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Gerdau S.A. (NYSE:GGB)
Q4 2019 Earnings Call
Feb 19, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Gerdau's conference call to discuss the results related to the fourth quarter of 2019. [Operator Instructions] We would like to emphasize that any forward-looking statements that might be made during this conference call related to Gerdau's business outlook projections and financial and operating goals are mere assumptions based on the management's expectations related to the future of the company. Even though Gerdau believes that its comments are based on reasonable assumptions, there is no guarantee that future events would not affect this evaluation. Here today are Misters Gustavo Werneck, Director, President and CEO; and Harley Scardoelli, Vice Scardoelli will start by talking about the highlights and general results of the quarter. And also, he will talk about the performance of our operations. Next, I will come back to talk about the outlook for the main markets where we operate. And at the end of the presentation, as we always do, both of us will be available to answer your questions.

Scardoelli, you have the floor.

Harley Lorentz Scardoelli -- Director Vice President

Thank you, Gustavo, and good afternoon. I would like to reaffirm that it's a pleasure to be with you. And also, I would like to say that we made improvements in the format of this conference call, responding to suggestions and comments we received through a recent survey we conducted. Therefore, we hope to have a more fluid and dynamic presentation. I would like to start with the highlight of our fourth quarter on the financial side. In all of our operations, we focus on optimizing our working capital. And with that we straighten our operating cash and Which can be seen in the charts presented on page two. For those of you who are with us over the web, the strong free cash flow generation of 2.3 billion barrels in q4 was mainly attributed to the release of working capital through the optimization of raw material and finished products inventory, in addition to the scheduled maintenances in our mini meals in Brazil in December, it's also important to mention that the company surpassed its goal of the cash conversion cycle staying below 70 days in q4, a record figure for the company if we look at our historical series for the last 10 years. All in all, at year-end, our cash flow generation reached BRL4.4 billion, resulting in a healthy cash position of BRL6.3 billion.

This strong cash position also led to a significant improvement in the company's leverage at the end of the year, a point that we will see further on. Now moving to slide three, next page, we'll talk a little bit about the debt. I would like to mention that at the end of 2019, our net debt fell below BRL10 billion as a result of our efforts to optimize assets, also stringent SG&A, digital transformation, among other strategic initiatives to reduce the company's debt position. I take this opportunity to mention that 90% of this debt is long term with an average tenor of 7.4 years and an average cost of 5.5% a year. I must also highlight the issuance in November 2019 of bonds or debt instruments of a 10-year period amounting to USD500 million at a cost of coupon of 4.25%, which reiterates the company's access to the international capital market through its history of successful issuances and maintenance of its status as an investment-grade company, allowing for long-term issuances and competitive costs. The net debt-over-EBITDA ratio went from 1.96x in Q3 '19 to 1.67x at the end of the year, also posting a reduction when compared to the same indicator of the previous year when it reached 1.71x in December 2018. The company remains focused on reducing leverage and reaching the KPIs defined by the Board, which means reaching and maintaining these indicators in the range of one to 1.5x in the long term.

Moving on to slide four. I will elaborate on the main factors that affected our consolidated EBITDA that went from BRL1.4 billion in Q4 '18 to BRL1.1 billion in Q4 '19. Excluding the nonrecurring effects from the scheduled maintenances and tax credits in Brazil, the result was mainly affected by downtimes at our electric furnaces this quarter, and also by increased exports of semifinished products in the period with lower margins when compared to the -- to those at the end of 2018 due to lower steel prices in the international market. In North America, EBITDA and EBITDA margin were affected by a drop in metal spreads going from $470 per short ton in Q4 '18 to $426 per short ton in the fourth quarter 2019. Despite this drop, this indicator remains at adequate levels, given the historical series. I also emphasize that our operation in North America continues to post a significant profitability improvement in the last few years, stemming from improvements in our product mix, a positive business environment in that market and our diligent focus on cost reductions. In the special steels operation, the steep drop in shipments led us to operate with an average utilization rate below 40% in these units, impacting EBITDA and EBITDA margin.

