Good morning. Thank you for joining us today at Ternium's Investor Day. My name is Sebastián Martí. I am Ternium's investor relations director. Firstly, a quick note on safety. If in the unlikely case of an emergency, please follow the exit sign at the end of the room. Joining me today is Ternium's CEO, Mr. Máximo Vedoya. Too many years. Several members of Ternium's management team. Let me show you the agenda for today. It's a very straightforward agenda. We'll have a presentation by Mr. Vedoya, then we'll go directly to the Q&A session. Let me remind you that this presentation 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 presentation.
With that, we're ready to begin. I'll leave you with Mr. Vedoya. Thank you very much.
Thank you, Sebastián, good morning, everyone. Welcome again to this Ternium's Investor Day. I'm very glad that you can all join us today. Before starting, let me introduce the management team that is joining me today in this Investor Day. Let's start by the old ones, the ones that have been coming here for a long time. Pablo Brizzio, our CFO, Martín Berardi, President of Ternium Argentina, Oscar Montero, which is Planning and Global Business Development General Manager, Sebastián Martí, which is our Investor Relations Manager. The new ones that come here to the Investor Day for the first time, Marcelo Chara. Marcelo Chara is today, since we acquired CSA in Brazil, Ternium Brasil President. He has been working with us for more than 30 years, he has several positions, mainly in the industrial department.
Before becoming the CEO of Ternium Brasil, he was the Industrial Vice President in Ternium Argentina. He was also Industrial Vice President in Usiminas. He has a large experience working in different industries or different sites of Ternium in Venezuela, Brazil, and in Argentina. Last but not least, César Jiménez. César Jiménez has also more than 30 years of experience in the steel industry. He worked first with Hylsa, then with IMSA, he came to work with Ternium in 2007 when we acquired IMSA. He works there in the commercial department, in the supply chain department, the last years he's been Ternium's Mexico Vice President in the commercial side. Before that, he was the CEO of Tenigal, the joint venture that we have there in Monterrey with Nippon Steel.
As you know and you can see for what Seba said, this is my first year as Ternium's CEO. I have been participating in a lot of Investor Days as Ternium's Mexico President, but this is the first Investor Day that I take as CEO of Ternium. Please be kind, at least in the first one. As I said previously, I think you all know my trajectory, but previously, I've been living in Monterrey for six years as I was Ternium's Mexico President. I will continue living in Monterrey. I know Daniel was living in Argentina, but I will stay in Monterrey, and from there, will manage the company and travel around. I hope this works. Perfect. We are going to cover a lot of topics.
I will try to go as fast as I can, we leave a lot of space for Q&As. First, we will go over our management approach. We have, as we have been seeing in the last Investor Days, a track record of being a very profitable company. That's not the only aspect of the business that we work to ensure that our business runs for the long time. We will go over the stage of the steel markets and our main markets. Finally, we are going to review the transformation process that Ternium is going on, which was triggered mainly by the acquisition of CSA in Brazil. Sustainability. As I said, we have a consistent track record of being a very profitable company.
As you can see, I think in the right chart over there, our performance for the last years has been better than that of our peers in the region. The way we think of success is a more comprehensive way. Leading profitability goes hand in hand with many other aspects that you can see over there. Environment, health and safety, industrial excellence, relationship with our community, integrity. Recruiting, training, and retention of talent, market leadership, and also the development of our value chain. I will go quickly through many of these aspects in the next slides. First, environment, health and safety. We devote a significant amount of resources to this, and we believe this is key for our long-term sustainability. We have an EHS management system in all our facilities. We train all our employees, and management is responsible for EHS in all our plants.
If we talk about safety, you can see it there in the upper chart. We reach a lost time injury frequency rate of only 0.7. If you look at the chart, we are decreasing that rate year after year. To make a mention of what the number means, the benchmark that worldsteel does is that that rate is 1. We are much lower in injury rate than the median of all the world steel companies. Many years ago, we deployed this EHS system with the help of DuPont. We started certifying our operations in 2015 in OHSAS 18001. Today, without Brazil, 85 of our people work in facilities that are certified under this international standard. In Brazil, we are working on Ternium Brasil, and it's going to be certified in June of next year. We also have environmental certification in most of our facilities.
Again, without taking into account Brazil, 99% of our people work in facilities that are certified environmentally under ISO 14001, which is a very tough environmental certification. We expect to certify our new facility in Brazil next month by this certification also. On the other hand, when we acquired Ternium Brasil, when we acquired CSA, they have been certified in ISO 50001, which is an energy saving certification. Which, to be honest, we like it very much, we are taking that program to all the other facilities. We hope next year to certify the San Nicolás plant in Argentina and the Pesquería plant in Monterrey, and from that on, start certifying all the other facilities. Also, our environmental performance has been recognized by the Mexican government. Most of our facilities in Mexico are Industria Limpia. That's what it's called. It's clean energy.
We have a certification every year, we have to work hard to get that certification. Also, they have been recognized by the Green Building Council here in the U.S. Pesquería plant is the second industrial facility in all Mexico that obtained the LEED certification by the Green Building Council. The LEED certification is a certification in leadership in energy and environmental design. To close, we invest last year $70 million in our facilities to reduce our environmental footprint and the risk we have in operation. This year, in 2019, we are going to invest almost $100 million in that. Second, integrity. Integrity is a key part of our long-term sustainability. Ternium is committed to build a corporate culture of integrity based on ethical behavior and obedience to the law. As you can see, we have a very strong corporate governance.
The audit committee is formed by three independent members. We have another department in Ternium that reports to the chairman of the board and to this independent audit committee. That strengthens its independence. We have a BCCO, a business conduct compliance officers, that reports directly to me. We have a code of conduct that reflects the best practice in ethic and integrity. We have a business conduct policy that regulates our relationship with public officers. These both norms are mandatory and are conditional to employment. All our employees receive this, acknowledge this, and get trained on how to recognize and deal with no transparency issues. We have a compliance department that designs, maintains, and tests all of our internal control model aimed to ensure the SOX certification. We also have confidential channels that everybody can use to report irregularities.
To make an example, in 2017, we received 130 anonymous compliance, 30% of those was proven to be true and measures we are taking. In short, we believe integrity and compliance are key for a long-term sustainability of the company, we will continue working hard to making our corporate governance as strong as possible. Let me now talk a little bit about our efforts to make our value chain stronger, especially with small and medium enterprises. We launched a program called ProPymes. PyMEs is small and medium enterprise in Spanish. In Argentina in 2002. We took this program in 2006 to Mexico, we are thinking of launching this program next year in Brazil. What is this program about?
The idea of this program is to help our customers to increase their business, to consume more steel, and also to help our suppliers to be more competitive, to be more productive, so it can also increase the competitiveness of Ternium. How we do it? We do it by training, by development of industrial projects, by business consultancy. We also do institutional assistance. These are very small companies, so they need that. We gave them commercial support and, in some cases, financial aid, not to run the business, but financial aid for special purposes, for special investments so that they can grow the company. Some numbers of 2017. 1,600 companies were included in this program or participated in this program during last year. We have 86,000 hours of training to these companies. 400 management consulting projects in 2017. We partnered with several universities and business schools.
