Sebastian Marti - Director, IR Daniel Novegil - CEO Pablo Brizzio - CFO.

Marcos Assumpcao - Itau BBA International Carlos de Alba - Morgan Stanley Thiago Lofiego - Bank of America Merrill Lynch Leonardo Correa - BTG Pactual Milton Sullyvan - Brasil Plural Alfonso Salazar - Scotiabank Renan Criscio - Credit Suisse Andreas Bokkenheuser - UBS.

Good day, ladies and gentlemen and welcome to the Ternium Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today's conference, Mr.

Sebastian Marti. You may begin..

Good morning and thank you for joining us today. My name is Sebastian Marti and I'm Ternium's Investor Relations, Director. Ternium issued a press release today detailing its results for the fourth quarter 2014. This call is complimentary to that presentation. Joining me today are Mr. Daniel Novegil, Ternium's CEO and Mr.

Pablo Brizzio, the Company's CFO, who will discuss our performance. At the conclusion of our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied.

Factors that could affect results are contained in our filings with the Securities & Exchange Commission and in our press release issued today. With that, I'll turn the call over to Mr. Novegil..

Good morning to everyone and thank you very much for participating in this conference call. I would like to talk about Ternium's performance in 2014 and after that I will ask Pablo Brizzio to make a comment about Ternium's results in the fourth quarter of the year before entering into the Q&A session.

But let me first make a very brief summary of our results in the quarter. EBITDA was approximately $300 million somewhat lower than we had expected to see when reporting results in the third quarter.

The main reason for the difference were the volume went up slightly almost the same volume only 19,000 tonnes more than the previous quarters that means 4 million tonnes more in EBITDA but at the same time the prices went down $35 per tonne in average impacting the EBITDA in $81 million more than anticipated.

Also the cost went down from $707 to $703 per tonne this is the average full cost per tonne with no depreciation having that positive impact in EBITDA of around $9 million. So as you can see the main negative impact in our quarter result was the decrease in prices that went down as I said in $35 per tonne in average.

So at the end the combination of these two effects ended up in a lower EBITDA per tonne in the fourth quarter compared to the third quarter and as a consequence with a somewhat lower EBITDA than expected.

Ternium performance in the full year 2014 was quite good, we had record shipments of 9.5 million tonnes with a special mention to growth of our shipments in the Mexican market with on the flat product side price increased a significant 15% in the year, thanks to demand driven by exports of good manufacture in Mexico especially as to the U.S.

For you to know since 2010 the Mexican steel consumption accumulated growth is a 27%, again since 2010 the Mexican steel consumption has an accumulated growth of 27%. We were able to get this positive performance in a challenging environment for steel industry globally which in 2014 had a whole growth in steel consumption worldwide.

The Chinese steel consumption decreased approximately 3% in 2014, and export of steel from this country grew significantly to approximately 43 million tonnes in 2014. That means around 48% to 50% above the export of China in the previous year of 2013.

About 10% of this Chinese export were shipped to Latin America on most of the occasions and their fair competition conditions. At the same time and paying a look to the market in Latin America steel consumption in Mexico in 2014 went up 11.7%, in Argentina it was almost even with a very slight decrease of 1% in 2014, with respect to 2013.

And in Columbia for example went up 14.9% in '14 against '13. Interesting to note here we will mention that in extending our investor relations in our Investor Day in the coming June that the Mexican market had a significant growth in the last four years.

The Mexican steel consumption that used to be in 2010, 17.8 million tonnes, is getting a number of 22.5 in 2014 again the Mexican market steel consumption in 2010 was 17.8 and went up 27% to 22.5 million tonnes in 2014.

Turning now to profitability I am happy to report that in 2014 Ternium has again showed operating result and profitability that compared very well against most of our peers in the industry.

In this difficult environment, Ternium was able to sustain operating income and net income probably in line with last year level with an EBITDA margin of 17% for the year or an EBITDA per tonne of $157 and earnings per ADS of $2.30.

This resilient performance is the result of Ternium flexible production configuration that we have discussed in many occasions as you know we have a pretty enjoyable combination of blast furnaces which are iron ore and coal intensive direction reduction item which is natural gas intensive and re-rolling of slab in third, that means that we’re now in a position where we can enjoy the decrease in the pricing of iron ore and coal on the operation in Argentina, the decrease in the cost of gas in our operation in Mexico and also in the re-rolling of slabs in Mexico enjoying a very wide kind of gap between hot rolled coil and pricing of the slabs.

So together with this diversified cost of structure and the cost-cutting initiatives that we are always undertaking and going ahead with I guess that in general we had a positive and a very good a 2014.

So at the end we were able to take advantage of the decrease of prices and we will continue to enjoy an attractive spread between slab and hot rolled coil in our non-integrated production facility.

This positive pricing condition for our main raw material will translate into lower in cost in Ternium production further on, although it is worth noting that this lower logistic cost will enter into our financial gradually as Ternium consume inventories through the quarter in 2014.

Again the positive pricing condition in raw material will go into a balance sheet, in our balance sheet gradually as we enter into the different the following quarter going forward. Steel pricings are also something that we had to consider in 2014 performance. Looking ahead prices have going down in our main market and in especially in the U.S.

and obviously in Mexico although the spread between the U.S. and the international market steel price is lower than now that it has been during the year. These are some issues that we have to follow very closely.

