Usinas Siderúrgicas de Minas Gerais S.A. (USIM5) Earnings Call Transcript & Summary

Welcome to Usiminas conference call where we will discuss the results of the Second Quarter of 2025. I'm Leonardo Karam, Investor Relations Officer at Usiminas. [Operator Instructions] This conference call is being recorded and broadcast simultaneously on Usiminas's YouTube channel. Please note that this call is exclusively for investors and market analysts. We ask that you identify yourselves so that your question can be addressed. We also kindly request that any question from journalists be directed to Usiminas Media Relations by [email protected]. Before proceeding, we would like to clarify that any statements made during this conference call regarding the company's business outlook, projections, operational and financial goals, and potential for growth are forward-looking statements based on the management's expectations regarding the future of Usiminas. These expectations depend heavily on the performance of the steel industry, the country's economic conditions, and the situation of international market. Therefore, they are subject to changes. Joining us today are CEO, Marcelo Chara; VP of Finance and Investor Relations, Thiago Rodrigues; and Commercial VP, Miguel Homes. First, Marcelo will make some opening remarks; then Thiago will present the results; afterwards, we will respond the Q&A session's questions. Now I turn it over to Marcelo.

Thank you to Leonardo. Ladies and gentlemen, good morning to everyone. It's a pleasure to be here with you for the presentation of the second quarter of 2025 results. What we expected to be a challenging scenario for the market in the second semester of the year has already manifested earlier than anticipated as a result of a high volume of steel imports, which has negatively impacted not only the steel industry, but the entire value chain of manufactured products. We remain focused on internal initiatives and the implementation of effective cost reduction measures with the goal of ensuring the sustainability and the competitiveness of our operations. By June, the volume of imports reached 2.3 million tons, a 50% increase compared to the same period in 2024. In 2025, imports account for 28% of the apparent consumption of flat steel in Brazil. This is 1/3. This is almost equivalent to Usiminas operating abroad, generating jobs, income and investments outside Brazil. These numbers demonstrates the ineffectiveness of the quota-tariff system implemented in June of 2024 and renewed in June this year, with adjustments that do not seem to structurally change the previous condition. For the sustainability of the steel industry in Brazil, it's imperative that the antidumping investigations into steel products, which have already proven dumping practices and their harm to the industry, be concluded swiftly and the concrete measures be deployed to eliminate this unfair and harmful practice affecting the industry and the entire value chain. The critical import situation also affects other links of the steel chain. Indirect imports of products containing steel are at record levels with a 7% increase vis-a-vis the first half of 2024. This is according to the Instituto Aco Brasil data from the National Association of Motor Vehicle Manufacturers, ANFAVEA, showed a 16% increase in imports in the first half of 2025 compared to the same period the previous year, while the registration of domestically produced vehicles grew only 3% in the same time frame. ANFAVEA also highlight the high inventory of imported vehicles in the country, a situation similar to that of flat steel. In the international context, recent announcements by the U.S. government about raising tariffs on Brazilian exports will have a significant impact on the performance of various sectors of the economy. Even though direct exports from the company to the market are limited, the impacts on Brazil's industrial chain, and particularly on our export-oriented clients to the United States, are another cause of concern. This negative scenario, combined with the lack of effective trade defensive measures for the steel industry was reflected in Usiminas' Q2 results. We had a consolidated EBITDA of BRL 408 million with a 6% margin, a reflection of lower domestic market volumes, net revenue per ton in the Steel division and lower international prices in the Mining division. Given this scenario, we are adjusting our 2025 CapEx to between BRL 1.2 billion to BRL 1.4 billion, optimizing our cash without compromising projects that impact our competitiveness and environmental performance, reaffirming our commitment to Usiminas's long-term transformation in the industrialization of Brazil. The Board of Directors has approved the reconstruction and the modernization of Battery 4 at Coke Plant 2 in the Ipatinga facility, BRL 1.7 billion project that will enable greater fuel efficiency in the blast furnaces, competitiveness and energy optimizing in the plant. We continue to deepen our initiatives to reduce costs across all industrial operations in addition to focusing on our operational efficiency. Financial soundness and discipline are pillars of our management. Despite the challenging commercial and results scenario, we delivered positive free cash flow, reduced our net debt by 24%, and decreased our leverage. In July, we completed the early redemption of the remaining balance of the bonds maturing in 2026, thus leaving the company without significant amortizations until 2028. For Q3 of 2025, we expect better results in steelmaking driven by progress in cost reduction, efficiency and raw material prices. We anticipate stable volumes and lower net revenue per ton, reflecting the price trend caused by the ongoing pressure from unfair and rampant imports. In Mining, we expect a slight reduction in volume, but we remain on 2025, a total volume that exceeds that of 2024 and is aligned with our planning. We remain focused on adding value and differentiating the quality of our products and services towards our customers, driving continuous improvement in our operational performance in every activity we undertake, supported by the capability and commitment of our employees. Thank you very much. And now I hand it over to Thiago, our CFO.

