Companhia Siderurgica Nacional SA
BOVESPA:CSNA3
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Companhia Siderurgica Nacional SA
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Good morning. Thank you for waiting.
Welcome to the teleconference of CSN to present results for the fourth quarter of 2017. Today, we have with us the company's executive officers.
We would like to inform you that this event is being recorded. [Operator Instructions] Our event is also being simultaneously webcast, and it can be accessed through CSN's Investor Relations website at www.csn.com.br/ir and MZiQ platform, www.mziq.com, where the presentation is also available. So it will be ready there for a week after it's done. The slide presentation may be controlled by you.
Before proceeding, we would like to declare that some of the statements herein are mere expectations or trends and are based on the current assumptions and opinions of the company's management and that future results, performance and events may differ materially from those expressed herein which do not constitute projections. Actual results, performance or events may differ materially from those expressed or implied by forward-looking statements as a result of several factors, such as the general and economic conditions in Brazil and other countries, interest rate and exchange rate levels, future rescheduling or prepayment of debt denominated in foreign currencies, protectionist measures in the U.S., Brazil and any other countries, changes in laws and regulations and general competitive factors on a global, regional or national basis.
I would like now to hand it over to Marcelo Cunha Ribeiro, Investor Relations Executive Officer, who will present the company's operating and financial highlights for the period.
Please, Mr. Ribeiro, you may begin your conference. Thank you.
Good morning, everyone. Welcome to our conference call. We are now back into having quarterly presentations. I would like now to hand it over to the Chairman of the Board, Benjamin.
Good morning, everyone. Thank you very much for participating in our earnings sharing call. We are presenting the results of the fourth quarter and also results for 2017.
And as we had said before, we have picked up into improving and getting better results. And as you can observe in the business, we have had a significant recovery of our EBITDA, BRL 4.6 billion, which resulted from all our efforts. We had a significant decrease in debt level. Compared to EBITDA, there was 2.5x as opposed to 5x reduction, and we want to reach below 3.5x, which is our commitment for '17. And we haven't suffered any deleveraging as expected by the market. So thanks to our efforts, we have obtained improvement in our performance shown by EBITDA in the reduction of EBITDA over debt results from our debt operating efforts.
For 2018, we can anticipate a deleveraging of 2 point -- or BRL 2 billion or BRL 3 billion in terms of sales of assets, and we are fully committed with doing all that at the same time that we adjust our operating -- operations so that we can get by the end of the year at a much more comfortable position. We strongly believe in significant recovery of operating numbers of our company.
For '18, and if you want to hear my own perspective, I expect 20% growth in terms of revenues, thinking about amounts and prices, because we are going to work at full speed as we've been doing before. We are operating at full, and we are focusing on all our business units to have full operation, full production.
And in terms of margins, we probably will have 20% margin increase because of our intent to reduce costs and as a result of price increases that we have already started implementing, and we'll keep on doing that as the year goes on.
In terms of steel operations, a lot has been taken into consideration because of what's going on in the United States. But Korea has already dealt its issues with United States. And Brazil is going also to have its [ actions ] within 2 or 3 weeks.
And defining focus, for example such as vacating Korea, something that we haven't anticipated at first, which means that we'll get rid of a problem in terms of Brazilian steel production overall. But from a practical perspective, we really have to be concerned about Chinese imports much more than exports to the United States. One of the main concerns in the United States concerns Brazil and other countries is being used to transport Chinese production. So I think that we are going to be able to deal with the situation very quickly in Brazil.
Concerning China, I think it's high time we do from a positive and pragmatic attitude in order to be able to deal with the new positioning of the U.S. government. Concerning steel, the [ third ] segment, we are going to focus more on the domestic market offering better product prices. We can have an increase in margin, the expansion of market. We really think that 2018, we'll provide growth in all areas. Automotive industry, for example, it's showing an improvement, home appliance as well. Civil construction is still lagging behind, but we still think that the improvement will be noticed. And infrastructure, which is also lagging behind but will catch up. We have already delivered what we had promised in terms of prices, but we have much better prices for the first quarter. And we think prices will improve and will help us recover margins as of the second half of the year.
