Ternium Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 19, 2025

There are 8 speakers on the call.

Operator

Thank you for standing by and welcome to the Ternium Fourth Quarter twenty twenty four Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. At this time, I will turn the call over to Mr. Marti.

Operator

Please proceed.

Speaker 1

Good morning and thank you for joining us. My name is Sebastian Marti and I am Terni's Global IR and Compliance Senior Director. Yesterday, Ternium released its financial results for the fourth quarter and full year 2024. This call is meant to provide additional context to that presentation. I'm joined today by Maximo Bedoya, Turning's Chief Executive Officer and Paolo Riccio, Turning's Chief Financial Officer, who will discuss the company's business environment and performance.

Speaker 1

After our prepared remarks, we'll open up the floor to any questions. Before we begin, I would like to remind you that this conference call contains forward looking information 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.

Speaker 1

Benoitia.

Speaker 2

Thank you, Sebastian. Good morning and thanks everybody for joining us today. Turfineon reported shipments of 16,000,000 tonnes for 2024 with adjusted EBITDA of 2,000,000,000 on a 12% margin. In a challenging year for the steel industry, our operation generated $2,000,000,000 in cash. The company's net cash position remains strong at $1,600,000,000 by the December, even though CapEx was close to $2,000,000,000 in the year and we paid dividend of more than $600,000,000 During the quarter, we made significant progress on our downstream expansion project in Mexico.

Speaker 2

The pliquing line at Pesqueria along with the finishing center started operations and are steadily advancing in the ramp up process. We currently have two remaining lines under construction for the completion of this project, A cold rolling mill whose planned start up has been advanced to December of twenty twenty five and a hot dip galvanized line, which will also commence operation by the end of the year. Another positive development of the fourth quarter is that the wind farm in Argentina began generating electricity in December. All of the 22 wind turbines have already been installed. The wind farm is expected to deliver approximately four eighty gigawatt hour per year, replacing the majority of our purchase of third party electricity in the country.

Speaker 2

This initiative provides substantial economic benefits and assist the company in achieving its decarbonization goals. I would like now to address the latest developments in international trade. Our surge in U. S. Trade actions during the last few weeks has been creating substantial uncertainty in the global market.

Speaker 2

Mexico, together with Canada, are among the countries that have been singled out by the recently announced trade measures. In addition, steel has been a specific target as The U. S. Announced it will revoke all country specific exceptions to the 25% tariff on steel import under Section two thirty two. I'm a strong believer in the advantage of the USMCA.

Speaker 2

There is a deeply complementary relationship among USMCA members, which has led to increased trade, investments and job creation within the North American region. The USMCA has played a critical role in enhancing the competitiveness of the whole area. Therefore, we believe that the value chains among these nations will continue to thrive, further deepening commercial integration among the three countries is the way to go and it will be beneficial for all of them. Peraneum is well equipped to navigate any potential trade scenarios due to its ability to adapt its structure in response to changes in the landscape. As always, we will continue our effort to enhance the efficiency of our operations to reduce costs.

Speaker 2

We are ready to compete effectively in today's uncertain environment. Now let's review our main steel markets. In Mexico, shipments in the fourth quarter decreased due to a weaker than expected commercial market. The industrial market in Mexico is showing steady activity levels following an increase of 6% in auto industry's production in 2024. On the other hand, weak government infrastructure investment and uncertainties surrounding trade actions are affecting volumes in the commercial market.

Speaker 2

This will probably continue to happen until a definitive understanding of the final trends measures is achieved. Moving now to Brazil, Twenty Twenty Four was a positive year with flat steel apparent consumption increasing a healthy 10%. Vehicle productions grew strongly as well with a 10% increase compared to 2023. '20 '20 '4 saw significant operational improvement in Usiminas resulting from investments made in recent years, particularly the relining of blast furnace number three. As a result, Usiminas produced 3,200,000 tonnes of crude steel among the highest volume levels of the last ten years.