Thank you, Marcelo. Good afternoon to everyone. So this is a brief presentation of our results. Subsequently, we will have our Q&A session. Well, as Marcelo mentioned, the highlights of the quarter are here in cash generation with a positive cash flow of BRL 281.4 million and our leverage to 0.5x. Now we can go directly to our next slide, where we see the consolidated results of the company. The net revenue of the quarter was BRL 6.6 million, a 3% drop vis-a-vis the last period. The drop of the revenue is in the Steel unit and lower from the Mining unit. The 2 segments were impacted by the drop of the sales prices. The adjusted EBITDA after 3 periods of growth and the first quarter of strong results presented a drop that shows the drop of the prices of steel and iron ore with BRL 408 million and 6%. We have to see the trajectory of good results that the company has presented vis-a-vis the last year when the price dynamic was even more favorable. The accumulated EBITDA of the first semester of BRL 1.1 billion, over 70% above what we presented during the same period of 2024. And the net income followed the same trajectory, ending with BRL 128 million. Now when we see the Steel unit, as Marcelo mentioned, our quarter expectations did not materialize because of the deterioration of the market that we expected for the second half of the year, anticipated itself in terms of volumes and prices in the domestic market. The volume of sold steel is 1.07 million tons, a slight drop, but the drop was mainly in the domestic market, especially in the vehicle market because of the adjustments of the inventories of heavy and light vehicles. During the last quarter, we had an increase of 5% of the volume for the sector and also an important drop in highway material and distribution. We can see strong pressure on prices. This is because of the increase of steel imports and mostly these are unloyal conditions and with a speculative bias from the importers. Now Navy industry and highway material offset this. There was a drop in the net revenue that was BRL 5.8 million, and it was the lowest per ton in the past years. This, together with the increase of COGS of the sold products, well, deteriorated our results in the quarter that ended with an EBITDA of BRL 287 million and a margin of 5%. We have to mention the improvement in the accrual of the year vis-a-vis last year because of the progress after the ramp-up of the Blast Furnace 3. The BRL 215 million accumulated EBITDA was twice -- was double of what we presented during the first 6 months of 2024. And now the EBITDA of the last quarter with the current quarter, here we see the price and sales mix affected, impacting by BRL 149 million in the results. The cost of the sold products also affected because the anticipation with repairments and other costs that offset the gains that we gained with efficiency and better prices of raw material. There were nonrecurring effects of BRL 2 million with refills in Minas Gerais and other expenses that were BRL 12 million. Now we'd like to strengthen our expectation for the next quarter. Although with a challenging market scenario, we expect a total volume of sales stable. The net revenue per ton will drop with the carryover of prices that were realized in the past quarter. But on the other hand, we expect a drop of the COGS that will offset these effects. This drop comes because of the best operational performance and the reduction of raw material that we've observed in the past months that are more visible with the inventory turnover and the impact on our P&L. Now when we go to the mining unit, well, our sales volume was 2.5 million tons, an increase of 11% vis-a-vis last quarter, and it followed the production volume that also improved because of better operational performance. Now the net revenue was affected by the drop of prices in the international market, the reference prices of iron ore and also the mark-to-market of the material that were in transit. So the appreciation of BRL vis-a-vis dollar and greater sales volume with maritime freight. So the net revenue per ton too dropped from $78 million to $71 million. The production cost increased because more material in the plants and maintenance expenses, but were offset by more volume sold to the maritime industry. Now the mining EBITDA ended the quarter with BRL 115 million, a 3% margin. Next quarter, we expect lower volumes, and this is within 9 million tons. Now financial indicators. Now after a significant increase of our working capital during Q1, there was a drop of BRL 454 million, which was expected. We mentioned this in the past call. Great part of the drop is because of accounts receivable of BRL 300 million and BRL 150 million because of inventory reduction and the operational cash flow was positive by BRL 615 million. Next quarter, we expect an additional drop in working capital, especially in raw material inventory that will have to go through certain adjustments. Now our CapEx of the second quarter gained momentum. It was BRL 334 million expected because of the projects of the new PCI plant that will become operational next year and the battery of the new coke plant. These are good projects to increase our competitiveness in the mid and long run in terms of costs. Now, CapEx was adjusted by BRL 200 million. We will be reaching BRL 1.2 billion and BRL 1.4 billion because of savings generated in the optimization of management and the execution of projects and hiring. We did not cancel any projects, but we rescheduled and savings with greater efficiency within our process. We also announced that the Board approved BRL 1.7 billion investment in the battery of our coke plant to eliminate our dependency of purchased coke. We want coke of better quality, and this gives -- this is a cost saving. This is a 4-year project. It will become operational in 2029 with 500 million tons of coke a year. Now with free cash flow and the CapEx, our free cash flow was BRL 281 million. Now going to our next slide with this cash generation and the effect of the currency variation, our net debt dropped and it was 0.5x. We saw the debt profile, and we concluded the purchase of the remaining value of the bonds maturing in 2026 using the resources from -- so we will present next quarter an even more extended profile that will -- so that we feel reassured with our investment plans in the future. Now I give it back to Leo, so we can start our Q&A session.

