Ternium - Earnings Call - Q4 2018
February 20, 2019
Transcript
Speaker 0
Good morning. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ternium Fourth Quarter twenty eighteen 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.
You. Sebastian Markey, you may begin your conference.
Speaker 1
Thank you. Good morning. Thank you all for joining us today. My name is Sebastian Marti, and I am Ternium's Investor Relations Director. Ternium issued a press release yesterday detailing its results for the fourth quarter and full year 2018.
This call is complementary to that presentation. Joining me today is Mr. Maximo Vedoya, Turning CEO and Mr. Paulo Obrisio, Turning CFO, who will discuss Cerner's business environment and performance. At the conclusion of our prepared remarks, we will open up the call to your questions.
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. With that, I'll turn the call over to Mr. Belodo. Thank you, Sebastian, and good morning to everyone.
It is very nice to have the opportunity today to share with you our thoughts regarding Telenu's performance. As we always do, I'll go through some prepared remarks, then Pablo will make a brief analysis of the latest quarterly numbers, and finally, we have a Q and A session. All right. We had an outstanding result in 2018. We reported an EBITDA of $2,700,000,000 This was the highest EBITDA in history with a 40% year over year increase.
We had shipments of 13,000,000 tons in the year, and this is the first full year with Serbia Brazil as part of our production system. There in Serbia Brazil, we achieved a steel production record of 4,600,000 tonnes last year. EBITDA margins were was 24%, the highest we had had in the last decade. This strong performance led to earnings per ADS of $7.67 and also to a free cash flow of €1,200,000,000 which translated into a $1,000,000,000 decrease in net debt during the last twelve months, taking our net debt to EBITDA ratio to just 0.6 times. The board of directors proposed to raise the annual dividend to $1.20 per ADS, equivalent to an approximately 4% dividend yield.
This proposal took into consideration the current strength of our balance sheet as well as our ongoing investment program, which will require growing dividend expenditures in 2019 and 2020. As Pablo will show you afterwards, we have been gradually increasing our payment, our dividend payment over the last years, and our intention is to continue doing so in the years to come. Let's turn now to what is happening in the steel market. Our expectations are for a global steel demand in 2019 to grow modestly. In Mexico, our mainstream market, we believe sales to industrial customers will continue to do relatively well in 2019 with a Mexican manufacturing industry supported by growth expectations for The U.
S. In The U. S. Economy. On the other hand, the construction market will probably continue to be weak in the country as a result of low public and private investments.
Relevant issues to follow in this market in 2019 will be the expected ratification of the new NAFTA, the USMCA, which is achieved during the year, would be a positive step to reduce trade uncertainty the eventual agreement on Section two thirty two still tariffs among the current NAFTA partners, which should help to normalize steel trade flows in the region and the commitment of the new Mexican administration to fight unfair trade and prevent redirection of exports to the Mexican market as a result of higher trade barriers elsewhere. Global overcapacity continues to be a risk to fair trade. China's increasing steel production while having a weakening economy activity, which is dependent on government stimulus measures. It is important for governments in Latin America to be aware of the situation and to take measures to prevent the damage it would cause to local industry. Turning now to Argentina.
The economy has been under a very restrictive monetary policy in 2018 with an aim of attaining inflation. Economic activity in the country weakened significantly during the 2018. And in the 2019, we will continue showing a low level of shipment, taking into consideration that on top of this, this is a seasonally slow quarter in Argentina. Further on, we expect a gradual recovery starting in the 2019. The driver of this recovery would be a significantly better agribusiness performance based on improved yields in 2018 and a re co zone area, higher growth levels in the Brazilian economy, Argentina's main destination of export of manufactured goods and a gradual decrease in interest rate.
