Companhia Siderurgica Nacional SA
BOVESPA:CSNA3
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Companhia Siderurgica Nacional SA
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Good afternoon, ladies and gentlemen, and thank you for holding. At this time, we would like to welcome everybody to CSN's Conference Call to present the Earnings Results for the Fourth Quarter '18 and full year 2018.
Today, we have with us the company's Executive Officers. We would like to inform you that this session is being recorded [Operator Instructions]
We have simultaneous webcast and the replay of this event will be available for a period of 1 week. Once again, you can change the slides at your own convenience.
Before proceeding, we would like to state that some of the forward-looking statements are based on expectations and trends and the current assumptions of the company management. There could be differences in what is expressed herein as these do not to constitute projection.
Actual results, performance or events might differ materially from those expressed or implied in these forward-looking statements as a result of several factors such as general and economic conditions in Brazil and other countries; exchange rates and exchange rate level; future rescheduling or prepayment of debt denominated in foreign currency; protectionist measures in U.S., Brazil and other countries; change in laws and regulations, and general competitive factors at local, regional and national levels.
We will now turn over the floor to Mr. Marcelo Cunha Ribeiro, Executive CRO (sic) [CFO,], who will present the company's operating and financial highlights for the period. Mr. Ribeiro, you may proceed, sir.
A good day to all of you and thank you for participating in the conference call for the year 2018 for CSN. I will give the floor to our Chairman.
A good day to all of you. It is a pleasure to be here once again. CSN continues to comply with its commitment of showing the improvements quarter-on-quarter. We have gone through a sequence of better results, and we firmly believe in our recovery.
We had a year 2018 that surpassed our expectations not only from the operational viewpoint but also from the financial point of view.
We ended the 2018 exercise with steep growth in terms of the steel market in the domestic market, finding a priority to added value products. We also had price increases in the domestic market, therefore, the enhancements were more qualitative quantitative and as a result the EBITDA margin was favorable and better than we had expected at the beginning of the year.
The same holds true for mining. We were able to produce more at a lower cost. We had an accentuated improvement in terms of quality premium, which is one of our great achievements for CSN Mineração. Formerly, we were penalized because of our quality. We now have a premium and this will become a trend to produce evermore -- more and with better quality.
Now, despite the strong market competition, we were able to have a positive EBITDA as part of our guidance of working at full steam as we do with all of our activities. We are initiating the year 2019 working fully at all of our operations. And once again, the guidance is to continue doing this and we have a very optimistic view of all of these markets. We have confidence in the domestic market and its growth, and we are prepared to offer quality products with added value, delivering market niches with the greatest possible added value.
We do believe that we will grow further in the domestic market at least in the steel market and we're highly optimistic with the market awaiting the recovery of the economy, but also optimistic with our ability of commercialization, our partnership with clients and success that was set forth in the previous year, working very closely with our customers. In mining, we were all surprised with the catastrophe at Brumadinho, the iron ore price became an unexpected variable. We're working together, united to be able to evermore improve quality and receive that premium for quality. This is an opportunity that we have at present.
As you know, 3 years ago, we began to work with a change of operations to dry stacking at the Casa de Pedra dam. We have already installed and the production of line 1 is 40% operational. Line 2, will be concluded now in May and as of that point, we will have a ramp-up of production, enabling us until the end of the year to work 100% with the dry stacking process at the Casa de Pedra dam.
Our attention, day after day in all of the dams continues because of the present moment. But we are fully complying with the legislation and diligently surveying the operation day after day.
We are doing whatever is possible. We're doing our best to be sure about the safety of these dams.
At the same time, in cement, the outlook is to implement another production unit.
We believe in this market as well, and it is our understanding that this is a promising market as part of the economic recovery that we expect for the country. We will have infrastructure and housing that will become priorities and help the recovery of the market. It is a challenging sector but with an enormous potential for growth.
On the other hand and as part of our proposals and commitments with the market, we continue with our deleveraging indices. We carried out the prepayment operation that was closed yesterday with Glencore. Marcelo will explain this to the amount of $500 million, with a very interesting cost of capital that is much below the cost of our bonds. And with a price that is open for the delivery -- for the moment of delivery, once again, a very interesting operation that will deleverage the company by $500 million, once again, contributing to the net debt-to-EBITDA index. My expectation is that we will end the year below 3x deleverage net debt/EBITDA index.
We continue with the sale of assets and alongside with this, a screening or a prepayment operation that has been under negotiation for some time. You are all familiar with this, with a single intention of reaching 2.5 net debt capital ratio, which is what we committed to do last year after our trips to the United States and Europe.
