Earnings Call Transcript - TX Q4 2023

Operator, Operator

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

Sebastian Marti, Global IR and Compliance Senior Director

Good morning, and 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 fourth quarter and full year 2023. This call is complementary to that presentation. Joining me today are Ternium's Chief Executive Officer, Maximo Vedoya, and the company's Chief Financial Officer, Pablo 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. 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 turn the call over to Mr. Vedoya.

Maximo Vedoya, CEO

Thank you, Sebastian. Good morning to everyone, and thank you very much for participating today in our conference call. 2023 was a key year for Ternium. We made good progress in several areas following the transformation path we envisioned a couple of years ago. The new projects in Mexico are firmly under development. The new downstream lines in Pesqueria will enable us to offer new high-value-added products to our customers in the region. This capacity will be integrated with an upstream project, a new steel slabs mill currently under construction. This will be the greenest and most technologically advanced automotive steel product mill in the Americas. It will be able to supply the full range of auto products from exposed grade to advanced high strength steel. This slab mill will be based on electric arc furnace technology that can be supplied with renewable energy. Additionally, the project includes a direct reduction iron facility with the capability to capture CO2. Ternium's new role in Usiminas is already showing good results for the company. The new management team there is taking decisions that are having a significant positive impact on its performance. In addition to these strategic developments, in 2023 Ternium had a solid year from a financial performance perspective, with adjusted EBITDA and net income showing strong cash generation. As a result of these good results and the strong financial position, Ternium’s Board of Directors proposed an annual dividend of $3.30 per ADS, a significant year-over-year increase. This is the highest annual dividend on record as we continue to develop a consistent growth path for our return to shareholders. Let me now review the latest developments in our main markets. Growth in Mexico's steel market has been strong. Consumption of flat steel in 2023 reached an all-time high of more than 18 million tons, equivalent to a yearly increase of 18%. Our shipments in the country grew by 22% with a significant market share gain, supported by the ramp-up of our new hot rolling mill in Pesqueria. The market environment in Mexico continues to be healthy; industrial activity is strong, and the auto industry is operating at high levels of capacity, rebuilding stocks in the value chain. In 2023, automotive production increased by 14%, reaching 3.8 million units. Construction activity in the country also remains at good levels with non-residential projects, such as industrial warehouses, natural gas pipelines, and other infrastructure projects doing well. On the other hand, residential construction is being negatively affected by the increasing prices of construction inputs. The nearshoring of manufacturing capacity is clearly one of the factors contributing to economic activity in the region. Mexico offers a compelling combination of geographic proximity, skilled labor, and a supportive business environment, contributing to increased supply chain resilience. Looking ahead to the first quarter, we expect shipments in Mexico to maintain the strong level reported in the fourth quarter of 2023. However, there is a downside risk to this short-term volume view as steel prices in the region have recently begun a downward trend, and there is some opportunistic demand retraction, which is typical in such a scenario. Additionally, we anticipate lower costs per ton and slightly higher revenue per ton to push margins back up. Regarding our growth projects, we expect to integrate the first line of our downstream project in Pesqueria during the second half of this year with the startup of a 550,000 tons per year pickling line and the first lines of our service center. By the end of next year, we plan to start up the new galvanizing line, followed shortly by the cold rolling mill. The ramp-up of all these new lines should enable us to gradually increase the value added of our shipments in Mexico. The construction of