You can see it all over there, probably the best in Argentina and in Mexico, so that they can deliver this training to all of these companies. It's a very strong program, and you see the growth of our community. Last year, we had an event, for example, in Monterrey. We have both events in Argentina and in Monterrey. Last year, we had this event in Monterrey. The Secretary of Economy came to the event to speak, to make a conference to all. We were more than 1,500 people in the conference. He was quite impressed because no association, not even CONCAMIN, which is the association of industries in Mexico, and they are very devoted to the SMEs, could get so many people involved in a program like this. We also believe in deep ties with the community.
It's fundamental for the company to grow with the community for our long-term sustainability. We actively participate in all the communities we operate, mainly through education programs. Also we do something in health and to promote culture. Let me show you a video of one of our projects in this sense that we made in Pesquería. This is the last project that we have. I think it's very clear what we do in the community.
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Okay, I hope you like it. We are quite proud of what we made in this school in Pesquería. It's expensive. It's a project that has a huge impact in the community. It's transforming Pesquería. Pesquería, although it's 30 miles from Monterrey, which is one of the richest city in Mexico, was one of the poorest counties in Mexico. It's a big difference. As the video said, only two out of 10 students continue their high school education. 80% of the kids, when they were 15 years old, they stop studying there. I think this make a huge impact. Most of these kids would never dreamed of studying a high school. The first generation is going to be graduated in June next year. I'm talking with them, with the 128 kids. Half of them are already thinking in going to the university.
I think it's a huge impact. Of course, we do this in other communities, not that school, but we help with the local school. We improve the facilities of the school. We give scholarship to the kids they needed. We do scholarship also in higher education. We do even scholarships in PhD in the Universidad Autónoma de Nuevo León or with the Tec de Monterrey. We also make several programs with after-school. In most of our communities, Pesquería, Colima in West Mexico, Santa Cruz near our plant of [Rio de Janeiro]. Those are communities where the kids study only with four or five hours. They have a lot of spare time that they spend on the streets. We are producing a lot of after-school program with sports and with science.
The kids stay in a place, and they don't have to be around with other people, with the dangers that I think that represents. In short, we foresee education and welfare of our community through high impact initiatives as a way of making the community stronger. We see that our growth has to come with the growth of our community, too. Summing up. Our comprehensive business strategy is giving positive results. We decrease our injury frequency rate. We are certifying our operation in EHS management systems used internationally. We are producing a significantly positive impact in our community, both on a human level, as you can see, but also in an economic development point of view. We do all this help while achieving a very good operating performance and maintaining a solid balance sheet.
Also, as you can see in the lower chart, by increasing dividend payments to shareholders over time. This is what I'm trying to convey when talking about a comprehensive and sustainable business strategy, that all shareholders are taking in mind when we plan for the long term. Let's go now to talk a little bit about steel market and what's going on. I start with what's going on from a global point of view, and let me talk for three specific things. First, the world is growing, and this has a positive impact in the steel consumption. We expect that steel consumption is going to grow 3% this year. This is a big number if you compare to the last 10 years. Only two years in this 10 were bigger than this.
One of the important part in this number is that most of the region are growing. It's not only China, but the U.S., Europe, Canada, some parts of Asia. Only Argentina and South Korea are not growing. South Korea for another problem. Most of the region are growing, and this is very good, as it helps, I don't know, reduce, but attack the problem of overcapacity that the steel industry have. What happened in this last year? Three thing. First, trade measures. There is a lot of trade measures, discussions, and things going on. I think that from a steel point of view or from a Ternium point of view, this is a very good thing. If you remember, we have been advocating for fair trade to combat unfair trade and subsidies for a long time with not a lot of hearing from the governments.
It was not very successful. In the last years, this started to change. Two years ago, we managed to create the Global Forum on Steel Excess Capacity in the G20. This is the only subject that the G20, the 20 most advanced economies in the world, is the only subject From a business perspective, that is talking in the G20. They acknowledge the problem, and we with the government are finding solutions. These solutions take time. In the last year, some of the governments that were a little bit impatient that measures were not taken, started more aggressive trade remedies. The most notable was Section 232 by the U.S. Also Canada, Mexico, Turkey, Europe, and some countries in Asia are also taking measures to safeguard for this overcapacity or unfair trade issue.
Again, I think increasing awareness of this problem, increasing awareness of the unfair trade that the steel industry is subject to, is a very good thing for companies that operate under fair trade, as us. Second thing that happened is NAFTA, and this is very significant for Ternium. Last week, the U.S. and Mexico signed an agreement. Well, not signed, got an agreement. It has to be signed in 90 days with the renewal of a new NAFTA. There's a lot of things that are changing in this new NAFTA, I think there are two or three things important and very significant. The first is the sunset clause. If you had been seeing what was the discussion of NAFTA, one of the most tough things that the U.S. government was asking was that the new NAFTA will be canceled every five years, unless both countries specifically renew it.
That was kind of tough. The new sunset clause is the sunset clause that was closed last week. NAFTA is going to last for 16 years. From the six years onwards, people are going to discuss if they renew it again or they change a little. They have 10 years to get an agreement for a renewal for another 16 years. This gives much more certainty to investments. The second thing is the rule of origin, especially in the car industry, and this is very important for us. The car industry in the old NAFTA has a rule of origin of 62%. That means if 62% of the car, with a formula, was made in the region, it was considered NAFTA. If not, they have to pay duties to go to the U.S., for example.
The new rule of origin elevates that number from 62% to 75%, increasing 3% every year. In a couple of years, it's going to be 75%. That means that more regional components has to be made in the region. There's another thing that is important, and it's regarding steel and aluminum. Steel was not part of the NAFTA. If you produce a door with steel and you produce it in Mexico, it is Mexican regardless if the steel was coming from China or was coming from the U.S. or was coming from Mexico. In the new NAFTA, 70% of steel and aluminum has to be produced in the region. For us, that's quite an accomplish. The last part, again, there's a lot of things and we can discuss NAFTA in the Q&A if you want.
The last part that I think is very important is regarding Section 232 for cars. If you look at the news a couple of months ago, the Trump administration launched this investigation of a Section 232 for cars, saying that the imports of car were damaging national security. Wilbur Ross, the United States Secretary of Commerce, has to analyze if this is true, and if it's true, he has to put tariffs or quotas in the imports of cars. If that goes through, it would have a huge impact on Mexico. Mexico exports almost $1.8 million cars to the U.S. and almost $70 billion of auto parts to the U.S.
In this new agreement of NAFTA, what they signed is a side letter that says if the U.S. is in some time putting this measure of Section 232 or other measure of safeguard against the car imports, Mexico will have a quota. We have a quota that is higher than the export today, both in cars and in auto parts. Again, they're going to restrict the growth of Mexico in car, but still they have a huge amount of imports or exports to get to that quota. The quota is bigger. It's 2.4 million cars, for example. I think $100 billion export in auto parts. I think those three things are very good. I don't know if a Section 232 in cars, the U.S. administration is going to put a Section 232 in cars.
I think that at least this is a safeguard for Mexico if this goes through. Third thing is what is going to happen now with the Section 232 of steel that is affecting, of course, the steel industry in Mexico. As you know, from June, Mexico's export to the U.S. are tariffed with a 25% tariff. We have been discussing that. We were in Washington all last week discussing this. There's no agreement yet, but I think the solution in the next month will come from two ways. One, Section 232 is going to be eliminated for Mexico. That's the logical thing to do once you sign NAFTA. The other one is that if the U.S. doesn't want to take off the Section 232 from the table, the Section 232 against steel, Mexico is going to mirror that tariff for the export of the U.S. to Mexico.
