Q3 2021 Ferroglobe PLC Earnings Call
Good morning, ladies and gentlemen, and welcome to favor clubs third quarter 2021 earnings call.
At this time all participants are in listen only mode. Later, we'll conduct a question and answer session. Please register by pressing star one on your telephone as a reminder, this conference call maybe recorded.
I would now like to turn the call over to batteries Garcia call several clubs Chief Financial Officer.
You may begin.
Good morning, everyone and thank you for joining sort of note third quarter 2021 N equals equals joining.
Joining me today are Michael Levy, our Chief Executive Officer, Ben I'll give you kind of look tissue operating officer, and Deputy Chief Executive Officer.
We have made on our transformational director and EVP of strategy and Investor Relations the poker lobby group controller.
Before we get this started we saw prepared remarks I'm going to read a brief statement. Please now turn to slide two.
Statements made by management during this conference call.
Forward looking.
Based on current expectations.
Factors that could cause actual results to differ materially from these forward looking statements can be finally, instead of local information SEC filings or did previous to those filings, which are available on our birthday baked Ww instead of the vertical. In addition, this discussion includes.
We finished two EBITDA adjusted EBITDA gross debt net debt and adjusted diluted earnings per share, which had no not yet finished measures reconciliation of these though not yet finished measures maybe found in our most recent SEC filings next slide please.
During today's call when he first review.
The highlights for the third quarter as well as our business and operating environment, then I will provide some additional detail on our financial performance and key drivers behind our results.
Finally, we would provide an update on the execution of our strategic plan at this time I would now like to turn the call over to Bob.
Marco Levi our Chief Executive Officer next slide please.
Thank you Beth and welcome to our third quarter 2021 Urban School opened in my voice supports me during this school otherwise we learned over part of my presentation to Mr. Michael.
This is certainly a unique time for our.
Our company and for the broader industry, the sharper and unexpected recovery in demand across our end markets, which started in the fourth quarter doesn't bring to continue throughout this year.
In fact global demand is up.
Supply driving the index to unprecedented levels.
I'm proud of that.
Silicon metal and reached multiyear high levels across our alloys.
For example, the latest index pricing for European Silicon metal has been at all time high at 8100 U S last week.
For up from around 17 out and thought he was.
But Tom just one year ago, an increase of 375% approximately.
I am pleased to report that we are seeing fundamentals remain extremely favorable for a sustained pricing and.
Environment throughout 2022.
Okay.
On the demand side.
Our customers across that came into aluminum and steel sectors.
[laughter] are signaling healthy demand into next year.
On the supply side, we expect that tightness.
Particularly on silicon metal to continue.
Lower net exports out of China continues to benefit western producers.
As a result, we announce the start of our Selma, Alabama facility in the United States.
Which is strategically located to benefit.
From the growth in the region.
Current market dynamics set the stage for a significant improvement in our earnings at the beginning of 2022. However, our Q3 performance remained constrained due to the position of our order book, which is a.
Fifth weighted towards fixed price contracts.
Unless the limited price increases realized across the portfolio compared to the movement in the index was enough to offset drastically higher energy in Spain.
Input cost operational and supply chain disruptions.
I believe we're also pushing ahead vigorously on the strategic turnaround plan, which is helping to offset some of the inflationary pressures and also helping to create the foundation for a stronger third group.
Overall, we are not surprised by the factors impacting our costs.
The energy situation in Spain.
Was an issue last quarter.
We'll continue to have an impact through year end.
What's surprising us is the pace and the level at which the market price for energy in Spain shut up.
To provide some perspective the market pool prices in Spain.
Spotify viewers per megawatt hour in Q1.
72 euros in Q2 118 euros in Q3.
Again these are the average quarterly prices.
Do not fully I liked the peak inter quarter pricing, which was.
On the 189 euros in Q3.
We are currently pushing several of them that leads to meet to get this problem we have.
Reviewing terms sheets for ppas with strategic and financial Counterparties.
If any portion of our 2022 energy.
<unk> in Spain.
We're also working on solutions with our customers to pass through these costs in the wake of these unprecedented situation.
