Ternium Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2024

There are 8 speakers on the call.

Operator

Good day, and welcome to Ternium 4th Quarter 2023 Results Call. Participants will be able to listen only until the question and answer portion of this call. Please note that today's call is being recorded. I'd like to introduce the call to Sebastien Marti. You may now proceed.

Operator

Thank you.

Speaker 1

Good morning, and thank you for joining us today. My name is Sebastian Marti, and I am Cernium's Global IR and Compliance Senior Director. Today, we released yesterday's financial results for the Q4 and full year 2023. This call is complementary to that presentation. Joining me today are Ternium's Chief Executive Officer, Maximo Vedoya and the company's Chief Financial Officer, Pablo Brizio, who will discuss Ternium's business environment and performance.

Speaker 1

At the conclusion of our prepared remarks, there will be a Q and A session. Before we begin, I would like to remind you that this conference call contains forward looking information 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. 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.

Speaker 1

Vedoza. Thank you, Sebastian. Good morning to everyone, and thank you very much for participating today in our conference call. 2023 was a key year for Ternium. We made good progress in several fronts following the transformation path we envisioned a couple of years ago.

Speaker 1

The new projects in Mexico are firmly under development. The new downstream lines in Pesqueria will enable us to offer new high value added products to our customers in the region. This capacity will be integrated with an upstream project, a new steel slabs mill currently under construction. This will be the greenest and most technologically advanced automotive steel product steel mill in the Americas. It will be able to supply the full range of auto products from exposed grade to advanced high strength steel.

Speaker 1

This lab mill will be based on electric arc furnace technology that could be supplied with renewable energy. In addition, the project includes a direct reduction iron facility with capability to capture CO2. On the other hand, Stelion's new role in Usiminas is already showing good results for the company. The new management team there is taking decisions that are having a significantly positive impact on its performance. In addition to these strategic developments, in 2023, Tavy had a solid year from a financial performance point of view.

Speaker 1

Adjusted EBITDA and net income were strong as well as cash generation. As a result of these good results and strong financial position, Ternium's Board of Directors proposed an annual dividend of $3.30 per ADS, a significant year over year increase. This is the highest annual dividend on record as we continue to develop a consistent growth path for our return to shareholders. Let me now review the latest developments in our main markets. Growth in Mexico steel market has been strong.

Speaker 1

Consumption of flat steel in 2023 reached an all time high of more than 18,000,000 tons, equivalent to an yearly increase of 18%. Our shipments in the country grew by 22% with a significant market share gain, supported by the ramp up of our new hot rolling mill in Pesqueria. The market environment in Mexico continues to be healthy. Industrial activity is strong. The auto industry is working at high levels of capacity, rebuilding stocks in the value chain.

Speaker 1

In 2023, automotive production increased by 14%, reaching 3,800,000 units. Construction activity in the country also remains at good levels with non residential like industrial warehouse, natural gas pipelines and other infrastructure projects doing well. On the other hand, residential construction is being negatively affected by the increasing prices of construction inputs. The EMEA assuring of manufacturing capacity is clearly one of the factors contributing to economic activity in the region. Mexico offers a combined combination of geographic proximity, skilled labor and a supportive business environment contributing to increased supply chain resilience.

Speaker 1

Looking ahead to the Q1, we expect shipments in Mexico to maintain the strong level we reported in the Q4 of 2023. However, there is a downside risk to this short term volume view as steel prices in the region have recently begun a downward trend and there is some opportunistic demand retraction, which is typically typical in such a scenario. In addition, we anticipate lower cost per ton and slightly higher revenue per ton to push margins back up. Regarding our growth projects, we expect to inaugurate the first line of our downstream project in Pesqueria during the second half of this year with the start up of a 550,000 tons per year peaking line and the first lines of our service center. By the end of next year, we plan to start up the new galvanizing line followed shortly by the core rolling mill.

