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spk05: Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Turnium second quarter 2024 results. All 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star and one. I would now like to turn the call over to Sebastian Marti. You may begin.
spk09: Thank you. Good morning and thank you for joining us. My name is Sebastian Marti, Chairman Global IR and Compliance Senior Director. Yesterday, Turing released its financial results for the second quarter and the first half of 2024. This call is intended to complement that presentation. I'm joined today by Maximo Belogia, Terence's Chief Executive Officer, and Pablo Grillo, Terence's Chief Financial Officer, who will discuss Terence's business environment and performance. We will open the floor to questions following our prepared remarks. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission, and on page two in today's webcast presentation. You will also find any reference to non-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. Venegas.
spk03: Good morning, and thank you for joining us today for our second quarter's earnings call. Terrium posted a healthy adjusted EBITDA of $545 million for the second quarter, maintaining stable shipments with a 12% margin during a weak steel price environment. The company generated strong cash from operation of $656 million, which contributed to maintaining a solid net cash position of $1.9 billion, even after distributing record dividends during the quarter and sustaining significant capital expenditures due to ongoing expansion initiatives. In addition, net income during the quarter was affected by the recording of an accounting provision that we were required to make as a result of an adverse Brazilian court decision issued in last June related to our acquisition of a stake in Eusimina's back in 2012. Ternium believes that such decision is contrary to applicable substantive and procedural law. We did not acquire sole control over Ximena when we joined the control group. The courts changed in their previous view, now finding that the change of control occurred contradicts both the terms of the Ximena shareholder's agreement and how Ximena's governance worked in reality. Consequently, we plan to strongly defend our position, which has been confirmed by a long line of precedents and court decisions, and file all motions and appeals available to us. All such notions and appeals will need to be resolved before the case becomes final. and the determination of an actual payment amount, if any, should be made by a lower court in a separate proceeding. Let me now give you an update on our growth projects. I am glad to say that we just started up the first line in the downstream project, a 550,000 ton splitting line, and also the first line in our new finishing center in Pesqueria. The rest of the finishing lines should be ready by the end of the year, and the cold rolling mill and galvanized lines are on track to be delivered between the end of next year and the beginning of 2026. In addition, in early July, we introduced a new galvanized simulator in our R&D center in Mexico. This will enable us to shorten certification times and improve the assessment of our product quality. With the downstream project in Mexico and our new R&D center, we are adding more value-added products that will enable us to better serve our customers in the automotive, renewable energy, and oil appliance industries, as well as in the construction and agriculture sectors. These new lines are a great opportunity for us to consolidate our position as a leading steel supplier in the region as we continue to meet the demand for high-end steel products in Mexico displacing steel imports and benefiting from nearshoring. In addition, the new 2.6 million tons steel slab mill in Pesqueria continues to advance with completion expected by mid-2026. This project will enhance our capabilities in the USMCA region and position us as a leader in low-emission steelmakers. This is the largest expansion project in our history, and we are thrilled about its progress. Let me now make some comments about our main steel markets. The steel market in Mexico remains healthy, operating at good levels after last year's significant 14% year-over-year increase in apparent steel consumption. The industrial steel market is stable and strong, with the auto industry showing healthy steel demand. Automotive production in Mexico in the first half of this year increased 5% year over year. The commercial market has been a little more affected by the steel prices downturn during the quarter, which induces a stocking process. In addition, construction activity was impacted by a tropical storm by the end of the quarter. On the other hand, activity related to warehousing and logistics infrastructure continue to be strong, as well as natural gas pipeline projects. A recent development in this market was the implementation by the US administration of a 25% duty under Section 232 on imports from Mexico of steel produced, not melted, and poured in the USMCA region. Following this, Mexico's president announced that export of steel products made with Brazilian steel would be exempted