As we rebound from the depths of where this company has recently been we're engaging and strengthening our relationship with.
With customers.
As cashes innovation accelerates, we are focused on reinvesting in our asset base.
Sure efficiency and competitiveness.
Additionally, we need to recognize the efforts of our workforce who are challenging period.
The changes we are driving.
Throughout the company are an important part of the new favorably.
My first objective continues to be the strengthening of the company and I think we are making progress.
At this stage it is critical that we fully capitalize on the near term opportunities and we must not compromise.
On the execution of our turnaround plan in order to ensure our cost competitiveness in a sustained manner.
I can confirm that at this stage, we're recovering market share from key customers.
And we are focused on our ability to convert these opportunities into faster cash generation.
Our margins in <unk>.
Where attractive trying to negotiate longer term contracts.
I will touch a bit more about how the current negotiation season is shaping up.
Let's first review of the third quarter results moving to slide six please.
Our third quarter results were impacted by several factors some of which were one off limiting our ability to benefit from the strong market conditions this quarter.
In the prices continued to increase across the product portfolio. During Q3 on the heels of strong demand on.
On the production side we.
Some outages and logistical issues constraining shipments.
Total sales increased 3% over the previous quarter to $429 million.
On the cost side energy had the single largest impact costing us in increments of $19 million.
Phase three in the quarter.
Our inputs, such as coal and Coke face inflationary pressures.
Furthermore, we faced some one off issues, a few facilities, which constrained our production.
Operational challenges coupled with semi.
And bound supply chain and outbound logistical bottlenecks adversely impacted costs during the quarter.
Our adjusted EBITDA increased 10% over the prior quarter to $37 $6 million.
For the quarter, we had a net loss of $97 $6 million primarily.
Some of you to a nonrecurring accounting impact.
[noise] this accounting change charge relates to the refinancing costs specific to the senior notes.
Resulting in net financial expense of $9.8 million this charge relates to the accounting.
Leading organic aggregate fees expenses and equity, which were issued as part of the overall costs.
<unk> will elaborate a little bit more on that.
During the quarter, we consume some cash ending the quarter with a cash balance of $95 million operating cash flow.
Theoretically was negative by 35 million as a result of an investment in working capital to support our strong near term demand.
As we think about Q4, we expect revenues to increase driven by the recovery in volumes and continued improvement in selling prices.
And whilst on cost pressures will continue the top line growth is expected locked weighted these costs, resulting in continued recovery of our EBITDA and margin expansions.
The acceleration of cash generation originally expected for 2021 will be limited due to increasing costs.
As we get the benefit of the new prices at the beginning of January we expect operating cash generation to improve.
With regards to 2022 European book is shipping up favorably.
Today.
We have approximately 35% of our overall sales contracted.
We are currently negotiating a number of sizable contracts.
Which we anticipate to close shocked me.
With this contract approximately 70% of our order book would be booked.
In 2021, we had a higher weighting towards fixed price.
His which constrained our upside.
In 2022, we will have more in market exposure due to higher weighting towards index based contract additions.
Additionally, we are building more we are building more protections.
Our contacts in this cycle next slide please.
Turning first to silicon metal on slide seven.
On the volume side, we had 8% decrease in silicon metal shipments to approximately 61700 metric tons somewhat back to the levels realized in Q1.
Earlier this year, we announced plans to restart the furnace at this facility.
Insane and another furnace at our Moon shaped facility in France.
Demand picture strengthened.
With the restart of these two furnaces our production volumes in Q2 increase relatively to crew up during Q3.
We decided to idle the same fitness, it's a bond due to the sharp rise.
In energy prices these turns out that the lower <unk>.
Silicon production during the quarter.
Outside of Spain, we had a planned maintenance outage at our alloy West Virginia facility, which further limited our production.
The maintenance work has since been completed.
MS facility is fully operational.
As a result of these developments, we expect volume in silicon metal to increase in Q4 as well as a continued step up in prices.
We have recently signed a very attractive content supporting the decision to once again and restart the fitness that simple.