As you know, U.S. export more steel to Mexico than what Mexico export to the U.S. It doesn't make any sense they choose that one. Again, I think those are the two options the Mexican government is discussing, and there can be one in the middle with quotas, as they do in cars, but those quotas have to be high enough not to damage the Mexican steel industry. I think we are not going to have a settlement in the next couple of weeks, but I think that in two or three months, we are going to have a solution to the Section 232, and it has to be in the three ways I told you. To continue, I will ask César Jiménez to give you guys an update of how Mexico is doing and how we are doing in Mexico. Please, César.
Good morning, everyone. Thank you for attending this presentation. What I will try to do in a very short period of time is to show you a little bit part of our results, talk to you a little bit about some of our strategies, and give you a quick overview of the Mexican steel market. As you can see on the top right chart, Ternium Mexico shipments have been growing constantly during the past few years. We consider Mexico a very attractive steel market for three main reasons. The first one is a growing use of high-end steel, using mostly for industrial customers. The second is a big, large base of customers requesting and requiring higher levels of service. Third, and more important, is because competitiveness is based more on product and service offerings than on pricing.
Don't get me wrong, pricing is always important, but it is not the main factor to make a decision. Participation of industrial sales, as you can see also on the chart on our total sales mix, also have been increasing constantly over the years. From 46% in 2013 of industrial products shipped into Mexico as part of our mix, to 55% in 2017. This is a reflection of the very good activity on the industrial market in Mexico, and the success of our sales activities there. Now, 2018 is a different year. Peculiar. Kind of uncommon. For also three big reasons, as Máximo mentioned. The first one is a long and ongoing negotiation process with the United States and Canada for a new free trade agreement.
The second one is the tariffs imposed by the U.S. administration under the Section 232 on steel and aluminum products, and also the retaliation that the Mexican government did against this. Last but not least, we have just ended up a couple of months ago, one of the biggest election process in our history. We elected, at the beginning of July, a new president, both the Congress and the Senate, nine state governors, and three state congresses. As you can imagine, all these events changed the dynamics of the market in Mexico, and that also affected the steel industry. All in all, we believe that in 2018, steel consumption in Mexico will be slightly below the number that we had in 2017. I will go in deeper detail about what is happening on industrial market and also on construction market because they show very different dynamics.
Industrial activity in Mexico has been surprisingly strong during 2018, taking into consideration all the challenges that I just mentioned. If we take a look to the automotive industry, for example, after a very good year in 2017 in car production, growing 13% against 2016, we expect this year to that number to be slightly above from 3.9 to maybe around four million cars produced in Mexico. As you may know, there are still some companies who are ramping up production in Mexico, such as the COMPAS facility in Aguascalientes. There are companies that will be starting production in Mexico in the next years. The BMW facility in San Luis Potosí and the Toyo Tire facility in Guanajuato. These are good news for Ternium.
If the NAFTA negotiation process is finished and signed, as Máximo mentioned, the companies will require a higher integration of North American components that we believe they will be very good for our customers and also very good for us. If we take a look on the left side to other industries other than car manufacturing, you can see that almost all the industrial segments, with the only exception of electrical energy and energy equipment, have been showing very positive activity indicators in the first half of 2018. We believe that this activity will continue to be strong on the rest of the year and also in 2019, basically driven by the good economic performance of the U.S. economy. What are we doing on this segment?
We are reinforcing our differentiation strategy, developing new high steel grades, and using every day more of the high-end steel slabs that are coming from our Rio de Janeiro facility. This has several advantages for us in Mexico. First, we are expanding our product offering. Second, we are improving service time to our customer. Third, we are reducing also time to market those new products. That also is strengthening our strategy for this market. If we go to the construction activity on commercial market, I will talk mostly about construction activity because this is the main driver. You will see on the chart that construction activity has been relatively stable during the past years, as the growth on private investment was offset by a decrease in public infrastructure spending.
I will admit that I am not very optimistic on the short-term outlook of this market for the following reasons. As you know, we are in the middle of a transition process in Mexico after the elections. We have a long transition period from July to December, and there is a new party that is going to take charge on the government. This period in the past has been characterized by a lowering of public infrastructure projects during the transition period. We believe that this will be happening. We are already seeing it in the second half of this year, and maybe it will continue until the first months of 2019. After that, I believe that the infrastructure is going to pick up again. It is going to improve. The new government has announced several projects devoted to infrastructure.
They are talking about the new train in the Yucatán Peninsula, revamping of existing oil refineries and the building of a new one, improving infrastructure spending in roads and ports. That will mean, if they are going through with these projects, that they will continue increasing public infrastructure, and we have a deficit in Mexico. With the new NAFTA, if signed, that could trigger also additional private investing. We feel confident that in 2019, that will end up in a positive way. What we are doing in this segment as a strategy is to continue reinforcing our service offer to our customers in Mexico by the intensive use of information technology and Industry 4.0 tools. This has been helping us to optimize inventory management, enhance our service offer to our customers, among other benefits.
As a quick summary, Ternium has been showing very good results in the past. Industrial activity seems to be on the good track and continue to be very strong on the next years. Construction activity maybe will not be so strong in the next months, but we believe it will pick up on 2019. Our differentiation strategy and our service offering strategy will help us to continue delivering good results. Thank you.
Thank you, César. Why don't you join us so I'm not that lonely up here? As you see, we continue being positive in Mexico, especially industrial sector. It's true that there is a transition, always in transition, there are some backups in Mexico. To tell you the truth, I am seeing this transition much better than the ones before. After the election, the first week after the election, Mr. López Obrador, the new elected president, had already chosen all the secretaries. All the people that is going to work with him was already nominated. That's unprecedented in Mexico. They usually wait until late November to do that. We have met with several of them, and they are already working. I think, or I'm optimistic that this transition period is going to be much better than the previous one.
Also, last Tuesday in Monterrey, I met with the elected president, López Obrador. We have a meeting with him and part of the team. I was quite positive with all the plans that the new administration has. We also talked with him about the new investments in Mexico, we are going to talk about that a little bit later. Now Martín will have the very easy job to enlighten us about what is going on in Argentina.
Hi, good morning to everybody, and thank you for being with us today. I will try to be short. Last year, you may recall that we were forecasting an apparent flat steel use of 2.7 million tons, we did better than expected. We reached 2.9 million tons. This year, we are forecasting a decline of 5%. Why? The agricultural business is affected by the worst drought in the last 50 years, decreasing the production of rain by 20%. This effect became evident in April, May, the time of the harvest, putting pressure on the financial market, putting pressure on the Argentine peso. This, together with a significant volatile international financial markets, capital outflows for many emerging markets, especially from Argentina. This caused the devaluation of the peso by 100% in the beginning of the year, and 40% in the last 60 days.
Of course, this affect the economy dramatically in the second half of the year. Economists were saying at the beginning of the year, that the GDP will be growing by 2.5%, 3% this year. Now they are forecasting a 1%-2% decline because of the recession in the second part of the year. Of course, in this situation, we are having soaring interest rates reaching 50%-70% annual rate for the peso. That is creating a destocking in the whole distribution network. Of course, the market for vehicles, durable goods, vehicles, home appliance are suffering. That's why we are projecting a 5% decline, despite the fact that the first quarter, the steel use was 16% greater than the year before. The situation changed dramatically in April, May. Looking forward, we never lose our hope.
