Ternium (TX) Q2 2026 Earnings Call Transcript

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DATE

Wednesday, Aug. 5, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• Global IR and Compliance Senior Director - Sebastián Martí
• Chief Executive Officer - Maximo Vedoya
• Chief Financial Officer - Pablo Brizzio

TAKEAWAYS

• Adjusted EBITDA -- $1.2 billion for the first half of 2026, representing 65% growth compared to the first half of 2025.
• EBITDA Margin -- 16.5% in the second quarter of 2026, reflecting an expansion from 12.2% in the first quarter.
• Net Income -- $465 million for the second quarter, primarily driven by operating performance in Mexico and Brazil.
• Earnings Per ADS -- $2.84 for the first half of 2026, representing a near doubling of the prior year level.
• Capital Expenditures -- $1.6 billion projected for the full year 2026, with management expecting a reduction to $1.2 billion in 2027.
• Working Capital -- $418 million buildup in the second quarter, driven by higher sales, inventory values, and raw material prices.
• Net Debt -- $112 million as of June 30, 2026, shifting from a net cash position of $327 million at the end of the first quarter.
• Mexico Steel Consumption -- 4% projected growth for the 2026 year, following a 10% decline in domestic consumption in 2025.
• Infrastructure Demand -- 600,000 to 700,000 tons of potential demand discussed for Mexican infrastructure projects over 1.5 to two years.
• Steel Shipments -- 4% sequential increase in consolidated shipments during the second quarter of 2026.
• Mining Cash Operating Income -- Sequential decline, as lower iron ore prices offset a seasonal recovery in Brazilian iron ore shipments.
• Dividend Payment -- $255 million paid to shareholders during the second quarter, completing the dividend distribution for the 2025 fiscal year.
• Internal Carbon Price -- $80 per ton of CO2, implemented as a shadow price to evaluate potential financial impacts of carbon pricing mechanisms.
• Net Sales -- $15.6 billion for the 2025 fiscal year, as reported in the company's sustainability filings.
• Production Capacity -- 15.4 million tons of steel slabs and billets and 13.0 million tons of iron ore pellets.
• Renewable Energy Output -- 434 GWh generated by the Vientos de Olavarría wind farm in 2025, replacing approximately 90% of grid electricity purchases in Argentina.
• Automotive Sector Growth -- 6% expected production growth in the Brazilian automotive market for the 2026 year.
• Environmental Investment -- $93 million allocated for environmental and decarbonization initiatives in 2025, alongside $102 million for health and safety programs.
• Decarbonization Target -- 15% reduction in emissions intensity per ton of hot-rolled steel by 2030, using 2024 as the base year.
• Recycled Content -- 21% recycled content per ton of crude steel utilized in 2025 production.
• HRC Price Spread -- $300 per ton gap between hot-rolled coil prices in Mexico and the U.S.
• Water Treatment Capacity -- Fivefold planned increase in water treatment capacity at the Pesquería industrial center.
• Headcount -- 33,253 employees as of the most recent reporting period.

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RISKS

• Vedoya stated, "Section 232 tariffs are affecting our customers in this and other manufacturing sectors," noting that these duties impact industrial demand in Mexico.
• Vedoya stated, "Manufacturing remained weak, held back by soft demand and strong competition from imports," referring to the current environment in the Argentine market.

SUMMARY

Management reported a sequential increase in profitability driven by higher steel prices and volume growth in Mexico. The company is transitioning out of a high-intensity capital expenditure cycle as the Pesquería expansion projects near completion. Management stated that trade defense measures in Mexico and Brazil are contributing to a more balanced competitive environment against unfair trade practices. The strategic focus remains on consolidating the industrial system in North America and integrating Usiminas operations into the broader sustainability and efficiency targets.

