Companhia Siderúrgica Nacional (NYSE:SID) Q3 2022 Earnings Conference Call November 1, 2022 10:30 AM ET

Company Participants

Marcelo Cunha Ribeiro - CFO and IR Executive Officer
Helena Guerra - Sustainability Director
Benjamin Steinbruch - Chairman and CEO

Conference Call Participants

Daniel Sasson - Itau BBA
Rafael Barcellos - Santander Bank
Carlos de Alba - Morgan Stanley
Caio Ribeiro - Bank of America
Isabella Vasconcelos - Bradesco BBI
Leonardo Correa - BTG Pactual

Operator

Good morning ladies and gentlemen. At this time, we would like to welcome everyone to CSN's Conference Call to present Results for the Third Quarter 2022. Today, we have with us the company executive officers.

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

We have a simultaneous webcast that may be accessed through CSN's Investor Relations' website ri.csn.com.br/english where the presentation is also available. The replay of this event will be available on the website for a week. You can flip through the slides at your own convenience.

Before proceeding, we would like to clarify that some of the statements herein are mere expectations or trends and are based on current assumptions and opinions of the company management. Future results, performance, and events may differ materially from those expressed herein as they do not constitute projection.

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

I will now turn the conference over to Mr. Marcelo Cunha Ribeiro, CFO and Investor Relations Executive Officer, who will present the company's operating and financial highlights for the period. Mr. Ribeiro, you may proceed.

Marcelo Cunha Ribeiro

Good morning, and thank you all for participating in our results call for the third quarter. Our quarter highlights, first of all, I would like to mention that this was a pretty turbulent period due to the change of prices in commodities, especially in the international market, iron ore, the impacts of the Chinese economy that is going into a slowdown impacted by the global markets have just and the prices of steel and mining at domestic level.

We did our part in this very complicated period. We obtained a good operational result of growth and volumes and a reduction in the cost of production of our main business. It shows that we are quite resilient in our figures.

Secondly, we were able to conclude our strategy that transform cement business. Integrating plants and assets of LafargeHolcim, now called CSN Cement Brazil, it has been consolidated in our figures during September. The good news is that we have a company with ever stronger results and more promising synergies in the third place and as a subsequent event, we were able to conclude two acquisitions that will also transform CSN in terms of energy.

We concluded the acquisition of Quebra-Queixo and ensuing this the inclusion of control of CEEE-G. And this is a step of the growth towards renewable and competitive self-energy, but also poses a low risk and is an excellent segment. These are the highlights for the period.

We go on to page three with our consolidated operating and financial indicators. A normalization of our profitability based on a change of all of that exuberance that you observed in prices and commodities at the beginning of the pandemic. This allows us to have representative margins in all segments. This quarter, we had an evolution with a drop of EBITDA of 16% because of the steel sector, where there was a compression of margins in the quarter and the prices in the international market dropped and sequential increase of prices.

The good news is now the prices and the raw material costs are going down, but we do have a negative variation in the period. In mining stability, marked with a growth in production volumes, lower costs offset with a lower price for iron ore. In cement, a strong performance and the consolidation of the CSN Brazil for the first month.

We have 24% margins for the quarter we continue on. We see the past generation; we begin with investments that showed a stable performance. At BRL839 million, we have already communicated to the market we're being very careful with our reimbursements because of a more turbulent market. And because of the increase in prices and cash generation, we took that decision to prioritize our initiatives and this is being reflected in our expectations for investment in the year 2022.

Initially, it was to BRL34 billion, we are now at BRL3 billion, which is in accordance with a moment that we live in. And because of the delay in our main expansion project, we begin due to a delay in the manufacture of equipment, which is somewhat complex in terms of the delivery.

The outlook for the CapEx for the fourth quarter will drop, following that guidance of BRL3 billion in working capital, a significant evolution. This is one of our essential leverages in our search for cash generation. We have had good news and several friends, stocks that are dropping -- and drop in the price of raw material and the length and even the term, we have the suppliers boosting and aiding our net working capital with an impact of almost BRL3 billion.

On the following page, you see the adjusted cash flow where we show you a favorable comparison vis-à-vis previous quarters. In previous quarters, we were impacted by the working capital because of the high costs and raw material with a negative impact in cash generation.

And presently you'll see a strong cash flow, a very timely one, offsetting the investment period taxes with a cash generation of BRL3.2 million. What is essential when we look at the next page is to look at our leverage under control. Of course, the leverage has increased as we have a normalization of EBITDA and it goes from the last year to values of one-time now getting to 1.7 times. But of course, this is the result of a very strong moment that we had this quarter.

The confusion of the LafargeHolcim operation that should have reduced our indebtedness, as we had a reimbursement of BRL4.8 million net debt increases BRL3 million, goes up to BRL24 million and leverage stands out 1.7 times.

