Gerdau SA (GGB) 2009 Q4 法說會逐字稿

Good afternoon and welcome to Gerdau's teleconference to discuss the results for the fourth quarter of 2009. At the moment all the participants are connected as listeners only and then we will proceed with the Q&A. (Operator Instructions)

We would like to emphasize the fact that during this teleconference when we talk about the outlooks of business for Gerdau, these are projections and operational goals and financial goals. And these are just forecasts based on the expectations of the Company. Even though Gerdau believes that its comments are based on reasonable assumptions there is no guarantee that the future events will not affect this evaluation.

We have here Andre Gerdau Johannpeter, the Director, President and CEO; and Osvaldo Schirmer, Vice President and Director of Investor Relations. I would like to give the floor to Mr. Andre Gerdau.

Thank you very much. Good afternoon and welcome to our teleconference that will talk about the results for the fourth quarter of '09. We will begin our analysis evaluating the performance of the period and right after that we will talk about the outlook in the markets where we operate.

Further on, Osvaldo Schirmer will talk in more details about the financial performance of the Company. And after that we will be available to take your questions.

So now let's proceed with the evaluation of our performance in the fourth quarter vis-a-vis the third quarter of '09. On page two, as you can see in -- through the Web, we will have the initial highlights. We will start with steel industry production in the world, which reached 328 million tonnes (sic - see Press Release) in the fourth quarter which represents a growth of 2% vis-a-vis the previous quarter.

China represents 47% of the world crude steel production in '09. In the last quarter alone there was a slight drop, going from 147 million tonnes to -- 154 million tonnes to 147 million tonnes. This reduction was due to a seasonal demand which was lower in that period.

Now in view of the previous quarters, the resumption of the demand for steel occurred in various degrees according to the geography. Brazil is still doing very well in the fourth quarter because we have the best results among all of our different operations. That performance was boosted by a growth in the construction industry in the country, also due to infrastructure products and the availability of credit boosted by also governmental programs that try to give a further push for the acquisition of homes and the automotive industry also which leveraged its sales.

Gerdau managerial effort was also very important because we were able to reduce our working capital costs and our debt level which allowed us to maintain a very strong cash position throughout the year of 2009. This whole set of initiatives undoubtedly expanded our competitiveness and gave us more flexibility in the world steel market.

Now I would like to talk about the fourth quarter, starting with working capital which dropped -- decreased BRL422 million in the fourth quarter, which represents a drop of 6% vis-a-vis the third quarter. Our net debt was continuously amortized throughout the year. In the fourth quarter the net debt was reduced by about BRL1 billion. And in that year it represented a decrease of BRL8 billion. This was due to the payment of material debts in the period and also the advance payment of future payments.

Also we had $1.25 billion of new debt bonds which mature in 10 years in the international market and we wanted them to expand the profile or the structure of the debt.

Shipments, 3.7 million tonnes with a reduction of 5.3% over the previous quarter. And this was also impacted by seasonality in the period, particularly in North America. In 2009 shipments reached 14 million tonnes. Net sales was BRL6.4 billion which represented a reduction of 6.5% vis-a-vis the previous quarter.

Now, in 2009, throughout the year our net sales -- consolidated net sales was BRL26.5 billion. EBITDA was BRL1.2 billion in the fourth quarter, which means minus 9.4% when compared to the previous quarter. And the EBITDA margin reached 19.6%, which was in line with the third quarter.

In 2009, EBITDA reached BRL3.8 billion. Net income in that quarter was BRL643 million, which proved to be very stable, vis-a-vis the third quarter. Net margin increased 9.6% in the third quarter and growing to 10.1% in the fourth quarter. Now, net income in 2009 was BRL1 billion. However, if we put aside the non-recurring items like the impairment of assets or net income tax and also the net income of the Company during that year we would have reached BRL1.9 billion.

Dividends that will be paid on March 12, BRL255.7 million for Gerdau's shareholders and BRL105 million for the shareholders of Metalurgica Gerdau S.A. These amounts refer to dividends related to the fourth quarter. During the year the compensation of shareholders for Gerdau S.A. amounts to BRL362.2 million and for Metalurgica Gerdau BRL172.8 million.

Now we will talk about disbursements of PP&E that in the quarter was BRL275 million and 60% of these investments took place in Brazil. Throughout the last 12 months of '09 these disbursements totaled BRL1.4 billion.

And I would like to also point out to our main investments. First we put into operation a continuous casting of slabs in the unit of Ouro Branco. We also started operations of a new melt shop in Tocancipa, the operation of continuous casting of blooms at Sidenor, Spain. Also a new capacity of the rolling mill and the melt shop of (inaudible), the installation of a new project in the new area of the finishing (inaudible) in the US, the modernization of reheating furnace in Middletown and also the increase in the speed of our continuous casting of specialties steel production.

