Ternium (NYSE: TX) reported a 50% sequential increase in adjusted EBITDA for the second quarter of 2026, driven by higher shipments and expanded margins in Mexico and Brazil.

The steelmaker’s balance sheet strengthened significantly, with net debt falling to $112 million from a net cash position of $327 million at the end of March. Net income reached $465 million in the quarter.

Financial Performance

Adjusted EBITDA margin expanded to 16.5% from 12.2% in the first quarter. This improvement was primarily driven by higher realized steel prices in Mexico and Brazil. Steel cash operating income rose by $240 million sequentially due to volume growth and better price realization per tonne.

In the mining segment, iron ore shipments normalized following a seasonal recovery in Brazil. However, cash operating income declined slightly as lower realized prices were only partially offset by higher sales volumes.

What the Numbers Show

The divergence between operating performance and cash flow highlights working capital pressure. While operating results improved significantly, cash from operations totaled just $473 million for the first half, a year-over-year decline. Management attributed this to a $418 million buildup in working capital during the quarter, driven by higher inventory values and receivables associated with rising steel prices and raw material costs. This suggests that despite strong top-line momentum, liquidity is being absorbed by operational scaling rather than retained as free cash flow in the short term.

Market Dynamics and Outlook

In Mexico, shipments increased supported by restocking along the value chain and lower imports due to effective trade defense measures. The commercial market improved, while industrial demand remained cautious amid Section 232 tariffs. Management expects shipments to continue recovering in the third quarter, driven by sustained commercial momentum.

In Brazil, sales volumes were broadly steady as Usiminas focused on margin expansion rather than volume growth. Trade defense measures advanced, with the steel quota system renewed until June 2027.

Capital Allocation and Projects

Capital expenditure is projected to moderate to around $1.2 billion in 2027, down from an expected $1.6 billion for full-year 2026, as the investment cycle in Mexico concludes. The Pesquería project continues to progress, with the new slab facility startup expected in early 2027. This capacity aims to provide low-carbon steel for the automotive industry, aligning with Ternium’s revised 2030 decarbonization target to reduce emissions intensity by 50% using 2024 as the base year.

The company paid a dividend of $255 million in the quarter, representing the balance of the fiscal year 2025 payout. Management indicated that future dividend increases are possible if sustained earnings improvements continue alongside reduced capital expenditures.

Ternium S.A. has released its Sustainability Report 2025, outlining a strategy to reduce CO2 equivalent emissions intensity by 15% per ton of hot-rolled steel equivalent by 2030. The target, which uses 2024 as the base year, covers Scope 1, Scope 2, and Scope 3 emissions under the GHG Protocol methodology and includes all steel mills up to the hot-rolling stage. The company has consolidated Usiminas into this decarbonization goal.

Environmental Initiatives and Investments

During 2025, Ternium invested $93 million in environmental, decarbonization, and energy-efficiency initiatives. The Vientos de Olavarría wind farm in Argentina completed its first full year of operations, generating 434 GWh and replacing approximately 90% of the electricity previously purchased from the national grid by Ternium Argentina. Additionally, the Ipatinga facility increased the share of renewable sources in its purchased electricity mix to approximately 20% through solar electricity supply.

Operational Developments

Construction of the new DRI-EAF steel shop in Pesquería, Mexico, is ongoing, with operations expected to begin in early 2027. The company also advanced its social impact through education, inaugurating its second Roberto Rocca Technical School in Santa Cruz, Brazil. The school welcomed 192 first-year students specializing in Mechatronics and Electromechanics. In Pesquería, the technical school added a middle-school level with 128 students and maintained a technical high-school enrollment of 474 students, achieving a 95% curriculum completion rate.

Health and Safety Spending

Ternium allocated $102 million to occupational health and safety programs in 2025. The report was prepared considering the European Sustainability Reporting Standards (ESRS) as a framework, alongside international standards set by the GRI and SASB, guidelines from the World Steel Association, and recommendations of the TCFD.