Thank you. Caio Ribeiro to Miguel. He wants to know about the supply side reform in China. He wants you to elaborate how we interpret the recent announcement of the cut of steel production in China and how this impacts Brazil?

Well, as a matter of fact, anything that gives balance to supply and demand to China is relevant, not only for the Brazilian steel industry, but for the worldwide steel industry. During the last 3 years, we've seen how the surplus of steel from China and this exceeding 100 million tons a year, and we are suffering directly today in Brazil with Chinese imports, but indirectly by the strong pressure. In the Southeast Asia, this is how we see a strong pressure from the exports from China. Anything that brings a balance to supply and demand will generate a positive impact to our industry. It's important to highlight during the first 5 months of the year, Chinese production dropped 1.7%, but the use dropped 4.1%. This means that still Chinese has an important surplus of exports month by month. During the first 5 months, they produced over 50% of surplus. It's very relevant and urgent any reform that bring back the balance between supply and demand from China.

Thank you, Miguel. The next question for Marcelo Chara. We have 2 questions. I'm going to merge. Caio Ribeiro wants to know about antidumping and Carlos de Alba about the quotas. Caio wants to know about the antidumping processes. What are the expectations of the company realizing these processes? And Carlos wants to know, well, in your opinion, the change of the tariff quotas -- the quota-tariffs that were approved recently, what is the company's opinion regarding this point, the quota-tariff system. Marcelo, you're muted.

