Ternium Q1 2025 Earnings Report

Ternium EPS Results

• Actual EPS: $0.55
• Consensus EPS: $0.33
• Beat/Miss: Beat by +$0.22
• One Year Ago EPS: $1.84

Ternium Revenue Results

• Actual Revenue: $3.93 billion
• Expected Revenue: $4.00 billion
• Beat/Miss: Missed by -$71.17 million
• YoY Revenue Growth: -17.70%

Ternium Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 8:30AM ET

Ternium (NYSE:TX), together with its subsidiaries, manufactures and distributes steel products in Mexico, Southern Region, Brazil, and internationally. It operates through three segments: Steel, Mining, and Usiminas. The Steel segment offers slabs, hot and cold rolled products, coated products, roll formed and tubular products, bars, billets, and other products. Its Mining segment sells iron ore and pellets. The Usiminas segment offers iron ore extraction, steel transformation, and production of capital goods and logistics; and manufactures and sells various products and raw materials, such as flat steel, iron ore, and stamped steel parts for the automotive industry and products for the civil construction and capital goods industry. It also provides medical and social; scrap; renewable energy; and engineering and other services, as well as operates as a distribution company. In addition, the company engages in the exploration, exploitation, and pelletizing of iron ore. Ternium S.A. was founded in 1961 and is based in Luxembourg City, Luxembourg. Ternium S.A. is a subsidiary of Techint Holdings S.à r.l.

Ternium Q1 2025 Earnings Call Transcript

Presentation

[Operator]

everyone, and welcome to Ternium First Quarter twenty twenty five Results Call. Please note that this call is being recorded. After the speakers' prepared remarks, there will be a question and answer session. Thank you. I'd now like to hand the call over to Sebastien Marti.

[Operator]

Please go ahead.

[Sebastián Martí, Global Investor Relations & Compliance Senior Director at Ternium]

Good morning, and thank you for joining us. My name is Sebastien Marti, and I am Journeys Global IR and Companion's Senior Director. Yesterday, Ternium released its financial results for the first quarter of twenty twenty five. This call is meant to provide additional context to that presentation. I'm joined today by Maximo Guedoya, Ternium's Chief Executive Officer and Paolo Vizio, Ternium's Chief Financial Officer, who will discuss the company's business environment and performance.

[Sebastián Martí, Global Investor Relations & Compliance Senior Director at Ternium]

After our prepared remarks, we will open up the floor to your questions. Before we begin, I would like to remind you that this conference call contains forward looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page two in today's webcast presentation. You will also find any references to non IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I will turn the call over to Mr.

[Sebastián Martí, Global Investor Relations & Compliance Senior Director at Ternium]

Rodolfo.

[Máximo Vedoya, CEO at Ternium]

Thank you, Sebastian. Good morning, and thank you all for joining Stardium conference call. In the first quarter of the year, we reported a sequential increase in EBITDA driven by improved margins and slightly higher shipments. Trade tension in recent months has created a climate of uncertainty, imposing business confidence and posing risk to global economic growth. On the other hand, there is a consensus that unfair trade practices in recent decades have adversely impacted manufacturing around the world.

[Máximo Vedoya, CEO at Ternium]

Many countries are now addressing this issue, which is a promising development. In this content, the operating environment in Mexico has been challenging as uncertainty is affecting investment and consumption. However, the current administration has shown support for reducing reliance on Asian suppliers within the North American regional market. And my view is that they are doing a very good job in this front. In this line, the recent announcement of the Plan Mexico aims to enhance industrialization substitution to strengthen North American supply chain.

[Máximo Vedoya, CEO at Ternium]

The plan includes strategies to attract investment and increase the local and regional content of manufactured goods through nearshoring, infrastructure development and support for SMEs. In addition, the future renegotiation of USMCA presents a significant opportunity for Mexico to further align its trade strategy with that of The United States, while also enhancing the defense of the Mexican market against unfair trade practices from Asian countries. Moving now to Brazil. The local market is showing resilient steel demand, but the issue of some fair trade practices persist with a significant year over year increase in imports during the first quarter of this year. Brazilian trade authorities recently released preliminary results of an anti dumping investigations on imports from China of cold rolled steel and corrosion resistant steel, identifying substantial dumping margins.

