Q1 2026 Ternium SA Earnings Call
Speaker #1: 2026. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation.
Operator: Q2 2026. We would like to inform you that this event is being recorded, and all participants will be in listen-only mode during the company's presentation. After the company's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. We would like to remind you that this conference call is intended exclusively for investors and market analysts. We request that any questions from journalists be dedicated to the media relations through our website in the press section. With this, I would like now to turn the floor over to Mr. Sebastián Martí. You may proceed.
Speaker #1: After the company's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. We would like to remind you that this conference call is intended exclusively for investors and market analysts.
Speaker #1: We request that any questions from journalists be dedicated to the media relations through our website in the press section. With this, I would like now to turn the floor over to Mr. Sebastian Marti, you may proceed.
Speaker #2: Good morning, and thank you for joining us. My name is Sebastian Marti, and I am Ternium's global IR and compliance senior director. Yesterday we announced our financial results for the first quarter of 2026.
Sebastián Martí: Morning. Thank you for joining us. My name is Sebastián Martí, and I am Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for Q1 2026. Today's call is intended to provide additional context to that presentation. I'm joined by Máximo Vedoya, Ternium's Chief Executive Officer, and Pablo Brizzio, the company's Chief Financial Officer, who will discuss Ternium's operating environment and performance. Following our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on page 2 in today's webcast presentation.
Speaker #2: Today's call is intended to provide additional context to that presentation. I'm joined by Maximo Vedoya, Ternium's chief executive officer, and Pablo Brizzio, the company's chief financial officer, who will discuss Ternium's operating environment and performance.
Speaker #2: Following our prepared remarks, we will open up the call to your questions. 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.
Speaker #2: Factors that could affect results are contained in our filings with the securities and exchange commission, and on page 2 in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday.
Sebastián Martí: You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya.
Speaker #2: With that, I'll turn the call over to Mr. Vedoya.
Speaker #3: Thank you, Sebastian. Good morning, everyone, and thank you for joining our conference call. Ternium's margin in the first quarter continues on a recovered path, reaching 12%.
Máximo Vedoya: Thank you, Sebastian. Good morning, everyone, and thank you for joining our conference call. Ternium's margin in the Q1 continued on a recovery path, reaching 12%. This improvement reflects a combination of factors: an improving market environment in Mexico, a focus on profitability over volume in Brazil, and the continued work of our teams to increase efficiency across our industrial operations. In Mexico, apparent steel consumption fell around 10% in 2025, driven by uncertainty triggered by US trade actions. In 2026, however, we see an improvement. The Mexican government has been actively working to mitigate the negative effects of US trade measures on the Mexican economy by defending the local industry against unfair imports from Asia. These actions not only support the continued development of the Mexican industry, but are closely aligned with the US government's own trade strategy.
Speaker #3: This improvement reflects a combination of factors: an improving market environment in Mexico, a focus on profitability over volume in Brazil, and the continued work of our teams to increase efficiency across our industrial operations.
Speaker #3: In Mexico, apparent steel consumption fell around 10% in 2025, driven by uncertainty triggered by US trade actions. In 2026, however, we see an improvement.
Speaker #3: The Mexican government has been actively working to mitigate the negative effects of US trade measures on the Mexican economy by defending the local industry against unfair imports from Asia.
Speaker #3: These actions not only support the continued development of the Mexican industry but are closely aligned with the US government's own trade strategy. Plan Mexico is also central to this effort.
Máximo Vedoya: Plan Mexico is also central to this effort. It promotes industrial development, increased domestic content in manufacturing, and strengthens regional supply chains. In this same line, last week, the steel industry and the Mexican government signed a landmark agreement to prioritize domestically produced steel in all public procurements, a clear sign of the opportunity ahead. Taken together, these policies support our expectation of a recovery in Mexican steel demand. In this context, we expect volumes in Mexico to continue improving in Q2, driven mainly by the commercial market. The significant destocking that took place across the value chain in 2025 is now giving way to a normalization of apparent demand. Beyond that, we are seeing early movements in several infrastructure projects, which could add meaningful demand in the coming quarters.
Speaker #3: It promotes industrial development, increased domestic content in manufacturing, and strengthens regional supply chains. In this same line, last week the steel industry and the Mexican government signed a landmark agreement to prioritize domestically produced steel in all public procurements, a clear sign of the opportunity ahead.
Speaker #3: Taken together, these policies support our expectation of a recovery in Mexican steel demand. In this context, we expect volumes in Mexico to continue improving in the second quarter, driven mainly by the commercial market, the significant stocking that took place across the value chain in 2025 is now giving way to a normalization of apparent demand.
Speaker #3: Beyond that, we are seeing early movements in several infrastructure projects, which could add meaningful demand in the coming quarters. Turning to our pesquería project in Mexico, the ramp-up curve of the cold-rolling mill and the galvanizing line are running ahead of plan.
Máximo Vedoya: Turning to our Pesquería project in Mexico, the ramp-up curve of the cold rolling mill and the galvanizing line are running ahead of plan. We expect both lines to be operating close to a full capacity by October. The slab facility is also advancing in line with expectation. This project is central to our strategy. It will significantly increase our vertical integration in Mexico, reduce our reliance on externally sourced slabs, and enhance our product capabilities across automotive, industrial, and construction applications. Importantly, as the automotive USMCA rule of origin enter into effect next year, this facility will position Ternium as a key player in meeting a growing demand. In this respect, I am pleased to share that we have been granted a patent in the United States for our new electrical steelmaking process, which will enable us to produce exposed steel at scale.
Speaker #3: We expect both lines to be operating close to a full capacity by October. The slab facility is also advancing in line with expectations. This project is central to our strategy.
Speaker #3: It will significantly increase our vertical integration in Mexico, reduce our resilience on externally sourced slabs, and enhance our product capabilities across industrial and construction applications.
Speaker #3: Importantly, as the automotive USMCA rule of origin entering into effect next year, this facility will position Ternium as a key player in meeting a growing demand.
Speaker #3: In this respect, I am pleased to share that we have been granted a patent in the United States for our new electrical steelmaking process, which will enable us to produce exposed steel at scale.
Speaker #3: This innovation leverages the integration of direct production at the same site. In addition, innovations such as virtual stamping, which utilizes artificial intelligence to streamline certification processes for the automotive industry, enforcing our drive for operational excellence.
Máximo Vedoya: This innovation leverages the integration of direct reduction at the same site. Innovations such as virtual stamping solution, which utilize artificial intelligence to streamline certification process for the automotive industry, enforcing our drive for operational excellence. This commitment continue to be recognized by our customers. In February, we were honored by Ariston Group with their Strategic Partner Award, the highest recognition for quality and partnership. In April, Ternium Mexico received the 2025 John Deere Supplier Award and achieved the partner level, John Deere's highest distinction for cost-effective and long-term collaboration. Brazil steel consumption remains broadly stable, with some sectors showing resilience and other facing more pressure. The automotive industry continues to perform well, with production expected to grow around 4% this year. On the other hand, sectors like agribusiness has been weakened. We have seen weaker demand.
Speaker #3: This commitment continues to be recognized by our customers. In February, we were honored by Ariston Group with their strategic partner award, the highest recognition for quality and partnership.
Speaker #3: And in April, Ternium Mexico received the 2025 John Deere Crop Award and achieved the partner level, John Deere's highest distinction for cost-effective and long-term collaboration.
Speaker #3: Brazil steel consumption remains broadly stable, with some sectors showing resilience and others facing more pressure. The automotive industry continues to perform well, with production expected to grow around 4% this year.
Speaker #3: On the other hand, sectors like agribusiness have been weakened have seen weaker demand. A key challenge in the quarter was the significantly increased in steel imports.
