Gerdau SA (GGB) 2018 Q2 法說會逐字稿

Good afternoon, and welcome to Gerdau's conference call to discuss the results related to the second quarter of 2018. (Operator Instructions)

We would like to emphasize that any forward-looking statements that might be made during this conference call related to Gerdau's business outlook, projections and financial and operating goals are mere assumptions based on management's expectations related to the future of the company. Even though Gerdau believes that its comments are based on reasonable assumptions, there is no guarantee that future events will not affect this evaluation.

Here today are Mr. Gustavo Werneck, Director, President and CEO; and Harley Scardoelli, Vice President and CFO.

Now I would like to turn the floor to Mr. Gustavo Werneck. You may proceed, sir.

Good morning, everyone -- good afternoon, everyone. Welcome to our conference call to discuss the results of the second quarter 2018. I must say that it is an enormous pleasure for me to be here again with you to discuss our results, our main highlights and also the outlook for the markets where we operate.

After my remarks, Mr. Scardoelli who is joining me today, will elaborate on Gerdau's financial performance, and at the end, both of us will be available to take your questions.

I would like to begin by talking about Gerdau's highlights in the second quarter of '18. We came to the end of the period with an impressive progress in our results, as shown on Slide 2. This performance reinforces our confidence and the fact that we are on the right track, seeking for higher profitability and return to our shareholders.

We have the best quarterly consolidated EBITDA of the last 10 years. This was possible due to improvements in the world steel market and also our management efforts. These management efforts resulted, for instance, in our capacity to maintain cost increases below the growth of net sales through the extensive use of digital tools.

This quarter, foreign exchange and then more particularly, exchange variation of Brazilian currency was positive for us because we posted gains converting revenues accrued outside Brazil into BRL.

Another highlight of the quarter was the good performance of our operation in North America because, as you know, it produces longs.

The quarterly EBITDA of this operation was the highest one since 2008, reflecting the economic effects coming from the North American tax reform and the implementation of Section 232 that has a positive impact on our performance in the region.

At a global level, we remain stringent regarding investments and CapEx and SG&A reached its best historical level ever, accounting for 3.6% of net sales.

I want to stress once again that at the base of this evolution is a transformation of our business culture, which involves being simpler, more agile and more independent. In regards to the indebtedness, the net debt over EBITDA ratio remains flat. And it might come down further looking forward in the year after the divestment of our rebar units in the U.S. announced in January.

More recently, we concluded the sale of our operation in Chile in keeping with our divestment strategy already mentioned before. The focus is on assets that have greater profitability potential in the Americas, also like the sale of the HPPs in Goias.

Well, now let's look at the next slide and then we will talk about the market outlook that remains positive. In Brazil, the highlight went to the gradual recovery of the industry, a sector that has become even more relevant to us. In the last few years, we grew our product pipeline to serve that industry with a startup of the coiled hot rolled strip, rolling mill that has been placed in the Ouro Branco Mill in Minas Gerais.

The growth of shipments of flat steel by Gerdau to the domestic market was up 38% in the first half of this year when compared to the same period of last year. However, the landscape is still very challenging in Brazil so much, so that Instituto Aço Brasil posted a downward review on the outlook for steel sales growth in the domestic and foreign markets as a result of truckers strikes, political uncertainties, lower-than-expected GDP growth and global trade protectionism. However, the forecast for the domestic market in general is positive according to Instituto Aço Brasil.

As for civil construction, the retail segment is recovering. And I am now referring to civil construction and low-income housing. It is in this niche market that we are stronger in Brazil through commercial Gerdau. For those that are not familiar with it, we have a network of 76 branches. It's truly well positioned to serve all regions of the country geared to (inaudible) builders and civil construction workers.

This segment should continue to grow throughout the year, mainly due to lower interest rates. In regards to infrastructure work and the construction of mid- and high-end real estate, we anticipate a rebound starting only next year.

I would also like to emphasize the important role of our exports from Brazil that accounted for 37% of our shipments in the second quarter of '18.

Exports represent a risk reduction factor to us in view of a landscape of a low economic growth in Brazil. It is also important to note that this quarter, we reduced our export volumes due to a scheduled maintenance in the blast furnace 2 at the Ouro Branco mill in Minas Gerais. These maintenance activities have already been concluded and the steel mill is operating normally. In terms of our operation in the United States, the outlook is also very positive. The economy continues to grow in relation to the 2017 with a solid domestic demand and the lowest unemployment rate of the last 15 years, then leading to higher steel consumption.