[Máximo Vedoya, CEO at Ternium]

But unlike the usual practice in many countries, the authorities did not recommend the delevering position of antidumping tariff. A final determination is expected to be made in October. In Argentina, the macroeconomic situation is showing signs of improvement, which provides optimism for our shipment in this market in the upcoming quarters. In this demanding trade environment, our goal is to enhance Ternium's competitiveness by increasing operational efficiency and reducing costs. Specifically, in recent quarters, we have been focusing on several initiatives that have already yield good results on Ternium's numbers.

[Máximo Vedoya, CEO at Ternium]

We will continue to implement similar actions in the coming quarters to maximize the profitability of our operation during these uncertain times. For the second quarter, we anticipate achieving a double digit EBITDA margin supported by the increase in realized prices in Mexico as well as by our cost reduction initiatives. I would now like to provide an update on our expansion project in Mexico following the completion of our most recent review. The pickling and finishing lines have already started operation, and their cold rolling mill and galvanized lines are scheduled to begin on time by the December. The steel slab mill and DRI facilities, known as the Upstream project, are now anticipated to be operational by the fourth quarter of twenty twenty six, which represent a slight delay from the original schedule.

[Máximo Vedoya, CEO at Ternium]

In this review, the total CapEx for the whole expansion project has been revised to $4,000,000,000 representing an increase of approximately 16% compared to our previous estimate disclosure in February of twenty twenty four. The primary focus contributing to the project cost increase were higher assembly and construction prices and larger volume of structures and civil works. The project will put Ternium in a whole new competitive position. Integration of advanced technology in our picking, finishing, cold rolling and galvanizing lines will not only increase operation efficiency, but also enhance product quality expand our product range. In addition, by completing the upstream project, we will be able to provide our customers with a complete product range up to the most demanding industrial applications.

[Máximo Vedoya, CEO at Ternium]

This will be the first time that an electric arc furnace base mill will be able to produce exposed material automotive steel with significantly lower CO2 emissions than previously possible. In addition, this expanded steel capacity will enable us to meet our expectation of growing melted and pool requirement in the USMCA region. Let me conclude by my prepared comments with some final remarks. Global trade is currently undergoing major changes, resulting in considerable market uncertainty. However, adjustments were necessary as China's progress with no competitive trade practices has contributed to declining manufacturing, employment and value addition over the past two decades.

[Máximo Vedoya, CEO at Ternium]

In North America, both The U. S. And Mexico administration are working to address this issue. Therefore, it would be reasonable to expect an agreement on trade issues between the two countries. Although uncertainty and volatility are currently affecting consumption and investment, impacting steel demand in Mexico market, we expect implementation of Plan Mexico to work together with a better alignment of Mexico trade strategy with that of The U.

[Máximo Vedoya, CEO at Ternium]

S. Will enable this country to better defend the region against unfair trade. This could result in a gradual shift in production from Asia and other countries to the USMCA region. All in all, I expect the USMCA to become stronger and better prepared to continue growing. Now Pablo, please go ahead with a review of Ternium performance in the first quarter of this year.

[Pablo Brizzio, CFO at Ternium]

Thanks, Maximo, and thanks, everybody, for being today in this conference call. Let's now move to the webcast presentation for a detailed review of our operating and financial results. If we move to Page three, you will see the adjusted EBITDA improvement this quarter. This was driven mainly by better margins on higher steel and iron ore shipments. The main contributor to the slight improvement in margins was a decrease in steel cost per tonne, which was partially offset by a decline in realized steel prices.

