Business Context and Reporting Period
This Form 6-K filing, dated March 27, 2012, contains the presentation materials from Ternium S.A.'s Investor Day held in New York City. The document outlines the company's strategic positioning in Latin American steel markets, its competitive advantages, and key investment projects. The reporting context focuses on market conditions as of 2011 and strategic outlooks for 2012 and beyond.
Key Financial and Operational Metrics
The filing provides market data and operational capacity figures rather than specific company financial statements (revenue, profit, or cash flow) for the period.
- Market Context: Latin America's apparent steel use (ASU) was 64 million tons in 2011, with a compounded annual growth rate (CAGR) of 5.2% over the previous eight years.
- Flat Steel Consumption: Total Latin American flat steel consumption was 33.5 million tons in 2011, representing 52% of total ASU.
- Market Share: The combined market share of Usiminas, Nippon Steel, and Ternium in flat steel products is approximately 37%.
- Processing Capacity: Ternium and Usiminas combined steel processing capacity (slitters, cut-to-length, roll-forming, tubes) is 7.4 million tons.
- Energy Costs: Ternium Mexico's average natural gas price in 2011 was $4 USD/MBTU. Energy costs fluctuate by approximately $70 million per year for every $1 change in average natural gas prices.
Material Changes and Strategic Developments
The filing highlights several material strategic shifts and project developments:
- Usiminas Investment: Ternium has taken a significant role in Usiminas, appointing three directors to the board and installing a new CEO (Julian Eguren). Initiatives include cost reviews, capex optimization, and inventory management to recover market share in Brazil.
- Joint Ventures: Tenigal (Mexico), a joint venture with Nippon Steel, is preparing for the production of high-grade galvanized sheets with a capacity of 400,000 tons per year, expected to start in Q3 2013.
- Capacity Expansion: A new cold-rolling mill in Monterrey, Mexico, with an annual capacity of 1.5 million tons, is under construction. Additionally, a debottlenecking project in Argentina will add 500,000 tons of crude steel capacity by Q3 2013.
- Upstream Integration: A new mining project in Mexico (Sierra del Alo) targets 4 million tons of iron ore concentrate production with an estimated capex of $1 billion. A DRI-based steel mill project in Porto do Açu, Brazil, is in the feasibility stage.
Guidance, Outlook, and Risks
Outlook: Management forecasts a 6.5% growth in steel demand for 2012. Key growth drivers include infrastructure development, energy projects (pre-salt in Brazil, shale gas in Argentina), and automotive sector expansion (new plants in Mexico and Brazil).
Key Drivers of Profitability: The strategy focuses on product differentiation (high-end steels), downstream integration (service centers), and upstream integration (iron ore and natural gas-based DRI technology).
Risks and Contingencies: The filing includes a standard forward-looking statement warning that actual results may differ due to economic and political conditions, interest and inflation rates, exchange rate fluctuations, steel demand and price volatility, and raw material/energy supply issues. Specific project risks include the availability of natural gas for the Brazil steel mill and the timeline for environmental permits.
Investor Verification Checklist
- Verify the timeline and capital expenditure requirements for the Sierra del Alo mining project and the Porto do Açu steel mill.
- Confirm the progress of Usiminas' turnaround plan and the realization of synergies with Ternium and Nippon Steel.
- Monitor natural gas price volatility in Mexico and its impact on Ternium's cost advantage in DRI/EAF production.
- Assess the execution risk and start-up dates for the Tenigal joint venture and the Monterrey cold-rolling mill.
- Review the status of environmental permits and land acquisition for the Brazil project, with a contractual decision deadline noted for September 2012.