Befesa SA
XETRA:BFSA
Befesa SA
XETRA:BFSA
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Ladies and gentlemen, welcome to the Befesa Third Quarter 2024 Results Conference Call. I'm Sargent, the Chorus Call operator. [Operator Instructions]
At this time, it's my pleasure to hand over to Rafael Perez.
Good morning, and welcome to the Third Quarter 2024 Results Conference Call of Befesa. I am Rafael Perez, CFO of Befesa.
This morning, I'm joined by our Group CEO, Asier Zarraonandia. Asier will start with an executive summary of the period, and then he will cover the business highlights for the steel dust as well as aluminum salt slags recycling businesses. I will then review the financials by business. I will cover the evolution of commodity prices, our hedging program, and finally, cash flow and net debt. Asier will close this presentation providing an update on the outlook for the rest of 2024, how we see 2025 and an update on our growth plan. Finally, we will open the lines 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 2024 results presentation on our website, www.befesa.com.
Now, let me turn this call over to our CEO. Asier, please.
Thank you, Rafael. Moving to Page 5 of the business highlights. Befesa has delivered a strong third quarter despite the challenging macroeconomic environment, which demonstrates the resiliency of our business model. Total adjusted EBITDA in the third quarter has been EUR 49 million, up 16% compared to the previous year, reflecting a strong year-on-year performance. For the 9-month period, adjusted EBITDA reached EUR 152 million, an increase of 11% compared to last year. Operating cash flows has increased by nearly 40% so far in the year, mainly driven by a strong cash conversion.
On the performance in the third quarter, I would like to highlight the solid steel dust volume that we have recycled in our 2 main markets, Europe and the U.S., despite the challenge that the steel sector is suffering. I would also like to highlight the strong performance of our salt slags recycling business, driven by the Hannover plant back to full operations and a strong volume received from our customers.
On the other hand, our secondary aluminum business has been impacted by a challenging automotive industry in Europe, characterized by weak demand and production of cars. I will elaborate later all these aspects.
On outlook, we expect full year 2024 adjusted EBITDA to be between EUR 210 million and EUR 215 million within the previous guidance range that we provided in July of EUR 205 million to EUR 235 million, which represents a growth of 15% to 18% year-on-year. We also expect leverage to be reduced from the current levels down to around 3x by the end of the year. For 2025, although it's still early to provide guidance, we are expecting a strong double-digit EBITDA growth and leverage to be reduced to around 2.5 by the end of the year.
We are adjusting our business plan and capital allocation to focus on reducing the leverage and invest in ongoing approved expansion projects. As such, the expansion plan in China is stopped due to the current market conditions. Our growth CapEx will focus on the refurbishment of Palmerton and the expansion of Bernburg, both low-risk projects from the execution, technology, and commercial point of view.
Moving on to Page 6. Overall, our steel dust recycling business has delivered strong results in Europe and the U.S., which has been partially offset by the operation in the zinc refining plant in the U.S. In Europe, the steel sector is going through a challenging period with the steel production in Europe at the 5 years' low level, clearly impacted by the weak demand. Despite this challenging environment, we are getting a strong level of deliveries from our EAF steel customers, and we continue to run our plants at a very high-capacity utilization around 90%.
Looking ahead for Q4, we have locked EAF volume, which will secure strong utilization of the plants across most of the markets. In the U.S., we must differentiate between the recycling and the refining businesses. In the steel dust recycling business, we are running the plants at around 70% utilization similar to previous quarters. The measures that we have been taking at best practices that we have been applying to improve the recycling operation are on track and delivering good results, achieving higher EBITDA per ton.
The zinc refining plant in the U.S. is in the final stage of the ramp-up and turnaround process with a strong focus on cost reduction. This year, the unfavorable combination of low TCs and low premiums for special high-grade zinc is putting a special pressure on this business production double-digit negative contribution in the full year 2024. In our Asian operation, the steel dust volume throughput was impacted by a strike in our Turkish plant during the third quarter. The strike is over, and we have secured strong volumes for the Q4. In China, the 2 plants continue running at similar utilization levels than H1, impacted by a weak economy in general and very low EAF steel production.
