Q4 2022 Ternium SA Earnings Call
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Good morning, My name is Rob and I'll be your conference operator today at this time I would like to welcome everyone to the attorney in fourth quarter 2022 earnings 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 would 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. The star one. Thank you Sebastian Marti you may begin your conference.
Good morning, Thank you for joining us today my.
My name is Sebastian Marti.
On the floor with Investor Relations and compliance director.
Turning buoys yesterday's financial results for the fourth quarter, and full year, 2020, and announced new investment projects.
This call is complimentary to that presentation.
Joining me today are Tony <unk>, Chief Executive Officer of maximum Elisa and the company's Chief Financial Officer, Bob <unk> will.
I will discuss that with vehicles environment and performance.
The completion of our debt with our 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.
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 <unk> measures in the press release issued yesterday.
With that I'll turn the call to Mr visits.
Thank you.
Good morning to all and thanks.
Very much for your interest in this conference call.
The strong performance in 2022, EBITDA reached $3 $4 billion net income was $2 1 billion.
Earnings were.
We're $9.
On top of this very positive results. The company has significant cash generation with free cash flow of $2 2 billion, which increased our net cash net.
Net cash position to two $6 billion.
Considering these good results and solid.
Our solid financial position the company's board of directors.
And annual dividend for 2022 of $2 70 for Ibs equivalent to $530 million. This represents an increase of 10 cents per <unk> compared to 2021.
Annual dividend.
Another thing I would like to share today. He said yesterday, we approved cigarette projects that are very significant to our company.
First we launched a project to build a new snap facility in the U S. MCA region, we took up on this.
This plan several times in previous calls.
We are excited to be able to give you. The details about this project to date.
I believe this initiative will be very positive for our company.
It will include the construction of <unk>.
Metric art furnace based steel shop with annual capacity of two 6 million tons as well as our DIY module with annual capacity of two 1 million tons.
Together with this we will also build a port facility for raw materials handling.
We currently expect to commission. These facilities in the first half of 2026 with a total capex of $2 $2 billion. The exact location of the facilities will be disclosed in due course.
After careful consideration we choose to install it technology that we believe have several advantage against others alternative the steel shop, we have.
Only one large eas instead of two smaller units.
Lower as the Capex of the project as well as operating expenses.
The facility will also have a vacuum degassing facility and.
On a slab caster with two lines.
All of this will enable us.
To produce.
Specification still necessary for the most demanding applications like dose of customers from the auto industry.
Additionally, the vision this increase slab production capacity will complement and support our new state of the art CT Rolling Mill, which began operations.
2021 and the downstream project in Mexico that we announced in February of 2022.
The implementation of the U S MCA trade agreement and the recent trends of near shoring manufacturing capacity in the steel value chain.
Made the U S MCA region, an attractive destination for continued investment these new projects with advanced the integration of our industrial system and were informed <unk> position.
Our leading steel supplier in the region.
Initiative will also support our ongoing compliance with the U S mcas melt and pour requirement for the auto industry.
Another significant aspect.
Of this new project is related to the decarbonization of our operations. The technology, we decided to use for the steel shop. If it is the most modern and greener currently available also the new direct reduction model will include carbon capture capabilities.
As all of our DRA models do and it will be ready to switch from natural gas to green hydrogen whenever this is feasible in the future.
Wrapping up this announcement.
Of these new project, we expect it to be very beneficial for pattern not only from a business aspect, but also from a sustainability of its operation in the years to come.
And with sustainability in mind and I'm also very excited to announce that <unk> will build a wind farm in Argentina from which is from.
From which it will source electricity.
We expect to invest.
Hundred $60 million in this project, which will have I know me that's power capacity of 72 megawatts.
Will begin operations in the second half of 2024.
This will allow us to replace 65% of the electricity.
Our Argentine subsidy.
Currently purchase from external providers.
We have already secured access to the national grid to Trump Trump for these power to our facilities in the country.
This wind farm will be our first company owned renewable energy project, we plan to expand its capacity if we see opportunities for doing so in the future.