Thank you very much, Carlos and Caio. Well, unfortunately, if the quota-tariff system has not been successful, it has been inefficient in reducing and controlling the import of steels in extremely unfair condition. This is because the systems had a number -- multiple exceptions. And in addition, the quotas were high vis-a-vis the growth that we expected for the consumption. And in addition to this, there was exponential growth of product that would be the [indiscernible]. Now this didn't generate any impact in the damage that Brazilian industry has suffered because with an increase of 50% of imports during the semester vis-a-vis to the one of 2024 shows how ineffective the system is. Now what is the solution? There is no solution. There are a number of measures that have to be complemented in order to reassure effective defense to avoid unfair practices. One would be the implementation of antidumping measures or safeguard measures. Many countries throughout the world are doing this, especially this flow -- the countries are defending themselves. They're defending their industry, especially in points where they verify that this is a technical thing. The dumping is technical. You can see that it's a damage. In Brazil, we verified damage. There are 2 products, galvanized where we saw damages, and cold rolls. Cold-rolled steel, now we should have a definition and we need to apply measures with no exceptions, adopt measure because the only thing that can effectively -- that can guarantee fair competition. We cannot compete with who subsidizes. This is not fair and this significantly affects highly qualified employment in our country. This is impacting in Brazil because the reduction in CapEx means less jobs and this is loss of jobs. And if we add to all of this, the imports of manufactured products of all kinds that our country is receiving, if we add the amount of products that hold steel like ANFAVEA, the impact of highly-qualified jobs that defines the development of a country and its industry will be threatened. As a matter of fact, antidumping measures can be applied in the short run. I do trust that here -- that they will apply to defend all the industry and the value chain of our country. I do trust that this will be implemented and adopted.

Thank you, Marcelo. Our next question for Thiago about COGS. There are many questions regarding COGS. And I will -- now the current COGS. Lucas Laghi from XP and Stefan Weskott from Citi ask when we see BRL 80 of reduced tons because mix efficiency, can you tell us how much of a reduction reflects the cost of inputs? What about -- and have you quantified this for the second semester?

Okay, Lucas, Stefan, thank you for the questions. The first, the reduction that we observed during the second quarter because of price and mix, half of BRL 80 per ton was because of the price of raw material and less than half because of efficient and the price of the slabs has already -- is impacted within this BRL 80 per ton. Now regarding the major repairments that offset in a certain way this cost reduction, this accounts 50% of the effect of BRL 60 per ton and the expectation is that we will not see a significant variation during the next semester.

So Thiago, what about COGS? We have a number of questions. Caio Ribeiro from Bank of America, Stefan Weskott from Citi, Ricardo Monegaglia from Safra and Tathiane Candini from JPMorgan. We will start with the COGS and steel. They're expected to drop during the next quarter. What reassures you that this time, this trend will materialize itself? And can you give us details of what frustrated this expectation during the second quarter? And if what we've seen this quarter can repeat itself during the next quarter? Could you better quantify the expected drop for Q3? And how much would come from the drop of raw material and efficiency. This magnitude is implicit in the question.

Okay. Let's see if I can answer all the points. Well, what frustrated the cost reduction during the second quarter? Remembering that during the first quarter, we had nonrecurring effects. First, we had to overcome the nonrecurring effects of the second quarter and we had the additional expense. We had to reschedule major repairments, and this is something that we expected. What reassures us that we can drop the COGS during the next quarter? Well, first, we see clearly an improvement in the cost of production due to efficiency and also because of the drop of cost of raw material that effectively are affecting our COGS. There was an increase in the volume of inventory of raw material in the past. And therefore, the recent drop in the price of raw material will take longer to dilute itself and to affect the COGS. We are in a process of dropping our raw material inventory. We have less material coming in at current prices, and it takes longer to see the effect. So today, when we see the value of the products in our inventory, their value is lower than that of the last quarter. So we do believe that we will see a more relevant drop in COGS during the next quarter.

