Earnings call transcript: Gerdau MET PN Q3 2025 shows strong North American performance

Metalurgica Gerdau, operating under the stock symbol GOAU4, reported its third-quarter earnings for 2025, highlighting a robust performance in North America despite challenges in the Brazilian market. The company’s stock price saw a 2.87% increase, reflecting investor optimism following the earnings call. Key financial metrics included a 7% quarter-over-quarter increase in EBITDA and a significant focus on operational efficiency.

Key Takeaways

• North America contributed 65% to consolidated EBITDA, underscoring strong regional performance.
• The Brazilian market faced challenges with high import penetration, prompting strategic restructuring considerations.
• The Miguel Bournier mining project is nearing completion, expected to deliver significant cost benefits.

Company Performance

Metalurgica Gerdau demonstrated resilience in Q3 2025, driven by its North American operations, which benefited from stable steel demand across sectors such as solar power and infrastructure. In contrast, the Brazilian market struggled with a 29% import penetration rate, leading the company to explore trade defense mechanisms and potential restructuring.

Financial Highlights

• EBITDA: R$2.7 billion, a 7% increase from the previous quarter.
• Free Cash Flow: R$1 billion, with a 37% conversion from EBITDA.
• Net Debt/EBITDA: Reduced to 0.81x.
• Dividend Payout: R$0.28 per share for Gerdau S.A. and R$0.19 per share for Metalurgica Gerdau.
• Share Buybacks: 88% of the 2025 program completed, representing 2.9% of outstanding shares.

Outlook & Guidance

Looking ahead, Metalurgica Gerdau expects to reduce its capital expenditure by 22% in 2026, focusing on enhancing cost competitiveness and operational efficiency. The completion of the Miguel Bournier mining project is anticipated to bring R$400 million in benefits in its first year, supporting improved performance in Brazil.

Executive Commentary

• "In North America, we continue to see stable steel demand at high levels," said Gustavo Werneck, CEO, highlighting the region’s contribution to the company’s strong performance.
• "We will look at investments in Brazil much more carefully," Werneck added, indicating a cautious approach to capital allocation in the challenging Brazilian market.
• Rafael Japur, CFO, emphasized the importance of the mining project: "Our main focus is to deliver Miguel Bournier and do the ramp-up of the investment."

Risks and Challenges

• High import penetration in Brazil could continue to pressure local operations.
• Potential supply chain disruptions may affect production and delivery timelines.
• Macroeconomic factors, such as currency fluctuations, could impact profitability.
• Regulatory changes and trade policies in key markets might influence strategic decisions.

This comprehensive analysis of Metalurgica Gerdau’s Q3 2025 earnings provides insights into the company’s strategic focus and operational dynamics, with a particular emphasis on its robust North American performance and the challenges faced in Brazil.

Full transcript - GERDAU MET PN (GOAU4) Q3 2025:

Mariana Dutra, Head of Investor Relations, Metalurgica Gerdau: Good morning and welcome to Metalurgica Gerdau’s Third Quarter 2025 earnings release presentation. I’m Mariana Dutra, Head of Investor Relations, and joining us on this conference call today are CEO Gustavo Werneck and our CFO Rafael Japur. 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 the screen. During this presentation, all participants will be in listen-only mode, and next we will start the Q&A session. Analysts and investors can join the queue by clicking on the raise hand button. It is worth noting that the forward-looking statements contained here are based on the company’s beliefs and assumptions based on information currently available. Forward-looking statements are no guarantees of future performance and are subject to circumstances that may or may not occur.

With no further ado, I would like to turn the floor over to Gustavo to begin the presentation.

Gustavo Werneck, CEO, Metalurgica Gerdau: Obrigado, Mari.

Mariana Dutra, Head of Investor Relations, Metalurgica Gerdau: Thank you, Mari, and good morning, everyone. By the way, it’s afternoon because it’s past noon, past midday. I hope you’re all well, and I really appreciate the opportunity to be together for another earnings release presentation. I will briefly comment on the highlights for the quarter and the outlook for our operations. Right after that, we will follow up with a Q&A session. I would like to start by highlighting that we had a quarter marked by different dynamics in the main regions where we operate: North America and Brazil. We ended the third quarter of 2025 with a very solid performance in North America, reflecting fairly resilient demand for steel in the domestic market. The reduction in imports contributed to an increase in total shipments in both quarterly and annual comparison, reaching more than a 10% increase.

In addition, once again, the North America segment had a record share in our results, accounting for 65% of consolidated EBITDA in the period. Meanwhile, in Brazil, in Q3, the local market continued to be heavily impacted by the excessive influx of imported steel. The import penetration rate remains above 6 million tons in 2025, which accounts for 29% of domestic sales, reinforcing the urgent need for measures that can effectively protect the Brazilian steel industry and domestic jobs. Given this landscape, I would highlight the internationalization and geographic diversification as important strategic differentiators for our business. Finally, I would also like to highlight the progress of the sustainable mining project in Miguel Bournier, which has reached 90% physical completion. Equipment commissioning and hot testing has already begun, and the integrated operation of the project is scheduled to start in early 2026.

I will now turn the floor to Japur, who will give us more details on the financial highlights and the impacts of the current scenario in the Brazilian market in our results. Over to you, Japur. Thank you, Gustavo. Hello, everyone. It’s always a great pleasure to be here with you for another earnings conference call. We ended the third quarter posting an EBITDA of R$2.7 billion, 7% higher quarter on quarter. The positive highlights, they were mentioned by Gustavo. We have the continuous growth of our results in the North America segment, driven by higher steel prices and more shipments compared to prior periods, and the recovery of results in South America and in the South American segment, which together more than offset the decline in results that we unfortunately experienced in Brazil.

