Companhia Siderurgica Nacional SA (SID) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. At this time, I would like to welcome everyone to the CSN second quarter 2008 earnings conference call. Today with us we have the Company's executive officers. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the Company's presentation. After the Company's remarks are over, there will be a question-and-answer session. At that time, further instructions will be given. (OPERATOR INSTRUCTIONS)

We have a simultaneous webcast that may be accessed through CSN's investor relations website at www.csn.com.br/ir. The slide presentation may be downloaded from this website. Please feel free to flip through the slides during this conference call. There will be a replay facility service for this call on the website.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of CSN management and on information currently available to the Company.

They involve risks, uncertainties and assumptions, and they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of CSN and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Mr. Otavio de Garcia Lazcano, who will present CSN's particular and financial highlights of the quarter. Mr. Lazcano, you may begin your conference.

Good morning. Thank you all for joining us on the second quarter results conference call. Let's start with the second quarter May financial highlights. Net revenues from sales of BRL3.6 billion during the second quarter '08 and BRL6.6 billion during the first six months of '08 are new records for the Company. BRL1.7 billion consolidated EBITDA during, again, the second quarter '08, and BRL3 billion accumulated over the first six months of '08, again, are new records for the Company.

EBITDA margins, parent company only, of 50% and consolidated of 48% are once again among the highest EBITDA margins being reported by companies in our industrial segment. Net income of BRL1 billion reported during the second quarter is 34% above the previous quarter. Net income of BRL1.8 billion during the first six months of 2008 is once again a new record for the Company. As to sales allocation, we shifted the sales towards the domestic economy so that we can benefit from higher margins available in Brazil and the domestic market accounted for 92% of the total sales of the parent company and 83% of the total sales, steel sales volume, consolidated, I mean, everything on a consolidated.

And, finally, you all saw over the last few months, companies implementing price increases. In our case, we implemented the first price increase back in March. Then, by mid May, and once again by mid July, the accumulated price increase for [hot bands] was 31% during the first half, 20% for cold-rolled products, 10% for galvanized and 12% for tin plate.

Once again, we have a third set of price increases announced by mid July, additional 15% for hot bands, cold-rolled products and galvanized products as well.

Now moving to the next slide, net revenues from sales and sales volume, beginning with the shot on your left-hand side, 1.3 million tons of steel products were sold during the second quarter. Sales volume is 4% below the previous quarter and 6% below the same quarter back in 2007.

Domestic sales, as I told you already, accounted for 82% of the consolidated sales of the Company, exports accounted for 17%. Domestic sales were flat when compared to the previous quarter, going to 21% above domestic sales reported during the second quarter '07. Exports were 19% below the previous quarter and 56% below export volume being reported during the second quarter 2007.

As to iron ore sales volume, we sold a total of 4.4 million tons during the second quarter '08 and a total of 7.7 million tons during the first six months of 2008, everything on top of 3.7 million tons of iron ore products used internally to support existing steel operations. Now moving to the shot on your right-hand side, BRL3.6 billion of net revenues from sales is 17% above net revenues from sales reported in the previous quarter and 19% reported in the same quarter one year ago.

Moving to the next slide, sales for the breakdown, beginning with the shot on your left-hand side at the top of the presentation, you can see that there is no major change at all on products being sold by CSN, other than slabs, which came down from 80% of total sales volume to just 4% and hot bands, which increased from 28% to 35%.

Moving clockwise to your right, sales breakdown by industrial segment, you can see that iron ore is becoming more relevant, as expected. We've seen our portfolio of assets accounted for just 5% back in the second quarter '07 and accounted for 13% during the second quarter '08. It's important to highlight that three or four years down the road, the iron ore business will be as relevant as the steel business is nowadays for its shareholders.

Now, moving to the bottom, still on your right, market share by industrial segment. In the retail segment, our market share is 41%, city construction, 46%, home appliance, 36%, automotive and auto parts, 21%. And, finally, market share by product, hot bands, our market share is 32%, cold-rolled products, 26%, galvanized, 49%, and tin plate, 99%.

Moving to the next slide, where we present production costs, there is no major change at all in the cost structure of the Company, of the parent Company. Production costs were equivalent to BRL1.2 billion, 7% above production costs reported during the first quarter of '08, or BRL86 million above the previous quarter.

