Usinas Siderurgicas de Minas Gerais SA USIMINAS

BOVESPA:USIM5

Earnings Call Transcript

[Leonardo Karam, executive]

Good afternoon. Welcome to Usiminas' Conference Call where we will discuss the results of Q3 of 2024. I am Leonardo Karam, Usiminas' Investor Relations General Manager. For those who want to follow along in English, the simultaneous interpretation of the webcast presentation is available on the Usiminas IR website. We also have the interpreter providing simultaneous translation. Please select your preferred audio. [Operator Instructions]

This conference call is being recorded and simultaneously broadcasted on the Usiminas YouTube channel. We remind you that this conference call is exclusively for investors and market analysts. Please identify yourself to ensure your question is addressed. Any questions from journalists should be directed to Usiminas Media relations via email, [email protected].

Before proceeding, we would like to clarify that statements made during this conference call regarding the company's business outlook as well as operational and financial projections regarding growth are forward looking statements based on the management expectations for Usiminas future. These expectations are highly dependent on the performance of the steel industry, the economic conditions in Brazil and the International market situation and therefore are subject to change.

Today we have: CEO, Marcelo Chara; the VP of Finance and Investor Relations, Thiago Rodrigues; and VP of Sales, Miguel Homes. To begin, Marcelo will share some initial remarks, followed by Thiago who will present the results. After, we will address the questions submitted in the Q&A session.

Now I hand it over to Marcelo. Marcelo, you have the floor.

[Marcelo Chara, executive]

Good morning, and thank you to everyone, and welcome to our conference call. It's a pleasure to talk to you in an additional earnings result live session. As we've mentioned in the past, we continue to focus on the continuous improvement of our operations, the performance, safety and then we also are focused in environment regarding everything that is part of our industrial process. Our transformation agenda continues firm, reducing costs with productivity plans so we can be more competitive. We continue developing, valuing and training our personnel -- our teams through programs of leadership and training programs. We also continue supporting the communities where we operate, and we will refurbish our public school in Ipatinga through a voluntary program from Usiminas because we believe that education is one of the main tools for the development of people and society.

So during this quarter, a number of results show this in a clear fashion. We had [ goals of ] volume 54% higher than the last quarter. This is Blast Furnace 3, the highest production level since 2010. The total production of gross steel was above 22%, the highest since 2022. We produce now with 2 blast furnaces than what we had in the past with 3 blast furnaces and the gain of productivity appear in the steel results. We had the best EBITDA since Q1 of 2023, and we reverted the losses of the past quarter, mainly due to the continuous progress, operational efficiency, reducing our costs. We expect to maintain a dropping trajectory on Q4, capturing gains for the best operational performance.

Another great highlight where our steel sales, this increased 10% in sales to the domestic market with a resilient demand highlighting a greater demand in storage, domestic appliances here steel products and a greater pace of production of the automobile sector in this sector and partial recuperation in sales that are strongly driven by the high level of imports and unfair competition conditions, especially products that come from China. The Brazilian economy maintains its growth during 2024 with a GDP projection above 3%, mainly because of the industrial activity, civil construction, family consumption and invention with offsets the low activity of agro.

For 2025, we expect moderated growth, a return of 2% with an agro rebound and a lower growth of the other sectors with attention due to high interest rate. Now the Brazilian steel market reflects the trend of the economy projecting an increase of demand according to World Steel Association. It expects 5% of increase for 2024 and a projection of 3% for the next year, driven by the strong electro-domestic and automobile and civil construction industry. We help -- we expect the agendas help us for deep reindustrialization of Brazil. In the International market, we see a drop in demand of steel for the third consecutive year with a drop of minus 0.9% according to the World Steel Association due to the decline of the purchase power of families' monetary crunch and geopolitical uncertainty. But we expect a growth of 1.2% in 2025, driven by the developing countries, India, Brazil and South America and Central America.

In addition, the market is being strongly pressured by the surplus of offering of steel from China, which demands its internal demand, but it increases the [ debt ] export by over 21% when we compare it to what happened in 2023. This is a period that goes from January to June. 2024 imports increased 15% during the first 9 months vis-a-vis the same period last year that had already presented the highest import penetration since 2010 in third quarter -- in the third quarter of 2024. We have 300 and -- we have 13% higher than the second quarter of 2024.

