Ternium Q3 2026 Earnings Call Transcript

Ternium (NYSE:TX) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://mzgroup.zoom.us/webinar/register/WN_wVCT2guvRJOPVhI7S5-A6A#/registration

Summary

Ternium reported a solid third quarter 2026, with EBITDA up 10% sequentially to $785 million and a margin expansion to 16.9%, driven by higher shipments and improved prices.

The company declared an interim dividend of $0.90 per ADS, reflecting strong cash generation of $600 million from operations during the quarter.

In Mexico, shipments reached an all-time high due to market share gains and increasing demand, particularly in infrastructure, data centers, and energy projects.

Challenges persist in Brazil with a forecasted 2.7% decline in steel consumption, exacerbated by rising imports from Vietnam, South Korea, and Egypt.

In Argentina, growth is driven by energy, mining, and agriculture, while home appliances and automotive sectors face competition from imports.

Construction of the new slab mill at Pesquería is progressing as planned, expected to start production in February 2027, enhancing vertical integration and reducing carbon footprint.

The company expects fourth-quarter EBITDA to remain broadly in line with the third quarter, despite typical year-end seasonality leading to slightly lower shipments.

Management highlighted ongoing efforts to increase market share, particularly in Mexico, and a focus on execution and efficiency across operations.

Full Transcript

OPERATOR

Good morning, ladies and gentlemen. Welcome to Ternium’s conference call to discuss the results for the third quarter 2026. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company’s presentation. After the company’s remarks are completed, there will be a question and answer section. At that time, further instructions will be given. We would like to remind you that this conference call is intended exclusively for investors and market analysts. We request that any questions for journalists be directed to media relations through our website in the press section. With this, I would like now to turn the floor over to Mr. Sebastian Marty. You may proceed.

Sebastian Marty (Global Investor Relations and Compliance Senior Director)

Good morning and thank you for joining us today. My name is Sebastian Marty and I am Ternium’s Global IR and Compliance Senior Director. Yesterday we announced our financial results for the third quarter and first nine months of 2026. Today’s call is intended to provide additional context to that presentation. I’m joined by Máximo Vedoya, Ternium’s Chief Executive Officer, and Pablo Brizzio, the company’s Chief Financial Officer, who will discuss Ternium’s operating environment and performance.

Following our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on page two in today’s webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measure in the press release issued yesterday.

With that, I’ll turn the call over to Mr. Vedoya.

Máximo Vedoya (Chief Executive Officer)

Thank you, Sebastian. Good morning, everyone, and thank you very much for joining Ternium’s conference call today. Ternium had a solid third quarter, as we expected in our last call. EBITDA increased, driven by higher shipments and a stronger margin. Cash generation was healthy, with $600 million from operations in the quarter. In this positive environment, our board of directors declared an interim dividend of $0.90 per ADS, in line with the interim dividends paid in 2025 and 2024.

Now let’s go through our main markets, starting with Mexico, where we see encouraging signs. In the third quarter, our shipments to the Mexican market reached an all-time high, and in the first nine months of the year they grew by 13%. Most of this growth comes from market share gains as we continue to replace imports. At the same time, demand is slightly better. We are also starting to see progress in infrastructure projects, which should support our volumes in the coming quarters.

Two trends are also adding demand. The first is data centers, which require steel for racks and generate indirect demand for heavy equipment and air conditioning. The second is energy, with many gas pipeline projects under development. Looking ahead, the fourth quarter will show the usual seasonality. We expect volumes to keep growing further into the first quarter of 2027. Overall, the outlook for volume and prices in Mexico is positive. In Brazil, the steel market remains complex. Worldsteel now expects apparent steel consumption in Brazil to fall 2.7% this year. Imports are the main concern. The anti-dumping measures against China introduced early this year have reduced imports from that origin. However, imports from Vietnam, South Korea, and Egypt are growing strongly. Indirect imports of steel also continue to put pressure on the industry, especially through cars that are made abroad or only assembled in Brazil with imported materials.

The government is gradually reinforcing trade defense and we trust it will continue on this path. More is still needed to ensure fair competition, including closing the many loopholes that still make trade measures less effective. In this environment, Usiminas will need to keep working hard on its competitiveness. Our mining business will also require a strong effort given current iron ore prices and freight cost. We have temporarily stopped part of the operation at Musa, and we are fully focused on restructuring them to adapt to this challenging scenario.

