Q3 2020 Ternium SA Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to Ternium third quarter 2020 results.
At this time all participants are in a listen only mode.
After the speaker presentations, there will be a question and answer session.
You ask a question during the session you will need to press Star and then one on your telephone keypad.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to Sebastian Marti. Thank you. Please go ahead.
Good morning, Thank you for joining US today. My name is good question might be a nice stern investor relations and compliance director.
Turning to reduce yesterday's financial results for the third quarter first nine month of 2020.
This call is complimentary to that presentation. Joining me today are Tony Chief Executive Officer Maximally those on the company's Chief Financial Officer said, while the rates you will discuss started his business environment and performance.
I think conclusion of our prepared remark that we'd be it clearly session.
Before we begin I would like to remind you that this conference call contains forward looking information and that actual results may vary from those expressed or implied.
Factors that could affect results are contained in our filings with the securities and Exchange Commission and on page two in todays webcast presentation.
With that I would tell you that GOR over to Mr. religion.
Thank you Gary.
Good morning, and thank you very much for your participation and we really appreciate your time and your interest in our company.
Pretty.
What do you what do you think some other things are happening which.
I need to be.
Or or might you see.
Our last conference call there have been significant advantage to order more normal environment.
Industry.
Demand increased.
Counters restrictions to operate for different industries, where relax in the third quarter, you know no one mark.
Continue to operate our facilities.
Under strict sanitary protocols, Okay, Scott reviews.
Goals on your decision not a real you can be able to increase operating rates to close to full capacity.
Situations like this you do in Ternium can demonstrate its operational flexibility.
During the second quarter the.
The worst of the pandemic related risks restrictions will reduce ternium crude steel production by almost 30% compared to the first quarter.
Then in.
The third quarter.
We took production back up whenever a higher level than that over the first quarter of the year I'm proud of our people what are you going to react to these big changes.
Market environment.
Steve Bryan TC North American market has also being held as they were they recovered strongly from a very low base back three months ago. When we got our last conference call.
The higher shipments made possible by Terniums operation and access.
Together with improvement in the pricing scenario enabled us to report third quarter results that was significantly better than.
What we anticipated in our last conference call shipments increased 16% to 2.8 million tons now get back to pandemic.
Levers to bleep pandemic levels not on our way there.
EBITDA was $353 million with a margin of 17% or $124 per ton also significant increase we expectations of more to come in the fourth quarter of the year.
Free cash flow remained at a very high level.
As they did in the previous quarter with 389 mediums in this quarter.
Finally, another decrease of net debt, we reach just $562 million at the end of September.
During the third quarter, we were able to restart our main capex projects, including the new quarter Rolling Mill in Mexico of which we continue to expect commissioning by me.
Next year.
We also received the final commissioning of the Greenfield rebar facility in Colombia in.
In this regard.
Gail plot to announce that in Monday, two days ago.
We produced the first bar out of these new facilities, the new mill will enable us to substitute imports of reinforcing bars in Colombia with total capacity the capacity to accumulate to approximately a third of the market. We see facility, we will be the only produce.
Sure of rebar in the north of the country. This new capacity will also contributed to the increase in competitive.
With a lower cost of production now done our Mexican facility.
And we will also be able to grow than our product offering integrating these new capacity with our existing facilities in the country.
Let me now make a quick description of the situation.
In our main markets in Mexico, we recovered in the third quarter clearly over half of the volume we lost in the second quarter. We now expect shipments to return to pre pandemic levels in the fourth quarter.
We are seeing a continued recovery of shipments to the automotive how.
Household appliances.
The AC industry, driven by solid end user demand in the us market.
I also expect shipments to the construction market to sequentially improve with steady demand from small construction and various government infrastructure projects like the new airport in Mexico City, and the new refineries.
You hear container.
Following record low shipments in the second quarter of the year volumes recover in the third quarter of Twentytwenty two levels similar to those seen in the same quarter two years ago.
Although the Argentina government successfully restructure except.
Uncertainty in Argentina continues to carry the country continues to happen macroeconomic challenges that it will need to overcome with reforms on time.
There are no negative new news on the macro level.
We could have an additional steps sequential shipment increase in the fourth quarter I still feel.
Steel end markets continued to advance purchases.
In Brazil.
Still market environment improved significantly over the last month.
And this has supported increased set up orders level in the domestic market. The auto industry is recovering nicely in Brazil underperformance of the country's GDP in 2020, it's going to be the less affected pandemic among the Latin American economies.