We see all the regions of the world defending themselves against unfair competition, and it is necessary to carry out adjustments in the quota systems implemented in June this year in Brazil. Once that imports continue growing, we also continue supporting the authorities in the antidumping investigations that want to demonstrate the harmful effects, affecting the Brazilian industry with industrial goods, the national industry and qualified employment of our value chain are affected and are at risk. Because of this, the teams in Usiminas are focused on optimizing the operation and reducing cost to face this challenging scenario of price reduction. We reduced 10% our cash cost, and we will continue strictly controlling cash and cost. We had an increase of 14% in sales volume for the best operational yield or performance, but the drop of iron ore indexes affected strongly our margin.

In September, we ended the seventh issuance of debenture funding BRL 1.8 billion. This was the highest volume with the best rates conducted by the company, demonstrating how investors trust Usiminas. The resources of this issuance were used to the buyback of part of the bonds that mature in 2026. And with this, we extended our debt profile. In addition, we closed the quarter with the reduction of net debt and financial leverage. Finally, I would like to highlight the acknowledgment of our team for their engagement and the commitment together with the customers. Like for instance, the award of automotive business of 2024 in category Suppliers. This is due to a joint effort of servicing our customer, developing solutions focused on operational excellence, innovation and sustainability.

Thank you very much, and now I hand it over to Thiago, our CFO.

[Thiago Rodrigues, executive]

Thank you very much. Good afternoon to everyone. This is a brief presentation of the results of Q3 before our Q&A session. As Marcelo mentioned, the highlights of the quarter were high sales volume in mining and steel and the cost drop in steel that was the main factor that allowed us to increase margins and EBITDA. There was a cash relation of over BRL 3 million and the leverage index improved. We had a successful debenture issuance.

And we can go straight to the next slide with consolidated results. Here, we can see that during this quarter -- well, this was the best quarter in the year there was a significant growth in the net revenue that totaled BRL 6.8 billion, 7% above last quarter because of high level of sales that offset a lower margin in iron ore. The adjusted EBITDA was BRL 426 million with greater contribution to our results. And here, we increased our margin to 6%. Now with this recovery, operational results and improvement in the financial results, we reverted the losses of the last quarter. And we had profit of BRL 185 million during the period.

Now when we see our steel unit. Now according to the expectation, we increased significantly our sales volume that ended 1,126,000 tons because of the growth of 10% of the domestic market driven by good moment of family consumption industry, and this was the highest sales volume in the domestic market since 2021, and this reflected on the net revenue that went up 8%. This was BRL 6.2 billion, the highest level since 2023. Now the net revenue per ton was stable -- this is because of the transference of price in the industry. Now the adjusted EBIT showed a significant improvement, totaling BRL 378 million, the highest since the Blast Furnace 3 overhaul.

Now the main factor that improved all of this was the reduction of our CPV by 3% with gains of productivity efficiency with the stabilization of the operations after the overhaul of our blast furnace. You can see more details regarding the EBITDA assessment. The main factors, as we mentioned, are in the CPV and the COGS. And here, it's divided in 2 parts:

The first part would be the effect of exchange rate and raw material that contributed with BRL 63 million. I would like to hear -- and I would like to talk about the negative effect of the devaluation that was BRL 200 million.

Now the second part and was even more important would be gains due to efficiency that are within the BRL 124 million of consumptions. Here, we can see the benefits of the stabilization of the operations of Ipatinga with benefits of fixed cost, better field redilution of fixed costs, among other points.

We also gained BRL 19 million in other income and expenses and a delta of BRL 84 million due to nonrecurring effects and BRL 51 million are negative effects of the past quarter that were not recurring during this quarter and a positive effect of BRL 28 million in recovered taxes. And during the next quarter, we want to capture more cost -- more expense costs.

Now following for the mining unit. We had an increase in sales volume by 14%, the best operational performance of our operation, totaling 2.3 million tons, higher volumes together with other initiatives to control cost drop -- it contributed with 11%. This cost control is focus of our management after seeing volatile prices in iron ore's net revenue was [ BRL 660 -- this is because ] -- BRL 767 million and the best and the highest market discounts due to quality, this drop in net revenue per ton generated the EBITDA that ended the quarter at BRL 44 million.

