Good morning. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ternium fourth quarter 2018 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Sebastián Martí, you may begin your conference.
Thank you. Good morning. Thank you all for joining us today. My name is Sebastián Martí, and I am Ternium's Investor Relations Director. Ternium issued a press release yesterday detailing its results for the fourth quarter and full year 2018. This call is complementary to that presentation. Joining me today is Mr. Máximo Vedoya, Ternium's CEO, and Mr. Pablo Brizzio, Ternium's CFO, who will discuss Ternium's business environment and performance. At the conclusion of our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information, and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on page two in today's webcast presentation. With that, I'll turn the call over to Mr. Vedoya.
Thank you, Sebastián, and good morning to everyone. It is very nice to have the opportunity today to share with you our thoughts regarding Ternium's performance. As we always do, I'll go through some prepared remarks, Pablo will make a brief analysis of the latest quarterly numbers. Finally, we have our Q&A session. All right. We had an outstanding result in 2018. We reported an EBITDA of $2.7 billion. This was the highest EBITDA in Ternium's history, with a 40% year-over-year increase. We had shipments of 13 million tons in the year, and this is the first full year with Ternium Brazil as part of our production system. There, in Ternium Brazil, we achieved a steel production record of 4.6 million tons last year. The EBITDA margin was 24%, the highest we have had in the last decade.
This strong performance led to earnings per ADS of $7.67, also to a free cash flow of $1.2 billion, which translated into a billion-dollar decrease in net debt during the last 12 months, taking our net debt to EBITDA ratio to just 0.6 times. The board of directors proposed to raise the annual dividend to $1.20 per ADS, equivalent to an approximately 4% dividend yield. This proposal took into consideration the current strength of our balance sheet, as well as our ongoing investment program, which will require growing capital expenditures in 2019 and 2020. As Pablo will show you afterwards, we have been gradually increasing our dividend payment over the last years, our intention is to continue doing so in the years to come. Let's turn now to what is happening in the steel markets. Our expectations are for a global steel demand in 2019 to grow moderately.
In Mexico, our main steel market, we believe sales to industrial customers will continue to do relatively well in 2019, with the Mexican manufacturing industry supported by growth expectations in the U.S. economy. On the other hand, the construction market will probably continue to be weak in the country as a result of low public and private investment. Relevant issues to follow in this market in 2019 will be the expected ratification of the new NAFTA, the USMCA. Which is achieved during the year, it's a positive step to reduce trade uncertainty. The eventual agreement on Section 232 steel tariffs among the current NAFTA partners, which should help to normalize steel trade flows in the region. The commitment of the new Mexican administration to fight unfair trade and prevent redirection of exports to the Mexican market as a result of higher trade barriers elsewhere.
Global overcapacity continues to be a risk to fair trade. China is increasing steel production while having a weakening economic activity, which is dependent on government stimulus measures. It is important for governments in Latin America to be aware of the situation and to take measures to prevent the damage it would cause to local industry. Turning now to Argentina, the economy has been under a very restrictive monetary policy in 2018, with an aim of taming inflation. Economic activity in the country weakened significantly during the second half of 2018. In the first quarter of 2019, we will continue showing a low level of shipment, taking into consideration that on top of this is a seasonally slow quarter in Argentina.
Further on, we expect a gradual recovery starting in the second quarter of 2019. The driver of this recovery will be a significantly better agribusiness performance based on improved yields in 2018 and a record sown area. Higher growth levels in the Brazilian economy, Argentina's main destination of export of manufactured goods, and a gradual decrease in interest rate. In Brazil, this event created a challenge situation affecting iron ore prices. For the time being, we don't see any significant problem to ensure supply of iron ore to our facility in Rio. In that facility, we will continue to work this year to increase even more its capacity utilization. Finally, we believe Usiminas is very well positioned to take advantage of the positive prospect for the Brazilian steel market in 2019.
In a nutshell, we have a great 2018, we look forward to continue growing our business in 2019. Margin in this year are not going to be as high as they were in 2018, as we are converting to a more sustainable long-term level. You can count on us striving to maintain our margin leadership in the Americas, working hard to maximize efficiency at our facility and reduce production costs. The ongoing investment process in Mexico will certainly help on this front, enabling a much higher integration with our facility in Brazil and consolidating a world-class production system with the latest technology to maximize efficiency and productivity. Okay, with this, Pablo, please take over to comment about our performance in the fourth quarter.