Steel demand and low economic growth coupled with high steel production in China and obviously low and not entirely clear yet economic recovery in Europe. At the end, the actual U.S. hot roll price is around $570 with a gap of $110 in the coupling in the European domestic market.

This gap was lower in the last five months and is yet into a more reasonable kind of level showing that what some analyst are saying now that maybe the prices are getting closer to the end of this downturn, but as you know this is difficult to forecast because of the steel over supply and the weak demand coming from China as well as from the European market, It's happening the opposite in the U.S.

market, the Mexican market and the Latin American market as a whole with exception of Brazil. So all-in-all many different variables getting one against the other, but the prices may be getting closer to the end of this downturn kind of cycle.

On the balance sheet aside, we continue to have a very strong financial position with the net debt of $1.4 billion at the end of the year equivalent to only around 1.2 times in the year of 2014.

In this environment that I was depicting, a conservative balance sheet is something that pays off and we foresee a reduction of net debt in the first quarter of 2014 so that I believe we believe that we can have good news also regarding net dent at the end of the first quarter and from then on there was an increase in the net debt of fourth quarter 2014 due to the 250 million payment for the acquisition we made for the regional Usiminas share from Perry.

So taken out this effect, the net debt would have been in $1.4 billion, $1.5 billion that is quite at very low level as you understand.

I am glad also to mention that we have proposed to the shareholder a 20% increase in Ternium dividend for 2014, if approved in May the shareholdings’ meeting, Ternium will pay a $0.90 per ADS dividend on May 15th, the dividend went from $0.75 to $0.90 or an increase from $150 million to $180 million in plan a dividend yield of around 5% that means and fact is recognizing that we believe we have and we’re having a good performance within imperative CapEx reduction and you know our CapEx plan in 2012 was around 1 billion 2013, 880 million and 2014 it was only 440 million and we ended with some of the projects that we were undertaking.

Again 2012 $1 billion, 2013 $890 million and 214 $440 million, at the end we have a strong financial position and good perfect for continue the net debt reduction through a working capital reduction in the rest of the year.

After closing the 2014 number, Ternium main steel market had a performance very much in line with the numbers we reviewed in our later conference call for the first nine months of 2014.

In the full year 2014, our shipments to Mexico which represents as you know 60% of Ternium total shipments grew 13% more on the flat side and on the long side as demand for a high value-added investor application had a greater performance that demand for contraction and commercial related production, which also grew that I would that at the lower rate.

This good performance that we saw in the Mexican market in terms that we’re expecting to continue in 2015 it means that when we target the high-end products the industrial applications and all these based upon the investments in Pesqueria, in cold rolling and in Tenigal facility, will pay back what -- the strategy that we have follow.

Our second biggest market is Argentina and that’s as you know is now accounting for around 14% or 24% of the Ternium shipments in 2014.

In this case, Ternium shipments decreased 6% compared to 2013 showing a very large reduction in flat steel in market, but for the first quarter of 2014 we anticipate good level of sales taking into consideration the seasonality effect in the quarter that as you know January and February are months of low level of activities in Argentina because of the vacation.

Regarding Usiminas, I would also like to mention to make some brief comments before we enter into the Q&A, as you know the Company is still working on the 2015 budget, some delays in the building of mark -- of the budget because of market volatility in Brazil, the valuation and some adjustments in demand and in supply, we expect the management to present actions, plans, mitigations, remediations because the deterioration in the margins of steel -- and not only steel but also in mining and also in operating performance and that quite volatile environment in the Brazilian economy.

So at the end we expect the management will present on this actions and remediations to mitigate the decrease in the market size.

Finally, I just wanted to mention that we continue working in the cost cutting and efficiency initiatives, as I have mentioned in previous calls, let’s -- for example the energy saving programs the continuous improvement teams, and the programs on working capital reduction, logistics and subcontractors all these programs and these initiatives are doing very well and so I will be happy to talk about them in more detail and to evaluate the impact in profit of the company in our Investor Day in New York that will take place in four months or June the 18 in the Guggenheim, New Zealand as usual.

I really hope to see you there as we believe it is good opportunity to meet in person and talking there about the company and the ideas, and the prospects, and so on and so forth.

So, first quarter in my opinion on my view these were the main issues I wanted to share with you today and I will ask Pablo Brizzio to take over and give you a brief description of our performance in the fourth quarter. And so Pablo, please, if you could go ahead please..

Thanks Daniel and good morning to everyone. As we do every quarter I will describe our performance and then we’ll go directly to Q&A. EBITDA in the fourth quarter was $301 million $122 million lower than EBITDA in the first quarter of 2014.

The first quarter EBITDA included non-recurring gains of $48 million related to income recognitions on the issue and recovery in Ternium subsidiary in Argentina Siderar. So excluding these non recurring gains EBITDA in the fourth quarter was approximately $64 million lower than in the first quarter.

And EBITDA margin went from 16 in the first quarter to 14 in the fourth quarter. The reduction in EBITDA was mainly related as Daniel commented to lower steel prices partially offset by slightly lower operating cost per tonne and slightly higher steel shipments. For the full year 2014 EBITDA was $1.5 billion stable compared to last year 2014.

Net sales were $2.2 billion in the fourth quarter, a 3% sequential decrease as a result of lower revenue per ton and slightly higher shipments which reached 2.4 million tons for the full year 2014 net sales reached $8.7 billion slightly higher year-over-year.