We had high expenses on raw materials of BRL57 million, labor costs, BRL13 million, other general costs of BRL27 million, everything partially offset by lower depreciation expenses of BRL11 million. As to costs of products sold, I mean, steel products sold, it went down by 4% quarter over quarter. And, as to cost of iron ore products sold, it came down by 12%, once again, when compared to the previous quarter.

Now moving to steel financial metrics or ratios that we keep an eye on each and every day, once again, beginning with the shot on your left-hand side, at the top. The EBITDA margin -- our Company has been reporting EBITDA margins above 40% for more than seven years in a row. During the second quarter '08, consolidated EBITDA margin was 48%. It was a 65% EBITDA margin from the iron ore business, a 50% EBITDA margin from the existing steel operations and 21% EBITDA margin from all the other businesses that we have in our portfolio.

In nominal terms, the BRL1.7 billion EBITDA was 33% above EBITDA being reported during the previous quarter and the same quarter last year. Moving clockwise to your right, net income of BRL1.8 billion -- sorry, net income of BRL1 billion is 34% above net income reported during the previous quarter. A BRL1.8 billion accumulated net income during the first six months of 2008 is 60% above net income being reported over the same period last year, when we exclude non-recurrent gains that we had related to our attempts to acquire a controlling stake at Corus in the UK.

Now, at the bottom of your presentation, it's still on the right. Return on equity over the last 12 months was almost 70%, and, as you can see, the Company has been paying back to all of its shareholders on average more than 70% of the net income. We know for sure that shareholders can do a better job with excess cash rather than the companies can do themselves, so it is within the dividend policy of the company that we made public several years ago. And, finally, we have a shot on return on capital employed. It is almost 30%, 30% return on capital employed business.

Moving to the next slide, where we present debt profile, and once again, beginning with the shot on your left-hand side, the ratio of net indebtedness to EBITDA is slightly below one time, very solid and comfortable positions in our financial and liquidity perspective. And you can see on the shot on your right-hand side that the average life of the existing debt, which is longer than 10 years, and the cash available within the Company would enable us to pay back all outstanding principal 2012.

Next slide, we reconciled the results reported during the first quarter '08 with the results just reported by the Company. Back in the first quarter, we reported a BRL767 million net income, higher prices, higher volumes being sold. We reported a higher gross income of BRL481 million.

We had better financial results of BRL116 million. We had lower provisions for several things of BRL25 million, higher profitability, higher taxes being collected by the Company, BRL275 million.

We increased our participation in the Northeastern railway track. We are one of the controlling shareholders and, as a consequence, we are recognizing an expense of an additional BRL60 million, a change in the field allocation of the Company to our domestic economy, higher sales expenses of BRL47 million, another BRL25 million and then we add to the BRL1 billion net income we talked about the Company.

Next slide, net indebtedness of the Company. We reported a BRL4.8 billion net debt by the end of '07. Over the last six months, we reported BRL3 billion consolidated EBITDA. We had lower financial expenses of BRL500 million. On the other hand, we paid back to the shareholders BRL2.1 billion as dividend interest on equity. We made investments of a total BRL1 billion, higher profitability, higher taxes once again being collected by the Company, and then we get to the BRL5 billion net indebtedness reported by the Company.

Finally, we have a presentation with the stock performance of the Company over the last several years. It's really important to highlight that we distributed back to all the shareholders almost BRL9 billion in dividend and interest on capital over the last five years, not to mention BRL1.4 billion of shares that we bought back to the market through the share buyback program that we used as a tool from time to time to get rid of unnecessary volatility and to add value to all the shareholders.

So here we finalize the corporate presentation part of this conference call and we will be more than glad to answer all the questions that you may have. Thank you.

Thank you. (OPERATOR INSTRUCTIONS)

Your first question is coming from Leonardo Correa of Credit Suisse. Please go ahead.

Hi, good afternoon. My question is regarding your iron ore sales strategy. Given how the market has been shifting towards the spot market and I mean BHP and Rio Tinto, mainly, I just wanted to get a sense of if you guys are aiming also to reach spot markets and what percentages you guys can open up if you have ever even contemplated this, or you should maintain your long-term benchmark contract prices.

Can you please repeat the second question?

It's basically only one question. I think it's for slide eight.

Okay, the sales strategy for iron ore.

Yes, your sales strategy for your iron ore business.

Hi, Leonardo. This is Juarez. Well, we have to make some comments before I answer your question, okay? We had some troubles in the startup of our extension of the port. Remember, we were forecast to update our capacity from 8 million tons per year up to 30 million tons per year by the end of our first quarter 2008, but importantly, we had some problems with our conveyor belts. We had some problems in fact with the belts.