Concerning mining operations, we had a performance below the levels we expected. But this is a onetime occasion because of planning. As you know, mining is something that takes long-term planning, and we had some gaps between what had been planned and permits and license. With Samarco accident, environmental issues changed significantly despite the willingness of environmental agencies and the government, seems they're taking much longer. And as a consequence, we had to work with what we had in hand already approved for mining operations.
We had high-rate silicas in the second half of the year. Silica over 8%. And as a consequence, that impacted our prices. Now we're working with silica rates below 6%, which we grew significantly the price pressure and with much better perspective of [ curating ] our mines and improving the quality of ore.
Therefore, for the first quarter, I already expect significant improvement in our margins and price improvement in mining segment because of the reduction in silica content. This was a one specific problem in the second half of last year that has already been corrected, so we're going to have better performance and better quality as well as higher volumes as we are going to be given permits of additional exploitation by the environmental agencies. We're going to have better quality ore and a better solution of tailings to our dams. I think that for mining, the year will be much better in '18 over '17.
In cement, we also had a performance below our expected levels. We are newcomers in a market that had been suffering from reduction of volumes, so we had double the impact. And as you know, we can have 800 million tonnes. We just had less than that, and we've run some experiments to check amounts as opposed to prices. We've brought down quantities to have better prices then increased volumes regardless of reduced prices. But I think that, in '18, we will experience a [ de-cap ] of the cement market, and we are going to work at full operation. And we are going to benefit from price improvements.
In terms of cost, we are highly competitive. Our plant is probably one of the most modern, the most competitive in the market. We have very good cost levels, and we think we can really improve that further. And we are going to have a very competitive position in the market. And we think the market is going to be better.
My take-home message, though, considering the results of the previous quarter and the perspective and the outlook for '18 that CSN will keep on working at its full capacity, focused on domestic markets, considering the attempts to yield better price margins in all its segments and considering significant reduction of cost. We had 20% cost reduction of administrative costs on a year-to-year -- year-over-year basis. And we are strongly focusing on reducing general expenses -- general, administrative expenses and financial costs. There was almost BRL 600 million of reduction in financial costs, and I think it will be even better for the year.
We have negotiated an extension of the terms with Banco do Brasil, and we think that this year will be a year where we can provide very positive results to the market. If we base on the year of '17, we can expect 20% improvement in revenues as a whole in terms of quantitative and qualitative factors and 20% margin increase. That is our challenge.
I think we are on the right path. I don't see any difficulties to -- or any hurdles to implementing what we have agreed on in terms of budgeting. The deleveraging will happen in '18 to try to converge the [ bank ] operating results that we have. And I think '18 will be an important year to pick up margins at CSN because CSN has always been a brand of delivering excellent results and good margins in world steel production and mining operations. So I'm sure we are going to restore our current position compared to the past in terms of margins and EBITDA.
And in addition, I think we are going to have the deleveraging so that we can really yield the best results of all the efforts that we have been putting in place since 2016. And now we think it's the best time to collect those results.
Thank you all very much for participating this morning. And now our executives are going to share with you our results. We are going to start with Marcelo, and then we'll be open for your questions. Thank you all very much, and have a nice day.
Well, thank you. Now I'm going to share with you consolidated report, and then we'll go on results by results.
Page 5. We can see the improvement in all our key businesses. We can see an increase there compared '16, '17, with 14%, BRL 4.7 billion, over BRL 4 billion, with strong recovery in steel applications, especially in terms of prices and margins. For mining, similar performance with volumes and significant progression and the additional business, including logistics. We showed improvement also in volume.
Based on the initial recovery of Brazilian economy with increase in transported volumes, volumes of containers and also sales of energy at interesting price ranges. Everything has contributed to our increasing EBITDA. And finally, a significant reduction on corporate expenses, which also helped with our EBITDA.
Next slide, we have a dedicated focus on the 4 products we're going to grow because of different performances in our main businesses. In steel, we have an excellent quarter, probably the best in years because of prices and costs that we're going to see. For mining, due to specific problems such as independent [ qualits ] such as reduction of average Platts and increase in freight cost. We didn't perform as expected. The other one had a similar performance, just added some seasonal elements, but BRL 1.2 billion adjusted EBITDA.