When we observed the request and the market perception that we would have a better assessment if we were more deleveraged. Since that occasion, which was in March, CSN took a commitment of seeking this deleveraging. I would like to remind you that the net debt/EBITDA ratio reached 8.5. We got to 5.5 net debt/EBITDA ratio, before the trip at the beginning of 2018. And we ended the year 2018 with a 4.5 and with the operation yesterday, we are at 4.1.
We believe that because of the quality of our assets and the possibility of the financial operations that we can carry out in the short term, this outlook of ending the year with a net debt/EBITDA ratio of less than 3 and also with enhancements in our operational results as we believe that 2019 will be better than 2018.
Doubtlessly, we will be able to deliver to the market this commitment that we took on last year.
As you can see, we look upon the year 2019 with significant optimism. We're very thankful for the performance we were able to deliver in 2018. We're satisfied with the work carried out. This is based on great efforts that we have carried out to decrease cost, enhance productivity with a focus on safety and technology.
We're comfortable with the assets that we have at present, and we're deeply convinced of our ability to compete in the domestic market. We believe that we can increase our share, be it in cement or in steel. Once again, in the domestic market, we truly believe in the market recovery. And as I have already mentioned, our intention is to end the year with better results than in 2018, ensuring that CSN will comply with the demands made by the market.
I would like to thank you for participating in this conference call. And I now give the floor to Marcelo, to continue on with the presentation.
Thank you, Benjamin. I will now go on to the presentation, which is this -- at your disposal and as soon as we finish, we will go on to questions and answers.
On Page #2, once again, we go back to the priorities mentioned by Mr. Steinbruch, improvement of operational results that are truly laudable, adjusted EBITDA of almost BRL 6 million, few people in the market believed in this, but this was our guidance.
The second priority was a reduction in liquidity pressure at least in the short term. And at the end of the year, we delivered several stages of this debt liability, and we have just issued BRL 2 billion in debentures. And we have also completed the financing process, but we do have BRL 500 million in new resources. In the third place, not less important, the reduction of indebtedness with leverage rate of 1.3. It was almost twice that at the beginning of the year, which means that we have complied with our goals.
We go on to Page #4. And begin with the evolution of EBITDA, showing you how growth was accelerated throughout the year through 2018.
We ended the year with the growth of almost 30%. It's greater than the growth of the year. We're at a very prodigious moment to begin the year 2019 where we intend to continue to grow the small drop in the fourth quarter vis-a-vis the third quarter, is explained by seasonality, and we had a high EBITDA level close to 25%. All of the business units contributed to this, a growth of 25% in mining; 30% in cement; generating a substantial EBITDA close to BRL 60 million for the growth of volume and market share showing our potential. And this is how we created our EBITDA growth of 26%.
On the next page, a financial indicator, the cash flow, which is an obsession. We begin with investments this quarter. We have sped up our investments. We had BRL 37 million. 4 projects that are important for 2019 in steel, the stoppage of the blast furnace #3. We have already began to prepare ourselves for this. It will happen in midyear, and in mining, the tailings, filtering projects that have led to this disbursement. And we have 1.3 disbursed during the year for the year 2019. This amount should be at BRL 1.5 million, precisely because the projects that I have mentioned.
But of course, the financial cycle was reduced at total of almost 20 days since the beginning of 2018 until the end. Reduction of inventories, lengthening of periods and greater efficiency in obtaining receivables from customers.
We would have had a higher cash generation were it not a ramp-up to purchase slabs from third parties. And because of the stoppage, we would have obtained an additional BRL 200 million, which was BRL 350 million were it not for this one-time event. Another factor was the reduction of the base interest rates and Brazilian economy and the lengthening of the debt was a positive impact on the savings of almost BRL 500 million a year.
We ended the year with BRL 12.3 billion of free cash generation, most of it in the fourth quarter and that nonrecurrent event due to the operation in the U.S. for BRL 1.7 billion, amounting to BRL 4 billion generating during the year.
On the next Page, Page 6, we see this. It is important to guarantee the successive reduction of our net debt/EBITDA ratio that ended the year at 4.5x beginning the year much higher.
Net debt did not drop more because despite the cash generation of more than 2 billion, we grew a great deal because of the devaluation of the real, and we have to offset this effect with a prepayment that we made regard to the 4.1, which was an -- in former goal of CSN to get to 3.5 in midyear, which was our former goal. And as Benjamin has just announced, we have a new formal goal to get to 3x net debt/EBITDA at the end of the year.
