Gerdau S.A. (GGBR4) Earnings Call Transcript & Summary

[The interpreter apologizes, but no sound. Okay, now we're back.] After Japur's presentation, we'll have some time for Q&A, so you can ask questions and comments about the presentation. So Gustavo, I'll give the floor back to you.

Hello good morning, everyone. Good morning. Amongst all of the things I have in my annual calendar, this is one of my favorite events. I like this event because it gives us the opportunity to tell you about things that usually we have no time to talk about such as in our quarterly earnings results. So as Maria was just saying, today's agenda, I mean, I'll start by talking about Brazil. And I know that some of you are very curious and when to talk about China and North America. I asked [ Angi ] to come to Brazil in person, so he is here in person to talk to you because in the last occasions that we had, he had a virtual participation. And Wang will talk about North America, and then during the Q&A, you will have the opportunity to talk to him and ask a few more questions. He's been with Gerdau for 35 years. He's been with me for 10 years. He was born in China. He came to Brazil when he was still very young. He went to Rio Grande do Sul. He worked with us in Brazil, then he moved to Canada where he stayed for 15 years and then he went to the U.S. where he's been for a very long time. So he came over to Brazil. He came to this event just to be with you. So before I jump into the subject of Brazil, I think the main takeaway today is that, at this point of our business and looking at all the challenges we are facing in the different geographies where we operate. I think that the phrase of the day is that there is no super bullet or no major initiatives that could promote a huge transformation to our short-term business. So once again now as we've been doing in the past 123 years, we are really focusing on our operating efficiency. We are striving to get more efficiency to save every single dollar we can. So these 3 initial bullet points, safety is our value, quality is our business, efficiency is our progress. So if you look at the safety KPIs, you will see what we have achieved in the last few quarters. Safety of our people is very crucial to our business because we certainly understand that in today's world, most competitive values have become a commodity, and what allows us to strive is the quality of our team, the quality of our people. And for us, it's very important to demonstrate the respect we have for the people that work with us every day, and also to make sure that they go to work and go back to their homes at the end of the day, very safe, not only physical safety, but mental safety, mental health, and we've been working on these areas very diligently. And I know that you, in your everyday work you are looking at what is happening today and how this mental health indicators have deteriorated after the pandemic. I would say that today among Brazilian companies, we made important advances in regards to the care we have towards our employees. So after 123 years, last year and this year, we posted the best accident rate levels. Once you care about security, this is certainly a demonstration that we are taking care of the details because we are concerned with all of the details. We look at things that are not happening the way they should happen, and our quality KPIs are also in their best level of all of our history. And our philosophy is based on details, operating efficiency. And even though we have -- I mean, look at this so intensively, now we are looking at every dollar that can be saved so that we can remain competitive. So now let me talk about the Brazil OM -- Brazil BD. I would like to talk about a topic that is probably making us loose sleep, and this is related to imports from China. Steel from China is coming to Brazil in a very unfair way. We have imported steel being sold in Brazil at lower prices than the ore prices. We know how much China pays for ore and most of it comes from Brazil. So this is an unfair competition. And China, we can even talk about that later. China is going through a transition of its business model, general business model, leaving the levels of the last few years, which was based on infrastructure, real estate and export, and now they're migrating to other areas where infrastructure and real estate no longer matter that much and they are focusing on domestic consumption. At Gerdau, we don't believe that any stimulus measure that the Chinese government may introduce or will have an effect in the short run. Therefore, we are not working with that assumption because we have to continue working with the commercial -- I mean, with the trade mechanisms, and we are making good progress in the U.S. and Mexico, but also in Brazil after a long debate. It's been now 4 months since we saw the introduction of these trade measures. It was a commitment by the federal government of Brazil, where we decided to sit down and take a closer look at all of the numbers. And based on that, we will reinstate or reinforce some measures. So after a few months, things begin to be clearer. The importers of that unfair -- still were able to find some windows like bringing that steel via Manaus, but it seems to us that some of the trade practices were not precisely according to the law. Therefore, we are telling that government that they really have to take a much closer look at what is happening to these imports through Manaus. So we already have a few numbers, and I know that you are aware of what the numbers are. And this has steered up new debates and new meetings with the federal government. So it's important that from these learnings, they can introduce measures that will indeed be able to level the playing field. I mean, there was a competition between 9% to 11%, but it never reached numbers like the ones we see today, 18%. So this is our main focus. We want to make sure, together with the federal government, that there is a trade balance that competition follows OCDE (sic) [ OECD ] numbers. So as part of a -- in terms of all of the conditions of the game, if we are playing on the same playing field, I think the competition can be fair. And in terms of steel demand in Brazil, it remains less stable. This is not a concern for us. So when we look at the members in our quarterly deliveries, the challenges we have are mainly due to the incoming of imported steel because the numbers are very sound for civil construction, infrastructure. So this gives you a general overview of how we stand. The main challenge we have in terms of the market is strictly related to our heavy plate product because the heavy plate product was mostly used in wind power and also the naval industry. And this is a segment that's struggling at the moment. We can elaborate more on that further on, especially wind power that is losing ground nowadays has impacted our deliveries and our heavy plate business. And our main challenge now is to find new markets. We have intensively looked at other possibilities for the use of heavy plate in other business segments because among all the segments I showed you in this slide, what is the most challenging one is the segment where heavy plates are more extensively used. But in general, when we look at the industry, agro industry, civil construction, demand remains sound. And the question sometimes that pops up is, what is our stake in every market. We believe that for Gerdau, civil construction is the most relevant segment. But when we started investing in Ouro Branco, in long steels, we see that our stake in the industrial segment that accounts for half of our deliveries in our shipments. At the same time, I would like to say that we continue to invest a lot in solutions that are more impacting for our customers because this is one way to fight imported steel, because once imported steel hits the country, it is mostly earmarked for distribution. So civil construction or residential or business construction. In terms of solutions and services that we render our customers, imported steel cannot compete in this regard. So a building in São Paulo that has to be delivered just in time, sometimes we deliver steel on a daily basis, because sometimes people need to make a payment overnight, and we have to deliver the steel right just in time and the steel has to be delivered in a certain order. Therefore, there are a lot of details, and that requires a good service level. And as it means to fight that imported steel, we are now providing a more encompassing portfolio to our customers. And now here, I show flat steels. Flat steel is gaining momentum in terms of our shipments. Back in 2012, we are mostly focused on long steels, but in 2017, 25% of our shipments are of flat steels. We believe that this is one of our main growth avenues going forward and investments in Ouro Branco and mining, it will make that even more possible. And next year, 40% of our shipments are competing in that segment of flat steel. Also, we are striving to develop new products, high-strength rebar, GG 70. well, we had a GG 50, but we are also developing in the past few years a broader range of products to serve the interest of our customers. And at the same time, as I said, to fight the entry of import products because oftentimes, we also have imports of commodity products. Therefore, we offer a new range of products to our customers, which has allowed us to fight import products. Not only that, but we are also working on a more intense relationship with our customers. And we are doing that through Comercial Gerdau, is a strong pillar of our businesses through Comercial Gerdau that we can serve customers in different geographies. This is a very important channel to expedite our profitability in Brazil. Therefore, Comercial Gerdau is working a lot, not only because we want to deliver distinguished services to our customers, but buying steel through digital channels, it's another area that is growing a lot. We are offering our customers a whole range of solutions, a very complete range of solutions. I mean Brazil works like that. There are many family concerns, and now they are sending the baton to the next generation. The second generation is now taking over their parents businesses. We see that more and more, and there are many changes now occurring in our customers' businesses. And the digital platforms are now growing a lot. Also, I would like to talk about some things that we've been talking about during our quarterly results calls, which is our strong performance in the cost front. I mean, Japur will talk more about it. But this reinforces what I said at the beginning because we are constantly trying to low cost. There won't be any changes in imports or exports of steel in Brazil. Therefore, our focus is towards greater efficiency. And this is what we've been trying to do throughout our 123 years of existence. Therefore, we are constantly seeking for greater efficiency. And this involves structural solutions, I would say, migration and changes, migrations of products from one mill to another. We believe that if you dilute your fixed costs, you can have better results in terms of profitability in Brazil. Historically, we operated in many mills. We have several mills all over the country, collecting scrap locally and producing products for that particular geography. We also realized that this business model in some instances, is not as efficient as we wanted, not efficient enough to compete with imported goods. Therefore, in the last quarters, we decided to make a few changes. And one classical example was our decision to close our Barão de Cocais mill in Minas Gerais. It's a very traditional mill. It's been in our company for a while. It's a mill that is not based on scrap, but charcoal and iron ore. And this mill was losing competitiveness because of increased prices of charcoal and the lower availability of iron ore with high iron grade in that Minas area, therefore, we decided to hibernate that mill in Barão de Cocais and take the mix of products because this is a very traditional mill that works with structural. So we are taking that to other plants, especially in the case of Cosigua. Cosigua is a very competitive mill. So we are running the melt shop more often and the rolling mill more often. And this brings about more productivity. We also -- we hibernated Barão de Cocais. We stopped our mill in Ceará and distributed the products to our other mills. And with that, we were able to achieve in the first quarter of this -- the first half of this year, as Japur was saying, we were able to get BRL 160 million (sic) [ BRL 150 million ]. And in the second half of the year, BRL 400 million. So annual gain is BRL 450 million. So if you look at expense costs of our Brazil BD, we are able to capture BRL 1 billion of cost reductions. And this is an example of our search for a better performance. And then when Japur comes for his presentation, you can ask him more questions. So we are able to achieve substantial gains in cost and expenses. So this is what we have for Brazil, these quarters. Another point that I think people -- it goes unnoticed is that our search for efficiency. And I would say that we always took care of traditional management, our tools. And in some cases, we became a reference in Brazil in terms of how we use those methodologies, even Six Sigma in our search for better performance. But the opportunity we found to reduce our expenses and to improve efficiencies is what we call digital transformation and the transformation of our business. People talk a lot about digital transformation in all different segments. And the difficulty in the industrial segment is to find a focus. And the alignment of factors that allow us to evolve, and we found that in the last 3 years. This is just an example, among many others of our Ouro Branco mill. The Ouro Branco mill is very complex in regards to the quality of materials, product mix. In the past, Ouro Branco focused on producing finished goods for exports and it was not as complex. But once we started to operate with structural shapes and flats, the mill can now operate with different specifications. So even with the human competence of our employees, I mean, even with that, we were able to work with efficiency, but it will be impossible to operate that mill without the use of algorithms and AI. Therefore, we are using a lot of that and all of the decisions that we make about what products we will make first or if a problem arises, what we will do next. All of that is helping us through algorithms and AI and digital tools to improve our operation, and we are able to achieve gains of BRL 100 million to BRL 200 million, BRL 200 million, BRL 300 million. Because I think I talked to you before that if a company like ours, an industrial company, not only steel, but an industrial company is capable of removing all of the existing inefficiencies through the use of digital transformation there is an additional potential of about 20% of EBITDA. This is the size of the gap, a gap that did not exist, even before the use of that digital transformation because we weren't able to tackle all these efficiencies only using human capacity. But once you add digital tools, algorithms and AI, now you reach a level of excellence in your operation that was not possible before. The question is who's going to get there first, who's going to win the race. Who will be able to structure resources. And by resources, I mean people, technology to capture that gap. And we are there, we have made a detailed calculation of how much we have gained in terms of efficiencies with these digital tools. I just need to show you that this is a new reality in our business. We've been using this more and more, not just to improve operating performance, but also safety, as I mentioned. Today, one of our leaders go to a mill, they run an AI algorithm, and they note the likelihood of having a labor accident in this certain area, and we use our resources to act and prevent incidents and accidents. The progress we've made is significant. Ouro Branco, our largest mill was the first industrial plant to have a full 5G deployed. So we have an ability to process data and images at Ouro Branco. And so the possibilities at capturing inefficiencies increases a lot. That's what we've been doing. Another point I'd like to mention with you is about the production of the hot-rolled coils will continue to manufacture flats at Ouro Branco, and now in the beginning of we'll add a new capacity of hot-rolled coils, which is a big demand from our clients. The market exists for us, and we have not been able to meet the full needs of our customers given the production limitation. So these 250,000 new tonnes of hot-rolled coils will add to our result because this growth in flat rolling capacity will be important. It will help us meet an unmet need of 250,000 tonnes a year. And perhaps to give you some more numbers. This is the progress we've had at Ouro Branco plant from the moment that we acquired this mill. It was built by the [ group ] focused on semi-finished plates, bars and billets for exports. And we have qualified the plant to produce more and more products for the domestic market products with higher added value and not export. So in 2015, 40% (sic) [ 47% ] were semi-finished, in 2025 this will be down to 11%. The goal is to totally eliminate this capacity in the future. So that Ouro Branco will be focused in high-added value products for long and flat products. This new journey will bring a significant potential of increased profitability. And this decision is very much based on the availability. We'll have of ore at 65% of iron content on that sits next to our plant. And we have been investing a lot in our mining operation. We have been operating our mine in Minas Gerais, Várzea do Lopes, and they had a cycle, the cycle is coming to an end. And this transition of Várzea do Lopes to Miguel Burnier mine, we had an opportunity to go to the market, go to market and buy more ore, had an increase in our cost, buying more ore in the market during the transition. But as of the end of next year, beginning of 2026, when the mine is again operational, we will be at a different level of competitiveness. In addition to profitability, that will increase, we'll the have the availability of ore for the next 40, 4-0 years, saving next to our Ouro Branco plant. It's what we call Miguel Burnier, it's sits 13 kilometers away from Ouro Branco, where we're building a slurry pipeline that will take the ore from the mine to Ouro Branco, there will be a significant reduction in CO2 emissions. This is a transformational development for Ouro Branco in terms of competitiveness, in terms of making Ouro Branco the next year, the most competitive integrated mill. The investment is doing really well. It's on schedule. It is a challenge to have CapEx in Brazil in terms of availability of suppliers, [indiscernible] we have a lot of risk management activities, and this investment is moving forward on schedule. We have 50% progress of physical progress, the civil works are unfolding really well. And the expectation is to have a ramp-up in 12 months. That's when we would announce the official opening of this investment at Miguel Burnier, which like I said, will increase our competitiveness for the next years for our Ouro Branco mill. We have a video of this investment, right? And then after the video, I'll turn the floor to Wang. So Wang, get ready. [Presentation]