On Page 7 now, we can see our financial indicators comparing something that's really essential for us today. These are the indicators that indicate that we can generate cash observing data on an annual perspective so that we can see our continuous progression. Starting with CapEx, we had significant reduction going from BRL 2 billion in 2015 to BRL 1.065 billion in '17 because of the end of our investment cycle and because of more connectivity in CapEx, more focused on specific projects, sustaining, maintenance, safety and environment.
Next, we can see our working capital management. At first, very positively in '15 and '16 because of reduction in our inventory levels. Whereas in '17, we have taken one more step, especially in suppliers management. And we still have more to do there.
The third element that's contributing to cash generation are the interest rates, and it impacts foreign exchange variation because there was a depreciation of real in the last quarter. Otherwise, we would have had more reduction. But still we are on the path of BRL 1 billion better than we were 2 years ago in terms of financial expenses.
Combining it all in addition to increasing EBITDA, our operating cash generation will become positive generating cash flow in very strong levels for '18. And that's what we did for the 2 last quarters. So 300 and 100 in the fourth quarter would indicate the continuity of this trend. And this is absolutely essential for what we have done.
Here, we have all the scenario of leveraging. We had 8 quarters of reduction of leveraging. In the last quarter, the net debt had a reaction to the real exchange rates. But there were 3 EBITDA turns compared to 1.5 years before. And it showed a clear trend of the quick deleveraging to operating cash generation EBITDA and also sales of assets, which is one of our perspectives for '18, BRL 2 billion to BRL 3 billion in sales and -- of our assets, which will help us get faster to our guidance, which is below 3.5x, by the middle of '19.
And the last aspect concerns liquidity on Slide 9. We have our cash position BRL 3.4 billion (sic) [ BRL 4.3 billion ] compared to the amortization, how they used to be before our efforts for expansion and our current position. So we can see an impact of there was an extension with Banco do Brasil. Secondly, a new bond with repurchase for '19 and '20 and a number of new conditions approved with Caixa Econômica. So it means more than BRL 7 billion reduced in terms of amortization, increasing our duration from 28 to 41 months. It's still an ongoing process, so we probably will have upcoming moves shortly concerning new extensions and liquidity management. These are the consolidated figures that we have, and I would like to give the floor to Luis Martinez, who will carry on as of Slide 11.
Well, steel operations, we are very glad to tell you that, in the last quarter, Marcelo told you, we had the highest EBITDA in the past 2 years. BRL 713 million better than the previous 2 years. And this is what Benjamin has said it will go from what we've been doing in price adjustments, price alignment, portfolio adjustment, cost reduction, manufacturing management, et cetera. This year, specifically for steel production, was a very important year. We have focused on results, mix portfolio and prices. We had a 10% increase in prices overall, 5% in the fourth quarter.
You can make a very simple calculation and average price of BRL 2,800 we had for -- and the cost of the jobs plus the cost of conversion is BRL 2,800 in '17 and a cost of BRL 1,940. It's gross margin of 31%, which is a very strong competitive margin compared to other players in the Brazilian and international market. It shows the resilience of CSN and what we have been observing for the 3 years because the past 3 years were the worst in terms of steel production ever.
Turning to some things that I would like to point out. We have also reached in '17, 58% of total volume of steel production of prepainted and precoated material. We like to believe that working in product mix would be successful. In 2014, we had 45 -- 46% of that mix. Today, it's 58%. Even though in '17, we exported to the U.S. 270,000, which is now going to go back to the domestic market in '18. In '18, and I'm going to tell you a little more about the market, but we have great perspective.
Benjamin has said that we expect the price increase in June, 7.5%. We have already defined it, focused on 8 -- 85% in MI in the domestic market, and we used to deliver 360,000 to the foreign market to the U.S. And that was going to be reverted to the domestic market. And the numbers of the first quarter of '18 compared to '17 are very positive so far, showing a 2-digit increase compared to the same period previous year. So very positive scenario in terms of results.
If you tell us about cost now, please. Slide 12, you can see our production of slabs 17% increase in production of slabs in '17 compared to the previous year. Fourth quarter over the fourth quarter of '16. Over 4 million tonnes of slabs produced in the fourth quarter last year compared to the third. There was also an increase, 3.5% in production of slabs. And on the right in the slide, we can also see an increase in revenue that Martinez has just emphasized comparing fourth quarter '16 over fourth quarter '17 and the 2 previous quarters.
