Good morning, ladies and gentlemen, and thank you for holding. At this time, we would like to welcome everyone to CSN's conference call to present results for the second quarter '22. Today, we have with us the Company's executive officers.

We would like to inform you that this event is being recorded, and all participants will be in listen-only mode during the Company presentation. Ensuing this, there will be a question-and-answer section at which time further instructions will be provided.

We have a simultaneous webcast that may be accessed through CSN's Investor Relations website ri.csn.com.br/english, where the presentation is also available. The replay of this event will be available soon after the closing for a period of one week. Please feel free to flip through the slides at your own convenience.

As a reminder, some of the forward-looking statements made herein are mere expectations or trends and are based on current assumptions and opinions of the company management and they may differ materially from the results, performance and events as they do not constitute forecast.

In fact, actual results, performance and events may differ materially from those expressed or implied by forward-looking statements as a result of several factors, such as general and economic conditions in Brazil and other countries, interest rate and exchange rate levels, future rescheduling or prepayment of debt denominated in foreign currencies, protectionist measures in the U.S.

Brazil and other countries, changes in laws and regulations and general competitive factors globally, regionally or nationally. I would now turn the conference over to Mr. Marcelo Cunha Ribeiro, CFO and Investor Relations Executive Officer. He will present the operating and financial highlights for the period. Mr. Cunha Ribeiro, you may proceed, sir..

Good day to all of you, and thank you for participating in our conference call. Here, we have the executive directors of the Company as well as our Chairman, Benjamin Steinbruch, who will participate in the Q&A. We begin with the presentation on page 2. And this was a period marked by enormous uncertainty and volatility in the steel and mining market.

The diversification of our businesses allowed us to have strong results, although mining was impacted by the drop of prices in the quarter, a spotlight on the cement segment, which presented record results with a recovery of prices.

As a qualitative highlight of what we do, we announced investments in energy, a solar plant and Quebra-Queixo as well as with the company CEEE-G, which will allow us to become self-sufficient and become very competitive in terms of our businesses. We go on to page number 3 and the evolution of the EBITDA.

It's very clear that the Company has been through ups and downs within a scenario of very volatile prices, especially in mining. 2021 was marked with very high iron ore prices that continued during the second quarter, bringing our EBITDA closer to the present day levels.

In the first quarter, a rising iron ore price, we had a reversion of the provision for provisional prices, which helped us in the results. But in the second quarter, we were impacted with a drop in price in iron ore, a reversal of provisional prices, and we had a negative result for the period.

EBITDA reached BRL 3 billion, with a variation of 1.5 negative in mining, offset by a stable quarter in steel with good volumes and an increase in prices and margins, very close to a record. And speaking about cement, a growth of 64% in operational results in a favorable context for the evolution of margins and volume.

We thus reached 31% EBITDA margin. We go on to the operating and financial indicators. A growth in our CapEx, BRL 838 million, with a stronger growth in mining as was expected because of the growth projects, P-15 and C+3. And in steel, more relevant projects and centering and the reform of some ports.

Now, these are levels that are in accordance with our initial expectation of a CapEx of BRL 4 billion in 2022.

But at present, we're carefully revising our projects, prioritizing them and reprogramming our investment levels, which will enable us to have savings in terms of investments throughout 2022, and we expect to have figures that are lower than the BRL 4 billion.

This is the expectation for the second half of the year of lower investments than the level we had in the second quarter. Regarding net working capital, quite stable during this quarter vis-à-vis the first quarter, but still at very high inventory levels. We do have good news coming forward.

We see a normalization in terms of inventory of finished products. Our project -- we have prioritized price instead of volume. And for two or three quarters, we had products with high inventories. We have now made an adjustment with this.

And in terms of raw material, we went through the first and second quarters with the price of coal and coke that were record prices and are now more normalized with a better production. For the second half of the year, we will have a reduction of millions in our inventory, which will be important for cash generation.

In the next slide, we speak about our cash flow quarter-on-quarter, once again with ups and downs every quarter, a strong cash generation in the second quarter of last year, giving way to a correction at the end of the year because of the accumulation of working capital.