[We do not have the sound. We apologize but we still are not getting the sound of the speaker, please bear with us. We remain without the sound of the speaker, please bear with us. The sound is back.] Most of these [indiscernible] we consume the scrap and nearly we have 5.4 million scrap. We have obsolete scrap coming from vehicles, machinery, infrastructure and household appliances, which we call quite good. When we speak about the North America BD, we have been posting excellent results and performance not only by market resilience, but also by our commercial strategy and operating performance. Our product portfolio is well positioned to benefit from the macro trends that currently drive the demand for steel, they're qualified but they are based on reshoring, renewable projects and infrastructure projects. Our CapEx is focused on increasing organically the capacity of the mills and our product portfolio, flexibility in serving our customers, coupled with a competitive cost structure. This flexibility allows us to optimize the utilization of our production capacity along the different economic cycles, adjusting our production mix to meet market needs, maintaining a high level of productivity and operating efficiency. We also are differentiated in the market, given our commitment to produce steel with a low carbon emission. Our structural shapes, the unit has the lowest carbon emission rate in the United States. Our commercial strategy ensures adequate exposure to customers in different segments. Our operation has a customer-centric culture dedicated not only to ensuring good level of service, but also exceeding the expectations and remaining a benchmark in customer service. A strategic vertical integration ensures competitive cost and offers more options to our customers. We're expanding our ability for heat treatment and customized cutting with the new unit of solar pile processing facility that will be finished by June '25. This will ensure our scrap, raw materials at competitive price with 50% of our consumption coming from our captive scrap. After living a few years of unprecedented demand levels. The U.S steel market is gradually coming back to historical levels. As the market stabilizes, we can see a more typical demand pattern where some sectors show resilience and stronger activity than others. The construction -- the non-residential construction segment continues to post a good performance while other industrial markets are decelerating. Following general trends of the economy, 2 of the main indicators, ABI for construction and ISM PMI manufacturing reflect this trend. As you can see on the charts. ABI, Architectural Billings Index shows some variability. The ratio remains at around 50 points, which means neutrality. In 2023, dropping a little in the end of last year and fluctuating up and down in 2024. This drop in the last 12 months is directly linked to the new economic uncertainty. And -- because we have higher interest rates. however, it is important to note that the current mix of projects, which drives non-residential construction activity relies strongly on the type of construction that does not require a lot of architectural spending. So they are not captured by the indicator. The ISM PMI, which is the dynamic nature of manufacturing in North America oscillates in 2024, increasing in the first quarter with a deceleration in Q2 and Q3, indicating a modest expansion in manufacturing. Even with this apparent stabilization, we remain confident in the strength and resilience of our business. Today, the 3 macro trends that continue to drive consumption of steel in the U.S. economy, reshoring, the reshoring trends of domestic manufacturing, the development of renewable energy sources in the upgrading of the infrastructure. From 2018 to 2022, the average of construction, CPIP, and the plan was [ $7 billion ]. And this same increased to $17.1 billion in 2023. In 2024, marking a significant increase of 135%. This trend shows the commitment of the United States to domestic manufacturing, which promotes long-term economic stability. CHIPS and Science Act was fundamental to reinforce advancement of domestic chips in semiconductors. CI -- average of [ CPIP ] to increase competitiveness of the country in technology was 9.4% in the first period in contrast with 2023, '24 increasing to $21.1 billion reflecting an increase of about 124%. This is really, really substantial. The significant investment highlights the strategic focus of the United States in strengthening the chips production chain for several companies geared to technology. In addition, the Infrastructure Investment and Job Act earmarks resources to support highway and general infrastructure spend. From 2018 to 2022, the [ CPIP ] was $18 billion versus $8 billion, increasing to 11.3% or a 33% increase. The increase in investments and infrastructure is vital for economic development because it reduces cost of transportation and stimulates job creation. Lastly, the United States continue to move forward in transforming their energy metrics moving towards clean and renewable energy. The Inflation Reduction Act which funded several solar and wind projects explains this. So when we look at the map, we can see the number, the quantity of these projects in these 3 fronts, very, very significant, and that increases significantly the consumption of steel. All of this results in strong economic fundamentals in North America, providing a solid foundation for future growth and resilience. Given -- even considering the fluctuations at the market. In recent years, we strategically diversified exposure to consumption market so that we can benefit from sectors that boost growth such as data centers, industrial buildings, and factoring plants, hospitals, infrastructure and renewable energy. These sectors remain strong. And they're pushed forward by significant government projects to develop infrastructure and technologies. On the other hand, we know the challenges faced by other industries, including office buildings, manufacturing in general, truck trailers and agricultural equipment. These sectors are impacted by a slower economic activity. We continue to invest in key growth areas to mitigate this impact effectively to sustain our positive performance. As you can see on the slide, we are well positioned to meet the needs of renewable and infrastructure segments as well as the construction of data centers and plants. For renewable energy, we offer a wide array of products, which are essential or the building of wind and solar projects. Our structural shapes are used in solar post, beams and present in many other applications or wind towers, SBQ using fasteners, anchoring equipment and rebar for foundations. Regarding infrastructure, our products meet the demand for highways, the building of bridges and with the IIJA, we help expand infrastructure in North America, improving our position in the market. In addition, we are prepared to supply the growing need to build data centers and manufacturing plants. Our structural, frames, joists, rebar and piling for foundation are essential for these manufacturing plants that require high technology. So I conclude saying that this slide reinforces that we are prepared to navigate this new cycle and meet the needs of new sectors that have more growth at the moment. In recent years, we made significant progress through our recent strategic CapEx projects. In Petersburg, Virginia, we were successful in an initiative that allows us to produce a wider array of piling equipment by introducing new sizes to meet market demand. So we increased efficiency and expanded ability to sell additional tonnes of this product, which is highly profitable. We doubled the volume on this product. In Petersburg and Midlothian in the middle of the slide, we introduced a heavier wide flange beam sections increasing our offering to the solar construction market. We increased our range now with heavier products that we did not have before. In Midlothian and in Cartersville operations, we increased the additional wide flange beams, which are essential for solar power. And as I have been saying during this presentation, these investments highlight our dedication to serve our customers with high-quality products, which are also very profitable. Over the last few years, we adopted a strategy to make internal improvement adding products with higher added value. And also, we focus on our main assets that we call powerhouse. These are the Midlothian and Petersburg plants, Cartersville, Jackson and also Ontario in Canada. Through that, we were able to reduce cost and maximize our assets. These investments are supposed to improve the product arrangement, productivity, efficiency and everything that has an impact on our cost structure. In addition to everything we talked before, you see that in 2023, we modernized -- and we made a very new melt shop in Whitby. And we also promoted heat treatment processing, downstream in Midlothian. This is one of the most modern facilities in North America. And in 2024, I mean, in the current year, we concluded our investments in the Jackson rolling mill, so that the range of merchant structures, I mean, it's complete. Today, we cover the entire range of structurals and not only that, but we also produce rebars in that same mill. We want to have a one-stop shop mill where the customer will be able to be served completely with all the products they need. We also initiated investments in Midlothian. This is our largest mill in North America. And this is a long-term investment. It would take about 3 years. This will require a bulkier investment, not only this year or the coming year or the years to come? And more recently, this year, we acquired Dale's Recycling in Tennessee. We are -- where we acquired a scrap facility that will help us with the supply of captive scrap. And there will be other opportunities in the future to strengthen our own scrap business. And another investment is the downstream, and they will support the piles for the solar system. We want to have our own processing. I mean, 50% of our capacity, and this will help us increase market share and not only that, but we will be able to offer higher added value. The other project -- I mean this project started in 2024, but it will last until '26. I think there will be many significant investments going forward. The intention here is to allow all of these mills to compete on equal footing with all of the other companies in North America. We also believe that the sustainability of our industry will increasingly be crucial. We want to produce structural steel with the lowest emission compared to other plants in the U.S. Our commitment with sustainable practices is very apparent throughout our operations. If you look at all the mills in North America, we have the top 3 lowest emissions producing mills. As we reduce our carbon footprint, we also ensure that not only our steel has better quality, but we are also contributing to a more sustainable planet supporting our customers and reaching our sustainability goals. We believe that our customers will be increasingly demanding in that regard. Our dedication to sustainability goes beyond carbon emissions in North America. All of our facilities are scrap-based, producing steel with greater than 96% recycled content, not only that, but we use almost zero iron, which would be iron ore DII. We use economic scrap from obsolescence. In North America, we are also proud to say that we use 99% of water reused in our processes, reinstated our commitment to environment management responsible for natural resources. Gerdau's efforts and sustainability is recognized through the achievement of the B Corp certification. We are the first steel mill in the U.S. to achieve the certification. Other initiatives like a solar farm of 80 megawatts in Texas in the Midlothian plant is another proof of our sustainability footprint. The solar project can supply 20% of the total energy necessary for the Midlothian plant. And this is the equivalent to 50,000 households and its benefits are not yet included in our GWP figures. So my presentation ends here. And now I turn the floor to Japur, who will talk about special steels.

