Befesa SA
XETRA:BFSA
Earnings Call Analysis
Q3-2023 Analysis
Befesa SA
Global steel production has remained consistent with last year's levels, but the geographic breakdown tells a different story. While Steel production in Europe has seen a 9% decrease, principally in Basic Oxygen Furnace (BOF) methods, Electric Arc Furnace (EAF) production has maintained strong levels helping European plants continue robust operations. In contrast, U.S. production mirrors last year, yet the volume has been slightly reduced as anticipated. The most notable drop is in China where, despite a total production increase of 3%, EAF steelmaker clients are showing weak activity due to the ongoing real estate crisis, which has led to significantly reduced plant utilization - 60% to 70% for Jiangsu and only 30% to 40% for Henan.
The company has faced a tough commodities market, with London Metal Exchange (LME) zinc prices witnessing a significant decrease and hovering around the C90 cost curve, a historically consistent floor for prices. The recovery in zinc prices hasn't been swift, bringing complications such as high treatment charges (TC) set during previously high zinc price periods combined with the current price collapse. On the coke front, after reaching a peak in Q1, prices are starting to moderate, with a 9-month average still 85% higher than the 2019-2021 average levels. To mitigate such volatility, the company’s unchanged hedging strategy has been a keystone, covering 60% to 75% of zinc exposure up to July 2025 with hedge book prices increasing each year up to 2025.
The adjusted EBITDA stands at EUR 137 million, with an increase in working capital by about EUR 36 million year-on-year due to seasonal timings and increased revenues. Interest paid has also climbed by 27% to EUR 21 million in the first 9 months of 2023, largely due to a margin jump on the Term Loan B and a spiked Euribor rate compared to last year. Taxes paid, conversely, have decreased by 23% due to lower pre-tax profits. The result is an operating cash flow of EUR 64 million for the first 9 months, down by EUR 15 million or 19% from the same period in the previous year. The company's disciplined investment in growth and maintenance has aligned with full-year CapEx guidance, and strong liquidity persists with over EUR 150 million available. Current leverage sits at 3.4x, which remains within reasonable bounds and showcases efficient capital structure maintenance.
Facing a challenging year due to high TC, low zinc prices, and operational hiccups like lower dust volumes in China, EBITDA for 2023 is forecasted to be around EUR 180 million. Looking ahead to 2024, the company anticipates strong earnings growth steered by a potential TC reversion, decreasing coke prices, better hedging levels delivering around EUR 15 million, and projected improvements in the U.S. operations and Chinese market performance. This optimistic forecast reflects a rebound from the current year's challenges, suggesting a potential positive performance enhancement in the following year.
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Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Third Quarter 2023 Results of Befesa S.A. [Operator Instructions] After a short introduction by the management, there will be a question-and-answer session. [Operator Instructions]I would like now to turn the conference over to Rafael Perez, CFO. Please go ahead.
Good morning, and welcome to the third quarter 2023 results conference call of Befesa. I am Rafael Perez, CFO of Befesa. And today, we have with us Javier Molina, Executive Chair of Befesa; and Asier Zarraonandia, CEO of the company. Javier will start with an executive summary of the third quarter results. After that, Asier will explain the business highlights of the period covering steel dust and aluminum salt slag recycling. I will then review the financials with a focus on cash flow, net debt and our hedging program. Asier will close this presentation providing an update on the outlook for the rest of the year, for the next year, as well as our growth plan over the next 5 years. Finally, we will open the line for the Q&A session. Before getting started, let me remind you that this conference call is being webcasted live. You can find the link to the webcast and the third quarter results presentation on our website, www.befesa.com.Now let me turn this call over to our Chairman. Javier, please?