Máximo Vedoya: A key challenge in the quarter was a significantly increase in steel imports, up around 30% versus the previous quarter. Import accelerated ahead of the government's anti-dumping measures on cold rolled and coated products. This has resulted in elevated inventory levels of imported material in the market, which we expect to normalize by H2 of the year. These trade defenses measures gain traction and inventory levels normalize, we expect Usiminas market share to improve. However, it is also worth noting that import pressures is not limited to China. Volumes from Southeast Asia, particularly South Korea and Vietnam, has increased significantly, reflecting the indirect effect of China oversupply on the region's trade flow. In March, we were honored to welcome President Lula to the official inauguration of the Roberto Rocca Technical School located near our Rio de Janeiro plant.
Speaker #3: Up around 30% versus the previous quarter. Imports accelerated ahead of the government's anti-dumping measures on cold-rolled and coated products. This has resulted in elevated inventory levels, imported materials in the market, which we expect to normalize by the second half of the year.
Speaker #3: This trade defensive measure gained traction, and inventories level normalized. We expect to see MINAS market share to improve. However, it is also worth noting that import pressures are not limited to China.
Speaker #3: Volumes from Southeast Asia particularly South Korea and Vietnam have increased significantly, reflecting the indirect effects of China's oversupply on the region's trade flow. In March, we were honored to welcome President Lula to the official inauguration of the Roberto Roca Technical School, located near our Rio de Janeiro plant.
Speaker #3: The school provides full-funded technical education to young people from the surrounding communities, offering them access to a world-class education. Built with an investment of $50 million, we expect to welcome close to 600 students by next year.
Máximo Vedoya: School provides full-funded technical education to young people from the surrounding communities, offering them access to a world-class education. Built with an investment of $50 million, we expect to welcome close to 600 students by next year. In Argentina, after a 2024 record one of the lowest steel consumption levels in 2 decades, the market began to recover in 2025. However, 2026 did not start as we had expected. Demand is growing unequally. Mining, energy, and agriculture are performing well. Automotive remains at reasonable levels. Constructions remain soft. Metal mechanical and home appliance sectors are lagging, affected by weak domestic consumption. As I bring my remarks to a close, I am pleased to share that Ternium has once again been recognized as a sustainability champion by the World Steel Association.
Speaker #3: In Argentina, after a 2024 record, one of the lowest steel consumption levels in two decades, the market began to recover in 2025. However, 2026 did not start as we had expected.
Speaker #3: Demand is growing unequally. Mining, energy, and agriculture are performing well. Automotive remains at reasonable levels. Construction remains soft. Metal mechanical and home appliances sectors are lagging, affected by weak domestic consumption.
Speaker #3: As I bring my remarks to a close, I am pleased to share that Ternium has once again been recognized as a sustainability champion by the World Steel Association.
Speaker #3: This recognition is granted to companies that innovate sustainability into their core strategy, combining environmental management, safety performance, innovation, and responsible community engagement. Looking ahead, we are constructive on our market and our ability to continue improving performance.
Máximo Vedoya: This recognition is granted to companies that integrate sustainability into their core strategy, combining environmental management, safety performance, innovation, and responsible community engagement. Looking ahead, we are constructive on our market and our ability to continue improving performance. In Mexico, the combination of normalizing demand, supportive industrial policies, and the ramp-up of our downstream projects position us well for the quarters ahead. In Brazil, as trade defenses measures gain traction and input inventory normalize, we expect to see a healthy competitive environment. In Argentina, we continue to monitor the recovery closely while maintaining our operational discipline. Across all our operations, our teams remain focused on driving efficiency and lowering cost, and we are already seeing the benefits. For all the recognition we continue to receive from our customers reflect the quality of what we are doing every day.
Speaker #3: In Mexico, the combination of normalizing demand, supportive industrial policies, and the ramp-up of our downstream projects position us well for the quarters ahead. In Brazil, a straight defensive measure gained traction, and imports inventory normalized.
Speaker #3: We expect to see a healthy competitive environment. In Argentina, we continue to monitor the recovery closely while remaining maintaining our operational discipline. Across all our operations, our team remains focused on driving efficiency and lowering costs, and we already see the benefits.
Speaker #3: Overall, the recognition we continue to receive from our customers reflects the quality of what we are doing every day. We are confident in Ternium's ability to deliver even stronger performance in the periods ahead.
Máximo Vedoya: We are confident in Ternium's ability to deliver even stronger performance in the periods ahead. With that, I'd like to move to a review of our quarterly performance. Pablo, please go ahead.
Speaker #3: With that, I'd like to move to a review of our quarterly performance. Pablo, please go ahead.
Speaker #4: Thanks, Maximo, and thanks, everybody, for participating in our call. So let's review our operation and financial performance for the first quarter of this year.
Pablo Brizzio: Thanks, Máximo, and thanks everybody for participating in our call. Let's review our operational and financial performance for Q1 of this year. Starting in the webcast presentation on page number 3, we can see that the adjusted EBITDA increased sequentially by 21% in Q1, in line with our expectations and reflecting margin improvements. Looking ahead, we expect adjusted EBITDA margin to continue increasing, supported by higher revenue per ton, particularly Mexico and Brazil, partially offset by higher cost per ton across our main markets. Let's move to the next slide. Net income for Q1 2026 reached $372 million. This reflects improved operating performance, a stronger net financial results, primarily driven by foreign exchange gain in Mexico, Argentina, and Brazil, and positive deferred tax results.
Speaker #4: Starting in the web cap presentation page number three, we can see that the adjusted VDA increased sequentially by 21% in the first quarter. In line with our expectations and reflecting margin improvements.
Speaker #4: Looking ahead, we expect adjusted VDA margin to continue increasing, supported by higher revenue per ton, on, particularly Mexico and Brazil, partially offset by higher cost per ton across our main markets.
Speaker #4: Let's move to the next slide. Net income for the third quarter, first quarter of 2026, reached $372 million. This reflects improved operating performance, stronger net financial results, primary driven by foreign exchange gain in Mexico, Argentina, and Brazil.
Speaker #4: And positive deferred tax results. Deferred tax gain amounted to $122 million, driven mainly by currency fluctuations in Argentina and Brazil, and inflation effects in Argentina.
Pablo Brizzio: Deferred tax gain amounted to $122 million, driven mainly by currency fluctuations in Argentina and Brazil and inflation effects in Argentina. Net income in the quarter also included a $48 million loss from the quarterly update of the value of a provision from ongoing litigation related to the acquisition of the participation in Usiminas in 2012. Let's turn to page 5 to review the steel segment performance. Overall, shipments were broadly in line with the previous quarter. In Mexico, volumes increased, supported by solid commercial market activity. This was driven by more effective trade defenses against unfair imports, healthier inventory level across the value chain, and a seasonal recovery in demand. In Brazil, Usiminas prioritized profitability in the face of increased cost volatility, particularly in energy and logistics, resulting in a modest sequential decline in shipments.
Speaker #4: Net income in the quarter also included a $48 million loss, from the quarterly update of the value of a provision from ongoing litigation related to the acquisition of a participation in UC MINAS in 2012.
Speaker #4: Let's turn to page five to review the steel segment performance. Overall, shipments were broadly in line with the previous quarter. In Mexico, volumes increased, supported by solid commercial market activity.
Speaker #4: This was driven by more effective trade defenses against unfair imports, healthier inventory levels across the value chain, and a seasonal recovery in demand. In Brazil, UC MINAS prioritized profitability in the face of increased cost volatility.
Speaker #4: Particularly in energy and logistics. Resulting in a modest sequential decline in shipments. In the southern region, demand softened, reflecting weaker industrial activity in Argentina and alongside typical seasonal factors.
