Thank you for standing by. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ternium fourth quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Sebastian Marti, you may begin your conference.
Thank you. Good morning. Thank you all for joining us today. My name is Sebastian Marti, and I'm Ternium's Global Investor Relations and Compliance Senior Director. Ternium released yesterday its financial results for the fourth quarter and full year 2021. This call is complementary to that presentation. Joining me today are Ternium's Chief Executive Officer, Mr. Máximo Vedoya, and the company's Chief Financial Officer, Pablo Brizzio, 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 the 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.
You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya.
Thank you, Sebastian. Good morning, and thank you all for joining us today. 2021 was an amazing year for Ternium. EBITDA reached $4.9 billion, close to four times the previous year's level. Net income was $4.4 billion, and earnings per ADS were $19.5, almost five times earnings in 2020. All of these are record levels. Last year, Ternium also finished latest expansion program with the start up of its new state-of-the-art hot rolling mill at the Pesquería facility in Mexico and of the Palmar de Varela greenfield project in Colombia. On top of these very positive results, the company had significant cash generation with free cash flow at $2.1 billion. We took our balance sheet to a net cash position.
Taking into consideration the company's strong performance and its solid financial position, Ternium's board of directors proposed a dividend for the year of $2.60 per ADS, equivalent to $510 million. This represent an increase of 24% compared to 2020, and it is the highest annual dividend on record, being more than double the annual dividend level the company was paying pre-COVID pandemic. Another development is the company's recent offer to acquire from Ternium Argentina a minority participation in Ternium Mexico that Ternium does not own directly. This transaction is primarily aimed at streamlining our corporate structure. A simplified corporate structure allow for both a more straightforward management of our operations and an easier analysis of our performance and results by our stakeholders.
The offer is still being analyzed by Ternium Argentina's board of directors, and if deemed attractive, it would need to be put to the vote of its shareholders. I'll turn now to the status of our main markets, beginning with Mexico. Ternium's shipments in Mexico decreased in the fourth quarter more than what we expected in our last conference call. Even though the fourth quarter of the year is seasonally weak, there were additional factors that intensified the sequential fall in volumes. During the first nine months of 2021, steel consumption grew significantly in Mexico in an environment of increasing steel prices. With the local steel industry working at full capacity, there was a large increase in import orders to cover for the extra need of the markets.
In the fourth quarter, where steel prices began to fall, imports arriving with a longer lead time as a result of supply chain disruption caused an increase in inventories and a decrease in apparent demand by the end of the year. In addition, an unexpected persistence of the semiconductor shortage for vehicle manufacture continued impacting Ternium's shipments as the auto industry represents about a quarter of our sales volume. This was not the only affected sector, as other industrial customers have been dealing with a similar environment. Our current view is that steel imports into the region will decrease, in part due to the significant steel correction over the last few months. In addition, a gradual normalization of the availability of semiconductors should support a recovery in apparent steel demand and a consequent increase in Ternium's volume, something that we are already seeing in the first quarter of the year.
The company is ready for such scenario. As its new hot rolling mill in Pesquería continue to ramp up with the first 1 million tons of production milestone already behind us, and with a whole new range of products at its disposal to gradually substitute imports in the Mexican market. Let's review now the situation of the Argentine market. Shipments in Argentina has been steady during 2021, with a very healthy sales level, especially in agribusiness, the automotive industry, and constructions, and we expect this to continue for the rest of the first quarter. Having said this, there is a high degree of uncertainty regarding Argentina's macroeconomic environment in twenty-
Ladies and gentlemen, this is the operator. There is a slight technical delay. Please remain on the line.
Let me start with my remarks, and then when we get Máximo back in line, we will continue to hear his opening remarks. Good morning to everybody, and let me start by going to the presentations and review the performance of Ternium for the full year 2021. Sorry, Máximo, you're back in line.
Yeah, I'm sorry about that, guys. Something happened here in Mexico. I was speaking, I think, about Argentina regarding Argentina's macroeconomic environment in 2022. Although the country has recently agreed with the IMF, I think I was saying, on the topic of a roadmap to refinance its debt. Argentina has very low levels of international reserve, a significant fiscal deficit, and high inflation. If these imbalances are not addressed appropriately, instability in the main macroeconomic variables in the country could have a negative effect in Ternium's sales in the market in the year ahead. I would like now to make a quick comment regarding Ternium's sustainability initiatives. In the last quarter's conference, I mentioned the company's carbon capture and usage capacity expansion projects in the Guerrero and Puebla facilities in Mexico.