Thank you, Rafael. The third quarter has continued with a challenging macroeconomic environment that we have seen through the year. In these difficult market conditions, Befesa has delivered similar level of revenues than last year at EUR 289 million, driven by the integration of the zinc refining operations in North America, which has been -- which has compensated the decrease in zinc price. EBITDA in the second quarter has been EUR 42 million, down 8% compared to the previous year. The main driver for this decrease has been higher shipment charge up 19% compared to last year, lower zinc prices, which are down 27% compared to the same period of last year, as well as higher coke price compared to the previous year. All these negative FX has been partially offset by higher zinc hedging prices and lower operating costs driven by productivity improvements and lower natural and electricity prices. Asier will explain the performance on the steel and aluminum business in more detail later.From the strategic point of view, during the third quarter, we have continued integration in the U.S. operations, including the zinc refining plant, which is improving its performance gradually with higher utilization rates. The focus at the moment is on reducing the cost base, which will drive profitability further. Also in North America, we continue with the refurbishment works of the plant in Palmerton, Pennsylvania in order to capture the growth that we are seeing in the U.S. market on steel dust recycling over the next 2 years. In China, the real estate crisis that the country experiencing is having an impact on the level of steel production from our customers, which continue to be weak, impacting the level of utilization of our plants in Jiangsu and Henan.With regards to the third plant in China in the province of Guangdong, we are focused on getting a steel dust supply agreement with local producers in order to have certainty of supply before starting to deploy capital to initiate the construction of the plant. As we explained in the past, we have modeled the speed of the investment depending on the different dynamics that we see in the different markets. As such, we are adopting the execution of our growth strategy to the current situation in China. With regards to the outlook for the rest of the year, overall, we don't expect any meaningful change in the current macroeconomic environment towards the end of the year. Zinc price have touched the C90 cost curve. However, the price has not rebounded strongly as we would have expected.Coke price are coming down in Europe, and we are locking in contracts at good prices. However, in the U.S., coke price are still high. Based on this, we expect to achieve in the last quarter, in line with the third quarter, which will make full year EBITDA around EUR 180 million. On the other hand, for 2024, we expect a strong earning growth, which doesn't depend on the recovery of zinc price nor a recovery of the global macroeconomy. We expect many of the headwinds we are facing in 2023 this year to be reverted in 2024. Finally, we are optimistic about the midterm outlook. Our well-defined 5-year plan is based on strong market fundamentals like decarbonization megatrend. The plan is well diversified across regions and markets, which provides a facility to move in different speed depending on the dynamics that we see in each market.Today, we see a strong U.S. steel market, which will grow over the next [ 2 ] years, and we are moving fast to capture this role. On the other hand, in China, we are monitoring the development of the real estate industry, while we work on securing the steel dust volume in the third plant.Now Asier will explain the business performance in more detail.
Thank you, Javier. I will now provide an overview of the performance of the business during the first 9 months of 2023. Overall, the first 9-month period of the year has been a challenging one, as explained by Javier, impacted by decreasing zinc prices, high treatment charges, high coke prices and still a weak market environment in China. Befesa's total revenue increased by EUR 46 million or 5% year-on-year to EUR 904 million in the first 9 months of the year, mainly driven by the contribution from the U.S. zinc refining operations.Befesa delivered an adjusted EBITDA of EUR 137 million, down EUR 27 million or 17% year-on-year. This decrease was driven by lower metal prices of zinc and aluminum. Reviewing the main drivers of the year-on-year EUR 27 million EBITDA development in more detail. On volume, overall, approximately EUR 8 million positive volume year-on-year impact mainly driven by a strong volume development in Europe, which is the market where we achieved the highest margin and strong contribution from China as well as aluminum salt slag, the Hanover plant back to operations. On price, overall, approximately EUR 52 million negative price year-on-year impact, explained by lower zinc and aluminum prices, about EUR 42 million from the steel dust business and around EUR 10 million from the Alu Salt Slag business. I will explain in more detail later. On cost/other, the negative impact from high coke prices have been compensated with lower operating costs in our steel dust and aluminum salt slag business, in this case, mainly through lower electricity and natural gas prices.Turning to the Page 8, the results from our steel dust recycling business. Revenue in the steel dust business increased by EUR 72 million or 14% year-on-year to EUR 605 million, mainly attributable to the contribution from the U.S. zinc refining operations. Steel dust delivered EUR 102 million EBITDA in the period, down EUR 29 million or 22% year-on-year. Overall, the year-on-year EUR 29 million decrease in EBITDA was mainly driven by the 27% decrease in zinc LME market prices. The volume level was