Usinas Siderurgicas de Minas Gerais SA USIMINAS

BOVESPA:USIM5

Earnings Call Transcript

[Leonardo Karam, executive]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to conference call of Usiminas in which the results of the second quarter 2021 will be discussed. I'm Leonardo Karam, General Manager of Investor Relations at Usiminas. [Operator Instructions]

This conference call is being recorded and broadcast simultaneously on the Usiminas YouTube channel. We would like to remind you that this conference call is exclusively for investors and market analysts. [Operator Instructions]

Before proceeding, we would like to clarify that any forward-looking statements that may be made during this conference call regarding the prospects of the company's business as well as projections, operational and financial goals related to its potential growth constitute forecasts based on management's expectations regarding the future of Usiminas. These expectations are highly dependent on the performance of the steel sector, the country's economic situation and the situation of international markets. So they are subject to change.

With us today is the executive management of Usiminas, our CEO, Sergio Leite; Vice President of Finance and Investor Relations, Alberto Ono, Industrial Vice President, Americo Ferreira; Vice President of Corporate Planning, Yoshiaki Shimada; Vice President of Technology and Quality, Kohei Kimura; Commercial Vice President, Miguel Homes; Chief Executive Officer of Mineração Usiminas, Carlos Rezzonico; Executive Director of Soluções Usiminas, Ascânio Merrighi; Superintendent Director of Usiminas Mecanica, Fernando Mazzoni; Director of Legal, Bruno Paulino; and the Controllership Director; Julio Arroyo.

At first, Mr. Sergio Leite let will make some initial considerations. Then Alberto Ono will present the results. Afterwards, the questions asked in the Q&A session will be answered.

I give the floor to Sergio. You may proceed.

[Sérgio de Andrade, executive]

Thank you, Leonardo. With your permission and in order to make the audio better, I'm going to remove my mask. For us at Usiminas, it's a very important moment for us to be here with you together. We would like to thank you for attending this results -- live results call. It's a live that represents a very important moment for us at Usiminas. We are reporting to the market, to each of you, reporting to the society, disclosing robust results, the best of the company's in the century. The results were built by Usiminas team on an quarter-day basis in the past 5 years.

Exactly 5 years ago, each of you can remember that were in a very delicate situation at the company. But thanks to Usiminas teamwork, the work of everyone, we made headway quarter after quarter, year after year. And today, we can present to the market solid results, robust results. A company which is prepared for the future, a company that has worked and faced each of the challenges that were put in front of us.

Our quarterly EBITDA, which will be provided in detail by Alberto is an extremely important result of our cash generation, our net income. And today, we can present a cash of over BRL 6 billion that would allow us to settle the debt and about BRL 200 million remain in our cash. It is a fruit of a lot of effort, a lot of work, a lot of dedication. And at this moment, we are working hard in order to fuel the present of the company and the future of the company.

As I said before, in the first live that we had this year when we presented the results of 2020, we continue working and we delved into the long-term planning of the company. The 10-year planning that we refer to as Vision 2030, and we have been working actively on this project, which is a very important project for the future of the company. We have been having lots of discussions. Numberless projects have been studied and analyzed.

And as a background, we have an essential view of this path towards Vision 2030, all the issues related to sustainability, climate issues. And these are all very important issues to be discussed. In each of the discussions that we are going to make it's decision we're going to make. We founded the company that -- the sustainability area is connected to the Board of the company, and this is an area that has been working very hard, involving everyone in all of our 5 companies.

In the beginning of the year, in order to exercise the activities for the year, we defined 6 goals, and we are going to present all them to you. So we have the ESG commitments with the 6 goals. And these are all very important to our company, and we are going to discuss a project that we have developed that has a very important meaning to all of us because above all, we are talking about people. And this is related to inclusion and diversity project. We have just disclosed to the market the completion of our inventory of greenhouse gas inventory that we prepared and disclosed to the market just yesterday.