Now, we will go to page 4, for those of you who are following us on the web. Our general view is that the market will still recover further throughout the year but at different stages depending on where they are located, depending on the geography, the same thing that happened in 2009.

In 2010, according to the IMF there will be a growth in the world wide GDP of 3.9%. In terms of the world steel market according to the World Steel Association for 2010 it is forecasted that the worldwide consumption of steel should reach 1.2 billion tonnes, which represents 9% -- a 9% increase when compared to 2009. And this would be almost the same as the volumes that we experienced in 2008.

In Brazil domestic demand should remain strong. And according to an estimate by the central bank GDP should increase 5.8% in 2010. According to the Instituto Aco Brasil the apparent consumption of steel should grow 22% in 2010, thus reaching 22.9 million tonnes of apparent consumption of steel.

The two main segments or industry sectors responsible for this increase one of them being the civil construction industry that according to the central bank should promote an increase of 6.4% this year mostly led by investments in infrastructure and the programming at (inaudible) the Olympic Games and the World Cup.

In terms of the industry also we should expect a growth of [8.8%] and I would like to highlight investments in (inaudible) that should also boost demand for steel. According to the estimates of the Brazilian Steel Association, the whole set of events that are in the pipeline for Brazil should also generate an additional demand of 8 million tonnes of steel until 2016.

Now on page 5, I am looking at our operation in North America. The outlook is that the demand for steel will increase gradually. We saw sales -- our sales in December of 2009 and January of this year have already shown signs of recovery in our North American operations.

The strengthening of the industry was very positive in the fourth quarter in the beginning of 2010. Also the industry has become a lot stronger and will remain as such in early 2010 in terms of demand increases. In January of 2010, the prices of steel have already increased slightly because of increase in demand and also the higher cost of scrap, which is our main raw material.

In terms of the impact of all of the different government programs to promote a new stimulus in the economy, we should also point out for the fact that there are still a lot -- a substantial amount of allocated funds that have not yet entered the actual economy, and therefore because of construction programs, constructions of high-speed trains, roads, bridges et cetera should gain an additional momentum, and this should increase disbursements in infrastructure.

A total financing of roads in the US reaches $28 billion and I think that in the next two months we will see the effects of this new investment. This improvement must also be influenced by the end of a lower seasonal demand. This amount of $28 million (sic) of funding for roads is part of a package of a $135 billion geared towards civic construction projects.

In terms of exports of our North American operation the expectation for 2010 is a very positive one, and it is an expectation for growth in the period, because we already shipped 377,000 tonnes. This amount -- this volume is 7% higher than the one in 2008.

We also increased our commercial presence in Latin America through exports from the US and we are also now operating in new markets such as the Middle East. In addition we also foresee some good commercial opportunities for Gerdau Ameristeel in the nuclear energy industry.

We already have built some downstream operations that are -- have been certified to manufacturer's products for that industry. In 2009 we have signed contracts to supply steel to two nuclear power plants and there is still a high potential for new other mills in the pipeline.

When we talk now about Latin America, I must say that the markets should still present good signs of improvement in 2010, and according to the IMF, we see a good expectation of GDP increases, for Peru plus 5.8%, Chile plus 4%, Mexico plus 4%, and Uruguay 3.5%.

For the Latin American Institute for Iron and Steel, the apparent consumption in the region in 2010 should reach 26.3 million tonnes of rolled products, which means an increase of 12% when compared to the previous year 2009.

Specialty Steels for 2009, 2010, I think 2010 will be a very positive year for this segment of Specialty Steels, continuing the good momentum of the automobile industry in Brazil, and also with the gradual pickup of the US markets.

In the US, after a year of restructuring in the North American automotive industry 2010 starts with more favorable financial conditions and an increase in the sales of trucks and automobiles. In Brazil, sales of vehicles in 2010 according to the national agency, ANFAVEA, point out to a growth of 9% till the end of March.

We will also see a reduction of IPI that will still be available for the purchases of double or flex-fuel vehicles, and that favors the sales of automobiles. In addition to that, the government is still trying to provide stimulus to the renewal of the truck fleet.

In Spain, we had some gradual recovery of demand in January of this year. For instance we had new orders coming from Spain, which was record in the period of the past 12 months. Spain had to go through a year of new adjustments so that they could be equivalent to the new market levels.

On page 6, Gerdau still well prepared to fulfill the demand -- the new demands for our products in Brazil and in the world. In addition, we will invest BRL9.5 billion between the period of 2010 and 2014 in our operations. Out of that amount, 80% of the funds should be directed to our units in Brazil.

I will just point out to some investments in our pipeline. They have already been approved. One of them is the installation of the heavy plate rolling mill in the unit of Ouro Branco, Minas Gerais, the expansion of the structural shapes rolling mill in the units of Ouro Branco.