Our slot facility real is currently working at full capacity and we expect it to maintain in the fourth quarter of the current level of integration with our mills in the region. It cats in the third quarter.
Prices of slabs in the global market has also improved over the last three months and this is driven a recovery to more normalized margin levels in these facilities.
All right I'll keep it short this time, so we have more time for your next section under review of the quarter summarizing the profitability of the company is improving and we are positive expectations for our performance in the fourth quarter of the year.
Needless to say, although shipment levels in all our markets are currently strong.
Im certainly pursue core the future costs of the COVID-19 pandemic delicious governments around the world could take to contain it.
We are seeing in Europe, you said the guidance and the pandemic, it's not over so we will continue to take a cautious stance.
We also continue working hard to help overcome communities and view the effects of the pandemic. We told the initiatives I detailed in our previous calls I am, particularly proud of how the field hospital, we build and operate in Monterrey, He supporting the sales of.
Well she need in the local community.
Looking ahead into next year, we are very much looking forward to the commissioning of our new court Rolling mill in Mexico.
This will be a game changer for time, you not only from a growth perspective, but also from our competitors.
Have you always with the goal of 50 billion.
Training, our high profitability levels related to our competitors competitors.
I am also very positive about the future of the market in the U_s_m_c regime.
With our expansion projects in the last stage of development I believe that new unique position to take advantage of the U.S. nch many.
Alright.
We're ready now to review in more detail the third quarter results. Please Pablo go ahead.
Thanks, Maxsimil and good morning to everybody. Let's review earnings result for the third quarter of October.
Hi, good momentum you will see that our performance improved significantly in the third quarter over the last couple of quarter worker or sustaining turns profitability.
Alas on strengthening our balance sheet to cope with the difficult environment in our markets related to recall with 19 finance.
Let's see some of the results of these efforts starting on page three on the webcast presentation with the company's quarterly EBITDA and net results.
Well servicing MISI continues year recovery with $353 million in the third quarter. There was a sequential EBITDA margin expansion of 400 basis points or $33 per store will discuss this in more detail in the next slide.
Net income in the figure was $173 million or 74 cents per year the results compared to net income of $44 million in the second quarter.
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No.
[laughter].
They are they are we are sorry, so what we're saying that the result of limiting the third quarter compared to a net income of $44 million for the second quarter.
Okay.
[laughter] products.
[laughter].
[laughter].
Yeah. So.
And and clearly the second quarter was.
Weak because of the consequences of the pandemic of coverage so let's let's.
Let's look forward to the fourth quarter. This dictation is for a sequential increase in Jim how are you.
She's should result in strong set of of numbers.
Turning now to page four let's review in more these days the degree of the recovery in shipments one of the surprises in this third quarter and.
So in the upper left hand side, Turkey, Mexico shipments increased 23% on a sequential basis in the third quarter.
They were down by 11, if you compare to the last few years on the fourth quarter, we expect shipments in Mexico to continue recovering reaching paper limitless.
Deceleration shipments in the third quarter rebounded from a very weak second quarter as though in the lower left hand side and were up year over year by 9%.
If current market dynamics continue we will see further volume expansion in the fourth quarter.
In the Americas region.
Finished steel shipments increased sequentially.
On a year over year basis in the third quarter as you can see in blue in the upper right hand side chart for the flat shipments to third party in the same to you today basically is both sequential and year over year comparisons during the third quarter, we were able to further integrate ternium facility.
In Brazil to the company's investors see systems up to a level that resulted in a reduction in the volume slabs chips to third parties in the fourth quarter, we expect a similar volume slaps ships to surplus.
Turning to next page you can see India for less than say the reset of these developments will consolidate dispositions of 2.85 million tons in the third quarter up 16% sequentially in the fourth quarter, we expect cost related to treatment to increase sequentially based on higher volume in our key.
Markets sorry, Scott.
Turning now to revenues, our realized price increased 5% in the third quarter.
As we see in the upper right hand side. Chuck. This is mainly explained by a sequential increase in the value of our sales mix.
If these prices in the North America market.
Videos, a various program since our last conference call.
We were expecting this to happen, but not in the magnitude it actually.
This improvement is prevailing in prices.
It was mostly offset by weaker industrial contract realized prices as a result for the allied price reset.
This is strong pricing Barbara will drive an increase in revenue if revenue potential in this region in the fourth quarter of the year.
Let's turn now to page six to review the main sequential changes in EBITDA, unless we felt in this quarter.
