Ternium Eyeing New EAF Capacity, Announcement in '22-23

“An announcement could still be seen in either 2022 or 2023 – we have a team analyzing the project, and once we have it all clear we will proceed,” Vedoya said.

The reason: “We need to be USMCA compliant with melted-and-poured by 2027. This is something we have to do,” he said.

“We are in the final stages of analyzing what is the best to do this is. This will require high capital allocation … (and) will be done in the near term,” Vedoya added.

He made the comments during the company’s first-quarter earnings conference call on Wednesday, April 27.

North American Expansions

SMU reported in November that Ternium was considering a new EAF. Vedoya’s comments on Wednesday provide a more precise timeline for the investment.

USMCA requires that 70% of a vehicle’s steel and aluminum be melted and poured in North America – which means steel made from re-rolling slabs from outside the region might not qualify for certain work.

A new EAF would be in addition to the $1 billion investment the steelmaker announced in February to add downstream capabilities to its new, 4.5-million-ton-per-year hot rolling mill in Pesquería, Mexico. That project includes a pickling line and tandem cold mill with capacity of 1.5 million tons per year (tpy), a 500,000-tpy galvanizing line, and related finishing equipment.

The latest capital expenditure project would be targeted over the next two to three years to capitalize on growing automotive demand, and to ensure USMCA compliance by 2027. Ternium currently supplies North American carmakers with roughly 3 million tons of steel per year, Vedoya said.

“Yes, we have to do it, to be honest. So, we are analyzing it all. We are not ready to announce it, but it is very clear – our automotive customers are very important to us,” he said.

Ternium does not see the added steel capacity – currently in place or ramping up in the US – as a deterrent. As the steelmaker sees it, increasing near-shoring efforts, America’s tense trading relations with China, and the potential fallout from the war in Ukraine will have long-term impacts on steel sourcing. 

“So, I think that the biggest opportunity for us is over there (in North America), and that’s why we are getting ahead of that, doing the cold mill facility, the new the galvanized line… being a USMCA compliant with a much bigger CapEx. Our growth path is America.”

Other expansions include the $98 million the company is investing to add a second paint line to its Shreveport, La., facility. Construction of the new paint line, with a capacity of 120,000 tons per year, should begin in the first half 2022, with commercial production slated for mid-2024.

Weakness in Mexico

The production ramp-up at Pesquería’s hot rolling mill was scaled back modestly in response to a declining domestic demand in the Mexican market. But it remains on schedule and should reach a capacity utilization near 80% by Q3 2022.

“The ramp-up is going very well from a technical point of view. We produced roughly 500,000 tons in the fourth quarter, almost 700,000 in the first. We expect to produce just under 1 million tons in the second quarter, and to exceed the 1-million-ton mark in the third,” Vedoya said.

The slowdown in Mexico led the steelmaker to produce less at its mill in the Churubusco neighborhood of Mexico City. “The commercial market in Mexico was very weak in Q4. It has increased a bit in Q1, and we expect it to improve more in Q2. So the plan to increase volumes was delayed,” he said.

Shifting Slabs

Slab allocation and sales to third parties have shifted and will continue to decrease, company executives said. Ternium will send more Brazilian slab to its Mexican mills, they said, noting that the war in Ukraine has impacted roughly 30% of the global merchant slab supply.

Ternium is presently producing roughly 4.6 million tons of its 5-million-ton slab capacity at its Brazilian mill in Santa Cruz, Rio de Janeiro. Presently 85% of that is shipped to Churubusco and Pesquería in Mexico, with the balance shipped to third-party buyers.

“We have steadily increased our allocation, from 30% of our Brazilian capacity to 85% in the first quarter, and we expect 1 million tons less in third-party sales this year,” Vedoya said. “So, we aren’t tight. 10% of our slabs were from Russia and are now being sourced from other sources.”

Ternium’s primary operations are in Latin America. But it also operates Ternium USA, a coating operations in Shreveport, La., that specializes in galvanized and Galvalume products heavily used in metal building construction.

By David Schollaert, David@SteelMarketUpdate.com