We resumed the activities of the mine in Varzea do Lopes in Minas Gerais, and also the installation of a rolling mill, and a joint venture in India.

In addition we have the -- some other investments that are being studied at the moment, the installation of a wire rod rolling mill in our business operation in Brazil, an increase in our capacity of rolling mill in our BO of Specialty Steels, and also the expansion of the downstream operations for (inaudible) and expanded products.

In conclusion, I would just like to mention that we are -- we firmly believe that 2010 will be a very positive year for Gerdau in view of the continuous improvement in the demand figures for steel and also because of all of the work we are doing to maintain all of the synergies that we were able to acquire in 2009 to expand our productivity and to keep competitiveness still in line with the market.

Now I would like to give the floor to Osvaldo Schirmer that will talk about the figures for the quarter.

Thank you, Andre, very much. Good afternoon. I would like you to look at screen number seven. I will begin part of my presentation talking about some of the consolidated results, and next I will talk about some of the business operations, and I will conclude talking about our capital structure.

The net -- the consolidated net sales in the fourth quarter was BRL6.4 billion as mentioned by Andre, with a reduction of BRL445 million over the revenues of the third quarter, which was minus 7% and this can be clearly seen in the first bar of the chart -- the bridge chart on EBITDA. This reduction in net sales is mostly due to lower volumes sold in the period which was of minus 5% and particularly coming from North America.

The cost of sales was reduced by BRL273 million in the fourth quarter, which is the second bar in blue in your chart, 5% lower than in the third quarter of '09. Thus gross margin was 21% and it was -- and it remained stable. On the other hand, it improved by 3 percentage points vis-a-vis the fourth quarter of '08, when it was 18%.

The remaining lines that are part of the EBITDA calculations, such as SG&A, depreciation, other operational revenues in equity and earnings were particularly offset leaving a positive balance of BRL43 million.

Considering all of the variations mentioned above, the EBITDA in the fourth quarter reached BRL1.2 billion, 9% lower than in the third quarter of last year, and 20% -- I mean, 9% lower than in the third quarter.

The EBITDA margin was 20%. It's also important to mention that it was absolutely in line with the EBITDA levels that we had in the third quarter of '09 and 4 percentage points higher than in the fourth quarter of '08. So 4 percentage points higher.

Down below in the chart, we can see the evolution of the net income in the third -- from the third to the fourth quarter which shows a contribution of each item to its calculation. So starting with the result of BRL655 million in the third quarter, we have the following effect from the fourth quarter that allow us to reach a net income of BRL643 million.

As you can see in the chart below, there was a reduction in EBITDA of BRL129 million, but also there was a very positive effect caused by the non-adjustment of impairment of assets that at the end of that quarter was BRL143 million and that refers to the -- our -- the impairment of assets of sales springs in North America. And then you can see through the chart that we had BRL143 million.

Screen 8. Here we draw a comparison between cost taking into account production, production costs and expenses. On the right-hand side of the screen we'll make a comparison between shipment and SG&A. In that slide, we intend to show you the efforts that we took to address the cost structure of the Company to the new levels of demand because of the crisis.

All of the efforts we undertook to address our structure costs had a very positive impact in the final results of the Company. Even with an increase in the production of crude steel of 18% in the fourth quarter of '09 against fourth quarter of '08, the fixed production cost was reduced by BRL514 million. That effort once put together with high levels of production allowed us to reduce relative participation of these costs vis-a-vis the total cost of production to levels which were below our historical levels and which were approximately 25% in terms of total costs.

In terms of the third quarter of '09, the production fixed cost of the fourth quarter increased by 64 million, but it was mainly due to some set backs for equipment maintenance, for setup maintenance. The same thing can be also noticed when it comes to SG&A, that with the growth of 5% in shipments in the fourth quarter of '08 to the fourth quarter of '09, they had a reduction of a BRL189 million. In terms of the third quarter of 2009, these SG&A expenses represented an increase of 51 million, but that it was due to something very good, which was the gradual recovery of the operations in the past few months.

If we look at the figures in reais per tonne, so the reduction of these expenses was 28% going from $217 -- BRL217 per tonne, which you can see on the right-hand side of the chart in the fourth quarter of '08, BRL256 per tonne in the fourth quarter of '09, which was a substantial reduction of 26%.

Now, let's look at every segment individually. That's what we call our business operations deal. So screen number nine, we start with Brazil. The Brazil business operation gave us a net sales of BRL2.8 billion in the fourth quarter, which was absolutely aligned with the third quarter of '09. The optimization of the products in the domestic market allow us to get more profitability even with a reduction in the sales volume, which was 3% in the same period according to what you see on the right-hand side.

