Ladies and gentlemen, thank you for standing by. And welcome to Ternium Third Quarter 2020 Results. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to hand the conference over to Sebastian Marti. Thank you. Please go ahead.

Good morning, and thank you for joining us today. My name is Sebastian Marti, and I am Ternium’s Investor Relations and Compliance Director. Ternium released yesterday its financial results for the third quarter and first nine months of 2020. 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 Brizzio, who will discuss Ternium’s business environment and performance. At the conclusion of our prepared remarks, there will be a Q&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. With that, I turn the call over to Mr. Vedoya.

Thank you, Sebastian. Good morning, and thank you very much for your participation. We really appreciate your time and your interest in our company. And I think especially today when I think some other things are happening, which keep us a little bit busy or our mind there. Since our last conference call, there have been significant advances toward a more normal environment in the steel industry. Steel demand increased as lockdowns and restrictions to operate for different industries were relaxed in the third quarter in all our markets. We continue to operate our facilities under strict sanitary protocols. As discussed in previous calls and in this scenario, we can increase operating rates to close to full capacity. In situations like this, Ternium can demonstrate its operational flexibility. During the second quarter, at the worst of the pandemic related restrictions, Ternium's current steel production was reduced by almost 30% compared to the first quarter. Then in the third quarter, we took production back up to an even higher level than that of the first quarter of the year. I'm proud of how quickly our people were able to react to these big changes in the market environment. Steel prices in the North American market have also been healthy as they recover strongly from a very low base back three months ago when we had our last conference call. The higher shipments made possible by Ternium's operational excellence, together with the improvements in the price scenario, enabled us to report third quarter results that were significantly better than what we anticipated in our last conference call. Shipments increased 16% to 2.8 million tons, not yet back to pre-pandemic levels but on our way there. EBITDA was $353 million with a margin of 17% or $124 per ton, also a significant increase, with expectations of more to come in the fourth quarter of the year. Free cash flow remained at a very high level as it did in the previous quarter with $389 million in this quarter, driving another decrease of net debt to reach just $562 million at the end of September. During the third quarter, we were able to restart our main CapEx projects, including the new hot rolling mill in Mexico, of which we continue to expect commissioning by mid next year. We also resumed the final commissioning of the greenfield Ribera facility in Colombia. In this regard, I'm very glad to announce that on Monday, two days ago, we produced the first bar out of this new facility. The new mill will enable us to substitute imports of reinforcing bars in Colombia, with total capacity equivalent to approximately a third of the market. With this facility, we will be the only producer in the north of the country. This new capacity will also contribute to an increase in competitiveness with a lower cost of production than our existing facility. We will also be able to broaden our product offering, integrating this new capacity with our existing facilities in the country. Let me now make a quick description of the situation in our main market. In Mexico, we recovered in the third quarter a little over half of the volume we lost in the second quarter. We now expect shipments to return to pre-pandemic levels in the fourth quarter. We are seeing a continued recovery of shipments to the automotive, household appliances, and HVAC industries, driven by solid end-user demand in the US market. We also expect shipments to the construction market to sequentially improve with steady demand from small construction and various government infrastructure projects like the new airport in Mexico City and the new refinery. In Argentina, following record low shipments in the second quarter of the year, volumes recovered in the third quarter of 2020 to levels similar to those seen in the same quarter two years ago. Although the Argentina government successfully restructured its debt, uncertainty in Argentina continues to be high. The country continues to have macroeconomic challenges that it will need to overcome with reforms and time. If there are no negative news at the macro level, we could have an additional sequential shipment increase in the fourth quarter as the steel end markets continue to advance purchases. In Brazil, the steel market environment improved significantly over the last months and this has supported increased flat orders levels in the domestic market. The auto industry has recovered nicely in Brazil and the performance of the country's GDP in 2020 is going to be the least affected by the pandemic among the Latin American economies. Our scrap facility in Rio is currently working at full capacity, and we expect it to maintain a high level of integration with our mills in the region as it had in the third quarter. Prices of slabs in the global market have also improved over the last three months and this has driven a recovery to more normalized margin levels in this facility. I kept it short this time, so we have more time for the Q&A section and the review of the quarter. Summarizing, the profitability of the company is improving, and we have positive expectations for our performance in the fourth quarter of the year. Needless to say, although shipment levels in all our markets are currently strong, uncertainty persists about the future cost of the COVID-19 pandemic and the measures governments around the world could take to contain it. As we have seen in Europe, it is evident that the pandemic is not over, so we will continue to take a cautious stand. We also continue to work hard to help our communities endure the effects of the pandemic, with all the initiatives I detailed on our previous calls. I am particularly proud of how the field hospital we built and operate in Monterrey is supporting the health of those in need in the local community. Looking ahead into next year, we are very much looking forward to the commissioning of our new hot rolling mill in Mexico. I believe this will be a game changer for Ternium, not only from a growth perspective but also from a competitive point of view, always with the goal of sustaining our high profitability levels related to our competitors. I am also very positive about the future of the steel market in the USMCA region with our expansion projects in the last stage of development; I believe Ternium will be in a unique position to take advantage of the USMCA's many benefits. All right. We are very keen to review in more detail the third quarter results. Please, Pablo, go ahead.

