GCC SAB de CV

BMV:GCC

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, and welcome to GCC's Second Quarter 2022 Earnings Call. Before we begin, I would like to remind you that this call is being recorded, [Operator Instructions] Please also note a slide presentation accompanies today's webcast. The link is available on the company's IR website at gcc.com. At this time, I would like to turn the call over to Sahory Ogushi, Head of Investor Relations. Please go ahead.

[Sahory Ogushi;Investor Relations Analyst, executive]

Good morning, everyone. Welcome to our second quarter 2022 earnings call. We appreciate your interest in GCC. Joining me today are Mr. Enrique Escalante, our Chief Executive Officer; and Luis Carlos Arias, Chief Financial Officer. I encourage you to read our cautionary statement, which is described here on Slide 2. Please also note that all materials from today's call are also posted on GCC's website. Now I'll turn the call over to Enrique.

[Hector Enrique Escalante Ochoa, executive]

Thank you, Sahory, and good morning, everyone. Turning to Slide 3, please. GCC achieved another outstanding quarter, including on solid first half of 2022 and a strong start to the U.S. construction season. The thread tightening, which began in March has been accompanied by an increased talk of a recession. And while it certainly proved that the U.S. economy faces a number of headwinds, none of these have been enough to stall U.S. recovery to date, particularly the positive momentum in our industry.

We saw unprecedented customer demand in both Mexico and the U.S. continue in the second quarter. GCC's consolidated net sales increased by 12%, reflecting increased U.S. cement volumes and Mexico ready-mix volumes in a uniquely favorable price environment for both markets. Today, availability of [indiscernible] and oversupply is simply not possible. We have maintained our approach to focusing on our loyal customers to ensure uninterrupted supply and have been extending ourselves throughout our organization to service our customers in today's exceedingly tight market. And we are going to help new customers when our peers run short of supply once ensuring our own client supply was guaranteed.

GCC is primary focused and also challenged. Therefore, it is to address this extraordinary demand for our products while moving our backlog despite today's substantial obstacles. Some construction projects have been slightly delayed due to the increased cost of raw materials, labor shortages and supply chain and logistics bottlenecks we have cited previously, particularly in railroad transport. This, of course, limits the speed at which we can move our backlog.

These are industry-wide challenges and GCC's vertical integration of raw materials and coal continue to be an important competitive advantage to lower our cost and mitigate fuel price volatility. However, during the second quarter, we too were struggling with fuel cost and pressure margins. During 2022, we've been switching to a new reserve at our coal mine which, as a result, decreased coal production during the first half of 2022. We are, therefore, being unable to ship our own coal to GCC Mexico plants. Therefore, we will continue burning purchased third-party coal in Chihuahua and Samalayuca through October 2022 when both Samalayuca and Chihuahua will be converted back to GCC coal.

Third quarter results in 2022 will still reflect purchase call for fuel at this plant with costs going down during Q3 as we switched back to GCC coal. Moreover, our natural gas hedge fully covers our Odessa plant's consumption through 2022. And one of the steps we have been taking to mitigate inflationary impacts and cost increases on our fuel. Monthly prices have previously been negotiated, all of which are below market price. Note that Odessa plant is the only GCC plant that runs 100% on natural gas.

Planned maintenance outages should also improve efficiency and help to further reduce fuel costs, gas consumption and related purchasing. It is important for me to comment here that while the use of coal provides an important advantage in the current environment, we are fully committed to our vision of mining our coal reserves to depletion by 2035. We have increased our focus on implementing a flexible fuel approach throughout all of GCC kiln system to maximize biomass, natural gas and transformational fuels such as hydrogen as they become available.

GCC is working with local and regional companies, regulators and state agencies to ensure our flexible fuel mix is available now and in the future. To share some examples of our innovation in this regard, in Puebla we burn tires as a low-carbon fuel, which produces the same amount of energy as oil and 25% more energy than coal, and railroad ties as biomass. Our Rapid City plant is pilot testing the use of replacement material derived from tires and using railroad tires and even corn as biomass. All of these examples are an alternative to consuming coal for future energy, underscoring our progress in moving away from fossil fuels to biomass. We remain fully aligned with our ESG commitments and are tracking on our stated goals.