positive by around EUR 5 million EBITDA year-on-year impact, as explained mainly due to the strong volumes in Europe as well as strong contribution from China. In Turkey, after the earthquake occurred in February, our plant in Iskenderun has been operating at normal levels.Total steel dust volume in H1 was 890,000 tons, which is in line with the same period of the last year, representing an average utilization of 70%. The lower utilization compared to the previous year is explained by the inclusion of the Henan plant in the calculation. The price level was overall negative by about EUR 42 million year-on-year, with main price components being EUR 45 million negative impact from lower zinc LME prices, down 27% or more than EUR 900 per ton year-on-year to around 2,490 ton on average for the period. The EUR 10 million positive impact from higher zinc hedging prices helped us to fully offset the unfavorable increase of zinc TCs, which was set at $274 per ton for the year 2023 versus $230 per ton in 2022. Regarding the cost/other lever, the pressure from higher coke prices were offset by the positive impact through the productivity and synergies.Moving now to Page 9 with the results of our aluminum salt slag recycling business. Aluminum salt slag delivered a strong first 9 months with EUR 36 million EBITDA, up 6% year-on-year. The year-on-year EUR 2 million EBITDA improvement was mainly due to the higher volume and lower cost, primarily through lower energy prices, partially offset by lower aluminum market prices. Regarding volumes, our salt slag recycling volumes increased by [ 70% ] year-on-year to 258,000 tons primarily due to the ramp-up of the Hanover plant, which we completed in Q2. Our aluminum alloy production volumes increased by 3% year-on-year to 126,000 tons. With this volume, we operated our plants at solid utilization rate of about 82% in secondary aluminum and close to 73% in salt slag on average.With regards to the prices, aluminum alloy FMB market prices suffered at 12% or around EUR 300 per ton decrease versus last year. This negative price effect was partially compensated by -- with year-on-year lower operating costs, mainly through the lower gas and electricity prices. From a market point of view, although our global level of steel production is at the same level than last year, it has some different results by geography. In Europe, steel production has decreased 9% in the period, although most of the decrease is coming from BOF side of the production. EAF production in Europe continues at solid levels, supporting the strong utilization levels in our plants. In the U.S., the steel production is similar to last year. However, our volume is slightly lower as we already expected. In China, although total steel production is up 3% in the year, the production from our EAF steelmakers customers is still weak, driven by a low level of construction captured by the real estate crisis in China -- in China is suffering. As a consequence, our plant in Jiangsu is running at around 60% to 70% utilization and Henan at 30%, 40% utilization.As we saw in Page 11, zinc LME prices have significantly decreased in the year, and they are moving around the C90 cost curve. Zinc prices have historically rebounded strongly upon touching the C90 curve. This time, the recovery is not happening as quickly as in the past. Nevertheless, the C90s are clear floor of the zinc price. Regarding treatment charges for zinc in 2023, we are suffering from a very unfavorable combination of high treatment charges, which were settled when the zinc price was very high and as well as collapsing zinc prices. Treatment charge in 2023 are nearly all-time high levels and our views that this solely reverse going into 2024.With regards to Befesa's coke price after reaching at an all-time high level in Q1, Befesa's coke prices started to moderate in Q2 and continued further in Q3. However, the 9 months average coke price was still around 85% above the 2019-2021 average levels. In Q3, we are starting to see further normalization, especially in Europe, which hopefully will continue over the rest of the year and in the other geographies.Now Rafael will explain the financial section.
Thank you, Asier. Turning to Page 14 on hedging. Befesa's hedging strategy remains unchanged and continues to be a key element of the Befesa's business model, providing zinc price visibility, lowering the impact from zinc price volatility and, therefore, improving the stability and visibility of earnings and cash flow throughout the economic cycle. It is a moment like this one, we are seeing now with falling zinc prices caused by uncertainty and weak global economic outlook when the hedging proceeds its value. As Asier has explained, the zinc price is currently trading with some volatility around the C90 cost curve. In moments like this, we do not extend our hedge forward. We just wait for the zinc price to recover to extend our hedges.Our zinc hedge book covers 60% to 75% of our zinc exposure up to and including July 2025. Therefore, we have more than 20 months of hedges on our books at increasing hedging average prices, around EUR 2,400 per ton in 2023 and EUR 2,500 per ton in 2024 and EUR 2,650 per ton for the first half of 2025. The highest zinc hedging price for the coming years provide earnings increase visibility of earnings going forward.Turning to Page 15, the cash flow, net debt and leverage results. On the EBITDA to cash flow bridge, starting with EUR 137 million adjusted EBITDA on the left and walking to the right. Working capital was up by about EUR 36 million year-on-year. The higher working capital consumption was very much driven by the seasonality and timing impact similar to last year, driven mainly by increase in revenues and receivables, the majority of which is expected to reduce in the fourth quarter