Q2 2023 Ternium SA Earnings Call
Ladies and gentlemen, thank you for standing by.
My name is Brent and I will be your operator today at this time I would like to welcome everyone to the attorney second quarter, 20th twenty-three results conference call.
Lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question at that time simply press start followed by the number one on your telephone keypad.
You would like to withdraw your question again press Star one. Thank you. It is now my pleasure to turn today's call over to Sebastian Marcie.
Please go ahead.
Good morning, and thank you for joining US today My name is <unk> and I am starting snowball IRL compliancy.
Turning released yesterday.
For the second quarter and first half of 2023.
This call is called <unk> presentation.
Joining me today, our attorney's Chief Executive Officer, Maximo, with Oh, Yah, and the company's Chief Financial Officer.
Who will discuss service business environment and performance.
The conclusion of our prepared remarks, there will be a Q and 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.
Could affect results are contained in our filing with the securities and Exchange Commission.
Page two in two days webcast presentation.
You'll also find any reference to <unk> financial measures reconcile most directly comparable ifr's measures in the press release issued yesterday.
With that <unk>.
<unk>. Thank.
Thank you Sir yeah good morning.
Thank.
You all for participating in our conference call.
Border will reported a strong set of results, we got justice <unk> of $883 million equivalent to a margin of 23 per cent.
Also announced the location of starting your view upstream network Skinny Industrial center in Mexico.
Completing the integration of our facility in the country.
Finally, we completed the acquisition of a vision of shares in the control group of Meanness, a change that enable us to have a more direct involvement in the company's management and the implementation of its strategy.
Let me comment about the opportunities disposition offer us in our main markets.
In Mexico.
Presented with two made opportunities.
<unk> imports in the market.
I'm, taking advantage of the near sharing of manufacturing capacity.
Over the yes, the flat steel market in Mexico.
Continually increased sophistication before we began building our facility in <unk>, the amount of factory and dry throat sexually Mexico represent.
Per cent at 50 per cent of apartment flat still use.
Last year.
This went up to 66%.
More than 15 percentage point increase.
The sector demand sky value added products that you require technology no crowd unlimited certification process.
On top of this I will chair a flat screens conception in Mexico.
He was being served by imports would represent about 40% of the market.
Over the past 10 years, most of our investment in the country have targeted the growth in industrial customer consumption of Craig value added products as well as the substitution of imports to this same market.
<unk>.
So if you could take the products and services enable us to compete based on differentiation customer service.
Product development.
On the other card.
We have mentioned several times, yeah, assuring me something that is happening.
Doing so faster than we expected.
The 15% increase in the flat still industrial market in Mexico, He social linked to this dynamic.
Face of embezzlement.
Most of the country has been very significant.
Yes, so far capture more than two thirds of the total knee assuring the mind coming through Mexico. This is reflected in our updated expectation for steel consumption in Mexico in 2023, we got grow a 4.3% compared to 2022 <unk>.
<unk> <unk> <unk>, 2.5%.
With this bank wrongly mine the new <unk> will be a key part of our growth strategy in the region.
Complementary integration of our facilities in Mexico substantially accelerating our capacity to respond to changes in the market and of course, it will significantly scalp with our dig urbanization targets.
We are refurbishing our position as a living.
Supplier in the region with our downstream investment program.
We are going deeper into new value added products, which will help us better serve our customers in the alternative renewable energy and horror appliance industries among others.
Projects represent an excellent opportunity for us to continue capturing demand from high end steel products.
In Mexico.
Let me know make some comments about Brazil.
As a first step after the increase of our participation in the controlling group will see Minas made changes to its board of directors and management Medicina charter the former C. E O of February but the city is now does he mean S. C O.
<unk> I'll bet, the owner, who has been appointed as chairman of the board.
<unk> is now beginning to make similar organization changes it is introducing a new business practices.
It's designed to plan.
Will encompass all areas of the company, but with a special focus and its industrial operations.
<unk> can provide highly sophisticated still great for the most demanding industrial applications, including outdoor great steel of which is the number one supplier in Brazil.
Civilians the market has not been the best lately, but I believe it I.
Great potential in the longer term, Brazil currency consumption is lower than what it was 10 years ago.
So your consumption per capita with 110 kilos per capita.
He's also very low when compared with other countries either developed or not they.
They made up opportunities I see for this market.
From your showing prints, which offer opportunities to integrate value chains with brothers containing Brazilians deal.
It comes also from input substitution.
Energy transition agenda, the ageing of vehicles and agricultural machinery as well as improving the rate of.
