Ternium SA (TX) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Ternium fourth quarter 2012 earnings results conference call. This call is being recorded. At this time, I would like to turn the call over to Mr. Sebastian Marti. Please go ahead, sir.

Good morning, and thank you for joining us today. My name is Sebastian Marti, and I am Ternium's Director of Investor Relations.

Ternium issued a press release earlier today detailing its results for the fourth quarter and full-year 2012. This call is complimentary to that presentation. Joining me today are Ternium's CEO Mr. Daniel Novegil and Ternium's CFO Mr. Pablo Brizzio, who will discuss our performance. At the conclusion of our prepared remarks, we will open up the call to your questions.

Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and in our press release issued today. With that, I'll turn the call over to Mr. Novegil.

All right. Thank you, Sebastian, and good morning to everyone. I just would like to start by doing some remarks about our results in 2012. And after awhile and before we enter into the Q&A session, Pablo Brizzio will comment on our quarterly results and the outlook that we foresee for the first quarter 2013.

Ternium net income in 2012 was $187 million or $0.71 per share compared to $650 million in 2011 or $2.61 per share.

The two main reasons for this yearly decrease in net income were a $364 million loss related to our investment in Usiminas, including a $275 million impairment and a lower operating income that we will discuss afterwards.

We performed an impairment test of the investment in Usiminas. And subsequently, we wrote-down this investment by $275 million. This charge was included in the fourth quarter 2012 that we are discussing today.

The impairment was mainly due to expectations of a weaker industrial environment in Brazil, where industrial production and consequently steel demand have been suffering downward adjustments.

In addition, a higher degree of uncertainty regarding future prices of iron ore led to a reduction in our forecast of long-term iron ore prices that affected the cash flow expectations.

I do remain totally convinced that the Brazilian market continues to offer great opportunity, great opportunities and prospects for Usiminas. And also, I remain totally convinced that the turnaround or breaking through of Usiminas is doing very well. And it will end up turning over Usiminas into a very competitive and efficient company with a capacity to offer high value-added products and services in Brazil and the whole Latin American market, also taking advantage of Ternium commercial network and capabilities in the region.

As Usiminas's CEO mentioned in yesterday's conference call, Usiminas is performing an industrial reconfiguration. This is a profound process of change of an industrial company and is one that will be gradual. But, at the beginning of this -- as I mentioned at the beginning of the year, also in last year in Investor Day, this process will take awhile, will take -- we mentioned at that time that we had a target period of maybe three years.

And so, this process that will be gradual but will not stop until Usiminas gets to the full potential of its capabilities.

In 2012, Usiminas made relevant progress in many very important fields, operational efficiency, rationalization of administrative processes, reduction of working capital, increase of labor productivity, both through increases in volume and reduction in number of employees, reduction of CapEx, modernization of product portfolio, replacement of imports, and though increasing the market share. And all these are fields in which Usiminas has been working with success during the year.

I am confident that they will continue hearing good -- doing well. And we will continue hearing good news from them in the future regarding the process of the turnaround process and project in Usiminas.

Turning now to our operating performance in the year, Ternium EBITDA in 2012 reached $1.3 billion. In a challenging and volatile year for the steel industry worldwide, we were able to have an EBITDA margin of 15%, lower than the 18% margin that we achieved in 2011, but still on a high level, especially vis-a-vis our competitors in the steel arena.

Shipments of Ternium were stable at 8.8 million tons, with higher shipments in the Mexican market, mainly offset by lower volumes in Argentina because of the realigning of the largest blast furnace that brought about a decrease in exports due to low marginal contribution of exports.

Steel prices went down during most of the year as the increased level of uncertainty about the global economy made the steel value change very cautious on the inventory level.

Revenue per ton went down 4% compared to 2011. I will say that this could not be totally offset by a year-over-year reduction in Ternium steel operation cost per ton, in part due to the delay as a result of FIFO accounting in reflecting the decrease in prices of raw material in the cost-of-sales line, effect that will be adjusted in the quarters to come.

