Q3 2022 Ternium SA Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Attorney <unk> third quarter 2022 earnings 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 would like to ask a question. During this time. Please 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, Thank you for joining us today.
My name is the vast majority of it I am joining us investor relations and compliance.
Turning to really do the financial results for the third quarter first nine months of 2022.
This call is complimentary to that presentation.
Joining me today are Tony Chief Executive Officer, and Massimo, where those out and the company's Chief Financial Officer, Pablo retail will discuss the 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.
Page two in today's webcast presentation.
You will also find Andy referenced and non <unk> financial measures reconciled to the most directly comparable <unk> measures in the press release issued this morning.
With that I'll turn the call over to Mr. Mendelson. Thank you Goodbye and good morning, and thank you all for participating in our conference call today.
<unk> reported a good set of results for the third quarter, we had adjusted EBITDA of $679 million on a margin of more than $200 per ton. This is equivalent to adjusted EBITDA margin of 16% of sales a level that is within <unk> historical margin range.
On top of this we had a very strong cash generation in the quarter cash from operations was more than $1 billion aided by a significant working capital release.
Last year, we transitioned from an annual dividend payment schedule to a twice a year payment with an.
In advance in November .
Final payment in May I believe this change.
Dividend payments scheduled was a positive positive development that underscores our long term commitment to the return to our shareholders. In this line <unk> Board of directors announced today, an interim dividend payment of 90 cents per <unk> equivalent to 170.
$7 million that will be paid on November 17th.
This represents an increase of 10 cents.
Sure.
Compared to last year interim dividend payment.
Looking ahead, we are facing a complex global economic situations with uncertainty driven by policy and geopolitics like monetary tightening the awarding of grain and China's economic slowdown.
Rising interest rates combined with high inflation.
Undermining economic confidence and slowing down investment.
Well as household spending.
Focusing on the U S.
According to the World Steel Association short term outlook that was just released still demand is not expected to get into negative territory. Despite a softening economy construction activity in the private sector will decrease due to adult downturn in the housing market.
But Bob Cmv's, the nonresidential sector is still strong and an increasing with respect to investments due to infrastructure law and writing the investments in the energy sector will support growth in steel demand. In addition, the automotive sector is expected to maintain a positive move.
<unk> on the back of pent up demand and the gradual easing of supply chain constraints.
In Mexico.
Our expectations are very similar to those in the U S.
Both markets are very related costs.
The construction sector recovery has been slow.
And as a result activity in this sector is expected to remain below pre pandemic levels. In 2023. In addition, the manufacturing sector, which has performed better as soon as the pandemic.
Also faces a weekend outbid in relative industries like housing household appliances and small HVAC.
On the other hand like in the U S. The automotive sector will still see growth thanks to an easing of supply constraints.
It is worth noting that even though a DVD in the North American region is slowing down we are not expecting <unk> shipments in Mexico to decline, where several forces at work that should help us sustain and probably increase our shipments in the market during 2023.
Shoring of manufacturing capacity, you said development that is gaining momentum.
We speak yeah, there has been a spike in investment announcements for new manufacturing capacity in the north of Mexico. The majority of which has been made by companies that are new to the region.
Result of this construction activity related to industrial facilities has been strongly increasing there and the future. Many of these new facilities. We shouldnt, we also turn into steel consuming customers for us.
Another aspect of our activity in Mexico is our progress with the certification of new products as we advance with the ramp up of the new flat screen medium fiscal year capabilities provided by our new R&D Center. In this facility are significantly speeding up the certification of <unk>.
New products. This is enable us to broaden our product range and as a result, we are booking new supply contracts for 2023 that will help us grow our treatments gradually throughout next year.
Over the last 10 years, we have invested in our facility to expand and enhance our product offering this new capacity.
As in a unique competitive position in the Mexican market to take advantage of these new opportunities enabled turning to increase its market share against imports and other local producers.
Turning now to Argentina.
<unk> demand remained stable.
It has been for more than a year now.
Structural sector is healthy and industries like household appliances automotive and energy are working at good levels.
