Q3 2021 Ternium SA Earnings Call
Good morning, My name is Anna and I will be your conference operator today at.
At this time I would like to welcome everyone to the <unk> third quarter 2021 results conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again Press Star one. Thank you Sebastian Marti you may begin your conference.
Good morning, and thank you for joining us today.
Sebastian Marti and I am starting as global Investor Relations and compliance senior director.
Turning released Yesterdays financial results for the third quarter of 2021. This call is complimentary to that presentation.
Joining me today are turn your deep Executive Officer, Maximo Rosa and the company's Chief Financial Officer Pablo retail.
Scott starting this business environment and performance.
At the conclusion 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 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 today's webcast presentation.
You will also find any reference to non <unk> financial measures reconciled to the most directly comparable.
Measures in the press release issued yesterday.
With that I will turn the call over to Mr. Mendoza.
Thank you Sebastian and thank you all for joining us today.
<unk> reported outstanding results in the third quarter, we can record EBITDA margin.
<unk> net income.
With a strong performance expected also for the fourth quarter, we are heading to a record year in 2021.
Let's now review the state of our steel markets, the global business environment remains healthy and.
The U S. MCA market continue to be relatively tight although there are some signs the situation is more.
It's moderating steel inventories in the U S are increasing but continued to be at relatively low levels and lead times are also slowly normalizing.
In a recent development the U S and Europe announced an agreement to relieve European steel imports from section two <unk> subject to certain conditions, including Spi maximum.
And the need for the still to be melted and poured in Europe in this environment.
My experience in the U S. Currently remain at.
Current levels, we continue to believe that steel prices are going to begin a downturn at some point in the following months, although we don't expect them to reach the lows. We saw back in 2020, there are several reasons for us to cap lease view.
Steel demand in the region is steady, especially in industrial markets.
Global supply chain continue having significant disruptions.
But.
In certain industries like automotive and wide book should help sustain good still demand levels into 2022.
We are seeing near shoring of manufacturing capacity to the U S MCA region.
Steel production in China is decreasing in line with the country effort to control carbon emission.
Looking ahead.
After a site steel market in 2021, we expect that these supply demand environment to gradually balance in 2022 with daily steel demand and a normalization of global supply chains.
Let's move now to a review of our main markets.
The Mexican steel market is currently showing two different business environment on one side the industrial market made up of the different manufacturing industries in the country is working at really high levels of utilization to meet strong and broad demand.
The only exception to this each deal from the PV industry, which in the third quarter continued to be significantly affected by the semiconductor supply chain disruptions.
This is preventing Oems from utilization from OTI.
They are full production capacity. So it is possible that Mexican auto industry production in 2021 ends up being similar to that of last year.
Opposite to this brokerage positive environment in the industrial market. The construction sector in Mexico continues to weaken this sector has not been able to recover to pre pandemic activity levels, yes.
Our <unk> sector.
Going to Argentina steel shipments in this market has been really healthy for the last 12 months.
After a link.
Restocking process following the COVID-19.
Related lockdowns.
Yeah.
Inventory in the value chain in Argentina are now back to normal level. The best performing sectors are currently the agribusiness industry, the automotive industry and construction, we expect to see relatively stable shipments in Argentina during the fourth quarter.
Some seasonally lower volumes by December.
Nevertheless, Argentina continues to suffer from significant uncertainty regarding its main metronomic.
Airbus and its capacity to renegotiate its debt.
Yes.
Activity in 2022 will depend on how the spending issues are addressed.
And with right now.
To make a quick comment regarding the process on some of our sustainability initiatives in the quarter in February we announced a mid term target to reduce by 20% <unk> CEO to intensity rate by 23.
Together with the main initiatives needed to achieve this.
One of these initiatives expansion of Chicago, the entre capture.
<unk> in our facilities in Mexico.
This is not new for us we have been capturing cotwo in our three via AI models for many years.
These models in Monterrey, and Guadalajara are among the cleanest in the world.
They're actually very few of these guidance out there in September we finished the first stage of our new carbon capture program with the expansion of the carbon capture system of the Cri models at the Monterrey facility with an increase of <unk>.