Sales in the fourth quarter were 1.4 million tonnes out of which 1.1 million were in the domestic market growing by 6% driven by higher demand from civil construction and industry and 322,000 for export purposes with a drop by 25% in exports driven to the domestic market with a better mix as it has presently.

Foreign currencies from exports totaled BRL318 million in the quarter accounting for 11% of net sales in the BO in the Brazil, our business operation in Brazil. The same operation in Brazil accounted for 44% of the consolidated net sales in the group in the quarter and over the year 39% of net sales.

Gross margin remained stable in the fourth quarter vis-a-vis the third quarter. And the higher -- well, maybe we could say that the higher scrap and pig iron costs were fully offset by the reduction of coal and ores costs. The lower ore costs result from the restart up of the mine in Varzea do Lopes increasing our own use of ore approximately 50% of the need of the mill in Ouro Branco.

The cost of coal was lowered due to new supply agreements and renegotiations signed as of the third quarter of '09. Just as the gross margin, the EBITDA margin was also absolutely in line with the third quarter at 30%.

On screen number 10, North America. Net sales in the business operation in North America in the fourth quarter was BRL1.7 billion or 22% lower than the third quarter of '09 due to lower prices and lower volumes sold in the quarter. The sales from the BO dropped by 14% or 1.2 million tonnes mainly due to seasonality, which is typical of the fourth quarter, and benefits in the third quarter related to inventory replenishment in the chain. When compared to the same period of the previous year, sales remained stable.

The sales reduction in the fourth quarter of '09 vis-a-vis the third quarter of the same year provided for lower dilution in fixed cost leading to a drop in gross margin by 13% in the third quarter of '09 down to 5% in the fourth quarter of '09. The higher costs of the scrap use in the quarter lowered the metal spread of $405 to 389 of short tons. And North America contributed with 26% of the consolidated net sales in the quarter at 31% in the year. EBITDA in the fourth quarter was BRL120 million with a margin of 7% accounting for 10% of consolidated cash generation in the quarter.

Please note that EBITDA in the fourth quarter in North America included the amount of BRL68 million from actuarial adjustments, would generate a gain, non-recurring gain reflected in financial statements in IFRS, which have no impact in the statement presented in US GAAP by Gerdau Ameristeel.

Now, moving to slide 11, Latin America. The sales of steel in Latin America amounted to 137,000 tonnes in the fourth quarter, 10% lower than the third quarter affected basically by seasonal factors in the fourth quarter and higher volumes of imports in the region. Net sales in Latin America was 650 million in the fourth quarter or 16% lower than third quarter due to the reason explained before.

Gross margin was 11%, slightly lower compared to the compared to the third quarter as you can see on the chart. The BO in Latin America accounted for 10% of consolidated net sales in the quarter and 12% in net sales in the year. EBITDA in the fourth quarter totaled BRL29 million, 28% lower compared to the previous quarter at BRL40 million. Therefore EBITDA margin was 4% in the fourth quarter, slightly lower than the third quarter and strongly recovering vis-a-vis the negative 4% margins recorded in the fourth quarter of '08.

Now, on slide 12, Specialty Steels. Good news now. Specialty Steels encompasses operations in Brazil, US, and Spain. Net sales grew by 15%, thanks to an increase of 20% in shipments with a total of 568,000 tonnes. The markets in the Brazil and in the US were positively affected by local governmental measures to encourage car purchases.

In Brazil, more specifically, the reduction in excise tax and low-cost loans for heavy vehicles are still positively affecting the volumes sold he in the period. In the US, the temporary government stimulus to the automotive sector, cash for clunkers, favors the demand for long steel throughout the automotive chain, therefore benefiting steel producers like us.

In Spain, sales grew in the fourth quarter vis-a-vis the third quarter of '09 thanks to a stronger demand in the period due to the higher volumes sold and consequently higher dilution of fixed production cost. The gross margins grew from 16% in the third quarter to 18% in the fourth quarter.

EBITDA in the fourth quarter was BRL264 million, a margin of 21% in the quarter and a higher performance compared with the third quarter as shown in the lower chart, the last chart.

Now moving to slide 13, net debt and liquidity. Net debt in December 2009 amounted to BRL9.7 billion, something around $5.6 billion, a reduction of 9% vis-a-vis the September, but most importantly it accounted for a 45% reduction vis-a-vis the debt by the Group in December 2008. So that was owed mainly from amortization, exchange variance in the quarter, and also advance payments. Net debt was BRL14.5 billion on December 31, 2009 out of which 9% were short term, importantly 91% of the debt was long term.

To currency breakdown 19% were in real, 38% in foreign currency contracted by the companies in Brazil and 43% in different currencies contracted by subsidiaries abroad. Of the total gross debt, the bulk was taken with commercial banks, 34% as shown in the pie chart in the lower part of the screen. And also debentures and bonds typically market operations with 45% of the debt.