We are thrilled.
With these announcements.
We are sharing with you today as I believe this project or a proof of the commitment of <unk>.
To make its operation more and more sustainable over time.
As you know I know that a top priority for tenure is safety in our operations in this aspect as we close 2022.
Like to report that we shot our lost time injury frequency rate of 0.6 accidents per million hours worked in the year. This is the long way.
Right in the history of the company the safety of our people has always been a priority in our agenda and we keep incorporating the best safety practices and make awareness of its important to levels.
Let's turn now to the state of our main markets, we have a positive expectations regarding <unk> performance in 2023 during.
During the first half of the year, we expect margins to normalize as cost per ton should decrease.
Steel prices in the U S MCA region a recovery there.
I don't have a 2023 is a bit more difficult to forecast considering the ongoing interest rate tightening cycle.
<unk> introduces some uncertainty regarding its impact on the economy down the road.
In Mexico, we anticipate a continued increase in steel volumes.
During the first half of the year.
Since the end of 2022 when steel prices in the region began recovering we are seeing a restock in the commercial market.
The other con industrial market demand is slightly improving and.
Most recent investment program.
Adding new steel products that are allowing us to gain market share against imports.
In this positive situation, we're increasing the utilization of our advanced <unk> facilities in the country.
Capitalizing on opportunities to serve new customers.
<unk> is perfectly positioned to take advantage of these Mike market environment.
So we are very advanced in the ramp up of our new cross screen meal.
And we are bringing back up capacity utilization in other lines, which we had reduced last year to adjust to lower market demand.
Another interesting dynamic under development in the Mexican market. He said increase in investment activity of the value change linked to the near shoring of manufacturing capacity.
Since our last conference call a remarkable number of companies in the steel value chain has announced expansion of capacity of Greenfield investments in the country.
And the New Orleans State, where our main facilities are located is the number one destination for these investments.
We are ready to serve these growing needs in the market. In addition, the different projects. We are currently under development such as our new steel shop, and the project, we launched last year to expand our downstream facility will put us in an even better position to take advantage of this opportunity.
To grow our business.
Turning now to Argentina.
Our customers in the industrial and construction sector are performing well and maintaining a good level.
Person of purchasing activity. The most active once during 2022, who are construction the automotive industry and the energy sector.
The agribusiness also did very well in 2022, although the extent drop in the country should affect activity index sector in the year to come.
We are expecting good levels of demand in Argentina during the first half of 2022.
The usual seasonality in the first quarter, but macroeconomic uncertainty is always present in this market. So this could adversely affect economic activity and steel demand in the future.
To finish my prepared remarks, I would like to emphasize our positive view regarding <unk> performance. In 2023. In addition, we are very excited with the growth projects under development. We believe this project will enable return your drug.
The growth of the U S MCA region.
Both in the near shoring of manufacturing capacity and contributing to the company's decarbonization and import substitution strategy.
With this Pablo. Please go ahead with the review of <unk> results in the fourth quarter and full 2022. Thank you.
Thanks, Mark and good morning to everyone.
Let me start by describing Duncan shipments and to do that let's begin on page three of the woods.
Patients.
<unk> previously the shipments.
Plenty to do.
Record supported by our investment in the new.
In Mexico.
Hum.
The bonds.
And the strategy as evidenced by the reduction of the volume shipped to third parties was moved from $2 9 million tons in 2008.
<unk> two <unk>.
<unk> thousand tons.
2022.
Adjusted EBITDA and net income were very strong in 2021.
And in 2022 with the beginning of a transition to a more normal level.
Yeah.
The decrease.
Julie do last year, mainly reflecting.
Cost of sales due to increased price of purchased slabs raw materials linked to a disruption in the ROE in the theater raw material market caused by versions invasion of Ukraine.
These negative effect was partially offset by higher realized oil prices.
Mostly reflecting higher value sales mix due to integration of <unk> slab production in Brazil.
Our annual dividend payment increased significantly in the last five years for $1 27.
<unk> thousand 18 to $2 uncertainty proposed for 2022 equivalent to $530 million.