Turning to a brief discussion on cost and pricing. We have announced that GCC introduced second price increase of $8 per tonne on construction cement starting July 1. This was one month earlier than our second price increase in 2021 as we are responding to growing cost inflation pressures and market conditions. We saw no pushback from our customers who, again, are more focused on ensuring that uninterrupted supply as a priority. Further, a $15 per tonne price increase for oil well customers begins on August 1.

We remain vigilant of nuances and changes in the economic and market environment with continuous and direct dialogue with our customers on the cost inflation challenges, and will implement further increases whenever necessary to preserve and improve our margins. And regarding wages, GCC had 2 unique contracts to negotiate this year. Rapid City negotiations concluded resulting in reasonable terms. Negotiations at Trident are still ongoing, but also under terms which we view to be fair. All noneconomic clauses have concluded and economic terms are the only pending item.

My team and I are expecting this to be in line with inflation levels and nothing out of the ordinary. Also related to labor, while the number of Americans filing new claims for our employment benefit continues to fluctuate, to-date GCC is currently fully staffed in ready-mix transportation with pending positions largely only for certain specialized positions, particularly environmental engineers.

Let me turn to a brief review on our markets, starting on Slide 9 with our U.S. operations. U.S. sales represented 74% of GCC's 2022 second quarter consolidated net sales, increasing by nearly 13%. We again saw high demand for our products and strong trends in industrial real estate construction and oil well drilling in response to current fuel volatility. Average GCC kiln remains up and running to produce cement, and our operations teams are focused on maintaining operations and increasing terminal throughput.

According with the last PCA forecast released in May, U.S. residential construction will grow almost 2% in 2022 compared to 12% increase in 2021 beyond the short term to fundamental through housing demand appear relatively soft. We are beginning to see a few signs of residential construction slowing down. However, we expect that the residential slowdown would be offset by the increasing projects resulting from the infrastructure bill. GCC continues to maintain our historically prudent approach and remain vigilant of opportunities and changes in the U.S. market and economy.

Regarding our Odessa plant, oil well cement demand in the Permian Basin was again very strong during the quarter, with oil prices increases, strong drilling activity and the search of demand, which further boosted this segment in Q2. Odessa is still running at full capacity with supplemental cement from the Chihuahua plant.

Briefly touching upon the Infrastructure Investments & Jobs Act, there are no relevant recent updates to share. States and duties are preparing for funding and projects are, therefore, running at a steady but lower pace than the past year. As we have noted, this represents substantial cement demand, which will start to resonate in late 2023. As a comment, potentially cooling housing demand would enable GCC and the industry to prepare ahead of the massive infrastructure-related demand we foresee in the future ahead related to the common infrastructure bill. As a small example, we just learned that the Denver Airport will receive an additional $60 million investment coming from this bill.

Turning to GCC Mexico operations. We saw continued strong performance in this market. Mexico sales represented 26% of GCC's consolidated net sales, reflecting a more than 8% increase in the second quarter of 2022. Our Mexico cement business was adversely affected by a difficult comparison to the second quarter of last year when bag-cement sales increased to COVID related quarantine and work from home. However, we saw strong second quarter '22 demand for construction cement related to industrial real estate driven by nearshoring. I would like to point out that Mexico operation's close proximity to the U.S. market means that every cement tonne not sold in Mexico is being exported to the state, leveraging GCC's advantaged distribution network.

Turning to Slide 13. We shared some details on our work related to blended cements to reduce our clinker factor and expand the range of our products as part of GCC's sustainability toolkit. Samalayuca is now producing and exporting important limestone cement to the U.S. as part of our plan to expand our PLC shipments. Additionally, Rapid City began shipping PLC to the Minnesota market on July 1. As a reminder, the Montana cement plant was fully converted to produce only Portland Limestone cement this year.

Our blended cement enables us to increase our product offering to meet anticipated customer demand. The increased production of blended cement will reduce our clinker content from its current 88% to a minimum of 80% by 2030.

We are very pleased with GCC's second quarter results for 2022 and are focused on producing, optimizing our operations and move [indiscernible] over in demand. Luis Carlos will review in detail momentarily. Despite our planned strategic CapEx investments, GCC maintains considerable balance sheet strength that has enabled us to capture the right opportunities in today's unprecedented market conditions.