During this Q3, we generated a free cash flow of R$1 billion, converting 37% of our EBITDA into cash. Reversing a trend that we had been seeing in the prior quarters of cash consumption in third quarters, there was an important working capital release of R$300 million, enabling us to reduce our cash conversion cycle, which was above 80 days. In Q3, it was down to 78 days, six days less than in the second quarter. Our leverage, measured by net debt over EBITDA, given the cash generation we had in Q3, was reduced to 0.81 time. Because of that, and since we are talking about leverage, we announced yesterday a make-whole call of our 2030 bond, which had an outstanding amount of $480 million, and this will collaborate for our gross debt by year-end.

Considering the make-whole of the bond and also considering other maturities that we have scheduled for the fourth quarter of this year, we should have a significant reduction in our gross debt that should end the year at around R$14 billion. In terms of capital allocation, in our CapEx, our investments totaled R$1.7 billion this quarter, 60% of which earmarked for projects to boost the competitiveness of our assets, particularly the mining project as mentioned by Gustavo. In addition, I would like to emphasize information that we presented during our Investor Day on October 1. That’s when we announced the CapEx guidance for 2026 of R$4.7 billion, a significant 22% reduction below what we had forecast for 2025. Based on the results for the period, we approved the distribution of dividends in the amount of R$0.28 per share at Gerdau S.A. and R$0.19 per share at Metalurgica Gerdau.

With regard to share buybacks, we have already achieved 88% of Gerdau S.A.’s 2025 program, which represents 2.9% of the company’s outstanding shares, or an investment of R$902 million that we returned to our shareholders. If we sum it up and include in this quarter what we invested, considering dividends and share buybacks, in Q3, we had a payout of 75% of our net income, more than double what is established in our policy, in our by-laws. The significant capital. Return to the shareholders happened without sacrificing our leverage. We actually improved our net debt over EBITDA ratio this quarter. Maintaining investments, which are fundamental for Metalurgica Gerdau to continue to create value for our shareholders in the future. I will end here, and I will join you later for the Q&A session. Thank you, Japur. Let’s speak a little about the expectation for the coming months and for 2026.

In North America, we continue to see stable steel demand at high levels, with order backlogs at healthy levels and above the historical average, with a possible negative impact on shipments linked to the typical seasonality of a fourth quarter. Although the scenario for 2026 is still taking shape, we have a positive outlook for steel demand in the North American market, driven by the performance of the solar power, data center, and infrastructure sectors, with a projected continued decline in imports prioritizing the use of steel produced locally. Meanwhile, in Brazil, the domestic market is expected to be negatively impacted in the fourth quarter, but the typical end of year seasonality for 2026, the outlook is also uncertain. We are slightly optimistic with the progress of some trade defense mechanisms to be adopted by the government based on a solid dialogue that the sector is having with the authorities.

We also believe in a slight recovery of the automotive and industrial sectors, as well as stability in the civil construction sector. In view of this market scenario, we continue to boost internal operating efficiency and cost management initiatives. I will now hand over to Mari, and we will be available, myself and Japur, to answer your questions and queries. Thank you. Thank you, Gustavo and Japur. Now we will start our Q&A session. The first question comes from Rodolfo de Angeli, from JP Morgan.

Good morning, everyone.

Good morning.

Boa tarde.

Good afternoon, rather.

Tudo bem com vocês?

Tudo jóia. Obrigado, gente.

Yeah, everything is fine. Thanks.

I have two questions. First.

A gente.

I would like to hear more.

Pouquinho mais de detalhes.

I think you just asked the. I would like to give you. I would like you to give us more details about what needs to happen. What are those strategies that will lead to changes in this very challenging scenario in Brazil for the business. Also, along the same lines, we noted that there was an increase in exports, and this came as a surprise to me. The question is whether this is part of a reaction that is under your control, speaking mostly about Brazil. My other question is about prices in the U.S. We heard about price increases last week, especially for merchants. Apparently, there wasn’t a follow-up. I don’t know. I just want to understand if something happened and what we could expect going forward. That’s all. Rodolfo, let me start. Finishing writing down some notes about your question.

I’ll start answering the question, and then Japur will complement. In Brazil, I think we reached a limit in terms of measures that could allow us to seek further competitiveness and reduce costs, given a scenario where we have 30% of imported goods coming into the country. We’ve always tried to get further productivity, to reduce SG&E, et cetera, et cetera. This has been continuous. What can we do now to cut more shifts or decrease volumes or shipments? It came to a point when this is no longer so effective. Therefore, the major change that we should have in Brazil is a trade defense. I know that with time, Gerdau could probably do more things. We can grow on the ore side. We could even look for recycling some of our capital in Brazil. There are things that we could do.

In the short term, there isn’t much more we can do. I don’t think anything could change the scenario, except for the trade defense. Trade defense, I think I can mention a few points that I believe led to some progress. First of all, and I know that you’ve been monitoring this in the past few years, when we talked about trade defense, there were some dissenting views about different industrial sectors of the economy and also customers, some against and some in favor of that trade defense. This is a thing that got everybody by surprise. There were significant changes. The entire commercial sector, machinery, and equipment, everyone understood that if something more structural is not done, the Brazilian industry will just be over. We have to work together with the different ministries, and even with President Lula, that something has to be done.

