Steel Mills

Ternium Believes Steel Prices Could Drop Another $20 During 4th Quarter

November 6, 2014

Ternium reported earnings for the 3rd quarter 2014 this week. Ternium is a large steel producer in Mexico, which accounts for 60 percent of the company’s shipments, as well as Argentina which accounts for 24 percent. Ternium also owns a conversion mill in the United States which produces galvanized and Galvalume products along with prepainted steels.

Ternium reported EBITDA of $423 million in third quarter 2014 that included an insurance recovery in connection with facility damages in Argentina. Net sales were up 1 percent sequentially to $2.2 billion on shipments of 2.3 million tons. Improvement was attributed to slightly higher revenue per ton and stable shipments.

Mexico sales were 1.4 million tons in the third quarter driven by domestic manufacturing and export to the U.S. Steel prices rose 2 percent from second quarter but are expected to decline in Q4.

CEO Daniel Novegil said during the earnings conference call that there are good prospects being seen in energy and in the automotive industry. Construction is lagging but the young population points to a positive demographic growth in the future.

On pricing, Novegil reported that there is a decoupling between U.S. domestic prices and the prices being offered in Europe and China. He reported raw materials costs as dropping making their blast furnace operations, “…the most competitive force in our investor base.”

Novegil discussed the new $20 per ton price increases announced by the U.S. steel mills due to healthy demand in North America. He reported growth as slowing in China which will only see 1 percent growth in apparent consumption this year. Even though their GDP is growing by 7.5 percent.

The Ternium CEO believes, “I would say that all together, at the end, I see prices similar to recurrent levels for the quarter to come. Maybe being cautious I would say that – or being more cautious, I would say that maybe they can go down an additional $20 below the current level, that means that we could see the hot roll coil prices in the U.S. market at levels between $680 to $710 per metric ton which is maybe $15 to $20 below the current level, being cautious [$680 per metric is $616 per net ton].”

In Argentina, said Novegil, the market demand is down 6 percent compared to last year’s all-time record consumption and, even with slowing in automotive and construction, is still a record in 2014. Pricing in Argentina is expected to follow the dynamics of international markets.

CFO Pablo Brizzio said the goal is for Ternium to ship 10 million tons in 2015. Mexico and Argentina shipments year to date are 7 million tons, so year-end in 2014 should put the total near that mark.