And I would like to add something here. We have adopted [ drip ] measures in operational management. We've simplified maintenance jobs and we've reduced a great amount of contracts. And we've also increased working productivity in all the operational fronts so we are not duplicating activities that are repetitive. And we have implemented management tools of IT or all types of tools in order to analyze our processes with video analytics and math models. So we are actually transforming the execution dynamic of all the industrial operations, and we believe that we see the results of this entire dynamic. And we are also seeing how the improvement processes flow in a systemic fashion. We have a long-term project, and we are fulfilling the different stages, and they're aligned with our plans. And regarding the magnitude of the impact of all of this, we generally do not disclose percentage, but the expectation is that the COGS drop will be sufficient in order to offset the impact in the net revenue. Now obviously, in the current market conditions, so our expectation actually is an improvement of margin with the offset of the COGS drop and the drop of net revenue per ton. We've also reduced the cost of energy inputs. We have a co-production plant of solar energy in the state of Minas Gerais. So this improves our condition and our costs in energy. And also, we've introduced automated processes in our processes and boilers, and we are seeing the improvement in energy efficiency, and this progressively will impact our costs.

Thank you. We have 2 questions here from Caio Greiner and Igor from Genial. They were answered. It was about magnitude. Now Marcelo, we have another question regarding antidumping. Ricardo Monegaglia from Safra wants to know regarding dumping. The studies use benchmarks from U.S. and India? Do you believe to calculate the antidumping on these prices, $500 per ton of antidumping inferred. Could this be reduced?

What is important to compare it to the market economy. This is what creates a reference. In addition to this, I am going to share something that is evident. The metallic margin is easily calculated in the steel industry. When you see that systematically we have in the country products with visible losses of metallic margin, which are negative, well, I say the damage is huge. We cannot compete with this. There's no way of competing with this situation, and here are basic comparisons. In a store of any type of products that sell subsidized products in a region, this generates 2 effects, a fake expectation of price reduction for those that buy it, but this generates a great damage because it employs people from a store, but you lose 10x, 20x these jobs of all the value chain that allows you to produce a product that goes to the store within Brazil because at the end of the line, the subsidy wins in such a way that the job, the industrial employment, is lost. And at the end of the line, who can buy this product doesn't have money because they don't have a job. So the dumping measures, we have technical points that are important and they should be adopted. And this will allow us in a certain way to balance this tsunami of imported products coming into the country.

Thank you, Marcelo. We have many questions regarding our CapEx initially regarding the guidance. Our CapEx guidance, Stefan Weskott and Sasson, they want to know regarding the new CapEx. Is the company planning to reduce investment in another part of the business to maintain a lower total disbursement, especially between 2027 and '29. And regarding this drop, has there been a postponement in investments this year, BRL 1.4 billion to BRL 1.2 billion. Have you postponed projects or there were lower costs in execution and in hiring?

Precisely. In greater scale, it was because of saving in hiring and execution and project management. For many months, we have been focusing on optimizing the use of our labor, and we want to find gains of efficiency in the execution of the projects. Nothing was canceled and nothing was postponed regarding the beginning of our projects. What we did was we rescheduled and there was a cost reduction of the projects that had already been approved. I don't know whether Marcelo would like to say something.

Basically, what Thiago just mentioned, we have been able -- we have created CapEx management systems, and this is something that we have applied this in complex projects in many countries. Well, we've applied the main practices for the execution that allows us to optimize the execution process, the hiring process, and this allows us to have a better efficient flow.

I have a feeling that the first question was not approached.

When you talk about planning, no, to maintain the disbursement of the periods where we will spend more in the coke plant. No, this wasn't planned, but the reduction must be because of savings and efficiencies in our projects.

Now CapEx, still Rafael Barcellos from Bradesco, Marcio Farid from Goldman and Lucas Laghi from XP. They want to know in average, which should be the total company's CapEx in the next year, or what is the recurrent maintenance CapEx of the level of the company. Is it close to BRL 1.2 billion, BRL 1.4 billion this year? They want to know if there are investments in addition to maintenance, any need for this, and if we can expect a BRL 1.5 billion, BRL 1.7 billion level for 2027 forward use it. But if these new investments in 2027 from here on -- 2027 on.