• CEO Vedoya noted that the new slab facility in Pesquería will produce steel with a carbon footprint "well below that of the blast furnace-based steel" currently supplying the regional automotive market.
• Management expects the ramp-up and certification process for the new 2.5 million ton slab facility in Pesquería to be a multiyear effort, with no significant EBITDA impact expected until after 2027.
• Vedoya highlighted that the Mexican government considers Section 232 tariffs a top priority, noting that the U.S. runs a large trade surplus with Mexico in the steel sector.
• Usiminas achieved structural cost reductions through the completion of its pulverized coal injection project, which lowers both emission intensity and production costs.
• Management attributed the increase in Mexican shipments to gaining market share against imports, supported by restocking along the value chain.
• The company is exploring the partial replacement of coal with sustainably certified charcoal derived from biomass in its facilities in Argentina and Brazil.

INDUSTRY GLOSSARY

• ADS (American Depositary Share): A U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange.
• DRI-EAF: A steelmaking process that uses Direct Reduced Iron in an Electric Arc Furnace, typically resulting in lower carbon emissions than traditional blast furnaces.
• GWh (Gigawatt-hour): A unit of energy representing one billion watt-hours, used to measure large-scale electricity production.
• Hot-Rolled Coil (HRC): A flat steel product produced by rolling steel slabs at high temperatures, used in construction and industrial applications.
• PCI (Pulverized Coal Injection): A process that involves injecting pulverized coal into a blast furnace to reduce the amount of more expensive coke required for steel production.
• Scope 1, 2, and 3: Categories for greenhouse gas emissions. Scope 1 are direct emissions, Scope 2 are indirect from purchased energy, and Scope 3 are indirect emissions in the value chain.
• Section 232: A provision of the U.S. Trade Expansion Act of 1962 that allows the U.S. to impose tariffs on imports deemed a threat to national security.
• USMCA: The United States-Mexico-Canada Agreement, a trade treaty that replaced NAFTA.

Full Conference Call Transcript

Operator: Good morning, ladies and gentlemen. Welcome to Ternium's Conference Call to Discuss the Results for the Second Quarter 2026. We would like to inform you that this event is being recorded. [Operator Instructions] We would like to remind you that this conference call is intended exclusively for investors and market analysts. We request you that questions from journalists be dedicated to the media relations through our website in the press section. With this, I would like now to turn the floor over to Mr. Sebastián Martí. You may proceed.

Sebastián Martí: Okay. It seems we had some technical issues. I hope you can hear us now. Okay. Let's go again. Good morning, and thank you for joining us today. My name is Sebastián Martí, and I am Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the second quarter and first half of 2026. Today's call is intended to provide additional context to that presentation. I'm joined by Maximo 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 2 in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya.

Maximo Vedoya: Good morning, everyone, and thank you for joining us. Yesterday, we reported a significant increase in Ternium's results in the second quarter. Adjusted EBITDA was 50% higher sequentially, and our EBITDA margin reached 16.5%. Our balance sheet remain strong [indiscernible] $112 million. And with the peak of our investment program in Mexico behind us, we expect capital expenditures to keep declining further down the road. Before turning to our markets, let me say a few words on safety. Two weeks ago, we held Ternium's Safety Week, which we run every year across all of our operations. We stopped our production lines and more than 21,000 people took part in safety awareness routines.

Stopping production across the company sends a clear message of our priority. Moving to Mexico. Shipments increased and margin expanded. The business environment is slowly getting better. Government measures against unfair trade are already helping steel volumes recover, and the country continues to strengthen its trade defenses. The commercial market improved during the quarter, supported by restocking along the value chain, which is bringing inventories back to a more balanced level. We are also gaining market share in this segment, helped by lower imports and by our stronger performance versus peers as customers continue to value Ternium's reliability, service and ability to respond quickly. Steel demand in the industrial market did not grow at the same pace.

The auto sector remains healthy and HVAC is improving on demand from data centers, but Section 232 tariffs are affecting our customers in this and other manufacturing sectors. We expect volumes to continue recovering gradually in the third quarter. We are supplying steel for new gas pipeline projects and replacing Asia imported steel from several automotive OEMs. Public infrastructure projects under the agreement to promote the Mexican steel industry should add further demand ahead. Moving to trade. The U.S. and Mexico has held 3 meetings in the last month to work towards a new framework. These talks have advanced, although they are not yet produced concrete results. For the Mexican government, Section 232 remains a top priority.