In Brazil, these events created a challenge situation affecting iron ore prices. For the time being, we don't see any significant problems to ensure supply of iron ore to our facility in Rio. In that facility, we will continue to work next this year to increase even more capacity utilization. Finally, we believe Usiminas is very well positioned to take advantage of the positive prospect of the Brazilian steel market in 2019. So in a nutshell, we have a great 2018, and we look forward to continue growing our business in 2019.
Margin in the area in this year are not going to be as high as they were in 2018 as they are converting to a more sustainable long term level. You can count on us striving to maintain our margin leadership in The Americas, working hard to maximize efficiency at our facility and reduce production costs. The ongoing investment projects in Mexico will certainly help on this front, enabling a much higher integration with our facility in Brazil and consolidating our world class production system with latest technology to maximize efficiency and productivity. Okay. With this, Pablo, please take over to comment about our performance in the fourth quarter.
Thanks, Maximo. Good morning to everybody, and thank you again for participating in our conference call. Let's review our performance in 2019, starting in Page three of the webcast presentation. As Maximo anticipated, our performance in the year was exceptional, with a core EBITDA of $2,700,000,000 and EBITDA margin of 24%. As you can see in the upper right chart, our EBITDA in 2018 increased significantly compared to EBITDA in 2017 and is also significantly higher than EBITDA in any other reported period in the last decade.
In the upper left chart, shipment grew 1,400,000 tons year over year in 2018, reaching a record 13,000,000 tons. This increase was mainly related to the full consolidation of Ternium Brazil slab shipments to third parties, as in 2017, we consolidated only four months from September to December. Looking at Ternium's EBITDA margin on the lower left side and EBITDA per ton on the lower right side, we reported a margin of $2.00 $8 per ton in 2018 or 24% of net sales, well above the margin range reported in the last year, which was between $110 and $170 per ton. As Maximo commented, margins in 2019 will be lower than in 2018, compared to a more sustainable long term level. Please turn now to Page four to review the main drivers of the year over year improvement in EBITDA.
As you can see in the upper chart, the significant year over year increase in EBITDA is a result of a higher EBITDA per ton and higher shipments, reflecting strong price environment in the North American steel market and the full consolidation of Ternium Brazil. Ternium Brazil enabled us to integrate our operation, at the same time, Poselo to take advantage of strong slab market in 2018. Net income in the year reached $1,700,000,000 significantly higher than any other year since we listed Ternium shares. And the lower chart shows net income increased mainly due to higher operating income with some additional help from improved results from our participation in Usiminas and a low effective tax rate due to the revaluation of assets for tax properties in Argentina, which had a positive effect in deferred taxes. Please turn now to Page five.
In this page, we are showing the evolution of free cash flow, capital expenditure, net debt and dividend payments. Free cash flow in the year reached a very strong $1,200,000,000 Capital expenditures were up $120,000,000 in the year, higher than in 2017, mainly due to the full consolidation of Ternium Brazil and the investment projects underway, being carried out mainly at the Sesqueria facility and also in Colombia. Looking forward into 2019, we expect to continue growing strength in cash flow generation, although below the levels achieved during 2019, in line with lower EBITDA expectation and higher capital expenditures due to the development of our new hot rolling mill in fiscal year. Finally, earnings net debt increased to €1,700,000,000 at the December and close to 40% decrease in net debt, reflecting the strong free cash flow in the year, less the dividend paid, and represented a comfortable level of 0.6x EBITDA at the December. On the lower corner, you can see how premium dividend payments have been increasing consistently over the year, and the current proposal of $1.2 is equivalent to around 4% year on year.
The dividend should be payable at the May after shareholders' meeting approval. Turning now to the 2018. We will now review on the next page, Page six, our shipment performance. Total steel shipments went down 180 tons, 2,000 tons sequentially or around 6% decrease. In Mexico, on the upper right chart, shipments remained relatively stable in the fourth quarter of the year.