We have started to pay interim dividend in.
2021 with <unk> in November .
20 can do 90%.
In November last year once the board later proposed group the company will pay the remainder of 2022 divisions may equivalent to $1 <unk> or $300.
Millions of dollars.
This is the annual dividend payment net of November interest.
You bet.
And the next page you can see term you're discussing duration in the past five years.
Cash from operations was partially strong included in Q1.
Also in 2022 significant shift in working capital in both year, reflecting general productivity actions.
Steel prices and raw material cost and inventory buildup in 2021 in connection with the ramp up of the new mill in Mexico.
Capex over the last three years has been relatively stable.
$5 million to $600 million per year.
This has allowed to change as a result of investment projects under development.
Mainly the upstream project, we announced yesterday of the downstream project, we announced last year.
We trust.
That is truly into over 40 is at.
The cold Rolling Mill, and the Galvanizing line, which have now expected to start up at the end of June .
25.
The some of these projects we take total capex for the company in 2023, where appropriate monthly one 1 billion.
A total of $2 $9 billion to the company Capex over the next four years.
Capex intensity in 2025.
Turning now to free cash flows.
As can be seen in the chart. It has been exceptionally strong in the last two years at around $2 $2 billion each.
This is equivalent to $11 per avs.
The significant cash generation and <unk>.
<unk> balance sheet enable us to continue with a high level of dividend payment and will also help US fund the announced new capital expenditure program.
Let's now review results for the fourth quarter and the next phase as we anticipated in the previous quarters call adjusted EBITDA margin in the fourth quarter declined to a level below the company's usual range.
This happened because there was a mismatch in the pace at which revenue per tonne and cost per ton deflated.
With lower priced raw materials lagging the decline in revenue per ton of raw material prices.
Through the company's inventory before impacting the coastal states.
We expect <unk> cost per ton to continue increasing over the next couple of quarters.
Selecting lower priced raw materials purchased in the second half of last year.
We believe these developments in terms of margin to gradually normalize over the coming quarters.
Net income was $59 million in the fourth quarter.
Selecting the decreased level of adjusted EBITDA and also the negative impact of 99 million write down of <unk> investment in <unk>.
Turning now to page six we can see a 9% increase in steel shipments in Mexico reached an all time high of one 9 million tons in the fourth quarter.
Shipments in Mexico increased mostly driven by the factors as described in monthly most immediately March and he will continue in the next few quarters.
Shipments in the other market division decreased 16% in the fourth quarter compared to the third.
And sales volume in the southern region remained unchanged.
We expect him in the deceleration to seasonally decrease in the first quarter of this year.
Let's turn now to page seven.
As anticipated consolidated revenue per BOE declined sequentially in the fourth quarter as steel prices decreased and thirdly in the steel markets and Mexico contract still prices reset lower levels.
Although spot steel prices are improving in the U S. MCA wisdom, we expect this positive trend to be offset in the first quarter of this year by the reset of contract prices at lower levels. So we anticipate that revenue per tone to stabilize after the decreases.
During the second half of last year.
In page eight let's review the main driver behind the decrease.
Net income in the fourth quarter.
The sequential decrease in net income reflected dimension depletion of adjusted EBITDA and the $99 million write down of the company's investment in <unk> in Brazil.
Negative results were partially offset by the ounces for the fourth quarter of two items that were realized in the third quarter earnings call.
$720 million impairment of 30 women in Geneva, and in 19 $95 million decrease in the fair value of the securities received within the time for him to do.
So if I annualize the presentation.
Let's now review cash generation on place model cash flow operations in the fourth quarter was $1 $1 billion.
<unk>, we're working capital release of $955 million.
Potential working capital, resulting from the impact of declining prices on steel purchase love on raw materials.
Free cash flow in the fourth quarter.
Last year was $873 million after capex of 159 million.
Our net cash position to $2 $5 billion at the end of December .
With this I am finalizing my presentation. Thank you very much for your time and attention and now we are ready for your questions. So please operator, let's start 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.
