Q2 2021 Ternium SA Earnings Call
Okay.
Turning to the estimated financial results for the second quarter up from the Joel 1 of these.
This call is complementary from that presentation.
Joining me today of Chinese Chief Financial Officer with the pandemic.
The shell.
The Chief Executive Officer, Mr. Maximo.
Maybe just kind of starting the business environment and performance.
I think of accretion of our prepared remarks, there will be a Q&A session.
Before we begin I would like to remind you that this conference call contains forward looking information and the actual results may vary from those expressed or implied.
Factors that could affect the solid start from bank in our filings with the statistics of exchange permission.
I'm on page 2 in today's webcast presentation.
With that I will turn the corner element when we set of assets.
Thank you Sebastien good morning, and thanks for your participation in today's growth.
Certainly on the reported the remarkable results from the second quarter over a year, we had record all of these sales margins EBITDA and net income.
Looking ahead I believe the current strong global steel market environment should continue to support our solid financial performance over the rest of the year.
Steel prices in our region increased steadily.
Kind of levels over the last 12 months.
With strong steel demand and low inventories in the value change.
Prices are probably going to begin a downtrend.
Downtrend at some point during the second half.
But I don't expect this to be of very profound downtrend.
The main reason for this positive view all of our steel demand that remains strong constraining the supply change.
<unk> from China withdrawing export rebates with the objective of limiting steel production and from.
Russia with taxes on steel exports.
The decent currently encouraging environment, we successfully started up our.
Our new Hot Rolling Mill at Best idea of named 15, a month in advance of our previous estimations. We are very pleased with these achievements and with the ramp up of the line, which is also doing better than anticipated.
As a result of this we currently expect the.
This new facility to enable us to increase our market offering of high quality steel products by approximately 600000 tonnes. During the second half of the year from the 400000 tons I mentioned on our last contract volume.
All of this should result in took sequentially higher EBITDA level in the third quarter of 2021.
On the balance sheet side in the second quarter, we continued to show significant cash generation.
Kept a very low level of net debt, even after paying out our yearly dividend in may.
And the goal overall remain markets now.
In Mexico, the driver behind our sales growth expectations for the second half of the year the industrial market still demand in this market is very strong.
To the new trees, like HVAC, electrical motors and household appliances.
Of the records and use of demand and significant backlogs greatly increase and in turn the steel consumption. The.
Auto industry in Mexico is also how the strong end user demand and the continued to be affected by the semiconductor supply chain disruption a situation, we expect should gradually subside over the following quarters.
In addition, we are seeing an increase in investment announcements in Mexico from these manufacturing industries.
As our our new Hot Rolling Mill in Mexico is geared towards the industrial markets product mix. The ramp up of this facility is going to help us increasingly Moreover, participation in this market over time.
The commercial market in Mexico more related to construction activity is going to be not as strong.
As the industrial line with no significant growth in infrastructure investment and soft.
Demand from retail construction.
In Argentina, we are.
<unk> shipments to remain relatively steady in the third quarter. After a strong second quarter of the year. In this market. We are seeing sustained domestic demand from building materials and higher activity levels in some industrial sectors such as auto.
And agri business on the other hand, the macroeconomic environment in the country continued to be unstable also in November the Amit terms of Nextgen in Argentina, which could introduce a higher level of uncertainty in the market.
Turning now to the other market regions as anticipated in our previous conference call. We continue to integrate our collateral in the team with our facilities in Mexico and Argentina.
This resulted in a lower volume of slabs sold to third party in the quarter offsetting the higher shipments of shipment of finished products sold in Mexico and the Southern region. You can expect to see the participation of slabs in our sales mix to continue.
The decrease in the third quarter.
1 reason for this is the during the second quarter. The long term collapsed supply contract, we have with Atlas metals, Alabama facility expired.
It was timed to concur with the startup of our new Hot Rolling.
The need in Mexico, which is now requiring an increasing volume of slab during the ramp up.
Before finishing my remarks, it is worth mention that the COVID-19 built of oriented which is affecting the northern hemisphere. Now is not widespread in South America. So we have yet to see its impact in our market over the following months.