from this duty. This exception is in process of being formal. Regarding this subject, there has been much discussion in the U.S. market about a supposed surge of Mexican steel imports and about the need to control transshipments of Chinese steel through Mexico. Let me be clear, this view is mistaken, and trade data indicates even the opposite situation. Steel trade between Mexico and the U.S. is mutually beneficial, with a surplus for the U.S. In 2023, the U.S. exports 4.1 million metric tons of finished steel to Mexico. On the other hand, Mexico exported 2.3 million tons of finished steel to the U.S. This is 43% less than what the U.S. exported to Mexico. Looking at these numbers in terms of market share, steel from the U.S. represents 14% of Mexico's market share, while Mexico's steel represents only 2.5% of U.S. market share. Regarding the surge in imports from Mexico, when comparing the first five months of this year, U.S. exports of finished steel to Mexico increased by 7% compared to the same period in 2023. In contrast, Mexican exports to the U.S. decreased by 12%. This followed the trend observed in 2023 when U.S. export of finished steel to Mexico rose by 11%, while Mexican export to the U.S. declined by 28% year over year. And regarding China's transshipment, U.S. statistics published in CIMA shows that in 2023, 144,000 tons of steel melted in China enter the U.S. via third countries. Of that volume, 52 percent come from Thailand, 15 percent from Oman, 13 percent from Canada. Mexico was responsible for only 0.2 percent of that volume, almost nothing. Mexico has shown a strong commitment to fight against unfair trade practice, mainly from Asia countries, which truly harmed the USMCA economy, and it continues, and Mexico continues to work on this issue. So to avoid misconception, USA trade data plainly show that there's neither a surge nor China's transhuman in Mexico still exports to the US market. Moving now to Brazil, The operational issues we had with one blast furnace in our Rio de Janeiro facility, the slab facility, were resolved, and the furnace is back to full capacity now, although this had an impact on our shipment in Mexico during the second quarter. On the other hand, Usimina's shipment in Brazil grew by 6%, with growth in all segments, especially in the automotive industry and manufacturing sector, reflecting growth in apparent consumption of flat steel in the country during the second quarter. Crude steel production increased 17% in the second quarter. This is due to the stabilization of Usimina's blast furnace number three, which has now finished its ramp up. In June, this blast furnace was able to achieve the highest monthly production of the last 11 years. There are significant efficiency gains being achieved, as Guadalquivir has done today with two blast furnaces. In the past, it was done with three blast furnaces. On the other hand, as we have talked in the past, the Brazilian steel sector faces a serious threat from imports in the domestic market and the predatory conditions monthly from China. The recent increase in import tariffs to 25% for some steel products that exceed a certain quarter is a positive, but until now inefficient measure. It falls short of what other countries in the region has adopted to save what their local producers. And we have not seen any significant decline in imports during the second quarter. We have faith that the authorities will acknowledge the situation and maintain their course of action with introduction of additional trade measures down the road. In Argentina, shipments began to recover after the significant decrease in the first quarter, reflecting a gradual improvement in till demand, although they continue to be affected by short-term impact of Argentina's government economic stabilization measures on the construction and industrial sectors. On our climate change initiative, our climate change initiatives are advancing with the with the unscheduled construction of our first wind farm in Buenos Aires province in Argentina, which should be operational by year end. In addition, our technical school in Pesqueria was recognized by the Mexican government in the voluntary national reports towards United Nations Agenda for Sustainability Development. Our technical school was considered an institution that served as a model of how companies can positively impact their communities and sustainability. Since its inception in 2016, the school has graduated more than 600 students, with 83% either studying or employed. We are extending this practice to Brazil with the construction of our second technical school in Santa Cruz near our plant in Rio de Janeiro, which with activities set to commence next week. Finally, I am positive regarding Ternius' performance as we move through the following orders. After an expected bottom of margins in the third quarter related to the lack of a set of contract price at lower levels, we anticipate Shimmer to continue growing with healthy demand in our main market and margins to increase as steel prices are beginning to rise and costs are showing downtrends. Okay, Pablo, please proceed now with your comments about our performance in the second quarter.
