Turnium (TX) Q3 2025: Cost per Ton Falls Again as Tariff Uncertainty Drives North American Strategy

2025-10-29 | By EarningsIQ Research

Turnium’s Q3 saw margin improvement driven by cost reductions, even as tariff volatility and weak Mexican demand weighed on volumes. Management’s operational focus and regional trade policy engagement are shaping a defensive posture, with major capital deployed toward North American integration and supply chain resilience. Guidance signals stable margins but softer shipments into year-end, as Turnium navigates a shifting trade and demand landscape.

Summary

• Margin Expansion via Cost Control: Turnium’s EBITDA margin improved on lower input costs and operational efficiencies.
• Tariff and Trade Policy Drive Strategy: Active engagement with US and Mexican policymakers anchors Turnium’s North America-centric approach.
• 2026 Recovery Hinges on Regional Demand: Management anticipates Mexican demand rebound and ongoing USMCA negotiations to shape medium-term growth.

Performance Analysis

Turnium delivered sequential EBITDA growth in Q3 2025, primarily on the back of a continued decline in cost per ton, reflecting the company’s Competitiveness Plan, an ongoing cost-reduction and efficiency initiative. This margin improvement offset a modest decrease in revenue per ton, which was attributed to lower steel prices and subdued end-market demand, especially in Mexico and Argentina. In Brazil, operational improvements further contributed to cost discipline, even as the market contended with a surge in low-priced Chinese imports.

Net income was negative, driven by a sizable non-cash write-down of deferred tax assets at Usiminas, Turnium’s Brazilian affiliate, and a provision for ongoing litigation. Excluding these items, underlying profitability remained solid. Cash flow from operations exceeded half a billion dollars, reinforcing Turnium’s ability to self-fund its robust capital expenditure program, with Q3 capex totaling $711 million—largely tied to the Pesquería Industrial Center expansion in Mexico. The mining segment faced headwinds with lower net sales, mainly due to temporary production declines and higher costs at Las Encinas.

• Cost Reductions Offset Price Weakness: Lower raw material and slab costs, plus efficiency gains, more than compensated for softer realized prices.
• Volume Growth Uneven Across Regions: Shipments rose in Mexico and Brazil, but were weaker in the US and other markets, highlighting regional demand divergence.
• Mining Segment Lags: Margins compressed as production hiccups and higher costs at Las Encinas weighed on results, though normalization is expected in Q4.

The company’s net cash position declined due to peak capex and securities revaluation, but overall liquidity remains strong, supporting sustained dividend payouts and future investment capacity.

Executive Commentary

Strategic Positioning

1. Fortress North America and Trade Alignment

Turnium is positioning itself as a beneficiary of tighter North American steel integration, actively supporting the “Fortress North America” concept. The company’s advocacy and engagement with US and Mexican authorities center on harmonizing tariffs and trade policies under the USMCA, United States-Mexico-Canada Agreement, a trilateral trade pact. Management expects these efforts to yield a more resilient regional supply chain and fairer competition, especially against Asian imports.

2. Operational Efficiency and Cost Leadership

The Competitiveness Plan remains Turnium’s core lever for value creation, targeting sustainable cost reductions through raw material sourcing, process improvements, and technology upgrades. These actions are crucial as steel price volatility and demand softness persist in key markets. The company expects full implementation of its cost programs by year-end, with incremental margin gains anticipated into 2026.

3. Capital Allocation and Growth Investments

Turnium’s capex is peaking in 2025, with $2.5 to $2.6 billion earmarked for the year, largely for the Pesquería expansion in Mexico. This includes new galvanized and cold-rolling lines, as well as a Direct Reduced Iron (DRI) and Electric Arc Furnace (EAF) facility, EAF, a lower-emission steelmaking technology. The project is on time and on budget, with key milestones set for late 2025 and 2026, supporting both regional supply and decarbonization goals.

4. Shareholder Structure and Simplification

Management reiterated its desire to simplify the group’s complex regional ownership structure, but noted that progress depends on external factors, especially in Argentina where significant stakes are held by government entities. The company continues to monitor opportunities for structural optimization, which could unlock planning and operational efficiencies over time.