8% and its capture unusual catastrophe. The Seo team is all too easy to switch to different industries, avoiding GNU C. C O two emissions and February simpler economy.
After this expansion, we expect to have yearly cargo capture and use it capacity of two contracts and 85000 tons of cotwo between our facilities and Monterey and Portland. This represents the annual emissions of approximately 61000 and <unk>.
Second stage in the making that will increase this even more.
Another development in this field since our last conference call is the signature of an Mou with evaluate our main iron ore supplier to jointly develop steelmaking Decarbonize Decarbonising solutions, we are analyzing different alternatives.
Different piece.
Right.
Noah recasting plant located in <unk> Brasil facility.
Plans to produce metallic product with low carbon footprint using value <unk>.
<unk> <unk> technology.
<unk> edge, while <unk> and other technologies for iron ore reduction.
Also as part of our ESG program, we received in September confirmation from UN women to our application to be a signatory of the womens empower men principle, which promote gender.
Got it.
Diversity and inclusion are two important topics in Sarnia agenda.
We worked with Greg and workplace environment that attract and develop talent across all gender nationality and generation valuing our individual differences.
Another positive development in the quarter was 10 his board of director or announcements of an interim dividend payment.
Payment of 80 <unk>.
Sure.
This decision reflects the strong business environment and the significant cash generation. The company has achieved so far during this year. It also marks the transition from an annual dividend payment schedule to upfront payment with an advanced in November and I find that payment.
In May I believe this change.
Our dividend payment schedule is a very positive development that underscores our long term commitment to the return to our shareholders.
Before finishing my remarks.
I'd like to make a quick update about the status of COVID-19 pandemic interview.
Active COVID-19 cases amongst <unk> personnel are currently very low reflecting a decrease in the rate of infections in Latin America over the last month.
<unk>.
Despite these new.
This good news, we continue to apply strict sanitary protocols in all our facilities.
The government.
Accumulation program progress.
Well in the different countries, where we have operations and at the moment, 92% of <unk> employees, how can we achieve at least one dose of COVID-19 vaccine and almost 70% are fully vaccinated.
Okay, I will stop here and let Pablo go over our performance in the third quarter. Pablo. Please go ahead with the right GAAP presentation.
Yeah.
Pablo.
Ladies and gentlemen, this is the operator, we are currently having technical difficulties you call over to Tim shortly until that time your lines will be placed on music hold thank you for your patience.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
[music].
Yes.
Okay.
Steve.
Okay.
Please.
Yes.
Yes.
Thank you.
[music].
<unk>.
Yes.
Sure.
Sure.
<unk>.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Yes.
Okay.
Thanks.
Okay.
Yes.
Okay.
Yes.
Sure.
Sure.
Okay.
Yes.
Okay.
Yeah.
Yes.
Yes.
Alright.
Yes.
Sure.
Yes.
<unk>.
Yes.
Yes.
Yes.
Sure.
Sure.
Yes.
Yes.
Sure.
Sure.
Okay.
Good morning.
Yes.
Yes.
Sure.
Yes.
Yes.
Yes.
No.
Sure.
Thanks.
Okay.
Okay.
Sure.
Yes.
Yes.
Okay.
Okay.
Thank you.
Yes.
Yes.
Sure.
Please.
Okay.
Okay.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.
Sure.
Okay.
Yes.
Okay.
Yes.
Okay.
Great.
Sure.
Yes.
Okay.
Yes.
Yes.
Yes.
It can be.
Okay.
Thank you.
Yes.
Okay.
Sure.
Okay.
Yes.
Okay.
Thanks.
Sure.
Okay.
Okay.
Ladies and gentlemen, we apologize for the delay the conference will now resume.
Okay, sorry about that.
We're back here so good morning to everybody and lithium is gas so format for the first quarter third quarter and the expectation for the last quarter of this year.
Cash has delivered a strong set of results actually the strongest in the company's history, we have a very high starting point here, but.
The result, the company expects to achieve in the fourth quarter should be very solid very very solid again.
You can see.
Page three of the webcast presentations EBITDA, reaching $1 $9 billion in the third quarter, representing 41% EBITDA margin.
$612.