We ended the year with BRL 3.2 billion, and reinforce with almost BRL 2 billion, which means almost BRL 5 billion as revenues for the operation.
On Page #7, we show you our debt amortization. And this is important to say, the short-term debt amortization we have. In 2018, we lengthened our debt. We reduced it from to BRL 6 billion BRL 3 billion. And this holds true for the ensuing year. But we do have another challenge, which is the capital market. They should be good years in 2019, 2020 that will be strengthened through several initiatives.
Series of actions that were mentioned by Benjamin the sale of asset. New iron ore operations that along with a refinancing potential will enable us to face these maturity in 2019, 2020.
The maturity of 2019 with the prepayment has already guaranteed our liquidity for the new initiative. We will have sufficient for the year 2019 and 2020 in terms of amortization.
We will now go on to the specific comments for each business. On Page #9, we speak about steel where we had very good year in all variables. A growth of 17% in the domestic market, 3% in our global volume. However, if we compared it without the U.S. market, the impact of the [ Ter-Holt ] sale hampers our [ single ]. We had a growth of almost 5%. In the domestic market, the growth of 17%. It's comparable to a market growth of 6%, showing the success of our commercial strategy that is betting on higher added value products, in galvanized products, the growth of 30%. We brought back part of what we exported to service the automotive market domestically.
In the fourth quarter, good growth vis-a-vis same quarter last year, 13%. The drop in total volume is due to seasonability (sic) [seasonality] and once again, due to the sale of the operation in the U.S.
In terms of prices, we were able to increase the domestic price, accompanying the international market of growth of 6%. And in the last quarter, we continue to increase prices despite the weakness of the international market and this helped us to have the EBITDA somewhat below the EBITDA of the third quarter, because of this variability and below the EBITDA of the last quarter -- last year, because of our cost pressure, impacting the entire industry, which is what we see on the following page.
On the following page, to the right, the cost of slab production that increase throughout 2018 because of the foreign exchange impact and the increase in raw material coal, coal and iron ore, more recently.
Despite the increase of production that we had in the quarter, we went from 900-and-some tons to 1,013. We had certain stability and the EBITDA per ton, that stood BRL 503, a little bit below last year. Once again, because of the pressure of raw material that should continue on in the first quarter.
We go on to the mining performance. With very good news in almost all the indicators, although the fourth quarter seasonally tends to be weaker in terms of production because of the rainfall. From purchases of third parties, we had an increase in the sales volume, a growth of 6%, almost 9 million tons and with an enhancement of our price realization led to an increase in EBITDA. EBITDA continue to grow and at slightly lower margin because of the mix in our purchases from third parties.
On Page #12, we go into the details of our price realized, very positive structural elements for mining. The quality premium, during the quarter, Platts had an evolution of 7%, but our price realized increased 11% because quality premium added up to $3.3, greater than the premiums for the second quarter that were $2.1. Once again, due to the quality of our iron ore was low silica and alumina content, and because we produced with higher added value. That is why the price increase was 11%.
On Page #13, the same comparison for the annual period, showing you how important this structural change is, Platts drop 3% during the year, but our price realized increased 9%. This because of the previous year, we had discounts for quality of $1.40 for the average of the year, it was 0.9 positive, once again, because of the premium and this increase during 2018.
To conclude on Page 14, this would not have been possible, this positive evolution were it not for the projects that we delivered in the last 2 years. These are projects while eliminating the bottlenecks in production, and these are projects that gradually guaranteed quality, low-silica and alumina content.
We have the magnetic concentrators, increasing production of quality, reducing events and the filtering system that allow for dry stacking process, reducing the dependency on the dam. Now the coming into production of filter system 2, that will increase production and definitely avoid having to use the dam for the tailings and once again, will guarantee the quality of the iron ore. As you see in the bottom part of the slide, we were able to go from a production pace of 26 million tons to 33 million tons, which is our present day rate with advances quarter-on-quarter.
With this, I conclude the presentation of the main indicator, and would like to offer the floor for your questions.
[Operator Instructions] Our first question is from Mr. Leonardo Correa from BTG Pactual.