And in the first quarter of the year, besides a high working capital, seasonality of payments, income tax, because we had a very strong year in '21 with cash disbursements, we now go to more normal quarters, BRL 830 million in adjusted free cash flow, with an outlook for a clear increase.

The results of EBITDA will be constant or under growth and a reduction of working capital, which should help our levels of cash flow quarter-on-quarter. What is very important? If we look at the next page is the maintenance of our leverage levels. In this quarter, net debt had a growth, although we generated operating cash flow.

This is explained partially by the exchange variation. We went from 4.7 to 5.2 for the dollar and impact of 1.6% on net debt and a payout of dividends with our own equity. Because of this, our debt amounts to BRL 21 million. In terms of net debt equity, we went up to 1.2, which is our goal. We're at 1.3. Now, once again, this is a onetime effect.

Now, we had an extraordinary semester of BRL 8 billion in EBITDA replaced with a more normal quarter, the EBITDA dropping. And once again, this is a onetime calculation standing at 1.3 times. Because of the recent events, the imminent conclusion of the acquisition of Holcim and others, we will go through a period with higher leverage.

We're still working with our projections because of the events that so far have not been concluded. But potentially, we'll have an adjustment in our leverage position for the end of the year, perhaps standing at 1.4 or 1.5 times. In the case of Holcim, we have not consolidated the EBITDA for the operations and receivables from Holcim.

This once again is a onetime effect and does not change our long-term outlook of having a leverage standing at one time. We continue on with terms of liquidity on page number 7. Our cash that reflex our consistent policy of maintaining BRL 15 billion in liquidity or perhaps somewhat less with sufficient activity in terms of our liability management.

We issued $375 million with the SACE, the Italian agency, at very competitive prices. And recently, we obtained a funding for mining, and this is the path that we will follow. We're going to maintain our debt length in close to BRL 4 million, but we're working with highly differentiated funding.

We're not resorting to the conventional debt with a very low leverage and length and debt. We will maintain our positions in rating and credit. We now will go through the details of each business. In steel, a certain stability with the domestic volumes, which seems to be very positive. We have chosen price over volume.

And as part of the uncertainty, because of the direction the markets are following, some sectors are being rather cautious when it comes to the price environment. So, we had an excellent performance in the industry construction that is still very resilient.

But a more cautious distribution, and we maintained our levels very close to those of the first quarter. Regarding the domestic market, we had excellent margins, record prices, but a delay in terms of our shipments because of the logistic disruption due to the situation in East of Europe.

And we had dozens and thousands of tons that were not being shipped because of the lack of railroad transportation or trucks that are scarce in Germany. Nevertheless, we had excellent margins from this operation, and the prices increased during this period, accompanying the international prices. We carried out readjustments to offset the other costs.

The cost increased 5%. We were able to maintain EBITDA margins close to 25% and EBITDA standing at BRL 2 billion, very similar to what we had in the first quarter. When we speak about costs, we had stability in the production of slab. We had an inventory of finished products that was high. We decided to offer prices.

Therefore, we worked with planned maintenance. We maintained our production at values below those vis-à-vis last year. Despite this, we were able to avoid an even higher increase of prices. We had a growth of 4.5% below the true growth of prices, once again, because of the pressure caused by coal and coke, a record pressure.

We now see a gradual drop in this raw material, which will help us with cost in the second half of the year. The unit cost per margin had an increase of costs, and that is why the EBITDA per ton increased this quarter, very close to the record levels of BRL 2,000 and $4,000. Very interesting prices still. We go on to mining on page number 12.

We had second quarter of recovery when it comes to sales and production. Sales with a growth of 9.3%, production had a growth of 29%. And when compared to comparable periods in 2021 below our potential, we had impacts at the operational level caused by the direct and indirect impact of rainfall that began very early this year.

We still had a disruption at the port in April with iron ore because of humidity, low productivity. And in mining, we had to hold up the dams. We had bottlenecks when it came to repairing the damage caused by the rainfall. So, these were moments where we did not have maximum production. We have surpassed the stage.

