of the value-added could remain in South Africa. And then for our procurement there, this should be better. But still, we do not know exactly all the details on what are the measures that are going to take in place. But we know that this has been killing the industry. And in our case, sometimes in South Africa, the proximity of the raw materials has not proven to be an advantage. Because by this killing the mining industry with the ferrochrome policies in the last decade, in addition with the nickel tax, have not allowed us to stay in substantial advantage from the local raw material procurement. And at the end, in our case, compared with our stainless steel scrap, it still has advantages. The stainless steel scrap has a cost saving. So this is something that as much as it's supported by the authorities, as we are mentioning, shall be positive and shall be positive for the local production of Columbus there. But still, we need to see how it materializes when the measures are precise.

[Bastian Synagowitz, Research Analyst]

And you don't think it's going to have an impact on the global market as well, given that, I think, China is importing about 80% of its chrome from South Africa?

[Miguel Ferrandis Torres, Chief Financial Director]

It may have, yes. This is the goal. But we do not know exactly how it's going to be implemented. So still, it's a bit early for us to make the future assumption for the global market. What we think is, at the end, it shall be beneficial. But maybe in the next presentations, we can detail more because still we have no info. And the announcement came on the 22nd of October, but still or at least up to yesterday had not appeared in the Official Gazette. So we are waiting for that and we can then try to evaluate it.

[Bastian Synagowitz, Research Analyst]

Do you know when the parliament is scheduled to decide?

[Miguel Ferrandis Torres, Chief Financial Director]

We should leave here and give them to other participants. So sorry about that. We can follow-up later on by phone.

[Operator]

We now have a question from Ioannis Masvoulas of Morgan Stanley.

[Ioannis Masvoulas, Equity Analyst]

It's Ioannis Masvoulas from Morgan Stanley. Just a couple of questions left from my side. The first, just following up on Bastian's question on the raw material situation at Columbus, my understanding was that you were looking to transition towards more of a scrap-based operation there. Given the favorable economics, how is that progressing in Q3? And would you think that, that announcement of that chrome export tax could change your strategy? And then secondly, you talked about the U.S. being seasonally probably better than what you have expected for Q4 on a number of those, as you mentioned, costs and also on the demand side, things looking a bit better. But how should we think about group level volumes in Q4 relative to Q3 if you take all the moving parts into account, Europe, U.S. and the rest of the business?

[Miguel Ferrandis Torres, Chief Financial Director]

Thank you. Well, in regard of South Africa, as we have been announcing in the last quarters, for us, part of this, let's say, unfavorable situation in terms of raw materials in South Africa, even though the proximity of them allows us to be more involved in obtaining stainless steel scrap, this is mostly related to the nickel for the austenitic types. So we are massively using stainless steel scrap. For us also, it's part of our of our sustainable policy. At the end, we are recycling stainless steel scrap and obtaining the nickel from that. As a big contrast with those players, mostly Chinese or Indonesia, where the Chinese are obtaining their nickel through refining the high contaminating refinery of nickel pig iron. And in our case, our policy has been other. And then consequently, for the austenitic types, what we realize and we were stressing is that the possibilities and the efficiencies should be higher if we bring or import stainless steel scrap in South Africa. This remains in place. But for the ferritic production, which Columbus should be, by far, the most competitive plant in the world, it's true that in the last years, this free export of all the ferrochrome moving more to China and not remain locally has been losing efficiency. So in this regard, the advantages for Columbus should be more for producing the ferritic types and remaining being extremely competitive in the ferritic types, which is 25% to 30% of our production. In the case of Columbus, even should be a bit higher, 25% or 30% from our global production. And in addition, if this -- we obtain a new level of efficiency in the ferritic contribution, we can see which may be the effect on the stainless. But still, it's a bit premature. What's clear is that we shall have advantages. And as I say, for the pure ferritic, it's relevant because when we talk about the stainless steel scrap, we normally talk about production of austenitic types. In regard of the volumes for the fourth quarter, at the end, as we have said previously, we are working now on the basis that the fourth quarter contribution in the States has been -- shall be, sorry, a bit higher than what's normally the fourth quarter in which the seasonal effect is there appreciated. And in this regard, we think that, as we told before, October, November, we are running at very, very high level of output in the States. Coming from a gradually recovery taking place from June in the global effect, maybe that this quarter shall be less distortion in terms of volumes than what normally occurs because we are recovering gradually from the collapse occurring in the second quarter. So in this regard, everything this year shall be a bit strange because we are -- as we have said, we are facing or at least exiting from this war. So things are a bit different. So in this regard, the fourth quarter compared with the third shall not be corrected as the seasonal occur because the third has also been a bit lower than normal. We are running below huge capacity in Kentucky, which is our standard. It's clear that the high performance of October and November maybe shall neutralize the normal correction in the fourth quarter.