The reality with da.
Reflecting the recovery this is shipments and improved profitability.
EBITDA margin increased sequentially, mainly reflected reflecting an increase in revenue, but partially offset by slight increase in operating costs cost perform.
The higher operating income led to a sequential improvement in net result, as you can see in the bottom chart. In addition, we've had a reversal from equity in earnings of Semina.
Income tax.
Turning now to page seven let's review the main changes in the first nine months of the year for the year over year basis.
The change in EBIT da.
Don't be deterred reflected the year over year decrease in shipments and the VVA Pulpo media portal was negatively affected by lower steel prices, partially offset by lower purchase lab raw material energy and labor cost per tonne.
As for the year over year changes in net income in the bottom chart. In addition to the increase in operating income you can see the effect of the net financial result of the significant fluctuation of the Mexican peso, the argentinean peso under Brazilian real versus the US dollar during this period.
We also had a year over year segment income tax.
The reason behind this was a non cash deferred tax loss in another nine months of the year in comparison in collection story with the Mexican peso, 16% depreciation in that area.
Now to finish and before opening up the call to your questions. Let review on page eight the annual free cash capital expenditures net financial debt.
You can see in the slides strong set of numbers with the measures taken in the last two quarters Ternium has achieved a strong financial position with ample liquidity and net cash provided by operations activity reached $1.4 billion in the first nine months of this year, including the 628 million Award.
Working capital released on capital expenditures decreased significantly to $440 million in the period.
All that weve taken because there isn't everything that we have mentioned with less net debt down to $562 million as of the end of September equivalent to 0.5 times net debt to last 12 months EBITDA.
With the resumption of our investment plan, we expect capital expenditures increased sequentially in the fourth quarter.
Okay. This is where our prepared remarks, we are now ready to take your questions. Once again. Thank you very much for your time and attention. This operator proceeds will be fewer may session.
Certainly ladies and gentlemen in order to ask the question you do need to Kansas Star and then one on your telephone keypad.
Please standby, while we compile the cumulative cost.
Our first question comes from the line of Jonathan brands with HSBC. Your line is open.
Hi, good morning, gentlemen, congratulations on the results.
Like small I first wanted to ask you about.
Steel prices, both how quickly we should see the steel prices.
That that happened in the third quarter and the U.S.
How much of that should be captured in fourth quarter and how much that will roll into the first quarter and just sort of what is your outlook on on North America's steel prices today, given sort of everything Thats you know the.
Thats happening in the uncertainty et cetera.
My second question I guess, maybe to the Pablo is just.
If you look at your leverage.
0.5 times, it's sort of at the lower end of the historic range.
So could you kind of walk us through what your uses of cash will be particularly as it certainly seems like.
Profitability and free cash flow continue to increase as we go into the fourth quarter. What is the outlook for for Capex. What is the outlook for dividends what are some of the other uses of cash or or should we expect leverage to.
To remain at the sort of level. Thank you.
Thank you John for the questions. Let me start with this is Brian.
I think there are two part of the questions.
Steve break it clearly you see our results we took advantage of a little bit of increasing the prices.
Of course, we are going to take a little bit more advantage inc. fourth quarter and I guess in the first quarter remember.
Revenue in part of our sales our contract pricing.
Okay.
Spot prices and so during the fourth quarter and probably during the first quarter, we are going to see an increase in prices from shipments from term depending on the mix probably is going to be increased.
Why did the outlook.
I mean, when we when we had our last conference call I remember I was telling you that what price you at what perino actually what's incredible that look attractive in China for the first time.
I think 10 years, where Apollo.
They look up right, where our crop sorry, the local prices in the U.S. So we haven't seen that profit after three years and so we expected prices to go up.
It went up.
More weekly sales, what we thought.
And I think that this level of prices should really Shane.
Credit environment should continue over the next couple of quarters.
Demand is good in T lack in Mexico in this region I think.
Our customers are consuming construction is very shortly.
Industrial manufacturer is also increasing and so I think that from the demand side.
I think this is strongest.
[music].
I am deeply seeming in deal for an educator rate. If you told me at 70%.
And the lead times are quite long in the U.S., So I think that.
And if the U.S. producers continue repeats rationality I think we are going to have.
Several quarters with this price environment, we are expecting that.
I think that answer the first question.
Second question.
Popular too to start.
I'm going to comment on a more longer viewing question John.
Okay, Yes, Mark Maxi.