Speaker 1

The ramp up of all these new lines should enable us to gradually increase the value added of our shipments in Mexico. The construction of both our slab mill and the downstream lines is progressing as expected, with suppliers already assigned for all the main equipment and different level of advance in the work of each of them. We have updated our budget for these projects, and we are now estimating a total investment of BRL 3,500,000,000, dollars up 9% from the 3,200,000,000 dollars in our initially estimation disclosed 1 year ago. The main source of this increase were inflation on the pricing of equipment and fluctuations in the FX rate. Let's turn now to Brazil.

Speaker 1

After an increase in our participation in July of 2023, we began fully consolidating Usiminas result. This happened during a transformational year for Usiminas as it successfully relined its main glass furnace. With the appointment of a new management team, Usiminas took strong decisions as, for example, putting out of operation 1 of the smallest platforms and one of the coking facilities. In addition, the new management team took decisions lead to higher efficiency of the metallic charge in the upstream process and lower fuel rate at the blast furnace. This is part of a significant management initiative, which focus on Usiminas industrial system with the aim at increasing its productivity and it will continue to be Usiminas' focus throughout this year.

Speaker 1

Usiminas' mining operation had a very good year with our ore shipments reaching an all time high of 9,100,000 tons in 2023. On the other hand, Oceanis expects a deterioration in its mining business during the first half of twenty twenty four due to the temporary stoppage of 1 of its ore processing plants and seasonal rains at the beginning of the year. A key issue in the steel market in Brazil is that adequate trade measures are taken to defend it from unfair trade as has already been made in many other important markets like the U. S, Mexico and Europe. Import of steel so below cost of production is having a toll in the Brazilian steel market.

Speaker 1

The Brazilian Steel Association, together with all steel companies, are actively trying to find a solution to this issue. For the Q1 of 2024, Usiminas anticipate a sequential improvement in the profitability of the steel business, mainly as a result of lower cost per ton as the productivity of the steel business is gradually improving. In Argentina, a new government administration took office in December and is determined to introduce significant macro reforms. The first measures taken by the new administration were a steep devaluation of the Argentinian peso, significant government spending cuts with the aim at controlling inflation and the proposal of several market friendly reforms. These much needed reforms, although positive for the medium to long term, are expected to initially have a recessionary effect in Argentina economy and consequently negatively affect Ternium's shipment in the local market.

Speaker 1

If the government is able to successfully stabilize the macroeconomic situation in the country and introduce this market friendly reform, Argentina is a country which offer many opportunities for all kind of investments in different fields, which would bring a long awaited path to economic recovery, something that would be very positive for our operations in the country. On the other hand, we are advancing in Argentina with the construction of our 1st self owned wind farm, which will begin operation by the end of the year. We are also analyzing ways of replicating this experience in other countries. Let me now make a few final comments before closing my prepared remarks. 2024 will keep us busy as we continue implementing our strategic plan, which represent the largest growth initiative in Tonio's history.

Speaker 1

The development of the downstream project in Pesqueria will enable us to begin shipping higher value added products to our customers during the current year. We have a strong competitive position in Mexico and market that is being significantly benefiting by the near showing of manufacturing capacity. Argentina, we have a bumpy year, but I'm confident we have the expertise to navigate through a rough period. We do have some opportunities to substitute any steel demand decrease in the local market with shipments to other Ternium facility to complement their productions. And finally, this is an important year for Usiminas.

Speaker 1

It has many opportunities for productivity improvement. I trust the new management team in place will successfully guide it to its full potential. With this, Pablo, go ahead and review Ternium's performance in the Q4, please.

Speaker 2

Thanks, Maximo, and good morning to everyone. Let's review our company operating and financial results on the webcast presentation for more detailed picture of our performance. If you want, let's start by Page 3, please. Turning to the year's strong results in the Q4 of this year, 2023. Margins in the period were slightly above our last quarter expectations, mainly due to lower costs.

