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Edited Transcript of ACX.MC earnings conference call or presentation 4-Nov-19 9:00am GMT

Q3 2019 Acerinox SA Earnings Call

Madrid Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Acerinox SA earnings conference call or presentation Monday, November 4, 2019 at 9:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Carlos Lora-Tamayo

Acerinox, S.A. - Head of Investor & Media Relations

* Miguel Ferrandis Torres

Acerinox, S.A. - Chief Financial Director


Conference Call Participants


* Alan Henri Spence

Jefferies LLC, Research Division - Equity Analyst

* Bastian Synagowitz

Deutsche Bank AG, Research Division - Research Analyst

* Francisco Riquel

Alantra Equities Sociedad de Valores, S.A., Research Division - Head of Research

* Krishan M. Agarwal

Citigroup Inc, Research Division - Analyst

* Luis de Toledo

BBVA Research SA - Chief Analyst of Oil and Materials

* Luke Nelson

JP Morgan Chase & Co, Research Division - Research Analyst

* Seth R. Rosenfeld

Exane BNP Paribas, Research Division - Research Analyst




Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [1]


Good morning, everybody, and welcome to the Acerinox Third Quarter Results Conference Call. My name is Carlos Lora. I am the Head of Investor Relations at Acerinox.

As in other occasions, Miguel Ferrandis, CFO of the group, hosts today's call, also accompanied by María Uclés and myself, the Investor Relations team. After our prepared remarks, we will open the line for questions.

(Operator Instructions)

Before getting started, let me remember you that this conference call is being broadcast on our website at acerinox.com.

Now I would like to give the word to Miguel, please.


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [2]


Good morning. Thank you for your interest attending this webcast for the presentation of the results of the third quarter. We published them early this morning prior to the opening of the stock exchange market. And then as you are aware, we are showing an improvement quarter-on-quarter basis in this year on our figures. It's a slight improvement, but we improved in the second quarter almost an 8% in EBITDA compared with the first one, and we have increased, again, at 7% in EBITDA in this third quarter. So consequently, the positive evolution for us on a quarterly basis is a good fact that we must reinforce. But I think this should not be a surprise for you as also one of the issues we are always glad is that we try to be predictable. We try to avoid surprises. When we announced the results of the third quarter -- of the second quarter, we stated that the third quarter should be similar. It has been slightly above. And in general, what we try is to give all the proper outlooks every time we make our results and our announcements.

In the third quarter last year, we announced in the outlook that the fourth quarter should bring a strong correction. This is not the case we have announced today, and you have read in our results comments, the fourth quarter is going to remain similar as the third one. So we are keeping this positive trend in this year. And consequently, this for us is also a strong fact of satisfaction. And we consider we must be proud that we are improving, and we are keeping positive figures, positive margins and improving margins in a market that is definitely challenging and with a lot of uncertainties. But what's clear is that all the areas that are under our control to try to make our best, and obviously, we try to minimize all the facts or the external facts that are not under our control.

If we enter in the main comments that we have included, as you probably have read all our results presentations, I think we just can concentrate on this slide that we summarize the main topics. One of the issues in Page #3 of our slide, we try to summarize this for understanding what has occurred in this third quarter, this should be the Bible. And I think we give all the -- in bullet points, all the relevant facts that have influenced the third quarter figures in both the market and in both ferrochrome.

In the case of the market, it's clearly that the third quarter, normally -- mostly in Europe, is affected by the seasonal slowdown. This obviously has been taking place. There has been lower volume and activity mostly in Europe.

And one of the drivers of this third quarter has been the nickel evolution. Nickel has experienced a rally since July, more than 50% increase in its price. This has been very, very abrupt, very, very intense. And then it has been in the actual challenging conditions taking place in most of the world has been difficult, mostly in Europe and also in Asia, to pass through this increase in the raw materials in the prices. So consequently, part of this increase has been taking place, suffering margins, mostly in these areas in Europe and in Asia, as has been so intense that the market has not been so easily accepting it as traditionally has been our case.

This probably is as a consequence of the third bullet point appearing in the Q3 market highlights, which has been the intensification of the macro uncertainties. And I think this is also another relevant side. We have plenty of uncertainties in these days. It's clear that we have political uncertainties in Europe, in America, all over the world. We are seeing actually a lot of political uncertainties, but we are seeing also commercial disputes, commercial tensions that are having very, very quick effect on the markets.

In addition, we are experiencing trade cases all over the world, almost every market we are active in every market of the -- almost every market of the stainless is more or less experiencing trade cases. And then what we are obviously realizing is that there are several markets in which that the trade cases and the trade barriers are a strong barrier and a strong wall. And there are other markets in which the trade barriers or the safeguard measures are not so intense. And consequently, the effect of the imports is still creating a big pain. Obviously, I'm reflecting mostly to Europe, which shall be the following point, which what appears is that the safeguard measures are not probably creating the expected effect. And still, we are seeing a high import penetration.

Imports in Europe probably up to now are taking 28% market share, which is very, very, very high figure. In view of the safeguard measures that were adopted by the European Union some 1 year ago, and this is the big demonstration that probably most of the effects that these safeguard measures try to implement in the market have not been realized. Any case, what we are seeing is in the last revision that probably with the new -- also with the new commission actually in place, there appears to be more serious commitment by -- to establish the proper defense against unfair trade of imports coming to Europe. And we are seeing now -- as we are commenting also in the press release, we are seeing that the European Union is also taking action, initiating antidumping investigations against China, Taiwan and Indonesia and also anti-subsidy investigation against China and Indonesia in hot-roll flat products. So we hope that in the next periods, also this may have more better appreciated the fact that the one that the provisionals in the last year and the definite measures taking place for this year has been obtaining or achieving for the European market.

The apparent demand in Europe is negative, and is -- in this year, we are seeing a minus 5 -- minus 5.4%. Most of the markets in Europe are trading in negative in apparent consumption in this year. This obviously is affecting all the markets. And consequently, this is creating that the base prices in Europe remain very, very low. So the combined effect of the uncertainties, the weak demand and the high import penetration is moving the prices in Europe and mostly the base prices to levels never achieved and we think that are not sustainable on the long run.

Fortunately and the contrary takes place in the States, which is our main market. 50% of our sales, as you know, take place in North America, mostly in the States. And consequently, it is one of the reasons why we are keeping consistency in our profit. And at the end, the fact is that even though the apparent demand in the States this year is providing also negative figures with a minus 9.8%, but we are seeing is stability in prices, mostly in the base prices. And this is a very, very positive effect -- positive fact. At the end, the imports in America remain at low level. We are more or less estimating the market share of imports in the States is in the range of 15% compared with the 28% we indicated in European Union. But America, the imports are more under control with this 15%. This is creating that there is more really -- logic performance in the market. The prices, as we have said, remain stable. And what's more important, being the marketing with the logic perform more, and they're running rules of the market also are keeping on place. We are seeing that these -- the market that -- in its prices has respected nickel evolution. So consequently, the extra alloys has been performing properly in the states. The pass-through of the nickel fluctuation has been also performing there. And consequently, we are able to keep our margins in that market. And this for us is a strong fact of comfort.