Your first question comes from the line of Kayo Greener from BTG Pactual. Your line is open.
Okay.
Hello, Good morning, everyone. Thank you.
My first question on the project.
Well I guess.
Yes, there was a slightly smaller scale than you guys had been indicating in the past I think it's slightly lower capex per ton too. So I just wanted to understand.
What were the main drivers for that and also if you can provide any details on the estimated cost per ton for this plan there'll be helpful. Tour. If you can't provide a number just any color on whether it will be on the first quartile. The second quartile of the cost of the cost curve I think it will be helpful too.
And then secondly on the direction of margins I mean, you guys mentioned that you expect the normalization of margins in the first half of 2023, but I just wanted to understand your views on the first quarter, specifically, so firstly on prices, even though spot prices are on the rise I mean, we might still see some damage from the resetting of quarterly Contra.
In the fourth quarter. So I just wanted to understand the direction of revenue per ton here for the first quarter and then on costs.
I understand that the trends so downwards, but maybe if you guys could provide any color on the magnitude for the first quarter that would be helpful. Too. Thank you very much.
Okay. Thank you and good morning to you.
I can take the first part of your question regarding the investment.
It's not that the test smaller eas.
We are putting is the biggest probably the biggest eas that is available in the market today, what we have said in the past that the alternative with probably <unk> for a total capacity deal.
Roughly 3 million tons.
What we are doing today.
Is put in only one of those eas, but much bigger of the two eas.
Tons. So we are changing a little bit the configuration, putting only one eas give you there too.
6 million tons or roughly the $2 6 million tons and that help us with the other part of that question that is the Capex is lower.
It's a little bit smaller than what we thought would be if we put the other configuration. That's number one number two the cost the operating cost at smaller if you have only one eas.
So.
Number three but this is in the long run long run so one.
Don't don't expect these very new but it could allow us to grow the capacity fairly easy in the future putting a second one so I think it's very convenient for.
For our operation.
To go through this.
<unk> then to do it.
The different alternatives.
One thing I need to get more capacity, but with two yes. So that's I think is the answer for the first part of the first question.
A question about margins Pablo why don't you answer that okay perfect.
How are you so.
As we have been expecting the fourth quarter, we have been seeing and squeezed on margin because everything that we have already described which is the decrease in prices.
Environment also decreasing costs, but taken longer to be reflected in our numbers.
Clearly we absorbed in the fourth quarter BBVA magazine at around 9% is below the expected range.
Within the expected range of 10 years, you'll have so we are expecting to get back to.
To be ranked in the in the in the coming in the coming years, specifically in the coming in the coming quarters.
Clearly prices.
<unk>.
And the reason I guess important maximo will comment extensively on that.
We will not be fully reflected in our numbers in the coming quarter, because the reset of prices of our contract.
In Mexico.
On the other hand costs.
We continue to see some.
With action and you are expecting we are expecting to see that coming into the into the first quarter. Besides so all in all and to give you a more precise answer.
In summarizing the whole thing I have been saying.
We will start to recover and return to more normal levels in the first quarter of the year not yet.
In the range that we are expecting to have that but we should be approaching.
That debt level at the end of the second quarter over the third quarter.
I hope <unk> with that we answer the two questions.
Yes, just one point on the on the projects still.
Can you guys provide any color on where you.
Are you expecting in terms of costs for the for the <unk> plus cri facilities.
The cost.
No.
In terms of.
Cost per ton for your for your slab production operations.
For the for the announced projects not not the total capex, but the but your expected cost per ton.
I mean, it's very deep yeah, now I understand the question I'm, sorry, it's very difficult to provide a number because as you might expect.
Some part of that it depends on the.
On the cost of our raw materials.
To put some numbers and I pulled the numbers that are today slot.
Slab market price are around.
700, and the cost operating cost of this project if we take.
Todays numbers will be around $550.
That's what I can tell you about the cost.
That's helpful. Thank you Massimo Thank you Pablo.
Youre welcome.
Yeah.
Your next question comes from the line of Ciena Tanners from Wolfe Research. Your line is open.
