Ternium SA (TX) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ternium fourth quarter 2013 Earnings Conference Call.

(Operator instructions)

I would now like to introduce your host for today's conference, Sebastian Marti. Sir, you may begin.

Good morning, and thank you for joining us today. My name is Sebastian Marti, and I'm Ternium Director of Investor Relations. Ternium issued a press release yesterday telling its results for the fourth quarter and full year 2013. This call is complimentary to that presentation.

Joining me today is Ternium 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 yesterday.

With that, I'll turn the call over to Mr. Brizzio.

Thanks Sebastian, and good morning to everyone. Let me review first the fourth quarter results, then I will make some comments about our performance during the year 2013, and finally I will touch other issues we disclosed in yesterday's press release.

During the fourth quarter 2013, EBITDA was $390 million, 9% higher than EBITDA in the third quarter 2013 as a result of higher EBITDA per ton partially offset by seasonally lower steel shipments.

Shipments has seasonally increased, reaching 2.2 million tons in the quarter, 3% lower than the third quarter. In Mexico, sale to industrial customers remain at good levels, while our construction-related shipments, although showing some mild recovery, continues to be relatively weak. We have been working hard on increasing our sales to industrial customers in Mexico, and the result of these efforts should materialize higher shipments in the following quarters.

In Argentina, steel demand remains at healthy level in the fourth quarter, and we don't expect to see relevant changes in volume sold in the first quarter of the year, apart from the usual seasonality of summer time in the southern hemisphere.

Steel revenue performed a sequential increase in the fourth quarter, with higher prices in Mexico on our market, and stable prices in the southern region. We anticipate a sequential decrease in revenue performance in the first quarter 2014.

Spot prices in our main market are showing some decreases. Which you should be partially upset by the lag effect of higher industrial customer-base contract prices in Mexico.

Mining revenue performance sequentially increased in the fourth quarter, mainly as a result of price adjustment of sales of iron ore to Ternium Mexico. Ternium Mexico bought most of the iron ore sold by Las Encinas, our own mining activity, and our share of Pena Colorada.

So close to or more than 90% of the mining segment iron ore sales are internal transfers. This adjustment, then, has no effect on Ternium consolidated EBITDA, been eliminated when consolidated Ternium's mining and steel segment.

Consolidated EBITDA per ton of steel was $175 in the fourth quarter, compared to $156 in the third quarter, and EBTIDA margin reached 18%. The higher revenue performed in the fourth quarter was coupled with slight reduction in operating cost per ton, that resulted mainly from a lower cost of purchase slabs and raw material.

Net income in the fourth quarter was $171 million, or a gain of $0.64 per ADS. These results compare with $136 million gain in the third quarter 2013, or $0.50 per ADS.

Net cash provided by operation activities in the fourth quarter was $247 million. In addition, capital expenditure were $158 million lower than the $218 million we recorded in the third quarter of last year. CapEx continues to decline as we are in the final stages of our latest CapEx cycle.

Let me now make a review of the Ternium EBITDA in 2013, was $1.5 billion, still higher than the EBITDA generated in 2012. This is equaling to consolidated EBITDA per ton of steel of $165, an improvement compared to $147 in 2012, in line with our recent year average --.

EBITDA margin in 2013 reached 17%, compared with 15% in 2012. Shipments were slightly higher in the year, reaching a yearly record of almost 9 million tons. This compared with 8.8 million in each of the previous two years.

We expect an increase of shipments in 2014, driven by the commissioning of our new facilities in Mexico, and the strength of our Mexican industrial customer base.

Finally, net income in 2012 sic - see press release was $593 million. This is equaling to earnings per ADS of $2.32. We have a cash flow from operations of $1.1 billion in 2013.

We discuss generation with final $883 million CapEx level, down from $1 billion in 2012, and ended up with a free cash flow of $209 million, with which we paid a dividend of $128 to Ternium holders, and we reduced net debt that went from $1.7 billion at the end of 2012, to $1.5 billion at the end of 2013, which is equivalent to one time net debt to last 12 months EBITDA.

Ternium's board of directors proposed another dividend of $0.75 per ADS, equivalent to $150 million. That is approved at the shareholders meeting, will be paid on May 16th. This represent a 2.5 dividend deal, or 32% payout rate.

Let me know comment about the power plant we are going to with Mexico, together with Tenaris and Tecpetrol, two companies that are also part of the Techint Group. The project consists in the contraction operation of a natural gas-fired combined cycle electric power plant in Pesqueria area of the state of Nuevo Leon, near to our new facilities.