Speaker 2

Adjusted EBITDA for the 4th quarter was $651,000,000 a 7% decline from the Q3 2023. This decrease was primarily driven by lower steel prices, partially offset by lower costs. In addition, the profitability of Usiminas Mining operation increased sequentially during the period. Adjusted EBITDA margin stayed constant at 13%, mirroring the prior quarter performance. This relatively low level was again affected by the consolidation of Usiminas Steel operation, which continue to record low profitability as we ramp up its main blast furnaces at Ipathinga facility.

Speaker 2

Looking forward, we anticipate an increase in adjusted EBITDA for the Q1 of 2024, primarily driven by an improvement in our margins, resulting from lower steel cost per ton and slightly higher revenue per ton. Going now to the results. Both net income and adjusted EBIT adjusted earnings per ADS showed notably strength during the Q4. These results include non cash positive effects from Usiminas post retirement liabilities and contingencies reversals, along with the net foreign exchange gain related to a substantial devaluation of the Argentine peso against the U. S.

Speaker 2

Dollar. We will go deeper into this on the upcoming slides. Let's turn now to our shipment performance on Page 4. In Mexico, stainless steel shipments remained strong in a seasonally weaker period aided by continued growth of commercial customer demand. Equally remarkable, as Maximo mentioned, terminal shipments in the country for the full year 2023 surged by 22% over the prior year, indicating a substantial gain in market share, driven by the ramp up of our new hot rolling mill in Tesqueria.

Speaker 2

Looking ahead, we anticipate shipments to increase slightly in the USMCA region in the Q1 of 2024. In Brazil, the increase in volumes reported in the second half of twenty twenty three, primarily reflected the consolidation of Usiminas. Usiminas expects safe achievements in the Q1 of 2024. Steel shipments in the southern region decreased by 7% in the Q4 as government imposed restrictions on import of inputs affected turn steel production rates in Argentina. In the coming quarter, we expect demand in Argentina to decrease compared to the Q4 due to the usual seasonal slowdown and the impact of the macroeconomic reform in our value chain as Maxine explained.

Speaker 2

On the follow on page number 5, you will see that with these factors combined, we achieved in the Q4 very similar achievements compared to the 3rd quarter. Looking ahead, in the Q1 of 2024, we anticipate slightly higher shipments in the USMCN region to be offset by lower shipments in Argentina. Moving on to steel prices. Steel revenue per ton decreased further in the 4th quarter as expected, reflecting lower realized prices in most of Thailand markets. Looking forward, as market prices in the USMCA region increased during the Q4, contract prices in Mexico are resetting at higher levels in the Q1.

Speaker 2

On the other hand, during January February, market prices in the ASMCA region have been decreasing. All in all, we expect higher realized steel prices in Mexico in the upcoming quarter. Now let's review adjusted EBITDA and net income on a quarterly basis on Page 6. At the top, the primary factor contributing to sequential decrease in adjusted EBITDA was a decline in realized steel prices, partially offset by a better cost performance and a more profitable mining operation in Guisiminas. As shown in the chart at the bottom, net income increased sequentially, driven by several positive factors.

Speaker 2

A €109,000,000 gain from reversal of cost of retirement liabilities to Susiminas, a €63,000,000 gain from a contingency reversal due to missile of a public civil action against Xucimilas. The favorable effect of the devaluation of the Argentine pesos on turning Argentina net short local currency position. And finally, an improved deferred tax. On the other hand, net income was negatively impacted by the decrease in recurrent operating income and an impairment charge on Ternium's mining assets in the Q4 of 2023. Now let's review in the next page our cash performance.

Speaker 2

You can see a healthy cash generation from operations in the 4th quarter, aided by a decrease in working capital. CapEx in the 4th quarter increased sequentially and significantly, reflecting the investment we are currently doing at our Percequeria facility for our new projects. This was partially offset by lower CapEx at Usiminas as the bulk of the investment in the realignment of the last furnace are now being left behind. Despite this higher CapEx level, Ternium managed to record positive free cash flow in the period. By the close of 2023, Ternium maintained a solid net cash position of 1,900,000,000 dollars This declined by around $500,000,000 in the quarter, mainly due to a decrease in the fair value of the Argentine bonds, the majority of which are held by Ternium Argentina.