What is relevant is that we're changing our leverage guidance for the medium term. Medium term means the end of the year 2022 and the beginning of 2023 to a level between 1.75 and 1.95 times net debt above the level that we desire, which are one-time. So, we recognize an increase in the price of commodities and capital allocation made recently.

The outlook is to have a lower price of commodities in 2023. And with this adjustment, we will maintain additionally strong cash generation, avoiding the leverage to go above these levels. On page number seven, our liquidity which is based on our policy, of course, BRL15 billion in cash is quarter. And this is the moment we reached with a series of initiatives and the management of our liabilities.

BRL1.4 billion for mining infrastructure, adventure, and institutional CSN debenture carried out in the month of October. With this, we were not only able to obtain this amount, but lengthen our liabilities with a short-term coverage of more than six years and a very strong balance to face up to this moment of uncertainty. And the investments foreseen for the coming year. A very strong metrics that deserve the continuity of our upgrades in terms of credit ratings. We have a BB at present, we expect BB-plus very soon and of course, this is a structural search investment-grade for us.

I will speak about the performance of each separate business, beginning with steel. We had a strong performance in terms of volumes in the domestic market, we had stability. CSN was able to grow almost 20% using the distribution channels and its strength in segments and continues to grow in civil construction, which has been quite resilient.

This offset other segments where the growth is slower, for example, the automotive segment and the white line. We have the typical seasonality of the summer in Europe. But we're on a very strong path of profitability, especially in terms of profitability in Germany, where we have excellent prices and favorable costs because of energy hedges and low raw material cost. This has given us stability during the period.

In terms of revenue despite the growth of volumes, we had international prices that were adjusted dropping approximately 9%. In the case of EBITDA, the compression of margins caused by the prices and also because of very expensive raw material in purchases during the second semester coke and coal, reducing the margin in the period to BRL1.2 billion, BRL1.3 billion with an EBITDA margin of 16%.

In the next page, we see that this cross increase was a timely thing. In production we have good news, there has been a drop of 6% BRL4,100 of slab and when we compare the cost of September with the average of the period, there is a subsequent drop. The cost in September was 8% lower than the average for the quarter, showing us clear direction for the fourth quarter. Costs will continue to be reduced significantly because of the raw material and because of the operational enhancements. This quarter we had more than 1 million tons of slab and this helps us to reduce our fixed costs.

We had BRL1,100, $105 of EBITDA per ton. Between the peaks, of course, that we saw in the pandemic, but with interest in profitability above our historic average and this is how we will continue in the coming quarters.

Speaking about mining, as in steel, we had an important moment in terms of production volumes and sales, vis-à-vis the weaker quarters in the past impacted by operational restrictions because of the heavy rainfall and the tension of the use of water at plant. These problems were reduced during the third quarter gradually. We're still at the maximum limit of production that we will reach in the fourth quarter with all of the projects coming into operation. We still have some enhancements to do. This is the good news, but we did achieve its important evolution. But we had a significant drop in prices.

Stability and the revenues is positive evolution of 20% in sales, offset by a greater drop in prices and offset by good news and quality and the cost of freight. And that is why there is a drop of only 3% and EBITDA margin without a significant dropping of the costs were very good.

We had an important evolution, an increase in production volumes, and better cost in the movement of our freight. So, we are at the best level of the year of $19 with a neutral EBITDA, vis-à-vis the second quarter.

On page 13, perhaps better comparison, eliminating the effects of that reversion of prohibitions of cargo, sold that provisional prices, orange and orange. This quarter our EBITDA gross because of enhancements and all of the lines, better volumes a better quality mix, better purchases, reduce freight, and lower cost, offset by the negative evolution of the index with a drop of 15%, we get to an EBITDA of BRL960 million, our breakeven of iron ore has ever been China is competitive. And despite the lower slab prices that will not persist below $80, we're making margins that are higher than $20 per ton. We have interesting margins presently.

Regarding the next segment, which is cement, we had a very special quarter with a change in level in terms of volumes, because of the consolidation of the 10 plants of LafargeHolcim in Brazil, now called CSN Cement Brazil. Compared to our historic average, we have grown 600,000, 650,000 tons a month, and growth of 50% that we had between one quarter and the other.

Now, because of this consolidation, the business did very well prices were recovering their increases based on inflation volumes, quite strong, reflecting a very resilient construction segment. And without the consolidation of LafargeHolcim, our results were increasing. We also have the consolidation of our PCA Tools that were acquired to offer us sufficiency and to work with our cement business witness our margin was increasing, we had the consolidation, this additional production and with this our EBIT went from BRL160 million to BRL260 million for the levels are still not what we expect this will become formalized in the fourth quarter. But it shows us the potential that the cement business has. In the past there was 1% to 2%, it will have a more relevant share in the fourth quarter. And with the acquisition of a lot LafargeHolcim, Brazil.

