Earnings Call Transcript - TX Q3 2023

Operator, Operator

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would now like to welcome everyone to the Ternium Third Quarter 2023 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. Thank you. I would now like to turn the call over to Sebastian Marti. Please go ahead.

Sebastian Marti, Global IR and Compliance Senior Director

Good morning. Thank you for joining us today. My name is Sebastian Marti and I am Ternium's Global IR and Compliance Senior Director. Ternium released yesterday its financial results for the third quarter and the first nine months of 2023. This call is complementary to that presentation. Joining me today are Chief Executive Officer Maximo Vedoya and the Company's Chief Financial Officer, Pablo Brizzio, who will discuss the risk 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 two in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measure in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya.

Maximo Vedoya, CEO

Thank you, Sebastian. Good morning. And thank you all for participating in Ternium's conference call today. I'm glad to report we have had a healthy third quarter with the consolidation of Usiminas. For the first time, we had a margin of 13%. As you may know, Usiminas' main blast furnace has been offline for realignment, and its operating results in the quarter were affected accordingly. When considering Ternium's operations, before the consolidation, we had a margin of approximately 17% in the quarter, which is within our usual margin range. With steel prices recently increasing in the USMCA region and Usiminas starting the ramp-up of its main blast furnace, I am positive that starting next year, we will see more normalized improved margin performance. With this in mind, we announced yesterday an interim dividend payment of $1.10 per ADS equivalent to $216 million, to be paid on November 16. This represents an increase of $0.20 per ADS or 22% more compared to last year interim dividend payments. After my initial remarks, Pablo will go through the details of our performance in the quarter and explanations for the future periods. Let’s now review the business environment in our main markets, beginning with Mexico. Apparent steel demand in Mexico remains strong. As we have been discussing during the last conference calls, nearshoring is happening and its development is positive for the USMCA consumption of steel. I see this trend as giving sustainability to steel demand in the region for the coming years. In this context, the new capacity and high-end products we can offer now as a result of investment programs we've developed during the last few years have enabled us to increase our shipments by 25% in the first month of 2023 compared to the same period of 2022. We are expecting Ternium's shipments in Mexico to continue increasing in the fourth quarter, as we have been working on resolving certain supply chain bottlenecks that affected previous quarters. We expect this to happen even though this is the seasonally weakest quarter of the year. Steel prices recently bottomed out in this region and this is fueling restocking in the value chain in the commercial market due to low inventory levels. On the other hand, the industrial market continues to show fairly healthy steel demand. The auto industry in Mexico has not been affected by the strikes in the U.S. The positive pricing dynamics we are seeing in the USMCA region will be more notable in the first quarter of next year, as the lag effect of contract practice in Mexico will be a drag on the fourth quarter realized prices. Moving to Brazil, in this quarter, we fully consolidated Usiminas into Ternium’s financials for the first time. So let me review the latest developments in the Brazilian market. We have always believed the potential of this market is outstanding. However, Brazil has recently been going through some challenges. Steel demand in the country is at reasonable levels, but steel imports in Brazil increased by 57% in the first nine months of the year, reaching the highest level in more than 10 years as a percentage of steel consumption. About 80% of flat steel imports are coming from China. This is a major concern not only for Usiminas, but for the whole industrial sector in Brazil. With the surge of steel imports from China, the governments of several countries in the Americas, such as the U.S. and Mexico, have taken trade measures to avoid being flooded by unfairly traded Chinese steel; Brazil should follow this same path. The local steel industry has been vocal about the need to defend the country from this dangerous dynamic and will plan to be very active on this front. In this difficult context, Usiminas has just finished the relining of its blast furnace in Ipatinga. This lengthy investment process, together with a deteriorating steel pricing environment, have certainly taken a toll on Usiminas' profitability in the third quarter, and we will not see a significant improvement until early next year, when the new facilities are ramped up. Let me finish my comments about Brazil by stating that we are fully committed to Usiminas. In this new stage, we have reinforced Usiminas' management teams since we entered the company four months ago. This new team in Usiminas has been working around the clock to bring the company to its full potential. Many efficiency-increasing initiatives have been designed and put in place. The focus today is on the industrial operations, the heart of the company. We expect this process to be a marathon, not a sprint, but I'm confident that Usiminas will be able to increase its competitiveness and regain its position in the Brazilian market. Let me turn to Argentina. Although our operations in Argentina continue to perform well in the third quarter with relatively stable shipments, the constraints of imports for production and for our value chain have been worsening over time and will likely impact economic activity in the company and in the country. The microeconomics in Argentina are currently extremely unstable. The high degree of uncertainty regarding the outcome of the presidential election in three weeks makes it hard to have a clear picture of the measures the next administration will take to tackle this unsustainable situation. The new administration will likely have to implement a series of needed reforms during 2024, which will probably take a toll on economic activity at the beginning. The sectors with the potential to weather the storm and prosper in a better post-reform scenario remain being the energy, mining, and agribusiness sectors. Moving now to our sustainability agenda, we are proud to announce that we recently won a bid to extend our wind farm project in Argentina from 72 megawatts of annual capacity to 99 megawatts. This expansion will enable us to replace 90% of the purchased energy for our facilities in the country, reducing a total of over 127,000 tons of CO2 emissions per year. This additional expansion aligns seamlessly with our current construction schedule. We are proceeding with preparatory work, including roads, and expect to initiate the foundation works this week. We anticipate installing the first turbines by May next year. In Mexico, we are also making progress with our project to build a steelmaking facility in Pesquería using DRI-EAF technology. The facility's emission intensity will be almost 70% lower than the world's average for the BF-BOF route and will be able to produce all qualities of steel demanded by the auto industry. We have already closed most of the important equipment procurement contracts for the DRI facility, the EAF, and also for the downstream lines like the new rolling mill and the galvanized lines. Let me now make a few final comments to close these prepared remarks. I am very positive about what's ahead for Ternium. Although the fourth quarter is going to show a decline due to the works in the blast furnace in Usiminas and the downward reset of contract prices in Mexico, we should see improvement beginning in the first quarter of next year. One, the blast furnace in Usiminas has ramped up, and the new pricing scenario in Mexico reflects on our financials. With a longer-term view, we will be working on deepening the synergies of our industrial system in the region with the capability to serve our industrial customers seamlessly across the continent. Also, we will be focused on the expansion of our facility in Pesquería, which will turn into the most sophisticated and sustainable steel industry system in the Americas. All right. Please, Pablo go ahead now with your analysis of Ternium's performance in the third quarter.