On the pricing side, our average realized pricing increased to $2467 per metric ton in Q3.
Up 5% from the prior year quarter.
During the quarter approximately two thirds of silicon metal sales.
<unk> the joint venture of volumes.
Williams were contracted on this contract a portion 90% were fixed.
Fixed price contracts.
Hence our average realized prices do not reflect the same base of momentum reflected in the indices.
The industry is at unite.
It's in Europe on the top left hand of the slide show a parabolic movement in prices towards quarter end.
That is convenient in the fourth quarter.
The current spot prices are over $9500, but only in the U S and 100.
<unk> per ton in Europe.
EBITDA from our Silicon business declined from $13 7 million in Q2 to 11 4 million in Q3 on the cost side, we encountered a few challenges which contributed to a negative impact of $8 3 million.
The most significant driver was higher energy costs in Spain, which adversely impacted Q3 by Ford mediums.
Beyond energy there've been some cost inflation and sourcing challenges in other raw materials, such as coal, forcing us to seek for alternatives.
In the absence of the optimal mix, we have seen a negative impact on our overall operational efficiencies driving an increase in production costs.
Regarding the Selma facility restart.
Our current plan is for one furnace to be restarted by.
And <unk>.
And the second furnace restart in late Q1 2022.
End market demand remains strong currently we are in negotiation season for 2022 contracts.
In silicon metal, we are close to having approximately 80% of our volumes.
Fact of the contracted volumes of approximately 30% is at fixed price next slide please.
Turning to silicon based alloys on slide eight.
During the quarter, our average selling price increased by 9%.
<unk> to approximately 19 <unk> hundred.
$90 per metric ton up from $1850 per metric ton in the second quarter.
Our silicon based volumes were down 14%.
To just under 55.
900 tones.
The approximately 9000 tons decrease.
The silicon based portfolio is primarily attributable to ferro silicon and foundry to a lesser extent.
We missed approximately 5000 tonnes due to operational and logistical issues.
And in South Africa, there, where shipment delays that were a result of congestion at the port of Durban in South Africa and also.
And logistical challenges in procuring large container vessels.
Additionally.
With our bridge.
But Alabama facility, we had planned downtime for maintenance last some unexpected.
<unk> operational issues.
Which kept the plant down for say about extra days.
Similarly at our <unk> facility in South Africa.
And other planned maintenance outage took longer than expected.
In addition to the operational disperse disturbances, we added approximately 2000 tons that customers asked to delay into the fourth quarter as a result of some seasonal slowdown during the summer period.
EBITDA for our Silicon based alloys business was positively impacted by prices, but offset by volumes and higher costs.
I think in adjusted EBITDA was $8 four millions in Q3 down from $11 4 million in Q2.
In.
So of the $10 5 million cost impact.
Approximately 6 million ounces attributable to higher energy cost in Spain cost inflation in coal and charcoal, resulting in one media along with higher costs and also impacted earnings performance, which had been other wouldn't begin.
And lastly.
With the operational disruptions at beach booked in English learning, we had the lower fixed cost absorption impacting the results by $2 5 million.
Thanks.
Looking ahead to Q4.
We feel this part of our portfolio is poised for a strong recovery.
Relative to Q3.
First there are volumes, which customers push from Q3 to Q4 as well as the incremental volume contribution from the new seats, which had very sort of issues on.
On the pricing side keep in mind that ferrous silicon generally as either a one or three month.
Very nice.
The pharmaceutical.
Sorry, the federal Silicon index in the U S and Europe are up 40% and 35% respectively. Since the end of Q3.
Overall steel demand remains robust and we are just getting back to pre COVID-19 levels.
Keep in mind.
But the way steel producers manage their order books is very fluid so why.
Might be some slowdown from time to time, the fundamentals have not changed.
In fact <unk>.
Many of our larger customers have been looking at multiyear.
Deals in light of the current environment.
We haven't gotten to custom silicon the trade case in Europe was favorably concluded in early October.
Now antidumping duties against Chinese producers up to 56% at the moment.
[noise].
Please trade protections are in place until April 2020.
