Ternium SA

NYSE:TX

Earnings Call Analysis

Ternium Q4 Performance and Dividend Payout

In Q4 2023, Ternium's adjusted EBITDA fell 7% quarter-over-quarter to $651 million, marked by weaker steel prices but offset by cost reductions. Profitability was impacted by integrating Usiminas operations and the ramp-up of the Ipatinga facility. Despite lower margins, net income and per ADS earnings rose due to noncash gains and foreign exchange benefits. Shipments remained robust in Mexico, contributing to an annual increase of 22%. A dividend of $3.30 per ADS has been proposed, with $2.20 still to be distributed. Ternium anticipates higher CapEx of $1.8 billion for 2024, maintaining a solid cash flow and free cash flow.

Financial Performance and Outlook

The company delivered strong results in the fourth quarter, with adjusted EBITDA standing at $651 million, marking a 7% decrease from the prior quarter due to lower steel prices which were partly mitigated by reduced costs. Profitability of the mining operations increased, while net income and earnings per share also exhibited notable robustness. Looking forward, the company expects an increase in adjusted EBITDA for the first quarter of 2024, boosted mainly by improved margins from lower steel costs and slightly elevated revenue per tonne.

Capital Expenditure and Cash Flow

In 2023, the company demonstrated strong cash generation with $2.5 billion in operations and a free cash flow of $1 billion after accounting for capital expenditures (CapEx) of $1.5 billion. Moving into 2024, CapEx is anticipated to be approximately $1.8 billion, reflecting the company's ongoing commitment to growth and productivity improvements.

Strategic Focus and Investments

While no immediate plans for a blast furnace operation have been revealed, the focus remains on enhancing productivity at Usiminas' facilities in Cubatao and Ipatinga. This will involve a CapEx projection of about $360 million in 2024, with expectations to raise productivity at both locations significantly.

Profitability Goals

The company is striving to reach EBITDA margins of around 15%, with a goal of attaining the higher end of their typical 15% to 20% margin range. Despite a decrease in margins during the last quarter of 2023 due to the consolidation of Usiminas and production gaps, there is an optimistic outlook for margin recovery throughout the current year.

Long-term Planning

The management of Usiminas is currently analyzing potential projects deemed attractive and is expected to take a decision in at least more than one year. This strategic planning is part of the company's approach to ensure informed and timely investments to support long-term success.

Market Dynamics and Demand Trends

The company is preparing for a reduction in demand by around 10% for the year in Argentina, a notable decline that is factored into their production planning. This downturn in demand does not significantly affect infrastructure projects as the company has had limited sales in this sector within Argentina to date.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and welcome to Ternium Fourth Quarter 2023 Results Call. this [Operator instructions]. Please note that today's call is being recorded [Operator Instructions]. I'd like to introduce the call to Sebastian Marti. You may now proceed. Thank you.

[Sebastián Martí, executive]

Good morning, and thank you for joining us today. My name is Sebastian Marti, and I am Ternium's Global IR and Compliance Senior Director.They released yesterday's financial results for the fourth quarter and full year 2023. This call is complementary to that presentation. Joining me today are Ternium's Chief Executive Officer, Maximo Vedoya; and the company's Chief Financial Officer, Pablo Brizzio, who will discuss Ternium's business, environment and performance.At the conclusion of our prepared remarks, there will be a Q&A session. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied.Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2 in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday.With that, I'll turn the call over to Mr. Vedoya.

