Gerdau S.A. (GGB) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to Gerdau's Third Quarter 2026 Results Presentation. I am Mariana Dutra, Head of Investor Relations. And joining us today are our CEO, Gustavo Werneck, and CFO, Rafael Japur. Please note that this call is being simultaneously translated into English and you can choose your preferred language by clicking on the globe icon at the bottom of your screen. [Operator Instructions] It is worth noting that the forward-looking statements contained herein are based on the company's beliefs and assumptions based on information currently available. Forward-looking statements are no guarantee of future performance and are subject to circumstances that may and may not occur. I will now turn the floor to Gustavo to begin the presentation. You may proceed, Gustavo.

Hello, everyone. Good afternoon. I hope you are all doing well, and I do appreciate this opportunity to join you for another earnings release presentation. We will briefly discuss the highlights of the third quarter of 2026 and also the outlook for our operations. Right after that, we will move to our Q&A session. The third quarter once again posted strong results in North America. Resilient demand in the key markets where we operate and the very strong operating performance of our facilities in the region resulted in an EBITDA margin of 27.7%, the highest in 4 years. However, in Brazil, we continue to report a slight recovery in results despite ongoing pressure from imports and also an oversupply of steel in the local market. This performance stems from a very strong initiative focused on increasing the productivity and profitability of our assets in the country. To this end, I would like to note that we have begun operations at the recycling center in Pindamonhangaba, Sao Paulo, and we are now conducting final integrated tests for the expansion of new iron ore capacity at our Miguel Burnier mine in Ouro Preto in the state of Minas Gerais, which is scheduled to begin operations in the fourth quarter. I will now turn the floor over to Japur, who is right next to me, who will detail the financial highlights and the impacts of the current environment on our results.

Hello, everyone. Thank you so much for joining us once again for the earnings presentation of the third quarter of 2026. We ended the third quarter with EBITDA of BRL 3.8 billion with a margin of 20.2%, the highest since the second quarter of 2023. Adjusted net income was also higher, reaching BRL 1.5 billion, whereas earnings per share rose from BRL 0.74 per share to BRL 0.79 per share. This quarter, we converted a significant portion of our EBITDA into free cash flow, generating BRL 1.4 billion, 6x the amount recorded in the second quarter. When we look at the first 9 months of 2026, our free cash flow totaled BRL 1.7 billion compared to a consumption of BRL 1 billion that we had in the same period of '25. This difference is mainly driven by higher EBITDA, especially in North America, but also due to lower consolidated working capital requirements and lower investments when compared to what we did in the past few years. Now reflecting the quality and resilience of our results, Gerdau S.A. will pay out this quarter BRL 0.34 per share in dividends, while Metalurgica Gerdau will pay BRL 0.16 per share. Combining dividends and share buybacks in 2026 done by Gerdau S.A. throughout the year 2026, we certainly returned more than BRL 1.850 billion to our shareholders, certainly demonstrating in concrete terms, our commitment to creating value to our shareholders. This is not merely words, but this is a testament to our commitment. As for our balance sheet, our financial position remains very solid with a leverage ratio of just 0.58x net debt to EBITDA. In addition, throughout the third quarter, we renewed for an additional 5 years, our global credit facility, our revolving line because (sic) [ which ] we can withdraw in different countries where Gerdau operates. And there was an increase of 29%, amounting to $1.125 billion available for withdrawal which strengthens our liquidity and also the company's financial flexibility. I mean, in line with the previous topic, I would like to say that on October 22, the S&P rating agency revised our outlook from neutral to positive. So now we are BBB. We have a BBB rating with a very positive outlook, very similar to a movement done by Fitch, which earlier this third quarter also reviewed our rating. This not only reflects the resilience of our business, but also our financial discipline. These are levers that, in our view, are crucial to our capacity to invest while at the same time, we create value to our shareholders in the coming years. So I will wrap up here, and I'll join Gustavo for the Q&A session.

Thank you, Japur. I will just go on saying that in North America, despite the typical seasonality for the period, we continue to see steel demand at high levels with a very strong order backlog driven by a solid portfolio from segments such as renewable energy and data centers. In Brazil, we are seeing a slowdown in demand due to the typical year-end seasonality, among other factors. The domestic market continues to be impacted by excessive imports of steel and a scenario of steel oversupply. With President Lula's reelection, we expect the continuation and strengthening of the trade defense measures that have been adopted by this government as well as the implementation of new effective measures aimed at enhancing the competitiveness of Brazilian industry, ensuring balanced competitive conditions in face of rising steel imports in order to preserve investments and the creation of new jobs in the country. It will also be essential to make progress on the energy agenda, particularly in opening up and developing a more competitive natural gas market as well as achieving greater stability in access to and use of renewable and low emissions energy sources, such as solar power. Similarly, it will be important to continue implementing the tax reform on consumption approved by the current administration, contributing to the simplification of the tax system and the strengthening of the competitiveness of domestic industry. So I'll now turn the floor over to Mari and Japur, and I will be available to answer all of your questions.