Shipments were 1.5 million tons in Mexico 3% higher sequentially for the full year 2014 shipments to Mexico reached 5.6 million tons increasing approximately 650,000 tons compared to 2013.

As we mentioned or commented in previous calls Mexican consumption of steel has been growing mainly as a result of healthy demand from a very competitive manufacturing industry while industrial sectors were slow. Although little improving lagged a little bit higher. We’re expecting an increase in shipments in this market in the first quarter 2015.

Steel revenue per ton in Mexico was 3% lower sequentially. Steel prices in the U.S. and Mexico began to turn down during the fourth quarter 2014 and have continued to recline in the current quarter in line with the downturn in international steel prices and a significant increase in imports into the U.S. market.

The significant drop in the price of oil also has negative effect plus steel prices in the North American market mainly as a result of a decrease in the energy industry demand or related flat steel products. We expect as a result a subsequent reduction of revenue per ton in the Mexican market in the first quarter 2015.

Shipments in the southern region increased 3% sequentially and we believe they would remain more or less at these levels during the first quarter of 2015. Realized price in the southern region showed a 3% sequential decrease as was the case in the Mexico and we expect them to also have a downturn or downward trend in the first quarter of this year.

So, as I mentioned before excluding the income recognition on an insurance recovery in Ternium consolidated EBITDA per ton decreased from $157 in the third quarter to $128 in the fourth quarter.

The decrease in EBITDA per ton was mainly due to a $35 decrease in revenue per ton as operating costs per ton decreased only $6 with lower purchase slabs and higher energy costs as well as lower SG&A per ton.

Cost per ton to continue to decrease during the following quarters although the pass through to cost of lower raw material and energy prices will be lower as Ternium consumes this higher cost inventories all the time.

For the first quarter of the year we expect operating income would remain at more or less the same levels we showed in the fourth quarter it will be the result of lower revenue per tonne partially offset by lower cost per tonne a slightly higher shipment in Mexico.

As of December 31, 2014 we performed an impairment test of our investment in Usiminas and consequently down by $196 million, the main changes to our previous estimation of use that led to this impairment were related to expectation of a weaker investment environment in Brazil and consequently steel demand.

As a result of worsening economic activity as well as a significant downturn in international prices of iron ore and also prices of steel both of which lead to diminishing cash flow expectation.

In addition during the fourth quarter 2014 Ternium applied its purchase price allocation procedures in connection with October 2014 acquisition of additional shares of Usiminas from Previ. We determined a higher value of net assets at fair value versus book value and accordingly recognize a gain of $189 million.

Let me now make a brief comment about Ternium's effective tax rates which reached level of 55% in the fourth quarter of 2014.

Because of this unusual high level was related to non-cash effect on deferred tax of a significant depreciation of the Mexican peso and the Columbian peso during the quarter, which represented 9% and 18% respectively against the U.S. dollar. The depreciation of local currency reduced in U.S.

dollar term the tax base used to calculate deferred tax for our Mexican and Columbian subsidiaries which have the U.S. dollar of channel currency. Effective tax rate in the full year was 38% compared to 37 in 2013.

So net income decreased $100 million sequential in the fourth quarter mainly as a result of lower operating income and higher effective tax rate, partially offset by improving financial results. The full year net income, were relatively stable at $596 million.

Earnings per ADS were $0.31 in the fourth quarter sequential decrease of $0.26 per ADS mainly due to lower operating income and higher effective tax rate as was mentioned before. In the full year earnings per ADS reached $2.30 only a $0.02 decrease compared to last year. Let me now make a brief review of the cash flow statement.

Net cash provided by operational activities in the fourth quarter was $208 million, stable working capital. Capital expenditure was $109 million reaching a total of 443 million in the full year a 50% decrease compared to last year which was as earlier mentioned $880 million.

Although Ternium free cash flow reached $100 million in the fourth quarter net debt increased a bit from 1.7 billion to 1.8 billion. The reason for this increase was $249 million payment during the fourth quarter related to acquisition of the Previ share.

Anyway our financial position continues to be very strong with a net debt to the last 12 months EBITDA ratio of 1.2 times. I believe the main issues to comment in perspective performance for the quarter the year, so now we can begin the Q&A session. Thanks..

[Operator Instructions] Our first question comes from Marcos Assumpcao, Itau BBA..

First question on EBITDA per tonne, if you could comment on your expectations for -- just the trend on EBITDA per tonne for the second half of 2015, you already guided for relatively stable operating income in the first quarter.

But considering the lagging effect of your cost -- your cost base into results in the second half of the year, could we expect a higher EBITDA per tonne and the current levels that you're generating right now?.

Fairly difficult to say, because as you know the EBITDA per tonne is a consequence of mainly three factors, the main factor is the pricing volatility as the pricing go direct without any delay is going at a point of EBITDA rise at the same movement in real times. And we do not have yet any certainty in the performance of the pricing in the U.S.

market and the impact in the Mexican market. Now the prices of hot rolled cost in the U.S. market went down to $570, coupling against the Chinese domestic market and against the European market is still very impressive we feel very high but decreasing. Some analysts are saying that we’re getting to the bottom.

Some other analysts are saying that there is still some room we really don’t know. No doubt that this will impact the EBITDA in real term.