Thanks, Maximo, and good morning to everybody. Let's review Ternium’s results for the third quarter of the year. As Maximo mentioned, you will see that our performance improved significantly in the third quarter. Over the last couple of quarters, we worked hard on sustaining Ternium’s profitability as well as on strengthening our balance sheet to cope with the difficult environment in our market related to the COVID-19 pandemic. Let's see some of the results of these efforts. Starting on Page 3 on the webcast presentation with the company's quarterly EBITDA and net results. We have a significant EBITDA recovery with $353 million in the third quarter. There was a sequential EBITDA margin expansion of 400 basis points or $33 per ton. We will discuss this in more detail in the next slide. Net income in the period was $173 million or $0.74 per ADS. The results compared to net income of $44 million in the second quarter. So I was saying that the result of net income of the third quarter compares to a net income of $44 million in the second quarter. And clearly, the second quarter was weak because of the consequences of the pandemic of COVID. So let's look forward to the fourth quarter. The expectation is for a sequential increase in shipment and higher margins should result in a strong set of numbers. Turning now to Page 4. Let's review in more detail the degree of the recovery in the shipments, one of the positive surprises in this third quarter. And so in the upper left-hand side chart, in Mexico, shipments increased 23% on a sequential basis in the third quarter. They were down by 11% if you compare it to the last year. In the fourth quarter, we expect shipments in Mexico to continue recovering, reaching pre-pandemic levels. In the southern region, shipments in the third quarter revolved from a very weak second quarter, as shown in the lower left-hand side chart and were up year-over-year by 9%. If current market dynamics continue, we should see a further volume expansion in the fourth quarter. In the other market region, finished shipments increased sequentially and on a year-over-year basis in this third quarter, as you can see in blue in the upper right-hand side chart. As for slab shipments to third parties, in the same chart in gray, they decreased both in sequential and year-over-year comparisons. During the third quarter, we were able to further integrate Ternium S.A. facility in Brazil with the company's industrial systems up to a level that resulted in a reduction in the volume of slabs shipped to third parties. In the fourth quarter, we expect similar volume slabs shipped to third parties. Turning to the next page, you can see in the upper left-hand side chart the result of these developments. We've consolidated shipments of 2.85 million tons in the third quarter, up 16% sequentially. In the fourth quarter, we expect consolidated steel shipments to increase sequentially based on higher volume in our key markets as already discussed. Turning now to revenues. Average realized price increased 5% in the third quarter, as we see in the upper right-hand side chart. This is mainly explained by a sequential increase in the value of our sales mix as these prices in the North American market experienced a very strong revamp since our last conference call. We were expecting this to happen, but not in the magnitude it actually did. The improvement is prevailing steel prices offset by weaker industrial contract related prices as a result of the lag price reset. This strong pricing environment will drive an increase in revenue per ton in this region in the fourth quarter of the year. Let's turn now to Page 6 to review the main sequential changes in EBITDA and net results in this quarter. The rebound in EBITDA reflected the recovery in shipments and improved profitability. EBITDA margin increased sequentially, mainly reflecting an increase in revenue per ton, partially offset by slight increase in operating costs per ton. The high operating income led to a sequential improvement in net result, as you can see in the bottom chart. In addition, we have a better result from equity in earnings of Usiminas and higher income tax. The change in EBITDA shown in the chart reflected the year-over-year decrease in shipments and EBITDA per ton. EBITDA per ton was negatively affected by lower steel prices, partially offset by lower purchase slabs, raw materials, energy and labor costs per ton. As for the year-over-year changes in net income in the bottom chart, in addition to the decrease in operating income, you can see the effect of the net financial results of a significant fluctuation of the Mexican peso, the Argentine peso and the Brazilian real versus the US dollar during this period. We also had a year-over-year higher income tax. The main reason behind this was a non-cash deferred tax loss in the nine months of the year in connection with the Mexican peso depreciation. Now to finish and before opening up the call to your questions, let's review on Page 8 Ternium’s free cash flow, capital expenditure and net financial debt. You can see in the slide strong set of numbers. With the measures taken in the last two quarters, Ternium has achieved a strong financial position with ample liquidity and net cash provided by operations activity reached $1.4 billion in the first nine months of this year, including $628 million working capital release, and capital expenditure decreased significantly to $440 million in the previous quarter. All that we take into consideration everything that we've just mentioned, our net debt is down to $562 million as of the end of December, equivalent to 0.5 times net debt to last 12 months EBITDA. With the retention of our investment plan, we expect capital expenditure to increase sequentially in the fourth quarter. Okay, these were our prepared remarks. We are now ready to take your questions. Once again, thank you very much for your time and attention. Please operator, proceed with the Q&A session.