EBITDA per tonne.
Income, reaching $1 $4 billion or $6 <unk> per avs.
For the fourth quarter, we expect a sequential increase in cost per ton, partially offset by an increase in revenue per ton, which is.
Remaining relatively stable visual drive to a slight decrease in EBITDA quarter over quarter.
Literalize these in more detail starting with the steel shipments in the next page of the webcast presentation.
On a sequential basis <unk> shipments in Mexico, and the southern region decreased slightly in the third quarter, India market region shipments increased 7% sequentially, mainly due to higher finished steel shipments a slab sales to third party remain relatively stable.
In the next page number five you can see that combining these developments, we would like to consolidate infield shipments of three 1 million tons in the third quarter.
This volume is the same as in the second quarter by 8% year over year.
Looking into the fourth quarter, we expect shipments to remain relatively stable with slight finished steel increase India market region offset by lower sales of slabs with third parties and lower shipments in Argentina, Mexico impact affected by seasonality.
And both of these 2012.
Now, let's see I mean steel prices changes in revenue per ton because the relatively uniform across the company's name as steel markets in their way up to record high levels.
Realized prices in Mexico industrial market are expected to increase again in the fourth quarter, reflecting the outward.
U S steel prices witnessed this year.
In fact prices in Mexico reset with a lag.
Turning now to net sales in the vote on this chart the combination of higher realized prices on our statements shipment resulted in a 17% sequential increase in net sales to a record high $4 $6 billion in the third quarter.
Moving to the next page, let's review now the main drivers behind the sequential increase in quarterly EBITDA and net income.
The EBITDA chart on top.
So that has increased sequentially, reflecting mainly.
Your life prices, partially offset by an increase in cost per ton on higher raw material prices and purchased lots of costs.
We expect in the fourth quarter, a further increase in cost per ton of carrier purchased price of raw material and slabs continue to flow through the company's inventories as.
As I mentioned at the start of my presentation, the increase in cost and revenue per tone I would expect it to lead to a slight decrease in EBITDA in the fourth quarter.
The chart below shows the sequential increase in net income in the third quarter was due to record high operating income partially offset by lower results from our participation you'll see me now which.
As you remember one off gain in the second quarter.
70 now.
Kevin we can see the same changes, but for the nine months.
The drivers of the record high EBITDA level in the nine month period, the same as in the third quarter.
Net income the main drivers of increase were a record high operating income and equity in earnings.
Now in the last page, let's review the fees.
During today's presentation, our third quarterly cash flow and balance sheet performance.
Cash flow from operations in the third quarter was $596 million, even after a significant increase in working capital.
As you can see in the upper right chart. The increase in working capital was a result of a combination of factors.
Such as higher steel and raw material costs higher inventory volume in part related to the ramp up of our new Hot Rolling mill in fiscal year <unk>.
Seattle also increased mainly as a result of higher selling price with just slight increase in days of sales.
Regarding the decrease in commercial that it was mainly the result.
<unk> seen iron ore prices in fact in Brazil looking forward steel prices continue to be high and the new cold Rolling meetings with Korea advances in its ramp up process, we should see some investment in working capital, but nowhere near the figures we've received in the third quarter.
Regarding free cash flow the company generated $475 million of the capital expenditure of $111 $1 million in the quarter.
This led to a net cash position of $271 million as of the end of September.
As Maximo <unk> take into consideration the strength of the company's portfolio and financial position. The board of directors have proposed an interim dividend payment of <unk>. If we went into $157 million payable on November 16 to shareholders on record as well.
Perfect.
Okay.
This will conclude our prepared remarks once again, thank you very much for your time and attention.
We are now ready to take your questions. Please operator proceed with the Q&A session.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
For just a moment to compile the Q&A roster.
Your first question comes from the line of Tayo Okusanya with PTT backfill. Your line is now open.
Thank you good morning.
So my first question on your on your outlook.
You mentioned, you expect slightly lower EBITDA for the fourth quarter and I was just wondering to elaborate a bit more on what you're seeing in terms of realized prices and costs for the upcoming quarter.