We think, in general, that the players in the North American market remain the logic, and when I say the players, I'm talking not only of the producers but also of the distributors and also of customers. So at the end, it's clear that this provides certainty. And probably for the key players in the American market, the certainty is one of the issues better appreciated and consequently, because of that, we are seeing that on comparative basis, the market that is probably performing better in this day.

In Asia, the situation is very, very tough. It's clear that we're remain with an ongoing oversupply, even though what has been more or less assumed and appearing in the media in the last times, we are seeing still that China -- figures of China of growing in its melting production figures up to now in this year have appeared to be growing around an 8%, and we are seeing also the startup penetration of other players, the area growing strongly. So with this ongoing oversupply, the prices remain weak. Prices remain very, very weak in the area. We shall see the chart after. And consequently, is the area of the world where, definitely, margins are much more to struggle.

So as a consequence of all of this, we shall then understand better what has been the performance of Acerinox in the Q3 for obtaining more or less these figures and obtaining this growing EBITDA of EUR 103 million. At the end, the key point is that NAS remains very, very robust. And at the end, I repeat again, 50% of our sales secured in North America. And NAS is keeping a very, very positive performance. We are growing in high-margin types. Remember, we put on place the bright annealing, has been very, very successful penetration of our bright annealing market. So consequently, we are focusing also in the high-margin types in the States. And this is gradually taking place, and we have been gradually improving our profitability in North American Stainless. And this also keeps our comfort that even for the fourth quarter where normally is the seasonal slowdown in the States take place, but we are keeping very, very consistent margins for the Q4. And consequently, we remain optimistic of the high contribution of North America -- of North American Stainless for the fourth quarter.

Apart of North America, we are seeing a very, very challenging environment elsewhere. It's clear that the situation is tough in Europe, very, very tough. And therefore, especially in this scenario in which even some of the stable system for pass-through that always have occurred in the market now are not taking place, so we are absorbing that in our exports to European subsidiaries. So consequently, both Acerinox Europa as also Columbus and, obviously, all our distribution in Europe suffering because of these circumstances. So you can understand then that our Q3 production, we have seen a 5% decline in melting production.

We compare third quarter 2019 with third quarter 2018. We are seeing a reduction of 12% quarter against third quarter last year. We talk about January to September. The decline in melting production has been around 10%.

I want also to precise that this is obviously as a consequence of the market but also as a consequence of voluntary strategy and policy to not accept crazy orders, don't lose temper or nervous and trying to keep margins. If keeping margins we need to sacrifice volumes, we shall do. We shall do in poor-performing markets as is the case of Europe. And also, we must keep a rational in the better-performing markets as the States. So our target is to be profitable and to be consistent and, consequently, voluntary prefer to adjust our production figures in order to keep margins as much as possible. And this is why one of the reasons that we are seeing decline in the melting production.

Any case, what the Q3 provides us is a slight improvement compared with the Q2. And this, as we mentioned before, has proven to be the case of a 7% in increase in EBITDA. Obviously, when we compare to last year, still the figures and EBITDA is substantially lower, but the environment and the circumstances in which we tried in the year 2018 are far away from this uncertainty, the struggling market that we are suffering in this year.

In the Q3, also, we have done an inventory adjustment of EUR 9 million, and this is something that is not logic to understand for those following our markets since years ago. In the case that normally -- in the times in which nickel experienced a rally or were increasing its price at London Metal Exchange, this always has been a reactivator of the market. But because of the circumstances that we have mentioned, this has not been the case. We think probably that the rally of the nickel in the third quarter has not been following the logic and the basis of the market and has been due to other facts and that he has been putting a lot of notices and news in the media regarding some speculation in the London Metal Exchange and it appears also some announcements in the media recently that this is being investigated. The case as this has not been accepted mostly in Europe, at the end, what we have made is also some inventory adjustment at the end of September, considering that probably, we should be suffering partially in our margins part of this increase in the nickel price that is not going to be easy to make the pass-through. This is the reason. I assume that this has been openly discussed by our internal Investor Relations team the last weeks and shall not be a big surprise. But keeping our strategy and our basis, we have preferred to make this inventory adjustment at the end of the Q.

Apart of this effect, one-off, we have experienced some other positive effect that have neutralized part of this one. One of the most remarkable has been the sale of the warehouse we have in California, in Agua Mansa, California. And this has brought us some positive impact of EUR 7 million in the Q3, which, at the end, has almost neutralized this one-off other effect of the EUR 9 million inventory adjustment.

Any case, what we must also stress and we shall explain later talking about the working capital and the cash flow generation is the very, very positive evolution. We have reduced our working capital quarter-on-quarter in this year. And this has driven us to keeping a very successful, strong free cash flow generation during the year. We shall analyze it quarter-per-quarter later on. This is for us one of the drivers of our performance in this year. And as a consequence of this, net debt reduced in the third quarter by EUR 59 million, even though, in July, we made part of the dividend paid in this year. So at the end, even though the big increase in distribution to shareholders, we've been able to reduce net debt even in a quarter in which we have made a strong payment in the dividend to our shareholders.

These are the -- this, for us, I think, explain mostly what we are announcing in our results and probably what shall come from the future slides. And we think this is a good summary to try to understand what's going on.

In the following page, we see what we have been mentioning. This is a strong rally occurring in the month of July, which, as we said before, is not driven by any shortage in the market. We are absolutely sure and certain that it's not such shortage of nickel for creating this rally. What was clear is that the price of nickel in the London Metal Exchange experienced very, very high increase in July. Weeks before, it was announced also that Indonesia was anticipated to expand. So whatever is connection or not among those facts, but this is there, and it's clear.

As a consequence of this also, we are seeing -- later on, we have seen also big movements in the stocks of nickel, mostly in China. And then consequently, the stocks of the nickel are being reduced. At the end, as we said before, probably it's a big connection of all these effects and is not driven by a real shortage. If there is a shortage this year in the nickel market, at the end, we are talking about 40,000 tonnes. This is not enough -- in this rally, but this has been one of the main disruptors of the market in this year. And as contrary as normally occurs instead of accelerating the order taking and so on in the market and orders being passing through to the players, what has brought us is more uncertainty. And all the players in the market, consequently, are adopting a wait-and-see position, trying to clarify what's going to come after.

