Ternium's Q3 2025 Earnings Call: Contradictions Emerge on Mexico Steel Prices, Market Share, Pesqueria Project Costs, and CSN Litigation

Date of Call: October 29, 2025

Financials Results

• EPS: $0.73 per ADS (adjusted; would have been excluding $405M Usiminas deferred-tax write-down and $32M litigation provision); GAAP net loss $270M

Guidance:

• Q4 2025: slight sequential decline in adjusted EBITDA driven by seasonal shipment slowdown; EBITDA margin expected to remain consistent with Q3.
• Shipments: sequential reduction in Mexico in Q4 due to seasonality and softer construction.
• Prices: modest downward pressure in Mexico and Argentina in Q4 (mix and seasonality driven).
• CapEx: 2025 now guided to ~$2.5–2.6B total; Q4 ~ $600M; 2026 ~ $1.9B; 2027 ~ $1.1B.
• Pesqueria: galvanized line ramp starting Dec, cold‑rolling in Jan; DRI+EAF on track for Q4 2026.
• Dividend: interim $0.90 per ADS payable Nov 11, total 2025 distributions $2.70 per ADS.

Business Commentary:

* Financial Performance and Cash Generation: - Ternium reported an increase in adjusted EBITDA in Q3, driven by a decrease in cost per ton. - The company generated over $0.5 billion in operating cash activities during the quarter. - These improvements were supported by ongoing cost efficiency initiatives and strong cash generation, allowing Ternium to declare an interim dividend of $0.90 per ADS.

• Impact of Trade Policies and Market Uncertainty:
• Ternium's business environment was marked by uncertainty due to changes in U.S. trade policies, impacting steel demand and pricing.
• Trade negotiations, particularly regarding the USMCA framework and regional integration, are emphasized as significant.

• The Mexican government is implementing measures to address unfair competition from Asian countries, aligning with U.S. priorities for trade policy.

• Regional Market Trends:

• In Mexico, steel demand was affected by slower construction activity, influencing a projected decrease in shipments for Q4.
• Brazil's steel market experienced high unfair trade imports, with a 33% increase in finished steel product imports, predominantly from China.

• Despite these challenges, Ternium expects a 5% growth in apparent steel demand in Brazil for 2025.

• Investment and Strategic Initiatives:

• Ternium is investing in a new steel shop to accommodate 2.6 million tons of flat products, aligning with potential changes in U.S. trade policies.
• The company continues to emphasize efficiency and cost reduction efforts, with significant investments in new facilities in Mexico.
• Additionally, Ternium has received a Steelie Award for sustainability efforts, highlighting its commitment to renewable energy and environmental initiatives.

Sentiment Analysis:

Overall Tone: Neutral

• Mixed messaging: management highlighted improved EBITDA, cost reductions and >$0.5B operating cash generation, but CFO reported a GAAP net loss of $270M driven by a $405M non‑cash write‑down and $32M litigation charge; management repeatedly cited trade uncertainty (U.S. tariff framework) as a key risk to near‑term demand.

Q&A:

• Question from Carlos de Alba (Morgan Stanley): My 2 questions. One is, given the results of the elections -- mid-term elections in Argentina, what sort of strategic opportunities do you see in trying to make more efficient the ownership structure of the company with potential stakes in Siderar or Ternium Argentina and Ternium Mexico?
  Response: Management: Elections don't alter the initiative — simplification remains under review but not actionable now; elections may enable structural reforms that improve competitiveness in Argentina.

• Question from Carlos de Alba (Morgan Stanley): And then, under what circumstances would you try that initiative that you presented in the past that didn't work to make the structure more efficient?
  Response: Management: Execution depends on third‑party stakeholders (e.g., ANSeS shareholding) and on Argentina's reform/legal environment; any move would require full analysis and favorable conditions.

• Question from Carlos de Alba (Morgan Stanley): What would be Ternium's planned, or action planned if the U.S. keeps the melt and pour conditions for steel using products that are imported into the U.S.?
  Response: Management: Continue with announced investment program (additional melt‑and‑pour capacity at Pesqueria) and work case‑by‑case with customers to retain volumes; investments anticipate persistent melt‑and‑pour requirements.

• Question from Rich Emerson (Goldman Sachs): First, can you break down cash cost outlook between Usiminas and Mexico/Argentina and outlook on prices for Argentina and Mexico? Also on CapEx: given a small decline in 3Q, do you still plan to reach $2.5B for the year or should we expect lower CapEx?
  Response: Core takeaway: CapEx guidance reaffirmed — 2025 total ~$2.5–2.6B (Q4 ≈$600M), 2026 ≈$1.9B; prices expected to dip slightly in Mexico/Argentina in Q4 but margins should be sustained via ongoing cost‑reduction plans across regions.

• Question from Alfonso Salazar (Scotiabank): Outlook for demand in Mexico for 2026—will there be a recovery and what will drive it? More broadly, how has the U.S. sourced steel this year under the tariffs and what is the multi‑year outlook for North America?
  Response: Management: Expect partial recovery in Mexico in 2026 (~4%) driven by infrastructure rebound and trade stabilization; imports into the U.S. have declined this year and longer‑term USMCA renegotiation could liberalize regional sourcing, supporting North American reshoring.

• Question from Alfonso Salazar (Scotiabank): Follow up on labor/energy constraints for reshoring and implications for electric‑furnace steelmaking?
  Response: Management: A regional approach (USMCA) is preferable; energy and labor are constraints but Mexico can be a partner in regional industrialization if rules encourage local value addition.