Speaker 2

On the other hand, imports of flat steel exceeded $3,000,000 in 2024, setting a new record. China remains a destabilizing factor in the international steel market. The construction of steel consumption in its domestic market in recent years has led to a disproportionate increase in export under unfair trade conditions. Import from China have significantly disrupted the Brazilian market, accounting for approximately 80% of flat steel imports. The import quota system implemented last year did not achieve its goal.

Speaker 2

We look forward to more effective trade measures from the Brazilian government, especially as other countries strengthen their defense against unfair trade, potentially causing a diversion of China's export to other markets. On a different subject, we are very proud to share that last week the Roberto Roca Technical School in Santa Cruz okay, the near Ternium Brasil facility began its first classes. This is the second technical school that Ternium built and operate with the first one active since February near our Pesqueria facility in Monterrey, Mexico. The school will provide high quality technical education to its initial cohort of 192 students in the community and will accommodate close to 600 students over the next three years. All students at the Roberto Roca Technical School network receive scholarship based on their family financial needs, ensuring equal access to education.

Speaker 2

This initiative reflects Ternium dedication to supporting the development of the communities near its production site and creating transformative opportunities for their youth. Turning now to Argentina. In 2024, shipments experienced a year over year decline of approximately 20%. This reduction was primarily due to the implementation of macroeconomic measures by the Argentine government, which aimed to address substantial economic imbalance. Although Argentina steel demand has been recovering throughout 2024.

Speaker 2

It's starting from a low base and has yet to return to historic sales volumes. The authorities in Argentina are advancing the transformation of the local economy through a process of deregulation, reducing public spending and taxes and opening up trade. Although we welcome this transformation and even progress in this area could increase the risk of higher imports of Ontario trade products in the steel value chains. I would like to close my prepared comments with a few thoughts. U.

Speaker 2

S. Trade measure against import are currently fluid. During the first half of twenty twenty five, it is likely that we will continue to navigate this uncertain scenario in the North American region. We trust that at the conclusion of the negotiations, rational decision making will prevail, resulting in a region experiencing significant growth and improved defense against unfair trade practice. In the same line, the Plan Mexico recently announced by the Mexican government aims to address issues related to regional integration with a focus on industrializing for import substitution.

Speaker 2

The plan outlines strategy to attract investment and increase the local and regional content of manufactured goods throughout near shoring, infrastructure development and support for MES East. In this context, our expansion project in Mexico are crucial for strengthening Ternium's integration into the North American market as rule of origin regarding melted and poor steel products are expected to become stricter. In Brazil, Usimira's manufacturing facility achieved significant efficiency improvements in 2024, a trend we expect will continue in 2025 as operations are further streamlined. Finally, given the improvements in macroeconomic condition in Argentina, I expect our shipments will continue recovering throughout this year. This concludes my remarks.

Speaker 2

Pablo, please proceed with a review of Ternium's performance in the fourth quarter.

Speaker 3

Thanks, Maximo. Good morning to everybody and thanks for being with us today. Let's turn to the webcast presentation for a detailed look at our operations and financial results. If we begin in Phase three, we see that adjusted EBITDA decreased this quarter. The key factors behind these results includes lower realized steel prices in our main markets and the reduction in shipments.

Speaker 3

These were partially offset by a decrease in steel costs per ton. As we look ahead to the third quarter of this year twenty twenty five, we anticipate a sequential increase in adjusted EBITDA, supported by a margin improvement and small increase in volumes. Moving to the next slide. Net income for the fourth quarter was $333,000,000 The company recognized a $4.00 $4,000,000 provision reversal for ongoing litigations related to the 2012 acquisition of stake in Usiminas. The main difference between net income in the fourth quarter and the third quarter was a decline in operating income as we have already seen along with a negative effect of changes in foreign exchange results.

Speaker 3

On the other hand, we record lower income tax charges and the provision mentioned provisional rebarafals. Regarding the changes in foreign exchange results, it's important to point out the impact of the Brazilian real 12 percent depreciation against the U. S. Dollar during the fourth quarter on Usiminas U. S.