Regarding this operation, I emphasize our long term view bearing in mind that this is a market with structurally adequate historical margins and it requires customer focus and the development of products whereby gerdau has distinguished competitiveness. It is worth mentioning that recently we chose to interrupt operations at the Jackson meal in the US with the purpose of making our special sales operation in that country, much more competitive, focusing on the morrow unit that is receiving an investment 266 million barrels. To conclude in South America increased shipments latch to better EBITDA and better EBITDA margin. This operation has a very distinguished performance in terms of margins and plays an important contribution to Gerdau's cash generation. Thank you very much for your attention.

Now I'll give the floor back to Gustavo.

Gustavo Werneck da Cunha -- Director President

Well, please turn to our next slide, so that we can talk about the outlook for the next coming months. In terms of Gerdau's performance in Brazil in Q4 '19, I would like to stress that we grew above average in the domestic market of longs and flats. Shipments of flat steel were up 11% in the period when compared to the previous period mainly due to our strategy in heavy plates for the wind, machinery and equipment, vessels and oil and gas industries. And for 2020 the outlook for the industry is very positive as the steel consuming chain ended last year with low inventory levels and higher demand. Now speaking about the domestic market for long steals the initial signs of reaction from the civil construction industry in Brazil materialized in the last months of the year resulting in an increase of 17% in our sales of steel for reinforced concrete in the fourth quarter 19 when compared to the same period of the year before. We also notice some positive signs and several indicators. Like for instance, the growth of approximately 11% in the number of real estate launches in Brazil in the full year of 2019, according to the Brazilian association of real estate developers.

Now for 2020, the increase in launches previously restricted to the main urban centers should fall into other regions of the country, leading to a more consistent rebound of the civil construction industry that, according to projections from the Brazilian Chamber of Civil Construction should experience a 3% growth in the year. On the other hand, the infrastructure sector might only show signs of recovery in the second half of the year after the release of public investments and also partnerships with the private sector. The performance of the retail segment remains very positive. Our sales to retail were up 34% in 2019 when compared to 2018, whereas our customer base increased 55%. In addition, sales via electronic channels accounted for 11% of total shipments, Reflecting therefore the successful launch of the online store of the company, Juntos Somos Mais, of which we are partners. Also, I would like to highlight the resumption of 13% of the projects adopting the construction model of metallic construction in Brazil, to which we offer a complete portfolio of longs and flats as well as a range of solutions.

And it was precisely within this context that G2Base was created, a company that we created to serve the foundation segment. Both Juntos Somos Mais and G2Base reflect Gerdau's commitment to be close to its customers and also to anticipate the market demands, thus, developing innovative products and solutions, also reflecting its business models and creating relationship platforms. We will advance even further in the coming years, providing service solutions to our customers. Moreover, in terms of the recovery of margins in longs and flats, in the first quarter of 2020, the Brazilian market, I must say, that we firmly conduct the positioning of prices of our products. And more particularly, we want to move -- export premium to more balanced levels and also to optimize the cost of raw materials, in particularly scrap. Still on Brazil, it's worth mentioning that in view of the deterioration of the international steel market, the correction of the so-called competitive symmetries becomes even more urgent and relevant in Brazil. And that's the case of Reintegra. If the Reintegra tax rate returns to 5%, there would be an increase in steel exports that could lead to high utilization capacity of the sector going from 66% to 72% according to figures from Instituto Aco Brasil.

Now in regards to our mining operation. Focused on supplying to the domestic market, we made progress in two important topics at the end of last year. In December, we obtained the license for the new area called Varzea Leste Noce that will produce one million tons of iron ore a year. And in addition to that, we also have our solution to decharacterize the upstream raising of the Alemaes mining dam that was approved by the National Mining Agency. Now moving to the next slide and looking at the special steels operation in Brazil. Despite the negative impact caused by the reduction of almost 32% in vehicles exports in 2019 when compared to 2018 due to the economic crisis in Argentina, auto sales and production in Brazil were up 8.6% and 2.3%, respectively, last year according to data published by ANFAVEA. Now for 2020, we remain optimistic with the outlook for recovery of the domestic automotive market, which should post a 7.3% increase in production according to ANFAVEA, again, mainly attributed to higher demand for heavy vehicles, in keeping with estimates from the IMF that anticipates a 2.2% increase in Brazilian GDP.