Pablo Brizzio: In the southern region, demand soft, reflecting weaker industrial activity in Argentina alongside typical seasonal factors, leading to a sequential decrease in shipments. Ahead, we expect shipments to trend higher, mainly driven by Mexico and Argentina as trade measures gain traction in Mexico and demand conditions gradually improve across both markets. Let's turn to page 6 to review the performance of our steel segment. Steel cash operating income improved during the period, driven by higher margins resulting from realized prices gains, which were partially offset by higher raw material and purchased slab costs. On the next slide, the mining segment reflects a different dynamic. In this case, shipment declined sequentially due to operational disruptions in Brazil caused by an unusual intense rainfall. Finally, let's turn to the cash flow and balance sheet performance on page 8. The company continues to generate strong cash flow from operations.
Speaker #4: Leading to a sequential decrease in shipments. Looking ahead, we expect shipments to trend higher, mainly driven by Mexico and Argentina, as trade measures gain traction in Mexico and demand conditions gradually improve across both markets.
Speaker #4: Let's turn to page six to review the performance of our steel segment. Steel cash operating income improved during the period. Driven by higher margins, resulting from realized prices gains, which were partially offset by higher raw material and purchase lab costs.
Speaker #4: On next slide, the mining segment reflects a different dynamic. In this case, shipment declines sequentially due to operational disruptions in Brazil, caused by an unusual intense rainfall.
Speaker #4: Finally, let's turn to the cash flow and balance sheet performance on page eight. The company continues to generate strong cash flow from operations, although this quarter we saw an increase in working capital driven by an increase in trade receivables, mainly due to higher steel prices and volumes in Mexico.
Pablo Brizzio: Although this quarter we saw an increase in working capital driven by an increase in trade receivables, mainly due to higher steel prices and volumes in Mexico. Anticipate that sales will grow in Q2 of this year, likely requiring a further rise in working capital. Capital expenditures continue to reflect our progress in the expansion of our industrial center in Pesquería, now mostly focused on the construction of the slab making facility. Finally, we ended the quarter with a net cash position of $327 million. On top of our CapEx needs, the cash position decline included a $350 million payment for the acquisition of the Usiminas shares from Nippon Steel, partially offset by a $150 million loan collection from Techgen, our non-consolidated energy joint venture that supplies power to our operations in Mexico.
Speaker #4: Anticipate that sales will grow in the second quarter of this year, likely requiring a further rise in working capital. Capital expenditures continue to reflect our progress in the expansion of our industrial center in Pesqueria.
Speaker #4: Now, mostly focused on the construction of the slab-making facility. Finally, we ended the quarter with a net cash position of $327 million. On top of our CapEx needs, the cash position declined included a $315 million payment for the acquisition of the UC MINAS shares, from Nippon Steel.
Speaker #4: Partially offset, by $150 million loan collection from Tejen, our non-consolidated energy joint venture that supplies power to operations in Mexico. Okay, this concludes our prepared remarks for the first quarter.
Pablo Brizzio: Okay, this concludes our prepared remarks for Q1. We will now be happy to take your questions. Thanks. Please proceed with the Q&A session.
Speaker #4: We will now be happy to take your questions. Thanks, and please proceed with the Q&A session.
Speaker #3: We will now begin the question-and-answer session. To ask a question, please press raise hand to withdraw your question. You can leave the Q&A by clicking on put hand down.
Operator: We will now begin the question-and-answer session. To ask a question, please press raise hand. To withdraw your question, you can leave the queue by clicking on put hand down. Our first question comes from Mr. Rodolfo Angele from JP Morgan. You may proceed.
Speaker #3: Our first question comes from Mr. Rodolfo Angele from JP Morgan. You may proceed.
Speaker #5: Hi. Good morning. I think now you can hear me. Okay. So I wanted to just hear your thoughts on two aspects that I think are relevant for Ternium's future performance.
Rodolfo Angele: Hi. Good morning. I think, now you can hear me.
Pablo Brizzio: Yeah.
Rodolfo Angele: Okay. I wanted to just hear your thoughts on two aspects that I think are relevant for Ternium's future performance. First, there's been a lot of discussion on USMCA. If you could share your thoughts on what happens there and what it means in terms of different scenarios for the company's performance. I also wanted to hear from you a little bit about the expectations for the slab market in terms of pricing outlook for, you know, the remaining of the year especially. That's all. Thank you.
Speaker #5: So first, there's been a lot of discussion on USMCA. So if you could share your thoughts on what happens there and what it means in terms of difference scenarios for the company's performance.
Speaker #5: And I also wanted to hear from you a little bit about the expectations for the slab market in terms of pricing outlook for the remaining of the year, especially.
Speaker #5: And that's all. Thank you.
Speaker #4: Thank you, Rodolfo. Let me start with the USMCA question and as you know, there have been a lot of discussion and on talks about USMCA.
Pablo Brizzio: Thank you, Rodolfo. Let me start with the USMCA question. As you know, there have been a lot of discussion and on talks about USMCA. Look, I believe that there will be a trade deal between US and Mexico. As you know, the US administration, through the USTR, and the Mexican government, through the Ministry or Secretariat of Economy, holding meetings. There is a formal meeting on 25 May, which is going to start formally the revision or the discussions of the USMCA. Most of that discussion are probably going to be on discussing mainly stricter rule of origin and some other issues that have arise.
Speaker #4: Look, I believe there will be a trade deal between US and Mexico and as you know, the US administration through the USDR and the Mexican government through the Ministry or Secretary of Economy holding meetings that is a formal meeting on the 25th of May, which is going to start formally the revision or the discussions of the USMCA.
Speaker #4: Most of that discussion are probably going to be on discussing mainly stricter rule of origin and some other issues that have arisen. And I think my thoughts on this is that this is going to take some time.
Pablo Brizzio: I think My thoughts on this is that this is gonna take some time. I am positive there is gonna be an agreement, but I don't know exactly the timeline. Probably won't be by the first of July, probably would get
Speaker #4: So I am positive there is going to be an agreement. But I don't know exactly the timeline. Probably won't be by the 1st of July.
Speaker #4: And probably would get most of this year. So this is, I mean, the my thoughts of what is happening in the USMCA. There is also some discussions going on on the Section 232.
Máximo Vedoya: Most of this year. This is, I mean, my thoughts of what it's happening in the USMCA. There is also some discussions going on Section 232. As you know, I don't think, my thoughts is, I always said, there is no incompatibility between Section 232 and USMCA. It doesn't make sense, makes Mexico subject to 232 in steel as the US has a steel trade surplus, a very big steel trade surplus with Mexico. I know the Mexican administration has also stated that there is a priority while the USMCA is negotiate, that there has to be a relief in steel and automotive Section 232. I know they are discussing this during these following weeks.
Speaker #4: As you know, I don't think my thoughts is, and I always said, there is no there's an incompatibility between Section 232 and USMCA. It doesn't make sense makes Mexico subject to 232 in steel as the US has a steel trade surplus a very big steel trade surplus with Mexico.
Speaker #4: I know the Mexican administration has also starting stated that there is a priority while the USMCA is negotiating that there has to be a relief in steel and automotive Section 232.
Speaker #4: And I know there are discussing this during this following weeks. Nevertheless, I think it's important that the Mexican administration, as I said a little bit in my remarks, Rodolfo, has been very proactive in launching initiatives to strengthen the steel consumption in Mexico while all this is going on, the Plan Mexico, the target measures, and again, unfair competition, the imposition of tariffs for countries that don't have trade agreements with Mexico.
Máximo Vedoya: Nevertheless, I think it's important that the Mexican administration, as I said a little bit in my remarks, Rodolfo, has been very proactive in launching initiatives to strengthen the steel consumption in Mexico. While all this is going on, the Plan Mexico, the target measures against unfair competition, the imposition of tariffs for countries that don't have trade agreement with Mexico, all this, I think it's a very active way of the Mexican government to attack the problems of the Mexican economy while these two things are negotiated. In the end, I think USMCA, as I said, is gonna be renewed, probably with much tougher rule of origins, which I think it's a very good thing, but I'm not that certain on the timing. Probably it takes a little bit more longer.