And when we compare to the World steel Association related to 2019, our results related to 2020. So our position is in terms of GHG with -- companies with better results. And this is very important for all of us because this is a challenge and an encouragement for us to continue working on each of the activities that we have. And we always keep in mind the concern and the commitment with the climate change, with greenhouse gas effects and we have been operating different areas.

The company is highly involved, highly engaged. And without a doubt, we are prepared to face all the challenges the pandemic presented to all the companies and all society. And in my opinion, it's the biggest challenge the humankind has ever faced. But us, by means of an efficient quick management, we have been managing to go through it with the least impact on people's lives. We have been working effectively to preserve life, to preserve health, and safety and preserving the physical, mental, emotional integrity of everyone.

So we made important decisions in the last 8 months in relation to our administrative expenses. We not only made progress in the operational area, but also in the administrative aspect. And we are searching for efficiency at the lowest cost with our ESG commitment, notably in the S where Usiminas has been a reference since the company was first constructed back in the 1950, when Usiminas was built. And the company is 65 years old, and we'll complete 59 years of operation.

At the end of the '50s, we started building a city as well, and it's 1 of 154 cities with more than 200,000 inhabitants. And we informed that we demobilized the oldest headquarters, the former headquarters, and we brought the cash, BRL 130 million. In July, we demobilized -- decommissioned our central office in Ipatinga, which was a regional unit, which was not being utilized, and we brought our cash, BRL 42 million. And what is more important even these 2 assets, the 1 in Belo Horizonte city is becoming a beautiful hospital, which will be one of the largest hospitals in the city. And Ipatinga where we had our central office will transform into a college inside a university. So it's another step towards the ESG commitments. And from this, we reduced our administrative costs.

To put it in perspective, in relation to the headquarters that we inaugurated officially last week on the 19th, we have all the facilities installed, completed. We are finishing the renovation of the other floors. In the previous former, we had 6 floors with 3,400 with available room per floor. Here, we have 7 floors. And putting together, they add to 3,400 of useful area, the same size that we had for 1 floor in the former headquarters. And we have to pay rent, but it was a great move. So we are making important steps or the team is motivated and engaged. And as we do in every call at 8:00, we disclose the information to the market. And then we hold the meeting when we present the results.

So first, before opening this call, we present all the information to our employees. And we have a lot of energy, we feel a lot of energy because we had a discussion -- a moment of discussion and the feedback has been very positive. So we are very happy to be here with you today, disclosing robust results to the market and assuming commitments. A company which is prepared for the future with a commitment to build more and with more dedication, the present and the future of Usiminas. And allow me, in my final remarks, congratulate all Usiminas team on the results that we are presenting today to the market, and we are presenting all this information to analysts, to the society, the result of our team.

I turn the call to Mr. Alberto Ono for him to present the quarterly results.

[Alberto Ono, executive]

Good morning, everyone. I'm going to remove my mask for better audio quality. I'm going to ask you to go to the presentation. So let's start from the second slide, please. So here, we can see the main figures related to sales and the financial results. Financial topic is still unit sales, a global increase of 5% in relation to the previous quarter, reaching 1,315,000 tons. This is a number we haven't since 2015. As for domestic market, we reached a growth of 7%. It's a number that we haven't reached since 2014. So we can see this great recovery in this quarter.

In terms of iron ore sales, we can see a slight increase, surpassing 2 million tons for this quarter in comparison to the previous quarter. And we'd like to point out that as we had published in our guidance, we expect to reach 9 million tons for the year, and that means that for the second half of the year, we expect an increase in the production of iron ore.

As to EBITDA, There has been an expressive increase of nearly 110%, reaching BRL 5.066 billion. And here, I'm going to talk a little bit more during the presentation, we have some nonrecurring events, but it's the highest quarterly EBITDA in the history of the company. As for our net profit, we have seen a significant growth reaching BRL 4.5 billion. And again, some nonrecurring effects, the main of which is described here. We have the tax credit, PIS/COFINS recovery after the legal decision, and we have the consolidated number of BRL 2 billion. In addition to that, we have a positive FX variation of BRL 483 million.