With a net debt of $1.7 billion, we continue to have a quite sound financial position, equivalent to around 1.3 times EBITDA at the end of December 2012. Net cash provided by operating activities were -- was $1.1 billion in the year, and CapEx was on a schedule and right on our $1 billion target.

The project that required the lion's share of the CapEx, around 50% of the total was a greenfield facility that we are building in Mexico for the production of cold rolled steel and high-specification galvanized products.

We talked about this in our previous results conference call as well as in our latest Investor Day. This facility will make high-end products with a special focus on the auto industry in Mexico.

As you may know, we are doing this in a partnership with Nippon Steel. The mill is expected to begin operations in the third quarter of the current year. And the critical path continues to be in time and in budget with no overruns.

In Argentina, the largest projects in which we are working on are related to the expansion of slab capacity by 0.5 million tons, is scheduled to begin operating in the first quarter of 2014. The steel shop will also be fitted with a new vacuum degassing station to be able to produce interstitial-free steel grades in Argentina.

These projects will enable us to produce new specialty steel targeting the automotive industry in Mexico as well as in Argentina.

From a macroeconomic standpoint, I believe that, overall, steel consumption in Latin America was able to grow during 2012 despite the difficult context worldwide. And it's expected to continue growing in 2013, even at rates higher than those of the previous two years.

We expect steel demand in the Americas to increase in 2013 as a result of continuing growth in most of the continent. The economy in the US showed a slow recovery path during 2012 affected by the financial crisis in Europe and the uncertainties around the presidential elections. The elections are now over, and the financial crisis in Europe seems to have been stabilized or at least in a better perspective than it was six months ago.

On the other hand, the Brazilian economy showed a fairly weak industrial performance in 2012, much weaker than expected at the beginning of the year. The Brazilian government, at the same token, has been talking several measure -- has been talking and announcing several measures to counter this trend. And I am confident that they will succeed in putting the economy in the growth path again during 2013 and 2014 when we look forward, what is important, not only for Brazil, but also for the level of activity in Argentina as well.

Of note, during 2012 was the 9.7% expansion of Mexican steel consumption, a market that accounted for more than 50% of our total shipments during the year. In 2013, we expect to see a further expansion of the Mexican steel consumption, this time at rates in line with those of other major Latin American markets.

The industrial and construction sectors are expected to drive the increased demand for steel products in the country. And that was the reason why we planned to expand our activity in Mexico and to build there an ore galvanizing line to serve the needs of the automotive industry as well as a new cold rolling mill to expand the coverage of the market at the expense of imports coming from overseas.

In addition, the Mexican government has announced multiple infrastructure projects to increase distribution capacity of natural gas and water in the country. These projects are expected to increase demand for flat steel products, particularly for the manufacturing of large-diameter pipelines.

Important to mention at this point of time that we are having -- we have been working with our customers in the pipe manufacturing sector on product developments on top of the developments that we have been doing in the last two years in relationship with the automotive industry and home appliances, especially taking into consideration the expectation on the building of the Tenigal plant as well as the new cold rolling mill in Mexico.

So, we are doing well in Mexico. We expect further expansion in the marketplace during 2013. And also, we will be taking advantage of our projects in Mexico, in Pesqueria, the new galvanizing line in partnership with Nippon Steel, and the cold rolling mill that we are building standing alone.

In the southern region, the Argentine economic activity's expected to accelerate in 2013, as a result of higher activity levels in Latin America, particularly in Brazil, and also a better performance of the Argentine agricultural sector.

Let me remind you that, during 2012, we witnessed a decrease in steel consumption in Argentina in part related to the deceleration of the Brazilian economy and by adverse climate effects of agricultural activity. In 2013, that situation is expected to improve. And so, we will be taking advantage of this improvement.