Maximally I think that we can take these questions in two different ways. The first one is the is the short answer to it as a short term was asking clearly the fourth quarter will be a little different what we saw during the the last two quarters, where we further reduced capex.
An increase on.
On the working capital and we'll release.
Together with very strong.
Numbers coming out of from the operation of the company. So that's that's clearly very positive in the fourth quarter. We will continue to have cash flow from operations on on the strong level.
But clearly we will have first of all an increase in our capex.
From the third quarter to reform, we are expecting more than doubled to the level of capex in the fourth quarter, we are expecting to reach the level that we originally sales of around $600 million of Capex for the year as much information. We are we starting fully the plans that we have and.
Clearly also is very difficult to continue releasing and working capital we the new level of production that we have the new level of sales and of course, the new level of pricing that not only increase the value of our inventories, but also increase the value of our.
Receivables so clear.
Clearly will be a quarter with a very strong cash flow for operations, but weve reaction in the level of free cash flow because of both things.
The reduction in orders.
Or are you sort of increasing capex on the the increase in working capital all in all.
No matter that will continue into two key incurring.
A reduced number of net debt that I think this lead to prolia.
An answer in the lower element in the longer brand. So I think that might seem organics Dan can take now this this answer and expand on on the view on on basically the capital allocation of the company.
Yes, Thank you Bobby Oxy and thank you John.
Yeah, I mean, I think the answer of the cash usage clearly partnership we are generating.
Good cash flow.
And what kind of our thoughts of the future pattern.
I think that.
Hi, Rob.
Three years ago, we started very aggressive very important investment program for us.
These programs starting with the acquisition of key sales in Brazil, which allow us to produce.
These new assets take every opportunity and allow us to produce a whole new range of steel, which we're not able to produce at before.
We continue and have greater appreciation with the launch of our investment programs programming.
Indeed, Greenfield Threed freely Green Street facility.
Next she called galvanized painting, a catarina, which build your capex programs very strong and maybe Chanel, but that was that we would want to change substantially we are changing already.
The way to our new more of what we tell you watch going to new markets much more sophisticated much more value added products.
We are about 678 months or finishing.
Program.
So we're now looking that debt and we continue to see that there are good opportunities to turning to continue growing or do you see that.
I think we can mention free wanting Mexico, we are very optimistic of Mexico or the net return of the North America region, I think that the power consumption of steel has to increase I think all the things that were made with Asia sales yet all these trade wars.
Patrick who won in the U.S., it's going to continue on because it's good for the people.
Taking that power consumption is going to increase.
We are very well positioned to take to take advantage of that so theres going to be probably expansions in an execution.
Our Mexican facility.
The second thing Keith and then second pool.
In the automotive.
Industry in North America.
As you know we are part compliance of Bakken, we are not compliant. So we have time for seven years.
So we have friends to see what is our best option, we don't have to decide it today, but we are going to be compliant.
And the third each of course, how we maintain our conservative balance sheets, but we also.
Good answer to our shareholders.
We should continue doing it.
We want to do and.
No I think our track record shows that that we also grow.
By taking advantage of different opportunities, creating that in this market theres going to be I do believe there's going to be opportunities in our region for ternium to grow so I think yes.
These I call, John I'm, sorry, I wasn't around but to answer.
Two questions for you.
None on does great. Thank you just to follow up I mean, it's would.
Would you see the potential for further M&A as a platform for growth.
Yes, I see I mean, we don't have any particularly now we don't see anything.
But as you know when opportunities arise.
We generally take advantage of that.
Great. Thanks special effects problem.
Okay.
Our next question comes from Diego Lofiego with Bradesco BTI. Your line is open.
Thank you good morning, gentlemen, Mark.
Masimo, how sustainable do you think the volume increase in Argentina is.
And what is your best outlook for for 2021.
At this point.
And then the second question.
I'll take a risk here now and I'll do the question here what is your view on the.
Impact of the election scenario on us to market only north American steel markets.
Thanks.
[laughter] buyer.
Absolutely yes.
Go ahead go ahead go ahead.
Okay.
No, yes, you're asking me to be about each and no cash.
That's correct.
It's always good to hear you.
But but but just just so to me my question here more specific do you think if biden when do you do you see the government gradually withdrawing from section to 32 do you see any changes and in the recent U_s_m_c aid. So what do you think could happen in a biden scenario. Thank you.
Berke.
First.
Nearly took about Argentina, I mean, it's very difficult today to try to.
[laughter].
