Operator:

Good day and welcome to the Steel Dynamics Second Quarter 2024 Earnings Conference call. At this time, all participants are in a listen-only mode. After management's remarks, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised this call is being recorded today, July 18, 2024, and your participation implies consent to our recording of this call. If you do not agree to these terms, please disconnect. At this time, I'd like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Mark Millett :

Thank you, David. Good morning, everyone. Appreciate you being with us on our second quarter ‘24 earnings call. As you likely read, our teams achieved a solid second quarter financial and operational performance. I think most gratifying was achieving another great quarter for safety. Teams have been commissioning and ramping up four new value-added flat rolled steel coating lines at a record rapid pace, which is adding 1.1 million tons of higher margin product diversification. We're experiencing some challenges in the second quarter. The Sinton team continues to make progress, gaining full access to their melting capacity this past week. Steel shipments for the quarter with 3.2 million tons, revenues were $4.6 billion, adjusted EBITDA $686 million. Cash flow from operations was $383 million. I remain incredibly proud of the Steel Dynamics’ team. They are family. It's an honor and pleasure to be honest to be part of the team that looks out for one another and that strives for excellence each and every day. And that's why we're so focused on providing the very best for their health, their safety and their welfare. We're actively engaged in safety at all times and at every level, keeping it top of mind and an active conversation each and every day. That's significant impact the team continues to be deeply focused on our take controller safety program that is yielding an even better safety culture. But as I always say, there's more to do and we will not rest until we consistently achieve our goal of zero injuries. So with that said, Theresa, would you like to add some color to the quarter?

Barry Schneider :

Thank you, Theresa. Our steel fabrication operations performed well in the second quarter, achieving strong earnings and steady volume aligned with first quarter results. The market segments that we participate in influence the mix of joist deck that we engineer for each job. Our team's ability to engineer and manufacture the best solution for each segment remains a core strength. Our steel fabrication order backlog remains at a healthy level, not extending through the end of the year. We continue to have high expectations for the business, continued onshoring and manufacturing, continue with infrastructure spending and fixed asset investment related to the IRA programs should provide momentum for additional construction spending later this year and through 2025. Our steel fabrication platform provides meaningful volume support for our steel operations, critical and softer demand environments allowing for higher through-cycle utilization compared to our peers, but also helps to mitigate the financial risk of lower steel prices. Our metals recycling operations improved earnings in the second quarter, as increased demand for North American steel producers supported higher ferrous scrap volume, more than compensating for the challenging price environment. We believe ferrous scrap prices have stabilized and should remain relatively stable through the rest of the year subject to seasonal moves. The North American geographic footprint of our metals recycling platform provides a strategic competitive advantage for our steel mills and for our scrap generating customers. In particular, our Mexican recycling locations competitively advantaged our Columbus and Sinton raw material positions. They also strategically support increased procurement of aluminum scrap for our future flat rolled aluminum operations. Our metals recycling team is partnering even more closely with both our steel and aluminum teams to expand scrap separation capabilities through both process and technology solutions. This will help mitigate potential prime ferrous scrap supply issues in the future. It will also provide us with a significant advantage to materially increase the recycled content in our aluminum flat rolled products and increase our earnings potentials. Field team had a solid quarter, achieving shipments of 3.2 million tons. During the second quarter of 2024, the domestic steel industry operated at an estimated production utilization rate of 78%, while our steel mills operated at a rate of 81%. We consistently operate at higher utilization rates due to our value added steel product diversification, our differentiated customer supply chain solutions in the support of our internal manufacturing businesses. The higher through cycle utilization of our steel mills is a key competitive advantage, supporting our strong and growing cash generation capability and best-in-class financial metrics. Our realized steel pricing declined across product portfolios as prices weakened throughout second quarter. However, value-added flat rolled steel pricing spreads remained very resilient during the same time frame, supporting our earnings as we already are the largest producer of these products in North America. And we are growing with the new addition of four coating lines with 1.1 million tons of additional capacity. Underlying demand remains steady, but customers remain hesitant to place orders due to the continuing decline of scrap prices throughout the quarter. Additionally, a surge in steel imports put pressure on the supply dynamics. However, order activity has increased over the last month, especially within the last several weeks, stabilizing our lead times, we believe this is the bottom ranch for pricing with positive moves in the future. The Sinton steel team continues to make improvements in operating efficiency and consistency. We are planning for setting to see additional improvements in production and profitability as the team took two different four day outages during the second quarter to, among other things, resolved the transform limitations we have previously discussed. The outages were necessary to install the necessary additional safety circuits and restore our electrical capacity, which will now allow us to access 100% of our the melting capacity versus the previous 80%. Also, the additional two new value line -- coating lines that's in were successfully commissioned and have commenced operations with great success, improving the mill's value added product mix and improving the operating efficiency of the facility. The additional alliance will support increased volume and margins as we head through this year. Regarding the steel market environment, North America automotive production estimates for 2024 recently revised was strong 16 million units, with continued growth expected in '25 and 2026. This forecast is based on demand resilience of stronger production results as supply chain constraints continue to dissipate. Automotive dealer inventories also continue to remain below historical norms despite the recent cyber disruptions. Non-residential construction remained stable with slowdowns across some building types due to hesitancy around higher interest rates. Additionally, onshoring and infrastructure spending should provide further meaningful support to fixed asset investment and related construction oriented projects in the coming years. As for the energy market, the sole industry continues to grow and keep oil and gas activity steady. However, increasing OTCG and line pipe imports created a challenging second quarter environment for the domestic producers. Looking forward, we are optimistic regarding steel demand and pricing dynamics for 2024. And with that, I'll turn it over to Mark.