The ferrochrome, which is more driven by offer and demand, as you can see, there is keeping more or less a very, very stable figure Q4 compared with Q3, and it's in the range of $102 compared with $104, as was the case of the third quarter. So in the case of the ferrochrome, it's much more stable and much more driven by the offer and demand.

And as a consequence, we see this evolution of prices, which is more or less reported by CRU. Obviously, it's very, very difficult to precise and establishing that this should be the proper average for the markets or for the orders. What's clear is that we more or less reflect a big, big gap that occurs mostly between Asian prices and Europe and American prices and also the gap prices in the States compared with the prices in Europe. So this is the trend. Whatever we may enter in discussions of the effect on the base prices and the transaction prices of crazy orders taking, but more or less, what proves this is, what are the levels of prices and the gaps among the main areas in the world.

And then if we go to the Q3 main financial figures, we can see again the evolution. As I said before, we try to be predictable, and we try to avoid surprises. It has been slightly above the level of the second quarter. We are seeing a positive evolution quarter-on-quarter. We started with an EBITDA of EUR 90 million, EUR 97 million Q2 and EUR 103 million in Q3. So in this regard, our Investor Relations team, mostly Carlos and María, have been very transparent and explaining, especially in the last months, all the basis of how the market is performing. So we understand that this should not provide big surprises more than a really confirmation of what we have been announcing and explaining regarding the market. And consequently, it's also relevant that as we have been follow in our figures and evolution, what we was explaining as outlook for the following quarters are relevant for us to explain you and that the fourth quarter shall be similar to those figures we have been experiencing in the year. We are going to be in the range from EUR 90 million to EUR 100 million or EUR 103 million as a bidding in the third quarter. But it's true that for the fourth quarter, we are seeing that the improving in margins, the high margins we are obtaining and we have obtained in August and September in the States, the very, very big figures that probably are coming also from October are some facts that in the States are going to compensate the minor activity that normally occurs after Thanksgiving and in the month of December. So we are optimistic regarding that. And we are seeing that some of the actions taking in Europe and in South Africa also shall improve the profitability from these plants.

So at the end, because of that, we keep confident that the fourth quarter, we are going to be in line the previous quarters, and this also for us is a strong fact of comfort. So you can see the positive evolution in EBITDA, in EBIT and in results. And at the end, I think that more or less, we are finishing the year also with no surprises. As we have been in line with the consensus for the third quarter, probably consider that shall be also in line with the consensus for the fourth quarter also. Up to now, we think that this is rational.

What is for us a bigger relevant factor remark, as it appears the page, is the strong cash flow generation in the Q3, of make EUR 80 million of free cash flow generation, and we have been able to reduce net financial debt by EUR 59 million. For us, cash is king. This is one of our guidelines. And we are very, very consistent, keeping a big discipline, all the facts affecting cash. And consequently, we are getting big success on that. We shall see now the evolution in the working capital. But this for us is part of the drivers.

The evolution of the 9 months up to now compared with the previous one, definitely, it's clear that the market is absolutely much more struggle. So this 200 -- this EUR 290 million figure for EBITDA, this year is 30% below the figure of last year. At the end, obviously, the correction shall be lower after the fourth quarter because you remember that the fourth quarter last year was a big, dramatic correction compared with the previous ones. But it's true that the basis of the market has changed a lot. But for us, what relevant is that we've -- it is changing in the circumstances, we are keeping a very, very consistent evolution.

Easy to understand is in the next page, in Page #6. Obviously, you are seeing the effect in the melting production. I reinforce again, we are adjusting our melting production to the -- the market circumstances, trying to keep margins in every market, and because of that, production in the third quarter has been 5% below the level of Q2. And in general, January to September, we have been 10% below the figure of the previous year.

In the evolution of EBITDA, what we have been mentioning and what our IR team has been stated since the beginning of the year, we have been growing EUR 90 million to EUR 97 million and then EUR 103 million. And you can remember what occurred last year, it was -- it is clear the second and third quarter of last year, we experienced absolutely good circumstances on the market. But then it came also the strong correction in the Q4, especially with the big wave of imports that moved more to Europe and affected so strongly the fourth quarter last year. Fortunately, this year, we are not having such correction, and I reinforce again our outlook that in the fourth quarter, we are keeping more or less the consistency that we are keeping quarter-on-quarter during this whole year 2019.

Free cash flow, it's clear, and you can see quarter-per-quarter in this year, 2019, we have been improving our free cash flow generation. And I think we also are consistently convinced that for the fourth quarter also, the free cash flow is going to be substantially positive for bringing us in a strong reduction also on the net financial debt. You can see up to now that the net financial debt at the end of September has been EUR 582 million with EUR 60 million reduction compared with the end of June. But still, we are a bit above the figure of net debt that we have at the end of 2018. We are also convinced that with a strong cash flow generation, we shall experience in the fourth quarter, the level of net debt for the end of the year shall be also reduced compared with that of last year of EUR 552 million. So in this regard also seem to be very, very consistent on the fourth quarter.

All these details appear in the page where we try to explain the cash flow generation. If we concentrate in most -- the main driver, obviously, for our business, which is the change in working capital, we have been improving quarter-on-quarter also in this year and, at the end, reaching the figure or the accumulated figure with a strong reduction in working capital of EUR 38 million in the third quarter. At the end, we are almost neutral in working capital -- in operating working capital, sorry. And when we talk about operating working capital, we talk about inventories, trade debtors and trade creditors. And in this, we are (inaudible) figure, the one we more or less finished last year. You can see that in the same period last year, in this January to September, working capital has only increased EUR 1 million. The same period last year, working capital increased EUR 192 million. And we destroyed cash last year in terms of EUR 192 million, and this year has been just the contrary. You see the evolution. You can see that the increase in the trade creditors EUR 63 million is neutralized by the increase in trade debtors of EUR 30 million and in inventories of just EUR 33 million.

So consequently, we are keeping a very, very strict discipline on that. Our inventories are absolutely under our control. And this is also a strong fact of comfort for us for our consistency, evolution and the results in the fourth quarter.

And at the end, even though the contribution from the business and from the EBITDA has been substantially lower than in last year, EUR 290 million compared with the EUR 422 million of the similar period last year, what's clear is that we'll reach an operating cash flow of EUR 218 million this 9 months. We are substantially above the equivalence of last year and at the end, reaching -- after CapEx payments of EUR 99 million, reaching a free cash flow of EUR 119 million.