On prices you already have a good visibility on the Rio Jasmine all of your contracts do you understand that but what do you expect for the commercial side, neither shipments based on spot prices for the fourth quarter and on the cost side, you mentioned raw materials cost inflation driving up costs and our strongest it's mostly coal prices on the.
Arrives flowing through through the results, but on the other hand, you also have iron ore prices materially dropping over the third quarter. So if you could please provide some more detail on this equation that that would be very helpful. And my second question. If I may on basically I mean, you guys mentioned the project has been ramping up adding slow.
So I just wanted you I just wanted to see if you could maybe update on what you expect in terms of shipments for the project.
That equation of incremental shipments.
You guys have had been sharing with us over the last quarter. So if you can maybe share what do you expect for the fourth quarter and for 2022 in terms of incremental shipments from from breakeven that would be very helpful. Thank you very much gentlemen.
Thank you guys.
Your questions Linda <unk>.
To answer your questions.
Regarding the cost.
The increase in cost.
From the slabs from the purchases of SaaS.
Because as you said iron ore is decreasing and lead to compensate by big box of carbon.
Which increased dramatically so both both FX.
Those prices complex compensate each other but it's lapsed we were buying were higher for the fourth quarter.
For the third quarter.
Remember some part of our slabs.
We shipped in from the Brazil operation, but others, we buy in the market. So thats the increase in the cost.
And for ICT side, you said.
<unk> is in the in the industrial market are going to be higher because of the reset of the contract prices right.
Brian in the commercial market.
The spot prices and as you saw the Brian piece of the Tru for example in.
In the North American market, a decrease a little bit in the last two weeks. So we expect a slow decrease of those pricey at least from the Mexican market not for the other markets.
Excuse me.
Updating our planning for fiscal <unk>, we have the setback because of the.
The permission issues just to be on.
Yes.
Equivalent to what Raytheon was running.
But.
This also reputation for for the client.
<unk> of natural gas swaps in Arcos unforeseen delay we at.
But now the ramp up curve of the.
The facility is now okay. I mean, we are.
Again in the ramp up cost.
Our expectation for 2021 is that the.
<unk> is going to provide us between one five and 2 million tons of additional volume.
Some of that volume is going to to the sandy.
The facility, which before that imports material, but probably then those are the numbers.
Okay.
Okay. So just so just wanted to clarify.
We are referring to 2022 volume.
With your.
Facilities.
A year.
Okay. That's great understood. Thank you very much auction manpower.
Hmm.
Yes.
Okay.
Yeah.
Your next question comes from the line of Jonathan Brandt with HSBC. Your line is now open.
Hi, Good morning, gentlemen, my first question relates to.
I guess pricing in auto demand, Steve mentioned that auto demands wasn't great.
Hoping you could.
Quantify that a bit what you've been seeing over the past few weeks.
What your expectation is for 2022 and if this is.
At least in your view why do you think steel prices in the U S have been coming down and sort of how much further do you think they could come down given the loosening of the.
Supply and demand environment that youre seeing.
My second question just relates to.
The natural gas that you have in the Mexican facilities. So if you could just sort of help me understand how much of the natural gas price increase that we've seen in the spot market how much of that loss will increase your cost base or are you on contracts or are you exposed to spot.
Any data you can give around that would be appreciated and then just a quick third one if you'd allow me just on the dividend payment.
Could you just sort of elaborate as to why you decided to change the policy or why the board decided to change this policy from annual to semiannual. Thank you.
Yes.
Thank you for joining us.
Lot of questions Ed.
I'll start with the natural gas liquids at very simple all hour hour, we have contracts for the volume of all the natural gas, but that contract are always based on the Henry hub.
So yes, we got a little bit of luck, but the increase in category now see in LNG and <unk>.
Henry we suffered that now.
On our cost that probably social I forgot to mention in the cost but in the first question. Thank you Jonathan second automotive industry.
The automotive is software more than what we thought I mean, the third quarter production in Mexico.
I think the number was 220000 cards per month.
In the third quarter.
And the affection was almost like 7000 units every month because of lease.
Because of these key these was much bigger than the one in the second quarter. So that was a little surprise for most of our markets even for the ultimate makers in <unk>.
Mexico.
<unk>.
