Ternium Seeing Heavy Near-Term Pressure, With A Tough Road To Recovery

My biggest fear for Ternium (TX) in 2019 was that macro factors, particularly the health of the industrial and non-residential construction sectors of Mexico, Argentina, and Brazil, would create greater than expected pressure on the business. That’s exactly what’s happened, as the shares have lagged the steel sector as a whole on a year-to-date business, even if they’ve done a little better than some global/emerging market competitors like Gerdau (GGB) and ArcelorMittal (MT) over the last few months.

I do believe that Ternium is likely to see its EBITDA/tonne bottom over the next quarter or two, but I’m skeptical about a sharp recovery thereafter, and I still see plenty of macro risks in Mexico, Argentina, and Brazil that could pressure the business. Although Ternium trades cheaply relative to its fundamentals (metrics like EBITDA/tonne, ROE, etc. compared to ArcelorMittal, Nucor (NUE), Steel Dynamics (STLD) and other peers), “should” only gets you so far in the market. I think Ternium has appeal for investors willing to try to predict a bottom in the steel sector, but this is a high-risk/high-return prospect.

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Ternium Seeing Heavy Near-Term Pressure, With A Tough Road To Recovery