Since then, we launched the second phase of the project at the Guerrero facility with the aim at increasing by 42% our current capacity. This will result in a total CO2 capture and usage capacity of over 400,000 tons per year in Mexico, equivalent to the yearly emission of almost 90,000 cars. Let me remind you that the technology we have installed at our DRI facilities is by no means common worldwide. These DRI models are among the greenest in the world. We have also launched a project at our slab facility in Rio de Janeiro to increase the scrap yard processing capacity with the aim at reducing the CO2 emissions rate of steelmaking in this location.
In addition, Ternium reported its decarbonization strategy to CDP for the first time in 2020 and received a B score on the topic of climate change, in line with the steel sector average. Ternium's effort to improve its safety performance were recognized by World Steel Association with the Safety and Health Excellence recognition. Diversity, equality, and inclusion continue to be a strategic topic in Ternium's ESG agenda. In December, the Human Rights Campaign Foundation certified Ternium for the second consequent year as one of the best places to work in Mexico for the LGBT community. Wrapping up, after an outstanding year in 2021, the company expects to deliver solid performance in 2022 in a business environment with gradually normalizing steel prices and margin. Ternium plans to leverage on its new hot rolling mill in Pesquería, a healthy apparent steel demand in its main market in the USMCA.
This, together with positive expectation for generation in the year to come, should put the company in a position to sustain attractive levels of return to its shareholders and to analyze opportunity for further profitability growth initiatives. Okay, I finish my remarks here. Pablo, please go ahead with the review of the quarter and the full year performance.
Thank you, Máximo, and good morning to everybody. I'm sorry for the inconvenience of having been delayed. Let me go back to comment on the presentation that we have today and review Ternium performance for the full year 2021. I will be analyzing the performance of the quarter. If you go to page three in the webcast presentation, in this slide. You can assess the magnitude by which Ternium prices in 2021 outpaced those of previous years. Regarding consolidated steel shipments, volumes were higher year-over-year in 2021, although they remained below the levels achieved in 2018 and 2019. The reason behind this was a significant volume of slabs shipped to third parties that followed the acquisition of Ternium Brazil in September 2017, as you can see in the chart.
As Ternium progressed with the integration of this slab facility in Brazil, these volumes eventually halved. The increase in finished steel shipments in 2021 reflected the ramp-up of Ternium's new facilities in Colombia and Mexico, and the recovery in steel demand. Looking forward, we believe that slab shipped to third parties will stay at current or slightly lower levels, while finished steel shipments will continue growing as we increase our presence in our main markets, particularly in the USMCA region. The EBITDA margin in 2021 reflected increase in steel prices along the year. Benchmark steel prices reached record levels in September 2021 and then started to decline. Yet the prices remain at very good levels, with enough space for healthy margin despite increase in costs.
Good profitability levels and continuous strength in steel demand supports our expectation for an overall solid performance for Ternium during this year, 2022. In the bottom right chart, you can review the increase in dividend during the last few years. As for the current year that we are discussing, 2021, the company has already paid an interim dividend of $0.80 per ADS in November last year. This means that if the proposed annual dividend of $2.6 that Máximo commented per ADS is approved at the annual shareholders meeting, a net dividend of $1.8, excuse me, dollars per ADS will be paid on May 11, 2022, with record date on May 6, 2022. We expect to pay an interim dividend again in November of this year.
Let's review on page four the cash flow generation of 2021. Cash flow from operations was the strongest ever, even after factoring in a working capital increase of the same magnitude. A large share of the increase in working capital was related to higher steel prices, as it has an effect on the value of trade receivables, and also the increase in raw material costs, with an effect on the value of inventories. The inventory also reflected an increase in the volume of steel products, related in part to the ramp-up of Ternium's new facility, and also to the recovery of steel demand. Turning now to the free cash flow, the figures for 2021 was also the strongest on record. Capital expenditure during the year remained within Ternium's usual range. The company concluded its expansion plan during the first half of last year.
For this year, 2022, we expect Ternium capital expenditure to increase a little bit compared to last year, with a base of approximately $600 million without considering any further expansion plans. Let's turn now to Ternium performance in the fourth quarter in the following page. The EBITDA in the last quarter of the year was down sequentially, but remarkably strong by historical standards. This result led to net income per ADS of $5.08, also a solid performance. Looking forward, Ternium expects EBITDA to remain at healthy levels by historical standards in the first quarter of 2022, with sequential decrease reflecting lower margins, partially offset by higher consolidated steel shipments. Going now to shipments, let's analyze the performance in each of our markets on page six.