Although we expect stable shipments in this market for the fourth quarter, we need to continue making a warning regarding the unstable macro situation in the country.
Let me now share some thoughts on safety.
Two weeks ago, one of our employees was fatally injured.
They had Ada facility in Brazil, we.
We are deeply moved by this development.
Our thoughts recite with his family and friends.
Hadn't had a facility entirely for more than four years.
I traveled to Brazil, right. After I heard the news and work with our team there to understand what happened and we will continue investigating the causes of these tragic events and we are set to learn from our findings.
Okay.
Nick.
Let me now make a brief note about our mining activity in the south of Mexico, and the effects of September's earthquake in our facility and surrounding communities on September 19, there was a seven seven intensity earthquake in mutual funds.
Which center was about 120 kilometers from our mining facilities.
After the event, we got we got our tailing dams, both from Danube and Premier Colorado.
Got it twice by a third party expert and their findings were that the dumps.
Perfect condition. Unfortunately residential was not the same for some of our surrounding communities where infrastructure was significantly affected as a result, we have created a fund to help rebuild some schools and a medical clinic in these remote communities.
Yeah.
To wrap up my prepared remarks, I would like to say that we are positive regarding our human levels for the following quarters, even in a softening macroeconomic environmental.
The one expected we're confident our efforts to increase <unk> competitiveness and expand its brought the grinch will help us sustain us.
We've had a sustained and gradually increase shipments during 2023, mainly by substituting imports in Mexican market that serves the manufacturing sector.
With this I'll, let Pablo go ahead with the analysis of our results in the third quarter. Thank you very much.
Thanks, Maximo and good morning to everybody and thank you again for your participation today.
Let's move to the webcast presentation.
And you will see that over the last few quarters, we have been.
Sure.
Fusion to a more sustainable level of profitability as.
As we sell or are you expecting.
Adjusted EBITDA in the third quarter was strong $679 million on the margin of $229 per ton or 16%.
The sequential decrease in adjusted EBITDA in the third quarter was mainly the result of lower fuel prices and higher costs.
As we anticipated in last quarter's call.
EBITDA margin in the fourth quarter, we continued to decline, reaching 11 yogurt company typical range before we were able to see.
These trends in the first quarter of 2023.
As a result of the FERC for further accounting our financials in the fourth quarter will have a temporary mismatch between prices and costs.
Reflecting the price level of one point in time with cost buttercup and way more in the us.
In the fourth quarter, it still prices under quarterly contracts in Mexico with reset at lower levels, but they did in the third quarter cost per ton will not occur will not go. We've got this decrease so we will continue to reflect the grower flow through accompanies inventories.
All related.
Cost raw material, which were a 30 during the first half of the year with rationalization of Ukraine with rapid steel markets.
Raw material <unk> more recently, a lower price will be reflected in our cost per ton from the first quarter of 2023.
<unk>.
Okay.
Net income in the third quarter royalty.
$220 million equivalent to earnings.
The view of 78.
This includes 57 previous loss related to a write down of <unk> investment.
Yes.
We paired our investment in some units of the performance of an impairment test at the end of September .
Maintained due to the company's previous estimation of usually mean values.
Led to this impairment were related to a lower production of 11 new.
Needless Coke facilities with further capital investments alone will be covering global macroeconomic situation.
Net income in the third quarter was affected by the loss of $95 million due to the government of the fair value of certain other securities collectively.
As Vivian.
Subsidiary.
Jim.
Turning now to page four.
In the presentation, you can see that steel shipments increased in Mexico in the third quarter of this year compared to the second quarter and on a year over year basis, reaching.
Reaching one 7 million tons.
Looking forward to what shipments in Mexico are expected to increase slightly again in the fourth quarter. Despite a seasonally.
The slowdown in demand as a result.
The improvement in revenue market in the region and the restocking in the commercial market.
In the southern region shipments decreased slightly sequentially.
Dana demand for steel products remained relatively stable, but the macro situation as already mentioned by Maximo continues to be quite uncertain.