To make any protections of the demand to actually Argentina, as I said before even though its not a macro economic problem fourth quarter, it's very it's going to be good.
But there are plenty of candidates interested in I mean it.
Yes, quite happening with exchange rate, Argentina, clearly need some reforms I need time to do so those reforms and and so I think we are going to see a very volatile scenario.
It's going to continue to be high.
Not in any capability or say what is going to happen in 2020 one.
Okay. So actually we are.
Very cautious on what is our stance on how we operate in Argentina. We are continue to be flexible in our operations there.
I'm trying to.
Increasing our production, but on a flexible way.
Clint shouldn't see the U.S. and one.
Okay, and I'm, sorry to interrupt you, but still the Argentina cancer here.
What what are the factors that you think are more will be more resilient in a in a worst case scenario in Argentina flake sales of the outlook there doesn't improve actually if it if it gets worse what are the factors that would say here, we see more resiliency and here, we we would.
You know we are going to see more of a downside potential.
Yes.
I mean, I'm not saying this is going to happen. So so don't quote me.
I mean.
Not really I mean.
One way out of this is going to be a devaluation in.
However, when you have these deterrent of change at the parent.
What happened usually actually most of the market decrease but then some of the export it.
Industrial manufacturer continued increase in construction started bicultural show for our market, we're going to probably see a downturn easy happen.
Happened, but there are markets that.
It will continue to take you to recover.
But again.
The government is making.
Our point of trying to solve the situation and so that's why I said then.
It's going to be a very volatile environment for the next couple of quarters probably.
Got it.
Collection in the U.S., what happening by the way.
To be honest I don't see a lot of changes regarding each manufacturing.
Biden wins, I mean, I don't see.
I don't think he's going to change a lot of 232.
Broadly he's going up.
I mean.
Negotiate or appear to be more flexible with some countries, which shouldn't have been into to be true probably in the first place, but I don't I mean.
Dave.
Think of this U.S. east regional approach, where and manufacture has to come back to the region to the U.S. and Mexico.
Additionally, showing things [laughter] in the mind of alternate front clearly of the brain atrophy and it's also on the mind of the remote presence so.
So I don't think there's going to be clear of changes I think on the country. Both candidates are going to try to.
To make stronger in manufacturing in India in the region.
Buying any if you ask me what are the things biden, he's going to do I need to be more than that.
Yes, what probably is in game environment.
Features which.
Yeah.
For 10 years should be a very good thing regarding our footprint, our environmental footprint, how we're doing a lot of things like.
That's the only change I see.
Really I, hoping.
Answering <unk> question now you Dan accommodate Massimo. Thank you. Thank you for both answers there.
Yeah.
Okay.
Our next question is from Seadrill or James with Goldman Sachs. Your line is open.
Hi, Thanks. Good morning, Good afternoon, everyone. I'll ask my first question I would like huge will back to the west prices not allow me.
We saw media.
Smart rickover on price in the past weeks.
I think my first question is I understand that you know there was a lag compared to the Chinese bride, which was not seen before but you think you can sustain all these will get blood short term pickup and should know accommodate not a lower price level.
How should we think about us.
Price going forward and I think this is my first question on my second question you late in the led market.
We saw in the past few years, a lot of announcement of new but.
Include feel I wouldn't say America, including ceiling in Mexico.
How do you see now the new investments some into the match couple years.
But some of them are on hold while.
What is the competitive landscape in our view for the next two years North America. Thank you.
Thank you Carol I mean, you have pricing.
I think that.
I mean.
Clearly pricing has increased in the last couple of weeks or the last two months to be honest and and and.
Steeper increase at what we thought we would be TV coming and Frank is going up.
And again I think that.
There might be speaking up he knows our country I mean, China demand is going to grow by 8% in the next.
In India.
China in the last four months watts, a net importer.
Due to the Chinese exposure for the knot and he is a skilled inject four month import more steel Danny.
Export.
Generally speaking up depends on what's going to happen, we renewal research Felipe here in.
In America, you stop right he's really is.
Clearly huge increase in demand so I think.
For the next several quarters I don't see an environment where prices.
[noise] going down here in the U.S. and it will depend again on the rationality of US protection producer, but you said for guidance.
Hi can you may begin.
To be honest, but.
He faced continues today.
I think that that pricing should remain.
C level.
Orders.
That's my opinion.
Right.
So the first question.
Oh, you did you did so I think now wasn't materially now now given the current capacity utilization and the new product announcements how do you think the competitive landscape will embolden. The next few years.
