Executive Summary / Key Takeaways

• Strategic Investment in Mexico: Ternium is executing a transformative $4 billion expansion at its Pesquería Industrial Center, aiming to significantly boost high-quality steel production, enhance operational efficiency, and capture growth from nearshoring trends in the USMCA region.
• Operational Efficiency and Cost Discipline: The company is committed to a $300 million cost efficiency program for 2025, alongside benefits from lower raw material costs and the ramp-up of new, more efficient production lines, targeting a 15% EBITDA margin by Q4 2025.
• Technological Leadership in Sustainable Steel: Ternium's Pesquería expansion includes pioneering DRI-EAF steelmaking, enabling the production of exposed automotive steel with significantly lower CO2 emissions and a commitment to a 15% reduction in emissions intensity by 2030 (Scope 3 included).
• Navigating Trade Dynamics and Geopolitical Risks: While facing challenges from global steel overcapacity, particularly from China, and evolving U.S. trade policies, Ternium is strategically positioned to benefit from regional protectionist measures and strengthening North American supply chains.
• Solid Financial Foundation and Shareholder Returns: Despite substantial capital expenditures, Ternium maintains a robust balance sheet with a strong net cash position and a commitment to attractive dividend payments, balancing growth investments with shareholder returns.

A Regional Powerhouse Forges Ahead

Ternium S.A. (NYSE:TX) stands as a formidable integrated steel producer, strategically positioned across Latin America with significant operations in Mexico, Brazil, and Argentina. The company's business model spans the entire steel value chain, from mining iron ore to manufacturing a diverse range of flat and long steel products, including specialized offerings for the automotive and industrial sectors. This integrated approach, coupled with a deep understanding of regional market dynamics, forms the bedrock of Ternium's competitive advantage. The company's overarching strategy is to leverage its operational scale and technological investments to capitalize on burgeoning opportunities, particularly the nearshoring phenomenon in North America, while simultaneously fortifying its defenses against global trade imbalances.

Ternium's journey has been marked by strategic expansions and a proactive response to market shifts. A pivotal moment arrived in July 2023 with the full consolidation of Usiminas, a leading Brazilian flat steel company, into Ternium's financial statements. This move significantly deepened Ternium's footprint in the crucial Brazilian market, granting it majority control over Usiminas' governance and operations. Concurrently, Ternium embarked on its most ambitious capital expenditure program to date: the multi-billion dollar expansion of its Pesquería Industrial Center in Mexico. This project is not merely about increasing capacity; it represents a fundamental technological leap designed to redefine Ternium's competitive standing and address the evolving demands of the North American market.

Pioneering Green Steel and Advanced Manufacturing in Pesquería

At the heart of Ternium's long-term investment thesis is its commitment to technological differentiation and innovation, most notably embodied by the Pesquería expansion in Mexico. This project is set to introduce advanced manufacturing capabilities and significantly enhance Ternium's product portfolio and environmental performance. The core technological advancements include a new cold rolling mill (PLTCM 2), a hot-dip galvanized line, and a groundbreaking Direct Reduced Iron (DRI) and Electric Arc Furnace (EAF) steelmaking plant.

The new cold rolling mill and galvanized line, scheduled to begin operations by December 2025, will add 1.5 million tons per year of new capacity. This expansion is critical for serving the high-quality requirements of the automotive and appliance sectors, enabling Ternium to offer a broader range of sophisticated steel products. A significant benefit of this new capacity is the planned closure of approximately 0.5 million tons of older, less efficient capacity, which is expected to yield an increased margin or EBITDA of $30 to $40 per ton due to enhanced cost efficiency. The remaining new capacity is projected to contribute an EBITDA of around $150 to $200 per ton.

Perhaps the most significant technological differentiator is the DRI-EAF steelmaking plant, anticipated to be operational by the fourth quarter of 2026. This facility is poised to be a game-changer, marking the first time an electric arc furnace-based mill will produce exposed material automotive steel with significantly lower CO2 emissions than previously possible. This commitment to sustainable steelmaking is further underscored by Ternium's updated decarbonization target: a 15% reduction in emissions intensity by 2030, using 2023 as a baseline, and notably, including Scope 3 emissions for the first time. The project's green credentials are also highlighted by a $1.25 billion syndicated green loan secured in July 2025 to finance its development. These technological advancements are not just about capacity; they are about creating a competitive moat through superior product quality, cost efficiency, and environmental responsibility, directly contributing to higher average selling prices, better margins, and a stronger market position in the long term.

Competitive Dynamics and Strategic Positioning

Ternium operates in a fiercely competitive global steel market, but its strategic focus on regional integration and technological upgrades provides distinct advantages. In Mexico, the company is a key beneficiary of the "Plan Mexico," an initiative by the Mexican government to enhance industrialization and import substitution, strengthening North American supply chains through nearshoring and infrastructure development. This aligns perfectly with Ternium's Pesquería expansion, which aims to capture market share from the approximately 40% of flat products currently imported into Mexico, with 70% of these imports originating from the U.S., Japan, and Korea. Recent measures by the Mexican government to curb unfair trade practices, particularly from Asian countries, are creating a more level playing field and supporting Ternium's expected sequential shipment growth in Mexico.