Moving on to the next slide. This is the consolidated EBITDA results. Out of the BRL 5 billion that we posted for the quarter. We had a nonrecurring effect, EBITDA effect of the credits, tax credits of BRL 1.5 billion. As I mentioned, the PIS and the COFINS stacks as related to recurring EBITDA is BRL 3.5 billion. Anyway, it's a quarterly record, an increase of 46% in relation to the first quarter this year. So this is a very, very strong result.

On next slide, is talking about the steel unit. We can see that quarter result has been record BRL 3.4 billion, out of which BRL 1.4 billion is related to the nonrecurring effects of the tax credits of PIS and COFINS. So most of -- the biggest effect of the credits is related to the steel unit. So in terms of operating results, it's BRL 2 billion. So an increase in relation to the first quarter, so a very strong and also a record.

Next slide, slide 5 (sic) [ 7 ]. Mining Unit, Mineração Usiminas, we reported quarterly record for this unit, we do not have the tax effects, and we reached BRL 1.5 billion, an increase of 38% in relation to the previous quarter. This was driven especially by higher volume, but it was highly impacted by the prices that we have observed along the second half of the year -- second quarter.

Steel transformation, Soluções Usiminas has also posted a quarterly record. We have a relevant effect of tax credits. But even discounting this effect, BRL 310 million is the highest EBITDA ever recorded in operational terms.

It's an expressive increase in relation to the first quarter. If we look at the recurring part of nearly 13%, which is a very significant margin for the segment.

Now related to financial indicators, working capital. There has been a very significant growth of BRL 2 billion. And out of which, BRL 1.4 billion is related to an effect of the tax effect. So we have tax recoverable with an increase of nearly BRL 1.8 billion in -- when we look at PIS and COFINS stacks, we can see that the payment on this result is BRL 468 million. So this has to be collected. So what we have in relation to the increase quarter-over-quarter is related to the inventory variation and this is mostly related to financial results. And the inventories relate to slabs, iron ore, raw material in general. So this is the cause of this effect in particular.

When we look at steel volumes. So we can see the inventory steel levels at those steel units. And we can see the inventory effects shown in the working capital is related to prices because the volumes are very stable. So the inventory turnover is 52 days. So it's below the historical levels that we have observed in terms of 70 days.

On next slide, as Sergio has mentioned before, we surpassed BRL 6 million of consolidated cash for this quarter. And with the FX variation that we had in relation to the debt that reduced our gross debt to BRL 5.8 million, and the net cash is BRL 220 million. This is the net cash in relation to our debt. So the leverage index is close to 0.

Next, so talking about investments and CapEx. We have increased the pace of the investments for the quarter, reaching BRL 335 million. And as we provided in our guidance to maintain BRL 1.5 billion for 2021. So we expect an acceleration in our CapEx, in our investments for the next quarter.

Moving on to the last slide of the presentation in relation to our goals, ESG goals. So the point that was pointed out by Sergio is that most of the goals are in line with what we were expecting, except for the migration to filtering that is related to mining. That was planned to start operating during the second quarter of this year. But unfortunately, we had some delays in the works. And probably, this project will be -- will start operating still in 2021, but our initial target was the first -- the second quarter. It will have no impact on the operation, but unfortunately, it was a point which was not -- was missed according to what we expected.

So this is the end of the presentation, and we can take your questions now. Thank you.

[Leonardo Karam, executive]

Thank you, Alberto. Let's start. The first question is about the capital allocation. We have 3 questions related to this topic. Alexandre; Rafael Barcellos, Santander, and an individual. They're asking the use of capital. So the company did leverage. So it's a position of net cash. So investors are closely watching the allocation of capital of the company. So what are the plans for Usiminas? Are we going to see high dividends? Or will the CapEx increase in the mining unit?