Moreover, the effect from the tax reform in Section 232 should continue to contribute to the growth of our operation. I would like to highlight the good perspective in the U.S. industry and nonresidential construction.

Now moving to special steel. In the first half of the year, automobile production in Brazil posted a significant growth of 13% according to ANFAVEA. However, in the second half, low consumer confidence levels, mainly after the truckers strike should impact production volumes of the automotive industry that accounts for approximately 75% of our special steel shipments in Brazil.

In spite of that, the automotive production forecast for 2018 should surpass that of 2017.

Our recent innovation in special steels was a launch of the new product portfolio focused on the automotive and wind power industry. It consists of 4 families of products that offer a series of new possibilities such as lightness, resistance and flexibility of use. With these products, we will be able to cater to the new demands of urban mobility and also help our customers to innovate and develop solutions in line with the trends of the future.

We also have another piece of good news. We just started to produce parts for wind farms in our Pindamonhangaba unit. It is a partnership between Gerdau and 2 Japanese companies. Sumitomo and Japan Steel Works, JSW. The parts will reach the market in the second half.

Before that, we have already been selling rolls manufactured by the joint venture and also products to the sugar and ethanol industry. Well, in terms of the special steels market in the United States, automotive industry should grow even though the production rate is already high. But it's inducive by the favorable local economic scenario that I described earlier and also the oil and gas market also contributed to our good results.

Now looking at the other countries. In South America, we anticipate growth for the region even though the Argentinian financial crisis should be looked at more closely.

Well, now let's move to the next slide, Slide 4, and talk about our investments in the second quarter of '18. Considering the amount of BRL 299 million, 49% was spent in Brazil, 36% went to the North America BD, 11% to the special steel BD, including then the mills in Brazil, U.S. and India and 4% went to the remaining countries in South America.

In the first half of the year, CapEx totaled BRL 516 million, and it was spent in performance improvements and maintenance of our operations.

Now I'll give the floor to Scardoelli, who will continue the presentation. And then, I will see you again after the end of the presentation.

Thank you, Gustavo, and good afternoon to all. Now we will talk about our results and performance in the second quarter of 2018. And I am referring to the slide on Page 6. In consolidated terms, adjusted EBITDA was BRL 1.8 billion in the second quarter of 2018. If you look at the chart on the upper part of the slide, we will see the evolution of adjusted EBITDA that is positive and constant, which margin went from 12.2% in the second quarter of 2017 to 14.6% in the second quarter of this year. This increase is a result of improved performance in all business operations, and in particular, the operations of Brazil and North America, which posted their best quarterly results since 2008.

Now moving to Slide 7 and also adding to the previous slide. On the bridge chart, we see EBITDA evolution from second quarter of '17 to second quarter '18 that reflects an increase in net sales per tonne that more than compensated for the increased cost per tonne. This comes as a consequence of the improved environment in the world -- the world's steel industry and the maintenance of the international prices combined with management efforts by the company.

On the bridge chart in the lower part of the slide, we noted that we went from an adjusted net income of BRL 147 million in the second quarter of '17 to an adjusted net income of BRL 746 million in the second quarter of '18, mainly due to the improved EBITDA this year.

Based on these results, the second quarter of '18 -- in the second quarter of 2018, we paid out dividends in the form of interest on equity of BRL 238.3 million to shareholders of Gerdau and the equivalent to BRL 0.14 per share.

Likewise, in the second quarter of this year Metalurgica Gerdau S.A. earmarks BRL 68.4 million, the equivalent of $0.07 per share for dividend payment. These proceeds from both companies will be paid on August 31, based on closing positions of August 21.

Moving now to Slide #8. I will elaborate on the company's debt and liquidity position. Gross debt on June 31, 2018, was BRL 18.1 billion, down from BRL 1.9 billion vis-à-vis June 2017, and that was mainly due to debt amortization in the period. The strong reduction in the net debt over EBITDA ratio from 3.6x in June 2017 to 2.7x in June of this year was a result of our divestment program, focused on the financial deleveraging of the company and the continuous improvement of EBITDA.