Thanks, Máximo. Good morning to everybody, and thank you again for participating in our conference call. Let's review our performance in 2018, starting in page three of the webcast presentation. As Máximo anticipated, our performance in the year was exceptional, with record EBITDA of $2.7 billion and EBITDA margin of 24%. As you can see in the upper right chart, our EBITDA in 2018 increased significantly compared to EBITDA in 2017, and is also significantly higher than EBITDA in any other reported period in the last decade. In the upper left chart, shipment grew 1.4 million tons year-over-year in 2018, reaching a record 13 million tons. This increase was mainly related to the full consolidation of Ternium Brazil slab shipments to third parties, as in 2017, we consolidated only four months, from September to December.
Looking at Ternium's EBITDA margin on the lower left side and EBITDA per ton on the lower right side, we recorded a margin of $208 per ton in 2018, or 24% of net sales, well above the margin range reported in the last years, which was between $110 and $170 per ton. As Máximo commented, margins in 2019 will be lower than in 2018, converting to a more sustainable long-term level. Please turn now to page four to review the main drivers of the year-over-year improvement in EBITDA. As you can see in the upper chart, the significant year-over-year increase in EBITDA is the result of a higher EBITDA per ton and higher shipments, reflecting strong price environment in the North American steel market and the full consolidation of Ternium Brazil.
Ternium Brazil enabled us to integrate our operation, at the same time was able to take advantage of strong slab market in 2018. Net income in the year reached $1.7 billion, significantly higher than any other year since we listed Ternium shares. As the lower chart shows, net income increased mainly due to higher operating income, with some additional help from improved results from our participation in Usiminas and a low effective tax rate due to the revaluation of assets for tax purposes in Argentina, which had a positive effect in deferred taxes. Please turn now to page five. In this page, we are showing the evolution of free cash flow, capital expenditure, net debt, and dividend payment. Free cash flow in the year reached a very strong $1.2 billion.
Capital expenditures were $420 million in the year, higher than in 2017, mainly due to the full consolidation of Ternium Brazil and the investment projects underway, being carried out mainly at the Siderurgia facility and also in Colombia. Looking forward into 2019, we expect to continue showing strength in cash flow generation, although below the levels achieved during 2018, in line with lower EBITDA expectation and higher capital expenditures due to the development of our new hot rolling mill in Siderurgia. Finally, Ternium's net debt decreased to $1.7 billion at the end of December, a close to 40% decrease in net debt, reflecting the strong free cash flow in the year, less the dividend paid, and represent a comfortable level of 0.6 times EBITDA at the end of December.
On the lower corner, you can see how Ternium's dividend payment has been increasing consistently over the years, and the current proposal of $1.2 is equivalent to around 4% year-over-year. The dividend should be payable at the beginning of May after shareholders' meeting approval. To the fourth quarter of 2018, we will now review on the next page six, our shipment performance. Total steel shipments went down 180,000 tons sequentially or around 6% decrease. In Mexico, on the upper right chart, shipments remained relatively stable in the fourth quarter of the year. The quarter is normally seasonally lowest in the year. We expect shipments in Mexico will show some increase in the first quarter of this year.
In other markets, in the lower right chart, you can see a sequential decrease in the fourth quarter 2018, mainly as a result of lower slab shipments from Ternium Brazil to third parties as anticipated. Those slab volumes were shipped instead to Ternium Mexico, however, that eliminated in the process of consolidation of the fourth quarter. We expect this to revert in the first quarter of 2019 with higher shipments of slabs to third parties and lower intercompany sales. To the southern region, the sequential decrease in shipments as shown in the lower left chart mainly reflect depressed economic activity and restructuring process in the value chain in Argentina. The first quarter of the year is seasonally lowest in Argentina, shipments will continue to be weak in this market, and we expect them to begin their recovery in the second quarter as Máximo mentioned.