[Interpreted] Good morning, everyone. It's always a pleasure for me to be with you. We are used to talk to you every quarter, but it's very good to be here with you in person to talk more about our long-term view and what is the Gerdau that we want to build for the future. I will start my presentation with Special Steels. Special Steel is probably a segment of Gerdau that is not very well understood by many investors. So I think this is a very good opportunity for us to clarify that. Special Steels. I mean, our portfolio is very sound. And all the steel we produce is scrap based. All of our production of Special Steels comes from recycling scrap. And the main product we have, both in our Brazil BD and the U.S. BD, our rolled bars and downstream bars kept the level that clients want, which are the blanks. But in Brazil, in addition to the products, we also produce wires, iron ore and forged bars. So this steel is mainly used in applications for spare parts for the automotive sector, transmission, engines, hydraulic transmissions, suspension and eDrive in the car in the case of electric vehicles. And for this reason, we could say that 100% of our sales are for the direct customers. We do very little shipments to distributors. I mean it's steel that has a name and a surname. Everyone in the melt shop knows where that steel they are making is going to, for what product, for what application and for what vehicle, I would say. That is the area where we have more patents, more brands. And our commercial relationship is probably deeper. And as I said here before, the main segments where we operate is the automotive, light vehicles, heavy vehicles, passenger cars, motorcycles, buses, but we also serve important sectors of the economy like agriculture, green light, yellow light, construction and a wide range of all other segments in infrastructure like mining, energy and transportation. Now thinking about each of our operations in Special Steels, we have production facilities in Brazil and in the U.S. In Brazil, and in the U.S., in general, we can say that 80% of our shipments in that segment of Special Steels goes to the automotive industry. But I should make a small distinction. When we think about the Brazil operation where we have similar production capacities. And when we think that the final target market in Brazil is -- in Brazil, there is a higher number of heavy vehicles when compared to light vehicles mainly due to the way our assets are and the demand of the local market, whereas in the U.S., given the market dynamics and the specialization of our assets in our mills, basically, 80% of all of our shipments, the main product is light vehicles. So we are present in these 2 geographies, but we operate and sell to all the countries in the Americas, in addition to some other markets in Europe. Therefore, we are the largest producer of SBQ. And we will see terms interchanging. We are the largest producer of SBQ in the Americas. Now, this slide gives an overview of the market and what we see going forward. We understand that even with the production of electric vehicles, hybrid vehicles, and given the increase of the use of steel in the vehicle fleet, both in Brazil and the U.S., we understand that both markets in the mid-range post good growth outlook and good demand increase. But I would like to highlight something that appears on the left-hand side. What the analysts do is look at the number of inhabitants over the number of cars in different economies. But once we compare Brazil, I mean -- let's not look at the comparison with the U.S. because maybe it's not an adequate comparison given the fact that these are 2 different countries. But when we compare the ratio of -- the ratio of inhabitants per vehicle in Brazil to countries that are very similar to Brazil, like Argentina and Mexico, if Brazil had the same number of inhabitants per vehicle that Argentina has, our steel -- our Special Steel production from vehicles would be 16% higher than what we have today. We are not even comparing ourselves to Europe or Japan, but only to Argentina. And if we compare ourselves to Mexico, a country that is similar to Brazil, I mean, per capita GDP is similar to that of Brazil. It will be -- we would have to produce 33% more SBQ for the automotive market. So as the income increases, we will be able to increase our penetration, given the increased size of the fleet in Brazil. But now looking at 2025, given the fact that the market would remain stable -- I mean, stable but it's not free from challenges. As Gustavo said earlier on, we continue to see an important pressure coming from imported steel, but not only imported steel, but also parts and vehicles, because they also compete for market share with us. I have 2 challenges in my presentation today. I had to talk about CapEx and try not to hit that glass of water because usually I do that. Well, I try to work on the second. When we think about our CapEx, our CapEx program for the past few years, our CapEx for Special Steels is very much focused on increasing the competitiveness of our assets in the long range and also improving customer service. And I would like now to highlight our main projects. And by doing so, I think this will become clearer. In 2022, we concluded a very relevant investment, which was continuous casting of Pindamonhangaba. It started at the end of 2022, but since it's a segment of Special Steels that involve certification with our clients in the production routes because, as I was saying, this steel has name and surname. So we managed to achieve impressive gains in keeping with what we expected, and we will continue to capture that. And not only with that investment, we were able to produce cleaner and steel of better quality, but we were able to reduce our production costs, improving the metallic gain, diminishing our inefficiencies and also reducing GHG in the process. The second investment I would like to highlight is something that is being concluded now, tests will start in November. This is the peeling line in Charqueadas. We will be able to produce products with a higher superficial control, operations that are very critical in relation to the microns that are needed for the size of the bar for final applications. So that level of precision and control requires a distinguished process. And with this new investment, we will have higher productivity, less waste, and we will be able to ensure a product of better quality, improving our portfolio of premium products of Special Steels in Brazil. And last, but not least, we will continue working in our recycling operation in Pindamonhangaba, not only ferrous scrap, but not non-ferrous scrap. But with this investment, we will increase efficiency of steel production, we will produce cleaner steel, higher competitiveness of our industrial process. And by the same token, we will reduce our emissions of GHG. Now, as we are talking about Special Steels, and we were talking about North America, with the next maintenance shutdown that will occur in the first quarter of next year, we will now conclude our investment in Monroe. This is a long-term investment. It's extremely critical for the future of our Special Steel operations in North America. This investment checks several boxes. Once the investment is concluded, we will be able to expand our production capacity in Monroe by almost 200,000 tonnes, our production cost and efficiency in the downstream cost. I mean the cost of transforming scrap all the way to the final product will cost less because the mill will be more efficient. We'll also be able to produce more steel that is less contaminant, we will improve our total mix of products. And as part of the process, because it's more efficient, we will be able to reduce the emissions of greenhouse gases. So as we're talking about GHG emissions, it's important to say the Special Steel operation is the first operation that produces for the automotive industry in the U.S. that has a B Corp Certificate. And this is what Wang said in his presentation. And as part of that technological advancement and our commitment towards decarbonization, we started a study together with the Purdue University in the U.S. and other steel milling companies in the region, a study to replace in our reheating furnaces, we will replace natural gas by hydrogen. And this reinstates our long-term commitment towards decarbonization in a sector that is so important. So we are -- we will reduce emissions and for the production of electric and hybrid vehicles. This is increasingly important. Well, thank you very much for your attention so far. And now I will turn the floor to Mariana Dutra because she will talk about our South America operation.