both our slab mill and the downstream lines is progressing as expected, with suppliers already assigned for all the main equipment and different levels of advance in the work of each of them. We have updated our budget for these projects and are now estimating a total investment of $3.5 billion, up 9% from the $3.2 billion in our initial estimation disclosed one year ago. The main source of this increase was inflation on the pricing of equipment and fluctuations in the foreign exchange rate. Let's turn now to Brazil. After an increase in our participation, in July 2023, we began fully consolidating Usiminas’ results. This happened during a transformational year for Usiminas as it successfully relined its main blast furnace. With the appointment of a new management team, Usiminas took strong decisions, such as putting out of operation one of the smallest blast furnaces and one of its restocking facilities. The new management team made decisions that led to higher efficiency of the metallic charge in the current process and a lower fuel rate of the blast furnace. This is part of a significant management initiative that focuses on Usiminas's industrial system with the aim of increasing its productivity. It will continue to be Usiminas's focus throughout this year. Usiminas mining operation had a very good year with annual shipments reaching an all-time high of 9.1 million tons in 2023. On the other hand, Usiminas expects a deterioration in its mining business during the first half of 2024 due to the temporary stoppage of one of its oil processing plants and seasonal rains at the beginning of the year. A key issue in the steel market in Brazil is that adequate trade measures are taken to defend it from unfair trade, which has already been made in many other important markets like the U.S., Mexico, and Europe. The import of steel below the cost of production is tolling the Brazilian steel market. The Brazilian Steel Association, together with all steel companies, is actively trying to find a solution to this issue. For the first quarter of 2024, Usiminas anticipates a sequential improvement in the profitability of the steel business, mainly as a result of lower costs per ton as productivity in the steel business gradually improves. In Argentina, a new government administration took office in December and is determined to introduce significant macro reforms. The first measures taken by the new administration were a steep devaluation of the Argentinian peso and significant government spending cuts with the aim of controlling inflation, along with the proposal of several market-friendly reforms. These much-needed reforms, although positive for the medium to long term, are expected to initially have a recessionary effect on Argentina's economy and consequently negatively affect shipments in the local market. If the government can successfully stabilize the macroeconomic situation in the country and introduce market-friendly reforms, Argentina is a country that offers many opportunities for investments in different fields, which would bring a long-awaited path to economic recovery, something that would be very positive for our operations in the country. On the other hand, we are advancing in Argentina with the construction of our first self-owned wind farm, which will begin operation by the end of the year. We are also analyzing ways to replicate this experience in other countries. Let me now make a few final comments before closing my prepared remarks. 2024 will keep us busy as we continue implementing our strategic plan, which represents the largest growth initiative in Ternium's history. The development of the downstream project in Pesqueria will enable us to begin shipping higher value-added products to our customers during the current year. We have a strong competitive position in Mexico, a market that is significantly benefiting from the nearshoring of manufacturing capacity. Argentina will have a bumpy year, but I am confident we have the expertise to navigate through this rough period. We do have some opportunities to substitute any steel demand decrease in the local market with shipments to other Ternium facilities to complement their production. Finally, this is an important year for Usiminas, which has many opportunities for productivity improvement. I trust that the new management team in place will successfully guide it to its full potential. With this, Pablo, go ahead and review Ternium's performance in the fourth quarter, please.