The power plant will have a capacity of between 800 and 900 megawatts, and expected to be operational in the fourth quarter of 2016. The total investment required for the project is a little over $1 billion, of which we are expecting to finance 70%. We already made the initial investment in the project company, which is called Techgen, and is owned 58% (sic - see press release) by Ternium, 30% by Tecpetrol, and 22% by Tenaris.

Tenaris and Ternium are going to be the main uptakers of the electricity, so they have agreed to enter into power supply interpretation agreement with Techgen, pursuant to which Ternium and Tenaris will contract 78% and 22% respectively of Techgen power capacity.

Okay, these are the main issues I wanted to comment on you. Please let's move to the Q&A session. Thanks.

Thank you. (Operator instructions). Our first question comes from Rodolfo Angele of JPMorgan. Your line is now opened.

Hi. I was wondering if you could comment a little bit on the performance of the mining division in more detail. I just want know if you expect that level (inaudible) move forward, and what really drove such a huge increase. Thank you.

Okay. The mining activity of Ternium is, as we have commented in the past, basically working at full capacity. We are gypping around 4.2, 4.3 million tons, mainly through our own operations in Mexico.

Remember that we have 100% of the mine activity which is called Las Encinas, 50% of the mine operation which is called Pena Colorada, we share with Mittal in Mexico. So we are expected to keep working at full capacity, and as always, we are trying to improve most the output of our own facilities.

The important thing to mention here, as I mentioned in my initial comment, is that around 90% of the iron ore extracted from our mines are basically for internal use in our operations in Mexico.

Okay, thank you very much.

Thank you. Our next question comes from Leonardo Correa, of HSBC. Your line is now open.

Hi gentlemen, good morning everyone. My first question is on Argentina, just wanted to get your latest thoughts on the depreciation of the peso, and how demand could potentially be impacted also by some of the downside risks of Brazil.

We know that Brazil and Argentina are big commercial partners, so just wanted to get your views on the demand environment in Argentina, especially with a potential slowdown in Brazil, and also the pricing scenario in Argentina, if we can see the pass through -- a full pass through of currency depreciation to final still prices. That would be the first one.

The second question is on incremental volumes. I mean how is the volumes outlook for 2014, and also if we can talk a little bit also, Pablo, about the ramp up of the new projects, and the contribution on EBITDA part-time of these new capacity of these new projects. Thank you, those are the two questions.

Okay, thanks Leonardo for the questions. Let me start with the issue in Argentina. You are totally right. Argentina, as a country, is impacted by different things, the most important ones are of course their own economy in the country, and the second one, which is very important, is the situation in Brazil.

If the situation in Brazil is good, of course that is very good for Argentina, but if you have a slowdown in Brazil, this will impact the situation in Argentina, mainly the industrial sector in Argentina, which is exporting quite a lot to Brazil.

This year, what we have, is different issues which are affecting directly the situation in Argentina. You mentioned one, which is the devaluation, and we are also having expectation of another very significant growth in Brazil, which will have an impact on Argentina.

Putting both things together, you can imagine, or you can think that there will be some reduction in the consumption in Argentina in the following quarters. We have not yet seen reduction in the demand of our products in the very short run.

That's why we mentioned that during the third quarter we are still seeing good level of demand, also taking into consideration that the first quarter in Argentina is the seasonally lowest of the year.

So we are -- in relationship to the pricing scenario -- prices in Argentina, we (inaudible) commented, are related with the level of steel prices in the region. The steel that is imported to Argentina is mainly coming from Brazil, so we are always having prices that is related to these market of international markets.

The prices, as also we commented in the initial remarks, in the whole region, not only in Argentina, but in the Americas, if you want, are starting to suffer in small reduction of prices, and of course this is also reflected in Argentina.

We were able to maintain, or sustain, the way we price in Argentina, so the impact of the evaluation, we are expecting to cover this impact, and also there are some other impacts on the evaluation that you had to take into consideration, which are mainly related to peso-denominated costs, which is mainly labor and services that are (inaudible) suffer in the short run, reduction in costs.

So all in all, we are not expecting to see significant changes in the level of shipments to the local market, in the very short run, and we are expected to sustain, also during this first quarter, the level of profitability of the company.

So that is probably the perspective for the rest of the year. It's, as you know, very difficult to tell right now, but if you put together what you mentioned of Brazil and Argentina, and Brazil probably you can expect some reduction in the general demand of products in the country. So this is in relationship to Argentina.