Now, to conclude our energy business, at the end of the third quarter, we had the closing of the acquisitions that will transform our energy business, Quebra-Queixo for BRL127 million funded by anticipation, a very efficient way of funding energy assets. And it will bring about a competitiveness and production of iron ore will benefit production and will transform us into a player in the energy sector not only in our search for efficiency, as well as enable us to sell some of this energy, we have already begun to operate this business. And we're quite enthusiastic with the opportunities that we're finding.

With this, I would like to turn the floor to Helena Guerra, who will speak about our ESG performance for the quarter.

Helena Guerra

Good morning, everybody. Here we are, again to present results for the third quarter. The full material is being presented here towards offering you a very transparent vision of ESG and the company.

In the last quarter, for the eighth consecutive year, we received an award, because this is the highest level of qualification of our inventories. During this period, because of a better understanding of our actions, we were able to improve our performance and the rating went up to 55 points, the average of the world is 20 points. And we also began our study on climate changes, we're analyzing our processes to detect some opportunities.

Now, this construction of scenario is based on the best market practices. And they will enable us to make more assertive decision when it comes to climate changes. To continue speaking about climate and our emissions for the quarter, the accrued results for the nine months of the year going to adherence to the plan set forth for each segment.

Improvements in the production of steel and a slight increase in the level of emissions in the production of iron ore. And, of course, we do have great expectations in terms of performance and the implementation of projects that have been set forth.

We spoke about renewable energy of course, when it comes to speaking about climate changes, and this is so important for the company, it is through the company strategy that we will be able to stand out and also work with new innovation projects.

We will have clean energy that can be scaled up in several of our new developments. Now, speaking about our dam management, we're continuing the de-characterization works on the Vigia Dam. We have completed the structural building and officially we're seeing acknowledged as being a characterized and then there is nothing reported in terms of our license.

We have had a significant evolution in operational terms. Quarter-on-quarter, we speak about our security, which is also under evolution. We have reduced the number of accidents. The problem of parties always presenting the best results are historical series.

This quarter we reached the best figure and we end up the quarter with Zero fatalities. And in terms of social and diversity, of course, we're under constant evolution. We have increased the representation of women in leadership positions. In nine months, we have significant advances compared to 2021.

Question-and-Answer Session

Operator

Well, thank you. We will now go on to the question-and-answer session for investors and analysts. [Operator Instructions]

Our first question is from Daniel Sasson from Itau BBA. You may proceed Mr. Sasson.

Daniel Sasson

Good morning to everybody. Thank you for taking my question. Marcelo, if you could remark on CapEx, the reduction in your guidance is coming from something that will continue on the next year, what is your expectation of CapEx for 2023? At this moment of greater certainty, it seems that you're revising the execution of some projects when it comes to steel. If you could speak about your expectations for volume and the guidance for 2022 was given 1.6 million tonnes if you could remark on this? and perhaps Martinez [Indiscernible], if you're comfortable with these levels, and give us more color in terms of volumes and prices for their short-term? Thank you.

Marcelo Cunha Ribeiro

Thank you for the question. I will begin to answer the question on CapEx and then give the floor to Martinez for his outlook on volume. Regarding CapEx in the medium term, we still don't have anything. We're carrying out this exercise now. We're going to share this during CSN Investor Day in the middle of December. But of course, we're working with priorities as we have during 2022. This gave us a savings of BRL1 million because of the moment of uncertainty.

And we're trying to increase the cadence of projects that will be delivered in a different timeframe. We're thinking of productivity gains in steel, growth in mining, but we do have to respect the environment and liquidity and leverage issues.

This doesn't mean that we're changing our direction in steel. We're going to work with changes and centering, have some shutdowns and in terms of mining, the great project is the expansion of P15 and PK expansion. In the other projects, we do have a master plan and part of our trajectory is to de-characterize the dams and of course, work with the tailings. This is a subsequent enrichment, and their timeframe might become somewhat more flexible.

We're going to maintain the annual CapEx but far from the levels of BRL10 million that we had in 2022. Of course, we will have significant expenses in these projects. But so far, we do not have a precise figure for the medium term. Very soon we will be sharing this with you in the following 30 days.

I give the floor to Martinez. Should you have any more doubts, we can continue speaking.

Unidentified Company Representative

Daniel, good morning and thank you for the questions. I will begin speaking about the market. The Brazilian market for flat steel this year will end at 4.4 -- I'm sorry 14.4 million, 14.6 million tons, vis-à-vis the other years and in 2021, there will be a small drop.

And from the viewpoint of volume, we should reach a very interesting figure, of course, because of the market conditions that we have had this year. Still speaking about the fourth quarter and the outlook for the sectors, some continue to be very positive, agri business, for example, construction, agricultural implements, machines deployment, packaging trucks, although these sectors are operating very well in terms of skill in Brazil.

We have trucks with a percent machines with 12%. Some sectors that leaves a bit to be desired that should improve our automotive sector. Although, it did improve in the third quarter, the outlook is more positive for the fourth quarter and the white line. Also, it suffered significant seasonality in the third quarter, but they're getting ready for Black Friday, another end of the year activities from the viewpoint of guidance.