We are foreseeing some rebound in the economy, driven by many factors that are still working, they're doing very well. I think that the agricultural sector will give us back 1.5%, maybe 2% for the economy growth the next year. Grain production is projected to reach record levels, maybe 20% more. The development of Vaca Muerta is going very well. Investment in this area are at a pace of $2.5 billion-$3 billion a year. The production of shale gas will reach more than 25 million cubic meters per day. The country will be able to replace all the imports of LNG, liquid natural gas, that will have a lot of impact in the economy because the value chain of all the non-conventional investment is highly integrated in Argentina and will have also the impact of export.
Argentina will be exporting natural gas in the next summer, there will be a surplus of natural gas in the coming years. The construction sector, there is some uncertainty. Of course, we will be seeing some decline in government spending in the infrastructure sector, because they have new fiscal targets to comply. That could be offset by the kickoff of the public-private infrastructure projects that maybe will start in the last quarter of this year. Also, the renewable energy projects are underway. All the projects approved by the government account for almost 15% of the national generating capacity. These four factors, we think that could offset the fall in the general consumption of the public, maybe we are projecting for next year. Our best scenario is a rebound in our steel market of 3%, reaching 2.8 million tons next year.
With much lower than the 3 million that we have projected last year. We are quite optimistic that once this financial volatility is over, the country can grow again next year. Thank you, Máximo.
Thank you, Martín. Stay with us, please. We have more. Next, Brazil. Brazil is an important market for Ternium, but in different ways. For one, we have the new facility in Rio de Janeiro, or Ternium Brasil. That facility is not affected very much of what can happen in the Brazilian market because it's mainly an export facility, so it's more cost-driven, and Marcelo is going to talk a little bit about this in a couple of slides. The market or the consumption of steel, of how the economy is doing in Brazil, plus or affect us for one side, and also our industrial customers in Argentina, that are very linked to export to the Brazilian market. Brazil is doing a little bit better. After four years of decrease in consumption from 2013 to 2016, steel consumption in Brazil decreased by 35%.
It's a huge number decrease. Fortunately, in 2018, this year, steel consumption start growing a little bit more. We expect to be 6% higher. You can see that improvements in the numbers of Usiminas. Shipments in Usiminas are increasing. EBITDA in Usiminas is increasing. 2017 was not a bad year, and 2018, at least the first half is looking very good. Also the net debt to EBITDA ratio is moving back to normal. It's around two today. In the years before that, it was much higher. I think the situation in Brazil is improving. I know there are elections. I know we have a very bad news yesterday, and I really don't know today. I cannot say today what is going to happen with the attempt of one of the candidates, the leading candidate in Brazil.
From economic point of view, we see that Brazil is recovery and the slowdown was so big that I think it's going to continue recovering next year. Also, this year, we signed an agreement with Nippon Steel regarding the governance of Usiminas. This was a very important step in our relationship, we will continue working together, always for the benefit of Usiminas. Last of the markets, Colombia. We never show Colombia here in the Investor Day, Colombia is the fourth largest steel market in Latin America, and it's becoming an important part of Ternium. Colombia is mainly a construction market. There's not much industry there in Colombia, our operations focus on long products, there's not enough capacity to produce all production, and a big part of the market is supplied by imports.
Last September, we announced a new investment in a rolling mill for rebar. It's going to be located, if you see the map, in the north of the country, in Barranquilla. It's going to be a mill that produce 500,000 tons of rebar, and it's going to be started at the end of next year. The important part of the mill is, if you see all the other dots that are in the map, those are the production facilities of long products in Colombia. They are all in a center part of the country. This country has three range mountains, it's very complicated to transport. Logistic costs are very high. Almost 50% of the consumption is from there upwards.
Putting a mill in the north part give us better logistic access to almost 50% of the market, which I think it's going to be a significant improvement. The total investment we are doing is almost $90 million. Last chapter. Well, you see, last Investor Day, Ternium made some big changes that somehow are transforming the company in many positive ways. One of those was the CEO, and I hope that one is one of the positive, but you'll say that. Integration of the new slab facility in Brazil triggers significant opportunity growth for us, not only in Brazil, but in all of the other countries.
I would like to talk in this last chapter of how Ternium industrial system is changing, what are the opportunities we see in this change, and how we are changing our management approach so that we can take the best of these opportunities. We have another video that kind of show what I'm talking about. Oops.
Ternium integrates one of the world's most modern steel plants into its industrial system. The new plant has the capacity to produce 5 million tons of high-end slabs a year. Its own deepwater port, and a 490-megawatt power plant. It is the platform for a new era of added growth for Ternium in the Americas. With a total crude steel capacity of 12.4 million tons a year, we are now the largest steel producer in Latin America. With operations in Argentina, Brazil, Colombia, Guatemala, Mexico, and the U.S. We are seizing on the momentum provided by the plant in Brazil, and we are building on a new hot rolling mill, and new coating and painting lines in our industrial center in Pesquería. And a new reinforcing bar production facility in Colombia, which more than doubles our capacity in the country.
Ternium takes its integration to a higher level from its iron ore mines to its 39 service centers with increased capacity to manufacture more sophisticated products to service industrial and commercial customers. We work with a network of hundreds of small and medium-sized companies that support our 17 production facilities spread across five countries. To improve every day our offer of high-end steel products and enhance our differentiation. Our work on research and development fuels the innovation of steel to meet ever-increasing customer demands and market needs. We are developing steel that becomes lighter and more durable, steel that is clean and that can be recycled infinitely, to create a strong future for our continent. We build our differentiation on the foundations of industrial and technological excellence and on customer service.
From our mills to our customers, to the millions of people across the Americas who benefit from Ternium steel, Ternium continues to evolve and integrate. Ternium, sustainable growth for the Americas.
Okay, thanks. Well, I hope you see a little bit in the video what I talking about when I said that Ternium was transforming in a different company. Today is exactly one year since we took over the CSA facility in Rio de Janeiro. For this chapter, let me ask Marcelo Chara to give us an idea of what is going on in Rio and what we have been doing for this last year.
Thank you. Good morning, everybody. Every time I see this film, I really feel emotion. If you walk around through the mill, it's really impressive. As we mentioned, it's one of the most modern facilities for making steel in the industry. What we have focused with our team in Rio, basically and mainly, has been in improving the efficiency of our industrial system. In the very first nine months of operation, we have increased the throughput nearly 5% in most of the lines, most of the operations. We have also concentrated in strategic maintenance practices and doing benchmarking and getting the best of our industrial experiences through the Americas in increasing the availability of critical processes. That not only helped us to increase production level, but also to improve the efficiency of some key process to get a better cost efficiency operation.
For instance, we increased the scrap and solid charges of the converters up to record levels of 9%. We increased the fuel injection in the blast furnaces. We improved the raw materials mix of the blast furnaces using more sinter, since we increased capability of the sinter plant. All that initiatives and several more that we developed during the past 12 months helped to make a more sustainable, more stable operation. Another very important thing was we developed strategic plan, midterm plan, to surpass the original designed capacity of the plant. We will surpass that in the next times. Another very important initiative, as we can see in some of these graphs I will try to explain to you is, we focus on productivity at whole.
