Renata Oliva Battiferro : Camilla from Bradesco also asked about intense rainfall in the state of Rio Grande do Sul. If you could comment whether there is any impact on the operation by the heavy rainfall?
Rafael Japur : And I want to show our solidarity with all our employees and the whole population of the state of Rio Grande do Sul such a huge tragedy happening there, have been daily been in contact with local authorities and Gerdau is available to them not only in the short-term, but in what’s coming in the future in revolving and mitigating the problems that will happen from now on. Just like we did in 2023, when at least twice, there were big impacts caused by rainfall. But specifically, regarding our operations, we decided yesterday to stop our production in [Shakya], this plant of special steels. There will be no impact on cost in supplying the market because that plant is not totally taken. Although in recent months, there has been an increase in orders for special steels for heavy industry.
We still have a lot of capacity to supply additional demand. So we decided to stop the [Shakya] mill from today until Sunday because of the local impact caused by the rains on the homes of our employees. So that’s the short-term impact, although it is not material. More important to us at this point is to show the safety, the health of our people and to reduce the impact on the lives of our employees. We want these impacts to be mitigated or resolved as much as possible. And we just heard Gustavo that we stopped our Rio Grande do Sul unit located in Sapucaia do Sul. It should stop for the coming days, so we can focus on what matters at this point, the safety of all our employees and the people and the communities where we operate.
Renata Oliva Battiferro : Next question from Ricardo Monegaglia, a sell-side analyst of Safra Bank. He asks to ask the questions live.
Ricardo Monegaglia : I have a problem with my camera, but I think you can hear me. I have two quick questions. If we can compare the project for special sales in Mexico I don’t know if it will be approved. But if we could compare it with other projects that have now been started in the strategic CapEx plan in terms of priority, attractiveness, perhaps we could have the strategic plan from 2021 to ’26 being extended. How do you see this if the Mexican project is approved? And the second question is about special steels. We saw a strong recovery in special steels, particularly in the margin quarter-on-quarter. This was driven, I guess, with the stronger demand in the U.S. So the margin difference that we see in the special steel operations of the U.S. and Brazil operations.
Do we have the same order of magnitude that we see between Brazil and North America operations. And how are you thinking about volumes? If you could break it down by region, perhaps demand evolving in the second half of the year in the two regions? That comparison would be interesting.
Gustavo Werneck : All right, Ricardo. We’re going to give you kind of a general answer and Japur will complement with more operational numbers, so to speak. And I’ll speak about CapEx and investments in general. Well, both markets have shown a recovery in recent months. In U.S., there was an important progress in completing the union negotiation in our Monroe unit. We debated this in the last call, the strike that happened in the end of last year in the United States of the big car makers and the impact of that on the results of the automakers and on the automotive market in the U.S., we also went through a union negotiation. It was completed with minimum impact. We had no stop of paralysis in our Monroe operation. It is our biggest unit for special steels.
So the U.S. market remains resilient. We believe that there might be some growth, although marginal in the demand for special steels in North America, until the end of the year. I think that the biggest upside comes from the Brazil operation. Not in lights deals that remains to have difficulties, interest rates, access to loans, but also given the penetration of imported vehicles, which happened before the increase in Texas, we are still having some vehicles arriving and this has impacted production of vehicles locally. But in the heavy duty vehicle segment, buses and trucks we saw recent months of significant increase in orders from our clients in the heavy vehicle segment. And this is the result, I believe of the transition from EUR5 to EUR6, which was completed.
And also the expectation of growing crop seasons in the coming years. So the heavy vehicle market has recovered, and we believe it will recover even further by year-end based on Anfavea numbers and our own market outlook. Our Brazil operation, 60% of the demand comes from heavy vehicles, 40% from light vehicles. So overall, the results we saw regarding special steels in this quarter, well, there is a high likelihood that if it does increase slightly in the coming quarters, there will be at least the maintenance of these results. That’s what we have for special steels, and I’ll turn the floor to Japur to give us some numbers and to speak about the general CapEx plan of Gerdau.