In Mexico, you can clearly see how the situation we have already described affected volumes in the last quarters. Again, we believe that by nature this is a short-term situation. In the southern region, shipments were relatively the same, as the Brazilian market held pretty well. In the other market regions, shipments increased sequentially, mainly due to higher finished steel shipments in all of Ternium markets, partially offset by lower shipments of slabs to third parties. Looking forward, we expect finished steel shipments increase in the USMCA region in the first quarter of this year. The slab volumes, on the other hand, should decrease a little bit more in the coming period.
The next page seven, you can see that combining this development, we arrive at the consolidated steel shipments of 2.8 million tons in the fourth quarter, down 8% compared to the third quarter and the prior year same period. Let's analyze now steel prices and net sales. The fourth quarter, there was slight sequential increase in revenue per ton, with increases in all our markets because of the reason, the reasons that we have just described. In Mexico, contract prices sequentially increased in the fourth quarter, more than offsetting a decrease in benchmark steel prices that began back in September. While in the other market regions, there was a positive impact of the higher participation of finished steel shipments over slabs, in an environment of lower spot steel prices in these markets.
Looking forward, we expect sequentially lower realized steel prices in the first quarter of the year, with revenue per ton reflecting recent decreases in the spot prices, a partial offset of longer-dated contracts that will be set as usual with a lag. Moving on to the next page. We'll review now the main drivers behind the sequential changes in the EBITDA and net income. The EBITDA chart on top shows the impact on the EBITDA of lower shipments and higher cost per ton. Costs were higher as a result of an increase in raw material and purchased slab prices that, as usual, are reflected in our cost structure with a lag due to our FIFO accounting method. These negative effects were partially offset by an increase in revenue per ton, as already discussed.
The chart below shows that the sequential decrease in net income in the fourth quarter was mainly driven by changes in operating income and its impact on income tax. Now, to finish the presentation, let's turn to page nine to review Ternium cash flow and balance sheet performance on a quarterly basis. Cash from operations in the fourth quarter was strong $1.1 billion, as working capital increased much less than in previous quarters. There was an increase in inventory volume of steel products in the quarter, but it was partially offset by a decrease in trade receivables. The strong cash from operations was a significant increase in free cash flow in the fourth quarter, with CapEx remaining relatively stable. As a result, the net cash position was $1.2 billion by the end of the year in December.
Our current expectation is that Ternium will continue showing healthy cash generation during 2022. All right. Thank you very much for your attention, and we are now ready to take any questions you may have. Please operator proceed with the Q&A session.
The first question is from Caio Greiner of BTG Pactual. Please go ahead. Your line is open.
Yes. Hi. Thank you. Good afternoon, everyone. I have two questions. The first one, I wanted to explore your outlook for the first quarter. On the release, you mentioned an expectation of lower sequential EBITDA. I wanted to get a little more color on two topics regarding that, which is cost and realized prices. On cost, I was wondering if you could maybe share your expectations for the first quarter if you still see rising cost pressuring your results, and where is the pressure mostly coming from? On prices, I mean, we do have a good visibility on your revenue per ton one quarter ahead.
If you could just maybe share your impressions of flat steel prices in North America, if you are already seeing any signs of a bottom anytime soon, it would be very helpful. My second question on capital allocation. I mean, the company generated very strong free cash flow in the quarter. You guys are already at a $1 billion net cash position. I think the main question here is, what can the company do to move back to a more efficient capital structure? We have seen your dividend proposal. I mean, and I was wondering if this is not the time to maybe be more aggressive, become more aggressive on cash returns, considering the company is such a solid financial position.
Are there any plans to maybe have a formal written down dividend policy, maybe even based on free cash flow generation? If this is not the case, it would be great to hear management's capital allocation plans for 2022. Thank you very much.
Well, thank you very much, Caio, and good morning. The first question. Regarding cost in the fourth quarter, the cost increased by roughly $100 per ton. Mainly, the causes of that increase were slab purchases of iron ore, metallurgical coke. As you know, the inventory is put in a FIFO way, so it's a little bit of lag. What we are saying for the first quarter is that we are not going to have an increase or a substantial increase in cost. It's a very small increase. Regarding prices and the bottom out, I.
We talk of this in the last two conference calls. We were seeing that prices, especially in the USMCA region, were going to decrease. I mean, the gap between the USMCA prices and the rest of the world was very high. We even talked, I think, in one of the conferences, that we were going to see a new normal bottom price of around $1,000/ton. We are still seeing the same thing. I think the decrease was a little bit more steep than what we thought, to be honest. We are seeing the same thing. Another issue, so it's kind of coming to the bottom, I think in this quarter or early next quarter.