Well, we are not going to give you a guidance or announce the CapEx for the next years, but we do understand that it is a CapEx of BRL 1.5 billion is a reasonable CapEx to bear in mind as of 2026. Our maintenance CapEx is around BRL 1 billion. So this additional BRL 1.5 billion would be the projects to gain competitiveness like the PCI plant. The hot repair of the coke plant that are the main ongoing investments and the new investment in the coke plant. So this takes our CapEx to a level close to BRL 1.5 billion. And of course, as we are closer to 2026, we will provide you more clarity regarding our investment plan for the next year. Now in terms of maintenance, I would like to say that we also carried out a deep transformation of all the industrial area. And the maintenance area, well, we focused on this to optimize our efficiency process in each one of the lines. We are executing a systemic plan. And in the last 2 years, we have been able to significantly increase our adherence level in our production plans, with which we will continue with the reliability improvement plan. We have an internal project called world-class maintenance, strongly focused in developing the skills of our employees, in addition to incorporating technologies and tools that will allow us to optimize the cost and to increase the efficacy and the availability of all of our machines.

Thank you. Our next question from Marcio Farid from Goldman Sachs. He wants to know about CapEx moves. What are the plans for Mineracao Usiminas? Marcelo -- Thiago, you can answer.

Well, regarding the MUSA investments, we have not updated this. We continue focusing on the ramp-up project, in the feasibility projects, and the environmental licensing process, but we still have not made a decision. And this decision will not come before 2026. But yes, we continue focusing on this project. What do I mean? So that we can make a decision next year.

Thiago, our next question regarding mining from Igor Guedes, Genial. He says, volume was good in mining quarter-on-quarter, year-on-year. And the drop by third parties dropped 3.5% in next quarter. Thiago expects higher volumes. What generated the increase of volume during the quarter? Was it accumulation of the inventory? What is your strategy for inventory? He said that your inventory strategy is more discussed in the market where the inventory of iron ore is highly discussed.

In reality, there is not a lot of space to stock material in our plants. So we do not work with this strategy of high-volume inventories. The volume, there was better productive performance, so there was better productivity in production and the consumption were around 40,000 tons of stocks, which is not a very relevant volume.

Now still about MUSA, Rafael Barcellos from Bradesco wants to know. He wants you to elaborate on the cost dynamic in the mining unit.

Well, in the mining unit, well, connected to what I just mentioned of inventory area and material movement. Well, we've observed an increase of cost of internal movement in the plants. According to the situation that is being changed, we have initiated different areas, and this brings more complexities and this has impacted the cost. So we will see the cost at a level close to what we saw during the second quarter, with additional increases, but nothing very structural regarding the movement of material.

Our next. What about the announced investment of Coke 2 battery for Tathiane Candini, JPMorgan; Lucas Laghi, XP. They want to know the -- we want to understand the rationale of the coke plant reducing costs per ton with the production of your own coke instead of using coke from third parties. They want you to elaborate the idea of efficiency gain or margin with this new investment. How could this coke plant could reduce the purchase from third parties and reduce costs and CapEx of BRL 1.7 billion will be distributed in '27, '29. How do we see a margin return of this project? Thiago?

Well, number one, it's important to mention that this project is highly profitable. The impact is important in terms of cost reduction because of the quality of the coke that we will produce and our blast furnace will consume is when you have a production beside your blast furnace, you avoid all the wear of the material when it comes from a third party. And this generates a possibility or an improvement of fill rate in our fuel load in the blast furnace, and this is a significant improvement in terms of cost. You asked about the investment flow. Well, the expenses expected for 2026 is lower. It is below BRL 100 million. And as of this point, the period will be of higher expenses distributed until 2029, where the coke plant will become operational. This coke plant will produce slightly above 500,000 tons of coke. And depending on the productive situation and the market situation, it will make us self-sufficient or very -- or not very exposed to coke from third parties.