Rafael Japur : I think I’ll focus on the last point that Gustavo mentioned and I’ll go to Mexico in the end. I guess, the regarding the margin, the main difference regarding our business model in the United States and in Brazil for special steels is linked to the way in which we price our contracts with our clients. In Brazil, we have negotiations with a closed price for our customers, given the specs of the steel we sell. While in the United States as the routine and the culture in the U.S. market, a significant part of our contracts with our customers are adjusted by the spread between prime scrap and the obsolete scrap in the U.S. market. So in moments when flat steel sectors have a high demand for prime scrap and the spread increases, then we have a marking of this premium of the surcharge in a realized revenues and that significantly increases our EBITDA margin.
Well, the opposite happens as this happened in Q4. When we had a compression of the spread between prime scrap and obsolete scrap and that led to “mark-to-market” of our top line and impacting revenue. So I guess that the margins are not so different. They are resilient, they are important. But in the United States, overall, we have greater volatility of EBITDA margin compared to our special steels operation in Brazil. As regards to CapEx in Mexico that we are evaluating for special steels. When we think about our strategic CapEx curve from 2021 to 2026, and that’s something we’ve been talking over and over with you since our last Investor Day and stakeholder Day in Minas Gerais last year. And we think about the that Gustavo detailed for this project in Mexico.
That’s when we are going to conduct the studies so that we can make a decision by year-end to have a green light or not from our Board of Directors. So we have 2025 as a year to hire the main suppliers to have the basic contracting to do the basic engineering for the investment so that we can start having more substantial CapEx disbursements starting in 2026. So we understand that these investments don’t concur with the projects we already have in our portfolio in the 2021, ’26 horizon. And this specific projects that we started looking into in more detail, more thoroughly and for which we expect to make a decision to move forward with by year-end. I’d like to remind you, our decision-making criteria considering our investment commitment that supports the decisions of our Board of Directors are very straight, very cautious to take into account a number of factors, and we’ve been very disciplined in terms of approving large investments.
And that’s why we’ve been prioritizing debottling — debottlenecking the problems and to prioritize what we already have.
Renata Oliva Battiferro : Our next question from Lucas Laghi, sell-side analyst with XP. He would like to use his camera. Please enable the use of his camera.
Lucas Laghi : I have two very quick follow-ups. I think my first follow-up, I mean once you look at the production performance or the difference between production and shipments in the quarter, I think there is a seasonal issue if you compare the fourth quarter with the third quarter. But even looking year-on-year, we saw a more significant drop in shipments or stronger production when compared to shipments. I would just like to understand whether this was just a one-off demand issue that generated a surplus of inventory or whether it has to do with the company’s planning given in backlog, just thinking about supplying to the future demand and excess production in this quarter or even explaining burning down our working capital because of the inventories once you compare this quarter to the previous quarter.
My second point refers to the mix — the Brazil mix in terms of exports. In your release, you mentioned that you were optimistic with the civil construction industry in Brazil. Well, there are quotas that were published. But could we think about the improvement of this mix getting closer to 15% of experts alone versus the 20% in the first quarter? Or given your visibility today, maybe it would make more sense for us to work with that 20% of exports without considering any other significant improvement for Brazil. I mean, thinking about this profitability gain due to the mix. These were my points.
Gustavo Werneck : Japur will start — will start answering your question.
Rafael Japur : Let me start with these two topics. There is a mismatch between steel production and shipments due to the volume of sales that we sell to our joint ventures. This quarter, we didn’t have any more. So there is a mismatch between steel production, which is a KPI that we talk about instead of rolling mill products. And on the other hand, we have shipments or sales or products that also considered rolling new products. And this will no longer occur since we shut down the Colombia and Dominican Republican operations because these two operations consumed a significant amount of steel that we would produce and sell to the subsidiaries. Now in the first quarter of this year, in fact, there was a price reduction in structure profiles and midsized profiles in North America in the second half of March.