On the other side, you have that there very-very good a positive effect through EBITDA ratio coming from the three factors that are the main drivers of our costs the reduction in iron ore price, the reduction of carbon pricing in the Argentine operation, the reduction of gas in the Mexican market that now as you know is $2.8 per million BTU is record low and almost a record low level and also you can see that the gap between hot rolled coil and the slab coming from overseas and because of the huge idle capacity and the huge oversupply of steel are enjoying a very and for us a very good and positive gap.

And at the end, the third factor that is impacting our EBITDA is the cost equation where we’re undertaking many initiatives that are having a nice impact in our cost and we believe that we will continue with that also it’s important to say that we have some devaluation effect and appreciation effect in the different markets that are impacting the cost in the opposite way.

For example in Argentina we have an appreciation of the local currency against the dollar and in the Mexican market we are having the opposite effect of deprecation of the Mexican peso against the dollar and no doubt that is the factors that also having some impact in our cost.

So we’re putting everything together, I will pass to Pablo Brizzio to go in more details but I guess that we do have good effective, but it depends on the speed of the decrease -- the further decrease in price that could happen..

Yes, just one thing, Daniel, to add to your comment is that we -- the projection that Daniel made during his presentation which is that we will be reaching a bottom in the decrease in prices.

If this is a thing from now on, Marcos you’re right we’ll be seeing an increase in the margin because as you know during second part of the year we should be reflecting the price reduction in raw material.

And if the prices of steel are same this should be clearly the picture moving into the end part of the year which will, as we mentioned, we will -- we're expecting to fully reflect during the third part of the year..

Also the volumes, Marco, are quite good and the perspectives are good because of the market where we’re in and we expect that reach of 10 million tons of shipments in 2015, and we’re expecting good volumes in the first quarter because of the performance in the Mexican economy as well as the performance in the Argentine economy so far and in adjusted seasonally.

So, the volumes are now going to be good, I could say..

A second question related to the write-down on the Usiminas investment.

Would you comment, what is the basis for the write-down? How much you're considering that could be the fair value of your investment right now?.

Yes, Marco, let me comment on -- and we have adjusted our projections in the value of speculation mainly as a result of the lower raw material pricing and the lower steel prices that we’re seeing together with the reality on steel sector and Brazilian economy, so the number that we are reflecting today in our financials is where we case thee the value you reflecting the Usiminas investment.

If you look at the numbers the average price per share is around little higher than 22 real per share, so this is the impact that is new realty that we’re seeing the market is making performance-test for impairment and reducing the value and use of power investment in Usiminas..

And how frequent do you do the impairment tests? Every end of the year, right or you can do it more frequently?.

You need to test of course every year, you do it, but if you see that there are impairment test barriers that could cause you to have an regional one you need to test thus every quarter if you consider is appropriate to do it..

Our next question comes from Carlos de Alba with Morgan Stanley..

The first one is an easy one, maybe for Pablo. What is the CapEx expected for 2015? And the second one, perhaps for Daniel, may not be as easy; but as always, I'm sure it's going to be a straightforward answer. What, Pablo, would prevent Ternium to divest from Usiminas? I mean, clearly the situation with Nippon is not going well.

It's a very messy story. CSN is not contributing. And the share price of Usiminas [indiscernible] is above BRL20, which is not that different from what it was when you -- when Ternium bought the shares from Camargo Correa/Votorantim.

So, why would not Ternium try to negotiate a good price with Nippon and get out?.

Nice question. Let me take the first part of the question. We expect for 2015 same level of CapEx programs that we had in 2014. That's a common question as you know it's more complex is difficult to answer but let me try to give you some insight which is the situation with Nippon Steel and with Usiminas right now.

First, let me address what happened with Usiminas fourth quarter result Board meeting and why in the first time the Board decide not to approve Usiminas financial statements.

And after they miss quote on that saying that the February 15 meeting the Nippon Steel and directors included in their note certain reserves on qualification with if correctly interpreted they have not involved the financial statement at all.

However you know in the board that -- there was an appeal to our Board by telephone -- by teleconference -- the Chairman of the Board interpreted there was no -- there were no agreements within the controlling group with respect to the approval of the financial statements.

But afterwards unfortunately the situation was quickly resolved and at the new Board meeting that was held on Tuesday all the controlling group members confirm their approval without reserves or qualifications of the financial payments of Usiminas.

So that this unfortunate situation could have been a misunderstanding -- a painful misunderstanding at the end because all of us agreed upon the necessity to approve the financial results as -- following the proposal of the management and we did that with this painful delay, I would say.

Then, trying to answer the second -- the part related to the divesting or what is going on in relationship with our investment in Usiminas.

You know that Usiminas well-being it has been and is our priority and accordingly all these years that we have been there we were always open to discuss with Nippon Steel ways of putting a kind of end to this crisis that the company so to speak this crisis to speak is having nowadays.

For example although we will continue working for the restorement of these lease executives we propose the appointment of Mr. Tulio Chipoletti as industrial Vice President of Usiminas.

Tulio is a former Tenaris employee was unanimously accepted by the controlling group, and he's already taking care of this important position in the company in an interim fashion and until a definite management team will be appointed.

So at the end we will continue taking all possible actions that contribute to Usiminas best interest with our Nippon Steel. Nevertheless to say that at the same time we will also continue taking actions to protect our right and interest in Usiminas pursuing the reinstatement of these executives.

But I cannot deny that the relationship with Nippon Steel maybe not in the best moment so to say speak but no doubt that this is not a point of no return and we will continue talking with them protect our right and to see ways to negotiate a solution to the deadlock.