Pablo Brizzio, CFO

Thanks, Maximo, and good morning to everybody, and thanks again for participating today in our conference call. In today's presentation, we will review our operations and financial performance and the effect of the consolidation of Usiminas for the first time in the third quarter of this year. If we go to page three of the presentation, you will see that Ternium's operating results were relatively strong in the third quarter, in line with operating results in the same period of last year, and decreasing more on a sequential basis as expected. As you can see in the chart at the top, adjusted EBITDA reached $698 million in the third quarter, up 2% versus the same period of last year and down 22% versus the second quarter. The sequential decrease in adjusted EBITDA was mainly the result of low realized prices and higher costs, partially offset by higher steel shipments. Adjusted EBITDA margin in the third quarter was 13%, down from 23% in the second quarter. As Maximo mentioned, this margin was affected on one side by a decrease in realized steel prices in the USMCA market, and on the other side by the consolidation of Usiminas' operating results as Usiminas recorded almost no margin level in the period. Looking forward, we expect adjusted EBITDA to decrease in the fourth quarter due to a decrease in operating margin, partially offset by slightly higher steel shipments. We will analyze this in more detail in the coming slides. Moving on to net results, adjusted net income, and adjusted earnings per ADS decreased sequentially to $323 million and $1.38 respectively, reflecting the decrease in operating results and lower deferred tax results. Adjusted net income was calculated as net result adjusted to exclude a $1.1 billion non-cash loss related to the increase in participation in Usiminas. We will analyze this in more detail in the coming slides. Let's turn now to our shipments performance on page four. In Mexico, expected Ternium’s steel shipments reached a new all-time high of 2.1 million tons in the third quarter. Shipments were up 5% sequentially and 24% versus the prior year third quarter, supportive of sustained market demand and an easing of some logistic constraints affecting our performance in the second quarter. Prospects in this market are quite positive. We continue to have a demanding industrial sector and a very active commercial market, driven by lower inventories and increasing steel market prices. In Brazil, reported volumes in the third quarter were almost entirely attributable to the consolidation of Usiminas. The industrial sector in Brazil accounted for approximately 70% of steel shipments in the period. Looking forward to the fourth quarter, we expect shipments in Brazil to remain relatively stable. In the southern region, shipments were 603,000 tons in the third quarter, up 7% sequentially, mainly due to the consolidation of Usiminas sales in the country. Looking forward, we anticipate a sequential decrease in steel shipments in the fourth quarter, mostly as a result of the import restrictions in Argentina already mentioned by Maximo. In Argentina, the uncertainty regarding steel demand remains high, as a new administration will take office in December, and we are waiting to see which new measures the government will implement. On the next page, number five, you can see that combining these developments, we arrive at consolidated steel shipments of 4.1 million tons. Looking forward, we expect steel shipments to increase slightly in the fourth quarter. Consolidated net sales were $5.2 billion. Of the total, net sales of steel products accounted for $5 billion, and mining and other product net sales accounted for $221 million. Ternium reported iron ore shipments to third parties of 2.2 million tons in the third quarter as a result of the consolidation of Usiminas. As Ternium's mining operations in Mexico continue exclusively serving our own iron needs in the country. Moving to steel price, consolidated steel revenue per ton in the third quarter was down sequentially by $74 and decreased year-over-year by close to $160 per ton. In the third quarter, the sequential decrease was mainly the result of the lower steel price in