In the same breath, we have a question related to interim dividend. And can we expect anything related to M&A, M&A operation?

Alberto, please.

[Alberto Ono, executive]

Thank you for the questions, [ Rodolfo ], Rafael and Alexandre. First of all, our focus remains in the capital discipline, especially in the financing of our CapEx program with cash generation. So this year, we have BRL 1.5 billion for CapEx and something that has been engaged for the years to come. We'd like to remind you that we have the furnace -- blast furnace #3 is going to be remodeled. So we have CapEx already allocated for this. And the stoppage is going to occur in 2023.

So we have a CapEx that has already been engaged, earmarked for the future, and it's a lot of CapEx. So the focus is on generation. So we are going to finance the CapEx, which has already been earmarked. We also have investments. Considering the more favorable scenario, we are studying other options of investment. But we haven't defined anything, we haven't approved anything yet. But notably, we will start study again our galvanization lines. The 3 galvanization lines, they are operating at full speed. So it makes sense to consider increasing the capacity in these areas. So this is something just natural.

We are -- that's why we are considering this. We started studying this again, but we still haven't defined what kind of investment, what will be the schedules and the deadlines, and when we are going to implement all this. So we are studying this very deeply now.

In relation to dividends. This is a point for a discussion at our Board. And we have also to consider that the taxation of dividends is something which is being discussed by our authorities. So we are doing a close follow-up on this. At this time, we intend to continue following the current payout of 25%. So of course, we are closely monitoring the tax issues, and we have been discussing with our Board in relation to whether or not we are going to be able to make any action in, which is different from what we have been doing. So we have -- we plan to maintain the payout of 25% as we have done so far.

[Leonardo Karam, executive]

Thank you, Roberto. Our next question -- I'm going to break our questions because we have many of those. Some people interested in prices. This is to Miguel. Rodolfo De Angele with JPMorgan, Daniel Sasson with Itaú, Marcelo Barcellos (sic) [ Rafael Barcellos ] with Santander, Thiago with Bradesco and Carlos.

The first part is related to the business environment in the domestic market. What's this environment like? Are we likely to expect some increases? And what's the expectation of carryover of previous increases affecting the future? So people are -- there are more questions related to the carryover and they're asking us to make comparisons with last month to understand this carryover. Those would be the first question.

[Miguel Angel Camejo, executive]

Rafael, Daniel, Thiago, answering the first question in relation to the price environment in the domestic market. Today, we could define the environment as stable, considering that international market has presented some availability with some variables that affect the local prices. When we analyze what happened in the second quarter and what's the current situation. In the beginning of the second quarter, we observed an increase in the international price, which was driven by the strong high costs and freight costs.

And likewise, there was an important increase in the tax rate variation. And then in the second part of the quarter, there was a drop in international prices in China and Russia that was driven from expectations of action to be implemented by the Chinese and Russian governments. We heard this week in relation to those 2 expectations of measures that will be defined by the Chinese and the Russian governments in relation to elimination of the tax debate of the China products, especially cold coil and rebate for hot coil had been eliminated in May. And when the Russian government announced this of tax of import of all steel products as of August at about 15% with the high volatility that we have been observing along the second quarter of the variables at the international market, we can see that we have reached the stability in this market.

With this news, we would expect an increase in international prices driven by the offer of the exports. But imports in Brazil, about 38% of the imports in Brazil are related to China and -- China and Russia. So these are -- the offers will be impacted by all this. Of course, we are going to keep this evolution in control, we're going to monitor them. And we are going to have as an objective, the parity of 50% because this is what we observed in the market.