With Ternium Brasil and Usiminas, we have a strong industrial base in the country, and we will keep working to make the most of it. In Argentina, our view of the market is similar to last quarter. Energy, mining, and agriculture continue to drive activity. On the other hand, industries such as home appliances and automotive face a difficult environment with soft local demand and strong competition from unfair imports. Construction, an important sector for us in this market, remains at low levels.

In this context, we’re working on a productivity and efficiency agenda in our operations with four internal efficiency and lower cost, being close to the industrial customers, defense against unfair trade imports, especially from China, and institutional actions to reduce the tax burden. Before moving on to my conclusions, let me share some recent highlights. We continue working to stay close to our customers, and this commitment has been recognized. Regal Rexnord gave us its 2026 Strategic Partner Award. Home Depot named us Supplier of the Year 2026, and Caterpillar renewed our Supply Excellence certification at its highest levels across our operations. We also keep raising our environmental and safety standards. In August, we opened a new environmental monitoring center at our Guerrero plant in Monterrey, adding to those at our main facilities in Brazil and Argentina.

And today we are holding our Safe Supplier Award in Mexico to reinforce our commitment to zero accidents. To sum up, this was a solid quarter for Ternium, with higher EBITDA and strong cash generation. Looking ahead, we expect our volume to keep growing in the first half of 2027. At Pesquería, construction of our new slab mill is progressing as planned, and we expect to start production in February. This mill will increase our vertical integration in Mexico and allow us to offer local supply with short lead times to our industrial customers with a much lower carbon footprint.

I am confident in Ternium’s prospects for the quarters ahead, and I want to thank our team for their hard work and their commitment. Pablo, please go ahead with our performance in the third quarter.

Pablo Brizzio (Chief Financial Officer)

Thanks, Máximo, and thanks everybody for participating today in our call. Let’s turn to our performance in the third quarter. Adjusted EBITDA increased 10% sequentially to $785 million in the third quarter, with adjusted EBITDA margin expanding further to 16.9%. Performance was driven by our steel segment, which delivered higher volumes and improved realized prices, especially in Mexico. These gains were partially offset by higher cost per tonne and a lower contribution from our mining segment.

Looking ahead, we expect adjusted EBITDA in the fourth quarter to remain broadly in line with the third quarter. Typical year-end seasonality should lead to slightly lower shipments, but this should be offset by a modest improvement in margin per tonne as higher revenue per tonne more than offset rising raw material and slab costs. Net income was $368 million in the third quarter compared to the second one. Higher operating income and a positive swing in net financial results were more than offset by higher income tax charges. We had in the third quarter deferred tax losses of $116 million, mostly related to the impact of the Mexican peso depreciation, compared to a gain of $86 million in the previous quarter.

Let’s review the steel segment performance now. Shipments rose 5% sequentially in the third quarter, reaching 4 million tons. Mexico has been the main driver of our shipment growth in recent quarters. In the third one we gained market share again. Commercial market shipments kept rising with significant year-over-year growth, and industrial volume also increased both sequentially and versus last year. Moving to the steel segment performance, cash operating income rose 16% sequentially, supported by higher realized steel prices and shipments.

This was partially offset by higher cost per tonne, mainly reflecting increased raw material and purchased slabs, with ongoing efficiency initiatives helping to mitigate this. Steel margin expanded to 17%. Turning now to the mining segment, shipments declined in the third quarter and more are expected for the fourth quarter. This reflects the partial suspension of Musa’s operation already mentioned by Máximo. Cash operating income decreased sequentially on lower volume and slightly lower realized iron ore prices, with the margin narrowing to 16%.

Let’s now review the cash flow and balance sheet. Cash from operations was $630 million in the quarter. This includes a $148 million increase in working capital. This increase came mainly from higher receivables, reflecting higher volume and steel prices, and from higher inventory value due to the higher unit cost. Capital expenditure amounted to $398 million, mostly as a result of the construction of the new slab mill at the Pesquería Industrial Center, which continues to advance according to plan.

As a result, we generated positive free cash flow of $215 million in the quarter. With this, we ended September with a net cash position of $22 million compared to a net debt position of $112 million at the end of June. This improvement was partially offset by a $74 million decline in the fair value of Argentine securities. Finally, let me close with a quick look at our performance in the first nine months of the year. Adjusted EBITDA reached nearly $2 billion, up 73% year over year, with the margin expanding to 15% from 10% in the same period of 2025. Higher realized prices were the key driver, rising 8% year over year, while cost per tonne remained stable, supported by several initiatives that enabled an increase in efficiencies and productivity across our operations.