Mexico, with a negative trend in benchmark steel prices, which was partially offset by higher industry cost contract prices. Looking forward, we anticipate realized steel prices to decrease further in the fourth quarter, reflecting lower industrial contract prices in Mexico and lower realized steel prices in Brazil. Let's now review adjusted EBITDA and net income on page six. On the chart at the top, the main reason behind the decrease in adjusted EBITDA was a decrease in realized steel prices and higher costs, partially offset by higher shipments, as the consolidation of Usiminas did not significantly adjust the EBITDA in this quarter. At the chart at the bottom, you can see the impact on net results of the lower operating income, lower deferred tax results, and the non-cash effects related to the increase in the participation in Usiminas. The increase in the participation of Usiminas has two non-cash effects: a $945 million loss due to the recycling of other comprehensive income to net results, and a $171 million loss due to the re-measurement of Ternium stakes in Usiminas resulting from the purchase price allocation. The $945 million loss may include currency translation adjustments. Losses accumulated along the years in connection with the depreciation of the Brazilian real versus the U.S. dollar on the evaluation of Ternium stakes in Usiminas. This loss was non-cash. It has no income tax effect and did not change the value of Ternium’s equity. Moving on to income tax results, we recorded a deferred tax loss at Ternium Mexico and the Argentinian subsidiary in connection with the depreciation of the local currency against the U.S. dollar. Now let's review in the next page our cash performance. Cash from operations was $945 million in the third quarter, aided by a $388 million decrease in working capital. This was mainly due to lower inventories, particularly at Usiminas, and higher trade payables. Pre-cash flow reached $563 million in the third quarter after a CapEx of $382 million. We invested $119 million in the acquisition of the original shares of Usiminas and additionally consolidated Usiminas net debt position. All in all, Ternium’s net cash position increased by $200 million during this quarter, reaching $2.4 billion by the end of September. Let's now turn to page eight of the presentation to review our performance in the first nine months of the year. Achievements were really over 10 million tons in the period, increasing by 1.3 million tons year-over-year. The main changes between these two periods were on the positive side, with an achievement increase of 1.3 million tons in Mexico, as already explained, and the consolidation of Usiminas which added about 1 million tons. On the other side, we have lower achievements in other markets and regions, totaling around 600,000 tons, with higher integration during 2023 between our Rio de Janeiro slab facility and our operations in Mexico, which directed a little over 400,000 tons of slab achievements to third parties in the comparison. Adjusted EBITDA in the first nine months of the year was $2.1 billion, decreasing from $3.1 billion in the same period of last year, mainly due to lower steel prices, partially offset by lower costs. Adjusted net income was $1.5 billion in the first nine months, lower than the $2.1 billion in the same period of 2022, with adjusted earnings per ADS of $6.48. This was the result of lower operating results, partially offset by a higher deferred tax result. Moving on to shareholder returns, on November 16, 2023, we will be paying the first part of our yearly dividend corresponding to 2023. The interim dividend announced amounted to $1.10 per ADS, representing a 22% increase over the interim dividend paid last year. Now in the final slide, number nine, you can see Ternium’s accumulated cash flow performance. Cash flow operations reached $1.6 billion in the first nine months of the year with stable working capital, which led to free cash flow of $828 million after CapEx of $778 million. Okay, with this, we finish our prepared remarks. Thank you very much for your time and attention. We are now ready to take any questions you may have. Please operator, proceed with the Q&A session. Thanks.