In relation to the carryover, we cannot inform you what it would be the actual fact. June prices, the average price was 4.4% variation -- had this variation in relation to the average cost, and this will impact the carryover. And you know that the distribution price has adjustments in shorter periods. And we have also monthly contracts, bimonthly contracts and quarterly contracts. And they will follow the evolution of the distribution prices, all the adjustments that were happened along the second quarter and also in the third quarter will impact the average prices.

And in relation to the premium, which was the last question. It's 5%, 10%, 10% to 15%. I would say that the premium of balance is at about 15%, but considering all the variables that play an important part on the parity.

[Leonardo Karam, executive]

Thank you, Miguel. And with this, we close the questions. I think we covered all the questions that were asked. And Carlos asked if we were suffering some pressure on the market. But you mentioned that we are having some stability at the prices. And Thiago asked about the balance, the balance price and 5% to 10% or 10% to 15%, what would be 15%? You said that 10% to 15% would be sustainable. Would you like to add anything, Miguel?

[Miguel Angel Camejo, executive]

Only to add something in relation to the pressure in the domestic market. Today, we have as an area of stability, of course, we have been observing some high imports. But of course, we have to expect this movement. But today, with the recent news that we've heard last week, we could expect a strong reduction in imports from now on because of the restriction of the offers, and the actions that were announced by the Chinese and Russian governments. As I said, they account for 88% of the total experts and with cold coil and other types of projects.

[Leonardo Karam, executive]

Thank you, Miguel. And now we have 2 questions related to costs that were directed to Alberto. Alberto, Daniel Sasson with Itaú is asking about the cost pressure that we can expect in terms of cost high of raw materials? And [ Bruno Tolablaz ], an individual asking what are the expectations of cost evolution for the fourth quarter? In other words, up to the end of the year.

Yes, Alberto, you have the floor.

[Alberto Ono, executive]

Daniel and Bruno, right? In relation to costs, what we can say about it is the following: we have an expressive increase cost pressure along the second quarter, okay? So this pressure, especially from coal and also slabs and iron ore. They -- this increase occurred in the first month of the second quarter. But we have seen some stabilization at the end of the period. So what we can say -- I cannot talk so much about the third or the fourth quarter. But in relation to the first and the second quarter, we can say that we have reached the stability level.

And as Miguel mentioned, the international prices are reaching a level of stability as well. So we suppose that we are already in a situation of somewhat balanced, both for steel and also purchased slabs. So this is the scenario, okay?

[Leonardo Karam, executive]

Thank you, Alberto. Our next question comes from Daniel Sasson with Itaú. He wants to know about the working capital, Alberto. He said the working capital keeps moving up, especially inventories even not considering the recognition of the tax credits. What is the perspectives in this line up to the end of the year?

[Alberto Ono, executive]

Daniel, the point here is the following. Considering the operational level, as we have shown to you, when we talk about the inventories of steel, I would say that the physical aspect will be in line with the guidance that we provided you. The sales for the third quarter, 1.2 million, 1.3 million tons. It -- we are likely to believe that we are going to keep these levels in physical terms at stable levels as we have shown from the first to the second quarter. As to the financial aspect, I would say that it will depend on how the price will evolve. As I said, at the end of the second quarter, we had observed some level of stability in the cost components, especially raw materials. So we might observe some stability-related aspect, but it would depend a lot on how the quarter will play out.

[Leonardo Karam, executive]

Thank you, Alberto. Now we have a question, or in fact, 3 questions, but since it's about the same topic. It's going to be for Rezzonico from Damien, Rodolfo, Carlos. They would like to talk about the plans of the mining unit and what would the CapEx. When can we expect announcements of CapEx in the mining unit?

[Carlos Hector Rezzonico, executive]

Thank you for the questions. In fact, Usiminas is strongly working to flaunt compact and industrial product, we continue with a lot of energy. And so we are considering all the mix of the changes. So it's going to take some time. But on the other hand, we can say because of all the innovation that we have by acquiring new areas. So areas that we didn't use to use, today, we can think about scenarios, considering the scenario that we are expecting for the next quarters, which are -- all these plans makes us very peaceful and very confident for those compact, and an opportunity for us to continue buy more materials.