In the next page, you can see the effect in Ternium's sales of the 6% decrease of steel shipments together with a 6% decrease in revenue per ton that was mainly related to the lower realized price in the Mexican market, as well as in the slab sales. We anticipate revenue per ton to continue decreasing in Mexico in the first quarter of 2019 as a result of the usual reset of contract prices and some weakness in the spot market. The participation of each market in our net sales breakdown remains relatively stable, with around half of the shipments being made in Mexico, 17% in the southern region, and a third in other markets. On page eight, we have a closer look to quarterly EBITDA. The EBITDA margin was a healthy 19% in the fourth quarter or around $170 a ton.
This was a decrease compared to the very high margin we had in the third quarter. We will go into that further on. Net income was $635 million, which is equivalent to $1.79 per ADS. Please turn now to page nine to review fourth quarter EBITDA and net income. In the first chart, you can see the components of the sequential EBITDA decrease. A major component was a decrease in the margin and some additional decrease related to lower steel shipments and lower sales of electricity in Mexico, as the electricity sales price decreased seasonally in the winter. Revenue per ton went down mainly as a result of lower realized price in the Mexican market and in the slab sales, as we just discussed. The higher cost was mostly related to higher raw material, slab, energy, and labor costs.
The effect of inflation accounting in Argentina was one of the reasons for this increase in cost, especially the combination of high inflation with currency revaluation in the fourth quarter, something we were not expecting to happen. Also affected slab cost increase in the quarter, mainly as a result of first-in, first-out accounting. In the first quarter of this year, we expect the EBITDA to decrease slightly compared to the fourth quarter as a result of a lower margin, partial offset by higher shipments. The EBITDA per ton should sequentially decrease mainly due to lower revenue per ton in Mexico and a higher participation of slabs in the sales mix, as we are going to sell more slab to third parties and less slabs intercompany. On the other hand, cost per ton should remain relatively stable.
In the second chart in this slide, you can see that the sequential decrease in net income was mostly a result of lower operating income. It was partially offset by better financial results, better results from our participation in Usiminas, and a lower effective tax rate. There were significant sequential gains in net financial expenses, mostly related to currency fluctuations in Argentina and Mexico, that were partially offset by lower gains related to inflation accounting over the net monetary position, of course, in Argentina. There was also a slight decrease in net expenses, mainly reflecting a lower net debt and average interest rates. Okay, thank you very much for your attention. We are now ready to take your questions. Please, operator, proceed with the Q&A session. Thanks.
At this time, I would like to remind everyone, in order to ask a question, please press star and the number one on your telephone keypad. Your first question comes from Marcos Assumpção with Itaú. Your line is open.
Hi, everyone. Good morning. It's actually Daniel Sasson from Itaú. Thanks for the questions. My first question is on the ratification of the new NAFTA agreement. I know that you mentioned that you too for sure reduce uncertainties in terms of trade. But if you could comment a bit on the impact you expect on U.S. and Mexico prices and also maybe on costs, if we consider that the minimum wage of workers in the steelmaking industry in Mexico might increase and the potential impact of that for margins. That would be my first question. And the second question regarding Argentina, we are likely seeing margin pressure in the short term considering the sharp depreciation of peso since May last year. But what do you expect looking ahead? The effects seem to be more stable now.
Also what do you expect in terms of your normalized EBITDA per ton in 2019, considering that 2018 was a very strong, a very solid year, in terms of your EBITDA per ton? Those would be my questions. Thank you.
Thank you, Marcos. I'll start with the first one, and Pablo will lead the second one. The new NAFTA agreement and what are the effects on prices. I mean, the effect will be of what will happen with the Section 232. I mean, today, the Section 232 against Mexico and Canada is still in place. The assumption we all have, and the Mexican government also had, was that once we reach an agreement, Section 232 was going to be eliminated between Mexico and Canada. That didn't happen. We do know that to sign NAFTA, Section 232 has to be solved. I don't know if the solution is going to be eliminate the Section 232 between countries or to put quotas between the countries. I mean, Mexico is going to have a quota in the U.S., and the U.S. is going to have a quota on Mexico.
I think those are the two possibilities, I mean, to eliminate completely or to have a system of quotas. I don't see other solution for the Section 232. Both solutions, I think, are good to stabilize prices, especially in Mexico. Remember that the U.S. prices has had a huge increase with the Section 232, and prices in Mexico start lagging behind the U.S. prices, mainly because Mexico was also affected by the Section 232. I know today prices in the U.S. are decreasing. Prices in Mexico were also decreasing, although not at the range in the U.S. To solve the Section 232 and to have certainty between the trade between U.S. and Mexico still, would eliminate, I think, this uncertainty there is. Will benefit whatever the solution is, whatever the true solutions is, will benefit Mexico. Are you there still?