Thanks.
As we are seeing are starting to get a little bit better not still normalizing.
And what we are hearing is that normalization we have done.
In the first second quarter of the year, but.
To be honest.
Lap.
A few months before these last three months.
They expect disease much earlier, so yes, we have an impact the numbers is that from 220 to 70000 monthly numbers.
And this will cap on that.
Thanks.
<unk>.
On the price also because some of these volume based storage.
I think Jonathan another question have you what's about the steel prices in general.
Or.
I don't remember.
Correct.
Wondering what your expectation is of U S steel prices given sort of the.
The auto industry issues with the chips.
Well I can think the utmost even in between the chips is affecting so each one more factor.
In an enormous amount of factors that affect the U S prices and again the U S prices are at a level at a very high level I mean, we really decent in most of our conference calls.
I think the drivers that.
<unk> said that the pricing is going to decrease I can tell I mean, clearly U S capacity is back to pre pandemic Steve's capacity is back or even higher than pre pandemic levels inventories in the country are renewed are increasing and lead times are still fine.
Away from normalized by the much shorter than they were a couple of months ago.
<unk> tons of hot rolled coils now are between five and seven weeks.
Manav that these four weeks or three weeks, but it's far away from the 12 weeks in steel.
Steel imports are high yes.
Adding some new capacity coming onboard in the next couple of months. So those are drivers.
That.
Said that the pricing is going to decrease in the silver in the next month, but on the other times they are drivers.
That doesn't speak to that I mean demand is very very good I mean, if you see.
This year, Mexico is going to increase consumption by 13% and that's a huge number.
<unk> by 15% other countries in the region, even my more Brasil by 24%. This is demand increase we are seeing in 2022 also demand.
Very China in a lot of sector R&D. The cheap problem is resolved there is a lot of.
Unsatisfied demand.
<unk>.
That's I think those dose companies are going to produce more cars.
Disruption in the global supply chain.
I mean each deal.
Is there.
A lot of consumers of steel.
Thinking of importing even less for next year.
And freight cost.
Our continue increasing this.
Getting much more expensive to move steel so so I think yes.
You said I know the factor also.
Factors I think Jonathan.
One China.
Mena production.
In May as China produced almost 100, and 100 million tons on September seven.
73 million tons.
Huge decrease in the production, which was always a factor that would change the dynamics of the market and Thats. We should this is going to continue to decrease.
So several factors that we see that we are going to have a healthy steel demand in 2022. So.
As I said.
Slowly moving down.
But they are going to move slowly down not E.
E speed because of all these things I'm, telling you I don't know if I answer correctly questions, Jonathan I'd take a little bit of time.
No that's perfect. Thank you very much.
So yes.
To answer the question of the dividend.
Okay, Yes.
Hi, Jonathan.
The more taken by the board this is a natural move.
After.
Increasing the level of dividend paid.
Sales of 2020 at the beginning of 2021.
<unk>.
As was commented during different conference call since this.
A new level.
Reflecting the strong position of Turner.
Free cash flow generation of the company.
And so we consider it is natural in order.
Of sustaining these new leases.
Given that these one is divided into an interim dividend.
<unk>, which is a portion of the dividend that there will be decided.
Our proposed during the board February so is clearly.
As a way of lowering our sustaining this this new new level of dividend that the company decided to divide it into two the portion.
Advance as an interim dividend and then therefore.
Confirmation of our full dividend announced by by February.
Okay. So we shouldn't look at this as just split equally in half so it won't be one six for the whole year. It just some portion of it.
Exactly you guys Youre sugar intake.
To access a portion of the dividend, but then we will be discussing our life by the.
What are the vertical have been approved by the shareholder meeting in May.
Hey.
In April or May and these will either one so yes.
Right.
Perfect. Thank you very much gentlemen.
Your next question comes from the line of Thiago <unk> from Bradesco <unk>. Your line is now open.
Thank you good morning, everyone.
Two questions back on the dividend question.
Two questions within that so why are you not more aggressive on the dividend side, given your net cash position.
Positive outlook for this business.
Even if you.
Fuel prices are essentially going down you guys are doing an excellent job margins are pretty.
