Ternium, the Luxembourg-based steel giant, has been making waves with its strategic expansion and focus on operational efficiency. While analysts have been dissecting the company's ambitious growth plans in Mexico and navigating the turbulent waters of Argentina's economic landscape, one critical development has seemingly flown under the radar: Ternium's silent transformation of Usiminas, the Brazilian steel powerhouse.

Buried within Ternium's Q1 2024 and Q4 2023 earnings call transcripts lies a narrative of significant operational improvements and a hint of an impending shift in the Brazilian steel market. While Ternium CEO, Maximo Vedoya, acknowledges that "restoring operational efficiency" at Usiminas is a "gradual process," the transcripts reveal a more aggressive approach than initially perceived.

The transcripts highlight a series of strategic decisions taken by Usiminas' new management, including shuttering a smaller blast furnace and a restocking facility. This streamlining, coupled with "higher efficiency of the metallic charge" and "lower fuel rate of the blast furnace," paints a picture of a leaner, more cost-effective operation emerging from the ashes of a previously bloated structure.

"The significance of these operational improvements becomes even more pronounced when considering the external pressures facing Brazil's steel industry. A "surge of imports under unfair trade conditions," primarily from China, has been plaguing the market. While the Brazilian government's recent decision to raise import tariffs is a step in the right direction, Vedoya cautions that "a little bit more is needed.""

This is where the plot thickens. Ternium, having quietly honed Usiminas into a lean, mean, steel-making machine, is now positioned to capitalize on a potentially resurgent Brazilian steel market. The company's strategic patience, focusing on internal improvements amidst external turmoil, might just be the catalyst for a Brazilian steel revolution.

Usiminas's Projected Profitability Improvement

The following chart showcases Usiminas's anticipated improvement in profitability based on Ternium's statements.

Let's look at the numbers. Usiminas anticipates a "sequential improvement in the profitability of the steel business" for Q1 2024, driven primarily by lower costs per ton. This mirrors the positive trajectory observed in Q4 2023, where Usiminas' mining operation recorded record annual shipments.

While the exact impact of the import tariff increase remains uncertain, one can hypothesize that a reduction in unfairly priced imports will create a more favorable pricing environment for domestic producers like Usiminas. This, coupled with the company's ongoing efficiency drive, could lead to significant margin expansion in the coming quarters.

Ternium's long-term vision for Usiminas reaching a $150 per ton EBITDA target might not be as distant as previously thought. By leveraging a combination of internal efficiencies and external market adjustments, Usiminas could be poised to unlock its full potential, driving a wave of change through the Brazilian steel landscape.

"Fun Fact: Did you know Ternium's name is derived from the Latin words "terra" (earth) and "ferrum" (iron)? Talk about a company staying true to its roots!"