Moving on to Page 7, business highlights for the aluminum salt slags recycling business. In the aluminum business, we have delivered overall strong salt slags recycling performance, which has been partially offset by weak secondary aluminum metal margin. On salt slags, the strong volume has resulted in a very high-capacity utilization of the plants of around 90%, driven by the Hannover plant in Germany back to operation at full capacity. This strong operating result has been partially offset by lower FDM aluminum price.
In our secondary aluminum segment, the main challenge has been the weaker European automotive industry, which is affecting the demand for secondary aluminum. This is putting a lot of pressure in the aluminum metal margin, which is suffering compression compared to the levels of last year, caused by weak demand on secondary aluminum, coupled with difficult effects to aluminum scrap in the market. This, coupled with the scheduled planned maintenance shutdowns impacted volumes during the quarter.
Now Rafael will explain the financials in more detail.
Thank you, Asier. Moving on to Page 9, financial results of our Steel dust segment. Steel dust delivered EUR 122 million of adjusted EBITDA in the first months of the year, which represents 9% year-on-year improvement compared to 2023. Subsequently, EBITDA margin has improved from 17% to 20% in the period. The EUR 20 million EBITDA improvement has been driven by the following factors.
The year-on-year impact from volume was flat, mainly due to slightly higher volumes in Europe and the U.S. compensated with lower volumes in Asia, as explained by Asier. Total plant utilization was around 70%, similar to last year. On price, overall positive EBITDA year-on-year impact of about EUR 27 million, with the main price components being EUR 3 million negative impact from lower zinc LME prices, down 3% in euros. This negative EBITDA impact from lower zinc LME prices was compensated with 2 positive EBITDA impacts.
Firstly, EUR 11 million positive impact from higher zinc hedging prices, EUR 97 per ton higher year-on-year on average. Secondly, EUR 19 million positive EBITDA from the favorable decrease in zinc treatment charges, which was set at $165 per ton in year 2024 versus $274 per ton in '23. On cost others, Befesa's coke average price continued further normalization in the 9-month period of 2024 to levels below the 2022 average price, driving positive EBITDA impact.
Operational improvements in the U.S. recycling operations also have delivered positive EBITDA contribution as well in the period. All these positive impacts have been partially offset by inflation and other effects, mainly attributable to the negative contribution from the zinc refining operations in the U.S., which is going through a turnaround plan, as Asier explained, with a strong focus on cost reduction and a double-digit negative contribution in the full year 2024.
Moving on to Page 10, financial results of our Aluminum segment. Aluminum salt slag delivered EUR 31 million of EBITDA in the 9-month period, which represents a 14% year-on-year decrease compared to the EUR 36 million achieved in 2023. The year-on-year EUR 5 million negative EBITDA development was mainly due to the lower aluminum metal margin, partially offset by lower energy prices. On volumes, overall, slightly positive EBITDA year-on-year impact. Our recycled aluminum salt slag increased by 23% to 318,000 tons in the period, driven by the resumption of operations in the Hannover plant in the middle of 2023.
Our secondary aluminum alloys production volumes increased by 2% to 128,000 tons. With these volumes, we operated our plants at a strong capacity utilization rates of about 90% in solid slag and 84% in secondary aluminum on average. With regard to prices, overall negative EBITDA year-on-year impact of about EUR 9 million, mainly driven by the pressure aluminum metal margins versus the previous year caused by a weak automotive industry in Europe, as explained by Asier. Aluminum FMB prices were 6% up with an average of around EUR 2,327 per ton on average. The negative price effect was partially compensated with year-on-year lower operating costs, mainly through lower energy prices.