Yes, so basically when they get to 80 clearly.
HM.
Okay.
New capacity coming on board.
The next couple of years in Mexico and in the U.S.
And and.
And I think he's going.
Oh, I'm, sorry theory, but I mean.
Sure thing.
First of all.
Our power consumption is going to grow.
Let me see part of that new capacity. He is going to go to be increasing important concern journey, if you see that.
The consumption in Mexico, or the consumption in the U.S. eclipsed two we can go country in Mexico, I think its current PC.
Kilograms per happy turned into U.S. anything up to 42 quick updates on how you you make numbers.
DT media.
We need to see China, it's more than just kind of it did.
Did you see Korea 300.
If you teach.
We told the quickie manufacturing more than 400 so.
This recovery has to grow.
Bringing back some of that.
I'm showing to the region that's for sure so consumption is going to grow basically.
The second thing is that we are going to fight importantly, there's a huge amount of imports in Mexico.
And so part of the new capacity, each going to TJ, Chuck or two.
To replace this involves the third thing is.
Some of this capacity.
For sure its going to compete to other U.S. producers.
And there are.
Some of you have producers.
Not at all.
Competitive.
[music].
Hi, I know older capacity, which.
Thanks.
And and so I am not seeing a huge.
[music].
If we can that sometime before of course.
We are working to be more competitive.
There's no region.
And that's our focus today I mean, we're doing fine.
Our cities.
As you've seen the numbers actually one of the most competitive in the region and so we are.
Very able to take advantage of all of this increase in consumption, but again to compete with the new capacity that is rosy.
No it's clear a lot more global.
True.
Yes, yes, I would just add what what is the size of that additional capacity, but you can see the credible to come online in the next couple of years both in Mexico.
You have any can you do that you work on your projection.
No I didn't understand yeah go I'm sorry, the line is tracking.
I'm, sorry, I didn't understand very well the question.
Sorry, but my question is you know all these new putback, but it's coming online what Daniel considers that really view go through like really you view it.
Hi, Bob model X amount of million pounds of capacity, but for sure we will be added in Mexico and in Europe.
So for sure I mean, you capacity in Mexico, when you Hot strip mill.
And I'm, assuming it's not steel consumption, but they knew how to treat facility.
Alright, so its coming on line and.
In the region and I think in any lighting I Grant you.
Texas is.
Clearly there should be I don't know that it.
I knew exactly but the appealing that no.
The new facility of Big LIBOR.
On the new plant upgrades of new but all those are things that in the next two three years is going to be producing at full capacity probably.
But they are much more thank you Alex.
Our next question is from Carlos de Alba with Morgan Stanley. Your line is open.
Hi, Thank you very much good morning, everyone. Good afternoon, I guess closely.
Just maybe.
Maybe maxsimil open follow up could you.
These comments and you will be more on the first quarter outlook and you mentioned last year that.
Prices in Mexico will continue to increase at least you realized prices.
When you put on like people to decrease in the first quarter, Justin the lag of the contracts.
But could you elaborate a little bit more on what are you seeing in Argentina and prices in the fourth quarter and into the first quarter and maybe any color you can add in terms of volumes and to have cost and then I will have a second question.
Okay.
Hello, how are you let me take this this question.
Mm.
Let me make a carrier first before answering your question clearly as Maxsimil explained during the needs of America.
We need to see how the pandemic of all these there is a second wave in the region clearly things can change, but if we do not take into that into consideration we need to take things into consideration first one.
Is the seasonality off of volumes in the reefer market, where we are clearly in this in the southern region. The first quarter is a seasonally lower quarter.
In Mexico. This is more at the end of the year. So the first quarter tends to be relatively good one.
So we continue to see in the coming quarters.
With a positive outlook. We are we are not going to see 100% of the price increase I will see live in right now.
Reflected in the numbers of the four quarters. So there will be some price increase yet do we see these price staying at the level of maximal as marketing or view is we will see also that reflected in the in the in the first quarterly so we could we be relieved that the outcome.
They argue that we are going to for the fourth quarter is something that could be suffering with the with some reduction are we setting in relation to the volumes in that the data will be sustained.
Enter into next year.
The second carrier that we need to make is that also the onetime maximo measure, which is the situation in Argentina could make it changes in the Io portfolio, but all in all.
Clearly with the volatility of these projections, we do have a regional level.
Order in line and what we are expecting four for the fourth quarter of the year.