We are not seeing a decrease much longer than that. On the other hand, prices in Europe and in Asia are starting to increase a little bit. Raw material costs are high, so I don't think there's room for decreases more than that. The second question, Pablo? Yeah, the second question was-
Máximo is in relation to capital allocation. Let me start with just more comments, and then I pass over to you to further comment.
Okay.
Hi, Caio. How are you? I think that the company has been showing its intention to reinforce the distribution of dividends and allocating to shareholders part of the return that we have been generating during this year and trying to come up with something that is sustainable over time. As we have described in our opening remarks, both Máximo and myself or the board of directors proposed a dividend that is reflecting a dividend yield of 6% or more. Of course, because of the extraordinary level of results, probably the payout ratio is below the traditional one that we pay.
We have also introduced a biannual dividend payment, so an interim dividend around November and the full dividend announced by now and paid in May. All in all, we have reconfirmed the increase of the level of dividend paid, and as was mentioned during the opening remarks, is more than double the level of dividend that we had prior to the pandemic levels. As we always mention, we have a track record of increasing and sustaining our dividends, and this should be the case for Ternium in the coming years. This is in relationship to dividend payment. I guess that it's important for Máximo to mention certain things in relationship to capital allocation for the coming years.
Just one small thing before turning the work to Máximo is that this year also we will have important payments that we will need to make, basically tax payments that will reflect the good results that we had last year. This will be some need of cash that we will have for this year. I think that the most important part is how we are envisioning capital allocation and projects for the coming year. Máximo, I think that this is something that you will like to comment.
Yeah. Taking your question, Caio, of capital allocation, let me comment some things. As you know, you asked, you guys, in the last about some projects or what we were thinking, we are continuing analyzing projects of growth. We think we have a very solid operation in Brazil, in Mexico, in Argentina, and there's a lot of opportunity to grow. As you may have seen in the Mexican press, just today, we are in the final stage of launching a new expansion initiative to complement all these capabilities we have in the Pesquería facility. This particularly new expansion would include a pickling line, a second cold rolling mill, a third galvanizing mill, and several finishing lines.
The CapEx that was put in the press is around $1 billion, which is what we expected this particular CapEx would take. This will bring us the ability to increase our value-added products that today we have with the new hot rolling mill. Today we have a 4.5 million state-of-the-art hot rolling mill. Part of that material is going to go to our own use. Part of that material is going to go to the market because we didn't have that capability. Also, these new facilities will allow us to increase our value-added significantly in the future. That's another thing that I wanted to comment because there are several projects in the pipeline. This is one of them. I hope with this, Caio, we answered the question. It was a little bit long. Sorry about that.
No problem at all. I'll leave the other questions to the other analysts. Thank you so much, gentlemen.
Your next question comes from Rodolfo De Angele of JP Morgan. Please go ahead. Your line is open.
Okay. Hi, everyone. My first question is on the volumes in Mexico. My understanding is while there was the impact of imports arriving in the fourth quarter, and Máximo, you mentioned inventory levels going higher in Mexico. I just wanted to ask you, how do you see this situation of imports and inventories into the first half of the year? Maybe better, when do you expect to see it normalizing? A second question I have is just, you know, this is a short one. On the increase in CapEx, is that related to the fact that now with Pesquería you have a bigger kinda sustaining CapEx, or is there anything in addition to that? My final question is on, still on capital allocation.
If you look into the past, you know, the story of Ternium was marked by many important transformations, right? The company grew to have a footprint now in the key markets in the Americas, so very present in Mexico and Brazil, which was a gap in the beginning, and you know, in other regions in Latin America, including Argentina. When you sit down with your board today, is that, you know, aside from opportunities like adding value to the Pesquería plant, is this kind of the final picture that you foresee for the company? Or, you know, aside from opportunities like increasing value at existing lines, is there anything else? Is there a new geography?
Is there something else that is an ambition for the company as we look forward? Thanks.
Thank you, Rodolfo. Let me start with the volumes in Mexico and try to explain it a little bit, what happened and where we see 2022. As I said in my initial remarks, consumption in Mexico recovered very strongly. I mean, if you take 2020- 2021, apparent consumption of steel increased more than 20%. If you take apparent consumption in the U.S., which is also kind of an integrated market, increased 22%. There is a huge increase in consumption. This increase in consumption, both in the U.S. and in Mexico, happened mainly in the first nine months of the year. Our customers and customers of our competitors, they. We couldn't as an industry fulfill all the needs of our customers.