First, I would like to congratulate the executives for their results and for the deleveraging in the last quarters. My first question is somewhat more specific. There are several doubts in the market regarding this. Now CSN has been working on migrating to the dry process in terms of iron ore and there have been advances on that front as mentioned by Benjamin. And there are doubts in the market regarding when the migration has been completed if the mining operation will continue without changes, or if there will be a change in the cost of operating this business? And still speaking about iron ore, the market has doubts in terms of the decommissioning of dams. There are several dams but the dam that is active, Casa de Pedra, is upstream, it still has not been impacted by the recent decisions made by the government. I would like to know, if you have a plan for the decommissioning of these dam and if you have earmarked Capex for this? The second point perhaps for Martinez. Martinez, we're accompanying the data from INDA from [ BR ], we're following up on domestic activity, and we observed that perhaps a level of activity is below what is expected. Since the beginning of the year, there is a new government. Doubts about the reform may have had an impact. Now what will happen in the first quarter? In the fourth quarter, you delivered excellent results in your mix. I would like to know if you can further improve the mix of products? And how you are going to pass on the cost in this very challenging scenario? If you could refer to this, I would be very grateful. These are my questions.
Leo, if you could give us a second -- minute, please. Leonardo, this is René. Now when it comes to the cost in the filtering system, we have not been impacted by the cost, quite the contrary with the increase in production, volumes, the trend is to have a decrease. Now what will be favorable to us qualitatively? We analyze that producing iron ore with a dam has a better cost than the filtering. We are now faced with an [ inconsistency ], of which will be the price until the end of December. What is important for CSN is that we will be producing without the need of having the tailings dams and this will increase our competitiveness. When it comes to the dam that CSN has in number, we have 7 dams for tailing, 3 in Casa de Pedra; 2 in [ Figes ]; and 2 in Fernandinho, of all, only 1 is still active with wet tailings. Now, this is the Casa de Pedra dam that was built with the downstream method, the rest are inactive. We have the [indiscernible] and Fernandinho, all of them are being decharacterized. And I would like to highlight that both of the dams of Fernandinho, will undergo a supervision in March. They will be decharacterized until the end of 2019. Now [ Digia ] will be turned into a sediment dam, and it is also being decommissioned and this will end in 2019. All the other dams that the company have are for the classification of water, sedimentation and so forth. To conclude, when it comes to the amounts involved, now for Casa de Pedra dam for the decommissioning, in the last 5 years, we have spent BRL 600 million to have a lower generation and treatment of tailings, BRL 400 million was spent in the last 2 years and we're in the process of decommissioning projects. Once again, when it comes to the dam. But the magnitude of these investments do not truly impact our plan. Life continues. We're ahead of ourselves, and we do not doubt that we will become more competitive until the end of the year. I hope to have responded your questions in terms of dams.
Leo, this is and Martinez, simply to review what happened in 2018. As Marcelo mentioned, our market ended with 11% growth. In the domestic markets, the growth was 20% and 30% for resale. We do believe in our power to commercialize, and we're going to be working full steam with all of our lines to sell our full production. Now market figures are important. But they're merely illustrative because we're going to be working with a full production. Last year, at the end of the quarter, we had an increase of inventory and distribution and a small drop in the automotive industry, which is a one-off effect. The automotive sector is working with the forecast of 10% growth, and there is a stronger growth in the sale of trucks and buses. We also have several construction and packaging. When it comes to industry, the growth should be 5% to 7%, and civil construction show signs of a recovery 3% to 4%. This is the first point. In the first quarter, there was perhaps a drop in the market but in the second semester, we -- I'm sorry, on the second quarter there should be a 5% to 7% improvement for the market. We have no way out. We're going to be working with full production increasing our added value. Last year, we invoiced 1,300,000 tons in the domestic market. For this year, we will continue with a mix, 85% domestic market, 15% foreign market. And as part of what is exported 80% to 90% will be galvanized. We don't want to put all of our eggs in the same basket. This is mandatory at CSN and the strategy does not differ very much from what we did in 2018. That was a winning strategy, and we're going to implement different things in metal sheets and galvanized products to leverage some sectors. When it comes to the price dynamic, which is the most important part of this equation while iron ore went from 65 to 88, the price of metal sheets has increased steeply. It is very difficult to find sheets at less than $500 and another piece of information that is very subtle, 30 million tons per year for metal plates, 15 million intercompany, and we have 2 or 3 plants working at 1.5 million of capacity. The metal plate capacity in the world is becoming ever more restricted in this scenario. As Marcelo mentioned, this year, CSN will have a stoppage of blast furnace #3. And I believe [ Diadao ] will also stop for 60 days. This is the perfect supply and demand situation to enhance the profitability of the sector. The U.S. had very steep prices, reaching $1,000. There was a drop to $670. We're now at $660 or $800, which is very positive. Now in China, and here, of course, the situation is controversial. [ CPQ ] -- [ CPK ] I think it is at $560. So the present day premium, if it is BRL 2,700 in the domestic market for distribution, the previous is of minus 7 to minus 12. Do your calculations to see what is happening. With this, CSN does not doubt that beyond the market issues, what is important is a cost that will prevail in the market. On March 26, CSN will rise prices from 10% to 15% in its product line. In the coated products, perhaps, we will change this, and the premium will be a maximum of 7% to 8%. In January, we had an increase of 25% in the assembly plants and 68% for the rest of the industry. This is the scenario working at full steam as their prices and price increase on March 25.