Speaker #4: All these I think it's a very active way of the Mexican government to attack the problems of the Mexican economy while these two things are negotiated.
Speaker #4: So in the end, I think USMCA, as I said, is going to be renewed probably with much tougher rule of origin, which I think it's a very good thing.
Speaker #4: But I'm not that certain on the timing. Probably the timing it takes a little bit more longer. So I hope with this last large answer, I did answer your question, Rodolfo.
Máximo Vedoya: I hope with this last large answer, I did answer your question, Rodolfo.
Speaker #5: Yeah, sure did. Thank you very much.
Rodolfo Angele: Yes, you did. Thank you very much.
Speaker #4: The slab markets, what did you refer with the slab market? Exactly.
Máximo Vedoya: The slab market? What do you refer with the slab market, exactly?
Speaker #5: Just it's just a market that I think it's more unique overall in terms of how pricing dynamics work. So I just wanted to hear your thoughts on what do you see especially on pricing what do you expect for the coming quarters.
Rodolfo Angele: Just, you know, it's just a market that I think it's more unique overall in terms of how pricing dynamics work. I just wanted to hear your thoughts on what do you see especially on pricing, you know, what do you expect for the coming quarters?
Speaker #4: Well, price is it has been in most of steel products has been increasing recently. Clearly, the increase in fuel increases the logistics for slabs.
Máximo Vedoya: Prices as it has been in most of steel products, has been increasing recently. Clearly, the increase in fuel increases the logistics for slabs, and also there has been some increase in iron ore, and in other raw materials, which have made the slab market a little bit more expensive. You know, I mean, from all our production, our buying of slab is not as big as it used to be because most of the slabs come from our Ternium Brasil facility. Nevertheless, we are buying in the market and we are seeing some increase in that, which compensate probably with increase in prices in finishing products also.
Speaker #4: And also there has been some increase in iron ore and in other raw materials, which have made the slab market a little bit more expensive.
Speaker #4: You know I mean, from all our production our buying a slab is not as big as it used to be. Because most of the slabs come from our Ternium Brazil facility.
Speaker #4: But nevertheless, we are buying in the market and we are seeing some increase in that. It's compensated probably with increase in prices in finishing products also.
Speaker #5: Okay. Thank you very much.
Rodolfo Angele: Okay. Thank you very much.
Speaker #4: You're welcome, Rodolfo.
Máximo Vedoya: You're welcome, Rodolfo.
Speaker #1: Our next question comes from Mrs. Timna Tanners from Wells Fargo Securities. You may proceed.
Operator: Our next question comes from Mrs. Timna Tanners from Wells Fargo Securities. You may proceed.
Speaker #6: Hello.
Timna Tanners: Hello?
Speaker #4: Hello. Yes, Timna, we can hear you.
Máximo Vedoya: Hello. Yes, Timna, we can hear you.
Speaker #6: Oh, fantastic. Sorry. So I wanted to ask if I could about a few things. One is to follow up on the USMCA discussions, the US government is more interested in granting relief on tariffs if there's a construction of production in the US.
Timna Tanners: Oh, fantastic. Sorry. I wanted to.
Máximo Vedoya: Yeah
Timna Tanners: ask, if I could, about a few things. One is to follow up on the USMCA discussions. The US government is more interested in granting relief on tariffs if there's a construction of production in the US. Just wondering if you would expand your US presence. Also wondering along those same lines about a hearing about a Mexican dumping case against US galvanized imports, if you could address those.
Speaker #6: So just wondering if you would expand your US presence. Also wondering along those same lines about a hearing about a Mexican dumping case against US galvanized imports.
Speaker #6: If you could address those.
Speaker #4: Timna, we are not thinking in production in the US now. We don't have that as a plan today. And second, there is a dumping case again called rolling products.
Máximo Vedoya: Timna, we are not thinking in making some production or increased production in the US now. We don't have that as a plan today. Second, there is a dumping case against cold rolling products. There's no dumping case against galvanized in Mexico. At least to the US.
Speaker #4: There's no dumping case against galvanized. In Mexico. At least to the US, there is a dumping case in galvanized. Against Vietnam. And I think other countries.
Timna Tanners: I-
Máximo Vedoya: There is a dumping case in galvanized against Vietnam and I think other countries.
Speaker #6: Okay. I've heard that Mexico is working on one against the US. I thought that could be positive for your operations. So we'll stay tuned there.
Timna Tanners: Okay. I've heard that Mexico was working on one against the US. I thought that could be positive for your operations. We'll stay tuned there. Second, can you expand a bit more on the mention of EAF capabilities to make exposed automotive and remind us what might be the timeframe for doing that?
Speaker #6: Second, can you expand a bit more on the mention of electrical steel, electrical, sorry, EAF capabilities to make exposed automotive and remind us what might be the timeframe for doing that?
Speaker #4: Yes, for sure. I mean, as you probably remember, the steel shop is going to start the ramp-up in the last quarter of between the last quarter of this year and early next year.
Máximo Vedoya: Yes, for sure. I mean, as you probably remember, the steel shop is gonna start the ramp up in between the last quarter of this year and early next year. As you know, the operation, I mean, the facility is huge. I hope all of you can one day visit it, because it's worth visiting it, the facility. The ramp-up facility, the ramp-up curve should take at least all 2027. In the meantime, during all this ramp up, we are going to work with the automotive customers to certify our products. Certification process for all automotive products, not only the exposed material, but also all the other parts of the car needs certification.
Speaker #4: As you know, the operation, it's I mean, the facility is huge. I hope all of you can one day visit it because it's worth visiting the facility.
Speaker #4: So the ramp-up facility the ramp-up corp should take at least all 2027. In the meantime, during all this ramp-up, we are going to work with the automotive customers to certify our products, certification process for all automotive products, not only the exposed material, but also all the other parts of the car.
Speaker #4: Needs certification, but we are working very close with all of them because they are very eager to accelerate these certification process. And so we are working already with them on how to accelerate these certification process as much as possible.
Máximo Vedoya: We are working very close with all of them because they are very eager to accelerate the certification process. We are working already with them on how to accelerate the certification process as much as possible. We have recently increased the capacity of our Ternium lab in Pesquería, which we are working in certifying all the lab equipment so we can certify part of the process they need in that site. I mean, the capacity that this EAF is going to have to have the capacity of producing exposed material in a sustainable way and in a continuous way, is going to be unique because of the process we are doing and all the patents we are developing, especially to decrease all the nitrogen that the EAF usually have.
Speaker #4: We have recently increased the capacity of our Ternium lab in Pesqueria. Which we are working in certifying all the lab equipment. So we can certify part of the process they need in that site.
Speaker #4: And I mean, the capacity that this EAF is going to have to have the capacity of producing exposed material in a sustainable way and in a continuous way is going to be unique because of the process we are doing and all the patents we are developing especially to decrease all the nitrogen that the EAF usually have.
Speaker #4: So this is a unique process that we are developing with our technical people and the supplier of the equipment that is Tenova sister company of us.
Máximo Vedoya: This is a unique process that we are developing with our technical people and the supplier of equipment that is Tenova, a sister company of us. I mean, again, the timing should be around next year, probably by Q3 and Q4 of next year, that we are going to supply in a sustainable way to the automotive industry.
Speaker #4: So I mean, again, the timing should be around next year probably by the third and fourth quarter of next year. That we are going to supply in a sustainable way to the automotive industry.
Speaker #6: So it'd be qualified for 2028 or qualified for 2027?
Timna Tanners: You'd be qualified for 2028 or qualified for.
Máximo Vedoya: Yeah
Timna Tanners: 2027?
Speaker #4: No, the idea is to qualify everything for 2028.
Máximo Vedoya: No. The idea is to qualify everything for 2028.
