I know there is a time dismatch, but it would be important to know the cost dynamics could, by the end of the day, be beneficial in a contest of lower prices with these challenges in Brazil. It can also have an impact for not only flat, but also long steel. Second question is about specialty steel. Could you give us an update about the impacts created by strikes in the automotive sector in the U.S.? One month and ten days already. So, I’d like to better understand what you see as impacts. And also take into account high, about light and heavy in the U.S., maybe the impact of the strikes. So, it would be nice to have an update about the impacts for Q4 when it comes to strike in the specialty steel operation. So, these are my two points.
Gustavo Werneck: Thank you, Lucas. Thank you for being with us. Japur is also going to help me answer the question.
Rafael Japur: Yes, maybe I can talk about Brazil BO and also coal and iron ore. So, breaking down your question, Lucas, let’s talk about Brazil first. It’s important to remember in our cost structure, typically in the Brazil operation, we have 25%to 28% of fixed costs and the rest is variable costs. In times like now, when we have a predatory invasion of important material, shifting our sales, domestic sales, apparent sales, sometimes we lose the operational leverage this quarter. When it comes to variable costs that we expect to see in Q4, coal, as you mentioned well, has a very specific lead time. Between the time we check the price on the screen of this coal and until it converts into results, it takes around 180 days. Oftentimes, it makes it very challenging for us to set the impacts, because we don’t work with FIFO, but with average costs.
So, price dynamics is hard to follow-up very sharply. But today, as we can see in the international market, we have a hike of coal prices, maybe reverting in the low that we saw between the first and second quarters. In the third and fourth quarter, owing to this excess production in China, we could have higher pressure on international coal prices. We imagine this might have an impact early next year on our variable costs.
Gustavo Werneck: Lucas, when it comes to our specialty steel operations, like I said before, our capacity was very fast to be adapted to new demand levels, particularly in Brazil. If we check on five year’s figures, a drop was expected, particularly in heavy vehicle production, pretty much driven by current market conditions and also advanced purchases related to the technology of Euro 6. Current levels of profitability are evidence of our fast adaptation. In North America, slightly different from here, the market was following at a very stable level of demand, both for light and heavy vehicles. We began to suffer, as of November this month, the impact of the strike that Lucas mentioned, the strike that has been going on right now for five or six weeks, particularly for the six big OEMs in the U.S., it didn’t impact our results on Q3, but the extension of the strike may begin to have impacts starting October and November.
We are making measures to be promptly adapting in our fixed costs there. But unlike here, as soon as the strike is over, this demand or orders that were not delivered over the weeks, maybe they can convert into higher deliveries down the road. So it’s only a matter of postponing results. But now, since you asked this question, let me highlight the investments that we’ve made in our North America BO in recent years. We concluded an investment cycle that is very key, particularly in Monroe, Michigan. This mill is absolutely state-of-the-art, up-to-date when it comes to specialty steel production, fully ready to meet the needs of hybrid and growing segment of electrical vehicles. So over the coming quarters, not only will we benefit from increased demand in North America and the sound and solid market, but also higher competition in our operation in North America.
Our plan is state-of-the-art, like I said, and the cost level is lower compared to what we saw in the last two years.
Lucas Laghi: It’s clear Werneck and Japur. Thank you.
Gustavo Werneck: Good afternoon to everyone. Thank you, Lucas. All the best.
Renata Oliva Battiferro: Next question, Gabriel Simoes, sell-side analyst with Goldman Sachs. Please, Gabriel. You can ask your question and open your camera.
Gabriel Simoes: Hello. Good afternoon. Thank you for taking my questions. I have two questions. First question is about your CapEx. You gave us more details in Investor Day and Japur also made brief comments for CapEx for the coming years? So considering the CapEx below what we expected this quarter, considering this scenario where we have normal EBITDA slightly lower than we saw in previous years, I would like to understand if it still makes sense in our mindset, this CapEx close to R$6 billion per year or if there is any chance of a slightly lower CapEx down the road? We’d like to understand how much of the CapEx you mentioned is already in and how much room for the future? Second question is about working capital. There was a good reduction this quarter, but still lower compared to what we expected.
So could you give us more color about this? Japur already mentioned you expect to see a drop in Q4. I know it’s complicated, but we’d like to have an order of magnitude expectations for the future. Does it make sense to have the same level of working capital as historical levels around 80 days? Just to understand what you work in-house and also the drivers to bring working capital back to this lower level. Thank you.
Gustavo Werneck: Thank you, Gabriel. Just allow me to talk about normal results that you said and then Japur is going to answer your questions. We’ve been discussing over the last quarters, maybe normal results is an expression that no longer fits in geopolitical and economic status today. Volatility has been even higher today. As a reminder, despite these reduced results that we saw along 2022, the company is at a different level, a different status to keep on generating very solid results, when we compare to years 2019 and before. So all our efforts in every front, strategy, culture, digital transformation, Gerdau over 2023 and going forward, the level of result generation is way above what we had last year. So the earnings in 2021 and 2022 were outliers.
We reached levels over R$20 billion as generation of results. But when we consider the results expected for year 2023 and the future, the level of financial results is way above what we had in the past. So we cannot compare this moment of 2023 with what we had prior to 2019. I just wanted to give you some context. Not mentioning normalization, but we should bear in mind that, this is a very different moment. Better, the company is more solid and well prepared to tackle these challenges compared to the past. Having said that, I turn it over to Japur, so he can talk about CapEx and also issues related to working capital for the coming quarters.
Rafael Japur: Hi, Gabriel. Let me begin with CapEx. We disbursed year-to-date 72% of the guidance that we gave in February, disbursement around R$5 billion, this quarter, R$1.5 billion. We believe we are in a good pace to deliver and perform what we expected early in the year, taking into account the projects that we have. When it comes to the pace of long-term disbursement, Gustavo highlighted this before, our intention is not to stop and interrupt the projects that we approve and discuss. Our scrutiny at Gerdau in order to approve projects for competition purposes, bringing higher sales, cost reduction and profitability, these projects are very strict. They go through a number of committees, multidisciplinary committees, involving supplies, engineering, commercial teams, financial teams.
So they are exhaustively discussed before being approved and once they are approved, we consider them to be robust. Sometimes the economic cycle in our business and cash generation may be slightly below what we expected. We believe we should not just invest because it’s convenient for us. It takes capital allocation to unleash value and bring us continuous and perennial business into the future. This is why we understand that even if results are lower, we have no intention to cancel any projects. There is always room to postpone one initiative or another, but when you think about mature investments that are really driving forces in our capacity to generate value and profitability, we don’t expect to postpone or cancel any projects. Moving now to working capital, Gabriel, this quarter more specifically, please note there was an increase in our cash conversion cycles in terms of sales days.