Yes. Perfect. That was very clear. Do you expect any effects on your cost front, coming from all of the new agreements as well?
No. Remember the new agreement specified a cost of $16 per hour in workers, only in some part of the automotive industry, not on steel. Although our salaries are much higher than the minimum wage, I mean, we don't expect to have any increase due to NAFTA.
Perfect. That was very clear. Thank you.
Okay, Marcos. Marcos, let me try to answer your second question, which is not easy to do, because, as you know, the inflation accounting, that we need to have in Argentina is putting, especially in the first year of accounting for that, some distortions in the numbers. Also take into consideration that during the fourth quarter, as I mentioned during the initial remarks, we have something what you can consider little weird, which is we have an important level of inflation, which was 12%, but then we have also significant level of a revaluation of the currency of 9%. These things together works, if you want, against the numbers of the company, and that was one of the reason why the total EBITDA of the company was below expectations. The total impact of this in the cost of Ternium through Argentina was quite significant.
Of course we cannot account or go through numbers without inflation accounting. During the fourth quarter, if we had not inflation accounting, probably our EBITDA would have been even $50 million higher than what we have reported. Going in entering into 2019, clearly things should start to normalize because, as Máximo mentioned, we are expecting to see some gradual recovery of shipments in Argentina and the economy in Argentina. We are not expecting big swings in the currency value level. This should start to normalize.
As a whole, the margin that we are seeing for the future is, as we always discuss, within the range that we always think is a normal level for a company in Ternium, which is between 15%-20%. Of course, as happened in the last three or four years, always trying to be very close to the upper side of this range. That's what we think should be the numbers coming in during this year.
Our next question comes from Caio Ribeiro with Credit Suisse. Your line is open.
Yeah. Good morning, everyone. My first question is related to domestic demand in Mexico. I know that you have been talking about the possibility of the new administration boosting infrastructure spending, which could drive demand for the commercial market up, which has been lagging for some time. I just wanted to get some view if whether there have been any new developments on this front, and whether you can also provide some guidance for where you see steel demand growth in Mexico in 2019. Secondly, regarding steel prices in the U.S., there have been some recent price hike announcements for flat steel, by some of the major players in the last few weeks, in the last month as well. Overall, market prices have remained relatively flat, and relatively unresponsive to these hikes.
I just wanted to get some color from you, on what direction you expect flat steel prices in the U.S. to move towards in the next few months. Whether you're already seeing a bottom or whether you expect the weaker momentum that we're seeing to continue. Those are my two questions. Thanks.
Thank you, Caio, for your question. Let me start with the Mexican question, which is clearly a difficult question, because the government is starting. Steel demand will depend on how the new government or the new administrations proceed. We are still positive regarding Mexico and our business there. The new administration just only took office two months and a half ago, I think there is a normal process of getting used to the changes. There have been some actions by the present administration that have created some uncertainty in the markets, I know that. I think that there are some things that are moving in the right direction. Spending is increasing, it's increasing first in Pemex. There's more activity going on in Pemex, more drilling going on, more pipelines being built.
You see that the new administration is trying to improve the performance of Pemex. At least the operative performance of Pemex, we are seeing that in some of our customers. That's the first step, I think, for more infrastructure spending that is much needed in Mexico. To be honest, we don't see that infrastructure yet, we didn't expect to see it yet. These are things that normally took several months before a new administration comes in. The last administration that when we changed from the current party to the three party, it was almost one year of almost zero investment. I think here, what we are seeing in Pemex is a good sign that things are going to move in that direction.
The other thing is that the government is very vocal, if you see the conference that President López Obrador gave on Monday, you will see that he's very vocal about developing the industrial sector in Mexico. I think the new president understands the importance of the industry and development of the whole supply chain in the industry. I think that we are also positive on what is going on on that front. Again, these are not things that you're going to see in the near future. We don't expect a big increase in consumption in 2019. We think that this is the right direction for improving in the Mexican consumption in the following years. Again, we are quite positive regarding Mexico and our business there. Regarding prices in the U.S., you are right.