Hello, sorry, Thank you for not just on price.
Now I'd cards close.
[laughter] actually.
I mean, clearly I mean.
It's not over.
I don't know if some governments are going to come back to industry if they want.
It's not very useful.
Onto the economy.
Possibility, because kt start picking up in some of our country and just.
Yes.
Sorry, Hello.
Yes, we have some pro with the line of Maximova Borehole Carlos General just on price as Pablo on maybe how.
How do you see prices in Argentina.
Oh, Yeah, we're going to need to see Brazil, Argentina follow international price.
We the assault as usual with less volatility or international prices. So we don't see much much changes in pricing in the region.
Of course, if there is some changes in the product to address these lead impact as usually happens in the short run.
But where we will be able to sustain pricing lever allows us currently we have seen in our markets.
All right and then my question is is on on 2021 Capex is there any you ballpark.
Ballpark number or range that you can provide and then you could maybe.
Maybe talk a little bit more about the timing of the restart.
Oh, Dear, although wine in Mexico, which you said next year, but do you think you could will finally be more the timing on that and how much production you expect to have incremental I guess production. You said 2000 level will go line next year and any other updates on probably going to be great.
Yes, Hi, Ross I'm back again.
Capex I.
I mean 2031, it's going to be around also 600.
In dollars, it's quite the same number of Twentytwenty one centstwenty. So we're seeing that number as capex poetry, Neely with caveat I mean, we are.
I mean, the date for starting the Hot Remediate July.
That's the first point.
July of next year.
Remember those sales this equipment are very unique and difficult. So there's a long ramp up period.
So I think that the effect of the hot for Neil you're going to start seeing us by the end of the year.
Okay excellent. Thank you very much and good luck with everything and there, particularly with the rent that go back a year MACI. Thank you.
Thank you Carlos.
Next question is from Brazil is now available with credit Suisse. Your line is open.
Hello, everyone. Thank you for taking my questions. So my first question would be regarding Brazil. So we have been weakness seems through price hikes in the domestic market and you also mentioned that your plan is to shift part of your third party sales.
Sales strong exports to the domestic market. So maybe you could provide.
Some color on how is the relative profitability between exports and domestic sales in Brazil.
So my second question would be actually a follow up on the dividend.
So.
If I remember correctly, you said that they've been score Twentytwenty would remain suspended since usually only pay dividends once a year. So is this the case here.
Thank you.
Yes, Thank you everyone Brasil.
I start with Brazil.
And Brazil.
I mean, what is happening in Brazil is that it does make the consumption is increasing as you remember we got that new facility make drops. So we we are not in the final market.
But as as the manufacturing production in Brazil increases.
Some of which you Nina CSN other companies are asking us to sell slots to them because they are ramping up production of the catarina mineral sands and the cold rolled and galvanized lines.
What is aggressive on Brazil, I think that the number of of the manufacturer in the P.M. I won't.
What worries yesterday and it was at the high I mean, what a record high so it's increasing.
It's not a lot of change in their profitability, we do have an advantage of freight.
And another things selling to the domestic market, but it's not a lot of change in profitability beginning one hour export market.
On the domestic market and.
Yes, I think one part of it was yes.
Let me clarify one point before entering into a simple answer.
You mentioned that we would we serve is that there is a reduction in sales to third parties.
In order to come through the door.
Two sales before our two sales this product to our own operational facilities within the third parties. We include the local sales in Brazil.
So clearly what makes our sales is right. We have increase we saw an increase in demand for local the local demand, but the change from the second to the third quarter was due to reduction of sales Awards will report in our financial statement assays to third parties and then increase.
Or Tom first to our old industrial facilities, both in Mexico, and Argentina. So that does the dictates that we you saw is about the only not the total lexical overseen was sky here, but this is the this is it is not that we switched from third parties to local markets local ARPU increased by the switch.
Loss from total sales of third parties to internal time, so with that verification maximum.
I I thought the question was of the fourth quarter. When we when I did say that we are going to change from other parties to the local so depends on on on social my part of the answer was of the four although fourth quarter, yes.
I thought you were asking that.
HM.
Actually I was asking about the perspectives for the first the fourth quarter because of this place high relative profitability, but we're of course disqualification also helps a lot yeah I should make here from from what we sell to the third party in the third quarter. The number is going to be similar in the fourth quarter.
That is very difficult to say now where we can create proprietary the wide by 2% because among other things and we are we are having a mix of product that includes of course, new painting product news out about nine gross includes.