Yeah.
Great.
We've already got the ferrosilicon, taking into account the sizable contracts, which we anticipate to close soon 55% of our expected production for 2020.
It would be contracted.
Of this portion.
All 20% our contracted volume at speeds pricing.
Right.
Overall manganese based alloys was the strongest part of our portfolio.
The first quarter.
Despite the strong increase in EBITDA. This quarter. This segment was impacted by the same seasonal slowdown in steel demand as well as curtailment in Spain due to energy costs.
Volumes increased 12% to approximately.
76000.
The 700 tons.
We add the incremental production from the furnace or start writing Norway.
In an effort to optimize that why energy costs, we shifted.
Some of our contracted tons from Spain to Norway during this quarter.
Additionally.
We were able to capitalize on opportunities.
As competitors faced operational and logistical challenges on their end.
Mainly in southeast Asia.
During the quarter, the average selling price increased by 11%.
To a person.
Approximately 50 and $75 per metric ton so on a blended basis.
EBITDA from this business was up over 40% contributing $22 5 million loss in Q3 versus $15 7 million in the second quarter.
Increasing pricing more than offset the cost pressure from energy.
And iron ore costs.
We realized further improvements to our spread which is the delta between the low and your price.
We expect these trying to continue into the fourth quarter as the index for Silicon manganese have increased.
The end market demand for manganese.
One is that it always remains solid, particularly on the construction and machinery end markets given the near term demand outlook for Q4, we decided to replenish and did some inventories in manganese alloys during Q3.
For the manganese business, we are targeting to have approximately 60% of our volumes.
Contracted.
As we finalize the current round of negotiations for 2022.
Today, the majority of the contracted volume.
Index based pricing.
I would now like to turn the call over to batteries to review the financial results in more details.
Thank you Michael beginning with slide 11, I'll touch on a few specific line items on our income statement.
$439 million 30 in Q3 was 3% higher than the 418 million till safe.
In the prior quarter due to higher pricing across our portfolio of products.
Do it.
The product category review, Michael highlights several underlying themes related to energy and inflationary pressures impacting the quarterly results. These factors contribute to higher cost of sales adversely impacting our gross margin during the quarter to 31%.
Okay.
Down from 56% to say of course.
The decrease in other operating income and other operating expense. This quarter is primarily attributable to the accounting treatment related to the C. O two additional trials.
In Q2 without the impact of the Mark to market adjustment for the.
She took place we were reputation in the open market as a reminder, these reputation called good in Q2.
Yesterday, we had a decrease in the mark to market adjustments by $10 million related to the 2021 allocation for tier two credits. This credit is a book at a fair value.
At the grant date with little net impact in our P&L during the quarter, we accrue $3.2 million for the C. O two lines, which we would need to chase to address our deficit for 2021 with a cash impact in 2022.
With regards to staff costs the Q3.
Results were impacted by 10 million.
For the partial release of the vessel to rig provision based on the latest discussions in Europe.
Reported EBITDA was $35 2 million in Q3.
10% increase versus the $31 9 million in Q2 when accounting for.
For the one time costs relating to the implementation of the strategic plan. The adjusted EBITDAR was $37 6 million and lastly, with the completion of the refinancing during the third quarter. There were several one time items that we account for relating to the senior notes since the exchange of the.
She didn't notice considered debt extinguishment from an accounting perspective, a one off financial expense of $98 million Westbrook excuse me.
This includes a $31 7 million in advisory fees, $40 6 million, which was the value of the equity even to the bone.
One called US $11 million in underwriting fee based English silk and seven 5 million of other accounting related charges, the net impact of beef, which reflected the discourse at PNM.
Including these one time expenses result in a net loss of 97.
$6 million for the quarter.
Slide 12 please.
Adjusted EBITDA increased 10, 3% over the prior quarter.
We should have higher prices, partially offset by lower volumes and higher costs.
The $22 7 billion.
In fact.
Seacoast is attributable to several factors.
<unk> energy during the quarter, we saw significant ramp up in energy prices, particularly English pain. This cost consists of factors that are onetime in nature as well as something that will linger into the coming quarters.