[Maximo Vedoya, executive]

Thank you, Sebastian, good morning to everyone, and thank you very much for participating today in our conference call. 2023 was a key year for Ternium. We made good progress in several fronts following the transformation path we envisioned a couple of years ago.The new projects in Mexico are firmly under development. The new downstream lines in Pesqueria will enable us to offer new high value-added products to our customers in the region. This capacity will be integrated with an upstream project, a new steel slabs mill currently under construction.This will be the greenest and most technologically advanced automotive steel product steel mill in the Americas. It will be able to supply the full range of auto products from exposed grade to advance high-strength field.This slab mill will be based on electric arc furnace technology that could be supplied with renewable energy. In addition, the project includes a direct reduction iron facility with capability to capture CO2. On the other hand, Ternium's new role in Usiminas is already showing good results for the company. The new management team there is taking decisions that are having a significant positive impact on its performance.In addition to these strategic developments in 2023, Tenium had a solid year from a financial performance point of view. Adjusted EBITDA and net income was strong as well as cash generation.As a result of these good results and strong financial position, Ternium's Board of Directors proposed an annual dividend of $4.30 per ADS, a significant year-over-year increase. This is the highest annual dividend on record as we continue to develop a consistent growth path for our return to shareholders.Let me now review the latest development in our main markets. Growth in Mexico steel market has been strong, consumption of flat steel in 2023, reached an all-time high of more than 18 million tons, equivalent to a yearly increase of 18%.Our shipments in the country grew by 22%, with a significant market share gain, supported by the ramp-up of our new hot rolling mill in Pesqueria. The market environment in Mexico continues to be healthy. Industrial activity is strong. The auto industry is working at high levels of capacity, rebuilding stocks in the value chains. In 2023, automotive production increased by 14%, reaching 3.8 million units. Construction activity in the country also remains at good levels with no residential like industrial warehouse, natural gas pipelines and other infrastructure projects doing well.On the other hand, residential construction has been negatively affected by the increasing prices of construction inputs. The EMEA sharing of manufacturing capacity is clearly one of the factors contributing to economic activity in the region.Mexico offers a compelling combination of geographic proximity, skilled labor and a supportive business environment, contributing to increased supply chain resilience. Looking ahead to the first quarter, we expect shipments in Mexico to maintain the strong level we reported in the fourth quarter of 2023.However, there is a downside risk to this short-term volume view as steel prices in the region have recently begun a downward trend, and there is some opportunistic demand retraction, which is typical in such a scenario.In addition, we anticipate lower cost per ton and slightly higher revenue per ton to push margins back up. Regarding our growth projects, we expect to integrate the first line of our downstream project in Pesqueria during the second half of this year with the startup of 550,000 tons per year picking line and the first line of our service center. By the end of next year, we plan to start up the new galvanizing line followed shortly by the cold war in mill. The ramp-up of all these new lines should enable us to gradually increase the value added of our shipments in Mexico.The construction of both our slab mill and the downstream lines is progressing as expected, with suppliers already assigned for all the main equipment and different level of advance in the work of each of them.We have updated our budget for these projects, and we are now estimating a total investment of EUR 3.5 billion, up 9% from the EUR 3.2 billion in our initial estimation disclosed 1 year ago. The main source of this increase were inflation on the pricing of equipment and fluctuations in the FX rate. Let's turn now to Brazil. After an increase in our participation in July of 2023, we began fully consolidating Usiminas results. This happened during a transformational year for mine as it successfully relied its main blast furnace.With the appointment of a new management team, whose Usiminas took strong decisions as, for example, putting out of operation, one of the smallest blast furnace and one of the coking facilities.In addition, the new management team took decisions lead to higher efficiency of the metallic charge in the upstream process and lower fuel rate at the blast furnace. This is part of a significant management initiative, which focused on Usiminas industrial system with the aim at increasing its productivity and it will continue to be Usiminas focus throughout this year.Usiminas Mining operation had a very good year with our non shipments reaching an all-time high of 9.1 million tons in 2023. On the other hand, Usiminas expects a deterioration in its mining business during the first half of 2024, due to the temporary stoppage of an oil processing plants and seasonal rains at the beginning of the year.A key issue in the steel market in Brazil is that adequate trade measures are taken to defend it from unfair trade as has already been made in many other important markets like the U.S., Mexico and Europe.Import of steel sold below cost of production is having at all in the Brazilian steel market. The Brazilian Steel Association, together with all steel companies are actively trying to find a solution to this issue.For the first quarter of 2024, Usiminas anticipate assume sequential improvement in the profitability of the steel business, mainly as a result of lower cost per ton as the productivity of the steel business is gradually improving.In Argentina, a new government administration took office in December and is determined to introduce significant macro-reforms.The first measures taken by the new administration were a steep devaluation of the Argentinian peso, significant government spending cuts with the aim at controlling inflation and the proposal of several market-friendly reforms.These much needed reforms, although positive for the medium to long term are expected to initially have a recessionary effect in Argentina economy and consequently and negatively affect Ternium's shipment in the local market.If the government is able to successfully stabilize the macroeconomic situation in the country and introduce this market trend in reform, Argentina is a country which has remain opportunities for all kind of investments in different fields, which would bring a long awaited path to economic recovery, something that would be very positive for our operations in the country.On the other hand, we are advising advancing in Argentina with the construction of our first self-owned wind farm, which will be in operation by the end of the year. We are also analyzing ways of replicating this experience in other centers. Let me now make a few final comments before closing my prepared remarks. 2024 will keep us busy as we continue implementing our strategic plan, which represent the largest growth initiative in Ternium's history.The development of the downstream project in Pesqueria will enable us to begin shipping higher value-added products to our customers during the current year. We have a strong competitive position in Mexico, a market that has been significantly benefiting by the near-shoring of manufacturing capacity.Argentina, we have a bumpy year, and I'm confident we have the expertise to navigate through a rough period. We do have some opportunities to substitute any steel demand decrease in the local market with shipping to other tennis facility to complement their productions.And finally, this is an important year for Usiminas. It has many opportunities for productivity improvement. I trust the new management team in place will successfully guided to its full potential. With this, Pablo, go ahead and review Pernis performance in the fourth quarter, please.