With that, let me now turn the call over to Luis Carlos to review the quarter's financial results, and I will return for some brief closing comments.

[Luis Carlos Arias Laso, executive]

Thank you, Enrique, and good morning to everyone. Turning to Slide 15, consolidated net sales for the second quarter increased by 12%. This was mainly driven by the increase in cement volumes in the U.S. and ready-mix volumes in Mexico, along with better prices in both markets. This was partially offset by lower ready-mix volumes in the U.S. and lower cement volumes in Mexico, reflecting reduced demand of bag cement.

Moving to Slide 16. Cost of sales as a percentage of revenues increased 2 percentage points to 69% in the quarter, mainly reflecting unfavorable cost of production and production expenses. We increased fuel price in Mexico as well as higher freight costs and increased supplementary oil well cement shipments from Chihuahua to the Odessa plant which have a lower margin than the rest of cement sales.

SG&A expenses as a percentage of sales increased 10 basis points in the quarter to 7.3%. As a result, as you can see on Slide 17, EBITDA increased 3% year-on-year, while the margin contracted 280 basis points.

Turning to Slide 18. Net financial expenses decreased almost $6 million to $4 million in the quarter due to higher financial income and a decrease in the effective interest rate as well as a lower debt balance and a positive foreign exchange effect on GCG's cash position. Moving to our bottom line. Consolidated net income increased 11%, while earnings per share increased 12% in the second quarter.

Turning to our cash generation on Slide 19. Free cash flow increased 58% to $65 million in the second quarter. This was mainly driven by lower maintenance CapEx, interest expenses and working capital requirements as well as higher EBITDA generation and lower cash taxes. I would like to note our continuous improvement in working capital management by controlling payables, receivables and inventories. Based on the last 12 months of sales, we reduced days in net working capital from 58 to 47, an 11-day total decrease.

Turning to our balance sheet on Slide 20. We ended the quarter with $645 million in cash and equivalents. Our net debt-to-EBITDA ratio remained in minus 0.4x at the end of June, reflecting once again our very solid financial position with leverage ratios significantly below the industry's average.

Turning to our organic growth projects on Slide 21. We continue to make incremental progress on our Samalayuca debottlenecking project, which is under construction and are on track to meet the deadline of 200,000 metric tons by mid-2023. This incremental demand will provide a short-term relief for our cement output.

I am also pleased to announce that we are underway on an expansion at the Odessa plant that will increase capacity by over 1 million tonnes and lower our greenhouse gas intensity by 13%. For the past year, we have been assessing the West Texas cement market to define the optimized scope of equipment and technology and working with original equipment manufacturers and construction suppliers.

We have decided to execute the product at the Odessa plant since the market is developing faster in the U.S., and it represents large freight sales. This expansion will optimize the cost structure and GCC's cement network by relocating cement ship today to this region, Samalayuca, Chihuahua and the Pueblo plants. To other markets, we serve with optimized freight costs.

We have been negotiating with our vendors, and we are progressing on the project. However, due to the current market conditions, supply chain constraints, inflation and the project scope, we now expect to invest $750 million and to meet our milestone by mid-2025. The product has a double-digit investment in return and represents a strong value creation compared to our much lower work. We will send a press release in the following days with more detail.

Finally, in line with our commitment to continue increasing shareholders' return, a MXN 1.1 per share dividend payment was declared at our Annual Shareholder Meeting in April and was paid on May 17. This represents a 15% increase compared to last year's dividend payment. Along these lines, as we announced last quarter, in April we reactivated the company's share buyback program. Under this program, we can buy back up to 15 million of outstanding shares. In the second quarter, we repurchased 2.6 million shares equivalent to $17 million.

With that, I will now return the call over to Enrique for his closing remarks.

[Hector Enrique Escalante Ochoa, executive]

Thank you, Luis Carlos. Turning to Slide 24, I would like to take this opportunity to reiterate the fact that for the second half of the year, our cement business looks promising across the board. Our system is sold out, supported by a considerable backlog. And as I have discussed, GCC maintains a prudent approach for which we are known, while we remain vigilant to market and industry trends as well as potential opportunities. The near term remains very strong for GCC. We are expecting the strong shipments that we saw in the first half to continue as the underlying trends of GCC's business remain favorable. Therefore, we are revising our guidance for the full year.