Moving on to Page 11, zinc prices and treatment charges. Regarding zinc prices, LME, during the third quarter, zinc has been trading with some volatility over the marginal cost of IP, trading sideways in the range of $2,300 to $3,100 per ton. Average Q3 zinc price LME has been $2,780 per ton. And for the 9-month period, average has been $2,690 per ton, which is slightly below last year's average.
On treatment charges, nothing new. As we already mentioned, treatment charges for the zinc were settled in April at $165 per ton for the full year. This is around 40% or $109 per ton lower compared to the $274 in 2023, and it is positively impacting our results. As a reference, spot treatment charges in the market are trading on the negative zone, which very rarely happens. This shows the currently supply-demand dynamics in the zinc market, characterized by reduced supply on zinc concentrates, which is making spot treatment charges to be negative. If this dynamic continues, annual treatment charges for next year 2025 should remain at a low level.
Turning to Page 12 on hedging. We have taken the opportunity of the volatility in the zinc price over the last months to extend our hedging book further beyond the first half of 2026. The first half of 2026 is fully hedged and the second half is hedged close to 50% of the volume. With this extension, our zinc hedge book covers close to 24 months of hedges in our books at increasing hedging average prices of EUR 2,650 per ton in 2025 and 2026.
This level of hedging represents an all-time high level of hedging for Befesa and will provide around EUR 20 million to EUR 25 million of incremental EBITDA in 2025, regardless of what happens with the zinc price. We continue to monitor the market closing volumes for the remaining 2026. Our hedging strategy remains unchanged and continues to be a key element of Befesa's business model, providing earnings visibility and predictability, lowering the impact from zinc price volatility.
Turning to Page 13 on Befesa's energy prices. The page shows the evolution of the 3 energy sources that we have in Befesa, coke, natural gas and electricity. With regards to coke price, which today represents around 60% of the total energy bill, the normalization that started in the second quarter of 2023 is continuing throughout 2024 to levels below 2022 average. Average coke price in the 9-month period is 25% lower compared to the same period of last year. This had a positive impact on our steel dust operations, as explained earlier in the bridge.
Despite this positive trend, however, the average coke price so far in 2024 is still around 30% above the average levels from years '19 and '21. Regarding electricity, which today accounts for around 25% of the total energy expense, prices increased in Q3 by around 18% over the previous quarter, although it remains at low levels since 2019. Gas prices stayed in line with the previous quarter, stable around the average level of 2021.
Turning to Page 14, the cash flow results. On the EBITDA to total cash flow bridge, starting with EUR 152 million of adjusted EBITDA on the left and walking to the right. Working capital consumption was up by about EUR 37 million, in line with previous quarters. primarily driven by the usual first quarter seasonality and timing impact without cash consumption in the third quarter. We expect to recover most of the working capital outflow in Q4 as we have done in previous years. Taxes received in the 9-month period came in at EUR 4 million as a result of a final tax assessment of previous years, resulting in an operating cash flow of EUR 118 million, up 39% compared to last year.
CapEx-wise, in the first 9 months of the year, we have invested EUR 42 million in maintenance CapEx, EUR 23 million in growth CapEx, mainly related to the refurbishing of the Palmerton plant in Pennsylvania and EUR 40 million in the 50% stake acquisition in Recytech. In summary, overall total CapEx have been EUR 105 million for the first 9 months of the year. For the full year, we expect to invest a total CapEx of around EUR 120 million, of which EUR 45 million would be maintenance and EUR 75 million for growth, including Recytech. Interest paid increased by 41% to EUR 29 million in the 9-month period, mainly driven by the year-on-year higher Euribor from 2.3% in 2023 to 4% applicable in 2024.
Finally, a total dividend of EUR 29 million, equivalent to EUR 0.73 per share was paid to shareholders in the third quarter. After funding working capital, interest, taxes, CapEx and acquisition of Recytech and dividends, total cash flow in the first 9 months amounted to minus EUR 21 million. Cash on hand stood at EUR 86 million, which together with the EUR 100 million undrawn revolving credit line provides Befesa with EUR 186 million of liquidity.
