Ternium(US:TX)2023-03-30 20:55Economic Environment - Ternium's business is significantly affected by global economic activity, with a downturn leading to reduced steel demand and adverse effects on operations [36]. - In 2022, the Russian invasion of Ukraine contributed to higher global commodity prices and inflation, negatively impacting economic activity and steel consumption growth [36]. - Steel prices are volatile; they peaked in September 2021 but began to decline thereafter, with a new upward trend observed in early 2023 [39]. - The steel industry faces intense competition, which could lead to declining margins and reduced shipments for Ternium [45]. - Economic and political instability in Argentina has historically impacted Ternium's business, with significant downturns noted during the 2008-2009 global recession and the COVID-19 outbreak [110]. - The Argentine economy faces high inflation rates and a fiscal deficit, which could reduce demand for Ternium Argentina's products [112]. - Ternium's business in Mexico could be adversely affected by changes in government policies and economic conditions, including high inflation and currency devaluation [101]. - The Mexican Energy Industry Law could negatively impact Ternium's operational results by prioritizing state-owned companies over private generators [102]. Supply Chain and Operations - Ternium's reliance on a limited number of key suppliers, such as Vale for iron ore, poses risks if these suppliers fail to deliver [50]. - Fluctuations in inventory levels and supply chain disruptions can affect customer demand for Ternium's products, as seen during the semiconductor shortage in 2021 [44]. - Ternium's ability to maintain profitability is challenged by price volatility and potential shortages of raw materials, slabs, and energy inputs [47]. - Ternium's operations could be adversely affected by extreme weather events, as seen with disruptions in iron ore supply due to low water levels in waterways and natural gas supply interruptions from severe weather in the U.S. and Mexico [70]. - The company faces risks from climate change, including increased operating costs and potential disruptions to operations due to chronic changes in weather patterns and extreme weather events [72]. Financial Performance and Investments - As of December 31, 2022, Ternium's goodwill related to its Mexican subsidiaries was $662.3 million, and the carrying value of its investment in non-consolidated companies, primarily Usiminas, was $821.6 million [56]. - Ternium recorded impairment charges on its investment in Usiminas totaling $275.3 million, $739.8 million, $191.9 million, and $120.4 million in previous years, with the 2022 impairment reflecting lower production availability and increased interest rates [57]. - The recoverable value of Ternium's investment in Ternium Brasil as of December 31, 2022, was $1.8 billion, with a write-down of $99.0 million due to expectations of lower margins and increased interest rates [57]. - Ternium's ownership stake in Usiminas had a market value of approximately $356.2 million as of December 31, 2022 [57]. - Ternium's operations are exposed to foreign currency exchange rate fluctuations, impacting its financial results due to a significant portion of transactions being conducted in currencies other than the U.S. dollar [65]. - Ternium's ability to pay dividends is dependent on the financial condition and operational results of its subsidiaries, which could be affected by legal and regulatory limitations [94]. Regulatory and Compliance Risks - Ternium is subject to evolving tax regulations that could negatively impact financial results, with new OECD initiatives set to apply from 2024 [91]. - The company may incur additional taxes or penalties due to differing interpretations of tax laws by governmental authorities [93]. - Ternium's operations are subject to risks in emerging markets, particularly in Mexico, Brazil, and Argentina, which could adversely affect shipment volumes and financial results [99]. - The company faces potential liabilities from environmental damages, which could adversely affect margins, cash flow, and profitability [76]. - Ternium's operations are subject to increasingly complex and stringent environmental regulations, leading to higher compliance costs [135]. Strategic Growth and Development - The company is pursuing growth through strategic acquisitions and investments, including a new upstream production capacity project in the USMCA region announced in February 2023 [53]. - Ternium's strategy includes enhancing competitiveness through operational excellence and a full product range offering, but delays or failures in execution could impact revenue [52]. - Ternium has significant business opportunities in the USMCA region, with Mexican steel producers covering approximately half of the flat steel demand in the country [176]. - The implementation of the USMCA trade agreement has made the region attractive for continued investment, with new steelmaking facilities expected to produce high-specification steels for demanding applications [177]. - Ternium's new downstream project at the Pesquería Industrial Center in Mexico includes a push-pull pickling line and new finishing lines, expected to be commissioned by mid-2024, and a cold-rolling mill and hot-dip galvanizing line, expected to begin operations by the end of 2025 [175]. Community and Environmental Initiatives - Ternium's commitment to reducing its carbon footprint includes partnerships to develop low carbon dioxide emitting technologies and measures for decarbonization [155]. - The company emphasizes environmental excellence and biodiversity protection as part of its climate change agenda [150]. - Ternium's community programs focus on education, culture, health, and volunteer work, aiming to promote sustainable growth in local communities [191]. - The ProPymes program supports small and medium enterprises, fostering the development of the industrial value chain in Mexico and Argentina [193]. Production Capacity and Technological Advancements - Ternium's crude steel production capacity was approximately 12.5 million tons as of December 31, 2022 [208]. - The finished steel products production capacity was approximately 15.2 million tons as of December 31, 2022 [208]. - Ternium's iron ore pellets production capacity was 4.0 million tons as of December 31, 2022 [208]. - The total nominal capacity of Ternium's coke plants is 2,840 thousand tons per year [209]. - Ternium's new hot-rolling mill in Mexico, started in 2021, has an annual production capacity of 4.4 million tons, enhancing steel production capabilities [181]. - The company has implemented a "Safety First" program to enhance safety culture and reduce risks in production processes [185].