[Operator Instructions] First question from Leo with BTG Pactual.

Can you hear me well?

Yes, we can hear you well.

I don't know for some reason, I cannot really enable my camera. I apologize. I have 2 questions. First, in the last few weeks, there was a NeoFeed that was very complete with many comments by you on Brazil, asking for some additional adjustments to what has been done in recent months. And you talk about personnel adjustment, capacity adjustment and you talked about heavily cutting down exports, some CapEx adjustment. And I know that we're going to have Gerdau Day in some weeks. And I know you're going to be addressing all that. But perhaps if you can elaborate on what adjustments you intend to make in Brazil given the current context, we would appreciate. Second question and perhaps picking on Japur's brain. I know that this is old news. Japur, I apologize, but I think it is, kind of, obvious to ask about this. Given the relevance of the United States and given the super strong scenario ahead of you, the guidance you're providing, a scenario that seems to have many implications in the future in terms of results. And the fact is that everyone has been monitoring this for years that the U.S. is totally detached from Brazil, the Brazilian operation and South American operation. And perhaps, there is a more difficult scenario in Brazil in the future, is there any expectation that Gerdau would assess an opportunity for a spin-off or a more strategic movement in the United States? These are my questions.

Thank you, Leo. What I talked in the NeoFeed interview is that we have a plan we're working on. It's not complete yet. We expect to give you more visibility and detail about the plan in the Investor Day, as you said it yourself. But the starting point is that we cannot just sit with our arms crossed, waiting for factors which are not under our control will improve our profitability and margins in Brazil. In a way, similar to the project we had in 2018 in North America. And now we have this level of results on one hand, that's because of the conditions we found in the United States. And on the other hand, it's all the homework we did, divestment in product segments that we thought would not bring us the necessary profitability over time, investments in our mills, in our product portfolio, investments in competitiveness as we never had before. So looking forward, regardless of the current administration, we have to do our homework. We have been pursuing profitability everywhere we look in our business, but it has not been sufficient for us to achieve an adequate profitability in Brazil that would balance the results better. So what I can tell you is we have done some, perhaps a small part of what we can still do. We are detailing this plan. Japur is coordinating the plan himself. I don't know whether he wants to give you a spoiler or not. But during the Investor Day, we will be able to give you more visibility about that. We have been working heavily on what we can do, what is under our control so that we can continue to improve the profitability here. And Leo, I have to mention that if by any chance over the next 4 years, we see some efforts -- materializing efforts, we have been debating with the federal government, in terms of the tax reform, in terms of improving trade defense mechanisms and continue with the gas options so that we can have more volume and better prices in natural gas, all of that will benefit the work that we are doing. Earlier today, when talking to the press, I mentioned that in whatever situation, there are positives and negatives. And with the reelection of the current administration, I see that we will continue to have a dialogue on trade defense mechanisms, and this is positive. Well, we go back to square one and start from 0. So in the last 2 to 3 years, we have established a dialogue with the federal government through data. In fact, we have debated trade defense mechanisms. And I think that they can be expanded in the future as the numbers show that we can continue to have unloyal (sic) [ unfair ] steel flowing into Brazil, but we cannot rely on that. I'll stop here, and Japur will talk about North America. And perhaps he can add some additional comments regarding the adjustments made in Brazil and to be made in Brazil.

Well, about Brazil, I think we've been talking a lot about. You know our rationale in a world where China is exporting structurally more steel with lower prices and more trade defense mechanisms in an environment where we see less room for exports. So we are focused on reducing our exports over time. And we're focused on making investments, which we believe are important in Brazil so that we can be competitive. There are no big silver bullets. And there's a lot to be done. We have made an important stride forward with the CapEx adjustments that we've made to expand HRCs in Brazil, expanding our mining activity at Miguel Burnier, now the opening of our shredder in our recycling center in Pindamonhangaba. So you see there are a number of support points in our strategy in addition to everything Gustavo mentioned to cut down costs. But we'll bring you more color on that during the Investor Day. And as for North America, not news. We have been talking about this in the last earnings call. We increased the share in EBITDA to 77%. In the past quarter, it was 75% share of the North America segment. But we have no plans to have a spin-off or any major acquisition in North America to increase our exposure there significantly. We don't have that in our radar at this point.

Next question from Marcio Farid with Goldman Sachs.