To conclude my comments on Brazil, I would also like to say that we are closely monitoring the impact of the heavy rains that fell over the state of Mina Gerais and Espirito Santo that brought about some operating difficulties in January. We are part of a pool of companies and people who are contributing to promote a return to normality of the regions affected by the floods. And I hereby Express on behalf of all of our Dallas employees my solidarity to the victims of this tragedy. Now jumping to the next slide, we will talk about our operations in North America. We believe that the economic outlook for the United States For for 2020 is quite positive due to the very strong labor market also due to improve trade relations and an environment of low interest rates. According to the US Department of Commerce GDP grew 2.3% in q4, when compared to the same period of the year before and for this year, we believe imports should remain low. And the man for still should be positively influenced by inventory replenishments throughout the chain of steel.

In fact, there was a significant increase in the backlog of orders early this year of approximately 10% when we compare to the same period of the previous year. Also, we anticipate improvements in the metallic spread in the U.S. in the coming months, which should bring a positive impact on the performance of our longs operation in the country. In regards to the North American market on special steels in the next slide, the automotive industry reduced its production level in the fourth quarter 2019 mostly due to the impact coming from the workers' strike at General Motors. And for 2020, we expect to see an improvement in automotive activity despite an expectation of a slight decline in automotive activities, whereas demand coming from other sectors like oil and gas should remain flat. In view of this scenario, as mentioned before by Scardoelli, we decided to focus on the production of special steels in our Monroe mill in Michigan that has high-technology equipment, and where we also started operations of a new ladle furnace this quarter. All of these initiatives, combined with a management approach focused on the operating efficiency challenges, are intended to improve competitiveness of this business operation.

Therefore, we believe in the recovery of special steel margins in the United States later this year, 2020. In regards to the countries of South America, moving to the next slide, GDP growth in Peru is estimated at 3.8% according to the central bank of that country, mainly reflecting the expected 5% growth coming from the local construction industry. In Argentina, we hope that the new government announces some incentive measures to drive new investments into the country and that they follow a pro-market and pro-industry agenda. Our business operation in South America should continue to post good operating margins as it was the case in previous periods. Next slide, we'll talk about capex. In line with the performance of our operations and the outlook in the markets where we operate, Gerdau invested BRL486 million in Q4 '19 with total investments amounting to BRL1.7 billion in the year. capex for the three-year period 2019, 2020 and 2021 is maintained at BRL seven billion. Our capex spending for 2022 will be reviewed during the first half of 2020 in view of the successful partial schedule maintenance of our blast furnace number one in Ouro Branco that occurred last year.

The new projected date and general maintenance costs of the equipment will be released as soon as the studies are concluded. And to conclude, and now moving to the next slide, I would like to reiterate that Gerdau stands firm in building a new phase of its history after working diligently to strengthen our balance sheet, to optimize our asset portfolio and also move forward with our deep cultural transformation. Thus, we are prepared to resume growth and fulfill the future demand for steel. And we will do this in a an and in a sustainable way to add more value to our customers. A good example of this new phase was the acquisition of silat in the state of siara. announced that the end of last year and now it's awaiting approval by the local regulatory agencies in 2020. Will will continue to evolve by implementing the best governance practices, always aiming at improving the relationship between the management of the company and the All of our stakeholders. I would like to emphasize that yesterday, our board approved our new sustainability policy that will be able now to guide the main decisions strategic decisions of the company.