We have fully integrated our operation in our matrix management system for Ternium. We avoided the duplication of some tasks. We did a much more lean structure. In terms of structure, white collar headcount, we have reduced in the first 9 months, 15%. Looking as a whole, in parallel with all the operations, and apply benchmarking and best practices of how to operate facilities and all the processes, we find some improvement opportunities to improve productivity as a whole. We have incorporated some automation processes, even where we have installed 4 robots in the platform on continuous casting machine. Not only to improve the labor productivity, but also to improve the safety conditions of the operations.
Summing all, having all these initiatives working together, when we compare the last quarter with the first quarter of our operation, we have increased as a whole 9% the total productivity of the facility. In terms of efficiency, in terms of cost, we have incorporated our Exiros procurement area, global purchasing area, into our facility in Rio. That helped us to incorporate its important list of suppliers in a very competitive basis in all the supplies that means to feed the plant of 1 million tons capacity. Definitely, another very important factor was to strengthen deeply our supply chain processes. Planning, production scheduling, logistics, order management, all that was deeply developed with IT tools. Now it works like one piece in the supply chain line with our rolling mills and finishing facilities in the Americas to improve the efficiency of the whole industrial system.
Thank you very much for your attention.
Thank you. Thank you, Marcelo. Quite impressive job for 1 year only. A few weeks later that when we took over the facility in Rio de Janeiro, we announced the investment in a new hot rolling mill in Pesquería. This was, I think, beginning of October. This facility is the missing link between our new facility in Brazil and the modern state-of-the-art facilities, the cold rolling mill and the galvanizing lines in Pesquería. When this facility is running, we are going to have a totally integrated industrial system that is going to be, I think, the most sophisticated in the Americas. If you see the chart over there, this hot strip mill will expand our product range a lot, at least from a dimensional point of view. The orange one is the capabilities of the new compared to the other 4 we have.
It's a huge expansion from a dimensional point of view, and it's also a huge expansion from a quality point of view because this mill is going to process the most advanced steels in the world that are going to come from the facility in Rio de Janeiro, which is today able to produce the most advanced slabs. The investment is $1.1 billion. It's going to be running at the end of 2020, and the capacity is 4.1 million tons. It can be increased, that capacity, almost to 5 million tons with very little investment, but we are going to decide that later. I told you that we met with the new elected president and Graciela Márquez, the new Secretary of Economy. This was one of the subjects we discussed. They were quite pleased that we are going to continue with the investment in Mexico, to be honest.
The other one, we are building a galvanizing and a painting line in Pesquería also. You see by the pictures, it's quite advanced. The painting line is going to start production in March of next year. The galvanizing line is going to start production in May of next year. These, again, are lines dedicated for industrial customers, part automobile industry, but part all the others industry that César talk about in his presentation. All these efforts are targeting mainly the Mexican steel market or the NAFTA steel market. Mexico is not only the largest steel market in Latin America, but it's also the most sophisticated. The customers require high-end products and value-added services. With this last investment, we are going to be able to supply to them all this. Today, part of this supply, they buy it from imports.
You see in the lower chart, the different industries, those are in millions of tons, how much imports enter a flat products Mexico today. We have a big opportunity to grab part of that import. We know the customers because they are our customers today. We know their needs. We have just-in-time services with them. Now we are going to produce the full range of products they needed. I think we are very well prepared to this challenge. All these changes that we are talking are causing a significant transformation of Ternium industrial system. If you see in the top chart, after the acquisition of our plant in Rio, our crude steel capacity grew by 71%. After the investment in the hot strip mill is finished, our hot coil capacity is going to increase by 50%. Our galvanizing capacity is going to increase by 28%.
Look at the number because it's going to grow because of the new investment. The new investment is going to give us 350,000 tons, and it's going to grow for other initiatives that I'm going to tell you a little bit later. This is a much bigger and complex industrial system that demands changes in the way we manage the company. This, as I tell you, this demand changes in how we manage the company. Ternium needs to be more integrated now. With operations in several countries, we need to have Ternium more integrate that we can leverage from this bigger size as we take full advantage of the opportunities that are around us. For that, one of the things we create is a new central industrial management system.
They're going to be responsible for engineering, for automation, for environment, health and safety, and for the deployment of the new technologies that we are bringing to the company, but how we test it in one facility and then deploy it very quickly to all of our facilities. This is an area that has a cross-facility approach. Using benchmarks, we optimize investment, we optimize maintenance, we increase productivity quality, we decrease cost by sharing main practices or by seeing technologies around the world. Let me give you an example, because it's not simple to describe this in only three minutes. I use an example to describe the changes we're making. In October, when I was nominated CEO, we make a test of this new structure in a smaller part of our process, in galvanize.
In galvanize, if you take apart Tenigal, the joint venture, we have 11 galvanizing lines in Ternium in seven different facilities in four different countries. It's a complex system. Most of those facilities has a manager and they run it very well. They are very capable people and they run it very well. We put this new structure to coordinate the efforts of this facility. After six months of analysis, we discover or we find that with an investment of a little bit more of $40 million, we are going to increase capacity in those 11 lines by 350,000 tons. Remember the numbers of the line before. With 15% of the cost, we are going to have a new line. This is a huge impact in how Ternium. Because part of that, we are doing without any investment at all.
The lines are producing today more. With this, we are bringing from March onwards, this approach to the whole company. There's today, engineer and industrial manager depends direct from me, and he's responsible of deploying all these initiatives with responsible in each of the process. He has, of course, many other things. We talk last Investor Day of a smart factory and all our job to try to bring the new technologies to our mills. We are doing that, but they are going to deploy that much more quickly to all the facilities. Also, a change we are doing is that we are doing our R&D department. We used to have R&D, but our efforts in R&D, we are making in developing new products, to try to find or to try to get to what the customers want. Today, we are making a department.
We already invested in a new R&D center in the Pesquería facility. We staff that center and the Rio facility with PhDs and master in metallurgy that were consultants to us, but were not working full time with us. We partnered with different institutions and research that you can see over there in the lower part of the slide, to make this R&D more quickly with them. They have huge facilities and a lot of resources in metallurgy, in galvanize, in lamination. I think they are going to help us in deploying all these initiatives quite more quickly than doing it only together. The focus of this new R&D approach or department is not only in product development.
We continue with the product development. We have huge opportunities in how we improve the production process, in how we make different steel or the same steel more productive, with better quality, and very important, with less cost. It's a comprehensive or total approach to R&D with, again, this new facility. Let's go to conclusions or to the summary. I hope we are quite all right. Conclusions. Steel consumption is growing around the world. Most of the countries, as I said, are having an increase in steel consumption, and that I think is good for overcapacity and steel margins. There is an increased awareness of unfair trade around the world, and this is particularly very important for our region, which was not still very aware of this. Now they are. We have a sustainable business model with superior profitability and a very solid balance sheet.
We put, as you see, a lot of effort on achieving excellence in industrial management and deploying the last technologies to all our facilities. We are on track of becoming a company with an even stronger competitive position based on differentiation of products and services. This is very important in Mexico. Last, but I think not least, we will continue to focus on generating long-term value to all our shareholders. With that, thank you very much and we open to Q&A. This is my first one, as I said. The easy ones are coming for me. The hard ones are for them. I ask Pablo and Oscar if they can join us. Yeah.