spk10: Thanks, Maximo, and good morning to everyone. Let's now look at the webcast presentation for details review of our company operating and financial results. If we start with page three, we will review the second quarter performance. Our trusted EVBA achieved 545,000 The primary driver of the sequential change were lower realized prices in our key market, together with a modest rise in cost per ton. Consequently, our adjusted VBA margin saw a slight decrease, settling at 12 percent. Looking ahead to the third quarter, turning expected decline in adjusted VBA. That is mainly due to the decrease in In the VBA margins, although increased shipments across key markets will partially offset this impact. We anticipate lower realized steel prices in the third quarter, primarily because contract prices in Mexico will adjust to lower levels as a result of soft spot prices conditions during the second quarter. Net income during the quarter was negatively affected by a recording of 783 million provisions for the ongoing litigation related to the acquisition of the participation in UCMinas in 2012 that Maximo already mentioned. We were required to make as a result of the reverse Brazilian court decision issued in June. Excluding this provision, adjusted net income decreased sequentially to $40 million, reflecting a significant change in deferred taxes of $191 million. due to the 9% depreciation of the Mexican peso against the U.S. dollar during the quarter. Now, let's turn our attention to the performance of our steel segment on page four. In our last earnings release call, we guided you for an increase in shipment in Mexico. In fact, turning to shipment in Mexico experienced slight decline in the second quarter. As already explained by Maximo, in the commercial market, demand was negatively affected by the downturn in steel prices during the whole quarter. In addition, shipments were also negatively impacted by a tropical storm that affected the value chain in the state of Nueva Leon and Tamaulipas during June. In industrial markets, the automotive industry remains strong, with some small decline in household appliances industry tied to decreasing housing in the U.S. Looking forward, we anticipate a consistent demand in Mexico's industrial and commercial markets with supply chain stocks at a manageable level. Achievement in Brazil increased sequentially by 6% in the second quarter, with growth across all segments, particularly in the automotive industry and the manufacturing sector. Looking ahead, we expect a rise in shipments in the third quarter, supported by the projected growth of the automotive industries and advances in the construction sector. In the southern region, shipments saw slight increase reflecting improving conditions in the Argentina steel market. While the pace of the recovery for Argentina remains uncertain, we anticipate an increased achievement in the third quarter. Let's now review the steel segment consolidated sales and profitability on the next page. Looking at the upper left chart, steel product sales declined in the second quarter, primarily due to lower realized steel prices in Ternium's main market. Cash operating income per ton and margin for the steel segment in the top right chart were also impacted by the price decline. Additionally, cost per ton increased slightly during this period. Looking ahead, we expect margins to decline sequentially in the third quarter, primarily due to the effect of contract prices in Mexico to lower levels and the current soft spot prices conditions. Now let's turn to page six to examine the performance of the mining segment. We see that net sales for the mining segment remain stable. Of course, volume and revenue per ton in the second quarter were steady. In page seven, let's see the adjusted VBA and net income. As previously commented, the top chart highlighted the primary factors we have the sequential decrease in adjusted VBA, a significant drop in real estate prices in our key market and a minor increase in cost per ton. In the chart below, we can see the impact of net results from the increase operating income and the higher deferred tax loss primary to the depreciation of the Mexican peso, as I mentioned before. This was partially upset by improved financial results. Now let's proceed to the next slide to evaluate our cash flow performance in the second quarter. from cash flow provided by operational utilities of $666 million, helped in part by a decrease in working capital. Capital expenditures were $409 million during this period, on the advance in the development of the downstream and upstream projects in Teusqueria industrial center, and also the advances in the constructions in our new wind farm in Argentina. The strong cash generated Together with $150 million increase in the fair value of financial instruments contributed to maintain turning solid financial position as of the end of the second quarter, with a net cash position of $1.9 billion. Experiencing only a modest decline during the quarter while we paid a record level of dividends. Turning to page nine, the table performance on the fair cash of the year. Steel shipment reached 7.7 million tons in the first half. This growth was primarily driven by the consolidation of Yuciminas, which also influenced mining shipments as shown in the upper right chart. Adjusting the EDA for the first half of the year was $1.4 billion. The margin declined year over year, largely due to the lower steel prices and the consolidation of Yuciminas in the second half of last year. In the lower right chart adjusted, the earnings per ADS stood at 1.7 in the first half. This represents a decline compared to the first half of last year. The decrease is attributable to lower operating results and the deferred tax loss I mentioned before. On the final slide, cash flow from operation was strong in the first half of 2024, amounting to $1.1 billion after accounting for capital expenditures of $804 billion. Free cash flow in the first half of the year was $274 million. So with this, we prepare our initial remarks, and we can now start the Q&A session. Thank you very much for your attention. Please go ahead.