Speaker 3

Dollar denominated financial debt. This is because Usiminas uses the real as a fractional currency, not the U. S. Dollar. Now let's review the performance of our steel segments on Page five.

Speaker 3

In this quarter, steel shipments across all of Ternium's key market declined, primarily due to a typical seasonal reduction in demand by the end of the year. And additionally, the commercial market in Mexico experienced a downturn as Maximo already explained. Looking ahead, we expect some increase in shipments in Brazil during the fourth quarter excuse me, during the next quarter of the year, first quarter of twenty twenty five when shipments in Mexico and Argentina are expected to remain stable. In the following page, the steel segment net sales declined sequentially by 14% in the fourth quarter. In addition to lower shipments, these decrease were driven by a reduction in realized steel prices across all markets.

Speaker 3

The decline in prices was partially offset by a reduction in cost per ton, which, however, was not enough to avoid the decrease in margins. It's worth noting that the pace of cost reduction in our books is slower than the decline in raw materials and lab prices in the market as the company is consuming high priced inventories acquired in earlier periods. Next, let's turn to Slide seven for the overview of our mining segment performance. Mining shipments remained stable during the quarter, but year over year they were around 9% in the fourth quarter mainly due to lower production levels both in Mexico and Brazil. On the other hand, margins improved mainly driven by lower costs.

Speaker 3

Let's move on to the next slide to review our cash flow performance. Ternium reported gross cash flow from operations in the fourth quarter, supported by a decrease in working capital, mainly driven by lower trade receivables. CapEx increased as we advanced the expansion project in Taxaguirre and finished the wind farm in Argentina. And additionally, we paid interim dividends in November. Even though we have these significant cash developments in the fourth quarter, our financial position remains strong with $1,600,000 net cash at the December helped by a $2,000,000 increase in the fair value of financial instruments.

Speaker 3

Let's now shift our focus to Page nine to assess our full year performance. EBITDA declined in the last two years, primarily due to the consolidation of Viciminas and the downward pressure of lighting steel prices. This factor can affect our results and reflected in net income. The decline also incorporates the net provision I mentioned earlier together with negative deferred tax results and the impact of the significant depreciation of the Brazilian real during the year on Usiminas foreign exchange results. Terminus cash from operations was solid in 2024, allowing us to finance the increased level of CapEx in the year.

Speaker 3

Looking ahead, we expect CapEx to peak in 2025 reaching around $2,500,000,000 Important to mention, the Board of Directors put forward a proposal for an annual dividend of $0.027 per ADS. This represents a dividend yield of approximately 9%. We have already distributed an interim dividend of $0.9 in November. And subject to shareholders approval, the remaining $1.8 will be paid out in May. All right.

Speaker 3

This concludes our prepared remarks. We are now ready to take your questions. Operator, please begin the Q and A session.

Operator

Thank you. The floor is now open for questions. And our first question comes from Carlos de Alba with Morgan Stanley. Please go ahead.

Speaker 4

Yes. Good morning, everyone. Thank you very much. Yes. So first question is, I'm going to try to press a little bit on the outlook for the first quarter.

Speaker 4

I know it's a lot of uncertainty out there, but how did you define a slight improvement, right? There is a wide range of consensus forecast. And so it would really help if you can provide a little bit more details as to how do you see the quarter evolving. And then, I wanted to also ask an update on the different ramp ups and the Electra Fornes project in Pesqueria. You can maybe be a little bit when do you expect the ramp up of the finishing lines to be completed?

Speaker 4

And when do you expect the Coral and the hot dip galvanizing new lines to be running at close to full capacity or full capacity if they start in the summer of this year? Thank you very much.