[Pablo Brizzio, executive]

Thanks, Maximo, and good morning to everyone. Let's review our company's operating and financial results on the webcast presentation for a more detailed picture of our performance. If you want to start by Page 3, please.Ternium delivered strong results in the fourth quarter of this year 2023. Margins in the period were slightly above our last quarter expectations, mainly due to lower cost. Adjusted EBITDA for the fourth quarter was $651 million, a 7% decline from the third quarter 2023. This decrease was primarily driven by lower steel prices, partially offset by lower costs.In addition, the profitability of Usiminas mining operation increased sequentially during the period. Adjusted EBITDA margin stayed constant at 13%, narrowing the prior quarter performance. This relatively low level were once again affected by the consolidation of Usiminas steel operation.We continue to record low profitability as we ramp up its main blast furnaces at Ipatinga facility. Looking forward, we anticipate an increase in adjusted EBITDA for the first quarter of 2024, primarily driven by an improvement in our margins resulting from lower steel cost per tonne and slightly higher revenue per tonne.Moving now to the results. Both net income and extended earning per ADS notably strength during the fourth quarter. These results include noncash positive effects from Usiminas postretirement liabilities and contingencies reversals, along with the net foreign exchange gain related to a substantial devaluation of the Argentine peso against the U.S. dollar.We will go deeper into this on the upcoming slides. Let's turn now to our shipment performance on Page 4. In Mexico, Ternium shipments remain strong in a seasonally weaker period, aided by continued growth of commercial customer demand.Equally remarkable, as Maximo mentioned, Ternium shipments in the country for the full year 2023 surged by 22% over the prior year, indicating a substantial gain in market share, driven by the ramp-up of our new hot rolling mill in Pesqueria.Looking ahead, we anticipate shipments to increase slightly in the USMCA region in the first quarter of 2024. In Brazil, the increase in volumes reported in the second half of 2023, primarily reflected the consolidation of Usiminas. Usiminas expect stable achievements in the first quarter of 2024.Steel shipments in the Southern region decreased by 7% in the fourth quarter as government import transaction and import of inputs affected term steel production rates in Argentina.In the coming quarter, we expect the demand in Argentina to decrease compared to the fourth quarter due to the usual seasonal slowdown and the impact of the macro economic reform in our value chain as Maximo explained.On the following page, #5, you will see that with these factors combined, we achieved in the fourth quarter very similar in shipments compared to the third quarter. Looking ahead in the first quarter of 2024, we anticipate slightly higher shipments in the USMCA region to offset by lower shipments in Argentina.Moving on to steel prices. Steel revenue per ton decreased further in the fourth quarter as expected, reflecting lower realized prices in most of term markets. Looking forward, as market prices in the USMCA region increased during the fourth quarter, contract prices in Mexico are resetting at higher levels in the first quarter.On the other hand, during January and February, market prices in the USMCA region have been decreasing. All in all, we expect higher realized steel prices in Mexico in the upcoming quarter.Now, let's review our adjusted EBITDA and net income on a quarterly basis on Page 6. In the chart at the top, the primary factor contributing to sequential decrease in adjusted EBITDA was a decline in realized steel prices, partially offset by a