Speaker 2

These bonds are valued using Argentinian pesos quotation and reported in the U. S. Dollar using the official Argentine peso exchange rate. The decrease in valuation was mainly the result of a significant devaluation of the Argentine peso by the end of the year. And is reflected in our comprehensive income as long as these bonds are not sold.

Speaker 2

When eventually these bonds are sold, any positive or negative results in our comprehensive income is recycled to financial results in the income statement. Let's now shift our focus to Page 8 to assess our full year performance. The shipments surpassed those of 2022 by an increase of 19%, with higher shipments in Mexico and the consolidation of Vicininas. Tandem adjusted EBITDA was $2,700,000,000 supported by a record level of finished steel shipments and a healthy adjusted EBITDA margin, despite the negative effect of the consolidation of Usiminas operation as it's relying on Main Blast Furnace in Patinga. Adjusted net income remained unchanged in 2023, with weaker operating performance offset by positive effects on deferred tax of local currency fluctuations and better net foreign exchange results mostly related to the fluctuation of the Argentine peso.

Speaker 2

Moving on to shareholders' return, as Maximo mentioned, turn this Board of Directors Poure IV proposal for an annual dividend of 3.3 dollars per ADS. The company already paid an interim dividend of $1.10 in November 2023 and intend to pay the remaining $2.20 on May 8, 6, 2024, pending shareholders approval. As you can see in the chart, Ternium has been consistently increasing its return to shareholders over the last 4 years. The dividend proposal for 20 strength of 13 new cash generation in 2023. Cash from operations was $2,500,000,000 and free cash flow of $1,000,000,000 after CapEx of $1,500,000,000 Looking ahead, we anticipate CapEx to be around $1,800,000,000 in 2024.

Speaker 2

All right. We have concluded our prepared remarks. Thank you for your time and attention, and we are now ready to take any questions you may have. Please, operator, proceed with the Q and A session.

Operator

Our first question comes from Carlos De Alba from Morgan Stanley. Your line is now open.

Speaker 3

Good morning, Maximo, Pablo and Sebastian. So two questions. First one is very straightforward. How much of the $3,200,000,000 CapEx has been spent already? And how should we think about the distribution between 2024 2025 of the remaining portion that has not yet spent been spent?

Speaker 1

Yes. Hello, Carlos. How are you? So I give you first the numbers of 2024

Speaker 2

and 2025,

Speaker 1

if you want. The total CapEx we are seeing in 2024, it's around EUR 1,800,000,000. This includes Usiminas. And the total CapEx of 2023 total is going to be around 2.5, also including Usiminas. 25.

Speaker 1

25, yes. Of 2025 is 2.5. If you're talking about the 3.5 in particularly of the project, this year, it's around $200,000,000 I mean, 2023 was around $200,000,000 Well, sorry. No, it's $400,000,000 yes, it's $400,000,000 because there are some payments we make with equipment. Next year, it's going to be around $800,000,000 and the big part is going to be around $1,500,000,000 in 2025.

Speaker 3

All right. Okay. Thank you, Massimo. And the second question is, so now that you have been operating Usiminas for about 6 months or so, what are the plans that you have for the operation? In particular regarding do you know what you're going to do in Cubatao?

Speaker 3

Are you going to restart cruise ship production there? What is the overall total CapEx that you see for the company? And third point there is when what is the timing for you or for the company to reach, I think, the $150 per ton EBITDA target that I think you mentioned in the past that you wanted to bring that operation to?

Speaker 1

Well, yes, we have been operating Usiminas for the last no, we have been a new management team has been operating Usiminas for the last 6 months, and they are making a lot of changes, as I already mentioned in my remarks. I think that from your questions, there's still no answer for the Cubatao question. I mean, it's clear that Cubatao is a great asset. It has a wonderful hot stream mill and a very solid cold stream mill. Putting the upstream capacity there is not an option with the equipment.