Our next question comes from Mr. Marcos Assumpção from Itaú BBA.
The first question regards to the dams and the purchase of iron ore from third parties. You bought almost 7 million tons, and is there a risk of having a rupture in this because of what happened in Minas Gerais? Or if there will be an increase in competition, or a price increase in iron ore in the domestic market as happened internationally? When it comes to the dams, I would like to gain an understanding of the certification, how often does the certification take place and if this could cause a risk of stoppage in some of the operations, this has happened at Vale but perhaps you are different. Finally, if you could comment on the impact of the recent drop in freight of iron ore and how this has impacted your business? Was this a benefit in terms of the delivery iron ore?
This is René. Okay, let's go to the first question. CSN Mineração has always carried out supervision of the dams. Inspection are daily and every 6 months, we have certifications regardless of the method of construction. In September 2018, we carried out the first supervision. The first stage of supervision is underway and it will be fulfilled up till March. Now external auditors are replaced every 2 years to avoid any bias in their analysis. This is our stance. When it comes to the expectation for the purchase of iron ore, the figures could drop because several suppliers have come to a standstill and there has been a change in control among others. Now we should have a net increase in sales this year. Third in terms of freight, we hope that the freight level will extend until the end of the year, especially in the South and the Southeast.
Simply to add to this, so you have been affiliated already from drop in the freight prices?
Yes. And if there is a reduction of production in the South and Southeast, it will also be a benefit for the company.
Very well, And last question if Benjamin is on the line, which is a capacity of sale of iron ore that you have -- a range of capacity would be interesting to begin thinking about some calculations?
Simply to add to the issue of freight, we haven't bought anything in terms of future freight. At present, we're working spot, taking advantage of this drop in the freight prices and when the timing moment comes up, we will close the deal for future freight. But basically, we're working with the spot market. When it comes to the streaming operations, the idea is to make a $1 million. This has already been advertised in the press. We have been working on this operation for 4 or 5 months, and the prepayment on the streaming operations advanced hand-in-hand. Of course, the complexity of streaming is much greater, but I can advise you that we're practically at the end of negotiations for an estimated value of $1 billion. And to have an order of magnitude, a mid-single-digit in terms of production percentage because of that $1 billion.
Our next question comes from Mr. Jon Brandt of HSBC.
I wanted to ask a few questions. First, on surrounding the Glencore announcement. Could you give us a little bit more details on how that actually works to 22 million tons [ than even they were ] for the 5 years? What the price you all are refuting, will be exception? If this is something that you could repeat in the future depending on your debt levels? And then my second question relates to capital allocation. You made a quite clear that you want to continue deleveraging the balance sheet a few times so you'll be even less 5% by the end of 2019. I'm wondering how the potential extraordinary dividends would bake into this. It's something that you attempted to do last year, is that something that you are continuing to look at? Or is the priority going be on getting to that 2.5x leverage ratio?
Thank you, Jon, for the question. First of all, when it comes to the prepayment, this operation can be considered as the advance of our clients, of our customers, for 22 million tons that will be delivered in a linear way through 2 shipments a month during that period. This is the option of CSN to advance this $500 million. And this means that through that 5 year period, we're going to be selling based on market conditions. We will be paid cash for the 2 shipments a month. But Glencore will take off $24 per ton because of this $500 million. This is how this works. When it works for our capital allocation, minimum dividends to pay off the shareholders because of the dividends that were canceled last year will take place. And they are fully compatible with our deleveraging goals to end the year at 3x leverage or 2.5x.
Our next question is from Mr. Gustavo Allevato from Santander Bank.
I do have some questions. Regarding the Glencore business, I would like to understand the cost, which are the costs compared to what you could get from the market in this agreement. The second question is an update on the present day factors. And third, the purchase of iron ore from third parties. Can you continue buying from other players in the short term? Or will there be a drop in the purchases from third parties in this first semester?