For a vehicle.
A significant gap income availability I'm finally, they need to improve infrastructure investment in the country.
All you know, Brazil has substantial opportunities to start growing consistently again uhm there are new strength of industrialization with two keyboard and grace increased intensity in the use of steel.
Turning now towards Indiana. We currently continued to see stable student demand for the third quarter seemingly two shipments in the southern region during the second quarter, but.
There is an election process underway that will be over by the end of the year. The country also need significant mature macroeconomic reforms and it's probably going to get them sooner.
Rather than later.
These two negatively impact this market in the near future.
Before I wrap up my prepared remarks, I would like to make some brief comments about a very important matter safety two weeks ago. We celebrate our annual safety date event. The event was scheduled with various activities throughout the week.
Breathing expect.
Experts panels and assuring of our team leaders experienced in the different countries, where we operate.
A recent change.
In this respect is that since the beginning of July the procedure any judge of safety.
D E H S Vice president.
Ah direct reports to me enabling.
And even closer overview of our safety performance. Finally, we issue last month I was just <unk> to report. We included these included.
A comprehensive description of our activities regarding climate change environmental issues humour resources in a relationship with the communities, where we operate which are all because either when assessing our business structure strategies for I encourage you to take a look.
Okay.
Let me know make some final comments to prefer to.
Close my prepared remarks, the review negotiation of steam market, we couldn't really access obeyed by near Charlotte is a dynamic for which we have been preparing for a long time.
And aggressive growth strategy, Mexico, or expulsion in Brazil, and the new role silliness.
Our new.
R&D capabilities are unique product portfolio offering throughout Latin America.
And integration of ESG into our business strategy.
I believe we are stronger company now original either with greater integration, we have significant opportunities for growth in markets that we know how.
Have great potential.
Next steps of the element will transform our company once again strengthening even more our competitive position.
Alright Pablo.
You can now go ahead with the presentation of Sterling performance in the second quarter.
Thanks, Maximo on good morning to everyone.
You know four months during the quarter.
But.
Market conditions in the second quarter articulating North America, together normalisation of production costs and robust Arkansas.
On page three of the presentation, you can see that the <unk> and the kingdom on a quarterly basis.
<unk> $883 million in the second quarter.
March 23% of let's say or $490 per phone.
They blew operating performance led to net income.
Henry on $36 million from the <unk> that atheists are $30.19.
Before we continue let me call your attention on the fact that so far we have been accounting for using the Netflix ourselves.
Do not involve nonconsolidated companies.
With no impact on thousands operating Monday.
After a recent acquisition of Felicia <unk> assist you mean, you mean.
Engaged states you can see meanness control group of course, they're going to turn your results in the third quarter of trying to get the three will fully consolidated usually meanness results.
Because I'm a musician if you meet a financial data without a significant impact in terms of reporting in the third quarter.
He weighs quantitative guidance on certain treatments Margie majestically in Capex for the third quarter.
Nope account.
Account for the impact obviously meanness consultation.
Because we really makes more sense, but they remain compatible with the number of reported in the vehicle.
Having said that let me turn to our analysis of 72nd things sites.
You know it's been treatments on page four of the presentation.
Mexico, a few volumes worth 2 million tons of the second quarter slightly below the first quarter.
All time high.
From year over year basis him and increased 21% in the second quarter supported by Monica Medicare game, Mexico fled still business over the last 12 months.
However, certain shipments in Mexico in the second quarter financial a homeless.
If the patients mainly to you to submit a complaint with raw material are finished.
Our policies.
Looking forward, we expect shipments to increase in Mexico in the third quarter.
<unk> still demand remains healthy.
That's a market continues to show strong activity.
As I mentioned, we automotive industry as well as to what groups.
For the time being we have not seen any final decision the north American market.
In addition, the commercial market in Mexico remains.
These are more volatile market more sensitive to price strength and to fully been three minutes.
But we won't believe inventories are higher this time.
The southern region shipments in the second quarter, where 563000 tons.
Lately higher sequentially, mainly as a higher shipments as in Pina following seasonably slow.
On a year over year basis volume decrease, 5%, reflecting lower demand <unk> reviews expert to our country and the thousand issue.
Moving forward, we expect him to remain loyalty this thing in this region.
From the now to other markets volumes decreased from currently with the company, increasing degradation and grow a business in Mexico.
You forgot that inflow facility, Brazil into shipments to the company's downstream facilities in Mexico.
The next page number five you can see that combining these developments we arrived at the consolidated shipment of 3 million tons and difficult.