It’s also necessary that there should be a deeper involvement of the President of the country, because I think he is the only individual that can seek for solutions that can suit different interests. In terms of having a better commercial relationship, a trade relationship, but at the same time with China, but at the same time introducing mechanisms that can allow the Brazilian industry to survive. I think the path is being paved so that in a not so distant future, we can find some balance between exports and imports and our share of the domestic market. I hope that things can move on. I mean, still, production in Brazil. Japur can talk about that. The other aspect is North America.

Of course, you talked about merchant bars, et cetera, but we understand that the metal spread has already reached a level where we don’t see the possibility of major increases. Scrap is flat because most U.S. scrap buyers, like Turkey, are also being pressured by semi-finished goods coming from China. It will make more sense for them to buy the billet almost ready-made rather than buying scrap. With flat prices of scrap at this current level of prices, the spread, in our view, I think it’s healthy. I don’t see a lot of room for further expansion. On the other hand, we are working with our mills at full capacity. Demand remains sound. Not only is it sound in the short run, Rodolfo, but when you look at the coming quarters, everything leads to believe that this demand will remain as such.

Just to give you an example of datacenters, the amount of steel that we are delivering to datacenters is large. When we look at the number of new datacenters being built in the U.S., it’s really staggering. I was just doing some very quick calculation in terms of square meters. The datacenters being built in the U.S. correspond to 800 Maracanãs or soccer fields. That’s the amount of datacenters that are currently being built in the U.S., and this will continue to happen because of AI and technology in general. If you look at renewable energy, and there are still some incentives, and we are still delivering a lot of steel. Therefore, in the North America segment, things are very much balanced. I’m not concerned with the fact that some competitors announced increases, and the competitor that you mentioned didn’t follow. On the same footsteps, but reinstated my view.

I don’t think that there is any environment that will lead to further dilation of metal spread in terms of what is happening there at the moment. Japur, I think there is something related to exports that I think is over to you. About exports, exports usually occur by sea. One or another ship doesn’t really impact one quarter compared to the next. Last quarter, we exported 17% of our sales, and this quarter, shipments were 20%. This is pretty much in line with our operations. There is nothing out of the ordinary. There are some shipments that sometimes, if they are not happening in the end of the month, they will happen right in the next month. There is nothing really different when you compare that to our results.

I would also like to answer a few questions that I saw in the chat about prices and results in North America. It’s important to remember that there was an exchange variation issue in Brazil because there was a depreciation of the U.S. dollar. In dollar terms, what was the price variation in the market? There is also the issue of mix. In terms of structurals, we were able to capture some price throughout the quarter and the half year. Thinking about other products like SPQ and rebars for some clients, we have agreements that link the sale price to the cost of scrap. In some sense, that cost has gone down in the U.S. In dollar terms, the price was down a bit. If you look at the U.S. dollar mix, there was a variation of 1.5% in the quarter in regards to prices in North America. Excellent.

Thank you. Congrats. I mean, I was just talking to Mari. You were doing some excellent job. Thank you. Yeah, she just smiled. I think she’s thanking you. Our next question comes from Ricardo Monegaglia with Safra. Good morning. Thank you for taking my questions. I also have two questions. My first question is about rebar anti-dumping in the U.S. We talk a lot about anti-dumping of flat steels in Brazil, but I think there might be another decision coming on the 12th of November about anti-dumping of rebar. I would just like to learn more about what will happen since once this is implemented. I know it’s not so relevant vis-à-vis the other segments where you operate, but maybe do you think we could expect something new in terms of the preliminary adhesion, or maybe there will be an impact in case it’s positive next year?

Whether you think that the application of this dumping could probably impact price increases not only for rebars, but other products as well. The second question is about capital allocation for dividend payout and buybacks. There has been some discussion about changes in the taxation. How are you dealing with this topic in-house, given the fact that your cash position is very robust? You generated a lot of cash in the third quarter, and I think you would generate just as much cash in the fourth quarter. Should we expect any changes, or maybe a dividend payout or a more aggressive buyback going forward, given this general backdrop of sound results and a change in the dividend payout policy? Thank you for your questions. I will start speaking about rebars in North America. We have been monitoring the possible implementation of this anti-dumping for rebars in the U.S.

Even though rebar only accounts for 10% of our product mix, depending on the quarter, now it’s closer to 10% of our mix is rebar. There are two positive aspects. First is the obvious impact in our shipments, but also related to the competition, because some competitors can produce both merchants and rebars. If we start seeing a movement where rebars are better for these companies to produce, they may replace merchants by rebars. Our mills are more focused, and they have a vocation for merchants. Therefore, there will be more room for us to sell products because of our focus. We have been monitoring the progress. To your second question, you asked whether this could be like an example for other authorities vis-à-vis the competition.

I don’t think that’s very likely, because the discussions are very technical, and it takes into account the different realities of the different countries and markets. These anti-dumping investigations have, first of all, to prove dumping. They have to prove damage caused by dumping and the correlation between the two. I don’t think this will have an impact in Brazil, but we might be even hopeful that in terms of margins and results, they may have a positive effect for us. This period of the year is a bit complex because there is a lot of seasonality in the U.S. in this period, mostly due to climate. Therefore, I think it’s difficult to imagine that there will be significant price moves given the current period of the year.