In the second quarter of 2018, we experienced a strong appreciation of the U.S. dollar versus the Brazilian real of over 10% vis-à-vis the previous year and the first quarter of this year. This effect was mitigated by improvements in our EBITDA and results. It is worth mentioning that as we've covered that before, we still have positive effects to be captured from our investment program and, in particular, the positive effect stemming from the sale of our HPPs in Brazil concluded on July 31, in addition to the assets in U.S., that once the sales are concluded, our leverage will be even lower.

And finally, I would like to mention the 14% reduction of net financial expenses in the quarter when compared to the first quarter of the year before. This also reflects the reduction in our debt position already mentioned.

Now I will move to the last slide of my presentation, Slide 9, where we talk about free cash flow. The charts on the slide show that the company generated a positive free cash flow of BRL 86 million in second quarter '18. Also, we were able to generate consistently positive free cash flow as a result of our CapEx discipline, lower indebtedness and working capital management efforts.

In the second quarter 2018, we had the natural impact of cash consumption for the recovery of working capital in absolute terms due to a better business environment, as noted on the bridge chart in the lower part of the slide.

However, I would like to emphasize the continuous positive evolution of working capital in terms of cycle days going from 77 days in Q2 '17 to 72 days in Q2 '18. As a reminder, this indicator has once been above 100 days historically. Thank you very much.

And now I'll give the floor back to Gustavo for his final remarks.

Thank you, Mr. Scardoelli. And now moving to our final remarks, I would like to reinstate that we will continue to pursue our trajectory to face earning challenges in 2018. Gerdau's trajectory and its digital transformation process is still in progress and our objective is to increase the potential of EBITDA generation, increasing the main -- or growing the main areas of our business. We are also working very close to our customers so as to contribute to the growth of their businesses through digital innovation as I've been telling you in past quarters.

The most recent event that it was not yet disclosed to the market is that now we have our own office in the Silicon Valley. The purpose of that is to bring on board new innovation and digital transformation to expedite with our business, seeking for better margins to our operations.

In 2018, we should also be able to reduce our debt position despite the impact from foreign exchange. This should occur once we get the proceeds from divestments from our rebar operations in the U.S. and HPPs in Goias, which process has concluded in the past few weeks.

As you know, the generation of positive free cash flow remains one of our priorities, and we intend to expand it further this next quarter.

And finally, we continue to focus on the profitability of our operations, seeking to improve and expand the results that we already reached in the first 2 quarters of 2018. Regardless of external factors and market volatility, I see that we can still have room for further improvement, especially considering the quality of the Gerdau team, and it is to this team of Gerdau that are dedicate my deepest admiration.

So now I conclude my part of the presentation and we go to the Q&A session.

(Operator Instructions) Our first question comes from [Lunas Jorge] from BTG Pactual.

I just want to focus on the price issue in Brazil. I think that everybody is seeing a mismatch of prices in the domestic market. The discounted price is probably double-digit when compared to what you had imported. So I just want to learn more about all of these misalignments that are happening. And the media also talks about an increase of 15% in July. I -- all I want to know is learn more about this evolution and we saw a certain evolution in the second quarter because prices increased quarter-on-quarter. And it's difficult for us to distinguish what is the mix effect and what is the price effect. So it's important that we get a little bit more color in terms of pricing evolution for the next 2 quarters of the year. And the second point, if you allow me, in the U.S., we saw a strong EBITDA margin evolution, almost reaching double digit. And this has been the goal of the company for several years. We already saw a result of 9% of EBITDA margin. We're looking if the pricing scenario with all of the benefits from Section 232, metal spreads are still open. So I just want to hear about what you think will happen to metal spreads evolution. And again, what will be the import or volume scenario looking forward? This will help us map some possible improvement towards the third quarter because I think that things will resolve positively there too.