At this point of time, these were the main issues that I wanted to comment on you. And I will ask Pablo Brizzio to take over and give you a brief description of our performance in the fourth quarter. So, please, Pablo, go ahead. And then we will enter into the Q&A part.

Thanks, Daniel, and good morning to everybody. I would like now to provide a brief comment on our performance in the fourth quarter 2012 and the outlook for the following quarter.

But, before that, I would like to mention the change in segment reporting that Ternium is taking. Following a new internal organization and reporting in Ternium, we changed the reporting of operating segments from flat, long, and other products to Steel and Mining.

In addition, we changed the reporting of geographical information from North America, South and Central America, and Europe and Other to Mexico, Southern Region, and Other Markets.

The Southern Region includes Argentina, Bolivia, Chile, Paraguay, and Uruguay. And Other Markets cover the rest of the world, although the majority of it is usually Colombia, the US, and Central America.

Let me remind you here that Ternium has two mining companies, Las Encinas and Pena Colorada. Ternium owns 100% of Las Encinas, and consequently, Las Encinas is consolidated into Ternium financials.

On the other hand, Ternium owns 50% of Pena Colorada. So, according to IFRS, Pena Colorada is not consolidated into Ternium financials and is accounted for under the equity method.

The consequences of this is that Ternium Mining segment only includes the Las Encinas operation. So, you will see shipments of iron ore of about 2 million tons per year in the Mining segment, while the other approximately 2 million tons we got from Pena Colorada are not included in the segment.

Let's go back to the performance of the Company. EBITDA during the fourth quarter 2012 was $227 million, $113 million lower than the EBITDA in the third quarter 2012, mainly as a result of 6% lower net sales and 3% higher steel operating cost per ton, which increased mainly due to higher cost of third-party slabs in Mexico and efficiency losses resulting from a stoppage in the blast furnace in Argentina.

In addition, the other income expenses line included in this quarter nonrecurrent losses of $20 million related to write-downs of property, plant, and equipment. Without the impact of this nonrecurrent loss, EBITDA for the fourth quarter 2012 would have been around $247 million.

Steel shipments were seasonally lower in the quarter with a 4% decrease compared to the third quarter 2012. And revenue per ton went down $19, mainly due to a 4% decrease in Mexico.

In addition, operating cost per ton had a sequential increase of $20 due to the reasons I just have mentioned.

Net income in the fourth quarter 2012 was $275 million loss, equivalent to losses per ADS of $1.29. This quarter net loss was driven by a $345 million loss related to Ternium's investment in Usiminas and $130 million lower operating income.

This loss related to the investment in Usiminas was mainly the result of a $275 million impairment, a $2 million charge related to the depreciation of difference between the fair value and book value of Usiminas assets, and a $19 million loss from net losses in the quarter.

Turning now to our financial position and the -- at the end of the year, Ternium continued to enjoy a strong balance sheet, with $1.7 billion net debt position, down from $1.8 billion at the end of the third quarter.

Net cash provided by operational activities in the fourth quarter was $277 million, including a decrease in working capital of $104 million. In addition, capital expenditures were $312 million, and we got, as you remind, the last payment from Venezuela of $137 million.

I will finalize this remark with our outlook for the first quarter of 2013. As was stated in today's press release, we are expecting higher operating income in the first quarter 2013 compared to the fourth quarter of 2012, mainly as a result of higher sales driven by an increase in steel shipment and a reduction in steel cost per ton due to lower raw material and purchased slab costs as well as the restart of Blast Furnace Number 2 in Argentina.

Well, this concludes our prepared remarks. We are happy to take any questions you may have. Thanks.

Thank you. (Operator Instructions). Our first question comes from Thiago Lofiego of Merrill Lynch. Your line is open.

Thank you. I have two questions. First on -- first one, you continue to evaluate options to close your slab shortage in Mexico. So, in this context, is CSA still an option for Ternium, or are you evaluating other options? And what would those be?

