TX - South American steelmakers Ternium SID downgraded at BofA

2023-06-12 14:42:08 ET

Steel producers Ternium ( NYSE: TX ) -4.3% and Companhia Siderurgica Nacional ( NYSE: SID ) -3.5% in Monday's trading after Bank of America downgraded the stocks to Neutral and Underperform, respectively, saying it expects credit demand will remain subdued amid high uncertainty and unemployment levels.

Ternium ( TX ) shares have surged this year, but BofA expects flat steel prices in the U.S. will continue to drop from its peaks over the coming months in an environment of falling lead times, macro concerns and a waning of supply-side support factors with the restart of some blast furnaces, the ramp-up of new capacities following start-up issues, and receding contract volumes.

BofA also also downgraded CSN ( SID ), reflecting its cautious outlook for both iron ore and Brazilian flat steel prices, currently at a 30% import parity premium compared to the 5%-10% historical average, while also noting CSN's leverage, which could surpass ~4.0x in 2024.

Gerdau ( NYSE: GGB ) remains BofA's top pick in the sector on attractive valuation, trading at 3.5x estimated 2023 EV/EBITDA, and a relative better outlook for long vs. flat steel both in the U.S. and in Brazil.

More on Ternium:

• Financial and valuation comparison to sector peers
• Analysis: Ternium: A Long-Term Buy Despite Growth Concerns
• Stock price return: Up 35% YTD, roughly flat in the past 12 months

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