And the increasing costs that we had because of price increase of coal and iron ore was below the increase in revenues that we had. As a consequence, our EBITDA margin by tonne increased, as you can see, from BRL 459 per tonne to BRL 569 per tonne.
It's also important to show you between the third quarter and the fourth quarter '17, the cost of slab was flat with an increase in revenues per tonne. And the cost of slabs to operation also reduced compared to the cost of third quarter '17, maximizing need for further the increase in margin going from BRL 358 to BRL 569 per tonne.
Now let me give the floor back to Martinez to talk about market perspectives.
What do we expect for '18? Benjamin has already briefed us on it. Automotive increased. It is my -- 29% more in '17 due here in the first 2 months, which is a public data, 14% increased production. And it's expected to finish at 12% total increase. Trucks, 25% last year. And this year, we expect to grow 20%.
The only area that we still expect would take 2 or 3 months to pick up in terms of consumption of supply, civil construction and launches is really the civil construction, which will just pick up about the second half. When you extrapolate that to steel, we are talking about a 12.4 million tonne market, 1 million more tonnes compared to '16 -- '17, I mean. And another important bit of data, first 2 months of the year, there was an increase, and this is public data, that was a 14% increase. But so far, very good outlook for the domestic market in general in all different markets.
Now speaking about 232. The force exchange has already lost its importance. [indiscernible] China and U.S. stock exchange market were growing not because of the negotiations that seems to be quite advanced between China and the U.S. U.S. and Korea, they have also started as we've mentioned in the previous result. And [indiscernible], it's a very positive scenario specifically for CSN, we are working within the cycle of products so that our slabs can be preserved, also flex steel pages -- sheets and also a kind of additional product that can be added with added value to the U.S. markets. Negotiations today are really very successful. And they include what is a voluntary restrictive agreement on a country-to-country basis, and companies will be privileged depending on the economic interest and the kind of investments they have in each country.
Concerning imports. As Benjamin mentioned, imports from China, last year, it was very strong. We reached 1.5. This year, it started somewhat at a lower level. But the government has a role to play as well. There are positive signs that the government is much more attentive, starting with the nonautomatic [indiscernible] products and trying to [ build surges ] in the market of imported products that may impact our goods in the domestic markets. Last year, the imports had a penetration of 13%. I think it's too high, which is, what, 4% or 5%. That would be doable. 1 million tonnes more in the domestic market, and that would be most welcome.
So that's what I have to tell you about the negotiation #232.
Good morning, everyone. I have here Gustavo de Sousa with me, responsible for the commercial area, procurement and sales of iron ore and Daniel Bueno from production.
In a sense, mining has presented a very consistent result in '17. We can see BRL 4.6 billion in our net revenue despite the lowest volume of sales. Adjusted EBITDA, BRL 1.9 billion with 11% adjusted margin and a quarter increase in our volumes from 1.6 billion despite one -- the reduction in our production because of variation of inventory levels in the productive chain and with positive net result of assets after Platts, 1.8 million tonnes, higher volume of 400,000 tonnes and a reduction of EBITDA, especially because of prices. Prices of iron ore and higher volume of purchase and American freight, which had a significant impact on the fourth quarter where we also had a new market commission in the segment of mining, and it was a difficult quarter concerns that.
In terms of quality, on the left of the slide, we can see the result of the restructuring of our productive sector. We can see the average content of iron, which is normally thanks to the Chinese market. In addition to marginal improvement of iron, we had there a decrease, one more additional point of silica, which has an impact of price growing exponentially on the fourth quarter.
The reduction of volume of offered of high-content silica in the market and the reduction and improvement of quality reached by CSN mining will lead to net gains in the first quarter of '18, and we can already perceive that. And we can clearly see in the material our reaction to the market conditions. The market has changed drastically. And you know all the demands of solution in China, new projects of Vale, and we are getting adapted as quickly as possible to the new conditions. And in '18, things will be very positive for us.