This is Gustavo. As you know, Gerdau doesn't usually elaborate a lot on our commercial strategy. But what I can say is that today, our recomposition of prices in the first quarter of the year just to compensate for increases in raw material and freight, we are constantly monitoring market conditions to evaluate the impact of costs on our margin. And in terms of export premium, our prices in Brazil vary between a slight negative premium and a balance in international prices. We believe the positive premiums would only occur, again, after a more intense rebound in demand from Brazil. Now in terms of your second question about margins in North America, the good performance of the quarter not only lead to larger scale demand, but there was also the fact of Section 232, the tax reform and a 20% reduction of long imports in 2018 vis-à-vis 2017. All of these factors had a positive impact on our performance, not only ours, but also on the performance of other local producers. And so we still see good opportunities that will allow us to reach double-digit, like you mentioned, in the near future. But in addition to all of the improvements that we noted, even revenues from the rebar divestment in the U.S. should also contribute to our margins because as soon as the divestment is concluded, we will be able to post more positive figures.

Next question from Thiago Lofiego from Bradesco BBI.

I have 2 questions. The first is on working capital. There was a variation of slightly over BRL 1 billion in inventories. If you could elaborate a little bit more on that variation of inventories because when you look at production and sales figures, it doesn't show such a large variation, large enough to justify that difference. So what will be the expectation for the next quarter? And whether the working capital has compromised your cash generation? So what do you think that will happen in the next quarters? And my second question relates to export volumes in the Brazil BD. I would just like to understand what is the specific export strategy of the company? I know that recently you sold less in the quarter because the price realized or net sales per tonne was strong. And then probably, it had an impact on your mix strategy and export volume in the quarters looking forward.

Thiago, this is Harley. Well, I will answer your question on working capital. Well, working capital, well, we have here the absolute value and everything else, but it has been positive. And we see that, as I said, this quarter, our cycle was slightly above 100 days, but we are happy with the working capital in the cycle. It is natural that when you have a stronger business and prices are stronger and with the recovery of volumes, it's just natural that we will have an impact on working capital. If you take the variation of working capital in the first half of 2017 and the first half of this year, you will see that the effect was a bit better. In the second half of the year, even due to seasonality effect, we may have positive effect from cash generation and working capital. So in terms of the cycle, we are performing well. Another thing that is important to mention is that inventory from North America also has the impact of the exchange rate in terms of working capital in absolute terms. Now talking about exports, Thiago, the market is positive. We have closed important deals with interesting delivery dates. The pricing has been maintained flat in the last few months. And in particular, in the second quarter, there was a drop in export volumes, especially due to the scheduled maintenance of our blast furnace 2 at the Ouro Branco Mill in Minas Gerais and then the export factor may be carried over in the third quarter. After the blast furnace resumed operation, everything went back to normal. So once current prices are maintained and if the market remains strong as we anticipate, we should see an increase in export volumes in the fourth quarter. Initially, exports of semi-finished goods because in a way it helps us to keep volumes despite all the commercial barriers that have been implemented by some countries like the U.S. and countries of Europe. So we see exports in a very positive way in the quarters looking forward.

I don't know whether you could also comment on the margin differentials between the domestic market and the export market or at least give us a range that can help us in our modeling.

Thiago, we don't usually break down the numbers like that, but what I can tell you is that export margins are also positive. And they will positively contribute to our overall results.

Next question from Ivano Westin from Crédit Suisse.

My first question is on special steel. You just reported a flat EBITDA margin also combined with a further recovery. I would just like you to draw a comparison between Brazil and U.S. on that result. And also looking forward into the second half, what could you expect in terms of margins looking towards 2019? And in terms of the North America BD, you are very -- you put a lot of emphasis in delivering high single digits this year and you did that. And I just want to know whether you have the same thing in mind for special steel? Now speaking about investments and divestment of your assets in the U.S., I just want to confirm the estimated cash and date?

Ivo, it's Harley. As per special steel, we don't give guidance or break down figures for the U.S. But certainly, between Brazil and the U.S., these 2 operations are performing well. Both markets, even with their own peculiarities, are performing well. The numbers for Brazil, obviously, have a lot to do with the results posted by ANFAVEA, but growth is still positive for oil and gas as well. Since last year, we started to make some exports. That's a market that we were not so active in the past, but today we are entering that market and that only illustrates our diversity, so we are doing well. There is -- we're not seeing anything negative looking forward. Now speaking about divestments in the U.S., even if we do not have a firm date to give you because this is a process that is in the hands of the U.S. authorities, our expectation is that this will occur until the end of the year. But again, it's something that we're monitoring very closely. The process is moving normally, but I think, therefore, that we hope that it will be concluded by the end of the year.

That's clear. Also, in special steels, can you confirm the utilization level for both Brazil and the U.S.? And what is the expected volume for the second half of the year?