We were forecasting some troubles in terms of ramp up, but this problem was not forecast and unfortunately, we reduced our sales in the second quarter because of this problem. The good news is that the problem is already sold. It [impaired] a little bit the third quarter, but the fourth quarter is absolutely clean of this kind of problem. The third quarter will be much better than the second, but the fourth will be as we forecasted previously. The reason being we -- at the beginning of the year, we had some forecasts in terms of sales and we were forecasting some sales in the spot market and most of the sales based on our benchmark price, in other words, in long-term contracts.

Because of these problems in our belt conveyors, we have to reduce the total exports in 2008 and part of the spot sales is being reduced because of this problem. We intend to -- we have contracts we have to fulfill this quarter and only the balance between our new capacity and the contracts we have we can be exporting on an export basis.

In other words, we reduced a little bit our spot sales this year in order to compensate part of the capacity we lost based on this project conveyor belt. But, again, the problem is already over, and in fact today we are finalizing the maintenance we need to do in order to recover our capacity and from tomorrow onward, the quarter will be operating in a full capacity until the end of the year, okay?

Yes, okay, thank you. That was good. And just as a follow-up, for spot sales, do you have any idea of what type of premiums you can receive in terms of average prices? Is there any rule of thumb that we can work with, if you consider that you will reach the spot market?

Yes, I want to remember you, Leonardo, that the spot price in China, [in there], is reducing a little bit and mostly because the market is weaker than it was before, but mainly because the [thread] rate has reduced in the last few months dramatically. So, in other words, at the end, the result for us is the same. Even based on our lower export price base in China. But you can consider a certain premium of about 30%, 35% on top of the benchmark price for the spot sales.

Okay, and just as a final question, just a clarification from the previous call, with respect to the timing of the sale of Namisa, you stated that from mid September you should be receiving all the proposals, and your expectation is that by, say, end of September, beginning of October, you would have this deal concluded. Is that correct?

That's correct. We are forecasted to receive the final binding offers in the end of the first week of September.

Okay, thank you very much, Juarez.

No problem.

Thank you. Your next question is coming from Francisco Schumacher of Raymond James. Please go ahead.

Hi, everybody. Congratulations on the results. My question is, well, basically, your iron ore inventories have increased 14 million tons, supposedly due to this port problem, and, well, the question is more related to in how much time are you expecting to reduce this high iron ore inventories? And which is the level that you consider that would be a normal level of inventories.

Well, well, as you know, we were forecasting that our -- even for the end of 2008, it should be something, almost 2 million tons. Currently, you have 10 million tons and at the beginning of 2008 we had 10 million tons of inventory. So we could not reduce this level of inventories because of the problems in the quarter that I have explained before.

But we consider that by middle of 2009, our inventory will be probably 5 million to 6 million tons of iron ore, and we believe that any additional movement in terms of our inventory is very dependent of if we can anticipate new capacity ports on top of the 30 million tons we have currently. You see, in other words, if we can, the next extension at the port is 45 million tons per year from the current 30 million tons up to 45 million tons.

If we can anticipate this new extension, we will be using the inventories in order to compensate our current capacity mines. But we consider -- because we have to have inventories at the port. We have to have inventories at the mine, at [Caso de Pesa], and also, in all the stock [assets] that we have in [Emesa]. And we believe that 5 million tons would mean that our inventories would be full, so it's not a big number in terms of inventory regarding the capacity that we intend to reach by second half of next year that is above the 45 million tons.

So 10% of inventories means something around less than one month of inventories for the exports. In fact, to work with less than 4 million tons is not really very, very comfortable for the operations. But we were forecasting that, because we could sell more than that. But, anyway, this level of inventory that we intend to have in the second half of 2009 of something around 4 million to 5 million tons is really very profitable for the big operation that we have in the future.

Okay, thank you very much.

You're welcome.

Thank you. Your next question is coming from Marcos Assumpcao of Merrill Lynch.

Please go ahead.

Good afternoon, everybody. Congratulations on the very strong results. The first question is regarding the guidance for steel volumes in 2008. I think you have previously guided that volumes should be around 5.6 million tons this year. I would like to see if this guidance is maintained. And I also would like to make the comment that production of crude steel in the first half of 2008 was around 2.5 million tons and the sales were 2.7, so probably you already started to destock a little bit your volumes of steel.