I have perhaps 2 points here. One, starting with Brazil. I think you spoke a little about demand. But in the last Gerdau Day, I remember you talked about mining and iron ore in Brazil. And of course, it's hard to understand what would be the optimal time looking forward. But I would say that at least this would make up your portfolio with more exposure to exports. So thinking about different scenarios and optimizing the portfolio, how do you see mining? Now Miguel Burnier will start ramping up in Q3. But what are Gerdau's alternatives to grow iron ore? I know that this -- the short term is more challenging, but does this impact what you're thinking? And I think that a lot of the debate we've had with investors is regarding the new normal of margin. And until when can you gain more momentum? It seems that in the future, there's still some momentum to be gained, but I'd like to understand from you, what are the 3 negatives could be the USMCA deal that could gain momentum after the midterm and the ramp-up. So if you could comment on how risky these triggers can be for the U.S. moment and when we can -- where can we see the margins normalizing after these triggers are over because the market is seeing these triggers as negative for North America.

Thank you, Farid. Let me talk first about mining. We see room as an avenue for growth and value creation for Gerdau in mining, considering the portfolio of assets that we have both industrial assets, the Miguel Burnier expansion, the share we have in MRS Logistica, the set of mining rights that we have in the state of Minas Gerais. So in addition to Miguel Burnier, we have Dom Bosco, Várzea do Lopes, other mining rights that we can eventually explore. And we understand that structurally speaking, iron ore, albeit under pressure now because of freight prices, fuel availability and fleet availability. We understand that these are topics that are for the mid-run. And for the long term, it continues to be a market where high-quality assets or high-quality mining rights will continue to be able to generate attractive results. So this is a path for growth that we intend to explore in the future. We haven't got any tangible plans right now. No tangible initiatives regarding these projects. Our major focus is the ramp-up of our expansion project at Miguel Burnier. This is the big lever, the main driver we see in Brazil segment in 2027. But the fact that mining prices are lower, shipping prices are higher, it's not something that really cuts down our appetite to assess that. We'll look into that, into those opportunities in mining. As for North America and the new normal that you have. I can give you some thoughts about that, Farid. The key market for us is merchant bars and beams in North America, and this is a big and a representative market, a market of about 9 million tons. If we add merchants a little more than that, 15 million, 16 million tons. And of course, there will be a new entrant there. And they will compete in the line of beams. But an important part in the Mexican market is that they want to import heavy beams, and we understand that. And we will be focusing on the Mexican market, and that would be the normal move. A part of that volume can be exported to North America, and we can already see volumes of imported material. The imports have been growing in North America when we assess the statistics of imports, but it's a very robust environment for our key markets there with this new entrant, DEACERO. And I think that the new triggers we have to pay attention to will be less of free trade agreement between Mexico, Canada and the United States. We believe it's very unlikely we'll have a 3-party agreement. We believe there will be individual bilateral agreements between U.S. and Canada, Canada and Mexico and U.S. and Mexico. And it is important that we break down the effects for Gerdau, which has part of its production in Canada with mills dedicated to products only for Canada. And likewise, we have products that only the U.S. buys for us to have an agreement between Canada and the United States because this is what's being talked about in the media, would be positive. It would reduce our transaction costs in our specialized mills. Sometimes we lose some shipments because of the tariffs unlike what happens in Mexico. An agreement between Mexico and the United States, we understand it can worsen our margins a little bit because of the DEACERO player, as you mentioned. And today, we haven't got a big exchange in shipment volumes. So for us, it would be, kind of, net negative if there is an agreement between Mexico and the U.S., and it would be net positive if we have an agreement between the U.S. and Canada. I think our big focus, if we think about the risks would be investments and focus on demand, demand in North America. Demand in North America is not evenly distributed across the markets. We have a market related to artificial intelligence investments in energy, transmission and power generation. And we break down the data of economic activity and nonresidential spending. Year-to-date, we have a slight increase in nonresidential spending, but a good part of that is explained by investment in AI and energy. If we see a substantial deceleration of this demand pocket, perhaps this would be a much more representative risk than the ramp-up of a new DEACERO mill. Because, given the nature of the products that their ramp-up will be slow.

Our next question from Carlos De Alba with Morgan Stanley.

So I wanted to ask maybe a little bit on the EBITDA benefit from the Miguel Brunier and the Midlothian projects. How much do you still expect to capture this year in the second -- or in the fourth quarter, I guess? And then in 2027, should we see the full benefit of both projects already next year? Or maybe there is something that carries over and only sees the full potential in 2028?