In this year, our Board and our shareholders meeting decide not only to increase our dividend, and our dividend was increased 11%. You remember, we move up from EUR 0.45 per share to EUR 0.50 per share. So in a year in which we have increased the dividend by 11%, also, we have been increasing figures to distribution to shareholders by the way of a buyback. And also, you can see more or less how has been this splitted quarter-per-quarter. The first quarter by the buyback by acquiring of treasury shares, we expend EUR 49 million. In the second quarter, by the dividend also, we made a cash out of EUR 81 million to shareholders. And in the Q3, in early July, by the issue premium refund, we also paid back to our shareholders EUR 58 million (sic) [EUR 54 million.]

So at the end, have been paying or increasing the distribution to our shareholders directly or indirectly. And we have been cashing out EUR 184 million. And with this, the cash flow after dividends, January to September, shows a cash out of EUR 65 million. Any case, with the conversion differences and the mostly the dollar appreciation against the euro and our big, obviously, exposure to the dollar and the big cash we have actually in the States, gives that effect in net financial debt [minorates] up to a level of just EUR 30 million increase in net debt compared with the (inaudible).

For the fourth quarter, keeping that discipline in the working capital and with the contribution coming from the business, not being also cash out in this quarter for the -- in the way of distribution to shareholders, we understand that, consequently, we have -- we shall be also able to reduce, consequently, net debt. And this shall be also one of the big success of this challenging year.

I remark again more or less the message that we are able to drive properly things under our control and keeping the discipline in the group. Any case, we're exposed to facts that are not so probably under our control. And consequently, this tries to appear -- explain the outlook we provide in Page #8.

What can we expect for the fourth quarter is that the prices probably are very stable at a low level in Europe and Asia, but we think that most of the pain already is there. We do not expect further pressure in the fourth quarter. And consequently, the contribution of these areas shall be a bit better in the fourth quarter.

The macro uncertainties still are there. They are every day intensifying and still the visibility is weak. But what's clear is that the very robust performance in the States and especially the contribution of North American Stainless shall make that, at the end, this positive effect also shall be appreciated. And in this year, probably, the seasonal slowdown shall not be as high as in other years. And consequently, more or less, the contribution shall be almost in line with the one in the previous quarter.

So because of this, we're comfortable seeing -- thinking that the Q4 EBITDA shall be in line with Q3 and in line, more or less, which has been the average of the EBITDA we have been experiencing this year. Obviously, at the end of the year, we shall make all the necessary adjustments. We still have no visibility should we needed additional inventory adjustments or not. This shall be probably taking place in January. But with all the fact that we know up to now, I think that, in general, what's coming from our pure business and operations, the Q4 shall be similar to Q3. And a fact of this, we may have some other one-off effects, and it is very difficult to precise them now. We try to remain strong where we can be. But also, we know that there are areas that are under a big pressure, and we must keep our targets of being profitable everywhere. We are very, very consistent on our cash -- on our excellence program for reducing costs, and we are keeping that in mind. We know that we disclosed our Excellence 360º semester-per-semester, but we are very, very successfully running it as we announced in June. But also, we need to find new levels of efficiency, mostly in the -- in our business exports to Europe.

We don't think it's sustainable the actual circumstances. We think that the new announcement and measures taking place in Europe, the situation may improve. But on the time being, we cannot only be depending on waiting for some trade cases or antidumpings for improve our profitability. We must do our best. Part of doing our best is increasing the efficiency. And consequently, it has been also happening in the media, and we announced that we are making some reduction in workforce, and we are bringing and discussing actually with the unions and with the workers some reductions taking place in the plant of Acerinox Europa, in the Campo de Gibraltar factory. So consequently, this is actually under discussion and maybe, if again, conclude something from now to the end of the year, this also could be as a one-off appearing in the year-end. But still, it's a bit premature to announce it or even quantify it because still, we have to know the final figure. But this is some one-off that may occur at the year-end, and I want just you to be aware that this may come. It shall not be as a pure operating effect or -- for taking place in our profit generation in this year not affecting the cash. But maybe if we conclude these discussions that we should probably provision for some one-off that may occur in the plant and at the end, probably shall be neutralized with cost reduction that this should bring us for the next years in the plant of the South of Spain.


Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [3]


And this will affect the EBITDA.


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [4]


It should not affect cash and not affect EBIT -- the net debt. But as Carlos mentioned, it could affect in the way of one-off the EBITDA of the year-end. But whatever comes after these discussions, probably shall be to clarify ourselves and appearing in the media in the following month.

And from our point of view, as always, we want to give time for discussing and making Q&A for you. So I think that this, more or less, brings most of the comments that the management were willing to share with you, and we are absolutely open to your questions.


Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [5]


Thank you, Miguel. Now -- for the presentation. Let's move now to the Q&A session, please.


Questions and Answers


Operator [1]


(Operator Instructions) The first question comes from Francisco Riquel from Alantra Equities.


Francisco Riquel, Alantra Equities Sociedad de Valores, S.A., Research Division - Head of Research [2]


. A couple of questions about the European operations. So you mentioned that imports to Europe are falling by 10%, whereas apparent consumption is down by 5%. And Indonesia has now been included in the residual rate. So do you expect a gradual rebalancing of the market and the excess inventories to correct? Or do you still expect a high level of imports, given that the volume quotas from the safeguard measures have not been filled?

Also, if you can update in terms of utilization rate. You mentioned that melting production has fallen by 12% for the group. How much has been in Europe? And do you expect any recovery in demand at all? And how far are we from rising base prices from current depressed levels in Europe?


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [3]


Thank you, Paco. In regard of the imports, we are seeing some short decline in the imports, very short. And at the end, as we mentioned, now the imports market share in Europe still are at 11.28%, which is, frankly speaking, a bit surprising in a time in which Europe has taken safeguard measures. So we consider, as we always have been stated, that the safeguard measures were not as efficient as should be and have proven to be, here that the -- provisional ones create, in the last year, a big mess in the market. With the definite ones, some certain level of order came. But at the end, we are seeing a big flow of materials coming in, in Europe. So this is one effect that has been obviously providing pain to the market.

At the end, we prefer not to be so depending for external facts and as do our best in every circumstances. But what's true is that in -- what has been the case of this unfair trade that is taking place, there are some areas for optimism. One is that after, more or less, evolution of last month, Indonesia has been now appearing. Indonesia, as you know, has been one of the big distortioners of the market in Asia but also in the exports to Europe. And at the end, even though it was not included in the initial measures, but now Indonesia also appears in the global aggregated quota. And since the 1st of September, obviously, Indonesia is being included in the safeguard measures, and this is a positive effect.

Another positive effect is the reduction in the 5% to 3% of the increase in the rates. We think also that this is going to be positive. So in regard of the safeguard measures and what its consequences from now to the following months, I think that these 2 facts are positive, and they shall have its relevance, especially the inclusion of Indonesia in the aggregated quota. But in addition to this, there are other facts. And then one of the facts is the initiation by the European Union of the antidumping investigation, and this is against China and against Taiwan and against Indonesia.

