Steel Mills

Ternium Reports Better Than Expected Q3

November 4, 2020

Mexican steelmaker Ternium’s operating rates are approaching full capacity after strong improvement in shipments and demand in the third quarter. Total steel shipments rose 16 percent from the second quarter to 2.8 million tons. Higher finished steel shipments partially offset lower slab shipments to third parties. Pricing recovered significantly from the trough in the second quarter. Net sales jumped 23 percent to $2.14 billion resulting in better than anticipated net income of $173 million.

Ternium’s primary market in Mexico rebounded in the third quarter, with shipments up 23 percent to 1.4 million tons. More than half of lost second quarter volume was made up in the third quarter due to strong demand in the U.S. for autos, appliances and HVAC. In Mexico, demand has been steady for small construction as well as for some government infrastructure programs. Manufacturers continued to ramp up facilities in Q3 after shutdowns in the early months of the pandemic.

Ternium’s new hot roll mill in Pesqueria is expected to be commissioned in July 2021 and will provide more sophisticated steel grades. The greenfield rebar facility in Colombia is in the final commissioning stage and produced its first bar of steel last week.

In the Southern Region, finished shipments returned to pre-pandemic levels in Columbia and the Brazil slab facility resumed full capacity in April. Slab shipments to third parties decreased sequentially and year-over-year. Volumes in the region increased 59 percent in the third quarter from record lows in Q2. Argentina, in particular, saw an increase in demand for durable goods and building materials, the company said.

Looking forward, Ternium expects EBITDA in the fourth quarter to be similar to the third. Steel volumes in Mexico should return to pre-pandemic levels. Market dynamics in the Southern Region should support higher shipments in the Argentine market. Slab shipments from Brazil should be stable in Q4 with domestic shipments replacing exports to third parties.

During the earnings call this week, CEO Maximo Vedoya noted that Chinese steel prices were above U.S. prices for the first time in more than 10 years. Although, Ternium expected U.S. steel prices to go up, they were surprised at how quickly they rebounded. “I think that for the next several quarters I don’t see an environment where prices are going down in the U.S,” said Vedoya.

On the subject of new capacity coming online in North America, Vedoya was pragmatic in his analysis, suggesting that new capacity will be needed to fill growth in apparent consumption. Capacity will also serve to replace a large amount of imports coming into Mexico. Additionally, some new capacity will replace outdated, less competitive producers. Vedoya said the Ternium facilities are among the best in the region and the company will be able to compete with any new capacity coming online.

Vedoya said he doesn’t believe a change to a Biden administration, if it occurs, will impact Section 232 tariffs other than adding some flexibility for some countries that shouldn’t have been included in S232 in the first place. Both candidates are interested in reshoring and building a stronger manufacturing industry. Biden is an advocate for environmental issues, which would be beneficial to Ternium’s growing sustainable footprint.

Looking forward to the first quarter of 2021, CFO Pablo Brizzio said it depends on how the pandemic evolves and if there is a second wave of infections. A second caveat is whether there is an economic downturn in Argentina that will impact steel volumes.

“Clearly, things can change, but we need to take other factors into consideration. First is the seasonality of volumes in the different markets. Clearly in the Southern region, the first quarter is seasonally low. In Mexico, this is more at the end of the year, so the first quarter tends to be a relatively good one. So, we continue to see the coming quarter with a positive outlook,” he said.