The cumulative impact of higher energy costs in Q3 was $19 million of which $50 million, but let's see what the water space.
As Michael commented earlier, we anticipate energy prices in the spring to the lingering headwind in Q4. The key is to mitigate this risk with some combination.
Of PP&E cost pass through provisions with customers, we are generally pursuing both on Tennessee.
You're an entity to business.
Impacted by inflationary pressures on selected inputs.
Such as code charcoal and Coke collectively this input.
Cost increase accounted for $2 6 million dollar or the cost impact.
The moment, we are seeking ways to mitigate the impact going forward. For example in the case of corn, we are evaluating the ramp up of our coal mine in the United States for potential export to our European facilities.
And lastly, we have an adverse impact of $4 5 million dollar racial thing from a lower fixed cost absorption. This is the collective result of the impact of operational maintenance downtime, both planned and unplanned.
Next slide please.
Turning now to slide 15.
I will review our balance sheet in greater detail.
The end of the quarter, our cash and restricted cash balance was $95 million down from $106 million in Q2 total available cash decreased to $89 million in Q3 from $100 million in Q.
To the consumption of cash during the quarter is primarily attributable to an increase of 62 million and we'll kick off with that.
This is driven primarily by a $44 7 million increase in inventories given low level of stocks during the quarter at a four.
With the outlook, we decide to invest in replenishing our stock level.
The gross debt at quarter end was $499 million up from $464 million during the quarter. We raised that remaining 20 millions of the new Super senior secured.
<unk> financing. Additionally, we had the impact of the interest accrual of both the senior and Super Senior notes.
Debt increased to $404 million.
Up to $358 million in Q2.
That's a nice place.
Given the investment in working.
Our operating cash flow negative for the quarter, resulting in a total of approximately $34 $7 million.
Cash from investing activities was $8 2 million and is primarily attributable to the capital expenditures during the quarter and finally.
Gotcha.
<unk> got some financing was positive 30 to 32 point million.
Yeah.
Due to the incremental proceeds from the equity and Super senior debt issuance overall.
Our net cash flow during the quarter was negative 10.9 million with free cash flow.
Negative 42 9 million next slide please.
On October six we entered into an equity distribution agreement.
Enabling the company to issue up to 100 million Donuts, So aftermarket offering has dropped them through June 2034.
For the.
The sake of clarity, we have lots of large to issue any shares under this program should we elect not to.
As we just reviewed our available cash position at the end of Q3 was at the low end of the cash required to run our operations since the business is expected to generate.
Gosh in the near term.
Would not typically see.
Gotcha.
However in the intermediate term there are a number of.
A positive development, which could potentially yield they need for cash.
They work hard.
Attractive growth opportunities.
They're not investing in working capital.
Start of Selma or such.
But we need to ensure sufficient capital for these type of opportunities, while maintaining a cash based 11th to run the business.
And then the other one will have some lingering uncertainties such as the program goes to the space.
Which has been consuming significant costs the past few quarters.
The rationale for putting this program in place is to quickly access capital if and when it's absolutely needed.
Since the inception of the program, we have only issue I felt on a 180.
<unk> thousand shares for the net proceeds of approximately $1 $4 million. Our intent was to raise approximately $10 million. However, we were able to free up and generate cash through our operations through a few successful measures to satisfy our needs at this.
This time I would turn the call over to Michael to comment on our strategic plan. Thank you bear fruits now turning to slide 17. Please.
Yes.
While the broader market sentiment and pricing environment tends to be a major focus these days I want to stress the importance of our execution.
Sick be strategic pillar.
This is the foundation on which we would turn around the company and positioning to deliver stronger results through.
Through the cycle.
We're pushing forward on initiatives touching every part of the company challenging the norm and sticking to it.
The best practices.
This contract season is underpinning the importance of the changes we're driving with the company.
Our commercial excellence initiatives were better prepared with constructive engagement with our customers.
We continue.
[noise].
Oh, great new products into the pipeline.
Sure <unk>.