Let me move now to your second question, which was in relationship to volumes and ramp up of the facility. We, probably in the same call last year, we mentioned that we were expecting to have a bit more volume, because we didn't have volume increase -- sorry, because we didn't have that much new facilities to increase our volume from.

So reaching almost 9 million tons during this year was quite good for us. We are looking, as you know, to, after the commissioning of the new facilities in Mexico, the cold-rolling mill and Tenigal, which is a galvanizing line, at the beginning of the ramp up period, to have a net increase in volume of 1 million tons.

Of course we are not expecting to have this altogether during this year, because we need to go through the ramp up period. So probably you can say that at least half of that should be gain during this year.

But as always, we're working very hard during this ramp up period in order to have all the certifications needed in order to produce the product that we are expecting to produce in this line.

Let me tell you that in fact we are doing quite well in the process, and we are quite advanced, so we are optimistic in going through that in the expected time frame that we have from the beginning of this process.

Yes, thank you, Pablo, for the explanations. Just if I may, ask an additional point to my question, just on the profitability side from this new capacity, right, these are probably that are non-integrated, right. But on the other hand, depending on the differential between spreads and prices, you can see a gain on your overall EBITDA.

So just wanted to get a sense of EBITDA margin going forward. Should we think of something around 17%, 18%, or probably closer to the twenties? I just wanted to get a sense on how these projects can contribute. They clearly do improve product mix, so just wanted to get a sense on how the company's looking at the profitability side.

Okay, you are right. This has different ways to look at it. Of course with regard to the product mix of the company, it was better, the product mix of the company, because this is a very sophisticated type of product.

But on the other hand, you are also right that these facilities are not integrated. So they are coming from the lower side of the margins of the whole production of the company.

In any case, as we always say, is that even with this situation, we are expected to sustain the level of profitability that we have in the company, which is between 15% to 19% EBITDA margins, even with adding non-integrated products.

As you mentioned, they are very sophisticated products, so this is our expectation. Of course, at the very end, this not only depends on this, but also depends on the pricing scenario that you can find moving from here on, but this is the expectation that we have on these new facilities.

Thank you very much.

You're welcome.

Thank you. Our next question comes from Ivano Westin of Credit Suisse. Your line is now opened.

Hi Pablo and Sebastian, and thanks for the question. The first one is on price in North America. We see at the moment a high spread between price in the region and international steel price, and given the strong correlation of price in Mexico to the US, I just wonder what is the forecast in terms of price movements throughout the year, and if you expect any change in the current spread.

The second point would be on your growth strategy in terms of what to do with your cash generation. You had already a good cash flow generation in 2013. You're going to move ahead with your expansion, so clearly you're going to have excess of cash in the forthcoming period.

So your admission that you're going to have the power plant project, with Tecpetrol and Tenaris, so in addition to that, can we expect additional expansion in brownfield or Greenfield, or any M&A move, or are you going to return cash to shareholders? So what's to do with the additional cash? Thank you so much.

Okay, good, Ivano, how are you? Let me comment first on the pricing scenario. You are right that we are seeing at the moment, and we are already having to see during this month, price -- some price decreases in the North American market.

Of course living by the US and this is transfer immediately to the Mexican market. So we are expecting, as we mentioned, to see some decreasing in pricing for our whole market, related to this decrease that we have seen these days in the US market.

Up to now, the movement hasn't been that significant, and as usually now our sector is very difficult to tell which would be a pricing scenario moving to year end. So we still believe that prices won't move widely in the US market. Of course there will be some movement of pricing, and the movement that we are seeing at the moment is on the downside.

In respect to cash flow, yes, it's important to comment on this. We have generated during this year, 2013, the year that we are commenting, more than $1 billion cash flow generation. Of that, we find that the CapEx which was $885 million, we pay dividend, and we reduce debt at the very end.

Enter into next year, or in fact this year, the issue that for sure will have some movement, is CapEx, since we have already finished part of our plans, we are in the process of finalizing the one that we have in Argentina, and we have indicated a new one like the power plant in Mexico, we are expecting to reduce this level of CapEx.

If you ask us at the moment, we are still going through numbers, but CapEx for the year 2014 should be between $650 million and $700 million. So in fact an important reduction from the level of CapEx of last year.

We have already announced, as we mentioned, the power plant that we will be building in Mexico. We are finalizing with the plant in Argentina. We are adding some other small projects, so this is the expectation that we have for the moment.