Gross debt at the end of the third quarter decreased to EUR 748 million compared to the end of the second quarter. Net debt at Q3 closing stood at EUR 662 million compared to the previous quarter. LTM EBITDA increased to EUR 197 million at the end of the third quarter, resulting in a net leverage of 3.36 at the end of the third quarter.
Turning to Page 15, debt structure and leverage. The new financing, together with our consistent hedging policy and cash flow generation profile provides the strong financial backbone upon which we base the future growth of Befesa with a strong focus on capital allocation discipline and leverage management. We clearly have the target to reduce the leverage ratio from the current 3.4 to around 2 to 2.5x.
At the end of this year, we expect leverage to be around 3x. To do so, we will focus the growth CapEx on these projects that will deliver immediate cash flows upon completion like Recytech and the approved projects of Palmerton and Bernburg. Also, we will keep the maintenance CapEx around EUR 40 million to EUR 45 million over the coming years. As a result, total CapEx going forward will not be higher than EUR 100 million per year until leverage is reduced to our target of 2 to 2.5x.
Now back to Asier on outlook and growth.
Moving on to Page 17 on outlook. As explained earlier, we expect full year 2024 adjusted EBITDA to be between EUR 210 million and EUR 215 million within the previous guidance range that we provided in July of EUR 205 million to EUR 235 million, which represents a growth of 15% to 18% year-on-year. Overall, we expect Q4 to be the strongest quarter in the year, supported by a strong volume in all the geographies despite the weak steel sector.
In China, we expect to continue at breakeven with no contribution in the year. The positive contribution for the Jiangsu operations being offset by Henan operations. On the zinc refining in the U.S., as explained, the current focus is on cost reduction. Overall, we are aiming at reducing the cost around $20 million per year. We expect to see the results of the cost reduction mostly in the next year.
Our secondary aluminum business continues to be impacted by the weak auto industry in Europe, pressure on all scrap access and weak end demand, expecting leverage around 3.0 by 2024 year-end. Looking ahead to 2025, we feel very optimistic and expect a strong double-digit EBITDA growth compared to this year. This is fundamentally based on better zinc hedging level, as Rafael explained, higher volume of steel dust recycled in the U.S. recycling plants, lower zinc refining cost in the U.S. as well as overall lower average coke prices.
Moving on to Page 18 on growth plan. We are adapting our business plan and capital allocation priorities to focus on reducing the financial leverage as explained by Rafael and invest only in the ongoing approved CapEx projects, Palmerton and Bernburg. The 3 priorities that will drive our growth and CapEx plans are: firstly, keeping the financial leverage between 2 and 2.5x over the investment period and the coming years.
Secondly, China expansion of plant is stopped due to the current market conditions. This does not mean that we are exiting the country. However, we will not invest in the third plant in China in the coming years. Finally, the growth CapEx will focus on the 2 approved projects of Palmerton and Bernburg, which are extension of 2 existing plants in our traditional markets. Therefore, they are projects with relatively low risk from the execution market and technology point of view.
Moving on to Page 19 on Palmerton. The refurbishment of the Palmerton plant in Pennsylvania is moving on well. The project consists of the upgrade of the 2 kilns in the plant in order to improve the efficiency of the plant and expand the capacity to 220,000 tons of steel dust recycling. This will allow us to capture the growth that the North American market is going to experience in 2025 and beyond.
The first phase of the project is completed as we speak with the first kiln going through hot commissioning now. The second kiln will be completed by the second half of next year. We are signing new contracts with steelmakers, customers. And so far, we have secured more than 50,000 tons that will gradually come into operations along next year 2025.