Speaker 1

I mean, we are not going to put blast furnace operation again. But there could be some alternatives. But we are going to take a little bit of time before taking a decision over Cubatao. I think that the focus today in Usiminas is the industrial facility as a whole, Cubatao and Ipatina, and how we make much more productivity or more competitive that operation. As I said, we are seeing a lot of opportunities to increase the productivity of Usiminas in both facilities, and we are going to focus, I think, this year in that sense.

Speaker 1

CapEx will be around $360,000,000 in 2024. That's the number we are seeing today. It's lower than the number of 2023 because, of course, of the realigning of the glass furnace. But that's the idea. And I think I don't know if you have another one.

Speaker 2

Yes. The other question, it was related to we were expecting to correct the margins of Usiminas. Shall I take it? Yes. As you know, Carlos, we always work with the idea of getting Ternium through a margin of around 15% to 20%.

Speaker 2

We were able to achieve that during last year, the year end 2023 margin on EBITDA was 15.6% for the year. Clearly, we reduced percentages during the last quarter, clearly, because of the consolidation of Usiminas and the reduced margins that Usiminas has during the 2nd semester of 2023 due to the relining of air blast furnace and the lack of that production. So we are expecting to start recovering from that situation. And hopefully, by the end of this year, we should be able to reach better margins and reaching the number of around 15% EBITDA margin, all together at Ternium, of course, and also in UC Usiminas. So that's the expectation, a very high expectation that we have for that.

Speaker 2

And we are working on that front together with the management that Usiminas is working in order to achieve this in the coming quarters.

Speaker 3

Thank you, Pablo and Maximo. Just one maybe for what I wanted to get at Maximo with the CapEx question on Usiminas. If you have already a ballpark, maybe a range of the amount of CapEx that needs to be invested in Usiminas in order to really bring that operation, both Cubatao and Patinga to a level that you think is more close to the standard, the Ternium standard?

Speaker 1

No. I think that the $320,000,000 is part of that project and several years at around that number. Usiminas has to do 3 or 4 things, Some environmental in Iatinga, we have to take a decision, but it's part of the decision is already in the numbers that we are expecting of the coke ovens and some also improvements in the downstream operation. But with that level of CapEx in the following years, I think we are going to be okay. The other issue in the long term is the mining operation.

Speaker 1

That's a completely different number, of course. But as you know, we are in the process of analyzing and preparing all the necessary studies and engineering in this project so that we can go forward if we approve that project.

Speaker 3

All right. Okay. And I don't want to take too much time, but just on Cuba, in Cubatao, given the location of the facility plus what you mentioned the downstream operations or assets there, are you considering is it a possibility for Usiminas down the road to invest in an electric car furnace maybe together with a pelletizing and a DRI in Cubatao?

Speaker 1

I think that it's partially, yes, I would say. And why partially? I think that an electrical furnace is an option there, of course. DRI facility is a different matter because of the cost of natural gas in Brazil. If you have cost of $16 in Brazil of 1,000,000 btu, it's not possible to put a DRI facility.

Speaker 1

But you can put an electrical furnaces without the DRI facility. But again, this is in the medium, long term. We are not today saying anything about that.

Speaker 3

Thank you very much.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from Guilherme Rosito from Bank of America. Your line is now open.

Speaker 4

Thank you. Good morning, everyone. Thank you for taking my questions. So I have two questions. My first one is on second half restarted the downstream lines at Pesqueria.

Speaker 4

So I want to understand what does that mean for your long term EBITDA margins? What kind of increase should we expand in terms of EBITDA per ton or maybe the percentage just to get a sense as we model it going forward? And my second one is on Maina Usiminas. I know you guys don't have a decision yet and you're still studying. But I mean, what timeline should we expect considering that the life of mine is at the end of the life of mine is quite close.