We have other projects coming into operation. And, of course, they're at a phase of commissioning, stopovers. Now, the positive part is that we do have a second half of the year where we will be more aligned between the mine, shipment and port to be able to maximize our sales and production volumes.

When it comes to price realization, we had the double impact of the drop in iron ore.

Not only the price of the quarter suffered with indices that went from 140 to 120, and the open shipments because of a reversion and the sea freight that was at $23 and went to $29, an impact on price, and this was the main impact in our realization of EBITDA close to BRL 900 million and a margin of 5%.

Below, we show you the comparison of results per quarter. The positive effect of this reversion of provisions in the first quarter with rising Platts index, this helped us with BRL 650 million in the first quarter, and we now had a negative impact of BRL 360 million.

To compare apples with apples, the volume helped us, but the mix that additional percentage of opportunity, iron ore, the drop in iron ore, well, these were indicators that led to this specific drop in the quarter. We go on to cement, a highlight for the quarter.

We see not only a growth in volume, because of better seasonality, the first quarter is always impacted with a lower number of working days. In the second quarter, an acceleration in the Southeast. The Northeast still impacted with rainfall, stronger figures and the possibility of recovering prices because of the cost that had a significant increase.

The impact of thermal and electrical energy costs, oil, diesel as well in freight, these compressed the margins that we saw at the end of last year and the first quarter, and we have now recovered excellent margin levels standing at 34%. We're speeding up our engines for the integration with Holcim.

We hope to have a decision from the antitrust agency this week. We're quite enthusiastic with the integration and the synergy that will arise from this. We'll now speak about energy for those who did not participate in our material fact last year. Now the rationale of these last acquisitions, this was a very rapid movement.

We had three different acquisitions to seek self efficiency, solar plants, Quebra-Queixo and the privatization of CEEE, all bringing about the self efficiency with excellent returns above 20%, low risk.

We can use this energy in-house, and bringing us competitiveness with a direct management and reduction of costs in mining where we put the Quebra-Queixo plant in cement, the SPH and in steel, particularly where most of the energy of CEEE will be directed to. This will lead to a rapid reduction in cost. It will reduce our time to market as well.

And this will be important for our investments. Having sustainable energy is an essential step in our decarbonizing policy. Now 100% of the group will have renewable energy. Finally, when we look at each of the businesses, this is a capital allocation decision that brings us diversification and reduces our dependency on others.

And finally, I would like to give the floor to Helena Guerra, our Sustainability Director, to update you on our strides in ESG..

A good day to all of you. We're going to speak about ESG, and I would like to highlight the publication of our 2021 integrated report. And we will include indicators, KPIs that are relevant and of importance to the Company, and you will be able to follow up on these quarter-on-quarter. This enables us to be very transparent with our audience.

We have reports that were published in the second quarter for mining, cement and steel. And as we had mentioned, we're presenting all of this according to the TCFD reporting format. We have had a continuous evolution in our ESG ratings. And once we analyze the new cycle, we will have further enhancements.

We have also launched the Company's new ESG website, where you can find more updated information. In this last quarter, we signed with Shell and Itochu a memorandum of understanding to work jointly on decarbonization and operational efficiency initiatives for coal projects, fleet projects that are presently already being tested in the company.

Now, when we speak about decarbonizing, we have had some highlights in the cement operation with the co-processing operation kickoff at Cimentos Arcos with a quarterly reduction of 8% in CO2 emissions. And Arcos will have electric trucks, and these are the first trucks in Brazil. And they are being tested at CSN Mining.

We have also made great strides in terms of our dam management. The Auxiliary Vigia dam was definitely unregistered as a dam, and we're following the schedule for the decharacterization of dams, with the completion scheduled for the next quarter. In safety, we had the best performance in the historical record of the Company.

And we feel that this is our best year. When we compare this quarter with the same period last year, we had a reduction 27% in the accident frequency rate and 26% in the number of total accidents.

Once again, the very best figures we have ever had in terms of our safety background, and we continue to make strides in terms of making the company more social and diverse. We had an increase of 70% in the participation of women in the Company. We have a higher representation when compared to the same period last year.