We currently have 1 battery in the coke plant that is being repaired. This hot repair is working and it is aligned to our plants. It is effective. And throughout the next 2 years, there will be a progressive increase of the production capacity of this battery. Now this new battery is a side where the efficiency gains in terms of operation costs, in terms of labor productivity, in terms of -- in all industrial terms, is high. It is highly competitive. So in addition to the benefits that Thiago mentioned regarding the produced coke and the energy gain is significant will allow us to capture the processed gas, replacing a more expensive gas like natural gas. This is a highly profitable project, and it's highly attractive.

Thank you. Our next question, Thiago. Nippon and Ternium, Yuri Pereira from Santander. He wants to know if Nippon still has manifested its interest in the put exercise.

This is something regarding shareholders. Usiminas does not participate in these matters. We could not mention anything regarding this point.

Miguel, now we start our commercial session. Regarding the -- Rafael Barcellos wants to know about the steel dynamic in Brazil because of the volume guidance of 3Q. Are you seeing a weaker volume? And what is your view regarding the stocks in the chain?

When we -- during the second semester, we see better production in heavy and light vehicles and also something positive regarding highway and agro machinery. The other sectors are showing a slowdown because of high interest rates and because of the pressure of imported products coming to Brazil in unfair conditions. In the automobile sector, this trend will be maintained during the next quarters. When we see the expectation of ANFAVEA's 8% to maintain this pace, the production should be above the 2 quarters. Now agro and highway machinery, we expect to maintain this loss of breath that we saw during the second quarter. Now the steel sector is an excellent thermometer to anticipate the industry behavior. And this is what we have been seeing in the indicators of May and June, and we are seeing a slowdown in the industry sector of the country. The agro industry that has a positive third and fourth quarter, by and large, we have to pay attention to what the U.S. government has announced. Because this is an area that has positive effects during Q3, we have not seen a slowdown, but we will perhaps see news in the next weeks and months. Now inventories, the situation is different in each sector. In vehicles, we have observed a destockage throughout the second quarter. When we see the production data from first and second quarter were different in one, there was a 14% production drop vis-a-vis the past quarter. But the second quarter, an increase of 10% throughout the second quarter, there was destockage in the chain of light and heavy. So there was a slight drop in vehicles. Now all the industries have been adjusting their inventories, and we can say that the industrial and automobile sector, the inventories have been normalized until the end of June. Now the distribution sector, we could differentiate and announce the data until June, a slight increase of inventory of companies that are part of in going from history normal inventory between 3.3, 3.2 months of sale. June, they ended 3.4 months. Now regarding the importers, we can see a high level of inventory. And this is the speculation of importers. We have to pay attention to the speculation behavior of imports that can affect the activity, especially in the construction and more commercial sectors as of the second semester.

So now we have regarding exports. For you, Miguel, Rafael Barcellos from Bradesco and [indiscernible] from Genial. He wants you to discuss about the export market, what should be the domestic mix/exported for the next quarters? And Igor says, if you see opportunities of holding projects in Argentina and in other countries, if you could achieve this volume without dropping the price or the quality. Miguel?

Rafael, Igor, Usiminas has a [ 90%, 12% ] for export. Our exports are focused on added value products, and we participate in major products, especially in oil and gas. So we do not see major changes in this mix for the next quarter. The next Q we will maintain a mix very similar in Argentina accounting for 70%, 75% of our sales and the rest divided by the rest of the market. What could be a novelty would be the resumption of the sales batch to Europe because of the market situation. So maintaining a sales level of 10%, 12%, well, we will not see major changes in the mix. Regarding project, the oil and gas and mining projects in Argentina have been positive. Not only today, we are dealing with Vaca Muerta, major project in the southern region of Argentina. This project, it is advanced, and it will end throughout the third quarter. We are negotiating. We haven't ended the negotiations of similar projects that can start as of Q4. And this will replace the Vaca Muerta project that will be delivered by the end of Q3.

