TX - LatAm steelmakers Ternium SID cut at BofA as price war victims

Ternium ( NYSE: TX ) -4.9% and Companhia Siderurgica Nacional ( NYSE: SID ) -5.5% in Friday's trading after Bank of America downgraded both Latin American-focused steel producers to Neutral from Buy and to Underperform from Neutral, respectively, "as earnings momentum has peaked as macro trends become headwinds."

Ternium's ( TX ) balance sheet should remain strong even in a more stressed scenario, "however, we recognize the lack of short-term triggers given the ongoing steel price declines, and believe shareholder returns should remain muted as TX approaches a new investment cycle, with a potential up to US$3B investment for new EAF/DRI capacity in North America to meet new USMCA rules by 2027," BofA wrote.

Meanwhile, BofA believes CSN ( SID ) is most exposed to spot steel prices in Brazil and should be hurt the most in a pricing war, and it is wary of CSN's capital allocation, with a heavy capex cycle particularly in the mining segment, cash outflows for recent acquisitions, and plans to as much as double the company's size over the next 2-3 years.

Among LatAm steelmakers, BofA recommended Gerdau ( NYSE: GGB ), preferring long vs. flat steel, U.S. exposure over Brazil due to the U.S. infrastructure bill, and a more negative view on iron ore.

Ternium's ( TX ) balance sheet is "in an excellent shape with a net cash plus investments position of ~$5.50/ADS," The Investment Doctor writes in a bullish analysis posted recently on Seeking Alpha .

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