Now our financial indicators. Here, we can observe that during Q3, we had an operational cash generation of BRL 518 million due to better results and also because of a drop of working capital of BRL 147 million. CapEx was BRL 202 million and continues slower than the -- what we had in budget. We are being very strict in negotiations, looking for productivity gains and lowering in costs. And this is why the disbursements are translated to the future. This is like the repair of the coke plant and the PCI project that was planned for the first quarter of this year, and we will start mobilizing the teams now.

This is why we reviewed our CapEx guidance to BRL 1.1 billion this year, but we still don't have the budget for 2025. We have an expectation that the CapEx of 2025 will not be different from what we had this year, that was BRL 1.7 billion. And with this, we generated a free cash flow of BRL 360 million. This reflects on our net debt and our leverage index that we will see on our next slide.

Therefore, we ended the period with BRL 5.9 billion in cash. And with an improvement in results, we reduced our leverage level from 0.8 of last quarter to 0.38 during this quarter. And as mentioned, on the right, we had the profile of the debt after issuing the debentures, and it was not only the highest volume, but one of the best spread captured by the company. And we bought back part of the bonds, reducing the volume that was expected for 2026, extending the debt profile. And now, we will see the maturity of the bonds in 2026.

Now this was a quick presentation. So now we can go to our Q&A session. Leo, you have the floor.

[Leonardo Karam, executive]

Thank you very much, Thiago. Well, we will start with our Q&A session. The first question would be for Miguel. This is about prices, Caio Ribeiro from Bank of America, Rafael Barcellos from Bradesco. Everybody wants to know more about prices.

My question is what are the prospect of steel prices for the upcoming month? Could you tell us how the revenue per ton is compared to the average of the quarter? And what is the adjustment expected for industrial players? I believe it would better to break out these questions. So please, let's start with this first question.

[Miguel Angel Camejo, executive]

Well. Thank you, Leo, and thank you, everybody, for the questions. Regarding price prospects, we transferred the price increases during Q3, both in distribution and the industrial contracts that were updated throughout the quarter. So in this sense, we've observed an average price in the domestic market impacted by lower sales mix. But all we hear, we are -- we have adjustments in distribution and industry, the price of September that regarding the net revenue for next quarter was close 1% above the average price of the quarter, of course, following all the adjustments throughout the quarters that were mentioned.

Now regarding industrial customers, as we also have informed, the industrial sector has adjustments depending on the contract on a quarterly, or on a semestral basis, and they follow the trend of the prices transferred to the distribution. So during Q4, we can expect a similar adjustment to that, that was carried -- performed in the distribution sector.

[Leonardo Karam, executive]

Thank you, Miguel. Igor wants to know what is the likelihood of transferring this to the customer portfolio. He says that the industrial sector is reluctant because of the penetration of import products. Does it make sense to expect for a more seasonal moment? And Rafael wants to know about the price of flat steels.

[Miguel Angel Camejo, executive]

Now regarding the industrial contracts, as I mentioned beforehand, the price adjustments were transferred in each contract that was updated throughout that quarter and throughout the month of October. Now regarding price dynamic, I can't remember what the other question was. Regarding distribution, what can we expect for the upcoming quarter? Well, the definition of prices or our price policies or adjustments or increases that were defined have been totally transferred. So we could expect when we talk from per segment stability with the current prices that are being practiced during October.

Now regarding the price dynamic of flat steel, we continue monitoring all the variables that can impact our price equation that on one side has all the raw material, the impact of our cost; and on the other side, the international market dynamic, as Marcelo stated, although it is pressured by the surplus of Chinese steel, it is true that we have trade defense mechanisms adopted by regions. Now China is the main target of trade defenses; [ 224 ] measures are being adopted according to the latest data that we saw from Aco Brasil. So we continue monitoring. We will update you regarding our price policies regarding the evolution of these variables in the upcoming months.