better cost performance and a more profitable mining operation as shown in the chart at the bottom, net income increased sequentially, driven by several positive factors:$109 million gain from reversal of cost retiring liabilities to Usiminas, a $63 million gain for our contingency reversal due to the nice of a public selection again Usiminas. The favorable effect of the devaluation of the Argentine pesos on Teri Argentina net short local currency position; and finally, an improved deferred tax. On the other hand, net income was negatively impacted by the decrease in recurring operating income and an impairment charge on terms mining assets in the fourth quarter of 2023. Now, let's review on the next page, our cash performance. You can see a healthy cash generation from operations in the fourth quarter, aided by a decrease in working capital. CapEx in the fourth quarter increased sequentially and significantly reflecting the investment we are currently doing at our Pesqueria facility for our new projects. This was partially offset by lower CapEx at Usiminas as the bulk of the investment in the reliance of turning are now being left behind.Despite this higher CapEx level, Ternium managed to record positive free cash flow in the period. By the close of 2023, Ternium maintained a solid net cash position of EUR 1.9 billion. This declined by around $500 million in the quarter, mainly due to a decrease in the fair value of the Argentine bonds, the majority of which are held by government of Argentina.These bonds are valued use in Argentinian pesos quotation and reported in U.S. dollar using the official Argentine peso exchange rate. The decrease in valuation was mainly the result of the significant devaluation of the agented by the end of the year and is reflected in other comprehensive income as long as these bonds are not sold or eventually, these bonds are sold any positive or negative results in our comprehension income is recycled to financial results in the incoming state.Let's now shift our focus to Page 8 to assess our full year performance. The shipments surpassed those of 2022 by an increase of 19%, with higher shipments in Mexico and the consolidation of Usiminas.Ternium adjusted EBITDA was EUR 2.7 billion, supported by a record level of mill steel shipments and a healthy adjusted EBITDA margin. Despite the negative effect of the consolidation of the Usiminas operation as is relying main blood furnace in Ipatinga.Adjusted net income remained unchanged in 2023, with weaker operating performance offset by positive effects on deferred tax of local CapEx fluctuations and better net foreign exchange results, mostly related to the fluctuation of the Argentine peso.Moving on to shareholders' return, as Maximo mentioned, Ternium Board of Directors' proposal for an annual dividend of $3.30 per ADS. The company already paid an interim dividend of $1.10 in November 2023, and we tend to pay the remaining $2.20 on May 8, 2024, pending shareholders' approval.As you can see in the chart, Ternium has been consistently increasing its return to shareholders over the last 4 years. The dividend proposal for 2023 is equivalent to an even yield of around 9%. Now, in the final slide, you can see the strength of Ternium cash generation in 2023. Cash flow operations was $2.5 billion and free cash flow of $1 billion after CapEx of $1.5 billion. Looking ahead, we anticipate CapEx to be around $1.8 billion in 2024.All right. We have concluded our prepared remarks. Thank you for your time and attention, and we are now ready to take any questions that you may have. Please, Operator, proceed with the Q&A session.

[Operator]

Ladies and gentlemen, we are now opening the floor for question and answers. [Operator Instructions] Our first question comes from Carlos De Alba from Morgan Stanley.