Now we have questions regarding prices for the third quarter. Our expectation -- from Carlos de Alba, Morgan Stanley; Stefan Weskott, Citi; Lucas Laghi, XP; Henrique Braga, Morgan Stanley. So all of them want to better understand what will be this net revenue per tender in Q3, if we can quantify the carryover of price of steel from June in relation to the quarter or for the next quarter, what do we expect for the next quarter? What are the discussions regarding the price of steel? What are these discussions like? Are there plans to increase or to provide discounts?

Okay, let's start. Well, regarding the prices of Q3, we are going to provide you information too so you can calculate your expectations better. There was a drop in prices throughout the second quarter. Especially by the end of the second quarter, early in the Q3, we will see the impact of the carryover, the price adjustment of 3%, 5% that only impacted the end of the second quarter. We could calculate an impact of 2/3 of what we saw adjusted during Q2, impacting the total average price and the distribution for Q3. Now regarding the industry. We updated a number of contracts or we adjusted contracts during the second quarter, but there are contracts that must be updated during Q3. These contracts, as we always explained, will follow the trend that we expected for the distribution sector. They will be adjusted as of the Q3. Now the automobile industry, we see price stability. There will be no changes in the contracts during Q3. This can allow you to calculate what Q3 will be like without expecting any greater changes in our sales mix and products and market. Now Leo, what was the other question? If we do have space for major adjustments. Well, in the industry, contracts are already being renegotiated. We've defined the prices that we will see throughout Q3 and in the distribution sector, which is related to the first question of the call regarding the Chinese reform. Any change that provides balance will affect the spot prices. These are prices that we can adjust every month or in a given moment that is necessary because of the cost and because of the price conditions, and there are a number of variables that are observed. Today, we do not see major impacts or major variables that will take us to adjust upwards or downwards. We have seen changes regarding prices in the international market in the past weeks, but we have to see how the situation will consolidate itself that can result in future adjustments. And probably we will see this during the second half of the next quarter.

Our next quarter? Thiago? Before that, so we're coming to the end. So a number of questions will not be answered, but our Investor Relations team will be at your disposal. The working capital, Thiago, Carlos de Alba from Morgan Stanley; Igor Guedes from Genial. He wants to know about the expectation of the behavior of the working capital for Q3. This is because of the destockage of inputs that were more expensive. What influenced the working capital?

Now regarding the drop during Q2, the greater effect was because of the accounts receivable, because a drop of volume and price and volume dispatched by the mining unit, although there was a higher volume as a whole during the quarter. And regarding the inventory, it was a lower volume. But as I mentioned, the expectation is that we will see an important reduction during the next Q in working capital, will be similar volumes than the ones we've seen this quarter. We saw there's an increase of COGS inventory at the end of Q1. And now we're reducing the level of inventory, and we will see a strong impact during the third quarter.

And thank you. And we end with a question regarding automobile industry. Igor Guedes, the possible reduction of taxes can allow production to increase. ANFAVEA saw a slowdown in June. What can you see from this demand from here on?

Igor, any incentive policy is positive, and we are following the possible impacts from the reduction of the taxes on industrialized project. July is greater than May. And in order to reach a good level, we should see an increase in continuous production from June until December. So we are following all the indicators. Now the IPI announcement is positive, but the automobile industry is also suffering because of the import from Chinese cars at unfair condition. So we have to pay attention to the potential impact of these variables and to follow the measures that the government can adapt together with ANFAVEA in order to improve the sector. That is a sector that is so important for the Brazilian economy.

So thank you, Miguel. Thank you to everyone. We will bring our Q&A session to an end on our results live. We thank you for your participation. And if you have any questions, our Investor Relations team is at your disposal. Thank you very much, and have a good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]