[Leonardo Karam, executive]

Thank you, Miguel. Our next question for Thiago. Also, a number of people want to know about CapEx. Caio Ribeiro from Bank of America; Gabriel Simoes, Goldman Sachs; Igor Guedes, Genial; Daniel Sasson, Itau; Ricardo Monegaglia, Safra; Barcellos from Barcellos; and Guilherme Nippes from XP.

In a nutshell, should we assume that the CapEx was cut now and it's postponed for 2025, which were the main canceled investment? And why did you cancel or delay this investment? How much CapEx did you not use? And if there is a change in the coke machine investment? And what kind of CapEx do you expect for 2025?

Just one thing, Chara, Igor wants to know what was the filter to select these projects? So Thiago, you have the floor.

[Thiago Rodrigues, executive]

I'm going to try to answer everything. And then I will give the floor to Marcelo. Number one, it's important to clarify that we did not cut our CapEx. No projects were canceled or on purpose were postponed. So yes, we do have a number of situations. I'm going to focus on the main projects that everybody is aware of. We had a budget this year, the beginning of the PCI project. The injection of dusted coal for pulverized coal for the blast furnace. And here, we initiate -- we expected to start this during the first semester.

We are just initiating the mobilization for the assembly. This is because -- well, it took us longer to negotiate the assembly contract. As I mentioned, we are being very criteria, seeing details because we want more productivity and we want to drop our costs in addition to expenses. So it took us longer to sign a contract. And this is why we had the delay at the beginning of the project. Now, Coke Battery 3, now that we started -- well, it continues fully -- in development, fully in operation. We had a slower execution in the beginning of the project because of the natural difficulties that you face when you repair a machine like a coke machine still in operation. We had to use part of the CapEx of this year's budget for next year. And in this budget, we saw a CapEx for Battery 4. And we still have not decided what we're going to do with this coke plant. This is another value that we have postponed for the future. So we haven't canceled anything.

We -- there was no specific filter to select projects to be postponed. This is part of the natural process when you execute a CapEx. And once again, this doesn't mean in our view that there will be an increase of CapEx next year. The expectation is to maintain this CapEx.

[Marcelo Chara, executive]

Also -- so to have the same CapEx as this year. Well, last -- during last year in July and as we've mentioned in a number of calls, we conducted a dream process of restructuring and transformation in our industrial operations. We started with the blow in the beginning of the operation, we stabilized Blast Furnace 3. This was an investment of almost BRL 3 billion, and the CapEx process is part of this deep review.

Why am I saying this? Because we have achieved a significant efficiency in the specification and also and the correct selections of what is executed and the follow-up of the investment executions with great gains of efficiency, the hot repair postponement. Why did we postpone it? This is because we had a deep discussion of technical specifications with the suppliers because in Usiminas, we have an excellent team that works with assembly that are top notch that allow us to see the different suppliers, and we were able to achieve great savings. And as Thiago just mentioned, as we have -- as there is an execution a bit different from what was planned initially for the beginning of this year, and this has allowed us to be more efficient in the execution, more predictable and much more effective when it comes to achieving our targets, and we have clear objectives in our investments.

They are connected to environmental performance, efficiency and cost improvement, and we want to continue aligned with a project that is a new gas pipeline that will allow us to achieve energy efficiency and other smaller investments that are focused on improving the industrial performance and mainly the cost -- curtailing costs as a result.

[Leonardo Karam, executive]

Thank you, Marcelo. Our next question is for Thiago. Thiago about the Compactos project and CapEx. Caio Ribeiro wants to know if there is any decision regarding MUSA's expansion.

[Thiago Rodrigues, executive]

No update. We continue -- as in the last quarter, we continue developing the project in MUSA and we follow up the environmental licensing process that is the right pathway for a decision-making process. We expect a decision after the environmental licensing that probably will happen at the end of 2025.

[Leonardo Karam, executive]

Thiago, now our next question are regarding costs. A lot of people want to know about costs, and I will try to break them out in blocks. First one would be from Gabriel Simoes, Goldman Sachs. He said we've seen a drop of cost during this quarter. And you said that you expect a new reduction on Q4. Would it be interesting to tell us how much change is connected to the prices of your industrial inputs? And how much is connected to the operational improvement?