spk05: And as a reminder, if you would like to ask a question, please press star and the number 1 on your telephone keypad. Our first question comes from the line of K.O. Ribeiro with Bank of America. Your line is open.
spk04: Good morning, everyone. Thanks for the opportunity. So my first question is more market related. I just wanted to see if you could provide an update on HRC prices in the U.S., which have been under pressure over the last month, and whether you see any green shoots emerging ahead, which could support a rebound. And then secondly, more specific to MUSA, I just wanted to see if you have any updates on that front, any revised CapEx expectations regarding that potential expansion at the MUSA asset, and when you would expect to take a decision with that project or not. And then on a similar note, still related to MUSA, with the recent correction in iron ore prices to $100 per ton, whether there would be any changes to your planned production levels and the asset, and if not, if there would be a certain price level where you would contemplate reducing your third-party iron ore sales from that asset. Thank you.
spk03: Thank you, Caio, for your questions. The first one, prices in North America or in the U.S. I mean, I said it in my initial remarks. Hot rod coils in the U.S. were down to around $700 per metric ton by the end of last month. But we are seeing today that these prices, by the end of July, not last month, by the last week, I guess, but we are seeing increasing prices. So we feel that this is a bottom of the price. Of course, In our pricing, some part of this you are not going to realize is in the third quarter because of the lack of the contract part of our business. But yes, we are seeing this to be the bottom part, and we are seeing some indication that this is coming up. In a more medium or long term, as I always said, I think that demand both in the U.S. and in Mexico is still very strong. different sectors but i see mexico although it grow by 14 percent last year the apparent consumption of steel is still growing in mexico and i see robust demand in in in the u.s again i think that what impact prices the last couple of months was the excess production of china which that production you know for the last five or six months china has been on a record of export of steel, and this is coming down, and it has to come down. It's not that this volume is coming to the U.S. or Mexico, but clearly this is affecting other markets which then are shipping to Mexico and the U.S. So on the bottom, I think, yes, it is a bottom, and we are seeing clear evidence that prices are going up and will be going up in the near future. I hope with this, Caio, I answered your question. The first one, at least.
spk04: Yes, definitely. That's very clear. Thank you, Maximo. Perfect.
spk03: Sencon, MUSA. I think we talked in the past, but I don't remember, but the decision of the MUSA project should be taken by the end of next year. We are working on the project. We are working... in all the things that we are advancing, engineering, which will be the technology, the permission, yes, all the permissions that we need, the scope of the project. There is a team working in everything. But the decision, we are not going to make the decision this year. Probably it should be by the end of next year. And regarding the production, We are not seeing today a decline or a huge decline in production. As you well mentioned, prices have been a little bit volatile, but they're decreasing to 100, then going up a little bit, then decreasing again to 100, then going up a little bit. So it seems that 100 is kind of the bottom of the spectrum of the prices of iron ore. It's not the price that we are expecting. very, very comfortable, but Musa can work with that price. So we are not expecting a huge decline in volumes in Musa, but probably a part or a small part, we are revising the marginal cost of some of the production of Musa, but it shouldn't be huge.
spk04: Thank you, Maximo. That's super clear. I appreciate it.
spk03: You're welcome, Cairo.
spk05: And the next question comes from the line of Carlos de Alba with Morgan Stanley. Your line is open.
spk08: Yeah. Good morning. Good morning, everyone. Thank you very much. Just a question, Maximo, maybe on the 25% import tariffs that the US put on Mexican steel exports into the US that are not melted in the country. The 25%, the exemption for Brazil, is that official and a done deal? or still subject to negotiations and a final decision? Because I haven't really seen an official document or announcement. And in fact, there is talk that maybe the U.S. officials are having a call fit on that.