Our first question comes from the line of Jonathan Brandt with HSBC.

Maximo, I wanted to ask you about steel prices. How quickly do you expect to see changes in steel prices in the third quarter in the US? How much of that will be reflected in the fourth quarter, and how much will extend into the first quarter? What is your outlook on North American steel prices considering the current circumstances and uncertainties? My second question is for Pablo. Your leverage is currently at 0.5 times, which is at the lower end of the historical range. Can you explain your cash usage, especially since it seems that profitability and free cash flow are expected to rise as we approach the fourth quarter? What are the forecasts for capital expenditures and dividends? What other uses of cash should we anticipate, or can we expect leverage to stay at this level? Thank you.

Let me start with the steel prices. I think that's two parts of the questions. Steel price is clearly you see in our results, we took advantage a little bit of the increase in the prices and of course, we are going to take a little bit more advantage in the fourth quarter, and I guess in the first quarter. Remember, Ternium part of our sales are contract prices and part are spot prices. And so during the fourth quarter and probably during the first quarter, we're going to see an increase in prices from shipments from Ternium depending on the mix but probably it’s going to be an increase. On the outlook, I mean, when we had our last conference call, I remember I was telling you that prices in the US were very low and it was incredible that local markets in China for the first time in I think 10 years were above the local prices in the US. So we haven't seen that for the last 10 years and so we expected prices to go up. It went up a little bit more quickly than what we thought, and I think that this level of prices should remain; I mean this environment should continue over the next couple of quarters. Demand is good in the US and Mexico in this region. I think our customers, our consumers are structurally very solid; industrial manufacture is also increasing. And so I think that from the demand side, I think it's strong. The increase in rate is only 70% and the lead times are quite long in the US. So I think that if the US producers continue with this functionality, I think we are going to have several quarters with this bright environment, we are expecting that. I think that answers the first question. The second question, I ask Pablo to start and then I'm going to comment on a more longer view on that question, Jon.