I mean, our ramp up of Pesquería started in July. We couldn't get that capacity on time. Most customers on both sides of the border, in the U.S. and Mexico, started importing more probably than what they needed. There was a huge lack in imports. I mean, imports usually take four to five months, and in some cases, because of this disruption of supply chains, because of vessels and ports congestion, this got to six, seven or eight months. Some of the imports that were supposed to come in the second or third quarter arrived in the fourth quarter. That's obviously for our customers, the way of putting inventories normal was not receiving shipments from the local suppliers.
I think this happened to all the companies in the region. Additionally, with all that, the fourth quarter also the automotive industry has problems with semiconductors and that wasn't in any plan, not even in the auto companies. We are seeing that this is stabilizing. I mean, imports are coming down. In January, they were down. Probably they're gonna be down in February and March. In December also they were down. We are seeing an increase in our order book for the first quarter and also for the second quarter. I think all this is normalizing and we are going to see at least from the fourth quarter an increase in the first quarter and the second quarter. I think with that.
Another issue is that both in the U.S. and Mexico are gonna grow in consumption in 2022, although not at the rate of last year, but at least 4% or 5% increase in consumption. Volumes are normally starting to increase. We are very confident that we are going to be able to attack these imports much better now that we have the capacity. The second question was about CapEx, Pablo.
Yes. The second question was in relationship to the level of normalized CapEx. Rodolfo here, in fact, if you look at the CapEx in the last couple of years, without taking into consideration the expansion plan that we finished beginning of last year, we are basically going with what we normalize CapEx of around $600 million per year. This is of course not only maintaining CapEx. As you're right, with the new facility, we will have an extra additional maintaining CapEx. This also is including some other small projects that we usually have and some announcement that we made in the past in the process of decarbonization or some safe initiatives that we have. In a regular basis, $600 million is a normalized CapEx.
This is not including what, as Máximo mentioned on the final stage of the new CapEx plan that we have. This is, we would say, the normalized CapEx. Máximo, the third question was in relation again to capital allocation.
Yes.
I pass over to you.
Yes. Thank you, Pablo. Rodolfo, capital allocation, as I said, besides this new plan in Pesquería, which is pointed out to make more value-added products, which I think there's a huge opportunity. I mean, we are seeing more opportunities. Clearly, you talk about new regions. Ternium
Are you listening to me? Yeah. No?
I can hear you. Hello? Yes, I can hear you.
Perfect. Sorry. We think Ternium is a company that's gonna be dedicated probably to Americas. I remember some conference call ago that if we are going to see things in Europe or other regions. No, we are seeing a lot of opportunities, and I think we have a lot of opportunities in North America. Mexico, clearly with 9 million tons of imports is a huge place where we have to grow. As I said before, in 2027, we have to be compliant in the melted and poured for the automotive industry, so we are going to be compliant to that.
We announced a couple of months ago our new investment in the U.S. for almost doubling the capacity in our Shreveport facility in Louisiana. I mean, our growth path, it's regarding the Americas, and as I said, we see several opportunities. I hope with that I answer the question, Rodolfo.
Yeah, no, you did. Thank you very much.
Your next question is from Caio Ribeiro of Bank of America. Please go ahead. Your line is open.
Yes. Good morning, everyone. Thank you for taking my questions. So my first question, moving back to cash returns, and, you know, I know that this has been a recurring theme for the company and over the past quarters. With Ternium, you know, net cash at $1.2 billion, you know, that seems like a very conservative level for the company, right? Even with steel prices continuing to drop ahead, we still see the company generating significant free cash flow, you know, this year, so this net cash position should increase further. I know you aren't looking to implement a formal dividend payout policy, but why not set a net debt target for the company, right?
In that way, whatever net debt levels are delivered below that target, you know, can be interpreted as excess cash by the market. You know, this could potentially provide more visibility on what to expect in terms of cash returns ahead, you know, without committing to a dividend payout policy. I just wanted to get your thoughts on that, and whether you have, you know, a level of net debt in mind today, that you consider a sustainable long-term target for the company. Secondly, still on cash returns, I just wanted to hear from you know, whether it could make sense to announce a buyback program, especially given that your shares are trading well below historical average multiples. Thank you.
Okay, Caio, how are you? Let me take, if you allow me, Máximo, these questions. In relationship to cash return, of course, there is always the possibility of doing what you said. I believe, or we believe, that the company is directly or indirectly moving into that direction. By being quite consistent in the way it distributes returns to the shareholders without having a specific scenario on percentages of net income or targeting net debt and above that, distributing what we have.