Well, with this, we can now go on to our question-and-answer session..

Our first question comes from Isabella Vasconcelos from Bradesco BBI..

I have two. The first referring to your price dynamic. How you look upon this and if there are pressures to offer greater discounts? The second question refers to capital allocation. Recently, you have carried out three acquisitions in energy. I would better like to understand the mindset of the Company at present.

The amounts that you had mentioned of BRL 3.29 billion, if those are now out? And what has changed in your scenario? Is it more challenging? And if you're going to make investments outside of Brazil? Thank you very much..

Good morning, Isabella. This is Marco speaking to you. An important point that I read in your report to Dave and the Goldman report as well is that in your report, you speak about a rebound in the second half of the year led by China. And in the report of Goldman, they say that we were better than China in August.

What do we believe will happen in the international scenery and what will happen in Brazil as well? We have a positive overbooking in several sectors, air conditioning, automotive. What is interesting is that our steel, coal, cement and iron ore inventories are low.

This market dynamic and the possible rebound in China in the second half of the year will leverage the situation worldwide. I would like to remind you that if you think of premiums, we have a BK in China that reached a level that is impossible to continue with. We're referring to $596 per ton FOB. And 3, 4 months ago, it reached $845 in the USA.

The lever of BQ is 280, 920, in Europe, 780, and they have both reached $1,600. So, when it comes to premiums in BQ, the premium still is very relevant, representing 20% to 24%. Perhaps what is more uncomfortable is the premium of 34% in rolled products, laminates.

What will be the dynamic in the third quarter? We should have a more stable price situation. We're going to fight more in the markets of interest where we have zinc products and domestic products vis-à-vis imported products, and we have 8% to 10% sales more in the third quarter than in the first quarter. Therefore, the scenario is positive.

We're observing what is happening in economy, the reality. The signs are very interesting. There is more money inflowing into the market. And we think that part of this money will go for consumption, a part will go to construction, and this should increase our dynamic in the second half of the year in terms of price and demand.

Another important point, we have a cost position that is more aggressive. We want to get 3,700 per ton in slab, which is positive. The real dollar position is not that important, and imports continue at a somewhat lower pace. Last year, the imports were 2,700,000 tons.

This year, this has been cut in half, a penetration of 10% or 11%, which is very healthy for the domestic market as well. On our side and as part of our strategy, we're going to work at full steam. We're acquiring slab to work at a fuller production. We have an acquisition of 200,000, 250,000 tons of slab.

In the domestic market, as Benjamin says, focused on quality. We have a few sales based on contract, 85% are based on spot from the viewpoint of other businesses. Although the margin in Germany is very poor, we expect to have a recovery of volume, once the freights are normalized. And Portugal and U.S., we are also active there as local players.

This is a very general view of what we have backed up by a resumption of the world economy led by China..

Well, thank you. Thank you very much. That is very clear..

The second question, I will begin answering it, but Benjamin is here with us. Without a doubt, he will also complement it.

From the financial viewpoint, we do have to be more cautious there's greater volatility in the price of commodities, the scenario of China, inflation, the potential of recession, all of this, given our strategy of maintaining our leverage low, makes us become more cautious when it comes to new investments.

We do want to grow during the period doubtlessly, but we still haven't announced projects because we're not fully convinced about each of them. We're carefully serving each product and we will only put them in place when we're truly convinced that they will maintain our conservative capital structure as it was planned..

Our next question comes from Daniel Sasson from Itau BBA..

My first question still refers to capital allocation. Marcelo remarked on the leverage ending the year at 1.4% vis-à-vis EBITDA already considering the disbursements with Holcim Lafarge.

My question refers to how this impacts your short-term capital allocation plans if you have slowed down the pace in the last two months in June and July? Are you awaiting to see if there is more visibility in the second half of the year to resume your program, or will you be more aggressive in your capital allocation program? Perhaps you think your assets have been under-evaluated, and there's still a good source of cash for you.

My second question refers to steel volumes in Brazil. A question for Martinez. In the first half of the year, your total volumes had a drop of 14% vis-à-vis the first semester and the guidance is an increase of 11%. What do you expect for the third quarter? Martinez had a more positive viewpoint.