We will also continue to invest heavily in digital transformation initiatives and an innovation project. As mentioned before, 20% of our revenues should come from new businesses in the next 10 years. This goal results from our long-term view project named Futuro Gerdau, Gerdau's Future, that aims at designing a strategy for the company for the next 30 years. The work was concluded at the end of 2019, and we will elaborate more on that during our Gerdau Day that will take place in the city of New York on March 12, and you are all invited to participate. I now conclude the part of the presentation, and Scardoelli and myself are now available to take your questions and hear your comments.

And we can tell you a bit more of our results.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Daniel Sasson from Itau BBA.

Daniel Sasson -- Itau BBA -- Analyst

Good afternoon, everyone. Thank you, Harley and Gustavo, for the presentation and to be willing to give more information during the call. My two questions are about the BO Brazil. One is on prices and then shipments or volumes. As for prices, if we calculate per ton, we will reach 5% drop in the fourth quarter. According to our calculations, the impact of lower volume and price in the purchase of iron ore from third parties would represent 3% of this drop. Does that make sense to you? The part of the drop that is not explained by iron ore, is it explained by a mix of lower added value? Or indeed you saw some price drop in the line? So looking at the third quarter, if you could give me some more information about that increase of 2% to 3% for longs, that would be nice. My second question relates to volume. Could you please comment on your growth expectations for this year? And how does that compare to what has been materialized thus far according to your initial expectations? And how is your sales backlog for the first half of the year, and if you could design or draw a difference between longs? Because this year, the performance was different quarter-on-quarter and year-on-year. And now you're talking about demand recovery in the first quarter. I just want to know whether the mini-mills that were stopped or were through a downtime in that quarter are now back in operation.

Gustavo Werneck da Cunha -- Director President

Okay. Let me start answering your last questions first, and then we'll go to volume. Well, in terms of volume, in general, we continue to maintain the outlook for steel growth -- a growth of steel between 5% when comparing 2019 to 2020. I think the news that has been materialized at the end of last year that continues to bring good numbers has to do with the recovery of civil construction in Brazil, both residential and nonresidential. We are constantly monitoring the indicators like new launches of real estate, the sale of real estate, inventory of real estate. I mean, in Sao Paulo, it has been the lowest since 2013. We are also monitoring vacancies in commercial real estate, the consumption of cement. The level of trust in civic construction, that was 24.3%. This is the highest level since May 2014. I mean the -- in managerial terms, I mean, I can just mention one. Let's say the average of construction sites served by Gerdau. In the third quarter of 2019, we were present in 1,400 construction sites. But when you look at the fourth quarter of 2019, we were present in 2,000 construction sites. So these are very strong KPIs, and they can be already translated into demand. They were translated into demand at the end of last year, and they continue to increase in this quarter. And we see that we are receiving more orders, and the backlog is more consistent.

Therefore, we are very optimistic knowing that the construction industry is recovering and will certainly bring us positive results. We also noticed an important increment in volumes on the retail side. It's not so significant in terms of total steel sales, but it remains growing. And now our strategy is to have a stronger penetration in this retail segment. Therefore if we look at least, I mean, '19 over 2020, the retail industry in terms of construction increased 4%. But our direct sale to retail increased by 34%, meaning that we -- our penetration has increased in this segment. And this helps our figures. In the industrial segment, where we also serve providing a lot of different products, comes with a strong recovery. But in general, if we look at the industrial GDP, it has some positive and negative points. Let's say, for instance, the energy and machinery and equipment, this segment is increasing, and this has helped our sales volume. In terms of volume, the signs are quite positive, and we will have a good year of demand increase for steel. Now talking about margins and prices, and to be more objective in terms of my answer, there was a mix of things that had an impact. But I'd like to look at the entire snapshot of 2019. When we look at 2019, and if you compare January 2019 to December, there was a decline in prices in Brazil, both in flats and longs.

I would say that there will be -- it was around 10%. So how come the margins were compromised in 2019? Because there was a reduction in the scrap price. So when we look at the spread, the spread remained the same in 2019. But in general with this year, and even at the end of last year, there was an extremely positive environment because at the same time, we have demand recovery, then a pressure in cost because of the higher prices of scrap. Then you have the exchange rate and export prices, which has closed very close to 0. In the case of flat, it's almost negative. Therefore, we've been very consistent in regards to our recovery of margins now in this first quarter. And all of the price announcements that were published earlier this year, I mean, obviously, not everything happens in a single month. And our expectation is that these increases may materialize throughout the first half of this year.