These tariffs are hard to justify in the case of steel as the U.S. runs a large trade surplus with Mexico, and it's by far its larger external supplier. At the same time, there is still excess steel capacity in the world, and this make it necessary to keep working on the trade front. Our fourth round of talks will take place in Washington in early September. Turning to Pesqueria. Our new downstream lines continue to ramp up and the slab facility is progressing well with start-up expected in early 2027. This new capacity positions Ternium well for a more integrated and better defended North American market, where local supplies becomes a competitive advantage.

Ternium is prepared to serve that demand with local capacity, short lead times and the technical support that industrial customers require. On top of that, the steel from our new slab mill will reach the automotive industry with a carbon footprint well below that of the blast furnace-based steel that still supplies most of the region's automotive market. Before moving on to other markets, let me mention 2 recognitions we received in Mexico since our last call. Caterpillar distinguished Ternium through its Supplier Excellence Recognition program for the fourth year in a row. And we also received Trinity's Premier Supplier Award in the steel category.

Awards repeated over time and across industries show that our customers value the quality of our products and the service of our team. Turning to Brazil. Trade defense is advancing. In June, the steel quota system was renewed until June 2027, and the antidumping case on hot-rolled coil from China should reach a final decision during the remainder -- during this year. More is still needed but the direction is positive. Demand across consuming sector remain uneven. Automotive is solid with production expected to grow by 6% this year. And road and infrastructure equipment remains dynamic. Other sectors are weaker, affected either by slow demand or unfair competition from imported finished goods.

Against this backdrop, Usiminas has improved its profitability over the last few quarters. This came from better industrial performance, strict cost control and higher productivity. A key milestone for this competitiveness was the completion of the pulverized gold injection project, a structural step forward that brings great efficiency and lower cost while also reducing emissions intensity. We also received important customer recognitions. General Motors named us Supplier of the Year in the industrialization and trust category, and Honda Motors granted us a Gold Best Supplier Award. In Argentina, shipments increased sequentially in the second quarter, mostly for seasonal reasons. Our view on this market has not changed.

We continue to expect energy, mining and agriculture to be the most dynamic sectors with construction recovering gradually from still low levels. Manufacturing remained weak, held back by soft demand and strong competition from imports. In July, we published Ternium's 2025 Sustainability Report. One of the main updates in this revision is, sorry, is the revision of our 2030 decarbonization target, which now includes Usiminas and uses 2024 as a new base year. We are committed to reducing emissions intensity per ton of hot-rolled steel by 50% covering Scope 1, 2 and 3 under GHG protocol methodology. The report also covers our progress in energy efficiency, environmental management, safety and the community engagement. I encourage you to read it.

It gives a complete view of the work Ternium is doing in all these fronts. This was a quarter with a solid recovery in profitability and a balance sheet that remains very strong. Looking ahead, we expect performance to continue showing good results in the third quarter, supported by the recovery in Mexico, a more balanced trade environment in Brazil and steady progress on our strategic projects. All of this rests on the daily work and commitment of all our people, and I want to thank them all. With this, I'd like to move to a review of our quarterly performance. Pablo, please go ahead.

Pablo Brizzio: Thanks, Maximo, and thanks, everybody, for participating in this call. So let me turn to our operational and financial performance for the second quarter of this year. Adjusted EBITDA rose in the second quarter, driven by higher volumes and better margin with adjusted EBITDA margin expanding to 16.5% from 12.2% in the first quarter. Performance benefited from the strengthened market fundamentals in Mexico and more constructive steel market environment in Brazil. The key drivers behind this result was improvement in realized steel prices, mainly in Mexico and Brazil. Looking ahead, we expect adjusted EBITDA to increase sequentially in the third quarter, driven by higher shipments and an improved adjusted EBITDA margin.