Vaccination programs in the region have improved significantly over the last months, although the percentage of the population with full of vaccination is not get the sky as it is in Europe or the U S.
So the continues to be of risk of further lockdowns of disruption in the value chain EBIT sanitary situations worsens.
Also I would like to call your attention to the duplication of stadiums.
Sustainability report we issued in.
In June and I encourage you to review it it shows our progress towards achieving our objectives and sustainable in a sustainable way describing the actions taken to achieve our growth in 6 areas safety and.
The environment in the capitalization people community value change and business strategy.
Concluding we expect to continue showing strong performance over the following quarters as favorable deal while still industry fundamentals should support the solid shy of steel prices, even if they began to soften at some point during the remaining of the year.
With these Pablo. Please go ahead with the webcast presentation of our performance during the second quarter.
Thank you Maximo and good morning to everybody.
The company's performance in the first sales of the year has certainly been remarkably.
Alex the current conditions prevailing in the market that maximum capacity.
[laughter].
We should now from the condition group the company to new record of Liberty of profitability and result in the second quarter. After the really strong performance in the first quarter of the.
Let's start by reviewing the EBITDA and net earnings from page 3 in the webcast the presentation.
EBITDA in the second quarter over year reached $1.4 billion, an EBITDA margin of 36% or $463 per ton of new record high.
Of these margin levels are higher than those of most of our peer flow.
But the reward of level.
Although these out of the era of emergence of not go into is the thing over the cycle.
Wanted to point out there is something the distinguished revenue among the fear.
Recently, the monitors and the desk so all of the cycle.
Net income in the period reached 1.2 billion or $5.
The 21 thing.
The year.
Looking out to the third quarter, we expect the achieved new record EBITDA with carrier mattresses from volume.
When we analyze this in more detail nature of them.
Let's turn now to page 4 to review the shipment.
We will compare the volumes on the new year over year the races, we see a significant recovery in Mexico and the fragmentation in the second quarter of this year.
So last year of the second quarter activity levels were deeply affected by the COVID-19 outbreak.
Now on the sequential basis shipments in Mexico of the federal Aviation increased 2% in the second quarter of the year remaining at elevated levels in the scenario of strong steel demand in revenues.
The market.
Moving forward considering the strong demand for carbon steel products in the U S MCA, driven and the ramp up of the new corporate role in meeting the Korea, we really are where the shipments in Mexico as you increase by.
Total of approximately 600000 tonnes.
As Maximo already mentioned.
In the other market Division you can see that the ordering of flagship to third party in the Gary.
Great.
Continued to increase quarter after quarter the EBITDA.
<unk> reflect the increase of degradation of tailings lab facility in Brazil with the cash.
Temporary industrial system.
We expect this integration strength to remain in the third quarter benefit of shall.
We expect the federal reduction of fluff volume shipped to serve the bucket.
Okay no.
From the next page.
You can see combining the development, we have to consolidate the shipments of $3.1 million tons in the second quarter of the year relatively stable the.
Sequentially, and 25% higher or now the year over year basis.
Moving on to steel prices.
Revenue per zone in the second quarter of grew sequentially in the end of year over year basis.
This together with the lack of a set of contract prices in Mexico anticipate a further increase in <unk> realized price in the third quarter.
Turning now to the net sales in the growth on the effect the combination of carrier realized price.
David the shipments resulted in the 21% sequential increase in net sales in the second quarter to $349 billion.
Compared to the second quarter of last year net sales in the second quarter more of a battle.
Let's now review on page 6 the main driver behind the sequential increase in EBITDA and net income in the second quarter.
The goal of going to top drove the EBITDA, mainly increased as the result of higher.
The price, which were partially offset by sharing the cost per ton, mainly on higher raw material and purchased slab prices.
And kind of maintain that expense.
As I mentioned at the start of this presentation, we expect the new sequential increase in EBITDA in the third quarter, reflecting the expected increases in shipments and revenue per ton, partially offset by higher cost per tonne.
The increase in the purchase price of raw materials continue to flow through the company's index.
The chart below sales of the sequential increase in I think of in the second quarter was mostly due to higher operating income. In addition, the central Oregon operation.