Let us now talk about our dams. What can we say about that? We have to emphasize that we have had a proactive position since Samarco accident. We have been working proactively so that our dams are compatible with the best safety standards. And we are working with the best consulting companies in the market, which have been supporting us. And we work preventively.
Starting from CSN and Mineracao. We have 10 dams, the largest one, Casa de Pedra, and it's important to emphasize that it is built downstream so lower risk than those that are built upstream. The construction for reinforcement will be completed in April '18. And we are going to have filtering plants, which will reduce the need to use Casa de Pedra dams.
Concerning Fernandinho and the latest news we had in the media. I would like to emphasize once again that we do not need these dams, all the tailing is exposed. And to make sure that we have safety, we drained the dams and improved channels to distillate all the water that we [ reserve ] in the system. We are going to process the tailings of our dams so that we can have a recovery of the area and can incorporate the area to the natural landscape, making it very clear about how we operate at CSN and very well managed by the team.
In '18, this is the year that we are going to operate in the new operational model, complying with the ore market, really getting rid of difficulties [ detailing ] work in the dams and having a reduction on our complications. We have 4 main projects, one which is already in operation. Filtering, it's going in operation in April, Phase 2 already in construction and filtering team. So as a consequence, we are going to depend less on the dams. We're going to have a significant improvement in quality and significant cost reduction. All the projects have received their environmental permits to operate.
And concerning the market, we have an impact in the demand from China. Here, we see a good prediction. It's forecasting a growth of 2% of the demand, which shows a positive scenario for use of ore. We have detected an increase of demand of 50,000 tonnes. So CSN has been working on operating at similar price ranges we have in '17. Thank you very much.
Now going back, this is Martinez talking about cement. Benjamin has also briefed us a little bit. In the last quarter, we didn't perform so well, for 2 reasons. First, because we tested price ranges that have to pick up. They are very low in the Brazilian market compared to other world economies. But even so, we grew for the second consecutive volume -- year in terms of volume 20%. Even in a decreasing market, we are still growing 20%.
In the first 2 years, we had the commitment of start getting to be known in the market, showing our capacity and we have reached a consolidated market in the Southeast market: Sao Paolo, Rio de Janeiro and Minas Gerais.
In terms of manufacturing, operations and excellent management, we are really state-of-the-art. It's not different from what we tried to do. But still we want to [ fill a lot of fields ], and this is one of the reasons why we are increasing our average price, which is BRL 160 per tonne or 13% increase leading to EBITDA of 50% higher than before. So for '18, we are going to work at our maximum capacity, 380 million tonnes per month, operating it further and obtain price recovery so that we can get prices as high as some international markets have it.
This is Edvaldo. Let me talk about the outlook for cement in Slide 18. The decrease in consumption of cement in Brazil reduced in '17. Since 2014, it was about 10% reduction per year. But in 2017, the decrease was 6% only. In the first half of the year, it was even lower. The National Trade Association expects to have a growth in '18 of 2%. Small growth considering the low basis, but it's already a good indication of the reversion of consumption of cement in Brazil.
Prices are also very low, and we just heard compared to H2 prices and also compared to the reference prices in mature markets such as U.S. and Europe. It is significantly lower, but we also think that this is a moment where the curve is going to change because as much and it's showed us there has been an important price pickup, especially now in the Brazilian market.
Our costs -- as you've heard, our cash cost had a 17% reduction throughout '17 compared to '16, and we have a number of actions in addition to startups, a new account with Arcos. We have a number of other actions in place, reducing costs so that we can have from now on much greater profitability in our cement operations.
Thank you very much all our officers for their presentations. I think we should open for questions before we make our closing remarks. So let us now open for questions.
We are going to start now the Q&A session for investors and analysts. [Operator Instructions] The first question comes from Leonardo Correa, BTG Pactual.
My first question to Martinez. You have mentioned price increase in June. Could you please confirm it will be 7% price increase? And I would like you to correlate this price increase with the pressures that we have observed, still perception only in the market. But we've seen EBITDA, for example, going back to 570, 580. Do you think that this is going to somewhat impact your movement because in terms of priorities, if we incorporate the new references, it'll be something like 10%. So if you can please talk about the situation, that will be most helpful. And I also have some points concerning iron ore. How can -- we understand you're breakeven with China, and how can we expect that for '18? And I would like to confirm concerning the dams are all the permits available so that you can deliver 13 million in volumes this year? Is there still any risk or not? So please expand it or elaborate it further.