Pablo Brizzio, CFO

Thanks, Maximo, and good morning to everyone. Let's review our company operating and financial results and the webcast presentation for a more detailed picture of our performance. If you want, let's start with Page 3, please. Ternium delivered strong results in the fourth quarter of this year, 2023. Margins in the period were slightly above our last quarter expectations, mainly due to lower costs. Adjusted EBITDA for the fourth quarter was $651 million, a 7% decline from the third quarter of 2023. This decrease was primarily driven by lower steel prices, partially offset by lower costs. Additionally, the profitability of Usiminas's mining operation increased sequentially during the period. Adjusted EBITDA margin stayed constant at 13%, mirroring prior quarter performance. This relatively low level was again affected by the consolidation of Usiminas steel operations, which continued to record low profitability as it ramped up its main blast furnaces at the Ipatinga facility. Looking forward, we anticipate an increase in adjusted EBITDA for the first quarter of 2024, primarily driven by an improvement in our margins, resulting from lower steel costs per ton and slightly higher revenue per ton. Moving on to the results. Both net income and adjusted earnings per ADS demonstrated notable strength during the fourth quarter. The results include non-cash positive effects from Usiminas's post-retirement liabilities and contingencies reversals, along with a net foreign exchange gain related to a substantial devaluation of the Argentine peso against the U.S. dollar. We will delve deeper into this on the upcoming slides. Let's turn now to our shipments performance on Page 4. In Mexico, Ternium shipments remain strong in a seasonally weaker period, aided by continued growth of commercial customer demand. Equally remarkable, as Maximo mentioned, Ternium shipments in the country for the full year 2023 surged by 22% over the prior year, indicating substantial gain in market share driven by the ramp-up of our new hot rolling mill in Pesqueria. Looking ahead, we anticipate a slight increase in shipments in the USMCA region in the first quarter of 2024. In Brazil, the increasing volume reported in the second half of 2023 primarily reflected the consolidation of Usiminas. Usiminas expects stable shipments in the first quarter of 2024. Steel shipments in the southern region decreased by 7% in the fourth quarter, as government-imposed restrictions on the import of inputs affected Ternium's steel production rates in Argentina. In the coming quarter, we expect demand in Argentina to decrease compared to the fourth quarter due to the seasonal slowdown and the impact of the macroeconomic reform on our value chain, as Maximo explained. On the following page number 5, you will see that with these factors combined, we achieved in the fourth quarter very similar steel shipments compared to the third quarter. Looking ahead in the first quarter of 2024, we anticipate slightly higher shipments in the USMCA region to be offset by lower shipments in Argentina. Moving on to steel prices, steel revenue per ton decreased further in the fourth quarter as expected, reflecting lower realized prices in most of Ternium's markets. Looking forward, as market prices in the USMCA region increased during the fourth quarter, contract prices in Mexico are resetting at higher levels in the first quarter. On the other hand, during January and February, market prices in the USMCA region have been decreasing. All in all, we expect higher realized steel prices in Mexico in the upcoming quarter. Now, let's review adjusted EBITDA and net income on a quarterly basis on Page 6. In the chart at the top, the primary factor contributing to the sequential decrease in adjusted EBITDA was a decline in realized steel prices, partially offset by a better cost performance and a more profitable mining operation in Usiminas. I will show you the chart at the bottom, net income increased sequentially, driven by several positive factors: $109 million gains from reversal of post-retirement liabilities at Usiminas, $63 million gains from a contingency reversal due to the dismissal of a public civil action against Usiminas, the favorable effect of the devaluation of the Argentine peso on Ternium’s Argentina net short local currency, and finally, an improved deferred tax. On the other hand, net income was negatively impacted by the decrease in recurrent operating income and an impairment charge on Ternium’s mining assets in the fourth quarter of 2023. Now let's review in the next page our cash performance. You can see a healthy cash generation from operations in the fourth quarter, aided by a decrease in working capital. CapEx in the fourth quarter increased sequentially and significantly, reflecting the investment we are currently making at our Pesqueria facility for our new project. This was partially offset by lower CapEx at Usiminas as the bulk of the investment in the blast furnace is now being left behind. Despite this higher CapEx level, Ternium managed to record positive free cash flow in the period. By the close of 2023, Ternium maintained a solid net cash position of $1.9 billion. This declined by around $500 million in the quarter, mainly due to a decrease in the fair value of the Argentine bonds, the majority of which are held by Ternium Argentina. These bonds are valued using Argentine pesos quotation and reported in US dollars using the official Argentine peso exchange rate. The decrease in valuation was mainly the result of a significant devaluation of the Argentine peso by the end of the year and reflected in other comprehensive income as long as these bonds are not sold. When eventually these bonds are sold, any positive or negative results in our comprehensive income is recycled to financial results in the income statement. Let's now shift our focus to Page 8 to assess our full-year performance. Steel shipments surpassed those of 2022 by an increase of 19%, with higher shipments in Mexico and the consolidation of Usiminas. Ternium's adjusted EBITDA was $2.7 billion, supported by a record level of finished steel shipments and a healthy adjusted EBITDA margin. Despite the negative effects of the consolidation of Usiminas's operation, as it ramped up its main blast furnace at Ipatinga, adjusted net income remained unchanged in 2023. This weaker operating performance was offset by positive effects on deferred tax from local currency fluctuations and better net foreign exchange results mostly related to the fluctuation of the Argentine peso. Moving on to shareholder return: as Maximo mentioned, Ternium's board of directors proposed an annual dividend of $3.30 per ADS. The company already paid an interim dividend of $1.10 in November 2023 and intends to pay the remaining $2.20 on May 8, 2024, pending shareholders' approval. As you can see in the chart, Ternium has been consistently increasing its return to shareholders over the last four years. The dividend proposal for 2023 is equivalent to a dividend yield of around 9%. Now, in the final slide, you can see the strength of Ternium's cash generation in 2023. Cash from operations was $2.5 billion and free cash flow was $1 billion against CapEx of $1.5 billion. Looking ahead, we anticipate CapEx to be around $1.8 billion in 2024. All right, we have concluded our prepared remarks. Thank you for your time and attention, and we are now ready to take any questions you may have. Please operator, proceed with the Q&A session.