towards the end of the year as in previous occasions. Interest paid increased year-on-year by 27% to EUR 21 million in the first 9 months of 2023. This was explained primarily by 2 elements. On the one hand, the higher margin applicable to the Term Loan B, which increased in December 2022 by 25 basis points to Euribor plus 2% due to the increase on the leverage ratio.On the other hand, the year-on-year higher Euribor from 0% last year to 1% to 3% applicable in the first 9 months of 2023. Taxes paid reduced by 23% year-on-year to EUR 16 million from the first 9 months of the year, driven by the lower profit before taxes compared to last year, resulting in an operating cash flow of EUR 64 million for the first 9 months of the year, 19% or EUR 15 million lower versus the same period of last year, very much driven by the lower level of earnings. CapEx wise, during the first 9 months of 2023, we spent EUR 64 million in maintenance CapEx, including expenditures related to the final recovery of our Hanover plant and related to the operational excellence synergies projects in the U.S.Normalizing for Hanover recovery CapEx, regular maintenance CapEx amounted to roughly [ EUR 45 million to EUR 50 million ] in the first 9 months of the year. Growth CapEx of EUR 20 million, including the remaining expenditure of Henan and CapEx related to the refurbishment plant of Palmerton, EUR 13 million. Overall, total CapEx of EUR 84 million for the first 9 months of the year. Normalized for about EUR 15 million of Hanover spend, total CapEx will amount to around EUR 60 million, which annualized would be equal to around EUR 90 million, well aligned with EUR 85 million to EUR 95 million CapEx guidance for the full year 2023.Dividends of EUR 50 million or EUR 1.25 per share were distributed in July equal to 47% of the net profit of 2022 within our policy of distributing 40% to 50% of the net income of the previous year. After funding working capital, interest, taxes, CapEx and dividends, total cash flow amounted to minus EUR 81 million for the first 9 months of the year. Cash on hand stands at EUR 81 million, which together with our entirely undrawn EUR 75 million revolving credit line provides Befesa with over EUR 150 million liquidity. The EUR 633 million net debt with the EUR 187 million last 12 months adjusted EBITDA results in a leverage of 3.4% -- 3.4x at close in Q3. Our capital structure is long-term and efficient with no covenants and no maturities until July 2026.Now back to Asier on outlook and growth.
Thank you, Rafael. Moving now to outlook on Page 17. Firstly about full year 2023. As we have explained, 2023 remains very challenging, driven by macro market-specific challenges, like high TC, low zinc prices close to C90, all-time high coke prices, lower-than-expected steel dust volumes in China. Based on these headwinds and the persistence of them, we expect Q4 to be in line with Q3 based on similar market conditions, which will make total full year EBITDA to be around EUR 180 million. For 2024, we expect strong earnings growth, which does not depend on the recovery of zinc prices nor a recovery of the global macroeconomy.We expect many of the pressures we are facing in 2023 to be reverted in 2024. Firstly, the very unfavorable combination of treatment charge of zinc price should revert in 2024 via lower TC and/or higher zinc price. For the reference, spot TC is well below this year's level. Each $10 TC valuation delivers [ EUR 2.5 million ] EBITDA. Secondly, coke price is decreasing in Europe. Although this decrease is still not happening in the U.S., the trend goes in the right direction and coke price should deliver earnings growth in 2024.Third, the hedging level is better in 2024, which will deliver around EUR 15 million. Number four, in the U.S., we expect to continue capturing the operational synergies in the recycling business. Additionally, the zinc refining plant should deliver positive EBITDA once we are able to operate the plant of high utilization, and we start to capture value from the cost reduction initiatives. Finally, on China, although it is still difficult to know how much, but we expect in China to deliver more than in 2023, difficult to be lower than 2023. So all in all, we expect a strong double-digit growth for 2024.Regarding our midterm outlook, we remain very optimistic. We have a well-defined 5-year plan, which is based on a strong market fundamentals like the decarbonization megatrend. Decarbonization will drive EAF steel production in the key markets where Befesa operates, which will make steel dust production to grow in the coming years. Similarly, the electric vehicle trend will drive the demand for aluminum in Europe and the U.S. in the coming years as the automotive industry looks for lightweight solutions. Our work plan is well diversified across regions and markets, which provides us the flexibility to move into different speed depending on the developments that we see in the each market. In this current challenging environment, we are cautious about the capital expenditures, and we are adapting the CapEx to the dynamics that we see in the market.We have a well-defined growth plan consisting of 9 projects in Europe, China and the U.S. to capture the growth opportunities that we are seeing in the market. The first part of the investment plan focused on the U.S. with the refurbishment of the Palmerton plant which has already started signing the EPC and starting with the [ worst ] on the field. As explained in the past, the refurbishment of the Palmerton plant consists of the grade of the 2 kilns in the plant, one at the time in order to capture the growth plan that the North American market is going to experience in 2025 and beyond. The first phase of the project will be completed by the Q3 2024, while the second phase will be completed