I cannot speculate right now about possible scenarios or possible output of this dialogue but we continue having a good level of dialogue that at the end should end up with a solution to the deadlock that the company is having right now..

Fair enough. Thank you very much..

Sorry we're not considering a divesting of our investment in Usiminas right now to finish your question. That's the outlook for the question..

Our next question comes from Thiago Lofiego with Merrill Lynch..

I have two questions. If you could please provide some additional color on the Mexican steel market per segment, so, what's the outlook for consumption in 2015? And if you could also comment on potential impacts of lower oil prices, and consequently lower investments from Pemex on steel demand in Mexico.

The second question is regarding your iron ore business. Ternium posted an operating loss in that division in the fourth quarter. Are you considering shutting down operations at some point, or do you see room for cost-cutting? So, what's the action plan here, at the end of the day, for the iron ore business? Thank you..

So well you presented Thiago two questions and the first one being the state of the market in Mexico and you know Mexico market in 2014 have been growing mainly because of the demand of the manufacturing in the industry I mean that’s one factor on top of these we work in 2014 very hard in order to get more contract with inventor customers in gaining market share it has the imports coming from overseas and this impacted positively our volume in Mexico and showed a higher volume that sold in Mexico for Ternium as the same time the construction continues to be in a rather weak situation and right now although this is slowly improving currently.

On the other side we have yet to see that what is the effect of the lower oil price on Mexico or Mexico’s government spending so putting all these together and also expecting a growth in Mexico of 3.5% for 2015 even if the U.S.

market is expected to grow slightly maybe 1%, 1.5% according with different analysis and the consumption we expect a very good perspective for demand that is also being shown in very good numbers for the first quarter of 2014 and will remain the same in 2015, especially driven Thiago by the industrial sector as I said before and in industry sectors driven by exports from Mexico to the U.S.

sales and a very good performance of the automotive industry. As you know the automotive industry in Mexico is doing very well now is between the largest five exporters worldwide and this performance has been consistently going at in the last 10 years and also the perspective for the future are very, very good.

So, I could say that I see very good perspectives in 60% of our shipments that are not dedicated to the Mexican market based upon the development of Mexico in industrial goods and Italian products coming from our new facility Thiago from Tenigal and the cold rolling mill.

Maybe you can mention something about Pablo about our mining operation that is presented [indiscernible]..

Thiago first quarter let me tell you that even with today on prices we continue to have very viable operation from the cost point of view.

Of course we’ll need to keep working and we need to attach some issues in order to return to operating profit and we are working on that and I think in the three segment there from cost reduction that we’ll be statutory impact from now on and also for example the valuation in Mexico will have a positive effect in our results in our mining segment.

So, in total we believe and we know that we have a good operation even with these low prices so we are not expecting to close our mining operations. And of course we are not even thinking about increasing it but we believe that with the very specific situation during this quarter we’ll be able to recovery this in the quarters to come..

Thiago let me mention some numbers on the Mexico market especially in the automotive sector there is a nice paper that was written by the consensus firm whose name is Actinver all together Actinver with very great order and wonder it is on what is going on in Mexico probability in comparison with the U.S.

and China especially and some dynamics of the sector. Let me share some very few comments on this paper. First the automotive sector in Mexico has the market share of the total GDP of Mexico of around 3% and 17% of the industrial GDP on Mexico.

So the industrials sectors in the automotive industry is an important part of the total economy even taking into account managing around the construction and all the other factors and 17% of the manufacturing of Mexico.

Between 2001 and 2013 the compound growth rate of the automotive industry in Mexico was 7% again 2% of the GDP and 1% of manufacturing. The productivity of Mexico against China, India, Korea and Brazil is still very good.

I would say that Mexico for example now with another seven important manufacturer automotive and the four exporter of vehicle worldwide. If you take into consideration the cost competitiveness for Mexico against USA the cost of manufacturing in Mexico the automotive industry 16% below the total cost in USA and 9% below the total cost in China.

So all-in-all I would say good growth perspective and a very nice and important potential domestic market that was not developed yet, growth perspective for export goods cost competitiveness position and also preferential access through other markets. As you know in Mexico has 11 TLCs include in that USA, Europe MERCOSUR and Japan.

So at the end in 2015 the growth rate is expected to be in the automotive sector 7% and for 2020 the total production could be 5 million cars with export of 4 million cars, will represent a compound growth rate of 7.6%.

Sorry for the detail but I wanted to share with you and maybe you are interest in Ternium, pay a look to this paper to go deeper in details in depreciations on competitiveness of Mexico against USA and China..

Just a quick follow-up here, I know you guys don't have much of an interest, or much of an exposure to the oil industry, but do you foresee any kind of impacts from lower investments from Pemex into the whole steel industry in Mexico?.

Well you know that Pemex and Mexican government has brought some changes and some new relations to develop to further develop the oil sector but of course this will be impacted by the oil reduction but still we continue to believe that we'll be very positive for Mexico and for development of the oil sector in the country.

Though we probably reduced impact, we continue to believe that will be positive for the Mexican economy..

In the fundamentals of the energy sector in Mexico we didn't evaluate and we don't have the information to evaluate yet we could read impact of this decreasing oil price and gas price in the projects in Mexico.