Now, moving to your second question on capital allocation, we’ve been very vocal both in terms of our last investor day and our last earnings release presentation, because at the moment, Gerdau’s focus has been to privilege buyback of shares over extraordinary events. This has been so true that this year we already invested almost R$1 billion in buybacks. That was part of the 2025 program. We still have to conclude the program, and if we continue to have strong cash generation going forward in the next quarters, the idea is certainly to privilege buyback over dividend payout. That’s very clear. Thank you. Thank you, Ricardo. Next question from Carlos de Alba with Morgan Stanley. Hello, everyone. Thank you for—I don’t know what is working, where the video is not working, but thank you very much for taking the time.

My first question, Gustavo, maybe is related to the dynamics in Brazil, right? If, for whatever reason, the anti-dumping cases, the determination on the anti-dumping cases is negative, or the remedies imposed are not enough or are small, what is the company plan in that scenario? How much further can you reduce cost? How many operations can you maybe consolidate? Obviously, if the government, if the country doesn’t support the sector, you need to take dramatic actions, I think. Can you elaborate as to what is the company’s plan on that scenario? I’ll have another question maybe for you, Rafael. Okay. Carlos, obrigado pela pergunta. Carlos, thank you for the question. I think that I’ll link your answer with Rodolfo’s question.

In the short term, what needed to be done in the operation to adjust our shipments to the current reality of 30% of steel imports, everything has been done incrementally. Next year, we will pursue some additional performance gains. There is one relevant factor for next year, which is the startup of the mining project, which will bring an important benefit for our EBITDA. We understand that for 2026, compared to 2025, we believe that we’re going to have the Brazil operation performing better, with more competitiveness. If the Brazilian government does not implement additional trade defense mechanisms, we will need to accelerate our plans to transform Gerdau in the midterm. We will need to review more in depth our routes of production, whether it makes sense to continue to maintain three production routes as we have today.

I’d like to remind you, we have one production route for scrap, one for the integrated mill, Ouro Branco, another one for charcoal. This is a topic that we will need to revisit. We will also revisit the mining efforts, whether it makes sense to continue to grow and produce more ore. We will need to review more in depth our footprint in Brazil because we believe that we have an opportunity over the next few years to drive some changes, and we might have to accelerate them. The big question mark now is to what extent we will need to accelerate Metalurgica Gerdau’s transformation plans in Brazil so that we can be on equal footing to compete with subsidized Chinese steel. This transformation can be accelerated for some reasons.

If we show that the results of North America will remain strong, this will give us more momentum to accelerate that. I would say that even our CapEx, we might add more CapEx or not over the next 5 to 10 years, depending on the results, to accelerate this transformation. The plans for the next 10 to 15 years are ready. The big point is to what extent we will accelerate them. We wish to improve our footprint in the United States. We have to decide where to allocate capital to accelerate the changes in Brazil. That’s a topic that we have been developing and debating. That would be my general answer. You kind of anticipated the question that I would have for Japur. I don’t know whether he or you could answer. How should we understand the sequential benefit of the iron ore project that is almost ready?

Hello, Carlos. You joined the conference call. Well identified with our theme here, but jokes aside. Gustavo kind of spoke about this. We are doing some tests for crushing and some other initiatives, and that’s the dry part of the project. In the end of the year, we’ll have the wet part of processing, and we’ll start the ramp-up in the end of the year and beginning of next year. The main benefit we’ll have in the first year will be the cost reduction of the mix in the blast furnace. It’s not going to be integral in year one because we’re going to have a learning curve in the mine to operate the new complex and also in the Ouro Branco mill to use the new product mix.

We don’t expect to have a substantial reduction in the first quarter of operation of mining, but over the year, we understand that we will convert to a cash cost of $30 per ton, which is what we disclosed in the project. This is going to be an important lever for our blast furnace. We will reduce our metal basket, how much ore we use, to have a reduction in the blast furnace. This is estimated for year one, not just reducing the metal load in the blast furnace, but also the amount of coal that we use to produce the same amount of steel. We are reducing the cost of the metal load, but also increasing the percentage of iron in the metal load.

Since we’re going to have a higher concentration of iron in that same volume in the blast furnace, we’ll produce more steel, with this consuming less coal to produce an equal amount of steel. In year one, we expect to have about R$400 million of benefit. That’s what we mentioned in our investor day, particularly with the cost driver and also selling iron ore to third parties. After that, we should have the full benefit of the project, R$1 billion, R$1.1 billion, with the price levels for ore that we see today, close to $100 per ton. Carlos, I’m not sure I made this comment before. Here it goes. The mining rights we are exploring now at Miguel Bournier is one of the several mining rights we have in the state of Minas Gerais.

It is a mining right which is very significant in terms of the quality of the ore, but also in terms of volume that we can explore in the coming years. This project specifically ensures the production of high-quality iron ore for a period longer than 40 years. We also have the possibility in the future to mine more ore because the amount of ore in this asset is very large. We have other mining rights, and according to your question, we can decide to explore those or monetize those in time. If we understand that this is indeed an opportunity, we will not have to rely on CapEx disbursement to buy mining rights. We’ve had those mining rights for many, many years now. Those are high-quality mining rights with a good location, a good geography in the state of Minas Gerais. Thank you very much. Congratulations. Thank you, Carlos.