This has not been what we have done in the past because as you look at the numbers of the company, looking at the industry, as you know, the industry with the volatility that the industry have is difficult to have, especially the target on net debt as a way to manage the company. Really what the board of directors of the company is trying to do is that we have a way in distributing and returning to the shareholders in sustainable way. Whenever we can increase, we have do that. Now, with the good results of the company, the perspective of sustainable results, of course, not at the level of 2021, we more than double the level of returns and dividend payment.
The idea, of course, is to sustain this new level. We have never had a targeted net debt because, well, this is not the way we believe a company like ours should work. This is not the first time that we are in a position to be net cash. As I was mentioning in a prior question, this year we have different payments that we will need to make in relationship to not only CapEx but also taxes, dividends. The allocation of funds for the year, I think, are quite clear, and taking also into consideration what Máximo mentioned in relationship to the CapEx plan that is in the last stage of being implemented.
We do not forget that we have an offer in place to buy back shares of Ternium Argentina holdings in Ternium Mexico. This is another transaction that is still in the table, and if this transaction move forward, will be very positive for Ternium and will require some additional cash utilization. All in all, this is the way the company has been working. We take and we took in the past recommendations from your side, and that's why we have been increasing and sustaining the level of this. The issue of buybacks, which is another issue that we frequently discuss with you, clearly is something that we never rule out as a possibility.
We have the issues of the level of floating that the company has, and you need to factor in everything to take this into consideration. It's something that the company can do at some point. Again, we will not rule out doubt. We also need to take some other things into consideration, because if we go into that direction, we will need to lose the amount in which we will not harm the level of floating that this company would need. We don't have the high number of floating, so it's something that we need to take also into consideration.
Again, summarizing something that we can do at some point, but we need to take other things into consideration to sustain the good viability of the company.
Okay, understood. Thank you, Pablo.
You're welcome.
Your next question comes from Carlos De Alba of Morgan Stanley. Please go ahead. Your line is open.
Yeah. Thank you very much, everyone. Happy New Year. The question I have is a follow-up maybe to the investment programs. This one, how much is the total investment in dollars that you expect for these finishing lines that I guess would add value to the new hot-rolled coil. And also, I guess, how does this affect in any way the timing of a potential electric arc furnace in Mexico. You know, can you comment on that, Máximo. How are you seeing that investment to increase not only the value added to what you currently have, which is what you just mentioned, but also increase crude steel capacity in the region. And then, a couple of other ones.
Just could you give us a color on the mix by hot rolled coil, cold rolled coil, galvanized rebars of your Ternium Mexico operation? You know, given you know, how prices have moved, I think this is relevant. Finally, in terms of the transaction with Ternium Argentina for their stake in Ternium Mexico, any update on the potential timing of this transaction? When, if everything goes well, when would this be closed?
Okay, thank you very much for your question, Carlos. Let me take the first one, the investment. The investment we are thinking is $1 billion addition to this Pesquería facility. The rationale behind this investment is that the market. I mean, we have now the hot rolling mill. We have the availability to produce any product in hot rolling mill. But also the market is needing value-added products like cold rolled, pickling or galvanized. The rationale is, I mean, going after the imports of hot rolled, some of them, some of those also were from us from the technical facility, remember. But also going to the rest of the imports from usually in automotive and industrial customers.
It's gonna be a pickling line, which is roughly 500,000 tons. It will be a new PPGCM, which is around 1.5 million tons. It will be a new galvanized line for the industry at around 500,000 tons. That's the idea. Then finishing lines for those products. That's the idea of this investment. Regarding the investment in a steel shop, as we discussed in the past, that's something that we. This plant is not putting a stop for that plant or anything. We are still analyzing with the vision that we need to supply our automotive customers in 2027 with melted and poured in the region. We have to comply with them.
We still have time, and that's why we are taking our time to see which is the best way of complying that or supplying that. I mean, there are two different plants and we are launching this one, the CapEx in the next few weeks. Timing of the Argentina transaction, Pablo?
Yeah. Okay, Máximo. Yeah. Hi, Carlos. How are you? The transaction moves through the process that needs to be achieved. We haven't yet the confirmation from Ternium Argentina board of directors that needs to recommend the transaction that at the very end will need to be approved by the shareholders of Ternium Argentina. This will require a shareholder meeting that usually takes around a month after the approval or recommendation from the board of directors. Then after that, because of the complexity of the transaction and the different steps the transaction has would take around an additional 15-30 days for completion.