Thank you, Japur. Our presentation in South America is another example of how we can adapt our strategy depending on the reality of each of the markets and how these markets are impacting the demand for our products. More recently, we sold our stakes at the JVs at the Dominican Republic at Diaco and Gerdau Metaldom for $325 million. So our product portfolio and our capacity today is split between Uruguay, Peru and Argentina with approximately 1 million tons of growth -- gross and rolled steel. As we saw in our previous presentations for Brazil and North America, this is a business operation that is 100% focus on producing metallic scrap and long steels, ensuring our commitment to sustainability. Also, our SIDERPERU operation was one of the first companies in the world to be B Corp Certified along the lines of what the company is looking for in terms of ensuring sustainability in all of those operations. Our distribution of the portfolio today is mainly geared towards production portfolio, civil construction and the industry with 10% of the distribution of the portfolio. Now when we look at the market overview, we have Peru. They went through a period in 2023 of a greater turmoil, not only in the political front, but also in terms of climate with El Niño that affected the demand for steel in the region and throughout 2024, we are seeing the rebound of not only our results, but also our shipments in the region. And then when we look at what was behind this that is civil construction, industry, mining and public works that are developing in the country with the aim to serving our customers in that region. Even better, we are investing more than $20 million in the rolling mill. This will add about 12% our capacity for rolled products in Peru. Now looking at Argentina, despite the fact that the economic landscape is still challenging, and there is a temporary instability in steel demand, we believe in a gradual rebound of the country throughout 2025, given all the measures that are being announced especially in relation to the economy of the country. The country is mostly driven by farming and oil and gas industries. And in the presentation on the Brazil BD, the participation of Commercial Gerdau as a good channel to serve our customers, it's also a booster to increase internal demand. When we look at Uruguay, we see constant demand along steel sustained by public and private works, but mainly linked to the infrastructure segment. And again, Gerdau remains very committed to met the demand of these growing markets, although it's not such a big operation, it is really representative for our portfolio of products. I turn the floor back to Japur. He could rest for just a little bit.