spk03: Hello. Good morning, Carlos. I think it's official. I mean, the president of Mexico announced it. So I don't know. And then there is a a formal proclamation from the Mexican government saying this. So I guess it is official. I think that what is happening, it has to be implemented. Remember, when they announced the 25%, the implementation came two weeks later, and I think this is happening now, but we are working on that assumption.
spk08: Yeah, what I'm hearing is that the U.S. officials have not... have not signed off on that. And the fact that Mexico has said it doesn't necessarily mean that the U.S. is going to follow. But anyway, I mean, something to monitor clearly because of the relevance that it will have on turning business. And then on Usiminas, how do you see the evolution of this lawsuit from CSN? Can you mention a little bit on your prepared remarks, but if you can elaborate a little bit more on um on what would be the next steps um and that would be one point and the second point on the same topic is um apparently there is a court decision that uh that is uh is forcing csn to sell their the shares that they own in usaminas um in the in in the short term i guess uh would turnium negotiate with CSN and acquire those shares? Is that a possibility, or you are not interested in increasing further your stake in Nusiminas at this time?
spk03: Okay, I answered the second question first. Carlos, sorry, Carlos. The same letter, at least. The second part of that question, the answer is no. And the first part of the question regarding the status of the CSN pernium judicial process, let me say that, I mean, this is a judicial process that is ongoing right now, this week and the following week. So, to be honest, I prefer not to add much more of what I have said already in my prepared remarks, because I mean, as I said, it's something that is ongoing, and there's a lot of things going on. So I stick to what I said in my initial remarks. Carlos, I hope you understand.
spk08: Yeah, no, for sure. And just a follow-up on the first part of my second question. Why wouldn't Ternium negotiate with CSN Modus Immunoshares? If you can add any color there, that would be great.
spk10: Hi, Carlos. This is Pablo. First of all, as you know, this is a process that, you're right, is going on in Brazil, but the processes in Brazil are long. So we cannot count that this will be the case immediately. So we are not in any position to say what will happen. and what we will do in respect to that. So it's happening in Brazil, but it's nothing that we can do at this moment.
spk03: Okay.
spk10: Thank you, Pablo.
spk03: Thank you, Carlos. Thank you, Maximo. Bye.
spk05: And your next question comes from the line of Tim Nataner's Wolfe Research. Your line is open.
spk06: Yeah, hey, good morning. Regarding the situation with the Brazilian imported slabs, it's all very interesting, but at the end of the day, does it really matter that much for Trinium if indeed, as you pointed out very nicely, Mexico doesn't export that much to the U.S.? And also, it seems like you're pretty busy with good demand in Mexico. Lazaro Cadenas isn't going to produce much in the third quarter, if any. Are you seeing opportunities to take shares? Can you talk a little bit more about any opportunities from AMSA potentially declaring bankruptcy? Thanks.
spk03: Thank you, Tina. You are a little bit right, but of course, I mean, nobody likes to have something taken away. I mean, I remember We are not the only ones exporting to the U.S. So, I mean, the sense is having a restriction in the export from Mexico to U.S. for the melted and poured from Brazil, when both countries, the U.S. and Mexico, both imports left from the U.S. From Brazil, sorry, from Brazil, doesn't make any sense. It's clearly... The volume is maybe not big volume as the volume as a whole internium, but it's a volume important for what Mexico exports to the U.S. So putting a restriction, small as it may be, from Mexico to the U.S., when the U.S. exports that much more to Mexico, it doesn't make any sense. And that's our position, to be honest. You're right that compared to all the volume that Mexico sells and our opportunities in the domestic market is not that big, but we need to fulfill our customers in the U.S. also. So that's the first part of the question. You asked something about AMSA. To be honest, we don't know much of AMSA besides what's in the press, that supposedly there's a deadline. I think it's the 4th of August, where ANSA should go to the bankruptcy process because there was no agreement. Nevertheless, I think it's still a long process, the bankruptcy process. It's not going to be something immediately. I mean, it's not a very easy bankruptcy process.
spk06: Got it. Thank you. So I recognize it's more about the principal. That's a really fair point. If you could also touch on any opportunity with Velocirocardinus. And then if I could, a second question. If the price in the US is just starting to stabilize here for September, is that still enough to help the fourth quarter cadence for pricing? Just because I'm trying to think about the timing. And if you could also talk about the magnitude of the margin opportunity with some of the raw materials decreases.