Operator, Operator

Ladies and gentlemen, we are now opening the floor for questions and answers. Our first question comes from Carlos de Alba from Morgan Stanley. Your line is now open.

Carlos de Alba, Analyst

Yes. Good morning, Maximo, Pablo, and Sebastian. So two questions. First one is very straightforward: How much of the $3.2 billion CapEx has been spent already? And how should we think about the distribution between 2024 and 2025 of the remaining portion that has not yet been spent?

Maximo Vedoya, CEO

Yes. Hello, Carlos. How are you? So, I give you first the numbers for 2024 and 2025, if you want. The total CapEx we are seeing in 2024 is around $1.8 billion. This includes Usiminas. And the total CapEx of 2023 is probably going to be around $2.5 billion, also including Usiminas.

Pablo Brizzio, CFO

2025.

Maximo Vedoya, CEO

2025, yes. Of 2025 is $2.5 billion. If you're talking about the $3.5 billion in particular of the project, this year it's around $200 million; I mean, 2023 was around $200 million. Sorry, no, it's $400 million. It's $400 million because there are some payments we make with equipment. Next year, it's going to be around $800 million. And the big part is going to be around $1.5 billion in 2025.

Carlos de Alba, Analyst

All right. Okay. Thank you very much. And the second question is, so now that you have been operating Usiminas for about six months or so, what are the plans that you have for the operation? In particular, regarding - do you know what you're going to do in Cubatao? Are you going to restart production there? What is the overall total CapEx that you see for the company? And third point there is, what is the timing for you or for the company to reach, I think, the $150 per ton EBITDA target that I think you mentioned in the past that you wanted to bring that operation to?

Maximo Vedoya, CEO

Yes, we have been operating Usiminas for the last six months with a new management team that is implementing numerous changes. Regarding Cubatao, it is a valuable asset with an excellent hot strip mill and a robust cold strip mill. However, adding upstream capacity there is not feasible with the current equipment, and we will not be reintroducing a blast furnace operation. We need some time to explore alternatives for Cubatao before making a decision. Our main focus at Usiminas is on the overall industrial facility, including both Cubatao and Ipatinga, and how we can enhance productivity and competitiveness. We are identifying various opportunities to increase Usiminas' productivity in both locations, and this will be our priority this year. We anticipate a capital expenditure around $360 million for 2024, which is lower than the 2023 figure primarily due to the relining of the blast furnace. That's the plan for now. If you have any more questions, feel free to ask.

Pablo Brizzio, CFO

Yes, the other question was related to when you are expecting to reach the benchmark of Usiminas. Shall I take it?

Maximo Vedoya, CEO

Yes.

Pablo Brizzio, CFO

As you know, Carlos, we always aim for Ternium to achieve a margin of around 15% to 20%. Last year, we reached a year-end margin and EBITDA of 15.6%. However, we saw a decline in percentages in the last quarter primarily due to the consolidation of Usiminas and its reduced margins in the second half of 2023, caused by the relining of the blast furnace and the resulting drop in production. We anticipate starting to recover from this situation, and hopefully by the end of this year, we will achieve better margins and reach around 15% EBITDA margins for Ternium and Usiminas. This is a strong expectation we have, and we are working on it alongside the management of Usiminas to accomplish this in the upcoming quarters.