Moving on to Page 20 on Bernburg. With regards to the expansion of the secondary aluminum production capacity in the existing plant of Bernburg in Germany, we are moving forward with the permits, authorizations and commercial contracts with customers. This project is in line with the expected growth of the demand for recycled aluminum in Europe that we are seeing. Lightweight solutions are recurring and as a result, aluminum content in cars will increase. In summary, the growth plan is flexible, and we are adjusting and adapting it to the current circumstances, balancing leverage and CapEx will result in better growth and financial profile over the next years. Thank you very much.
Thank you, Asier. We will now open the lines for your questions.
[Operator Instructions] And we also have the first question coming from the line of Brian Butler from Stifel.
The first one, let's just talk about the guidance. The midpoint came down about $7.5 million on EBITDA for '24. Can you provide some breakdown color on kind of what's behind that reduction in the midpoint?
Thank you, Brian. Well, first of all, the midpoint is always a reference in between the range that we used to do. I know that many of you are thinking this as a kind of fixed number, but normally, it depends on many things. Well, the final minimum range that we are giving is that -- well, this is affecting the last part of the year, some pressing in the aluminum business, especially China not delivering finally, it's not a big effort, but well, it is persisting the situation there.
So many things that are affecting, and that's why we are delivering this $210 million to $215 million. More than a midpoint, I think that this is -- with the time that we have in front of us to finish the year, I think it's more a rate range that we are going to be affecting by all those things.
Okay. And then when you think about the range kind of narrowing, has the range on the cash flow changed as well? I mean it was negative $40 million to a positive $20 million, so a very wide one. Has that narrowed?
I think, Brian, when you look at the total cash flow, we should be thinking in between minus $20 million to minus $10 million, considering that we are going to see a reversal of working capital, and there is a limited amount of CapEx remaining for Q4. So yes, that will be the new range.
Okay. And then the double-digit growth for '25, I mean a big chunk of that is your improved hedging. That's probably 10% growth by itself. What are the other pieces that you know of, assuming kind of the macro environment that's in place that kind of gets you higher? I mean, 2.5x as a leverage point would probably put you up in the mid-teens, but maybe I'm missing something. I'm just trying to get an idea of '25 expectation.
You're right, this is still heavily and the thing we have more secure is the hedging. But there are other points that we have touched during the presentation is around more tonnages and utilization rate in U.S. Despite the challenging period, we think that the current steel production is stable in the U.S., but we are delivering some new contracts with a new project that are going to start to be in place in 2025. This will give up some more profit in the next year, the U.S. utilization and the U.S. volume.
And as well the plan that we have for reduction of the cost in the smelter is giving us as well some positive news. It's still early to say because you know that we hope development of the treatment charges in prices and so. But at least these 3 points and perhaps some steel, coke and energy prices coming down because the '24 at the end has been a little bit resilient in the level they are, is giving us the idea that we are going to have this positive outcome 2025 based on those things. But yes, we will see how the things develop from now and give more accurate range early in the first part of the 2025 year.
Okay. Helpful. And then one last one. What do you need to see in China in order to restart those facilities? Do we need multiple years of kind of steel production improvement? Or maybe some color around what's your hurdle in order to restart that development?
Well, we have to differentiate. I mean, the 2 plants that we have there are basically depending on the steel production in the current circumstances where the real estate crisis and everything affecting to the normal industry situation in China. So we are monitoring the market. Of course, we are there. And as soon as we have more dust, we will run the plant at a higher rate.
The other thing is the projects of growth in China. Well, we are not exiting from China. I mean this is the idea that China in the medium-term, things has not -- fundamental has not changed, more electric arc furnace, environmental pressing that we see. But it's true that under the current circumstances, we are basically putting on hold the project unless we see a clear change in a very short-term, which we don't hope. I think that it's better to have for the next year on hold the Chinese project. And yes, focus on the 2 plants, which will be delivering. We see '25 a little bit better than '24, but I think this is something that is uncertain of China is facing the big crisis that they are doing.
The next question comes from the line of Jaime Escribano from Banco Santander.