So how do you believe you can reach this 5.6 million tons? Are you considering any increase in production going forward?

Hello, Marcos. Good morning. This is [Martinez] talking. Regarding to the guidance, we are concerned that we are going to achieve, by the end of this year, 5.5 million to 5.6 million tons a year and if you take into account that we've already done in the first semester 2.7, it's almost the same. We need also to consider that we have been implementing a lot of efforts to reduce inventories, not only in the finished goods, but also in working process products. And for the second half of this year, we need to consider that we are increasing our volumes, that we can say more value-added steel for auto industry, for example, and we are going to reduce, a little bit, the productivity.

But, on the other hand, in terms of profits, we are going to increase a lot since we have a lot of extra, not only in [quality], but also in dimensional, so that we can keep better prices in those markets. What else? So we are going to keep the guidance for this year, and also we have to consider that we are importing and we are going to start receiving for August and September, 100,000 tons of hot-rolled coil from US and also 50,000 tons slabs to be produced in Brazil for the last quarter.

Okay, thank you very much, Martinez. And just a follow-up question on prices. I actually didn't hear the Portuguese call, sorry. I don't know if you already answered this question. Do you believe that there is room for an additional steel price increase in the domestic market in the fourth quarter of this year?

Okay, let me take a look regarding to the prices all over the world. In terms of, for example, China, we have to consider that hot-rolled products for export, we have prices around $1,000 per metric ton, something like $50 or $60 down from current [versus] the last quarter. In Europe and US, basically, they are keeping exactly the same price, around less than $1,100 per metric ton of hot-rolled coil, and also delivering time, it's a very important information, is already kept in terms of six to seven weeks to have our hot-rolled coils delivered in the customers.

So it's a good indication that markets, although we have some bad news in the market, the market is still stable. In Brazil, just to give you some numbers, in average, we have in hot-rolled coils, we are nowadays with something like $1,450 per metric ton. In cold-rolled coils, something around $1,550 per metric ton. In hot galvanized, $1,950 per metric ton. In coil-coated coils -- excuse me -- prepainted coils, $25 and $50 per metric ton.

I don't know if we are going to analyze what we are going to do in the last quarter, but for having a new price increase, obviously, it's absolutely that we have to consider our offer and demanding in the local markets. It's a good point. The market is still very, very heated in Brazil.

But, on the other hand, we have to consider that tour competitors in the local market have already announced that they are going to keep the same price for this year, and also the amount of imports in the country.

I believe, Marcos, that depending on the situation, we can do something different, higher, obviously, especially in hot-rolled coils and cold-rolled coils in the local market, but we are going to analyze until the end of this month.

Okay, thank you very much. And last question, for Otavio, just if you could give an update on the startup of the Chile operations on cement and also on steel, also contemplating maybe potential sales volume that we should consider for 2009 in our models for the [shipping] businesses.

Hi, Marcos. As for the cement business, we are expecting to start to produce at 1.1 million, 1.3 million tons and it will be right by the beginning of 2009, and as to the long steel project, we bought already all the equipment required to build the facility.

I mean, to the ones who went through Volta Redonda, where we have our [mid] facility, they saw the buildings and the [civil] construction going on. We are expecting to start to operate by the first half of 2009, as well. I didn't understand what was your last question. I heard cement, one steel and one --

Just if you could give some guidance regarding what we should consider in our models regarding sales volumes for these two businesses in '09, as well.

In '09, I believe it's fair to say that you should be expecting something really close to 6 million tons of total products being sold by the Company.

Sorry, Otavio. Like, for cement and long steel?

For steel products, I would say 6 million tons total, flat and long steel products.

okay.

And for cement, I would say 1.3 million to 1.5 million tons of cement products being sold.

Okay, thank you very much.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS)

Your next question is coming from [Christopher Buck] of Barclays Capital.

Please go ahead.

Good morning. I'm wondering if you could repeat some of the information you provided regarding the Namisa sale and also potentially comment on what's going on with the Casa de Pedra IPO. Thank you.

Hi, Christopher, this is Juarez. Regarding Namisa, we received several nonbinding offers about 1.5 months ago and we spent the whole month of July and beginning of August receiving the figures here. We choose some part of the regional nonbinding offers and we brought them to Brazil in order to know better the assets [involved] in order to discuss with us the main aspects of the assets. And we are forecasting to receive the binding offer by the end of first week of September and then we believe that by the end of September, beginning of October, we can probably announce some conclusions about the deal and then it's a matter of preparing and finding the documents.