We now expect U.S. cement sales volume to increase mid-single digits and concrete sales volume low to mid-single digits year-over-year. In light of the announcement we have already made, coupled with tight supply and demand dynamics, we anticipate a double-digit price increase in cement, while we expect concrete prices to increase low single digits.

In Mexico, cement sales are being adversely affected by a difficult comparison in bag cement sales. Thus, we expect cement sales volume to remain flat. In the concrete business, we anticipate a high single to double-digit volumes increased year-over-year. We anticipate another year of price increases in the mid to high-single digit range for cement and concrete in Mexico.

Regarding profitability, we expect 2022 EBITDA to increase high single to double digit against 2021 level. This implies a range of USD 365 million to USD 371 million. We revised our capital expenditures at $140 million, including $60 million allocated to the relevant strategic and growth projects already described, $65 million related to maintenance expenses and $15 million carried over from last year to the current year. As a result, free cash flow conversion rate is going to reach above 60% and a net EBITDA ratio, which would remain negative.

With that, this concludes our prepared remarks. Let's now turn to your questions. Operator, please go ahead.

[Operator]

[Operator Instructions] Our first question comes from the line of Adrian Huerta with JPMorgan.

[Adrian Huerta, analyst]

My question has to do with the Odessa plant expansion. So, number one is, what was the rationale for going for Odessa instead of an expansion in Mexico. The second question is, can you send construction cement elsewhere from Odessa in the case that demand for oil cement comes down when you have this plant ready. And the last question regarding this plant expansion is if you had this expansion ready today, what would be the difference when your cost per tonne versus the existing capacity that you have in Odessa.

[Hector Enrique Escalante Ochoa, executive]

I will answer 2 questions in the order you asked them. First, I mean, Odessa expansion, of course, in light of everything that to settle this cost of the current economic cost inflation, et cetera, we revised again why Odessa would be a better value-creating option than other GCC plants in Mexico. And the answer is that we confirm that basically because of, I mean, the freight costs involved, I mean, to move cement to the markets that are really growing in Texas, it's much more convenient to build, I mean, the plant in Texas -- in Odessa in this case.

The plant, of course, will be prepared and it's flexible enough to produce either oil well cement or construction cement. All of the first few years are more focused on oil well cement because we still see a growing demand in the Permian basin. Again, given all the energy -- I mean, crisis everywhere. It is expected that the Permian Basin will remain the most competitive oil producing region in the U.S. for many years. So initially, it's going to be mostly oil well cement. But of course, as you know, this is a very cyclical industry. And in many days, I mean, we can go through a cycle which we would be required to switch to construction cement with no problem at all.

We have your third question, if we have the plant build I mean today, our expectation is that variable costs would be in the neighborhood of -- depending on the class of oil well cement that we will be producing from $8 to $9 below our current costs with maintenance savings of around $10 million for the year. So, there is a little bit of increase in fixed costs with some additional people in the core reside, but that's, of course, easily absorbed by the leverage of the additional production of the plant. So very good perspectives for us in terms of a much lower cost plan than what we have today in the region.

[Luis Carlos Arias Laso, executive]

Just to complement what Enrique is explaining, there is a huge impact of operating leverage on this project because we currently have this planned with a low production capacity at around 400,000 to 500,000 tonnes. But we have almost full maintenance expenses. So with this increased capacity, we're going to take advantage of the operating leverage of running this plant but with a much larger production capacity. So it's the combination of what Enrique explained about less variable cost, the reduced freight. And as I explained in my remarks, we will substitute cement that is going from other plants to this region, but we will free up that cement to closer -- to markets that are closer to those plants. So it is a combination of several factors that gives us a very good return on this project.

[Adrian Huerta, analyst]

And just one other quick question. And when you say over 1 million tonnes, could it be 1.2 million, something like that? And is this just cement or is this clinker capacity?