Carlos de Alba, Analyst

Thank you, Pablo and Maximo. I would like to ask Maximo about the CapEx question regarding Usiminas. Do you have an estimated range of the CapEx needed to enhance the operations in both Cubatao and Ipatinga to a standard closer to Ternium's?

Maximo Vedoya, CEO

No, I think that the $320 million is part of that project. And several years around that number, Usiminas has to do three or four things. Some environmental work in Ipatinga, we have to take a decision, but part of our decision is already included in the numbers that we are expecting for the future, and some onshore improvement in the downstream operation. But with that level of CapEx in the following years, I think we are going to be okay. The other issue in the long term is the mining operation. That's a completely different number, of course. But as you know, we are in the process of analyzing and preparing all the necessary studies and engineering for this project so that we can go forward if we approve that project.

Carlos de Alba, Analyst

All right, okay. I don't want to take up too much time, but regarding Cubatao and the location of the facility, along with the downstream operations or assets, are you considering the possibility of Usiminas investing in an electric car furnace, potentially alongside a DRI facility in Cubatao?

Maximo Vedoya, CEO

I think that it's partially, yes, I would say. And why partially? I think that an electric arc furnace is an option there, of course. The DRI facility is a different matter because of the cost of natural gas in Brazil. If you have a cost of $16 in Brazil of million BTU, it's not possible to put a DRI facility. But you can put an electric arc furnace without the DRI facility. But again, this is in the medium-long term. We are not today saying anything about that.

Carlos de Alba, Analyst

Thank you very much.

Maximo Vedoya, CEO

You're welcome.

Operator, Operator

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

Guilherme Rosito, Analyst

Thank you. Good morning, everyone. Thank you for taking my questions. So I have two questions. My first one is, on the second half we started the downstream lines at Pesqueria. So I want to understand what does that mean for your long-term EBITDA margins? What kind of increase should we expect in terms of EBITDA per ton or maybe the percentage, just to get a sense of remodel going forward? And my second one is on mining at Usiminas. I know you guys don't have a decision yet and you're still studying, but I mean, what timeline should we expect considering that the life of the mine – the end of the life of the mine is quite close? So when should we expect a decision? And considering Ternium’s current portfolio of assets across Latin America and current cost of mining, does it make sense for Usiminas to remain an iron ore exporter going forward? Thank you.

Pablo Brizzio, CFO

Hi, Guilherme. This is Pablo. Let me take your first question. Clearly, every investment plan that we are doing, especially the one that you mentioned, is in order to sustain and increase our EBITDA margins. Here we are talking about projects that will be up and ready by the end of next year. It’s difficult to tell you a number exactly on that because we need to see exactly which is the environment of prices. But as we always say, any project that we develop needs to contribute to position Ternium in the upper part of the range that we want to be in. As we always mention, this is between 15% to 20%. And clearly, this project of adding value to the product line that we have today, remember that these plans that we are currently putting forward are to increase the value added after the significant investment we made to have a new cold rolling mill. So with the new CapEx and the new plans that we will have in Mexico, we will be able to supply a full range of products for the auto industry, as Maximo mentioned in the opening remarks, which will clearly increase our margins. It’s very difficult to give you an exact number on how the margin will improve, but clearly this will position Ternium closer to the upper side of the range where we want to be.

Maximo Vedoya, CEO

Yes, Guilherme, hi. Regarding Usiminas mining, we have at least two years to make the decision. I mean, Usiminas is going to continue actual production with the ups and downs that are normal in a mining operation until 2028-2029. So, we have time to decide on the project. What Usiminas management is doing now is putting together a team and analyzing very detailed all the projects, which so far seem very attractive. But I cannot tell you more than that because the decision will be taken in more than a year. Again, once we make the decision, we will go forward quickly, and that’s why Usiminas is putting a team together and making all the necessary studies and even asking for some permissions.

Guilherme Rosito, Analyst

That's perfect. Thanks a lot.

Maximo Vedoya, CEO

You're welcome.

Operator, Operator

Thank you. Our next question comes from Enrique Marquez from Goldman Sachs. Your line is now open. Enrique?

Enrique Marquez, Analyst

Can you hear me?