by beginning 2025. The second focus of the investment plan is China, where we are developing the third plant in the province of Guangdong. With more than 120 million people living in the province, Guangdong is one of the richest in the nation and the largest car manufacturing location in China.The current situation in China characterized by weak economic environment and weaker steel production makes us be more cautious and adapt to the situation in the country. We are monitoring the evolution of the market and don't expect to invest in the plant in this year 2023. The focus at the moment is on securing the steel dust volume for our customers before start deploying capital in Guangdong. The question in China is not if the economy will recover, but when will it happen. Despite the current challenging market environment, China has all the ingredients for Befesa to run profitable operations. The presentation of electric car furnace route is clearly increasing. They are implementing a strong environmental regulation, and we believe that the first mover advantage is essential.Furthermore, we are exploring the opportunity to expand our aluminum salt slag recycling business in the U.S., driven by the fast-growing secondary aluminum industry. We are exploring this attractive opportunity hand-in-hand with one of our main customers in Europe who has a strong operation in the U.S. and needs the same recycling services. The U.S. is a very similar market than Europe and our presence in North America with our steel dust business together with our leadership position in Europe will facilitate the opportunity.Thank you very much.
Thank you, Asier. We will now open the lines for the Q&A session.
[Operator Instructions] The first question is from the line of Sandeep Peety with Morgan Stanley.
I have a couple of questions. I'll take one at a time. So firstly, what makes you confident that zinc refining asset in the U.S. and 2 plants in China will start contributing to earnings in 2024? Also, can you confirm if you're expecting approximately EUR 10 million per plant in EBITDA contribution from China and EUR 10 million from zinc refining asset in the U.S. in 2024? That's my first question.
Thank you for the question, Sandeep. Well, basically, what we are confident is that the situation in China is improving in the last months and is improving constantly. So we do think that in 2024, the volumes to the digital plan are going to be higher for sure in 2024 than in 2023. So that we are confident in China that the contribution is going to be positive. The amount of the contribution is still early to say because depending on the zinc prices that we're going to face that and as well the treatment charges, and so -- but well, the range that you are telling is always the range that we are still indicating in the range between EUR 8 million to EUR 12 million could be what we are doing in China. Let's see for the full year of 2024.With regards to the refining asset in U.S., again, operations are going very well. We are having very, very high production levels with very -- the good quality of the special high-grade zinc. So we are doing very well the operation there. And now we are focusing to reduce the cost to the level that contribute more profit in the future. But again, it's early to say if we can get the number for 2024 because again it depends on what is going to be the treatment charges. As you know, the smelting facilities can -- have to live with the treatment charges on the other way to the miners and to the recyclers. So will depend on that, will depend, of course, about the zinc prices and as well the electricity prices and the other costs that we can have. So it's early to say, but this amount that we have said in the past is something that could be probably achievable. But again, Sandeep, it's early to say to confirm the levels of the euros you are telling.
Okay. And just a follow-up on that. So what level of zinc prices have you assumed to come to EUR 8 million to EUR 12 million of EBITDA in China? And similarly, what level of zinc TC/RC needs to be seen to achieve EUR 10 million of EBITDA?
Well, probably we have to live with the zinc prices that are now. And I think that, again, you, us and everyone at the call has the idea of what is going to be the zinc prices. But normally, what we have to have in mind always is the forecast and the consensus of the future zinc prices that all the spreads are doing. So I will say that we have to do this with the prices that the people is projecting.
Okay. And then second question. So your leverage seems to be quite elevated. So are you taking any steps to reduce financial leverage, which is expected to be, let's say, greater than 3x by the end of the year? Also, are you thinking to keep your dividend policy intact for 2023?
Yes. Thank you for the question, Sandeep. Yes, well, the leverage is -- we believe is a temporary reason what is driving out the leverage at the moment is at 3.4x. We believe that towards the year-end, it will be still below 3.5x. And we expect to see starting of the leverage from Q1 onwards as we increase EBITDA on a quarterly basis and we reduce the amount of CapEx, okay? So we believe it's certain priority. In terms of the -- as you know, we have communicated many times in the past, our target is to keep the leverage throughout the investment period at around 2.5x, and we believe this is a temporary situation driven by temporary matters.On the dividend policy, yes, I think we want to stick to our policy, which is paying 40% to 50% of the previous year's net income. Obviously, as net income decreased this year, the dividend payout this year will be all in absolute terms, considerably lower than last year. So from the cash flow point of view, it will be a much lower amount. But yes, we're going to keep to the policy.
