20-F: Ternium Navigates Challenging Steel Market with Cost Cuts, Strategic Investments

Ternium reports a significant drop in 2025 operating income amidst lower steel prices and U.S. trade measures, while advancing major expansion projects and cost-reduction initiatives.

Summary

• Net sales decreased by 12% to $15.6 billion in 2025 from $17.6 billion in 2024, primarily due to lower realized steel prices and reduced steel shipments.
• Operating income fell by 44% year-over-year to $705 million in 2025, down from $1.26 billion in 2024, with operating income over net sales at 5%.
• Net income for 2025 was $303 million, including a $405 million write-down of deferred tax assets at Usiminas and a $117 million loss from the Usiminas litigation provision.
• Net income attributable to owners of the parent was $425 million, or $2.17 per ADS, in 2025.
• Steel shipments decreased by 4% year-over-year, with lower volumes in Mexico and Other Markets partially offset by a recovery in the Southern Region.
• Mining segment net sales increased by 32% to $568 million, driven by higher iron ore shipments from Brazilian and Mexican operations, despite lower realized iron ore prices.
• Capital expenditures reached $2.5 billion in 2025, primarily allocated to the Pesquera Industrial Center expansion in Mexico.
• The board of directors proposed an annual dividend of $0.27 per share ($2.70 per ADS) for fiscal year 2025, including an interim dividend of $0.09 per share already paid.
• Usiminas changed its functional currency from Brazilian Real to U.S. dollar, effective January 1, 2026, to reduce volatility from foreign exchange movements.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing with a negative sentiment due to significant declines in operating income and net income, coupled with substantial write-downs and ongoing litigation. While strategic investments are being made, the immediate financial performance is weak, heavily impacted by external market and trade pressures.

Positives

• Successful implementation of a comprehensive cost-reduction and efficiency program helped counter declining steel prices and lower sales volumes.
• Higher iron ore shipments from both Brazilian and Mexican mining operations contributed to increased mining segment net sales.
• Completion of the new wind farm in Argentina contributed to lowering energy costs for Ternium's operations.
• Secured a $1.25 billion syndicated loan for the Pesquera DRI/EAF steelmaking plant, qualifying as an eligible green project under the Green Loan Principles.
• Usiminas is advancing projects to improve its cost structure, including a new pulverized coal injection facility, a new gasometer, and hot repair of a coke battery.

Negatives

• Operating income decreased significantly by 44% year-over-year in 2025 due to lower realized steel prices and reduced sales volumes.
• Net income was substantially impacted by a $405 million write-down of deferred tax assets at Usiminas and a $117 million loss from the Usiminas litigation provision.
• U.S. trade measures, including increased tariffs on steel imports, created significant uncertainty and contributed to a 10% year-over-year reduction in Mexico's apparent steel demand.
• The influx of low-priced Chinese steel products continued to pressure Usiminas's profitability in Brazil.
• Free Cash Flow was negative $187 million in 2025, compared to $41 million in 2024, primarily due to high capital expenditures.
• Net Cash position decreased by $932 million to $712 million as of December 31, 2025, from $1.6 billion in 2024.