The average nominal cost of the gross debt on December 31, 2009 was 6.3% broken down as follows. In real, 7.6%, in foreign currency taken by companies in Brazil amounted to 7.3% plus exchange variance, and debt abroad around 4.2%.

Cash on December 31st totaled BRL4.8 billion out of which 62% were held by Gerdau companies in Brazil and are invested in local currency. And the balance was in different currencies, particularly US dollars. This cap position when added to committed credit lines provided Gerdau with liquidity of approximately BRL5.9 billion, more than $3.2 billion.

As to working capital, part of our efforts to make adjustments, there was a drop by BRL4.6 billion over the fiscal year with these efforts in the fourth quarter and we had an additional reduction of BRL422 million in our working capital.

Screen 14, indebtedness and liquidity. The effort to lower the debt added to the exchange barriers of the percentage of the dollar denominated debt allowed for a lower debt EBITDA ratio at the end of the fiscal year 2009. When compared with the end of September, the gross debt over EBITDA ratio was 3.8 fold in December whereas it was 4 fold in September, whereas the net debt over EBITDA ratio was 2.5 fold in December and 2.7 fold in September.

$0.5 billion with Nippon Export and Investment Insurance and several term loans taken by (inaudible) amounted to $1 billion. In parallel, we also worked with structured operations in order to clearly extend the debt profile.

We highlight the issue of 10-year bonds amounting to $1.25 billion in November 2009 with a coupon interest of 7% per year and maturity in 2020. Net funds out of this effort were used to pay short and mid-term debt as I mentioned up to 2012 and not increasing the indebtness level.

After issuance, the average term was extended. Now we have an average term of seven years. Considering this operation and other minor operations over the year, the schedule for debt payment got very comfortable as shown in the chart on the right with only 15% of the total debt due over the next two years.

Please also know that solid capital structure of the Company, currently the debt over total capital is below 50% -- 40% to be more specific. To conclude I would like to stress the Company's effort to align its operating and financial structure to the new global scenario for this new market. Throughout 2009 we managed to reduce our fixed production cost at BRL2 billion, we decreased our working capital in BRL5 billion, we reduced the net debt in BRL8 billion. By doing so, Gerdau is now ready to fully meet the stronger demand expected with a unique position in all regions where the Company is present.

Thank you and now we are open to answer your questions.

Ladies and gentlemen, we are starting now the Q&A session. (Operator Instructions)

Felipe from Santander wants to ask a question.

Good morning, thanks or good afternoon, I guess. Thanks for the call. I was wondering if you could give us a little bit of (technical difficulty) on your capacity utilization on average in 2009 at the end the year in 2009 and where you are expected to be in the coming quarters in the different geographical business units. Thank you.

So you mean our level of use of our installed capacity in '09 and also the outlook of use throughout 2010. That's your question, right?

So we have a translation of my answer into English. The average use in late 2009 was around 75%. And then we have units to come to this average. They already were using more than 85% of their capacity and others over 50%. That's why we come to this average figure of 75%. At 2010, we foresee strong progression in this level of use mainly in operations in Brazil and in Latin America, and a recovery or an increase in North America, but at a slower pace.

(Operator Instructions) [Marcus Arsosel] from [Itau Brokerage Firm] wants to ask a question.

Good afternoon to all. My first question has to do with the Brazilian long steel market. Maybe you could elaborate more on how you foresee the evolution of the long steel business in Brazil. We've heard recently -- we were more concerned with an increase in competitiveness in the domestic market especially via imports. And maybe last power or bargaining power compared to domestic scrap producers, they've been trying to use channels for export purposes. And then we have to find other markets, and not only the domestic scrap markets. So maybe, if you lose margins, EBITDA margin or profitability on a mid-term long basis, how do you feel about the Brazilian market of long steel? Do you feel these imports should come back? How do you see these in the Brazilian markets?

Good afternoon, this is Andre. When it comes to the scenario in Brazil, what we've seen so far are some imports, but they are still not that significant with not such a strong impact in long steel. However, there's been -- but that has some penetration in the market, and that's also a reflex of this moment of oversupply in the world steel market and also the influence of exchange -- foreign exchange in Brazil that makes things easier.

As the scrap, we have supply, and we've been following the scrap generation. It has followed the GDP growth, and that's a phenomenon seen in many economies, from the moment economy -- the economy grows. We also have a movement in the scrap industry. We don't have scrap enough, we also use pig iron.

We saw some imports last year, but we don't have scrap exports, with no impact. As to the drop in the margin increase, we should also consider volumes. That's an important factor. From the moment the market grows and the use also grows, we also become more competitive price-wise. So that's the scenario envisage. We keep on being competitive, we are being very strong in costs, both for imports of products, or scrap exports, they're not that significant, but we've been monitoring all these phenomena.