Net income for the period amounted to $1.2 billion, with shareholders’ earnings of $4.26 per ADS, close to three times the prior-year level. Capital expenditures reached $1.2 billion in the first nine months, down almost 40% from $2 billion in the same period of last year, as we move beyond the peak of our investment cycle. Finally, Ternium’s Board of Directors approved an interim dividend of $0.90 per ADS, or a total of $177 million, payable on November 17th.

With this, we are concluding our prepared remarks for this quarter. We welcome now any question that you may have. Please, operator, go ahead.

OPERATOR

We will now begin the question and answer session. To ask a question, please press Raise Hand to queue your question. You can leave the queue by clicking Put Hand Down. Our first question comes from Tatiane Kandini from J.P. Morgan.

Tatiane Kandini (Analyst at J.P. Morgan)

Good morning, everyone. Thanks for having my questions here. Maybe to start, I would like to just explore a little bit more on the Mexican prices. You noted in the outlook that we should expect a higher margin per tonne, and we saw already some price hikes during this quarter, like around 5% quarter over quarter. So I just wanted to explore a little bit more on what are your expectations for the fourth quarter when it comes to prices. What should we expect regarding mix?

And my second question is regarding capital allocation. I think we already explored this a bit in the last quarter. With Pesquería now close to the ramp-up, we should expect lower capex for next year. So I just wanted to take your take and try to understand a bit on what your perspective is on the cash generation for next year. If we could expect some changes on dividends, higher dividends for next year, or if we should expect something more for 2028 still.

Thank you.

Máximo Vedoya (Chief Executive Officer)

Thank you very much, Adrian. Let me start with the first question. Mexican prices, I would say Mexican prices continue growing or increasing and you saw that in the third quarter. Probably in the fourth quarter it’s going to be a little bit more up. You have to remember that they are not going to get anywhere near the US prices, and we discussed that several times. Why? But we are seeing a strong demand. We are seeing a strong demand in Mexico, as we said.

We are seeing a strong demand in the US. So I think that prices will continue to hold at this level or a little bit up. You also have to consider that the industrial customers have a lag in the prices. So that lag is going to be reflected in the fourth quarter and probably in the first quarter of next year. I think with that I cover the first one. Do you want, Pablo, the second one?

Pablo Brizzio (Chief Financial Officer)

Okay, let me take the second one. Thanks, Tatiana, for the question. So, as usual, we discussed the capital allocation issue. You know that whenever we are ending a big capex plan we need to take capital to digest, to take advantage of everything that we have done in the next couple of years. Difficult to see any big project coming out of Ternium. Of course there is one that you already know, that we already mentioned many, many times, which is our mining activity in Brazil that we will continue to analyze, and probably, Máximo, you can add to that a little after my answer.

But in general what you should see is different things. First of all, we will move into next year with probably higher cash flow generation because of the better performance that Máximo mentioned during the initial remarks and also because of the reduction in capex after the big capex plan and moving from the big number that we had last year. This year will be around $1.2 billion, next year $1.2 billion. So this will add to your point. So if this is the trend that we will follow and without any big project, we will basically, if this trend continues, reinforce our dividend payment.

And besides that we will be adding to the strong financial position of the company to be prepared for the possible next round of capex or decisions that we may take. You know that we have different propositions for the future, but in general this is something that we take very seriously and we take some time to do that. So I don’t know, Máximo, you want to add?

Máximo Vedoya (Chief Executive Officer)

I think it’s clear. I mean our next two years will be—our main agenda is execution. It’s to focus on how we digest all the investment that we have done. I mean, you know, Pesquería is something fantastic. And it’s starting now in February. We already have started a lot of lines, but in February the steel shop is starting. And this will give us a huge power of how we can manage even stronger relationships with all our customers. We want to execute that and then probably 2028 we’ll see what we do next.

But this is a focus for next year. I hope with that at the end we answer both questions.

Tatiane Kandini (Analyst at J.P. Morgan)

No, you completely did. I just wanted to make a follow-up on the Compactos project that you mentioned. So is there any kind of change on the timeline of the decision since we have, as you mentioned, a more challenging environment when it comes to freights and iron ore prices and the partial shutdown of Usiminas’ minerals production?