Regarding the IPO from Casa de Pedra, we are still considering to make this IPO, but we are discussing internally what's the better time to proceed with this process, mainly because the cash that we -- the free cash that we believe that we can get from the Namisa process we give to (inaudible) in more liquidity regarding of these sales. So additional liquidity of ours -- because, as you know, the IPO from Casa de Pedra, we are not considering that we need money to execute the CapEx. Then the IPO would be probably additional free cash flow for [2010] and we are not forecasting at this moment any additional success of additional free cash flow in the Company.

So we didn't exactly decide what's the right time to go to this IPO, mainly because we need to understand better what kind of destination we could give to this money, because based on our [middle] sales, we have enough liquidity.

But if I can step in for just a second, I would say the same thing in a slightly different way. We aren't in a hurry to raise cash through an IPO or Casa de Pedro or any other assets of the Company because we generate a lot of cash from existing operations so that we can pay back dividends to the shareholders and still finance all the investments that we have in the pipeline.

The Company is seriously, seriously considering an IPO of Casa de Pedra, but we didn't make our mind yet, and, please, you all have to understand that we have to comply with the legal framework of listing in Brazil and abroad. We have shares listed in Brazil and in the New York Stock Exchange, so we cannot make more definitive statements as to our potential IPO of whatever assets that we have in our portfolio under the risk that some -- whatever monetary authority will twist my arm.

Okay, and just shifting back to Namisa for one second, is there a clear indication of what percentage of Namisa may be sold, or is there a range that you might be able to give?

Christopher, as we disclosed in our press release when we started the Namisa sales process, CSN has a clear intention to sell our stake in Namisa up to 50%. This is our main intention. But we are open to receive a proposal further than 50%. But our main proposal is to sell something between 40% and 50%. The main reason is that in CSN we believe in the iron ore cycle. We believe that this cycle will be very, very good for the next years, and then we tend to keep the control [analyzed]. That's the reason why we intend to sell something between 40% and 50%.

And this amount of cash that we can get from the sale of this stake, it's good, but not just any [number] in terms to have enough liquidity in the Company. So, but anyway, if we get some proposal that it's really, really we can get a big, big premium regarding our expectations from the cash flow of Namisa, we will be open to discuss this with the bidders. Okay?

Great, thank you. And I guess just one final question for you, and that's just in regard to some things that have been reported in the financial press regarding efforts to reduce debt moving forward, and I'm just curious if that's in the plan or not.

We didn't follow. It's a plan to reduce what?

To just reduce your overall debt level, in that some of the cash from a potential Namisa sale could go to buying back some debt.

There is no question that we will be always trying to positive the capital structure of the Company in a way that we will be able to benefit from tax shields. That's how it works. We are all financial animals. There is no question that we want to take back indirectly a tax shield on the existing indebtedness of the Company.

So on the assumption that Namisa will be sold in the near future and under the assumption that proceeds received will be higher than the net indebtedness of the Company, for a very short time period, the net indebtedness of the Company will be zero, or the Company will be cash positive. But there is no question that over time we will be positioning the capital structure of the Company so that we can benefit from the tax shield. And if you see what is embedded in the dividend policy of the Company, if we have for whatever reason excess cash in the future within the business, there is no question once again that it will be distributed back to the shareholders, because we know you can get an extra yield or return on financial assets when compared to what the Company can do with excess cash.

Great. Thanks very much.

Thank you. Your next question is coming from Carlos de Alba of Morgan Stanley. Please go ahead.

Yes, good morning. I have a question regarding your realized price for the exports in the [equity] market in the second quarter. It was a little bit below what I was expecting and also below what we saw the average of the different fuel products in the global market. I'm wondering if that has to do with a timing lag from the time you close the deals and the time you book the revenues in your statement. So I wondered if you could talk a little bit about this phenomenon. Thank you.

Carlos, there is a lot of noise on the phone line. Could you please just tell us if your question is on iron ore or steel prices.

Yes, on steel prices, sorry. Thank you, Otavio.

That's okay. I'm passing the word on to Martinez.

Hello, Carlos. Good morning. We have all the breakdowns if you need and if you talk a little bit more with [Dazi] and the other guys in the breakout. Just to give you some numbers, we had already implemented in the local markets -- we have already announced in the local markets 50% of hot-rolled coil, 38% in cold-rolled coils and something like 25% in hot-[piece] galvanized.