spk03: Thanks. Yeah, I think the prices in the fourth quarter, yes, should improve because of this increase in the prices that we are starting to see this week and should continue a little bit through this month and the following month. So, yes, the magnitude of the increase, it's very difficult to say right now, Tim, I always said that a normal price in the North American region should be between 800 and 900. Of course, with the volatility we are accustomed to. So, I mean, that's our view, but I'm not saying that that is going to be in the fourth quarter yet, but it's going to be increased.
spk10: Okay. Hi, Tim. This is Pablo. You asked in relationship to the possibility of the recoverability of the margins entering into the fourth quarter. As we always try to say, always the volatility could be there, but in the long run, we should be achieving certain level of margins. If you took together the first semester of this year, we are still at the level of 15%. So clearly, we have a reduction during the third quarter because of all the things that we said. And if the prices that you mentioned and Maximo confirmed are increased and these are reflected together, with some reduction in cost that we need to see during the fourth quarter because of the first-in-first-out methodology that we utilized, should recover our margins to a higher level than what we see or what we will see during the third quarter. So, yes, we have the chance to recover, and at the full year after all these effects, if we are correct, should position us in a very reasonable level of margins.
spk03: Yeah, let me add something more, because I don't want to sound with this problem of the U.S. and Mediterranean. I mean, Mexico, and this is not ternium, Mexico as a whole exports something like 1.2, 1.4 million tons of flat products, which is a finishing fresh product. finishing products, around that 1 million, 1.2. Of that, more than in volume or in price, something like half of that comes from not melted and poor. So semi-finished products, slabs, that come from different parts, some of them from Brazil. It's not a huge volume, but it's very important for what Mexico exports to the US. So it doesn't make any sense to have this restriction in, as I said, the numbers I said before in my remarks.
spk05: Got it. Okay. Thanks again.
spk03: You're welcome.
spk05: And your next question comes from the line of Marcio Farad with Goldman Sachs. Your line is open.
spk11: Thank you. Good morning, Marcio. Pablo, thanks for the opportunity. I have a question on the demand side. You obviously mentioned that demand is quite strong both in the US and in Mexico as well. Shipments for the quarter relative to the week, my understanding is that that's basically buyers holding back purchases on a declining price environment. Just wanted to check with you if you've already seen clients coming back and buying since you've already seen some initial signs of of flight stabilization and potentially HRC price recovery as well. And secondly, just a follow up on the taxation risk. I know you've talked a lot about the interdependence between US and Mexico for the trade flows. And it does feel like US is a lot more aggressive than Mexico is at the moment, right? But with US elections just around the corner, what are the, you know, the potential risks you're assessing? You know, there are even suggestions by one of our competitors that USCMA should end and this kind of thing. But I mean, what are the kind of potential risks you're seeing on a new U.S. administration into next year, please? Thank you.