[Pablo Brizzio, CFO at Ternium]

Looking ahead, we expect a sequential increase in adjusted EBITDA in the second quarter supported by higher realized steel prices and another slight decrease in cost per ton, which together should help our adjusted EBITDA margins get to double digit territory as Maximo mentioned. Now moving to next slide. Net income for the first quarter of twenty twenty five stood at $142,000,000 This figure includes a $45,000,000 provision adjustment charge related to the ongoing litigation in connection with the acquisition of our participation in Usiminas. Adjustment reflects both interest accrual and appreciation of the Brazilian real against the U. S.

[Pablo Brizzio, CFO at Ternium]

Dollar during the quarter. Adjusted net income excluding the major charge was $188,000,000 marking a significant improvement over the prior quarter. Among the main differences, net financial results improved by $130,000,000 mainly due to the foreign exchange gain and realized gain from the partial divestment of Bonds Holdings in Argentina. Now let's take a look at the performance of our steel segment on Page five. This quarter, we saw higher shipments in Brazil and other markets, partially offset by lower sales volumes in Mexico.

[Pablo Brizzio, CFO at Ternium]

Entering the second quarter, we expect the steel shipments to remain relatively stable on a sequential basis. In Mexico, volumes are anticipated to remain subdued due to the ongoing tariff situation. In Argentina, shipments are anticipated to increase during the second quarter supported by an improving macroeconomic environment. Meanwhile, in Brazil, UC Mina anticipates sequentially stable shipments in the second quarter with resilient steel demand. And in the other market, we will probably see a decrease in shipments to The U.

[Pablo Brizzio, CFO at Ternium]

S. Market. Moving on, net sales in the steel segment were slightly higher in the third quarter. Although revenue per ton declined mostly, a sequential drop in raw material cost and purchased lab cost as well as efficiency improvement in our facilities supported a better margin. Let's move to Slide seven for a summary of the Mining segment performance.

[Pablo Brizzio, CFO at Ternium]

Shipments increased slightly quarter over quarter and rose 14% year over year, driven by higher production levels in Mexico and in Brazil. The sequential decrease in margins in the first quarter was due to the higher cost per ton, which was partially offset by higher realized iron ore prices. Moving to the final slide of the presentation, we can review the cash flow performance and balance sheet. We continue to show significant CapEx level this quarter as we make progress on the construction of the new facility at Paglios Pequeria Industrial Center. As Maximo mentioned earlier, the total cost of the project was increased compared to our latest review, which was in February.

[Pablo Brizzio, CFO at Ternium]

Of the €4,000,000,000 new estimate, 1,400,000,000.0 have already been invested as of March. Looking ahead, the remaining CapEx is expected to be roughly €1,400,000,000 over the next nine months of 2025, '1 billion next year and 200,000,000 in the rest. Considering both the expansion plan and the rest of our CapEx investment, we project Ternium to continue to have a CapEx in 2025 to be around $2,500,000,000 Finally, this period of high CapEx is supported by a very strong balance sheet with a net cash position of $1,300,000,000 at the March 2025. So with this, we conclude our prepared remarks, and we are ready to take any questions you may have. Please, operator, begin with the Q and A session.

[Pablo Brizzio, CFO at Ternium]

Thanks.

[Operator]

We are now opening the floor for question and answer session. Your first question comes from the line of Carlos De Alba of Morgan Stanley. Your line is now open.

[Carlos de Alba, Analyst at Morgan Stanley]

Thank you very much and good morning. So first question is regarding the situation in Mexico. We'll see what happens with GDP this morning. I think it has it's going to be announced, but most likely Mexico is in a technical recession or in very, very low growth environment. And so I hear your comments on the industrial customers still doing all right.

[Carlos de Alba, Analyst at Morgan Stanley]

And it's hard to believe that they are not making adjustments. So if you can share a little bit more colors, the color around what ahead maybe beyond just the next second quarter or the ongoing quarter. And what sort of measures are they taking or planning on taking given the uncertainty of entire auto supply chain and also the impact that it will have on other businesses in the Mexican economy? And then and the second question has to do with the level of margins and profitability overall that the company is experiencing for the second consecutive quarter. And actually, last year in the past, we've only seen these level of margins, if I remember correctly, in 02/2009, '20 '15 and 2019.

