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Ternium seen mulling slab mill in Mexico

Keywords: Tags  steel, Ternium, slab, CSA, Mexico, ThyssenKrupp

SÃO PAULO — Latin American steelmaker Ternium SA might choose to expand its crude steel capacity in Mexico following its exit from the sale process of ThyssenKrupp AG’s 73.13-percent stake in the 5-million-tonne-per-year Cia. Siderúrgica do Atlântico (CSA) slab plant in Brazil.

A divergence between Ternium and ThyssenKrupp on the "value perception" of CSA, coupled with the challenging situation of the steel industry, has pushed Ternium out of the bid process for the Brazilian slab mill, chief executive officer Daniel Novegil said this past week (, May 1).

An acquisition of CSA would have given Ternium self-sufficiency in the supply of slab. Currently, the company buys around 3 million tonnes per year of slab from third parties to feed its flat-rolling facilities in Mexico, where it is able to produce as much as 6 million tonnes per year of flat steel products but only 2.3 million tonnes per year of slab.

In order to fulfil its slab needs, Ternium might now decide to increase its crude steel capacity in Mexico, Novegil suggested.

"We have been talking with some of you in the past about maybe adding some capacity in Mexico through the DRI (direct-reduction iron) route," the executive said during a conference call with analysts April 30.

"Expanding our vertical integration in Mexico is always something that we have among our options and priorities, so we’ll continue analyzing that option," he added.

Novegil said that Ternium will have "something more in detail to share" with the market during the company’s investor day at the end of June.

In February, Novegil noted that Ternium had two options to address its slab purchase issue: "to go for CSA" or to build a greenfield operation in Mexico.

A third option would be the construction of a greenfield slab plant in the industrial area of the Açu Superport in Brazil’s Rio de Janeiro state. But Ternium recently wrote down its previous expenses on the Açu project due to delays related to natural gas supplies and Anglo American Plc’s Minas-Rio iron ore project, which would feed the slab unit.

"In the fourth quarter of 2012, we wrote down the property plan agreement related to the development of the Açu project. This was done mainly as a result of lack of availability of natural gas in the area," Novegil said this past week. "Also, we had an important iron ore delay and investment overruns in Anglo American’s Minas-Rio project, so taking all of this into consideration ... we decided to write down the property plan agreement."

With the exit of the CSA sale process and the write-down in Açu, a decision about a possible crude steel expansion in Mexico will become even more crucial as the company is close to commissioning a 1.5 million-tonne-per-year greenfield cold-rolling mill and a 400,000 tonne-per-year hot-dipped galvanizing mill in Mexico.

As a result, the gap between its slab-making capacity and finished steel production will increase even further.

The galvanizing mill—a joint venture with Japan’s Nippon Steel & Sumitomo Metal Corp. (NSSMC) called Tenigal SRL de CV—is expected to come on stream in August this year. The cold-rolled mill will also become operational in the second half of the year.

Located in Pesquería, Nuevo León state, both mills are part of a project that was originally to begin with a DRI unit, a steelmaking operation and a 2 million-tonne-per-year hot-rolling mill.

After the economic crisis, however, Ternium decided to reconfigure the project and develop it "backwards" by starting it with the galvanizing and cold-rolling mills. But the plans to move upstream into steel hot-rolling, slab and DRI always remained on Ternium’s radar.

The company could choose to install a bigger slab-making operation than originally planned, so that slabs would feed both the Pesquería finished steel facilities and Ternium Mexico’s existing 6 million-tonne-per-year rolled capacity.

The steelmaker, however, might not be in a hurry to decide on a slab expansion since it currently enjoys a "strong" base of slab suppliers in the world, Novegil said.

"I don’t see any problems in the procurement of slabs for our operation in Mexico coming from our current sources," Novegil said in the same conference call this past week.

Ternium ships slabs to Mexico from its Argentinian mill, Ternium Siderar, which in March next year will put into operation a new slab caster, initially increasing capacity by 500,000 tonnes per year. It also buys slabs from Brazil and from ArcelorMittal México’s Lázaro Cárdenas mill.

"And also we had the ability last year to develop a very good Russian supply," Novegil added.

"Our supply base is strong now and I don’t expect it to change in the short run, and I guess that we’ll be able to continue enjoying this supply in the medium run," he added.

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