[Carlos de Alba, analyst]

So, 2 questions. First one is very straightforward, how much of the EUR 2.2 billion CapEx has been spent already? And how should we think about the distribution between 2024 and 2025 of the remaining portion that has not yet spent been spent?

[Maximo Vedoya, executive]

Yes, Carlos. So, I give you first the numbers of 2024 and 2025, if you want. The total CapEx we are seeing in 2024, it's around EUR 1.8 billion. This includes Usiminas. And the total CapEx of 2023 probably is going to be around $2.5 million also including Usiminas, 35 million, yes of 2025 is 2.5%.If you are talking about the 3.5% in particularly of the project, this year, it's around 200, I mean, 2023 was around $200 million. Well, sorry. No, it's 400, 400 yes, it's $400 million because there are some payments we made with equipment. Next year, it's going to be around $800 million. And the big part is going to be around EUR 1.5 billion in 2025.

[Carlos de Alba, analyst]

And the second question is, so now that you have been operating Usiminas for about 6 months or so, what are the plans that you have for the operation, in particular, do you know what you're going to do in Cubatao? Are you going to restart crusty production there? What is the overall total CapEx that you see for the company?And third point there is what is the timing for you or for the company to reach, I think the $150 per ton EBITDA target that I think you mentioned in the past that you wanted to bring that operation to?

[Maximo Vedoya, executive]

Well, yes, we have been operating Usiminas for the last -- no, we have been a new management in has been operating Usiminas for the last 6 months. And they are making a lot of changes, as I already mentioned in my remarks.I think that from your questions, there's still no answer for the Cubatao question. I mean it's clear that Cubatao is a great asset. It has a wonderful hot stream mill and a very solid cold-stream mill.Putting the upstream capacity there is not an option with the equipment. I mean we are not going to put a blast furnace operation, again, but there could be some alternatives. But we are going to take a little bit of time before taking a decision over Cubatao.I think that the focus today in Usiminas is the industrial facility as a whole, Cubatao and Ipatinga and how we make much more productivity or more competitive that operation. As I said, we are seeing a lot of opportunities to increase the productivity of Usiminas in both facilities.And we are going to focus, I think, this year in that sense. CapEx will be around $360 million in 2024, that's the number we are seeing today. It's lower than the number of 2023 because, of course, of the relining of the blast hurdles. But that's the idea. And I think, I don't know if you have another one.

[Carlos de Alba, analyst]

Yes. The other question was related to what we were expecting to the margin of Usiminas?

[Pablo Brizzio, executive]

As you know, Carlos will always work with the idea of getting Ternium to a margin of around 15% to 20%. We were able to achieve that during last year.The year-end 2023 margin on EBITDA was 15.6% for the year, clearly, we reduced percentages during the last quarter, clearly, because of the consolidation of Usiminas and the review margins that Usiminas has during the second semester of 2023 due to the relining of the blast furnace and the lack of that production.So, we are expecting to start recovering from that situation. And hopefully, by the end of this year, we should be able to reach better margins and reaching the number of around 15% EBITDA margins altogether, of course, and also in Usiminas.So, that's the expectation, a very high expectation that we have for that. And we are working on that front together with the management of Usiminas is working in order to achieve this in the coming quarters.

[Carlos de Alba, analyst]

Just one maybe, what I wanted to get at, Maximo, with the CapEx question on Usiminas, if you have already a ballpark, maybe a range of the amount of CapEx that needs to be invested in Usiminas in order to really bring that operation, both Cubatao and Ipatinga to a level that you think is more close to the state Ternium standard.

[Maximo Vedoya, executive]

No. I think that the EUR 320 million is part of that project and several years at around that number, Usiminas has to do 3 or 4 things. Some environmental in Ipatinga, we have to take a decision, but it's part of the decision easier within the numbers that we are expecting of the cocoa and some also improvements in the downstream operation.But with that level of CapEx in the following years, I think we are going to be okay. The other issue in the long term is a mining operation. That's a completely different number, of course. But as you know, we are in the process of analyzing and preparing all the necessary studies and engineering if these projects so that we can go forward if we approve that project.