The problem of the purchase is to attain the same figures in 2019. The great issue is the market, small mining companies are being impacted by what happened. And there was a great dispute in the market as a supply of iron ore. We're trying to buy the volumes that we need for 2019, but there will be an impact and this is what will define the volume for the coming year. To complement this, there is a floor that is not very different from what we had last year in the contracted value. There hasn't been an enormous swing. When it comes to the cost of the prepay, 152, 200 basis points below our curves of our bond. So this was favorable for CSN. And I am sorry, which was the last question, SWT, with a purchase that the moment of negotiation, we obtained multiple proposals in the binding phase and therefore, there is no specific forecast of when or if this business will take place. These are credible proposals with ensured financing and they continue to be active. It is only one of the initiatives that we have along with the streaming and the sale of assets. It should represent BRL 5 billion. This was a 2 billion of the prepayment, and this will contribute to the deleverage of 3x net debt/EBITDA at the end of 2019.
[Operator Instructions] Our next question is from Thiago from Bradesco BBI.
I have 2 follow-up questions, if may I ask. If you could repeat the Capex for the decommissioning of the dams, it would be very useful to have a figure. And Martinez, I did not understand very clearly, what you've said, which is the increase of market that you are expect in the domestic market for CSN and your expectations for the market as a whole?
Thiago, this is René. Our pace of expenses because of these operations for the safety of dams has represented 600 million in the last 5 years. Life continues at this pace, precisely. The main dam contemplated in this plan are Casa de Pedra, the 2 from [ Bides ] and Fernandinho, 5 dam, approximately, and we do have a schedule. Besides the decommissioning, we want to be at advanced stage at the end of 2019, to be in an even more robust situation. Now all of our dams are fully certified and this is our plan, during the 4 or 5 years to continue with BRL 400 million. The information we have from Steel Brazil is that they're forecasting growth of 6% to 7%, although, we have already grown 20% last year. We're adding an additional 10% on expressive growth in metal sheets because of the added value at CSN. This year, we have a good outlook in exports and a part of galvanized that we will convert to the domestic market. 200,000 tons that should return to the domestic market for the civil construction sector. These are our forecast.
Simply a follow-up Martinez. In terms of prices, I believe in discounts. This year you said, it would be 560, around 560. Now we see a growth of metal sheets. Will this lead to a price increase or not?
Well, I have a scenario with 520, which is what you said, where 520 was a premium with a [ BPA ]. 560 was feasible since the premium would be 0. Once again, why leave money on the table? We have to have a premium for supplying just-in-time in the local markets, and that is why we believe that in this scenario where there is a scarcity of slab and we're purchasing slabs, we could not buy the slabs for less than 500. I think they will get closer to 560 and not 520. With this scenario, the increases will be of 10% to 15%. This is the scenario we're working with. We're bidding on this and March 25, we will have a 10% to 15% price rise. We, of course, follow-up on [ parent sales ]. In the last 2 years, imports of cold rolled sheets was almost 0, and CSN suffered a great deal of 12% that comes to Brazil, 1.4 million tons, we get 17%. And we have to fight in the domestic market with those that have idle capacity. But we do have to see what is happening internationally as well.
The next question is from Mr. Thiago Ojea from Goldman Sachs.
My first question to Marcelo, is if you already have a CapEx figure for 2019 and 2020, and which is your expectations for a free cash flow for these 2 years. This is pending, but second question for Martinez, simply to gain a better understanding. Do you think that the total sales volume will increase? Or is it only your mix that will improve enabling you to sell more to the domestic market, which is your sales expectations for 2019?
Thiago, first question, last year, we closed the domestic market with [ 3,000 ]or [ 3,200]. For this year, the forecast for the domestic market is [ 3,400 ] tons. Now, I would like to underscore that in part of that portfolio of 5 million, [ 5,200,000 ], I can still carry out a migration of what is exported to the U.S. to the domestic market. And there is an increase in volume that we should be able to obtain, thanks to those minor investments and the pre-painting galvanization processes, where we have to obtain greater added value. I estimate that our sales in the domestic market will grow a minimum of 10% this year. Now, there is not enough steel to grow 20% and the market issue is important for us. But what is more important for CSN, is to work at full steam with greater added value. This is our strategy. And the CapEx, so we're accelerating because of the projects that were mentioned. Some projects to streamline steel. This year, it will be around 1.5 billion and perhaps higher in 2020 if our deleveraging plan is obtained. This is our goal. The figure of 2020 onwards still has not been made formal. I can't give you a more precise guidance. When it comes to cash flow, we do have guidance in terms of EBITDA but seems to be conservative at present. The guidance of BRL 7 billion and based on this, we will have a free cash flow of BRL 3 billion approximately with the BRL 1.5 million CapEx and working capital and interest, at least BRL 3 billion. And of course, there's an upside in terms of this figure, these 3 with an additional BRL 3-4 billion for sales adding up to BRL 6 billion that we will used to reduce our net debt to '19.