Daniel Sasson -- Itau BBA -- Analyst

Perfect. We'll start with Thank you very much.

Operator

Next question is from Thiago Ojea from Goldman Sachs.

Thiago Ojea -- Goldman Sachs -- Analyst

Hi, good afternoon and thank you for taking my question. [Technical Issues] demand in the fourth quarter? And why is it that the numbers are slightly below? And maybe the second question to Scardoelli, that is about working capital. There was a very strong cash generation this year. And in fact, this is a characteristic of Gerdau because you always have a very strong cash generation in the beginning of every year. Should we expect any changes due to the strong generation in the fourth quarter? And what should we expect in cash generation for 2020?

Gustavo Werneck da Cunha -- Director President

Hi Thiago, it's a pleasure to talk to you. Your first question about margins in our longs operation in the U.S., I will just give some general information, and then Scardoelli can add up with some other figures. It's difficult to compare our results to the results of other peers in the U.S. because the mix is different. And in terms of rebars, we remain with structural profiles and commercial profiles. Our competitors also have a special -- an important share in flats in the U.S. Now in terms of shipments and volumes in the U.S., especially in the infrastructure market that we serve with these products that I mentioned, they remain very strong. Our backlog in January and February is still higher than the backlog we had in early 2019. It's 10% higher. So volumes are still very good. It was not because of drop in volume or demand, but the margin reduction was basically due to lower spreads. So it's just a match between the drop in scrap prices and price of products. And we had lower spreads at the end of November and early December, but the good news is that we've been recovering these spreads now this year. And we see a very good outlook for our U.S. operation, both in terms of volume and also recovery of spreads. And I'll now give the floor to Scardoelli to see whether he has anything to add. Or maybe he can answer your second question about working capital.

Harley Lorentz Scardoelli -- Director Vice President

I would just like to mention that North America for us has always had the seasonal effect, the same thing that happened in Brazil and other operations. We work hard on our working capital. I mean, we are not seeing any deviation from what we had before. The market is still very robust, and the outlook for 2020 is very positive, Thiago. In this aspect of mix and the differential, possibly this is a factor that will respond to your question. Now speaking about working capital this year as well as in previous years, we will have the seasonality of strong reduction in working capital, as it happened in 2019, and the reconstruction or rebuild or building up of working capital in the following year. Now for this year, as in previous years, we always have a very strong cash generation, very positive for the entire year. And as we've demonstrated, we use that in our favor to reduce leverage and to reduce our net debt. And this remains a very important topic for us. I would also say that in the last two years, at least the last two years, we've been adopting this approach that we come to year-end very slim, ready to absorb any demand peak. And we know that the market in Brazil starts in a lower pace every beginning of the year because of carnival and the holidays, etc. And in all of our operations, we have some slack in terms of capacity. We are able to cover any demand peak that may come around, so we reconstruct working capital as needed throughout the year. Always bear in mind that we will always expect a very positive cash generation.

Thiago Ojea -- Goldman Sachs -- Analyst

Right. Scardoelli, can you give me some guidance in terms of working capital per day for the first quarter? Or whether there was a major trend vis-a-vis the fourth quarter?

Harley Lorentz Scardoelli -- Director Vice President

It's difficult to give you a particular figure because we work with a three-month average. It's difficult to give you a very specific number. I can give you some ballpark figures. If we look at some years back, and looking at several of our operations, if you had details about all the operations -- some operations. I mean, we had a 100-day consumption that was common if we look at the end of our year. We never had any operation above five days. So I'd say that the average we had in terms of cycle days or cash conversion cycle, today -- I mean, we have to attain the maximum we want for the year. So we have to look at the average and the average, below the average. That's our intention to work during the year, and that's possible.