Operator, Operator

Thank you. Your first question comes from Carlos de Alba with Morgan Stanley. Please go ahead.

Carlos de Alba, Analyst

Yes, good morning, gentlemen. Thank you very much. So the first question is very simple. Do you have a number for turning EBITDA ex-Usiminas?

Maximo Vedoya, CEO

Okay, Carlos, I was expecting your second question.

Carlos de Alba, Analyst

Yes, I'll ask just maybe one at a time.

Pablo Brizzio, CFO

We have seen the analysis that the different analysts have been doing. It's not exactly the same, the number ex-Usiminas, because you know that we need to reflect the number of Usiminas accordingly to the adjustment of the purchase price allocation. So the number that we have been reflecting in our numbers of Usiminas is a little above $25 million. In any case, it's a very minor number that we have received from Usiminas consolidation during this quarter. And as we have already mentioned, both Maximo and myself, we are not expecting to see any different number in the first quarter of next year, where we will be starting to see a more normalized level of EBITDA generation.

Carlos de Alba, Analyst

All right, but you're not going to disclose what was EBITDA before Usiminas?

Pablo Brizzio, CFO

No, no. From now on, we need to consolidate the numbers all together.

Carlos de Alba, Analyst

All right, good. And then the other question I have is, when do you expect to come up with a plan for Usiminas? Clearly, a lot of things are going on besides just stabilizing the operations. You need to decide whether you're going to invest in repairing the coking oven batteries, if you're going to invest in the mining business, if you're going to restart the Cubatão blast furnaces, or maybe perhaps you're going to do an electric arc furnace there. What do you have in mind and when should we expect you to announce the plans for Usiminas?

Maximo Vedoya, CEO

Carlos, hello, Maximo. How are you? Thanks for the question. We don't have a date to announce the plans. Some of the plans we are already taking care of and some of the other things we are still analyzing. Clearly, MUSA is a very interesting project that, as you know, we haven't decided to go through, but in some cases, we are making all the progress so that we can decide if we proceed to start it right away. There is a team working on that project in particular. The blast furnace in Cubatão will never come online again. I mean, we will have a plan probably for Cubatão, but in the long-term, we will not include blast furnace for sure. For the coke, we have been making some progress in the coke. We shut down old facilities that we were spending a lot of money on, and in the near future, we are going to have the solution for the coke on a much smaller scale than what we had to. So, all these things are being worked on in day-to-day operations. The objective, as you know, is for all the facilities to reach the standard level that we have at Ternium at the end. I mean, we have opportunities in most of the lines of Usiminas, and our objective and our plan is to do that, to have the same standards as in Ternium. I hope I clarified some of that.

Carlos de Alba, Analyst

That was good. Very good color Maximo. Thank you very much. And just one final question on my end, and I'll get back in the queue. From the cash flow, it's around almost $3.6 billion in cash and cash equivalents plus other investments that you reported. $1.3 billion are in Argentina, and given what we have seen happening there with the currency, how do you market this cash position that you have in Argentina? What more color can you add there, given that obviously there is a key concern from the market on this significant cash amount in Argentina?

Pablo Brizzio, CFO

Yes, Carlos, let me talk a little bit about that because it's an important thing to mention. As you said, we have, as of September, $1.25 billion in cash based in Argentina. Of that, we have different instruments. As we've mentioned in the past, the way we want to hedge or cover this exposure we have in Argentina is to the dollar. In order to do that, we need to use the limited instruments that are available these days in the country. So we are having a small fraction of that, which is related to peso-dominated instruments, which are basically for the day-to-day operation of the company. A significant portion of around $800 million is based on Argentine bonds that are quoted in dollars or are denominated in dollars, and other instruments that are directly dollar-denominated, like corporate bonds. So this last one, I’m not exposed to any depreciation of the currency or any situation because, at the very end, they are directly dollar instruments. The issue is in relation to the Argentine bonds that we need to account for them at the official exchange rate. So there, we are exposed to any depreciation, any fluctuation of the value, the dollar value of that bond in international markets, and also in the gap that exists between the official exchange rate and the financial exchange rate. So we found this to be the best instrument to protect our money in the country. We are not marketing that bond, but taking into consideration the official exchange rate, which is the only one that you can use in the country. I don't know if I clarified your point, but if you have any other specific clarification on this point, please let me know, and we will try to do that.