The prices, if you follow the CRU, came down to $735 metric ton, increased a little bit, the CRU in the last two weeks. Regarding to your question, I think the U.S. may have reached bottom. I think although imports are high, 232 is there, cost, especially in iron ore, is increasing for some of the companies. You also see an increase in the flat prices in the market in the last two weeks. I think costs for some of the mills that are exporting to the U.S. is getting higher, I think the U.S., with the 232 on plant still in the market, I think we'll be able to increase a little bit the prices, we are seeing the bottom of the price cycles.
Perfect. That's very clear. If I might just have a quick follow-up here. If you are right that the bottom in prices in the U.S. has really arrived, given that three to four month lag effect until your contract prices in Mexico reflect this rebound or this bottom, could we start to see a rebound in the net revenue per ton in Mexico starting in second quarter, perhaps?
Yes. I think it does. It's still very early, but I think that in the second or third quarter, we will see a rebound.
Perfect. That's very clear. Thank you.
The next question comes from Carlos De Alba with Morgan Stanley. Your line is open.
Yeah. Good morning, everyone. First question, if I may, is on the capacity utilization expected for Brazil, and the appropriate capacity and the capacity utilization in Ternium Brazil this year on the back of your comment, Máximo. How much volumes do you expect to ship internally to Ternium Mexico this year? As you mentioned in the first quarter, there's going to be sort of a reversal of what we saw in the fourth quarter with more third-party shipments out of Ternium Brazil. In the year, you can give us at least a range of the volumes to be internally sold, that would be very useful. My second question is regarding your electricity sales in Mexico. Could you comment or remind us whether those sales are done at spot prices or you have a contract?
If it's a contract, is there any link to the CFE rates or how are you determining the rates that you charge on these energy sales? Thank you.
Okay, thank you very much, Carlos. Let me start with the Brazil question. Brazil produced in 2017, if you remember, the full year, 4.4 million tons. That was a record for the Brazil facility. This year, 2018, we got another record of 4.6 million tons. Our target for Brazil is to produce 5 million tons, which was ultimately the last capacity that the plant was built. We think we are going to reach that in the next couple of years. There are some bottlenecks that we are starting to see, and we are planning to invest. Some of them are already going on. I think that the maximum capacity or the maximum production will be these 5 million tons. We are very confident that in the next couple of years, we are going to get there. What are the volumes to Mexico?
This is not a very simple question to answer because it's changing every month. Our idea, knowing the contract we have from Calvert, the sales to the domestic market, sales to other customers, is to ship to Mexico 1,000 tons every month. That's 1.2 million tons. To buy from other suppliers, the 2 million or 2.5 million tons we need in Mexico. That's our plan. We are always making choices. If we have better opportunities, there are months that we are only going to ship 50,000 tons, and if we don't have better opportunities, we are going to ship 150,000 tons. You can see that there are different months. We are always making the account of where is best to supply that production of slabs. The plan is 1.2. Electricity sales.
We are selling to the MEM, which is the Mexican Electric Market, or Mercado, how it's in Spanish. CFE has the rates. The system buys energy depending on how the system produces the energy. It buys from the best cost available, and if production or consumption increases, it starts to buy from the less competitive source. It is a spot price, although the price is set by the market. What happened in Monterrey? Monterrey is an electricity hub that sells energy in the winter but consumes more than what produces in the summer. That was the thing that we know when we put the plant there. The sales are going to be at higher prices in the summer and at lower prices in the winter. That's what you see usually in the last two years.
In the winter months, in the three winter months, November, December, January, you have a lower energy sale. Prices are lower, prices start increasing, they get the peak in July, September, depends on the heat that goes on in that summer month.
Understood. Very clear. Thank you very much, Máximo.
The next question comes from Thiago Ojea with Goldman Sachs. Your line is open.
Hi. Thanks. Good morning, everyone. My first question is regarding the new expansions. If you can provide a little bit more information how Pesquería, the hot rolling mill, is evolving, if the target date remains by the end of 2020, the galvanized line in mid-2019, and also the rebar mill in Colombia. If I'm not wrong, it should be up by first quarter of this year. Also, regarding the situation in Argentina, can you provide a little bit more color in terms of the main, how the different sectors are responding to the situation and if you're seeing more imports into Argentina of steel? Thank you.
