It will bring us cost competitiveness. So we are reviewing all of this completely and are ready to disclose the plan. We can do it as soon as it is ready. But it will involve such measures in Ouro Branco. In the future, I mentioned it will become a very relevant platform to supply the domestic market. Volume coming from blast furnace to that is exported will become BQ and new merchant bars. And it will become a number of high added value products for the domestic market. So to have most based in Ouro Branco. Cosigua has rolling mill three, which is very important to us to reinvest in Cosigua to improve the mix of products in this rolling mill. So we have opportunities. Japur can tell us whether we’ll see gains coming out of that this year or beyond.
But we want to make Gerdau more competitive in Brazil than we are currently. We have room to work with that. And I’ll link to the second question now. Daniel, you didn’t see it, you will not remember. I don’t remember myself. But we would see margins in the United States in North America, higher than Brazilian margins. I’d say that we are doing well over there. We cannot imagine that we’re going to see a margin increase. But what we cannot accept that we have the Brazilian margins that we currently have. So we’re not working to increase margins in North America, but to bring the Brazilian margins to the same levels we see in North America. We have a combination of margins of the domestic market with exports. So we cannot stop blast furnace 2 right now.
That’s a process that I mentioned will take a while. So we continue in the spot market to pursue some opportunities to export. When we look at our team, we exported about 20% of the volume with very poor margins. So domestic margins, which are worse than the past, but they are not that bad, and they end up being pushed down, so that’s the kind of work that I’m talking about. With short and mid-term actions, we can bring back the Brazil business operation margins to higher levels. In the United States, we are doing five year work. You will remain by the BRL39 per tonne that I mentioned five years ago, the bulk of that has come, but there are some incremental things to do. The focus of our work today is we have big opportunities to be captured in the coming quarters in Brazil.
Japur, any additional information?
Rafael Japur : I think that there are two points here. I spoke a little about how our efforts to reduce costs and not immediate because we have investments to be made. And you will see that in our balance sheet in the next quarters, this connects to the previous question, the time it takes to appropriate the cost, so it will be transferred to cost of goods sold, getting out of working capital and going to our results. But we understand that there are important gains and impacts to be derived in the future regarding product mix. I think Gustavo highlighted that. But I think I should underscore that this quarter in the Brazil business operation, we had and a significant increase in domestic sales and the reduction in exports today, with the current level of production and exports from China, not only to Brazil but to the rest of the world at a pace of almost 100 million tonnes exported from China and we consider international prices.
Well, they’re very low. It’s very hard to have production capacity today in Brazil, dedicated and geared to exporting in having return levels and margins similar to the domestic market whenever we can operate as we managed this quarter with a great mix of sales in the domestic market and a certain relative reduction in export volumes, we can derive a gain in profitability, thinking not just in terms of expenses and costs, which are important for a capital-intensive industry and that works on efficiency and it’s 123 years of existence, but we should not overlook the commercial area and the mix between domestic market and foreign market.
Daniel Sasson: And Japur, if I may, is it reasonable to say that perhaps in Q4, you think that all of these impacts will be 100% reflected in the financials of the Brazil operation? I understand that the short-term actions we’re implementing, those adjustments.
Rafael Japur : I believe, yes, perhaps not fully but in the covering pace, our cost structure will be more reflecting that. Now other moves like Gustavo mentioned, the vacation of our mills, reviewing the footprint. That might require some small investments for adjustments of some rolling mills and gauges. And these adjustments will probably take more time than our quick wins.
Renata Oliva Battiferro : Next question into our Q&A [indiscernible] is an investor. The Ouro Branco unit is responsible for a significant amount of Gerdau’s production capacity. In relation to blast furnace 1, what about your schedule to refurbishing because this will impact production? Do you believe that you could extend the campaign?
Gustavo Werneck : That’s an interesting question because Ouro Branco’s blast furnace 1, it’s a very important equipment for us. And the last status we gave you is that we would have a downtime for the refurbishing of the blast furnace last year in 2025. But this downtime will be delayed at least until 2026. We are still evaluating to see whether we can extend that period for a bit longer. We are now being advised by some important advisory companies. That’s why we do not need to interrupt the operation of the blast furnace next year. And this may lead to postponement of that investments in that blast furnace one. And that CapEx may be used for other investments like the one in Mexico. Being certain that with this current level of CapEx, and I think we mentioned that many times, we do not intend to increase that CapEx level in the coming years because in our view, this is a very sustainable level because it is enough to support improvements and the growth of our assets, while at the same time, we will be able to invest an important amount of these resources to invest in the health of our plans.
So that’s it.
Renata Oliva Battiferro : We have another question from Igor sell-side analysts from [indiscernible]. The question is about what would be that variation of BRL251 million that appear in our cash flow? And what is the nature of that cash disbursement, we would just like to get more details about that mismatch concerning that new model? We would like to get more information about that BRL251 million. If I can add with another question received by Bradesco related to cash flow, the question is from Camilla, sell-side analyst at Bradesco. The question it’s about costs again. The Brazil cost was a positive surprise. I mean, a good surprise. Despite the increase in coal at the last — at the end of last year in terms of cash cost per ton, the low single was the only number that increase?
What could we expect in terms of costs in Brazil throughout the first half? And could you give me more details about that more robust cost cuts of about BRL1.3 billion in the period? About cash cost, you had a relevant working capital release in the quarter. What should we expect for the coming quarters and for the free cash flow? Could you give me more details about the change in methodology?
Gustavo Werneck : I will ask Renata, if you could show again that slide on cash flow, so that I can elaborate on the changes. While we wait for the slide on cash flow, I will talk about costs. So both Igor and Camilla, one important aspect about costs, I think we already give you details during Marcio’s question and Daniel’s question as well, I think one aspect to take into account is lead time and the carryover between the cost that we saw for coal and the fact that, that is transferred to our costs. We understand that there was a rebound in the cost of iron ore and other things at the end of last year. This will be impacting the final results of our Brazil DP, and it will impact our variable costs. But we will continue to work on our fixed costs.
This quarter, we already saw a reduction in the cost per ton and this will compensate for all of these increases on the side of the variable costs. Now in relation to Igor’s questions about changes in the cash flow, the main thing here is that when you look at the flow cash, it was limited to working capital, CapEx, income tax and interest from financial transactions. And once we reconciliated our cash position from the initial of the period to the end of the period, we noticed that there was an important gap coming from other lines that were not broken down in a very clear way in our managerial cash flow. I mean it was very clear in accounting terms, but many times, our analysts wanted more managerial information and we did as well. That’s why we decided to put these two points closer together, and that’s what we did.
So now we can clearly understand what was the cash generated by the business throughout the quarter, we can see capital allocation be it through M&A or dividend payout to — and return to shareholders and a variation of net debt up or down. And that we were able to reconciliate the cash position at the end and at the beginning. But then when we look at the other variations, we should also go back and look at our working capital account. I mean, in the simplified way, it means inventory, suppliers and clients. All of the other accounts that are part of the working capital or academic working capital that takes into account tax payable or ICMS that you calculate in one quarter, but you pay the next quarter and salary accounts or also long-term bonuses that you appropriate throughout the year, but you pay in a certain month of the year and other variations that are part of the assets — the current assets and liabilities now is being depicted as other variations.
So once again, in our modeling guide, we are merging the previous concept with the current concept. And we understand that there was difficulty in adopting a new methodology. But this is just an accommodation. So the members will look prettier. I mean, we had a free positive — a free — positive free cash flow, but we understand it. Even though the number is not positive, as you would have been if we had used the previous concept, we are now being more transparent in terms of our capacity to generate cash.