[Carlos de Alba, Analyst at Morgan Stanley]

So in those instances, we had severe crisis, not only in one of the countries that you operate like Argentina. And to be fair, Argentina exposure in your business overall has decreased dramatically. So how do you what can you tell here? When do you expect things to really improve? Because prices in your biggest market are not necessarily low in Mexico.

[Carlos de Alba, Analyst at Morgan Stanley]

So I really I'm struggling to understand where we can see an improvement in operation operating margin.

[Máximo Vedoya, CEO at Ternium]

Yes. Carlos, hello. How are you? Well, let me start with Mexico and what is happening in Mexico. I don't know the numbers of the GDP of the first quarter, so I'm not going to comment on that.

[Máximo Vedoya, CEO at Ternium]

What I can say is what is happening in the steel industry. And you're right. I mean, apparent consumption of steel decreased almost 5% in 2024 last year. So we are operating at a level of consumption that is lower than in the past. This is mainly due for the commercial market.

[Máximo Vedoya, CEO at Ternium]

I mean, the infrastructure and construction in Mexico, because of the new government and the change of government, usually big infrastructure projects ends with the ongoing or the outgoing administration and the new administration always take time to this. And also construction is not doing very well in Mexico. So that's what is happening in Mexico is still demand. I expect that demand is going to start increasing in the following quarters, especially in the commercial market. Construction has to pick up.

[Máximo Vedoya, CEO at Ternium]

And the numbers are not going to be an increase a significant increase, but they are going to be good enough to be better. And the other part is that imports are coming down and we are gaining we are going to start gaining market share with the new lines that are coming up to date in the Pesqueria project. So I think overall consumption is not very good, as you said. But I think our shipments are going to start moving forward in the second half of the year because all this. So I hope I answered Mexico question with this.

[Máximo Vedoya, CEO at Ternium]

You talk also about industrial customers. Clearly, this is an uncertainty and it has

[Máximo Vedoya, CEO at Ternium]

to do or it's going

[Máximo Vedoya, CEO at Ternium]

to be resolved when the trade discussions between Mexico and The U. S. Are finished. I don't know when this is going to happen in time, but it's going to happen in some moment. And as I said in my initial remarks, I we are operating on the assumption that the USMCA is not only going to go forward, but it's going to be stronger.

[Máximo Vedoya, CEO at Ternium]

So we continue thinking that that's the ultimate outcome of these negotiations. Second question was?

[Pablo Brizzio, CFO at Ternium]

The level of margin.

[Carlos de Alba, Analyst at Morgan Stanley]

The level of margin.

[Pablo Brizzio, CFO at Ternium]

Okay. Yes.

[Pablo Brizzio, CFO at Ternium]

Carlos. How are you?

[Pablo Brizzio, CFO at Ternium]

Let me make a couple of comments in relation to that. You're right that there was a decrease in margins in the latest quarters. But let me point out that the situation that we saw in 2024 was a decrease of margin through the year. So we started with very good margins and then we decreased them through the year until the fourth quarter where we reached probably lowest in the series, which was 7%, going with the decline in prices in the market. Now what we are seeing is probably, and this is the expectation, the opposite situation.

[Pablo Brizzio, CFO at Ternium]

We have already the margin in the first quarter, which is not only higher, of course, not significantly compared

[Pablo Brizzio, CFO at Ternium]

to

[Pablo Brizzio, CFO at Ternium]

the fourth quarter, but it is in line with the margin that we have in the third quarter last year. Secondly, we have already said, Maximo mentioned this at the very beginning, that our expectation is for a better margin in the second quarter, which is, of course, we took the opposite position as or the opposite situation as last year, will be better than the third quarter last year. So and then there is a lot of uncertainty seems to be clarified, issues to be negotiated, but the expectation is for this to sustain or even be a little better moving forward. So if that trend is followed, we should be able to increase our margins through the rest of the year and be in a position to be at least or above the levels that we saw last year. So if that situation is the one that at the very end will be seen during the coming quarter, we will return to more or much reasonable margins that we have seen in the last two quarters, the fourth and the first quarters of the year.

