Ladies and gentlemen, thank you for standing by and welcome to the Ternium First Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Sebastián Martí. Thank you. Please go ahead, sir..

Thank you. Good morning. Thank you for your participation in our conference call today. My name is Sebastián Martí. I'm Ternium's Investor Relations and Compliance Director. Yesterday, Ternium issued a press release containing its financial results for the first quarter 2020. This call is complementary to that presentation.

Joining me today are Máximo Vedoya, Ternium's CEO; and Pablo Brizzio, the company's CFO, who will discuss Ternium's business environment and performance. At the conclusion of our prepared remarks, there will be a Q&A session.

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 and Exchange Commission and on Page two in today's webcast presentation.

With that, I'll turn the call over to Mr. Vedoya..

Thank you, Sebastián. Good morning to everyone and welcome to our first quarter 2020 conference call. Thanks, again, for your interest in our company, and taking time to be with us today, especially in this unprecedented circumstance. I hope all of you and your families are well and keeping safe.

I would like to dedicate my initial remarks to share with you our view regarding how the COVID-19 outbreak is affecting the steel market and our company and what we are doing to mitigate these effects. After this, Pablo will make a brief review of our quarterly results, before going into the Q&A session.

Since last quarter's conference call, the rapid spread of COVID-19 throughout the America has suddenly changed the business environment and is affecting steel demand across the region. And it is still uncertain what the impact of COVID-19 will be on the global economy, as the nature of this crisis is different from what we have seen in the past.

Our number one priority during the outbreak is safeguard the health and safety of our employees throughout our industrial system. All of our employees who can perform their tasks remotely are today working from home.

For those employees that has to be on site, we have been very fast to implement best practices to minimize contagious that comply with or in many cases exceed local authorities directives.

We are adopting strict social distancing policies and exhaustive contagious prevention measures, as wearing face masks all the time, temperature checks and disinfection policies at all transportation, site admissions, working post and cafeteria locations.

All employees at higher risk of developing serious complications from the virus are today at home. We are making a very active monitoring of suspicious cases and implementing quarantine not only for them, but also for anyone that was in close contact with them.

We are carrying out extensive communication programs across our facilities, regarding ways to work safely and to prevent contagions at work, and at home. There is actually a long list of measures we are implementing to mitigate this risk at our facilities. And we keep analyzing new ones. And the response has been incredible.

We are very proud of how our people are dealing with this demanding situation. They are showing strength, solidarity and resilience and making big efforts to make sure everyone stays safe and healthy. The COVID-19 outbreak is affecting also all of our communities.

And we are helping to support and strengthen the infrastructure of key hospitals within our communities with the donations of ventilator equipments for intensive care and safety kit for all health professionals.

We also build and we are operating our field hospital for the community in Monterrey, Mexico with 100 beds, and an intensive care unit with 10 fully equipment places. Another thing to consider during this outbreak is the health of our value change. We are working very closely with customers and suppliers to go through this difficult time together.

Our robust custom integration, IT systems proof to be a valuable tool when mobility restrictions were imposed in many of our markets. We have always seen our company as a part of a bigger system and this has been never been more evident than in these situations like today's.

In this short period of time in which COVID-19 spread throughout the region, we have been actively implementing several measures to prepare the company for these uncertain times.

On the production side, our diversified industrial base provide significant operational flexibility, which enable us to integrate our facility across the Americas in different ways to reduce run rate with the lowest possible impact of production cost.

We are also optimizing production and overhead costs and reducing general expenses, an extraordinary maintenance works. On the working capital side, we were very fast to reduce purchase of raw material, third-party steel and other materials and spare parts, minimizing inventory buildups.

We have also been working with our supply chain to optimize our procurement activities to reduce working capital. And to preserve cash, we are slowing down or postponed several capital expenditure projects across our facilities.

For example, we currently expect to delay the startup of our new hot-rolling mill in Pesquería unit in Mexico to April of 2021. And our new steel bar mill in Palmar de Varela unit in Colombia to the second half of 2020.

In addition, considering the significant uncertainty around the effects of the recession on the industry and on their impact on our company in the medium-term, Ternium's Board of Directors decided to withdraw the annual dividend proposal for fiscal year 2019, they had made in February.