Now simply to confirm this, which is the iron ore price that you're using for the cash flow generation?
Well the figure of BRL 7 billion is with iron ore, different from the present day situation. Between 30 and 35, is what we expect so that figure will be higher. I'm not going to give you figures, so I don't have to update the guidance. The figure of BRL 7 billion had a reference of place between 70 and 75, for example.
Our next question is from Mr. Rafael Cunha from Crédit Suisse.
I have 2 questions. A follow-up question first in terms of import premium, is there a great discrepancy in a BQ compared to other products? And in terms of your investment pipeline, if iron ore will become more important and if you have an estimate of the total amount that you can raise with these investments in coming years?
Rafael, this is Martinez. As I mentioned, BQ, if we into the range of 520 to 560, the price -- premium is 0 to minus 7, with the dollar at 3.60. We do take into account the dollar. In cold rolled products, the situation is the same. Chinese have very similar curves. They're almost parallel. This would be the premium. In galvanized products, the situation is somewhat different. With a price situation externally, 680, 700 for galvanized products, the premium is still favorable for import. It's much more favorable now than a year ago. And this is the great secret that we have to manage the sale of galvanized products. We monitor what is happening abroad and we look at our initiatives. It's easier to increase this in cold rolled products, more difficult than galvanized products. And in terms of the pipeline, we continue with the iron ore operations. We do not discard new prepayments streaming. We continue active negotiations, and we could have a decision in the short term. And Usiminas, of course, they could be candidates. But as we mentioned, our expectation is to have a total biz investment of BRL 5 billion of this year, BRL 2 billion have already been delivered in terms of the prepayment. And the pipeline would be for those additional BRL 3 billion.
Our next question comes from Mr. Carlos of Morgan Stanley.
Marcelo, my first question -- could you repeat the -- any comments or guidance that you may have on potential asset sales and timing. Were the plants in Portugal and Germany -- Portugal, what happened in the short term? But what about Germany and then the ports in Brazil as well as the [ similar shares ]? If you can going to give us more color on those, that would be very useful. And secondly, to Martinez, Martinez, it sounds like the company is quite optimistic on the infrastructure spend pickup in Brazil. Could you comment the reasons why you're so optimistic? And also [indiscernible] is at the present levels. And also the timing of when you see this spending accelerating?
Carlos, I am going to speak in Portuguese. When it comes to the pipeline, once again, we're creating strategic alternatives. We're not taking commitments with one or another alternatives or with specific terms. And the strategic alternatives are the assets in Europe. I would not include Portugal this year. This is not the right time because of what is happening in Turkey and the custom duties. But still, it continues to be a possibility. Streaming prepayment and the preferred shares at Usiminas. We hope to collect at least BRL 3 billion, which would be sufficient to obtain our 3x leveraging target at the end of the year.
Carlos, this is Martinez. Why are we so optimistic?
I don't know if we're that optimistic. CSN has always been optimistic, because luckily our proposals have been put in place in the last few years, especially in the steel sector. And we have to be optimistic. We had a growth of 20% vis-a-vis last year. As I mentioned previously, the first quarter this year was somewhat slower compared to what we're used to or vis-à-vis 2018. My entire portfolio and all of the indicators point towards a second quarter because of the political scenario. The government's approval of some measures shows that selling the CSN production will be mandatory. I have a finite capacity. I'm going work at full steam regardless of what will happen in the market. Now if you think about the last 3 years, we're in a much better position. 2018 was a better year than the previous 3 year. If we look at the growth of the sector, the automotive growth, capital goods, home appliance, packaging, all have attractive figures for the growth of steel in Brazil. That is the reason underlying our optimism. There is another factor, which our imports. Imports of course represent a threat, but Brazil has learned how to live with these indices. If we're able to reduce the import of products from 1.4 to half we could have our plants in Brazil working at full capacity. Everything conspired for the situation to be better than in 2018. This is our reading of the market that we used.
Just if I may come back to the CapEx figure of BRL 1.5 billion this year. Do you have a breakdown by...
Mr. Carlos, may you repeat your follow-up please?