[Hector Enrique Escalante Ochoa, executive]

The new capacity of the new kiln is 1.3 million tonnes. That's the plant's new capacity, the capacity for the new kiln. In the process, we have to shut down kiln #1 today because that's the basis for getting them in the emissions permit to shut down the less efficient, smaller kiln and allocate those emissions to the new kiln. So the total incremental cement capacity for the unit considering, I mean, the new kiln and the existing kiln #2 is going to be around 1.1 million to 1.2 million tonnes.

[Operator]

Our next question comes from the line of Nikolaj Lippmann with Morgan Stanley.

[Nikolaj Lippmann, analyst]

A couple of questions, if I may. First, on the expansion. Can you talk a little bit about any sort of additional any investments that you would have vis-a-vis in terms -- just in terms of your carbon footprint, will there be any sort of optionality for carbon storage or is it simply a more -- just a more efficient plan? Also, can you talk about whether you have the contracts in place with some of the key components, such as the kiln and the milling and the just the construction of that, just to have a sense of the time frame.

And finally, I was just intrigued there, if you would be able to take that old kiln, is that even possible, maybe move it to Montana at one stage. And then on operations, just to wrap this up, sorry. Can you give a little bit more color on the market dynamics down in Mexico? Well, it looks like there is -- it looks like you're taking guidance down slightly increasing slightly in Mexico -- sorry, in the U.S., but can you talk a little bit about what's going on in Mexico and if you're seeing a little bit of weakness in any spots there?

[Hector Enrique Escalante Ochoa, executive]

Good morning. We'll start obviously again on the same order that you placed your questions. There is no investment today in this new line in respect to carbon capture. We are not sure yet what's going to be the most efficient carbon capture technology for this plant in the future yet. So, what we're doing is that we are living and enough spaces in the plant design so we can accommodate either technology that will be, again, the winner in the future as the best or more optimal solution for capture technology in the plant. So, we're just preparing for that, but we're not including any specific dollar investment at this day in this regard.

In terms of the contracts, the government explained, we have been negotiating contracts with OEMs and contractors, we have not a definitive contract yet, which we're doing on purpose because we believe that some of the more important inputs for a project like this, let's say, steel, for example, are now trending down in price. So we are, of course, going to take advantage of those trends to, of course, optimize the total investment of the project, but we expect, I mean, to shortly have I mean, the definitive contracts in the next few months. I must say that we started some construction regarding to the project to make sure that, I mean, our permit in the area was completely secured. And so we have started some -- moving some and doing some foundational work.

So we're moving well ahead on our schedule. However, the delays caused by the supply change, inflation and other factors, we are not targeting the second quarter of 2025 as a start-up date for the new line. In terms of the old kiln #1 that it's going to be shut down, we don't think it's a realistic expectation today to move that kiln somewhere else. Of course, we will be vigilant to opportunities like that, at least for some of the equipment related to that line in the future. Let me now turn to your question on Mexico dynamics. Mexico and when I say Mexico for us, it's Chihuahua state, it's still very strong, and it responds mainly to the level of activity in the United States.

So as long as the economy in the U.S. continues to run strong Chihuahua will follow the same pattern. We do have today a slowdown on bag cement as we said, because we have a difficult comparison and due to COVID and, of course, inflation in this year, so bag cement below last year. And webbing the mining sector a slowdown in 2 mines that change, I mean, the process in which they are utilizing, I mean, cement. But now we're looking at a second half that is going to be, again, more consistent and growing going forward in this segment.

So we see this as temporary effects that will keep us flat, I mean, for the rest of the year. However, relating to what I was saying about the tight marketing cement between Chihuahua state and U.S. economy. We have run a correlation of our last year's cement demand in Chihuahua state compared to our cement demand in our U.S. markets, and it's very high. It's around 0.8 correlation there. So that's why, I mean, even though Mexico as a country can be behaving in a different way, we think Chihuahua cement demand will still be strong long term, especially for all the mean additional investment that we will continue to come to the border states because of the new shoring and the trade agreements, I mean having and continue to fuel investment on both sides of the border. So that's how we in Mexico. I hope I answered your question.

[Operator]

Our next question comes from the line of Vanessa Quiroga with Credit Suisse.

[Vanessa Quiroga, analyst]

The first one is on POC. If you can tell us at this point, what percentage of your total capacity you think can be POC I mean, what's feasible both technically but also commercially. And the other question is another follow-up on the Odesa project. Will you have to shut down the old kiln while you're working on the expansion or will you be able to continue operating the existing kiln while the project is ongoing.