In the domestic market, that fixture is 3.3 million tons for the year. And totaling for the group, a figure of 4.7 million tons considering Lusso sider with 300,000 Wt60 Long in Brazil 240,000 and in the US approximately 230,000. Approximately this would be the guidance of volumes that we have for the year, a very positive piece of information, strong penetration this year will drop to levels of 14% to 15%. This is good news. It will return significant volumes to the domestic market.

And when it comes to prices, we have focused on. I mentioned this in the previous call that we were focused on recovering market share and we did, we had a growth of 20% in the domestic market. It will be a minor seasonality at the end of the year, as happens every year, especially in September. And in terms of prices, what I can say is that the premium although we have all heard the price has to be able to compete. The premium is 18% to 20%. These are the nationalized imported product.

As Marcelo mentioned, our strategy is to remain operational and to compete, our slab, I don't know if you will recall this, back to BRL 4,200 per ton at the worst moment, should end the year at lower levels of BRL3,700, BRL3,600, which makes her very competitive currently.

What I can say regarding the market strategy is that we're going to continue to diversify the production we're going to work towards added value all of the action in all markets. The geographic issue is very important. We're well positioned in Germany, Portugal. There is a trend for recovery until the end of the year beginning of 2023. And in the USA, good news, we have a sunset review for cold and hot lamination. So the US opens another door for the CSN. Besides the amount that we export every year, we will have the opportunity of exporting 50,000 more cold lamination and the 150,000 of hot lamination.

Brazil, one, three to two and the other countries that were able to eliminate the anti-dumping last by seven to zero, which shows that we have a good outlook for Brazil. Now still speaking about strategy, wherever more horizontally integrated, we're seeking vertical integrations in long-term processes, with strategic intentions, of course, and the market of synced material. We're still struggling for prices. We have to fight against the imports in Brazil.

The imports 95% come from China, they arrive in Brazil with prices that are much lower than those of the domestic market. We're going to continue to fight to maintain our margins and a better cost. Now, an important piece of information so that we can add value ever more. We announced an investment and the new painting line. We're still seeking a location, it will be 160,000 tons per year for automotive and for the white line, which means that we will gain some more diversity.

In the metal line, we're working very strongly with the American market to increase our quota in the US market, the quota is very small for Brazil. If we can get to 80,000 or 100,000 tons a year, this would be highly desirable. This is all and thank you for the question.

Daniel Sasson

Thank you so much, Marcelo, and Martinez.

Operator

Our next question is from Rafael Barcellos from Santander Bank. You may proceed, sir.

Rafael Barcellos

Good morning. Thank you for taking my question. I have a question about the leverage that you have spoken about. Will you speak about the price of iron ore or the same prices, you spoke about steel? Now, regarding cement with the consolidation of Lafarge, what is your outlook for profitability? And if you could detail the growth that you're going to have an investment? Thank you.

Benjamin Steinbruch

Well, thank you for the questions. Regarding the leverage, we do have that range, but it's more focused on a goal. We're aware of the challenges that are necessary to broaden that leverage and work with a drop of prices of commodities, which is important for CSN.

In this forecast, we have already included in iron ore at a different level that we saw this quarter between $80 and $90. And if the iron ore continues to drop in terms of price, the intention of CSN is to maintain indebtedness below that level of 1.95. We're going to seek out other initiatives to make this a ceiling a limit.

In terms of management, whenever we see the leverage increasing, we seek alternatives to reduce the leverage to get back to the levels that we deem acceptable.

Now, I will give the floor for a fuller response. I'm sorry, I'm a bit hoarse. In terms of the evolution of profitability of cement, nowadays, CSN is the most competitive platform in Brazil. We work with margins of 130% Lafarge operates with lower levels. Marcelo has already mentioned that we found a very well structured company with excellent assets, and that we're seeking out opportunities on synergies that are greater than we had imagined initially. We're quite convinced that in the short or medium-term, we will bring Lafarge into operation with these very high levels of EBITDA. We're working on this.

Now and for this, of course, we have several synergies that go from A to Z in the commercial area, the logistic area, operationally and then the commercial area. We're going to replicate the model of success that we have with CSN, our pricing strategy. In logistics, we work with optimization and our services to the market, focusing on regions, municipalities or markets.

And in terms of operations, we have several synergies, beginning with electrical energy. In the second semester of the coming year, we will have high production of energy, which will be important, because of the acquisition of the plants that have been mentioned. And synergies that we're seeking in terms of efficiency, cargo, energy matrix, a new avenue of things that we are capturing and they're short-term getting ready for the year 2023 were quite optimistic in terms of this.