[Carlos de Alba, analyst]

And I don't want to too much on, but just on Cubatao, given the location of the facility, plus what you mentioned, the downstream operations or assets there, is it a possibility for Usiminas down the road to invest in an electrical furnace maybe together with pelletizing on DRI in Cubatao?

[Maximo Vedoya, executive]

I think that it's partially, yes, I would say. Why partially? I think that an electrical furnace is an option there, of course. DRI facility is a different matter because of the cost of natural gas in Brazil. If you have cost of $16 in Brazil of million with you, it's not possible to put a DRI facility. But you can put an electrical furnaces without the DRI facility. But again, this is in the medium and long term. We are not today saying anything about that.

[Operator]

Our next question comes from Yulia Luisito of Bank of America.

[Yulia Luisito, analyst]

So, I have 2 questions. My first one is on second half, we're starting the downstream line at [indiscernible] so, I just want to understand what does that mean for your long-term EBITDA margins? What kind of increase should we expect in terms of EBITDA per ton? Or maybe the percentage, just to get a sense of your model it going forward?And my second one is on Usiminas. I know you guys don't have a decision yet, and you're still starting. But I mean, what time line should we expect on since the life of Usiminas at the end of the last months quite close? And so, why should we expect a decision and considering turning to a portfolio of assets across Latin American current costs at mining, does it make sense for Usiminas to remain in arrear in our next quarter going forward?

[Paolo Rocca, executive]

This is Paolo. Let me take your first question. Clearly, every investment plan that we are doing, and especially the one that you mentioned are in order to sustain and increase our EBITDA margins.Here, we are talking about projects that will be up and ready by the end of next year. So, it's difficult to tell you a number exactly on that because we need to see exactly which is the environment of prices. But as we always say, every project that we develop needs to contribute to position Ternium in the upper part of the range that we want to be in.As we always mentioned, this is between 15% to 20%. And clearly, these projects are adding value to the product line that we have today. Remember that these plans that we are currently pulling forward are to increase the value at after the big investment that we did to have a new core rolling mill.So, with the new CapEx and the new plans that we have in Mexico, we'll be able to supply a full range of product for the auto industry as Maximo mentioned in the opening vena and clearly increase our margins. It's very difficult to give you an exact number on how the margin will improve. But clearly, this will position Ternium to be closer to the upper side of the range where we want to be.

[Maximo Vedoya, executive]

Yes. Regarding Usiminas Mining of MUSA and the new project, we have at least 2 years to make the decision. I mean, MUSA is going to continue the actual production with the ups and downs that are normal in a mining operation until 2028, 2029 So, to decide on the project, we have time.What Usiminas management is doing now is putting forward a team and analyzing in very detail on the projects, which so far seems very attractive. But I cannot tell you more than that because the decision is going to be taken in at least more than 1 year. But again, once we make the decision, we're going to go forward quickly, and that's why Usiminas is putting a team together and making all the studies that are necessary and even asking some permissions.

[Operator]

Question from Enrique Marcus from Goldman Sachs.

[Enrique Marcus, analyst]

Just want to understand a little bit better the prospectus for demand in Argentina after the whole devaluation from the Argentine peso if you guys can comment a little bit more on the expectations for demand and even any impacts from public infrastructure projects, that would be great.

[Maximo Vedoya, executive]

Yes. Thank you, Enrique. Yes, I mean, the own numbers we are putting up in our forecast, we are seeing a decrease in demand for the year around 10%.This is a high decrease and probably could be a little bit less than that. But in doing our planning of the production facility, we are putting that number as the number in demand. Infrastructure projects, we didn't have a lot of of sales to infrastructure projects in Argentina, except those of oil and gas. And the ones of oil gas, I don't think they are decreasing those projects.So, I mean, demand for all Bacauarta and for the reversion of the north gas pipe, they continue forward. So, we don't see a decrease in demand of infrastructure. But, of course, the recession that we speak is going to take this increase in the demand in the market.Probably with this number, we are being a little bit cautious. And by July, August, things could start doing better. Again, if the government has succeeded in implementing all these reforms that, as I said, are very well-needed reforms in Argentina. I hope I answered your question, Enrique.