Speaker #6: Got it. Okay. Great. Thank you.
Timna Tanners: Got it. Okay, great. Thank you.
Speaker #4: You're welcome.
Máximo Vedoya: You're welcome.
Speaker #1: Our next question comes from Mr. Alfonso Salazar from Scotiabank. Please, Mr. Alfonso, you may proceed.
Operator: Our next question comes from Mr. Alfonso Salazar from Scotiabank. Please, Mr. Alfonso, you may proceed.
Alfonso Salazar: Hey, sorry. A couple questions on my end. The first one is regarding the outlook in Argentina. I want to see if you can give us more color on what's going on and what are your expectations for future demands. Also, try to understand better what's the situation regarding imports in Seems to be more problematic than in the past. Also, exports from Argentina to other Latin American countries. What is the outlook there because of the same thing, you know, imports from to other countries from Asia. The second question is some comments on the decarbonization trends in Latin America. It seems that we always knew that it was going to take, you know, longer than Europe.
Speaker #5: Hi. Sorry. A couple of questions on my end. The first one is regarding the outlook in Argentina. I want to see if you can give us more color on what's going on and what are your expectations for future demands.
Speaker #5: Also try to understand better what's the situation regarding imports seems to be more problematic than in the past. And also exports from Argentina to other Latin American countries.
Speaker #5: What is the outlook there? Because of the same thing, imports from other countries from Asia. The second question is some comments on the decarbonization trends in Latin America.
Speaker #5: It seems that we always knew that it was going to take longer than Europe, but any comment on what is the outlook there as well this trends of decarbonization and green steel?
Alfonso Salazar: Any comment on what is the outlook there as well, these trends of decarbonization and green steel?
Speaker #4: Yeah, thank you, Alfonso. Outlook in Argentina I mean, in the short term, shipments in the second quarter are going to increase because as you know, the first quarter in Argentina is always a seasonably low quarter.
Máximo Vedoya: Yeah. Thank you, Alfonso. Outlook in Argentina. I mean, in the short term, shipments in Q2 are going to increase because as you know, Q1 in Argentina is always a seasonably low, low water, no? January and February usually are holidays in Argentina, so the demand is quite. Further down the road, I think some of the sectors present a good opportunity: Mining, oil and gas, and agriculture. They are compensate by others like mechanical goods and like electro.
Speaker #4: January and February usually are holidays in Argentina. So the demand is quite then further down the road, I think some of the sectors present a good opportunity.
Speaker #4: Mining, oil, and gas and agriculture. They are compensated by others like mechanical goods and like electrical and white goods, sorry. That demand is not very good in the final goods.
Alfonso Salazar: White goods.
Máximo Vedoya: electrical and Hmm?
Alfonso Salazar: White goods.
Máximo Vedoya: White goods, sorry. Demand is not very good in the final goods. It's gonna be a little bit better, but we don't expect a huge growth compared to 2025. Imports, although there has been a lot of talks about imports, we are not seeing imports in our products. We had seen some imports in the value change, but these are stable today. I think the problem in our value change is that the demand or the consumption is not very good. That's the situation we have in Argentina. Decarbonization in Latin America, you're saying that the path is slower than in Europe. I think the pace in Europe has also decreased a lot.
Speaker #4: So it's going to be a little bit better but we don't expect a huge growth compared to 2025. Imports although there has been a lot of talks about imports, we are not seeing imports in our products.
Speaker #4: We had seen some imports in the value change but these are stable today. I think the problem in our value change is that the demand or the consumption is not very good.
Speaker #4: So that's the situation we have in Argentina. Decarbonization in Latin America is saying that the path is lower than in Europe. I think the pace in Europe has also decreased a lot.
Speaker #4: I mean, there's a lot of project that has been announced in Europe that today are not going through and they continue building up in Blasfernes.
Máximo Vedoya: I mean, there's a lot of projects that has been announced in Europe that today are not going through, and they continue building up in blast furnace. In Latin America, I can say two things. I think, there is increasing in Mexico, where you have the opportunity to change from coal to natural gas. Mexico will continue on a path of having probably the lowest steel production emissions per ton of production of probably the world. In Brazil, there's more difficulty to change blast furnace. The decarbonization there is gonna go through by small decreases by efficiency, but still working with blast furnace.
Speaker #4: In Latin America, I can say two things. I think one there is increasing in Mexico where you have the opportunity to change from coal to natural gas.
Speaker #4: So Mexico will continue in a path of having probably the lowest steel production emissions per ton of production of probably the world. And in Brazil, there's more difficulty to change Blasfernes.
Speaker #4: So the decarbonization there is going to go through by small decreases by efficiency, but still working with Blasfernes.
Speaker #5: Thank you. And the outlook for other Latin American countries demanding other countries that you source from Argentina?
Alfonso Salazar: Thank you. The outlook for other Latin American countries, demand in other countries that you source from Argentina?
Speaker #4: No, the regional countries I mean, usually they don't have a huge impact in the shipments. We continue to ship to Uruguay, Paraguay, those are the countries that we ship from Argentina.
Máximo Vedoya: No. The regional countries, I mean, usually they don't have a huge impact in the shipments. We'll continue to ship to Uruguay, Paraguay. Those are the countries that we ship from Argentina. The consumption there is marginal, so it's not gonna have a huge impact in our shipments.
Speaker #4: But the consumption there is marginal. So it's not going to have a huge impact in our shipments.
Speaker #5: Fair enough. Thank you.
Alfonso Salazar: Fair enough. Thank you.
Speaker #4: You're welcome, Alfonso.
Máximo Vedoya: You are welcome, Alfonso.
Speaker #1: Our next question comes from Mr. Marcio Farid from Goldman Sachs. Please Mr. Marcio, you may proceed.
Operator: Our next question comes from Mr. Marcio Farid from Goldman Sachs. Please, Mr. Marcio, you may proceed.
Speaker #7: Great. Morning. Thanks for the opportunity. Obviously, another follow-up on USMCA and Section 232. I think what's changed maybe this time is that obviously Mexico has put some import barriers to still coming into the US coming into Mexico.
Marcio Farid: Great. Morning. Thanks for the opportunity. Obviously another follow-up on USMCA and Section 232. I think what's changed maybe this time is that obviously Mexico has put some import barriers to steel coming into Mexico to try and reduce triangulation as well or rerouting. I'm just wondering, once assuming Section 232 to Mexico is either removed or reduced, do you think the competitive environment would be different versus where we were a few years ago when we did not have those import barriers? I remember well, I think Mexico imports about 40% of all the steel that you need.
Speaker #7: To try and reduce triangulation as rerouting. And I'm just wondering, right, once assuming Section 232 to Mexico is either removed or reduced, do you think the competitive environment would be different versus where we were a few years ago when we did not have those import barriers?
Speaker #7: And I remember well, I think in Mexico imports about 40% of all the steel that you need. So just wondering if you can think about a structural change in terms of the competitive environment between North America or Mexico and the US.
Marcio Farid: Just, just wondering if you can think about a structural change in terms of the competitive environment between, you know, North America or Mexico and the US. Second point, you know, demand was very weak in Mexico last year. I think it was down 10%. Part of the reason was, as you mentioned, de-stocking, but also weak activity, as companies wait for better visibility on the relationship with the US. You mentioned restocking help has been helping pricing. I'm just wondering if you're seeing demand or activity also recovering, or we need to see a final agreement with the US for investments to really resume in Mexico. Those are my questions. Thank you.
Speaker #7: And second point, demand was very weak in Mexico last year. I think it was down 10%. Part of the reason was, as you mentioned, this talking, but also weak activity as companies wait for better visibility on their relationship with the US.
Speaker #7: You mentioned restocking help has been helping pricing. I'm just wondering if you've seen demand or activity also recovering or we need to see a final agreement with the US for investments to really resume in Mexico.