Our special steel operations is close to 60%. It's an average in terms of rolling products, which would be our final product. If we look at the steel capacity, the production capacity, that's closer to 80%, but these are average figures for the special steel operations in Brazil.

Next question is from Marcos Assumpção from Itaú BBA.

And congratulations for this EBITDA over BRL 5 billion after quite some time. And also congratulations for your growing dividend. This reinstates a positive outlook for cash generation. So first question refers to EBITDA per tonne in the U.S. EBITDA per tonne doubled in dollars, reaching $80 per tonne in the quarter. Could you please comment on that a bit and comment on that outlook? I mean, at the end of the quarter in June or July, so we will have an idea of how to project that forward. Also, my second question is given the fact that we saw a continuous reduction in SG&A as a percentage of revenue. Now we are beginning to see an improvement in the U.S. market pricewise. Therefore, better revenues should have a lower impact on G&A mainly. And also in Brazil with the prospective of prices being with a lower parity, and prices reaching close to parity, or maybe slightly above, as you said, so where -- I mean, how big would be the operating leverage considering Gerdau's goal? We saw in SG&A as a percentage of revenue. But theoretically, we see a little bit more pricing coming in, and so that number could follow -- could drop a bit more. So if you could shed some light, I would appreciate it.

Marcos, this is Harley. I will start by talking about EBITDA of North America and then next will talk about SG&A. I mean, EBITDA in North America is a combination of factors. When we have more profitability, the impact is also proportional in terms of EBITDA. Metal spread is better. The pricing environment is better. SG&A was impacted, so there was an impact of the lower prices of scrap. And if we have a better metal spread, we will also have a positive impact on the sales per tonne. We had EBITDA of around 4% to 5% in the past. So the operating leverage in a recovery period is important. So once we have a better environment as we had in the U.S. as a whole, that improves our capacity and takes us to good levels and also the improvement in metal spreads reflect in this improvement on EBITDA per tonne.

This is Gustavo. About SG&A, I often reiterate that I believe that SG&A, in a normal level, measures the health of the company because we're trying to build a simpler and more agile Gerdau giving more independence to people as well. Therefore, it's worth mentioning that in the second quarter of this year, SG&A was 3.6% of net sales. And that was a historical figure for our company. In the second quarter of last year, in 2017, that amount was 4.6% of net sales. Therefore, this result reflects our efforts toward simplification and deploying digital transformation. I just want to make clear that our efforts to reduce SG&A by 0-based budget or ZBB has been very good. This is good news is that even with a growing revenue, we were able to hold back SG&A. And in the next quarters, we will continue to seek for all possible opportunities that will allow us to lead SG&A over net sales to even a lower level.

I have a last question to Harley. If you could elaborate a bit on debt and leverage? Dividends are beginning to increase and that helps to increase liquidity of Gerdau. So how do you see things looking forward? Do you think that you would be able to reduce on the 0 debt leverage?

In terms of Metalurgica Gerdau, our level is very comfortable because we -- this initiative of ZBB or 0-based budget is helping. But with our results improving and we know that now we were able to pay out more dividends, this will expedite the process. But we must recall that part of the debt of the Metalurgica is -- will be totally covered by August of next year. So what we will have left is a debt that matures in April. But we have several options to improve our results, and so we will have enough proceeds to pay off the debt. Therefore, we feel very comfortable that the debt along a time line will be close to 0 once our results or leverage does improve.

Next question in English from Jon Brandt, HSBC.

I first wanted to ask you about uses of cash. It looks like you'll have strong free cash flow in the second quarter because of a better operating environment and reversal of working capital as well as some inflows from asset divestment. I'm wondering if that's going to be used predominantly to pay down debt and if you're sort of comfortable with the BRL 18 billion gross debt level? Or if you see opportunities to pay that down through liability management? My second question relates to EBITDA margins on a pro forma basis, both in the U.S. as well as Brazil. I'm wondering if you can comment a little bit about the EBITDA margins, what they would have been in the second quarter had you sold the rebar operations already. And as well as what they would have been in Brazil given it was a bit of a noisy quarter with the truckers strike and the blast furnace being down for maintenance? That'd be great.