Thank you, Thiago. The first, the expansion projects. The hot strip mill will start December 2020. We are on track to that. We don't have any development that says other things. The painting line will start probably in April of 2019. We plan for the galvanized line is late June, early July. Although there are a couple of things that we are trying to accelerate to get to that time. The Colombian project was December of 2019, so far we are also on track to get that time. As you know, all those timings are very I mean, they are targets, very hard. We put hard targets to reach, but so far we think that most of them we are going to reach. Argentina, to be honest, we are not seeing any imports of the material we produce.
I mean, the problem is not imports. The problem is that the decrease in consumption in Argentina, due to all the things I told you earlier. I mean, the interest rate going to more than 70%, now in 44%, that created a huge impact in the domestic market. A lot of people not only decreased consumption, inventories went down a lot because of the capital cost of inventories with this interest rate. I think it's probably more that than seeing imports or other things.
Okay. If I can follow up, in terms of the CapEx of this project, the expansion project, what have you been spending? How much is left? If also can provide a total CapEx guidance for 2019 would be helpful. Thank you.
Yeah. The CapEx for 2019 will be $850 million. We are increasing from $550 almost to $850. 2020, this is a long term, but will be around $1 billion. Most of the CapEx of the hot strip mill, if you remember, was $1.1 billion, will come in 2019 and 2020.
Okay. Thank you, Máximo.
Next question.
Thank you, Thiago.
Next question comes from Thiago Lofiego with Bradesco BBI. Your line is open.
Thank you. I have two questions. The first one regarding the fact that the Mexican government decided not to renew the 15% safeguard on steel imports from certain countries. Does this impact your view on the market? Does this impact your view on your plans to expand in Mexico? We saw AHMSA, for example, canceling an expansion process. I just would like to get your view there. The second question, how do you see the Mexican auto industry growth in the coming years, considering there are some import restrictions into the U.S.? Do you think this might prevent further capacity growth in Mexico for automakers, and confidently that would eventually impact your expansion plans longer term?
Thank you, Thiago. The first one, the Mexican government, the 15% safeguard that we have. Remember, this safeguard was very limited the impact it has, to be honest. It was only for countries that Mexico has no agreement, trade agreements, and Mexico has trade agreements with more than 50 countries. Imports from Europe or Japan or the U.S. were free. Some of the industries, they have special tariffs, so they don't pay this one. Nevertheless, I think for all the steel market, you saw AHMSA's, you mentioned AHMSA's reaction. For all the steel industries in Mexico, it was kind of a surprise because it goes in a different way of what the government was saying. I think the government is really analyzing that decision, and I think there is a possibility that they change this.
I think there is a big possibility that they will change this decision. Auto industry. The automobile industry produced 3.9 million units in 2018, almost the same as 2017. This is a huge number. When we make projection of the auto industry in the several years, we don't expect a huge growth. I mean, we said that the automobile industry will grow in 2020, 2021, to 4.2 million, 4.4 million. It's not a huge increase. Maybe this comes by the fact that there is already an agreement between Mexico and the U.S. regarding automobile exports if there is a Section 232. If you remember, when they signed the NAFTA agreement, there was a side letter where you put a quota on the automobiles export from Mexico to U.S. of 2.6 million units. Today, the exports to the U.S. are around 1.8 million.
There is still an increase in the exports of there, but the increase is not very high. We always projected that the industry is going to grow, but it's going to grow only a little bit, and we are talking about 10%. In our projections, we already have that number. I don't know if that's clear or not, Thiago.
That's clear, Máximo. Just to follow up here, you mentioned this NAFTA is clear. Before might be 2.6 million units, and now Mexico is exporting 1.8 million units. Is that what you mentioned?
Yes, exactly the numbers. The quota is 2.6 million units. That's signed, and it was public, I think, at least I read it in the newspaper. It's a public information that they signed this side letter. There is also a side letter for auto parts. The side letter for auto parts is in billion dollars, and if you remember, it's $100 billion. Today, the export around $60 billion. There is also increase in auto parts. If a 232 is coming, if the U.S. puts a 232, which I don't know if that's. There has been a lot of rumors, and what we understand is that the DOC, the U.S. Department of Commerce, just sent President Trump a memo regarding the 232 about quotas, but we don't know what it says.