So we continue making progress in our study of CapEx. But I believe that I know the final results will not be seen up to 2023, when we expect the approval to happen. This is just a summary of what to expect.

[Leonardo Karam, executive]

We have a question to Miguel, asked by Thiago in relation to steel inventories. Do you believe that clients learned to operate with lower inventories? And we are not likely to see major variations in the future?

[Miguel Angel Camejo, executive]

Thank you, Leo. Thiago, of course, we have observed a recomposition of the steel inventories along all the changes along the second quarter. In the report, the stock levels moved from 2.2 months, 2.3 months to 2.6 months at the end of June. So certainly, with the impact of lower production of vehicles, the automotive sector recompose its inventories. We cannot say today that most chains have a level which is very regulated, very balanced. I think what clients are doing is the need for working capital. And also because of the increase of steel, this would -- the increase will generate some financial stress in the production chain, especially in the companies which are medium-sized or smaller sized.

And we see that the trends are operating at a lower level of inventories. That means -- that doesn't mean that it's not positive to the sector. Obviously, when the inventory levels are a bit lower, there is a deep balance because of the market volatility. And we as the steel companies, we have to provide support to this chain so that they can work with an optimized working capital. And then we are going to remove the inefficiencies, the financial inefficiencies of this sector.

[Leonardo Karam, executive]

Thank you, Miguel. Our next question is also to Miguel asked by Thiago. And he asks you to make some comments on the automotive area. What is your expectation for the normalization of the vehicle production in Brazil?

[Miguel Angel Camejo, executive]

Thiago, the automotive sector is -- has lots of challenges because semiconductors are missing in the market. And this is something affecting not only the Brazilian market, but the global market. According to FIRB report, there has been a small reduction of automotive production expectations from 25%, an increase of 22%. And the level of uncertainty is very high according to some reports according to Intel's CEO. And they are saying that the normalization of semiconductor supply will happen along next year. Of course, we are prepared to pace with the recovery of the automotive sector, and we do this monitoring on a weekly basis, and we are prepared to this recovery in the automotive sector as well as any other sector in Brazil that will need our products.

[Leonardo Karam, executive]

Thank you, Miguel. Our next question is directed to Sergio. [ Joseph ], an individual, is asking about the sustainability chain of ESG. What are the weak weaknesses of Usiminas and what are the goals for us to mitigate such points?

[Sérgio de Andrade, executive]

As I commented in the beginning of our call, sustainability is a priority to our company. In our weekly Board meetings, we start the meetings always discussing sustainability, sustainability in a broad sense. We have just made the inventory of -- greenhouse gases inventory, and we disclosed this information to the market. And in this inventory and the number that we reached is 2.06 of gas per ton of gross carbon. We are -- have half of the steel market in terms of positive results. So at the international level, we are within a scenario within the half of the company's whose position is more positive.

Obviously, comparing the results of Usiminas of 2020 to the steel industries of 2019. We wait for the 2020 results to be published to make the comparison. We are working in the environmental aspect in relation to sedimentable particles in the Ipatinga unit. We have an extremely important project, and we have made progress in this unit. And last year, we [ sold ] the environmental monitoring center that allows us to monitor all the company in all different neighborhoods of Ipatinga. Because we are the only unit that is positioned in the center of the city. And so we have been working hard in order to control this sedimentable particle emissions and the results have been very positive with a significant reduction of this emission. And we implemented mist spray devices using polymers.

So we are performing a number of actions, and this is the area when we talk about reduction. When I talk about this is how blast centralization and others. The company is engaged, totally engaged in the -- according to the Vision 2023. And this is a part present in our discussions. And we always ask ourselves, how can we possibly reduce the GHG. And we consider this in all the investments, and we are looking for operational improvements in the existing equipment. This is a permanent question -- permanent issue that is occupying our minds.