The next question is from the line of Michael Hoffman with Stifel.
With regards to your comment that you thought that 2024 could be up double digits. I mean at the low end of that, it's just 10%. That puts you below the midpoint of this year's EBITDA. So I guess I would frame it differently. Do you expect to be less than your original '23 guidance at the midpoint in 2024?
Michael, thank you really for the questions. Well, I'm going to answer very simple. Difficult to say now again because you have a treatment charge idea for next year, well, depends on what you have, the amount is different. So it's early to say for us the guidance level. But when we say a strong growth is to believe that we see a strong growth. Just an example, you consider now that the spot treatment charges for the concentration in the world is around $100. So imagine it is fixing this could be a different amount rather than what is coming down that. So that could have an effect.Second, coke price decreasing, we are fully convinced that it's going to be lower prices, but it depends on if you consider 20%, 30% decrease or even more could be different. So hedge is more clear that it could be in the range of EUR 50 million better. And basically, I think that with those level of ideas, you can model it whatever you think consider what the refining contribution plant and with the Chinese contribution. So I do think that it's up to you to build this. And for probably whatever conditions you take, you will see that the strong growth is going to come there. And we are sure that we are capturing -- we are going to capture this.
Let me ask it slightly differently. If everything stays just as it is now except that coke prices are lower, how much is the coke value alone worth in '24 if it's at the current levels, but everything else is the same that you've seen zinc pricing and aluminum, same treatment charge. What's that, what's the coke alone impact?
Michael, again, what we have clear is that we have a consumption of around 250,000 tons of coke per year. And from the peak season [ on the 2024 ] prices from the ones we had in 2021, the difference is normally in the range of EUR 120 per ton or EUR 110 per ton. So you get the full difference is [ EUR 30 million ]. So again, I'm not sure how much is going to be the reduction, but probably you can have whatever you [ want in half ], 30%, 40%, even more I think, full EUR 120 [ perhaps ] is too much or not, we don't know. So at the end of the day, we have -- we need a little bit more time to put the numbers to the guidance. But all the signals I'm telling to you, well, makes that you can put whatever level of this 50% of the gap could be a reference, yes, why not. We will see later with more time.
The next question is from the line of Lasse Stueben with Berenberg.
I just want to follow up on the coke comments. Can you give a bit more detail on how those agreements look at the moment? You said in your sort of presentation that your new contracts that are about EUR 130 per ton for Europe. Can you just mention -- talk about the duration of those contracts and how that kind of works on an overall basis for the group, given your comments that the U.S. prices are still a bit higher?
Thank you for the question, Lasse. As we have explained it many other times. It's not an easy question because it's a combination of what kind of coke we are using in the geographies and plants. In the case of the European plants, we are [ majoritarily ] using pet coke, what we have seen a very important reduction during the last Q3 and we are going to have in the Q4. In the case of the U.S. operation, we are using majoritarily met coke. And in this case, the met coke prices are still reluctant to reduce. In terms of how we are managing this is the closest as possible to the spot basis prices because it has no sense to us at the level of the coke prices to close longer term contracts.So what we are trying to see is that spot basis price in all the geographies, meaning sometimes, if you have dealers or brokers close to you, you can have monthly prices and other parts, you have 3 months or 4 months depending of the availability of the coke in the area. That's why it's different, the reduction not only because by geography, you can think that the coke price in met case or ultra-site is more or less the same around the world. But it's depending which kind of coke you use or we use, in this case, in our plants depending by geographies. That's why at the end, overall coke price for us is a mixture of the different coke we are using in the different geographies. And this is the average price where we are talking about the gap of EUR 100, EUR 110, EUR 120 from the normal price in 2021.
Okay. But does that mean that you're kind of locked in at EUR 130 per ton for the first, let's say, quarter of 2024? Would that be a safe assumption?
It's an assumption.
Okay. All right. Okay. Just another question, if I may. You kind of mentioned that you've increased productivity, which was a positive impact in Q3. Can you just explain just in a bit more detail what that exactly means and how that looks?