We have increase the level of dividend, or the proposal, to increase the level of dividend this year from $130 million that we paid last year, to a proposal of $150 coming into this year.

So we -- at the moment, we don't have any additional plans to present to the market, so we -- in fact the change that we are expecting to see this year is a reduction in CapEx, and if there is any new additional CapEx project that we could use that money, probably we will do what traditionally we do, mostly to reduce the level of that.

And of course next year the shareholders meeting will have the possibility to decide in an increase in dividend if they wish to do so. But up to now, these are the things that we are planning for this 2014.

That is clear. Pablo, thank you so much.

You're very welcome.

Thank you. Our next question comes from Renato Antunes, of Brasil Plural. Your line is now opened.

Hey, good morning everyone. Thanks for taking my question. The first one is about your distribution agreements with Usiminas. Do you guys think that volumes could accelerate going forward, mainly because of higher exports coming out of Usiminas from Brazil? Do you think that's a possibility looking forward into 2014? That's the first question.

And the second question, coming back to the Argentinian currency devaluation theme, you mentioned that we could see lower demand as we move into 2014, not in the first quarter, but maybe later in the year. Do you guys see any possibility of increasing the exports out of Siderar? Is that something you guys consider? Thanks.

Okay, hi Renato. Let me first take the issues in Argentina. First of all, what we said is that at the moment, we are not seeing any reduction in volumes shipped to the local market during the first quarter.

Of course exist the possibility, I mean you take the numbers that are coming out from different researchers on GDP growth in Brazil and Argentina, there is the possibility of having some reduction in the month, and moving forward.

As usual on our -- or traditionally, Siderar did in the past, is utilize the network that we have for exporting products, mainly to, first of all, neighboring countries, second of all, to other markets.

So Siderar will succeed in Argentina most probably, and this is intentional, we'll continue to do that if needed. The most important issue for us is to keep similar levels or increasing the level of production.

So this is the most important issue that we will need, or want to maintain, and we believe that we are able to do that if there is reduction, the one as you mentioned in Argentina, that will make us not to ship the same level of volumes that we have this year.

So we have always worked to have a very well distribution network in our region, and if needed, we will utilize that. As you know, and you mentioned, in the history of Siderar this happened quite a while, so we are not -- this is nothing unusual for the company.

In respect to the distribution agreement, during this year, 2013, Siderar reviews -- excuse me, Usiminas reviews the level of shipment for the export market. As I mentioned, one of the goals or the targets of Usiminas (inaudible) companies is to increase utilization level of its facilities, and in that sense, increasing the level of shipments available for the market.

So exist the possibility of Usiminas increasing that. For us, it's difficult to tell at the moment this will be -- how will be the situation in Brasil in the coming quarter, and if there will be an excess capacity for exports coming into 2014.

Thank you very much, and just to confirm the number you mentioned on the previous question about CapEx, you mentioned $350 to $400 for --

No, what I mentioned is between $650 million to $700 million of total CapEx for the year.

Okay, thanks.

Thanks for the clarification.

Thank you. Our next question comes from Marcos Assumpcao, of Itau BBA. Your line is now opened.

Hi, this is Marcos. First question is regarding just again on Argentina, at the current currency level of [7.80] for the Argentinan peso, how do you compare the profitability of exports and sales in the domestic market?

Hi Marco. We lately we have been shipping very low volumes to the export market, and being that the case, we are trying to export first of all to the markets that are closer to Argentina.

The profitability levels that we have in the fourth quarter prior to this evaluation, you need to take into consideration first that the devaluation in Argentina during 2013 was also -- was around 3%.

What we have in January of course is an important move, and it is around 20% from the beginning of the year up to now. So Argentina currency has been devaluating for a while, probably the pace of the devaluation is what changed.

So we are expecting to sustain these levels of profitability entering into the first quarter. As I mentioned, there are different situations that are affecting that, not only pricing, but also cost that (inaudible ) we will have some reduction, and of course volumes that as we mentioned, there will be reduction during the first quarter due to the seasonality effect, which is summer time in the country, and it is usually affecting the level of volumes.

Okay, my second question is regarding growth, now that you're with a very comfortable leverage. Do you -- are you analyzing already the increasing slab capacity in Mexico?

We are always looking at different ways of seeing this company grow. And as you know, we believe that Ternium still has opportunities to keep growing. That's why we invested in Mexico. The project that you mentioned is one project that, as you know, we have analyzed in the last five years or more than that.