• Question from Alexander Hacking (Citigroup): Have any of your auto customers started to rebalance production back to the U.S. and away from Mexico?
  Response: Management: No broad rebalance yet; customers still source from U.S., Mexico and Asia and Ternium is working with them to migrate Asian‑sourced steel back to Mexico where feasible.

• Question from Alexander Hacking (Citigroup): What is the current proposal and timing for Mexico increasing steel tariffs?
  Response: Management: Proposal to raise tariffs on ~1,500 categories (including some steel products) from 25% to 35% is expected to be approved in November; further measures aimed at boosting regional value‑adding are underway.

• Question from Alexander Hacking (Citigroup): Would Ternium be in favor of a 'Fortress North America' with aligned tariffs and freer internal trade?
  Response: Management: Yes — Ternium supports aligned North American policies to protect regional industry while acknowledging each country will have some differences.

• Question from Rafael Barcellos (Banco Bradesco BBI): How comfortable are you with the current shareholder structure across regions? And please provide an update on the Pesqueria project, expected start‑up and CapEx after revisions; any commercial strategy changes given market conditions?
  Response: Management: Pesqueria remains on schedule and budget (~$2.7B): galvanized ramp in Dec, cold‑rolling in Jan, DRI+EAF expected Q4 2026; corporate structure simplification remains desired but is complex and not imminent.

• Question from Unknown Analyst (J.P. Morgan): Is the $150/ton EBITDA target realistic for 2026 — what assumptions underpin it (tariffs, antidumping in Brazil, volumes)? Also update on Compactos timing and whether it could be postponed given the market?
  Response: Management: The $150/ton target remains a goal but attainment depends on trade outcomes (tariffs, import reduction), market growth and execution of cost‑reduction plans; Compactos decision deferred to mid‑2026 while alternatives and permits are evaluated.

Contradiction Point 1

Steel Price Expectations in Mexico

It involves differing expectations regarding steel price developments in Mexico, which impacts profitability and strategic planning.

What are your expectations for prices in Argentina and Mexico going forward? - Unknown Analyst (Goldman Sachs)

2025Q3: Prices expected to decline slightly in Mexico and Argentina due to seasonal factors, but overall, prices remain stable with potential recovery in Mexico. - Pablo Brizzio(CFO)

How will Mexican trade measures affect steel prices? - Unidentified Analyst (Unknown)

2025Q2: Mexican trade measures will mildly improve prices, supported by Ternium's increased market share. - Maximo Vedoya(CEO)

Contradiction Point 2

Mexico Demand and Market Share Expectations

It involves differing expectations for the recovery of steel demand in Mexico, which impacts market share growth and company performance.

What is the demand outlook for Mexico in 2026, and how is the U.S. sourcing steel with tariffs? - Alfonso Salazar (Scotiabank)

2025Q3: Mexico demand expected to recover in 2026. - Maximo Vedoya(CEO)

Can you provide more details on Mexico's industrial customer situation and the company's current margin and profitability levels? - Carlos De Alba (Morgan Stanley)

2025Q1: Mexico's apparent steel consumption decreased by 5% in 2024. Imports are decreasing, and we will start gaining market share with new lines in the Pesquería project. - Maximo Vedoya(CEO)

Contradiction Point 3

Pesqueria Project Cost Estimate

It involves changes in the cost estimate for the Pesqueria project, which affects capital expenditure planning and financial forecasting.

Can you provide an update on the Pesqueria project and its cost estimate? - Rafael Barcellos (Banco Bradesco BBI)

2025Q3: The Pesqueria project is on schedule. The budget remains at $2.7 billion, with the DRI and EAF facility expected to start in Q4 2026. - Maximo Vedoya(CEO)

What drove the CapEx increase for the Mexico expansion project? - Henrique Marquez (Goldman Sachs)

2025Q1: The increase in CapEx is due to higher assembly and construction prices, and a larger volume of civil works. The new estimate for the expansion is around $4 billion. - Pablo Brizzio(CFO)

Contradiction Point 4

Investment Strategy in Mexico

It pertains to Ternium's investment strategies in Mexico, particularly in relation to the potential impacts of tariffs, which can significantly affect the company's production costs and competitive positioning.

What is Ternium's plan if the U.S. maintains melt and pour conditions for imported steel products? - Carlos de Alba (Morgan Stanley)

2025Q3: We will continue with the plan of investing to meet melt and pour requirements. The focus is on ensuring Ternium remains resilient and efficient. - Maximo Vedoya(CEO)

Will tariff uncertainty affect your investments in Mexico or other regions? - Alejandro Demichelis (Jefferies)

2024Q4: We will continue our investments as planned, as they strengthen our position in the North American market. - Maximo Vedoya(CEO)

Contradiction Point 5

CSN Litigation Update

It highlights differing updates on the CSN litigation, affecting potential financial or operational risks.

What is the status and next steps in the CSN litigation, and the strategy for the Shreveport facility on tariffs? - Carlos De Alba (Morgan Stanley, Research Division)

2025Q3: Regarding the CSN litigation, there have been no recent developments, and a Supreme Court decision is awaited. - Maximo Vedoya(CEO)

What is the current status and next steps in the CSN litigation, and what is the strategy for the Shreveport facility regarding tariffs? - Carlos De Alba (Morgan Stanley, Research Division)

2025Q2: Regarding CSN, our position is that the claim is without merit and that the judge's decision has been annulled through legal procedures that allow for this. - Maximo Vedoya(CEO)