But, is there room for a review of that growth guidance in terms of steel if it will have a drop? These are my questions. And thank you very much..

Well, let's begin with capital allocation. It's a follow-up of the answer I gave Isabella. The buyback of shares as part of this context. We continue to think that the shares are unpacked from the fundamentals of the Company, and we do prioritize a sound capital structure because of the uncertainties we're proceeding at a different pace.

But we will maintain our dividend policy. As always, we have high profitability. This will mean high dividends for CSM and mining, and the acquisitions will take place when we have a better visibility of capital allocation. And this, of course, includes M&A opportunities or greenfield acquisitions in the USA. One priority may replace another.

This is how we have made decision in terms of the buyback. In mining, we're very careful with liquidity. And we have to think carefully. In terms of this, we're quite concentrated on having low leverage and maintaining our dividend policy, the same policy we have had in the last few years.

I would like to complement the answer, both for Isabella and yourself regarding capital allocation. It mirrors what we're thinking in terms of the business.

We had a second quarter that was a completely different, disorganized in terms of the change of prices, the change of logistics and with symptoms that are completely different in terms of raw material and the end product. We were working at full prices for raw materials, and we now observe a significant retraction in terms of prices in Asia.

This still has not had a reflection in the USA and Europe, the drop of prices, aggressive drop of prices. We have a logistics lack of organization, delays in deliveries, enormous lack of consistency within the variables that we normally work with.

So, I can say that it was a second quarter of waiting for everything to accommodate trying to organize our inventories, not only of raw material, but products under production and finished products, organizing the infrastructure, the logistics. That is to say to put the house in order. We did have an enormous effect in terms of prices.

In mining with the dropping prices, we had a double impact in the site price and the future prices that we had already sold out. So, we have a strong impact when we have fluctuations downward as well as when the fluctuations include prices. That was a onetime event for mining.

In steel and cement, we have had the impact of the increase in prices, the increase in raw material, fuel, transportation and much more. We had a full production. We decided to slow down production to do it with an excellent cost. That is to say to produce what would be more favorable in terms of cost, and we're getting organized to sell more.

You can observe that in steel, as well as in cement, we have had very good figures, despite having an inventory and still having raw material with a full price. I believe that at present, we will have a third quarter that will be better. We are ready for that. The mining part is in order. When it comes to prices, we have already absorbed the impact.

We now have a situation of stability, albeit with a lower price. If the price increases, we should have better results. And in terms of cement and steel, we have adequate production. We're seeking a cost reduction. We haven't had a drop, at least not as we had expected in prices, and we're now going to work arduously to show who we are.

So where all the conditions have been set forth to have an excellent third quarter. We have inventories. We have the right products. We have a big share in the domestic market. We're working well in the foreign market. And differently from iron ore that depends on international prices, we have, as a target, the domestic market.

Of course, there may be an impact caused by the foreign markets, but we do believe we will have a good third quarter because of all of these conditions. We have BRL 3 billion, BRL 4 billion in inventory. And of course, they need to be sold out, and we're going to work very hard in mining as well as in steel.

In cement, we do not have significant inventories. We have very little. And we believe that the third quarter will be very good in sales. We're including Lafarge Holcim. And we believe that this week, there will be a decision we will take on the company at the end of the month.

So, cement has given us a surprisingly good and positive contribution to the business at a very important moment, which is when we absorb Lafarge Holcim. And in steel, we're being quite aggressive. It used to be a market of intelligence, management decisions, now it is something more manual and something of strength. We're going to see who is who here.

We believe in our power in terms of distributing products. We're conversing with clients. We're really going to the market, but not reducing our prices. We're going to propose something different, differentiated.

With that outlook of a market improvement that we believe will happen through all of these measures that are being adopted in our economy, we do believe we will have a better market at the end of the year. There should be a significant improvement in terms of cash, helping us in the deleveraging.

And there is the possibility of structuring the energy and cement businesses to -- well, for the participation of third parties, in cement, we had the idea of an IPO. With an IPO, of course, we would have capital coming in, and this would deleverage. We add what we're doing with inventory.