5. ESG and Renewable Energy Initiatives

Turnium’s sustainability credentials were bolstered by the Steely Award for its Wind of Change project, a renewable energy wind farm in Argentina now supplying 90% of externally sourced electricity for local operations. This not only reduces the company’s carbon footprint but also delivers tangible cost savings, reinforcing the business case for further ESG investment.

Key Considerations

Turnium’s Q3 reflects a company in transition, balancing aggressive cost management with strategic bets on regional trade policy and supply chain localization. Investors should weigh these dynamics as the company navigates macro and policy headwinds.

Key Considerations:

• Policy Shifts Shape Demand and Competition: Mexican and US tariff actions will directly influence Turnium’s competitive position and volume outlook in 2026 and beyond.
• Capex Cycle Nears Peak: With major projects on track, capex is set to decline after 2025, freeing up cash for other uses and reducing balance sheet pressure.
• Dividend Stability Despite Earnings Volatility: The board maintained the interim dividend, signaling confidence in underlying cash flow even as net income was impacted by non-cash items.
• Regional Demand Recovery Is Key: Management expects Mexican steel demand to rebound in 2026, contingent on infrastructure investment and trade normalization.

Risks

Turnium faces material risks from ongoing trade negotiations, with the potential for adverse tariff outcomes or policy misalignment between USMCA members. Chinese steel overcapacity and import surges in Brazil remain a threat to domestic pricing and margins, while macro uncertainty in Argentina and construction weakness in Mexico could delay demand recovery. Execution risk around large-scale capital projects also persists, particularly if market conditions deteriorate or regulatory hurdles arise.

Forward Outlook

For Q4 2025, Turnium guided to:

• Slightly lower adjusted EBITDA on seasonal shipment declines across all markets
• Stable EBITDA margins as cost reductions offset modest price and volume headwinds

For full-year 2025, management maintained guidance:

• Capex of $2.5 to $2.6 billion, with major project milestones on track
• Dividend payout of $2.70 per ADS, equivalent to a 7% yield

Management highlighted several factors that will shape the coming quarters:

• Tariff and trade policy developments in the US, Mexico, and Brazil
• Normalization of mining production and continued cost optimization

Takeaways

Turnium is executing well on cost and operational fronts, but remains highly exposed to trade policy shifts and regional demand cycles. The company’s proactive engagement with policymakers and decisive capital allocation position it for medium-term resilience, yet near-term results will hinge on external macro and regulatory outcomes.

• Cost Leadership Underpins Margin Stability: Turnium’s ability to offset price and volume pressure through efficiency gains is a critical differentiator in a volatile market.
• Policy Engagement Is a Core Strategic Lever: The company’s future is increasingly tied to North American trade harmonization and regional supply chain policy.
• 2026 Demand Recovery Is Pivotal: Investors should monitor Mexican infrastructure spending and USMCA renegotiations as leading indicators for volume and margin upside.

Conclusion

Turnium’s Q3 2025 results reinforce its focus on cost discipline and regional integration amid a turbulent trade environment. While operational execution is strong, the company’s fortunes are closely linked to policy and demand recovery in North America, making external developments the primary watchpoint for forward-looking investors.

Industry Read-Through

Turnium’s quarter highlights the steel sector’s increasing dependence on regional trade policy and supply chain localization, as governments in North America and Latin America recalibrate tariffs and incentives to favor domestic production. The surge in Chinese steel exports and the tightening of tariffs in Mexico and Brazil foreshadow similar moves across other industrial sectors exposed to global overcapacity. Producers with scale, cost leadership, and policy influence are best positioned to weather near-term volatility, while those reliant on commodity exports or less integrated supply chains may face sustained margin pressure. The emphasis on decarbonization and renewable energy adoption in steel also signals a broader ESG-driven capital allocation trend for the industry.

TX Materials Steel Tariffs North America Capex Cost Reduction USMCA