Pablo Brizzio (Chief Financial Officer)

There’s no real change today. As you know, the decision we always said we have to make it in 2027. Probably that decision is still there in 2027 and we continue analyzing the different options that we have with Compactos. There are several, as you said, several technical solutions that we are finding where maybe we can do a project with a little bit less or much less investment in the first stage and a bigger investment in a second stage. But all those things are things that we are analyzing.

There may be changes to what we thought originally was the big Compactos project. But to be honest, all those alternatives we are analyzing and we will reach a conclusion during 2027. In the meantime, we are progressing with all the licenses we need to have. But those are not a very big investment.

Tatiane Kandini (Analyst at J.P. Morgan)

Super clear. Thank you everyone.

Pablo Brizzio (Chief Financial Officer)

You’re welcome.

OPERATOR

Our next question comes from Daniel Sasson from Itaú BBA. You can open your microphone.

Daniel Sasson (Analyst at Itaú BBA)

Hi everyone. Thank you so much for taking my questions. My first question is related to the USMCA or Section 232 negotiations. If you could update us on where the US-Mexico talks stand right now. If you think that a steel-specific deal is more likely than a full USMCA review, your base case for timing of the 232 relief. So what do you assume for Mexican average prices and for margins once that happens? Right. And my second question, you’ve said in the past that buying the remaining shares would make sense long term, but that conditions on the shares complicate it short term. So with the net cash position restored, right, and capex falling, as Tati mentioned in the previous question, what’s the timing and the path for the listing or tender offer and, you know, what conditions remain? Does the litigation that you have related to Usiminas shares play a role on this end?

So if you could just maybe strategically or qualitatively discuss this issue, that would be great. Thank you so much.

Máximo Vedoya (Chief Executive Officer)

Thank you to you, Daniel. I start with the first question, USMCA 232. I continue seeing this the same way as we talked during the analyst day and we talked in the last conference call. I think making a renewal of USMCA is good for everybody, not only for Mexico; probably it’s very good for the US also. And I always have said this. I think that there’s still so many things to discuss on a renewal USMCA, especially on fortifying rule of origins. And I think the two governments or the two administrations are very committed to this.

They see that having more value-added production in the region is something very good. This is not only the US vision, it’s also the Mexican. So at the end I think that it’s very reasonable to have USMCA renewal on some date. Which one? I cannot say that. What I do think is that one of the Mexican priorities is to resolve the 232 not only of steel, but steel, aluminum and the derivatives. And I know they are working through that. What type of agreement are they going to make? I don’t know yet, but I think that that is a possibility. You asked, this deal, what should it do with our price? As I said before, I don’t think that it does anything to the US prices. Probably what it does is that you have more reason to the Mexican price.

Today they have a huge gap to the American price, to the US price, and probably an agreement will make that difference lower in the future. So that’s from the USMCA. Shares: you asked if we have a path or today we don’t have any path to that. As I said several times, streamlining our corporate structure remains part of our long-term objectives. But having said this, Usiminas shares is not only a financial decision. We have to consider all the factors. We have, as you said, some legal issues pending and also we need to see where Brazil is going in the future. So there are many things still on the path before we take any decision in this respect.

Daniel Sasson (Analyst at Itaú BBA)

Thank you so much.

Máximo Vedoya (Chief Executive Officer)

I hope that’s okay.

Daniel Sasson (Analyst at Itaú BBA)

Yes, thank you.

Máximo Vedoya (Chief Executive Officer)

No, you’re welcome, Daniel.

OPERATOR

Our next question comes from Matthias Moreira from Bradesco BBI. You can open your line.

Matthias Moreira (Analyst at Bradesco BBI)

Yes, thank you and morning all. Thanks for taking my questions. Two on my side. First, maybe a follow-up on the capital allocation question, but focusing more on dividends. I mean, you kept the nominal dividend unchanged versus last year despite the company being in a much better position in terms of results, right? With capex, as Danielle mentioned, set to sharply decline in the coming quarters. Just wanted to better understand the rationale behind the dividend and whether you see room for more aggressive payouts going forward.

That’s my first question. And then my second question on demand in Mexico. I mean, I wanted to get an overall view on how you’re seeing overall demand trends in Mexico. Your volumes in the third quarter were very strong, but my understanding is that this was mainly driven by import substitution rather than underlying downstream demand growth. So I wanted to just touch and get your color on how you see demand in Mexico by each end-use segment and how you see demand evolving, especially in a scenario where the US and Mexico reach an agreement on steel.

Thanks. Those are my two questions.

