Befesa's Washington Windfall: A $30 Million Zinc Credit Arrives Just as the Buyback Question Gets a Date

Befesa's Washington Windfall

For a company whose story has been a grinding, quarter-by-quarter deleveraging exercise, Befesa's Q3 call opened somewhere unexpected: a U.S. tax statute. The operational quarter was fine but familiar — zinc high, energy costs higher, secondary aluminum finally healing. The genuinely new item was slide five.

A grant nobody had in the model

Group CEO Asier Zarraonandia led with the Inflation Reduction Act — a phrase that has not previously appeared in this company's keyword set. Befesa has concluded its U.S. zinc business qualifies for an advanced manufacturing production credit under Section 45X: 10% of the operating cost of producing special high-grade zinc at Mooresboro, above 99.9% purity. Critically, “the grant does not require any further capital investment to be eligible going forward” — Asier Zarraonandia, Group CEO · 2026-10-29, and it books as a lower operating cost rather than a below-the-line item.

As a result of the grant, we expect a positive impact on our adjusted EBITDA of $25 million-$30 million per year for the period of the program, which runs for nine years, stepping down from 2031 to 2033. Approximately EUR26 million will be already recorded in the Q4 2026 adjusted EBITDA.

The arithmetic is blunt. Underlying 2026 guidance was narrowed to EUR260–270 million with the low end lifted by EUR10 million. Add the credit and the range becomes EUR286–296 million, with EPS guided above EUR2.90. A EUR25–30 million annual annuity on a business with roughly EUR1.7 billion of market capitalisation is not a rounding error — and it lands with no capital attached.

The obvious caveats are policy and process, and management addressed both: this is a first-time claim, subject to IRS review, and “unless in the future or something change in the legislation, you can never know” — Asier Zarraonandia, Group CEO · 2026-10-29. The step-down from 2031 is baked into the nine-year frame.

The engine underneath: zinc up, energy up, and an aluminum fix that came from the supply side

The core was a seesaw. Zinc prices averaged $3,512/t over nine months (+27%) and $3,830/t in Q3 alone (+36%), with spot treatment charges near a historic low around -$150/t. Befesa used the strength to extend hedges to Q3 2029 at what Rafael Pérez called record levels — roughly $3,000 for 2027, $3,100 for 2028, $3,200 for the first three quarters of 2029.

Against that ran energy cost. Coke averaged EUR186/t in Q3 versus EUR160 across 2025; electricity reached EUR130/MWh and gas EUR79/MWh. Asked to size a 2027 headwind if Q3 levels persisted, the CFO was measured: “we probably can anticipate in the mid-single digit impact” — Rafael Pérez · 2026-10-29. Note the framing — the general inflation squeeze now travels mostly through diesel and transport, not through the kilns.

In Steel Dust recycling, adjusted EBITDA rose 2% to EUR158 million with margin at 27%. The volume split is the interesting part: a 90% load factor, U.S. volumes running 60,000–70,000 tonnes higher on new electric-arc-furnace contracts, Europe constrained by construction and automotive softness plus electricity prices, and Asia — Turkey, Korea, China — simply weaker. Management tied U.S. strength to steel demand from data centres, energy infrastructure and industrial projects — a second-derivative way to own the same AI data centre buildout that dominates the global thematic tape.

The real operational surprise was secondary aluminum: EBITDA swung from -EUR0.6 million to +EUR5.4 million. Volumes fell 6% on tight feedstock availability, so this was not demand. It was supply: “some players are stopping operations. Secondary alu producers. This is forcing or this is coming back to the possibility to do or to work with better margins” — Asier Zarraonandia, Group CEO · 2026-10-29. That argument was first floated a year ago on the October 2025 call — “there are starting to be some players under troubles, financial troubles and probably the capacity is going to be” — Asier Zarraonandia Ayo, Group Chief Executive Officer (CEO) · 2025-10-30 — and it has now materialised. metal margin recovery is a competitor-distress trade, not a cycle trade.

The capital allocation question finally gets a date

Leverage fell to 2.16x from 2.6x a year earlier — the tenth consecutive quarter of deleveraging, with year-end guided to roughly 1.8x and the 1.5x–2x band reached a year ahead of plan. That matters because the capital allocation priorities ladder has a fifth rung: return surplus cash once inside the band.

This has been an analyst grievance for years. In February, Beltran Palazuelo put it plainly — “we would like to see the share count decrease” — Beltran Palazuelo Barroso, Analyst · 2026-02-26 — and Rafael Pérez demurred: “share buybacks is something that we have looked in the past, but the financial profile of the company was not adequate... I don't think that's something that you can expect this year.” — Rafael Perez, CFO · 2026-02-26 That was eight months ago. Today: “clearly 2027 will be the first year shareholders will be remunerated additionally” — Asier Zarraonandia, Group CEO · 2026-10-29.

What makes it credible rather than promotional is the absence of a competing use for cash. The only live growth project is the Recytech expansion in France at EUR60–70 million spread over two years — and even that is conditional: “the five years period I see is here just generating cash without other projects” — Asier Zarraonandia, Group CEO · 2026-10-29. Get the dust volumes and the project may slip a year. So the next five to six years look like maintenance capex of EUR45–50 million, a progressive dividend, and a rising cash generation profile with the 45X annuity stacked on top.

What quietly fell off the page

Treatment charge was the single highest-ranked item on this company's Q4 2025 call. This quarter it surfaced only when asked, and the answer was hedged: spot TCs in miners' favour, the 2026 benchmark at $85 versus $80, and “it's early to say, but, well, doesn't looks like it's going to be a big change for our treatment charge” — Asier Zarraonandia, Group CEO · 2026-10-29. Zinc price and the tax credit have simply overwhelmed it. If metal prices mean-revert, that variable returns to the front of the narrative fast.

China is the other retreat. Across prior calls it was a standing question — is the plant burning cash, would it move province? Now it gets a sentence: low utilisation, roughly breakeven. No analyst pressed. That is a problem parked, not solved.

The dossier's honest tension: nothing about Befesa's cyclical core changed this quarter — the dust volumes mix shifted, energy got worse, aluminum got better for reasons outside the company's control. What changed is the cash clock. A statute in Washington handed this recycler a nine-year annuity and, in doing so, converted a decade of deferred shareholder-return promises into something with a start date.