Ternium Not Yet Seeing Competition From New US Capacity

Updates on Pesquería HSM and Mexican Market

Ternium’s new, 4.5-million-ton-per-year hot strip mill in Pesquería, Mexico, is currently running at 80–85% of capacity, and although ramp-up continues to go well, subdued steel demand in Mexico is holding the mill back from reaching full capacity.

Earlier this year, CEO Máximo Vedoya said he anticipated the mill to produce 1 million tons in the second quarter and to exceed the 1-million-ton mark in the third. But on the Q2 earnings conference call on Wednesday, he clarified that: “We are not going to achieve that objective.” The company had not anticipated the influx of imports that arrived into Mexico during the last part of 2021, resulting in high inventories that needed to be worked through during the first part of 2022. Additionally, weakness in demand from Mexico’s commercial sector has been worse than expected.

When asked if the new capacities coming online in the US are causing an increase in imports destined for the Mexican market, Vedoya said they are now actually seeing imports falling from last year’s peak to levels lower than they were in 2020. “We are not seeing that problem in Mexico…at least not yet,” he said. With customers very eager to buy material from the company, he believes Ternium’s market share is actually increasing.

The automotive certification process is ongoing for the Pesquería plant. “Part of the certifications are going to be ready in 2023, so we are going to see incremental volumes from industrial customers,” Vedoya said.

A positive from Mexico’s economy is that demand from Mexico’s industrial sector is booming, he said. When it comes to increasing capacity and tonnages at the mill, the big questions are if demand from the commercial and construction/infrastructure markets will begin to grow, he noted.

Volumes at the Pesquería mill will be prioritized over other Ternium mills in Mexico, Vedoya noted. He said most of their other mills are running at full capacity, save for the Churubusco hot strip mill in Monterrey, Mexico, which is running at “much lower than capacity.”

The $1 billion expansion project to add downstream capacities to the Pesquería mill is ongoing. When complete, the project will add a 1.5-million-ton-per-year pickling and tandem cold mill, a 500,000-tpy galvanizing line, and related finishing equipment.

USMCA-Compliant Mill Update

Ternium is not yet ready to announce any official plans on the building of a greenfield EAF facility. Executives said on the call that they are still working on engineering plans and site selection. They hope to have a US-Mexico-Canada (USMCA) compliant facility by 2027. Planning is still on track, they said.

HRC Pricing Outlook

With inquiries increasing over the last couple of weeks, Vedoya believes prices for hot-rolled coil in the US are nearing a floor and expects prices to find that bottom later in August or September. While there are talks of a recession in the US, steel demand is still very healthy there, he pointed out.

SMU’s latest market survey shows HRC prices down to an average of $805 per ton this week.

In the company’s Q2 earnings results, Ternium said it expects the decline in steel prices to negatively impact Q3.

By Laura Miller, Laura@SteelMarketUpdate.com