Ternium earnings slump; Vedoya calls bottom on HR pricing

The Luxembourg-based Latin American steelmaker posted a Q2 loss of $743 million on sales that rose 17% from last year to $4.5 billion.

A June decision by a Brazilian court resulted in the company recording a $783-million provision for ongoing litigation in the quarter. The decision concerns Ternium’s 2012 acquisition of a participation in Brazil’s Usiminas. Ternium doesn’t believe the decision will stand and “plans to vigorously defend its position.”

It said that without that provision, Q2’24 adjusted net income was $40 million, which includes a deferred tax loss of $183 million.

The company noted that a slight decline in sales volumes in Mexico and lower shipments in other markets offset higher steel shipments in Brazil and the Southern Region.

During the quarter, Ternium saw demand growth from Mexico’s automotive sector. However, softening demand for HVAC products and white goods offset this.

An unplanned blast furnace outage in Brazil at the end of Q1’24 impacted Q2’24 shipments in Mexico. The furnace is now back to full capacity, CEO Maximo Vedyoa said on an earnings call with analysts on Wednesday.

Steel prices

Ternium observed “a weak pricing environment” in its main markets in Q2’24. It noted that spot prices for hot-rolled flat products fell “to levels close to the lowest recorded in the last 12 months.”

CFO Pablo Brizzio said contract prices in Mexico will be resetting at lower levels because of the soft steel pricing environment in Q2 ’24. The lower contract prices and currently soft spot market prices will result in lower realized prices in the current quarter.

Vedoya said on the call that he believes hot-rolled coil prices have hit bottom and should continue to increase through August and September.

“Yes, it is a bottom and we are seeing clear evidence that prices are going up and will be going up in the near future,” he told an analyst on the call.

“We’re clearly seeing the bottom during the third quarter, recovery in the fourth and entering into next year,” added Brizzio.

Slabs

When asked about collapsing slab prices, Vedoya reminded analysts that Ternium is “a net buyer of slabs,” and even more so if you consider Ternium and Usiminas together.

“So it’s not a bad thing, the price of slabs,” he commented.

The executives addressed the reimposition of Section 232 tariffs on Mexican steel products that aren’t melted or poured in North America. Without any melting capacity currently in Mexico, Ternium imports a significant amount of slabs from Brazil.

In July, Mexico’s president, Andres Manuel Lopez Obrador, announced that Mexican steel products melted and poured in Brazil would be granted an exception to this. The announcement has caused much confusion in the market and has yet to be addressed by the US government.

Since it came from Mexico’s president and government, “I think it’s official,” Vedoya said. “We are working on that assumption.”

Outlook

Ternium foresees lower sequential earnings in Q3’24, with higher shipments expected to partially offset lower margins.

Brizzio said that with “the price increases that we are seeing right now” and lower raw materials costs, “a better scenario” should be seen in Q4’24.

Pesqueria project updates

Vedoya said the company has started the first finishing line in Pesqueria, a 550,000-metric-ton pickle and oil line in Mexico.

“The rest of the finishing lines should be ready by the end of the year, and the cold-rolling mill and galvanized lines are on track to be delivered between the end of next year and the beginning of 2026,” he stated.

He said the company is thrilled with the progress on its new 2.6-million-tons-per-year EAF/DRI slab mill in Pesqueria. Completion of the “largest expansion project” in the company’s history is slated for mid-2026.