Regarding the growth plan, we have 16,000 tons of capacity. We're selling 12 million to 13 million, there's still room for growth, of course for the present day assets. And we have two important points, one to be attentive to market opportunities. We believe that consolidation will continue in Brazil. CSN is a major player in this process. We're going to look at the opportunities with a great deal of discipline, of course, and an organic growth plan, where we have the opportunity of building greenfields.

And we have three projects in our pipeline that will be initiated, if there is the need for this or if we have a better visibility of the growth of the market in the coming years. There's a project in Pará and other in Paraná.

Now -- while we don't begin these projects, immediately, we're working with the maturity of these projects, working with a licensing, the protocol of intentions with the governments, and definition of all of the equipment, so that these projects will be highly competitive in their respective regions. I hope that this has responded to your question, and have fail to complement the information that [indiscernible] has just conveyed.

We're going to follow the strategy of diversification in cement. Today we have the best of both worlds as CSN, we were highly focused on the retail segment 90%, we sold to the end users and customers. We have 20,000 clients. We used to sell to only 8,000. That was our goal initially to sell to less clients.

And now we have an operation that is very focused on bulk cement, technical cement that will sustain the growth of infrastructure in Brazil. And when we speak about geographies, and going beyond the projects mentioned by [indiscernible], we're very well positioned in some regions of Brazil and the Northeast, in the southeast, and the region of Rio de Janeiro and Minas Gerais or in São Paulo, we have a market share of 20% for Brazil. In some regions, we predominate in the region. And this allows us to also work sales channels distribution. This is a strategy that we're going to work with diversifying the geography, the customers, and of course focusing on the value of the company, whether it is in bags or bulk.

Rafael Barcellos

Thank you. Thank you very much.

Operator

Our next question will be an English from Mr. Carlos de Alba from Morgan Stanley.

Carlos de Alba

Thank you. Good morning, everyone. Just a couple of questions. One is when do you expect, when do the hedges that you had in place in Germany for energy cost or energy inputs will expire? And if you could give us a sense of how much below current spot prices were you purchasing energy at in Germany? That will be useful.

And then the other question is on the benefit of the energy acquisitions that you recently did on the steel sector in particular, have you quantify how much dollars per ton of a slab reduction in respect to reduce or cost per ton? And however you have quantify that will also help us. Thank you.

Marcelo Cunha Ribeiro

Thank you for the questions, Carlos. Speaking about Germany, we have had that hedging policy for 10 years. There hasn't been any alteration and the policy is to hedge 100% during the short-term period. And then quarter-on-quarter, we work with a scale with a percentage drop this year. We had more than 80%, logs had 74 hours per megawatt hour, and the coming year 25% to 30% of our volume will stand at that same price. We would be working with those spot market where the prices are much higher 300, for example, but even with these lower hedge levels for the coming year, we are looking at a result that will be double our historical results. €50,000, €60,000 for the unit, and we will pay double of that, because gas and energy will be more expensive.

This is the combination of limited supply. There are production problems there. And gas perhaps we'll go down. We will work according to the policies with lower prices. And we hope to have a very strong market for the coming year.

Regarding CEEE, it brings us BRL 300 million in terms of benefits reduction in the cost of energy for steel, mining and cement. And approximately half of this refers to steel, was speaking of BRL 650 million, or $30 million, $10 per ton. This is what improves in terms of our margin because of this synergy.

Carlos de Alba

Thank you. Thank you very much.

Operator

Our next question is from Caio Ribeiro, Bank of America. You may proceed, Mr. Ribeiro.

Caio Ribeiro

Good morning, and thank you for taking my question. My first question is about the expansions in the steel sector. If you could speak about the growth that you're contemplating here, and perhaps convey some details in terms of volume and CapEx?

Secondly, you spoke about the results that you think there will be a drop in the price of some inputs during the fourth quarter and a drop in the price of the slab. Could you give us an outlook, which will be the margin that you expect in the steel sector for the fourth quarter? Thank you.

Marcelo Cunha Ribeiro

Well, regarding the expansion, it would be interesting for Martinez to mention what we announced recently. Martinez?

A - Unidentified Company Representative

Hi. Good morning. This new painting line is another steps that we're taking in our strategy towards a value chain. To give you an idea, we have a line in Paraná that produces 120,000 tons a year. This new line was acquired is a line that was in operation in Korea.

Japanese lines state-of-the-art, also producing 160,000 tons. And we're now disassembling and working with engineering. I think that in the first quarter of 2024, this line will be operational in Brazil. Obviously, this is another step. We're going to work with more zinc material and work more with painting and the focus is export. The market here is given what comes in here in terms of pre-painting represents the capacity of our line, we're very comfortable that this line will arrive full. It is for simple construction on the white line that chosen markets.

When it comes to the expansion of CSN what is more important is consolidation. We're working on steel sheets in the domestic market with 350,000 tons a year. We have capacity with a low CapEx of reaching 600,000 tons, but we do count upon the eventual opening of the North American market to exploit this. So we're focusing more on this market and it will depend on what we're doing with the American market.