But no doubt that from the fundamental standpoint Mexico is opening, Mexico is looking for development in the energy sector and the location of our facility, the location of our facility is in a pre-led position regarding the availability of gas coming from north to south from the USA with a very cheap logistic and very low transportation cost.

So at the end the energy we'll bring to Ternium good news, good news from the market side of development of the energy industry Mexico as well as good news from the cost side, because of our operation in Techint as well as other developments that we could undertake taking these locations regarding the availability of gas revenues in the South of the USA..

Our next question comes from Leonardo Correa with BTG Pactual..

My first question is regarding capital allocation. Daniel, I mean, you were very clear on the CapEx trend declining to potentially similar levels in 2015 versus 2014, which is quite a big drop when compared to 2012 levels. You also spoke about Usiminas and the strategy with Usiminas.

I just wanted to get a sense on where exactly you stand in terms of organic growth. I mean, looking at cash flows, and with this reduced CapEx, I mean, the Company is still in a position to generate quite positive cash flows and continue deleveraging to a level maybe below what would be ideal in terms of the capital structure.

So, I just wanted to get a sense on what would be the priority levels in terms of new projects, and where would they be? That's the first question. The second one -- this is maybe for you, Pablo.

Just very quickly on refreshing us with currency exposures -- in terms of revenues and costs in Mexico and in Argentina, I mean, what would be the currency exposures on that side? And finally, Daniel, given all your involvement with the steel community in Latin America, just wanted to get a sense on whether there could be additional anti-dumping cases being brought back to the discussion table in 2015.

I mean, we've been seeing an inflow -- a quite significant inflow of imports, potentially unfairly priced imports. So, I just wanted to get a sense on whether we could see anti-dumping cases coming back to discussions during the next couple of weeks. That's it. Thank you, guys..

Okay thank you, Leonardo. Let me answer your question in three different factors, first regarding the CapEx program that we’re writing very short run that means 2015 and entering into 2016 as well. We are working initiatives that are maybe dedicated to efficiency, productivity, debottlenecking, safety and environment.

This has an impact of our impairment plans so that we will have a reduction in CapEx but a huge amount so to speak of different small projects that we have to be cautious to mage in order to fulfill our expectation regarding the impact of all these standards in our efficiency, first.

Second, we continue analyzing a possible way of increasing our market share in Mexico especially regarding the imports that are coming into from different sources and in that respect we are analyzing different initiatives in hot rolling, initiatives in hot-dip galvanizing; in industrial sector as well as in commercial sector.

And we are in the process of putting together all our ideas, numbers, markets and perspectives in order to see we can take any decision.

Maybe, maybe but I am not sure that we’ll have some information to share with your about the prospect that we could have growth specially in Mexico and again take into consideration that opportunity of important that we could takeover gain in market share in this market through downstream integration and maybe we will be in a position where we could share some of this information with you in the Investor Day, but I am not sure that we’ll finish our studies.

Regarding the anti-dumping a question that was the last part of your question, you know we have a great concern about what is going on in the oversupply of the steel worldwide. The oversupply of the steel is huge. It went up to more than $600 million for the first time in tons for the first time in 414.

This excess capacity is coming mainly from China, you know that between 2007 and 2015, 861 million tons again 860 million tons of annual capacity was added worldwide China contributed to the additional capacity adding 565 million tons of steel, so that the different between the capacity and the consumption which is record level of more than 600 million tons per year.

So this we have a concern there because as you know our belief, our understanding, our certainty is China is not a free market economy and China is exporting steel on their unfair competition basis dumping and subsidies.

So we will continue our search for solutions in the different markets in order to raise the worries in the authorities to be aware of this situation and to protect the markets of unfair competition not only in the import of direct steel but also in the steel of importing goods that include steel -- manufacturing home appliance and this and the other that include still also being sold to these manufacture in unfair competition basis and dumping and subsidies.

So it’s something that we will continue doing. We’re pretty active with all this awareness in the Mexican market and we will continue working also we work quite successfully in Argentina to rate concern on this issue and we will continue working on that in Brazil as well as in Colombia.

In Brazil, you know the imports coming from China are especially high and are reaching a record level. So it is a topic that we have work very hard and it’s a topic that we will dedicate part of our effort because we believe that we can compete against anybody that in fair competition basis and in a level arena, in a level kind of playing field.

Pablo, please..

Okay go into your first question, Leonardo, we have in Argentina the exposure to the local currencies around 35% of our total cost, in the case of our Mexican operation is lower than that and we calculate this around 25%. With the devaluation in Mexico this will have a positive effect on the total cost of the Company.

The case of Argentina, today where we’re seeing differently from what we saw at the beginning of last is reduced level of the evaluations that we the current deflation in the country probably will have a negative impact in our cost equation in the last you know we need to follow [indiscernible] we do follow this very closely.

And so with the devaluation today, which is much more important in Mexico in Argentina we're expecting to benefit in Mexico and not that much in the case of Argentina..

Our next question comes from Milton Sullyvan with Brasil Plural.

I would like -- I have some questions.

Actually, first of all, could you talk a little bit about your cost condition, looking forward, and how much of that cost -- how much of cost advantages are we going to see, looking forward, coming from -- what part is going to come from slabs -- slab prices, this period? Are you going to -- you were talking about before.

How much of that's going to come from --?.

We cannot hear you very well..

It appears there is noise in the line and we didn't follow the first part of the question..

Okay.

Can you hear me better now?.

Yes. .