This is Martinez. Now talking about the priorities, we talked the other day what we are observing now in China is something absolutely new in the past 2 or 3 days. Yes, indeed, there was a $20 or $30 decrease. I think it's still too early. If you read all reports and analyze the business, our capacity and the logic, what China's no longer exporting and the possibility of having an agreement between China and the U.S., I don't think the Chinese prices as I said in the previous call, prices below $580 to $610 per tonne. I don't indeed. With this level, $580 to $610, our premium would range from 3% to 5% for a dollar of 3.25 to the real. So we think that we have a stronger domestic market by June. With the decrease in imports, this 7.5% increase will be applicable to all markets, industry and distribution. It's also important to point out that prices in the U.S., particularly in last weeks reached 944, right. And this trend is ongoing. I don't think it is going to go back to levels of 800. It will be about 940, 890, which is also going to be positive for the price equation. What really makes me somewhat more comfortable is that the utilization capacity in China today, which is something Marcelo shared with you, is about 87%. So I am talking about actual figures, right. I am not giving my personal opinion but rather talking about data. Obviously, we are going to closely observe what's going on in the market. We are not going to leave anything on the table. It's the year of the domestic market, and we have to [ surf down on the bottom wave ] that we have felt in Brazil.
If I may, in terms of growth, a lot has been announced -- was announced in January, 10% increase for industry automotive sector and also 10% increase for distribution. If the implementation is going okay, what could you expect in terms of price increase?
So first 6% to 10%, this is what we expect. You can consider that, 6% to 10%.
Our breakeven is $44. Concerning the second item, concerning the dams in our projects, 100% of them, of the 4 key projects are -- [ were done ]. We have already been given the permits, and we are currently in implementation very successfully. And as a consequence, CSN will experience cost reduction, improve the quality of ore and depend less on dams so we have it all set up.
The next question comes from Daniel Sasson, Itau BBA.
The first one concerning steel production. What has changed in your strategy concerning the full production in all units? And how would it compare to the production of long, flat steel, which was reduced in '17, almost a 10% reduction compared to '16? Concerning your mining strategy of improving quality, reducing silica and having large penalty on sold ore, could it impact volumes or quality of ore in the short and mid-term? Or do you expect to review your mining plan so that you can maintain sustainable quality in the long run?
[indiscernible] here talking about long flat steel. We had a difference in our product mix. So it's adjusted to what would be better for the market considering the recovery of the civil construction markets. We have also had some maintenance or construction operations where we recovered our production capacity, which is going to be felt now in '18. So these are the 2 main reasons why we could do somewhat less in '17 compared to '16.
How much do you think you can produce of long flat steel in '18?
Over 250,000.
Now Daniel, talking about our strategy, what has changed in our strategy. 4Q, we had the highest EBITDA in the past 2 years with 52% of domestic markets. So we are going to have 80% or 85% domestic, which is something feasible because we are talking about 1 million tonne increase. And part of that will be through [ buy up ], and I'm mostly talking about a market that got really [ firmed ] by the precoated, prepainted market because of civil construction and distribution, which are now going to get somewhat better. So in '17, we had to have the positive leverage that we had from the U.S. to produce these products and still make money without angering the local prices. So we work as much as possible to get the price of BRL 2,800 in the end of the year, which is very important price range for us. Now this clearly just have upsides. Prices are going up 6% to 10%. Mix will be better. I'm going to have these products 1,200 tonnes to be sold domestically, not going to export so the domestic markets will be better. So the strategy has changed, but just for the better. The main strategy for all essential products, 58% added value. So sell more to few, those where we're going to distribute, do not put all your eggs in the same basket, selling to all market. I have not polarized based on one specific market. I do not depend on automotive industry only, I'm on all markets. And also in terms of long flat steel, this is a market that we are coming but within the correct [ legs ] position. There's no market to do that without appropriate plan. Even if I'm working at full capacity, this is a market that had a reduction in capacity. So we have the right strategy. We are going into producing products that consumers need. And this is why our portfolio of products has gained some of its capacity. So we are going to work focusing on the end consumer developed markets. This is our strategy in long, flat steel and cement. It's an integrated strategy.
