Ternium Seeing End-Market Recoveries And Reaping The Benefits Of Higher Steel Prices

Mar. 29, 2021 12:38 PM ETTernium S.A. (TX)MT, NUE, STLD, X5 Comments
Stephen Simpson profile picture
Stephen Simpson


  • An unexpected surge in steel prices is benefiting steelmakers, and pricing realization lags should support strong revenue and margins for most of the year at Ternium.
  • Futures indicate $1,000-plus pricing for U.S. hot-rolled coil through November, but increased output and some demand destruction remain threats in the second half.
  • Ternium management sounds as though they want to continue investing for growth, and future capacity additions could be announced before the end of 2021.
  • Ternium shares still have near-term upside to the mid-$40s, but it's tough to see the steel market getting substantially stronger than it already is.

The boom goes on in steel prices.

Mexico’s Ternium (NYSE:TX) is not going to see quite the same price leverage as U.S. steelmakers like Nucor (NUE) or Steel Dynamics (STLD), but global prices have also been quite a bit stronger in 2021 so far than initially expected. That’s going to drive robust revenue for most of the year, as well as even better operating leverage and cash flow generation than previously expected.

The biggest risk I see with Ternium today is that high steel prices start destroying demand, just as industrial markets in Mexico, Argentina, and other South American markets start to recover. There is also some uncertainty on capex/capital allocation beyond this year, with management clearly interested in growing the business to capture expanded opportunities. Even with that factored in, though, the shares continue to look undervalued.

Steel Prices Staying Hotter For Longer

With lead-times for hot-rolled steel in the U.S. approaching 10 weeks, prices continue to stay at or near record levels at close to $1,300/ton. On top of that, while some producers are trying to restart idled capacity, U.S. Steel (X) recently announced a one-month outage for one of its blast furnaces, while there are rumors of an outage at ArcelorMittal’s (MT) Calvert mill.

While futures prices are not guarantees and a lot can change over the next few months, current futures have HRC steel prices staying at $1,000/ton or above through November, an extended boom time that will do great things for margins and cash flows at producers like Nucor and Steel Dynamics.

At this point, most markets are contributing to the growth, with aerospace and oil/gas really among the only major markets not meaningfully participating. Even there, though, aerospace destocking should end in the first half of 2021 (more of a driver for specialty stainless steel), while stronger oil prices should drive

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Disclosure: I am/we are long TX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (5)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.