Great. Second question has to do with operations in Latin America. Schirmer mentioned that there is a full recovery in volumes, and also the use of capacity to Brazil and Latin America more specifically. I guess, Andre mentioned -- and you also mentioned, Andre, you said that you are expecting a strong GDP growth in Peru. Could we also expect that once you have the restart of the other furnace that was idle in Peru, do you think we should expect a higher production there, or maybe improve margins and more cost reductions in Latin America too?

Well, since you mentioned my name, let me do my share of the business. Okay, I am more related to Brazil. And that according to [South] America and the GDP indicators, I think that recovery will be substantial. And I'm glad to say that beginning the end of April and early May, the blast furnace in Peru will resume operations, giving that business unit more competitiveness.

Thank you very much.

Mr. [Rafael Webber] from (inaudible) has a question.

Good afternoon Andre and Schirmer. Congratulations for these results. I have three questions, and the first refers to the new coal contracts you mentioned, which were negotiated in the third quarter. Could you give us an idea about what they amount to? What is the amount involved in these new contracts? And what is your idea about possible price increases beginning in -- about this year?

And my other question relates to the maintenance of the robust growth of volumes sold in the Specialty Steel units in the first quarter. Could you give us an idea about whether we will -- we should expect a good performance in the following months? And in that increase in the roller mill capacity and in melt-shop capacity, what markets these operations would help?

And my last question is whether that income tax and social contribution figures that you showed in the fourth quarter which were relatively lower than historic figures were good in terms of your fiscal debt with America, or whether there was any other participation of a non-recurring item that you could probably elaborate a little bit more about?

Hi, good afternoon Rafael. This is Andre. I will start with some of the answers, and then Schirmer will follow suit.

About the coal contracts, as anyone else, we had contracts when prices was triggered and when prices were higher. They were around $300 or more. And then there was -- there were a series of re-negotiations. I'm just going to speak in more generic terms. I will give prices in general.

Coal prices in the world went down by about $120 per ton. And today, the prices find themselves around $180 per ton FOB or something like that. This is just to give you an idea about the extremes prices have reached top $300 and now it's about $150 or $180. And then there is a likelihood that the prices of coal will increase slightly because of the demand coming from China and the US, which is suffering with bad weather. And they've had -- I mean, this is our general comment.

In terms of Specialty Steels, there was an important recovery, and we see that Brazil should continue to grow because our automobile industry is growing, following what we experienced last year, and in the United States, and that was the best piece of good news because they are resuming growth. Last year, it was very difficult for the US automobile companies because they were getting through a major restructuring. But as of the second half of the year, with the cash for clunkers project, there was a new boost in the market. And now, we see that -- what we find today in terms of the figures, they are recovering gradually. Not as much as Brazil, but there should be a gradual recovery.

In Spain, they are not recovering as much. It's not such a robust recovery, but there are signs of good recovery along the way. And I know that we will be able to benefit from that recovery. In terms of our roller mill capacity, that is mostly geared towards Specialty Steels, Specialty Steels in Brazil and that will benefit from this growing demand. And the demand should still grow further.

Today, we have enough capacity to fulfill the demands of the market, but there are still some other projects that have to be looked into very carefully to make provisions for the future. So we are looking into increasing our rolling mill capacity just to fulfill the local demand for Specialty Steel. And then I will leave the next question to Schirmer.

Well, I do understand Rafael the question that you have in your mind. Because you calculated the -- that 3% figure in -- and in terms of what the Company contributed for that figure, in Latin America we used some companies as credit, and we tried to reduce the tax burden for the year. And if -- I know that if you want to draw your projections for the year, you should operate with income tax brackets of about 20% to 23%. So thank you very much.

Mr. Leonardo Correa would like to ask you a question.

Good afternoon. My question is about the demand evolution in the US. We are still noticing a very weak demand in terms of distribution in the US. Some competitors are saying that some of the customers in the US are already satisfied with the current inventory levels. But I would like to have your idea about restocking in the US.

And secondly, I would like your view about the current level of fiscal stimulus. I think you are still waiting for that allotted bucket of funds to enter the actual economy.

And second question is about Acominas. Could you elaborate a little bit more about the utilization level of Acominas and tell us about that mix for Acominas, exports versus domestic production?

I will start and then Andre will finalize. In terms of the demand in the US, I think your observation is correct. The market is reasonably satisfied.

In January they were already anticipating some price moves by placing orders. Therefore we should not expect large demand peaks, even though the year already started much better than what we expected.