Pablo Brizzio (Chief Financial Officer)

Okay, thanks, Matthew, for your question. So let me take the first one, which was related to dividends. Let me divide it into—the first one is a long-term view, which is very similar to the history that we have, which is that whenever we saw that the trend is positive to raise dividend and sustain that in the long run, that’s something that we will do. Clearly, if the projections and the views that Máximo mentioned and we have for Ternium are in that direction, clearly that will be something with a very high possibility.

In relationship to current dividends, you know that in the past we have also proposition of an interim dividend that reflects around one-third of the total dividend of the year. So this is the situation and this is what we have just confirmed with the $0.90 dividend. We should be back to the level of dividend that we paid two years ago after the reduction that you saw last year, because we were in the middle of a very uncertain period with the war in the Middle East.

So this should be a trend. Of course it needs to be confirmed by our Board of Directors when they propose that to the shareholders meeting. But this should be the case and this should be the tendency for the future.

Máximo Vedoya (Chief Executive Officer)

And, Matthew, the second question: demand in Mexico. You are right in part of what you are saying. This increase in our shipment is due mainly because we gained market share against imports. And the market is growing, but it’s growing at a very slight pace, at least these nine months. But we are seeing a pickup in demand for the following quarters. So there are two things here. We are gaining market share and we are seeing, in the following quarters, that demand in Mexico is starting to grow. And this is by several sectors, but mainly it’s infrastructure. There are more projects—public infrastructure—but also there are private projects, for example, energy in pipe guys, as I said. But also we are seeing more investment in renewable energy with all these schemes that were made between CFE and the private sector, and we’re seeing that will start construction in 2027, that has a lot of steel in that.

And also we are seeing more demand from the industry. So there are two things here: gaining market share in the past—and we will continue focused on gaining market share—but also we are seeing a pickup in demand. All this pickup in demand doesn’t have yet a solution for the 232. So what you said—if there is an agreement—probably that is on top of what I’m saying, because in this forecast we don’t see yet anything coming from a USMCA solution or whatever you can call it. So that, Matthew, answered the second part also.

Matthias Moreira (Analyst at Bradesco BBI)

Yeah, it does. Thank you very much.

OPERATOR

Our next question comes from Emerson Sousa Vieira from Goldman Sachs. You can open your microphone.

Emerson Sousa Vieira (Analyst)

Hello, good morning. So I have two questions. First of them on the market share dynamics, I just wanted to understand, I mean, how much room we still have to continue to gain market share over imports. I think in the capital markets day the company mentioned you were running at like 50% market share with flats, to imports declining by 10% to 11% in the first semester of this year. So going forward, how much further do you have to gain market share on imports?

And then on dynamics as well of the underlying demand. Just to confirm here, the value chain still remains with low inventory levels, right? I recall that prior quarters you were mentioning that you were seeing some movement in restocking, but it still seems that there’s no restocking happening at this point. And also second one on Compactos. You mentioned a potential change in the project scope, with lower capex up front and higher capex later on. Can you give us more color on that in terms of what could be the potential change to the capex being split between those two phases, please, and in terms of how the project would change indeed with this revision? Thank you.

Máximo Vedoya (Chief Executive Officer)

Thank you, Emerson. Yes, market share, I mean there’s a big room that we can increase. Today, imports in Mexico, if you take only flat products and flat products that we can produce — I take there other things like tinplate that we don’t produce and plates — there are more than 400,000 tons every month that are imported in Mexico. So you make the math and I don’t see any problem in taking more part of that. I mean we have the product, we have the service, everything.

So I think what we do need is to continue working as our commercial team are working to increase little by little this market share of all this huge market. We’re talking about 5 million tons a year, 6 million tons. So again, I mean it’s up to us to gain part of that. Compactos: look, we are still looking at Compactos in a sense there are several alternatives that we are analyzing. One of those is what I said, like putting first some of the part of Compactos and then the other. But, to be honest, we are not ready today to say that this is feasible or not. It was an example of several things that we are seeing. And so we will wait until probably next year to see if one of these is feasible, especially in this new environmental prices of iron ore.

And which one will be. I hope that answers both questions, Emerson. I don’t remember, in the first one you also were asking something about stocks or something like that.

Emerson Sousa Vieira (Analyst)

Yeah. If you were seeing some movement in restocking in your customers.

Máximo Vedoya (Chief Executive Officer)

No, not yet. Still the same. I mean, they are working with low inventories to be honest. And they were working with low inventories because of the market dynamics. Now that demand is starting to pick up, I am thinking that inventories should increase also. But we are not seeing any change in inventory levels or the low inventory levels of our customers.