Yeah, Hey, good morning, guys and thanks for the great detail.
Wanted to follow up on the last question and get a little more color on how you're thinking about volume.
And then the last question. The answer you gave was about margins returning to more normal.
Can you talk about normal I, just want to reiterate is that the historical guidance, 15% to 20% target that you're talking about when you're referring to normal EBIDTA in the steelmaking segment.
That's the first question actually to get some clarify that it sounds like definitely in that range second half and then kind of approaching that in that first half does that mean first quarter would be more like fourth quarter I'm trading partner and then the second question like I said on volume, obviously with Amgen that operating Tully I'm, there seems to be kind of a gap.
Availability in the Mexican market.
Is it possible to see a meaningful uptick in your volume to fill that gap given the demand that you describe just any more color on where volumes could go to a given your availability would be great. Thanks a lot.
Thank you.
Good morning.
Yes. The first question. The answer is yes, when we refer to normalized margin is between 15% and 20% in the first quarter. What we are expecting is not to be like the fourth quarter, a little bit more near the lower.
The range of these margin we are not getting the range the normalized range, but would it be a little bit more closer to those numbers than the fourth quarter.
Volumes in Mexico, Yes volumes in Mexico are going to increase in the two following orders.
Clearly.
One aspect of that is.
The second aspect that you can see is that we are gaining market share against imports.
And so we are starting to work our facilities.
Much higher utilization rate, especially the old.
The old <unk>.
It's not it's not always debate renew but digital wholesale facility, which wasn't the one that was working at a very low capacity and so forth at least for the next few quarters, we see that facility working at much higher capacities.
Exact number.
Of the increase.
We don't have it yet here, but we're very working very hard with our customers to see the final demand I think that one thing that.
That is also clear Tim nice.
That demand.
The consumption of steel in Mexico.
We are thinking that is going to increase.
In the future and we are seeing all the investments our customers are new customers are doing but it is coming on the time overtime.
Last year apparent consumption decrease in Mexico next year, when we see the kind of sito figures. It is going to increase but margin now so the volumes, we are gaining against important market share.
And so.
That's kind of what we are seeing in the market today and I hope with this I clarified a little bit your question.
No that's really helpful. So it sounds like even if Amazon were to reopen and I'm I'm not I'm not sure I'm quite up to date on that telenovela earn whats happening.
Me neither.
And we do see it return cap rate do you think that at least some of that volume improvement is strictly because of market share gains against imports it sounds like as well.
Yes, yes.
You'll see both trends.
Remember in in Mexico, you have I'm sure you know Arcelormittal of course with the new cost free meal and you have us and what we are seeing is that.
We are increasing market share against mainly inputs and of course, I would say is producing less less tonnes.
That's also true.
What we expect in the future.
Probably not next year, but you are seeing that demand is going to increase.
For several years to come with this near shoring or we leased all the industrial manufacturing that dichotomy remember that our capabilities also before the cost of a meal.
Some of the products, we couldnt be able to produce.
Now industrial customers, we have volume through the painful let's put it this way painful certification process of a lot of industrial customers, which is.
They have to do it.
But this year or next year.
All the certification process are mostly completed so we are starting to gain all that volume against imports.
Okay, great. Thanks again for the color.
Yes.
Your next question comes from the line of Jennifer <unk> from Morgan Stanley . Your line is open.
Yes, Hello. Thank you for taking my question I, just wanted to ask where do you plan to divert the volumes of Turkey, and Brazil and to which markets also.
I want to ask off of the volumes you currently have integrated.
From turn in Brazil to your Mexican operations, what percentage goes to the auto industry approximately.
Yes, just to add some more color there.
Yes. Thank you for your question very good question, let me start with a broad.
Answer the capacity we have in Mexico.
And I need to be in.
Argentina will put it because Argentina also have a spare capacity of of course women.
We have capacity of roughly $7 5 million tons that need.
Slabs, so I'm, taking out there getting laid off facility the mini mill facility. So.
If we are if we are producing at full capacity, which we are not producing yet at full capacity, but if we produce.