spk03: thank you mario the the first part of the question um demand yes we are seeing a a a pickup in mexico part of that is also because for external for different reasons also we we ship a little bit less than what we should have shipped in the second quarter not only because of the demand but also because of the torment alberto we were two weeks with a lot of problems also the the slap um shipments from brazil to mexico also had problems because of alternative because of the browns report and some other issues and the the problem we have with the plus furnace so we have seen both things a pickup in our achievements because of this and a pickup of their shimmy because people are realizing the ones that we had stocks that prices are starting to to to to go up so both things we are seeing, as you mentioned. Regarding U.S.-Mexico and USMCA, I mean, I don't see, I mean, my view, it's going to be the same regardless of who is in the U.S. government. I think Mexico and U.S. relationship, it's a very strong one, and it's both sides. I mean, I don't see I mean, I see the USMCA as an excellent agreement for the three countries, not only for Mexico, for Canada, or for the US. The three countries have benefited a lot from the US, from the USMCA. I mean, if you put also, let me give you some advice, but there's a lot of evidence about this. But if you take from 2019 to 2023, Exports from the U.S. to Mexico increase by 26%. So export of the U.S., and this is only in goods, not services, which is much more, 26%. Mexico also increased export to the U.S. by 30%, but both numbers are similar. So both countries are benefiting a lot From that, you take the states of the U.S. 33 states in the U.S. have Mexico as one of the top destinations of their exports. I don't know, jobs. There's a lot of evidence and different jobs of the millions of jobs the USMCA has created in the U.S. So I don't see that somebody would think of changing or cancelling the USMCA with all the benefits that this is bringing to Mexico and to the U.S. I think there are some things that we can improve, for sure. But others, no. The other issue that you didn't mention, but it's very mentioned in the press, is the Chinese investment in Mexico as a reason of, I don't know, putting in doubt the USMCA. But the numbers, again, they are not there. I mean, there are some Chinese companies investing in Mexico, as there are some Chinese investment in the US. But if you take the foreign direct investment that China made in Mexico, and not one year, I put the last four years, 2020 to 2023, it's less than 1% of the FDA of all Mexico. So it's insignificant. Yes, there are some companies coming, but... The numbers are very, very small. So there's not an invasion on anything of that. Again, the U.S. is also receiving foreign direct investment from China and much more bigger numbers. But the bottom line here is, I think it's mutual for the three countries. And yes, we have to, the three countries, make tougher laws against unfair trade, not only still, but in a lot of other products. We have to work together to...
spk07: make that possible thank you and your next question comes from the line of alex hacking with city your line is open good thanks morning i just wanted to ask quickly on citara when i when i look at their financial statements for the quarter they seem to be reporting an operating loss And that's not including the provision, right? So that would seem to be an underlying operating loss. Is that just FX accounting or is this something more fundamental that's happened, et cetera? And I guess how would you see profitability there evolving in the third quarter? And am I even correct that there was an operating loss in the second quarter? Thanks.
spk03: Yeah, Alex, you're kind of correct. It's almost zero. I mean, the main issue, and Pablo then elaborated a little bit more, but the main issue is that the second quarter was a quarter where the volumes were very low. Remember, first quarter and second quarter were the lowest level of ternium Argentina in a long time. We are seeing now an increase in the volumes. due to the situation of the Argentine market or the whole economy market. But I don't know, Pablo, if you want to elaborate a little bit more.
spk10: No, you're right. And Alex, how are you? You are totally right. It was unfortunately not the best quarter for Ternium Argentina because not only what Maximo explained, we also had some costs increased due to the first-in-first-time methodology that impacted all together in the same quarter. Again, as we discussed before, at the very end, if we then sum up the fourth quarter for the years, we should see a different result. We are expecting to see higher volumes during the coming quarters. We should see also some reduction in cost in the coming quarters. So this situation that you clearly saw during the second quarter should be reversed during the third and the fourth quarter.
spk07: Okay, thanks. That's clear. It just caught my eye because, you know, I basically keep it down for some calculation. Yeah. It was the worst quarter in my model since 2012. Okay. Thanks. Thank you.
spk05: And your next question comes from the line of Leo Cora with BTG Pactual. Your line is open.
spk02: Hello, good morning, everyone.
spk01: Thanks.
spk02: Yeah, so a couple of quick ones, more detail here, but hopefully you can help a bit. So first off, for you, Pablo, the dividend situation, right? I mean, the term has been consistently increasing the dividend over the past year. We're now, I mean, you guys still have, BIT OF A HIGH CAPEX PROGRAM GOING FORWARD, GIVEN THE PROJECTS AND EXCO. AND THIS SOMEWHAT MESSY SITUATION WITH CESTRAN ON THIS LITIGATION, WE DON'T KNOW EXACTLY HOW THIS ENDS. OF COURSE, YOU GUYS HAVE GREAT ARGUMENTS, BUT YOU NEVER KNOW HOW TO PREDICT THESE THINGS. AND I CAN IMAGINE THERE'S A HIGH LEVEL OF UNCERTAINTY. And as a consequence, you're increasing your provision, right? So just wanted to double check if there's any risk that you guys reevaluate the dividend going forward. I know this is a board decision, but anyway, just given how conservative you guys are on balance sheet management, I just wanted to double check on that. Second point, we've been talking a lot about steel prices over this call. Clearly, the situation in China is the key culprit. I'm not sure anything changes anytime soon. Looking at slab prices, the price has obviously collapsed. close to $500. I'm just curious to hear you on how does CSA, how does turning Brazil into a slab plant, how can it operate in this environment? I mean, what type of economics are you generating? Is the plant break-even at these levels? Just wanted to hear you a bit more on that. Thank you. Those are the two questions.