The improved.
From the photo on the base, we can see the of the same changes, but for the the first 6 months of the year and bolstered the drivers of the increase of our EBITDA and net income 1 of the same and we subtract already described from the second quarter.
To finish the presentation, let me turn now to page 8 to review, our quarterly cash flow and balance sheet portfolio.
Cash from operations in the second quarter of this year was $628 million.
Even after a significant anticipated increase in working capital.
In the third quarter, we expect further increasing working capital, reflecting the expected increase in realized prices.
Higher cost as previously discussed.
Regarding free cash flow the company generated $467 million after capital expenditure of 1 covenant of $61 million in the quarter.
This enabled us to slightly reduce net debt at the <unk>.
The $2 of Vincent on your the made for a total amount of $400 million.
Net debt stands at just zero from $2 billion at the end of June the equivalent 2 feet of point of onetime net debt to last 12 months EBITDA.
Yeah.
With that.
Concluding my prepared remarks, so thank you very much for the time and attention and now.
Now we are ready to take any question of do Micah. Please operator proceed with the Q&A session.
Certainly at the.
I would like to remind everyone in order to half of the license.
Please press Star then the number 1 on your telephone keypad.
Again, Thats star 1 on your telephone keypad, we'll pause for just a moment the compile the Q&A roster.
Your first question comes from the line of Tayo Brainer from BTG Pactual. Your line is open.
Thank you good afternoon. So my first question on on the capital location I mean.
This is probably the main question surrounding the investment case Nowadays are the company is moving to a net cash maybe maybe in a matter of weeks and we just wanted to understand how the how does attorney and see the growth versus dividends equation today.
Because on 1 hand, the company is still ramping up the studio. So we're not sure if you're if you would be willing to kick off another project in.
In the meantime, but if you are.
What do you think you're most likely to invest in over the coming years.
Would you see M&A as the as a feasible option or do you would you rather go with organic growth.
What are the company's priorities on that because.
If that would be investing where you currently operate or may be thinking about geographical diversification.
And I do remember that some time ago, we were speaking of or there were some talks of of building in N. Eas in Mexico, an electric furnace in Mexico and is that still the case or is that still the is that.
So the priority for the company and if the company is not willing to kick off another project at the same time were where you would ramp up best idea.
Could we see Ternion thing extraordinary dividends already in the second half or maybe group of could we be closer to see an official dividend policy being approved maybe based on on free cash flow generation.
That's my first question and my second question really quick on an EBITDA per ton flow journey of them delivered EBITDA per ton levels above $400 per ton.
In the second quarter of that could be potentially above $500 per ton in the third quarter. So I just wanted to quickly understand where do you see EBITDA normalizing ahead, because I do remember that a few quarters ago.
You were speaking of.
EBITDA, probably normalizing or having seen the EBITDA margins normalizing at the 15% to 20% range range and I just wanted to sort of incentives you now see reasons to believe the long term.
Margins can be sustained above those levels. Thank you very much.
Thank you very much.
The first question and then Pablo will provide the answer the second 1.
So the first question about there's a lot of.
The things in the first of all of <unk>.
The capital allocation on the organic growth the geographic atrophy.
Diversification externally the let me try to make a summary of what are our thoughts on I'm trying to answer this question of chaos.
And Youre right, we have a significant and strong balance sheet and we are going to be probably.
Net debt.
Negative in the next quarter that's true.
So the <unk>, we are investing the capex of $600 million, you really know that.
Considering all of the approved projects, we invest in capital in working capital around $1.3 billion in the first half we.
We are continuing going to invest in this in the third quarter of probably half of what we did in the second quarter. That's around 3 I need to be more of the $300 million we pay the.
The dividend of <unk>.
$412 million in.
And then to remind that this was the highest dividend in terms of history, I mean, whats almost doubling the.
The highest dividend that we pay before the.
<unk>.
So looking forward 2000.
The 22 and onwards.
Regarding dividends I believe.
The dividend of <unk>.
Our true.
Our proposed by the board in February we always do that and we pay dividends once a year.
But looking forward I think that that this new level of dividend at least this new level can be sustained.
Into the future.