[Thiago Rodrigues, executive]

So now regarding the next quarter, it's always difficult to say what the effects will be because there are a number of variables that impact the COGS, so I'm not going to dare to tell you what is the variation per price or per efficiency. Our expectation and what we observe is COGS drop more or less at a level similar to what we saw from the second to the third quarter. It's also going to depend on other factors that we cannot control like exchange rate. That is the best answer that I can give you.

[Marcelo Chara, executive]

And strengthening what Thiago just stated, we are working with a long-term project that goes in stage, and we have quick wins. We have mid- and long-term gains. And what we feel is that we are consolidating the industrial operation with comparative indicators, and we have the competitiveness programs with 100 actions that directly impact the cost performance. And this program is up and running, integrated with all the teams and all the company's areas with the systemic operation in order to consolidate the industrial performance and competitiveness. It is something that we control, and we have to be focused on them.

[Leonardo Karam, executive]

Now, but Thiago already mentioned this. We got Tathiane Candini from JPMorgan. Well, they want -- should we should we expect gains of efficiency similar? And if we expect efficiency improvement for 2025, this would be it?

[Thiago Rodrigues, executive]

Now regarding 2025, once again, it is very difficult to say what the expectation is. So the level of cost reduction from Q2 to Q3, and we expect to see from Q3 to Q4, these are levels that are higher because we are stabilizing our operation with the operation of Blast Furnace 3. After that, we will see continuous improvement. We see and we believe that we will improve efficiency gains with Blast Furnace 3, but the effect here would be in the long term. So this is an effect that is diluted through time.

[Miguel Angel Camejo, executive]

And I would also -- as I already mentioned, our competitiveness plan that has a significant -- that has significant initiatives aiming at the mid and long run? My answer is yes, we will continue growing. We had quick wins during the first year, and we will continue capitalizing on this, but we do have a robust program of efficiency improvement and competitiveness improvement that will incorporate actions in the mid-run. Therefore, our expectation is to continue improving our competitiveness for next year. We have important initiatives to conduct this. So we feel reassured that we will gain efficiency, and we are already perceiving this.

[Leonardo Karam, executive]

Now still about cost. Ricardo Monegaglia wants to know if there is a currency appreciation, can we see COGS per ton higher than the quarter? So we will have a drop throughout the quarters, even if we're dealing with the same exchange rate. Well, did you see the exchange rate effect between Q2 and Q3? You know the magnitude and the impacts.

[Thiago Rodrigues, executive]

Well, if we have an exchange rate at the current level, let's see -- it's BRL 5.60, BRL 5.70. We still we see a COGS dropping during Q4. At the current level, yes, we believe in cost reductions. Let's see. Let's see what is going to happen.

[Marcelo Chara, executive]

The exchange -- we cannot control the exchange rate, but we can control the rest. We are working. We are developing our management dynamic to be robust before any exchange rate. I say this because, of course, the things that we cannot control like exchange rate impact the entire economy. Now the inputs that we buy in dollars and that Brazil imports, well, clearly, they generate an inflation effect, inflation or deflation. If it appreciates or depreciates, but our focus is to be competitive with whatever exchange rate we have. We are prepared. Our management dynamic is to focus on what we control so that we are more efficient, more competitive. And this is what we trust. We are confident about this.

[Leonardo Karam, executive]

Well, our next question, Marcelo, would be about slabs. Igor Guedes wants to know, for Q4, you expected us -- I'm reading wrong. No. What can you do in the short run to mitigate the impact of the partial dependency that you have buying slabs from third parties?

[Marcelo Chara, executive]

Well, clearly, there are 2 drivers that are important in our sites where we use mainly Cubatao, we have a program of industrial efficiency extremely efficient. And the team is developing an exceptional plan to improve the efficiency. And yes, we have benchmarking information. And here, we can verify that our Cubatao hot roller machine has exceptional competitive levels when we compare it to other industrial performances. And what is important is to our improvement -- is to improve our industrial operation in Ipatinga so we can balance Ipatinga supply and we can use some specific niches. And when we increase Ipatinga's production so we can transfer part of the slabs to the Ipatinga plant. But the secret here is to be extremely competitive in our industrial operations wherever we're able to capitalize this competitiveness with a level of efficiency that offer offsets this deficiency or this difference in the net steel balance.