I think that we can take these questions in two different ways. The first one is a short answer to what Jonathan was asking. Clearly, the fourth quarter will be a little different from what we saw during the last two quarters, where we had a real CapEx and an increase on the working capital that we released together with very strong numbers coming out from the operation of the company. So that's clearly very positive. In the fourth quarter, we will continue to have cash flow from operation at a strong level. But clearly, we will have, first of all, an increase in our CapEx from the third quarter to the fourth. We are expecting more than that to the level of CapEx in the fourth quarter. We are expecting to reach the level that we originally said of around $600 million of CapEx for the year. As Maximo mentioned, we are restarting fully the plants that we have, and clearly it’s very difficult to continue releasing working capital with the new level of production that we have, the new level of sales and of course, the new level of pricing that increase the value of our inventories but also increases the value of our receivables. So clearly, it will be a quarter with a very strong cash flow from operations but with a reduction in the level of free cash flow because of both things. The increasing CapEx and the increase in working capital. All in all, no matter that we will continue to keep having reduced number of net debt. But I think this leads to probably an answer in the longer run. So I think that Maximo can take now to expand on the view about the capital allocation of the company.

The cash usage is clearly linked to our strong cash flow generation, as Pablo mentioned. Three years ago, we embarked on a significant investment program, starting with the acquisition of CSA in Brazil, which enabled us to produce at our advanced facility and expand our steel offerings. Following that, we launched investment initiatives in our new facility in Mexico, including galvanized painting and the hot-dip mill. These robust capital expenditure programs reflect our commitment to evolving our business without major alterations to our core strategy. We are moving into new markets with more sophisticated, value-added products, and we are about six to eight months away from completing this investment program. We are now identifying promising opportunities for continued growth with our cash. We see several key areas for growth: first, in Mexico—where we are optimistic about the construction sector's potential to expand due to favorable developments from USMCA agreements and ongoing trade dynamics. Our position enables us to benefit from increasing power consumption, which may lead to expansions in our Mexican operations. Second, there is potential in the melted-and-poured automotive segment in North America. While we are currently partially compliant, we are working towards full compliance, allowing us time to determine the optimal approach. Lastly, we aim to maintain a conservative balance sheet while also returning dividends to our shareholders, which is a priority for us. Our history demonstrates that we successfully grow by seizing various opportunities, and I believe there will be prospects for Ternium's growth in our market. I hope that addresses your question, Jon.

Just to follow up, do you see the potential for further mergers and acquisitions as a way to achieve growth?

I mean, we don't have any particular targets now; we don’t see anything. But when opportunities arise, we generally take advantage of them.

Our next question is from Thiago Lofiego with Bradesco BBI.

Maximo, how sustainable do you think the volume increase in Argentina is and what is your best outlook for 2021 at this point? And then the second question, I'll take a risk here and I'll do the session here. What is your view on the impact of the election scenario on the US steel market, on the North American steel market there? Do you think that…

You're asking me to be in addition, no…

It's always good to hear your views. But just to make my question here more specific. Do you think if Biden wins, do you see the government gradually withdrawing from section 232? Do you see any changes in the recent USMCA? So what do you think would happen in a Biden scenario?

First, let's discuss Argentina. It is quite challenging at this time to make any predictions about demand in Argentina. As I mentioned earlier, this is not a macroeconomic issue for the quarter; it should perform well. However, there are obstacles in Argentina, particularly regarding the exchange rate. The country clearly requires some reforms and needs time to implement them. Therefore, we can expect a very unstable situation in Argentina, which is likely to remain elevated. I cannot definitively predict what will occur in 2021. Thus, we are being very cautious about our operations in Argentina. We remain flexible in our approach there and are increasing our production, but in a way that allows for that flexibility. Regarding the elections in the US, what will…

I'm sorry to interrupt you, but still in the Argentina answer here. What are the factors that you think will be more resilient in a worst-case scenario in Argentina, like the outlook there doesn't improve, actually, if it gets worse, what are the factors that I would say, we see more resiliency and here, we think we're going to see more of a downside potential?