This margin expansion should reflect higher revenue per ton, partially offset by an increase in cost per ton across our markets. Net income reached $465 million in the second quarter, primarily driven by strong operating performance. Compared to the first quarter, the improvement in operating income was partially offset by lower net financial results, mainly from foreign exchange losses and lower deferred tax gains. Let's review the Steel segment shipments now. Consolidated shipments increased by 4% sequentially in the second quarter. In Mexico, volumes continue to rise, supported by strengthening in the commercial market, lower imports from more effective trade defense against unfair trade practices and efforts to improve market share, as already was explained by Maximo.

In Brazil, sales volumes were broadly steady versus the first quarter with Usiminas maintaining its focus on margin rather than volume. In the Southern region, volume picked up in a typical seasonal recovery even as the underlying demand continues to hold steady. Looking ahead, we expect shipments to keep recovering mainly in Mexico, supported by sustained commercial market momentum and also in Brazil as trade measures take hold and inventories normalize. Moving to the Steel segment performance. Steel cash operating income rose by $204 million sequentially with higher volume and realized steel prices, growth per ton increased slightly, which should see revenue per ton and margins to continue improving in the third quarter. Turning now to the Mining segment.

Shipments normalized in the second quarter, reflecting the seasonal recovery of iron ore shipments in the Brazilian operations. Cash operating income declined slightly sequentially as lower realized iron ore prices were partially offset by higher sales volume. Let's review now the cash flow and balance sheet. Although we had a significant increase in operating results, this was partially offset by a $418 million buildup in working capital consistent with higher sales and increased raw material prices and steel costs. Capital expenditure reflect our progress in the expansion of the industrial center in Pesqueria, now mostly focused on the construction of the new slab facility.

During the quarter, we also paid a dividend to shareholders of $255 million, corresponding to the balance of the total dividend declared for the fiscal year 2025. With this, we end June 2026 with a net debt position of $112 million compared to a net cash position of $327 million at the end of March. Finally, let me close with a quick look at our first half performance. In the first 6 months, adjusted EBITDA was $1.2 billion, rising 65% year-over-year, with EBITDA margins expanding to 14% from 9% in the same period of last year.

Net income for the first half amounted to $837 million, resulting in shareholders earning of $2.84 per ADS, almost double the prior year level, supported by stronger operational results on higher steel margins. Cash from operations totaled $473 million with a year-over-year decline mainly driven by higher working capital needs with higher inventory values and higher receivables associated with an increase in steel prices as well as higher raw material costs. Capital expenditure reached $837 million in the first half, reflecting continued investment in the Pesqueria expansion. With this, we are leaving behind the peak of our investment cycle and expect CapEx of $1.6 billion for the full year 2026, moderating to around $1.2 billion next year.

With this, I conclude the -- and we conclude our prepared remarks. So we would like now to welcome your questions. Please, operator, go ahead.

Operator: [Operator Instructions] Our first question comes from Mr. Rafael Barcellos from Bradesco BBI.

Rafael Barcellos: Congratulations for the results. So looking at your price realization in the second Q, I mean, it was very strong. But looking at the -- how Mexican steel prices have performed over the past few months and given the contract lags, I mean, it seems that your second Q price realization could have been even better than what you published in the second Q, right? So that said, does it mean that you have an even stronger price realization in the third Q, I mean, growing quarter-over-quarter even more than what you published in the second Q? And on top of that, if you can comment a bit on the overall market environment in Mexico?

I mean, how do you see prices evolving from now on? And as a second question regarding the USMCA discussion. I mean, we're understanding that the likelihood of seeing deals made by sector by sector are like more likely than a broader USMCA revision. So I just wanted to understand whether you believe this statement is correct? And what is the likelihood of seeing any sort of agreement with the U.S. happening before the year-end?

Maximo Vedoya: Thank you, Rafael. The first question about prices. So -- and the prices in Mexico, particularly, one of the things that's happening, and as I said in the initial remarks, we are -- we are having more shipments in the commercial market than in the industrial market. So the mix that we are selling is different of what it was in the past. I mean, as I said, the 232 tariffs are affecting -- it's not very big, but they are affecting the production of all the industrial base customers we have in Mexico. And so they are a little bit cautious on what they are doing.