Second question, if you could give us some additional color on the North American steel market performance in the first quarter, are you seeing any signs of demand recovery? And what's the price trend from here in your view? And then if you could tell us about specific sectors that you're seeing, any kind of signs of recovery, that would be great. Thank you.

All right. So, first question related to the slab issue, first, I mentioned in my opening remarks that we are expanding capacity of slabs in Argentina in almost 0.5 million tons because of entering into operation a new continuous caster that, as I said in the opening remarks will start up in the first quarter of 2014, first.

Second, yes, as you know, CSA in Brazil is a slab producer, and we are a big buyer of slabs in the market, maybe the largest worldwide. So, it does make sense for us to check if there is an integration opportunity for Ternium there.

In this respect, we are following the process. Let me mention at the same token that we are not looking at [decent] rolling facilities in the US, Alabama. We are not looking.

So, at the end, we are following the process. We are participating in the process. And that is what I have to say right now because of confidentiality issues.

Second, regarding the US as well as the Mexican market that also has a good influence coming from the US, we see an expansion in the marketplace first coming from the automotive industry. The automotive industry in the US market will be in 2013 at the same level or slightly over the record levels that the automotive industry had in 2007 before the last economic crisis in North America, though. So, this market is performing quite well as well as other consuming sectors, like for example, home appliances.

The real estate market, the construction market, is not recovering yet but is having a good perspective, first because of a decrease in inventory level because no houses can be built in residential as well as in industrial or in building spaces in the last four years. So, this inventory went down. And so, maybe we will see a rebound in this market during 2013 and 2014.

So, we are optimistic first in a recovery in the US market because of a growth in the GDP. And second, in steel-related matters, we are doing well, or we see a good performance, automotive, home appliances, and maybe a rebound of residential housing and housing as a whole during the 2013.

Regarding prices, it is quite difficult nowadays to make a forecast in the long run, in the medium run because of the volatility. But, at the same token, I'm doing China. I'm seeing China doing well with a projected GDP growth according with the IMF and according with private estimates of above 8% for 2013. I see the US market doing well. I see the Latin American market doing very well.

And so, I am cautiously optimistic on the pricing perspective, even when uncertainty is still the king in the market, and maybe in the long run, it's difficult to estimate a concrete increase in pricing.

So, I see steel prices probably being around the ones of fourth quarter of year 2012 or maybe above this number a little bit.

That's perfect, and -- .

-- Regarding the operation, regarding the perspective in the outlook for the first quarter of 2013, I'm following what Pablo Brizzio was mentioning. I am positive we are expecting for Ternium an increase in shipments in first quarter 2013.

And also, in addition to that, we are going to see a reduction in cost per ton due to lower price of slabs and raw materials that we'll enter now because of our accounting system of first in, first out. So, we see good perspective for the first quarter. And we are looking at the rest of the year with optimism.

That's perfect. And just coming back to the first question, would you consider a partnership with any local players to -- and the -- in a potential CSA acquisition? Would you consider a partnership with Usiminas, for example?

Yes, no, no, we are analyzing the CSA standing alone up to this moment You know that Usiminas is having other targets now, is started in the turning around and in the breaking through and also, well, any factors that you know. So, we are analyzing the CSA as a standing alone project of Ternium. And we are not looking at the Alabama venture.

That's clear. All right. Thank you.

Thank you.

Our next question comes Ivano Westin of Credit Suisse. Your line is open.

Hello, good morning, Mr. Novegil, Sebastian, Pablo. Thank you very much for the question. Just like to raise two points. Once your Pesqueria project in Mexico starts up in Q3 and after your new additional 0.5 million tons of capacity of slabs in Argentina, what sort of EBITDA per ton improvements do you expect and especially in 2014? What is the expected normalized EBITDA per ton?

And the second question would be still on price. You mentioned your forward look for North America. But, can we expect price hikes in Argentina in the new future? Thank you very much.

Well, regarding the project in Pesqueria in Mexico, as you know, we have two projects. Now, one is -- the first one, Ivano, is the Tenigal project in a partnership with Nippon Steel.