So when we consider the ESG, U.S. ESG agenda, we know that we are referenced, both related to the people at Usiminas and also the people in the communities where we operate. Our relationship is very strong. We are very close to the communities where we operate. We have 2 foundations, which are very relevant. One is a foundation focused on health which is St. Francis Xavier Foundation. We have a foundation in the area of education also, Francisco Xavier. And we have Usiminas institute that does a very important job in relation to the performance of the company in health, education and cultural and community support segments. At this time, we are building a hospital in Belo Horizonte, which is going to open in March next year. And as for S in the ESG, we are placed at the top in terms of social responsibility. And this is a perennial concern for all of us at Usiminas.

[Leonardo Karam, executive]

Thank you, Sergio. The next question comes -- is to Miguel is related to volume. Caio Ribeiro with Crédit Suisse and Aristoteles with XP are asking about the mix of sales in the domestic market versus the foreign market in the months to come. Are we going to share -- increase their share in each of the areas? And what about the log book for this quarter, the inventory level and also the inventory levels in the chain comparing the quarters? And is there an alternative -- Aristoteles is asking, is there an alternative if the domestic activities slow down?

[Miguel Angel Camejo, executive]

Caio, Aristoteles, in relation to the domestic market and exports, with the strong recovery in the past 9 months in Brazil, we gave total priority to the domestic market in Brazil, especially our industrial clients in Brazil. And the value chain, especially those in the Mercosur region. So this priority will continue in the next month. This will be our priority and provide support to the growth and the evolution of our main clients in the domestic market. Obviously, we are going to be on the watch out of opportunities in the external market, considering the availability of the product that we can have every month. Today, our order book is very strong at levels which are similar that we had observed in the past months, both for the domestic and the mix exports and the domestic market.

In relation to exportability opportunities, we can see something positive in terms of attractive margins to the steel sector. Obviously, with the recent news of elimination of tax rebate in China and also the implementation of an import tax in Russia, this could have a positive evolution in our margins in the international market.

As I said before, our priority is to provide support to the domestic market, but we are going to be on the watchout on the opportunity in the external market. We are going to continue analyzing each business opportunity, both internally and abroad.

[Leonardo Karam, executive]

Thank you, Miguel. Our next question comes from Caio Ribeiro with Crédit Suisse directed to Alberto. How you would evaluate an upstream part of Cubatão now? Do you believe you have sustainable data to make this decision. Alberto?

[Alberto Ono, executive]

Caio, thank you very much for your question. The point here is that for us to be more conviction in terms of the sustainability of the demand, we have to consider whether this demand is going to remain high. So I believe that we have to keep an eye on this domestic market and observe whether a lot -- that this is going to continue, or this will remain high. Clearly, in the recovery months as of the third quarter of last year, we have seen a clear movement of replenishing the inventories. But when -- I would say that the second quarter of this year was an end to this movement. And from now on, we are going to see what's the actual demand.

So we have to understand what's the level of actual demand so that we can have expectations for the future. In terms of upstream of Cubatão, This is something that has been talked a lot about. But as we talked before, even -- we are going to make a decision. The decision is not going to be so quick, and it's not going to be so cheap because of the situation and also the time the unit had stopped. So we do not have the crew. We do not have the personnel to work there.

Because it has stopped for 5 years, all the labor, all the workers that used to work there are no longer at the company. And this started 5 years ago. So we have to have workers, operators working with equipment, and we have to evaluate which is the piece of equipment that would need more maintenance and which equipment will need less maintenance. And it takes the time.

After we make a decision, resumption of the activity is not going to be very quick. So this has to be very clear.

So in terms of demand, which is the main point of the question, I could say that we have to wait a little bit more. So we have -- can have some clarity of what is the actual demand now that the replenishing of the inventories has come to an end.