So my question is regarding the guidance 2024. We see that there are around $25 million as of 9 months that you are losing from the zinc smelter and secondary aluminum. I wonder what would have been the guidance like a pro forma guidance for 2024, excluding these 2 negatives. If you can elaborate on that? And maybe if you can dig deeper in order to get a little bit more assurance on how are you going to recover this? So the initiatives that you are doing in the zinc smelter? And what can you do also in secondary aluminum in order to turn around these 2 negatives? This would be my first question.
Thank you very much for the question. Well, it's a good question. What could be if something different comes? It's true that probably we are leaving there in the normal operation because the refining and because the aluminum weak margins period in the second part of the year, starting in the summer time. So probably we are talking about 2012 and as well, you can include China, that is where we're developing, but $25 million to $30 million probably could be an effect of -- the total effect of those things that could be there.
On the other hand, well, I think that part of that is, as I say, to be recovered in '25 with the saving cost of the smelter in U.S. And it's early to say what is going to happen with the margin in the aluminum. I mean, this is a consequence of the very specific situation that the car manufacturing industry is facing now. And we don't see that, that keep during the very long period. So probably there is going to be a recovery of the margins in next year.
But again, it's early to say. So what is on our hand is the reduction cost plan, and we are focused on that. And once again, probably when we put the range in 2025, when we finally does, we will do, I mean, meaning that, well, what happened if the Chinese recovery in steel production, margin recovery in aluminum, so that will be covered with the range that finally we put. But definitely, we have to capture part of this effect by reducing the cost in the refinery.
And my second question is regarding Palmerton. Given the new capacity, maybe you can give us some guidance what could be the volumes in the U.S. next year? Or how much could be the additional EBITDA contribution in '25 of the Palmerton, let's say, first kiln that is in operation?
Sure, Jaime. I anticipate that we have already signed new contracts of around 50,000 tons for new projects that are going to come to operations in '25. Well, this 50,000 could be -- is a number of theoretical capacity, well depending on exactly when the plants are coming into operations during the year. But it's expected to the at least third quarter or for sure in the second quarter. So this is coming and is supporting our plan about the new capacity of steel production in U.S. and this is the '25. We see that now more to come in '26, I don't know, in the range of another 100,000 tons could be in '26 and then '27.
Again, it will depend on the moment that the new projects, which are ongoing and obviously, they are investing and they are in the final stage will come. But '25, I think a good reference could be 50,000 tons or 40,000 tons depending on the moment. And EBITDA contribution, probably you have your model lines and you can multiply by the EBITDA per ton of that you probably have there. And I don't want to give a number because if I give a number, there are going to be another question about what you see, what price and everything. But I'm sure that you have modelized it and you can multiply the 50,000 tons per that, and that should be the contribution in next year.
And a final question, if I may, regarding China, which is what is the current utilization of Jiangsu and have things improved? Or how do you see following months and early next year? Any color that you can provide would be also very useful.
Thank you, Jaime. Yes, we have repeated the previous results that the idea in Jiangsu is 70% for this year. I think it's going to be a little bit lower. That's why the range that is coming a little bit down that the expectation of the midpoint, which is something, as I always say, that is like a reference, which is a little bit artificial. But I think it's in the range of 60%, 65% probably we will finish in Jiangsu.
In the case of Henan, could be in the range of 20%. How we see '25? Well, we will have the idea to be back on this level of 70%, 80% because in a bad year like '24, we have done in this level in Jiangsu, if we get 70% to 80% maximum, and we will see later, as I say, in the range, how we manage. In the case of Henan, we don't see more than 30% or something like that for next year later because the situation there is -- I think, is in the deeper bad in the steelmakers in the Henan area. So yes, it could be a good reference, 70%, 80% in Jiangsu, 30% in Henan for 2025. And for this year, 60%, 65% in Jiangsu and 20%, 25% in Henan.
The next question comes from the line of Jorge González from Hauck Aufhäuser Investment Banking.
My first one on the last point you mentioned on Henan, can you repeat the utilization levels you mentioned for next year in Henan? I missed that.