Speaker 2

Thank you, Carlos. I will start with the second, which is much more direct and then try to answer the first one. Ramp up of Pesqueria, so you know in the finishing lines or in the downs, we have four projects, let's put it that way. The plating line and the finishing lines are already producing, are a little bit ahead of what was the plant. And I guess for the next two or three months they will be at full capacity, I would put it.

Speaker 2

Then we have the galvanized line, which was supposed or is supposed to start in December. We are not seeing any delay in the ramp up curve that starts in December of this year. I mean, all the equipments are there in Pesqueria and we have all the people working in the construction and putting those equipments. In the cold rolled facility in the PLTCM2, we were expected to start in March, March of '20 '20 '6, but we are seeing some improvements and some better advance in the construction of the equipment and the facility. So we are expected to start in December of this year.

Speaker 2

So we are advanced the ramping curve a couple of months. And so on those projects we don't see any problem and we are going forward at full speed. In the other one is the steel shop and the reduction unit that is supposed to start at in mid-twenty twenty six. We are still having that date. But as you know, in that facility, we don't have yet all the contracts finalized.

Speaker 2

I mean, we are finalizing in this quarter some of the contracts for equipment and more important most of the contracts for the construction, although the construction has been going through. So by the end of next quarter, we will probably have an idea exactly of when we will start, but we are still holding the time for 2020 for mid-twenty twenty six.

Speaker 3

And just maybe to clarify,

Speaker 2

when do you when would

Speaker 4

you expect the coral coal and the whole deep galvanized to be, we can get full capacity?

Speaker 2

Well, the wrap up curve in these projects are usually between nine months and one year. But they are steady producing starting producing from day one. And for example, in the case of the cold roll to get the 120,000 tonnes or 130,000 tonnes a month would get between nine and one year. That's what we have in our plans. We will try harder to get that closer to December of twenty twenty five, but for now between nine and twelve months.

Speaker 2

Okay. I hope that answers the question or this is the second question. So, outlook, Pablo?

Speaker 3

Okay, I'll take that. Carlos, as we said, we are expecting to see an increase, small increase in the VTH and ratio for the first quarter of the year. And this is the sum up of three different things that will happen during the quarter. First, volumes. As we have described and Maximo also described in the opening remarks, we are expecting to see a steady level of shipments in the different markets where we are.

Speaker 3

This coupled with the issues that Maximo mentioned and also some seasonality. So we are expecting to sustain level of shipments during the first quarter. That's the first point. The second point is that though prices are moving, we will see some decline in the average price of the company due to the issue that you know very well, which is that prices have reset every quarter. So all changes in prices are not reflected immediately.

Speaker 3

And the most important part is that during the first quarter, we will see a decline in cost. Differently from what we saw during the fourth quarter, this decline in cost will be higher than what we're expecting to see of the decline in prices. So we are expecting to see a better margin during the first quarter. We continue or we continue to see the same situation that we saw during the first during the fourth quarter of the year, which is that there is a delay in reflecting the prices throughout our cost structure due to the first instance of the sales metrology that we utilized. So we are expecting to continue seeing the evolution of the cost reduction throughout the semester and having a better picture in the second quarter of this year in that respect.

Operator

Your next question comes from the line of Caio Ribeiro of Bank of America. Please go ahead.

Speaker 5

Yes, good morning. Thank you for the opportunity. So my first question on your stake in Usiminas, right? Later this year, you have the option to purchase Nippon stake within the control block and Nippon has the option to sell that stake to Ternium. So So my question is, is adding to your stake in the company something that you're contemplating right now?

Speaker 5

And is there any color that you can share on how both sides see this particular transaction? And then secondly, still on Ozyminas, with the blast furnace revamp completed, what are the next priorities that you see for the company, right? Do you see potential to green light the CapEx in the mining division this year or next? And if so, how would the company fund that CapEx? Thank you.

Speaker 2

Thank you, Caio, for the two questions. Regarding the first one, I mean the only thing that happened as you said in July is that both Nippon Steel and Ternium, we have the option to sell or buy and they become accessible. I mean, we can exercise those from July. That's the only thing that changed in Usimina. I clearly cannot speak of what Nippon is thinking of this.