spk10: Hi, Leo. How are you? Pablo, let me start with the first question regarding dividend. We see no reason to change what we have been doing in relationship to dividends. And let me expand a little bit on that. You mentioned a couple of things in your question. We continue to generate very positive free cash flow that was reflected in the numbers during this quarter and the semester. And also, even though that we pay the record dividend during this first semester, the reduction in the total cash position of the company, was very much not affected. So a very minor change in the level of net cash that the company continues to have. The CapEx plan that we have is online, on crack, so nothing that could change there because that was something that was expected before and that we will continue to do. So there shouldn't be anything in relationship to that. And then, what we have been discussing on the recoverability of margins and results, together with the pricing and increased volumes in the coming quarters, again, put us in the position to be in what we saw at the very beginning. We see no reason to change what we have been doing up to now with dividend payments. Maximo, you can take the second one.
spk03: Yeah. Leo, hello. How are you? Yeah. The situation of prices, especially in SLAPs, First of all, remember Ternium is a net buyer of slabs. Ternium plus Usiminas is even greater. So it's not a bad thing, the prices of slabs. Ternium Brazil sends, I mean, sells, if you can say this, everything to our own companies, either Usiminas or either Ternium Mexico or either Ternium Argentina. So... We are not seeing a problem in the production of Ternium Brazil. As you know, Ternium Brazil is very efficient, so it can work at this level of prices. But again, for Ternium as a whole, we are a net buyer of slabs.
spk05: And your next question comes from the line of Rodolfo Angeli. Your line is open.
spk00: Hi. Thanks, everyone. confirm that the overall message from the call in terms of outlook was that things are bottoming, prices should be getting better in North America. But in the guidance and the release, you mentioned EBITDA weaker into the next quarter. So I know there's a bit of a time indifference, but I just wonder if you could comment on this with a bit more details. That's all. Thank you.
spk03: Uh, well, yeah, I, I, I started and then Pablo, but yes, the message for you are right. Uh, next quarter, uh, the outlook we did for, we gave for the next quarter is the one that you just recall prices should decrease, especially in Mexico because of the contract prices, not the sport prices, but the contract practice, the lack in the contract prices. So our price overall will see probably an increase in spot prices from the ones we have in June and July. But overall in the quarter, prices because of industrial prices are going to be down. Volume in Mexico a little bit higher, and then an increase in volume from Argentina and a little bit from Brazil. Overall, the outlook is a decrease in the EBITDA regarding the second quarter. And we are seeing that this is the bottom, and an increase following this bottom.
spk10: Yeah, let me add, Harold, to what Maximo said, that we will also continue to see a certain level of cost that will be reflecting the purchased labs and the purchased raw material in the past. So it's still reflecting higher prices than what we are seeing today. when we mentioned that the fourth quarter should start to reflect a better scenario for pernium, reflecting not only the price increases that we are seeing right now, but also the reduction in cost that we are also seeing. It was mentioned also over here that iron ore is going down, coal prices are going down. So prices are also reducing from out there. We will not see that yet fully during the third quarter. This is more for the fourth quarter and year end. That's why we always like to look at a longer period than a quarter because usually you could have the lag and the timing difference on the cost of the prices and this could lead to that. But in general, yeah, we are clearly seeing a bottom during the third quarter and a recovery in the fourth and entering into next year.
spk05: And there are no further questions at this time. I will now turn the call back over to the CEO.
spk03: Thank you, and thank you to all. We appreciate your participation on this call and all the questions you ask. We welcome any feedback you may have. So thank you again, and have a nice day. Bye-bye.
spk05: And this concludes today's conference call. You may now disconnect.
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