As per government structure, including global coordination and negotiation of our energy contracts on the operational side, our efforts and our renewed culture of excellence on the plant floor are driving improved efficiency in ethane.
I think offset some inflation naive patients.
We had an important development during the quarter.
India footprint optimization on Monday, we reached an agreement with the French government relating to the restructuring process.
Under the agreement for Globe is the support from the government.
And projects to strengthen its competitiveness across the five manufacturing sites.
It would continue to operating funds.
Typically the global facility will remain operational.
Clear plan to modernize the facility and improve its cost position.
This facility will also benefit from a new commercial agreement with a long standing customer.
As planned the initial project proposed in March 2021.
Seth Doane Faye if on CDP.
Production in the custom silicon production capability.
Transfers to the club.
We are encouraged.
By this outcome.
Minimize the social impact.
While ensuring a stronger operational footprint in front of us.
Overall during the third quarter, we have achieved 50.
Ascent.
Our cost savings target for 2021.
And lastly on working capital.
We have achieved our target cash release of $49 million. Please keep in mind that this initiative is tracking on a rolling 12 month basis.
Just for seasonal swings. Furthermore, we are fracking working capital as a percentage of sales to assess the relative improvement as the business ramps up.
Given that you have.
In France, the scope of our footprint optimization work stream has changed despite this change.
<unk> remained confident to deliver $55 million of EBITDA target for 2021.
At this time I will ask the operator to please open the line for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. If you like to ask a question.
Yeah.
Please press star and one on your telephone and wait for your name to be unknown.
You can cancel your request at any time by pressing the husky once again it is star and one for any questions. You may have and your first question is from the line of.
<unk>, David Rosen from real Great coffee to Oh. Please go ahead.
Hey, guys.
I have a few questions. So the first one is on this ATM usage. So you mentioned that you were looking to raise $10 million, but you've actually found that capital. So do you intend on accessing.
10 P M.
Thank you for the question, David Let me give you a little bit of color.
Around that.
First of all the board and the management team who are furloughed.
This equity program in place is a flexible option.
And to be prudent in light of the difficult stretch that the company is essentially going through on the financial side.
For sure we did not intend to use this tool right away.
But during the quarter, we had a number of positive developments following discussions with our customers.
<unk>.
Looking for product in Q4 in 2022, and I would say even after.
2022, as a result, we decided to invest in working capital.
We already started one furnace and more than enough for manganese alloys, we decided.
It really started to some in U S.
[noise], which clearly require cash.
And we have restarted the furnace that we had shut down into the bone loss.
<unk> during my speech on the back of a new profitable content.
So we're convinced that we had to capitalize.
If something this opportunity and fund working capital start.
Selma and we wanted to make sure that we had a comfortable level of cash to run our company.
Our intent.
When we made the decision David Awards.
Your line is about 10 millions.
But we were successful in freeing up cash in the business through pass through of cost per customers and by some collaborations.
<unk> always with customers to share some of the.
Startup costs.
Is.
<unk> two out of these measures we have minimized the ATM impact.
Two $1 4 million.
Just to be clear answer your question at the moment, we do not intend to use the equity program or ATM given our current view on the cash flows of.
Alright.
To make a statement. So we are very big believers in the company and we actually are very big believers in the strategic change in the fundamental change in the markets that you operate in and we have we're big investors in the company and we'd be happy to provide capital when you need it 10.
Can you just give us a call and we'll provide the capital.
So you should have no fear of not having access.
And I agree with you you should not be using this ATM. So next time, you need 10 million Bucks give me a call.
I appreciate that the problem is that we are in a situation where we could.
Don't wait.
And we decided to act at.
But what you say a year U S. Eylea appreciate it thank you.
Okay. The second thing I wanted to talk through spin and some of the mitigation and so.
Uh huh.
Can you just walk us through.
Through the the.
The mitigating items I know you know how they contract with Si bone, which sounds like it's a it's a very.
It sounds like a good contract for the incremental furnace.
Can you walk us through kind of that process to actually get.
To get pass throughs and kind.
Where you think youre going to go from maybe this quarter to where you should be in the first quarter of 'twenty two.
