The idea that steel prices would be lower in 2022, hitting the revenue and profits of steel companies, is not new, but the reality is still unpleasant. And as that reality takes hold, the quality names are rising once again, with Nucor (NUE) and Steel Dynamics (STLD) outperforming companies like ArcelorMittal (MT), Cleveland Cliffs (CLF) and United States Steel (X).
Ternium (TX) belongs in the “quality tier”, but the company’s fourth quarter miss (the first miss since the first quarter of 2020), uncertainty on capital allocation, and worries about the health/pace of the recovery in Mexico have all contributed to a very weak performance since my last update, with the shares down around 30%.
I mentioned the risk of investors overstaying their welcome at the time of that last piece, and I did sell down some of my stake, but I’m still an owner here on the longer-term opportunities for Ternium to replace imports in Mexico and leverage growth opportunities in Argentina and Brazil. This is a story that will take some time to work, but I think patient investors who can take the risk that steel sets an even lower bottom before stabilizing may want to take a look.
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