According to our product so the prices are different in this one so if you if you want to go through it will be the mediation rated by this facility well thats a different question sustaining prices or would we see today, we are seeing here more than 2 million tones with the profitability of where we'd be able to own over 120.
And Terry you our reach into a number of more than $250 million of EBITDA per year.
So this year, let me correct a number that you said this quarter, we had a 16.5 EBITDA margin, so and targeting a higher number for the following quarter.
I would say that as we reduced the level and then we will be able to move to a higher margin than 20%, which is something that that you could be effective but all in all we are.
The potential for us a huge in this new facility because we unveiled a lot of opportunity for ternium not only in the level of free cash flow generation in the level of remediation duration and sustaining marches on and trying to increase them.
But also of all the things are marching explained before so first of all is a key investment portfolio clearly will increase the.
The level of heavy degeneration, and TLD will will.
At least we sustained but clearly we believe that at some point will increase the profitability of of telling you that it's very difficult to put a number to that take into consideration. The number of average Oracle clearly as you mentioned and a maximum mentioned also this is a game changer for for Ternium and the results will be there sorry, not to give you exact number.
But that's.
That this is a view that we have with this investment.
Okay. Thank you very much guys. Thank you.
Yes.
Our next question is from Alex hacking with Citi. Your line is open.
Yeah, Thanks, Hi.
I guess, just a quick one for Pablo.
So if I look at Siderar financial statements.
The implied EBITDA per tonne was back over $200 during the quarter.
I guess is that sustainable.
Level there Matt.
My current utilization rates and current prices or was there something weird going on with the accounting whereby you know there was sort of a one off boost in what that what that look like thanks.
Hi, Alex how are you, yes, there there were some things in relationship to Argentina.
Remember that we have steel inflation and Dana we have devaluation in the country. So when you have these this aspect tends to increase a little bit the total number of the company.
Yes of course, we continue to see exactly as an environment they'll dollar impact of that increase.
Just because the the portion of the cost.
Denominated in peso, which is around 35% of the total cost clearly in dollar terms as you have a devaluation it tends to be reviews. So you have a better margin on that respect so.
You have these things.
When you have a utilization all of the inventory that you have before valuated that at the prevailing exchange rates at the moment or the end of the quarter.
So there are some some of this also clearly the performance of tournaments and Tina. It was was both very very good.
But this these things tends to accommodate and two to more normalized levels, but clearly the performance on the margins of termination Tina.
Hi.
Okay. Thanks, and then just one one quick one.
In Europe constitutes offer just now yes.
Yes, I talked about some like value added processing for for the past Korea product.
I guess I didn't realize that you had excess kind of paint galv capacity sitting around.
That you could be utilizing.
Is there a way you can sort of assuming that you were going to be selling knows what world.
Is there way you can quantify how much kind of access for additional value added capacity that you have there. Thanks.
Yes, okay.
Boxing or please go ahead.
No you go ahead.
Okay No no what I was trying to mention is that the total investment because Korea was not only the core rolling mill, but also the new Galvanised line and the new painting line that they are already up and running and they are working almost a full capacity. So it's not that we have spare.
Spare capacity, there or just waiting for the new facility to be up and running so we had that capacity and we have these.
This this was part of the initial capex that enter into or the last of last year at the end of last year of this year. So after the ramp up period. We are utilizing that facility is not that we have they are available capacity waiting for for this to be up and running.
Yeah, I got I misunderstood so the new capacity is cheap effectively just going to be hard rock capacity right would obviously future essential to add value. Okay. Yes. Thank you, Pat but Alex I think.
The new capacity is control.
Remember the carbonate that line started six months ago to produce on the painting in December so they are still in the running out.
One thing that the court wrote new.
[music] capacity that is new.
New show straight for declines also so straight that he got the opportunity to make other products more efficiently in many cases in the current lines and other products that we are not able to to do because we don't have the interest rate. So it's going to be a change in the mix and probably we will have.
Some increases in time.
Our current run the current rate of of of of how much. We are running these galvanized and printing lines.
Thank you.
Yes.
Ladies and gentlemen, this concludes unitary ill now turn the call back over to next move for any closing remarks.
Thank you okay.
I hope this call has been informative.
To all of you have a better understanding of our company. Thank you very much for participating today I know, it's a challenge today to be hearing to act, but thank you very much and I hope.
Hi, nice take contact us if you have any other questions or comments and please stay safe.
Right.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
No.
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