The length of a supply deal between Latin American steelmaker Ternium's recently acquired Brazil slabmaking operations and the Calvert mill in Alabama owned by ArcelorMittal and Nippon Steel has been extended by 12 months to December 2020, CEO Daniel Novegil said Wednesday.
Ternium Brasil, as the slab operations are now known, will still deliver the remaining 3.5 million mt of slab left on the deal, which was due to end in December 2019, but will trim shipments to 1.2 million mt/year from 2 million mt/year, he said.
"The renegotiation was beneficial for both sides," Novegil said during a conference call.
The revamp of the contract coincides with the completion of its $1 billion expansion of the hot-rolling line at its Pesqueria complex in Mexico, announced in September. The expansion will create an additional 3.7 million mt/year of finished steel capacity at the site.
The Pesqueria facility can already produce 400,000 mt/year of hot-dip galvanized coil and 1.5 million mt/year of cold-rolled coil.
Novegil said the supply agreement with Calvert includes sales on a "delivery duty-unpaid" basis, therefore, any import tariff coming from the US' Section 232 investigation related to Brazilian semifinished steel would not increase Ternium's costs, but those of the customer.
In addition, about 2 million mt of Ternium's slab production in Brazil will be directed to its facilities in Mexico, while 500,000 mt-600,000 mt is expected to be sent to its Argentinian plant. "A few tons may also go to third parties overseas," Novegil said.
Ternium will allocate 1.2 million mt/year of slab to the Brazilian market. That will help meet the expectations of local steelmaker Usiminas, which has been seeking a more sustainable slab-supply model since it idled activities in the primary areas of its Cubatao plant in early 2016.
Ternium completed the acquisition of CSA from Germany's ThyssenKrupp on September 7. The deal involved an investment of Eur1.5 billion ($1.7 billion) and the company was renamed Ternium Brasil.
In June 2017, Usiminas signed a memorandum of understanding with the then CSA for the supply of steel slab to the Cubatao site.
Ternium Brasil has the capacity to produce 5 million mt/year of slab. In 2017 and 2016, output totaled 4.7 million mt and 4.3 million mt, respectively.
The acquisition enabled Ternium to increase its self-sufficiency in slab, since its crude steel production prior to that -- around 6 million mt/year -- was well below its 9.8 million mt/year of rolling steel capacity. The group also operates facilities in Argentina, Colombia, the southern and central US, with a combined total production capacity of 12.4 million mt/year of steel. It also is part of the group that controls Usiminas.