Operator:

[Operator Instructions] Your first question is coming from Carlos De Alba from Morgan Stanley.

Mark Millett :

Well, as it depends, to be honest, on the product from an over time, it will improve, obviously. Our target for the UBC is around about 90% to 95%. UBC raw material. But for the can sheet will be 90%, 95% with a certain aim of 95%. And I think that to some degree is reliant -- is achievable because of the segregation technologies that we've developed to get differentiate the 5,000 series from other products. The automotive would be lower than that. And I think our aim would be around about 70%.

Mark Millett :

I've not done the math, but it had intuitively, that sounds right.

Martin Englert :

For low copper shredded scrap, can you provide an update on the processing capacity within the internal network and any ongoing growth initiatives there and where you think that capability might be entering next year?

Martin Englert :

Are you putting the technology in at the shredding facilities or are you co-locating it at the mills?

Martin Englert :

And no current estimates as to how much of your capability is for processing that today?

Operator:

Your next question is coming from Tristan Gresser from BNP Paribas Exane.

Barry Schneider :

On the outage front out in Sinton, the work we had to do take place in the high-voltage switchyard. So we bring in transmission voltage in Texas. We're the only facility in the state of Texas that actually brings in 345,000 volts. So in the early April outages, we put the concrete down it's necessary to support the equipment and made bus modifications. And as the equipment arrived, there's a protocol of both testing the equipment, pressurizing it, safely bringing it to a position where we're ready to turn it on. And during that process required us to they have the high voltage also shut off. So as we actually got the equipment fully on-site, fully installed and now turned on the equipment, there's a series of outage that comes along with that. And we kind of identified the kind of the key steps in the process. So we did have a slight delay with the hurricane situation in South Texas. And just out of prudence, we decided to make sure we weren't in the process of messing with our high-voltage system when we add hurricane winds. So we're in a much better place now. We're very comfortable that we've addressed the root cause. We put in some new safety gear that works in the electrical world, and that's as deep as I can go into it myself, I'm mechanical guy. But we're confident that we're positioned now to really fully utilize the power in the furnace. And the teams are practice-wise are up to speed. So we do see this as a big key step in getting even more productivity out of the plant.

Tristan Gresser :

So I guess Sinton was not EBITDA positive in Q2. And that means there could be a significant step-up in profitability into Q3?

Tristan Gresser :

And maybe a quick follow-up on that -- on the supply outlook as you bring more volume from Sinton. I mean if we look at U.S. HRC prices is down 40% from peak and margin on a spot basis. They haven't been that low for a long period of time. So I guess, why do you think that the market can absorb a higher volume from Sinton? And have you contemplated it instead reducing production more capacity at this time. And lastly, in that type of environment where some of your peers are probably much more difficult conditions, have you been able to gain market share?

Mark Millett :

And to be honest, today, we can sell every time we can produce in Sinton, it's not a market restricted shipment number. And I think you also have to look at the incredible growth that will take place in demand growth that will take place in Mexico over the next few years. If you look at we -- and others talk about onshoring, reshoring, transhoring, however you want to look at it, the growth then in Mexico, you've got to be there to witness and experience is absolutely phenomenal. So the market is going to continue to grow as we anticipated back in, I think, '18 -- 2018, 2019, when we came up with the project in the first place.