[Leonardo Karam, executive]

Thank you, Alberto. Now we have another question to Alberto. And the question is related to the EBITDA expectations for the third quarter. Are we likely to expand the EBITDA above the records we presented in the second quarter?

[Alberto Ono, executive]

But as always, we do not provide guidance in relation to the EBITDA. Our guidances are limited to what we discussed in terms of volumes and sales and financial expenses. So I will not be able to make any comments on this. But in terms of sales, both for steel and iron ore. As for steel, we are expecting a stability in relation to the second quarter. And as for mining, the expectation is that the volume will increase for the -- in relation to the second quarter so that we can reach the 9 billion tons. This is what I can say.

[Leonardo Karam, executive]

Thank you, Alberto. The next question is to Miguel. It comes with Carlos De Alba again. Miguel, he want to know whether we are changing the contract with the automotive and industrial sectors? Migrating to quarterly contracts or spot contracts in comparison to annual contracts?

[Miguel Angel Camejo, executive]

Usiminas established long-term partnerships with its clients. The automotive sector has been a strategic and a very relevant sector to Usiminas and this will continue in the future. Usiminas has a history of complying with all the agreements, all the contracts that were signed with our clients. So all the valid contracts will continue as they are. Each contract will be updated and renewed according to the moment and will -- future and past variables will be considered, considering the stability of the business for both parties. So the answer would be no. No, we are not canceling any agreement that has already been signed. All the renewals of contracts will reflect the movement.

[Leonardo Karam, executive]

Another question to you, Miguel. Correa with BTG Pactual asks about price. What's the price gap today between the industry clients, ex-automotive and distribution? What do you consider to be the ideal level? And when do you expect this to be reached -- this level to be reached? Miguel, please.

[Miguel Angel Camejo, executive]

The pricing gap, of course, the distribution is different from -- in different industries. We have agreements with different industries monthly or bimonthly or semester agreements. When we observe the distribution of the first half of the year, it was a gap that evolved along this period. And those gaps that happened in the first quarter and in the second quarter. So we have gaps, but we always try to make it 0. This gap could not be so large. Otherwise, we wouldn't be committing our objective. Otherwise, we would not consider the general conditions of the market. And this is relative to all sectors of the Brazilian economy.

[Leonardo Karam, executive]

Thank you, Miguel. The last question comes from a professional from [ Sarwa Capital ]. So he congratulate on your results and he wants more details about the galvanized products, what would be the CapEx for the project? And the question is directed to Alberto.

[Alberto Ono, executive]

At this time, we cannot talk so much about this topic because this is something that we are reevaluating. We are resuming the studies of the CapEx and how long it would take to implement the lines. So these are the questions that are being analyzed at the moment by us so that we can have an idea and take this as an investment proposal for our Board to approve. So these are the points that we are currently evaluating. So we are not able to provide any details of this -- any of those points you asked right now.

[Leonardo Karam, executive]

Thank you, Alberto. So we complete our Q&A session. And now I turn the floor to Sergio for his final remarks. Sergio, you have the floor.

[Sérgio de Andrade, executive]

Thank you, Leonardo. Thank you, each and every one of you who were here with us for this 1 hour -- exactly 1 hour discussing the results of Usiminas. It was a great pleasure for us, of Usiminas team, to present solid results. And a positive prospect for the future with our commitment to work with the same dedication, looking for the best competitiveness, reaffirming our commitment with the sustainability, with the ESG agenda, diversity and inclusion. Today, we had a total of 24 questions, all very important questions to each of you so that all of you can understand the moment we are going through this moment. This positive moment where we were able to share the best results of the century.

Thank you for attending this call. And in October, we are going to see one another again where we're going to present the results of the third quarter 2021. It has been a great honor for the executive management of Usiminas and all the team as a whole. I congratulate our Usiminas team on the results.

Thank you, and have a nice weekend. I would like to remind you that if you have any questions, the IR team is at your disposal to provide you with the services.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]