Risks

• A downturn in global or regional economic activity could reduce demand for steel, adversely affecting the steel industry and Ternium.
• Protracted fall or volatility in steel prices could materially affect Ternium's results, as increased raw material costs may not be immediately recovered through higher selling prices.
• Regional or worldwide excess steel production capacity may lead to unfair trade practices and intense competition, hampering profitability.
• Fluctuations in industry inventory levels or disruptions in customer supply chains could reduce demand for steel products.
• Intense competition from other steel producers and alternative materials could cause market share loss and adversely affect revenues.
• Price fluctuations, shortages, or disruptions in the supply of raw materials, slabs, energy, and other inputs could adversely affect profitability.
• Dependence on a limited number of key suppliers could lead to limited access or higher costs if supply is disrupted or contracts are not renewed.
• Past or future acquisitions or significant investments may not yield expected benefits and could adversely impact operations or profits.
• Construction of new facilities, like the Pesquera slab facility, could face delays or cost increases due to geopolitical risks or supplier disruptions.
• Significant charges to earnings may be required if goodwill, other intangible assets, investments in non-consolidated companies, property, plant and equipment, or deferred tax assets are reassessed for impairment.
• Non-compliance with anti-corruption laws could lead to fines, penalties, or lawsuits, adversely affecting sales and profitability.
• Labor disputes could result in work stoppages and operational disruptions, negatively impacting results.
• Changes in exchange rates or limitations in hedging ability could adversely affect business and results.
• Cybersecurity threats could have a material adverse effect on business and operations, potentially leading to disruptions, data loss, reputational damage, or regulatory fines.
• Physical risks from climate change, including extreme weather and shifts in weather patterns, may adversely impact business, operations, and net worth.
• Operational accidents and unexpected natural catastrophes in mining activities could damage the environment, destroy properties, affect production, or cause injuries and death, resulting in material liabilities.
• Governmental concessions for mining could be subject to changes or termination, and permits/rights of use could be difficult to obtain or maintain, increasing operating costs.
• Reserve and resource estimates may differ materially from actual recoverable quantities, or mine life estimates may prove inaccurate, and market price fluctuations could render reserves uneconomical.
• Exploration activities are subject to uncertainties, and effective exploitation of discovered deposits remains subject to several risks.
• Inability to complete activities required to maintain iron ore and pellets production rates over time could negatively affect mining segment net sales.
• Expected costs and capital expenditure requirements for mining activities may vary significantly, affecting financial condition and results.
• Difficulties or disturbances in relationships with local communities, and increasing violence/crime in Mexico, could adversely affect mining activities or lead to shutdowns.
• Changes in applicable tax regulations and resolutions of tax disputes could negatively affect financial results.
• Dividend payments depend on subsidiary results and financial condition and could be affected by legal, contractual, or other limitations or tax changes.
• Ternium S.A.'s controlling shareholder may take actions not reflecting the best interests of other shareholders.
• Existence of other shareholders in subsidiaries and associates could delay or prevent strategy completion.
• Negative economic, political, social, and regulatory developments in Mexico, Brazil, and Argentina could disrupt manufacturing, hurt shipment volumes/prices, or increase costs.
• The market price for Ternium S.A.'s ADSs could be highly volatile due to internal or external factors.
• Holders of shares or ADSs may not have access to as much information as with a U.S. domestic issuer.
• Holders of ADSs may not be able to exercise, or may encounter difficulties in exercising, certain rights afforded to shareholders, including preemptive and appraisal rights.
• It may be difficult to obtain or enforce judgments against Ternium S.A. outside Luxembourg.

Future Outlook

Ternium expects capital expenditures in 2026 to be between $1.9 billion and $2.1 billion, focusing on the completion of new facilities at the Pesquera Industrial Center, including a new cold-rolling mill, galvanizing facility, and a new steel shop (DRI-EAF). Usiminas will continue progress on its coke plant #2 hot repair and PCI project, and the new gas storage facility. The company also plans to continue improving environmental and safety conditions across its facilities. Usiminas's change to the U.S. dollar as its functional currency from January 1, 2026, is expected to significantly reduce volatility from foreign exchange movements.

Management Comments

• "The year 2025 was characterized by a sharp increase in U.S. trade measures aimed at countering unfair practices from China and other Asian nations, with several countries worldwide adopting similar measures."
• "Uncertainty surrounding tariff negotiations with the United States weighed on steel demand in Mexico, where apparent steel use declined by roughly 10% year-over-year in 2025."
• "In Brazil, the influx of low-priced Chinese steel products continued to pressure Usiminas profitability."
• "Despite these challenging dynamics, Ternium delivered resilient results by swiftly adapting to the new environment and implementing a comprehensive cost-reduction and efficiency program."
• "Key initiatives that generated significant savings included enhancing blast furnace stability, optimizing iron ore sourcing, streamlining logistics, and renegotiating service contracts."
• "These new facilities will allow Ternium to produce high-quality automotive steel with one of the lowest emission intensity rates in the industry."
• "Ternium is unable at this time to predict the evolution or ultimate outcome of these developments or to quantify the impact that the tariffs and measures would have on its business or financial condition."

Industry Context

StockSavvy.ai notes that Ternium's 2025 performance reflects broader industry challenges, particularly the impact of increased U.S. trade protectionism and global steel overcapacity, especially from China. The significant decline in Mexico's apparent steel demand due to tariff uncertainty aligns with a trend of trade flow disruptions. The pressure on Usiminas from low-priced Chinese imports is a common theme for steel producers in emerging markets. Ternium's strategic investments in advanced steel production and decarbonization, such as the Pesquera DRI-EAF project, position it to capitalize on long-term trends towards higher-value products and sustainable manufacturing, potentially differentiating it from competitors reliant on older, higher-emission technologies. The shift of Usiminas's functional currency to USD also reflects a strategic adaptation to global market pricing dynamics for steel and raw materials.