The regular payment of dividends is not something Ternium Board takes lightly, as it demonstrate over more than 10 years of increasingly higher dividend payments. But the Board considered it prudent to withdraw its proposal until there is a more secondary over the effects this unprecedented situation we have on the company's business.

Let me turn now to the current state of our markets and operations. In Mexico, we continue to operate our main production line. By the spread of COVID-19 in the country, impact shipments beginning in late March. The automotive industry in Mexico is currently closed and is expected to gradually reopen during May.

This industry value change between Mexico and the U.S. is highly integrated and demand synchronized productions both sides of the border. So our reopening of operations is an important issue for both countries.

Other industrial customers in Mexico, as wide goods and electronic motor industries are operating by gradually scaling back production in anticipation of weakening end customer demands. The construction sector began showing weaker demand in April, as it was subject to strict operation restrictions, which will gradually begin to be lifted during May.

In Brazil, our slab facility in Rio is operating at technical minimums due to weak global demand for slabs. In the Brazilian market, demand for slabs from local producers can also significantly decrease as steel consumption in the country is getting weaker.

And we are making up for this decrease in sales in the second quarter with sales slab shipments to other markets. All in all, we couldn't expect to ship sequentially ship, more or less the same tonnage of slabs to third parties in the second quarter and balance the lower production rate with lower inter-company shipments to our facility in Mexico.

In Argentina, the mandatory lock down imposed in March, in late March by the authorities has been very strict from the beginning. Ternium’s slab facility our main plant there, is currently operating a technical minimums as it consider a non-interoperable operation. The rest of the plants are not operating not only for humans to essential sectors.

The lockdown of operations in Argentina is beginning very slowly to loosen up. As a result of the very weak shipments in April, we expect a gradual volume increase over the rest of the second quarter.

All right, the COVID-19 outbreak is affecting economic activities and the operation of our facility in all our markets, and the effect of the situation in our business will show in the second quarter of the year and beyond.

But we can rest assure, we are very quickly adapting our company to this new scenario and working very hard to minimize this effect as much as possible. This is the value we can act at these difficult times, as we have done in other market crises over the history of our company.

With that, I let Pablo make a very quick comment about our performance in the first quarter. And then we go to the Q&A. Thank you. Please, Pablo, go ahead..

Thanks, Máximo. Good morning to all. Let me review Ternium performance following the webcast presentation starting on page three. Our results for the first quarter improve sequentially as expected.

In this slide, you can see that Ternium EBITDA in the first quarter 2020 increased to $302 million and EBITDA margin also improved, which is 13% of net sales. EBITDA per ton was $101. Further in the presentation, we are going to review the drivers of this increase. We were actually expecting better performance in the quarter.

Argentina and Colombia authorities imposed lockdowns from March 20 to mitigate COVID-19 spread, preventing us from shipping products with assertion of safe to essential sectors such as food, health and energy in both countries.

Looking forward, considering the scenario raised discussed we expect a sequential decrease in EBITDA with significantly lower shipments by more than a decrease in EBITDA per ton. As for net income in the first quarter of 2020, we reported a loss of $19 million or $0.06 per ADS.

These results include $189 million non-cash deferred tax loss due to a 20% depreciation of the Mexican peso against the US dollar. This deferred tax result is equivalent to $0.96 cents loss per ADS, so adjusted net income per ADS to exclude these non-cash item, the result would have been net income of per ADS of $0.19 in the third quarter.

In the next page, page four, we can analyze our shipment performance in each region. As you can see, in the first quarter of 2020, shipments in Mexico increased sequentially and on a year-over-year basis.

Of note, during the first quarter, we were able to increase our participation in the commercial market despite a soft environment for construction activities. Our commune -- we are continuing ramping up our new galvanized and painting facilities in fiscal year.

Our market share also increased again import, which anyway continue to represent a significant share of flat steel consumption in the country. By the end of March, our industrial customers started to face a slowdown in demand.

The situation to where we're increasing more relative restriction and declines in steel prices effecting our steel shipment in the country in the second quarter. In addition, we anticipate lower shipment to the construction sector in the second quarter 2020. And this sector is also subject to strict operating regulations due to recovery 19 outbreaks.