Timna Tanners :

Wanted to just one quick follow-up on different take on Sinton. Trying to understand why it's still at 75% guided in your release into second half and not full out? And then also, is there an opportunity to boost exports given that Lazarus Carnis has been down for, I think, almost 1 month, 1.5 months? Or is there any issue with the trade protections against Mexico, does that change the dynamic any?

Operator:

Your next question is coming from Katja Jancic from BMO.

MarkMillett :

Yes. I guess the thinner margins tend to be in can sheet, if you were to stack them, again, because of the just the volume of that product. The industrial products, particularly if we were to put them through our paint lines are going to be as valuable as any of the outputs.

Andrew Keches :

A question for Theresa. Look, you've refinanced the 2024 notes or maybe even some of the '25. You generally just seem to be in a pretty favorable balance sheet position right now that you've been upgraded by two of the agencies in the past year. You got another positive, you through a lot of the aluminum spending, leverage is still pretty low and you'll get the cash flow benefit from that probably by the end of '25 or '26, it sounds like. So I guess just taking a step back, can you just give us an update in terms of what the direction of the balance sheet is from here? Do you see the capacity to carry more leverage knowing how leverage has been relatively conservative at low pricing points? Or do you want to preserve some optionality for future opportunities? I guess that's a hidden second question on what the pipeline might look like for you.

Operator:

Your next question is coming from Bill Peterson from JPMorgan.

Mark Millett :

As we say, I said earlier, the initial material for qualification of the can sheet and auto will start in '25. As you can recognize, the consumer base is not necessarily going to dedicate long, long, long contracts at that moment in time. But come to the end of '26 would expect the longer-term contracts, which in those markets are three, four years duration would be in '26.

Operator:

Your next question is coming from Alex Hacking from Citi Investment Research.

Theresa Wagler :

No. For the 2026, Alex, that's not the exit rate. That's for the full year. The exit rate would be close to full capacity in 2026.

John Tumazos :

Concerning the total steel market, last year, indirect steel imports rose another 3 million tons. And in April and May, total steel imports, including slabs were 30% share. I didn't get it right. I thought with all the new beautiful, new electric furnace steel capacity coming online, domestic shipments would rise and imports would fall. Do you think there's a customer preference for blast furnace metal? Or do you think domestic pricing in hindsight was just too aggressive, too high. It amazes me when the customers want the foreign steel because the delivery window isn't precise, and they have to carry much more inventory and have much more steel price risk, et cetera.

Operator:

Your next question is coming from Carlos De Alba from Morgan Stanley.

Theresa Wagler :

Carlos, we can't be specific about that. I would tell you that from a historical basis, it's very strong on a go-forward basis, and there has been stabilization in pricing and specifically around the joist products and the decking products as well. So that's all the color we can give you. I apologize.

Christ LaFemina :

Most of my questions have been asked, but I just had one on the cash flow in the second quarter and in particular, on the working capital build, how should we think about the reversal of that through the second half of the year? And what portion of that working capital build is a function of the aluminum mill and still ramping up? Is some of that going to kind of linger into 2025 and 2026?

Operator:

Your next question is coming from Timna Tanners from Wolfe Research.

Theresa Wagler :

We're very comfortable with our cash flow generation capability at this point in time, given what we can see, there's no expectation of changing our capital allocation policy for the remainder of the year.

Alex Hacking :

I'm just curious in your perspective or are you concerned about some of the rhetoric around Mexico and the steel trade with Mexico. The U.S. is a net export for flat steel to Mexico, right? Sinton is targeting Mexico for off take. Are you concerned that some of the rhetoric that's sprung up recently could lead to more tariffs, retaliatory tariffs. And is that a potential risk that you're considering? Or how do you think about that?

Operator:

Thank you. That concludes our question-and-answer session. I'd like to turn the call back to Mr. Millett for any closing remarks.

Operator:

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation and have a great and safe day.

Operator:

Good day, and welcome to Steel Dynamics First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised this call is being recorded today, April 24, 2024, and your participation implies consent to our recording of this call. If you do not agree to these terms, please disconnect.

David Lipschitz:

Thank you, Matthew. Good morning, and welcome to Steel Dynamics First Quarter 2024 Earnings Conference Call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millett, Chairman and Chief Executive Officer of Steel Dynamics; Theresa Wagler, Executive Vice President and Chief Financial Officer; and Barry Schneider, President and Chief Operating Officer. The other members of our senior leadership team are joining us on the call individually.