We are thinking we are right on schedule. We are right on target with the budgeting. We are not having any overruns that are so popular nowadays. We are well. We are happy with this investment. And we are planning to enter into commercial operation of this facility, the Tenigal project in August, around August 2013. The hot run will be in June 2013. But, again, commercial operation in August 2013.

Regarding the second investment in Mexico that we are doing standing alone, 100% being owned by Ternium, we are thinking about starting the commercial operation in October 2013, October 2013 commercial operation. And the hot run or the startup, the ramping up process is starting in August 2013.

The continuous casting in Argentina, up to now, the best estimation that we have is that we will be starting up and afterwards ramping up the process of production in this line in the first quarter of 2014. Maybe we could accelerate a little bit. But, up to now, it's the best estimation that I can give you.

Regarding prices in Argentina, as you know, the prices in Argentina follow the trends in the marketplace, even when we see that we have seen over the years that -- we follow international markets but with a lag of reaction to changes and also less volatility.

We don't see the prices going up in Argentina in the short run as well as in the medium run.

The other question was related to -- ?

You already answered it.

Okay.

Just in terms of what do you expect terms of EBITDA per ton, once your new project's already in place by the end of 2014.

Okay, Ivano, this is Pablo Brizzio. As you were mentioning during the first part of your question, of course, we are expecting this to take place in -- during 2014 because the ramp up period will take us into that year.

You know that we are always working or targeting to have an EBITDA per ton of over, of around $150 per ton, which is what we are obtaining at the moment and moving around that level. So, of course, everything depends on pricing. But, that's the target that we are working with. And of course, this project is around these levels.

Okay. That's clear. Thank you very much, everyone.

You're welcome.

Our next question comes from Carlos De Alba of Morgan Stanley. Your line is open.

Thank you very much. So, given that the start of the operation in Mexico will take on -- place in October, could you comment how much volume do you expect to -- that these new plants will contribute this year? And then do you expect that, in 2014, they will be already running at full capacity?

And the second question is if you can give us your outlook for CapEx in 2013.

Yes, total CapEx 2014 for Ternium is $800 million.

The capacity of the Tenigal project is around 400,000 tons of galvanizing to the automotive industry. We will start commercial runs in October. And we will be ramping up and maybe reaching 70%, 80% of capacity in -- as fast as we can.

We will be taking over imports coming from overseas. So, we will have the chance of gaining market share through import substitution.

If you tell me when we are going to be working at full capacity, I don't know, but maybe in 2015 because it will take awhile since we have to go to the customer to explain the advantages of our products, to improve our marketing efforts, to explain logistics, to serve the needs just in time of our customers in the automotive industry.

So, it's mainly a ramp up period that requires more time than when you sell commercial products to the construction business.

So, I would expect that maybe we will ramp up over 2013, 2014. It will take almost a year. And afterwards, our hope is that we will be -- work as close to full capacity as we could.

And so, just to clarify, Daniel, the $800 million CapEx is for 2013, right?

Yes.

Right.

Yes, yes.

Okay. And just my last question also on CSA, have you had any discussions with Vale at this point, or not yet given where we are in the process?

Right, you know that Vale is our main supplier of iron ore for the whole -- [the king] group. So, we are always in discussions with Vale related with commercial situations and relationships. And also, remember that Vale was our partner initially in Siderar when we bought -- we took over from government control the operation of Somisa in Argentina. And we started with Siderar back to 1992.

At that time, Vale participated with us. If I remember properly, they took over maybe 13% or 14% of ownership in [the arrangement]. So, over the years, we have had with them very close relationship. We always talk with them.

We didn't have any serious discussion regarding -- because as you know, also Vale is having 27% ownership in CSA. We didn't have any serious discussions in fixing any of the commercial conditions or governance agreements or so. We did not do that. But, we always have the chance of doing that, given that close relationship that we have had with them over the years.