The quarter is normally seasonally lowest in the year. So we expect shipments in Mexico we saw some increase in the first quarter of this year. In our markets, in the lower right chart, you can see a sequential decrease in the fourth quarter twenty nineteen, mainly as a result of lower slab shipments from Brazil to third parties as anticipated. Those slab volumes were shipped compared to Ternium Mexico, a warehouse eliminated in the process of consolidation of the fourth quarter. We expect this to revert in the 2019 with higher shipments of staff to third parties and lower intercompany sales.
Turning finally to the Southern Vision, the sequential decrease in shipments as shown in the lower left chart mainly reflect depressed economic activity and stocking process in the value chain in Argentina. The first quarter of the year is seasonally lowest in Argentina, so shipments will continue to be weak in this market, and we expect them to begin their recovery in the second quarter, as Maximo mentioned. So in the next page, you can see the effect in terms of sales of the 6% decrease of the together with a 6% decrease in revenue per ton that was mainly related to the lower realized price in the Mexican market as well as in the slab sales. We anticipate revenue per ton to continue to decrease in Mexico in the 2019 as a result of the usual result of contract prices and some weakness in the spot market. The participation of each market in our net sales breakdown remains relatively stable, with around half of the shipments being made in Mexico, 17% in the Southern Region and a third in other markets.
On Page eight, we have a closer look to quarterly EBITDA. EBITDA margin was a healthy 19% in the fourth quarter or around $170 per ton. This was a decrease compared to the very high margin we had in the third quarter, and we will go into that further on. Net income was $235,000,000 which is equivalent to $1.79 per ADS. Please turn now to Page nine to review fourth quarter EBITDA and net income.
In the first chart, we can see the components of the sequential EBITDA decrease. A major component was a decrease in the margin with some additional decrease related to lower steel shipments and lower sales of electricity in Mexico as electricity sales price decreased seasonally in the winter. Revenue per ton went out mainly as a result of lower realized price in the Mexican market and in the slab sales that we just discussed. The higher cost was mostly related to higher raw material, slab, energy and labor costs. The effect of inflation accounted in Argentina was one of the reasons for this increase in cost, especially the combination of high inflation with currency revaluation in the fourth quarter, something we were not expecting to happen.
Also, expected flat cost increase in the quarter, mainly as a result of first in, first out accounting. In the first quarter of this year, we expect EBITDA to decrease slightly compared to the fourth quarter as a result of a lower margin parcel offset by higher shipments. The EBITDA per ton should sequentially decrease mainly due to lower revenue per ton in Mexico and a higher participation of slabs in the sales mix as we are going to sell more slabs to third parties and less slabs intercompany. On the other hand, cost per ton should remain relatively stable. In the second chart in this slide, you can see that the sequential decrease in net income was mostly a result of lower operating income.
This was partially offset by better financial results, better results from our participation in Usiminas and a lower effective tax rate. There were significant sequential gains in net financial expenses, mostly related to currency fluctuations in Argentina and Mexico that were partially offset by lower gains related to inflation accounting over the net monetary position, of course, in Argentina. There were also a slight decrease in interest expenses, mainly reflecting a lower net investment indebtedness and average interest rates. Okay. Thank you very much for your attention.
So we are now ready to take your questions. Please, operator, proceed with the Q and A session.
Speaker 0
Your first question comes from Marcos Lautau with Itau. It's actually Daniel Fasson from Itau.
Speaker 2
Thanks for the questions. My first question is on the ratification of the new NAFTA agreement. I know that you mentioned that you too, unfortunately, reduce uncertainties in terms of trade. But if you could comment a bit on the impact you expect on U. S.
And Mexico prices and also maybe on costs if we consider that the minimum wage of workers in the steelmaking industry in Mexico might increase and the potential impact of that for margins? That would be my first question. And the second question regarding Argentina, we are likely seeing margin pressure in the short term considering the sharp depreciation of peso since May. But what do you expect looking ahead? The FX seems to be more stable now.
And also, what do you expect in terms of your normalized EBITDA per ton in 2019, considering that 2018 was a very strong, a very solid year in terms of your EBITDA per ton? Those would be my questions. Thank you.