Maximo Vedoya, CEO

Yes.

Enrique Marquez, Analyst

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

Maximo Vedoya, CEO

Yes, thank you Enrique. Yes, I mean the numbers we are putting up in our forecast, we are seeing a decrease in demand for the year around 10%. This is a high decrease and probably could be a little bit less than that. But in doing our planning for the production facility, we are putting that number as the demand number. Infrastructure projects, we didn't have a lot of sales to infrastructure projects in Argentina, except those of oil and gas. And the ones of oil and gas, I don't think they are decreasing those projects. So we are not seeing demand for infrastructure for the reversion of the North gas pipe. They are continuing forward. So we don't see a decrease in demand for infrastructure. But of course, the recession that we speak of is going to take some decrease in the demand in the market. Probably with this number, we are being a little bit cautious, and by July or August things could start doing better. Again, if the government has succeeded in implementing all these reforms that are, as I said, very well-needed reforms in Argentina. I hope I answered your question, Enrique.

Enrique Marquez, Analyst

Yes, thank you.

Operator, Operator

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

Marcio Farid, Analyst

Thank you. Good morning everyone. Good morning Maximo and Pablo. Thanks for taking my questions. A couple of follow-ups from me. The first one, there was a marginal increase in CapEx for Pesqueria. So just trying to understand if you're confident that no more CapEx revisions are going to be needed? And if the timing for the project is still on track? And secondly, I think we've talked about the outlook for demand for Mexico and the US, but if you can give us some visibility into expectations going into the first quarter and maybe into the year as well. I know there are some structural drivers that seem to be quite interesting for the positions, but anything else that you can provide in terms of details, that would be great. And last, in terms of dividend, obviously, $3.3 announced for the year in total, trying to understand if you still have the view of a continuous increase in dividend and if the one that we have seen for 2023 is now a new base to think about for 2024 onwards? Thank you.

Maximo Vedoya, CEO

Thank you very much, Marcio. Let me start with the Pesqueria CapEx question. I believe the current number is accurate. There are two factors that led to the change. First, when we initiated the project over a year ago, we faced inflation in both equipment costs and construction. So, a slight increase makes sense. The second important point is that when we approved the project, many of the equipment purchases were in euros, which were priced at $1 per euro at that time, and now it's $1.09 or $1.08 per euro. This has contributed to the increase as well. These are the two main reasons for the CapEx increase. We do not foresee any other significant factors that could affect this number. Of course, unexpected issues could arise, but honestly, we don’t see those at the moment. I believe the $3.5 billion figure is quite reliable.

Pablo Brizzio, CFO

To add to that, we are perfectly on time. So we are not experiencing any delay on the project, which was the second part of that question.

Maximo Vedoya, CEO

Yeah, no delays in any of the lines. Then you have the dividend question, the $3.3. I mean, this is, as we always said. I mean, we want to take steps, but steps that we can't sustain in the future. And so, we think that the $3.3 is something that we can sustain in the future, so that's why we're putting it forward. And if you see our track record, it is a big increase in the last five or six years. If you remember, before the pandemic, I think the number was $1.2. And today, five, six years later, we are at $3.3. So I think it's safe to say, except for something unexpected happening, that the $3.3 is a new level. And we are going to analyze, or the board is going to analyze, as it always does, if we can increase a little bit more. And you have a question in the middle about Mexico. I don't remember exactly what was the question, Marcio, about Mexico.

Marcio Farid, Analyst

Just about overall demand and prices within Mexico, please.

Maximo Vedoya, CEO

Demand in Mexico, and in North America overall, is good, with a clear link between the two. We have previously discussed potential recession concerns in our conference calls, but currently, we do not see any negative impact on demand. We observe healthy demand in both the US and Mexico. In Mexico, industrial production is a strong driver, although construction is a bit slow and may remain so for the next month or two until prices stabilize and potentially rise again. Overall, activity is positive, but I don't expect consumption to increase as significantly as it did in 2023. The latest data indicates that steel consumption in Mexico is projected to grow by about 2%, compared to a 14% increase in 2023. Nevertheless, we continue to see healthy demand.

