Companhia Siderúrgica Nacional (NYSE:SID) Q2 2023 Earnings Call Transcript

Thiago Lofiego: Good morning or good afternoon. Very quick questions to Martinez. Martinez, which is the evolution of your contracts? Are you working with semestral contracts because of price variation. Secondly, a question on cost. You mentioned the cost reduction for the steel in the second half of the year. If you could quantify this, please.

Luis Martinez: Thiago, how are you? Good day. Now, the — I think the market has changed as well. Our competitors are negotiating semesters or continue to speak about quarters. Our share in the sector was never very large. We have one or two players in the sector. I believe it’s the automotive sector. We’re more focused on spare parts. This is where we negotiate spot prices for two or three months. So in the case of assembly plants, we had already aligned the prices in the last semester. We had a minor discount of 5% that we communicated in the last call. There’s nothing else left to do. There are no more discounts, quite the contrary, depending on what will happen in the market, perhaps we will have to converse again in the fourth quarter. But in the fourth quarter, we will begin to negotiate only in — at the end of August or beginning of September. We always leave this to the very last minute, waiting to see what happens in the market.

Thiago Lofiego: Will this impact the third quarter?

Luis Martinez: No, there will be no impact whatsoever in the third quarter, Thiago. What we have to do is hold on to the prices because there is enormous pressure because of imports pressure to reduce prices. It wasn’t easy to hold on to these prices in the second quarter. We had to work very much to be able to hold on to those prices. The premium was never so high as in the second quarter. It was 40%, 41%, 36%. It has now dropped. But I’m more optimistic with what will happen in China now, not even the Chinese can bear those low prices and they need to improve them. They can continue with that situation much longer. These negative margins are not healthy. I think we will go into a situation with greater stability. And I say that as Brazil, where the backyard of China for everything, we — everything that we have for still comes to Brazil from China and our commercial defense is a trade remedy that the entire world uses.

This is something that Brazil needs to truly improve.

Thiago Lofiego: Well, very quickly has anything similar happened in the automotive market or with other industrial clients?

Luis Martinez: We do have white line appliances, but the dynamic is somewhat different. We had to do something that was a onetime thing in white line. They follow the market prices and not the spot market, but they follow this with a delay of 1 month, 1.5 month, whatever happens in the spot market. This is the dynamic. Now the steel price, the less distortions we have, the better. Distribution is not the market. It’s a channel, it sells to the same clients in lower amounts. So the less distortion, the better. We continue to believe that these gaps of prices in negotiations will have to shrink ever more to have a more balanced market. When it comes to fare prices for the entire value chain, it’s difficult to achieve this. It’s not one of the banners of the market as a whole or of competition.

Marcelo Cunha Ribeiro: Regarding cost very quickly. We have a guidance, Thiago, were in July, and in July, we had a drop of a low double digit that was the average for the second quarter. And more importantly, we think that until the end of the year, there will be a significant drop, a low double digit to reflect the higher productivity and the drop of raw materials as well.

Operator: The next question comes from Caio Ribeiro from Bank of America.

Caio Ribeiro: Good afternoon, everybody. First of all, I would like to return to the discussion of the Brazilian steel market. Martinez has added quite a bit of color speaking about the imported products. Could you also speak about the impact that you foresee with the return of the high furnace in — the blast furnace in September and because of the timing of the ramp-up, this will reach a period that tends to be weaker in terms of the industrial park.The second question regarding your energy, part of the deleveraging you are bringing a partner for the structure, especially for the CEEE asset? Is this still an option? And which would be the timing for this option?

Marcelo Cunha Ribeiro: In the case of Usiminas, the return of the blast furnace will not change everything. It offset the top of blast furnace with something else. They bought slabs. They will stop buying slabs, buy less and produce them in-house. There will be no direct impact in terms of production. The market will remain the same. Now regarding energy, Caio. This is ongoing. We’re satisfied with the evolution and the result of CEEE with a performance better than we had imagined during the acquisition, operating a very strong turnaround, investment plans and the management of liabilities that we inherited, all of this is doing quite well. Now we have a use of only half of the energy. The other energy is marketed. In the short term, our decision, our strategic decision going forward is to maximize the value of that other 50% of energy that we can’t use in projects in-house to help our growth.

Nothing would be better than to use energy for our own self projection. But nothing has truly appeared. And the idea of a partner that was our original idea would also be substituted with an expert in marketing the energy. We have held very interesting conversations. We’re trying to see which would be the best design for this without any haste. And we will take a decision in the coming months until the end of the year, we should make a decision.

Operator: The next question will be in English from Carlos De Alba from Morgan Stanley.