Thiago Ojea -- Goldman Sachs -- Analyst

Thank you for Anakin. And thank you to me.

Operator

Next question from Thiago Lofiego Bradesco BBI.

Isabella -- Bradesco BBI -- Analyst

Hi, good afternoon. In fact, this is Isabella. I have two questions. And I think my first question is about shipments are flat. I think you already mentioned that in previous questions, but, in particular I would like to understand the dynamic of heavy plates, which posted a very strong performance in the fourth quarter. I just want to understand, what is the outlook of this particular market to you, and whether it would be sustainable to believe that you would have a very strong growth throughout the year? And the second question is about the outlook for the export market for Gerdau. Well, in the company's mind, because there was a pickup of exports in the fourth quarter, and that was much attributed to your inventory levels, so I just want to understand what is your view about the export market in 2020. So these are my questions.

Gustavo Werneck da Cunha -- Director President

Isabella, in terms of heavy plates, if we look at the last two years, we just had a very successful strategy. Our -- when we entered the flat segment, not only heavy plates but hot coil, last year, the segment of heavy plate grew 10% in Brazil. We -- at Gerdau, we grew 26%, and this reflects some important points like the distinguished quality of our products. We have a hot coil rolling mill that is one of the best in the world. So the quality of the product, yes, quite unique. And this reinstates our assertive strategy of our Comercial Gerdau that has also proven to be a very relevant channel for the flat segment. For this year, for 2020, our expectation of growth in demand of heavy plates will be around 10%. The second question about the export market, the export market in terms of volume, it has a demand. But we've been very stringent our businesses because the prices practiced in the international market, especially for semifinished, do not encourage us to increase production in Brazil, to sell with margins that are not attractive to us. That's the reason why we decided to rationalize the production in our mini-mills and turn the focus of our production to our Ouro Branco mill. Well, in a very volatile market, I'd say that if in the following months there is an increase in the steel price in the international market, that would increase to -- that will lead to increase our volumes, OK? But currently, we are not willing to sacrifice some of our indicators just to export at lower prices.

Harley Lorentz Scardoelli -- Director Vice President

I would just like to add two things, Isabella. Heavy plates, I would like to remind you that we had a positive effect this year mainly attributed to some projects that had been under way for quite some time. And this -- these projects take some time to mature. Maybe in 1.5 years or two years with the new projects that are in practice right now, we will see an evolution. Therefore, in the mid-range, our outlook is quite interesting. And I always like to say that our Ouro Branco operation has a major differential because it has a steel production, which is higher than the production of road products. So we are able to serve that market with that alone. But the prices of billet exports were very low even though they recovered at the end of the year. So our lag in between the shipments that we deliver have been two to three months. So in a way, at the end of last year or very early this year, we were able to reap the benefit because prices are much worse. They are not much better, but they're slightly better. And in a way, the exchange rate today is better as well. This doesn't mean that, today, we are not making bold decisions, but what I'm saying is that maybe looking forward, we will have better exports if the exchange rate remains good and if prices also perform better.

Isabella -- Bradesco BBI -- Analyst

Okay, great. Thank you very much.

Operator

Next question's from Caio Ribeiro from Credit Suisse.

Caio Ribeiro -- Credit Suisse -- Analyst

Good afternoon. My first question relates to the leverage level, which is approaching 1.1 to 1.5 net debt-over-EBITDA ratio. And the gross debt is about BRL12 billion to BRL15 billion. And it's very likely that you will be able to reach these goals sometime this year. Now in your view, do you think that this will be room for you to review your payout policy upwards? Secondly, could you say something about scrap prices in Brazil? Because throughout 2019, there was a down tendency. But with the rebound of civil construction in Brazil, maybe the prices could go up again. I just want to know whether you work with that scenario in mind, and whether you see that is a potential pressure over margins in Brazil or whether you believe that increased volumes and prices would offset these effects. Again, whether with this level of exchange rate that we have today, whether the scrap market could grow above -- I mean, could grow and whether we could expect anything along these lines.

