Ternium (TX) Q3 2026 Earnings Call Transcript

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DATE

Wednesday, Nov. 4, 2026

CALL PARTICIPANTS

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

TAKEAWAYS

• Adjusted EBITDA -- $785 million, representing a 10% sequential increase driven by higher steel volumes and improved margins.
• Adjusted EBITDA Margin -- 16.9%, expanding from the previous quarter due to pricing gains.
• Net Income -- $368 million, reflecting $116 million in deferred tax losses related to the depreciation of the Mexican peso.
• Steel Shipments -- 4 million tons, rising 5% sequentially behind volume growth in Mexico.
• Mexico Shipment Growth -- 13% for the first nine months of the year, supported by market share gains against imports.
• Cash From Operations -- $613 million, indicating healthy generation despite a $148 million increase in working capital.
• Interim Dividend -- $0.90 per ADS, totaling $177 million payable on Nov. 17.
• Capital Expenditures -- $398 million for the quarter, primarily directed toward the construction of the new slab mill at Pesquería.
• Free Cash Flow -- $215 million, reflecting positive generation after funding strategic investments.
• Net Cash Position -- $22 million, an improvement from the $112 million net debt position reported at the end of June.
• Nine-Month Net Income -- $1.2 billion, reaching nearly three times the level from the same period in 2025.
• Nine-Month Earnings per ADS -- $4.26, which is close to three times the prior year level.
• Steel Segment Cash Operating Income -- rose 16% sequentially, supported by higher realized steel prices and shipments.
• Steel Segment Margin -- 17%, expanding as higher revenue per ton offset rising raw material and slab costs.
• Mining Segment Margin -- 16%, narrowing due to lower volumes and slightly lower realized iron ore prices.
• Nine-Month Capital Expenditures -- $1.2 billion, down 40% from $2 billion in the first nine months of 2025 as the investment cycle moves beyond its peak.
• Mexican Flat Product Imports -- over 400,000 tons per month, identifying a significant opportunity for further market share replacement.
• Argentine Security Devaluation -- $74 million, which partially offset the improvement in the company's net cash position.
• Pesquería Slab Margin -- $50 to $100 per ton, representing the anticipated benefit of internal production compared to purchasing slabs from third parties.
• Nine-Month Revenue per Ton -- increased 8% year over year, while unit costs remained stable through productivity initiatives.

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RISKS

• Vedoya stated, "In Brazil, the steel market remains complex," noting that apparent steel consumption in the country is expected to fall 2.7% this year.
• Vedoya warned that "indirect imports of steel also continue to put pressure on the industry" in Brazil, specifically through imported automobiles or vehicles assembled with imported materials.
• Brizzio noted that shipments in the mining segment declined and "more is expected for the fourth quarter" following the partial suspension of MUSA operations.
• Vedoya warned that home appliances and automotive sectors in Argentina face a "difficult environment" due to soft local demand and competition from unfair imports.

SUMMARY

Ternium S.A. (NYSE:TX) reported an increase in sequential earnings driven by high shipment volumes in Mexico and expanding margins in the steel segment. Management indicated that the company is entering an execution-focused phase for the 2027 to 2028 period following the completion of its primary investment cycle. The company reported record volumes in Mexico as it replaced imported steel with local production, while navigating complex market dynamics in Brazil and Argentina. CFO Pablo Brizzio noted that the company transitioned to a net cash position and maintained its interim dividend payout level.

• Management confirmed that the new slab mill at the Pesquería Industrial Center is on track to start production in February 2027.
• CEO Vedoya stated, "Most of this growth comes from market share gains as we continue to replace imports," highlighting that Mexican shipments reached an all-time high.
• The company reported that the current interim dividend reflects approximately one-third of the anticipated total dividend for the year.
• Management noted that both the U.S. and Mexican administrations share a commitment to fortifying rules of origin and increasing regional value-added production.
• CEO Vedoya indicated that the company has temporarily halted part of its MUSA operations in Brazil due to the current environment of iron ore prices and freight costs.
• CFO Brizzio stated that the company expects adjusted EBITDA in the fourth quarter to remain broadly in line with the third quarter, with higher margins offsetting seasonal volume declines.
• CEO Vedoya noted that further Usiminas share acquisitions involve legal and regional considerations beyond financial metrics, with no immediate path to a tender offer.

