This steel stock has surged in 2026. Why Morgan Stanley sees even more upside ahead

Morgan Stanley upgraded Ternium to overweight from equal weight and raised its price target to $65 from $55 (~20% upside from Thursday’s close). The note expects U.S. tariff reductions on Mexican steel under USMCA negotiations to lift Mexico domestic prices, improving Ternium profitability, with potential Mexico import tariffs rising to 50% (from 25–35%) to tighten supply. The stock gained over 1% on the upgrade and is up 42% YTD.

Analysis

The main mechanism is margin, not just sentiment: if Mexican benchmark pricing firms while TX’s capex burden rolls off, incremental revenue should convert to EBITDA at a much higher rate than the market is likely modeling. That is a better setup for earnings revisions than a pure multiple rerate, especially if the policy change reduces cross-border uncertainty for more than one quarter.

The first-order winners are TX and, to a lesser extent, other Mexico-centric steel assets; the second-order losers are U.S. commodity mills such as X, NUE, CLF, and STLD if Mexican metal re-enters the U.S. market and pressures domestic spreads. In Mexico, the real pain lands on auto, appliance, and construction buyers: higher input costs can suppress end-demand within 1-3 quarters, which would cap how much of the tariff benefit TX can capture.

Consensus already leans constructive, and the stock has run hard enough that outright upside may be less attractive than relative value. The key falsifier is a negotiated compromise that leaves tariffs broadly unchanged or a quick reversal in Mexico domestic pricing; if that happens, the thesis collapses into a one-off headline trade rather than a durable earnings upgrade. Over 6-18 months, the trade works only if the policy change sticks and TX keeps translating pricing into FCF faster than peers.

Key Decisions for Investors

• Long TX / short X or NUE as a 1-3 month relative-value pair; express the tariff thesis without taking full steel-beta risk. Target 8-12% relative outperformance, stop if the spread moves against TX by ~5% or negotiations stall.
• Buy TX on any post-headline pullback rather than chasing strength; use a 5-10% out-of-the-money call spread with a 1-3 month tenor if you want convexity into the policy window. Risk/reward is best if the market over-discounts the timing of tariff implementation.
• Watch STLD and CLF for spillover pressure if Mexican imports into the U.S. increase; consider shorting the weakest U.S. commodity-name on confirmation that Mexican steel flows are gaining access. Falsifier: U.S. domestic HRC prices hold firm for the next earnings print.
• Do not overread the call as a sector-wide bullish signal; if Mexico raises tariffs but domestic demand weakens, TX’s volume could soften even as price rises. Trim or hedge TX if Mexican industrial activity rolls over before the next quarterly report.