Compared to global giants like ArcelorMittal (MT), Ternium's regional focus offers tailored solutions and potentially lower distribution costs in its core markets. While MT's global scale and R&D might lead in some high-tech segments, Ternium's integrated mining operations provide a stable raw material supply, enhancing supply chain resilience against commodity price volatility, a vulnerability for MT. Against U.S.-centric players like Nucor (NUE) and Steel Dynamics (STLD), Ternium's diversified Latin American presence offers exposure to faster-growing emerging markets. While NUE and STLD are renowned for operational efficiency and recycling technology, Ternium's new DRI-EAF facility in Pesquería positions it to compete on low-carbon intensity steel, a growing demand driver. POSCO (PKX), a leader in advanced materials, sets a high bar for R&D; however, Ternium's strategic investments are designed to close this gap in key product areas like automotive steel.

The Brazilian market, where Ternium fully consolidated Usiminas, presents a different competitive challenge. A surge in unfair imported steel, primarily from China, continues to undermine local competitiveness. Despite a quota system, imports have significantly exceeded limits, highlighting the need for more effective trade measures, such as anti-dumping investigations, which Ternium actively supports. In Argentina, while the macroeconomic environment is improving, the risk of increased imports of unfair trade products remains a concern. Ternium's strategy across these diverse markets is to continuously enhance operational efficiency and reduce costs, leveraging its integrated model and supporting government actions to protect domestic industries.

Financial Performance and Outlook

Ternium's financial performance in the first half of 2025 reflects a mixed but improving picture, influenced by market dynamics and strategic initiatives. For the six-month period ended June 30, 2025, net sales were $7.88 billion, a decrease from $9.29 billion in the same period of 2024. Operating income for H1 2025 stood at $331.05 million, a notable decline from $1.05 billion in H1 2024, partly due to a lower provision for litigation related to Usiminas ($85 million in H1 2025 vs. $783 million in H1 2024). However, profit for the period increased to $401.65 million in H1 2025 from $251.70 million in H1 2024.

More recently, the second quarter of 2025 saw an improved adjusted EBITDA of $259 million, a 25% sequential increase from the first quarter, driven by stronger realized steel prices in Mexico and relatively stable costs. Adjusted net income for Q2 2025, excluding a $40 million litigation provision adjustment, was $299 million, benefiting from better operational performance and a favorable deferred tax result due to a 7.5% revaluation of the Mexican peso. The company reported a robust cash and cash equivalents position of $1.86 billion as of June 30, 2025, with net cash provided by operating activities reaching $1.25 billion for the six-month period.

Looking ahead, Ternium anticipates a sequential improvement in EBITDA, targeting an average EBITDA margin closer to 15% by the fourth quarter of 2025. This outlook is supported by expected sequential shipment growth in Mexico, stable volumes in Brazil, and steady shipments in Argentina. A key driver is the company's competitiveness improvement plan, aiming for an additional $300 million in cost efficiencies for 2025, excluding raw material price changes. This includes initiatives in logistics, procurement, production processes, and labor productivity. Capital expenditures are projected to peak in 2025 at approximately $2.5 billion to $2.6 billion, gradually decreasing to around $1.9 billion in 2026 and $1.1 billion to $1.2 billion in 2027, reflecting the intensive investment phase of the Pesquería project.

Risks and Challenges

Despite a compelling growth narrative, Ternium faces several risks. The ongoing litigation with CSN (SID) related to the 2012 Usiminas acquisition remains a significant contingency. A June 2024 SCJ decision resolved that Ternium's TT Group entities should pay indemnification, with a potential aggregate amount of approximately BRL 1995.90 million ($365.70 million) and BRL 706.60 million ($129.50 million) as of June 30, 2025. Ternium has filed an extraordinary appeal to the Supreme Federal Tribunal, maintaining its belief that the claims are without merit.

Trade policy uncertainty, particularly concerning U.S. tariffs on steel and automobiles, poses a fluid and unpredictable risk. While Ternium believes a reasonable agreement will prevail, the inability to quantify the impact of these measures creates a challenging operating environment. Furthermore, foreign exchange restrictions and volatility in Argentina continue to present risks to Ternium Argentina's financial position and the valuation of its U.S. dollar-denominated instruments. The persistent global overcapacity in steel, largely driven by China's disproportionate exports under unfair trade conditions, remains a destabilizing factor across all of Ternium's markets.

Conclusion

Ternium is strategically positioning itself as a leader in the evolving global steel industry, leveraging its integrated operations and substantial investments in advanced, sustainable steelmaking. The Pesquería expansion in Mexico, with its focus on high-quality, low-carbon intensity steel, is a testament to the company's foresight and commitment to long-term value creation, particularly within the strengthening USMCA region. This technological edge, combined with aggressive cost reduction initiatives and a robust financial position, underpins Ternium's ambition to achieve higher EBITDA margins and capitalize on nearshoring trends.

While the company must skillfully navigate complex trade policies, intense global competition, and regional macroeconomic volatilities, its proactive approach to operational efficiency and its strategic investments in green steel differentiate it from many peers. For discerning investors, Ternium presents a compelling opportunity to participate in the growth of North American industrialization and the transition to more sustainable manufacturing, supported by a management team focused on both strategic expansion and consistent shareholder returns.