Carlos de Alba, Analyst

Just one follow-up there. What is it of the $800 million, more or less, that are in bonds, in U.S. dollar-denominated bonds? How much is Argentine government bonds and how much is private companies' bonds?

Pablo Brizzio, CFO

Of this $800 million, this is 100% Argentine bonds. We have an additional $200 million in corporate bonds.

Carlos de Alba, Analyst

Okay. All right. And then about $300 in peso-denominated instruments.

Maximo Vedoya, CEO

A little bit less, yes.

Pablo Brizzio, CFO

A little bit less because they are dollar-linked peso-denominated instruments, among other things. But yes.

Carlos de Alba, Analyst

Okay. Thank you.

Maximo Vedoya, CEO

You're welcome.

Operator, Operator

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

Timna Tanners, Analyst

Hey, good morning.

Maximo Vedoya, CEO

Good morning.

Timna Tanners, Analyst

Good morning. I want to ask a little bit more about costs. Obviously, things are a little muddied with the addition of Usiminas, but not as close to that story and it would be helpful to get a sense of what the cadence of costs could look like once the blast furnace reline is done. Just looking at the per ton number, if you have it in that format, or whatever way you can share with us how you think of those costs falling off. And specifically, any thoughts on the fourth quarter costs with the prices coming down? Are we going to see any relief on costs?

Pablo Brizzio, CFO

Okay. Hi, Timna. How are you? Let me tell you first the issue of the cost and then, Maximo, you can comment on the pricing environment. So let me first give you a direct answer, and then we will try to deepen on that. We are expecting to see very similar costs coming into the fourth quarter. Why? First of all, because we are not seeing many changes in the price of the different raw materials and the prices of slabs that will go through our financials in the fourth quarter. Though we have finished the relining of the blast furnace in Usiminas, we are not expecting yet to see the impact of that during the fourth quarter and we are expecting to start to see that during the first quarter of next year. So clearly, we are not reflecting the cost of producing our own slabs in Usiminas, but rather the cost of imported or purchased slabs. So all in all, we are not expecting to see many changes in the different parts of Ternium regarding costs coming into the fourth quarter, and we are expecting to see in the first quarter a decrease in price in the whole Ternium on a consolidated basis.

Maximo Vedoya, CEO

The other one was prices? Yes. Sorry, Timna.

Timna Tanners, Analyst

I was just wondering about the order of magnitude of how to think about the reline, the magnitude of that cost coming up. I heard that it was going to be lower. I'm just wondering if there was any color there.

Pablo Brizzio, CFO

Clearly, it will be much lower because as you know, we are at this moment, Usiminas is purchasing slabs. So the whole margin of buying slabs against producing slabs will be gained by the company entering into the first quarter of the year. So whatever number you would like to assign, it's a significant number that will be helping Ternium to recover profitability and to lower a much lower number on the cost side, together with other things that we need to consider, such as the impact of some reduced prices on slabs and costs on raw material.

Maximo Vedoya, CEO

And the other thing, Timna, is that currently Usiminas is working with the other two blast furnaces, which are very small and not very efficient. Number three is much bigger and much more competitive. So you are going to replace at least one of these smaller blast furnaces with the bigger one.

Timna Tanners, Analyst

Got it. That makes sense. Okay. So then the other part of my question is really to your point on prices. So the price hikes that are being announced now in the U.S. are really more of a first-quarter story. So for Ternium, given it often lags a quarter because of the contract structure, does that mean these price hikes that are announced now are more of a second-quarter story? Or are they also going to be lagging into the first quarter like typical delays?

Maximo Vedoya, CEO

Yes, for Ternium, and we are talking about Mexico now. Remember, 40% of our shipments in Mexico are commercial spot markets. So we are seeing, from the last two or three weeks, an increase in prices. How much of that is going to be in the fourth quarter is not much. But in November and December, we are going to have higher prices than September and October. On the other side, 60% of our shipments are contracts. So to be clear, we are not going to have any effect on the fourth quarter and prices in the industrial sector in the fourth quarter are going to be lower. But for the first quarter, we are going to see increases. The amount of those increases still depends a little bit on the increases that we are going to receive in the next several weeks. I think everybody thinks that prices at least in the next couple of months are going to continue to improve in the USMCA region. So we are going to see an increase in the first quarter for sure.