Speaker 4

And so when should we expect a decision? And considering Turner's current portfolio of assets across Latin American current cost of mine, does it make sense for Ximinas to remain in our own next quarter going forward? Thank you.

Speaker 2

Hi, Guillaume. This is Pablo. Let me take your first question. Clearly, every investment plan that we are doing, especially the one that you mentioned, are in order to sustain and increase our EBITDA margins. Here, we are talking about projects that will be up and ready by the end of next year.

Speaker 2

So it's difficult to tell you a number exactly on that because we need to see exactly which is environment of prices. But as we always say, any project that we develop needs to contribute to position terminal in the upper part of the range that we want to be in. As we always mentioned, this is between 15% to 20 percent. And clearly, this project of adding value to the product line that we have today. Remember that these plans that we are currently pulling forward are to increase the value added after the big investment that we did to have a new whole rolling mill.

Speaker 2

So with the new CapEx and the new plants that we will have in Mexico, we will be able to supply full range of product for the auto industry, as Maximo mentioned at the opening remarks, and clearly increase our margins. It's very difficult to give you an exact number on how the margin will improve, But clearly, this will position Ternium to be closer to the upper side of the range where we want to be.

Speaker 1

Yes. Guillermo, hi. Regarding Usiminas Mining or Musa and the new project, we have at least 2 years to make the decision. I mean Musa is going to continue the actual production with the ups and downs that are normal in a mining operation until 2028, 2029. So to decide on the project, we have time.

Speaker 1

What Usiminas management is doing now is putting forward a team and analyzing in very detail all the project, which so far seems very attractive. But I cannot tell you more than that because the decision is going to be taken in at least more than 1 year. But again, once we make the decision, we're going to go forward quickly and that's why Usiminas is putting a team together and making all the studies that are necessary and even asking some permissions.

Speaker 4

That's perfect. Thanks a lot.

Speaker 1

You're welcome.

Operator

Comes from Henrique Marquez from Goldman Sachs. Your line is now open.

Speaker 5

You hear me?

Speaker 1

Yes.

Speaker 5

Hi. Yes. Thank you for taking my question. Just wanted to understand a little bit better the perspective for demand in Argentina after the whole devaluation from the Argentine peso, if you guys can comment a little bit more on the expectations for demand and even any impacts from public infrastructure projects, that would be great. Thank you.

Speaker 1

Yes. Thank you, Enrique. Yes, I mean, there are all numbers we are putting up in our forecast. We are seeing a decrease in demand for the year around 10%. This is a high decrease and probably could be a little bit less than that.

Speaker 1

But in doing our planning of the production facility, we are putting that number as the number in demand. Infrastructure projects, we don't we didn't have a lot of sales to infrastructure projects in Argentina, except those of oil and gas. And the ones of oil and gas, I don't think they are decreasing those projects. So we are not I mean, demand for all Vaca Muerta and for the reversion of the north gas pipe, they are continuing forward. So we don't see a decrease in demand of infrastructure.

Speaker 1

But of course, the recession that we speak is going to take some decrease in the demand in the market. Probably with this number, we are being a little bit cautious. And by July or August, things could be start doing better. Again, if the government has success in implementing all these reforms that, as I said, are very well needed reforms in Argentina. I hope I answered your question, Enrique.

Speaker 5

Yes. Thank you.

Operator

Our next question comes from Marcio Fauld from Goldman Sachs. Your line is now open.

Speaker 6

Thank you. Good morning, everyone. Good morning, Maximo and Pablo. Thanks for taking my questions. A couple of follow ups for me.

Speaker 6

The first one, there was a marginal increase in CapEx at Tuscaria. So just trying to understand if you're confident that no more capsule revisions are going to be needed and if timing for the project is still on track? And secondly, I think you've talked about the outlook for demand for Mexico and the U. S. But if you can give us some visibility into expectations going to the Q1 and maybe into the year as well.