Comparison to Industry Standards

• The global steel market remains highly fragmented, with the five largest producers accounting for 18% of worldwide crude steel production in 2024, indicating Ternium operates in a competitive landscape with many players.
• U.S. hot-rolled coil prices, a key benchmark, showed significant volatility between 2022 and 2025, bottoming at $485/ton in 2020 and peaking at $2,135/ton in 2021, reflecting the cyclical nature of the industry that Ternium also experiences.
• Chinese steel exports surged from 53 million tons in 2020 to 117 million tons in 2024, and further in 2025, impacting global and regional markets like Brazil, a trend that affects many international steelmakers.
• Ternium's climate strategy to reduce emission intensity by 15% by 2030 (Scopes 1, 2, 3 categories 1 and 10) aligns with global steel industry decarbonization efforts, such as those promoted by worldsteel, but the economic feasibility of new technologies remains a challenge for the entire sector.
• The company's investment in DRI/EAF technology at Pesquera is a move towards lower-carbon steel production, a trend seen in other advanced steelmakers globally, contrasting with the higher-emission BF/BOF route that still dominates over 70% of global production capacity.

Management Changes

Corporate Governance

Legal Proceedings

• Ternium is party to a longstanding lawsuit in Brazil filed by Companhia Siderrgica Nacional (CSN) against Ternium Investments, Ternium Argentina, and Tenaris's subsidiary Confab, alleging the requirement to launch a tag-along tender offer for Usiminas ordinary shares at BRL28.8 per share plus interest. The Superior Court of Justice (SCJ) reversed its prior decision in June 2024, ordering indemnification payment to CSN, which Ternium is appealing to the Supreme Federal Tribunal.
• The Rio de Janeiro State Treasury Office is challenging Ternium Brasil's use of ICMS tax credits, arguing certain materials are for consumption, not raw materials, and thus tax credits are not available. A provision of $33.0 million was recorded as of December 31, 2025.
• The Federal Government filed two new tax claims against Usiminas in August 2024 for approximately BRL 503 million ($92 million as of December 31, 2025), related to PIS and COFINS credits where the tax authority disagreed with Usiminas's calculation methodology. Usiminas has filed a defense action.
• Ternium Mexico's plant in Puebla received a temporary closure order for wastewater discharge from the Mexican Federal Environmental Protection Office (Profepa) and National Water Commission (Conagua) alleging non-compliance with water discharge permits. Ternium Mexico maintains programs to comply with environmental requirements.

Related Party Transactions

• Purchases of raw materials and other production inputs from Tenaris subsidiaries amounted to $17.0 million in 2025.
• Purchases of steel products from Unigal (a joint venture with Usiminas) amounted to $74.0 million in 2025.
• Purchases of logistics services from MRS Logstica (Usiminas holds 11.48% ownership) amounted to $97.7 million in 2025.
• Sales of flat steel products to Tenaris facilities amounted to $182.2 million in 2025.
• Sales of scrap and other raw materials to Tenaris subsidiaries amounted to $1.3 million in 2025.
• Techgen (48% owned by Ternium) sold electricity to Ternium Mexico and Tenigal for $316.6 million in 2025. Ternium Mexico and Tenigal received $95.8 million from Techgen for reselling unused electricity to the Mexican market.
• Ternium Mexico purchased natural gas from GIMSA (Ternium Mexico holds 23.84% equity) for $85.3 million in 2025.
• Ternium Argentina purchased natural gas from Tecpetrol (controlled by San Faustin) for $19.1 million in 2025.
• Ternium Argentina paid natural gas transportation fees to Transportadora de Gas del Norte S.A. (San Faustin holds significant interest) for $7.8 million in 2025.
• Ternium Argentina purchased natural gas from Energy Consulting Services (San Faustin holds significant interest) for $3.8 million in 2025.
• Fees for engineering, construction, labor, supervision, cleaning, maintenance, and by-products services from companies controlled by San Faustin amounted to $406 million in 2025, mainly due to the Pesquera expansion project.
• Exiros (50% owned by Ternium) sales to companies controlled by San Faustin totaled $10.2 million in 2025, with Ternium recognizing $5.1 million.
• Purchases of plant equipment, spare parts, and technical assistance from Tenova and other related companies amounted to $429.6 million in 2025, mainly related to the Pesquera expansion project.
• Finma S.A.I.F. (33% owned by Ternium S.A.) provided administrative and legal support services to San Faustin's affiliates, including Ternium Argentina, for $11.8 million in 2025.
• Outstanding subordinated loans to Techgen from Ternium amounted to $151.3 million as of December 31, 2025, generating $12.9 million in interest gains for Ternium in 2025.