Speaker 1
Thank you, Marcos. I'll start with the first one, and Pablo will lead the second one. The new master agreement, what are the effects on prices? I I mean, the the effect will be of what will happen with the two three two. I mean, today, the two three two against Mexico and Canada is still in place.
The the assumption we all have and and and the Mexican government also have had was that once we reach an agreement, two three two was going to be eliminated between Mexico and Canada. That didn't happen. But we do know that once I mean, to to to sign NAFTA, two three two has to be solved. I don't know if the solution is going to be eliminate the two three two in two countries or to put quotas between the countries. I mean, Mexico is gonna have a quota in The US, and and and The US is gonna have a quota in Mexico.
I think those were other two possibilities, I mean, to eliminate completely or to have a system of quotas. I don't see other other solution for the two three two. Both solutions, I think, are good to stabilize prices, especially Mexico. Remember that The US prices has had a huge increase with the February, and Mexico start lagging. Prices in Mexico start lagging behind The US prices, mainly because Mexico was also affected by the February.
I know today prices in The US are decreasing. Prices in Mexico were also decreasing, although not at the range in The US. But to solve the February and to have certainty between the trade between US and Mexico still, we eliminate, I think, this uncertainty there is. And so we'll benefit whatever the solution is, whatever the two solutions is, we'll benefit Mexico. Are they still?
Yes. Perfect. That looks very clear. Can you expect
Speaker 0
Text on your on your cost front coming from all of the
Speaker 1
new agreements on the line? No. Remember, the new agreement specified a cost of $16 per hour in workers only some part of the automotive industry, not on steel. And although our our salaries are much higher in in in than the minimum wage, I mean, we don't expect to have any increase due to NAFTA. Mhmm.
Perfect. That was very clear. Thank you. Okay, Marco. Yeah.
Marco, me try to answer your second question, which is not easy to do because, as you know, the inflation accounting that we need to have in Argentina is putting, especially in the first year of accounting for that, some distortions in the numbers. The and also take into consideration that during the fourth quarter, as I mentioned during the initial remarks, we have something what you can consider a little weird, which is we have an important level of inflation, which was 12%. But then we have also significant level of a revaluation of the currency of 9%. So this seems to work, if you want, against the numbers of the company, and that was one of the reasons why the total EBITDA of the company was below expectations. The total impact of this in the cost of Ternium through Argentina was quite significant.
So of course, we cannot account or go through numbers without inflation accounting. But during the fourth quarter, if we have had not inflation accounting, probably our EBITDA would have been even $50,000,000 higher than what we have reported. Going the entering into 2019, clearly, things should start to normalize because, as Maximo mentioned, we are expecting to see some gradual recovery of shipments in Argentina and the economy in Argentina. So we are not expecting betweens in the currency value level. So this should start to normalize.
As a whole, the EBITDA margin that we are seeing for the future is, as we already discussed, within the range that we always think is a normal level for a company at Canyon, which is between 15% to 20%. And of course, as happened in the last three or four years, we're to be very close to the upper side of this range. So that's what we think should be the numbers coming during this year.
Speaker 0
Our next question comes from Caio Ribeiro with Credit Suisse. So
Speaker 3
my first question is related to domestic demand in Mexico. And I know that you have been talking about the possibility of the new administration boosting infrastructure spending, which could drive demand for the commercial market up, which has been lagging for some time. So I just wanted to get some view if whether there have been any new developments on this front and whether you can also provide some guidance for where you see steel demand growth in Mexico in in 2019. And then secondly, regarding steel prices in The U. S, there have been some recent price hike announcements for flat steel by some of the major players in the last few weeks, in the last month as well.
But overall, market prices, they have remained relatively flat and relatively unresponsive to these hikes. So I just wanted to get some color from you on what direction you expect flat steel prices in The U. S. To move towards in the next few months And whether you're already seeing a bottom or whether you expect the weaker momentum that we're seeing to continue? Those are my two questions.