Hello. Good morning. Thank you very much. It's working? Yeah. All right. I have a few questions. Let's start with you, Máximo. An easy one, I guess. In your meeting with AMLO and his team members, did you discuss any specific policies that the new government will have for the steel sector? Since you are also a miner in Mexico for the mining industry in the country. Maybe for Martín, how quickly can the company or is the company passing through the impact of the devaluation in prices in the domestic market? Can you keep or try to keep your price level in $ in Argentina? What would you expect, in general terms, the profitability trend in the country to be in the next few quarters? Or, yeah.
Thank you very much. I'll start with Mexico. Then Martín with Argentina. Meeting with AMLO. I meet with him and I meet several times with other secretaries. To be honest, I think they have a very clear understanding that industry is quite important for Mexico. They know that their role should be a little bit in Pemex, in CFE, but they also want to have a very solid financial position. They don't want to get involved in more debt and to increase the debt ratio to the GDP. They understand that the industrial sector is one of the most important in Mexico. Talking with Graciela Márquez, she has a very clear view of how to help develop more the industry, the value chain. Things that we have been talking for a long time in Ternium, they know it very well.
Graciela Márquez is a PhD in economic history from Harvard, she knows the things, and I think very capable. Also they have business persons in the government. Regarding steel and mining. Mining was a big topic, but I think it was over-exaggerated. Yesterday, the Secretary of Economy was with the mining sector. Our mining, Diego Ferrari, the head of mining, was with her in that meeting. They want a responsible mining. In mining, there are good companies and there are bad companies, and we all know that. They're going to respect the good ones, and I think they're going to help because they even are talking of decreasing the amount.
Paperwork
paperwork that they have. To make an investment in mining today, you have to go to seven different offices to ask the same. It's a lot of bureaucracy, and they are thinking of doing that. In steel, of course, they know very much what is happening in 232. They know our investment plans. They are very eager to help us and to discuss with the U.S. a solution to 232. I am quite pleased.
Well, regarding Argentina, as you may know, with the devaluation, we gain competitiveness. 30%-35% of our costs are nominated in pesos. At the beginning of these strong devaluations, prices go down a little bit. We are shock-absorbing the effect for the value chain at the beginning, but prices are going to reach international levels in one or 2 months. That's always happened in Argentina. Some effect in one, 2 months, and then going back to international levels. We'll always be very tied to prices in Brazil. The prices in Brazil for our value chain are very important. That will be the price in the market in the midterm.
Regarding our EBITDA margin, I would say that it will be suffering a little bit because of lower volumes or lower tonnage sold in the next quarter and in the second half of the year, recovering in the next year, I would say.
Here and there.
In terms of the preliminary agreement between Mexico and the U.S. on the NAFTA modernization, you mentioned this increase in the rule of origin that, in principle, may be positive for the industry. However, this other part, the 40%-45% portion to be made basically in the U.S. and Canada because of the salaries, couldn't this be a negative for the steel sector in Mexico?
I am not seeing any negative. I understand there is a 40%, but the 40%, first, it has to be in a long time, then there is a 15% of that that can be in R&D and white collar, so you accomplished that already. Parts are going to come from the U.S. to be assembled in Mexico. The Mexican industry going to still produce the same or more, and some parts, instead of coming from China, has to come from the U.S. Those parts are the ones that are going to have $16 an hour on labor. I don't see. Again, the final texts of the agreement are not public. Some of them, we have it because we are in the room, in the war room, they call it or something like that. I don't know why.
We participate very eagerly in all the things. We know the text in some cases, but the final text, we don't know. We are going to have a very detailed analysis of that, I hope in two or three months, when they are public, and we can sit down and see everything. What we had seen, we are not seeing a negative. I understand some parts are going to be made in the U.S., but those parts were made today in China or in Korea. The parts that are labor-intensive continue being made in Mexico, for sure.
Maximo, if I can complement that. As far as we understand, even if the car doesn't comply with the rule of origin, the tariff that that car will pay is 2.5% going to U.S.
Yes. It's very small.
Okay. Thank you. In another subject, Maximo, if I may, there was this noise some weeks ago regarding this payment of people from Techint into the Venezuelan government. What is the situation and how that may affect this company?
It's a very good question. In relation to the case that is reported in the Argentinian press, what we know about this is from the Argentinian press. I don't know anything more than that. It's our company, Ternium, current understanding that no director, no officer, and no employee of Ternium played any role in these payments. I know that at the Techint officer, the press said about a Techint officer, from Ternium's perspective, no officer, no director or no employee has any role at all in that.
I was wondering if you could expand on the currency question that you talked about a bit in Argentina. Just across all operations, we've seen currencies weaken across the board from Mexico, Colombia, Brazil, and Argentina. I was wondering if you could give us a general feel for how these currency moves will affect operations. Specific to Argentina, I'm curious, can you migrate operations more towards the export market given the significant weakness in the currency? A different question. I was wondering if you could talk a bit about dividends. I noted the chart you had there of sort of progressively higher dividends per share over the last few years, which is something I don't always attribute Ternium to.
I was wondering if you could expand on your dividend policy, if you have one, and in the context of this expanded capacity program that you have over the next few years, how you see dividends evolving going forward.
Okay. Thank you. Let's start with dividends, if you want, that's a question that Pablo Brizzio likes a lot. He's going to answer it.
Okay. Yes. First, let me tell you, as you mentioned, that Ternium does not have a formal dividend policy, traditionally, we have been increasing our dividend payment every time that we increase our results. This, as you mentioned, has been the case in the last five years. The increase in dividend payment in the last five year was more than 65%. Not only that, the dividend yield has been quite impressive in the last years. Last year was almost 4%, which is quite a lot if you compare that to other steel companies in the region, and not only referring to Latin America, but also to the U.S.
If we see, and if the board of directors of the company and the shareholders meeting see that the results of the company continue to be positive, clearly there is a chance for the company to increase the dividend payments in the coming years. The company is generating a very good level of cash flow, a very good level of EBITDA generation. Even with the CapEx plan that Máximo, and we showed you in the presentation, clearly there is room for sustaining or even increasing our dividend payment. We will need to wait because this is decided once a year, but clearly not only the trend, but the capability of our company are showing that we have the possibility of even increasing the dividend payment that we have been seeing in the last years.
Back to currency. I think currency, are different how it affects us in the different markets. If we start with Brazil, the depreciation of the real for Ternium is not much of an issue. It rather helps because all of the slabs of the Ternium facility are priced in dollars, and most of them are exported. A devaluation decrease your costs. From a Brazil point of view, it's not bad. Mexico, the Mexican peso has been more stable. Although it goes ups and downs, it's around between 18 and 19. Again, when we have big devaluations or big changes in the peso, prices are not 100% in dollars, but industrial customers are in dollars, and commercial customers tend to be in dollars two or three months later. We don't have also a big effect.
In Argentina, it's different because the devaluation in Argentina has been quite substantial, and the problem is not the cost or the prices. The problem is that the market can decrease. The problem will be if we have less volume to sell. Martín said, and he can comment now, we are not seeing that the market is decreasing as much as the problems in the newspaper would tend to, but that would be the main problem. I don't know, Martín.