Speaker #7: Those are my questions. Thank you.
Speaker #4: Thank you, Marcio. Yeah, I mean, the first question about the triangulation and the efforts that the Mexican administration is doing to control this. I think there is already a structural change.
Máximo Vedoya: Thank you, Marcio. I mean, the first question about the triangulation and the efforts that the Mexican administration is doing control this. I think there is already a structural change. I think, the Mexican administration, way before Trump was elected and all this discussion begin, was very focused on increasing the value-added content of what is produced in Mexico. I mean, Mexico was a huge exporter, but the value-added of those products, the regional content of those products were not very high. Plan Mexico, which President Sheinbaum already announced in the campaign, in her campaign, was a plan for doing exactly this, for changing this dynamic.
Speaker #4: I think the Mexican administration way before Trump was elected, and all these discussions began, was very focused on increasing the value-added content of all what is produced in Mexico.
Speaker #4: I mean, Mexico was a huge exporter. But the value added of those products, the regional content of those products were not very high. And Plan Mexico, which President Sheinbaum already announced in the campaign, in her campaign, was a plan for doing exactly this, for changing this dynamic.
Speaker #4: So all the things that the Mexican administration is doing as you mentioned, are a way of decreasing the dependency of Asian products especially in those products that Mexico or the region is able to produce the clear example of that is steel.
Máximo Vedoya: All the things that the Mexican administration is doing, as you mentioned, are a way of decreasing the dependency of Asian products, especially in those products that Mexico or the region is able to produce. The clear example of that is steel. I think there is already a structural change, and probably this is gonna be even better, once the 232, as you said, is reduced or removed, from the side between Mexico and the US. Clearly you are correct in your assessment. Regarding the second question, Marcio, there is a demand increase in Mexico. It's not as high. Well, world steel has just released that the demand in Mexico is gonna grow around 4% in the year.
Speaker #4: So I think there is already a structural change. And probably this is going to be even better once the 232, as you said, is reduced or removed from the site between Mexico and the US.
Speaker #4: So clearly you are correct in your assessment. There is a demand regarding the second question, Marcio, there is a demand increase in Mexico. It's not as high.
Speaker #4: We are well, world steel is has just released that the demand in Mexico is going to grow around 4% in the year. Considering that the demand decreased by 10%, as you said, in 2025, it's not a huge increase.
Máximo Vedoya: Considering that the demand decreased by 10%, as you said, in 2025, it's not a huge increase, but it is an increase, and we are seeing some recovery in demand. I expect that this is gonna be higher once the USMCA, or where the USMCA is going is more clear. We are seeing this increase, at least in a small space, but we are seeing it today. I hope that answered the question, Marcio.
Speaker #4: But it is an increase. And we are seeing some recovery in demand. I expect that this is going to be higher once the USMCA or where the USMCA is going is more clear.
Speaker #4: But we are seeing this increase at least in a small space, but we are seeing it today. I hope that answered the question, Marcio.
Speaker #7: Yes, for sure. Thank you very much for the details.
Marcio Farid: Yes, for sure. Thank you very much for the details.
Speaker #4: So you're welcome.
Máximo Vedoya: You're welcome.
Speaker #1: Our next question comes from Mr. Rafael Barcellos by Bradesco BBI. Please, Mr. Barcellos, you may proceed.
Operator: Our next question comes from Mr. Rafael Barcellos by Bradesco BBI. Please, Mr. Barcellos, you may proceed.
Speaker #8: Hey, good morning. Thanks for taking my questions. So first question, last week the Mexican government signed an agreement which I believe they called as an agreement for the promotion of the Mexican steel industry, right?
Rafael Barcellos: Hey, good morning. Thanks for taking my questions. So first question, last week, the Mexican government signed an agreement, which I believe they called as an agreement for the promotion of the Mexican steel industry, right? I just wanted to understand, I mean, when do you expect that these measures, you know, will finally translate into, you know, incremental demand for the country? What else you think the government can, you know, promote to incentivize the sector in the short term?
Speaker #8: And so I just wanted to understand I mean, when do you expect that these measures will finally translate into incremental demand for the country?
Speaker #8: And what else you think the government can promote to incentivize the sector? In the short term, and as a second question, in your outlook, you mentioned a bit of the cost pressure that we have seen for all industries and I understand that steel is not an exception.
Rafael Barcellos: Then the second question, in your outlook, you know, you mentioned a bit of the cost pressure that we have seen, you know, for all industries and I understand that, you know, steel is not an exception. If you can elaborate a bit more on what we can expect for cost in Q3, for example, could be helpful. Thank you.
Speaker #8: But if you can elaborate a bit more on what we can expect for cost in the third Q, for example, could be helpful. Thank you.
Speaker #4: Thank you, Rafael. Well, the agreement in Mexico, as I said, is an agreement between the government and the steel industry of Mexico. To commit that most that all of the government use of steel is used Mexican steel is used in those infrastructure main infrastructure.
Máximo Vedoya: Thank you, Rafael. Well, the agreement in Mexico, as I said, is an agreement between the government and the steel industry of Mexico to commit that most that all of the government use of steel is used, Mexican steel is used in those infrastructure, main infrastructure. I think it's very important because there was already a commitment to use Mexican steel, but in some cases, especially all this new infrastructure that is coming by Pemex, by CFE, that is the electricity company, that are joint investment between public and private sectors. This is gonna be an impact in the demand of steel, especially with all the investment in gas lines, in renewable energy, solar and wind, you know, it has a huge consumption of steel.
Speaker #4: I think it's very important because there was already a commitment to use Mexican steel but in some cases especially all these new infrastructure that is coming by PEMEX, by CFE, that is the electricity company that are investment joint investment between public and private sectors this is going to be and it's going to be an impact in the demand of steel.
Speaker #4: Especially with all the investment in gas lines in renewable energy solar and wind. It has a huge consumption of steel. So it is important in that sense I don't expect the investments to start in the next quarter or in the following but I think that by year end all these efforts that the government is doing will have an impact in demand.
Máximo Vedoya: It is important in that sense. I don't expect the investments to start in the next quarter or the following, but I think that by year end, all this effort that the government is doing will have an impact in demand. Too early to say how much, but it's gonna have an impact. The second question, sorry?
Speaker #4: Too early to say how much but it's going to have an impact. The second question, sorry, the cost. Well, I mean, it's going to be an impact in cost but for Ternium it's not going to be a huge impact.
Pablo Brizzio: The cost.
Máximo Vedoya: The cost. Well, I mean, it's gonna be an impact in cost, for Ternium, it's not gonna be a huge impact. The big impact is gonna be in logistic and import of some slabs and some logistic cost in Brazil and probably in Argentina. Probably that is gonna compensate, as we said in the outlook, by also the price increases. I think that the real risk, let me say, of the conflict in the Middle East, is that if it's not resolved quickly, it could cost more a recession. We are thinking that that's the real risk for us. We see a little bit increase in cost, but again, more than compensate by the increased prices of steel having.
Speaker #4: The big impact is going to be in logistic and import of some slabs. And some logistic cost in Brazil and probably in Argentina. But it's probably that is going to compensate as we said in the outlook by also the price increases.
Speaker #4: I think that the real of the conflict in the Middle East is that if it's not resolved quickly it could cost more a recession.
Speaker #4: So we are thinking that that's the real risk for us. We see a little bit increasing cost but again more than compensate by the increase of prices of steel are having.
Speaker #8: As a follow-up, sorry, can you just elaborate on what are you seeing as for cost trends in the third Q and on the price side?
Rafael Barcellos: As a follow-up, sorry.
Máximo Vedoya: Yeah.
Rafael Barcellos: Can you just elaborate on what you think as for cost trends in Q3? On the price side, I understand that, you know, prices are outpacing, you know, the cost increase. Can you just help us understand, in your view, what is the main driver for this recent good price momentum that we are seeing in Mexico?