Great, Mary. It just gave me an opportunity to drink some water. Well, I swear that I will be brief and we'll get to the Q&A really soon. I mean we have to speak about our long-term business And we have to thank and acknowledge all of our employees, all of our teams. When we look at a long-term film, of everything we've built -- in terms of results, performance and everything we delivered to the company and our shareholders, I think it becomes very clear, the effort that everyone made for us to have the kind of balance sheet we now have and the leverage that we have that allows us even in the not-so-positive scenarios in 2021, '22 to have a very solid level of [ interactiveness ], even in not so positive, in challenging scenarios. So before anything, we have to thank all of our employees, each and every one of them. When we assess our balance sheet using different metrics. Other liquidity or cash position, rating, we can say that given all of our effort and hard work, we enjoy a differentiated position regarding our balance sheet. All was built not just with work, but with a clear north we have in terms of our financial policy, which we follow every day, our controls, our committees, our Board of Directors and all of that translates into an upgrade, where we got just yesterday by Moody's and now through rating agencies placing Gerdau to notice above investment grade, which really helps us in funding the capital market. And this was positive news. Why is this relevant for Gerdau? Because when we look at our balance sheet, we realized more than 80% of our funding sources come from the capital markets, either offshore or domestic capital markets. So for us to have these credit metrics in a cyclical industry, there will face difficulties, ups and downs, good and not so good moments. It is absolutely fundamental in our understanding in a centennial company to have a solid financial position. So I'll speak more about the capital markets. Normally, we don't speak a lot about equity, but it's something to be highlighted here. We have products and we access both the capital market locally via debentures and via our partners, commercial banks and directly from institutional investors and individual investors and the international market through bonds. And I think that something that reflects our financial philosophy of doing business is that when we observe the spread, the difference between attaining treasury bond in the U.S. and our 2030 Gerdau bond, we can see the lower curve that basically is the spread, the volatility of our bond is really very small. This clearly shows how robust and resilient our credit metrics are with low implicit risk if you invest in debt and bonds of Gerdau. When we think about the spread, how much it costs Gerdau to issue a bond compared to U.S. treasury, and when we compare with local steel companies producing steel in Brazil and iron. And even if we look at the bottom part of the left, we can see that the spread level how much of the investor demand to buy and invest to Gerdau Securities, we are much more aligned with our international peers. And I mean U.S. companies rather than Brazilian peers. This shows the diversification of our assets and our financial [indiscernible]. When we speak about capital allocation, this is absolutely a key in a capital-intensive industry like ours. We like to understand capital allocation in 2 ways. We have continuous efforts, continuous capital allocation every day, every week, every month. That's the work we do. And also opportunities. In our continuous efforts of capital allocation, we have a dividend policy to distribute at least 30% of our net income to our shareholders. We have a strong and important focus on cost-cutting initiatives to cut cost of our production and to optimize our assets when necessary. We've approved that several times, and we have a stable maintenance CapEx very much in line with our depreciation. So we have been treating our assets really well in the long term. And like I said, we have maintained our financial discipline in terms of our leverage, U.S. and BRL debt, the balanced leverage. So we can have flexibility and agility to face difficulties we might face in the market. Now on the right of the slide, we have the opportunities. And that's some things we've been doing in a recurring fashion and how we can allocate capital more strategically in the long run. So here, we have a share buyback program. We've been doing -- been implementing this program for quite a few years. Now I'll give you more details on our share buyback program. We have the extraordinary payments to shareholders, and that we've had these extraordinary payments in recent years and that strategic CapEx to ensure organic growth of the company in those assets that we understand are critical. And with the greatest ability to create value in the long run for our shareholders. And I guess that we've been very thorough and thoughtful about mergers and acquisitions. Mariana reminded us that this year -- it seems like a long time ago, but we sold our assets in Colombia and the Dominican Republic because we understood that these were not our core business anymore. A good part of these proceeds were reinvested. For example, in energy generation, with the new wave investments or buying and investing in other long-term capabilities for our assets, as Wang mentioned in the recent acquisition of scrap in North America to ensure long-term availability of this raw material, which is so critical to us. Now speaking about our long-term strategic CapEx. This is my second challenge of the day. This is a slide, which I believe all of you know. Since our last stakeholder Day, Investor Day last year, we've been presenting this. And we understand that this is a good moment to revisit the slide. I'll try to do this now. And then during the Q&A, I will be available. Over time with these 11 key critical super strategic projects, there are 4 that are finished or about to be finished. So it doesn't make sense to keep reporting over and over on these projects because in our quarterly disclosure calls, you'll see the results of these projects. So here, we'll focus on those projects that make more sense that we pay attention to. So what are the changes that we have compared to the previous slide in this new slide of the strategic investments. We are basically removing those 4 projects that are complete or about to be completed. So basically, the outlays is clear for those. It is up to us to deliver the results that we set out to deliver when we approved and made these investments. So this is one of the changes we excluded these 4 projects. The second thing is something that many investors ask us about, and quite appropriately ask about the possibility to invest more in downstream in North America, in downstream capacity. And Wang has presented in his part of the presentation, what we are doing to meet critical needs with more added value, for example, to the solar power industry and the thermal treatment of differentiated steel in North America. So we understand that it is important that we track these investments in downstream in North America, because they're becoming more relevant now. In addition, the second change we have, I mean, there so many changes in our long-term strategy. But in the last block, about competitiveness in forestry base. This is not new to you, Gustavo mentioned that this year, unfortunately, given the predatory arrival of imported products in Brazil, we had to hibernate 2 of our units, Barão de Cocais and the pig iron production in Sete Lagoas. But we understand that with these hibernation, we have the need to invest less in the forestry base than if these operations were operational in the next 2 years, because we already have a very representative and relevant inventory of planted areas and forestry. So with our capital allocation, we understand that there is room here to invest less in the first base, then we would be investing if these mills were operational. And that's why we are revisiting this block of forestry-based competitiveness. So we had an expected way of our strategic CapEx of about BRL 6.3 billion, and we're actually investing BRL 5.8 billion. So this is basically the changes we've made a few changes, more qualitative ones, which we believe translate better what we are doing today at Gerdau. And this is just to track the projects that we're excluding from the slide, which are complete or about to be completed. Those in the rolling mill capacity mentioned by Juan, investments in our melt shop with the unit, that's completed. It is in the ramp-up phase. The new continuous casting in Pinda. We can see the results, as mentioned before, and investment in the Monroe road map, completing the Monroe road map. It will be done now beginning of next year, when we have the maintenance downtime, all of the interventions have been made, but we need a maintenance downtime to really start operating at full speed. And here, on the right we have the expected results for each one of the projects that remain ongoing in our portfolio of strategic CapEx here. No relevant updates. Perhaps the only update here is how much we expect to create in terms of value with the investments in downstream in the North America BD. And we have to clearly speak about shareholders' returns. After all, we are in an investors meeting. Our commitment to shareholder returns is absolutely unnegotiable. And we have demonstrated this over time, we are distributing a whole lot of value to our shareholders substantially above our 30% dividend payout policy, which is already above what is required by law. In the last quarterly earnings results call, we spoke about our share buyback program. In Q3, with the position we closed at the end of September, at Gerdau S.A., we had 27% execution of the share buyback program equivalent to buy 19 million shares, repurchased BRL 250 million investment. So we repurchased almost 1% of Gerdau's market cap. In the case of Metalurgica Gerdau, very similar, executed 27% of the size of the program as originally planned, we practically repurchased BRL 19 million, invested almost 1% of the company's market cap. That's what we did from August 1, September 30. In your commitment, we not only announced our commitment to increase the remuneration of our shareholders, but we are also actually implementing the strategy. I think that this is an important and relevant way of valuing and rewarding our long-term investors because we are [ perennial ] solid, robust company, but we are also a company aiming at the long run. We frequently asked about why the share buyback and not dividend. I guess it's this philosophy. It's rational. We understand that Gerdau shares today are depreciated considering a number of metrics. When you think about something very simple, price to book value, today Gerdau has a ratio of 0.70. So it's 30% below its balance sheet, it's book of value, way below it's replenishment value. And when we add the parts, which is something very common. So when I break down each one of Gerdau's BD, business divisions, we see the results generated in the last 12 months. And when I compare with the multiple of several other companies up here, our competitors that are also listed companies. And when I add how much implicitly each one of Gerdau's BD should be valued compared to the peers, we get to an implicit firm value close to $10.5 billion. Well, the exchange value on June 30, actually had a certain rally in recent weeks, but the number is not so different. We can see the current equity value is [ $7 billion ], like [ $10 billion ], which would be if we summed up the parts comparing to our peers. We think that this value asymmetry does not make sense. We believe that by buying back the shares under these conditions, we are rewarding. We are aligned with our long-term investors. We see this as very adequate to allocate our cash flow at this point. Lastly, speaking about the long term, since we're talking about long-term return, we have to talk about that, but also about sustainability. And here, I just want to highlight once again Gerdau's outstanding position regarding greenhouse gas emissions, if we compare our company with our peers and with the average for the sector. Gerdau today, with our numbers published for 2023, we have a level of emissions of 0.91 tons of CO2 equivalent for every ton of steel produced. This is less than half of the average of the sector. So I will repeat this is less than half average for the sector. It does mean that from now to 2030, the whole steel making segment reduces by half, there's CO2 emissions and greenhouse gas emissions, still they're not going to get to the current level of greenhouse gas emissions like Gerdau. So we are totally in an outstanding position, but this is not enough for us. We'll do more. We have a commitment to reduce even further from 0.93 tonnes to 0.82 tonnes of CO2 equivalent per ton of steel produced. And all we said in this presentation how we are allocating capital and investing CapEx. All of that combines with this strategy to reduce CO2 emissions and to improve our capital allocation. We are talking about having more productive assets, [indiscernible] efficiencies, producing higher added value steel, higher-quality steel, increase our processing and use of scrap and investing in renewable energy, having more and more access to renewable and clean energy in all of our operations, thus fulfilling our commitment to reduce the greenhouse gas emissions. With this, I'll close and I will now turn the floor to Gustavo Werneck for the final takeaways, and I'll be around for the Q&A.