Thank
Speaker 1
you, Caio, for your question. Let me start with the Mexican question, which is clearly a difficult question because the government is starting and and and and still demands will depend on on how the government the new governments or the new administrations proceed. We are still positive regarding Mexico and our business there. The new administration just only took office two months and a half ago, and I think there is a normal process of getting used to the changes. There have been some actions by the press and administration that have created some uncertainty in the markets, and and I know that.
But I think that there are some things that are moving in the right direction. Spending is increasing, and it's increasing first in in I mean, there's more activity going on in Pemex and more drilling going on, more pipelines being built. So you see that that the new administration is trying to improve the performance of payments, what is the operative performance of Pemex, and we are seeing that in some of our customers. And and that's the first step, I think, for more infrastructure spending that is much needed in Mexico. To be honest, we don't see that infrastructure yet, and and we didn't expect to see it yet.
This is things that normally took several months before a new administration comes in. The last administration that when when we changed from the planned parties to the three party, it was almost one year of of almost zero investment. But I think here, what we are seeing in Pemex, it's a good sign that things are going to to move in that direction. The other thing is that the government is very vocal. And if you see that the the conference that made president, Lopez Obrador, given Monday, You will see that he's very vocal about developing the industrial sector in Mexico.
I think the new president understands the importance of the industry and development of the whole supply chain in the industry. So I think that we are also positive on what is going on on that front. Again, these are not things that you're gonna see in the near future. We don't expect a big increase in consumption in 02/2019. But we think that this is the right direction for improving in in in in the next six months consumption in the the following years.
So, again, we are quite positive regarding Mexico and our business there. Regarding prices in The US, you are right. I mean, the the prices, if you follow the CRU, came down to seven thirty five metric ton. It increased a little bit the CRU in the last weeks. I think that regarding to your question, I think The US, they have reached bottom.
I think although imports are high, two three two is is there and cost, especially in iron ore, is increasing for for for some of the companies. You also see an increase in the flat prices in the market in the last two weeks. So I think costs for some of the mills that are exporting to The US is getting higher. And I think The US, hit two, three, two, one time still in the market. I think we'll be able to increase a little bit the prices, and we are seeing the bottom of the price cycle.
Speaker 3
Perfect. That's very clear. If I may just have a quick follow-up here. If you are right that the bottom in prices in The U. S.
Has really arrived, Given that three- to four month lag effect until your contract prices in Mexico reflect this rebound or this bottom, could we start to see a rebound in the net revenue per ton in Mexico starting in second quarter Yes.
Speaker 1
I think it does. It is very early, but I think that in the second or third quarter, we will see a rebound.
Speaker 3
Your
Speaker 0
next question comes from Carlos Diablo with Morgan Stanley. So
Speaker 2
first question, if I may, is on the capacity utilization expected for Brazil and or the total capacity and the capitalization in terms of Brazil this year on the back of your comment, Maximo. And also, in how much volumes do you expect to ship internally to Germany and Mexico this year? As you mentioned in the first quarter, there's going to be sort of a reversal of what we saw in the fourth quarter with more third party shipments out of Turkey in Brazil. But in the year, you can give us at least a range of the volumes to be internally solved that will be very useful. And then my second question is regarding electricity, your electricity sales in Mexico.
Could you comment or remind us whether those sales are done at spot prices or you have a contract? And if it's a contract, is there any link to the sales rates? Or how you determine the rates that you charge on these energy sales? Thank you.
Speaker 1
Okay. Thank you very much, Carlos. Let me start with the Brazil question. Brazil produced in 2017, if you remember, the full year, 4,400,000 tons. That was a record for the Brazil facility.
This year, 2018, we got another record of 4,600,000 tons. Our target for the Brazil is to produce 5,000,000 tons, which is what which was ultimately the last capacity that the plant was built. And we think we are going to reach that in the next couple of years. There are some bottlenecks that we are starting to see, and we are planning to invest. Some of them are already going on.