Shipments in the other market region in the third quarter were slightly below the level achieved in the second quarter, but as you can see the talk about the volume of slabs to third parties remain at relatively low levels in the period, reflecting a high level of integration with <unk> slot facility in Brazil.
Within the company's industrial system.
Let me now to page five you can see that on a consolidated basis.
Shipments were 3 million tons in the third quarter very similar to a volume achieved in.
In the previous two quarters.
Compared to the third quarter of last year consolidated shipments decreased in the third quarter, reflecting a decrease in the volume of slab to third parties, partially offset by higher finished.
Moving to our realized oil pricing revenue per ton in the third quarter declined sequentially.
Year over year basis as expected.
Realized prices decreased in Mexico or revenue per ton in this period, reflecting a quarterly reset of contract prices at lower levels.
Watson market prices.
As I mentioned earlier, we anticipate a further increase in steel prices in Mexico in the fourth quarter as contract price continues to reset at lower levels, reflecting reflecting with a lag without what kind of market pricing. So over the last six months through September .
Yeah.
Now on page six let me review the main drivers behind the decrease of adjusted.
EBITDA annuity income in the third quarter sequential decrease was mainly due to the result of lower realized prices in Mexico as already discussed on fire.
Cost.
Or picture.
The increase in cost in the third quarter reflect our flow through inventories of high priced deals left on raw material purchases during the first part of the year.
Regarding net income at the bottom chart, we have.
The sequential decrease in operating income and to a lesser extent the two items I mentioned at the beginning of the call it $130 million impairment going forward investment in Mina in the $95 million decrease in the fair value of Securities received.
And guidance from seven months.
Let's now review the performance of our customers are on balance sheet and the cash flow of our operation in the third quarter Awards 1 billion, including a working capital release.
$548 million.
Free cash flow in the third quarter of the year.
It was almost $900 million.
Capex of 136.
That drove our net cash position to $1 8 billion by the end of September .
To finalize the presentation, let's review.
Our cash flow performance, when we realized basis cash from operations in the first nine months of 2022 was $1 7 billion slightly above the level achieved in the prior year BDO looking forward, we expect <unk> will continue to generate significant cash in the fourth quarter.
Based on the Capex estimated for the year of close to $600 million and further working capital release as a significant working capital investment last year as you can see in the top right.
Okay.
Moving to the chart of dividend and the bottom of the pace.
We can see the <unk> 90 per <unk> in the interim dividend that they are all over it was announced earlier today.
So as I mentioned, 10%.
Scott here.
Last year, we expect.
<unk> Board of directors announced the year, believing in.
Corresponding to 2020 due in February 2023, when they.
To review the annual accounts looking forward the company will continue striving to sustain and possibly improve shareholder return.
Okay I will stop here, so that we can.
Taking your question. Thank you very much for your time and attention operator, let's proceed with the Q&A session.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from Kyle <unk> with BTG Pactual. Your line is open.
Okay.
Hello, Good morning, everyone two.
Two questions here.
First one on your working capital release so.
And in 2021, you guys for you guys had $2 $6 billion and working capital investment that's from your presentation.
And so far you all reverse in small part of that and.
So my question is are you guys are you guys expect it to continue.
Posting positive contributions from working capital in the next quarters I mean should we expect a full reversion of those two 6 billion ahead or did something change that might lead you guys to claim only a part of that or or even.
Ahead of that going forward and my second question here on capital allocation. So I know that's pretty much. The same question, where you have been asking for it for a while but the truth is that free cash flow generation continues to be very robust, maybe even more than expected a while ago and you guys continue continue to pile up cash and $1 8 billion already in that.
So my question is what can you guys do in the short term I mean, even with the projects that you guys have already announced that you guys are expected to announce going forward.
The Capex outflow was only supposed.
As opposed to take a few years, it's only it's it's it's gonna outflow in.
In quite some time and you guys could be in you guys going forward. I mean can you can finance that with fruit with free cash flow generation events that that the first part of my question. This is true with working capital being reversed.
So if that happens free cash flow generation is still going to continue to be strong and still going to continue to be robust. So I mean, despite dividends rising it won't materially change that so the question is what can you guys do in the short term in order to deal with with that that amount of net cash that you guys have been pie.