Speaker #8: I understand that prices are outpacing the cost increase but can you just help us to understand in your view what is the main driver for these recent good price momentum that we are seeing in Mexico?
Speaker #4: Well, the good momentum I think is everywhere. You see in Europe prices increasing. You see in Brazil. You even see in China prices increasing.
Máximo Vedoya: Well, the good momentum I think is everywhere. You see in Europe prices increasing. You see in Brazil. You even see in China prices increasing. I think part of that is motivated by the increase of cost. It is bigger that increase in Southeast Asia, and it's bigger in Europe than it is in the Americas. I think that's the motivation, Rafael.
Speaker #4: So I think part of that is motivated by the increase of cost. Which is bigger that increase in Southeast Asia and is bigger in Europe than it is in the Americas.
Speaker #4: So I think that's the motivation Rafael.
Speaker #8: Okay. Thank you.
Rafael Barcellos: Okay. Thank you.
Speaker #1: Our next question comes from Mr. Caio Ribeiro from Bank of America. Please, Mr. Ribeiro, you may proceed.
Operator: Our next question comes from Mr. Caio Ribeiro from Bank of America. Please, Mr. Ribeiro, you may proceed.
Speaker #7: All right. Good morning. Thank you for the opportunity. So I have two questions linked to your investments at Pescaria. So first off, as you complete your upstream investments this year, what are some of the investment avenues that your contemplating right now?
Caio Ribeiro: All right. Good morning. Thank you for the opportunity. I have two questions linked to your investments at Pesquería. First off, as you complete your upstream investments this year, what are some of the investment avenues that you're contemplating right now, right? Where does the MUSA expansion fit in within your list of priorities? Secondly, assuming that you don't green light another investment right away or, you know, a large investment like the Pesquería upstream, downstream investments that you've done in the past years, those CapEx figures, they should drop considerably, you know, versus your recent run rates. Which together with that earnings increase that you'll get from your investments should drive significantly higher free cash flow generation in the coming years, right?
Speaker #7: Where does the moose expansion fit in within your list of priorities? And then secondly, assuming that you don't greenlight another investment right away or a large investment like the Pescaria upstream, downstream investments that you've done in the past years, those CapEx figures they should drop considerably versus your recent run rate which together with that earnings increase that you get from your investments should drive significantly higher free cash flow generation in the coming years, right?
Speaker #7: So with that in mind, just wondering how you think about dividend payments going forward. Is there room in your view to boost those to cover a larger part of that positive free cash flow generation that you should have in the coming years?
Caio Ribeiro: With that in mind, just wondering how you think about dividend payments going forward? You know, is there room in your view to boost those to cover a larger part of that, positive free cash flow generation that you should have in the coming years? Those are my questions. Thank you.
Speaker #7: Those are my questions. Thank you.
Speaker #4: Thank you, Caio. Well, yeah, the upstream investment as you know will as I said before, we will start the ramp-up curve by the end of the year or early next year.
Máximo Vedoya: Thank you, Caio. Well, yeah, the upstream investment, as you know, as I said before, we will start the ramp-up curve by the end of the year or early next year. I mean, it's still a long way to go. Today, the big investment that, as you say, we are analyzing is the expansion of Musa. Usiminas continue to analyze the different alternatives we have regarding CapEx and the cost of production and the material that we can take and on each one of these alternatives. By the end of the year or early next year, we have to take a decision, or we will have a decision on where to go on that. Those are so far the investments we are considering.
Speaker #4: I mean, we're still but it's still a long way to go. Today the big investment that as you say we are analyzing is the expansion of moosa.
Speaker #4: Uximina has continued to analyze the different alternatives we have regarding CapEx. And the cost of production and the material that we can take on each one of these alternatives.
Speaker #4: And by the end of the year or early next year we have to take a decision or we will have a decision on where to go on that.
Speaker #4: Those are so far the investments we are considering. I mean, we are not seeing yet a necessity or I mean, the willingness to make another large investment so close as to bring in Pescaria project online.
Máximo Vedoya: I mean, we are not seeing yet a necessity or, I mean, the willingness to make another large investment so close as to bring in Pesquería project online. Yeah, CapEx is gonna decrease. As you remember, 2025, we have $2.5 billion of CapEx. This year it's gonna be lower than that, much lower than that. Probably in 2027 it's gonna be even lower, around $1.2 billion or $1 billion. Yeah. I mean, regarding the dividend, if the numbers improve and we have generation. As you know, we have a track record that our dividend has a very good yield.
Speaker #4: So yeah, CapEx is going to decrease as you remember 2025 we have 2.5 billion dollars of CapEx. This year it's going to be lower than that.
Speaker #4: Much lower than that. Probably in 2027 it's going to be even lower around 1.2 or 1 billion dollars. So yeah, and I mean, regarding the dividend, if the numbers improve and we have generation as you know we have a track record that the dividend our dividend has a very good yield.
Speaker #4: Although we decrease a little bit the dividend or the board decided to decrease a little bit the dividend because of the uncertainty which I completely agree still the yield dividend with the price of Ternium SA Pablo Brizzio today it's around 5%.
Máximo Vedoya: Although we decreased a little bit the dividend, or the board decided to decrease a little bit the dividend because of the uncertainty, which I completely agree. still the yield dividend with the price of Ternium SA today, it's around 5%. We will probably continue with this policy of taking a good dividend.
Speaker #4: So we will probably continue with this policy of taking a good dividend.
Speaker #7: That's clear. Thank you very much.
Caio Ribeiro: That is clear. Thank you very much.
Speaker #1: Our next question comes from Mr. Caio Greiner by UBS. Please, Mr. Caio, you may proceed.
Operator: Our next question comes from Mr. Caio Greiner by UBS. Please, Mr. Caio, you may proceed.
Speaker #6: Hello. Good morning, everyone. Two questions. The first one on Brazil. I wanted to hear your thoughts on the strategy that the company has following the recent anti-dumping duties implementation for the operations that you have there especially at Uximinas.
Caio Greiner: Hello. Good morning, everyone. Two questions. The first one on Brazil. I wanted to hear your thoughts on the strategy that the company has following the recent anti-dumping duties implementation for the operations that you have there, especially at Usiminas. I wanted to know if you're gonna favor over the next few quarters and maybe even years, higher prices, higher profitability, value over volume. Somewhat of what we saw during Q1, or if the strategy is gonna be more in the sense of gaining market share, expanding volumes. If that's the case, I wanted to know, how much do you see in terms of volume gain potential over the next again quarters and years?
Speaker #6: I wanted to know if you're going to favor over the next few quarters and maybe even years higher prices higher profitability value over volume.
Speaker #6: Somewhat of what we saw during the first quarter or if the strategy is going to be more in the sense of gaining market share expanding volumes and if that's the case I wanted to know how much do you see in terms of volume gain potential over the next again quarters and years and if you believe that you have enough capacity for this amount of volumes that you could increase going forward and if you don't what would be the strategy there relying on blast furnace could it be on the pipeline or is that more in the sense of just purchasing more shares and raising capacity utilization?
Caio Greiner: If you believe that you have enough capacity for this amount of volumes that you could increase going forward. If you don't, what would be the strategy there? Relying on blast furnace. Could it be on the pipeline, or is that more in the sense of just purchasing more shares and raising capacity utilization? The second one, just a follow-up to the previous capital allocation question. Probably, Máximo, you don't have plans of doing another large CapEx project while you still have the Musa investment.
Speaker #6: And the second one just a follow-up to the previous capital allocation question. Maximo, you mentioned that you don't have plans of doing another large CapEx project.
Speaker #6: While you still have the moosa investment but could you still maybe could it be on the pipeline to again perform corporate simplification measures more bottom-up or in-house initiatives like the Uximina stake that you acquired during the first quarter or anything related to Argentina that would be very, very helpful.