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.
• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's overall financial performance.
• HRC: Hot-rolled coil, a flat steel product used widely in construction and automotive manufacturing.
• IFRS: International Financial Reporting Standards, a set of accounting rules for the financial statements of public companies.
• MUSA: Mineração Usiminas S.A., the iron ore mining operation in Brazil.
• Section 232: A U.S. trade provision that allows for the imposition of tariffs on imports that are deemed a threat to national security.
• Slab Mill: A facility that produces semi-finished steel blocks (slabs) to be further processed into plates or coils.
• USMCA: The United States-Mexico-Canada Agreement, a free trade agreement between the three North American countries.
• Worldsteel: The World Steel Association, one of the largest industry associations representing steel producers.

Full Conference Call 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 you that any question for 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: 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 third quarter and first nine months of 2026. Today's call is intended to provide additional context to that presentation. I am 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 will turn the call over to Mr. Vedoya.

Máximo Vedoya: Thank you, Sebastián. 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 import 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 costs, 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 are working on a productivity and efficiency agenda in our operations with four fronts: 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 Supplier Excellence Certification at its highest levels. Across our operations, we also keep raising our environment and safety standard. 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. 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 Ternium performance in the third quarter.

Pablo Brizzio: 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 ton and a lower contribution for 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 a slightly lower shipment, but this should be offset by a modest improvement in margin per ton, as higher revenue per ton 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 have 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.

Shipment 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 shipment 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 operation income rose 16% sequentially, supported by higher realized steel prices and shipment. This was partially offset by higher cost per ton, 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, shipment declined in the third quarter and more is expected for the fourth quarter. This reflects the partial suspension of MUSA 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 operation was $613 million in the quarter. This includes a $148 million increase in working capital. This increase came mainly for higher receivables, reflecting higher volume and steel prices, and from higher inventories 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 expanded 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 ton remained stable, supported by several initiatives that enable an increase in efficiencies and productivity across our operations. Net income for the period amounted to $1.2 billion, with shareholders earning 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 board of directors approved an interim dividend of $0.90 per ADS, or a total of $177 million payable on November 17. With this, we are concluding our prepared remarks for this quarter, so 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 withdraw your question, you can leave the queue by click on put hand down. Our first question comes from Tathiane Candini from JPMorgan.

Tathiane Candini: Good morning, everyone. Thanks for taking my questions here. Maybe to start, I would like to just explore a little bit more on the Mexican prices. You noted on the outlook that we should expect a higher margin per ton, 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 to mix? And my second question is regarding capital allocation. I think we already explored a bit this in the last quarter.

With Pesquería now coming soon to ramp up, we should expect lower CapEx for next year. Just wanted to take your head and try to understand a bit on what your perspective 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: Thank you very much, Tathiane. Let me start with the first question. Mexican prices, as we said, Mexican prices are continue to growing or increasing, and you saw that in the third quarter. Probably in the fourth quarter, it is going to be a little bit more up. You have to remember that they are not going to get any near the U.S. prices, and we discussed that several times why. 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 U.S. So I think that prices will continue to hold in this level or a little bit up.

You also have to consider that the industrial customers has 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: Okay, let me take the second one. Thanks, Tathiane, for the question. As usual, we discussed the capital allocation issue. You know that whenever we are ending a big CapEx plan, we need to take a couple of years to digest and 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 are 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 the reduction in CapEx that after the big CapEx plan and moving from the big number that we have last year, this year will be around $1.2 billion, next year, $1.2 billion. This will add to your point. If this is a trend that we will follow and without any big project, we will basically, if this trend continue, reinforce our dividend payment.

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. I don't know, Máximo, if you want to add something.

Máximo Vedoya: No, 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, 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 relationship with all our customers. We want to execute that, and then probably 2028, we'll see what we do next. This is the focus for next year. I hope with that, at the end, we answer both questions.

Tathiane Candini: No, you completely did. I just wanted to make a follow-up on the Compactos project that you mentioned.

Máximo Vedoya: Yeah.

Tathiane Candini: 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 shutdown on partial of the Usiminas production?

Máximo Vedoya: 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 a first stage and a bigger investment in a second stage. All those things are things that we are analyzing. So, there may be changes to what we thought originally was the big Compactos project.

To be honest, all those alternatives, we are analyzing it, and we will reach a conclusion during 2027. In the meantime, we are progressing with all the license we need to have, but those are not a very big investment.

Tathiane Candini: Super clear. Thank you, everyone.

Máximo Vedoya: You're welcome.