Pretty healthy.
Why not more aggressive on the dividend front.
And within that same question, what should we expect in terms of average payout historically paid more like 30% level.
Would it be reasonable to think about a 50% payout or something within you know, 50% to 60% I'm not sure.
And then my other question is.
On the.
The impact of the U S Europe due on the 232.
What what is the fact that youre expecting from that if any.
And what do you guys think the next steps will be in terms of yes.
Two per se.
Thank you Thiago I started with the second one we are not seeing a lot of impact from this arrangement I mean, Europe was already boarding or exporting material into the U S paying the 25% Derek I think the numbers are very similarly.
So I don't think that much much more volume from the U E from Europe is going to the U S.
I think.
What we are going to see is broadly that Europe increases a little bit of prices.
So that they don't have to pay now the 25%.
Second on the dividend.
We were a little bit aggressive because our policy was always to pay once a year and now with these engineering, we are kind of.
I don't know.
Making forward at least a portion of that influenced that dividend that we paid in may but for the second part of the answer I'll ask Pablo to answer it.
Yes.
Let me add.
Let me add to that Maximo.
Clearly the company is your.
The increase in the dividend payment.
During this year with the result of 22020.
And clearly we understand that what we are showing today is that this is the new.
And your normal level that it is reflecting.
If you want a more aggressive.
We then payment from the company.
Perfect.
The return that we are presenting to COVID-19.
Shareholders and on the long run.
The number will be basically very similar.
Yeah.
The dividend payout.
Payout in the long run.
We will continue to reflect and probably the number that you mentioned.
And specifically I, probably this is not exactly the same but the company have been showing.
A sustained increase in dividend payment we pick up.
Last year with the dividend we paid in May 2021.
What we are doing right now we sustain this new level of this.
Distributions to shareholders. So.
We understand that.
Of course, you can always be more aggressive.
Payment, but the company is already in that.
The results of the company.
And payments have increased and sustained.
In general the.
The payout ratio in the long run and so it should be sustained.
Okay publish play if I may and thank you for the answer.
For modeling purposes looking into 2022.
Would it be fair to assume a payout ratio above 30%, which is a normal payout the payout ratio for you guys and then.
As we normalize the model we should continue to assume 30% is that.
Is that fair.
Okay.
I think that's it.
You would need to take in the long run these 30% probably the CRE is different because the numbers.
Basically the number that we will be are we proposing to pay a dividend in the next in the next board.
Again, probably Dci result of 2021 will be extraordinary.
Comparison to the normalized level of the company and probably there you have a different but in general they should be and if you look at the Q3 as a company you will see that.
That was our dividend.
Okay, Alright, thank you Pablo Thank you Maximo.
Thank you Carol.
Your next question comes from the line of Carlos de Alba with Morgan Stanley. Your line is open.
Thank you very much.
So just to clarify Dan.
The dividend policy is based on a percentage payout ratio of more than a dividend yield.
That'll be my first question.
Second question is if you could comment as to the levels of profitability that you are experiencing.
In Brazil.
Given the different moving pieces slab prices raw material costs.
Can you call and natural.
Natural gas in the currency.
The third question. If I may is if you could comment on any potential.
Our plans to restructure the corporate.
The structure has to change or improve.
Modify the corporate structure of the company.
In terms of.
Who owns what makes it potentially making it more.
So inspiring or more easy to understand and this convoluted.
Before you go to the.
The market value.
Company.
And then finally and I apologize for all these questions.
Put them all out at once.
In terms of.
The timing of the potential next big project.
When a company that is always.
Investing sometimes.
Improving technology, the cost trying to reduce cost so thanks, expanding capacity or adding value could you comment as to what are the potential next project on the timing and then any update on Capex for next year. Thank you.
<unk>.
Thank you very much Carlos.
If you allow me I will start with the last one.
Which is very interesting as you said, we are always looking for new or Big project.
And as I said in the last conference call. We are we don't have any particularly now to announce but as you know the ramp up of the new call. It cost Rolling mill in Mexico, which took us two months more than what I expected because of this.
These problems in Mexico opened up very a lot of opportunities downstream.
<unk>.