Speaker 2

But from our side, I can say that as you saw in the results, I am very pleased with how Siminas and our partnership with Nippon Steel are performing today. So we will for now, we will keep working with the goal of bringing Usiminas to the highest potential. Regarding the priorities in Usiminas, clearly the CapEx in mining is one of the things that we are working. As I said in some other calls, we have to take the decision by the end of this year or the beginning of next year. But in the meantime, we are working very hard to get to the point of having to make the decision with most of the things done, so that we don't have any delays if we go through that project.

Speaker 2

The other priorities of Ximinas are clearly improving the performance of Ipathinga's mill. That's clearly a priority of the management. There are some investments that we have to do and that we are doing in order to decrease costs and increase productivity. And the second is the commercial side where we have all the challenges with the import for China and how we approach customers and give more value to customers. So those are the priorities that we are working in Usiminas right now.

Speaker 2

I hope it answered the question, Caio.

Speaker 5

Yes, absolutely. That's very clear. Thank you, Maximo.

Speaker 3

You're welcome.

Operator

Your next question comes from the line of Alejandro de Michelas with Jefferies. Please go ahead.

Speaker 5

Yes. Good morning, gentlemen. Thank you very much for taking my questions. Couple of questions, please. The first one is, Maximo, you talk about turning and being prepared to navigate the situation on the tariffs and so on.

Speaker 5

Would that also include say, putting on hold some of your new investments, what you see in Mexico or any of the rest of the regions? That's the first question. And then the second question is, in the case of Argentina, you talk about the situation about volumes recovering and so on. Could you please talk also about the situation of the scrap exports and how that could impact also your cost base over there?

Speaker 2

Yes. The second one, the scrap export is not very significant for us. As you remember, I mean, in Argentina, we don't use much scrap. It's different than in Mexico. And so the amount of scrap we bought from the market every month is at around 8,000 tonnes.

Speaker 2

It's clearly not an issue, the scrap. Probably it's an issue for other steel companies in Argentina that has a much more scrub basis in their inputs. But remember, us in Argentina, I don't know. Regarding the call of new investments, no, we are not thinking of stopping or postponing any investment. As I said, the PLCCM, the cold rolling mill and the galvanized are almost completed.

Speaker 2

I mean, by the end of the year, they are going to be completed. And if you see what is happening Mexican market, the Mexican market has a huge amount of imports from third countries, which we are not able to really attack the police or substitute, that's better, substitute, because we don't have enough capacity probably to do so in the technical issue. So we are going forward and it's very rational to continue. The other one is the steel shop. And the steel shop, again, probably in all these that is happening as you mentioned in this uncertainty in the North American market, one thing that sure is going to happen is that the rule of origin are going to be strengthened even more.

Speaker 2

So melted and poor requirements are going to we are going to need the melted and poor and so for that I think that strong the Pesqueria project strong the position of Ternium. I hope, Alejandro, it's clear.

Speaker 5

Yes, it is very clear. And if I can follow-up a little bit on that. So on the discussions that you're having with your main customers, particularly in the automotive industry for the rest of the year, how are they indicating volumes, say, between now and the end of the year then?

Speaker 2

They don't have any changes in the volumes. Remember, the steel the auto industry in Mexico ended up a year with growth and they are not indicating any changes. What they are doing is clearly working on changing some of the imports they have from third countries. So we are working with them to start changing or making running changes of imports they have from Asia mainly.

Speaker 5

Thank you.

Speaker 2

Thank you, Alejandro.

Operator

Your next question comes from the line of Timna Tanners with Wolfe Research. Please go ahead.

Speaker 6

Yes. Hey, good morning. Wanted to Massimo, I wanted to pick your brain really on the theme I feel like of the introductory remarks was really that China continues to be a big problem for the three main regions where you operate. So do you have any level of optimism that those countries, Argentina, Brazil, Mexico can implement enough barriers or will be interested in doing so to help prevent some of those problems of imports that you've been talking to anytime soon?