[Pablo Brizzio, CFO at Ternium]

So that's our view as the situation that we can predict from now on. Hopefully answering your question Carlos.

[Operator]

Your next question comes from the line of Timna Tanners of Wolfe Research. Your line is now

[Timna Tanners, Managing Director - Equity Research at Wolfe Research, LLC]

Yes. Hello. Good morning.

[Pablo Brizzio, CFO at Ternium]

Good morning.

[Timna Tanners, Managing Director - Equity Research at Wolfe Research, LLC]

Wanted to ask about cost a little bit further.

[Timna Tanners, Managing Director - Equity Research at Wolfe Research, LLC]

You've talked about more cost declining into Q2. So could you elaborate? Is that going to be the lowest? Or are there still areas to continue to cut costs?

[Pablo Brizzio, CFO at Ternium]

Hi, Tina. How are you?

[Pablo Brizzio, CFO at Ternium]

There are issues that are moving because of you know that we have first thing for the automatologist. So we are still seeing the reduction in cost that we saw in the last quarter, especially the slab or the some raw materials you know that have been reducing during the last couple of quarters. And this has been reflected during and we continue to expect to see that coming to the second quarter and further on. And also, Maximo mentioned in the initial remarks that we are going through a program of cost reduction and that has an important impact during the first quarter and we are expecting this to continue. So again, we are saying already that our margins will move to a double digit region.

[Pablo Brizzio, CFO at Ternium]

That of course, the most significant part of that will be the impact of price reset in our sales, especially in the Mexican market, but also an impact to the cost reduction program. We or our expectation is that to continue. Of course, we need to see how the raw materials and lab move further on in the coming quarter to have a full answer to your question. But it's not that we have finalized our plans. We will continue to work in that.

[Pablo Brizzio, CFO at Ternium]

And the expectation for us is to continue having some reduction costs in the coming quarters.

[Timna Tanners, Managing Director - Equity Research at Wolfe Research, LLC]

Okay, great. Thank you. And then with regard to volumes, I know you gave volume guidance But broadly speaking, I think you have still quite a bit of spare capacity in Mexico. Assuming a bit better demand and clarity, can you talk about what order of magnitude volumes could grow to, to take some share?

[Timna Tanners, Managing Director - Equity Research at Wolfe Research, LLC]

It it are we still getting imports from The US or has the trade flow kind of stopped both ways lately? Just just wondering if you can elaborate on the opportunity for further volumes even before while the expansion will just be up upstream, I guess. But just talk about maybe some market share opportunities that you might see as the year progresses?

[Máximo Vedoya, CEO at Ternium]

Yes. Tina, of course, we are in a capacity to increase volumes in Mexico today. Imports have decreased from I'm going to take rough numbers, but 600,000 tons for flat products in the middle of twenty twenty four or to today, hundred thousand tons every month. So there is a huge possibility of increase in that sales. Most of those imports are industrial customers.

[Máximo Vedoya, CEO at Ternium]

So we are going through the process of certifying all our products in that customers. 70% of that imports come from The U. S, from Japan and from Korea. So I think there are places or customers that we will be able to get a share of that imports. So again, we have the capacity today and we are working in trying to increase.

[Máximo Vedoya, CEO at Ternium]

So there is opportunities. It's up to us how much we get.

[Timna Tanners, Managing Director - Equity Research at Wolfe Research, LLC]

Got it. Appreciate that. Thank you.

[Pablo Brizzio, CFO at Ternium]

You're welcome.

[Operator]

Your next question comes from the line of Shaul Rivero of Bank of America. Your line is now open.