Tim.
I mean as I said in the conference we are optimistic that the current state of business environment will provide.
With this opportunity.
The EBIT and again this is something that the board at the.
Of directors should proposed.
But having in mind this I am I can't rule out.
Uh huh.
An extraordinary dividends as you said it's.
It's not something that we have today again, but.
I am not ruling that out.
And then.
Capex clearly.
Our opportunities we are not doing and opportunity of our geographical diversification. We are concentrated in the Americas, we don't see.
On the investment of ours far away or in other regions that I know the the American continent, that's for sure.
The.
And again.
Moving.
We are analyzing different projects to grow the business today, we are analyzing organic growth.
<unk>.
The ramp up of these new cadre of meaning in Mexico, which is a huge issue for us is going to kind of primarily to increase even more of our participation in the current market as I said and it will all been probably new investment opportunity.
For the downstream capacity in the region.
And as you mentioned also.
And as I mentioned it in the past used MTA streak of rules of origin will require us to expand our upstream capacity in the region at some point down the road. So all of those are projects that we are analyzing.
I hope that with these I cover everything in your first question Kyle.
Yeah.
Okay, Let me take the second part of Colliers questions like that.
So.
<unk> that the.
The <unk>.
Margin or the EBITDA per ton that we generated during the second quarter of over $450 per tonne.
The.
Perspective, the comments both Maximo on my sales made.
The are pointing out 4 of Shire and the higher.
The EBITDA per tonne.
From the third quarter.
Also it's important to measure.
Also the important dimension that.
Sure.
Also.
With the view that the company has expressed by Maximo is that we are not expecting to see the significant.
Or on the graph.
And prices in the coming quarters after the after the the next 1 so even though it.
It's not the reason we wanted to believe that we will sustain this level of EBITDA.
The tone or EBITDA margin, we are expecting also to see a significant reduction of these numbers.
The low run we continue to work.
We have been out of his work.
It's also something that we mentioned in the opening remarks.
Is that the.
The the role of the company to continue to achieve not only very high levels of EBITDA commodities or the EBITDA per ton, but to keep it the thing the.
The <unk>.
The journal BELBUCA, which is to outperform our peers.
And then the part of the cycle, the upper side or in the low and the lower part of the sector. We have been always able to achieve that and this is something that we work very hard to continue the path. So.
At this point, probably will be easy to say that the the monitoring of the range between 15% to 20% of something that we cannot easily over the past but.
In the more normal market environment. This is something that we continue to sustain always working to not only the episodes of <unk> range or even higher on that.
And every investment that we've made especially the meeting and everything that we are analyzing east out of these rules.
We sustained clearly.
Probably in the next.
Year being closer to 20% is something that is fairly.
Basically the chip, but the D C.
Saying that we will sustain and clear in the work to increase as of March.
Much as we can with the the performance of the company.
Thank you very much on line.
The work.
Your next question comes from the line of Carlos de Alba from Morgan Stanley. Your line is open.
Yes, Hello, good morning into.
The amount hopefully you are doing fine.
A couple of questions if I may.
The macro like material when you said the 600000.
<unk> thousand tons.
Uh huh.
Are you talking about overall volume or are you talking about just the percentage of value added volume in the company's overall shipments.
Shipments and second if you could give us a little bit of an idea of.
How much of a slob from the <unk> with respect to sale.
Turning to Mexico, so internally and how much to external customers.
In the coming quarters that that'll be great.
Okay. Thank you Caroline and thanks for asking we are doing fine and I hope all of you too.
The 600000 tonnes, if you remember in our last conference call.
I total debt in the second quarter and the second half of the year the coffee needs going to we increased 400000 tons of our own sales, that's what's coming net from the new facility and because of the ramp up curve.
Have a baby deep 600000 tons so.
How much volume from the new facility, we are putting in the market.
The second part.
If I remember the caps.
Yes.
Okay.
Yes.
In the third quarter is going to be.
Round between 800.
The.
900000 tonnes.
The floor.
Water to Mexico.
And until.
Third parties, probably is going to be around 3 Conrad from 400000 tonnes.