[Operator]

[Operator Instructions] Our next question comes from Marcio Sold from Goldman Sachs.

[Marcio Farid Filho, analyst]

A couple of follow-ups for me. The first one, there was a marginal increase in CapEx at Pesqueria, so just trying to understand if you're confident that no more capture revisions are going to be needed. And this timing for the project is still on track.And secondly, I think you've talked about the outlook for demand for Mexico and the U.S., but if you can give us some visibility into expectations going to the first quarter and maybe into the year as well. I know there are some structural drivers that seems to be quite interesting for what earnings position, but anything else that you can provide in terms of details that will be great.And last, in terms of dividend, obviously, $3.3 announced for the year in total, trying to understand if you still have the view of continuous increase in this base is the one that we have seen for 2023 is now a new base to think about for 2024 onwards.

[Maximo Vedoya, executive]

Thank you very much, Marcio. Let me start with the Pesqueria CapEx question. I think it's the correct number of today. There are 2 things that, as I said, change the number.First, when we did the project more than 1 year ago, there was an inflation in equipment and also some inflation in the construction. So, I mean, it's some part logic to increase a little bit.The other important issue is that when we approved the project, some of the equipment that we bought or a lot of the equipment that we bought were in euros. And the euros that time was $1, EUR1. And today, it's $1, 1.09, 08. So, there is an increase also there. Those are the 2 main factors that make us increase the CapEx. We don't see so far something else that can move that number. Of course, we can have some bumps in the road. But to be honest, we don't see it today. And I think it's a quite safe number to put the 3.5%.

[Pablo Brizzio, executive]

To add to that, we are perfectly on timing. So, we are taking any delay on the pressure we got which was second part of that question.

[Maximo Vedoya, executive]

Yes. No delays in any the lines. Then you have the dividend question, the 3.3 billion. I mean, this is, as we always said, I mean, we want to take steps at steps that we can sustain in the future. And so, we think that the 3.3% is something that we can sustain in the future. So that's why we're putting and if you see our track record, it is a big increase in the last 5 or 6 years.If you remember, before the pandemic, I think the number was 1.2. And today, 5, 6 years later, we are on 3.3%. So, I think it's safe to say, except something strategy happening, that the 3.3% is a new level, and we are going to analyze or the Board is going to analyze as it always does, if we can increase a little bit less. And you have a question in the middle about Mexico. I don't remember exactly what was the question, Marcio, about Mexico.

[Marcio Farid Filho, analyst]

Just about overall demand and prices within Mexico, please.

[Maximo Vedoya, executive]

Okay. I mean demand in Mexico, and I said demand not only in Mexico, but in North America, is good. I mean, because it's very linked North America to Mexico.In the last several conference call, we were always talking about when the recession is coming. And to be honest, today, we don't see that in the demand. We see healthy demand in both countries, in the U.S. and in Mexico. Mexico is, of course, driven by industrial production.Construction is a little bit low and it's going to be a little bit low, the commercial market for the next probably 1 or 2 months before prices settled down and start probably increasing a little bit again. But demand, in general, you see activity pretty much good. Of course, I don't think the increase in consumption it's going to be that much as it was in 2023.The last number of World Steel was that the consumption of steel in Mexico was going to grow by 2%, number now more or less. And as I remember in my remarks, it grew up by 14% in 2023. But again, we are seeing healthy demand.

[Operator]

Our last question comes from Caio Greiner from BTG Patel.