Well, productivity, now we are focused basically and capture the synergies after the acquisition of the U.S. plants and mainly coming from all the plants, first in generally speaking, but the main amounts are coming from the U.S. operation, where we are doing -- applying the best practices that we are using in the rest of the plants. One of the things that you can consider is the lower coke consumption is one of our tasks because not only because the prices, but I think that is something that we can really achieve, and it's something very important that we reduce the price, but as well reduce the coke consumption in each of the plants, especially in the U.S. plants is what we are doing.So we do -- we are capturing part of the synergies that we -- what we were announcing for -- from the acquisition, and we do expect to keep capturing from this year the rest of the synergies and includes everything. The way of running the plants, maintenance systems and coke consumptions and the way of running the furnace at the end of the day, everything is included in our plants to do better and better, every parent, but especially in the U.S.
Okay. Understood. And one final question. Just given you said that you expect Q4 to be in line with Q3, given the typical seasonality of maintenance shutdowns and it sounds like coke prices will be slightly lower. So what's kind of driving that assumption? Is there quite a bit of conservatism in this new guidance or why won't we see the seasonal improvement in Q4?
Well, it's a good question as well. I think that we are now at the end of October that we can have a look at what's happening in this Q4. Normally, in our case, the Q4 is coming with a strong volume production because normally, the maintenance standstill of the plants have happened during the Q2, Q3. And then reflecting of the zinc prices that are still depressed and with the current circumstances, we don't see -- I don't know if it is conservative or not, but we don't see a very big difference with what we were doing in Q3 really. So this is what we see now in terms of what we are receiving and what the costs are still remain there and the zinc prices are going to be there in these low levels. So all in all, take us to see this Q4 same level that Q3.
[Operator Instructions] The next question is from the line of Anis Zgaya with ODDO BHF.
Yes. So my question is a follow-up of the last question. It's more or less the same question. Q4 was supposed to be much better than Q3, thanks to already higher zinc LME prices and lower coke prices and probably better U.S. refinery contribution. So why are you so cautious for Q4?
Well, as I said before, I think that it's a combination on all the things that we are discussing, the production and the availability test of the plants normally is high end, but depends on the evolution and you probably listen that the steel production in Europe is becoming a little bit slow in rates. We do see that the cost and the coke prices is still not reducing in U.S. and in other geographies, depending on the capacity utilization that we see in China and in other parts. All in all, the -- all in all, what is making us is to be very difficult that it's going to be higher than this, with those zinc price, which are strongly depends on what is going to happen, but we don't see that now it's going to be increased.So the level of this, together with the steel dust business, plus the aluminum business, which is the pressing of the margins of the transfer in the lower energy prices and becoming a little bit high, altogether, made that it's very difficult for us to see a very big increase over the third quarter.
The next question is a follow-up question from Lasse Stueben with Berenberg.
Just maybe -- just maybe a question for Rafael. Just for your comments around China, and it sounds like you will move a bit slower on Guangdong. What is the implication for an early look into your expansion in CapEx for next year? Does that mean you're probably going to be sort of in line with this year or how are you thinking about what are the big CapEx projects you'll have for next year?
Yes. I think we have -- thank you, Lasse, for the question. We -- Asier has explained throughout the presentation with the focus at the moment given the current challenging environment in China, the focus is in the U.S. for sure. We see a clear growth opportunity there. So the focus is on Palmerton. If you recall, the Palmerton project is around EUR 60 million CapEx project, out of which we expect to spend this year EUR 15 million to EUR 20 million and the remaining next year. Regarding Guangdong, I think we will see very little CapEx. I mean, obviously, we will provide more details when we announce the guidance of 2024, but we see very little CapEx in 2024 for Guangdong.
Probably there is, Lasse, one thing that we are considering and the good opportunity for aluminum in U.S. perhaps makes -- make us to establish an amount of this because it could be a really, really good opportunity. But as Rafael said, massively on the big amount next year, we are focused in U.S. and the rest we can monitor in and wait for [indiscernible] for the massive investment in China and others. So we have still time to handle this.
Also, Lasse, just to finish up this one on maintenance CapEx. Recall that this year, there's an extraordinary item. So I think maintenance CapEx on a run rate basis should be more around EUR 50 million to EUR 55 million rather than the level of maintenance CapEx we are having this year. We will provide more details in the guidance.
Okay. Okay. No, that's helpful. And one more on the U.S. You mentioned that U.S. volumes were lower as you had expected. Is that because of the operational projects you have in Palmerton or is this a market-related topic that wasn't entirely clear to me?