[Caio Ribeiro, Analyst at Bank of America]

Yes, good morning. Thank you for the opportunity. So my first question is on cash returns, right? And Ternium has been consistently increasing its dividend per share ratio over the past years, right? Yet in 2020, with the pandemic, the company opted to suspend those dividend payments.

[Caio Ribeiro, Analyst at Bank of America]

So I wanted to see if you could discuss how the trade tension escalation via the announced tariffs could impact those decisions in regards to the DPS, if at all, right, going forward? And then secondly, just wanted to see if you can focus a little bit more Argentina and in light of the recent IMF agreement, how you see the outlook for the steel sector changing the country. And if those macro improvements could lead you to eventually expand capacity in Argentina? Thank you.

[Pablo Brizzio, CFO at Ternium]

Hi, Caio. How are you? Me, Maximo, just take the first question in relationship to the cash return. Well, first of all, comment was right. We have been increasing our dividend yield on our cash payment in relationship to that besides the year of the pandemic.

[Pablo Brizzio, CFO at Ternium]

If you remember what we have always said is that whenever we took that decision of increasing our dividend ratios is because we believe that we can sustain that during this during a long period or reasonable period. I will continue to say the same. You know that even that we are in the middle of a big CapEx plan, the largest CapEx plan that we have in our history, we continue to have a very solid financial position. And this should support and sustain dividend payments. Of course, we are in the middle of an uncertain period.

[Pablo Brizzio, CFO at Ternium]

We are in the middle of trade negotiations. We don't know exactly how this will end and the impact or the real impact that this will have in growth in both in The U. S. Or Mexico or worldwide or the real impact that we have specifically to our company. But taking into consideration everything that we have said that Maximo mentioned during the opening remarks on the view that we have on this process, as of today, we continue to have exactly the same position of sustaining these kind of dividend returns.

[Máximo Vedoya, CEO at Ternium]

And good morning, Caio. Argentina, yes, the outlook, it's improving for the steel sector and for the economy in general. I think that what the Argentina government is doing, well, it's clearly positive. There's still a lot of risk cost in Argentina. So I don't want to say that it's we are over the problem.

[Máximo Vedoya, CEO at Ternium]

Inflation is still high. But in a sense, shipments of Argentina, probably Q1 would be the lowest in the last Qs. And following Qs are going to increase projection is at least 20% next Q of increasing shipments. And we don't see any decrease in the third and fourth Q. So yes, expansion in Argentina, we are not seeing yet that.

[Máximo Vedoya, CEO at Ternium]

We have spare capacity in our Argentina mills. So I think we are going to be able to sustain or to grow those shipments with the spare capacity we have.

[Caio Ribeiro, Analyst at Bank of America]

Thank you. That's very clear, Maximo and Pablo.

[Máximo Vedoya, CEO at Ternium]

Welcome, Caio.

[Pablo Brizzio, CFO at Ternium]

Welcome.

[Máximo Vedoya, CEO at Ternium]

Caio.

[Operator]

Your next question comes from the line of Henrique Marquez of Goldman Sachs. Your line is now open.

[Henrique Marques, Associate Analyst at Goldman Sachs]

Hi. Thanks for taking my question. I just wanted to better understand the key reasons to the increase on the CapEx and the extended deadline. Just to understand, if it was more of a mistake from the budget planning? Or was there any operational issue during the construction?

[Henrique Marques, Associate Analyst at Goldman Sachs]

And just to make sure, when should we see this increase in CapEx? Should this hit this year? This additional $500,000,000 should it be next year? Or should we just distribute that over the two years? Thank you.

[Máximo Vedoya, CEO at Ternium]

Yes. Thank you, Enrique. I mean, the CapEx, you're going to see that over the project. I mean this year, just to be give you an idea, this year is going to be one well, no, the total CapEx of Ternium this year is going to be 2,500,000,000.0 Next year is going to be around 2,000,000,000 And in 2027, around 1,000,000,000 That's the total. From the project, I would say that this year from that what I tell you, the project is indeed, it's 1,400,000,000.0 we are 1,400,000,000.0 already invested in the project until March of this year.