Timna Tanners, Analyst

Makes sense. Okay, if I could squeeze one more in to ask about the demand story. In Mexico, the demand story sounds really good on reshoring of course, and manufacturing. But are you not seeing any impact from higher interest rates? Some of the color in the U.S. is certainly some weaker construction activity and concern over automotive. So any impact from the spillover of the higher interest rates that you can point to in the Mexican region?

Maximo Vedoya, CEO

Yes, to be honest, we are not seeing that yet. And I put 'yet' because we have been talking for the last couple of conference calls that we were expecting some kind of impact. But still, the money is still very robust in the U.S. to be honest. And we are not seeing a decline in the demand that is going for industrial sectors that are also dependent on the U.S. Production of cars increased by 7% or 8% this year. All other industrial sectors are guiding in the same line as last year, without any decrease in that. And the commercial market in Mexico is also very strong. Although interest rates have also increased in Mexico, construction is coming back. Inventory in the commercial markets is low. So we are not seeing this effect yet. I think that at some point, we are going to see that. But this is taking much longer, thankfully, than we thought. So for now, we are seeing very robust demand in both markets.

Timna Tanners, Analyst

Okay, good stuff. Thanks again.

Maximo Vedoya, CEO

Thank you.

Operator, Operator

Thank you. Your next question comes from the line of Gabriel Simões with Goldman Sachs. Please go ahead.

Gabriel Simões, Analyst

Hi, thank you for the presentation. Thank you for taking my questions. First question, I would like to piggyback on Timna's question in the Mexican market. So you mentioned you're still seeing strong demand for the market as a whole. But I just wanted to understand how much room you see for Ternium to continue to gain market share from its competitors in the near term. And if you've seen the dynamics change in the market since the implementation of the higher import tariffs, given that gaining share from imports was also one of the goals here with the higher investments in the country. And the second question here would be on dividends. So you announced higher interim dividends this quarter than you did for the same period last year. And we wanted to better understand how we should think about cash returns going forward, given that you still have a very comfortable cash position at Ternium, but at the same time, sizable investments to make in the Pesquería facility and potentially higher investments at Usiminas as well. So just wanted to understand how we can factor all these things in when thinking about cash returns in the future. Thank you.

Maximo Vedoya, CEO

Okay, thank you, Gabriel. I'll start with the first question, which is demand in Mexico. The demand in Mexico, as you said, is very robust. If you take the nine months of the year, we are at least 7% higher than last year. So it's a huge increase in demand. Of course, our shipments increase much more for several reasons. First, our market share against imports has increased, of course. And also, one of our competitors is not producing in the market, so that's also helpful. Now, on what can we gain more? I think we have still a huge amount of the market that we can gain. Our problem is how we increase production, because most of our lines today are working at rather full capacity. We have some production in the hot spring meeting to the Busco and we are increasing that production. And we have to, I mean, imports today are still at high demand, even though the increase in the tariff, although we have seen some decrease in September from July and August, there was a big decrease in September. But there's still some import share that we can gain with the capacity we have. So we are very confident that we can continue gaining this market share in Mexico, and we have room for that. I hope I clarified a little bit of your question, Gabriel, with this.

Pablo Brizzio, CFO

Okay, Gabriel, let me—how are you? Let me take your second question. Let me mention that the dividend that was announced is just an interim dividend. And in the last two years, though, you know that the Board is meeting to approve the final dividend in the last two years. The interim dividend represented one-third of the total dividend for the year. So there you have an expectation of the dividend that will be paid on a yearly basis, which, as already mentioned, will be around a 22% increase over the interim dividend paid last year. So there you have one reflection of what the company is doing in relation to capital allocation. Outside the normal usage of cash, the company has a very strong position. We expect to have an estimated CapEx for next year of around $1.5 billion without including the CapEx of Usiminas, for which we are expecting to see an additional $300 million or around that number for 2024 in Usiminas. So besides that, we are raising the dividend payment, and as we always mentioned, the company is in a position to continue to follow that trend. So basically what we are doing is, firstly, financing the CapEx that the company has, which is significant in the next and following years, to finalize the project in Mexico, and then sustaining and increasing the level of dividend payments. Besides that, we will continue, and we are in a position to maintain a very strong financial position, which we think is important for the years to come.