Marcio Farid, Analyst

Perfect. Thanks a lot.

Maximo Vedoya, CEO

I hope that answers all the questions, Marcio.

Marcio Farid, Analyst

It does. It does. Thank you very much.

Maximo Vedoya, CEO

You're welcome.

Operator, Operator

Our last question comes from Caio Greiner from BTG Pactual. Your line is now open.

Caio Greiner, Analyst

Yes, good morning, everyone. Thank you. So two questions. One quick one on HRC prices in North America. Just wanted to hear your thoughts on what you think the next short-term move is going to be? Prices are trading at a relevant premium to other regions. I mean, we have been seeing some players trying to announce even further price hikes, but the point is that we're seeing prices trending down. Even lead times are moving lower. So I just wanted to hear your thoughts on what you think that the next move for HRC prices is going to be. What can we expect for the first quarter and even into the second quarter of 2024? And my second question, guys, on just a broader one on Ternium's evaluation and corporate simplification. I remember some time ago, a few years ago, you guys attempted a corporate simplification in Argentina which didn't really move forward. I just wanted to hear an update on that. I mean, we have a new administration in Argentina. Have you guys been in talks whatsoever with the new president and with the new administration so maybe we can, so Ternium could try and address that issue? And one more thing on corporate simplification may be, do you guys think that Usiminas could also be a part of this in the future? Because when we think about valuation for both stocks, I mean, it's interesting to see that Ternium, the controller is actually trading at a discount to Usiminas. So when you think about the company's corporate structure, I mean, there could be some room to simplify all that and try to get a re-rating for the stock. So I just wanted to hear your thoughts on the latest updates on corporate simplification on those two items. Thank you very much.

Maximo Vedoya, CEO

Thank you very much, Caio. I will start with the second one and also if Pablo wants to add something, please do, Pablo. And then the first one, Caio. Corporate simplification is still on our agenda, at least on the agenda of Ternium management and the board. We don't have anything to inform about that yet. We haven't talked with the new government on this issue. I mean, the government has a lot going on in their hands, the new government. But I think it's something that at some point this government should be able to analyze. As I always said, this is a transaction that favors Ternium, it favors Ternium Argentina, and it favors the government. So if we reason with that in mind, it should be something that at some point can happen. But to be honest, we haven't discussed anything like that. Usiminas is somewhat different because, as you remember, we have an agreement with our partner, Nippon Steel there. And so we are not going to do anything for the next year or year and a half. In the future, it could be something. But today I think we are happy with where we are in Usiminas and working to improve Usiminas.

Pablo Brizzio, CFO

Yes, Caio. Hi, how are you, Caio?

Caio Greiner, Analyst

Just one follow-up on that. Yes, sorry, Pablo. Go ahead.

Pablo Brizzio, CFO

No, no, just wanted to say, as you said, we have been discussing this for a very long period of time. Clearly, it is part of our strategy and as soon as we see the chances to move forward with this, it is clearly something that we consider important for the future of Ternium from different standpoints and clearly evaluation is one of those.

Caio Greiner, Analyst

Great. Thank you.

Maximo Vedoya, CEO

So hot oil prices in the U.S., yes, you're right, Caio, that prices have been coming down in the last three weeks, in the last three, four weeks. As I said, it's not a problem of the demand but a problem of imports that are coming mainly to the U.S. and some part also to Mexico. So that's the main reason. The good news is that demand is still there. I think this is going to be something that will stabilize in the near future. I don't see prices going much further down. As I always said, there is a new floor or a new standard of prices in North America that is around or a little bit higher than $900 at least. So I don't think prices are going to change. Again, because the demand is there, and we know imports for the following months, in May, June, and July are coming much lower. So I am positive about that.

Caio Greiner, Analyst

Thank you very much, guys.

Maximo Vedoya, CEO

You're welcome.

Operator, Operator

We don't have any pending questions at the moment. I'd now like to hand back over to Ternium's CEO for closing remarks.

Maximo Vedoya, CEO

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

Operator, Operator

Ending today's call. Have a wonderful day.