[Máximo Vedoya, CEO at Ternium]

The rest of the year, the nine months of the rest of the year is going be around 1.42026, around $1,000,000,020.27, 2 hundred million. So that's the idea of the CapEx. The increase, as I said, we received different budgetary process. And then when we start negotiating the reality, a lot of contracts came with inflation and came with increase in some of the prices. And that's the main reason why we are increasing the CapEx.

[Máximo Vedoya, CEO at Ternium]

There is also some increase in the structure, in the amount of structure that we have to have, especially in the DRI facility and the steel shop. But the main reason is the increase in prices of the vendors and of all the construction.

[Henrique Marques, Associate Analyst at Goldman Sachs]

Yes. Thank you.

[Máximo Vedoya, CEO at Ternium]

You're welcome.

[Operator]

Your next question comes from the line of Xiao Grigner of UBS. Your line is now open.

[Caio Greiner, Equity Research Director at UBS Group]

Hi, good morning everyone. Thank you. So two questions here. The first one circling back to The U. S.-Mexico relationship.

[Caio Greiner, Equity Research Director at UBS Group]

Maximo, I know that you mentioned that your base case is currently for that the USMCA agreement is going to get stronger and that this is going to positively impact the outlook for the region as a whole. But the fact is that for steel, it has been negative for Mexico, right? I mean, we're seeing The U. S, Mexico prices for HRC specifically decoupling. And I wanted to see how do you all see this going forward?

[Caio Greiner, Equity Research Director at UBS Group]

Because at the end of the day, Mexico also has a 25% tariff, but it also has several trade agreements with its partners. So I'm not really sure how to interpret the recent moves to the Mexican supply demand balance for steel. And more specifically, where do you see the new pricing equilibrium at this new market environment? The second question and again, I know that the base case is for a stronger USMCA agreement, but I wanted to explore a little bit more the downside or the bear case as to how does Ternium see its capital allocation in a scenario that the Mexican economy slows down, that U. S, in fact, restricts imports of several goods coming from Mexico.

[Caio Greiner, Equity Research Director at UBS Group]

I mean how would Ternium position itself in a barricade in a scenario which The U. S.-Mexico The U. S.-Mexico relationship is actually not the same as it has been. And I'm really sorry if I may squeeze in a final real quick one. How do you see the recent changes in FX controls in Argentina impacting your ability to pay dividends from Terniumet Argentina to the controlling company?

[Caio Greiner, Equity Research Director at UBS Group]

Thank you.

[Máximo Vedoya, CEO at Ternium]

Thank you, Caio. Well, I'll start I'll try to answer the first and second question altogether, U. S.-Mexico relationship in steel particularly. As I said, one thing is the global picture and where we think are going. You're right about steel.

[Máximo Vedoya, CEO at Ternium]

Steel is still a problem between The U. S. And Mexico. My view is that and I think this is view of the Mexican authority or the Mexican government is that steel and aluminum has to be solved more quickly than in the long term. I mean, the when you see the what is happening with the steel industry between Mexico and The U.

[Máximo Vedoya, CEO at Ternium]

S, I mean, it's clearly that Mexico is not a problem for The U. S. Steel industry. If you take the numbers of the two, three the new two, three, two of steel where you put steel and steel derivatives. The U.

[Máximo Vedoya, CEO at Ternium]

S. Has a huge surplus in the export to Mexico than the export from Mexico to The U. S. I mean, rough numbers, I think they are that The U. S.

[Máximo Vedoya, CEO at Ternium]

Export $17,000,000,000 in 2024, a little bit more, and Mexico export $11,000,000,000 steel and steel derivatives, I'm talking about. So it doesn't make sense to put tariffs to Mexico or that Mexico has to put tariff to The U. S. I hope we don't get to there. But at the end, if we have to get there, I mean, we are going to be better off.