Youre going to ultimately like what I am going to say like in addition, it became nine a cold Rolling mill, our guys a nice capacity all of those things that we are analyzing in Mexico.
You did.
There are also other things.
Having the process.
<unk>.
Well, we should support the growth we have in our metal building segment platform in the south of the U S.
So we should increase.
Our prepaid and capacity we have there.
And also I mentioned in the last conference call and I think you asked me about EBIT, what's going to be blast furnace no.
We are going to be U S. MCA compliancy in six years. So we are going to require us to expand our upstream capacity and we are analyzing today how aware.
So these are all things that we are analyzing right now.
Opportunities that will strengthen our strategic position in the market.
And it's going to be.
I've moved to return on investments. So those are the things we are looking at right now and for the dividend part of the other questions Pablo can you answer them.
Yes sure.
Sure.
Just to complement on that Juan Carlos.
You ask on the amount of Capex, we have.
Kicking effectiveness a number because.
As maximo. He's mentioning we are still studying which are our most so we will be close to $600 million of Capex, where we see without any new capex.
There was a maximo mentioned that we are analyzing continues to be exactly to say.
So we go into your questions.
Let me clarify first that we as a company do not have a written dividend policy. So it's not that I can tell you that exactly which will be.
Number one we saw is a very clear track record of dividend payments with very important increases.
Sustaining or moving around certain levels as.
<unk> answering.
Questions.
We have a payout ratio of around 30% on the long run.
Probably when you have.
EMEA, where you have a higher result of a lower result roll is not exactly because again, we don't have retail dividend policy and this is defined by a proposal from the board of directors have been approved by the stockholders.
Stockholders' meeting, but in general you need to look at the can.
We are going.
The change is our ability now to reflect the results from the company.
The other question that you ask wasn't relationship.
The corporate structure.
Which is something that we pay very significant attention and if you look at it.
Again as the history of Belgium, we have done a lot of things.
We have reduced the level of intermediate companies whenever we call acquisition, we try to simplify it as much as we can.
In the corporate sector, we ought to feel.
Some things to go.
To fully simplify the corporate sector.
Is the plan that we have always have in our mind.
There is a chance to do it.
We will try to do that.
It is reasonable Unfortunately, we don't have this chance.
Particularly at this moment because it includes some other issue that is not dependent only in us.
That was possible for us to go with already.
We are still missing a part.
As soon as we have a chance to do it.
We can do that of course is something that we clearly want to finalize the simplification of our corporate sector.
So.
The last one.
A question regarding the margins in Brazil.
Clearly with our silicon.
Contributing extremely well to the numbers of Daniel because the prices of labs also we're reflecting the level of pricing that we see in other markets. There was a correction on the on the on the prices of labs in the last.
Quarters over the last month now.
Returning to a more normalized level and again the margins of producing less.
To be quite positive.
Also our Maximo mentioned during the opening remarks and during the answers of different questions.
The production of starting in Brazil will be mostly dedicated to supplying our internal internal needs. So that's why we were mentioning that you will see some reduction in shipments of slabs to third parties that will be compensated by sales of finished product that was our original plan as you know from talking to them.
And then different deals.
Thanks, Rob just one final question on turning in Brazil, I think in the Plaza.
Normalized level, the normal long term level.
Les mentioned about $50 EBITDA per ton is this still something that the.
And applies today or has it moved higher.
Sure.
Fortunately for us it's not.
Because of the number.
It always metallurgy or these days.
More than $60 per ton.
EBITDA in general the numbers of Brazil.
It's much higher than this number you are right that.
This was the number at the very beginning that we were looking for because it was the typical margin of flat producer I think that that improves.
And will sustain us at a higher level than this one but of course.
I don't want to repeat what Maximo, we're saying because we understand that pricing environment will be.
Just in a little bit, but we will continue to have this is our expectation at least.
Enter into next year.
Better margins than expected.
Thank you. Thank you very much.
Thank you Pamela.
Your next call comes from the line of Alex Hacking with Citi. Your line is now open.
Yes, good morning, Maximo and Pablo I appreciate the question. So my first question.
Is around pricing a couple of the U S steel mills on their conference calls this quarter.