Going to the southern region, you can see the achievement decreased sequentially in the first quarter and also on a year-over-year basis. The Argentina market remain weak during the first quarter, reflecting seasonally low demand levels and the effects of the lockdowns, which affected just the later part of March and continue to stay.

Looking forward, our current expectations Matthew mentioned is to see a gradual volume increase over the rest of the second quarter as the lockdowns of operations in the country seems to be slowly begin to relax.

In the other market region, shipment increased sequentially, the increased shipment volume were mainly due to change in shipment from Ternium Brazil to third-parties slab ship to other Ternium facility mainly to Mexico in the consideration of Ternium financial statement.

Looking forward, the shipments in the other markets in the second quarter expected to decrease, mainly due to the impact of the lockdown in the Columbia market a slab shipments to third parties should remain stable.

Turning to page five, we can see that steel shipments in the first quarter 2020 increase 3% sequentially and decrease 6% on a year-over-year basis, considering where we have raised cap with steel shipments in the second quarter to sequentially decrease in all regions. Going now to steel prices.

We see that price decreased 2% in the first quarter of the year as expected while in term of Mexico decreased slightly as a result of weaker industrial contract realized price, reflecting the lag price fixed of these contracts, mostly upset by higher steel prices in the spot market compared to the fourth quarter last year.

In the second quarter, we expect a decrease in revenue per turn in Mexico, with a downturn in spot price does began in March being partially offset by the industrial contract realized price that should improve a little over the first quarter of a year.

Finally, we can see that net sales in the first quarter 2020 increased slightly sequentially, reflecting the 3% increase in shipment, offset by a 2% decrease in revenue per ton. Let's turn now to page 6 to reveal EBITDA drivers and net result in the first quarter of the year.

The sequential increase in EBITDA was the result of the higher EBITDA per ton, and to a lesser extent the increase in shipment. The improvement in EBITDA per ton was mainly due to lower cost of raw material and energy, partially offset by slightly decrease in the revenue per ton as already discussed.

On the chart, on the bottom, we can see the positive effect of higher operating income and net financial results, which were more than offset by the already mentioned net cash impact of the $189 million deferred tax loss related to the 20% depreciation of the Mexican peso.

Net financial results increase sequentially reflect the foreign exchange gain or the significant depreciation of the Mexican peso already mentioned, and also a 20% depreciation of the Brazilian real against the U.S. dollar. Turning now to page 7, before going to the Q&A. We generate significant cash in the quarter.

We can see from cash from operations in the first quarter of the region is strong $443 million as we took serious measures to manage working capital in this new scenario, and the free cash flow after tax of $1805 million in the first quarter.

Capital expenditure was $258 million in the first quarter, in line with the previous quarter as our capital expenditure progress without tension during that period. We will start to see a decrease in CapEx from the second quarter as we slowdown or postpone CapEx across our facility, as mentioned by Máximo.

On the balance sheet side, in the first quarter, we continue to be strong financial position, revenues, net debt continue decreasing the first quarter of the year. As of March 31,2020, we have net debt of $1.3 billion equivalent to 0.9 time last 12-month EBITDA and a cash position of $1 billion and manageable debt amortization schedule. All right.

Again, thank you very much for your time. And we are now ready to take your questions. Please, operator, proceed with a Q&A session..

Yes, sir. [Operator Instructions] Your first question comes from Tanners with Bank of America..

Oh, hey, good morning. This is Timna Tanners. I wanted to ask first, if you could give us any thoughts on what conditions the Board might require to resume the dividends. So as you point out, your cash flows were still strong in the first quarter.

Is it a question of visibility uncertainty, or is it a question of something else, if you have any thoughts on that?.

Okay. Thank you, Timna. I mean, as I said in my remarks, I mean, we have been giving dividends for the last 10 years and increasing them year-over-year. I think in this, there is no anything else.

There's nothing else that what I said, I mean, the uncertainty around what these affect this virus or this recession we have, in all our steel market is still uncertainty. And so the -- they both considered very, very prudent to withdraw the proposal until we see more clarity on the steel demands.

We have always been a very -- let's put it conservative, a company in our financial position and so these is -- goes with this. I don't know, if Pablo, you want to add something else to this..