Operator: Our next question comes from Daniel Sasson from Itaú BBA. You can open the microphone.

Daniel Sasson: 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 U.S.-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 HRC prices and for margins once that happens, right? My second question, you've said in the past that buying the remaining Usiminas 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? What conditions remain? Does the litigation that you have related to Usiminas share play a role on this sense? If you could just maybe strategically or qualitatively discuss this issue, that would be great. Thank you so much.

Máximo Vedoya: 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 there is a very good I mean, making a renewal USMCA is good for everybody, not only for Mexico. Probably it's very good for the U.S. 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 rules of origin, and I think the two governments or the two administrations are very commitment to this. They see that having more value-added production in the region is something very good.

This is not only the U.S. vision, it's also the Mexican vision. So, at the end, I think that it's very reasonable to have a USMCA renewal on some date. Which one? I cannot say that. What I do think that one of the Mexican priorities is to resolve the Section 232, not only of steel, but steel, aluminum, and the derivatives. I know they are working through that. What type of agreement are they going to make? I do not know yet, but I think that is a possibility. You ask, and this deal, what should it do with our price? As I said before, I do not think that it does anything to the U.S. prices.

Probably what it does is that you have more reason. The Mexican price today is, they have a huge gap to the American price, to the U.S. price, and probably an agreement will make that difference is lower in the future. That is from the USMCA. Usiminas share, I mean, you ask if we have a path. Today, we do not have any path to that. As I said several times, streamlining our corporate structure remains part of our long-term objectives. Having said this, Usiminas share is not only a financial decision. We have to consider other factors. We have, as you said, some legal issues pending, and also we need to see where Brazil is going in the future.

There are many things still on the path before we take any decision in this respect.

Daniel Sasson: Thank you so much. Super clear.

Máximo Vedoya: Daniel, I hope that is okay.

Daniel Sasson: Yes. Thank you.

Máximo Vedoya: No, you are welcome, Daniel.

Operator: Our next question comes from Matheus Moreira from Bradesco BBI. You can open your line, sir.

Matheus Moreira: 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 on a much better position in terms of results, right? With CapEx, as Daniel 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 is my first question. My second question on demand in Mexico. I mean, I wanted to get an overall view on how you are 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. I wanted to just touch and get your color on how do you see demand in Mexico by each end-use segment, and how do you see demand evolving, especially in a scenario where U.S. and Mexico reach an agreement on steel. Thanks. Those are my two questions.

Pablo Brizzio: Okay. Thanks, Mattheus, for your question. Let me take the first one, which was related to dividends. Let me divide it in two. 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 is something that we will do. And clearly, if the projections and the views that Máximo mentioned and we have for Ternium are in that direction, clearly that will be something that with a very high possibility.

In relationship to current dividends, you know that in the past we have also a proposition of an interim dividend that reflects around one-third of the total dividend of the year. If 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. This should be a trend.

Of course, this 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: Mattheus, the second question, demand in Mexico. You are right in part of what you are saying. In a part of what you are saying. This increase in our shipment is due mainly because we gained market share against import. And the market is growing, but it is 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 is infrastructure.

There are more projects, public infrastructure, but also there is private projects. For example, energy and pipelines, 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 are seeing that will start construction in 2027. That has a lot of steel in that. Also, we are seeing more demand from the industry. So there are two things here. Gaining market share, the past, and we will continue to focus on gaining market share, but also we are seeing a pickup in demand. All this pickup demand does not have yet a solution for the 232.

So what you said of if there is an agreement, probably that is on top of what I am saying, because in this forecast, we do not see yet any demand coming from a USMCA solution or whatever you can call it. I hope that Matthew answered the second part also.

Matheus Moreira: Yeah, it does. Thank you very much.

Máximo Vedoya: Welcome.

Operator: Our next question comes from Emerson Souza Vieira from Goldman Sachs. You can open your microphone.

Emerson Souza Vieira: Hello, good morning. I have two questions. First of them, on the market share dynamics, I just wanted to understand 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%-11% in the first semester of this year. Going forward, how much further room do you have to gain market share on imports? 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. Also second one on Compactos, you mentioned a potential change in the project scope, right, with higher CapEx upfront, with lower CapEx upfront 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? In terms of how the project would change, indeed with this revision. Thank you.