[Máximo Vedoya, CEO at Ternium]

Again, it's not the idea and we are working very close with Mexican administration, with the Mexican government to try to make this a very reasonable negotiation. So I think that in the end, because the logical is to have an agreement is that we are going to have an agreement. I mean, think it's in the best interest of The U. S. Steel industry also to have an agreement in this.

[Máximo Vedoya, CEO at Ternium]

The other issue is that we have to work together as a steel industry to try to enhance the market. I mean, there are roughly speaking, 11,000,000 tons, 12,000,000 tons of finishing products that today are finishing steel products. And this is not I'm not taking account derivative products that are coming to The U. S. And to Mexico from Asian countries.

[Máximo Vedoya, CEO at Ternium]

What the agreement has to do is that we have to work together to enhance the market and defend their region against those imports and not put tariffs between Mexico and The U. S. Both ways. So I think that's where we have to go. In a better scenario of Mexico, I would say there's still a lot of market to gain in Mexico, and we are working to that.

[Máximo Vedoya, CEO at Ternium]

So we are going to have the capacity. We are going to have in some cases, we don't have today the product or the quality of the product to go to some market. And with the new investment, we are starting to get that. So we are going to go little by little gain in market share of those 400,000 tons of flat product that today, every month, they are imported to Mexico. So we have a huge market to grow, Caio.

[Máximo Vedoya, CEO at Ternium]

The third one, Pablo?

[Pablo Brizzio, CFO at Ternium]

Okay. Yes. Hi, Caio. How are you?

[Pablo Brizzio, CFO at Ternium]

So you mentioned the FX measures implemented in Argentina. First of all, it's very positive to have this because you know that that was one of the uncertainties that the Argentinian market had. How the Argentine government would implement getting out from the capital controller or a bad scenario. So that's on the very positive side. So you have this uncertainty over.

[Pablo Brizzio, CFO at Ternium]

You know that the program that was implemented in Argentina is a complete openness of the market for the general population, but there is still some limitation for companies. The government has introduced also specifically, which was your question on dividend payments, a couple of things that you can do as a company in Argentina. But clearly, is not an open market as we speak. So the first thing that the government allowed was for results generated during this year that will be freely available to be paid in dollars if you want. So all the results that Ternium Argentina is generating during 2025 will be able to repay after these numbers are released, let's say, in April year.

[Pablo Brizzio, CFO at Ternium]

So from now on, with all the results generated by any company in Argentina, they are free to be paid as dividends, so no restriction from there. There is some stock of dividend not being paid in the last year and the government is announced, but we don't have yet the final details. The issuance of a bond similar to the one the government issued to solve the question of unpaid commercial debt with suppliers to Argentina that was at the very beginning of the government that was very successful. So the government is planning to do exactly the same and allowing companies to buy these bonds to pay dividends. So all in all, there is still certain restrictions, the division have taken a situation in Argentina, but there is a path for companies to move in the direction of paying dividends in the near future.

[Pablo Brizzio, CFO at Ternium]

Hopefully answering your question, Caio.

[Caio Greiner, Equity Research Director at UBS Group]

Yes. Thank you both so much.

[Máximo Vedoya, CEO at Ternium]

Thank you, Caio.

[Operator]

There are no further questions. I'd now like to hand the call back to our CEO. Please go ahead.

[Máximo Vedoya, CEO at Ternium]

Okay. Thank you very much. We appreciate very much your participation in today's call, and we welcome your feedback. And I hope you talk to you in the next conference call. Thank you very much.

[Operator]

Thank you for attending today's call. You may now disconnect. Goodbye.

Participants

Executives

• Sebastián Martí, Global Investor Relations & Compliance Senior Director
• Máximo Vedoya, CEO
• Pablo Brizzio, CFO

Analysts

• Carlos de Alba, Analyst at Morgan Stanley
• Timna Tanners, Managing Director - Equity Research at Wolfe Research, LLC
• Caio Ribeiro, Analyst at Bank of America
• Henrique Marques, Associate Analyst at Goldman Sachs
• Caio Greiner, Equity Research Director at UBS Group