Gabriel Simões, Analyst

That's perfect. Thank you very much for the answers.

Pablo Brizzio, CFO

Thank you.

Operator, Operator

Thank you. Your next question comes from the line of Rodolfo Adriano De Angele. Please go ahead.

Rodolfo De Angele, Analyst

Hi, good morning. I have a few questions. My first question is, in this scenario that we are seeing—you mentioned that increased steel imports in Brazil—we have been hearing the local industry discussing lobbying for increasing taxation of imports. I wanted to hear your thoughts around that. That's my first question.

Maximo Vedoya, CEO

Yes, Rodolfo, I think it's something that the Brazilian government has to do. I mean, as I said in my initial remarks, Rodolfo, most countries like the U.S., Mexico, Europe, and some Asian countries are all protecting against unfair trade, especially from China. So if you want to have an industry, which I think is very important in Brazil, you must have some defense of that industry. It's impossible today if you don't have that. Therefore, I think it's very important for the government to take this into account, and I fully support what the local Brazilians are saying. I absolutely agree with them.

Rodolfo De Angele, Analyst

Okay. Second question is more about how do you see mining in this environment? Because we saw Chinese steel hurting steel margins for a number of years in the past. And during that period, it was always challenging for steelmakers, but the ones that had some type of backward integration, especially to iron ore, kind of fared better than the rest. You already have exposure to iron ore. So I just wanted to hear your thoughts on how you see iron ore overall? And what's the—you know about the expansion of MUSA, you mentioned that there isn't a decision yet, but how do you go about it? What are the—and what do you need to see to make a decision to go ahead with that? And then I have a final question after this.

Maximo Vedoya, CEO

Okay well, I mean, it's not that we have to take the decision today. We are working and, in order to analyze and to go through all the steps, we have before making a decision. This doesn’t mean that we are not working. I mean, we are working, and the decision has to be made, I think, between one and two years from now, because we are going through permission, environmental permission, and all the analysis, the quotations, and engineering of the equipment. So we are working on the project, going through the project of MUSA as if the project is going through, but the approval of the project, we have to take it in, I think, it's a little bit more than a year and a half. So that's the only reason why we are not saying a year and a half from now when we have all the engineering, when we realize what the different issues are regarding the reserves and the equipment, the final costs of all the engineering, we should make an announcement if we will proceed or not.

Rodolfo De Angele, Analyst

Okay, makes sense. My final question is a question I got from an investor and we of course know about the changes between the control and shareholder group and with Nippon selling out and leaving gradually more room for the Tequint group in Usiminas. The question I got was about Unigal, if there is any discussion eventually about Nippon Steel selling also their stake there to you or to Usiminas itself, anything changes there or not?

Maximo Vedoya, CEO

No, no, there has not been. Unigal is still, and I think it will be, 70% Usiminas, 30% Nippon Steel. I don't think we're going to change that or there's any plan to change that. Remember, we also have the same facility in Mexico, where we have 51% and Nippon has 49% of that. So, for that particular market, for that type of line—a galvanized and galvanized line for the automotive industry—we are very comfortable with this. So I don't see any changes.

Rodolfo De Angele, Analyst

Okay. Thank you very much.

Maximo Vedoya, CEO

You're welcome.

Operator, Operator

Thank you. Your next question comes from Carlos de Alba with Morgan Stanley. Please go ahead.

Carlos de Alba, Analyst

Thank you very much. I just wanted to follow up, Maximo, on the discussion of potential steel imports in Brazil. Thinking about this, what is the level that you believe could be feasible for import tariffs in Brazil? Because I hear you and I hear the Brazilian executives talking about Mexico and the U.S., Canada, 20%, 25%. But none of these countries export to China as much as Brazil does. So how can the Brazilian government tell the Chinese, we don't want your steel, but we want you to take our iron ore and our proteins and our grains? So it's, I think, a much more complex discussion than it is for Mexico and the U.S. So, is it realistic that we can get to 20% or is it more likely that we stay maybe at 15% if we're lucky?