If the transaction is let's say approved at some point in the next month, it will take in total around two months for this transaction to be fully performed. But we need the first step, which is an important one, to have the recommendation from Ternium Argentina's board of directors. This is something that the board of directors of Ternium Argentina did not yet take, and they are still considering the proposal. We are expecting to receive comments from them. From there, this is the timing that the transaction can take. I don't know if it was clear, Carlos.
No, that was fine, Pablo. Just basically, most likely the second quarter, right?
Yes. Most likely if it's approved, most likely it will be the second quarter.
All right. Thank you.
Carlos, sorry. You asked also about the share of products in Mexico, I think.
Mm-hmm.
If you took rebars and wire rod of long products, it's about 1.2 million tons. The capacity of galvanized and painted products, it's around, I mean, 2.4-2.5 million galvanized, and then 0.8 million tons of pre-painted products. They use galvanized, no? Those pre-painted products.
Mm-hmm.
The rest is cold rolled and coated, and hot rolled.
The total capacity just in Ternium Mexico is around what? 8 million ton-
Well, the total capacity of hot rolled.
9 million tons?
The total capacity of hot-rolled today, of course, we are in the ramping up of the hot rolling mill Pesquería. It's the cold roll capacity is 10 million tons. In-
Amazing.
rebars and wire rod, 1.2 million tons or so of hot-rolled.
All right. It's fair to assume that you aim to run at full capacity the painting line, the galvanizing line, and then whatever you cannot use there.
At the-
You produce cold-rolled coil.
Exactly. We usually run full capacity line. Galvanized also supply the full capacity of pre-painting products. Cold-rolling capacity is around 4 million tons, a little bit less than 4 million tons. We usually run the cold-rolling mills at full capacity most of the time. Today we are aiming to run the long products facilities at full capacity, to run the mini mill at full capacity. The hot rolling mill in Churubusco is the one that is going to not be run at full capacity, at least in this year. We are thinking that in 2023 or 2024 should be running at least very close to full capacity.
All right. Thank you very much.
You're welcome.
Your next question is from Timna Tanners of Wolfe Research. Please go ahead. Your line is open.
Yeah. Hey, good morning, everyone. Hope you're doing well.
Yeah, thank you, Timna. Good morning.
Good morning. Hey, I just wanted to follow up a little bit on the Pesquería comments and understand a little better. First off, I wanted to ask you about how you see the addressable market of that mill. You know, there's been definitely Ternium tons shipped into the U.S., makes perfect sense. The U.S. has shipped to Mexico. Just thinking, is that the addressable market, the entire North American market, or is this just kind of a temporary situation until the downstream is expanded? And then how do you think about the full production? In the past, you talked about ramping up gradually, but I just heard you say full capacity. Is that 4.5 million? Is that a little less that you're shedding? Just want to clarify that.
Finally, if you could just discuss the timing of when we should be expecting some of these lines to come on and the CapEx Mex to come through. Thanks a lot.
Okay. Thank you very much, Timna. I'll try to answer all of them. I mean, those were projects I'm thinking mainly in for the Mexican market and some exports to the U.S. Our main objective is the Mexican market. As I said, if you take 2021, Mexico imported 9 million tons. And Tim, I don't know if you hear me well because I'm hearing some noises.
Oh, I hear you. I'll put myself on mute.
Hello?
I'm sorry. I'm at a conference. Yep, I hear you.
Mexico imports 9 million tons of flat products. Of those, roughly 4 million are hot rolling products, 2.5 galvanized and the rest cold rolled, basically. There's a huge market for us, and that's the main aiming of that. U.S.A., for us, it's also an important market, although we are not seeing that we are going to make our investment case to export everything to the U.S. Some of our products are going there and we expect it to grow a little bit there as probably some of the U.S. mills want to grow a little bit in Mexico.
Regarding the second question, we are expecting the hot rolling mill in Pesquería to be running at full capacity at least at 80% of utilization, which is a normal thing for this. Around July, August, September. We were going to decrease a little bit the production of the Churubusco mill. Overall, we should increase hot rolling mill production in 2022 by around 1.8 million tons. Of that, some is going to the market and some is going to replace our imports from Japan. I think that's the second question. The third question, Timna, sorry, I forgot.
Oh, yeah. It was just about the timing of the investments and when we should start thinking about.
Oh.
the additional value add to come through to, you know, greater, average realized selling prices. Thank you.