And that makes the mix of what we are selling different -- a little different. And prices in the commercial market are more on a spot basis. And so that's why I guess your comment on the realization price are a little bit lower of what you expect. We expect some changes in the third quarter, but don't expect huge movements because this dynamic is still going on in Mexico. And regarding market environmental in Mexico, I think that resumes also. I mean, Mexico is improving demand, but the demand in Mexico is not that it's increasing very much.

I mean World Steel released the other day what the annual consumption improvement of steel would be in Mexico, and they said the growth was going to be 4%. And I kind of agree with that number. Our steel shipments are increasing a little bit more because we are gaining more market share against imports, which I think is a very good thing. But the market is growing, but it's growing at a pace that still needs to improve more. And I think part of this is the discussions U.S. and Mexico are having. Regarding USMCA, there's a lot of speculations of all the talks that are being held between the U.S. and Mexico.

I mean, I don't want to speculate more of all the things that have been said. What I think it's happening also is, I mean, for one part being several deals or making a huge deal, priorities for Mexico is the 232 in all the sectors, which is very correct. And priority for the U.S. is that Mexico step up its defense against unfair trade, not only in steel, but in other products, which I think is also correct. And both things -- I mean, how we move in both directions, I think it's -- both of them are positive for us and for the Mexican market.

So I hope that they start making some new steps in the direction of these objectives really soon. I hope with this, Rafael, I answer a little bit your questions.

Rafael Barcellos: Yes. Just as a quick follow-up, just to clarify. So on the first part, on the first question, on the price side, you mentioned that we should not expect many changes, but I understand in terms of mix, right? So the mix should not change much in the third Q. But of course, price realization will be -- we will see like an increase in price realization quarter-over-quarter kind of similar to what we saw happening in the second Q, right?

Maximo Vedoya: You're right about that, Rafael. Yes, that's completely correct, Rafael.

Rafael Barcellos: Okay. Very clear. So the mix will not change, but prices will go up like you published in the second Q. Okay.

Maximo Vedoya: Something like that. Yes.

Operator: Our next question comes from Emerson Vieira from Goldman Sachs.

Emerson Vieira: I have 2 questions as well. One on volumes in Mexico. I think one of the most difficult parts here is trying to estimate what could be the incremental volumes that the company is perceiving right now due to the infrastructure projects, right? So can you share any sensitivity here in terms of what could be the incremental steel demand for Ternium because of those projects that are being delivered or actually are starting, right, by Pemex, CFE and et cetera? What could be the upside here to volumes in your view?

And is it correct my understanding that this impact is coming earlier than anticipated, if I'm not -- if I'm right, in the last quarter, you guys mentioned that you could expect those higher volumes only coming in the end of the year, and now this is being anticipated. So this is the first question, and then I will move on to the second one later on.

Maximo Vedoya: Okay. Thank you, Emerson for your question. I mean what is happening with all this is that infrastructure is starting to pick up. If you see the numbers of Mexican economy and consumption in infrastructure, it decreased in 2025. It didn't move up in 2026 much. But now there are some projects gaining momentum. Infrastructure projects are not projects that you're going to start one quarter and improve a lot to the other quarter. I mean they are taking some time.

We are discussing, and this is a number, but you cannot put it in our projections, but -- with this agreement that we make with the Mexican administration of the steel industry, we are discussing projects of around 600,000 to 700,000 tons. But this is not coming in 1 quarter. These are project at least for 1.5 years. How much of that will realize in the following quarters, not much of that. This is taking time. I hope I kind of clarify that, Emerson.

Emerson Vieira: All right. So 600,000 to 700,000 tons is considering all projects that you guys have entered into partnerships, right?

Maximo Vedoya: Yes, yes. But you have to take at least 1 or 2 years to develop all that.