[Caio Greiner, analyst]

So, 2 questions. One quick one on HRC prices in North America. Just wanted to hear your thoughts on what you think the next short-term move is going to be. Prices are trading at a relevant premium to other regions. I mean, we haven't seen some players trying to announce even further price hikes, but the point is that we're seeing prices trending down even lead times are moving lower.So, I just wanted to hear your thoughts on what you think that the next move for HRC price is going to be what can we expect for the first quarter and even into the second quarter of 2024.And my second question, guys, on just a broader one on Ternium's valuation and corporate simplification. I remember some time ago, a few years ago, you guys attempted a Corpus simplification in Argentina, which didn't really move forward. I just wanted to hear an update on that.I mean we have a new administration in Argentina. Have you guys been in talks whatsoever with the President and with the new administration? So maybe we can, so Ternium could try and address that issue.And one more thing on corporate simplification, maybe do you guys think that Usiminas could also be a part of this in the future? Because when we think about valuation for both Usiminas, I mean, it's interesting to see that Ternium, the controller is actually trading at a discount to Usiminas. So, when you think about the company's corporate structure, I mean, there could be maybe some room to simplify all that and try to get a re-rating for the stock.So, I just wanted to hear your thoughts on the latest update on corporate simplification on those 2 items.

[Maximo Vedoya, executive]

Thank you very much, Caio. I will start with the second one. And also, if Pablo wants to add something, please do Pablo. And then the first one, Caio, corporate simplification is still on our agenda, at least on the agenda of Ternium management and the Board.We don't have anything to inform about that yet. We haven't talked with the new government of this issue. I mean the government has a lot of things going on in their hands, the new government. But I think it's something that, at some point, this government should be able to analyze as I always said, this is a transaction that favors Ternium. It favors Ternium Argentina, and it favors the government.So, if we reason with that in mind, it should be something that at some point can happen. But to be honest, we haven't talked anything like that. Usiminas is kind of different because as you remember, we have an agreement with our partner and Nippon Steel there. And so, we are not going to do anything for the next year, 1.5 years. In the future, could be something. But today, I think we are happy on where we are in Usiminas and working to improve Usiminas.

[Pablo Brizzio, executive]

I wanted to say, as you said, we have been discussing this for a very long period of time. Clearly, it's part of our strategy, clearly, it is in our mind. And as soon as we see the chances to move forward with this is clearly something that we consider important for the future of Ternium from a different standpoint and clearly valuation one of that.

[Caio Greiner, analyst]

And just one follow-up on the corporate simplification, how do you guys view the possibility of delisting Usiminas 2 years down the road on the agreement with Nippon gets pretty much expires?

[Pablo Brizzio, executive]

That's a difficult question to answer, Caio, because not only we have an agreement that Maximo mentioned, that will take some time for us to move forward. Then there are other shareholders in Usiminas. And the corporate loss and regulations in Brazil in particular.So, they are quite complicated. We know there are some possibilities of service that regulation, but it's not something that we are seeing at the moment. As I said, corporate simplification is in our mind. So, it's something that we are always thinking about. But it is not something that we can move forward right now.So, it's very difficult to speculate on that at this moment. Clearly, it's something for start to think in the future in relationship to that. The closer one that we have, and hopefully, we will have the chance to analyze it more in depth is the Argentine 1, which is to with this new government easier to do than in the past.

[Maximo Vedoya, executive]

So, hot oil prices in the U.S. Well, yes, you're right, Caio, that prices has been coming down in the recent weeks, in the last 3, 4 weeks.As I said, it's not a problem of the demand, but it is a problem of imports that are coming mainly to the U.S. and San Paras to Mexico. So, that's the main reason. The good news is that demand is already still there. And I think this is going to be something that it's going to stabilize in the near future. I don't see prices going much further down.As I always said, there is a new floor or a new standard of prices in North America that is around or a little bit higher of $900 million at least. So, I don't think prices are going to change. Again, because the demand is there and we know imports for the following months in May, June, July, are coming much more lower. So, I am positive about that.

[Operator]

We don't have any pending questions as of the moment. I'd now like to hand back over to Maximo, CEO, for closing remarks.

[Maximo Vedoya, executive]

Thank you, again, all for participating in today's call. As usual, please feel free to contact us for any questions or comments. Thank you very much, and goodbye.

[Operator]

Ending today's call. Have a wonderful day.