Yes. Clearly, I agree with what you said. We consider it very important to have strong financial position. In fact, we have reinforced our customer's cash position without changing net debt. As you can see, we have reduced net debt during the quarter.

But in the meantime, we have taken some new debt facilities available to us to reinforce our cash position, just to be prepared or to any scenario could appear in the next couple of quarters. Clearly, we understand that the Board has stood up this -- the prudent way to take in front of this uncertainty.

And clearly, whenever is uncertainty, so were the board of regulator would consider following the steps..

Okay. Perfect. Thank you. And then the other question I wanted to ask is really to try to pin down a little bit more of your thoughts on volumes going forward. And to completely recognize that it's challenging and visibility is not great, as we were just talking about.

But on the one hand, I wanted to ask about slabs from Brazil, you said that you could offset some of the weaker domestic market through export.

But I'm just having a hard time understanding, where the exports will go, because so many countries with extra supply are talking about exports, and I wonder to whom they're shipping? And then on the same lines, in terms of, the auto recovery in Mexico, how do we think about the timing there? Because they'll certainly be some inventory to work down first.

So, the shipments start to materialize more in the third quarter or how do you think about that? Thanks..

Thank you, Tina. It's a wonderful question. And as you said, it's a big -- it's a challenge to answer that today in these times. I would try to make an effort. The volumes -- I can answer very specific on the volumes on the second quarter, most likely our volumes will come down here somewhere near 30% in the whole market of Ternium.

That's it the shipments we are going to decrease in the second Q. From that onwards, today we see our visibility that they are going to start increasing somehow in how the recovery is, we don't see a V recovery as some economists are saying, it's more like an U. So these increases are not going to be very, very steep.

But I think that -- that most of the countries where we operate are going to, to take measures in order to the steel industry try to increase their shipments. Last, as I told you our facility in Brazil has two blast furnaces. It was operating at the rate of 13.8 -- 138,000 tonnes a day. Today is operated at a minimum of around 9,000 tonnes a day.

What we were doing in the first quarter shipping more to the local flaps, the local steel customers and in the second quarter, we are going to ship almost the same to the U.S. and to some customers in Europe and we are going to reduce the shipment to our facility in Mexico.

In the third quarter, we will probably change that and we are going to ship more to our facility in Mexico. But that is something that we have to see in the future. And we are going to reduce shipments probably to the U.S. and Europe. So that is the change.

In the auto recovery, I mean most of the automobile industry -- auto companies in Mexico are going to start producing between today, some of them and the 15 or 20 of May. It's true that their recovery -- it's going to be -- it's going to take time for our shipments.

But remember, our shipments via automobiles industry are around 15% in Mexico, 15% to 20%. So, we are going to see some increase in the second Q, a sudden increase sorry, in May, especially in June. But you're right that the increase will be more in the third quarter compared to the shipments in April that were almost zero.

Also, the stock in the changing in Mexico is a little bit lower than the one in the U.S. Some of the of our companies work with just in time inventory. So, there is not a huge stock, the value change in Mexico. So that's another I think positive thing that could happen in June. I hope with this, I answer all the questions..

Yes. Very helpful. Thank you and stay healthy. Thanks..

You too..

Your next question is from Carlos with Morgan Stanley..

Thank you very much. I hope everyone is doing well. So, just going back to the dividend topic, since the shareholders meeting was postponed. I want to understand if there is a possibility that the board decides to bring back at a [Audio Gap].

Carlos?.

Yes, hello.

Can you hear me?.

No, no, we lost you for a minute..

All right, sorry.

So the question is on dividends, is there a possibility that the board decides to reinstate the dividend at a later date in 2020 given that you're the shareholders meeting was defer, and he may still take place this year? Or is this a dividend that is for gone completely for the year? I understand that it is a board decision, but maybe you can provide some color.

And then my second question has to do with volumes in Argentina. Clearly, the first quarter saw the lowest or the weakest volumes in history that we have in our model, at least even worse than that in the first quarter of 2009.

How bad was April? And how much worse can I get in Argentina? And then finally, if I can squeeze out their question is on the CapEx. How do you see the CapEx this year based on the postponements that you were mentioning earlier? Thank you..