All right. Thank you.

Thank you, Carlos.

Our next question was from Marcos Assumpcao of Itau. Your line is open.

Hi, good morning, everyone. First question, if you could comment the difference between or the possibility between increasing the slab capacity in Mexico now that natural gas is becoming increasing available there versus buying an asset from scratch, like CSA, for example. How do you compare the two options?

Well, the two options can be compared on different fields, Marcos. First, in order to have a right, a proper supply of slabs to our needs in Mexico, it will require either to make an acquisition of an existing facility in Mexico. The only one is the one that Mittal is having. And as far as we know, they are not interested in selling.

The second one would be to build a greenfield facility in Mexico. But, as you know, it will take four years, five years to do so and to build capacity using that introduction to supply our needs of slabs.

In the case of CSA, we have a new facility. We can start from the very beginning to produce to fill our needs. And also, the facility in -- of CSA in Mexico in Brazil is ready to produce high-end kind of products.

So, the difference could be -- one difference in building against buying, price per ton and, second, the timing in entering into the market with both projects with -- well, having said that, we consider that facility of Mittal is not being -- is not in sale. And so, we have either two choices, to go for CSA to cover our lack of slabs, or to build a greenfield facility. And it will take, as I said before, four years at least. So -- .

-- Perfect. And can you give us -- can you provide us an idea of timing for this deal because we heard it was a little bit delayed? But, the bidding offers should be submitted by February 15th. And then now, it's a little bit delayed. Can we have a sense of when this deal could be finalized?

Well, Marcos, as you know, in every process, this is settled by the seller. So, what we are doing is following the process. So, in due time, this process will have an end. But, this is dependent of the timescale that the seller is putting in place.

But, all right. Okay.

It will take some time, Marcos. It will take some time, but anyway -- .

-- Okay. All right. Last question, regarding the write-off of Usiminas investment, you mentioned that you are also considering a lower forecast for long-term iron ore prices. Can you provide us the long-term price that you are using now in your Usiminas and, if you also use it, lower long-term iron ore production for Usiminas, if you consider that also to write-down the asset?

Regarding the impairment of Usiminas, the asset, we were explaining during the call, the write-down we performed was based upon mainly two reasons, two main reasons, the first one being a weaker growth forecast than the one that we had originally expected in industrial production in Brazil.

At the same token, we've considered that measures are being taken by the Brazilian government. And so, we expect today that they are going to have a beneficial, a positive effect on the Brazilian industry in the future. But, we have been expecting better volumes in Brazil in 2000 and -- especially in 2013 in matters related with industrial development of Brazil.

The second reason and is the increasing uncertainty and volatility in the pricing of iron ore during 2013. And this brought about a lower long-term price of iron ore in our projection. And that impacted our cash flow expectations. If you ask me which are the numbers that we are putting in our model, are close to $100, $110 per ton.

Regarding volumes, we didn't make any important consideration in volume reduction. The main reason of the impairment was the lower expectation in iron ore prices that we put in our model.

Perfect. Thank you very much.

Thank you, Marcos.

Our next question comes from Alex Hacking of Citibank. Your line is open.

Hi, good morning. Thanks for the call and taking questions. First question is whether you have any update on the potential of the palletizing facility in Brazil at Acu, or should we assume that this decision is on hold until CSA is resolved?

And then the second question is a technical question. Do you require any certification from the automotive companies for the new galvanized product, or you could effectively start selling to them immediately? Thanks.

Well, related to the Port Acu project, we have written down in this quarter that we are analyzing today part of the expenses that we have been putting in this project.

And the reason for doing that is that, as I mentioned in our last Investor Day as well as in some of our calls, is because this project was based upon, first, the availability of natural gas in the area because, as you remember, we -- at one point of time, we said that we switch in some sense from analyzing the blast furnace against iron production.