Speaker 6

I know there are some structural drivers that seems to be quite interesting for what earnings position, but anything else that you can provide in terms of details that will be great? And last, in terms of dividend, obviously, dollars 3.3 an ounce for the year in total. Trying to understand if you still have the view of continuous increase in dividend and if the one that we have seen for 2023 is now a new base to think about for 2024 onwards? Thank you.

Speaker 1

Thank you very much, Marcio. Let me start with the Pesqueria CapEx question. I think it's the correct number today. There are 2 things that, as I said, changed the number. First, when we did the project more than 1 year ago, there was an inflation in equipment and also some inflation in the construction.

Speaker 1

So I mean, it's some part logic to improve to increase a little bit. The other important issue is that when we approved the project, some of the equipments that we bought or a lot of equipments that we bought were in euros. And the euros in that time was $1.01 and today it's 1 point $908 So there is an increase also there. Those are the two main factors that make us increase the CapEx. We don't see so far something else that is going to that can move that number.

Speaker 1

Of course, we can have some bumps in the road. But to be honest, we don't see it today. And I think it's a quite safe number to put the 3.5. The And to add to

Speaker 2

that, we are perfectly on timing. So we are not expecting any delay on

Speaker 1

the project, which was second part of that question. Yes. No delays in any of the lines. Then you have the dividend question, the 3.3. I mean, this is as we always said.

Speaker 1

I mean, we want to take steps, but steps that we can't sustain in the future. And so we think that the 3.3% is something that we can sustain in the future. So that's why we're putting. And if you see our track record, it is a big increase in the last 5 or 6 years. If you remember before the pandemic, I think the number was 1.2 percent.

Speaker 1

And today, 5, 6 years later, we are in 3.3 percent. So I think it's safe to say, except something's short and it happened, that the 3.3 is a new level. And we are going to analyze or the Board is going to analyze it always does, if we can increase a little bit less. And you have a question in the middle about Mexico. I don't remember exactly what was the question, Mario, about Mexico.

Speaker 6

Just about overall demand and prices within Mexico, please.

Speaker 1

Okay. I mean demand in Mexico and I said demand not only in Mexico, but in North America, it's good. I mean, because it's very linked North America to Mexico. I mean, in the last several conference calls, we were always talking about when the recession is coming. And to be honest, today, we don't see that in the demand.

Speaker 1

We see healthy demand in both countries, in the U. S. And in Mexico. Mexico is, of course, driven by industrial production. Construction is a little bit low, and it's going to be a little bit low, the commercial market for the next probably 1 or 2 months before prices settle down and start probably increasing a little bit again.

Speaker 1

But demand in general, you see activity pretty much good. Of course, the I don't think the increase in consumption is going to be that much as it was in 2023. The last number of worst steel was that demand the consumption of steel in Mexico was going to grow by 2%, now more or less. And as I remember in my remarks, it grew up by 14% in 2023. But again, we are seeing healthy demand.

Speaker 2

Perfect. Thanks a lot.

Speaker 1

I hope that answers all the questions, Mario.

Speaker 2

It does. It does. Thank you very much.

Speaker 1

You're welcome.

Operator

Our last question comes from Calleo Guinevere from BTG Pactual. Your line is now open.

Speaker 7

Yes, good morning, everyone. Thank you. So two questions. One quick one on HFC prices in North America. Just wanted to hear your thoughts on what do you think the next short term move is going to be?

Speaker 7

Prices are trading at a relevant premium to other regions. I mean, we haven't seen some players trying to announce even further price hikes, but the point is that we're seeing prices trending down, even lead times are moving lower. So I just wanted to hear your thoughts on what you think that the next move for HFC prices is going to be? What can we expect for the Q1 and even into the Q2 of 2024? And my second question guys on just a broader one on Ternium's valuation and corporate simplification.

Speaker 7

I remember some time ago, a few years ago, you guys attempted a corporate simplification in Argentina, which didn't really move forward. I just wanted to hear an update on that. I mean, we have a new administration in Argentina. Have you guys been in talks whatsoever with the new President and with the new administration. So maybe we can so Ternium could try and address that issue.