[Miguel Angel Camejo, executive]

If I can. What is important here is to highlight the good relationship and that we have with our slab suppliers in Cubatao. And we see no risks in the mid- and the long-run. So -- in the short- and mid-run we have regular supply both from local suppliers and international suppliers, and we have -- we attained excellent service levels through our Cubatao plant.

[Leonardo Karam, executive]

Our next question for you, Miguel. I'm going to break it out. These are about exports. But Igor Guedes from Genial wants to know. For Q4, you mentioned a slight drop in the sales to the domestic market, partially offset by greater export sales. In your view, this greater export sale, is this an opportunistic? Is this opportunistic due to the exchange rate?

[Miguel Angel Camejo, executive]

No, it's not connected to drastic changes or opportunistic opportunity. The fourth quarter always presents seasonality in the different sectors. This could be automobile distribution industry. And our opportunities for exports; well, we analyze and we're always paying attention to the export opportunities during any quarter. Well, we may see throughout time better or worse opportunities in terms of profit. And during Q4 we are being able to achieve a good level of export that can offset the seasonality of the domestic market. Of course, focused on our target markets, that would be Mercosur and the North American market.

[Leonardo Karam, executive]

Thank you, Miguel. Now still about export, Argentina. Now the Argentine government is announcing measures to facilitate import due to your proximity with the Argentine market. Could this facilitate the situation? Is there any perspective to export a mix with a higher added value, very similar for the [ Nica ] pipeline?

[Miguel Angel Camejo, executive]

Igor, well, as a matter of fact, we participated regularly in the Argentine market in the automobile industry that maintains the regularity -- and on the other side, the oil and gas sector. Now especially in the oil and gas industry, we see a greater level of activity, which can generate greater opportunities of business in the short- and mid-run. We are negotiating a number of projects that are being publicly announced in Argentina, and we expect to receive good news in the upcoming quarters about these projects.

[Leonardo Karam, executive]

Thank you, Miguel. Thiago, our next question about mining from Igor Guedes, Genial. He says regarding volume, the volume of shipment was higher than expected above the quarter of the quarter Q4 has improvements with treatment units disconnected with increase of 13%. Do you see a sequential improvement because of the normal seasonality effects? Or what happened?

[Thiago Rodrigues, executive]

What today limits the production in MUSA is the ITM that doesn't operate because the fronts that feed this ITM aren't in operation. There is a limitation of the other treatment units to produce the iron ore volume. It is not the organization that is going to produce the capacity. What will? What we need are the mining fronts that will feed the ITM that is disconnected. This was a one-off increase to go back to the past level. We have to continue with the extraction.

[Marcelo Chara, executive]

As Thiago mentioned, we carried out a deep cost reduction plan. When we rebalanced cost, we harnessed the stocks that we have in different sites and this allowed us to improve our performance. And in addition to this, now we are embarking in the rainy season, where seasonally there is a drop because of the complications that result from the rains. But yes, we are focusing on all the processes. The licenses are already approved that during '25, especially during the second semester, well, the East ITM will be activated.

[Leonardo Karam, executive]

The next question for Thiago about the mining unit. Ricardo Monegaglia from Safra, what is the trajectory of the mining breakeven? What are readjustment measures in the operation? If the iron ore price goes to $90 per ton or lower levels, what will happen here?

[Thiago Rodrigues, executive]

Well, Ricardo. Well, we generally we do not disclose the iron ore break even. You know about this, and we always state that there is flexibility regarding the break even within the MUSA operation. Different operations have different breakevens and we can reorganize. Our operation in order to adapt it to the current price. As mentioned, a number of initiatives were adopted in order to curtail the cost during the period of a volatile price of iron ore and the main initiative are moving material among different plants and gain of productivity and operational performance of the ITMs.

[Marcelo Chara, executive]

I don't know.

[Thiago Rodrigues, executive]

If Marcelo would like to say something.

[Leonardo Karam, executive]

Thiago, one more regarding capital structure. Edgard Souza, Itau wants to know the following. If you could give us the details about the -- what is -- what operational results do you expect for 2025 with controlled CapEx and better carryover of costs? Does the current leverage level makes sense for the company?

