Befesa reports double-digit adjusted EBITDA growth in Q3

Provider of hazardous waste recycling services to the steel and aluminum industries Befesa S.A., headquartered in Luxembourg, has reported total revenue for the first nine months of the year increased by 1 percent to 915 million euros, or $995.4 million, compared with the same period in 2023 and by 2 percent to 294 million euros, $319.83 million for the third quarter relative the third quarter of the previous year. The company attributes the increase in revenue to higher salt slags activity. Befesa also says it achieved double-digit adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) growth of 11 percent to reach 152 million euros, or $165.35 million, in the first nine months of this year compared with 137 million euros ($149.04 million) for the same period in 2023 and by 16 percent to 49 million euros in Q3 compared with 42 million euros in last year’s third quarter.

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Company CEO Asier Zarraonandia says, “Befesa has delivered solid Q3 results, demonstrating our resilience in a challenging market. Our Steel Dust Recycling business in Europe and the USA performed strongly, underpinned by our resilient business model and successful zinc hedging strategy, which is now secured beyond Q2 2026. This performance, coupled with a positive Q4 outlook, allows us to expect full-year adjusted EBITDA in the range of 210-215 million euros ($228.45 million to $233.89 million). Looking ahead, we are focused on deleveraging and executing the approved expansion projects at our Palmerton [Pennsylvania] and Bernburg [Germany] plants. These projects will allow us to capture growth in our key markets.”

Befesa’s Steel Dust segment delivered what the company describes as “robust” performance in the recently completed quarter, driven by solid volumes in Europe and the U.S. The segment benefitted from favorable zinc treatment charges and lower input costs for coke and energy. Its throughput of electric arc furnace (EAF) steel dust was stable at 889,000 metric tons through September of this year, with an average capacity utilization of around 69 percent.

The company says its European operations delivered particularly positive results, with plants operating at high-capacity utilization rates of around 90 percent, despite reduced steel production and scheduled maintenance shutdowns. The company says it anticipates strong volumes in the final quarter of this year.

Befesa’s U.S. recycling plants maintained utilization of around 70 percent, which is similar to previous quarters. The company says operational improvements are on track, delivering higher EBITDA per ton. Its zinc refining operations are in the final stage of the ramp-up and turnaround process, focusing on cost reduction. As Befesa expected, zinc refining will have a negative contribution this year.

In Asia, the company’s volumes decreased because of a strike in Turkey and low utilization in China. However, with the strike in Turkey having concluded, Befesa says it anticipates a strong fourth quarter with secured volumes.

Befesa’s operations in China continue to deliver breakeven results in a very challenging economic environment, according to the company, which is pausing its expansion plan in that country that included a third EAF steel dust recycling plant in Guangdong province. This decision enables Befesa to focus its resources on more immediate growth opportunities.

The company’s Aluminium Salt Slags segment faced challenges in the third quarter arising from the weak European automotive industry, which reduced demand for secondary aluminum. This and scheduled plant maintenance shutdowns affected volumes during the quarter. Despite these obstacles, Befesa says it achieved solid Salt Slag volume growth, with plants maintaining high utilization rates. The company says improvements in recycled volumes of aluminum salt slags, which increased by 23 percent to 318,000 metric tons through September of this year and to 97,000 metric tons for the third quarter, a 12 percent year-over-year increase. Its average capacity utilization was roughly 90 percent, a 17 percent increase year over year. Secondary aluminum alloys volumes also increased to 128,000 metric tons for the first nine months of 2024, 2 percent more than for the comparable quarter in 2023, with a 3 percent year-over-year drop in the third quarter to 37,000 metric tons and an average capacity utilization of approximately 84 percent.

The London Metal Exchange (LME) zinc price averaged 2,472 euros per metric ton ($2,689), which was stable year over year, following a mini rally in May of this year. However, the lower aluminum LME price negatively affected Befesa’s Salt Slags recycling business. Aluminum metal margin suffered strong compression during the period caused by a weak European automotive industry. The zinc treatment charge for 2024 was settled at $165 per metric ton, 40 percent less than in the previous year, with a positive influence through the reduction of costs associated with zinc processing.

Befesa extended its zinc price hedging program beyond the second quarter of 2026 at favorable prices in the third quarter, providing substantial earnings visibility for the coming years, according to the company. Its hedging strategy targets 60 percent to 75 percent of its zinc equivalent volume, effectively mitigating zinc price volatility.

The company says the expansion of its Palmerton plant is progressing as planned, with the first kiln already in hot commissioning. For the remainder of 2024, Befesa anticipates continued robust performance in its Steel Dust Recycling business, with particularly strong volumes anticipated in the fourth quarter.

Befesa says it anticipates strong double-digit EBITDA growth in 2025, pointing to several favorable factors including improved zinc hedging level, expected higher volumes in U.S. recycling operations, reduced costs in zinc refining and reduced coke prices. Despite some uncertainties, such as zinc treatment costs, zinc prices and secondary aluminum margins), the company says its disciplined approach to capital allocation supports its strategic initiatives and positions the company well for success.