Hi Carlos? How are you? I mean, in terms of the benefits from the projects, we are now concluding the tests at Miguel Burnier. The ramp-up will continue throughout the fourth quarter. It's not the ideal in terms of what we expected because the fourth quarter and the first quarter of the following year are rainier years in the southern part of the country, especially now with El Niño. So I think this will delay things a bit. We won't be able to do it as quick as we expected because we wanted to be very much focused on the safety of our industrial processes and our employees. Therefore, so an important portion of the benefit will be captured throughout 2027, but not the full benefit. But we will give you more details about it during our Investor Day. But it will probably be very close to what we mentioned in our last Gerdau Investor Day. We thought that it would ramp up in the third quarter of 2026, and we were expecting, I mean, something around BRL 400 million. I think something around this order of magnitude, maybe since the -- we will get something close to that as it will come to us the benefit of the project in 2027. In the case of Midlothian, we are still in the midst of our maintenance shutdown. Not only that will conclude maintenance, but we'll also focus on the expansion of our melting plant capacity of our main mill in North America. And there will be also a ramp-up throughout the fourth quarter. And traditionally, this is a quarter when shipments are lower due to seasonality. So in terms of Midlothian and all of the additions of productive capacity will be fully noticed throughout 2027, considering that we do not have any setups (sic) [ setbacks ]. I mean, any problems along the way. So these are the 2 most important projects, both in Brazil and North America. And both projects will have a lot to add to our company in '27.

Maybe on the capital allocation front, very active in the company in paying dividends and buying back shares, more importantly, canceling those shares. Congratulations on those decisions. How do you see that going forward, maybe the split between dividends and share buybacks and just the appetite to continue to return money to shareholders.

I think that while our shares are below the book value, we will see good opportunities to continue to invest, and then we will be canceling the shares over time. So this option is no longer an option for us. So in the third and fourth quarters of the year, that's when we have the bulk of our cash generation. And that's why we accelerated the results. If we think about year-to-date, we -- our free cash flow for the past 9 months. And when we talk about our financial highlights in the presentation, you saw that we got BRL 1.6 billion of free cash flow, remembering that we go variation of the cash and all of the lines involved. And so we pay back our shareholders with the recent dividend announcement, we paid BRL 1.8 billion. So more than 100% of our generated (sic) [ generation ] in terms of free cash flow after important investments for the long run of the company. And so we gave that to our shareholders, which demonstrates that we are fully committed to return to our shareholders what we did. So this is something nonnegotiable for us.

Next question from Gabriel Barra with Citi.

I have 2 points. And still on that note about Miguel Burnier, I think that the landscape has changed a lot in the past few months, especially in terms of the margin. And I think exchange rate is moving quite fast. Therefore, without even talking about 2027 and speaking about the new project, we used to talk about that BRL 1.1 billion. I don't know how much you can share with me or advance the discussion that you will be probably talking about during the Investor Day. I would just like to understand the run rate at Miguel Burnier given the current landscape and probably foreign exchange may help us a bit, and this may change the scenario. And on the other hand, even referring to some previous questions, the company is in a very comfortable position in terms of its leverage position, FX exposure. But looking forward -- I mean, looking ahead, I would like to hear a bit about foreign exchange and whether that 4.7% is still feasible for this year. And also about leverage, whether the current scenario, looking at the scenario globally and also locally in Brazil, whether this changes the scenario going forward. I mean, whether that 0.6x or 0.5x will change or whether this is an adequate level or whether we should expect higher leverage over time. So these are my main points.

So Barra, how are you? It's good to talk to you. So let me first refer to mining. When we gave you the outlook saying that throughout the cycle, the return anticipated was BRL 1.1 million (sic) [ BRL 1.1 billion ] from the mining project. If you look at the footnote on the slides that shows how we calculated that return, there is an important portion that comes well, some related to mining shipments, I mean, 30% to 40% of the amount. But the bulk of the benefit relates to internal consumption of that ore in Ouro Branco at a low cost, lower than buying ore from third parties. But the quality is also much better, about 65% better. So in the past, when we calculated the benefit, we took into account a CFR price for iron ore of around $90 per ton. At that time, it was not even 61%. It was 62%, so slightly above. If we think about that quality enhancement of 1% and the FOB price was about USD 70. So we understand that, yes, the variables have changed. They are already changing again. And the only certainty we have is that once we have a full ramp-up of our mining operation throughout 2027 when we go through the first priority, which is own consumption at Ouro Branco, certainly, we will find ourselves in a different situation, which, in our view, will be much closer to a normalized level for freight costs and ore. Another important element is that given that iron ore has a worse price if we think about FOB, I mean, maritime to get the iron ore in Brazil. On the other hand, coal is more expensive. Therefore, the benefit of having ore with a higher grade of iron, which will, in turn, reduce our consumption of coke and coal to produce the same amount of iron ore. I mean, that increases. I mean, it gains even more impact of having higher quality ore that will reduce the consumption of coke in the blast furnace. So these are things that will be calibrated throughout time. Now moving to the second part of your question about investments, CapEx and leverage. I mean, 2 questions, I know. But CapEx, in our view, we are lagging a little bit behind. But right now, even due to uncertainties related to FX, we decided not to update our guidance. Thus, we understand that there is an upside risk thinking about free cash flow generation. So we might disburse less in 2026 rather than what we gave as a guidance in our Investor Day last year, in October of last year. Now speaking about leverage, last but not least, given the current scenario, I mean, we see a scenario of higher interest rates, not only in Brazil, but all over the world. Now 10-year Treasury is down to 5% after many weeks, but it's still hitting 5%, which is a very high level, thinking about the last 10 years, in particular. And speaking about our markets and our business, let me just give you a statistic data. When we run the results of our Brazil operation and compared with NTN-B of 12 months ago, I mean, the Brazil result today versus, I mean, tracking NTN-B of a year ago, that's when real estate investors and civil construction investors or those who are thinking about buying a truck, a car or long-term debt, which is a capital-intensive investment. The comparison is greater than 70% comparing Brazil Gerdau's results in terms of long-term interest rates. So given a scenario with so many differences, this is an important flexibility leverage, not only in terms of balance sheet, but also operationally speaking, when you talk about allocating capital, it's nicer to have a less leveraged balance sheet.