Máximo Vedoya: Thank you, Emerson. Yes, market share. There is a big room that we can increase. Today, imported in Mexico, if you take only flat products and flat products that we can produce, I take there other things that tinplate that we don't produce and plates, there are more than 400,000 tons every month that are imported in Mexico. You make the math and I don't see any problem in taking more part of that. We have the product, we have the service, we have everything. 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. Again, 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 that, like putting first some of the part of Compactos and then the other. But to be honest, we are not ready today to see that this is feasible or not. It was an example of several things that we are seeing. We will wait until probably next year to see if one of these is feasible, especially in this new environmental of prices of iron ore, and which one will be.

I hope that it's answered both questions, Emerson. I don't remember, in the first one, you also were asking something about stocks or something like that?

Emerson Souza Vieira: Yeah, if you were seeing some movement in restocking in your customers.

Máximo Vedoya: No, not yet. It's still the same. I mean, they are working with low inventories, to be honest. 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 Souza Vieira: All right. Do you know what could be, I don't know, a normalized inventory level at your customers? To have, I don't know, like-

Máximo Vedoya: Well, it depends a lot in-

Emerson Souza Vieira: actually backlog number from the past.

Máximo Vedoya: 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 that from a usual perspective, they are low in inventories.

Emerson Souza Vieira: Okay.

Máximo Vedoya: Every automotive is low in inventories across the board. They usually have a lot of inventory. Now they're low by their standard. Demand is, as I said, starting to pick up.

Emerson Souza Vieira: Okay. Thank you. Super clear.

Máximo Vedoya: You are welcome.

Operator: Our next question comes from Alfonso Salazar from Scotiabank. You can open your microphone, sir.

Alfonso Salazar: Yes. Hello, Máximo. I have two questions. 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, in Brazil, in Argentina? I am not going to ask you about the timing because that is 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? Related to this question, the second one is, are you reviewing the expected exposure by industry across countries?

The reason why I am asking you this is because without industrial policies in Latin America, what we have seen, for example, in autos is a flood of autos from China, cheap autos from China. This is certainly a problem for long-term steel demand. I do not know if you are considering this in your projections. Anything that you can say about how this exposure to different industries across the region would be very helpful. Thank you.

Máximo Vedoya: Yeah. Thank you, Alfonso. 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 from the steel industry. 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 financial, their subsidies are 15%-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 U.S., Europe, Canada, they are taking the lead not only in fighting unfair steel trade, but fighting unfair trade. Mexico is following.

Mexico is starting to do a good job. I think Brazil is starting to realize that the problem is not only steel, but this. So you're right. For normalized market in Brazil, these things has to take into account. We are expecting that the Brazil government starts seeing these things. I mean, we know they're starting to see. We have to see how they react. The market will normalize when they react to this trend of unfair trade imports. I think Argentina is still on a 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 U.S.

So, this is my vision. But the truth is that the world is reacting to this. I mean, if you see, we have the G20 meeting in Milwaukee, I don't know, a month ago. I was there with all the ministers of economy. The decision of what they ended up saying in the meeting was very strong, because they have the G20 Global Forum on Steel Excess Capacity over there, but they also mention all the industries where unfair trade, overcapacity, and subsidies are destroying the markets. So today, even the G20 is acknowledge the huge problem that these unfair imports are causing to all the industries. 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: Yeah. It's just a follow-up on Argentina. Alacero released recently a report basically saying that they have now a more open market approach to trade. Just wondering, how is this affecting you and how do you see that evolving?

Máximo Vedoya: No, Argentina, the imports are a big problem. I think Argentina, as you say, and Alacero is mentioning, Argentina, the government of Argentina has a very good, I mean, it is working very hard to normalize the macro economy, but it is yet to realize the big problem that the excess capacity in several industries are damaging the industry in Argentina. That is a problem. I think there is some change in the mood in saying we have to make this growth in energy, in 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 is still a subject that has to be developed.

Alfonso Salazar: Very good. Thank you. Very useful, Máximo.

Máximo Vedoya: Thank you, Alfonso.

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

Ricardo Monegaglia: Hi, Máximo. Hi, Pablo. Thank you for taking my questions. First one, we saw recently that Mexican prices widened against U.S. prices. I wonder if you have any clue on what caused that or if it's only temporary. A follow-up on that, we see a more strict treatment against imports in the U.S., 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: Yeah, Ricardo, thank you. For sure, the agenda in Mexico, I think, is quite similar to the one in the U.S. If you recalled, 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. I think the vision that the Mexican administration has is to increase value added in the region, to increase trade with the U.S., but trade that has more value added, and it's not only a maquila, as they call it. 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 U.S. 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 U.S. increases a little bit more, but if you take the percentage, they're still kind of the same. I think it's only because prices continue to increase that the difference in dollar per ton is different. As I said, I mean, this is the difference between the 232.