I mean can you guys announce a buyback I mean extraordinary dividend I know you guys have mentioned in the past that it's not really it's not really an option that the board.
It's as favorable of maybe an M&A that you guys have been analyzing so what can you guys do regarding that thank you very much.
Thank you very much Scott I would let Pablo I'll answer the first question and then I tried to answer the second one Pablo.
Okay.
Right.
Albert generated because of the significant increase in prices.
Of different raw material.
Significant illumina on working capital that we have starting to reveal.
<unk> is not the full amount that we have already reviews, but if I may.
During our remarks, we are expecting to continue to do that.
During the fourth quarter and also enter into.
2023, so youre completely right will we continue reducing working capital of course.
It will depend on the prices of the refund.
Product and raw materials that we buy.
Got you.
But.
Yes.
If you need at least a significant portion of the buildup of working capital in the past will be recovered.
Thank you Pablo the second about capital allocation.
It is true we have a very strong financial position that that's true.
But to be honest.
Given the uncertainty I think the world is.
Is is coming or it's going to.
We feel a little bit comfortable having this strong position.
Nevertheless, as you know we have.
A very important.
<unk>.
Two we made mainly in <unk>.
In Mexico with all the investments.
Already announced and.
The ones that haven't been announced but we have been very clear that we are.
We are committed to do to expand our steel shop capabilities to be U S. MCA compliance by 2027, so thats a huge investments we are making.
And we are.
Giving a dividend as you can see because of this.
Interim dividend.
Buyback.
It's not on the table to be honest.
Although we have discussed in the past.
So I think that on.
On M&A.
I never said no.
We analyzed and you know that we analyze different opportunities, but we don't have anything to inform.
Today. So there are things that are in the table.
And we are going to look for opportunities, but again given the uncertainty.
That we are expecting the world to have.
I think it's good to be in this position we are very comfortable in this position.
Giving a.
Huge amounts of vivid and no, but because if you calculate the dividend yield.
We cannot anti temporary but it's going to be very high.
Okay. Thank you very much gentlemen.
Youre welcome.
Your next question comes from Jon Brandt with HSBC. Your line is open.
Hi, Good morning, gentlemen, thanks for taking my questions maximal I first wanted to ask you about.
Fuel prices in 2023 and sort of what your view is there. Obviously there is concern about the global economy, and how much slow down we'll see higher interest rates higher inflation.
Zero Covid in China, and things like that so I guess, what are your expectations for steel prices, particularly in the U S and Mexico.
As we head into 2023 do you think we'll potentially see some some more downside to the current spot prices.
And then my second question just relates to the cost pressures that youre seeing I understand they're temporary but could you just give us a little bit more detail was is.
Is it mostly the.
The slabs that you are buying in iron ore prices.
Our iron ore cost center that are.
Had the impact on the margins this quarter and if I don't know if theres a way to quantify it but if you sort of take away the timing differences right.
If you look at sort of where spot swap is in spot iron ore is there a way to quantify what your margins would have been if there wasn't sort of timing impact. Thank you.
Thank you very much John I ask Pablo to start with the second one because I think it is much shorter and then I tried to make a summary of the first one because it's very broad.
Our ICC issue I think.
Okay, Okay, I will review our board.
Don how are you.
Youre right.
We're making your question that clearly what we have is a mismatch between the price of our product.
The timing of reflecting the cost of our broad in our financial statement.
The big issue here is that when you have a trend of prices going down you will see what we are reflecting which is a reduction in the market at the moment you have the either the pricing moves around meaning prices going up you will have higher margin.
But to answer clearly your question and it's something that we try to pass the message during the opening remarks, both maximo and myself.
Is that what we are reflecting today in our cost is the prices of slabs that iron ore and coal that we saw basically in the second quarter of this year or even in the first quarter of this year, where you saw prices are now reaching levels all.
In some cases $1000 or prices of coal that we.
$600 per tonne.
We are seeing that these prices today are way below these levels.
And also iron ore prices that are way below the prices that we saw in recent quarters. So that's what we are very comfortable to say.