Yes. What we are seeing that our domestic sales will go down in the second half of the year by 10%-15% roughly, and we are going to compensate half of that with more export to the neighboring countries. Our operation level will be pretty the same in the second half of the year. That's our perspective.
Thank you. Hi. If the proposal with the agreement with the U.S. is implemented and you're fully implemented to 70% content rules, is it possible to roughly quantify how much more steel demand that'll mean for North American producers versus Asian or whoever else was supplying it?
That's a good question. We don't have the number yet. Just to give you an idea, the car industry in Mexico imports, between the car industry and the auto parts industry, imports around 4 million tons of steel. Is that or higher? 4 million is a lot of tonnage. We have to analyze also what is going on in the U.S. because we don't have the numbers of the U.S. In Mexico, if Mexico produces the same cars as they produce today the imports are 4 million tons.
Thank you. I wanted to explore a little bit more the Pesquería rolling mill. If you look at it, you are one of the only global steel companies we know of that's adding capacity, and it's a substantial amount. It's a testament to your view of the world, one would think. Great minds think alike, and ArcelorMittal is also adding capacity and rolling capacity in Mexico. There's two other galvanized lines coming on in Mexico as well. I appreciate you talked about how there's demand for your capacity, but just wondering if you could talk a little bit more broadly about with the additional capacity and how you think about adding capacity in a world that people are complaining is oversupplied. Just your perspective on that. Thanks.
We are not adding steel capacity. We are adding rolling capacity. We are displacing, but rolling capacity is different than steel because slabs travel very quickly. High-end value added products are more difficult to travel. Although they do travel, they have a lot of constraints. You're right. ArcelorMittal supposedly is building a new facility also in Lázaro Cárdenas. It's a different facility because it's targeting the commercial market, as I said. It's a 2 million tons facility. In total, the additional capacity will be 6 million tons. If you see the export, the imports are 8 million tons, a little bit more today. We are going to decrease 1 million tons of capacity, because I don't know if I said that, but we surely expressed it several ways, several times.
In Mexico, we have three hot strip mills, number 1, 2, and 3, very original. The number 1 is the oldest one. It was a very old facility that was in Hylsa, with a very narrow-
Width
dimension range of products and a lot of quality issues. We are going to shut down that. That will decrease almost 1 million tons. Also, we import hot coils in Mexico for our Pesquería plant. We import almost 600,000 to 700,000 tons. That also is going to be decreased. The impact of our hot strip mill will be around 2.5 million tons, not 4 million tons. Again, it's going to go to the value-added products that probably the new, as we see how they are investing in ArcelorMittal Lázaro Cárdenas, that goes more to the commercial market. I see place. Again, in galvanize also, the JFE Nucor facility, galvanize imports more than 2 million tons today in Mexico. We have our technical facility and the new facilities that goes to the industrial customers 100% saturated.
There is place for going after that import. Of course, we have to fight for those imports. I think it's more easy than to fight between us.
Thank you. Continue talking about competitive dynamics in the Mexican market. AHMSA, although they recently postponed their investment, but they are thinking about a new continuous caster for auto-grade steel.
If and when they decide to bring it back on, how would that affect the dynamics of the auto sector competition in Mexico, and how would that affect your strategy for that industry?
Yeah. For us, it would be very good because they are doing an investment in the steel mill to produce slabs. To be honest, today, after several years where we were buying slabs, for the last 10 years, Ternium has a deficit in slabs. When we bought CSA, we have a little surplus of slab, although we continue buying and selling, but when you make the numbers, we have a surplus. When we put the new hot strip mill, we are going to have, again, a deficit of slabs. We are going to buy roughly 3 million tons of slabs. AHMSA, every once in a while, sell us slabs. Having a slab facility that can produce better grades for us is good. They are not increasing rolling capacity.
I see that as a good better alternative for buying slabs instead of buying slabs from other sources.
Right. At least in the short term, until they invest in rolling, perhaps.
Investing in rolling is $1 billion. You have to do it.
Fair point.
It's not that easy.
Thank you. My last question, I think, is on the investigation on Techint. If I may ask, is there any ongoing investigations or information requests from the authorities in Argentina to Ternium or for Ternium documents? Because at the end of the day, while Ternium may not have been involved whatsoever on this process, it did benefit from the event. The ultimate result of what the press has discussed led to those payments, which was the compensation, on the one hand, of the Venezuelan government for the Sidor asset, and also maybe helping some of the Argentine employees and families that were in Venezuela.
Yeah. No. There's no authority or no request at all for it, nobody from Ternium. Let me specify a little bit more about what you say. Ternium didn't benefit from what supposedly this Techint officer made. Again, what I'm saying is what the press is saying. This Techint officer appears to have stated that these payments were made at the request of the Argentine authorities to intercede with the Venezuelan government in order to avoid the harassment and consummation of threats against physical integrity of more than 200 expatriates that the Techint group has in five different companies. That's it. Those payments were made during 2008 only. If you remember, compensation came much later than that.
For Ternium Sidor or for Sidor.
Thank you for your presentation and your time. Looking at the CSA acquisition, it looks great. Congratulations. It seems like you've integrated it quite quickly. Given the Pesquería line coming up in 2020, obviously, a lot of that material is going to go straight there. I know also that you have contracts in Alabama as well. Are you looking to renegotiate those in the future, or would you continue? Are you looking to send most of that CSA production straight to your new line in Pesquería? Thank you.
Well, the contract with Alabama ends-
2020.
2020, no?
2020.
2020. We are going to continue supplying Alabama until the end of that contract, at least. Later, we'll see. It depends, I think, more of what Calvert or the Alabama plant wants to do. As you know, we buy and sell slabs, we are very good at that, and if from a product range it makes sense to sell to Alabama, we can continue to do that. I don't know if Oscar wants to comment a little bit more.
As you mentioned, when we bought CSA, there was already in place a contract between CSA and Calvert plant in Alabama. That contract, there was a remaining of 4 million tons of slab to be shipped to Calvert, and with a schedule that would have finished at the end of 2018 or beginning of 2019. Calvert asked us to reschedule those 4 million tons in a way that for them, they will allow them to program the end of that contract. At the same time, was beneficial for us because we were thinking in the new steel plant in Pesquería, the new rolling mill, that would start in 2020. For us, having those 4 million remaining tons in a longer period of time instead of in a shorter period of time, will help us to not to stop that shipment to the U.S.
Otherwise, we will not be able to match our capacity with the production of slabs. We amended that contract, and we rescheduled the remaining 4 million tons, and now the end of that contract will be December 2020. We'll match the initial operation of our new rolling mill. As Máximo says, at that moment of time, we will have the possibility of continuing shipping to them on a spot basis. We could also talk about a new contract if they want, and we could do that. At the same time, purchase slabs from other parts of the world. Taking advantage that in some volume, we will need a low quality, and CSA have the capacity to produce high-grade. It doesn't make sense to use that capacity to produce low quality.
In that way, we could produce and sell high-quality slabs and purchase low quality and make a difference in prices. It's an opportunity.
Hi. If I may?
Yeah.
Okay. Thank you for the presentation. I wanted to follow up on this topic. You've elaborated about how the industrial system becomes more complex. If we think about Ternium and its past history, looking at Latin America, it seems to be that manufacturing steel with these currencies, as your base currency, ends up being a competitive advantage when prices are set in North America. We could be seeing a new normal with Section 232 and the U.S. setting tariffs. My question specifically is, you've alluded to the benefits of having excess slab capacity after the CSA acquisition. Net debt to EBITDA is at less than 1x. Pablo, you're not wed to a dividend policy, clearly there's going to continue to be more deleveraging.