Emerson Sousa Vieira (Analyst)

All right. And do you know what could be, I don’t know, a normalized inventory level and their customers’ backlog number from the past?

Máximo Vedoya (Chief Executive Officer)

No, it depends a lot. In every industry, every industry has a different number — commercial or industries or automotive. But what we are seeing in all the chain is that from a usual perspective they are low in inventories, and every automotive is low in inventories across the board. They usually have a lot of inventory. Now they’re low by their standard and demand is, as I said, starting to pick up.

Emerson Sousa Vieira (Analyst)

Okay, thank you. Very clear.

Máximo Vedoya (Chief Executive Officer)

You’re welcome.

OPERATOR

Our next question comes from Alfonso Salazar from Scotiabank. You can open your microphones.

Alfonso Salazar (Analyst at Scotiabank)

Yes, hello, Máximo. I have two questions. Look, we have seen many cycles in this industry, but the question that I have for you is how do you see the normalization of markets in Mexico and Brazil, in Argentina? I’m not going to ask you about the timing because that’s very hard to say anything about. But what do you expect to see in the long term in these three main markets for Ternium in terms of normalized EBITDA margins, market dynamics, different conditions?

And related to this question, the second one is: are you reviewing the expected exposure by industry across countries? The reason why I’m asking you this is because without industrial policies in Latin America, what we have seen, for example, in autos is, you know, a flood of autos from China, cheap autos from China. So this is certainly a problem for long-term steel, and I don’t know if you are considering this in your projections. Anything that you can say about, you know, how this exposure to different, you know, industries across the region would be very helpful.

Thank you.

Máximo Vedoya (Chief Executive Officer)

Yeah, thank you, Alfonso. And that’s a very good point. And let me start with that second question. I mean, as I said, unfair trade is not a problem only for the steel industry. And it’s very clear, for example, what is happening in cars in Brazil that you mentioned, with imports from a lot of Chinese car manufacturers, that when you see their financials, their subsidies are 15% to 20% bigger than whatever any automotive industry will have in Brazil or any other countries.

So this is a main issue. I think in this regard, the US, Europe, Canada, they are taking the lead not only in fighting unfair steel trade, but fighting unfair trade. Mexico is following. So Mexico is starting to do a good job. And I think Brazil is starting to realize that the problem is not only steel, but this. So you’re right: for a normalized market in Brazil, these things have to be taken into account. We are expecting that the Brazil government starts seeing these things — and we know they’re starting to see — we have to see how they react, and the market will normalize when they react to this trend of unfair-trade imports.

I think Argentina is still further and still has more work to do than Brazil, and Brazil has more work to do than Mexico, and Mexico has still some things to do compared to the US. So this is my vision, but the truth is that the world is reacting to this. I mean, if you see, we had the G20 meeting in Milwaukee, I don’t know, a month ago. I was there with all the ministers of economy, and the decision of what they ended up saying in the meeting was very strong because they have the G20 Global Excess Steel Capacity Forum over there, but they also mention all the industries where unfair trade, overcapacity and subsidies are destroying the markets.

So today even the G20 acknowledge the huge problem that these unfair imports are causing to all the industries. And I think most of them are reacting. So that’s my vision. In that sense, it’s something to be considered, it’s something to be very spoken about. And I think the governments are starting to react. I hope I answered that second question, Alfonso.

Alfonso Salazar (Analyst at Scotiabank)

Yes, just a follow-up on Argentina. There is an Alacero release recently, a report basically saying that they have now a more open market approach to trade. So just wondering how’s this affecting you? And how do you see that evolving?

Máximo Vedoya (Chief Executive Officer)

No, in Argentina the imports are a big problem. I think Argentina, as you say and Alacero has mentioned, the government of Argentina is working very hard to normalize the macro economy, but it’s yet to realize the big problem that the excess capacity in several industries are damaging the industry in Argentina. And that is a problem. I think there is some change in the mood in saying we have to make this growth in energy and mining be also a growth of the industry, and how the industry of Argentina can support that growth in oil and gas and in energy and in mining.

But it’s still a subject that has to be developed.

Alfonso Salazar (Analyst at Scotiabank)

Very good. So thank you. Thank you. Very, very useful, Máximo.

Máximo Vedoya (Chief Executive Officer)

Thank you, Arpong.

OPERATOR

Our next question comes from Ricardo Monegaglia for Safra. You can open a microphone, sir.