Cost for meeting <unk> capacity that your rewards come in at full capacity and the sudden ecolab milling in bonus in Argentina.
Probably we'll need between $7 five <unk>.
8 million tons of slabs.
Brazil is producing today around $4 7 million tonnes.
So we have a deficit.
That is bigger alright.
And in line with the new capacity we.
We're bringing in so.
So we don't have to divest anything from China and Brazil.
Finally, we will continue consuming most of the slabs.
In our own operations, having said that there are customers.
Our partner <unk> that need slabs for the long term in Brazil. So, we'll probably will increase our selling two do you see me nuts, and we continue buying in the market some slabs.
For town home as a general that's our view when these new capacity come into line.
Volume of specific of the automotive industry from Brazil, it's increasing.
I would say that 2023 will be around one point.
One point.
I think $1 2 million tons of statistical for Brazil.
Remember in Mexico, we sell around today around 2 million tons to the automotive industry.
Yeah.
Okay, perfect very clear thank you so much.
<unk> com.
Your next question comes from the line of Isabella Vasconcelos from Bradesco <unk>. Your line is open.
Thank you.
Thanks for the opportunity I have one question.
And in terms of Mexican.
And then you mentioned that they're restocking happen.
And that's why I felt like the type of clients understand where do you think that stock I think at the supply chain is already above average or if we should continue to see more restocking that couponing that company.
Okay. Thank you good morning, and thank you very much I think the restocking.
Just starting to be honest when you see the apparent consumption in Mexico decreased 2% last year, although GDP, Mexico increases you'll see that through the year.
In the second half there was a destocking, while profound destocking in Mexico, So I I'm expecting that this restocking and we see it and you know the value change.
Theres not much stock in the value change in Mexico. So I think it's going to continue for a couple of months.
Or at least a couple of quarters and then as I said industrial demand will come on there are some industries that are increasing automotive industries. One of them, we have huge problems in the automotive industry and the consumption of the automotive industry in Mexico because of the lack of components.
But we are seeing in January that most of the Oems in Mexico are producing again.
Without any stoppage because of lack of components and it seems that the supply change in the automotive industry is already working so we are expecting more demand from them and I think that in the second half of the year or in the second quarter.
Demand for other industries are going to come back so that's.
I view that we have from the Mexican market.
Hope it helps at all on.
Yeah, that's very helpful and one quick.
Follow up on a near shoring or have you already been seeing actual demand for new projects.
Projects or do you think that something back then later on in 2023 24.
No I mean, our numbers for 2022 on 'twenty to 'twenty three we are not seeing demand.
Except the demand you have in the constructions of.
That takes a lot of state of course, but we are not seeing that demand because that's the math.
That production is coming on board late 'twenty three the first one we saw last year and it's going to come in 'twenty four and 'twenty five that's why what I said why I said in the beginning.
Near shoring is something that is happening that we are seeing because we are seeing there.
The buildings and the factory has been built but this is coming.
A couple of years when all the production facility is running.
That's clear thank you.
Youre welcome.
Our next question comes from the line of Alfonso Salazar from Scotiabank. Your line is open.
Thank you Ron Good mall.
Everyone.
The questions that I have.
The first one is about the location of the new the new.
Then that you are building the new yes.
Just wanted to know what are the considerations for the location.
Do you need to.
Keep in mind it does it has to do.
What that is.
<unk> energy our clean energy.
Telephone goals.
Because at this stage it looks to me like a.
Good feedback.
If you can give some color on what is it.
What you can see that in sort of a location.
The second question is just a clarification.
<unk> about numerous SKU.
So if I understood correctly.
You will be with this new.
Facility.
You will be basically.
Utah.
Onto the slab needs.
Even at the margin you would be buying a small amounts for some plants or sending some you'll see me nuts.
End users it is correct.
Yeah.
Thank you Alfonso I think the second part you are correct. We are being we are going to be.
Almost catch I think.
But yes, mainly yes.
As I said, we have got.