Slightly below the first quarter at 11, looking forward and without that take into consideration you mean.
Nation, we anticipate consolidated the gym mainstream increase sequentially in the third quarter.
Moving on to fuel prices revenue per phone in the second quarter increase according to tell you that close to $120 per ton.
Lehman driver behind this equation increase in revenue built on the strength of the North Americans feel market during the period.
Respect settling consolidated revenue perform dvt's. According to early in the third quarter due to the impact of the car and the pricing environment with respect to prevail over the positive impact of better contract prices in Mexico.
Literally you know six <unk> improvement.
Four months or the second group the <unk>.
Increase.
Definitely VBA was mainly the result of higher realized prices and to a lesser extent lower costs.
Including lower priorities right slash energy prices pulsate upset by failure maintain expenses on services cost.
You'll be looking forward to will reflect a sequential decrease in adjusting.
The third quarter.
<unk> do you remember the trees.
But it almost explain.
Slightly higher cost of Tom <unk> upset by failure shipment.
They get in contact with the boat on shows that this according to an improvement with pleasure driven by better operation that accent.
Income tax and we said.
Getting very low in the second quarter effective tax rate of just 1%.
Reflecting again and deferred tax exile.
Ah start a new Mexico facility or in connection with the Mexican peso, 6% appreciation.
During the global.
Let me authenticate set it to my life changes in cash flow.
<unk>.
Casper operation was $48 million in the second quarter.
Which include the negative effects of $605 million increase working capital.
This was mainly due to $414 million increase in a steel inventories revealed our inventory to Mexico after decrease in their previous quarters.
And 289 million there are increasing faith, another theory receipt, reflecting failure realized price.
We are not expecting working capital increases like these sort of it all.
The development that 250 million tonnes.
Negative free cash flow in the second quarter of 2023 of the Capex of $198 million.
As we progress with our investment plan in Mexico respect Capex to continue increasing in the second half of the year.
Turning net cash position was $2.2 billion by the end of June decreasing $800 million in the second quarter.
We actually are mainly reflects the three cash 4%, maybe you can paint and shareholders amounted to $353 million in it and can <unk>.
81 controlling interest accounting team.
$34 million.
Turning to page eight to.
To review the numbers on the longer term perspective constantly <unk> 6 million tonnes seemingly at the shipment levels in the first half of last year.
Adjusted EBITDA was $1.4 billion in that video monitoring of 19% of net say this.
Led to a net income of $1.2 billion and that means the avs of $5.10 in the first half of this year.
This quarter will you also pay the second part of our.
May we the payment of one dollar and 80 cents previous 73.
Over the last years, and we will start to sustain on through shareholder with them looking forward.
Finally in flight number nine you can see the cash flow performance with cash flow operation of $360 million in the first half of the year after working W. An increase of $387 million.
<unk>, reflecting the Hell you are feeling better at volumes.
This led to free cash flow of $265 million in deferred helpful. Here after capex totally $395 million.
Okay with this we finish our prepared remarks, thank you very much more attention and publicity.
Later today and we are now ready to take your questions. Please operator proceeded with you on that video.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
Your first question comes from the line of Carlos <unk> with Morgan Stanley .
Mine is open.
Mmm.
Mmm.
Carlos Dealba your line is open.
Sorry, I wasn't thank you very much good morning, Maximo apologised Stan.
Several questions, but let me let me stick to maybe two right now the first one is on assuming us consolidation.
Probably you mentioned that you're going to be fully consolidating the <unk> obviously that.
Impact on the overall company numbers.
Margins, particularly without perks on and returns he's gonna be negative given that what you mean, that's destroyed in at the moment in.
I guess the opportunity for attorney I'm going forward, but how <unk> how are you planning on I.
I guess, keeping the transparency into report so that.
And we all can I.
I appreciate what the trends are and what has been turning them up until this this time.
And the new attorney with a consolidation of course, you may not.
Yeah that would be my first question I'll I'll come back with the second.
Okay limited than we think that.
How are you.
Yeah, you're right. This is an important question I think both of us and for us to give it to you.
Clearly what you mentioned is complete the right.
We consolidate and as you mean us and the impact of these consolidations our numbers will be different depending on the lines of all financial statement clearly in the upper line to all of our anti saving face.
And she'd meant and all of these numbers the impact will be mine.
No but you.
You manage on looking at the results. The current results offers you mean the impact at the Dean D V. D. A level will be minor in comparison to the other numbers.
Initially initially we will be.