Harley Lorentz Scardoelli -- Director Vice President

Caio, this is Harley. In terms of leverage and that trend toward a reduction, we are very much focused. The Board says that we have to take that leverage down even further, even reaching 1.5 in the long -- in the mid-range. But this will depend on cash generation and the exchange rate. I always say that the appreciated U.S. dollar, depreciated BRL is positive for us because we generate additional cash from the U.S. once conversion to reals is good. And price increases also help us here in Brazil. It's an advantage that may get in the way a little bit, but it's just a matter of time. I believe that the fact that we revisit our dividend payout policy is not something for the short term. Because once we lower that leverage, naturally, our payout in absolute terms in terms of BRL per share will already increase good enough. And I think that this review of the dividend payout will take place maybe further down the line. But I would like to say that you have to compare 2018 when our results were really good because of exports from Brazil. And our dividend payout was almost twice as much as what we paid the year after that.

Now about scrap prices, throughout the entire year of 2019 and lower prices of scrap in Brazil, to be more specific, and comparing scrap prices in Brazil in the fourth quarter '19 compared to the third quarter of the same year, was down by 10%. Just to give you a figure. So it had been falling throughout last year. In 2020, it was flat, and now it presents an upward trend. Now adding to your question, this is favorable to us because it helps us to recombine our margins through new prices that we see now. But I would also like to take this opportunity to say and to remind you of some great business we have in Brazil, which is the possibility of producing steel through scrap, through mineral or etc. So this gives us a lot of opportunities. We have to look for alternatives to be less susceptible to the -- to some variations, for instance, that example of scrap.

Caio Ribeiro -- Credit Suisse -- Analyst

Thank you.

Operator

Next question from Antonio Heluany from Bank of America.

Antonio Heluany -- Bank of America -- Analyst

Good afternoon Harley and Vernick. My first question is a follow-on question related to the average price you mentioned before. Werneck said that it was just a matter of the mix. Could you elaborate a bit on what that mix is all about? Because we already see an increase in demand into the construction. And with the outlook for 2020, because if civil construction continues to accelerate, how do you see the margins and the average price of these products? And the second question is about special steels. The volume was quite weak. You shut down Mogi, and your total capacity is running below 50%. Should we consider any increase of capacity in 2020 if you resume Mogi? And what should be the evolution of volumes and margin in 2020? You talked about the U.S., but if you could also mention the Brazil situation, I would appreciate it.

Gustavo Werneck da Cunha -- Director President

Antonio, basically, we had decreased sales of our portfolio products and higher sales of our own products. That's the steel margin. Therefore, the explanation is this. Now in terms of prices and the resumption of the civil construction industry, in fact, when we look at the seasonality in the period, well, certainly, when we compare the fourth to the third quarter, our shipments of longs was lower. There was a 9% decline in the last quarter of last year when compared to the third quarter, and this is much lower than our historical average of seasonality. So when you look at third and fourth quarter, there was a 20% effect of seasonality. And this is an important KPI that demonstrates that even with seasonality, there was a higher sales of products for the civic construction segment. When we look at export semifinished and other products with lower margins, our products serving the reinforced concrete industry, there is a possibility for us to expand our margins as the civic construction industry segments recover. But Scardoelli can answer the part about special steels.

Harley Lorentz Scardoelli -- Director Vice President

Antonio, in terms of special steels, and just to confirm some point that you mentioned, the fourth quarter was affected by a drop in volume. We worked with a decline of 40% in our capacity in the U.S. We still have some effects stemming from the workers' strike at GM that affect the production, but there was a drop in exports from Argentina. Therefore, -- well, seasonality, this has been a lower quarter. In North America, we still have the effect that we mentioned before, which was a pressure on the margins because of the surcharge mentioned. That's when we transfer to the customer whatever happens to metal and metal spread still related to lower scrap prices. So that surcharge affected prices. In terms of the outlook for this year, we see 2020 as a better year. Numbers disclosed by ANFAVEA in terms of 2020 growth that posted a growth of 7.3%, but in terms of exports was flat, because there was a steep drop in exports from Argentina. We also saw the effect of lower margins in the U.S. via surcharge that reduced a lot due to an increase in scrap. And all of those things helped and, therefore, we see a better outlook for 2020. Now in regards to optimization, we optimize everything we could. We optimize things related to Mogi. There was a downtime in the Jackson operation, concentrating our production in the Monroe mill. And when you put everything together, the expectation is for a better 2020.