This and also is very, very relevant because it's obviously oriented to the hot roll. You'll remember that in the last years, China, with the antidumping in cold roll has been reducing absolutely its exports to Europe but replace them, but increasing the exports of hot-rolled material. And this has been entering mostly through Italy in Europe and has been a big distortion of the market.

The fact that now China is being studied for an antidumping in hot roll is very, very relevant for both China and Taiwan. And especially hot roll has been one of the drivers of the big flow of material coming to Europe from Indonesia. So this factor of an antidumping is, by far, in addition to the improvements in the safeguards. This is a very, very positive effect for the next months coming.

And in addition, we also have the antisubsidy investigations. So at the end -- against China and against Indonesia again. So the aggregated effect of all these facts probably shall have a very, very positive effect in terms of the better protection against our trade imports in Europe, which are the ones that are dropping terribly prices low and not allowing the prices to be reflecting more or less the evolution of their consumption in Europe. So we are optimist on that. And this is something that may be coming and appreciated in the following months.

In regard to reduction, Carlos, I mentioned?


Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [4]


Well, the capacity utilization, it's low in the expense planned. As Miguel mentioned in the -- during his presentation, volumes are going down. The melting shop is going down 10% year-to-date. We have been selective now and not taking orders at whatever price. So consequently, let's say that capacity utilization in Spain is somewhat below the 80%, 70% more or less.


Operator [5]


The next question comes from Seth Rosenfeld from Exane BNP.


Seth R. Rosenfeld, Exane BNP Paribas, Research Division - Research Analyst [6]


A couple of questions for you today, please. First, discuss an outlook for stainless scrap and realized margins in the U.S. And then secondly, just looking about further ahead in 2020. With regards to scrap, we witnessed obviously a very big dislocation between the price of nickel and stainless scrap price in recent months. Within Europe, I understand it's been very difficult to pass on higher alloy surcharge to your customers. I mean it doesn't matter. In the U.S., where you comment on a decent ability to pass on higher nickel prices through the alloy surcharge, it would seem as though the weak stainless scrap price should be a big benefit for you. Can you just give us a sense of whether or not the full extent of that discount has already hit your P&L? Or if that sort of dislocations in raw materials cost and price pass-through should be a net positive for you looking forward?

With regards to that discount, do you think it's sustainable? Or if you see a normalization of the stainless scrap market versus nickel, would that actually be a headwind for you looking forward? I'll start there, please.


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [7]


Thank you, Seth. Well, this is absolutely a good point, and is one of the issues definitely to keep an eye on. As we have been mentioned, the formula of the extra alloys and the way of passing through, which obviously has been one of the best performers in trying of providing stability and certainty in the market for years in certain areas now are questioned.

In the States, fortunately, the best-performing market and as I say before, probably all the players in the market, producers, distributors, master distributors and also customers appreciate then the certainty and the consistency. And because of that, in North America, we are seeing that the market is preferring to keep the formula, and everybody knows where they are and what can they expect. So in that regard in America, it's going okay. And consequently, we appreciate that in that market, still the basis are there. And I think that because of all these issues, it's the best-performing market, and the one with more certainty and with less challenging pressure than in the others.

In Europe, it's not the case. In Europe, this big effect of the tsunami of the imports, at least 28% of market share of the imports, the big, big discounts offering by the importers of Asian product creates a big mess in the market. And consequently for months or for the years, we are seeing that the extra alloys is not well respected, and this is probably not benefiting anybody. It's not benefiting producers. It's not benefiting distributors, and it's creating a big mess on the market. So at the end, probably the uncertainties are higher even that what could be a potential cost saving, if that were the case for the customers. And this is not a positive effect.

We expressed before that the rally of the nickel was not so logical or driven by offer and demand. At the end, because of that, nickel must compete with other materials. And definitely, it's clear that nickel competes with the -- pure nickel competes, stainless steel scrap and competes with nickel pig iron.

We are not customers or consumers of nickel pig iron. But as you know, nickel pig iron has not experienced a rally in price corresponding to the rally in the pure nickel. And the other alternates as is the stainless steel scrap have increased its price and consequently, has increased its cost for us, are not in the same intensity at the pure nickel. And at the end, we have been experiencing an increase in the cost of the stainless steel scrap but not as intense as the one of the nickel as reported in the LME.

And this is something that we are mentioning in our last presentation as we expressed in our Capital Markets Day in last year. So the nickel competes with other sources, mostly the nickel pig iron and the stainless steel scrap or the ferronickel. And at the end, these are the drivers. And sooner or later, it's clear that they must be aligned. The last month has not been a proper alignment between the pure nickel and the other components. Probably because the other elements or the other components consider that, that was not sustained. We have mentioned that has been a big speculation. It's under the investigation now what appeared in the LME, but it is something that creates this distortion.

In Europe, as we said before, we have made an inventory adjustment. So this reflects at the end that it's spoiling our margins, mostly in Europe. And consequently, we have been doing this inventory adjustment of EUR 9 million. So it's clear that at the end, we are experiencing an increase in price, in cost, the cost of some effects. We have not been able to pass it to the market, and we are absorbing in our margins but not so intense as it were purely demanding on -- or depending, sorry, on nickel. So at the end, the flexibility on moving from nickel to stainless steel scrap, to ferronickel, to other alternates allows us to minimize that big exposure.

We hope that any case, sooner or later, the drivers in the raw material should rationalize. But in the time being, we're taking our best on procuring other sources if the nickel is proven to be such unrealistic as it's coming.


Seth R. Rosenfeld, Exane BNP Paribas, Research Division - Research Analyst [8]


As a separate question, please, on the longer-term outlook into 2020. Your commentary with regards to underlying demand, it doesn't seem particularly robust. And while you are highlighting the potential for some new trade policies in Europe, your core U.S. market, it looks unlikely to get much better. When you think about the moving parts into 2020, it looks like consensus is baking in about 20% EBITDA growth. Do you think that's a reasonable starting place as you look into 2020? Or given the view kind of stable pricing in those core regions, should we be thinking a bit more conservatively?


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [9]


In the States, we remain confident. Our conversations, as you say, our main market, our conversation with the market, our players remain consistent. Mostly, the final customers remain consistent for a proper beginning of the 2020. And the figures for the first quarter appear to be fine. It's true that distributors, probably for now to December, appear not to be very, very active. We are not considering in this regard that that the level of stocks at distributor in the States is high. And on the contrary, I think it's below -- this is below normal levels. But it's true that several of the big distributors in the States are multi-metals. And at the end, even though maybe in stainless, they are a bit below normal. In other of their metals, they can be high. And consequently, that the targets for the year-end are reducing, more or less, their activity.