Giving information on the segment basis.
Separated.
Between what we have today, which is the segment. The mining segment and then we will have a segment, which will be used them either.
So and then of course, we have the consolidation of these three segments.
So you always have I think you would have the clarity you immediately in order to analyze the numbers.
And.
Of course.
That doesn't mean that continues to <unk> company. So there you will see you also have more details on the foundations of the numbers of receiving the.
But this will be at least our new cell.
Proposition to resolve the numbers and then we analyze it there is a need.
For a change in that is maximo size to look at the numbers decently, but I guess, you'll have an Italian really a number two.
Look at.
Alright, Thank you power and then.
What are what are the potential of how should we think about the third party slab sales from Brazil, and you've given.
Greater integration that you have been.
Having in the last few quarters.
Yeah. It got lost Hello, how are you I mean, I think it's gonna be zero to be honest.
I mean.
<unk> <unk> is going to need to.
To continue buying slaps, so most likely all.
All this lapse from Brazil.
Going to go either to Janine S <unk>, New Mexico at the time, you imagine Tina so does not probably not going to be any sales.
So that's.
Understood Alright. Thank you I appreciate it I'll get back on the line. Thank.
Okay. Thank you got lost.
Your next question is from the line of Tiago.
With Bradesco your line is open.
Thank you good morning, gentlemen, [noise].
First question about zunino scale.
<unk> could you talk a little bit more about this tragedy you mentioned the focus will be on the industrial side. So the question is how much Capex do you think you will need to deploy minez.
To bring the company back or up to the operating efficiency levels that you. You think is is you know potentially.
Thanks for your potential target or optimal.
So that's my my first question. My second question is about the slab market.
What's your view on on on slabs supply demand globally.
And when and whether we should see the Hrc's lab spread.
Spread compressing are expanding from here. Thank you.
I'll take the second one first the slump market as you know it's always been a another very.
Big market I mean, there's not a lot of transaction with laughter, we have it by the biggest.
By Us lapse probably.
But it says it says small number compared to whatever straight in hospital cause.
And we don't see much change in the.
In the gap today, I mean in the future, we think that the gap, which more or less sustain at the levels. We are we got some downs and you can see that in the history.
But <unk>.
<unk>, it's at the level that it's.
The same level of the average for the last five or six years.
Today the difference.
So we expect that defense to continue being what it is today.
Again with the volatility of course over the steel industry, but we don't see why it's gonna change we.
Regarding this you mean <expletive> Splotchy jacked up it's clearly I mean, we don't have a number of capex yet I'm not.
I don't think unable to give you today a number we as I said we are.
I mean, our team is going to Janine as people are moving Marcello chatter to cover.
Oh.
But but the team of data new some of them are arriving in the near future and we start changing our dynamics of how the companies manage.
So probably we will spend some.
Some months before we can give you an except number on the capex.
Yeah Lee.
The agenda for Janine S. In the next few months.
He's going to be increasingly competitive offers you mean <expletive>.
Surely they completely shut off off without being gas upstream capex. The blast furnace. The Steelers shoved number two I'm, probably due to finalize our plan for the Coke.
Terese.
So we have to target to increase the efficiency image and email and these will be that.
The the main focus I think the other one each on the commercial side.
As you know silver out of the customers will see me Ness are the same customers that a new so with this more.
Let's call. It integration, if you want but it's not accepting integration, but we can offer more solution.
Customers in all our markets.
So I think that's the second issue, but I think the first is that we have to focus on.
The efficiency of the industrial segment of his uniqueness.
Therapy, or Martin Monday, and just you're just quickly mentioned about timing for this for us to be to to know a more detailed.
Catholics number you think this will be like until the end of the year or maybe like a couple of months curse words to understand.
I mean, we have a rough idea by the end of the quarter properly.
To be honest, but again, it's gonna be a moving target in the first few months until the end of the year, but we we have.
Ralph number.
By the end of it you have to take him to a volunteer about that today.
We are in the middle of the blast.
The last one is.
Relining on the essential number two.
And the problems, we have with the battery the Gulf virtually show.
People are a little bit stress in trying I've things are going well I mean, there is some delay, but but I think that we are going to end in the middle of September .
But people are much more focused on that.
And tried to finish it in a good way.
And.
In parallel we are working on this plan is so by the end of September or at the end of the quarter, we should have something but it's all going to be the defeated one.
Fair enough. Thank you <unk>.
You're welcome table.
Your next question is from the line of.
With Wolf Research your line is open.