In terms of other types of growth, we're working with an exercise that's present. We're making investments upstream. And we have engineering production, that commercial team jointly deciding what we're going to do upstream. Of course, we have analyzed the possibility of increasing capacity and volume. In Brazil, there is another line that comes in of imports. And we think that we can also increase the capacity of the same products. This is still under -- and we're working with this in how we're going to keep away from hot rolled products are going to work more with coated products, products with added value to be closer to the end consumer and ending steel per kilo instead of selling it for 10. This is the goal of CSN, Marcelo, I don't know if you're going to add whatever it is that we're serving outside of Brazil.

Marcelo Cunha Ribeiro

Well, I'm sure being shown me will also make remarks on the company's strategy. There it is important to internationalize, in the more developed markets, especially in North America. But we're now reviewing the timing to put in place these projects. We do -- we have -- we have made strides in terms of long steel. Because of this internationalization, we truly do like this project, but it will be put in place at the right moment, it will all depend on the context. I will give the floor to Benjamin to remark on this.

Benjamin Steinbruch

Regarding your second question cost. Simply to clarify what was said during the presentation, we had the cost of flat of 40,100 in the third quarter. In the fourth quarter the cost is 8% below that the average points to the trend, there will be a greater drop in the fourth quarter here, which means that as part of price expectations, our margin per ton may increase marginally. There are too many variables involved. There's a seasonality of the quarter, but our margin increases marginally because of this drop in prices.

Caio Ribeiro

Well, thank you. Thank you very much, Marcelo, and Martinez.

Operator

Our next question is from Isabella Vasconcelos from Bradesco BBI. You may proceed, ma'am.

Isabella Vasconcelos

Good afternoon. Thank you for taking my question. We have two questions, the first referring to costs. You're going to enhance productivity. Several comments have already been made of this. But if you could give us more color, in terms of other initiatives that you're surveying in the value chain for the company? The second question simply to confirm this with Martinez, the strategy and the -- strategy is that you have worked on more, if that has changed, if most of your volumes will continue to do what they were doing in the past. This is our question. Thank you very much.

Unidentified Company Representative

Isabella, if I can begin answering the second question. This is Martinez. Regarding the contracts, nothing has changed quite the contrary. In the United States, we have seen that the negotiations continue to close annual volumes without any problem and revising the price every quarter or every six months according to the market.

Our strategy is the same in Brazil, in typical construction and industry in some sectors, and then the white line and automotive sectors. We do this quarter-on-quarter. Basically this is what we're thinking of regarding the negotiations with these sectors there beginning once again now, in a month or a month and a half, we'll have an idea of which will be the negotiations for 2023.

In the case of coated material, where I have 51% of my portfolio, we're going to continue to fight against imported products, we want to grow more and sell to more customers, there's no other way out. And commercially, we're working on all fronts.

Trying to go from the sunset review from hot to cold, the metal, cheater, metal folio, because we do find a great deal of Chinese coated material in Brazil, it's very difficult to compete with this, and the supervisors to tend to prefer the import of materials in this area. So we're going to focus on pricing in the fourth quarter, as Marcelo mentioned, we're imagining that we will maintain our margins through a cost reduction. Marcelo mentioned the word marginally. But we're going to work on costs so that we're able to marginally maintain our margins.

Marcelo Cunha Ribeiro

Thank you. To speak about cost, our main costs are raw material energy and services, maintenance contracts, followed ICT support. Now, in logistics, we do have a strategy. And the strategy is virtual utilization, and working with premiums. And this has given us good results. We have subsidiaries that are no longer suppliers of CSN. They're working with competitive products, the entire segment, came with this company as well. Where we work with very tight costs, and in energy, we're doing what we can. We're reaching indices of high production, to work with natural gas is also something that we could do we have projects for the longer term. So it's a combination of things and partnership with as Casa de Pedra looking for greater yields for the blast furnace working less with pellets.

We are seeking activities to increase our sale rate, and we're working just statistically in this market where we still have a great deal of opportunities. And all of these, we're able to have a very competitive cost.

Isabella Vasconcelos

That's very clear. Thank you.

Operator

Our next question is from Leonardo Correa from BTG Pactual. You may proceed.

Leonardo Correa

Good afternoon. Can you hear me? I hope you're all well.

Marcelo Cunha Ribeiro

Yes, we can hear you well.

Leonardo Correa

I have a single question. To clarify some points in the same question, leveraging capital strategy. If we look at the evolution many things have been done. Large -- well these are large acquisitions. And now there's that period where you have to absorb captors synergies and of course this has to be well done. Additionally, to the -- all of the IPO to process of the CE, there were also several projects, and a great deal of things on the table of a company things to be delivered and that were under evolution.