Lasse, remember that normally, we will explain that in the previous calls and meetings, we have issue with a contract that was lost during the process of the acquisition of the plant. That contract ended in '21. So it was '22 affecting because of some delay in the swap of the tonnages to the other cycles in this case. This is something that we are little by little recovering based on the U.S. market, and we are recovering already in '23, but it's true that it's a big effect at the beginning of the -- when you compare with '22. And we do hope that it's going to be better. And again, probably in [ '25 ], we are going to be even over the volumes that we were facing in '22, and this is what our expectation and for sure, '25 and '26 are going to be better. So the reason is a very particular matter about the contract that was lost in '22 -- '21, '22.
The next question is with the line of Niklas Becker with Deutsche Bank.
Yes. Just a quick question touching on China. I appreciate the color on current utilization levels and that overall volumes have been lower than expected. Just in terms of your new guidance for 2024, does this imply any earnings contribution in China at all? And also for 2024, would you expect a significant pickup in volumes across your 2 plants there?
Thank you very much, Niklas, for the question. Yes, as I said before, I think the trend is changing little by little in China, and we see better delivers to the plant in Jiangsu and even in Henan through the last months, and we do hope that it's going to come in '24. We don't know if China economy recovery is real estate and everything is going to come as we expect, but it should that could not be worse that is '23. So the volume that we have now in mind about 70% of the Jiangsu for the '23 at the end of the year will become probably much higher in the range of 80% to 90% or even more, we'll see.And in the Henan plant probably, we can bring the operations to the level even the Jiangsu. Reason for that, again, is the recovery in the steel production, especially in electric arc furnace group, because it's what is suffering more because as you probably know is attending more the kind of steel products for the construction business. And this is basically what we see that is going to happen little by little. Second, we are better established at the country and the regions that we are having permits to get that for the surrounding provinces of our plant that for sure is increasing the portfolio of steel producers that we can attend. So now, all in all is making us that '24, if not a year of full contribution for China and the idea that we have for the future is going to be really, really much higher than in 2023, no doubt of that.
Great. And then just a second question on your CapEx for the current year. You've reported some EUR 84 million in the first 9 months, including EUR 15 million relating to the recovery of Hanover. What do you expect heading into Q4?
Well, we -- most of the maintenance CapEx has been already spent. So we expect just another EUR 10 million of CapEx with some leftover from maintenance and the majority from growth in the -- in the Palmerton plant in the U.S. So for the full year, we should be aiming at around EUR 95 million, something around that.
The next question is a follow-up question from Michael Hoffman with Stifel.
I think as you can hear, all of us are a little -- struggling a little bit about how to forecast next year. Can you give us a little more visibility on your actual utilization by major regions? So what do you think '23 utilization is in China, U.S. and the rest of the world? And then where you think that utilization is going in '24? And this is in the electric arc furnace business.
Michael, yes. Well, as I say, [indiscernible] China, we do hope that it's going to increase the utilization rate that in the range of this year could be [ 60% to 70% ] in Jiangsu to [ 30% to 40% ] in Henan. This will probably be came to levels of around 90% in Jiangsu and 60% to 70% in Henan. This is the increase in China. In the case of Europe, well, no matter the some announcement of the steelmakers are doing at the last part of the year. We do hope that probably is going to be in the same level of this 2023 year. Well, someone is telling that the worse is coming and then start the recovery. So in any case, we are running the capacity of the plants basically full capacity, meaning in the range of 90% with the maintenance stop. So we don't see any reason for Europe to don't be at the level.In the case of U.S., as I say, probably we are going to increase the -- little by little, the production through the new contracts and the new establishment of the plants. And I think that we can increase rather something like 5%, 10% more capacity utilization. For Asia, Korea and Turkey, probably the level could be the same or even a little bit more in the case of Korea, 10%. So I don't know, I mean, the theoretical capacity and the production that we are having this year, as I say, in the -- during the speech, is around 70%. It will be no crazy to think in the global of 80% or something like that capacity utilization in the steel dust business in 2024.Well, that could be more accurate for the future when we do the guidance. But I think that is 10% on a global basis could be a good reference to start to figure out.
Ladies and gentlemen, there are no further questions at this time. I hand back to Rafael Perez for closing comments.
Thank you all for your questions. You can also contact the Investor Relations team of Befesa for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and dial-in details to access the recording of this conference call on our website, www.befesa.com. Thank you very much to all of you, and have a good day.
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