Hey, good morning, Thanks, everyone wanted to see if you wouldn't mind trying to help us refine it that the comments on your Martin outlook and the Mexican shipments. So obviously you guided to hire shipments in Mexicali now that that demand there it's been quite strong and that without arms surrounding parents, you know gap in the market.
That's been sometimes like even more important than normal I'm just wondering how much more can you separate are you willing to set that you can give us an order of magnitude in there.
[laughter].
<unk> good morning.
Yeah to be honest, we had a plan.
That was a bigger shipment for this quarter.
We were not able to fulfill us as public indignation.
Because of some supply chain constraints in the raw material come into Mexico.
Some problem in one in in some of our lines and supply chain called spring in the human to our customers.
So we have much more macho much more orders for these bordered on what do we shift.
We don't like that [laughter].
Is not very good for us.
So I think that next quarter the plan east to shape at least 200000 tons more.
So a 10% increase roughly.
I think some of these constraints has been addressed.
But I don't want to promise.
[laughter] all of that because again, it's very tight all the supply changing in Mexico, it's very very tight everything so but yes. The <unk>, we have the orders and we increase probably.
Even a little bit more than that if we were able to ship them.
Okay, Let me ask you.
Hi, all of you.
You mentioned initially the margin of expected monitoring.
For the third quarter.
I think that one important number to <unk> of course, we have.
He goes marching during the second quarter, which was 2003, but if you look at the margin.
Attorneys make during the first part of the sea or the estimate that we were at the level of 19% which is.
Remind when we have our private conference calls and meetings.
Maximo presented as a target for a company do we.
That we always talk about with your 15 to 20, but the the upper side of.
So we should be in the coming quarter more in line with these level then of course to what we have in the in the in the.
I haven't gotten so you usually well actually hilarity Luke.
Amber, a sore throat and a little more longer.
Timeframe direct quarter, but here is a clear example, if we look at will happen during the semester.
Nine what we had expected to support.
Okay perfect you've answered the second part of my question. So I'll leave it then pass it off to the next person. Thanks again [laughter]. Thank you.
But.
Your next question is from the line of cow.
Bank of America. Your line is open.
Good morning, Thank you for the opportunity. So I wanted to take advantage of the fact that you will start to consolidated units results right in the coming quarter to ask you. A question you know specifically about the finished let's do market in Brazil.
Where prices have been coming down recently during the high end <unk> premiums weaker demand and also the hiring for penetration I just wanted to give you a perspective on how you see flex fuel prices evolving in Brazil in the coming weeks and months and then secondly would you need a as in the midst of carrying out maintenance up it's a blast furnace.
<unk> alright, so I wanted to ask you. If you have any perspective on what impact at the conclusion of the blast furnace maintenance could have on the bargains of the company right once it back up and running at full capacity. Thank you.
Yeah.
Thank you cut you off with morning.
I mean marketing in in Brazil, clearly has a problem today with imports <unk> at the number of inputs this coming month Lucci Berthiaume <unk>.
It's around 400000 tons, a month, which is the same number as it was in 2021, but with a higher market.
For Us this is a very very big.
Number on our target is to to.
To reduce this number should be our target and the tired of the other still companies in Brazil.
I think that the other thing is.
That Brazil has to take into account that at some moment some trade.
Mm remedies against unfair to trade deal they have to do to boots.
On all the markets.
<unk> from Argentina to Mexico to Colombia.
USA you up.
Mean, everybody except breast Healy.
Target unfair trade.
<unk> and breastfeeding it used to be a country with a very strong position in this.
Somehow in the last years.
This position has been a little bit more week, but I think that we have to.
And I believe the government is is.
God willing to support this and so.
So that's.
The strategy for one side, we have to take into account that you have to.
Two two let's put combat these imports with our commercial efforts, but on the other.
And say are.
Right.
Has to be in the agenda.
Much sooner than later.
So so that's your first question. The second question was about Uhm.
On the <unk>.
The numbers.
O K L. A module will increase I mean, they've lost so you may not have three blocks partners. The two that are operating today. As you know are very small blastfurnace, which are much higher cost of production because if you're right.
The last one is one of the three is a very big one I'm very competitive one so.
The numbers are going to change.
Very positive.
As soon as we start producing that should be.
Around the middle of September .
Mmm, Okay I <unk>.
I answered the question.
Is there any way that you can give us a number that you expect I mean, it's Martinez will return maybe could double digits, you know above 10% or any sort of guidance on that front.
No I don't have a number of day to give you yeah, no probably not today.