The question, therefore, that we have is that, of course, this is having an impact on the leverage of the company. For many years, CSN has been deploying a great deal of efforts in terms of reducing the leverage. And I think the market as a whole has been very appreciative when we look at the leverage there is almost two times this is a level that you had in the past. It puts the company into a different situation when it comes to global industries in Latin America, United States, Europe and Asia. Leverage is 1.5 times above the average. It was up there, that ceiling and your leverage and your objective the impression that we're under is that you don't have much room for maneuvering here.

I know that, you have spoken about your desire to make a company International, but all of your movements have been done domestically. If we think about all of this, if we think about your strategy, the leverage the risks of the scenario, the price of commodities, things are still rather hazy. This is just a time perhaps to start to integrate everything to continue on with what you have been doing. I would simply like to hear from you. Because this is very important to the market and the market is very focused on this? This would be my question.

Benjamin Steinbruch

Leo, this is Benjamin. I'm going to respond to some of these questions at the end. But as this question involves strategy, I would like to respond to it. And the other questions will be answered by others. First of all, a good day to all of you, thank you for participating in our results call. We truly have prepared the company for a deleveraging that was done very successfully. And because of this, we have prepared the company for organic growth and for acquisitions. You truly never know what will come first. We were ready to participate in mergers and acquisitions. And of course, we're continuing on with our investment plan. Our priority our strategic priority is to invest outside of Brazil, you are correct. We continue on with that strategy.

The conclusion that we have come to is that despite having very good margins in our businesses in Brazil, we are penalized by the multiples, which are much lower than those of our peers abroad, or even among our Brazilian peers, and because of an issue of reliability regarding our assets. Now, this effort towards internalization and each of the businesses continues to be a priority for us. At the same time, we're making organic investments and investment for growth. And what came up was a Lafarge Holcim and because there were no internal buyers. And because there was a need to sell off the company in the short term because of senior leveraging because of an acquisition they had done.

It was, well, this opportunity was left for us. We analyzed it. We analyzed it very speedily, because it was not part of our strategy. And because of what was presented to us in terms of the quality of the asset, the geographical diversification, the potential for synergy. This operation would complement us. We decided to anticipate everything makes the most of the opportunity and acquire the assets of Lafarge Holcim. And somewhat postpone that organic growth that we have in Brazil.

You said that, we have two projects at the port of Cimentos, but for example that are all packaged up. So we decided to make some most of that opportunity. And it truly was a very positive one the synergies are much greater than we had imagined. Besides the logistic issue that requires good management for the two companies, the complementarity and the possibility. Marketing, the production of each company in a more smart way, has increased the synergies, beyond what we had imagined. And although, the cost was higher than ours, because our assets are newer, because of the synergy and logistics and supply, it's going to reduce our costs and give us much better margins that we had expected.

I would say that this was a good opportunity that we made the most of and of course, we do not repent this as you can see from the results that we have presented beginning the coming year, we will have a significant EBITDA for the entire group. Now, when it comes to investments in the field of energy, we're being carried by the EDP or EDF, he says in the hands of the possibility of acquiring CEEE that they before. Because of the analysis, they dropped out we decided to continue on alone. And because of the amount sold of 66%, that's as soon as the 32% belong to Eletrobrás, we decided to continue on alone. And we got ready for an auction.

And if we speak comparatively of the assets that we had acquired previously, in terms of margin, we were prepared to go way beyond what we went for. And we thought it was a good business compared to the previous acquisition that we had done Quebra-Queixo, and Saucony and Santa Ana. So we were prepared to pay what we had paid for Quebra-Queixo and other hydroelectric plants and we were surprised with that margin of 10% which made the business look extremely interesting. And it enabled us to create our energy business. We were self-producers, we have shares in hydroelectric and thermoelectric plants, but with the acquisition of CEEE that has three we have the business of clean generation, which is very important for us. We craft this advantage and with an acquisition cost that was surprisingly very low. And very soon this will have a repercussion will have an impact on our EBITDA results and we will become very efficient producers of energy. And we do have a very significant potential for growth greater than we have in mining or cement.

I would say that, these were opportunities that we took. Contrary to the strategic priority that we had set forth, but with very good results, and we're quite calm in terms of what was done. Now, the leverage did increase. And we're offering this guidance. But I would like to say to you that we are ready for new opportunities to carry out some structure financial movements in the field of cement, as well as in energy as well as in the steel sector.

So that assumption that we had adopted previously of maintaining the leverage below one-time, that was our priority on our commitment, and we're going to maintain it, of course, not withstanding this, because of the opportunities that have come up in a very conservative fashion, we will not set aside working with opportunity businesses.

If you look at the price of operational assets, compared with assets that have to be created, whether Brownfield or Greenfield, you will pay one-third or one-fourth of the value. So that topic of investment, organic investments, organic growth, when it comes to opportunities, when you'll see a ready-made and operational asset, well you have to think judiciously, of course, you're not going to enter into a business where you won't make money.