Next question from Ricardo Monegaglia with Safra Bank.

I'd like to start with an outlook of the United States. We had another steel maker in the United States reporting their results, their earnings with an outlook. I'd like to stress a point that caught my attention. They give us an outlook for earnings. And in the case of Gerdau, it's by margin, by profitability. So I'd like to understand, given that another player is also seeing similar price movements and applying the same price increases that you do, seeing the same dynamics of demand and scrap, I don't know. And that's my question. I'd like to understand, are you being conservative? Are you being conservative thinking about a more critical scenario for scrap because that's the point that drew my attention because the scrap price has not increased. Did you have any signal from your suppliers that scrap prices will increase? Are you seeing that happening? Because the Gerdau portfolio, when I look at the weighted average of the prices of Gerdau products, I see an increase of $70 in Q3. It was not reflected in the average and will be reflected in the beginning of Q4. So I don't know. There are some other things that can impact Midlothian at a cost of BRL 100 million. At the same time, you have other expenses decreasing. So I'd like to understand the moving parts here. Something that we might be missing, perhaps more downtime in addition to Midlothian. That's my first question. I'll ask the second later.

Okay. Ricardo, you made an interesting question. We normally follow what's happening with our players in Brazil and Latin America. And the first point, as you mentioned, yourself that we give you an outlook considering margin. And you're referring to the outlook of because Nucor, they give an outlook regarding earnings, total million of dollars of profit. And they're giving a softer guidance for Q4. And we are providing a margin stability for steel products. And I think that here, we have to underscore this difference. We're talking about margin and the margin, as you said it yourself, we have a positive event regarding prices. And we also have an important aspect related to costs, and these are related to seasonality. Typically, in Q4, we have lower production volumes, lower shipment volumes and that leads to a lower dilution of our fixed costs because we have fewer tons to distribute to that production. And you give us the answer to your question. Over Q3, we started the stoppage at Midlothian and significant part of the days and idle capability (sic) [ capacity ] cost, we continue to pay the labor, but the plant is not producing. And this will be reported over the Q4, over the fourth quarter. So that's our view regarding results despite a positive inertia, positive momentum for the top line in terms of prices realized. So we see that in terms of costs and volumes, we're going to have a detractor that will, kind of, keep the margin stable.

That's super clear. Second question to Werneck. In the first question, Werneck, you mentioned that you might adopt additional measures to protect the Brazilian market, the Brazilian business, which is okay in my view. Are you talking about the approval of antidumping for BQ and wire rod? Or do you think more measures will be necessary? Could you elaborate on what you've been discussing your priorities? You spoke a lot about taxes and other competitiveness items. So I just want to get more color in terms of what you're debating.

Well, Ricardo, if there's one positive point offsetting a certain delay in the adoption of more robust trade defense mechanism is the technical rigor with which this analysis is being done by the Ministry, MDIC, the Ministry of Defense Industry and Mining (sic) [ Ministry of Development, Industry, Trade and Services ]. They might adopt a more robust trade defense mechanisms and then people can question that. And then they're difficult to implement. It becomes only a political decision. The fact that they are having this technical rigor is a positive approach by MDIC after intense debates with Vice President Alckmin. And after that, with the current Minister, Márcio Elias Rosa, who took over him. And that's the point we'd like to highlight the technical rigor. I think that this is progress. There has been a reduction in the penetration of imported steel. Both parties expected a greater reduction, which did not happen. Antidumping is evolving in its technical debate, that might be a next step. If it's not enough, more robust existing mechanisms have to materialize. So at this moment, I think the progress made is positive. And I believe that in the next 4 years, the fact that we've had an intense debate with the government and the fact that we have this technical rigor, I believe the new trade defense mechanisms may be adopted. Like I said to Leo, we are not putting all our betting chips on this. If my optimism is the reality, I think that it will help us accelerate this process of recovering profitability. And we get inspired by other trade defense mechanisms implemented elsewhere. I like the hard core (sic) [ quota ], setting a limit after which no more imports will come in. But that's my personal opinion. There are other mechanisms. So I see continuity of the business positive, having this technical rigor in our debate. If we have to go back to square one and start it all over with a new team, I think that it would take us longer to reach the stage where we are at. That's just, kind of, what we are thinking, Ricardo.