So this is [indiscernible] talking about mining. Our strategy is distributing to market to maximize our margins. We are going to be very competitive there, too. Iron ore with higher margins, highest-quality products. Our strategy is to reach -- by the end of '18 with our 4 main projects, reaching 32 million of our run production with premium products. So we want to depend less on dams and have significant cost reduction. First part of the year, we're going to consolidate implementation of projects. For the 4 of them, 1 is ready. The second one will be ready the end of March. Hence, by the end of the year, the other 2 will be completed. So we started '18 capturing value from these projects. And in '19, we are going to have a flat production. So our strategy on the premium market, adjust production to the market and have a significant reduction in cost and bringing down our dependence on dams. We want to operate at high technology so that we don't depend on dams in the future. Thank you.
Next question by Rafael Cunha, Credit Suisse.
Talking about steel production and the carryover of price back in the middle of the year. Considering those, could you please tell us what is the breakdown of import parity by product? Could it be extrapolated to all products? Or do you think there are some lines which are more successful? How can we get to a more relevant buffer against decreasing prices in the international market? It's like -- I would like to know it -- breakdown by product.
So as I've said, the range we have is $580 to $610 with 3% to 5% premium without increase. In cold, $630. The premium is about 5% to 7%. We have to be careful, though, especially to expand because of all our imports from last year, 1.5, 600 affected us directly. The premium is about 8% to 10% right now in these 2 markets. Then related products precoated and prepainted, we have to be additionally but carefully. You can tell we delivered higher value to these clients. So premium and perceived value are equally important. But it's basically that we have greater effort in cold and hot and less in the precoated.
The next question comes from Caio Ribeiro, JPMorgan.
[Technical Difficulty]
Caio, if you mute, we can't actually hear your line. So if there are no further questions, I would like now to hand it over to Marcelo Cunha Ribeiro, Executive Director, Investor Relations for his closing remarks.
I would like to thank you all for being here this morning. Should you have any additional questions, please let us know. Once again, we have shared with you how optimistic and confident we are concerning our performance for '18.
I would like to thank you all for the opportunities and for participating in our conference call. We are very optimistic for '18, as you've heard. We have finished our investment cycle, and it's a very important initiative. We have highly competitive assets, and we are going to address them better so that we can continuously focus on competitiveness. I think that what really matters here is quality, and it applies to steel production and mining. Quality is the key word when we're talking about flat steel or long carbon steel. We have to sell. We have to look for niches. We have to deal with volumes and with added value whenever possible.
I think CSN has a very favorable position in terms of diversification of products in steel production. We have good, quality prospective in mining, really focusing on what we have. We have always to comply with environmental rules and operate easily, now that we have the [ dry ] technology, and we can somewhat reduce our dependence on dams, this is wonderful. And the same applies to cement. We have learned from the market. We are newcomers, new players, but we have a very comfortable market position. And now we want to maximize the potential we have because of the highly competitive point we implemented with Arcos. Cost reduction is a constant concern of CSN. Deleveraging will equally be the case. And I think that '18 will be the year to deliver more results. Everyone is aware of the potential of CSN. We have suffered a lot because we believe -- and that said in further production and market solutions, and we finished that investment cycle last year. And now we expect improvements to the market. We still haven't reached that. The business looks very bad last year. We noticed improvement in the second half of '17. January was better than February. February better than January, March better than February. So we think the market should still react more. We think that the economy can get much better.
I don't think we will maintain that low base of employment base. Really, the world has to reach a normal level again, going from simply saying to actually doing it. We had a project. We expected to have it all implemented in the first quarter, but it was not. We really believe that as of the second quarter, my world will really pick up its growth path again, increasing employment opportunities, greater consumption and more investment. And we are really expecting it to happen so that companies and families can resume their regular lives.
Thank you very much, everyone. And we hope that in our next conference call, we can show you significant improvement in the performance that we always strive to reach. Thank you all very much. See you next time.
Thank you. The conference call or the event is closed now. Please disconnect now, and have a nice day. Thank you.