I mean, first part of the question was about cash flow and how we are using the proceeds, whether it will be to pay off more debt and what is the comfortable level of debt that we want to have. At a normalized debt level, both in the U.S. and Brazil and North America, if you consider the assets we have today that have to do with the rebar divestment. And in Brazil, it also has to do with our divestments here. I mean, to answer your first question on free cash flow, our objective will be and it will remain being to use these proceeds to reduce our debt. So we want to the reduce leverage level of the company substantially. We're not giving any guidance in terms of what level that will be. But the trends, depending on the results, will bring that debt down. And then, obviously, with the proceeds from the divestments, especially the sale of the rebar unit in the U.S., that are not yet incorporated in the company, this will help us lower our leverage. So our purpose is to generate further positive cash flow and also we use the proceeds to reduce our debt position. Now in terms of normalized EBITDA, we are not giving any specific guidance. These are figures that would be yet very preliminary; therefore, we want to wait until the sale of the assets are concluded. And then after that, we will communicate to the market what the impacts of that divestment will be to our results. Now in relation to Brazil, the truckers strike is something that certainly impacted the business and to that end, Instituto Aço Brasil mentioned the impact of the strike to the industry as a whole. There was also a direct impact on our freight costs, but nevertheless, we are absorbing anything in our business. And the results for the next quarters will show that we're able to absorb the impact without major setbacks.

Next question, also in English, from Carlos De Alba from Morgan Stanley.

First question has to do with demand in the U.S. Could you comment as to the latest news that you have received from people that are talking to customers on a daily basis? Do you see a second half of the year as strong as the first half or stronger? And also, are there any segments or niches in markets that you supply in the U.S. that are starting to show some signs of slowing down? Any comments that you can provide on the metal spreads for the U.S. in the third quarter would also be helpful. And then finally, in Brazil, what are your expectations in terms of demand for the second half of the year? To what extent do you think that the truckers strike has affected sentiment and real economic activity that may jeopardize any potential strengthening of your shipments in second half of the year? And then, if I may, on costs. I mean, clearly the quarter had a strong performance on EBITDA generation. A lot of that has to do with better shipments and higher prices, but cost also went up on a per-tonne basis obviously. There's a lot of pressures that affect that. But how do you feel about cost going into the second half of the year? Do you think that most of the pressures that we have seen in the last few quarters or months will continue? Or they have stabilized at this point?

Okay. His question has to do with margins in the U.S. in the second half. And also he asked a little bit about demand in Brazil. And the second part of the question referred to cost pressure on our results and how do you see things looking forward. Okay. To answer the first part of your question related to U.S. margins, our U.S. operation is posting continuously better results because the environment in the U.S. has been impacted by the reduction of imports. Our capacity is at good levels, even though scrap prices have gone down a bit. So we have -- there has been no impact on demand in the markets where we operate. So the outlook is very good as for the second half of the year in our U.S. operation without considering the fact that we also had changes in that operation and we are focusing on improving our margins sustainably. So the outlook is very good. I will talk about now about the cost pressure. Our costs per tonne undoubtedly have gone under pressure. But if you look at Brazil, the scrap prices here are stable. But in the U.S., scrap prices are down. Coal also had some changes. But contextually speaking, I do believe that the steel industry, whenever there is any pressure on raw materials, it ends up by improving its margins and sometimes, it improves or keeps its margin and because there is more demand for the projects. And companies like Gerdau with a very good diversification of raw material collection and good penetration in its market with good geographic penetration. And we have good penetration in the markets where we operate. So certainly, the company can cope with price increases and at the same time, maintain or even improve margins.

This is Gustavo. The truckers strike was, certainly, very important to Brazil. We always say that this happened before the strike, and that happened after the strike. There is a feeling about demand that people are less optimistic. But when we look forward in the second half of the year, demand in general from our business is slightly lower when compared to the first half of the year. The only exception is retail from civil construction where we are not seeing any decline. On the contrary, with the reset in the second half of the year, retail and civil construction are areas that will remain strong. And at Gerdau, we have the new branches of Comercial Gerdau and these branches can cater to this audience in a very different way. Therefore, in the domestic market, this demand will be directly geared towards exports because we want to keep our volumes stable until the end of the year.

Next question, also in English, is from Andreas Bokkenheuser from UBS.