In fact we have been increasing the production of -- we are at the moment increasing the production of slabs in Argentina. So it's something that the company consider as an issue that needs to look at it.

Differently from saying that, we are at the moment in the position to decide or to take a new project in Mexico, as you mentioned. We are not at this moment in the process of deciding on that.

Okay. And would you consider increasing the stake in Usiminas as well, buying more shares to reduce the average price that you paid on the acquisition?

Well we have been receiving this question from the moment that we acquired with shares from (inaudible) and Camargo, and conceptually and from a financial component this is a very fine way of investment -- of investing the resources of the company.

So from a financial theoretical point, we don't roll out going through these types of transactions. But we are not seeing at the moment clear opportunity to do that. It's very complex, the situation of the capital structure of the company, and the company's going through some claims that we are having in relationship to our recent transactions, so this is the situation that in any case should be analyzed very carefully.

So from a theoretical point of view, it's a transaction as any other that the company could consider. From a practical standpoint, at the moment, there are some restrictions to do that, or there is difficulty to do it. But you never know what will happen in the future.

Okay, Pablo, last question here on the Colombian market, what is your expectation for the main growth in the 2014 and 2015?

Colombia is a market that we are expecting to see some growth in the coming years. Colombia is a market that, among the markets in the Latin American region, is expected to have increases, and going forward.

So we are expecting to see that, especially 2014, as usual is very difficult to tell in the near -- more than a year, but discussing about GDP growth, probably you can be safely in that you -- we are expecting to see some positive growth, especially during this year.

Okay, thank you very much.

You're welcome.

Thank you. Our next question comes from Carlos de Alba, of Morgan Stanley. Your line is now opened.

Thank you very much, Pablo. A question on the next phase of the CapEx. When you typically investing in cycles, and you have your investment plans for a few years out, when does -- where are you in this plan in process for the next CapEx cycle? Is this -- should we expect news in the next few months, or you're thinking it would take a little bit longer to define this next CapEx cycle?

And the second question is have you seen any -- are you facing any restrictions to get money out of Argentina in terms of payment -- dividend payments, or capital expenditures in other countries that are not Argentina, that you may be able to fund from Argentina?

Hi Carlos. In relation to CapEx, first of all to answer directly your question, we are still in the final stages of taking advantage of the current CapEx cycle, as you put it. We have not yet finished our investment in Argentina, and we are going through a ramp up period in Mexico.

So if your question is we should take a decision, or a decision we take in the next couple of months, no, we are not at the moment in this process. We are at the very end of the process, which is very demanding.

In contraction and putting facilities into production are two very important parts of the CapEx cycle, so we are in the very end of putting the facilities in production, and getting these facilities up and running. So in the very short run, we are not expecting to announce any new CapEx cycle, or new CapEx cycle it will market.

In respect to restrictions, we are not having restrictions in what we need to import into Argentina raw materials, we have been paying dividend in still in fact 2013, and we paid $170 million, or a dividend of $170 million out of Argentina. So this is the situation that we are having at the moment.

All right. Thank you very much.

You're welcome.

Thank you. Our next question comes from Walter Chiarvesio, of Santander. Your line is now opened.

Yes, hi, good morning Pablo and Sebastian. Thank you for taking my question. My communication was cut off for a while, so I beg your pardon if you already answered these questions.

The first one is if you go back to the volume discussion, if you have time give some color on the other market segments, demand has been good there. And going back to the Mexican volume demand expectation for this year, you mentioned that volume could increase, I understood 500,000 tons on the new facilities, can you verify that figure? That is my focus on volumes.

The second one is on the impact of the natural gas price has been rising recently in US, original expectation there, if you have any sensitivity on the price increase in your EBITDA. I think that you gave some numbers a few years ago.

And the final ones you have been investing in the electricity plans, do you have any idea at this moment whether this is going to be financed fully by Chanume, or the companies that you mentioned, or some (inaudible) or something else off balance sheet. Those are my three questions.

Okay, Walter, how are you? Let's start by the issue on volumes. In the north market, or mainly the other markets, as we call them, what we saw here in the third quarter was the reduction in volumes, what we consider this seasonal effect, and we are expecting to recover part of the volume beginning and entering into this year.

What we mentioned, and we mentioned a number of 500,000 tons of new volumes moving into our North American market, yes, that's the number that we mentioned during the one previous question, which was the number that we are expecting to have after having commissioned these two new facilities of in total net 1 million tons, we are going through a ramp up period, so this is very significant target that we have, and we need to work very hard in order to achieve these levels.