Yes. Better..

It's -- I would like you guys to talk a little bit about costs, looking forward.

How much of the cost advantages are going to come from slab prices, and how much are going to come from lower raw material prices? And my second question is, if you could talk a little bit more about prices in North America -- if you actually think that you're going to -- what else can you do there, and what are you seeing in prices there? Thank you..

Okay. Let me first start with a general answer. And then we will go into details in cost impact. Question I believe you ask about this cost -- this cost kind of questions I love to talk about cost and I feel sometimes a little bit frustrated because none of you ask about our initiatives in cost.

But at the same time and following your question I would say that as you know the price of iron ore is high it went down from a $190 to $180 at the beginning of the year 2011 to $63 right now -- it's a record level that is clearly impacting -- favorably impacting our cost in Argentina.

At the same time and also talking about the same cost base in Argentina the price of carbon in this same period from the beginning of 2011 to now the price of carbon went from $350 per tonne to a $103 per tonne one-third, so $180 to $63 in iron ore, $360 to $100 in carbon and at the same time the price of natural gas went down from prices coming from $1, $7, $5 to $2.8 right now.

These prices as I said at the very beginning of my call and my introduction -- we enter into our balance sheet in the quarters to come unfortunately the speed of the prices is pretty much higher than the speed of the costs because of the accounting system, so the decreasing prices is impacting heavily our return right now and the cost base will have a favorable impact in the quarters to come.

Also we're undertaking some initiative that I believe that are very, very good that are innovations, that are something -- developments that we're doing that nobody else is doing and that make the difference between our sales and our competitors.

These are initiatives that we're undertaking in energy savings we are undertaking more than 34 different opportunities in Argentina and 84 different opportunities of energy savings in Mexico. And also we are entering into a new program of continuous improvement where we have 227 potential projects for reduction of cost in Mexico.

And we are now starting our projects in Argentina and we are also undertaking the capital factors plan where we're planning on interacting in potential for saving in the years to come that maybe we will share more in detail in the Investor Day.

But at the end from and from a conceptual standpoint and fundamental standpoint I do believe that our stand from the Investor Day is becoming now a tremendous advantage vis-à-vis our competitor.

We are enjoying benefits in the three vectors of our industrial base, in blast furnaces using iron ore, or carbon in gas intensive cost -- iron production in Mexico and [indiscernible] a gap for the slabs in our rolling activity and this will be reflected in the quarters to come in the balance sheet.

And also I expect some savings coming from the new initiatives.

I cannot quote on which will be the EBITDA of 2015 or the EBITDA per ton, because I have factors that are positive and factors that are you never can evaluate will be taking the lead but no doubt that we will continue performing because of having these fundamentals better than our peers and competitors as we have done in the past.

Pablo maybe you can quote on the balance sheet effect of this to reconcile that..

Daniel it’s basically the once you mentioned we will see positive effect on the different factors which we have our cost structure they will be including our financial in the quarter to come that we commented in our presentation and the answer in previous question so I believe that we have really include all these effects in our financial and this will be reflected in the months to come, so nothing there is to add..

Our next question comes from Alfonso Salazar with Deutsche Bank..

I have a quick question on working capital. I was looking at 2014 and I see that you have an increase in working capital of $550 million. Just want to know what your thoughts are about 2015 with respect for this year, in regards of working capital. Thank you..

We have been seeing an increase in working capital during the first nine months of this year as usual in the numbers for the last quarter were stable not increase in working capital there are different factors I think impacted the working capital numbers during the year 2014.

First of all there was a huge impact due to the huge evaluation that we saw in the third quarter in Argentina that the accounting impact of that devaluation is around $150 million so the rate $400 million increase is mainly due to some increases in the inventory level that goes with the increase in shipments and the development or ramp up of the facilities in Mexico.

Some additional increase also in account receivables due to the same factor and the one that is probably is little different to explain which is the reduction in account payables because as we reduce or paid the raw material that we were buying with higher prices we are replacing these with new invoices with lower prices so the effect of that is a reduction in working capital but as I’ve said before we have not seen this effect coming into the last part of the year and we expect it to improve at the beginning of 2015..

Okay. Good. Thank you.

So, this is one off that shouldn't repeat in 2015, right?.

Right..

Our next question comes from Renan Criscio with Credit Suisse..

My first question is specifically on Argentina what exactly if you could quantify the evolution you see in the EBITDA put on specifically on price and on volume? And the second question I don’t know if you have any update on the investigation of Cade regarding the need for the tender offer on your acquisition of Usiminas shares back into 2011?.

Let me answer your question. As I have described during my remarks prices in Argentina declined around 3% during the fourth quarter at the same level that we saw in Mexico so as already described we believe that Argentina as of all the market continue to have a similar trend going with international pricing.

In respect to Cade let me clarify a little bit what CSN claim and ask Cade basically is that CSN is alleging Cade in the time of seeking the antitrust year end for the January 2012 participation.

Cade authorities reviewed approval when they are allegations of them been new information as a result of the CSN and final allegation of the case must be considered by Cade [indiscernible].

We believe Ternium believes that CSN claims are incorrect and will be clearly and quickly dismissed by Cade we understand the [indiscernible] amount in the [indiscernible] try to conceal the court and the regulator avoids being their time who are confident that this call to decide on the matter will be and will not get confused.