This, any time after the new year, should also had its consequences, and we think also that on the distribution, more activity shall come. And when it comes, probably the stainless, by keeping its low levels up to now and with maybe lower their orders entry in the coming months, should also accelerate. So for the starting or -- you know that we do not enter in longer term. But with our discussion for customers, we keep very, very consistent on the States for at least our first quarter being substantially good. As regard, we feel confident.

Europe is obviously a question mark. The basis are there. And I think we shall begin to appreciate now if all these announcements, if the inclusion of Indonesia probably now should have its consequences on the imports. And at the end, those now that we have mentioned that are also affected by antidumping or antisubsidies to these are the main exporters to Europe. We have seen reduction in -- of imports, obviously, in Europe for example, coming from American players.

So at the end, in this regard, what's clear for us is that this could bring more rational. But still, we have not touched that. So we cannot make predictions on Europe. We think that the basis are for with this announcement, inclusion of Indonesian importers and the other cases, maybe this should improve. And we think that once the imports appear to be more corrected shall be probably more simple for a proper performance of the market. But still, this needs to come. So still, we are not seeing that.

For the -- at least, we have no much main visibility. So we need to wait a bit more, but we hope that with this, should be more correction on the import side. And we shall be that -- and we shall see that evolution. At the end, just keep in mind that even though with a negative apparent consumption figure in the States, which is huge than in Europe, we are increasing our presence. At the end, it's clear that we are replacing previous imports by our sales to that market. And consequently, yes, with this, the figure works. So if this also may occur in Europe in the next year shall be positive for everybody.

The issue is that the players in the American market are always more rational, and I don't talk only about producers but also, as we have said, by distributors. And sometimes, in the case of Europe, it is not what we are finding. So there is sometimes, the market enters in panic, producers enter in panic offering discounts because the importers are struggling for offering market. And some final customers only accept, more or less, material at the same price as the Asian one. So this is a big mess occurring in Europe, and fortunately in America, it's just the contrary.

We hope that in the next future, with a more controlled imports in Europe, the situation should improve. But still it's soon for appreciating it. Maybe in the next months, we shall, more or less, make our comments of how we are seeing it, but still it's a bit premature.


Operator [10]


The next question comes from Krishan Agarwal from Citi.


Krishan M. Agarwal, Citigroup Inc, Research Division - Analyst [11]


My question on scrap is broadly answered, but if I can push a little bit. I mean if you can disclose or guide as in what is the proportion of nickel scrap and the pure nickel in your input cost, that would be great.

And the second question is on the European workforce adjustment plan. How big is the plan, as in how much of the headcount you are looking to reduce? And I mean how long it can go on in terms of flexibility? If the market were to improve, how quickly you can bring the workforce back and then support the production in a kind of optimistic scenario? And is there any kind of a guidance on the impact, the financial impact, which could be seen in the fourth quarter?


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [12]


Thank you, Krishan. Well, in case of the scrap, as you say, we try. We are more intense and we always have stated that our main raw material is stainless steel scrap. And it is one of the drivers, mostly in Europe and in States. South Africa on the contrary, we are more depending on pure nickel.

And also -- we also use, depending on market evolutions and price evolutions, also the ferronickel as a way also reduce our exposure to just a single component. So at the end, we try to be flexible among all the different [visitors] that can work. It's regarding -- it's clear that in -- especially in the actual basis in Europe and in the States, we are mostly now depending on the stainless steel scrap. There is stainless steel scrap availability. And also, yes, as has been stated the last years, stainless scrap is mostly used in America, and it's mostly used in Europe, and China is not a net -- not an importer of stainless steel scrap. Consequently, this is one of the basis that at the end, there is no shortage of stainless steel scrap. Clearly, this is there.

Obviously, the trend of the scrap is following the nickel evolution. And this is something that is there. But for us, on several components of our cost, there are savings on using stainless steel scrap rather than pure nickel.

In South Africa, there is not so big availability of stainless steel scrap. This must be imported. And consequently, it's in our product mix and in our basket mix for the melting, we are more exposed to nickel. We're also trying to use that exposure also. And we are improving our imports of ferronickel and our imports of stainless scrap there. But it's our plan, which is more exposed to nickel.

And this is -- this shows, more or less, one of the paradox that at the end, with a planned presence in a country with plenty of availability of nickel. But sometimes, our austenitic efficiency is higher than the others. There's normally -- the stainless steel scrap provides substantial advantage on cost savings. So -- and this is one of the facts why in the others, we'd prefer to be more active.

The stainless steel scrap has follow -- or this has increased its cost, and we are suffering that. And we -- it is reflected in our inventory adjustment, but not so intense as the nickel, yes. But we continue consider these more or less, also as a consequence that nobody, more or less, actually believes that the rallies driven by that offer and the manner is sustainable. So consequently, actually, the market is in a wait-and-see position of what's going to take place with the nickel in the next future.

This is a fact of uncertainty. And obviously, uncertainty always is bad for our market but it's there. And on the time being, we shall see. I don't think this is going to be a permanent disruption between the correlation of both, but temporarily, we appreciated some of it in this recent quarter.


Operator [13]


The next question comes from Luke Nelson from JPMorgan.


Luke Nelson, JP Morgan Chase & Co, Research Division - Research Analyst [14]


Two questions for me. Can you remind us what your sales mix is between ferric and austenitic products in North America and Europe? And if there's any way you can see yourself towards a high share of ferric sales just to avoid the margin squeeze from the alloy surcharge? And then secondly, on the inventory revaluation in the Q3. Just what, if any, assumption is built into this around a return back to market where you can pass on the full alloy surcharge to customers?


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [15]


Thank you, Luke. Sorry. Prior to going through your questions, I forgot to answer the second question of Krishan previously, which was relating the effect on the workforce reduction in the plant of Campo de Gibraltar. This is actually being in discussion as you mentioned. We are contemplating or what has been discussed is a reduction of 300 workers which is, more or less, the study that has been done and the one considering that can be, more or less, sustained, improving efficiency in the plant of Spain, but allowing us any case to keep with that workforce whatever improvements comes on the market. So this should be definitely one-off, some 300% around the -- sorry, around 300 workers reduction. Still needs to be precise. So it may be any figure from 250 to 300. So it still is a bit premature.

What's clear is that this should increase efficiency, but it's not an effect that at the end should be compensated whenever the market reacts. So it's not a temporary layoff. It's a definite layoff. And we have made a proper study in order to consider that we can keep the plant running at full capacity when the market reacts with no needing to increase the workforce in the same level.