Trying to walk to a specific number but even though that next quarter we draw.
The level of cost much higher than b.
One of the.
Placing cost of these raw materials, we are expecting to boardwalk with normalized never enter into next year. So that's why we said that we will probably grow in the fourth quarter too.
And modestly below the normal range of revenue and we will return to at least to the level entering into.
So there is where do you see as much as it's coming from so the second semester of this year, both the third quarter for them before will be over.
And we're having these negative impact and then be should be over.
Entered into a fourth vertical.
That's why for us.
Members of <unk> continues to lead.
I think we agree with your take on that regard what we are presenting for 2022.
You will see that EBITDA originating is.
He's pretty solid clearly because of the price levels and we are expecting to see reflect exactly the same but we should be reflecting a decent or a good level of profitability entering into 2020.
Yeah.
Thank you Pablo.
Yeah.
I tried to do.
To be sure. It also although I don't know if im going to be able.
Price is 2023 clearly.
It's clear that steel prices in the North American region continued to decrease.
Reaching.
Somehow.
All of prices.
We're below.
Our expectations I still think.
That debate Bryce.
The normal price normalized price.
He's going to be higher.
<unk> been in several conference calls of course.
Between the range between 800 and can get even 1000 that this is a new range.
Of the steel prices going forward.
But in the short term.
Clearly what is happening in the world is affecting the <unk>.
The steel pricing in South America.
And how much.
It's something that we have to still analyze I think there are good news.
There are some bad news, but there is a lot of neat good news.
Clearly I mean prices are going to be a reflection of what happened in the economy in the next quarters.
And I think that some of the economies in the world are going to have trouble no doubt Europe is going to be much more harder impact.
The amerigas the slowdown in China.
It doesn't seem that is going to end.
In the very very short range.
But I am confident that the recession in the Americas as I said.
Not going to be as hard either as a recession us in other parts of the world, but clearly prices in the short term are going to be.
A reflection of how bought.
Or how long or how hard.
This recession is again, our expectation is that it's not going to be.
I caught us.
I think some other parts.
The good news is that we are really seeing a change in the dynamics of the market.
And we are seeing new customers and old customers are customers. We have today investing heavily in the region to near shoring.
Now, there's a new term I heard the other day friends sharing I mean this is happening.
If you take in the Mexican market for example.
Our we have a very very.
Small so it doesn't make any sense of the numbers, but a very small division that make construction or industrial.
Industrial manufacturing buildings.
We are fully for the next set of numbers.
And we have corporation for the next two years and half or two years, so and these are industrial manufacturers.
Coming to Mexico that are coming to the U S.
B.
More I mean.
To put more facilities.
The facility to consume steel of course.
We are sending out of that scale, but the customers in the future much of them are going to consume also steel. So you are seeing the strength coming so I think that.
For the medium long term there is big.
<unk> opportunity for us not only in volume, but to have a more stable prices.
That's a good news PLE, what will happen with the post recession in North America is going to impact the short term outlook of the prices.
EBIT, Scott, it's going to be a little bit lower.
I hope so.
Give you Oh.
A summary of these jobs.
Yeah.
Yes, it's not an easy question. So I do appreciate your thoughts thank you.
[laughter].
Okay.
Your next question comes from Carlos de Alba with Morgan Stanley . Your line is open.
Thank you good morning, so deep.
Coming back to the Capex.
On the cash flow generation.
Can we talk about maybe.
The timing of the potential timing of an announcement for the new.
California is in North America.
And whether or not these might.
<unk> negatively impact the dividend.
Uh huh.
So for sure that the company pays.
In the coming years.
Thank you Carlos.
The second part no easy answer clearly no.
<unk>.
It's a huge investment, but I think veterinary is more than capable of doing the say.
The first part of the question is the timing.
I mean, we have been discussing this and we are working very hard on this so.
In the engineering process to be honest this.
I mean, we have to have the facility running by 2027, that's the deadline of the newest U S MCA Rudolf.
Route of origins, so we have time.
And this.
This uncertainty of the economy of the world.