Next question from Daniel Sasson with Itaú BBA.

My questions are actually very straightforward. The first is a follow-up to Barra's question regarding CapEx for 2026. You're executing the CapEx at a slower pace, and Japur spoke about the uncertainty regarding foreign exchange. But given a stronger disbursement for Miguel Burnier and Midlothian this year, and once this is behind you, would it make sense to think about 2026 as the top range for the 2027 guidance? I know you haven't got a formal guidance, but thinking about the big building blocks that made up CapEx for 2026. So I'm thinking about the effective disbursement of CapEx. I'm not thinking about BRL 2.7 billion, but perhaps thinking about a slightly lower level. And my second question to you, Rafa. Does it make any sense? Or do you have any formal policy at the company that you would revisit? You have policies for your gross debt up to BRL 12 billion. So do you think it would make sense to change any of these covenants because perhaps these were conceived at a moment where EBITDA generation and cash generation levels for Gerdau were different. And now that it is totally different?

As for CapEx, I think that could be a good assumption considering what we're executing of CapEx today. Perhaps it will be, kind of, close to what we are going to be seeing in the coming years if there's no big change in our global strategy. We have a level of disbursement that is necessary for maintenance. And we have important maintenance coming up at Ouro Branco as we detailed in our Investor Day, considering the blast furnace, the coke plant. So maintenance that we provide to maintain our competitiveness at Ouro Branco. But I think that, yes, it would be a level close to $4.5 billion depending on the currency that you want to use, right? So I think that's, kind of, a reasonable number for the coming years. Like I said, we haven't got anything formalized. The most likely -- at Investor Day, we might have more maturity to share with you a number. But given the discussions we've been having with the Board of Directors regarding new projects, I think that this is an adequate number. And as for the...

Japur, just give me 30 seconds for an additional comment on my end. I have been saying this and when Leo asked the question, the first question, I talked about that we have the fact that we pursue competitiveness. And we have devoted a lot of work to reduce the level of CapEx per ton because it is incredible how executing CapEx in Brazil became costly and expensive. So we have a comparison in-house, which is CapEx in the United States, in North America as a whole, our assertiveness in terms of term and budget is greater than here. So we have been paying attention to this. We want to be more assertive in capital allocated to investment projects. But also we're looking for alternatives, looking the alternative elsewhere so that we can reduce CapEx per ton. I just want to stress that this is a work front to which we're dedicating a lot of time because there are many opportunities. CapEx per ton abroad has been much more competitive than in Brazil. So I just wanted to underscore this point. This is something that we are working on to improve competitiveness in CapEx per ton, right, Japur?

Yes. And to your second question, Daniel, about the policies and covenants. Yes, we could revise our gross debt policy. We estimated this level of gross debt when the FX was totally different. So today, we are close to BRL 5.30 per dollar. When we set this policy, the dollar price was at BRL 3 to BRL 3.50. But now as Gustavo mentioned, we are more focused on the debate to improve the transformation of our business here in Brazil so that we can rely less on North American results. Of course, we are very pleased with North American results, but we want our Brazilian operation to give us a return on capital invested that is necessary for us to continue to grow and to invest here. Yes, I believe that there is room for us to discuss our policy of net debt over EBITDA ratio, for example. But our big focus right now has been to discuss how we can be more profitable, more competitive here in Brazil. And with the leverage as a result of our work and our discipline, leverage is not a problem. So we are not looking into that so much at this point.

Next question from Caio Ribeiro with Bank of America.

My first question is about capital allocation in the U.S. We've seen Gerdau doing some recent moves in the past 5 years like Midlothian and the new scrap processing centers as well. And looking ahead, what is your view about new acquisitions or new potentials or even organic expansion in the region? And among the options, maybe you would increase the amount of captive scrap or maybe expand the portfolio of existing products or yet trying to expand the share of other products, looking at downstream products, more specialized products with higher added value, like joint stampback (sic) [ stamped joints ] and new structures. So among all of the basket of options, what would be your preference today? Secondly, looking at the margins in the U.S. market, I mean, you've been expanding constantly. And you already said a lot about how you see import risks and possible commercial or trade agreements with Mexico and Canada, the DEACERO plant as well. Could you give me some color about the new offering components in the U.S. or whether anything has changed in terms of new projects possibilities? Bearing in mind, the metal spread has been quite high for some products in the market. And also, how do you see demand evolving going forward, especially demand related to data centers, whether you see any signs that could worry you about data centers and what would that represent in terms of steel demand for the coming years?