And in energy, eventually, we could have a strategic investor, something similar as we're going to transform energy into a significant business for the group. Regarding capital, these are our answers. And having capital, we make decisions on how to allocate capital. We're prioritizing the external part.

We're certain that to make our company larger, better and more permanent, we need to have assets abroad. When we analyze the good Brazilian companies, there are those that have assets abroad and those that do not. Why? Because the margins in Brazil are better than abroad.

Nevertheless, the multiples, because of the uncertainties and the lack of forecast in Brazil, these are lower. So, it's almost mandatory to have assets abroad. Of course, we expect to do this, and we're going to wait before we do this, but we will do it.

We are going to have assets abroad with a very conservative vision with our shareholders and bondholders, keeping up with the Company culture. Now, the buyback of shares. You're right, this is not something we did in the last quarter. We believe that the financial market is somewhat fearful. The prices are returning to reality. The shares are attractive.

We didn't do this only because of discipline in capital allocation, but instead because of the lack of organization in the second quarter. Beginning with the third quarter, we will have some buyback. We know the business very well, and it does not make sense to not do this because of these onetime effects.

We do believe that the second quarter was a kind of retrocession. The market has not fully normalized. It will become more normal from the viewpoint of raw material, logistics and the financial part, and that will be another option for capital allocation. I would like to underscore nevertheless. And our priority is to keep leverage in mind.

We can reaffirm this. We want to work with low leverage. It's easier, safer, more easy to forecast to work this way, and we fully respect low leverages. Everything that we do will have, as a basic assumption and priority, respect towards a low leverage. Of course, every once in a while, we do have some slips here and there.

Neither Lafarge Holcim or CEEE were part of our plans. Quite the contrary, I thought that we would lose CEEE. Why? If it was good for us, it would have been much better for our competitors. But we did win the bid, and we were extremely satisfied with that. And from the viewpoint of Lafarge Holcim, our priority was to look abroad.

It appeared there was no Brazilian group that wanted to acquire it. So, we thought it was the right time to acquire it. We decided not to let it fall into the hands of foreign capital, and this will enable us to organize the cement market. This is where we are heading to, and this will be positive for everybody.

I base myself on your question to explain my stance regarding all of these points. And of course, I base myself on capital allocation, which is the result of our strategy. The buyback, capital allocation, this is what we wanted to say about these two themes.

Daniel, to complement the answer given by Benjamin, regarding the guidance, we went through a moment in steel between 2010, 2013 of a large amount of tons. We went through a terrible period between 2015 and 2019 with a steel at 10.4 to 12. In 2020, we began the ramp up. In 2021, we got to 15.8.

And in 2022, the market is given, it will not be lower than 15.4. This is something that we should celebrate. Although we suffered these variations in the market and transportation and cost, the market remains at 15.4, and the import penetration is lower at 4 million tons.

If we look at the markets, what is happening? Benjamin just mentioned the cement and long steel. That's what we're focused on. Civil construction has an excellent carryover of work that is happening. Infrastructure gives the signs of being more avid for new work.

The segment linked to agribusiness, highway machinery, implements, they're doing very well with growth of 12% to 18% in the case of buses. And in packaging, we're doing well. What is perhaps somewhat negative is the lack of components for the automotive sector and a slowdown in the household items.

Now, there's a channel that is suffering because of these drops in economy and the erratic signals that we see day after day. Our guidance will remain the same. We're referring to 5 million tons for the domestic market, 3 million to Germany, 850 and Brazil, 250,000.

I think this guidance scenario is consolidated as we already have sales that are 10% greater in the third quarter vis-à-vis the second quarter. We're working on our strategy. In the second quarter, we preferred prices over volume.

In the third quarter, we're going to recover the international market, a drop in imports and we'll be more aggressive in the markets where we are in, especially in the galvanized market..

Our next question comes from Carlos De Alba from Morgan Stanley..

Maybe this is repetitive, but just to make sure that I understood all the explanation. If we can summarize it. So, for the third quarter, you guys expect higher revenues on the back of higher volumes as you will destock iron ore and steel. Prices for iron ore probably will be lower in the third quarter.