So I think that the maximum capacity or the maximum protection will be this 5,000,000 tonnes. But we are very confident that in the couple of years, next couple of years, we are going to get there. What are the volumes to Mexico? And this is not a very simple question to answer because it's changing every month. I mean, our idea, knowing that the contract we have from Caliber, the sales to the domestic market, sales to other customers, is to to to ship to Mexico 1,000 tons every month.
So that's 1,200,000 tons. And to buy from other suppliers, the the the 2,000,000 or 2,500,000 tons we need, the other 2,500,000 tons we need in Mexico. That's our plan. But we are always making choices. If we have better opportunities, there are a month that we are only going to ship 50,000 tons.
And if we don't have better opportunities, we are going to ship 150,000 tons. And you can see that that they are different month. So we are always making the the the the the the account of where is best to supply that produce production of slabs. Mhmm. But the plant is 1.2.
Electricity sales, I mean, we are selling to the MEM, which is the Mexican Mexican market on or it's in Spanish. But but it's CFE has the rates. And then the system buys energy depending on how the system produce the energy. So it buys from the best the the best cost available and its production or consumption increases, it starts to buy from the from the less competitive source. So it is a spot price, although the price is set by the market.
What happened in Monterrey? Monterrey is an electricity hub that sells energy in the winter, but consumes more than than what produces in the summer. So that was the thing that we know when we started plan there. So the the sales are going to be at the higher prices in the summer and lower prices in the winter. And that's what you see usually in the last two years.
In this winter month, in the three winter months, I mean, November, December, January, you have a lower energy sales. Prices are lower, and then prices start increasing, and they get a peak in July, September, depends on the heat that goes on in that summer months.
Speaker 2
Understood. Very clear. Thank you very much, Maximo.
Speaker 1
Your next question comes from
Speaker 0
Thiago Ojee with Goldman Sachs. Your line is open.
Speaker 3
Hi. Thanks. Morning, everyone. My first question is regarding the new expansions.
Speaker 2
If you can provide a little bit more information on how this year the hot and rolling mill is evolving, if the target base remains by the 2020, the Valenas line in mid-twenty nineteen and also the Red Army in Colombia, if I'm not wrong, should be up by first quarter of this year? And also regarding the situation in Argentina. Can you provide a little
Speaker 1
bit more color in terms of
Speaker 2
the main, how you know these different sectors are responding to the situation and if you're seeing more imports in Argentina of steel? Thank you.
Speaker 1
Thank you, Thiago. The first, the expansion projects. The hot free mill will start December 2020. We don't have any we are on track to that. So we don't have any development that says other things.
The painting line will start probably in April 2019. The plan for the Carbonite line is late June, early July, although there are a couple of things that we are trying to accelerate to get to that time. And the Colombian project was December 2019, and so far, we are also on track to get that time. As you know, all those timings are very I mean, there are targets very hard, very I mean, we put hard targets to reach, but so far, we think that most of them we are going to reach. Argentina, to be honest, we are not seeing any imports or or any imports of of of the material we produce.
I mean, the problem is not imports. The problem is that the decrease in consumption in Argentina due to all the things I told you early. I mean, the interest rate going to more than 70% now in 44%, that created a huge impact in the domestic market. So a lot of people not only decreased consumption, but inventories went down a lot because of the capital cost of inventories with this interest rate. So I think it's more the pool is more bad than seeing imports or other things.
Speaker 2
Okay. Great. If I can follow-up. In terms of the CapEx of this project, the expansion project, what have been spent and how much is left? If also can provide a total CapEx guidance for 2019, would be helpful.
Yes.
Speaker 1
The CapEx for 2019 will be $850,000,000 So we are increasing from $5.50 almost to $8.50. And 2020, this is a long term, but will be around 1,000,000,000. So most of the CapEx of the hot stream mill that you remember was 1.1, we come in 2019 and 2020.