To be honest, it's giving us some time to think even harder what is the best technology to use and that's a discussion we're having and how we can be more competitive.
In both sense competitive unit production cost and the Capex. So we are in that process.
We don't have an exact timing, but that should be it should be soon.
Alright, thank you.
And my second question is related to potentially the risk of potential imports into the Mexican market.
Mostly from India from from North America from the U S, but mostly from other places.
The submission in Europe on the demand side is complicated and yes, theyre shutting down capacity as well, but I know prices are lower demand is weak.
And prices in Asia are also quite a quite low.
So how do you see the risk of imports into the Mexican market.
There was always there I think if you see the especially in flat products, which is where we can grow we can.
We are at full capacity in lung products. So speaking of led products. If you see the last 12 months.
There has been a steady decline in the amount of imports coming to Mexico.
Last month was September the information the last information in September I think that is going to continue.
Why because we are very eager to get that market share. We said that when we put our hearts remain Ronnie So I think that we are gaining more contract and.
We are going through that important there is that risk, yes, I don't think.
There is a risk of a continuous export from European or Asian countries.
There is a risk of a spot export yet.
But to be honest today in North America is very competitive in steel. So I don't think they have the competitive mess.
Us.
Going forward in the long run some sport operation probably at a substantially lower level. The other thing is to remember that in Mexico and in the U S.
You had you have the 232, which is very good in Mexico. You also have a kind of 232. So there is some kind of.
Or.
Over the level of it's not protection, because it's no protection, but helping when these countries Meg the dumping of.
Still to the North American region.
Second part that.
Make it a little bit more difficult.
You asked about the U S probably yes, our bigger competitor today is the U S.
Again, we think.
Having the flexibility we have in our facilities and our cost structure.
We are able to compete with them very good. So I think imports are going to continue but the trend over the last 12 months is a trend that is going to continue in Mexico.
Alright, Thank you very much.
Youre welcome.
Your next question comes from Thiago <unk> with Bradesco. Your line is open.
Thank you good morning, gentlemen, Masimo actually one question on my side.
On the demand side for Mexico. So you mentioned you mentioned construction.
Activity in Mexico as slow can you give us more color on what you're seeing maybe breaking it down and buy properties residential commercial and infrastructure. So if you could give us more color that would be very helpful.
Yes for sure.
Sure I mean construction in the residential market.
He's the one that is down in Mexico.
Is it.
And it is.
It's not happening in the <unk>.
Same timing as in the U S. I think in the U S.
Residential housing social starting to decline.
But this is very recently in Mexico.
It has been for quite some time already.
Going down for reputation because of that.
Some of the industries that sales also to the residential market and talking about home appliances for example.
And that sets the both the Mexico and the U S export material to react to the U S. Those industries are not performing very well.
On the other hand, there are industries that are performing better construction in the nonresidential, it's very high as I told you. The our example of of our metal building facility, which again is very small so it doesn't make the number in <unk>, but that's huge.
You have more than two years of quotation in nonresidential construction.
Never happened.
There is no what do the statistics also in Mexico, where you can.
Say, how many construction and non residential construction or they are but if you take.
Uh huh.
Our survey that makes.
<unk> D L L.
Our broker and American broker then they made a survey about how many million meter squares are constructed of industrial infrastructure.
I mean, he just continue growing this quarter or the first semester of 2002.
They constructed the same amount as all the amount that was constructed last year in the first semester.
The occupation rate of these industrial setting.
A lot of these warehouses are already rented.
Usually what's about <unk>, 7% today, it's almost 3%.
So there is a huge.
Investment in this.
Industrial parks, let's put it that way the Ilo.
That is upset at kind of see the other one.
And another thing that is balancing each other industries automotive industry again, it's not perfect it's not high.
You know as we thought it would be they are still having some problems in the supply chain with some stoppage of different plants, but the day Monday half.
It's still a very big I mean, you cannot get a new car in Mexico.
I think in the U S. Inventories are also very low so I think that they are going to continue.
Trying to increase a little bit of capacity.
And I know that we and other companies, especially companies that works in equipment.
Also very high in demand.