I mean, it's kind of in that range. So it is going to be decreasing from from I think what the 700.
The list of what do we do in the second quarter.
Alright fair enough and then just final question when you talk about potentially.
Meaning moving to invest in.
In the steelmaking capacity.
In order to comply with the U S. MTI rules the NCAA rules.
<unk>.
When you consider the U S.
Canada or on the Mexico.
[laughter], that's a very specific question of download App I think that I mean.
We are analyzing as I said, we don't have.
Any announcement to make probably why do we have to do is part of that is doing it in Mexico, I mean, our Hudson Neely there.
Our customers are probably there so it makes sense to make at least the bulk of that in Mexico. Again. This is not an announcement is something we are analyzing remember the day of U S. MCA rule of origin of our for the automotive industry.
And they are going to start in 2027, so we have tied to the analyzed all the alternatives and Thats, what we are doing catalyst.
First of all of them and this is all hypothetical at this point from clients.
These data at least hypothetical basis and considering the.
In fact on the 1 hand, you have iron ore pellets in the IRI in Mexico.
And out of their normal spread.
The pressures to.
The skyborne emissions in the steelmaking process.
Is it fair to say then that might.
Might be a better option for you guys then.
Lots of the integrated.
That's for sure no. That's for sure we are not analyzing the blast furnace.
That I can tell you.
Fair enough.
Thank you very much the best.
Thank you.
Your next question comes from the line of Andrea.
Looking hauser from UBS Your line is open.
Thank you very much I hope, you're all safe and well.
Couple of quick questions on demand and exports pertaining to your strategy focus Korea, just firstly on demand. So I think you mentioned that mix of with domestic demand.
It was quite strong it's been solid.
We've been getting an increasing amount of post suggesting that demand.
Actually on the weaker side in Mexico.
So I'm just trying to kind of get a sense of what's happening there because of of course, you could be capturing market share either from domestic players or imports.
You're talking a little bit about that do you see yourself capturing market says is that why youre seeing strong domestic demand or are you actually seeing end demand pretty strong in Mexico at the moment. Despite the high price that is my first question.
Thank you Andrea I'll take that 1.
We have seen both to be honest I mean.
The demand is increasing in Mexico compared to last year.
The increase as much as it is increasing in Brazil or in the U S where apparent consumption of the recruiting more but Mexico is going to close at around the little bit north of 10% of steel consumption increase in 2021 compared to 2020, so of the month each increasing but what you are also.
Right.
Is that is very different between the markets. The industrial end market, which we are very much invested in that market, it's very strong.
On the commercial side with the commercial part of the flat products on the long products is not it's the key.
We see our it's not improving.
Sorry, as much as of the flat industrial part of the of the business. So there's a little bit of both.
And the daily we are gaining some market share against imports.
That makes sense, maybe a quick follow up there you mentioned the from last year I don't know if you have the numbers in front of you do you have a sense of where we are this year versus pre COVID-19 in 2019 the man.
Right.
It's almost the same I mean, the last year.
I don't have the exact number but I think last year, the apparent consumption decrease around 8% to 9%.
We are seeing an increase this year of around <unk>, probably a little bit more but I want to be in the cash aside here. So it's a part of it it's almost the same 22019 to 2021, a little bit more but almost the same.
Okay again.
Different Andrea.
Industrial products the demand is much higher than 22.
2019 construction products the commercial side, it's nowhere so there are different in the market price of cost of <unk>.
Yeah, that's clear the different on the product mix in terms of the mandatory exactly.
My second question, just I should basically ramp up because of.
How are you kind of envisioning the man I know, it's a little bit it might not be easy.
Question to answer, but how you're kind of envisioning.
Where that where the where those shipments will go I mean, we've obviously seen the U S steel price going up a lot, which seems to be more supply driven the demand driven with.
A lot of capacity you havent been shutdown in the U S. So does that mean that you see yourself exporting more than your proportionately half before from fiscal year into the U S or do you see yourself more capturing market share from imports coming into the incoming interest of Mexico property of yours, how do you how do you see the of where do you see those sales piscary of shipments.
Yeah.