Probably going to sell to <unk> I think it's a very reasonable and very logistics from a logistics point of view it's.
It makes a lot of sense and so we are going to continue buying probably collapsing the market is telling them.
But we are going to be almost hedged.
To the location, yes pesky.
Could be our Isa.
One of the possibilities.
But as I said, we are discussing.
And the exact location to be honest, we are going to disclose it soon.
There's still some things we are analyzing.
Yeah.
I Hope I tried to answer the question and answer.
Yeah, Yeah, Yeah. So just just to clarify we know there were some problems with water discuss it in the region.
And the Staples move alone.
Energy is not really a problem at this point, but it could be in the future and clean energy.
<unk> is also a concern or also many invest in Mexico. So just want to understand if those well.
That's the kind of the consideration that you have.
Well, yes, and no I mean.
To be honest water four for our <unk> plant is not a problem as you know all the I mean from.
What a stand point of view, it's Goodyear plant is the I D. Today basically on plan with the increase in the downstream facilities.
On the.
The electrical plant, we had all of that consume water from the disposal facility that is close to <unk>. So we are not consume and clean water.
So it's very very efficient from a water points of view on the plant is prepared for growth. So although it's a concern in the north of the country. The water board is not a concern for petski yeah at all.
Because of the sustainability, we felt the plant and we are consuming.
I know Scott you said it in English the Blackwater.
Yeah, I think I saw it.
Such waters.
And so we don't have any problem with water.
Energy, which is a big concern in Mexico, I think is not a concern in the north of the country. The north of the country has more energy supply that energy consumption. So it shouldn't be another problem I think that our decision is base.
On discussing alternative we have and.
To disclose the location pretty soon.
Okay. That's really helpful. Thank you Mike.
Yeah.
And again, if you would like to ask a question press star one on your telephone keypad.
Next question comes from the line of Alex Hacking from Citi. Your line is open.
Yeah.
Hey, good morning, and thanks for the call I just have a few.
Follow ups I guess, mostly.
On the projects so.
With the D R I.
With Tania I'm be consuming all of that D O ray at the new year, yes.
<unk> or would there would you be selling some of that to third parties.
Yeah.
Yes, okay. Okay. We're all consuming alright, okay, what technology is that going to be based on well it will it be the <unk> Mex technology, but you are very familiar with.
At most likely I mean, there are two technology matrix in HOA yellow to Nova.
Clearly we have.
<unk> in all our plants are probably it's it's not decided.
But of course, it's what do we intend to do.
Okay, and then finally.
Are there any.
Are there any steel quality implications.
From shifting from very high quality Brazilian slabs.
Two slabs made.
In a in any a F.
And in particular for the automotive supply chain exposed to auto body sheet.
Are you fully comfortable that you can replicate your current.
Tolerances and quality.
Yes. The answer is yes of course, it's a different technology.
But we have to go that grow.
For several reasons first we have to be Usmc melted and poured compliance we are not going to make a blast furnace in Mexico or anywhere.
Be honest, so we work hard.
Yeah.
All last year.
To see the technology and to see exactly how the <unk> will be to produce the same quality that the Brazilian slabs.
Operations produces.
The castor on the.
And the secondary steel shop will be probably the same is that we have in Brazil. So we are comfortable.
Although we are working very hard that the quality will be the same.
Okay. Thanks, and then just back on the raw material side.
I assume that outside of the D. O arrive and you would also be using some prime scrap in the mix is that a correct assumption.
Yes, probably the mixed.
It depends of course of the steel the quality of the steel.
And the facilities prepare to produce with more dear I or with Lithia right.
Depending on again in the in the steel quality, but roughly in that on a general mixed it's going to be 65% year, I and 35% is crop.
Okay perfect. Thank you for the clarification.
Okay.
And there are no further questions at this time I will turn the call back over to Charlie I'm CEO Maximo vagina for some closing remarks.
Okay. Thank you all very much for your interest in our call today for your very good questions and as usual please contact us.
And if you have any comments or any additional questions. If not we'll talk next conference call. Thank you very much and goodbye.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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