Maximo Vedoya, CEO

I think there are two different things, Carlos, and let me be clear. I mean, going in the primary sector, as you said, grains and iron ore, I think it's more of a commodity market. So, it's not that China is doing Brazil any favors or Argentina buying the grains. I mean, it's a commodity market where the price is set in a very different environment and has nothing to do with Brazil, China, or anything. In the industrial sector, I think it's very different because what you cannot permit or what you cannot compete with is unfair trade. And what we're talking about here is unfair trade. And that's important. I mean, Canada exports to China a lot. Europe exports to China a lot of equipment and everything. Nevertheless, what we have to do is respect the rule of law and the regulations that you cannot sell into a market with unfair practices of trade. And that's the thing that the Brazilian steel industry and I think other industries should start fighting in Brazil. If you see what the story of USMCA or the story of Mexico, it's a story of reindustrialization, of relocalization, but reindustrialization, where clearly you have much higher salaries for people in the primary sector. And Brazil has gone for the last 10 years in a very different direction. And I think that's some of the problems that Brazil is facing. So making a case against unfair trade, defending against unfair trade, is a very valid cause for Brazil. And it's something that the government should revisit, as they did several years ago. So I think it's a completely different position. I don't know if I'm clear about this, Carlos.

Carlos de Alba, Analyst

Very clear.

Maximo Vedoya, CEO

And again, it's something that's making a significant impact. I have received a lot of inquiries from Brazil asking me, what is Mexico doing very well? Because Mexico is doing very well, to be honest. And what Mexico is doing very well is exactly this. It's the nearshoring, and fighting against unfair trade. It's no other thing than that. And for Brazil to proceed this way, to have increased demand and growth, you have to go this way, you have to defend your industry. If not, you're going to jeopardize the economy even further, which everybody knows is not very good.

Carlos de Alba, Analyst

Thank you very much, Maximo.

Maximo Vedoya, CEO

You're welcome, Carlos.

Operator, Operator

Thank you. Your next question comes from the line of Caio Greiner with BTG Pactual. Please go ahead.

Caio Greiner, Analyst

Hi, good morning, guys. Just a confirmation from my side, the call quality is a little poor here. You guys mentioned your CapEx estimates for 2024. Can you please repeat that?

Maximo Vedoya, CEO

We didn't. I don't know if we mentioned. We did…

Pablo Brizzio, CFO

We mentioned that we are expecting to have a CapEx for 2024 of $1.5 billion at Ternium and around $300 million for Usiminas. Remember, Caio, our expected CapEx for Ternium in 2023 was $1 billion, but because of some of the delays in the contract for Pesquería, that CapEx is going to be $850 million in only Ternium. This $850 is going to go to $1.5 billion because all the investment in Pesquería starts coming in. And in Usiminas, it's going to decline from $650 this year to $300.

Caio Greiner, Analyst

All right. That's perfect. Thank you very much.

Pablo Brizzio, CFO

You're welcome, Caio.

Operator, Operator

Thank you. Your next question comes from the line of Camilla Barder with Bradesco. Please go ahead.

Camilla Barder, Analyst

Hi. Good morning, guys. I think most of my questions have been answered right now. So I just wanted to answer a quick question concerning capital allocation. There has been a large working capital release this quarter. So I just wanted to get some more color on what you are expecting in terms of working capital in the coming quarters. Thank you.

Maximo Vedoya, CEO

Okay. Camilla, let me comment on that because a significant portion of the working capital release during this quarter was coming from Usiminas. As we were discussing, in order to prepare for the relining of the blast furnace, Usiminas needed to build up their inventories of slabs. So as the month goes on, in the relining process, they started using that slab. So there was a working capital reduction in relation to it. In the case of Ternium, there was also some working capital reduction. We expect to sustain a similar level of working capital in the coming quarters. As we mentioned, we are not expecting to see much difference in the cost of our product, in the cost of our raw material, and some decrease in the price of our product. So similarly, or in line with what you saw this quarter in Ternium, is what we are expecting to see next quarter in Ternium 2.

Camilla Barder, Analyst

Okay, thank you.

Maximo Vedoya, CEO

You're welcome.

Operator, Operator

Thank you. I would now like to turn the call back over to Ternium's CEO for closing remarks. Please go ahead.

Maximo Vedoya, CEO

Thank you. And thank you all very much for participating in today's call. As usual, feel free to contact us if you have any questions. Thank you again, and goodbye.

Operator, Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.