Caio Greiner: Could you still, maybe could it be on the pipeline to again perform corporate simplification measures, more bottom-up or in-house initiatives like the Usiminas stake that you acquired during Q1 or anything related to Argentina? That would be very helpful. Thank you.
Speaker #6: Thank you.
Speaker #4: Thank you, Caio. The first one I mean, if we have to choose between the two strategies you said probably is the first one. I mean, we don't want to produce more in order to sell something that the market doesn't need.
Máximo Vedoya: Thank you, Caio. I mean, if we have to choose between the two strategy you said, probably it's the first one. We don't want to produce more in order to sell something that the market doesn't need. We will always prefer the first strategy. It's clear that, with all the measures that the Brazilian government is taking, as I said, Brazil is kind of a little bit late. I mean, Mexico, US, Canada, Europe, even India are taking measures a little bit more quickly than Brazil. Nevertheless, what the trade measures in Brazil, it's a very good first step in the very right direction. If unfair trade comes down, probably we'll increase also volume. We are gonna be very cautious.
Speaker #4: And so we are going to start to we will always prefer the first strategy. It's clear that with all the measures that the Brazilian government is taking as I said Brazil is kind of a little bit late.
Speaker #4: I mean, Mexico, US, Canada, Europe even India are taking measures a little bit more quickly than Brazil but nevertheless what the trade measures in Brazil it's a very good first step in the very right direction.
Speaker #4: So if unfair trade comes down probably we'll increase also volume. But we are very going to be very cautious. Regarding our capital allocation Pablo?
Máximo Vedoya: Regarding, our capital allocation, Pablo?
Speaker #5: Oh, thanks for letting me answer one question. So Caio, how are you? So yes, regarding capital allocation and following on what Maximo said before we are in the middle of a huge capital allocation structure taking into consideration the rest of the capital expenditure in the facility in Mexico.
Pablo Brizzio: Oh, thanks for let me answer one question.
Máximo Vedoya: Hi, Caio. How are you?
Pablo Brizzio: Yes, regarding capital allocation, I'm following on what Máximo said before. We are in the middle of a huge capital allocation structure, take into consideration the rest of the capital expenditure in the facility in Mexico, with the dividend payment and with the working capital increase because of increasing volumes and decreasing prices that we saw. This year, as you know, we will be moving from a net cash position to a net debt position. Next year, you are totally right that we will be reducing the level of CapEx, but we will sustaining probably the other outflows of capital. This could lead to an increase on our position, our cash position, which is not bad, and will prepare us for any opportunity that may appear in the market.
Speaker #5: With the dividend payment and with the capital working capital increase because of the increasing volumes and decreasing prices that we saw this year as you know we will be moving from a net cash position to a net debt position.
Speaker #5: And next year you are totally right that will be we will be reducing the level of CapEx but we will sustain it probably the others.
Speaker #5: Outflows of capital. This could lead to an increase on our position our cash position which is not bad and would prepare us for any opportunity that may appear in the market.
Speaker #5: Among these opportunities you know that we have talked a lot in the past and we have worked a lot in order to simplify our corporate structure and this is our on our list of priorities and if there is an opportunity to move in that direction clearly something that we need to fully analyze and to carefully analyze because it's not that you have an opportunity and you can take it immediately you need to do all the calculations in order to see the best way to proceed.
Pablo Brizzio: Among these opportunities, you know that we have talked a lot in the past, and we have worked a lot in order to simplify our corporate structure. This is on our list of priorities. If there is an opportunity to move in that direction, clearly something that we need to fully analyze and to carefully analyze because it's not that you have an opportunity and you can take it immediately. You need to do all the calculations in order to see the best way to proceed. Together with that, as Máximo already explained, continuing with the dividend is a policy that we have. If there is opportunities to improve that, if the number reflected, it's something that we will consider.
Speaker #5: Together with that as Maximo already explained continuing with the dividend is a policy that we have and if there is opportunities to improve that if the number reflected it's something that we will consider.
Speaker #5: Additionally to that the we take if you want some rest our analyzing next CapEx plan internal CapEx plan because the effort that we have to put in order to take this project to work is a very significant and as Maximo explained we need to go through the ramp up to the certification.
Pablo Brizzio: Additionally to that, we take, if you want some rest, our analyzing the next CapEx plan, internal CapEx plan. Because the effort that we have to put in order to take these projects to work is very significant. As Máximo explained, we need to go through the ramp-up, the certification. This takes some time. That's why usually when we have this big CapEx plan, then we take at least 1 or 2 years to design the new ones. As also was explained here, we still believe that Ternium has opportunities to grow in all our markets, especially in Mexico and in Brazil. There will be opportunities for us to analyze, but it will take some time for us to analyze them and present it to you.
Speaker #5: So this takes some time. That's why usually when we have these big CapEx plan then we take at least one or two years to design the new ones.
Speaker #5: But also it was explained here we still believe that Ternium has opportunities to grow in all our markets especially Mexico and in Brazil. So there will be opportunities for us to analyze but it will take some time for us to analyze them and present it to you.
Speaker #3: Maybe just a follow-up to the first actually to the second one as well. So in terms of volume gains in Brazil Maximo you mentioned that if an unfair trade comes down you should be able to increase volumes as well.
Caio Greiner: Maybe just a follow-up to the first, actually to the second one as well. So in terms of volume gains in Brazil, Máximo, you mentioned that if an unfair trade comes down, you should be able to increase volumes as well. Do you see the current capacity that you have in Brazil as enough for the volume gain that you could have for an expected market share gain? Or could you think about an alternative of, again, relighting one of your blast furnaces there? Think about maybe relighting or revamping Cubatao. Thank you very much.
Speaker #3: Do you see the current capacity that you have in Brazil as enough for the volume gain that you could have for an expected market share gain or could you have think about an alternative of again relying one of your blast furnaces there think about maybe relying or revamping Cubatão?
Speaker #3: Thank you very much.
Speaker #5: Yeah, Caio. I mean, today we have spare capacity in Brazil. Especially in the Cubatão plant as you know it's a plant that is not working at full capacity and we will also have slabs available from our Ternium facility in Rio once we don't have to ship as much slabs to Ternium, Mexico.
Pablo Brizzio: Yeah, Caio. I mean, today we have spare capacity in Brazil, especially in the Cubatao plant. As you know, it's a plant that is not working at full capacity, and we will also have slabs available from our Ternium facility in Rio once we don't have to ship as much slabs to Ternium Mexico because of the new mill coming, the upstream project coming online. I mean, yes, we have capacity in Brazil to grow, and I think it will be enough, I mean, if imports go down in Brazil.
Speaker #5: Because of the new mill coming the upstream project coming online. So I mean, yes, we have capacity in Brazil to grow. And I think it will be enough.
Speaker #5: I mean, if imports go down in Brazil.
Speaker #3: Thank you very much, Jonathan.
Caio Greiner: Thank you very much, Caio.
Speaker #5: You're welcome, Caio.
Pablo Brizzio: You're welcome, Caio.
Speaker #1: That concludes the question and answer session. I would like to turn it back over to Mr. Maximo Bedoya, for closing remarks. Please, Mr. Maximo, you may proceed.
Operator: That concludes the question and answer session. I would like to turn it back over to Mr. Máximo Vedoya for closing remarks. Please, Mr. Maximo, you may proceed.
Speaker #4: Well, thank you very much all for joining us. We welcome as usually any feedback or additional question that you have. In the meantime, have a great day.
Máximo Vedoya: Well, thank you very much all for joining us. We welcome, as usually, any feedback or additional questions that you have. In the meantime, have a great day. Bye.
Speaker #4: Bye.
Operator: Ternium's conference call has now concluded. Thank you for attending today's presentation. You may now disconnect and have a good day.