It's a balance.
I hope I answered the question.
Not so much as just a very quick follow up so on the auto the auto sector right. So is this more of an expectation that things will normalize and then auto production will ramp up or you're already seeing that because I get the demand side of equation, which is definitely there as you know.
There is demand there.
Is there enough production already happening or do you think there's more coming.
Coming in.
Coming months I mean, they're letting.
Let me start with my thoughts.
Or at least what is happening in Mexico, I think most of the automakers.
In their plants.
Produced much more.
And then.
There are searches of sun guidance of semiconductors or or other pieces of debt.
Don't allow them to produce at the pace they want to produce.
That is happening.
I mean from what we heard from them.
EDC theme, but it seems not easing at the pace we.
We thought he is what's going to be seeing these these restrictions so.
I cannot tell you a straight answer, saying, they're going to produce 10% more or 16% more they're going to produce the same or more.
For sure, but how much is that we don't have exactly the number because it changed very rapidly I mean, the stoppage are announced for one week for the other one.
So that's what is happening there.
Got it and very last one so balance sheet balancing everything out here in terms of the steel demand in Mexico. Your best guess is for flattish volumes for that she was that is that right just confirming that it's increased again, if you see the the short range outlook I think it was an increase of 200 people a sense of the demand in Mexico.
Which I think it's correct to think that way.
Okay, Alright, so actually it's more of a demand.
It's not that big increase again, beating our balance and it depends a lot.
We are being conservative, saying that there is going to be a recession.
No.
That's our base case scenario.
<unk> steel.
And so we are being conservative Nevertheless.
Increase in consumption is tea consumption.
Very clear thank you very much.
Mhm.
Your next question comes from Alfonso Salazar with Scotiabank. Your line is open.
Thank you and good day everyone.
And I have each forgotten and no one's in trade.
What are you expectations and not only for 2022 equal thing in the long term.
And the question.
It was I think the problem of overcapacity and the fact that there is more capacity being built in North America, there could be excess capacity in China because of all the challenges that the countries facing.
So just just trying to understand or you want to hear your thoughts about what's.
What's going to happen.
Five years from now.
Against the backdrop of openly.
Lower demand in China and increased demand in the U N, but the difference in prices.
Globally would you expect more.
Fixture Nielsen coming later.
Nate.
The Cape.
And also to what extent U S MCA protect protection.
Warrants the investments that youre, making in Mexico.
Yes.
It's a very good question and.
I tried to make the best effort to answer it.
I think that global trade.
Global steel trade is going.
The trend that is going to decrease in the future.
And we are seeing all these I mean.
This more regionalization.
Or whatever you want to call it.
And I think that it's very clear.
The Atlantic or whatever you want to call. The Atlantic Alliance is moving one way and.
China is moving one other one so of course, there is overcapacity in China of course that overcapacity has to be dealt with.
And we have been working or we have been very applegate in that China has to work for that overcapacity, but I think that.
As I said before.
Near shoring is something that is happening and so does demand that steel consumption is going to come to the region North America first.
But there also.
Other parts, Brazil for example that will probably be benefit for this strength also.
So so I think that the that.
In a sense.
Our operations, which are I mean, we are very well balanced so very well positioned and where we are.
Producing steel because I think in other places.
Going to be benefit for this trend that is something that is going to happen and it will continue for the next several years.
I am not concerned about overcapacity in the U S. I think yes.
New plants being built.
They are going to compete with us.
But to be honest there is a lot of imports in the U S more than 25 million tonnes.
And second.
I mean, there also.
I mean, some old facilities that in some.
Hi.
Sometime in the next five years some of them has to be shut down they're not very competitive so another worried about that.
And I think this trend is.
He's helping us pattern Hume as well we are positioning for the next five years.
I hope I answer the question without upon sale.
Yeah, Yeah, that's very helpful. Thank you.
Okay.
Okay.
Your next question comes from the line of Tim Tanners with Wolfe Research. Your line is open.
Hey, good morning, Massimo Pablo I hope you're doing well.
We are I hope you're doing well too.
Thanks Kate.