Speaker 0
Next question comes from Thiago Lofiego with Barestho B. I. Your line is open.
Speaker 4
Thank you. I have two questions. The first one regarding the fact that the Mexican government decided
Speaker 1
not to
Speaker 4
renew the 15% safeguard on paying boards from certain countries. Does impact your view on the market? Does this impact your view on your plan to expand in Mexico? And we saw, for example, we're canceling an expansion project. So just like to get a view there.
The second question, how do you see the Mexican auto industry growth in the coming years, considering there there are some import restrictions into The U. S. Do you think this might prevent further competitive growth in Mexico for automakers and and and confident news that would potentially impact your your expansion plans longer term?
Speaker 1
Thank you, Thiago. The first one, the Mexican government, the the 15% save that that that we have. Remember, this save what was only it was very limited the impact it has, to be honest. It was only for countries that Mexico has no agreement, trade agreements, and Mexico has trade agreements with more than 50 countries. So imports from Europe or Japan or The US were free.
And some of the industries, they have special tariffs, so they don't pay this one. But nevertheless, for us, it I think for all the skilled market, and you saw AMSAS, You you mentioned AMSAS reaction. For all the market for all the steel industries in Mexico, it was kind of a surprise because it goes in a different way of what the government was saying. I think the government is is is reanalyzing the decision, and and I think it's we have there is a possibility that that they change this. I mean and I think there there is a big possibility that that they will change the decision.
Auto industry. The automobile industry produced 3,900,000 units in 2018, almost the same as 2017. This is a huge number. When when we make project projection of of of the auto industry in in in the several years, we don't expect a huge growth. I mean, we we said that the automobile industry will grow in 02/2020, 2021 to 04/2004.
It's not a huge increase. And and mainly this comes by the fact that there is already an agreement between Mexico and The US regarding automobile exports if there is a February. If you remember when they signed the NAFTA agreement, there was a side letter where you you put a quota on the automobiles export from Mexico to US of 2,600,000 units. Today, the export to The US are around 1.8. So there is still an increase in in the exports of the air, but the increase is not very high.
And so we always projected that the industry is going to grow is going to grow only a little bit, and we are talking about 10%. So in our projections, we already have that number. I don't know if that's clear or not, Thiago.
Speaker 4
Yeah. No. That's clear, Martin. Just to to follow-up here, you mentioned this is clear. Before, it might be 2,200,000 units, and now I'm actually exporting 1.8.
Is that
Speaker 1
is that what you mentioned? One it's that is the numbers. The quota is 2.6. I mean, that's a that's signed, and it was public, I think. At least I read it in the newspaper.
So so it's a public information that that they signed this side letter. There's also a side letter for auto parts. The side letter for auto parts is in billion dollars. I think the number is a $100,000,000,000. But today, the export around $60,000,000,000 So there's also increase in Autoparts.
If the two thirty two is coming, if The U. S. Owns the two thirty two, which I don't know if that's I mean, there has been a lot of rumors, and and and what we understand is that the DOC, the Department of Commerce, just sent president Trump a memo regarding the two thirty two about autos, but we don't know what it says.
Speaker 4
Great. If I may, just one very last question. You mentioned at the beginning of the call that EBITDA per ton has normalized to normal levels, right? And how comfortable are you that $170 per ton roughly could be a sustained normalized EBITDA per ton generation towards a longer term?
Speaker 1
Thiago, this is Pablo. As you know, we prefer to discuss EBITDA margins at EBITDA per ton because as we all discussed, the pricing environment plays a huge role over there. What we say is that, yes, we understand that the numbers will go to what we consider a normalized long term level of between two to 20%, trying to stay the margins in the upper side as we have done in the past years. Of course, 2018 was starting a year where we have a 24% EBITDA margin. And the fourth quarter, which we have already established, is a little over 19% EBITDA margin.