Speaker 2

Yes. I am optimistic in different levels depending on the country. I mean, let me put the perspective of China a little bit and then I talk specific of what the three countries are doing. China or the steel industry in China, but it's not only applied to the steel industry, it's applied to a lot of industry. So China have been decreasing consumption for the last three years, apparent consumption in the country.

Speaker 2

So it reduced I think in average 4% each year for the last three years. But on the contrary production has been the same. So this is a huge rebalance of the Chinese steel industry. Export from Chinese steel increased in 2024 by 25%. That's an enormous amount of steel.

Speaker 2

And then if you see the balance of what is happening in the steel industry in China, well, most of the companies are burning money. So it's not a sustainable situation. Having said that, they are still exporting and doing all these things that have no sense. In our countries, I think Mexico is the one that's ahead of this. Clearly, they understand very well what is going on in China.

Speaker 2

They understand the importance of defending the industry again and fair trade and they are working in this sense. So they are putting the dumping cases, they are putting some tariffs and I think that they are starting to work in other issues that are fighting for shipments that is happening in Mexico, in The U. S, in Canada. So China is looking for ways to evade this tariff and I think Mexico has very clear path how to work. In the middle is Brazil, which they made measures of this quarter, but clearly this quarter as I said is not working.

Speaker 2

So the dumping cases have been presented. I think the government I mean I'm quite positive that the government is going to go through these dumping cases which will be much affected barrier to unfair trade. Argentina I think is the one that it's a little bit behind all these sorry, because Argentina is still trying to stabilize the macro economy. But again, I think that some part of this year they are going to start realizing that if we want to sustain an industry, we have to fight against unfair trade. That's simply the reason.

Speaker 2

So I'm optimistic that in some part of this year they're going to realize this and we are going to work together doing this. Timna, I hope I understand I answered part of your question.

Speaker 6

Yes, that was helpful. Thanks, Massimo. So I wanted to also put you on the spot regarding U. S./Mexico trade policy on steel. So with, in the past you've also talked about how any tariff on Mexican steel could be positive for Ternium because any retaliatory tariff would keep, X because The U.

Speaker 6

S. Is a net importer of steel. So if there were a retaliatory tariff, then that steel would stay in Mexico and you could be you could fill the gaps and take share right from imports. But on the other hand, if now that those tariffs look to be applied to the downstream side, some downstream customers could be affected and of course you already addressed auto. So I mean any updated thoughts on retaliation or if the tariffs are in place as it is, is it more negative just because of your customer impact than the positive of no longer receiving U.

Speaker 6

S. Imports? Thanks again.

Speaker 2

Thank you, Tim. It's a very uncertain question to answer because clearly I don't know where this is going to end. What I can tell you is, first of all, Eterneum as of today, we don't export significant volume to The U. S. So 4% of our flat rolled products goes to The U.

Speaker 2

S. It's not a very significant amount. And as you said in the relationship still relationship between Mexico and The U. S, Mexico has a huge still trade deficit. I mean, I think that this is the only country Mexico is the only country where The U.

Speaker 2

S. Steel industry has a surplus and a surplus that is very big compared to between exports and imports.

Speaker 7

So

Speaker 2

I mean, as I said, the challenge that both The U. S. And Mexico are working are facing today is not the trade between these two countries, but it's the trade we have in Mexico that they have in The U. S. With all these other countries.

Speaker 2

So at the end, I think that The U. S. And Mexico are going to reach a reasonable agreement in this situation. I am not I am not seeing any scenario where it goes further as you were telling of tariffs in both sides because again it should be a reasonable agreement given the situation. But again it's difficult to speculate on all these negotiations that are going through between the U.

Speaker 2

S. And Mexico today.

Speaker 6

No, we appreciate that. Thank you, Massimo. Sorry to put you on the spot.