Next question from Caio Ribeiro with Bank of America. Boa tarde a todos. Good afternoon, everyone. Thank you for the opportunity. My question would be about the infrastructure package. There’s a considerable amount of resources to be disbursed. We’re having the sound chopped. We apologize for that. I would like to hear from you your expectations over the next 10 months. What do you expect regarding the remaining resources. We apologize, but the sound is cutting a lot. How do you see this possibly impacting your operations in Canada, in the United States, and the possible decision to invest in a project in Mexico? Thank you. Thank you, Caio. The sound was chopping quite a lot for us, but I think I could get your questions. This is important information that you bring. Indeed, 60% of what we call the infrastructure bill is still to be disbursed.

The only disapproval of this package of incentives, the only thing that we imagine would happen differently, was that this would be spent faster. We understood that, considering the U.S. bureaucracy, the detailed approval of the budget, which depends on involving some states, municipal legislations, things would take longer than we expected. The budget was not disbursed in the timeline planned. Undoubtedly, this will be renewed and this will be extended because until U.S. infrastructure goes back to an acceptable level to support the economic and the industrial activity that the current administration expects, I am totally convinced that these segments will continue to develop. The main point that has a connection to your question, there might be changes regarding incentives to renewable power. I’m talking about impacts closer to our business.

We continue to deliver a lot of steel, and if we look at our backlog, there is a lot of demand for steel for renewable power, particularly solar power. If the incentives start reducing, there might be a lower demand for power. On the other hand, we see the strategies of the current administration regarding fossil fuel power and the production of oil and gas, and that drives a demand as well, one which is important for our special steel operation. There might be a trade, but in terms of having a solid demand for our business, we are not concerned. Any ISMCA will be approved eventually. It’s hard to say given the way President Trump conducts the current administration. I see that Mexico is preparing for that, considering what the U.S. considers of what is negotiable.

In terms of concerns about our business, if Mexico has the right conditions to ensure that all of the steel that will translate into some kind of component to be exported to the United States, that it will be melted locally. In other words, Mexico is implementing mechanisms to avoid the triangulation of Chinese. Steel going through Mexico and then going to the United States. That will be a balance among all three countries, and very soon, this will benefit us, just like the agreement was beneficial while it was in force. We have some doubts regarding the real possibility of executing that investment in special steel that we paralyzed. This is not something we’ll get out of the drawer just after the agreement.

We will need to observe if there are other phenomena impacting the local production of automotive engines in North America because the decision to invest a relevant amount, I mean, this could make us slow in other capital disbursements that we think are relevant. We will be careful. This is our general approach. Okay, Caio? Perfect. Super clear. Thank you very much. Thank you. Obrigada, Caio. A próxima pergunta. Thank you, Caio. Our next question from Daniel Sasson with Itau BBA. Oi, pessoal. Obrigado, Mari. Hi. Thank you, Mari. Thank you, Japur and Werneck, for the presentation and for taking my questions. My first question is related to something you mentioned on Miguel Bournier, which is very important for the company. I would also like to mention the other project, which HRC that you started early this year, it ramped up and is now operating at full capacity.

Could you comment on how much of that additional benefit of $400 million that you disclosed during your Dell day about the project, how much of that was used in 2025? I can calculate the additional EBITDA or the delta that will contribute or what will be a building block to improve EBITDA quarter on quarter in addition to the Miguel Bournier project. I just want to have a better understanding of the project per se. My second question, probably addressed to Werneck and revisiting your point on capital allocation. I just want to get a better understanding about the U.S. dollar or whether anything changed given the fact that there are more protectionist measures in the U.S. and maybe it seems like Brazil is moving in the same direction in terms of the allocation of $1 in the U.S.

and $1 in Brazil, whether it will be reasonable for us to think that investments in the U.S. Continue to be on better productivity or enhanced productivity, increase efficiency, and you choose different plants from time to time to focus on that improvement, or whether in Brazil, like you said, you already did everything in your power to be more and more efficient to face the competition with imported goods. Would it be fair to say that you would only put more money in Brazil if the scenario leads towards consolidation, or is there any room to acquire smaller players? Maybe this is easier to justify. With CADI giving like 25% or 35% of what is consumed here comes from abroad, is imported. I would just like to get your views about capital allocation between regions. Okay, I will start.

In my rationale, when it comes to capital allocation, I will just pave the way for Japur to elaborate more on the other issues. We’ve been doing CapEx for 125 years. We’ve had 25 years of experience. We know what works and what doesn’t work. We made a lot of progress in terms of our capacity to analyze investments, pretty much motivated by the questions that you ask us and our interactions with you. Even though we make enormous progress in capital allocation and investment decisions, in general, we notice that in Brazil there are more variables that impact our business when compared to North America. A practical example that everybody is facing in the electric site or electric payments. Who would think that there would be this level of energy cuts as we see now?

Throughout the years, we learned that it’s more difficult to allocate $1 in Brazil than allocating a dollar abroad. There are many variables that escape our control. We’ve been looking at this very carefully because the capital allocation process, I mean, we will only see returns one, two, or even three years later. When you look at investments in HRCs, we were very optimistic that once we invested, the market will be there for us. Now the reality is different. When we think about the next phase, because the project is not over, there’s still a third phase of hot roll coil that we could implement, but we have to be more careful. On the other hand, in Brazil, this motivates us to be very careful with our operation. We’ve always been very careful with the quality of our operation.