Yes.
Let me take it.
From this point.
Energy in Spain has gone up much.
Much quicker than expected.
That it has reached unprecedented levels right.
Prices have been going up far above 200 euros per megawatt 300 megawatts.
Today too.
<unk> 25 per megawatt this means.
Five times the price level of the first quarter.
D C. It.
And this year.
We had quite a lot of.
Contract committed customers.
Where are we.
We quickly moved.
For ice.
And as a consequence, we did two things one we.
We tried to reallocate production outside of Spain.
To supply the same customers too.
We.
And third the negotiation.
Most of our customers too.
Implement some price temporary price others in order to share the pain with these customers and in some cases, we have been successful in other cases, we have not.
For sure we have factored this uncertainty.
For the new agreement.
In 2000 in 2022.
So.
Overall.
In Q4.
Based on the elements that I have.
The assets in Spain are going to be profitable.
We ran in Q3 that were not profitable so our measures.
At least half correct.
The profitability of the Spanish footprint.
Got it I was gonna be clearer to you. So you said youre going to be profitable in Q4 in Spain versus.
Yes.
Hello.
Particularly profitable I mean I'm not.
But compared to the negative result of Q3 exactly.
A significant step change.
How much.
What kind of losses did you generate in Spain in the third quarter.
We're not prepared.
Slide this number.
Okay, but it was a meaningful number.
Is a meaningful number and the key correcting factor.
For Q4 is the new contract.
New customer and symbol proceedings.
Is that the factor.
Because the energy impact.
In fact, much more silicon production than than the automotive production.
Got it.
I'm sorry go ahead.
Yes.
Was mentioning just to stress for 2022.
First we are exploring the opportunities.
To enter.
Long term contacts quarter energy supply.
Second we are discussing with customers within the new contract negotiations.
<unk>.
Energy cost pass through or at least having some.
Art ship close this thing.
And our contract that basically allow us to.
Get back to the negotiating table to the customer and decide if we continue to supply at negotiated conditions.
Pullout of disagreement.
That makes sense. So when you talk about the question. So when you talk about protections.
The protections will be around your input cost, but it also just.
Would you think about putting floors into your contracts.
Maybe you could talk about.
And a strong.
Ah.
Marketplace, where there is less Chinese competition I presume there should be some amount of flexibility that should benefit you and I'm just wondering kind of what I think youre doing all right.
Customers are looking mainly for supply security, particularly in silicon.
Strong and as a consequence, we.
Have.
We are negotiating different contract terms.
Where are we.
Move away.
From a fixed yearly pricing.
And we link.
Is it price more to that.
To the index.
At the same time, we make sure that we are protected in case the market turn which is something that we don't foresee in the next few months, but due to the cyclicality of our at least one day is going to go back to.
Who is at certain levels.
So we are using these favorable moment of demand too.
To change our contract structure and.
Just to give you an idea wildly sphere, we added about 70% of our silicon volumes at fixed prices.
Price next year, the amount of volume at fixed price.
The final level by the way would be only $25 50 per se.
Great Alright, Thank you very much guys I appreciate it.
Thank you.
Our next question.
One is from the line of Brian <unk> from Baird. Please go ahead.
Good afternoon Margaret Beatrice.
Just help me understand with all the work that you're doing with Soma.
What your Capex budget would be is looking like for 2022.
But what we are doing.
Sorry, if I wasn't clear.
With my coffee.
We start filming already in December but at the end of December with the.
The first furnace and we start the second furnace by March 2022.
Yeah.
The cost to restart sale in mind, when you can see their capex and working capital is around $50 million.
Okay, and Thats for bolt furnaces, starting back up correctly with firmness if yes.
Okay.
For total Capex spending.
In 2022 have you put a budget on around that yet.
Yes, we are discussing that.
Like I mentioned.
My in my speech.
We need more capex.
Then the amount of Capex spend for sure in the last two years.
Okay.
I don't have a fixed fee.
Figure in mind worked out with my team, but we.
I think that there is not going to be different from what we.