[Interpreted] You can stay here because this is going to be quick. I have just 1 slide. Just a summary of everything we've said. I guess that this summarizes everything we presented. This is our commitment. We're committed to sustainable growth. We'll continue to grow with our feet on the ground, with all the lessons learned along 123 years of history, I understand that in the geographies we chose to operate, these will be the geographies for the future. We have no plan and no wish to go back to a country where we used to be that we decided to exit. We have no wish to go to new places. We understand the Brazil, Mexico and Canada -- brazil, U.S. and Canada are the countries where we can continue to grow, focus on our target audiences, stakeholders, not just you that invest with us today, but creating when were customized solutions to our customers. We are committed and have always been committed to being more and more efficient and returning to society, everything that society has been lending to us over time. Our efficiency translates into creating social environmental value, value for people and greater discipline. Discipline marks our history and we mean, disciplined at working more and more efficiently, seeking the potential we know is out there doing everything we do in a more competitive way. So we're going to close the presentation, right, Mariana let's start the Q&A session. So Wang, please join us here so that we can focus on this new part of this meeting.

So We will organize our Q&A very briefly, and then we will open for questions for those that are here in person. And maybe some sell-side analysts who is joining us from home, and we can also put them on video. So you 3, you can see that. So I'll start with Caio. Please state your name and company before you ask your question. And the microphones will get to you.

[Interpreted] I'm a Caio Ribeiro from Bank of America. My first question is on the captive scrap market. We noticed that you have a large amount of captive scrap in Brazil. And more recently, as you were saying, you acquired a collection and scrap processing in the U.S. I would like to exploit the strategy behind that, whether you want to replicate this model of having a larger stake of captive scrap in the U.S., just as you have it in Brazil and what are the advantages you see with that based on that strategy? And secondly, speaking about your asset portfolio in your South America BD, we've noticed that throughout time, you made some divestments in some geographies. And today, in the countries where you are -- do you believe that you have the adequate portfolio, you have a relevant pricing power or a relevant market share? Or you still think that there will be more change coming forward and more divestments going forward?

[Interpreted] Thank you, Caio. Okay. I'll give you a general answer on scrap and Wang from North America can add to my answer. First, the scrap market in Brazil in the U.S. is very clear. I mean the markets are different, and they will remain different for many, many years to come. The U.S. has gone through the consolidation and professionalization of the scrap market. There are large scrap dealers, and they deal with well-structured companies. We are operating in North America differently than in Brazil. This recent acquisition is in line with the opportunities that we see in that market, which is a bit more formal in structure and one can also elaborate on that acquisition of that scrap mill in Tennessee. We want to focus on increasing the amount of captive scrap. We need a lot of scrap there. I mean there are many opportunities in that area in the U.S. I mean in Brazil, in the next decade, we won't see any significant change. The market is very fragmented. It's a very scattered market. The scrap has to move around. It's very -- I mean, it's well scattered. It's a poor scrap when compared to the U.S. In the U.S., people buy a new refrigerator almost every month, and they change their products more frequently. And the same thing doesn't happen in Brazil. I mean the refrigerator doesn't go to scrap, is donated to another family elsewhere, and that refrigerator will be used for many more years to come. So it will last much longer until 1 day it becomes scrap. Now in every community, in every municipality to collect all that scrap and make it flow. It's something that matters to us. It's very important to us. When we build that stage in Rock in Rio event, we wanted to talk about scrap because that's a topic that is not very well known. There are about 1 million people in Brazil that live on collecting scrap, they work for co-ops. And we are trying to work towards giving them better life conditions. But there are dozens or thousands of small partners of small scrappers that are scattered throughout the country. So in Brazil, we are increasing the number of scrap collection or scrap picking. Scrap is scattered all over the country. So our strategy is to increase our penetration. And this won't change. But in North America, we've seen more opportunities of having a very competitive scrap because I was -- as I was saying, that's a more difficult market. We cannot collect scrap the way we do it in Brazil. I think, Wang, maybe you could tell more about what we did in North America and what we see going forward.