Speaker 7

And one more thing on Corpus simplification, maybe do you guys think that Usiminas could also be a part of this in the future? Because when we think about valuation for both stocks, I mean, interesting to see that Ternium, the controller is actually trading at a discount to Usiminas. So when you think about the company's corporate structure, I mean, there could be maybe some room to simplify all that and try to get a rerating for the stock. So I just wanted to hear your thoughts on the latest updates on corporate simplification on those two items. Thank you very much.

Speaker 1

Thank you very much, Caio. I will start with the second one. And also, if Pablo wants to add something, please do, Pablo. And then the first one, Caio. Corporate simplification is still on our agenda, at least on the agenda of Ternium Management and the Board.

Speaker 1

We don't have anything to inform about that yet. We haven't talked with the new government of this issue. I mean, the government has a lot of things going on in their hands, the new government. But I think it's something that at some point, this government should be able to analyze. As I always said, this is a transaction that favors Pernium, it favors Pernium Argentina and it favors the government.

Speaker 1

So if we reason with that in mind, it should be something that at some point can happen. But to be honest, we haven't talked anything like that. Usiminas is kind of different because as you remember, we have an agreement with our partner. Nippon is still there. And so we are not going to do anything for the next year or year and a half.

Speaker 1

In the future, it could be something. But today, I think we are happy on where we are in Usiminas and working to improve Usiminas.

Speaker 7

Yes. Sorry, Pavel, go ahead.

Speaker 2

Yes. No, no, sorry. I wanted to say, as you said, we have been discussing this for a very long period of time. Clearly, it's part of our strategy. Clearly, it's in our minds.

Speaker 2

And as soon as we see the chances to move forward with this, it's clearly something that we consider important for the future of Ternium from different standpoint and clearly valuation is one of that.

Speaker 7

And just one follow-up on the corporate simplification. I mean, how do you guys view the possibility of delisting Usiminas 2 years down the road when the agreement with Nippon gets pretty much expires?

Speaker 2

That's a difficult question to answer, Caio, because not only we have an agreement that Maximo mentioned that will take some time for us to move forward. Then there are other shareholders in Usiminas and the corporate laws and regulations in Brazil in particular. So they are quite complicated. We know there are some possibilities of refurbish that regulations, but it's not something that we are seeing at the moment. As I said, corporate simplification is in our mind.

Speaker 2

So it's something that we are always thinking about. But it is not something that we can move forward right now, so it's very difficult to speculate on that at this moment. Clearly, it's something for us to think in the future in relationship to that. The closer one that we have and hopefully, we will have the chance to analyze it more in-depth is the Argentine one, which is pro with this new government easier to do than in the past.

Speaker 7

Great. Thank you.

Speaker 1

So hot rolled prices in the U. S, yes, you're right, Caio, that prices has been coming down in the recently weeks, in the last 3, 4 weeks. As I said, it's not a problem of the demand, but it is a problem of imports that are coming mainly to the U. S. And some part also to Mexico.

Speaker 1

So that's the main reason. The good news is that demand is already is still there. And I think this is going to be something that it's going to stabilize in the near future. I don't see prices going much further down. As I always said, there is a new floor or a new standard of prices in North America that is around or a little bit higher of $900 at least.

Speaker 1

So I don't think prices are going to change. Again, because the demand is there and we know imports for the following months in May, June, July are coming much more lower. So I am positive about that.

Speaker 7

Thank you very much, guys.

Speaker 4

You're welcome.

Speaker 1

You're welcome, Caio. We don't

Speaker 2

have any pending

Operator

questions as of the moment. I'd now like to hand back over to Cherdium's CEO for closing remarks.

Speaker 1

Okay. Thank you again all for participating in today's call. As usual, please feel free to contact us for any questions or comments. Thank you very much and goodbye.

Operator

End of today's call. Have a wonderful day.

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Earnings Conference Call
Ternium Q4 2023
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