So that's the expectation. That's the framework where we work. And there is where we want to be want to continue to be presenting numbers to the market.
Speaker 0
Your next question comes from Alfonso Talabar with Scotiabank.
Speaker 5
I have two questions. The first one, there was in the local press, some news regarding your plans in Mexico could be affecting by the railroad rotates in the state of mutual fund. So I was wondering if you can provide some what was the situation there, if you wish you can consider any impact in Q1 because of the case? The second question is regarding the negotiations with the communities in the mining operations. And if you can provide some comments on your plans for the mining division and because of what is happening in the iron ore market, is it possible or would it make sense to to to increase capacity?
What are your thoughts there? Thank you.
Speaker 1
Yes. We have some some effects on on the Michoacan block. As you know, we we bring two things from from railways. From Michoacan, we buy slabs from from Mittal to our facility. That was the main block.
But also, the things that we we we bring from Colima, from the Trinidad or or or or our own mining facility in Colima were also affected, although for less time. So we have a minor effect. We were going to have a minor effect, but it's a little bit increase in cost. We have to ship to we have to change. Instead of shipping by train, we ship by by vessel.
And so that's a little bit of more cost. But today, the the as I said, the the the the roads or or the trains are are really free, and we are moving product without any any effect. Mhmm. Regarding mining, I mean, we we don't have any development of mining. I think that we are discussing with the community a new agreement because we have to expand our mine in Achilles, but we are on track on that.
We don't expect any problems from that. And an investment, to be honest, if you remember long time ago, we have some plans of new investments in in in mining. Today, are not seeing that in the near near future, but as always, we are analyzing. If you remember well, we have two big mines. One is the Aquila mine and the other one is Columbia, Colorado.
And we opened a third mine near our Bennett plant, but it's a marginal mine where we have a lot of reserves. In the past, that was the project we analyzed. Today, we are not seeing it. But if things change, we can revisit that.
Speaker 5
Okay. Thank you. Thank you very much.
Speaker 0
Your last question comes from Rodolfo Angeli with JPMorgan. Your line is open.
Speaker 1
Hi. Good morning, everyone. Can comment a little bit more on the raw material situation in Brazil? Yes. Raul, for the the the raw material so the the I mean, as you know, Vale has a had an accident or or an event that that decreased production in some of the the regions they have.
What the effect today I mean, Vale changed quite a lot. What was the effect? First, they said that they were going to close 40,000,000 tons. Then they had to close another 30,000,000 tons because of a different judge order or or we don't understand very well. But now they are saying that that reduction was quite less.
The main effect that that everybody is suffering is a price increase in in in the scrap prices. Today, as you know, the Brazilian facility has an exclusive contract with Vale for the supply of our loan to our facility. And as and as today, Vale has continued to make deliveries under the contract. And and and for the time being, we don't see any significant problem to ensure the supply of iron ore to that facility. Of course, the price will have an effect in our Brazil facility because the price increased from a down 70.
It went to 95, I think, one or two days, and now it's around 88. So that's an increase in the cost. But as we said before, we are also seeing an increase in flap prices that we are not going to get immediately, but we are going to get once we start closing flaps for April and May. And and if I may, just as a follow-up, was did you use, you know, some material relevant amount of products in the fifth generation? Yes.
From the 7,300,000 7,300,000 tons of of iron ore that we buy from from for the Ternium Brazil facility, we purchased between 2,530,000 tons of pellets. That's roughly what we are doing today. But as I said, Vale is is is supplying the pellet for us. Okay. Thank you.
Speaker 0
And at and at this time, I will turn the call over to CEO for closing remarks.
Speaker 1
Alright. Thank you very much for being part of our conference call today. As usually, please give us a call if you need any further support to get a better understanding of our company. Thank you very much, and goodbye.
Speaker 0
This concludes today's conference call.
Speaker 1
You may now disconnect.