So it still needs to be defined. And obviously, it may have a -- the figure is not so easy to define because it shall be depending on who are the people finally included in the layoff, and the figure is difficult to precise at this level.

As soon as this is an area that we settle and we settle the unions and with the workers there, we shall make it public. But still, for us, it's a bit premature. But it may be relevant. I don't think it shall change definitely the quarter. But as we prepare to a figure, could be in a range of EUR 30 million or something like that, but still is a bit premature. I prefer not to be more precise. Any case, it shall be one-off. And then the -- but we consider this as, more or less, this should be -- the return of this one-off shall be very, very quick appreciated in the coming years. But still it's very, very premature. I prefer just to -- it with no more precision. Maybe, Carlos, you can go through the...


Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [16]


Yes, Luke. Your first question was related to ferritic mix in Spain and the States. Let's say that this depends on market necessities, no? But at the end of the day, we can speak about in the last answer, similar ratios of around 30% ferritics both in Spain and in the States.


Luke Nelson, JP Morgan Chase & Co, Research Division - Research Analyst [17]


And I mean just in terms of an ability to reduce your exposure to nickel? Is there sort of the demand potentially there? And is there an opportunity to change that SKU on a short to medium term? And then my -- the second question was just on the inventory revaluation effect. What assumptions were underlying that around time frame to returning back to the full pass-through of the surcharge to customers?


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [18]


Well, in the product mix, for example, the expansion of the bright annealing in the States provides us that are coming improvements in the margins or going especially to that sector in which that is less relevant by austenitic types. And consequently, this should probably reduce historically in the States, where we are more fully austenitic-oriented. And in this regard, with this bright annealing, we may able also to increase a bit the percentage of ferritic but in a high -- the highest margin types. And consequently, this is positive for ourselves.

So in this regard, the situation in the States, this appears to be a bit more balanced. Still majority, we shall be, as Carlos has stated, we shall be austenitic-oriented.

In South Africa, South Africa it's true that in the actual mass, for example, as much as in the actual circumstances and with the nickel as it is, we are thinking or we are -- ways of improving product mix. And definitely, performance is a bit better when improving the product mix, moving more to ferritic because South Africa is more exposed to the pure nickel according to the nickel prices. So fortunately, we have that flexibility. But we think this is more flexibility oriented to the short term.

So in the long run, we think that this situation should probably improve and neutralize. And what this clearly provides us, as has been stated, is that in South Africa, we need to be more active in finding alternates for the pure nickel. Consequently, by the way of stainless scrap, by way of -- by the way also of the ferronickel.

In the past, we made some orders years ago in South Africa of nickel pig iron, but we understand that now with the -- also uncertainties in the market with the ban, new one coming in Indonesia, the effect this may have on the Chinese players, let's see how is the availability of the nickel pig iron for the next future. But as with the ferronickel and with the stainless scrap in the time being, we think that we can work there.

In terms of the inventory adjustment, the issue is, more or less, if you remember, we made also some inventory adjustment at the end of the Q2. In a normal scenario, yes, with the nickel going up, this should not have been necessary. But at the end, it's true that as a consequence of what we have been mentioning, mostly in Europe, we have needed also to make some adjustments at the closing of September figure.

And it's as a consequence of this not being able also to making the proper pass-through. We think that with this EUR 9 million adjustment, we are fine at the end of September. And because of that, we're anticipating what could be, more or less, the correction in the -- for the fourth quarter in South Africa and in Europe. And therefore, it should be fine.

Because of that also, we are consistent that not considering that it's going to make a huge than the levels where we are. With this maybe enough, and we think that with such anticipation of the future pain in Europe because of these circumstances, we are comfortable with the guidance we have done for the Q4 for maintaining in similar levels than the Q3. So we think almost everything is there apart some other facts, as we have been mentioning, that could be any type of one-offs for the year-end figures. That shall be depending on the layoff in south of Spain.


Operator [19]


The next question comes from Alan Spence from Jefferies.


Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [20]


Two quick ones from me this morning. The first on Bahru, if you can just give us an update on its performance. How it was in Q3, and then also kind of the near- and medium-term outlook for it? And then also, if you could just remind us on your full year CapEx guidance, please?


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [21]


Thank you, Alan. Well, Bahru is, at the end, Bahru is facing in these markets, as we mentioned, the situation in main Bahru, consequently, the situation of the prices in Asia and the oversupply, and the bigger material availability in the market is the one that is creating definitely Bahru keeping its margins very, very pressed for us definitely. As we always mentioned, Bahru is definitely a plant that is suffering under these circumstances. But at the end, when you analyze the figures of Bahru at the end, more or less, Bahru is almost neutral or breakeven or a bit above or below breakeven at EBITDA level. So the accumulated figures of Bahru at the EBITDA level in this year are in the range of breakeven, minus at EUR 2 million, EUR 3 million or at the most. This has been the case for the last year.

So for us, at the end, in the actual circumstances, with roller in Asia, having that EBITDA for us is a fact of being brought about because the correction should be substantially higher. So in the most depressed market, at the end, we are being able to keeping a roller in a breakeven EBITDA figure.

So in this basis, it's clear that we are doing our best. It's an efficient plant. The equipment are excellent. And at the end, it's in the worst part of the world in this space. And -- but we are sailing properly. And as I say, it's not a bad issue. That it is keeping a lot breakeven at EBITDA level.

On a long term run, obviously, this is not a target for us in any of our plants. And at the end, we think that every plant must be obviously profitable. And consequently, this is something that we are reviewing, and it's there and a fact of being patient or not and depending also what should be the circumstances for the future.

It's a big uncertainties in Asia. It's a big uncertainties regarding Indonesia. Now cases against China, against Indonesia, India against Indonesia. So it's going to be probably a big mess. It's clear that Bahru has been starting up and introducing at the same time that is -- there was a bigger flow of material coming from Indonesia. We know that. Probably Indonesia is the one now needing to review its strategy with the trade cases almost everywhere. And where should be the future effect on the production, it's something that still is unknown.

So we know Bahru is an excellent asset in the actual worst part of the world. The issue is how much these struggling circumstances should remain. This is, for us, this is our -- obviously our question mark and our constant headache.

But I insist keeping breakeven EBITDA in Asian roller in these days is a good demonstration of efficiency of that plant. And this is there.

And the other question was regarding CapEx? Yes. In general, we think, more or less, we keep consistent in the CapEx as average on a low period. It's almost in line with our depreciation. This year, it appears now that it may be below -- probably more below in the cash out according to the rhythm of the implementation of some of the equipment actually in place. So probably in the figure of CapEx as new assets appears in our balance sheet in this year, we shall record as CapEx probably a figure close to the EUR 170 million, maybe a bit below. Probably in the cash out should be -- because of some of the equipment should finally be more paid in the first quarter next year according to the start-up, maybe in the final cash out of the CapEx, we shall be in the range of EUR 120 million to EUR 130 million, something like that.