Yeah, and James that's a very good question I am not sure if I agree with you that the price is more of a supply driven than the mountain driven to be honest I agree that there are some restrictions and some capacity that's down but.
To be honest today, the U S. Each day.
Utilization in the United States of pre Covid.
The levels.
And in Mexico is primarily producing more so north America is not producing less than pre COVID-19 levels 2 day it's.
In the past and again, we are seeing an increase in demand I mean, the U S onshore U S probably it's going to the <unk>.
In the U S is going to probably grow up this year from more than 15%.
6 months ago, but it's a huge number so so we are seeing some demand driven.
Jim.
Issues and again, we are also seeing that these reassuring.
Clearly, it's going to take time.
Happening I mean, we are seeing investment in net.
A huge range of of different.
And the industries that consume steel.
Probably by the U S MCA driven by the fact that supply chains are getting more difficult and moving by a lot of things, but people are investing in the U S. MCA. So of the month each going to increase remember that the imports of steel are very.
Importantly in the region.
In parts of indirect steel imports from China product that consume a lot of still are much bigger than input from the steel and we are seeing a trend that this is changing it's going to take time, but if it changes. So I think that that our new facility guidance kind of suggesting the right moment for this again so for.
Correct.
1 of the.
The volume growing each going to go mainly to Mexico is going to go mainly to ship the do it.
Imports and the.
New demand coming from these investments and some blood can be exports for the U S, but mainly it's going to be from Mexico, and the increasing demand down in coupon and and again the inputs and we see a lot of space there.
Okay. That's that's the.
There was.
From a just make the problem. It just makes it the argument on the demand side from fab 2 in the U S that is.
If we look at the true dominant drivers of flat sales in the U S.
<unk> being autos energy.
I think those accounts of about 80% of that fuel demand in the U S. I mean, we know that ultra production is down because of the semiconductors.
We know that energy is down because of the rig count is down almost 50% sort.
Put that together it looks like demand is still lower than it was 2019 pre COVID-19 in the U S.
And it looks that steel production is up because of imports at the helm.
For the answer.
So I guess, that's the that's the basis of my question of where right now seeing it.
The 1500, which is the $400 a ton below the current spot price.
I think I agree with you that we're going to see some weakness, but it's probably not going up the significant weakness in the short term.
Yeah, and again and the.
Youre right about some some part I mean demand.
In oil and gas DLH now going to 2.
The return of I don't think it's 1 of to return to.
3 I don't know what 2017 of 2 <unk>.
And the team.
I mean, but again on.
On the general demand is increasing.
A part of consumption is kind of increased 15% 2000 can do 1 he's going to be it's going to consume more of steel.
2019 in the U S. According to our numbers.
And this is acuity true and again of course Youre right in parts I mean, we are more aggressive against the imports and I mean most of.
The U S producer of also.
It's a combination I think of both.
That's a good point that it's a good point of I don't want to monopolize the Q&A session and then maybe 1 final 1.
Do you think that do you think that continues into 2022, because we all of us seeing a lot of pent up demand in 2021 from demand that was lost in 2020, so but we cut loss of 2020 got pushed into 2021 does that continue into 2022 and in your analysis of your estimates do you think we're going to see.
More demand growth in 2022 versus 2021 or does that stabilize each of them.
No I think yes, I mean, yes, if you look to the the prospect of <unk>.
What we are thinking about the GDP increase in the U S and Mexico, even Canada yeah.
In 2022 net.
Only 2021, there are huge increases again this the market I mean, the market is very good economic 8 point of view. So I think the money is going to continue increasing.
Exports are going to continue.
I mean, there are seeking kind of so it's the I'm going to increase a little bit by the end of the year most likely in the U S.
But but as.
As a whole trend inputs are going to continue decreasing in the North American region.
And the things that Russia, and China, Zoe dose of signals that that overcapacity in those part of the world I mean, there are.
Trying to finally do something about that I mean the.
Of the signal that China.
I mean can selling all of the export rebates and probably thinking about putting in export tax.
Tissue, which is kind of how it all the all of this.
That's very clear I appreciate your insights on this and uptake of more than my fair share of the Q&A session. So thank you very much.
Okay.
Okay. Thank you Andrea.