I mean, I'm not saying this is going to happen. So don't quote me. But I mean, probably, one way out of this is going to be a devaluation somehow. I mean, when you have these differences in exchange rates that could be an outcome. What happens usually in the devaluation is that most of the market decreases. But then some of the export industrial manufacturers continue increasing, and construction starts to pick up also. So for our market, we are going to probably see a downturn if it happens, but there are markets that then will continue to recover. But again, the government is making a point of trying to solve the situation. And so that's why I said that, that is going to be a very volatile environment for the next couple of quarters probably. Election in the U.S., what happens if Biden wins. To be honest, I don't see a lot of changes regarding the manufacturing if Biden wins. I mean I don't think it's going to change a lot of 232. Probably, he's going to negotiate or be a little bit more flexible with some countries, which shouldn't have been in the 232, probably in the first place. But think of this as a regional approach, where a manufacturer has to come back to the region, the US, Mexico, and Canada; this reassuring thing. It’s in the mind of Donald Trump clearly, at present, but it's also on the mind of the Democrats. So I don't think there's going to be a lot of changes. I think on the contrary, both candidates are going to try to make stronger manufacturing in the region. If you ask me, one of the things Biden is going to do a little bit more than the actual probably is in the environmental issues, which for us, for Ternium should be a very good thing regarding our environmental footprint and how we are doing a lot of things. But that’s the only change I see really. I don't know if I answered a little bit of your question.

Our next question is from Thiago Ojea with Goldman Sachs.

I think my first question, I would like to go back to the US price, as Maximo allow me. We saw really a sharp recovery on price in the past few weeks. I think my first question is, I understand that there was a lag compared to the Chinese price, which was unseen before. But do you think this is sustainable? Is this just like a short-term pickup and should accommodate a lower price level? How should we think about US price going forward? I think this is my first question. And my second question is steel related to the US market. We saw in the past few years a lot of announcements of new investments including a few, I would say, in North America, including a few in Mexico. How do you see now these new investments coming through in the next couple of years? It seems that some of them are on hold. What is the competitive landscape in your view for the next two, three years in North America? Thank you.

I mean, US prices, as I said, I mean, clearly, the prices have increased in the last couple of weeks or in the last two months, to be honest. And it was a steeper increase than what we thought but we did see this coming and prices are going up. And again, I think that demand is picking up in all our countries. I mean, China's demand is going to grow by 8% this year. China, in the last four months was a net importer. I mean usually, China is a net exporter for the last 10 years of steel. In the last four months, it imported more steel than it exported. Europe is picking up; it depends on what is going to happen with new research of COVID but it's picking up. And in Latin America, you saw Brazil, Brazil is clearly seeing a huge increase in demand. So I think for the next several quarters, I don't see an environment where prices are going down in the US, and it will depend again on the rationality of the US producer regarding the capacity utilization. But it will continue today. I think that prices should remain at healthy levels for the next quarters. I think that's my opinion. Thiago, I don’t know if I answered the first question there.

You did. So I think now what I'm curious to know, given this current capacity utilization and the new product announcements. How do you think the competitive landscape will evolve in the next few years?

With the investments being made, it's clear that new capacity will emerge in both Mexico and the US over the next few years. This is concerning, particularly because our power consumption is expected to rise. Part of this new capacity will likely be linked to the increase in power usage. When looking at power consumption, Mexico averages 150 kilograms per inhabitant and the US ranges from 240 to 260, while China exceeds 600, Korea hits 900, and Japan, with its manufacturers, surpasses 400. This disparity suggests that we need to boost consumption in our region. Additionally, there is a significant volume of imports in Mexico, and this new capacity is set to alter or replace some of those imports. Furthermore, some of this capacity is definitely going to compete with other US producers, especially since some of these producers have outdated facilities and higher costs, which might limit their growth potential. Our aim is to be more competitive than others in the region, and we are currently enhancing our facilities to be among the most efficient in the area. We expect to benefit from the anticipated increase in consumption, but we will also need to contend with the new capacity that is being introduced.

I would just ask, what is the size of additional capacity that you consider credible to come online in the next couple of years, both in Mexico and the US? Do you have any figure that you work on your projection?