What about prices for steel? You had a very good realized price in steel in the second quarter, but we have seen at least for HRC, the benchmark has been coming down in recent weeks/months.

So, what do you see in terms of prices for the third quarter in steel? And given that you'll be selling more volumes with higher costs that you incurred in the past quarters, does this mean that EBITDA will probably increase on a quarter-over-quarter basis because of the higher volumes, but your EBITDA margin will probably drop? I just want to make sure that I understand, in a sustained way, the message.

Thank you..

Carlos, I'm going to repeat what I said about prices. In the second quarter, we preferred prices over volume. In the third quarter, we have a somewhat higher inventory. We have to destock,, and part of this destocking has to be in the domestic market. We're counting upon a market improvement. The scenario is quite positive.

And in the third quarter, we will have more stable prices with a significant drop of imports in the third quarter. In the case of CSN, we cannot forget that we have 120,000 tons of imported material coming into the country. 75% is part of the material that we manufacture. With a premium of 30%, you can act. You have to operate based on those volumes.

In the third quarter, we have a higher sales volume already sold out in several sectors. We don't put all of our eggs in the same basket, an increase of 8% to 10%. And in the fourth quarter, we're counting on a recovery of prices at international level. All the Chinese steel plants, without exception, are working with a negative EBITDA.

Europe and the United States are also having a profitability that is not very desirable in this sector. I think there will be a recovery. And in the fourth quarter perhaps we can see a recovery beyond volumes, a recovery for prices, but we will recover our volumes and maintain the prices very stable..

All right, excellent. Thank you. And just on the slab cost. If I understood correctly or heard correctly, you are targeting BRL 3,700 per ton. That is a significant drop from the 400 -- sorry, BRL 4,386 that you did in the second quarter.

Is this mostly a reduction in iron ore and coking coal, or can you break down how do you expect to get to the 3,700, and by when do you think you're going to get there?.

Yes. Carlos, those are the figures for the end of the third quarter, perhaps September, beginning of the fourth quarter. And of course, we're counting with the curve of the ships that have been acquired with different raw material coal, coke and iron ore. And they're also including a higher production.

In my presentation, we produced 900,000 tons of slab this quarter. We should produce more in the third quarter, and we're going to maintain our fixed costs stable. This is the cost of slab loaded into our rolling mill. And these were acquired at specific moments during the last weeks at good moments and this will lower the average.

Now, dilution of fixed cost and an increase in slabs will enable us to reach that level of 3,700..

Our next question comes from English. Mr.

Morris?.

There are headlines that you've been discussing with Sao Marco bondholders.

Could you let us know what exactly were the topics here? I guess, it's about making an offer, but I was thinking about what's your framework of thought, what's potential timing, and what kind of financing alternatives you're considering given the current high interest rate environment? Thank you..

Thank you for the question. We need to take into account what the Sao Marco shareholders want. We respect that. What happens is that there is a process, there's a situation where a group of creditors could have as a result of the debt conversion a share part -- share stake in the company. We're conversing with these groups. It's a typical situation.

Because of this, we have hired an advisor who was more assertive in our interaction. We have no control over the timing, nor the result. This is a very complex situation with multiple factors. There's a low probability that this will advance, but as we're dealing with a unique asset in the sector, we do want to remain well informed.

That is why we're having the conversations..

As we have no further questions, we will return the floor to Mr. Marcelo Cunha Ribeiro, the CFO and IRO Executive Director, for the closing remarks. You may proceed, sir..

Well, thank you all for the questions. Thank you for attending our call. We bid you farewell with a message that our expectation is for third quarter that will be excellent. Operationally, we will have a drop in inventories, a production that is better in terms of mining and steel and with the cement business doing its very best.

Now, there is a very volatile and complex environment in terms of raw material and others, but we're going to do our best in terms of volumes, prices, and we are going to be very competitive. We hope to see you again soon at the call for our third quarter. Have a good afternoon..

The earnings release call for CSN ends here. We would like to thank all of you for your participation. Have a good afternoon. You can now disconnect..