Antonio Heluany -- Bank of America -- Analyst

Thank you.

Operator

Next question from Andreas Bokkenheuser from UBS.

Andreas Bokkenheuser -- UBS -- Analyst

Thank you very much. Just one more follow-up on the selling price development in the second half of the year. Obviously, there was reports that rebar prices in Brazil had a pretty significant downturn in the third quarter. And as we understood it, all rebar sellers, no exceptions whatsoever, actually had to drop prices in the fourth quarter. The read that we are getting from the ground from our industry sources in Brazil is telling us that the 10% rebar price hike that has been announced for the first half of this year is basically to bring prices back to where they were in Q3. I guess the first question is, do you agree with that? And in thinking about that, if that's the case, then I would imagine at the current rate that your EBITDA for the year should be coming in around BRL six billion, BRL6.5 billion, which is still an increase from last year, but is not as high as BRL seven billion, which is what we've seen some headlines suggesting that it could be. Do you think -- BRL six billion to BRL6.5 billion, do you think that sounds fair from a targeted EBITDA for this year? That's my question. interpreter comments Andrea's question was whether -- it was a confirmation about what happened to long steels in Brazil in the second half of the year. And he said that he noticed a perception of price drop, particularly for rebars. And he also asked about EBITDA guidance for 2020, BRL6.5 billion against BRL seven billion.

Gustavo Werneck da Cunha -- Director President

First of all in terms of prices, first of all, I think we have to look at prices in Brazil together with prices of scrap. Prices of scrap were down as well. So in a way, what really matters to us is the spread in Brazil. And in terms of price increases of 10%, it was something that was announced, and it's in the process of implementation. But as it happened in previous occasions, the speed to -- the speed of the announcements are materialized. It depends pretty much on the region and on the timing. So it's very difficult to tell whether what will happen, but what I can say in terms of a backdrop, in terms of prices is everything related to what Scardoelli said. The construction environment in Brazil right now is very positive, meaning that the construction market is recovering in a very interesting way. International prices vis-a-vis the exchange rate shows that we still have room to post increased prices. And this has to do with margin recovery because the cost is sound. So all in all, it's very positive. And lastly, in terms of EBITDA, this is something that we leave up to the analysts to analyze it. It depends on modeling GDP and economic growth. But we always like to say that we are starting 2020 with a very positive and good outlook in all of our business operations.

Andreas Bokkenheuser -- UBS -- Analyst

All right, thank you very much.

Operator

We now conclude the Q&A session. I would like to turn the floor back to Mr. Gustavo Werneck for his final remarks.

Gustavo Werneck da Cunha -- Director President

Well, once again, I would like to thank you very much for joining us this afternoon, especially Daniel, Thiago, Thiago Lofiego, Caio, Antonio and Andreas for the questions they posted. And as always, it's been a pleasure to talk to you -- and Isabella as well, who represented Thiago Lofiego. I want to thank you all very much. And I take this opportunity to invite you to join us again when we present the results of the first quarter of 2020 that will take place on May 6. Thank you so much, and all the best to you.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Harley Lorentz Scardoelli -- Director Vice President

Gustavo Werneck da Cunha -- Director President

Daniel Sasson -- Itau BBA -- Analyst

Thiago Ojea -- Goldman Sachs -- Analyst

Isabella -- Bradesco BBI -- Analyst

Caio Ribeiro -- Credit Suisse -- Analyst

Antonio Heluany -- Bank of America -- Analyst

Andreas Bokkenheuser -- UBS -- Analyst

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