[Hector Enrique Escalante Ochoa, executive]

I'm going to answer your question on Odessa first. I mean just to me link it with the previous comments, and then we'll have read the first question. No, we are not going to shut down absolutely anything of the current capacity of the plant until we start up with the new kiln. So, both kilns will continue running at full speed during construction. So, we have enough space in the plant and we are planning the project at that way. So, we don't lose, of course, any market during construction. Now I think I couldn't hear well. I mean, your first question, you said, DOT or PLC?

[Vanessa Quiroga, analyst]

PLC, yes.

[Hector Enrique Escalante Ochoa, executive]

Okay. So, PLC, the Montana plant it is fully converted, I mean to PLC. So that was done during last year and this year, in July, now we're running 100% in PLC. Rapid City plant started with conversion this summer. In July, we started shipping all the cement that we ship to Minnesota, more specifically the Minneapolis Saint Paul. But I do know, it's probably -- it's going to be the largest market for this plant in the future. So that has been fully converted in this month. We're in that process but customers, I mean, of course, I'm not aware and expecting, I mean, only PLC cement from us in this market going forward. The Pueblo plant in Pueblo, I think we are addressing past conference in the Q&A process that we were repairing a silo in the plant that was done, the silo was commissioned back to operations in June of this year.

So we will start converting Pueblo in the fourth quarter of this year. Samalayuca, I said also mentioned, was all the exports demand and it was fully converted also in July of 2022. So, the only plant that has not converted to PLC yet is that the Tijeras, New Mexico plant. And this is because we are producing already some [indiscernible] blended cement in that plant and first, increase the capacity of production of that type of cement, which, in our opinion, is a better solution for that market being the high alkali reactivity in aggregate in that market. So, we're trying to serve and optimize each market as best as we can. In summary, next year, we should have all GCC plants converted to PLC.

[Vanessa Quiroga, analyst]

All right. And does that mean that all customers have accepted this product instead of the traditional one or will you still be making a mix of both?

[Hector Enrique Escalante Ochoa, executive]

We are transitioning in different plants, different markets. But once we start shipping to a specific region, I mean, we fully convert because it's difficult because of silo capacity both at our end and the customers end to maintain 2 products. So, this has been this cost with customers and the better way to do it. But once it's converted, I mean, it goes and, in our opinion there's no way back.

[Operator]

Our next question comes from the line of Francisco Suarez of Scotiabank.

[Francisco Suarez, analyst]

The question that I have is what is your assumption of clinker factors for the new capacity and your expansion in Odessa? Is that linked more related to oil well cement clinker factors or what do you expect on that? And also, a second question on my end is, have you seen on your own operations on the operations of your clients? Any disruption related with the water related defense and the scarcity of water in the Midwest and Northern Mexico.

[Hector Enrique Escalante Ochoa, executive]

On the Odessa project, clinker factor today, we have been conservative in the way that we plan this project, and we're not including blended materials in this case because we don't have today the experience in the oil well cement with the lower clinker factors. So, we are kind of on the conservative side and of course, we're going to explore with customers. And we have been doing some research with some customers in light of the need to lower the clinker factor in the plant. However, I would say that, of course, just because of the change in technology with a much more modern line, we are to be, I mean, decreasing more than 110 kilo -- with the combination of the new kiln 3 and current kiln 2 in plants. So, there are definitely benefits there in terms of lowering our carbon footprint and moving in the right direction, but the blended [indiscernible] pending for us to understand better. In terms of water, I have not heard of any significant issues related to water for [indiscernible].

[Operator]

Our next question comes from the line of Laisha Zaack with GBM.

[Laisha Zaack Carrillo;GBM;Financial Analyst, analyst]

I have 2 questions that I would like to ask. One is related to CapEx. So just wondering if you could give us more color on why the strong decrease? Like is it because of the negative outlook or I don't know if that has to with unfavorable pricing or maybe just like the supply chain or labor-related issues? That would be my first question. And the second question is related to the expansion. So, you mentioned you will not shut down any capacity at the moment or during the construction of the kiln, but you mentioned that you will be shutting down capacity, right? Once the new line is up and running, you will be shutting down some capacity to do to the optimization or can you clarify that, please?