Okay, thank you Carlos. I take the -- I start with the last one and go up from there. CapEx, if you remember in the last conference call CapEx was -- for 2020, $850 million, 850 and for 2021, we make a -- we said it would be around $550 million. What we are seeing today, the plans we're making today is for 2022 be between $550 million and $600 million.

So it's a decrease between $250 million and $300 million and in 2021 to be around $600 million. We expect to finish the steel -- the cost really in Pesqueria with the CapEx -- with this CapEx and postponing some of the things that we're doing in 2020 to 2021.

So overall we are expecting a decrease not only in this year but on both the two years with the CapEx. The second thing is volumes in Argentina, clearly volumes in Argentina in the first quarter were very bad, and the second quarter are going to be slower, remember Argentina make a lockdown, a very hard lockdown.

So only one of our plants were operating and most of the construction industry was closed. I mean, they were not construction permitted, so our volumes in April are going to be very low and -- but they are going to increase in March -- in May and June. And we hope by the third quarter will be kind of the same as in the first quarter.

So yes, Argentina is taking, an impact on the way they are managing these pandemic. And -- but again, Argentina, the measures we are taking in Argentina -- are making that the company is not burning cash or anything like that. So, so we are very optimist that the company will go through these in a very healthy way.

And the third one was dividend, Pablo why don't you answer that?.

Yes. Okay. Carlos as you know every year the profitability size of the year relies on the shareholders meeting, but clearly the Board of Directors saying on the proposal and clearly we cannot say that no change can happen close to the end of the year. If there is a change, this will happen.

It's difficult to see the scenario at the moment in the recent term, once a year and we pay dividend around this period of time every year, so between April and May every year.

The most conservative way to answer your question is that at the end of year since the situation change entering into the end of the year, most probably the reset of the dividend will come on the following one.

But we can not say that this is not a possibility because at the very end the shareholder meeting and therefore could propose something closer to the end of the year, just a low probability in our view at the moment that these could happen. But we cannot take out that..

Thank you very much. Good luck..

Thank you, Carlos..

Thank you..

[Operator Instructions] Your next question is from Thiago. Thiago Ojea, your line is open..

Hi, good morning, everyone. This is Thiago Ojea, Goldman Sachs. I'm just curious if you can provide any type of expectations on the Tuesday in Argentina and the measures of opening for the lockdown.

And if you believe that the activity in CSA, if you can really rack the volumes to the external market given that no other regions in the world are also suffering a lower demand on steel, what would be perhaps the minimum level that you think that would be profitable in terms of volumes to operate CSA. Thank you..

Thank you, Thiago. I couldn't hear your first question, but I won't -- I'm going to answer the second one. And then I ask you to repeat the first one, because it was a noise in the line, I'm sorry about that.

And as you said, Ternium Brazil, Ternium Brazil is now operating, as I said, to around 9,000 tons a day that's a decrease of around 38% from what we were operating in the first Q. And with that in mind, all the shipments in the second Q we have already secured and we are shipping the orders in the second quarter.

We don't have any problem with the second quarter. And we think we can continue operating at that level in the third quarter, because we are going to need those slabs for the Mexican --from our own Mexican operation.

So if we don't have any place to place the slabs, because still the money still weak in the third quarter, most of those slabs are coming from our Mexican operations. So I don't see any problem. Or I don't see problems today in operating our Ternium Brazil operation at that level. I hope at least I answered the second part of the question, Thiago..

Sure. The first question was the similar one but related to the Argentina operations. We saw a big drop in the first quarter. I imagine that the drop remain in the second quarter would be even worse.

What would be a reasonable level operation that you could to be profitable in Argentina and if you have a better outlook for the third and fourth quarters?.

Yes. Argentina, as I said, the locking down in Argentina was profound. I mean was very hard. Let's put it but I don't know if that's the word but it was very hard. And so we did only operate the San Nicolas plan, which is the one that has the platform is. Again the platform is there each operating also have a technical minimum.

And with that, in the first quarter, as you see we were profitable in Argentina. So, I don't see any problems in the third and fourth quarter to continue at this level of the minimum in the blast furnace.