Well, thank you for your questions. I mean, in a way, you already -- you asked the question, but you already helped me answer when you suggested a few possible paths in terms of organic investment, the expansion of selective capacity. And this is the path forward. We are not thinking about any major acquisition. We are not thinking about any greenfield plant. I think the U.S. market will continue to post this adequate balance between supply and demand. And when you talk about the data centers or whether that will continue to post solid demand, I think questions that we got about a year ago were very similar, but 2, 3 years ago as well. But we've managed to to come up with long-term projects that can serve the country. But within some logic that allow overlapping of demand if we can probably anticipate solid demand going forward. I mean, 2019 with the section 232, and then we have the CHIPS Act investments that are still in place in the U.S. of relocating plants from Asia into the U.S. So we are still delivering steel for that. And then the infrastructure bill, we thought that this could be translated in short-term demand. And in fact, that didn't come. But nevertheless, this is very present in Brazil. I was in Midlothian 2 weeks ago. If you go down to Dallas and if you drive around Dallas, there are a lot of new construction sites. And then we have the IRA. And we thought that in the government transition, that would be dropped. But it's still a reality, not only in terms of solar energy, but look at all of the demand around transmission lines. It's really awesome. So there has been an overlapping of a topic that I talked about in the past, and I'm referring to investment projects in the naval industry in the U.S. There is a huge demand coming for destroyers, submarines, a lot of flat steel, but also some other kinds of steel that are part of our portfolio in this new project to invest in the naval industry. And then we have the power project investments in nuclear plants in the U.S. I mean all of these demands pile up over time. And when we look at the soundness of that, we know that on the demand side, this will be very, very solid. And on the side of supply, I mean, maybe Japur can say a little bit more about that with the entry of DAC. I think the impact will be marginal. Therefore, I see that supply and demand is well balanced, which allows you to say that this current level of margins and results can be maintained. We are working at the limit of our mill. So we are trying to produce more in every mill, the investment in Midlothian is to that end, but there is a new phase of continuous casting to be executed until January. And it's an important expansion. If we had that already in place, we would have been producing by now. So -- I mean, Japur also talked about scrap. But with all this oversupply of Chinese steel coming all over the world, this does not allow people to buy more scrap so that we could have a short-term market where scrap prices could be higher. So all in all, I see greater stability, more stability. All right. I don't think I have a lot more to add.

Gustavo, the major component is the demand for data centers. We understand that this is a very important avenue for nonresidential investment expansion. And also the entry of DEACERO, we know from experience that when we did the ramp-up of our Sahagún rolling mill, that is a very lengthy process. The product is quite complex. It involves a lot of steps and also involves different specs. Therefore, it's not a very quick ramp-up as it would be in the case of a rebar plant. So we do understand that there will be -- the product will enter. There will be exports to North America. But North America is a net importer just as Canada is. Canada does not produce, I mean, rebars. And so we do understand that it's an additional producer in terms of DEACERO. And in terms of the other players, we haven't heard any important announcement of capacity expansion. We just see more organic moves of brownfield investments, but nothing substantial that would indeed change the needle in terms of this balance between supply and demand.

Our next question from Tathiane Martins Candini with JPMorgan.

I just have a few follow-ups from my colleagues' questions. And starting with Brazil, one thing that drew my attention, you said that you were selling more flats. There was an improvement in the automotive industry, and we know that especially in the steel industry in Brazil, it's a bit complicated. So what is your outlook once you look at your very diversified portfolio, several products? Do you see some room to gain more share in thi,s, kind of, like, flats or special steels? Do you see any further opportunities for 2027? And my next question has to do with CapEx. Just to clarify because I think it wasn't very clear to me. Whenever we think about this CapEx that could possibly be lower, is this thinking in terms of reducing CapEx per ton? Does that comes from there or it has to do with a delay in Miguel Burnier.