If I may Marcelo, just coming back to the BRL 1.5 billion in CapEx for this year, what are the main projects included in there? And how much is maintenance -- how much is maintenance growth?
Carlos, during the years with reduced cash flow we invested almost BRL 8 billion, which nowadays is our depreciation. For the BRL 500 million we have discretionary projects divided between mining and steel in a fashion that is very much similar. And when I say there are discretionary, they bring us incremental and additional results, coking, batteries, the blast furnace that will allow us greater productivity, elimination of bottleneck, [ centering pallets ]. Let's just say a series of investments to enhance results. In mining, a group of projects that we call [indiscernible] that as a base, it should guarantee quality and reduce our dependency on dams along with the filtering systems and the magnetic separations. These are the projects that will lead to the BRL 1.5 billion CapEx in 2018.
[Operator Instructions] As there are no further questions I would return the floor to Ribeiro, the CFO and Executive Director, for his closing remarks.
Well I'll give the floor to Benjamin for the closing remarks.
I would like to thank all of you for your participation in this conference call and emphasize the confidence that we have in the recovery of the Brazilian economy into 2019. We are aware of the fact that after Carnival, we will have a resumption and demand in the industry. This is already been observed in those sectors that tend to anticipate this we see enhancement and distribution in civil construction, which is lagging behind. Our quarter has been fulfilled in terms of sales. When Martinez speaks about sales increases in the second quarter, that is something that we're going to begin to implement for the second quarter. The first quarter is all sold out in terms of quantity and price. And we truly believe that as part of the policy developed at CSN in the last few years, we are different commercially. This means that we are an extension of our customers. We have a very close relationship with our main customers in the steel market. We share their day-to-day problems and we share solutions differently from others. We have 20 customers, and we're an extension of their needs, of their priorities. And this sets us aside through this partnership and through this convergence and working closely with them, we are able to act in a more dynamic and expeditious and flexible way. We have adopted this policy for some time now. It has been successful and will prove to be successful in the future, added value, different products and quality. I'm quite calm in terms of what Martinez has proposed and I even think we're having a conservative vision in terms of what we produce and our diversification of products. In the market abroad, we're still active with a good outlook in the United States. When it comes to steel, the concern that we have is the cost. With the increase in raw material cost and with the drop in productivity of blast furnace 3, because we're getting very close to the refurbishing, we are concerned with cost. We were able to buy slabs in sufficient amounts and at competitive prices and this leads us to believe that yesterday's stoppage of blast furnace 3 will not cause additional problems when it comes to our margin, quite the opposite. Part of the slabs were purchased in a very timely fashion with competitive prices. When it comes to mining, of course, we're all concerned with the safety of the dam as was mentioned here. Nonetheless, all of our dams undergo legal inspection. They all have LEED Certification, and we're going beyond this. And the dry stacking operation, which luckily enough, we began 3 years ago, will give us great comfort. And beginning in the second semester, as the operation of the entire dam is decommissioned and the decommissioning of the other dams will be done with very high levels of safety. We do have the help of external people. We have the follow-up of our own team, and we have great confidence in terms of what was done in the last few years. And we also have a great deal of confidence in the professionals and day-to-day work in that operation.
From the financial viewpoint, the commitment that we took last year was the market in terms of deleveraging, is something we will achieve, those BRL 3 million that we are lacking, will be made feasible through financial operations, through the sale of assets or both. But of course this will be done and with the improvement in operations and margin and volume that we are forecasting, I'm convinced that we will surprise you by delivering the challenges that we receive from the market of getting the 2.5x net debt/EBITDA. There is no magic here. This is the result of arduous work, dedication and the work of our associates. We went through very difficult years between 2015, 2017. In 2018 we felt a significant improvement. We're sure that 2019 will be even better and this enables us to harvest, therefore the attitude, the stance that we took 3 years ago. We did whatever was possible to reduce cost. We strove to have higher productivity. We invested in quality enhancement because we're convinced that all the products, not only iron ore, all products have to set themselves aside in quality. Those that have quality will have a market. We're distancing ourselves from being a commodity and because of our partnership with the customer through our joint work, I think, we have guaranteed a larger share in the domestic market and a share in U.S. market as well. We sold the operation, but the operation continues on. And this enables us to set forth the challenges for the budget in 2019. And I believe we will deliver on this. Once again, I would like to thank all of you for participating in our call and I reiterate our trust in the recovery of the country and CSN. Thank you very much for your attention.
The earnings call for CSN ends here. You can now disconnect your lines and have a good day.