In respect to natural gas, yes, we have seen an increase in the price of natural gas during the end of the fourth quarter, and entering into the first quarter of this year. The main reason for that, probably among the most important one, is very hard winter that happened in the US, and this has been driving different prices of natural gas up.

So probably we could expect some small reduction of these levels of pricing in the coming quarter. In any case, the price of natural gas to continues to be relatively lower against other raw materials that the industry utilize to produce steel.

Yes, we have mentioned -- you are right, you have a very good memory, we have mentioned probably two, three years ago, the issue of how much the impact of an increase of $1.00 per million BTU on the EBITDA, and this is between 50 and -- I do not recall, but between $50 million and $70 million, or an annual impact of that. So this is the number that we mentioned.

In respect to Techgen, we haven't yet initiated the final part of the financing program for the company. The expectation is to finance the company itself, not to finance through our different contributions. So we're expecting to finance directly this new company, which is called Techgen, that will be the company that will produce and sell energy.

Okay, thank you very much for answering my questions, Pablo.

No problem. Thanks.

Thank you. Our next question comes from Alex Hacking, of Citi. Your line is now opened.

Oh, thank you, Pablo and Sebastian, but my questions were already answered.

Okay.

Congratulations on yet another good year from (inaudible). Thanks.

Thanks, Alex.

Thank you. Our next question comes from Thiago Lofiego, of Merrill Lynch. Your line is now opened.

Hi, it's Thiago. Thank you. I have two questions. Just one back to the Argentinan situation, it wasn't very clear to me, Pablo, if you mentioned about prices in the domestic market, so do you think you're going to be able to fully vesture the currency depreciation to domestic prices, or maybe only partially? So if you could maybe clear that for us.

And the second question on iron ore, what's the strategy going forward in terms of growth? I mean you're already operating at full capacity in your operations. Do you think you could eventually expand your output? What's (inaudible)? Thank you.

Okay, Thiago, regarding the issue of iron ore, we have been working basically full capacity for the last two or three or four years. Remember in the past we have a project to expand that.

We have not -- we decided not to move ahead, so at the moment we are not planning to increase our plans to increase mining -- our mining operations in Mexico, so we're planning to keep working at the same level of production.

Going back to Argentina, what we mentioned is that we have been able to sustain the level of pricing in Argentina, which is in line with international pricing, which means that we are able to transfer to the market the impact of devaluation on our cost structure.

That -- in dollar terms also, we mentioned that due to the fact that we have a portion of our costs in peso denominated, this is a reduction in costs, so that's why we're saying that we are sustaining the level of profitability of this in the coming quarter.

Okay. Thank you, Pablo.

You're welcome.

Thank you. (Operator instructions). Our next question comes from Humberto Meireles of Goldman Sachs. Your line is now opened.

Hi guys, Marcelo Aguiar here in fact. Thank you for the question. Two clarifications here, Pablo. Can you remind us up to now what is the plan in terms of third-party purchasing coil for Tenigal, so this way we can really get a sense of what is incremental finishing product sales, that Ternium is going to have once Tenigal will be at full capacity? That would be the first question.

And the second question, is if you also can elaborate a more on the cultiving fact of this power plant, when it's going to be fully operating, I mean how much lower energy costs can you have in the maximum operation, and what percentage of all consumption of -- energy consumption this power plant is going to supply?

Okay, Marcelo. How are you? In respect to Tenigal, most of the supply of coils will be coming from Nippon. This is at the moment the planning, as soon as we keep increasing of course, we will utilize part of that, but up to now, most is coming from Nippon.

In respect to the power plant, we are expecting to have this plant fully operationally by the fourth quarter 2016, and this will cover most of our need of electricity. That was the design that we -- that's why we entered into this project, because we cover significantly all of our needs of energy that we are sourcing from our current provider.

We are expecting to have -- of course we need to wait until the moment in which this facility started to produce, was we are expecting to see a significant reduction from the level of price from the CFE, which is the current provider in Mexico. So it's around 20%, 25% or more of price savings. But of course it would depend on the situation at the moment of initiation of our facilities.

Okay, great. Thank you very much, Pablo.

You're welcome.

Thank you, and at this time I'm not showing any further questions. I'd like to turn the call back to management for any further remarks.

Okay, well as usual, thanks for your interest in Ternium, and for your time today. We look forward to keeping touch with you. So as always, please contact us if you have any additional questions. Thanks, and good bye.

Thank you, sir. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a wonderful day.