Emerson Vieira: All right. And then my second question, please, is just on capital allocation. In May, the company revised down the proposed dividends, right, when the geopolitical scenario was more uncertain. Of course, uncertainties still exist, but I mean, we are seeing earnings improving at a faster pace. So would it make sense to believe that dividends could be raised and maybe return to prior levels or even above? I mean, what is the company's view here on the dividend payments going forward in light of those changes?

Maximo Vedoya: That's a great question. I mean, let me put a view first on our capital allocation and then specific on the dividends, probably Pablo can answer that. But I mean, if you see our CapEx, I mean, we are coming out of a period of a significant CapEx for us. You know all this, all the Pesqueria project, all the investment we have to do in Usiminas in the different operations. So I mean, in 2027, CapEx is going to decrease. I think Pablo mentioned the number, USD 1.2 billion, USD 1.3 billion from a CapEx of this year of around USD 1.6 billion.

So the priority probably next year in this CapEx allocation would be to take advantage and consolidate all that we have made through this year, last year investments. So we have to consolidate this industrial system and focus on the operation and start-up of all these facilities. And you're right about the uncertainty, but we are still operating in a quite uncertain environment. So things look a little bit better. But the amount of uncertainty in the world economy is not over yet, and we are monitoring that very, very deeply. Nevertheless, we continue having the return of investment or the return to shareholders as a key part of our capital allocation.

I don't know, Pablo, if you want to put a little more in the numbers.

Pablo Brizzio: Yes. Yes, Maximo. Yes, it's very clear what you said that some things that we have seen in the past are still there, but it's also very clear, as I mentioned and you have put there that the return of the company are improving. That is a very good piece of news and that we are moving into a coming year in which we will have improved results and reduced CapEx. So as we have seen in the past, this company has a tradition and have shown that at the moment that we increase result and we believe that we could sustain this an increase in dividend, this is a possibility that the company will put forward.

So the conditions are there. We need to see if there is changes in the near future because we are not yet at the moment of a definition of dividend. But clearly, that -- what you mentioned is clearly a possibility.

Operator: Our next question comes from Caio Ribeiro from Bank of America.

Caio Ribeiro: So I have 2 questions on the trend of North America steel markets, right? So first off, looking at the HRC prices in Mexico and the U.S., there's quite a large gap, right, of around $300 per ton, which has been expanding over the past year. So just curious to hear from you, if you can talk a little bit about how lead times, inventory levels look in Mexico, just to try and understand how they compare to the U.S. where lead times are well above average at 9 weeks, inventory is quite low.

And on this note, if the trigger to narrow that spread is really just a reduction in tariffs for Mexico or if you see any other triggers here? And then secondly, HRC prices in the U.S., right, have clearly had a strong run over the years -- over the past year. And as you look ahead, I just wanted to see how you view the restart of that large blast furnace, Gary Works that was idled for maintenance and the start-up of Nucor's new capacity later this year and whether you see those as risks that could generate a price inflection point and if current price levels are already encouraging a pickup in imports. Those are my questions.

Maximo Vedoya: Thank you, Caio. I mean, from the first, the gap between Mexico and U.S. prices, I don't think the gap is due to this different lead times on inventory. If you see the price in Mexico, price in Mexico are following the same trend as in the U.S. They are increasing. And I think lead times inventory are quite similar to what is happening in the U.S. There is a difference, of course, is the 232 in the U.S. and that the trade measures in Mexico are not as effective as the ones in the U.S., notably this 232. So the trend in Mexico is going to continue as it's been in the several last months.

But the gap is going to start closing once I think these discussions between the U.S. and Mexico start putting some conclusions. I mean, if you -- I said it before, I mean, what Mexico is asking is to get rid of the 232 between Mexico and the U.S. And U.S. is asking to put more tough trade measures in Mexico. And as I said, both are quite good and both have reasons to ask that. And so an agreement can reach can be reached, I think, in those sense. And in that part, the gap between both prices will probably reduce. So that's regarding Mexican prices.