Next year could be in the -- well, as we have been saying for the '24 in the range of 30% could be a good reference because we don't see many changes in the current situation so far.
Okay. I understand. So my first question is regarding the volumes seen in Q3. And sorry, you commented about this because I connected minutes late to the call. So the volumes decline around 6% that is -- obviously, there is always some changes because of when you see the works and all of that. But I am wondering if there is some worsening in the volumes that you expect at least for Q4 and the first part of '26 in Europe. You mentioned in the slides that Europe is at 5-year low. So if it's sustainable, this 90% utilization levels, that will be my first question.
And in U.S. and also to follow up on the comments you did answering Jaime. So you are mentioning that you have new contracts for around 40,000, 50,000 next year. And there, in the past, I think you have also mentioned that you have a target to increase utilization levels in general. So to have a better picture of what you are expecting next year, what is in your budget, should we expect any utilization improvement in general in U.S. next year or this 70% levels are still good for expectations in next year?
Thank you for the questions, Jorge. And yes, we have touched a little bit about the tonnages, but in general way, it's true that there is -- normally, this quarter are coincident with some standstills in maintenance in Europe and so on and normally are not the highest, the Q2 and Q3. But it's true that this year has been a little bit less than even past year, and the reason is very clear. We have had a strike for the union negotiation in Turkey, which was affecting slightly the total volume in the Q3. As I said before, the strike is over, we got an agreement and then the Q4 in the Turkish operation are going to be very strong because simply we were growing the stock there.
So what we see in the Q4 is in all geographies, a very high utilization rate that used to be normally, including Europe, despite the fact of the steelmaking situation, what we have done in this year and probably will keep next year is to go to longer distance to countries where there are some historical stocks and doing many actions to keep the plants running at those levels.
It's true that can affect. But we don't see a big issue in the next 4, 5, 6 months, even the current steelmaker situation, which, by the way, we are observing during the whole year that they are not a very high level production. It's not only now where there is more noise in the market, but the reality is they are high in a level of probably in the 70% range or so. So the European situation, I think that we still have the idea of -- I mean, it's more than idea to keep this level of 90% during 2025 and of course, in the fourth quarter.
In the case of the U.S., yes, this 40%, 50% range is because the new contracts and the real situation will depend of the rest, the mining and the current contract that we are running there in U.S., how we will run. But I think, yes, probably the 70% under the current circumstances will become 75%, 80% in 2025. probably this is the aim. And as I said before, '26 going to 85% or even 90%, depending on the other circumstances, but we see what it was planned in the U.S. market, perhaps with some delay, but the new projects are coming into operations and delivering more gas to the market, and we are prepared to capture especially with the Palmerton. So we see like that. I mean, growing next year to jumping into 75%, 80 depending when those plants are going to come into and then '26, another jump up to 90%.
Okay. I see. So we can say then that the growth for next year in U.S. is going to be substantial because if -- let's say that we end this year at 30,000, 300,000 tons and next year, you have the addition of Palmerton, let's say, 50,000 and then you have around I don't know, 1, 2, 3 points more of utilization. This should drive you more than 20%, 30%. I mean this is a correct way of thinking about it? I know that you cannot give us numbers, but you are expecting double-digit -- strong double-digit growth in U.S. volumes. So, is it basically -- let me do the question another way, it's basically the main driver for volumes this year?
Yes. Jorge, definitely, yes. More or less what you are telling is what I say is 40,000 to 50,000 tons is yes around or more than 10%. And yes, the growth next year is based on this U.S. The other geographies will depend on the steel production, but we don't see a major change in the picture, no matter up and down. So yes, the volume growth is coming on from U.S. operations.
Okay. And very last one. On this 50,000 new contract, this is only with one steelmaker or there are more because I remember that you were giving in previous slides some planning for new plants in North America, and there is a number of them. I don't remember 3, 4, 5 in the next 1 to 2 years. So, I'm wondering if this is only one contract and then there are others to come or how we should think about these new plants coming in, in the U.S. market and how that is going to also help you to increase the utilization levels apart from the economic recovery?