And second, also, this project was based upon the availability of iron ore in quantity and in quality in the area. And as you also know, there have been delays and investment overruns, important overruns in the Anglo American Minas-Rio project.

So, for these two reasons, we consider that we had to make a write-off, a write-down of expenses that we had committed in relationship with Port Acu, even when and at the end of everything and also taking into consideration what happened with CSA and so on and so forth, we will maintain for awhile our options open. I mean, we will not close the page of Acu because it does not make -- we will not be entering into expenses for doing so. And so, as you know, we also like to have flexibility and options open for the future.

Regarding the automotive industry, we have been working in these last two years when we took the decision of going ahead with the investment together with Nippon Steel, we have been working very actively in Mexico in product specification, high-end developments, research and development, visiting customers, adjusting the logistics needed to serve a sophisticated market because, as you know, after our participation in Usiminas, we changed the scope of Ternium from a commercial quality kind of company to a more high-end driven kind of company, looking for niches of specialties, of more sophisticated products with better logistic, with better just in time, with certification of products, with a very close relationship of customers and penetration in the value chain of the customers.

So, in this new commercial approach, we have been working a lot in the last two or three years in relationship with the automotive industry. That's why I am optimistic that, in the operation of Tenigal, we will be taking advantage of all this work that we have been doing during the last two or three years. And we will have a ramp up period that will be accelerated and reasonable.

It's not that -- it's not the case where, Alex, we will be starting from scratch to enter into a new market like the one of the automotive industry with higher specifications, with other requirements. It's something that we have been working a lot in the last two or three years, in the commercial side as well as in the industrial side.

Also, you have to take into consideration that we are also entering into the market in Argentina, where we are building a new vacuum degassing facility that will enter into operation next August, August 2013, that will give us the chance of selling high-end products for the automotive industry and other high-end applications in Argentina, or we can also complement with neighbor countries.

Okay. Thanks. So, there's no minimum time or waiting period for the automotive customers in Mexico to evaluate the new product? You can effectively -- .

-- I would say yes. I would say, to complement my answer to your question, Alex, that we have a certification process that we have to follow, no doubt. You have to work in going to the customer to prove the performance of our product, to make samples, to go back and forth, to make adjustments. But, we have been working on that.

And also, because of having this partnership with Nippon Steel, it will give us very good support and a very good backup to this activity, where we are working together in a normal 50-50% with Nippon Steel that has been in this market for years and is maybe the number one company in the world.

So, I would say that we are pretty optimistic that the ramp up will be reasonable. And we will be able to pass the certification process at a good speed, at a reasonable speed, a sensible kind of a speed.

Thank you. It's very clear. And thank you for all the detailed answers that you give.

Thank you, Alex. Thank you for your questions.

Our next question comes from Marcelo Aguiar of Goldman Sachs. Your line is open.

Hi, good morning, everyone. Thank you for the opportunity. Question again on CSA. I'm not sure if you guys can share some thoughts with us. I mean, I suspect you guys already visited the facility.

Just I mean, to -- first to have a sense, in your view, do you guys need to make an additional investment to make that facility feasible for your operations? And if you can share with us at least a ballpark number or a range of additional CapEx, that's the first question.

Marcelo, as you know, we are -- and as we said, we are following the process. We are not in the capacity at the moment to say what or to answer this type of question. We are going through a process and analyzing the issue. And at some point in time, if this move ahead, of course, we will run the full disclosure of these issues.

Okay. Then the other questions will be more related to the fourth quarter. So, it's given some of my questions have already been answered -- made is regarding your higher-cost slabs, I didn't understand. I mean, if you look to slab prices, they have been falling since I think midyear. And you had higher cost of slabs (inaudible) fourth quarter. I was expecting you were going to have lower cost of slab given the FIFO.

So, is that because of the accident in Argentina not receiving slabs from Argentina? You had to buy more on the market? What happened there?

Marcelo, in fact, I believe we anticipate this in our prior call. We are still receiving due to FIFO during the fourth quarter slabs that we bought basically in the second quarter of the year that were higher priced as the ones that we are seeing today.