Great. Máximo, if I may, just one very last question. You mentioned in the beginning of the call that EBITDA per ton has normalized to normal levels, right? How comfortable are you that $170 per ton roughly could be a sustained normalized EBITDA per ton generation for longer term?
Hi, Thiago. This is Pablo. As you know, we prefer to discuss EBITDA margins than EBITDA per ton because, as we all discuss, the pricing environment plays a huge role over there. What we say is that, yes, we understand that the numbers will go towards what we consider a normalized long-term level of between to 20%, trying to sustain the margins in the upper side as we have done in the past years. Of course, 2018 was an extraordinary year where we have a 24% EBITDA margin, and the fourth quarter, which we have already established, is a little over 19% in the margin. That's the expectation. That's the framework where we work, and there is where we want to be or to continue to be presenting numbers to the market.
Okay. Thank you, Pablo.
The next question comes from Alfonso Salazar with Scotiabank. Your line is open.
Thank you, everyone. Good morning, Máximo and Pablo. I have two questions. The first one, I was watching the local press. Some news regarding that your plants in Mexico could be affected, the railway blockades in the state of Michoacán. I was wondering if you can provide what was the situation there, if you wish you can consider an impact in Q1 because of the blockades. The second question is regarding the negotiations with the communities in the mining operations. If you can provide some comments on your plans for the mining division and because of what is happening in the iron ore market, is it possible or would it make sense to increase capacity? What are your thoughts there? Thank you.
Yes, we have some effects on the Michoacán block. As you know, we bring two things from railways. From Michoacán, we buy slabs from Lázaro Cárdenas, from metal to our facility. That was the main block. Also the things that we bring from Colima, from Peña Colorada or our own mining facility in Colima were also affected, although for less time. We have a minor effect. We were going to have a minor effect, but it's a little bit increase on cost. We have to change. Instead of shipping by train, we ship by vessel, that's a little bit of more cost. Today, as I said, the roads or the trains are really free, and we are moving product without any effect. Regarding mining, we don't have any development of mining.
I think that we are discussing with the community a new agreement because we have to expand our mine in Aquila. We are on track on that. We don't expect any problems from that. An investment, to be honest, if you remember a long time ago, we had some plans of new investment in mining. Today, we are not seeing that in the near future, as always, we are analyzing. If you remember well, we have two big mines. One is the Aquila mine, and the other one is Peña Colorada. We opened a third mine near our pellet plant, it's a marginal mine where we have a lot of reserves. In the past, that was a project we analyzed. Today, we are not seeing it. If things change, we can revisit that.
Okay. Thank you. Thank you very much.
Your last question comes from Rodolfo Angele with JPMorgan. Your line is open.
Hi. Good morning, everyone. Can you comment a little bit more on the raw material situation in Brazil?
Yes, Rodolfo, the raw material. I mean, as you know, Vale had an accident or an event that decreased production in some of the regions they have. What the effect today, I mean, Vale changed quite a lot. What was the effect? First, they said that they were going to close 40 million tons. They had to close another 30 million tons because of a different judge order, or we don't understand very well. Now they are saying that that reduction was quite less. The main effect that everybody is suffering is a price increase in the slab prices. Today, as you know, the Brazilian facility has an exclusive contract with Vale for the supply of iron ore to our facility. As today, Vale has continued to make deliveries under the contract.
For the time being, we don't see any significant problem to ensure the supply of iron ore to that facility. Of course, the price will have an effect in our Ternium Brazil facility because the price increased from around $70, it went to $95, I think one or two days, and now it's around $88. That's an increase in the cost. As I said before, we are also seeing an increase in slab prices that we are not going to get immediately, but we are going to get once we start closing slabs for April and May.
If I may just as a follow-up, did you use some material relevant amount of products in the CC operation?
Yes. From the 7.3 million tons of iron ore that we buy for the Ternium Brazil facility, we purchase between 2.5 by 3 million tons of pellets. That's roughly what we are doing today. As I said, Vale is supplying the pellet for us.
Okay. Thank you.
At this time, I will turn the call over to CEO for closing remarks.
All right. Thank you very much for being part of our conference call today. As usual, please give us a call if you need any further support to give a better understanding of our company. Thank you very much, and goodbye.
This concludes today's conference call. You may now disconnect.