Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ternium SA (TX, Financial) posted a healthy adjusted EBITDA of $545 million for the second quarter, maintaining stable shipments with a 12% margin during a weak steel price environment.
- The company generated strong cash from operations of $656 million, contributing to a solid net cash position of $1.9 billion, even after distributing record dividends and sustaining significant capital expenditures.
- Ternium SA (TX) started up the first line in the downstream project and the new finishing center in Pesqueria, with further lines on track to be delivered by the end of next year.
- The new galvanize simulator in the R&D center in Mexico will enable shorter certification times and improved product quality assessment, adding more value-added products for various industries.
- The 2.6 million tonnes steel slab mill in Pesqueria is progressing well, with completion expected by mid-2026, enhancing capabilities in the USMCA region and positioning Ternium SA (TX) as a leader in low emission steelmaking.
Negative Points
- Net income was negatively affected by a $783 million provision due to an adverse Brazilian court decision related to the acquisition of a stake in Usiminas in 2012.
- The steel market in Mexico saw a downturn in steel prices, leading to a destocking process and impacting commercial market demand.
- Operational issues with a blast furnace in the Rio de Janeiro slab facility affected shipments in Mexico during the second quarter.
- The Brazilian steel sector faces a serious threat from imports under predatory conditions, mostly from China, with recent import tariffs proving inefficient.
- Ternium SA (TX) expects a decline in adjusted EBITDA in the third quarter due to lower realized steel prices and increased shipments across key markets.
Q & A Highlights
Q: Can you provide an update on HRC prices in the US and any potential rebound?
A: HRC prices in the US were around $700 per metric tonne by the end of last month. However, we are seeing indications that prices are starting to rise, suggesting that this may be the bottom. Demand in both the US and Mexico remains strong, and we expect prices to increase in the near future. (Maximo Vedoya, CEO)
Q: Any updates on the potential expansion at the MUSA asset and its CapEx expectations?
A: The decision on the MUSA project should be made by the end of next year. We are currently advancing in engineering, technology selection, and obtaining necessary permissions. Regarding production, MUSA can operate at current iron ore prices around $100 per tonne, so we do not expect a significant decline in volumes. (Maximo Vedoya, CEO)
Q: Is the 25% import tariff exemption for Brazilian steel official?
A: The Mexican President has announced the exemption, and there is a formal proclamation from the Mexican government. We are working under the assumption that it is official, although implementation is still in process. (Maximo Vedoya, CEO)
Q: What is the status of the CSN-Ternium judicial process and potential acquisition of CSN's shares in Usiminas?
A: The judicial process is ongoing, and we prefer not to add more details at this time. Regarding acquiring CSN's shares in Usiminas, we are not interested in increasing our stake at this moment. (Maximo Vedoya, CEO; Pablo Brizzio, CFO)
Q: How does the situation with Brazilian imported slabs impact Ternium, and are there opportunities from AHMSA's potential bankruptcy?
A: The restriction on Brazilian slabs impacts Mexico's exports to the US, but we need to fulfill our US customers' needs. Regarding AHMSA, we are aware of the potential bankruptcy process, but it is still a long process. (Maximo Vedoya, CEO)
Q: Will the recent price stabilization in the US help the fourth quarter pricing, and what is the margin outlook?
A: We expect prices to improve in the fourth quarter due to the recent stabilization. The magnitude of the increase is uncertain, but we anticipate margins to recover as steel prices rise and costs decrease. (Maximo Vedoya, CEO; Pablo Brizzio, CFO)
Q: Are you seeing clients returning to buy as prices stabilize, and what are the potential risks with the USMCA under a new US administration?
A: Yes, we are seeing a pickup in shipments as clients realize prices are starting to rise. Regarding USMCA, we believe the agreement benefits all three countries, and we do not foresee significant changes regardless of the US administration. (Maximo Vedoya, CEO)
Q: What caused the operating loss at Siderar, and how do you see profitability evolving?
A: The operating loss was due to low volumes and increased costs. We expect an increase in volumes and a reduction in costs in the coming quarters, which should improve profitability. (Maximo Vedoya, CEO; Pablo Brizzio, CFO)
Q: Is there any risk of reevaluating the dividend given the high CapEx and litigation uncertainties?
A: We see no reason to change our dividend policy. We continue to generate positive free cash flow, and our CapEx plan is on track. We remain confident in our financial position. (Pablo Brizzio, CFO)
Q: How is Ternium Brasil operating given the current slab prices, and what are the economics?
A: Ternium Brasil is very efficient and can operate at current slab prices. Ternium as a whole is a net buyer of slabs, so lower prices are not a significant issue for us. (Maximo Vedoya, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