No, I don't understand. Yes, I'm sorry. The line is cutting. And I didn't understand very well the question.

My question is regarding the new CapEx that is coming online. What additional capacity do you believe will definitely be added in Mexico and the US?

No, for sure. I mean, the new capacity in Mexico is our new mill and it's not about steel consumption but the new mill is coming online. In the region, I think the new plant in Texas is clearly being built. I don’t know the timing exactly but they are building it. The new facility of Big River and the new plant in place are going to be producing at full capacity, probably, in the next two to three years.

Next question is from Carlos De Alba with Morgan Stanley.

So just maybe Maximo or Pablo, could you please comment a little bit more on the first quarter outlook. I mean you mentioned Maximo that the prices in Mexico will probably continue to increase, at least you realize prices or revenue per ton will likely continue to increase in the first quarter just on the lag of the contracts. But could you elaborate a little bit more on what are you seeing in Argentinian prices in the fourth quarter and into the first quarter? And maybe anything that you can add in terms of volumes and perhaps costs, and then I will have a second question.

Let me take this question. Let me make a caveat first before answering your question. Clearly, as Maximo explained during the initial remarks, we need to see how the pandemic evolves and if there is a second wave in the region. Clearly, things can change but if we do not take that into consideration, we need to take other things into consideration. First one is the seasonality of volumes in the different markets where we are clearly in the Southern region; the first quarter is a seasonally low first quarter. In Mexico, this is more at the end of the year, so the first quarter tends to be a relatively good one. So we continue to see the coming quarter with a positive outlook. We are not going to see 100% of the price increase that we are seeing even right now reflected in the numbers of the fourth quarter. So there will be some price increase yet, but we see any price staying at the level that Maximo sees; we will see also that reflected in the first quarter of the year. So we believe that the outcome or the outlook that we are going to, for the fourth quarter is something that could be sustained in relation to volumes in Argentina that will be sustained into next year. The second caveat that we need to make is also the one-time Maximo mentioned, which is the situation in Argentina could make changes in the outlook for volume. But all in all, clearly with the volatility of these projections, we should have a rational quarter in line with what we are expecting for the fourth quarter of the year.

And Pablo, sorry, thank you for that. Just wondering if you're seeing that price there…

So I think the third caveat, Carlos, amid pandemic. I mean, clearly, I mean, I said, it's not over. And so, I don’t know if some governments are going to come back to recession; I think they won't. They learned that it is not very useful and it makes a lot of harm to the economy. So I think a possibility because cases are picking up in some of our countries.

No, just on prices, Pablo. How do you see prices in Argentina?

We continue to observe that prices in Argentina align with international prices, typically experiencing less volatility. Therefore, we do not notice significant changes in the regional prices. However, fluctuations in the foreign exchange rate may affect us in the short term, but we are confident in maintaining the current pricing levels in our markets.

My second question is regarding the 2021 CapEx. Can you provide any ballpark number or range for that? Additionally, could you share more details about the timing for restarting the hot roll line in Mexico? You mentioned it would be next year, but any more specifics on that timing and the incremental production you expect from that line would be helpful. Also, are there any other project updates?

In 2021, we expect capital expenditures to be around $600 million, similar to 2020. Regarding the hot-strip mill in Pesqueria, the plan is to start operations in July of next year, with the first coil being produced then. Given the size and complexity of this equipment, there will be a lengthy ramp-up period. Therefore, we anticipate that the benefits of the hot-strip mill will become evident by the end of the year.

Next question is from Gabriel Galvao with Credit Suisse. Your line is open.

So my first question would be regarding Brazil. So we have been witnessing several price hikes in the domestic market and you also mentioned that your plan is to shift part of your third-party sales from the export to the domestic market. So maybe you could provide us some color on how is the relative profitability between exports and domestic sales in Brazil? So my second question would be actually a follow-up on the dividends. So if I remember correctly, you said that dividends for 2020 would remain suspended since you usually only pay dividends once a year, so is this the case here? Thank you.