Ricardo Monegaglia (Analyst at Banco Safra)

Máximo. Hi Pablo. Thank you for taking my questions. First one, we saw recently that Mexican prices widening against US prices. I wonder if you have any clue on what caused that or if it’s only temporary. And a follow-up on that, we see a more strict treatment against imports in the US. So I wonder if, in your view, you think Mexico could take a more strict approach as well to imports, not only steel, but also indirect imports of steel such as autos, as you mentioned.

Do you think that is on the discussions currently? I’ll ask my second one later.

Máximo Vedoya (Chief Executive Officer)

Yeah, Ricardo, thank you. For sure the agenda in Mexico I think is quite similar to the one in the US. If you recall, one year ago the Mexican administration put a decree where they increased tariff of 1,100 products. Of that, 200 were steel, but all the others were different products in the value chain. So I think the vision that the Mexican administration has is to increase value added in the region, to increase trade with the US, but trade that has more value added, and it’s not only maquila as they call it.

So I think that’s something that is in the agenda and they’re working on it. Of course they cannot do it in the same pace as the US — Mexico is a different economy, they have different needs. And I think the good approach is to see exactly where Mexico can push for these strict rules. Prices, they are a little bit wide because the US increases a little bit more. But if you take the percentage, they’re still kind of the same. So I think it’s only because prices continue to increase that the difference in dollar per ton is different. But as I said, this is the difference between the 232. If you get rid of the 232, probably Mexican prices will go again to be the same as the US prices.

Ricardo Monegaglia (Analyst at Banco Safra)

Yeah, I agree. My second question on the Pesquería upstream project, we are getting closer to the startup, but could you remind us please on the contribution that you expect from this project across 2027? Maybe if it could be split between the halves of the year would be great. Thank you.

Máximo Vedoya (Chief Executive Officer)

Yeah, well as I said before, remember we are starting this huge project, so 2027 is a ramp-up starting February. But this is a very, very complex equipment and so don’t expect a huge increase in our profit because of the Pesquería. Probably it can be higher, but not because of the steel shop. What we are thinking is more in 2028. For once, the margin of slabs is probably between $50 and $100. So that’s what we change when we use slab from Pesquería instead of buying abroad.

But also this is much more sophisticated products with conditions of very low carbon emissions and of melted and pouring in the region. So we are thinking of a price premium when we sell this product that will add to that margin that I already said, Ricardo. Thank you. But you will see that probably in 2028, to be honest.

Ricardo Monegaglia (Analyst at Banco Safra)

Perfect. So a lower cost of slabs and also maybe potentially an increase in realized price once.

Máximo Vedoya (Chief Executive Officer)

Exactly. Okay,

Ricardo Monegaglia (Analyst at Banco Safra)

thank you and congrats on the results.

Máximo Vedoya (Chief Executive Officer)

Thank you. Thank you, Ricardo.

OPERATOR

Our next question comes from Marcelo Arazi from BTG Pactual.

Marcelo Arazi (Analyst at BTG Pactual)

Hi guys, thanks for the space here. I wanted to discuss a bit the outlook that you guys provided for Q4. You mentioned that shipments should decline a bit and some increase in raw material prices. But looking at the speech that you guys provided, we have been seeing demand picking over the next couple of months. It’s based on further market share gains and prices are still very strong. We are seeing prices, or HRC Mexican prices on Platts, rising more than 40% year over year while Ternium’s prices increased only 15.

So it seems like there’s still some room for further growth. Is it fair to say that the outlook is somewhat conservative for Q4 and we could potentially see some EBITDA increase even amid a weaker seasonality? Thank you guys.

Máximo Vedoya (Chief Executive Officer)

Thank you, Marcelo. I don’t think it’s conservative, to be honest. You have to remember December; it’s a very low month in all three of our markets. And, to be honest, January is also low in Argentina and Brazil. So seasonally we are going to have fewer shipments, and we also have several stoppages for Capex in some of the lines. So we are going to see a little bit of volume decrease that is going to be compensated by the margin increase. And so that’s why we put that outlook.

What you can say is that the demand and also probably margins are going to increase in the first quarter. That’s clear.

OPERATOR

Thank you. Thank you, Marcelo. We remind you to use the raise hand feature if you would like to ask a question. Our next question comes from Kyle Graner from UBS.