There is one topic that you know very well, Blast Furnace and Coke Plant. There are a lot of companies struggling with that. Our Coke Plant and our Blast Furnace, especially the Blast Furnace One, and we are seeing year on year a dilution in their timelines. I mean, we are postponing the stoppages because this gives us some additional breadth in terms of not taking investments from other areas to put in the Blast Furnace and the Coke Plant. When we look at integrated mills, many companies are having a difficult time to invest $800 million or $1 billion. The health and breadth we have at Ouro Branco gives us the opportunity to produce relevant transformation at Metalurgica Gerdau in the coming years. This could also lead to much higher competition in Brazil, even to compete with the Chinese. In the U.S., we have lots of opportunities as well.

The execution of CapEx in North America is simpler because they do not have the variables that we cannot control in terms of the quality of vendors, civil construction, and assembly. We can control that much better. Therefore, in terms of business environment in general, investing $1 in the U.S. today is much easier than here. We will look at investments in Brazil much more carefully. I’ll say that my demand and Japur’s demand is that we look at a portfolio with many opportunities. How can we select the best among the best? Now I will turn the floor over to Japur because this backdrop also raised questions about HRC, what kind of returns we anticipated, how much we’re going to sell, what would the price be? I mean, this is also a very important symbol to the federal government.

Daniel, when we invite the government agents to visit our plants, we show that we already anticipated $1 billion of investments. Now all of the shareholders need return, and sometimes we lack enough customers to buy our products. This helps them to really believe and reinforce the fact that the trade mechanisms of defense are very necessary. Let me just detail some of the things. Where do we get the return from our investment in HRC? Out of the $400 million, we mentioned $100 million comes from cost reduction, more so in terms of metallic spread. I mean, we have a better metallic mix for the entire production volume there. About $20 million or $30 million is due to fixed cost reduction. So $100 million, roughly speaking, is to reach the ramp-up, and we are reaching that number. This past month, we will get close to 100,000 tons of production.

This is a record production level in terms of performance and production and costs. We are performing very well. To produce results, we also need price, not only these results. When we think about HRC prices from the beginning of the year until now, there was a drop of about 15%. Much of the benefit that we had from the other $300 million that was in arbitration between the cost of opportunity to sell plates in the foreign market or to sell HRC in the domestic market, an important amount of that benefit was diluted. If we were thinking about X, now it’s X minus 15%. This is what was quite hurt this year because we were talking about an integrated mill. Therefore, oil costs and coal costs did not move much throughout the year.

Basically, the dilution of fixed costs is what moves the needle a little bit in terms of performance. That’s why we have to look for prices. Once we have something moving, competition-wise, things are improving. If you look at the big numbers, the U.S. is performing with a margin of 20%, but there was an 11% reduction in exports year to date. Brazil, where we are running with less than 10% margin or at a loss, we have plus 24% of imported goods in the year. If we see an evolution in this scenario, we will be able to materialize that benefit of $400 million. Thank you, Rafa. Thank you, Gustavo. Bye. Thank you, Danny. Next question from Gabriel Barra with Citi. Acho que teu áudio está fechado. Gabriel. We don’t have your audio. Okay. I think you can hear me now, right? Yes, we can hear loud and clear.

Thank you all for taking my question. I think my first point would be a follow-up on that investment in mining. During Gerdau Investor Day, I think Werneck talked about something, and the market was quite curious when you referred to your desire to invest in mining to have production surplus of iron ore and take advantage of the company’s potential. That sometimes is not very clear to most of us. Could you elaborate a bit more on that and talk about the mining rights? Not everybody is aware that you have these mining rights. What do you have in mind about the investment? I was speaking about Miguel Bournier. We believe that both Ouro Branco and Miguel Bournier will have a positive effect next year. Ouro Branco, there was a point in the last quarter, there was an issue of cost because of that new operation.

Miguel Bournier, do you think we should expect something similar? Do you think that there will be any impact in the process to adjust the production, given the fact that iron ore now has a higher grade? Would there be any impact? I just wanted to get that clear. My second question, and this is very much related to an issue raised during the investor day, you talked about the multiple that the company is trading today. When we compare that to the multiples of other companies abroad, there is a gap. This gap has been with the company for some time, and in a way, it’s something that we’ve been discussing with you for some time. My question is, how can we mitigate or reduce the gap vis-à-vis other U.S. companies?

The point to my question is, could we discuss some listing, something similar to what JBS did more recently? Do you think it would be fair to discuss this today to maybe try to reduce the gap? I don’t know. I don’t know whether that makes sense to you or not. I would just like to hear your views about that. These are my two points. Thank you. Boa tarde, cara. You listed three points rather than two, so I will start with the numbers and then we’ll go from there. I think you asked about the Miguel Bournier system. That was a non-recurring event. There was a worsening of our Brazil operation this quarter, but there was an improvement of 300 thousand and 8% of our costs. We showed that was not structural at Ouro Branco. It was a one-off situation and a non-recurring event, mostly due to imports.

In my previous answer to Carlos, when I referred to ramp-up, it is possible to have cost fluctuations in the mills, not only due to the learning curve of the mining equipment. The cost of processing ore is not going to be $30 per ton on day one of operation, and this is obvious. Maybe the operating cost will require a learning curve in terms of centering and the use of mining in our blast furnace. To that end, we are doing a few things to mitigate these effects, probably having a higher inventory of pellets just to add up to the basket and then promote a gradual change. We are not going to produce 5.5 million tons on year one because there is a ramp-up curve. We will produce, I mean, consume more pellet feed in the centering operation. There might be some effect throughout the year.