Speaker 2

No, no, it's not on the spot. But I mean, it's negotiations that are happening right now. And again, when you see the numbers, when you see the especially still, it's very easy to reach an agreement. It shouldn't go further than reaching an agreement, Bimna. And I think that's the best for all outcomes from The U.

Speaker 2

S, from Mexico, from the government.

Operator

Your next question comes from the line of Alfonso Salazar with Scotiabank. Please go ahead.

Speaker 7

Yes. Thank you. Maximo, you mentioned in your presentation that we hope that rational decision making will prevail. I think we all agree with you on that. Now the question that I have is regarding how is The U.

Speaker 7

S. Planning to balance the supply and demand without imports in The U. S? I mean, it doesn't look to me that something that will be easy to do. Is there appetite to invest in more capacity given that there is a global overcapacity?

Speaker 7

What would be the implications for end users of steel? Also for the global scrap markets in North America and globally, if there is more need of scrap in The U. S, I mean it seems that it's going to have lots of ramifications that eventually would be severe and we can end in a world in which in which basically we have this bifurcation of trade with China, you know, selling more to other countries and another country selling more steel, you know, and then you have like a sanctuary in not in North America anymore, but in only U. S, you know, but that doesn't seem to be a situation that could stay for long. So any color that you can provide especially in how do you envision a market that is properly supplied without imports in The U.

Speaker 7

S? Thank you. And the implications of the scrub market as well?

Speaker 2

Yes. Alfonso, thank you very much. It's a very good question. I don't know if I have the answer to that. I think it's a question for other companies.

Speaker 2

But I mean but you're right about I mean, I don't think that the outcome of all these negotiation could be that what you are saying. But as I said in the initial remarks, I don't know against the rest of the world and I'm not capable of saying what would be the relationship between The U. S. And China or Asia or Europe. But I am a strong believer in the advantage of the USMCA.

Speaker 2

If you see the story of the USMCA, which is not a very long story, the trade among the members of the three countries grew significantly over the last year in every way. I mean from Mexico to The U. S, but The U. S. To Mexico also almost in the same amount.

Speaker 2

And the USMCA play a role in enhancing the competitive of the area. I mean it's very reasonable. It's to think as the USMCA as a way of strengthening the supply chain there to get competitiveness for fighting or for not fighting, but defending or competing with other regions like China. So, for me, again, I think that at the end it will prevail because I think the USMCA is beneficial for the three countries. On the other side, I see how Mexico is reacting.

Speaker 2

Before all this trade, even before all this trade, if you see the Mexico plan, the Plan Mexico that President Schambach announced I think at the beginning of the year, it's very focused on what we have been saying for a long time in how we must focus on industrializing, import substitution for Asia, strengthening North American supply chain. I mean, if you hear to what Mexico is doing, the plan that Mexico has, it's also going the same way. So again, it's I am optimistic that region will prevail. I can tell you that Afonso.

Speaker 7

Thank you. Just any comment on the global scrap trade how you see that changing or unfolding given what we know about tariffs and this idea to produce more in The U. S. In particular?

Speaker 2

Well, I think to produce more in The U. S. It's a long time. So at least any new capacity will be three, four, five years to come in, except of what we are already seeing in The U. S.

Speaker 2

So I don't think that there's going to be a lot of change. Of course, scrap it's going to be but we know this. I mean it's going to be a market where more people are going to use scrap because we are changing the route from blast furnace to electrical art. But this is taking a long way. So I don't foresee any major changes in the next two years.

Speaker 7

Excellent. Thank you so much, Maxon.

Operator

There are no further questions at this time. I will now turn the call back over to Ternium's CEO for closing remarks.

Speaker 2

Okay. Thank you very much all for participating. Very good questions. Always your feedback is much appreciated if you have any. Have a good day and we'll see I will talk in the next three months.

Speaker 2

Thank you.

Operator

This concludes today's conference call. Thank you for joining. You may now disconnect.

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