That's a very good question. When we talk about scrap in North America, I think you have to take a step back because it is very clear that there is a strong migration in the integrated part, especially in terms of flats and electric furnace. So when you first look at the U.S., you say, okay, it's an exporting country with an excess of scrap, they export [ 17 million tonnes ]. But when you look at the different regions, things may change. Some regions may even lack scrap. And this new capacity of the electric furnace will make the scrap collection even more competitive. So we have assets in core activities, and we want to be the masters of our own fate. So you could pay more from traders, but then you lose in the margin. So our type of scrap, the scrap that we use is not high and it's not big iron or iron ore. We also want -- we want economical scrap from obsolescence. And in order for that to happen, you have to have the scrap yards or when you capture that scrap you get ferrous and nonferrous. So you have to select them, you have to segregate them. You have to know how to deal with the non-ferrous scrap and send a good part of that scrap to shredders, and we have shredders in our networks. And that's not different from a melt shop or rolling mill. The assets have to be operated. You have to have a high utilization rate and it's important that you have in-feed per shredder and in the U.S. that comes from old vehicles and you capture that in the yards. Therefore, it's important that you have a network within the concept of a mini mill, you want to have scrap collection around your assets or your steel milling plants. So it depends from one market to the next. So this new acquisition reflects our strategy. So if you ask them, what you intend to do? We intend to expand that further because we will be able to master our own scrap fate, and scrap will become even more valuable in time. And this will also help us to improve our cost and productivity.

South America, do you answer that part?

Sure. We are very happy with the existing portfolio. I think Mariana even said that we made some investments to expand capacity or organic investments as the one in Peru. And then if we take a step back, it hasn't been long since we inaugurated a melt shop in Argentina. When we started, we were only producing rolled products in Argentina. We only had a rolling mill. So at present, we do not intend to change our portfolio in terms of countries or geographies. But it doesn't mean that we don't see value or even potential to improve what we have in our existing assets.

This is Leo Correa from BTG Pactual. My first question goes to Wang, and the question is about profitability in the U.S. We noticed a strong drop in the past quarters. The margin at one point was 30% and now it's going to 16%, 17%. We saw a major effort in Brazil and the results are quite successful. Can you tell us something about like the micro side of the company in the U.S., whether you have anything ongoing and any focus related to cost cuts in terms of the margin composition. I know that this is more related to the country's position. I want to know whether Gerdau intends to go back to that 20% level. And the second question goes to Werneck. I think the story remains focusing on imports, and unfair trade practices. It is very clear to all players that the quota system didn't work. The level of penetration of imported goods exceeds 20%. I think the surprise -- the major surprise were volumes from the domestic market that increased. But in terms of imports, nothing changed. You said that you will revisit that after 4 months, but what do you have in store? What are the things that you're going to ask for? What are the alternatives? What is feasible in an environment and certainly, I mean, the government has its interest. They do not want to compromise their position with China, and there is a strong lobby. So can you tell us a bit more about what you anticipate going forward?

I mean the issue of still coming from China and also other Chinese products that are present in different segments of our economy is a matter of concern, not only in the short run. We are looking at what is happening in the other debates. In the last 4 days, [indiscernible] published 4 articles on deindustrialization. And very few academics or thinkers can probably understand the significant damage that in the long range, this deindustrialization can cost to Brazil. I mean the only country that didn't deindustrialize below the U.S. was Mexico. And Mexico, the industry accounts for 25% of GDP and Brazil is losing ground. Brazil is a young economy, and as such, the country cannot sustain itself in the long range if they dismantle its industry. Industry in Brazil accounts for 25% of all of the collection. If the Brazilian industry is losing in terms of its size, the country will be unfeasible. So the debate is about deindustrialization. My grandmother used to say back then, that in a house when there is no bread, everybody fights and nobody is right. What we see with the Federal Government is a debate whereby some segments of the economy may be for a short-term need. They advocate that Brazil should be totally open to imports. But it would just be a matter of time until these imports will reach everyone. I mean it's hitting the steel industry, but it will soon hit everybody else and deindustrialization will continue. I think the players in the Federal Government can understand this thing about creating jobs and income. But it's very difficult to compromise because of China, whereas at the same time, you have to defend the industry in other segments that are very important to our economy. It's very -- it was very difficult to deploy this measure of quota and tariff. I think the most difficult phase has been overcome. But now it's difficult to say how long it will take for us to measure the actual effects of this measure? We wish it would be just 3 months. For operating reasons, the Federal Government -- I mean, we accepted that 4 months would be a reasonable period. And that period mature at the end of September is exhausted. But we managed to get some gains in terms of reducing imports. But we think about holes. I mean, it's full of holes and water is leaking. One example is Manaus. One measure of trade measure does not supersede other commercial agreements like the one with Egypt that prevails over that trade practice, that is the GPs in Brazil, the ICMS in the state of Santa Catarina and shocking when you look at these 4 months, and you see that steel imports are still growing, and they're coming through Manaus. So the Federal Government has to put a magnifying lens. What is happening there? Because certainly, on the side of traders and importers, they are looking for easier ways to avoid paying that 25%. The Federal Government is open to the discussion. We are debating that very intensively, but people are finding other channels, and Manaus is one of these examples. There is also the issue of that additional 30%. In our view, that was a mistake. That should be eliminated. And there are other NCMs, meaning that there are products that were not included in that nomenclature, and they should be included. That's a journey that will continue to evolve. And there is no other way around it because the damage can be significant. The issue is finding an adequate balance. I would say that the most difficult phase is in the past. And I think now within industry, we will find some alternatives to strike a balance between maintaining the industry that allows us to compete on equal footing. And then we will still see the entry of imported steel in Brazil as it was in the past, which was around 10%. I'm optimistic in terms of what lays ahead. But it's a daily battle, and now going to Wang. And like he said in his introduction, I think our major journey working together is that we have to have a deep understanding of all of the opportunities that we see ahead of us. So we will work to achieve that competitive level that we aim for. We were talking a few days ago, and we recalled my speech from 7 years ago. There was a gap in productivity in the U.S., about $30 per tonne. So we drew up a plan of that $30 reduction, $15 would come from the taxes that Wang said. And the additional $15 per tonne that we had, we would aim to achieve operating efficiency. So today, we are competing on equal footing with any other steel producer in the U.S. That is very clear to Wang. And what I'm telling him all the time is that that's not enough, we have to aim for more. We have an alignment of our efforts. But I want to hear from him what he wants to do because we have to go for more. I think we can achieve more using traditional methodologies, but also through advances and capital. I'm also curious to hear what you have to say.

Well, that's a double demand. That's not a question. That's a challenge, and I pose that challenge to myself every single day. But let me go back. Let me rewind a bit. The last 4 years, if you were to ask me 20 years ago, I would never think that this could be possible or could happen. So I think you should understand maybe that the cycle will go back to a more normal cycle. But in fact, if you look at the U.S. market with the same size of demand 10 years ago, we had much smaller spreads. And what happened? Well, I think there was consolidation. There are 2 or 3 companies that are in its right place. The U.S. is more concerned about preserving its manufacturing base as something strategic. And the market, again, is much more disciplined. The smaller players left. And this is favorable. But then when I look at GLN, what are the advantages we have and what are the opportunities we're trying to pursue. In terms of advantages, if you look at the GLN portfolio and Gerdau North America, 60% means beams and commercial structures, things that are -- that have better margins, that are good for experts, complex products. It's not any rolling mill that can produce beams, for instance, or structures. So we have to focus in these lines. And the second point, with the sale of the rebar mills, the mill not only became a one-stop shop to expand sanctions and cover the whole range of products, but we can produce rebars in almost all the plants we have in North America. In the lower demand period, I can keep my assets, operational reduced fixed costs. It's advantage I didn't use to have and many of our peers do not have that advantage. So the strategy looking forward is vertical integration. It makes sense. I spoke about scrap and we're getting into downstream. We have to select opportunities. We won't have a conflicting channel with our customers. We have to ensure market share and create more value and margin for our customers, always maintaining our market share of primary products, but we also diversified in the market. We used to realize 70%, 75% on distribution. Now it's down to 50%. We can get into construction, into manufacturing, capturing things I didn't have before, data centers and warehouses and all of that. So with distribution, we only kept the market we already had. Now with these resources, we can look for opportunities. We can capture these opportunities, seize these opportunities as they come up. So it's not just operating efficiency. It's about commercial strategy that has been successful as well, and getting to the end, I have no doubt that in the steel industry, cost is essential. If you don't have the right cost, you add up gain. So in the next 5 years, we'll focus on what we lost, human resources, everyone did in the steel industry. We will reinforce that. We'll use Brazil as arbitrage, we'll bring technical people, we'll engage our employees in the short fall with safety, with CapEx, with process control. So we are very motivated to enjoy the fame we had of being best operators with process control. This is a long journey, a challenging one, but I can assure you we are firm in our purpose to have a structure that will be not only equal, but a cost structure below that of our competitors.