Our targeting that they should realize higher steel prices next year than this year and this is even considering the HRC forward curve, which isn't a steep backwardation.
And the reason for that is obviously the lagged effect.
Higher contracts rolling over.
So could you just remind us for <unk>.
How exposed are you to large contracts, particularly annual contracts.
In Mexico, I don't know you don't give any.
I know you don't give forward guidance on pricing, but.
Is this something that could be realistic for Tony on them as well, but actually even if U S prices rollover that.
You could you could do better next year because of the lagged effect of contracts. Thank you.
Thank you I'll ask a very good question I'll try to answer but I mean, you are right what the U S producers or our competitors are saying is in the industrial market.
The concepts they have a lot of contracts that are annually based contracts.
To be honest, we don't have.
<unk>.
Our main concept accordingly basis or every six months.
And we don't have a lot of annual contract.
In our industrial based customers.
So it's true that our clients our contracts for the fourth quarter are going to do.
The quarter contracts for the fourth quarter are going to be higher.
And for next year, probably most of our.
First six months are going to have.
The contract that are higher than the one of this year, but as we have.
Huge.
Mount of contracts at a quarterly basis.
It is going to depend in general.
The price would be in the second quarter of next in the first quarter of next year.
So again.
First.
But it's true, but it's not.
As strong as in the USA.
Okay. Thanks, So we should be shrinking.
Alright.
Referred to cough.
Contracts every three months.
Okay. So we should be thinking more of like three to six month lags.
Exactly how much I can okay.
Okay and then my second question.
Which is a bit random actually is around prime scrap.
You just mentioned in Europe.
Answer to Juan Carlos his questions.
But at.
At some point you will be looking to add upstream capacity.
I'm sure you know, but that's the spirit that debate in the U S steel market right now about prime scrap, which some people think it's going to get quite tight.
Which seem like Mexico is a good source of prime scrap ride you've had this big build out of the manufacturing base, particularly automotive.
I know that the melon Dania mill in Texas is looking to Mexico for Prime scrap.
Something that China is.
Just looking at because it would seem like you could.
Maybe you have a first mover advantage in getting access to that thank you.
Alex you are completely right. This is.
One of the things that we're looking at also.
Okay. Thanks.
Your next question comes from the line of Lucas Yang with Jpmorgan. Your line is now open.
Hi, Good morning, and thank you for taking my questions I have two quick ones first one would be would you consider hedging through prices given like.
More balanced outlook for next year.
Second question will be renewed.
Luca.
Couldn't hear the first question.
Sure would you consider hedging is do prices for next year.
And the second one would be that the future curve is pointing through price of around $1000 per ton by mid 2022 positive curve compresses.
Your expectations. Thanks.
Okay Maximo, let me think.
This is the first part of the question on the on prices.
Because of the structure of prices that we have.
We think that we have kind of a natural hedge and we are not planning to further increase the hedging of our of our structure.
We are and what we have today.
And you know that.
I think this is an advantage of Daniel.
<unk>.
The different raw material we have.
For example, I don't know if Mexico, we are fully hedged on that.
In gas we are exposed to be.
Okay.
Similar explain.
<unk>.
<unk>.
<unk>.
Of course, an increase but we are still.
Regular levels.
This is reflected in the price on the finished product.
Again, we are exposed to different.
But in general.
We consider that we are in a well position we have.
Well of course, hitting a thought is this in the past in relationship to insulin for materially. We don't think that we are now in this moment the robot to this.
Well this hedging strategy again.
So im wondering if your second question.
Our low cost structure curve is.
The future curve is pointing to price at around $1000 per ton by mid next year.
How does the curve compared to your expectations.
Well I think those are very very low.
Yes.
I mean, we don't what I said about Brian look I am not seeing prices going down.
To that level.
Okay.
Very clear.
Okay.
Okay.
That concludes today's question and answer session.
Maximo you May I turn the call back to you.
Okay. Thank you everyone for your interest in interest and participation today.
Just keep in touch 'n foam type costs. If you have any comments any additional questions have a nice data that we see you back in three months.
Okay.
Okay.
Yes.
Yes.
Thanks.