In the second quarter, in the second quarter, in terms of hot-rolled coils in the local markets, we are now 30%, and we had already implemented something like 20%. So we have something like 10% to be implemented during the last three months. In the cold-rolled products, we announced 20% and we had already implemented something like 15%.

In export prices, since we had already sold and had already negotiated with some customers, we need some more time to have this price implemented. But we have already to consider -- we have to take into account that exports represent just 80% of the [selling] companies.

In terms of prices of hot-rolled coils for export in the second quarter, we worked in a range of $1,200 per metric ton, in cold-rolled, something like $1,660 per metric ton, and hot piece galvanized, very small volume, something like $2,000 US per metric ton.

Those are products charted by the Company on international customers. As Martinez well pointed out, it takes some time before we can have fully reflected in income statements today's export steel price.

Thanks, Otavio. And if you could -- I understand most of your export prices, export sales, are done on a CIS basis, is that correct?

Yes. No, most of the price is FOB prices.

FOB price, okay. How many [wins] does it take -- if I am a client and I call you and I order some HRC volumes for export, we are going to set the price based on today' average prices in the global market and then it's going to take how many weeks for me to receive the product? And at what time would you book the revenues, when I receive it, or when you put it on the boat at the ports?

No, depending on the negotiation. For example, in hot-rolled coils we are guaranteed the price nowadays, even for export, just for something like six or seven weeks. That's the price we can guarantee. After this, we have an open space to negotiate if the situation is a little bit different than we forecast before.

Carlos, this takes, roughly speaking, two months just to produce the product with all the specifications required by the customer. And then, to your question on revenue recognition, it depends on the terms negotiated with the customer.

Okay, but it may be that even when you sell FOB, you only recognize the revenue when the client receives the volume.

No, no, it's immediately after the shipping.

I'm sorry, I can't.

Immediately after the shipping of the product.

Okay, fair enough. Thank you very much, gentlemen.

Okay, thank you.

Thank you. (OPERATOR INSTRUCTIONS)

Your next question is coming from David Martin of Deutsche Bank.

Please go ahead.

Yes, I just had two remaining questions. The first is on costs. I know in your presentation you note higher coal -- excuse me, you note coal and coke costs. I'm just curious whether the rises or the increases we've seen in contract and spot prices year to date or in the second quarter are fully reflected in your results or are there further increases to be absorbed in the third quarter, and if there are, could you quantify those, maybe on a per-ton basis?

Yes, it's really difficult to give you a forecast or a guidance on the cost structure of the Company over the next two quarters. The truth is that higher coal and coke prices start to eat our margins, but on the other we have, as Martinez well pointed out, we have accumulated a price increase in the domestic economy of 50% for hot [beds], of 38% for cold-rolled products, 27% for galvanized and 18% for steel plate, which will help us to more than offset those cost pressures. And, additionally, we have a higher sales volume of iron ore and we will be fully benefiting from the 65% iron ore price increase for 2009 contracts negotiated by the three giants, at least one of the three giants out there.

So it's fair to say that margins tend to remain close or most likely higher than 50% that we just reported for the second quarter.

Okay, and then secondly, coming back to iron ore volumes, can you remind us what your iron ore sales volumes projections are for both '08 and '09 and what the export proportion would be.

Before we had this problem with the conveyor belts in our seaport terminal, which is sold already, totally sold already, we were forecasting total exports of 24 million tons, total domestic sales of 4.5 million tons, everything on top of almost 9 million tons that we use for our own consumption.

Unfortunately, we have this problem, we have to face it. We did everything in our hands to minimize the losses. Actually, potential losses are covered by the terms of the existing [issue] response of the Company and then we are revising the export volume from the 24 million tons to --

19 million tons.

Yes, from 18 million to 20 million tons of total exports in 2008. For 2009, there is no change at all in the sales program that we publicly announced several months ago. There is no impact at all. This problem with the specifications of the conveyor belt, there is no impact at all in the sales program, or even the iron ore production, no question, forecasted for 2009 and the following years.

Okay, thank you.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS)

There appear to be no further questions at this time. I would like to turn the floor over to Mr. Lazcano for any closing remarks.

Once again, thank you all for joining us for the second quarter results conference call. As soon as we have a schedule for the third quarter conference call, we will communicate it to the financial community. There is no question about it. Thank you all.

Thank you. This concludes today's CSN second quarter 2008 earnings conference call. You may now disconnect.