[Hector Enrique Escalante Ochoa, executive]

No, there is nothing negative related to our decreasing in CapEx for the year. It's only this project in Odesa that Luis Carlos explained, has been delayed because of, of course, I mean, the negotiations and the plant design that we'll be going through and what I mentioned about now taking advantage of lower -- I mean, material costs going forward. So, it's just, I mean, that we've been not expanding as in the Odessa project yet as we, I mean, originally expected. In past conference call, we said that we were going to try to start up in this new line in the second half of 2024. Now we're looking at the second quarter of 2025. And so that push in time is what helps us basically decrease our net for CapEx, I mean, this year. In terms of the capacity after the expansion, yes, let me reiterate, as I said, I mean we have 2 kilns currently in the Odesa plant, kiln #1 and kiln #2. Both of them will run continuously at full capacity all the way until we start up the new kiln #3. At that moment, it's when we will shut down the kiln with all these technology kiln that we have in the plant.

[Laisha Zaack Carrillo;GBM;Financial Analyst, analyst]

So it's number kiln #1, the one that you will be shutting down, correct?

[Hector Enrique Escalante Ochoa, executive]

Correct.

[Operator]

[Operator Instructions]. Our next question comes from the line of Alberto Valerio with UBS.

[Alberto Valerio, analyst]

I have 2 points here. First, just to give a little bit more detail. So, the Samalayuca plant that we have land-off expansion of 1 million tonnes. This will be postponed and it will be just the 200,000 tonnes right for the moment into 2025. And for the demand, my second question, regarding the demand for the next 12 months, should we receive some gap on the demand between we see the housing decrease in construction of new homes in the U.S. and for the new infrastructure plan to really start that you guys said in the call that in the end of 2023. Thank you very much, and congrats for the results.

[Hector Enrique Escalante Ochoa, executive]

Alberto good morning, first on Samalayuca, the Samalayuca project is currently in progress not it whatsoever and what we decide in that project and for that plan. It's an expansion of the 200,000 tonnes that we announced, I mean earlier, and it's going well. It should be up and running by the second quarter of next year, about a year from now, at the most. And all those tonnes, I mean, we according to our model are completely absorbed already by the demand that we have in our markets.

So that's looking very well, and we're running a little bit delayed a couple of months of delay and with a very close, I mean, CapEx to what we, I mean, designed the project -- so everything well in that regard. In terms of demand for the next 12 months, we don't have our detailed numbers yet. But in my opinion, I think that we're still be looking at a full capacity for the GCC plants. I mean we have, as I mentioned, a lot of backlogs that runs all the way to the year-end and beyond with some projects. And my expectation is that any slowdown in the residential sector will be offset by slow increases in the infrastructure sector, I mean, with new projects starting to come online from the infra bill. So, we don't have -- I mean the full month-to-month, I mean, detailed forecast, but we should be, I mean, mostly at full speed in the next 12 months.

[Alberto Valerio, analyst]

I thought that was true 1 million from capacity expansion, one in Samalayuca, another one in Odessa. I might be wrong. So okay, you stick with the original plan Samalayuca and you do not reduce this capacity, right?

[Hector Enrique Escalante Ochoa, executive]

I'm not sure that I heard you well, I mean, Alberto. But if you were referring to the additional capacity of Samalayuca, I mean that's the -- can you repeat the question, please?

[Luis Carlos Arias Laso, executive]

I can cover that, Enrique. Yes, Alberto the -- I think that you have the numbers wrong. The original project that Enrique described was 200,000 people [indiscernible] in Samalayuca. We never consider or announce a project for $1 million in Samalayuca. So, it's the original price and it's on track as Enrique described.

[Operator]

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Ms. Sahory Ogushi with closing remarks.

[Sahory Ogushi;Investor Relations Analyst, executive]

Once again, thank you to everyone for your interest in GCC and for joining us today. As always, we appreciate the opportunity to discuss your questions and look forward to talking with you again in the months ahead. This concludes our conference call, but we are, of course, available for any follow-up conversations. Goodbye for now.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, enjoy the rest of your day.