Just 1 question from me. You obviously mentioned that rebar prices have been holding up quite nicely in the U.S. as well as Brazil. And scrap prices have been stable in Brazil, whereas even in the U.S., scrap prices have actually been coming down lately, which is somewhat unusual to see. Normally, the 2 are very correlated. And then, obviously, we're also seeing a bit of a disconnect between scrap and iron ore at the moment. So just wanted to ask what you think is driving this disconnect in the U.S. and potentially even in Brazil?

Andreas' question relates to scrap prices in the U.S. and what justifies the recent price changes. I mean, in a way the U.S. is a net generator of scrap and they export scrap. We also believe that with the strength of the U.S. economy, this also led to the recovery of the industry. This generates more scrap. So this is an important aspect because the country is generating scrap. And there, in the U.S., we have a very robust and efficient scrap collection system. And this also contributes to a lower scrap price.

Next question from Milton Sullyvan from XP Gestao.

The first question relates to the impact of the truckers strike. I do apologize for being repetitive. But even though their results were good, I would like to ask you to help me detect some one-offs that you saw because you brought numbers related to volumes that were sold or maybe not reported as revenue or one-off costs that were incurred because of the strike. And then you had a scheduled maintenance this quarter that is not going to happen next quarter, that is not related to the strike. So could you please help me out here because I just want to have a better starting point when I look at the results of the quarter. I just want to be able to quantify things a bit more. This is my first question. My second question is about costs. I know that the question was asked before, but I just want to revisit that. In relation to the Brazil BD cost, last quarter, I think I asked you about the impact coming from raw material inflation, more particularly talking about scrap. And the answer was that yes. And in this quarter, we saw an increase in net sales per tonne. And I think that was impacted by raw materials. I want to know what brought about that change and I just want to understand, looking forward, whether we could expect as of today, considering the foreign exchange and prices of other raw materials, whether we could expect further impact from our cost because of that rather than due to the mix or anything else?

Milton, this is Gustavo. In terms of the truckers strike, it is very difficult to tell you exactly what was the financial impact to our company because -- our company in general because there are many ways of doing that math. In fact, there are -- many of our production lines stopped for 11 days, and this has an impact. But what we noticed throughout June and July was a gradual recovery of the volumes that were not delivered in May. I believe that the 2 main impacts stemming from the truckers strike -- well, it's awfully difficult to quantify for a company because each one of them had a different impact depending on how they operate. But one thing in that is in common is freight, because freight can delay deliveries to us and the company in general, and this is a relevant impact. And the second impact relates to greater frustration from the general public, in particular, coming from the automobile market. There was another aspect and we're working on it and that relates to REINTEGRA. And right after the strike, the government came up with a way of recovering from the negative impact. So REINTEGRA from to 2 to 0 now impacts in our business, especially because about 40% of our production in Brazil is exported. Now in regards to the maintenance of Blast Furnace 2, it was already in maintenance during the strike. So that didn't bring about any additional impact. This equipment had been scheduled for maintenance since last year. The schedule was for May this year, which occurred. So that Blast Furnace 2 focus is mainly -- I mean, its production focuses on exports. And then the volume of the second quarter this year and even comparing it to the first quarter of last year, I mean, the blast furnace began operation, again, this week. And it's already producing materials for export. So we won't be able to deliver everything in the second half in this export market. We already closed deals that were closed 3 months in advance. Our export volume in the first quarter of this year and last quarter of last year, and as of October this year, in the fourth quarter, we will start working with this export agenda. In terms of costs, the main impact of our costs came from volumes. Due to the maintenance of Blast Furnace 2 and the main inputs of our productive processes like refractory, iron ore, et cetera, remains flat. There is no any additional cost inflation coming in the third quarter. And looking at the metallurgical side, we don't anticipate any price changes. So in terms -- in general terms, cost or the strike, there won't be any further impacts other than those we already mentioned.

We now conclude the Q&A session. I would like to turn the floor back to Mr. Gustavo Werneck for his final remarks.

I would like to thank you all for participating. It was very good to talk to you again. And I would like to invite you now to join us, again, in our next conference call related to the third quarter of 2018. It's scheduled to be on November 7. Harley and I now say goodbye to you for now, thanking you for your participation and I wish you all the best. Thank you.

Gerdau's conference call is now over. Thank you very much for participating, and have a nice afternoon.