If you get rid of the 232, probably Mexican prices will go again to be the same in the U.S. as the U.S. prices.

Ricardo Monegaglia: 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 you could split between the halves of the year would be great. Thank you.

Máximo Vedoya: Yeah. Well, as I said before, remember, we are starting this huge project. 2027 is a ramp-up. It starts in February, but this is a very, very complex equipment, so don't expect a huge increase in our profit because of the Pesquería. Probably, I mean, it can be higher, but not because of the steel shop. What we are thinking is more in 2028. For once, the margin of the 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 sophisticated products with conditions of very low carbon emissions and of melted and poured 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.

Ricardo Monegaglia: Thank you.

Máximo Vedoya: But you will see that probably in 2028, to be honest.

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

Máximo Vedoya: Exactly.

Ricardo Monegaglia: Okay. Thank you and congrats on the results.

Máximo Vedoya: Thank you. Thank you, Ricardo.

Operator: Our next question comes from Marcelo Arazi from BTG Pactual.

Marcelo Arazi: Hi, guys. Thanks for the space here. I wanted to discuss a bit the outlook that you guys provided for Q4. You mentioned that ship 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 peaking over the next couple of months. It is pace for further market share gains, and prices are still very strong. We are seeing prices, HRC Mexican prices on flats rising more than 40% year-over-year, while Ternium's prices increased only 15%. So it seems like there is 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: 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 the three of our markets. January is also low in Argentina and Brazil. Seasonally, we are going to have less shipments, and we also have several stoppage for CapEx in some of the lines. We are going to see a little bit volume decrease that is going to be compensate by the margin increase. 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 probably a good assumption to make.

Marcelo Arazi: That's clear. Thank you.

Máximo Vedoya: Thank you, Marcelo.

Operator: We remind you to use the raise hand feature if you would like to ask a question. Our next question comes from Caio Greiner from UBS.

Caio Greiner: 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 billion-$1.5 billion, depending on the estimate, depending on the EBITDA and the HRC prices that you use. No matter what, I mean, it's going to be a 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. 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-$1 billion in net cash, depending on the dividend that you pay. It seems a little bit too high, and I think the market is always wondering, what are you going to do with this cash. We do understand that Ternium is more on the conservative side when it comes to dividend payments, when it comes to even to 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? The second question, real quickly on the CSN litigation, just wondering if you have any update there on how's the litigation going. Thank you.

Máximo Vedoya: Thank you, Caio. CSN, we don't have any update. Things are the same as we have always, 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. 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 until what to do and if we may change our dividend policy in late 2027 or 2028. We don't have to do it right now. I don't know, Pablo, if you want to add something to that.

Pablo Brizzio: No, just, of course, the numbers could be that one or others, but we will continue to have a CapEx that will be higher than normal. 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. Again, as we always said, sustaining 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 adjusting all the CapEx that we are doing.

Máximo Vedoya: I hope that answer the question, Caio.

Caio Greiner: Yes, it does. Thank you, guys.

Máximo Vedoya: Thank you.

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 MS. You can open your microphone, sir.

Carlos de Alba: Yes, hello. Thank you very much. Good morning. Just a question, it was on what Máximo said, I think two questions ago. Máximo, did you mention that you see higher margins and maybe higher EBITDA in Q1 2027 versus fourth quarter?

Máximo Vedoya: 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. I said in the fourth quarter, we are not conservative because usually the fourth quarter in 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 much changes in the prices. I mean, we are seeing that the price trend will continue in the first quarter.

Carlos de Alba: Yeah. Thanks for that. I mean, 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 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: That's probably what we are seeing, Carlos, today, because 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 it into account, and you'll see that probably it's flat in the fourth quarter and something better in the first quarter.

Carlos de Alba: Great. Thank you very much.

Máximo Vedoya: You're welcome.

Operator: That concludes the question and answer session. I would like to turn it back over to Máximo Vedoya for closing remarks.

Máximo Vedoya: Well, thank you, everyone, for joining us. As always, if you have any comments or questions, we are always welcome. Have a very good day. Bye-bye.

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

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