For example, we will have to have some stoppages in our centering system to make some connections when the investment starts operating. We will consume pallet feet in our centering process using a process of code clustering so that we could have pallet-fit clusters in the centering operation. There might be some stoppages that will probably affect costs, but it’s nothing structural, and this can be changed from one quarter to the next in case this occurs. Now, speaking about mining investments, as Gustavo Werneck said during the investor day, I think Rodolfo asked that question at the end of our investor day. When we invested in mining way back 15 years ago, we acquired different areas in the state of Minas Gerais, some closer and some farther away from the Ouro Branco mill.

At first, we focused on Várzea do Lopes, where the material was closer to the ore that was being used without processing. We had hematite and random litter products at our disposal, but we understood that this wouldn’t be the case in the long run, and we needed a more robust investment in that mine that is close to our Ouro Branco mill. By doing so, we could perpetuate cost competition that would be very unique in Brazil’s steel milling mining industry. There are other minerals, and we already have those mining rights that we can explore. I mean, not self-sufficient in terms of ore like Miguel Bournier, but these could be profit centers. We’re not interested in competing with Vale because Vale is a huge mining company.

We do believe that there is some potential to find some interesting partnerships and maybe work with other mining companies in the industry, or even with large mining companies in the region, just as a way to unlock value that is something which is already in our balance sheet as a mining right, but it is not bringing any economic benefit. That’s why we decided to invest more in prospecting the land, doing some probes in the area, just to have a more informed view for the future. This is plan B. Our main focus is to deliver Miguel Bournier and do the ramp-up of the investment of mining in Miguel Bournier. Maybe we could use our mining team to explore other frontiers.

Last but not least, about the multiple and your question about the probable or the realistic, this is a question we often get both from the market and investors. I would say this is no taboo for us to talk about that or to discuss the reorganization of the capital structure of the company, of the ownership of the company. I mean, we look at what JBS did, but we do not have any concrete study underway which would lead to an ownership restructuring of the company. Not only are we looking at what is being done by other companies in the market and how the multiples of companies are performing, but we also have to consider structural changes like taxation on dividends, taxation on profits abroad. These are things that can have an impact on our appetite.

We may take longer to discuss possible changes, but it’s not a taboo. It’s not something that we never look at internally, but we will take a look at it when the time is right. Thank you, Gabriel. Next question from Marcio Farid with Goldman Sachs. I’ll try to be brief given the time limitation. A follow-up question regarding the U.S. Of course, potential renegotiation of tariffs with Canada and Mexico is important for you. I think you spoke a little about this, Gustavo, but the debate we have with investors is about how strong or how sticky the U.S. movement can be. Assuming that we’ll see U.S. government negotiating with Canada and Mexico, what will be the reaction in D plus one for your operations, considering import risks and your operations in Mexico and Canada?

Very quickly, thinking more about the short term, fourth quarter and first quarter, these are seasonally weaker. There is an important margin for the United States. In Brazil, we had a one-off effect, as you mentioned. How should we see the short term with profitability improving, shipments decreasing? Should we expect some stable earnings for the next two quarters? Can we say that we reached a floor for Brazil in the United States with a more favorable moment? Thank you. Hello, Farid. I think that in terms of margins, I think that Gustavo kind of talked about this in his part. We expect a more challenging environment in Brazil in Q4 because of the seasonality. We’ll have some maintenance shutdowns. Normally, they take place in Q4. Unfortunately, I’m not sure we can say that we have reached a floor for the operation in Brazil.

In addition, a part of our business, special steels, having even a stronger seasonality in the last quarter of the year. This should hurt our margins. That’s why Gustavo detailed it in that way when he spoke about our outlook for Q4 and for 2026. In North America, we have seasonality that is very much weather-related. In terms of margins. We don’t expect a significant shrinkage of the margins looking forward, given what we are seeing both in prices and in metal prices. Regarding your question about the U.S. MCA, in terms of immediate impacts, we have seen Mexico adopting measures to protect themselves, not allowing imported goods coming in so they won’t have transshipment for the U.S. We see that even if Mexico, Canada, and the U.S. have an agreement, the effects will not be the same as we had in the pre-Trump period.

We would have an environment with more protectionism than we had originally, or with more trade defenses, better yet, than we had originally. To us, some kind of agreement between the U.S. and Canada would be very positive because we have a big volume. The way in which we are organized with mills close to the border of the United States and Canada, which were typically very integrated, now we see some operational difficulties in our product mix because of the tariffs. If they were reduced or eliminated, that would optimize sales from our U.S. mills to Canada and from Canada to the U.S., given the vocation of these mills. For example, in Canada, heavy merchants are not produced. They’re produced in the U.S. Structurally, Canada imports beams and merchants. To us, this kind of change would be positive.

Internally, in our discussions, we use what was negotiated between the United States and the U.K. as a good proxy, as the best agreement possible to be achieved regarding steel. Considering that the U.S. and England are perhaps the closest allies historically from the geopolitical and commercial standpoint, it seems to us that, it’s kind of difficult to affirm anything, but it seems to us to be unlikely, that’s the best word, that they will achieve a steel agreement that will be better than what England achieved with the United States, a tariff of 25%. Excellent. Thank you, Japur, Gustavo, and Mary. Thank you, Farid. Next question from Lucas Laghi with XP. Boa tarde, pessoal. Obrigado aqui pelo espaço. Hi, thank you for taking my question. I have a follow-up question regarding capital allocation. I just want to understand a little better.