So we are confident on the result and among all we provide Cade will all the necessary information that to [indiscernible] the transaction and there is no reason release with Cade decision that was issuing over 2012..

Let me give in fact more inside on what is going on in Argentina that accounts for 25, I would say that the state of the markets in Argentina is roughly so far and [indiscernible] is quite good, the steel consumption in Argentina in 2014 was even with the numbers of 2013 only maybe 1% or less than 1%.

And also we're expecting for the first quarter of 2015 good numbers, especially from increasing consumption.

Perhaps [indiscernible] because investment is low and that consumption is doing quite well, regarding the prices steel prices we decreased the prices following what is going on in the rest of the world and following the trend in the international pricing system.

And I do expect some further reductions in these regions, again for following up what is going on in the steel arena in pricing and competition.

As you know the price situation in Argentina is volatile, I mean the relative so that the prices go down slower than the rest of the international prices and also when the prices go up also with the different base, and lower up than the rest.

So that the volatility is lower than the international market and if also it is interesting to say that Pablo was mentioning that the cost of Argentina 35 related with the peso and so with these application of the peso against the dollar we have had a negative impact in our cost equation in the last six or seven months.

As you know this could be directed with some changes exchange rate, changes in the exchange rate impact two factors.

One is pricing, as you know Argentina had an evaluation at the beginning of the year between 25% and 27% and we were able to pass these evaluations to the market in pricing quite well and we enjoyed in the first part of the year the positive impact of these evaluation in our cost base.

And also let me mention that is important to say that Siderar in Argentina has consistently over the year pay dividend and directors representing the Argentinean government a stake in Siderar have always bought in favor of Siderar's dividend payments.

As a matter of fact Siderar board unanimously proposed last week of this year dividend payment of $85 million similar to the level of dividends of 2013. So again last Friday in the Board meeting as you know I am the chairman of this company, the board unanimously approved this dividend payment of $85 million for 2014.

So I would say that in total we're happy with our operation in Argentina and we're doing well..

Our next question comes from Andreas Bokkenheuser with UBS..

This is just a twofold question. I'm still trying to understand the acquisition and stake in Usiminas.

Can you remind us again, what are the potential synergies and value accretion you hope to obtain from your increasing stake in Usiminas, rather than paying shareholder dividends, for example? And secondly, relevant to this, in view of deteriorating steel fundamentals globally, as you mention yourself, alongside deteriorating iron ore fundamentals, what gives you the comfort that you're not going to end up taking another ride down on Usiminas, down the line, in the next couple of years?.

Andreas let me try to answer your question. As you know we have performed to implement in the last three years the first one in 2012 which was an amount of $272 million and recently with the year-end financials of little more than $190 million, we believe that the value circulation now reflects what we consider is a value of the company.

Unfortunately for us we need to perform this through impairment and reducing the value of our investments from the regional price to the one that is reflecting financial today, it's quite impossible to say how will there will be change in the variables but would make us to have a new analysis and possible direction or an increase in the value that we have in our financials.

So my question was asked, we have to perform if there is new payment indication in the different variables that are included in the analysis.

So we believe we performed the test adequately and reflecting the recent changes in the variables that are included analysis and we’re reflecting the real value of our investment for the current value of our investment, take consideration the different analysis that we performed, and we’re doing as quick as the changes management require us to do.

And of course there have been unfair unfortunately to us and differently from where we had expected at the very beginning, changes or significant changes in some of the variables like the economic situation in Brazil that deteriorated from the moment that we acquired the share as to today, and it’s not clear how will be the outcome of this year and how the Brazilian government will do the [significant] gain in GDP that we’re expecting to see in the coming years.

The second important issue that changed dramatically from the momentum when we enter into Usiminas is the price of iron ore which was very high at the beginning or at the moment in where we acquire shares of Usiminas up to now where we see a price below $70 per tonne.

These are things that we need to reanalyze and adjust to perform our value used calculation, and these were the issues together with the revaluation of the currency that is again having a negative effect on the value of our investments the once that made us to review the total value of investment in the shares of Usiminas and reflected the value that we have today which is the third of significantly lower that initial value that we have.

And at the end we still do believe and we believe when we do the decision of entering into this venture that Usiminas is a very good company with good economies of scale, technology, economies of scope well located to serve a market with very good prospective and potential for growth.

We understood and we continue understand that we can create value Usiminas because of good management practices and efficiencies and productivity and at the end creating value and delivering performance that will reflect and will be shown in financial results on top of what you’ve mentioned of positive synergies coming from different field relating with locations and areas and regions and so on.

So at the end, we still believe that Usiminas is a good opportunity.

We still believe that Usiminas is a good company and we firmly believe that we were doing very well and it has been reflected by all the analysts in the industry given that we were able to change many things forever many things that improved heavily are impacted heavily the productivity of Usiminas.

So at the end, Usiminas is a great company in a great market in a great country with very good potential opportunities for our perspective or growth..

And I am not showing any further questions at this time. I would like to turn the call back over to CEO for closing remarks..

I just wanted to thank you for the patience, thank you for the participation in this call. I hope to see you in Investor Day in June 10th in the Guggenheim Museum.

I expect to have answered your questions with given the circumstances and given the constraints, and given all the things that related with this kind of conversations and compliance and so on and so forth. So, thanks a lot again for your questions and your interest in the Company and see you see. Bye-bye now..

Ladies and gentlemen that concludes today’s presentation. You may now disconnect and have a wonderful day..