Operator [22]


The next question comes from Bastian Synagowitz from Deutsche Bank.


Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [23]


I've got 2 questions left, one on your BA investment and then also on your cash flow. What has been the EBITDA contribution of the bright annealing line in the third quarter? And is the bright annealing line or are you running at full steam? Or is it still in the process of ramping up?

And then secondly, on the cash flow performance, which was very decent. You already mentioned that you aim for a positive free cash flow in the fourth quarter as well. Just looking at your balance sheet, could you please let us know whether you expect to be able to release even further working capital at the year-end?


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [24]


Thank you, Bastian. In regarding the -- you know we do not give separate figures on the contribution per line. So consequently, -- and the evolution of the bright annealing in the States has been very positive. But we also don't want to attract further investments of other players on bright annealing in the States because at the end, it's clear that we are mostly the relevant supplier actually in that market and also the imports of bright annealing have been used strongly there.

And consequently, for us has been a very, very successful penetration. And the ramp up create less time than expected. And at the end, what we have been playing in the -- not playing, but we have been running, more or less, the lines, in order for putting -- make a quick pull on the string. In the early months, maybe not all the material that we were passing through the line was bright annealing, but we weigh -- would weigh -- in the -- in the way of putting in, and assume quickly and gradually, we have been using the line more for a specific bright annealing. And because of that, the contribution of the margins have been gaining.

We have been improving our margins in America. And you can see that at the end, we -- even though we are sacrifying part of our tonnage there, but at the end, with the addition of the bright annealing, we are improving also our margins there. And it's a sector in which still we have area to grow. We are in discussion or we are in discussions. We are in supplying the key players. We are bringing now additional tonnage for Siemens, also for General Electric. So this is going to keep, and this is going to keep consistent even for the fourth quarter. So when we announced and we mentioned that even this fourth quarter in the States should be probably not reflecting some strong correction because at the end, some of the final customers are keeping consistent levels. And therefore, we are there.

So on this regard, in general, our margins in the States this year are better than in -- purely in margins than the previous one. So on this basis, I think the situation is working fine, but we cannot disclose separately the contribution of land by itself.


Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [25]


Maybe just -- Miguel, sorry to jump in. Maybe just let me rephrase my question then. What -- which percentage of your target contribution did you hit in the third quarter if your total target contribution for EBITDA of the BA line is 100%? Have you been running at 100% for the BA line in the third quarter already? Or are you more like at 70% or 60% at this stage?


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [26]


Not yet a full percent. So yes. As I mentioned, it's going to be gradually. We hope that it shall be full for the next year, but we are gradually going up. This is the most I can comment for this. Sorry, Bastian.


Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [27]


Okay. No worries.


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [28]


The other point was regarding in terms of -- yes, in terms of the working capital for the fourth quarter, it's true that also in terms of general working capital, we are seeing a reduction in working capital. And at the end, this is purely thinking on the pure business. At the end, we normally -- as you know, we normally since years ago, we keep the stable levels of the factoring, and we always disclose all the figures. You remember that normally, we keep a consistent factoring in the way of EUR 150 million. This year, as secured in last year in -- for the month of June, according to the increase in the debtors' figures, we move it up to EUR 180 million. But at the end, we shall finish the year gradually. We are reducing it and we shall finish the year in EUR 150 million. So we are keeping on comparing figures exactly the same figure on factoring line's utilization in the last year.

So this is not driven by any specific window dressing at the year-end. At the end, it's more or less, more focusing on keeping the proper discipline on inventories. Keep also in mind that the market in terms of debtors, which we have a quicker collect, is the North American market. So we are obviously collecting as average in Europe in the range of 90 days. But also in the States, normally, we are working less than 30 days. So as much as obviously North America waits, consequently, this also has its impact.

And also it's true that in the actual circumstances, Bahru in the actual market conditions is supplying its semis more from Asian players rather than by group players. So historically, the main supplier for Bahru has been Acerinox in Spain and Columbus, but this is actually on the actual market circumstances and the actual prices and the cost of slabs in the area, Bahru is absolutely moved to be supplied more from Chinese players and/or Indonesians. And then consequently, this also had its effect on suppliers.

So obviously for in terms of so running the plants and capacity utilization for the group is better when it's done internally in the group. But in terms also for working capital as much as suppliers now are third parties, this also has its good effect. And it may have also its good effect in the fourth quarter. So because of that, the figure also of the supplier shall move according to this new effect on Bahru. And, yes, because of that, we feel confident that also with this change in the trends, the working capital shall reduce substantially in the fourth quarter.


Operator [29]


The next question comes from Luis de Toledo from BBVA.


Luis de Toledo, BBVA Research SA - Chief Analyst of Oil and Materials [30]


Just a final question from my side. It's regarding the divestment on the warehouse in California.

If you could explain us the rationale of that transaction, considering that you -- that I believe that it's only the -- one of the only warehouses that you have on the Western Coast if you are planning to [separate that out] on a different manner. Just about that.


Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [31]


Thank you, Luis. The rationale behind is, at the end, is a consequence also. Some of the issues we have been investing probably and analyzing for our Excellence Plan and our cost reduction, and it's also some of the guidelines. We're analyzing all our supply chain.

At the end, what we are working hard is in going through the direct supply directly from the plant. So this is purely as a consequence of that. So we are keeping definitely our presence in the Western Coast of the States, no doubt. But as far as we can develop direct supply from Kentucky and from North American Stainless directly to the customers there and avoiding passing through service centers, we have a strong cost reduction.

And at the end, what we are, more or less, is in moving each time more to that, trying to make a direct supply and avoiding warehousing and avoiding cost of transport and processing and so on and be making and concentrating as much as possible all the works to do on the plant and a direct supply to the plant. And this is as a consequence of the Excellence Plan or the cost-reduction plan. And we have had the best reaction and the best appreciation in the way that we have been able to not need the warehousing and the service center in California. And because as of that, we are satisfied.

That has been as a consequence for that. So for us, it's an excellent achievement. Consequently, I think each time we are working more on that direction, right, when possible. In the past, in the old days, we needed to have service centers close to the consumption areas. And now we are working in a new model in order for supplying directly from the plants and then avoiding intermediate costs. And we are proud, and we think that we shall also follow in that line.


Operator [32]


Ladies and gentlemen, there are no further questions. I now give back the floor to the company.


Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [33]


Okay. Thank you. Thank you very much. That concludes the conference call for the third quarter results. So thank you again to all the participants for joining us today, and have a good day.