I don’t want to debate the topic, but I just want to understand better this difference between the United States and Brazil in this process of defining new projects. Because when we look at EBITDA converted into cash, it becomes very clear that the United States is very different from Brazil today. In a consolidated way, the company still has a comfortable balance sheet. I just want to understand, with the approval of a new project, if return is accretive, if the projects have a positive effect, does it make sense to allocate regardless of the geography where they are, as long as the balance sheet will allow it? If we use depreciation as a proxy of sustained CapEx, perhaps EBITDA less sustaining CapEx will not allow for the project, even if the consolidated balance sheet will allow it.

Could this change your decision of capital allocation to some projects in a certain geography? The reason I’m asking is because we talk a lot about the United States, difference of multiples in companies abroad. I just want to understand if there is a segregation of capital allocation at the company when you analyze the deployment and the approval of new projects. Thank you very much. Japur, thank you. Microphone is muted. Oh, sorry. Hi, Lucas. This is a beautiful question. We haven’t got a segregation to see these. This is the pocket of investments for Brazil, and this is the pocket of investments for North America and budget limitations for the country. We have a consolidated approach regarding our total portfolio. With a capital allocation considering my consolidated balance sheet, this is the maximum amount that I can invest.

What are my priority investments for the coming years, considering my leverage, expected returns, and my strategic priorities? In that context, we use discount rates. In terms of minimum desirable or necessary returns, which differ according to the different geographies. Overall, we have been prioritizing, either in Brazil or the United States, Canada, or Mexico, those investments that will drive cost competitiveness in detriment of investments that will prioritize growth or revenue. We understand that with our macroeconomic context, thinking about China globally, we have an oversupply of steel capacity in the world. Looking to be more competitive in cost is absolutely essential for our long-term existence. Thank you very much, Japur. Good day to everyone.

Gustavo Werneck, CEO, Metalurgica Gerdau: Lucas, pessoal, a gente está caminhando aqui para a nossa última pergunta.

Mariana Dutra, Head of Investor Relations, Metalurgica Gerdau: We are heading towards the end of our call. We have one last question from Rafael Barcellos with Bradesco BBI.

Good morning, almost good afternoon.

Good morning. I mean, almost good afternoon, right? It’s good afternoon here for us, right? Thank you for this opportunity. It’s always nice to be with you. From everything I’ve heard this morning, I would like to connect that to some of the conversations we had with investors. I think the main issue is how much the company can distribute recurrently cash returns to shareholders. It’s very clear that the company favors buybacks. Now, given the valuation level, that’s very clear. It’s very clear that buyback is your preference. The company is doing some excellent work to reduce CapEx, to improve balance sheet, and now we are about to see the company running at a lower CapEx. My question is, how do you see cash generation for the company going forward?

The first topic is that what drew my attention was your cash generation this quarter and some specific issues: very low financial expense. I know that there have been improvements to your balance sheet, but I just want to understand from this quarter, removing the seasonal effect, EBITDA, and price. What this quarter we could see as something normalized or not? The other thing I want to understand has to do with your gross debt guidance is BRL 12 billion. You have like minimum cash. How do you see these KPIs? I think this is something that can allow us to have a better understanding of how much the company can generate things in a recurrent way going forward. I was rejoining, and I don’t know whether I heard everything about the last question.

Not only the story about Brazil and the U.S., but today I see a clear difference in terms of where most of your cash generation is located, and it’s clearly in the U.S. If you look at minimum cash in Brazil, you know, and buyback, considering that particular issue. Speaking about this particular quarter and what is different when compared to other quarters, if you look at our financial expenses, not in terms of cash flow, but when you look at the financial statement, there were two things that were not present. First of all, the exchange variation was lower in South America and in Argentina when compared to the previous half year. The other aspect is that in the second quarter, we issued a bond. It’s a 2035 bond with the buyback of other bonds. So there was.

An expense with the buyback of bonds and issuance of bonds, about R$40 million to R$50 million, that was not repeated this quarter. This is different, but since we do not issue bonds every quarter, this should not occur in the fourth quarter as well. I think this is the difference that you notice in terms of our P&L, financial statement. The third quarter seems to be more normal, if there is such a thing as normal nowadays, but more normal when compared to the second quarter. This is linked to your second question when you talked about capital structure. We announced the make-whole of our 2030 bond. There are several things that will be settled, and that will lead to a reduction of our gross debt, close to R$14 billion, which is closer to our financial policy level.

We are not anticipating any structural changes to our financial policy because, in our view, it is adequate. There might be just some fine-tuning here or there, but this is not a priority. Structurally speaking, we wouldn’t want to leverage the company too much, considering our current debt position. I think it’s 0.81 times net debt/EBITDA ratio. We used to be higher than that in the past, and even with a worse EBITDA year to date, we got better leverage because of cash generation. As we said in our last investor day, we expected to reduce CapEx investments in the coming years. If we think about maintenance of the other results in lines like EBITDA, working capital, etc., there was an increase in cash generation. As you said it quite well, we will return that to our shareholders through the share buyback. Usually, our payout is between 30% to 40%.

Maybe there could be more room, but at the current level, we put our priorities in the buyback side. Once we have a stronger cash generation in the next coming quarters and years, we will continue with the buyback program. The program is approved till the end of the year. We still have 12% of the program to be concluded. Eventually, I believe that it makes sense, your provocation and the expectation that we might engage in other buyback programs in the future. Thank you very much. Our Q&A session is now concluded. I would like to invite you to join us on February 24th for the earnings presentation of the fourth quarter. Thank you so much, and I will see you next quarter.

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