Your next question comes from the line of <unk> Ribeiro from Credit Suisse. Your line is open.
Good morning, everyone. Thank you for the opportunity sort of my first question is on the infrastructure package in the U S. There's a lot more visibility of the different components now and you know of few companies have already provided the estimates on the demand that it could generate for steel throughout the.
Its duration.
So I just wanted to ask if you already have an estimate on that line on what kind of demand generation of the package.
It could generate for you and the market is the whole thing and then secondly on flat steel prices in the U S. I just wanted to get your perspective on the what's the supply additions that are expected for 2022.
Could generate the.
The pricing momentum.
We estimate that the supply additions that could add up to 4 of 5 million tons of additional capacity in 2022. So I just wanted to see how you think that that will impact pricing momentum do you think the market could become oversupplied with these the supply additions or do you see demand growth more than absorbing it. Thank you.
Thank you guys.
The first question about infrastructure in the U S to be honest I don't have a different estimates that 1 of the steel industry sort of had said in the U S. They clearly know more than that I do so I'm not going to change the number.
Our main the issue here is I mean, we are not seeing a lot of we are not participating.
In that in that market to be honest.
But clearly it's going to be very good for us because.
As you know some some of the U S steel producer of exports to.
To the to Mexico and we.
We compete with them.
This is something that is going to affect the ability to supply to Mexico. So for us. It is very good although we are not expecting to ship to.
So the U S..2 of these projects.
The second thing is the prices.
And the the.
The increased capacity that is coming and you are right. It's around 5 million tons of lack of capacity.
But I don't see I don't see this as a huge driver of oversupply of price is coming down because of lease.
As you know the imports in North America.
Higher than 5 or 6 million tonnes I mean in the USA of more than 10 million tons in Mexico. There are around 2 to 3.4 million tons, depending if you put the galvanized products also so theres a huge amount of imports coming to the region, which deeds.
Extra capacity is much lower than that.
Think of as I told before I think the money is growing faster than what we thought.
So I think it's going to.
Most likely be absorbed.
We're not saying that.
Again.
All of the capacity not only ours, but the other coming it's a very competitive capacity so at the end.
Probably the market doesn't react.
The demand showed signs of slowing down the 1.
Some of the mirrors that of closing some of that capacity, probably some old capacity will close, but I'm not seeing that right now.
Perfect that's very clear thank you Michael.
You're welcome.
Your next question comes from the line of Thiago Lafayette go.
Your line is open.
Thank you Massimo 2 questions 1 back to the.
On the pricing discussion.
But you had with that with the Andreas.
It's more of a theoretical maybe question here.
What in your view would be the drivers for steel prices.
Prices to trade at a new normal and that new normal being a higher level versus the old normal right. I think you already mentioned a bit of the changes that youre seeing the we are seeing as well right. So the China.
Changing the way it is the act.
<unk> the global market potential of the exporting last but what how would you defend a higher for longer.
Pricing scenario of course, even at even with the steel price in the us dropping let's see.
The percent youre going to be $1000 per ton right. So that's the way above normal levels. So how would you the sand the higher for longer scenario and then the second question just to confirm you mentioned, the new slab the new level of slab.
Shipments of third parties of 3 hundreds of 400000 tonnes per quarter.
Is that after the studio interest and he is fully ramped up or that's in the near term just to understand what the new normal level will be after the full ramp up of the city of new interest in them.
Perfect. Thank you channel I start with the second which is a little bit more easier and then I go to the pricing question. If you don't mind.
Yes, I think that is.
300000 tons 401 of those should be in a new normal for the facility in Brazil to 2 shift to third parties. Most of the third party, we'd probably sales in Brazil.
<unk> now so she is and as we are doing today.
But that doesn't mean I mean.
The new brawling Neely <unk> is going to produce more of it is going to reach out some point, the 4 million tons a year.
And so we are going to buy more slab from third party. So we are going to sell to 2 different till the end market. Some clubs and we are too and were going to 2.2 to buy more of slabs from third parties for the fiscal year. That's the that's how we are foreseeing. This of course if market chain.
That's the change also.
Regarding the break in discussion I think youre right that theres going to be a new level.