The increase in capacity in the U.S., I don't think -- I mean, the U.S. is decreasing the import volume. And -- but if you see the demand, it's still not picking up demand in the U.S. The consumption of steel in the U.S. is still the same this year than last year. It should increase. And the new capacity should be swallowed by this increase in demand and the decrease in imports. I don't see a huge risk there, Caio. Clearly, it could be some moments when prices decrease, there is a little bit more offer than demand. But I don't see a huge impact of those -- of this restart of capacity.

I hope that answered the question, Caio.

Operator: Our next question comes from Alfonso Salazar from Scotiabank.

Alfonso Salazar: Two questions for you, Maximo. The first one -- and both are regarding the Mexican market. The first one is, can you share what's the move among clients in Mexico? We saw the decision of Toyota moving part of the production of the Tacoma to the U.S. So I want to hear what is the move regarding -- when you have conversations with your clients in Mexico, what they are thinking, what are the challenges that they are facing. For example, if there is -- the 232 goes away, they will face higher prices for steel. So just what are the conversations that you're having with them?

The second question that I have is your view on the -- on Mexico regarding where it stands in the new global auto market or the new global auto arena because we see the U.S. buys pickups and SUVs. China leads the electric vehicle and the low-cost auto markets. And the OEMs are losing market share in basically everywhere except in the U.S. So what is the future for the U.S.? I think it's a good time to rethink about that now that the Pesqueria plant is -- the new slab facility is close to complete.

Maximo Vedoya: Thank you, Alfonso. So I mean, what is the move of our customers? And I guess you are talking about the industrial customers in Mexico. As I said, I think customers, especially those of U.S. origin, they are expecting to have a resolution in the 232 and in the USMCA discussions. I think that most of the customers think that there is going to be a solution or an agreement, and they are waiting for that because they have a huge supply chain operation in Mexico and the U.S.

And I think that the objective that the Trump administration is moving in reducing the trade deficit that they have with Asia they are going to do it with an agreement with Mexico. So they are in this mood of waiting. And I think the bigger challenge is the 232. I don't think that customers think that without the 232, the cost is going to increase. What they think is without the 232, they can have really the opportunities to produce in Mexico and the U.S. and have a more strong regional market, and they are going to take advantage of that. So I think that's the challenge really today.

In the same place, the OEMs are also expecting this resolution, I think. It's not that in Mexico, remember, the Mexican auto producing around 4 million units a year. They are not decreasing the production. The production is quite the same year 2025 to 2026. So they are expecting to solve 232 and have a regional market strong. If you go to the U.S. market, U.S. are producing a little bit more of 8 million units, but they are importing sort of 8 million units. So there's a huge opportunity there for integration between Mexico and the U.S., and I think that they are expecting that.

But of course, this should take effect and when conversation between U.S. and Mexico move forward. Alfonso, I hope I answered your question with this.

Alfonso Salazar: Yes. Just a follow-up. So yes, for the industrial customers, for sure, you are right with the 232. For commercial market or your commercial customers, they may face higher steel prices, right? That would be the implication of not 232.

Maximo Vedoya: I don't know if they're going to face higher prices, Alfonso. I think they're going to -- they're going to have the prices of the market that doesn't reflect and fair competition. They know that, and they are okay with that. I think for commercial customers today, the main issue is how demand and how growth pick up in Mexico. Mexico has not been growing very much, as I said, last year, steel consumption decreased by 10%. That's a huge number. This year, steel consumption is expected to increase by 4%, still way back of our peak in 2023.

So what the commercial customers are expecting is a growth in construction, a grow in infrastructure programs, a growth in the demand of steel, and they are expecting that. We're waiting for that. That's the biggest challenge they have today. And that's the usual talk we have with all our customers in the commercial market.

Operator: [Operator Instructions] Our next question comes from Daniel Sasson from Itaú BBA.

Daniel Sasson: Congrats on the results. My first question is actually related to your capital allocation decisions. After you've mentioned Pesqueria a number of times during the call and we are nearing conclusion of the project. And then you guys should enter a period of much stronger free cash flow generation, right? So I wanted to understand better how you're thinking about it. Could we see dividend payments increasing over the next few years? Or maybe you guys that have always been conservative in regards to your balance sheet position, now think that it's better to keep more cash on hand in light of the geopolitical turbulences and things like that.