How much sense is it going to be beneficial for this new complex industrial system to have excess slab capacity? Would you consider owning industrial capacities in the U.S.? You could arbitrage very easily right now, buying in the market for Mexico and selling that slab capacity from CSA into the U.S. because Brazil has a quota agreement with the U.S.
Yeah.
Look, you've got that backdrop of currencies that are going to be, unless things change dramatically, are going to be very favorable for the foreseeable future. You know those markets.
Yeah
Could you talk about this, please?
Yes. It's a very long question or a very long answer because it's part of what we analyze as our strategy. Clearly, we know the U.S. market because we have a facility there. We sell from Mexico, also to the U.S. market. If the question was, are you going to buy something in the U.S.?
There's two possibilities. You can buy their excess capacity. There's rolling capacity in Brazil that Vale has up for sale.
Yes.
There's 3 million tons there. You know exactly that market. The second question, which would tie in with your complex industrial system, is perfectly the U.S. market, which you as well know very well.
Yes. Well, the Vale or the CSP capacity, I don't know. We are not looking at that right now. I know that they are restructuring the debt. I think that's the first thing they have to do. Clearly, as most of our options, if they come to sale and we probably will look at that. To be honest with you, during the last 10 years, we have an excess, well, not an excess, a need of slabs, and we were quite comfortable with that because it gives you a lot of flexibility. If you remember in 2009, I hope never comes again, but we decreased buying slabs, but our facilities of slabs continue producing at 100%. It give us a flexibility to have quite some flexibility not buying slab when a crisis arrives.
Nevertheless, as I said, we can see it. U.S.A. is also a market. We are very strong in Mexico and in all Latin America. We are not seeing anything in the U.S. right now. We are digesting CSA, and we are launching all these investment plans. You are right, that in some point, U.S.A. has to be a market where Ternium has to grow somehow. I don't know if I answered completely the question, for your face.
It's okay. We can talk about it privately. Separately, Pablo, on the dividend policy.
Yes.
If there's no specific dividend policy that is being discussed, excess cash flow generation, what kind of debt levels are you targeting and what happens with that excess generation?
Yeah. First of all, remember that this year and next year, also in 2020, we will pick up our level of CapEx. The cash flow that we will be generating, a significant portion of that will go to finance the new facilities that were mentioned during the presentation. Remember that between the three CapEx plans that were mentioned today, the cold rolling mill in Mexico, the galvanize and the painting lines in Mexico, and the rolling facility in Colombia, we are discussing a number of around $1.5 billion. This is clearly a significant amount that we will finance in with new debt that we already took and with the cash flow generation by the company. Nevertheless, we will have ample capability of paying dividends and increasing, if needed and if decided, the level of dividend that the company will be paying.
Clearly, we will continue to have a solid financial position. For us, this is key because of the history of this company. Having a very solid financial position gives us the flexibility to analyze possible opportunities in the market and, at the same time, financing our internal growth in order to take advantage of the possibilities in the different markets that we are. Clearly, our belief is that the company is very well-balanced in all due respect. We are increasing our cash flow generation, but at the same time, we are increasing our CapEx plans. Together with that, we can, and we will continue if the case, to pay higher dividends as we did in the past year. We don't have a specific target on net debt to EBITDA.
Clearly, for us, it's good to have a very strong financial position at a low net debt to EBITDA and allow us to finance through our internal cash flow generation and the debt that we are taking in the market, all the projects that we are launching.
Just to the CapEx, that this year is $550 million, around $500 it's going to be. Next year, it's going to be $850 million, and 2020 is going to be a little bit over $1 billion. It's big, but again, we have the financial structure to do that, but it's increasing from the last three or four years. I think there was another question.
You just answered my question. Thank you.
I'm a visionary.
Can I just follow up with a last one?
Sure.
It's a topic that has come up on conference calls occasionally. Ternium, incorporated in Luxembourg. Mexico is now 55%, 56% of cash flow generation. Siderar has shrunk significantly. Sidor doesn't exist. You've stayed in Mexico, and the topic has come up on many occasions. Why not seek a Mexican listing? Can you elaborate on topics like that? I think we've discussed thoroughly potential benefits of something like that. Look, at the end of the day, it's phenomenal management, phenomenal track record. You guys are going to continue to get penalized for Argentina. No personal, it's like, look, it's just what it is. Can you.
That's one also of Pablo's favorite questions that we all ask him, not only you.
First, Siderar doesn't exist anymore.
True.
Siderar doesn't exist anymore. It's Ternium Argentina right now.
I still have all the filings.
Well, your question is something that we are looking at very carefully, and we discussed this.
For the last two years.
Exactly. The main target for a listing in Mexico, or a listing anywhere, is to be included in an index. Clearly, that's the main target of a listing. Unfortunately for us, listing in Mexico will not do a trick to be included in an index. Because in the case of Mexico, MSCI is not allowing companies to take the full listing of Mexico and other markets. The limits that you need to have in order to include it will not be met if you do not sum up your listing or your floating in the Mexican market together with the U.S. market, which is our current market. Clearly, we have a limitation over there. The only country where you can achieve that is in Argentina.
Well, it's another analysis, in order to do that, we need to see what's going on with the shares that we do not own yet of our subsidiary in Argentina, as Martin is saying, now it's Ternium Argentina. Clearly, we are analyzing. We know that we can improve there. We can improve Ternium's perspective to the market, it's not an easy job and nothing that we can do immediately. Clearly, if we have the chance and there is a quick solution to achieve that, we would go for it. Unfortunately, it's not the case. It's something that is, as Máximo mentioned at the very beginning, the comprehensive approach that we want to have for Ternium, this is part of that.
We are thinking very thoroughly on different alternatives on achieving the goal that you are looking for, which is also, you can imagine that it's a goal for Ternium. We will continue working on that. We will continue analyzing alternatives, opportunities, and if we find something, clearly be sure that we will take it.
Good luck.
Thank you.
Thank you for the opportunity. Just a quick follow-up there, linking this to the use of proceeds in the CapEx. I think we all agree that there is a gap of valuation, given the listing issue, and the recent events in Argentina. When you think about buybacks, the way that you see the returns related to the buyback, vis-a-vis what you get in the CapEx plan, how do you see that? Why not taking that route eventually to take advantage of the valuation gap eventually? Thanks.
Can I take it up? Okay.
That's also a question for
Of course, clearly, share buyback is a way of generating value for the shares, and is very much utilized in many U.S. companies. The difference that we have is that our floating is a limited number. Our current floating is around 24%. If we go through this route, probably we will generate other problems, which would be reducing the level of floating, which is something that we achieved and we were able to increase some years ago to a level that today is a reasonable level. Going to that direction probably will be damaging the position of the company. Clearly for us, the importance of being listed is there, and was mentioned during this presentation.
In our particular case, we believe that is not the way to go because the damages that we can generate, we believe, are higher than the possible benefits that this type of operation could have.
If there's no more questions. No? Okay. Thank you very much. It was a pleasure being with all of you today, and I hope to see you all soon. Thanks a lot.