[Operator]

[Operator Instructions] We now have the next question from Kris Agarwal of Citigroup.

[Krishan M. Agarwal, VP & Analyst]

Most of the questions have already given an answer. One final question, if I can ask, is on the CapEx. For 2020, we are looking at sort of EUR 100 million group CapEx. So what is your thought process in terms of maintaining this lower level of CapEx going into 2021? Or are you looking at some kind of incremental projects starting or coming back at [indiscernible] 2021 due to higher CapEx?

[Miguel Ferrandis Torres, Chief Financial Director]

Thank you. Well, in terms of the CapEx, more or less, as we announced, I think, last year, we contemplated some reduction in the CapEx expected for the year 2020. When we announced our figures, we were considering around EUR 110 million for the whole year. Then later when the COVID arise, what we announced is that we have mega prioritization program of CapEx. And we were concentrating our efforts on a specific CapEx in view of the difficulties and the uncertainties that the COVID should be provided. So on that basis, we reduced the CapEx estimation for year 2020 for the stainless in terms of around EUR 70 million to EUR 75 million. And we think in the case of VDM, when we incorporate VDM in March, we make also for the group the CapEx designed and expected and planned for VDM, which were in the range of EUR 20 million to EUR 25 million. So more or less, the figures we expected today for the global CapEx of the year were EUR 90 million to EUR 95 million. More or less, we shall be in that range on a group basis in the year 2020 compared with last year, which were EUR 127 million and only focusing on the stainless. So we have also prioritized our CapEx, mostly related to environmental CapEx. And then productivity CapEx, those were actually already contracted and with the contribution and return was better granted. This has been the ones that are coming for the year 2020. Now we are in the way of planning and we shall be making all our planning and budgeting for the coming year, but this still is not working. But the final figure for this year shall be that. Keeping in mind that this year for us is a year of investing in or paying CapEx for the business in terms of EUR 93 million for the group. But for the group also has been a big financial investment, which has been the acquisition of VDM, which has been EUR 313 million. So on this basis, these are the main investments in the year but divided in financial investment of EUR 313 million and then around EUR 90 million to EUR 95 million in CapEx on new equipments.

[Operator]

The next question comes from Francisco Rodriguez of Banco Sabadell.

[Francisco José Rodríguez Sánchez, Research Analyst]

I have one question. I don't know if I misunderstood you, but I think you said that you expect your net debt level at the end of the year to be below the one we've seen at the end of Q3, that's EUR 841 million, even though you're paying your dividend in December. So I just wanted to confirm that is correct. That means that your net debt at the end of the year will be below the one we've seen at the end of the Q3.

[Miguel Ferrandis Torres, Chief Financial Director]

Thank you. That's strictly right. So we understand that with the cash generation in the fourth quarter, a part of covering the dividend, we shall be in position of also squeezing certain reduction in debt. That's right.

[Operator]

The final question from the phone lines comes from Alain William of ODDO BHF.

[Alain William, Analyst]

My question is really on whether you have engaged with Nippon Steel to understand what is their intention regarding the stake in Acerinox.

[Miguel Ferrandis Torres, Chief Financial Director]

Thank you. Well, their intention is nothing -- I think nothing special. We have been shareholded by Nisshin Steel for the last 50 years. They were founders of Acerinox. In the last journey, Nisshin was taken by Nippon Steel. Nippon Steel is more carbon steel-oriented. Steel is a not core business from them. And consequently, they made the announcement in August that they kept their participation in Acerinox as a financial shareholding and they prefer not to be participating in the Board. There is nothing more than that. And consequently, they exit the Board since October. But in regard of what's purely their shareholding, there is nothing new. And I think there is -- they have not make any specific statements. So I think that their only message was that they were not so willing to participate in the Board and they are just remaining as financial shareholders. We have no indication if this should have any implication on their shareholding or not and when it occurs. So in this regard, we have nothing to comment more than the official statement they made. So we have no further info.

[Operator]

We have no further questions for today, so I will hand back it over to you.

[Miguel Ferrandis Torres, Chief Financial Director]

Okay. So here concludes our third quarter conference call. Thank you very much to all the participants, and have a good day, and keep safe.