Tathi, in terms of the opportunities in the automotive industry, I think the main lever has been the rebound we see month-over-month in terms of the production of heavy vehicles in Brazil. Now when you break down the numbers for light vehicles, according to ANFAVEA, we've seen that the bulk of sales growth can be in CKD and SKD. And so they do not consume a lot of special steel from us. I mean, our clients are not the ones that are supplying to this category. But production has been around 2% to 2.5% national production. I mean the detractor in the results for special steels in Brazil throughout the year is that we had very weak first and second quarters, especially if you look at the production of heavy vehicles. Unlike North America, basically, everything we sell is for light and commercial vehicles. In Brazil, due to our product portfolio and the production industry, we also sell a lot to heavy vehicle production. It started with minus 20% or minus 18% in terms of production. Now this gap is shrinking when compared to the production from the previous year. And I think at the end of the year, we would have numbers similar to minus 5%, 4% or 6% for heavy vehicles. So once things are more normalized, I think we should see a more robust production of heavy vehicles without that significant drop we saw in the first and second quarters because I think that hampered our productivity in terms of reducing fixed costs and gains with additional tons that we didn't have due to that low production of heavy vehicles. Now speaking about CapEx, today, we believe that our CapEx disbursement now is closer to BRL 4 billion rather than BRL 4.5 billion or BRL 4.7 billion that was originally in our gap (sic) [ guidance ]. And it's not really related to Midlothian or delays in the mining sector from this year to next year. But mainly due to the efforts mentioned by Gustavo, we're being more assertive in terms of the projects that we approve. We are being more -- we are focusing more in what we want to do there. Also the fact that we hibernated some units, and that reduces the maintenance CapEx in these units. So this is not just the matter of postponing CapEx disbursement, but it means that we are just heading towards a lower level of CapEx use.

Next question from Rafael Barcellos with Bradesco BBI.

I promise to be really brief because I know we're running out of time. 2 points which I believe are important and that have not been addressed so far in this earnings conference call. First, today, in talking with some investors, a point they always raise in terms of capital allocation is this mismatch between EBITDA breakdown and CapEx. A good part of cash generation and EBITDA is coming from the United States, but most of the CapEx is being executed in Brazil. So that's an important capital allocation theme. I'd like to understand how do you think this mix will be rebalanced in the future? Any CapEx effort can make this more adequate? And the second question, well, this is the most important topic in the United States and a theme that caused earnings reversion, which is South America. So could you give us more color where and when South America should normalize? What do you think is an adequate profitability for South America considering the outlook?

Rafael, I think this has to do with the time. When we go back to 2018, we had a good operation in Brazil, both in gross margin results that were very good, exporting. And we had a big CapEx program for North America to invest in the units after we sold the plant for rebar and wire rod. And then the question was back then, "You're investing in the United States, you're selling assets there. Why don't you invest in Brazil? That's where you're making money." So you understand this capital allocation investments in CapEx in steelmaking and mining. Well, it's CapEx that take a long time to mature and to provide results. It involves licensing, studies, engineering, commissioning the equipment with long lead times. And in the past, you were asking us, why are you investing a lot in North America. Today, we see it was a good decision. It's bringing us good returns. Of course, because of trade defense topics and tariffs, but also because of the important investments we made in Monroe, Petersburg, Jackson and Midlothian first phase and investments in Midlothian in thermal treatment. And then in plants to supply solar panels for photovoltaic industries. So now in 2023, we said, okay, the results in Brazil are getting worse. We understand we have to make structural investments in Brazil to plant the seeds and reap the fruits in the future and improve our results in Brazil. So the CapEx disbursement in Brazil, for example, investment at Miguel Burnier for the mining project. That's an investment that we announced and disclosed to the market in the end of 2022, between the end of 2022, mid-2023. That's when we had the cornerstone there for mining. And only now is it starting to operate. So yes, there's this time and mismatch between capital generation and CapEx. But we don't make this calculation thinking I'm going to invest now and reap the fruit now. We always have to think about the marginal results. And what -- when we are going to allocate new dollars, we think about where we should invest so that it will generate more value, create more value in the long term. Today, the North American investment is doing really well. We continue to make organic investments to continue to grow as the case of the Midlothian project. This is the second biggest -- second only to Miguel Burnier, our second biggest investment is in Texas. So there's this mismatch, but it's more like a time mismatch and how we are thinking about the return of the project in the long run. You also asked about South America, the South American operation. This quarter, was particularly weak, mainly due to lower volumes that we had in Argentina and worse cost dilutions because of that. The market has not recovered to the past level, but we understand that given the nature of our operation, until we have an important recovery of the economy and the construction industry in Argentina, we know that our results will be very close to the results we have in the Peruvian operation, which between oscillates mid-teens, low teens. Structurally, that's the level of results we're seeing in Peru. So something close to 15% on a recurring basis. So this is something that will help us model our future operations in South America. Mari, over to you.

Thank you, Rafa. Well, everyone, because of the time, our question-and-answer session is closed. The Investor Relations team remains available if you have any further questions. I now turn the floor back to Gustavo for his final statement, and I'd like to thank you very much for joining us.

Thank you, Mari and Japur. Once again, I'd like to thank all of you for participating in our earnings conference call. I'd like to take this opportunity to invite you to our Investor Day that will be on December 4. Thank you very much, and take care.