Bravo next quarter, even in a few minutes conference call or narrow confidence we can.
Both at target or or a number, but but I'm not able to put it today.
Perfect. Thank you very much maximo I appreciate it thank you <unk>.
Your next question is from Leo Korea, with B T. G. Your line is open.
Right.
Hello, Good morning, everyone. Thank you.
So just starting out with.
Yeah can you speak any degree.
We cannot hear you very well.
Sorry.
Oh, yes, yes.
Yeah, that's perfect.
Yes.
Yeah, it's better much better.
Yeah, Okay, so sorry about that guys.
Yeah. So the foreclosure is.
He's a little bit more conceptual maximum of the I mean, everyone has been following the story for many years right then and.
And now with needles being consolidated.
You guys, obviously made a move some years ago with CSA and which is now turned in Brazil, which is also super relevant.
Just just again I know, there's not no decision and this is all very conceptual but.
Would it make any sense I mean do you guys consider at some point entertaining the possibility of potentially emerging losing you know then turned in Brazil.
Give them to the clear synergies right that that would.
Potentially involve.
And the second question is moving.
Moving moving more towards markets market questions, we're seeing I mean, a bit of volatility mainly and she'd markets in the U S right.
We saw prices reacting very sharply early in the year to the upside now we're seeing a bit of.
Bit of a correction.
We saw two rounds of price hikes to try to stabilize prices just wanted to get your view on where you think prices are headed towards the end of the year. So those are the two questions. Thank you very much.
Perfect. Thank <unk>.
On Saturday and brought him today.
Today, we we don't have plans.
To do something like that as you know what you mean as as a public company and we have an agreement with our partner Nippon steel.
That that we change disagreement but it was clear.
What the agreement east or what the agreement.
So for the time being we announced in L. A.
I see.
Anything of that.
<unk>.
We do know and.
We do expect that there's going to be shown rg's.
Between the <unk> and <unk> that are going to <unk>.
Make a positive impact in both companies not entirely on one other thing is I mean, both companies.
Of course.
The management practices, the the complementation with slaps I mean, clearly <unk> very close by.
Joining at 14 <unk> in.
I mean, buchina together at that point.
As in power of both companies should be S energy for both companies.
And also I've seen the customers are going to <unk>.
They are the same.
At least the industrial customers are the same in Argentina, Brazil, Mexico the hour shipments in U S. Also.
I mean, they they see.
Our involvement in Shininess as making as you need us would either be stronger. So I think there's I know of synergies with a <unk>.
So that's the first squirt in gym.
Brian C C in in North America, clearly the volatility they are prices went up for a quarter, what downcycle Voyager now once I needed to beat up today I think they went $5 down so if <unk>, but but I think that the range of prices.
It's it's around today 950, but as I said.
I think there's a new level of prices.
In the U S.
Oh in the North American market that these around these <unk> <unk> hundreds and I think it is going to stay around there they will not <unk>.
And I think we're gonna have steel volatility in the next couple of quarters.
But I think he's going to be around over there why I said these.
The demand is very strong.
We see it in Mexico, and we are also seeing it in in the U S.
I think the man's a strong.
In porch.
Taking a shower in the U S market.
But again that chair should be not that big.
That enables a U S needs to maintain certain level of pricing.
I am <unk> six months ago, we were a little bit more worried about the recession and we talk about a recession in this conference call everybody was talking.
I think that risk for the last for the next six months.
I really think that.
It's not much of a race today, it's been lowered so.
So I think it it should stay around there the prices I I hope I make Mike.
<unk> formed with this Neil Neil.
Yes, it's very clear remarks, and well thank you very much.
Thank you <unk>.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your next question is from Carlos Dealba with Morgan Stanley . Your line is open.
Yeah. Thank you very much just a follow up on.
On the working capital loss that is.
Which has doubled with with two question [laughter].
One moment there.
There was one more just to keep it in.
[laughter].
Tennessee won so I Wanna make powder look good.
Okay, perfect [laughter] on on working capital mm.
So do you want your consumer.
Cash said this quarter pounder you mentioned that you don't expect that to.
Can you in the coming quarters, but can you maybe give a little bit more color.
The different of moving pieces and maybe a range of our level of magnitude of the improvement on casual generation from working capital.
Let me start with.
Me start answering and then I gave it to Pablo but one of the things that happened is that we increase our stocks, particularly Mexico.
And that takes I think it's like 75 or 80% of the $600 million was increasing in English stop.
These two things first.
If you remember we generate.
A lot of cash from working capital in the last two orders I mean.
