Ternium S.A. Q2 FY2025 earnings call

Business Environment

• Operating environment is uncertain and volatile; focus on reducing costs to strengthen competitiveness.

Mexico

• Government measures to curb unfair trade practices led to a decrease in steel imports; expansion project in Pesqueria continues as planned.

Brazil

• Steel market under pressure from a surge of unfair imported steel, especially from China; Usiminas working on cost structure to improve competitiveness.

Argentina

• Shipments strong in second quarter due to seasonal demand and gradual macroeconomic improvement; construction sector not improving significantly.

Cost Management

• Focus on optimizing logistics network, procurement, production processes, and labor productivity to achieve $300 million cost reduction; sustainable report released reaffirming commitment to sustainable industrial development.

Steel Segment

• Second quarter: Shipments declined primarily in Mexico and the U.S., partially mitigated by higher volumes in the Southern region. Third quarter: Mexico expected sequential growth in shipments due to government measures curbing unfair trade practices; Usiminas in Brazil faces headwinds from a sharp increase in unfair trade steel imports (primarily from China); Argentina shipments steady after strong second quarter driven by seasonal demand and macroeconomic improvement.
• Second quarter: Average selling price increased, especially in Mexico, but offset by lower shipments; margins improved with higher prices and modest impact from increased cost per ton.

Mining Segment

• Iron ore shipments rose quarter-over-quarter due to increased production, but net sales unchanged in second quarter as lower realized iron ore prices offset volume gains; segment margin slightly declined but partially offset by lower operating cost per ton.

• Second quarter EBITDA improved relative to first quarter; anticipate sequential improvement in third quarter.
• Third quarter expected slight increase in shipments, led primarily by Mexico with possible support from Argentina and relatively stable volumes in Brazil.
• Anticipate $300 million cost reduction during the year, including initiatives in procurement renegotiations, production rebalancing, and utilizing cheaper energy in Argentina.

• Uncertain trade policies, particularly in Mexico and Brazil; impact of unfair steel imports on local market competitiveness.
• Volatile global trade environment affecting operations and ability to maintain profitability.

Q: Caio Greiner asked about the state of steel supply in Mexico, including trade measures and ArcelorMittal's incident, and cost outlook.

A: Maximo Vedoya responded that Mexico's trade measures are a good start but more may be needed; ArcelorMittal's incident may lead to marginal share gain in long products, but main gain in flat products; cost reduction includes $300 million initiatives beyond raw material decreases.

Q: Carlos De Alba inquired about EBITDA improvement outlook and long-term impact of Mexico investments.

A: Pablo Brizzio mentioned expectation of EBITDA margin closer to 15% by fourth quarter; Maximo Vedoya discussed long-term impact of Pesqueria project with 1.5 million tons new capacity but long ramp-up period.

Q: Unidentified Analyst asked about cost reduction target comparison base and impact on Mexican steel prices.

A: Maximo Vedoya stated $300 million target compared to 2024 without raw material price effects, not including Usiminas; Mexican steel prices likely to have mild improvement.

Q: Rafael Barcellos asked about CapEx cycle and capital allocation strategy.

A: Maximo Vedoya said Q2 2025 was peak of CapEx cycle, with remaining year's CapEx projected around $2.5-2.6 billion; Pablo Brizzio mentioned sustaining dividend payment while covering significant CapEx plan.