Kyle Graner (Analyst at UBS)

Yes, good morning, guys. Two quick questions from me, just circling back on the capital allocation theme. When we think about 2027, I mean Ternium is supposed to generate a whole lot of cash. I mean it’s supposed to be like $1 to $1.5 billion depending on the estimate, depending on the EBITDA and HRC prices that you use. But no matter what, I mean it’s going to be a very, very strong cash print for next year. And obviously, when we look at your net debt, net cash position right now, you’re close to zero.

And so we’re just looking at this and saying, okay, so you’re starting to build a really elevated net cash position for next year. So you could end the year at $500 million to $1 billion as net cash, depending on the dividend that you pay. So it seems a little bit too high, and I think the market is always wondering, what are you going to do with this cash? And we do understand that Ternium is more on the conservative side when it comes to dividend payments, when it comes to even the net cash position that you hold.

So I was just wondering, do you have a net cash target that we can use for next year that you think would be appropriate, and that we can think about this target as you could potentially pay additional dividends to your 2025 payment, which is what you suggested was going to be the case for 2027. Is there any indication here that we could work with in terms of your target net cash balance for 2027? And the second question, real quickly, on the CSN litigation, just wondering if you have any update there on how the litigation is going? Thank you.

Máximo Vedoya (Chief Executive Officer)

Thank you, Kyle. CSN, we don’t have any updates. Things are the same as the last quarters, so we don’t have anything to add about that. For the first part of the question, first of all, we don’t have a net cash objective or target. And the numbers you said could be right, but remember that we have to digest the investment. And although we see, as I said, a very positive market outlook, you have to remember there are always seasonalities and there are always things that could happen. So, in a sense, we are going to wait a little bit on what to do, and if we may change our dividend policy in 2027, late 2027 or 28, we don’t have—I mean, we don’t have to do it right now.

I don’t know, Pablo, if you want to add something to that.

Pablo Brizzio (Chief Financial Officer)

No, it’s just, of course, the numbers could be that one or others, but we will continue to have Capex that will be higher than normal. And if the trend of prices and volumes that we mentioned are the right one, clearly we will increase our working capital needs. So that will add to the needs of utilization of cash. But in general, as Máximo already mentioned, if the trend is a positive one, this should be a signal for an elevated dividend payment in the future if we believe that this can be sustained.

So I think that the signals are there for a better distribution in the near future, taking into consideration that there will be yet a significant level of cash utilization during the quarter or during the next year. And again, as we always said, sustaining a certain level of cash is not something that we consider a negative situation because of all the volatility that Máximo mentioned and the possible opportunities that we may find in the near future after digesting all the Capex that we are doing.

Máximo Vedoya (Chief Executive Officer)

I hope that answers the question, Kyle.

Kyle Graner (Analyst at UBS)

Yes, it does. Thank you, guys.

OPERATOR

Once again, everyone, we remind you to use the raise hand feature if you would like to ask a question. Our next question comes from Carlos de Alba from Morgan Stanley. You can open your microphone, sir.

Carlos de Alba (Analyst at Morgan Stanley)

Yes, hello. Thank you very much. Good morning. Just the question is on what Máximo said a few questions ago. Máximo, did you mention that you see higher margins and maybe higher EBITDA in Q1, 2027 versus fourth quarter?

Máximo Vedoya (Chief Executive Officer)

Probably, Carlos. Yes, what I said is talking about Mexico, because the question was about Mexico and if we were conservative about volumes in Mexico. And I said in the fourth quarter we are not conservative, because usually the fourth quarter—and December—December is not a very big month for Mexico. But we are seeing today that volumes in the first and second quarter are probably higher than the fourth quarter. So the demand is picking up for those months, and we are not seeing many changes in the prices.

I mean, we are seeing that the price trend will continue in the first quarter.

Carlos de Alba (Analyst at Morgan Stanley)

Yeah, thanks for that. I mean, yeah, that’s what I—when I looked at the guidance for the fourth quarter of a stable EBITDA, my first reaction was that it might be conservative, broadly speaking. Maybe not exactly just in Mexico. But look, in Mexico there is always a lag in pricing. Prices have continued to go up, so I would have maybe thought that there was room for a better fourth quarter EBITDA than the third quarter, but now I guess maybe stable in the fourth quarter and then room for higher EBITDA in Q1 and Q2.

Máximo Vedoya (Chief Executive Officer)

That’s probably what we are seeing, Carlos, today. And you have to take into account that Brazil also is seasonally low in December. Argentina is very low in December, and then Brazil is low in January also. So all those things you have to take into account, and you’ll see.

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