I’ll start with Brazil. In Brazil, we are seeing increased consumption, particularly from Mexico, and as you know, we have the Ternium facility for producing slabs. While we aren't directly in the final market, as manufacturing production in Brazil grows, companies like Usiminas and CSN are requesting slabs from us to support their ramped-up production in hot-strip mills and cold-rolled on galvanized lines. The recent manufacturing index, BMI, was at a record high, indicating a positive trend. In terms of profitability, there isn't a significant difference; we do benefit from freight advantages and other factors in the domestic market, but the profitability remains relatively stable between our export and domestic markets. To clarify a key point, we have reduced sales to third parties to redirect some of this product to our operational facilities. The term "third parties" includes local sales in Brazil. Maximo was correct in stating that we observed an increase in local demand, but the shift from the second to third quarter was primarily due to lower sales reported as third-party transactions and a rise in transfers to our industrial facilities in both Mexico and Argentina. This explains the notable changes reflected in our numbers.

All in all, the production in Mexico or Brazil was higher but this is clear and you should note that we switch from third parties to local market, those are not increased but the switch was from total third parties to internal transfer. So with that verification and Maximo…

In the third quarter, the sales to third parties will be similar in the fourth quarter, with the exception that we will be shipping more to Brazil due to increased demand there. However, the overall number of sales to third parties, including Brazil, will remain the same. Regarding dividends, the Board decided in April to forgo dividend payments because of the pandemic and our assessment at that time, which I still believe was the right choice based on the information we had. Now that the market is recovering faster than expected, the Board will propose the yearly dividend payment in February, as we typically do. I am confident that the Board's proposal will consider the skipped dividend payments from 2020 when they make their recommendations for the dividend in 2021.

Our next question is from Rodolfo Angele with J.P. Morgan. Your line is open.

There are a lot of things we were already discussed so I will have just one question. There are few moments in Ternium's history that changed the company to another level. And we can, kind of, if we go back the acquisition of IMSA, I think was the first one, CSA was another one and I think, Pesqueria could be also one of those moments. We have been getting a lot of questions from investors who are looking at Ternium and they want to try to understand the impact of the new mill and what the profitability of the company. So my question to you is, can you comment on the range of additional EBITDA per ton that Pesqueria, when fully ramped up will bring to your operation. Just a range, ballpark figures, what you expect to see the impact there. That's all from me guys. Thank you very much.

I will begin with the answer and we can elaborate further if needed. Rodolfo, your question is clear. Every investment we make aims to enhance the company's profitability or EBITDA generation. Currently, we have an EBITDA margin of 16.5%, and we are projecting an increase in profitability in the upcoming quarter. Our primary goal is to maintain this level of profitability. Regarding the Pesqueria facility, it's a crucial point for Ternium's future, similar to previous acquisitions like CSA. There are several components to consider for profitability at this facility. First, we will be replacing hot-rolled imports with production from our new facility. Second, we will discontinue the use of one of our more sophisticated facilities, which we have already closed. This new state-of-the-art facility will enhance performance. Additionally, we expect to broaden our product base, aiming for over 2 million tons of net product to sell in the market, which will contribute to our EBITDA. Our main objective is to sustain profitability above a 15% EBITDA margin, with a target range traditionally between 15% and 20%. While some quarters may exceed this range, it is essential for us to maintain this focus. That concludes my initial comment. Maximo, would you like to add anything?

No, I think it's very clear. I mean, I think Pesqueria is clear to everyone. There are significant developments here. However, Rodolfo, I believe what Pablo and you are saying is accurate. Pesqueria, along with the acquisition of CSA, is a combination that significantly changes Ternium. This facility will add between 4 million to 4.5 million tons of high value-added products and will open up a completely new range of customers for us. Our goal with this is to increase our profitability, as Pablo mentioned.