And that's what we said before, when Ameristeel speaks this afternoon, you can see that that can be confirmed. Well, there is an important stock of cash that will be geared towards infrastructure projects, and now by listening to what -- to what our colleagues say in terms of the outlook of the market that once the winter in the Northern Hemisphere is over we will see the reintroduction of other projects, particularly infrastructure projects because Ameristeel, Gerdau Ameristeel is absolutely capable of facing the demand in that area in infrastructure projects in terms of the utilization of our installed capacity at Acominas that is around 75%. I think Andre also has a few comments.

Acominas, utilization has been harder to measure because we have continuous blast furnaces, but a good piece of information is that all of our equipment is operating. All of the equipment is working and in operation, and we have anticipated some important maintenance timing that was important and also iron ore was also in our pipeline because that represents 50% of consumption.

Exports is around 65% and the other 35% is in the domestic market for Acominas. So there is a mix and the trend is that well, for the -- in the domestic market, especially when it comes to structural profiles -- structural shapes.

Could you please give us a very quick follow up in terms of your products for heavy plates and steel? So how are things going for 2012 and how is the status of the project?

Well, it's still forecast. As for 2012 we're still working with the engineers, but the project has been approved. We are now going to the final considerations in terms of the kind of equipment, mix of products. We are talking suppliers, so everything is ready now according to plan. Yes, everything is going according to plan.

So thank you very much.

Mr. Rodolfo de Angele from JPMorgan would like to ask you a question.

In fact, I still have a question about Acominas. Would you please give me more details about what we saw in terms of the fourth quarter results and could you compare that with that 70% utilization level? What could we expect in terms of volume and also in terms of the actual effect, I mean, the fact that Acominas is growing in terms of utilization throughout the year?

This is Andre, Rodolfo. That 75% and I already said that all of the equipment is working. The machinery is working so I know that production will be not only better but higher than what we had last year, because we had a setup time. But at Ouro Branco we will have a much more normal year.

In terms of volume, we are now resuming the previous volume. We want to reach 85% but this will certainly depend on the market, since we export a lot in the exporting market.

It's still full of ups and downs and we had last year, an increase in the band, but in February, things are more stable. In March, we still see some signs.

So we have experienced a positive trend, but it hasn't been something continuous in that export market which will be important for Acominas. But in terms of plates, the market is growing.

We see that with Gerdau. This is very good if you also consider the domestic market and wire rod for other units in Brazil, because with a boost in terms of infrastructure projects although -- that market should grow. And this will have an impact in Acominas and Ouro Branco.

Thank you and I think my other questions have been previously answered.

[Bruno Montenari] from Morgan Stanley has a question.

I would just like to confirm a non-recurring amount and the second question is whether you have any estimate in terms of steel volume, and what does the amount for the US represent?

We do not have any direct estimate in terms of that 135 billion of steel. We did not do that calculation, but the important thing is that this is translated into new projects, and this is what we can anticipate for 2010. The non-recurring amount for North America is BRL158 million.

Okay, thank you.

Mr. Wagner Salavery from Geracao Futuro has another question.

Good afternoon, I would just -- I would like to have an idea whether you already work with any estimate in terms of the growth of the Brazilian market in the next few years because of the higher amount of investments and infrastructure and this real estate boom, because I think by what I've read that this growth will continue on for a few more years. And how do you intend to fulfill that market, to provide to that market?

Good afternoon, Wagner. Well, I would just use the figures from the Instituto Aco Brazil and the growth is of approximately 3 million tonnes for 2010 in terms of apparent consumption and percentage-wise this will be about 22% growth which is a significant growth, but at the same time we had also a substantial decrease in '09.

And this is our horizon. We have made some calculations for growth in the next few years. There will be a growth of 8 million tonnes in terms of consumption in Brazil.

This will be about 1.2 million tonnes a year because of all those different events that are taking place, like the World Soccer Cup, the Olympic Games, et cetera, et cetera that (inaudible) program.

We also have some -- our internal accounts but we are not going to disclose that because we work with several different scenarios.

Do you work with any possibility of a price increase of Specialty Steels because of the current demand status and the possibility of that being still strong in the market?

No, we don't see -- we don't have any -- we don't have any figures for any kind of increase in the price of steel.

Thank you.

Ms. [Gina Montony] from [Verdesko Bank] also has a question.

Here is [Raphael Biderman]. My first question is about scrap cost in Brazil in the fourth quarter. There was an indication that there will be -- there was an increase of 20% in the cost of scrap in this quarter and whether you consider getting scrap from the US or whether the price of scrap will still grow further and whether you will be able to stop the price growth. And you talked about the fact that there will be no increases in the price of specialty steels in Brazil, but what about common steel like rebar whether you think that there will be increases in Brazil, price increases?

And finally, the North American market, and you mentioned new investments in the US, especially in infrastructure works, highways and railways. Do you -- can you tell us whether the effect or the impact will be felt now or not? Because last year people will say, no, this is for now, and there was some indicators, but nothing happened.