Fourth quarter of last year, and first quarter of this year I think generation watch like $1.2 billion. So it's it's very natural that.
We weren't increasing shipments prices are increasing.
So working copy does have to to to come up.
And again this is supply chain restrictions, we suffer it very much of not having enough stock supplying to our customers in Mexico. So that's the main reason why it went up.
That much which we were not may be expecting that too much number, but we weren't expecting a high number of working capital now for the future problems yeah.
So that that looking for our first we think that we have now living of inventory that we need.
Expectations of treatments and the company.
And now we should be seeing movement in working capital more in line with the normal issue that affects working capital.
In volume movement and prices and these type of things. So that's why we say that the Ah the ability.
The very beginning we are not expecting to see a significant moment in working capital.
Come in the coming quarter, So I'm more in love with a note on my change of working capital on significantly lower than what we saw.
The absolute numbers significantly lower where we show the sick one quarter.
Alright, Okay. So I just got this is Greg corner, just is not necessarily that you are going to generate cash from lower working it's just that he's gonna go back to more traditional normile drivers changes right. Yeah, I I don't think that we are going to see generation of working cash from working capital in the next quarter.
It's gonna be Apple down a little bit but.
And we are now at the level that it's reasonable for the level of shipments that we have.
Yeah.
Alright, Thank you very much.
Carlos.
Your next question is from the line of John Branch with HSBC. Your line is open.
Hi, Good morning, guys. Thanks for taking my question just two quick ones for me. The the first is just on Nearshoring.
I know, there's there's you know you said that there's lots of investment going into northern Mexico, I'm I'm wondering if you can try and quantify that somehow how.
How much are you actually seeing you know what I mean have you had negotiations with our customers, particularly the auto customers about they're likely need for increased steel demand you know what I mean.
<unk> G M and a whole host of other auto producers announcing plans. So could you just sort of help us clarify or quantify exactly what you are seeing from the near showing impact.
And then the second question just relates to cash in.
Wrapped in Argentina, what is do you know what I think there's still a fair amount of cash there. So if you could help us understand what are the plans for that given you know there's not a whole lot of investment going into Argentina.
It's still relatively free cash flow positive is the plan just to keep it there do you expect to dividend at Outback too.
Turning them ink or or what should we expect with cash.
Cash flow.
Thank you John I've tried to answer the first question, though it's a little bit difficult to to answer it.
I mean.
They they talked of knee assuring.
I mean, I cannot put it today and the number to be honest, we are seeing a lot of our customers investing in new lines.
And we have seen customers that are coming to Mexico.
Probably not.
Right now in the beak.
Automotive industry.
But more in the autoparts, I mean small customers without bringing production from Overemphasise to Mexico that consumes deal.
We are seeing.
In the in White goods, we are seeing in age that we are seeing in electric motors were thinking a lot of different.
Industry So segment.
That people are increasing capacity or.
It was good for example that they are putting new plans those are the ones that we are seeing.
Tuesday.
Increasing our shipments.
Of course in a couple of years there are some automotive at 10 slash coming to Monterey as you know.
His analysis Shing that it's and.
I don't know, if it's doubling or not the capacity but.
Somehow there and announcing a huge investment right Beast.
Besides that were planned in <unk>.
So those are things that we are going to see in a couple of years today, we are seeing.
A lot of small.
A medium size companies some of them broke their suppliers of the automotive industry.
Some of them in other industries that are increasing or coming for the first time.
To Mexico, and that's the increase.
In the consumption because when you see even.
Consumption in Mexico.
Mexico's lump growing.
I said you know most of that increase comes from flat industries.
Products, which is a reflection of consumption and industry and that's netcom from long products.
So so I.
I mean again D V going to put the number but but.
Eight.
Most of our customers are increasing sorry, how their consumption.
I hope I answered that first part John .
Perfect. Thanks maxima.
Yeah.
So let me take it easy one though.
Because it was a joke.
How are you.
Clearly you're right we have.
Gosh, particularly in a container insignificant, that's probably isn't doing that which is the first available selection or the reality of our business.
Keeps generating positive thoughts.
So the the way we have been dealing with that.
To do it with an effective one.
Give you then.
So we have babies and last year 300 million dollar D C C $600 million so.
So they need to continue with that but.
As you know they have a separate locations in the nation's on <unk>.
Fortunately I changed.
Quite properly so hit the vestigial for us to.
Do have even payment.
Again G D C. So willing to wait.
The Academy.
Indiana and the next year because of that.