[Thiago Rodrigues, executive]

Well, Edgard, currently, we don't expect any significant change regarding our capital structure. We're initiating our budget process for next year, and we will have a clearer view regarding results, cash generation and capital structure of the company. So currently, we have nothing to comment regarding any type of changes.

[Leonardo Karam, executive]

Marcelo, another question. Now regarding quotas, Guilherme Nippes from XP, if you could give us details regarding the import tariff impact, if you expect more measures from the government?

[Marcelo Chara, executive]

Well, China drops the steel domestic consumption. And practically they don't reduce the productive level, this is a surplus that they don't consume goes to the export market and they're inviting all the markets -- invading all the markets. In Brazil, China increased it exports 21% vis-a-vis 2023. All the regions have adopted protection measures against China and this is known in the U.S. There is a harsh quota and in addition this quota has 25% of direct rates; and other regions are doing this like Europe, Great Britain. Well, all the markets have responded. Brazil gave an excellent response. The government responded excellently and they placed a tariff and a quota based on an average consumption of 2021, '22 of 30% and 25%. As of -- this started in June and the measures aren't effective because the level of import is 15% above last year. Out of which, we have excellent dialogue with the government.

We have to be intelligent in the industry. We have to work and team and to see a common good and to defend the jobs of Brazilians. This is an invasion. When I say that import penetration above 20%, there is an Usiminas right beside us, but with the Chinese flag. So we are giving jobs to the Chinese worker and our Brazilian workers are losing their jobs. This is defense. This is a matter of defense. This is what the other economies are doing, trying to defend their industries. So our expectation is to convey this to the authorities, to work in team with the value chains. Because what can be a business for very few in the import process and the sales of this product can be a great evil for the entire society when we see it as a whole. And we do trust on the technical capacities of the authorities that are helping us to identify cases of dumping. Because this is of public knowledge. There are cases that are registered and we trust.

We trust the technical capacity, because the cost indicators -- I mean, over 60% of the -- of steel industry are connected to the cost of carbon commodities. If you -- Chinese industry are exporting with the loss, all this information has been given to the authorities. We trust their technical capacity because they have excellent teams assessing this entire issue. So that we're able to establish barriers, defenses to this invasion in a nutshell. We trust that we will be able to change the quota and the tariff, because what we've done have not offered any results. And we hope to have concrete measurement or defense measures to control this antidumping.

[Leonardo Karam, executive]

So Rafael Barcellos from Itau (sic) [ Bradesco BBI ] and Gabriel Simoes from Goldman Sachs wanted to know more about antidumping. What is the situation of the antidumping measures? And how you see the situation? And how will this impact the imports if these measures are adopted?

[Marcelo Chara, executive]

Just one other thing. It's -- this is not only a problem of unfair competition. When you see the deficit in the industrial trade balance of Brazil. Well, practically it fourfolded in the last 10 years. We are at a deficit level of manufactured products, which is deep. This is a severe problem. There are a number of sectors that have been affected. Machines, the automobile industry, a lot of durable goods, and many products; not only that use steel, but everything regarding industrial manufacturing. And this is affecting the Brazilian jobs. So this is very sensitive.

And together with all the value chains we have to articulate, working and team being rational with a deep view. Because we have to defend all the countries value chain without losing competitiveness. We want to level the playing field because it's totally unfair when we think about these products. This is why it is important to pay attention and to provide an institutional executive response to the situation.

[Miguel Angel Camejo, executive]

Just one thing regarding the dumping process. Of course, there are 2 open processes. One regarding, [ BinafRo ] and the other to recover -- [ recoding ] now also metallic sheets. We believe that there is some technical support and that the investigations will base themselves on technical facts. These are tools issued by WTO. And we expect this to be adopted as soon as you confirm unfair competition. What impact do we expect if we apply antidumping measure to these imports that present unfair competition? We expect a drop of imports and greater business opportunities for local industries.

[Leonardo Karam, executive]

Well, our Q&A session has come to an end. I would like to thank Marcelo, Miguel, Thiago for this live session. And we thank all of you for your participation. Should you have any further questions, our IR team is at your disposal. Thank you very much.

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