I understand you're currently at the 15% mark. What I want to emphasize is that when investors ask about the impact of investments, the response of 16% seems insufficient. Specifically, regarding the project, what is Pesqueria expected to contribute? That could be estimated at around $20 per ton. I don't know if you can provide details on this, but it's important to highlight this point. I recognize the market is trying to quantify it, and I apologize for pressing the issue, but this is my final question.

No, that's fine, Rodolfo. We need to discuss this further, but what we want to convey is that it's extremely challenging to assign a precise number to that because it depends on product pricing and various other factors, making it hard to define. We anticipate a profitability increase of 2%, partly due to a product mix that includes new painting and galvanized products, as well as hot-rolled products, each with different pricing. So, if you want to explore the EBITDA generated by this facility, that's a different inquiry. Maintaining current prices, we project more than 2 million tons with an EBITDA per ton exceeding $120 to $130, potentially yielding over $250 million in annual EBITDA. To clarify the figures, in this quarter, we achieved a 16.5% EBITDA margin, and I am aiming for a higher margin next quarter. It is quite difficult for us to assert that this investment will push us beyond a 20% margin, which you might anticipate. Overall, we have significant expectations for this new facility as it will open numerous opportunities not only for free cash flow generation and EBITDA growth but also for margin sustainability and improvement, along with other aspects previously detailed by Maximo. This is a vital investment for Ternium that will undoubtedly enhance our EBITDA generation levels and we believe it will eventually boost Ternium's profitability as well. While it’s hard to provide a specific number considering the information we’ve shared, as both you and Maximo have pointed out, this investment is a game changer for Ternium, and the results will follow. I apologize for not giving you an exact figure, but that's our perspective regarding this investment.

Our next question is from Alex Hacking with Citi. Your line is open.

I guess, just a quick one for Pablo. So if I look at the Siderar financial statements, the implied EBITDA per ton was back over $200 during the quarter. I guess, is that a sustainable level there, my current utilization rates and current prices or was there something weird going on with the accounting whereby there was sort of a one-off boost in what that look like. Thanks.

There were some things in relation to Argentina; remember that we have still inflation in Argentina, we have devaluation in the country. So when you have this aspect, it tends to increase a little bit the total number of the company. Of course, if we are continue to see exactly this environment, then the impact of that is increased just because the portion of the cost that is denominated in peso, which is around 35% of the total cost, clearly, those attempts as you calculate devaluation tends to be reduced. So you have a better margin on that respect. So you have these things when you have utilization of the inventory that you have before evaluating that as the prevailing exchange rate at the moment or the end of the quarter. So there are some of this; also clearly, the performance of Ternium Argentina was very, very good. But these things tend to accommodate and to go to more normalized levels. But clearly, the performance on the margins of Ternium Argentina are high.

I have a quick question. In your response to Rodolfo, you mentioned some value-added processing for the Pesqueria product. I wasn't aware that you had excess paint capacity available to use. Can you provide some details on how much additional value-added capacity you have? Thank you.

What I meant to convey is that the total investment in Pesqueria includes not just the hot-rolling mill, but also the new galvanized line and the new painting line, both of which are operational and nearly at full capacity. Therefore, we are not sitting on spare capacity waiting for the new facility to become operational. We have that capacity available, and this was included in the initial capital expenditure at the end of last year or the beginning of this year. After the ramp-up period, we are actively using our facilities, and there are no excess capacities waiting for the new facility to start functioning.

There is future potential to add value. The new capacity is hot-rolled, and I recall that the galvanized line began production six months ago, with painting starting in December. They are still operational. The hot-rolled new capacity also provides a new substrate for these lines, allowing us to produce additional products more efficiently in many cases, as well as enabling us to create products that we couldn't previously manufacture due to a lack of substrate. This will lead to a change in our product mix, and we may see some increases over time in the operation of our current galvanized and painting lines.

Ladies and gentlemen, this concludes the Q&A period. I'll now turn the call back over to Maximo for any closing remarks.

Thank you. Okay, I hope this call has been informative and has helped all of you have a better understanding of our company. Thank you very much for participating today, I know it's a challenge today to be hearing us but thank you very much, and I hope you have a nice day.