In the meantime, the other thing that we do try to protect.
Gosh that we're having a convener again, Amy fluctuation on the the price of the dollar.
The issue of the current <unk>.
Of course, there is no.
Perfect and can do something with that but this is something that we are continually trying to get the best.
He posted first to sustain the value of it cause I was having that says you know in the meantime, we can give you at least a part of that that we have done during this year.
During the last year.
I didn't know if that was clear.
That's great. Thanks Papa.
You're very welcome.
Your next question comes from the line of tenor with Wolf Research. Your line is open.
Yeah. He thinks that taken my fall out so I just wanted to check five actually on Argentina. If you could decipher I bet that common stands stable demand that negative impact in the near future. Some some of that the government.
What what exactly do you mean does that really impact volumes shipments are are.
Prices dimension wonder what exactly time out there I'm, sorry, if I'm, sorry, if I'm being dance.
No no and and we are charging you for the second time like I don't know so don't worry [laughter], how can I can add no I mean, we have been repeating these for the last I think several quarters because every quarter, we <unk> I mean macroeconomics in Argentina is not doing very well I mean, we have more than 100 per cent of inflation.
Our bank has no.
Donors or anything there is some restrictions dream porch imports of different things, even an influx of some raw materials in some of our customers. We don't have problems yet, but we don't know if if we're not going to have it in the future. So.
<unk> economic situations very very delegate and to be honest, we weren't expecting.
Changing this and and a decrease in their call.
Consumption of stayed in that neck of everything.
<unk>.
Several quarters now.
These cats not calm and then for the last I think two years and a half shipments has been very very stable, which are nuts.
I mean.
It doesn't make a lot of sense as.
<unk>.
Economics is doing now.
Now there's gonna be elections.
And the situation is.
Decreasing let's put it that way.
So at some point I.
<unk> should be.
Should decrease at least I think in the fourth quarter now.
New Mexico, I really need to that network Houston.
Many years of course, you have to do that this is usually what you see when you have an adjustment microfiltration.
Either through a erasure on you know through different type of mechanics, and that the microchip designate to do now you will see that you need to tell you. When you have these adjustment you will see an impact achievements volumes, but usually they recover.
Really soon the plan implemented is it possibly one so that's why we are trying to say that he yeah. He said.
Correction Jasmine the Niger the reaction of the market. We review volume two then recover.
We're going to see what the liberal but this is usually will happen.
With these type of transitions.
God I hope things are a little bit.
Sorry.
Oh, so you're talking about shipments then for the most part with that kind of common yeah for the most part is she admits it shipment in demand in in in in Argentina, Yeah. Okay. Super and then if I promised my last one and the common [laughter] greater protection from Mexico, and it makes a lotta sense now you're capable and all that just wondering you know if and when we.
See I'm, sorry start assuming that happens would you expect to be able to maintain those levels or do you think that some of that is to displace you know just because of the displacement of 10.
Oh, that's a good question theme Gafoor everyone.
Everyone has a good question, but I don't have a great answer for that I mean.
Clearly some of the market share we are gaining agent can contact.
For sure.
Nevertheless, again, there's a lot of inputs and and we think we are more than capable.
Off.
<unk>.
Fighting those imports if we have the volume of all the production.
But the other thing that you have to take into account <unk>.
It's very difficult answer come back at the level of production that they have when they stop producing between 300 and 350000 tons a month.
I mean being shut down for several months.
Using only the the information it is available in the public depressed.
It's very difficult <unk> will come back to that number in the near future.
You know that but yesterday or two days ago.
They they they informed that they were shutting down the coke batteries mhm, that's something that you can fixed in two or three years.
So so I mean.
We don't see.
<unk>, increasing a lot in in in.
In the next quarters Mmm.
When you refer to the shipment of 300000 tonnes that was what they used to have yeah.
Month by your shopping bags completely that number was Lola all of our countries doesn't Dora the numbers, so even need that we've been through the lowest number carefully.
Not a significant amount of time each back through the market.
Take a different visual Mexican and say that it will take even if they decided to come back to proactively we take some time to reach a certain level of production.
No that's great. That's helpful. Thank you.
You're welcome.
Mmm.
There are no further questions at this time I will now turn the call back to turn into CEO for closing remarks.
Thank you and thank you very much all for participation participating today confidence very good questions were very got we can answer I hope we can answer all of them and that's always feel free to contact us E with any additional comment or any questions. If not we will see you.
Talk with you in the next conference call. Thank you very much 12.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
That's 12.
Ladies.