Couple of questions. One is I know you just mentioned flat volumes in Mexico back regarding China Am's volumes I wanted to get a little bit more color thinking ahead about both the mix and your ability to ramp up further obviously you have spare capacity, we've talked about in the past but.
You know with the qualification process that you're going through or said you were going trail ahead like how do we think about the mix improving and how do we think about potentially taking more share from import.
In light of am surrounding up and in light of just the competitive nature of that broader market.
Perfect, Let me try to answer that.
Okay.
Because it's a good question I think I mean.
Now you said the market is.
In Mexico, Yes, and good and some bad news so the market.
There was still put it in the SRO, it's not going to grow a lot, but we are confident that we are going to grow more volume in the flat products the ramp up of <unk>.
The Gulfstream medium basket he is doing very well.
October it make 317000 tonnes, which was a record I know that we have there to the world's Camille running at lower capacity, but we have that to.
To increase capacity as we are.
Fighting this import the imports in Mexico, our flat products are around 450000 tons.
So there's a lot of imports in Mexico that of course, most of those imports are industrial customers. So that's there.
That makes I know most.
Most of those industrial customers needs to go through a certification process.
<unk>.
It takes time.
And so.
Hum.
We are seeing now new contract said, we are winning them for 2023, we are discussing new concepts of products that we weren't debate.
We're unable to do.
Regarding the other producers.
In Mexico, I think the two of them are in a different situation. So.
I know you don't want to talk a lot about competitors, but some of one of those are increasing production on the other one is in the other side. So we don't see a lot of change there.
Okay Super and so then the other questions I had one is regarding how to think about EBITDA per ton and margins going forward. So clearly Q3 hit by higher costs as prices fall, but even as costs fall you should see more prices declining on a lag right now into the first quarter from from the way that you price here.
On a lag on quite a bit context. So is this a good run rate margin do you think given that both prices and costs don't have to decline into the next several quarters or how do you think about you know that the recent run rate relative to you know how how yeah, obviously out earning it perhaps a bit last year, maybe it is.
That's a good run rate or do you think that there's potential to see margin improvement from third quarter.
Yeah.
Got it.
Let me take this.
A brief question clear.
Lee.
What you saw during the third quarter, which is a margin of 16%.
But we are expecting to see a reaction over that in the fourth quarter because of the reason that we shall explain your question was going more to a more sustainable level of margin studies.
What we are expecting to see in the coming in the coming quarters is something next year, starting the first quarter and.
Moving to the second quarter to stabilize the new the new level of prices.
Taking into consideration that the picture a maximal depicted on the view of prices.
Of course on that view.
The case and with the reduction in the level of.
Of course that we will receive and enter into the first quarter with significant reaction.
And the input cost.
We.
We are expecting to return to normalized level of it.
Hey.
The margins are.
Entering into.
After these two quarters for the first of the year.
You should be there.
And sustain that level when I'm meeting.
The living for a meeting between 15% to 20%.
EBITDA margin.
Yeah.
We were assessing the low part of this range during the third quarter, we will not be there during the fourth quarter, we would have thought recovery that level.
Entering into the first quarter moving into the second quarter, and then sustain that during the rest of the year of course.
Subject to changes in the market, but this is what we have.
This is the big order we have before.
But by all the things that makes me more information, which is the new customers of new product.
The substitution of imports so that's our working scenario and that's what we always see.
That's super helpful. Thanks, and then the last one from me if I could was just on you know in the past you've talked about some thoughts on capex heading into 2023.
In particular 1 billion investment in finishing lines. So I was just trying to get a sense of how much we might expect to see that increase year over year and if those projects are still on track. Thanks again.
Yes, we are still expecting $1 billion in 2023 robot in the 'twenty 'twenty four is going to be a little bit higher than that.
With all these things that we have been discussing.
Got it okay. Thanks again.
Thank you Youre welcome.
There are no further questions I'd like to turn the call back to CEO maximo familiar for closing remarks.
Okay. Thank you very much all for your participation today as always please contact us for any suggestion or additional question have a very good day.
This concludes today's conference call you may now disconnect.
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