Normal for steel prices.
What I don't know I don't want to put a number of as you said, which seems very logical number but.
What are those drivers.
I think the first 1 is that the 2 drivers 1 is overcapacity for sure.
China East.
I mean, I don't see much investment in capacity in China or other parts of the world right now I mean from various reasons.
But 1 of those each of them.
The capitalization I mean, the targets that that we are putting all of the steel industry of the governments are putting to the steel industry are very aggressive and it should have an enormous amount of investment <unk>, 1 to invest in new capacity and replace some of the owned capacity.
So some products are going to the investment, but some of the capacity is going to stay idle and he's gone with the state out of idle forever because of these trends.
Let's take 1 of the 1 probably demand demand in the region and now I'm talking of Pacific of.
From the North American region.
The continuing increasing for the things.
I said.
And that's also the thing of raw material I mean, more and more we are going to depend on scrap and prices of raw materials are going to be a little bit more higher productivity. So the <unk>.
Rents of things that I see assets.
Trend that prices are going to be at a new normal in the future.
I don't mean, I don't want to put the number of that new normal but.
But they are going to be higher.
Okay, very clear I agree with you.
Thank you Kevin Thank you.
Yes.
Your next question comes from the line of our funds. So Salazar your line is open.
Thank you.
From the maximal and part of the couple of questions of type 1.
And the related sales.
You just mentioned that you have more kind of liked in the blackbird.
And at this point in time.
Your line.
The current somewhat more of a they make the true.
The mining operations in Mexico, you kind of give us some updates and some of that.
It was from bad or the.
Thanks.
And also about.
Almost about volume.
And the economy.
The paper and we can get the kind of both of them back as well.
The second is the banking.
When you kind of operations.
The China implementing needs the modest street export.
And then the nations and the they become eventually net importer of scheme.
The patients for the cyber mainly that's the need for more operations with the call.
Our bank debt to make the from the investment case and so on the countries.
The business once a few of the spot.
Thank you I can answer the other.
The 8 of the mining operation I mean, the mining operation in Mexico are producing at full GAAP total capacity.
As you know most of what do we produce of pellet.
It goes to our own facility, although we are exporting of selling to third parties. Some of the extra we have but it's not a huge volume.
We expect the digit continue working as it is.
To be honest I know the your question about the.
The violence of Mitra kind of in other parts of the South of Mexico, We are not seeing any of that in our region. Although 1 of our mining operation into the mutual can it's very near the Colima border. So this is far away from from from the things you ready in the news.
South American operation in China.
I think the first benefit from Vcs remember China is the tenant in border for example in Brazil, I mean, as you know the Brazilian market.
The importing.
Some of them.
The imports in beauty in Brazil are increasing.
And most of them are coming to the from China. So so I think the benefit of these new policies.
Changing.
As the the.
The industry some of the steel industry there each growth.
Going to ship more to the market and can increase the market share because of each new policy of China I don't see yet.
Our business case doing to increase the speed.
Peter.
Capacity in the <unk> in Brazil for example for exports to China to be honest I don't see Judy today that case, I think that Brazil is going on.
Still meets all of our operations in Brazil.
It has to be more focused on on the on the Brazilian market and some exports of some regional countries.
Okay, what about it might be kind of expansion of the smallest clients and some other concepts of Colombia.
Yes.
I think the point for that.
We are not analyzing that the as you know in Colombia, we are ramping up the and the new facility in Malaysia.
Today, we don't have a.
Our project in the.
The near future to ramp them up but again there are things there.
The things that we are analyzing if this trend changes and there is a gauge for making the new investment in Colombia today, we don't have.
That in mind yet.
Thank you very much growth.
Hey, you're welcome Alfonso.
Okay.
Yes.
Again for anyone else, who wants to ask question you May press star 1 on your telephone keypad.
Okay.
Okay.
There are no more questions at this time, turning the call back over to Mr. Maximo Vidya.
Okay. Thank you all very much for participating today in our conference call and for your question. Please keep in touch.
And contact us if you have any comments or additional question.
Again, thank you very much of a nice day and please stay safe thanks a lot.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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