I want to stress the point, the biggest benefit -- the biggest benefit was that we cannot waste utilization. If utilization is under 80%, fixed cost dilution impacts the profitability. What Wang mentioned, rebar and filler, we got out of rebar. We sold the business to commercial to a company, and we can produce 500,000 tonnes of rebar if there is a momentaneous need. If production of other products drops, we can start with rebar and we can compete with this rebar in North America to maintain our utilization ratio. If we maintain that, we are already taking a stride forward to pursue a higher competitiveness, kind of what we did in Brazil. We have been operating with our mills, but on [indiscernible] maintaining the tradition of philosophy of a mini mill that worked. But if we don't maintain the utilization rate at 80%, we'll no longer be competitive. So that's an important point that we're changing. We'll have to use the flexibility that we have, the fact that we have several mills spread in Brazil and North America to make these moves more and more to ensure we'll have a utilization rate that will be constant despite market demand variations. That's a key point that we've addressed in the recent years and we'll continue to do so in the future.

Daniel Sasson with Itau BBA. I think that Wang was under pressure. Japur is very much at ease. So Japur, this goes to you. Gustavo mentioned the importance of the mining project to turn Ouro Branco into a premium product cluster hub. So perhaps if you could speak about the potential EBITDA that you mentioned, BRL 2.7 billion in total, BRL 1.1 billion will come from mining. So perhaps you could break it down, what is incremental EBITDA versus the current levels? And what is avoided cost? Are you not needing to buy ore from third parties or pellets? So that would be good. That's number one. The second question, Japur is, a part of the financial policies of Gerdau; for example, gross debt at a maximum of BRL 12 billion always conceived? In 2018, when Gerdau was half the size it is, EBITDA was BRL 6.5 billion. Do you think that there is room perhaps to revisit some of these policies, perhaps having the higher maximum indebtedness or higher than 30% dividend payout? How are you thinking about this -- about these main pillars that walk hand in hand with our strategy of returning remuneration to shareholders, share buyback, [indiscernible]. You consider buying back our shares as an excellent investment. How are you thinking about policies of the company?

Before Japur answers that, let me make a brief introduction connecting with what Wang mentioned. The production of flat steel in the U.S. is migrating from leaving blast furnaces to electric ovens. With electric furnaces, we have the need of a low residual. So we have to look for prime scrap. We have to perhaps use big iron or DRI. So this has increased the price of prime scrap in the U.S., but we do need that in our steel making production in the U.S. So going back to Caio's question, this brings up a very important opportunity for us. Here in Brazil, you're not going to have a reduction. When we look, we don't see a reduction in integrated capacity. There's a very significant point, however, that is happening. The ability to supply iron ore in Minas Gerais, the iron quadruple, that was very rich in hematite. If you walk in those hills, you would just put your hand on the ground and you could get hematite. And this ended over time, and that's why we lost competitiveness to produce mills of Divinopolis and [indiscernible]. It was very easy to buy this ore. It was easy. It's no longer easy. With the dam accident in Minas Gerais, that created an additional complexity. To get a license for a mining project today, it's a complex business. There's a lot of scrutiny, details involved. With my taxpayer number every month, I access the system to get approval of the operational quality of our dams. That's now an assignment for CEOs of companies. So complexities were created. I'm not saying this is good or bad, but this happened after the accident. So once there will be no production capacity reduction in Brazil via blast furnaces, access to low cost or access and availability of volume becomes very strategic. You're in the market, you know everyone. So that's a point that you can assess individually. But to us, if we don't have this ore at a volume, cost and availability required, we would find it hard to compete in the long term. The Miguel Burnier is an excellent mining asset in the long run. When we talk about 40 years of supply, it doesn't mean that the mine will be depleted after 40 years. We're talking about certified reserves. So there is a stamp from certifying bodies saying, I evaluate it, I probed it and there is ensured ore for the next 40 years, which brings the safety in the return of the project. Beyond the 40 years, what we'll do in the coming years is to continue to certify the mine to say, perhaps it will supply for 50, 60, 100 years. We'll continue to check the potential at the Miguel Burnier mine, close to Ouro Branco. In the coming years, we'll update this as we have this stamp of the reserves. So this is an abstract competitive edge for us because the ore is there. It's sitting 13 kilometers away from Ouro Branco. I wanted to say this because understanding what's happening in Minas Gerais is key. It's very important to show you our future competitiveness, investments we can make and still making in Ouro Branco when we have this ore available for decades. Japur over to you.

Daniel, connecting with what Gustavo has just mentioned about our long-term perspective for these assets in Minas Gerais. When we think about this specific investment in mining, if we were to think about this as an individual separate company, I could clearly talk about the EBITDA because I'm talking about production, value with production cost with a market price. . But to us, this is not merely individual growth as a joint venture -- a separate joint venture or a separate spin-off. Because to Gustavo's point, our situation today is very different when we think about access to rich material from [indiscernible], which enables us among other things to have competitive or at low cost. And we get a little bit more technical, but the proportion of our load in the blast furnace, how many pellets we have to use in the blast furnace. It's a fraction. Typically, a blast furnace would require, if we get a company in Europe and Asia, between 30%, 40% outlet load. We use a fraction of that given the ore that we have today. But as Gustavo eloquently explained here, this is not a reality for the next 40 years. We cannot manage a capital-intensive company with a long-term outlook thinking just about the next 2 to 3 years. We have to think about a much longer-term solution. When we think about this capital to be generated by this mining project, it has a growth component, yes. But in the long term, when we think about [indiscernible] in the region, perhaps the need to supplement the [indiscernible] ore with a higher load of pellets, we are complementing this with investments in cold agglomeration that we're making. So 10, 15, 20 years in the future, this is going to be a cost avoidance because naturally, both us and the other companies in the iron quadruple will have to rely more on using pellets to complement to load. So there's no simple asset to say what percentage is cost avoidance and how much is growth? It really depends on the time horizon we are considering. Do you want to add to that Gustavo?

Sure. This mine is going to produce 5.5 million tonnes. You might be asking, can you make 10? Technically, yes. I can't believe is that we should produce ore for our own consumption. Can we become an iron ore player in the future with this mine? Yes, it's not a business -- believe, our business better at this point. And I don't intend to change this relief until the mine is operational, and we are producing 5.5 million tonnes and that we are sure that our processes are robust. So the question is, can we produce more? Yes. This is in our short-term plan? No. When are we going to start thinking about this? Perhaps, in the beginning of 2026.

Okay. To your second question, Daniel, about our financial policy. Well, though it is something we wonder every now and then, we discussed the financial policy when the dollar was BRL 3.50 or BRL 3.70. Now, the dollar price is BRL 5.40. I haven't looked today, but it's definitely different. So of course, this is something that we can revisit. But we have to remind you that we are a cyclical industry. It's very easy for us to get used to the good stuff. When you get a car, I had a manual shift of speed. And then I bought a car with an electric transmission. We got used to that. So it's really easy to get used to the high profitability, but it's easy, but very dangerous in the cyclical industry like ours that is very capital intensive. So yes, it is something that we may revisit our financial policy terms. But, right, Gustavo, we are not thinking about any radical change regarding our level of capitalization or something of that sort.