Is there anything that can make you really say that now we will have these investments and this is something that will happen this year or should we consider that for the foreseeable future?

Now, let me begin by answering the question about scrap. I cannot confirm that figure of 20% you said in terms of increase. I cannot comment on the prices. We just -- scrap prices just follow the market. And once again with the growth of the economy there has been a growth in generation of scrap in the US also. And once again we use pig iron because there is not enough scrap to meet the production.

You do not confirm the figure of 20%. But can you say that there has been an increase in scrap prices in Brazil?

There was a drop in prices early this year and then an increase. But scrap prices vary according to the market.

Longs, we do not foresee any increases, I mean I refer to specialty steels in longs and in -- and in the US. We thought that the money from the stimulus package which was close to $800 million and part of that amount should go to infrastructure projects. We thought that that would be materialized into actual projects last year. But that wasn't enough.

The -- our team that is there and they have contacts with the federal and state governments in the construction companies, now they are telling us that they see some movement. There is a delay in terms of the announcement of the stimulus package and the fact that -- and actual construction side will be initiated and that will consume some steel. But we see signs that throughout 2010 things will be materialized even because we see very strong needs for new infrastructure projects.

And in a given moment that money will be translated into construction sites and more -- further demand for steel. All of these are long-term projects. So this recovery in the US will not -- will no longer be so slow and gradual. You can probably say that we should expect a more substantial increase in 2010. I think it will continue to be slow and gradual. But the important thing for us is that we see a very positive trend from now on.

Thank you, Andre, very much.

[Tiago Lafiego] from Merrill Lynch has a question.

Good afternoon to all. I'd like to better understand your outlook concerning the civil construction market, both in commercial and non-commercial terms in the US more specifically.

My second question has to do with spread in the US, metal spreads, the levels for the first quarter.

In terms -- this is Schirmer by the way -- the demand in civil construction and housing in the US we still believe that for civil construction, for housing purposes it will keep on being slow as you can see in the media. But we believe that for non-residential purposes from the moment we have other projects more related to infrastructure in the chain and also due to a better reflex when we have things very well equipped. Ameristeel is very well-equipped.

And remember Andre's comments, recovery is gradual in the US and actually we need volumes. In-house work for cost reduction has already happened and then as a result the recovery in margins will happen.

And to the matter of spread there was some narrowing in the fourth quarter, something around $374 or $380 per ton.

Mr. Schirmer, what are the current levels?

Basically the same. There is slight variation. We have movement in scrap but also some increase in prices two-fold, so we can say it is about the same figure as the outlook for the future. We will depend a lot on the behavior of the demand for scrap. We know the US market is oriented to scrap exports therefore the pressure in the international market on scrap will basically depend on that. But today I would say it's around $380.

Thank you. Perfect.

Mr. Rodrigo Barros from Deutsche Bank has a question.

First of all congratulations on the results, very outstanding results. Two questions. The first one has to do with the installed capacity for carbon long steel in Brazil. Growing at 22% considering the [IDR] figure for this year and assuming 2011 is a strong year, well, we would be close to 100% of capacity for carbon long steel.

And my second question has to do with assets. Will (inaudible) announce the spin-off of assets? And a lot has been said about other companies. And we know Gerdau has also substantial mineral assets. So what will the Company do with these assets?

Rodrigo, this is Andre. When it comes to capacity for this growth, well, 22%, overall speaking we still have capacity to meet that. And even in 2011 we still don't know what the growth will be. We have similar or higher or lower figures. We do have some capacity to add value to some mills and we also have for rolling steel. But we are still making investments which is important to follow that growth. And our commitment, undoubtedly, is not to have a shortage of material in Brazil. That's what we are focusing our effort on.

As to mineral assets, our priority is still coming to 80% of self-sufficiency in our plants in Brazil, be it for Ouro Branco or others. So investment in our plants is to come to production to first meet the needs of our own Company. That doesn't mean we are not going to keep an eye on other alternatives. And maybe in the future we might consider doing business with other mining companies or to work with exports. But we want 80% over the next two years, especially for our more competitive units and then later we can study other alternatives.

Perfect. Thank you.

We're closing now the Q&A session. Now I'd like to give the floor back to Mr. Andre Gerdau Johannpeter for the closing remarks.

As usual, I would like to thank you all for joining us, thank you for your interest and the high quality of your questions. And we expect to see you again in the next quarter with progressively better comments as we started last quarter.

Thank you so much for your interest, we are closing 2009 and you've been following up several of our calls. And our team is still at your service to answer and provide more figures we couldn't discuss today. So we hope to see you again in the first quarter of 2010. Have a good day.

Gerdau's conference call has come to an end. Thank you all for joining us. Good afternoon.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.