Our greater commitment is what I mentioned previously, that we're going to continue to de-leverage ESP technology. And we will mandatorily maintain our focus every once in a while we may slip in terms of the leverage. this is a timely thing, a one-time thing. But whenever there is an opportunity, a window for a financial operation that will allow us to de-leverage, we're going to adopt this quickly.

And go back to that greater commitment -- our original commitment of deleveraging. Basically, this is what is happening. We have to be sufficiently smart so as not to allow ourselves to miss investment opportunities. But we're also going to make our commitment and our conservative stance when it comes to deleveraging. But of course, we're going to come up with some assets we are prepared to produce at a low cost. And with this, we will be quite aggressive in the market where we sell our products with Representative margins.

Leonardo Correa

Thank you. Thank you very much.

Operator

[Operator Instructions] Thank you. As we have no further questions, we will return the floor to Mr. Marcelo Ribeiro, the CFO and Executive Investor Relations Officer.

Marcelo Cunha Ribeiro

I would like to thank you for your attendance and I would like to give the floor to Benjamin Steinbruch for the closing remarks.

Benjamin Steinbruch

Thank you for participating in our call very few words in terms of our strategy and the priorities of the company in our business and share some information in terms of what we're thinking about and doing,

We think that this moment, is very similar with 2020, when the pandemic came about, we have very aggressive measures, preparing the company for this and for a significant change in production and consumption. We're presently doing the same the company is being prepared for a highly competitive market, something that is different from what we had participated in. As all of you know, the price of raw materials and prices in general and the level of economy as a whole are dropping, and we have to be prepared for a new type of market. And what we have to do is to work with a lower competitive price to make the most of the market in which we operate. We cannot predict the market. But yes, we can participate actively working with a low cost and this is what we're doing.

The company is ready to produce at a low cost and to continue to truly participate in a consumer market. We are going to have this drop in cause that began in the second quarter already as you know. The prices from the -- for the and when you see everything package the raw material and the services and the payroll and have some effect of inertia the price has dropped the cost because you have already bought raw material, the products are being manufactured and when you have an inventory, it leads to a margin decrease initially, but it then has a benefit -- the benefit of the drop of costs and raw materials and services.

It did have an impact in the second quarter. The third quarter was the worst. The fourth quarter will begin to improve and beginning with the first quarter in 2023. The company as a whole will be very prepared to work with low costs and participate in all sorts of markets commercially, we will be very aggressive. And being commercially aggressive does not mean to lower our prices. We want to set ourselves aside was seeking partnerships, shares, we want to maintain our philosophy of work. And of course, we want to be commercially well placed to be able to enhance the domestic market and also supply to the foreign markets

Regarding the investment, I have already mentioned this. There are many opportunities, we think that there will be ever more opportunities because of what is happening worldwide opportunities to consolidate segments and we have to be ready to participate in this. And whatever we think will be smarter for the company in the short term.

We keeping in mind the leverage lengthening the company debt we're already quite lengthened in terms of we're going to pay the maturities in the coming six years. We are concerned with working capital. We have after getting this minimize inventories, maximize the payout of dividends to work appropriately with inventories to have these 15 billion in cash, which is what we deemed to be necessary to give us that freedom of action because of size of the company and to also have that freedom for some choices that may appear in the horizon.

I spoke about the synergies that we have a longer asset and the focus or the strategy is a low cost, quality and the products. We continue on with that idea of quality. And the variable that plays in our CAGR is the quality of the product and added value to produce with a low cost. And to have added value and quality in our products, gives us a differentiated market vis-à-vis market, a low leverage within our commitment, aggressiveness in the domestic market, a payment of dividends is something that we think the market values and respects, and, of course, the issue of investments abroad.

So we're working within all of these variables. We're always seeking quality. As you know, our structure is a very lean structure. It used to be much larger than our structure than our fixed costs. We're attempting to work with a highly efficient management and very good quality. I think that as at this moment, we will have better margins and all of the products. The market is there, and we're ready for it. We're enthusiastic with this market.

When it comes to China, which is an important topic for us, we see that China is progressively returning or improving economic activity, perhaps not as aggressive as it was formerly, but progressively offering well-being and development to its population and iron ore will be an important product. When it comes to social issues and infrastructure for China. When it comes to ESG, or we're highly committed as always. And when it comes to security and governance, this is a flag that we work within technology and leverage.

I would like to thank all of you for participating in the call. Once again, we're highly enthusiastic. We're being conservative in terms of our forecasts, highly satisfied with the investments that have been made. And I'm aware that, new opportunities will come about in the short term in terms of mergers and acquisitions, both in the domestic and international markets. We do want to be a very active participant of the market without for getting our greatest commitment, which is maintaining the company de-leveraged. And of course, has perhaps had a minus that because of the opportunities but once again returning as soon as possible for this commitment.

Thank you very much to all. I hope to see you in person at our next meeting. Thank you for your participation.

Marcelo Cunha Ribeiro

Thank you.

Operator

The CSN results call end here. You can now disconnect. And have a very good afternoon.