I mentioned in the past, so we need to ramp up to around $75 million.
A year.
Capex.
Understood.
You mentioned in your scripted remarks that youre looking to enter into longer term contracts with customers do you anticipate those to be more index space versus fixed price.
Definitely.
Well the key changes for silicon metal because.
Four alloys, we have already index price in our contract and then depending on the products prices.
Sorry, GAAP adjusted either a monthly or quarterly or every two months, but the NCD.
Silicon we have moved more.
Lower market prices, yes.
And there is quite an interest from a lot of customers to move to.
Two to three years contract.
Okay.
Great and I guess just the.
The final question is is that as I think about your global footprint.
Is the current.
Freight and logistics situation impacting your ability to move production.
Production from one plant into a different market.
Is that becoming more challenging and are you getting paid for that.
<unk>.
You ask that.
Very good question and this has been.
<unk>.
This question has been keeping us very busy in the third quarter.
I mentioned to you the fact that we slowed down production.
Okay.
We slowed down production in Spain at all our facilities in quarter, three whereas this quarter too.
For amped up our assets in France and in Norway.
By the way, we have six plants in France.
And despite like I say.
Yes.
Plus one where we have stopped production.
And that.
At the end.
For us the.
Energy costs rise in Spain has been the critical determining factor to the side.
On.
Not relocating volumes to the other.
Facilities in France, and Norway, and we are successfully.
To do that.
When you look at.
South Africa and mention the difficulties that we had.
In supply chain moving.
Our net material.
Is that a negative impact on our favor large sales and was also a big gap.
Sure.
Sales.
In Europe and in Asia too.
Yes.
In the U S. The situation is much more.
In the Americas I would say this.
Uhm, it's much more stable for us.
From this point of view.
Got it I appreciate the additional color. Thank you.
Okay.
Okay.
Once again, the star and one final question.
Okay.
And your next question is from Disano from me Danielle.
Please go ahead.
Hi, Thanks for taking my question.
Michael can you can you give us a breakdown of the silicon metal production.
<unk> by by region in the third quarter like how much of production is.
<unk> and how much is from North America.
Yeah, I can give you let me look forward the numbers give me.
Okay.
Somewhere.
Thank you.
So if you look at the.
Our U S.
Asking me for capacity or production.
So instead of metal.
Silicon metal gain or.
It was about 10%.
Total volumes.
Okay, just 10%.
So if the Spanish power price given what just happened with Nordstrom.
With Algeria pipeline et cetera et cetera.
Spanish power prices.
Stays at these elevated levels for 2022.
You ramp up the Selma and.
Would you be willing to shut the production volume in Spain, or do you have to maintain certain level of activity there.
Well.
Price I don't think that sell my as a good option to supply.
Our customer mix in the.
In Europe sell my is pretty much going to be pretty much devoted to satisfy the additional demand in the U S.
Yes.
What.
Clearly we are watching the situation by today, because the energy pricing is being is extremely fluid.
The outlook that we have about the energy as it is.
Energy prices in Spain would it be.
On the ice side, let's say above 200 euros per megawatt.
In the rest of Q4 and Q1, but then the futures show.
And energy price of around 110 120.
Euros per megawatt.
In Spain.
At this level.
Yeah.
At this level will be in.
The business that were booked for next year.
Is covering us.
Us.
The other.
The other option that we can always but particularly floor.
For silicon metal.
Is to repeat to what they have done already in quarter three.
Down production of silicon into bone.
And produce more.
Other.
Silicon plan that we have.
The situation.
Is less stressed.
Four four alloys, but due to our.
Footprint Dunkirk and.
Ah represents a very good alternative.
Two the assets in Spain. So.
We evaluate this.
Personally three times per week my team.
Good day.
<unk>.
We need to be pretty flexible.
And switching our production sites.
Okay.
And then and then talk about the 2020 to contracting.
Being the.
The 25% to 35% fixed price book volume.
Is that a did you guys strategically pick that level or is that because the spot market is so high.
Theres, maybe customers unwilling to.
Accept this kind of a spot price and therefore, everybody just like let's go index.