So that would be great to understand how you're thinking about capital allocation. And if that could include, for instance, buying all remaining Usiminas shares, if you could -- if it would make sense at all for you to unlist or delist the company in Brazil? And my second question is actually related to Pesqueria. If you could give a little bit more color on how we should model your reduced needs for slab purchases from third parties after the project starts up versus other additional costs like related to our energy matrix, related to iron ore needs and so on and so forth.

That would be nice for us to understand the delta in EBITDA coming exclusively from Pesqueria in 2027 versus 2026, everything else kept equal. Those are my questions, guys.

Maximo Vedoya: Daniel, thank you very much for the questions. I'll start with the second one first. Pesqueria, remember, Pesqueria is going to start -- the slab facility is going to start at the beginning of the year, but it's a very complex and huge project. So the ramp-up will take us several quarters. So you are not going to see a lot of changes in 2027, at least from an EBITDA ratio point of view.

You're going to -- I mean, what the Pesqueria facility give us is that we are going to sell or we are going to supply to our automotive customers with melt and pour -- steel melt and pour in the region that are needed with the change of the USMCA. So -- and to do that, we need not only to ramp up our facility, but to have all the certification process ready, which takes a lot of time. I mean it's quicker in some of the items, but it's very long in other items.

We still have -- we now have and we are discussing with all the customers probably more inquires for changing to Pesqueria ourselves that we -- the capacity we have in Pesqueria. So we are very enthusiastic about what is Pesqueria, but don't expect in 2027 a huge impact because of what I'm telling you. I mean, we are going to focus in 2027 with the ramp-up and with all the certification. But the certification process for more than 2.5 million tons takes a lot of time. So that's the focus in 2027. I hope that answers the second question, Daniel.

For the first question, capital allocation, I think, Pablo, you answered a little bit, but give it -- I mean, more detail, please.

Pablo Brizzio: Yes. Okay. Let me summarize a little bit what do we do in respect to capital allocation. And clearly, we have different things. First of all, you're right that our results are improving. Second, as Maximo was just explaining, we have or we are at the very end of our big CapEx plan, but we need to take 1 or 2 years to digest everything that we are doing. And as Maximo explained, it's a very complex process to ramp up the new facility and to obtain and achieve all the certification to fully take advantage of the new facility that we have.

So why we are saying that or why I'm saying that is because it's very difficult for Ternium at this point to have or to launch any new big CapEx project in the real near future. Of course, we have certain things to mention like all the CapEx as maintenance CapEx and things that we're doing. We already mentioned that we will be doing $1.2 billion in CapEx next year. At some point, we will take a decision in respect to the mining activity in Brazil. So we have certain things to move around. But we will have room to take that and 2 things: one, to increase dividend if the sustained better results is confirmed.

And secondly, something that you mentioned, and you're right that we tend to be a little more conservative than some companies, and we prefer to have a very strong financial position in order to support future alternatives that could happen. You mentioned things like acquiring shares. You know that theorical answer to that in the long run is the answer is yes because we have as a goal to simplify our corporate structure. But there are certain conditions yet in -- especially in respect to such shares that makes us a little difficult to move forward in the short run.

But again, as a general point of view, we -- of course, we would like to sustain a strong financial position. We would like to sustain a positive and if possible growing dividend payment and take advantage of all the things that we have been doing up to now. In that respect, things can happen in the future, and we will be prepared to take advantage of that.

Operator: Thank you. That concludes the question-and-answer session. I would like to turn it back over to Mr. Maximo Vedoya for closing remarks.

Maximo Vedoya: Okay. Thank you all of you for joining us today. We welcome any feedback you have or any additional questions and have a great day. See you in a couple of months.

Operator: Ternium's conference call has now concluded. Thank you for attending today's presentation. You may now disconnect and have a good day.

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