Yeah. As I said, when I answer the first question, I think it was Caio. We are in the final stage of this. It didn't have yet the Board approval, although we discussed it in depth yesterday and it's probably going to be approved shortly. We expect that this is coming online in around three years. Some of them are coming a little bit earlier, and some of them probably because of the equipment delivery a little bit later, but roughly three years.
Okay. Thanks again, and thanks always for your candor. Appreciate it.
No, thank you. You too, Timna.
Your next question is from Isabella Vasconcelos of Bradesco BBI. Please go ahead. Your line is open.
Hi. Good morning, everyone. I have just one question. I think most of the points have already been addressed. Also in terms of capital allocation, and I had some connection issue, so hopefully I'm not making you repeat yourself. To understand, it seems that you're going to the organic growth, you know, line in terms of future capacity. Are you analyzing inorganic growth opportunities in the Americas, Brazil, or even in Mexico, in the US? That's my question. Thank you.
Yes. Thank you, Isabella. As we always said, we are always analyzing opportunities, and we have a track record of doing this in a very, how I said, responsible way. If you ask today, we have nothing special in our pipeline today, but these things arise, and we always are analyzing these opportunities.
Your next question is from Leonardo Correa. Please go ahead. Your line is open.
Yes. Hello. Good morning, gentlemen. I hope you can hear me. Good morning, Máximo, Pablo, Sebastian. Thanks for the follow-up here.
Yeah.
Just a final one.
Good morning, Leonardo. We can hear you well.
Okay, perfect. Thanks, Máximo. Just a quick one for me. I think most of the issues have been addressed. Thanks for all the color and visibility, guys. Just on, still on the topic of rerating, right? We've been seeing. I mean, we've been covering the company for a while, and it's always a similar level, which is highly depressed. Now we're going through a global movement, which is a significant derating. Ternium is not alone, right? We see guys like ArcelorMittal and others trading at 40%-50% discounts. I mean, you guys announced a move in December, which was somewhat unexpected, right? The buyout of minorities in Mexico. I mean, what else is on the agenda? If you can elaborate a bit.
I know that the dividends and buyback story is quite clear to me from what you guys have been indicating. Is there anything else on the potential corporate simplification still that's pending? Or there's always the issue of Siderar in Argentina, right? Where there is a minority stake I think from the pension fund, which could be bought out. The dual listing issue has been historically also a pending issue. I mean, is there anything that you guys have been considering at this point to try to change the situation on the company? Thank you.
Hi, Leonardo. Let me take this question, Máximo. We have different ideas and different possibilities. The one that we consider that are feasible are the ones that we are trying to achieve. In relation to the transaction Argentina is trying to have 100% of the holding of Ternium Mexico by Ternium and not having part of that holding directly owned by Ternium Argentina. This would very much simplify the corporate structure of Ternium if this transaction moves forward. You know that it's something that we have been discussing many times. After and if this transaction is completed, Ternium corporate structure will be basically what we would like to have.
We have been simplifying the corporate structure for many years now. Since we start growing internationally, we acquire many different companies, so it has been a constant work to simplify the corporate structure. This step was an important step for us, and we think that we have the chance and the possibility of achieving that, but we would need to see if this is happening. We have been analyzing, and of course we have been discussing with a lot of you in this call, these alternatives. The dual listing, unfortunately, is not an opportunity at the moment.
Because of the reason that you know, just briefly now probably the only place where we can achieve that in Argentina, and clearly is not the path to follow at the moment. We are open, as we have discussed in the past, the idea of moving from one yearly dividend to at least twice a year dividend payment. We already did that. We are analyzing alternatives, possibilities, and we need to see when these alternatives are feasible or not. We are open, and we have been always trying to analyze which is the best way for us to have a better not only corporate structure, but a better relationship with all our stakeholders. We are open.
We are always analyzing alternatives, but we need to see if that is achievable or not. Up to now, we are at this point, we think that we are moving in the right direction, and anything that happens in the future, clearly we will keep analyzing.
Okay. Thank you very much, Pablo.
You're welcome.
Your next question comes from Caio Greiner of BTG Pactual. Please go ahead. Your line is open.
My question has been answered. Thank you.
There are no further questions at this time. I will now turn the call over to the CEO for closing remarks.
Okay. Thank you very much to everybody for the interest, for the very good questions. I really appreciate your participation. As usual, if you have any additional questions, any feedback, please don't hesitate to call us. I see you in around three months in the next conference call. Have a nice day. Thank you very much.
This concludes today's conference call. Thank you for your participation. You may now disconnect.