A strong beginning to the first quarter in Mexico supported shipments for Ternium S.A. as operations were locked down in South America due to the COVID-19 pandemic. The company expects shipments to decrease about 30 percent in the second quarter and increase going forward in the second half of the year.
“We don’t see a V recovery as some economists are saying, it’s more like a U,” said CEO Máximo Vedoya. “So, these increases are not going to be very, very steep. But I think that most of the countries where we operate are going to take measures in order for the steel industry to try to increase their shipments.”
Ternium Mexico shipments in Q1 increased 6 percent year-over-year and 7 percent sequentially, holding steady until demand began to fall in late March due to the coronavirus impact. The automotive industry in Mexico is closed and expected to gradually reopen in May. Because of the integrated nature of the automotive industry, restart of auto production will be synchronized with production in the U.S. About 15-20 percent of Ternium shipments are directed to the Mexican auto industry.
Vedoya expects auto shipments to increase in May compared to the near zero level in April. Inventory stocks at automakers are lean compared to the U.S. due to the use of just-in-time inventory.
Ternium’s customers in the industrial sector are scaling back production in anticipation of weaker demand. Likewise, the construction industry demand declined in April due to operational restrictions that are expected to gradually be lifted during May.
Brazil and Argentina operations were shut down with Argentina hit particularly hard, the company said. The slab mill in Brazil is operating at a minimum due to weak domestic and global demand. Ternium plans to offset declining domestic demand by increasing slab shipments to the U.S. and other third parties in the second quarter and reduce intercompany shipments to Mexico. The situation will likely change in the third quarter and slab shipments will resume to Ternium’s facility in Mexico.
To cope with the impact of COVID-19 and declining demand, Ternium has reduced run rates to lower production costs, optimized procurement activities and it withdrew its previously announced dividend for the year.
Start-up of the new hot roll mill in Pesqueria has been delayed to April 2021 and the new bar mill in Columbia to the second half of 2020. Ternium continues to ramp up its new galvanizing and painting facilities.
The company reported a net loss of $19.4 million for the first quarter due to a $189.1 million deferred tax loss. This was somewhat offset by a gain of $106.2 million due to the Mexican peso and Brazilian real depreciation of 20 percent and a 23 percent, respectively, against the U.S. dollar. Total steel shipments were 2.998 million metric tons and net sales $1.27 billion.
“The COVID-19 outbreak is affecting economic activities and the operation of our facility in all our markets, and the effect of the situation in our business will show in the second quarter of the year and beyond,” said Vedoya. “But we can rest assured, we are very quickly adapting our company to this new scenario and working very hard to minimize this effect as much as possible. This is the value we can act at these difficult times, as we have done in other market crises over the history of our company.”
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