Steelmaker Ternium pushes for stronger USMCA trade pact in face of tariffs

Ternium is advocating for stricter "rules of origin" within the USMCA trade agreement during its upcoming review to combat unfair trade practices, particularly steel dumping, despite current 50% tariffs on Mexican steel exports to the U.S.; the company aims to bolster its market share in Mexico amidst ongoing negotiations between the U.S. and Mexico to reduce or eliminate these tariffs. While U.S. tariffs create headwinds, J.P. Morgan analysts note Ternium management views them as beneficial for long-term globalization, as the U.S. shipped 2.28 million metric tons more steel to Mexico than vice versa in 2024.

Analysis

Ternium is actively advocating for more stringent "rules of origin" in the upcoming U.S.-Mexico-Canada Agreement (USMCA) review, aiming to counter unfair trade practices like steel dumping, primarily attributed to China. This initiative comes as Mexican steel products face a 50% U.S. tariff, although current USMCA shipments are generally exempt, and negotiations are reportedly underway to reduce or eliminate these tariffs up to a certain volume. J.P. Morgan analysts highlight that Ternium's management, despite acknowledging adverse global economic effects, views existing U.S. tariffs as potentially beneficial for long-term globalization. Ternium reported that the U.S. exported 2.28 million metric tons more steel to Mexico than it imported from Mexico in 2024, a figure relevant to ongoing trade discussions and U.S. accusations of Mexico flooding its market. The company is strategically focused on increasing its market share in Mexico and is also contending with pressure from Chinese imports in the Brazilian market. A potential acquisition of the remaining shares in Brazil's Usiminas is a possibility, though not an immediate priority for Ternium.

Key Decisions for Investors

• Investors should closely monitor developments in the USMCA review and U.S.-Mexico steel tariff negotiations, as outcomes will directly influence Ternium's access to the U.S. market and regional competitive dynamics.
• Evaluate Ternium's capacity to expand its Mexican market share and navigate trade complexities, considering management's long-term perspective on U.S. tariffs against current market pressures and the mixed overall sentiment.
• Monitor the ongoing impact of Chinese steel imports in Brazil on regional pricing and Ternium's performance, alongside any signals regarding the potential Usiminas acquisition, to assess strategic positioning and risk factors.