Again, Argentina is not -- we are not expected to be let inventory in the second quarter, although this decrease in the shipment -- again, we are reducing the production of our blast furnace.

We also expect that the lockdown is kind of improving to say something and achievements will resume in May and June, and we'll start to grow in the third quarter. I mean, you have very low volumes in Argentina and I don't think that the volumes can remain this low.

So, I'm confident again that Argentina could -- we can sustain the production minimum for the second quarter and in the third quarter, we will start increasing our shipments. I hope with this, I answered the question..

Yes, you did. Thank you..

Our next question is from Chicago [ph] from BBI..

I guess they have a problem with Thiago, right; it's Thiago Lofiego from BBI. Hi, guys. Thank you. So, most of my questions were answered. So, just -- actually, two remaining ones here. One is about the costs associated with the measures you're taking because of the COVID-19.

So, do you have an estimate of those costs? And just a second one, going back to the volume questions that were already asked, just to get a little bit more clarity, you mentioned an average 30% drop in the second quarter.

Can you give us a little bit more detail? I mean, is Argentina going to be even more than 30% drop in the second quarter offset by Mexico and Brazil? Or is it pretty much even across the -- all of the units there?.

Okay. Thank you very much, Thiago. I'm going to answer first the second one. As I said in answering Tina's question, I mean, it's really a challenge to predict volumes. And so the drop I mention around 30% is what we expect today. These can change upwards or downwards, although, we only have two months to go, because the uncertainty is still big.

But I think the drop will be a little bit higher in Argentina or is going to be a little bit higher in Argentina. For third-parties, the drop is going to be almost zero in Brazil. Remember, we have the same volume of slab for third-party in Brazil in the first quarter as in the second quarter. And so -- and it's going to be around that for Mexico.

That's what we are expecting today. And I think with this I answer the second question.

Pablo, can you answer the first one of Thiago?.

Yes, of course. Let me add to that answer Máximo, clearly also Colombia, we probably see a reduction in volume..

You're right.

But we'll be -- Thiago, we'll be compensated by the ones that we mentioned in Brazil.

But going to your first question Thiago, clearly, it's very difficult to put a number to that, but I think that the best way to answer your question is what we said in our press release, in our opening remarks, which is, though we are seeing a reduction in volumes and Máximo mentioned the number, we are seeing small reaction -- or trying to sustain the level of -- with the margin of the company.

This clearly is coming from the level of measures we are taking in order to reduce costs, reduce working capital, and adjust our facility to the new level of sales that we are having. And the way to reflect that is precisely there. Sustaining or trying to sustain as much as we can deliver of EBITDA margin that the company will resolved.

So, clearly this is a way we have to sustain profitability in our company. As you know, the company is always working and looking for ways to reduce our costs. And clearly especially in situations like this one. So, those are difficult to put a number to that. Therefore the company is doing -- it's very, very strong.

And the reflection will be in a small reduction of our EBITDA margin..

Yes. That will actually meant more on the specific expenses associated to COVID-19. So, like, sending people to work at home or postponing the project.

So, what is the cost of just basically postponing the project? Do you have some specific cost associated to that? But that I understand, the lower fixed cost solution issues and et cetera but it's more on the specific costs or expenses associated to COVID-19..

Yes. We are not seeing a huge -- an increase in the cost of that. I mean, the project for example, the CapEx and the project we are postponing, we don't see an increase in the CapEx there, once we resume operations. In fact, to be honest, we are seeing some reduction in the total amount. We are going to invest in cost in fiscal year.

Because we are seeing ways and renegotiations of some contracts that we are seeing some savings there. So, overall we cannot see a huge impact on that cost, as of as of today. I mean, it's true that there are some people at their home, especially the vulnerable ones, the one that has preconditions that make their health more vulnerable.

But apart from that, we are seeing only reduction in our costs. I hope with that analysis, it is more, clear to everyone..

No. That's clear. Thank you, guys..

You're welcome..

[Operator Instructions] Your next question is from Alex Hacking with Citi..

Good morning. And thanks for getting my name correct. I was excited to see, what do you calling. Just following up, you mentioned a small reduction in EBITDA per ton in the second quarter. I guess could you describe a little bit more like your cost structure in the second quarter, because obviously, we're going to see low volume.