That's why we are saying that we are optimistic in moving to the first quarter, in which we will start to see or going through the COGS line the slabs at lower price or prices of slabs, which are more related what you see today in the market.

So, this was something expected. Of course, it's also included in this increasing cost the less efficient operation in Argentina due to the stoppage of the one blast furnace.

Can you quantify the impact of the Argentina side? I remember you guys said you didn't expect anything major. So -- .

-- Exactly. So, we are still in -- behind the same assumption that is not significant impact, but of course, in the quarter has some impact. But, both things are still valid. And in both cases, we are expected to recover into 2013.

Okay. But, you don't have a number for Argentina?

No, because, in fact, it was not that big, the difference that we saw in the fourth quarter in comparison to the third quarter. And between -- these are the two main issues that impacted the increase in cost or basically the only issue that impacted the COGS line into the fourth quarter.

Okay. Thanks.

You're welcome.

Thank you, Marcelo.

(Operator Instructions). Our next question comes from Rodrigo Barros of Deutsche Bank. Your line is open.

Yes, thanks for taking my questions. I have a couple of questions, the first one on CSA again. One issue that concerns me somewhat is that it's probably going to be a difficult operation to turnaround. Otherwise, Thyssen would already have done it.

And I wonder if you feel comfortable that you have the people to turnaround Usiminas, CSA, finish the Pesqueria project, do the slab expansion, Argentina. So, my first question is, do you have such a number of engineers to do all those projects together?

And my second question is on the synergies between Usiminas and Ternium, how well they are doing, if you can tell a little bit about the share distribution network project that you had, a little bit about [zeros]. Anything that you can say on synergies would be great. Thanks very much.

Well, regarding the first question, Rodrigo, in CSA, as I said in my remarks, we are following up the process. We couldn't do that if -- given that it's a slab producer, efficient, now in the right place, and we are the largest buyer of slabs worldwide. So, we -- so, that's why we are in this -- we enter into this analysis.

We did the due diligence, as Marcelo was asking us. And we did all the homework. And we do have a good staff of people, either to go ahead with these projects or to dedicate these people to a greenfield facility or to another acquisition.

So, we have very good professionals. We have covered the most important areas. For the most important areas of the steel industry, we do have a good bunch of alternatives people wise, in engineers and people who work in process and (inaudible) and this and the other.

So, this facility is a kind of facility that is familiar to us and to our history. So, I don't see any special requirement there where we do not have the people available, even to follow up this or to enter into a greenfield.

Second, regarding Usiminas, as I said in my remark, we are very happy with the activity and the turnaround of Usiminas. They are doing well. They are working very hard. They are working in reducing working capital, in increasing labor productivity, and so on.

So, we expect that Usiminas will breakthrough, will turnaround. And this will be reflected in the EBITDA to come, in the quarters to come.

Regarding synergies, we -- it's a question that we have been talking many times. And you know it's a question of very thorough analysis. And we have some estimations on that. And maybe we can talk a little bit about this issue when having our Investor Day in the 27th of June because it's this question about Usiminas and the synergies and the impact in Ternium of activity of Usiminas is a question that you like as well as you were liking today to ask about our venture in CSA, our possible venture in CSA. It will continue.

So, maybe we can enter into more detail, Rodrigo, when going to the Investor Day.

Okay. That's great. Thank you very much.

Thanks. I appreciate it.

Thank you. I'll hand the call back to Pablo Brizzio for closing remarks.

Okay. Thank you for your interest in Ternium and for your time today. We look forward to remain in touch with you. As always, please contact us if you have any additional questions. Thanks a lot. Bye, bye.

I appreciate the questions. And I hope to see you on the 27th of June. Before that, we will be having another call on April.

On the end of April for -- .

-- April the 28 or 29 or something. So, good luck, and thank you for the questions.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect, and have a wonderful day.