Yes. As I say, Jorge, the idea is that there are more than one steelmakers delivering the new plants. Obviously, all the projects which are there are not going to be for us. There are other players in the U.S. But again, as I say, we see this 40,000, 50,000 tons this year, and we see another 100,000 tons probably in 2026 for all those projects. But as I say, they are not one, there are more. But again, if you get all the projects that in U.S. and you navigate and you see how much they are, all of them are not for the, obviously. There is a reorganization of the market, but we see like that, 50,000 2025 and now in '26, it's early to say, but in the range of 100,000 could be.
The next question comes from the line of Christoph Blieffert from BNP Paribas Exane.
The first one is on the U.S. refining business. What could be a good estimate for EBITDA contribution for 2024, please?
A good contribution is in a range between EUR 15 million to EUR 20 million loss this year and depending on how the year is going to come.
Okay. And on the cost savings, could you remind us on the cost savings you are currently implementing and whether this will be sufficient in order to reach breakeven in 2025, even though the overall picture for zinc smelting is not improving next year?
Definitely, we are more or less targeting in the range of EUR 20 million. So initially, the idea is to get breakeven if or depending the TC evolution or depending even the premiums there. But for the part of the cost, will be in this range. So yes, I mean, the target there is to control what we can control and later, we will see what is the steel evolution by the way, could affect negatively to the smelter, but positively to the refining business. So, at the end of the day, it is early to say what is going to be the contribution of next year on this. But what is clear is that the target of reduction cost, and we are working on that is in the range of EUR 20 million for next year.
Okay. And then coming back on the EBITDA contribution, is it a fair assumption that Q1 has been a relatively decent quarter and the big pain started in Q2 and continued in Q3?
I think it's throughout the year. I mean it's like you can split around the 9 months. I mean that can be some specific parts of the things at the beginning of the year, but it's a normal contribution and the current cost structure that we have there, and it's starting to change now at the end of the year. But hopefully, in the '25, we get the target.
Okay. And the last question is related to the Bernburg expansion. What is the strategic rationale for allocating more capital to the aluminum business despite sluggish EV business of the -- on the automotive side?
Well, basically, it's a matter of a contract with one of the main customers. It's in a tooling basis one and is providing more tonnages to salt slag. So, at the end, this cyclicity, well, now is not good. But when Bernburg plant is going to be finished, I mean, probably the situation will be different. You get the average, it's not a bad situation. And once again, the aim of the secondary aluminum is more to have a very big part of our raw material to feed to the salt slag business, and this is what it is. But it's based on a commercial very low risk because it's an increase of our current contract with a very big guy in the aluminum business. So, this is the rationale.
Next question comes from the line of Shashi Shekhar from Citi.
So, I have a couple of questions. My first question is on the capacity utilization at the steel dust business. It was low in the third quarter. So has the utilization levels recovered in the fourth quarter? And my second question is on Chinese operations. How much cash these operations are currently burning? That's it.
Thank you, Shashi. The first one, definitely, as I say, the Q3 normally is coming in the same range of Q2 because the maintenance stoppage and this particular situation in this year with Turkey. And this is the reason why it's a little bit lower. But normally, and this year is not going to be different. The Q4 is the strongest of the year, and we do hope this. Second question, sorry, was cash flow or the cash indication about what sorry?
Sorry, I just wanted to understand how much cash Chinese operations are burning currently?
Well, basically, they are not burning because the operating from Jiangsu are offsetting by the low operation of Henan, and we are doing breakeven in terms of results and cash as well.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Rafael Perez for any closing remarks.
Thank you all for your questions. You can also reach the Investor Relations team of Befesa for any further clarification. We will now conclude the conference call and the Q&A. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference on our website, www.befesa.com. Thank you very much.
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