We're going to see lower prices. And maybe some of the levels that are allowing you to, I guess moderate what you're expecting on EBITDA per ton declines. Thank you very much..

Okay. Alex, as you heard let me take this one. Clearly, what we are seeing is different things. You're right that we see a new volume. You are right. Then we will see pricing. But it is also prove that we are expecting to see, some reductions in raw material costs.

And more significantly than that is that we are seeing -- we are expecting to adapt our facilities to produce the level that we really need to supply our customers.

Specifically, for example, in the case of Brazil where we are expecting to ship basically the same level of volumes to third parties, and we are reducing the shipments to our own facilities in Mexico just to adapt the production level to real need of facility and not to increase our inventory.

This is clearly another way for us to reduce the cost of the training, level of inventory. Same thing in Argentina where we were able to reduce the level of output of our blast furnace to the current needs of our facility. Beyond that, we are working very thorough as we always do, but now we need to do it in a shorter period of time.

We are reducing the cost of any contract that we can have or we the overhead cost in our in our system. So, we are working as Máximo mentioned with our suppliers also to work together to go over the situation trying to test and to reduce if we can the impact of these costs in our -- overall time.

So, we are working in many different fronts, probably the only cost that is not reducing in line with the other is the iron ore, but besides that we are seeing a reduction and we are making a lot of effort in the rest of our facilities to adjust to new current situation.

This is the way -- the best way we have to cope with reduction on prices and sustaining as much as we can the level of EBITDA margin..

Thanks, Pablo, and then just a follow-up. I mean, so you would view the cost savings and the EBITDA per ton generation in 2Q as sustainable in those market conditions. So it's not just a one-off effect of inventory revaluation or something like that.

Ternium could sustainably operate at these lower volumes and lower prices, obviously, we expect some kind of rebound, but Ternium sustainably operate at those levels, you know, for a longer period of time.

Do you understand my question? Does that make sense?.

Yes, that makes sense, Alex, but clearly so we are looking for as we said the reduction in volume probably in our case will be lower than other in our company. Clearly, the situation that we have in Mexico is one in which we can moderate the reduction because the level of imports that all will reduce first than the local producer.

But -- and we don't -- we can operate at a reduced level. We are seeing already -- was already mentioned the call the some smaller lease trends more recovery, for example in the uncertain market.

In the case of Brazilwe can switch because we have contributed to that is that it's a reduction of sales to third parties to move ship -- move volumes to our own facilities in Mexico.

And clearly, Mexico where we have main market if there is a revert of the auto sector that was already discussing and all -- and reopening should see in the medium term. After the second quarter, that's at better level of volume.

In any case, clearly, we have adapted our facility to produce and to be relatively profitable at the current level of demand. Clearly, the level of profitability is below our target level. But we believe that if there is a recovery volume that we could go back to these specific levels..

Okay, thanks. And then just one follow up, if I may. Any estimate for working capital for the rest of the year? Thank you..

Yes. Working capital, as Máximo already mentioned that all-in-all just to run the numbers, we are expecting to have $600 million this year or next year. So, as you know, we already mentioned that we invested you in the first quarter $250 million. Over the rest of the year is a difference to around $600 million.

So, we have reduced the level of CapEx and this is clearly the number. I think that was your question, Alex..

Sorry. It was just about working capital, not CapEx..

Sorry, sorry. There was some noise in the line, so I thought it was CapEx. So, yes, working capital, clearly, we continue working in reducing the level of our working capital.

As you know, when you have a significant reduction in volume, it's difficult to adapt very, very fast to have a reduction in working capital to be at the same level needed for the production level. We were able to have a positive working capital reduction during the first quarter.

Clearly, we believe that we will continue, at least, during the second quarter to make an effort to do that. So, should be also positive number during the second quarter..

Thanks, Pablo. Take care..

You too. Thank you..

At this time, there are no further questions. I would now like to turn the call back over to the CEO for closing remarks..

Okay. Thank you all again for the interest on our conference call. Please contact us if you need any further support or comments. And in the meantime, take care and stay safe all of you. And hope to see you or hear from you all in our next conference call. Thank you very much and goodbye..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..