Stakeholder Impact

• Shareholders: Lower net income and operating income, coupled with significant write-downs, negatively impact shareholder value. However, the proposed annual dividend of $2.70 per ADS for 2025 indicates a commitment to shareholder returns despite challenging conditions. The ongoing Usiminas litigation poses a significant financial risk.
• Employees: The company's commitment to occupational health and safety, employee well-being, diversity, equity, and inclusion, and training programs aims to foster a positive work environment and development opportunities. Labor disputes, particularly in Mexico, could impact employee relations and operational stability.
• Customers: Investments in advanced steel products and processing capacity (e.g., Pesquera Industrial Center) aim to better serve industrial customers with a broader and more technologically advanced product portfolio. However, U.S. trade measures and increased competition from low-priced imports could affect customer demand and satisfaction in key markets.
• Suppliers: The company's dependence on a limited number of key suppliers for raw materials and energy, along with geopolitical risks, could impact supply chain reliability and costs for suppliers. The ProPymes program aims to strengthen relationships with small and medium-sized suppliers.
• Creditors: The $1.25 billion syndicated loan for the Pesquera project, qualifying as a green loan, demonstrates access to financing. Compliance with financial covenants (e.g., leverage ratio) is maintained, but a decrease in the Net Cash position and negative Free Cash Flow could be a concern.
• Local Communities: Ternium's community programs focus on education, scholarships, and support for local healthcare institutions. Mining operations face risks related to relationships with local communities and increasing violence/crime in Mexico, which could lead to operational disruptions and social unrest.

Next Steps

• Complete the new steel shop (DRI-EAF) at the Pesquera Industrial Center by year-end 2026.
• Continue hot repair activities for Usiminas's coke plant #2 battery #3 and advance pad up of battery #4, expected to be completed in 2028 and 2029, respectively.
• Complete Usiminas's pulverized coal injection (PCI) project during 2026.
• Make progress on the construction of Usiminas's new gas storage facility during 2026.
• Continue several projects aimed at further improving environmental and safety conditions throughout main facilities.
• Usiminas will operate with the U.S. dollar as its functional currency from January 1, 2026.
• The annual general shareholders meeting on May 12, 2026, will consider the proposed annual dividend of $0.27 per share ($2.70 per ADS) for fiscal year 2025.
• If approved, a net dividend of $0.18 per share ($1.80 per ADS) will be paid on May 15, 2026.
• The next general meeting of shareholders on May 12, 2026, will consider the renewal of authorization for Ternium S.A. and its subsidiaries to repurchase Ternium S.A.'s shares for an additional five-year period.

Key Dates

Recommendation

Ternium's 2025 financial performance shows significant headwinds, with a sharp decline in operating income and net income, largely driven by lower steel prices, U.S. trade measures, and substantial write-downs. The negative free cash flow and reduced net cash position reflect a challenging operating environment and heavy investment cycle. However, the company is actively pursuing strategic growth opportunities through major capital expenditures in advanced steelmaking and decarbonization technologies, particularly at the Pesquera Industrial Center, which could strengthen its long-term competitive position. The ongoing Usiminas litigation remains a material uncertainty. Given the current market volatility and the long-term nature of its strategic investments, a 'hold' recommendation is appropriate. Investors should monitor the progress of these strategic projects, the resolution of trade disputes, and the impact of global steel market dynamics on profitability.

Keywords

Steel production, Mining, SEC filing, 20-F, Financial results, Capital expenditures, Usiminas, Mexico, Brazil, Argentina, Tariffs, Trade measures, Profitability, Deferred tax assets, Litigation, Dividends, Pesquera Industrial Center, DRI-EAF, Decarbonization, ESG, Raw materials, Iron ore, Steel prices, Cybersecurity, Climate change, Foreign exchange risk, Debt, Shareholders