Mark Millett:

Super. Thanks, David, and good morning, everybody. It's good to be with you for our first quarter '24 earnings call today. Once again, our teams achieved a strong first quarter financial and operational performance.

Mark Millett:

Thanks, Barry. Thanks, Theresa. Well, consistently strong through-cycle operating and financial performance continues to support our cash generation and growth investment strategies. As mentioned, the 4 value-add flat-rolled steel coating lines are now online and in various modes of startup. And certainly, the line in Sinton was an absolute unqualified success. The team has done a phenomenal job there. And Sinton should see a step function improvement in operations and profitability as those 2 new lines ramp up after the April maintenance, which occurred actually 2 weeks ago, and that's -- they're up and running again.

Operator:

[Operator Instructions] Your first question is coming from Martin Englert from Seaport Research Partners.

Theresa Wagler:

Martin, the way that you and others are able to actually calculate what you call conversion costs is a little bit difficult. But yes, with the increasing production at Sinton, which we expect to continue to improve into the second quarter and the second half of the year, you will see that the additional volume will help compress costs across the spectrum, but product mix is also something that you need to take into consideration when you think about flat versus long. But we would expect to see that the conversion rate, as you calculate it, would continue to reduce. I can't speak to the exact magnitude thereof.

Curtis Woodworth:

A couple of questions on the greenfield aluminum project. Can you kind of give us a time line on where -- when you think you could get to more of an EBITDA breakeven level on the facility and what type of utilization rate you think you would need to achieve that?

Mark Millett:

I'll go backwards. That's the easier way. From a CapEx standpoint, as I mentioned in my sort of preliminary thoughts, virtually everything is now contracted out. We did, and you saw here some months ago, we did bump it up to that $2.7 billion with the knowledge of some inflationary pressures. Those are all baked in to that $2.7 billion, and we see no expansion on that number going forward.

Theresa Wagler:

I think something that I would point out in addition to what Mark said. If you look at -- and take into consideration that volumes are, to Mark's point, at a pre-COVID level, but earnings were still, from an operating income perspective, about over $1,200 per ton.

Operator:

Your next question is coming from Carlos De Alba from Morgan Stanley.

Mark Millett:

Carlos, I would say, as you look at the mix across line products, as we make sections that are lighter sections, that's more responsive to what the marketplace is right now. So we've had a pretty robust level of order input. And Structural and Rail has performed pretty well.

Carlos de Alba:

And if I may ask another one on the aluminum project. Have you been able to already secure contracts with some of your customers, or that's still undergoing in terms of discussions with them?

Operator:

Your next question is coming from Timna Tanners from Wolfe Research.

Mark Millett:

Well, I think it's, in large part, some of the seasonality and just the weather-related issues, Timna. The -- and you saw some price adjustment here in the marketplace, whatever that was, 2 months ago? 6 weeks, 8 weeks ago. And again, that wasn't necessarily market pressure that was just absorbing sort of some discounting that leaked into the marketplace over the prior month, 2 months. We feel confident moving forward for the rest of the year in that space.

Barry Schneider:

Yes, Timna, the -- all 4 of the process lines at this point have actually run product. We staged the start-up to best utilize our teams and also to really focus on improving the start-up process for the other lines. So a paint line in Terre Haute is up and running well, shipping prime product. We expect that, that ramps up through second quarter, third quarter, getting up closer and closer to what the final production will be.

Katja Jancic:

On Sinton, can you provide a bit more color how we should think about the utilization rates in the rest of the year?

Barry Schneider:

We had talked about the primary side power last year and having some transformers that needed to be replaced. And that equipment has very long lead times. Our team was able to secure some shorter-term solutions that we've engineered into place and done the construction. So now that the outage is over, we could put that equipment in with the power off. We look to bring the new transformer support, so that the plant has full operational capacity.

Operator:

Your next question is coming from Lawson Winder from Bank of America.

Mark Millett:

I will start. I would just reiterate what I've always said in past calls. Coated products are gaining more and more market share just generally. And there are some pretty dynamic changes within the marketplace that is even added to that. If you think about the solar market, which is absolutely huge, huge today. You're consuming around about 25 tons of coated product per megawatt.

Barry Schneider:

I'd like to add to that, Mark, too, that the teams have been diversifying our coated profile. So we have many different kinds of coatings that we offer. And those various product lines provide a very good supply solution to our customers. So the whole supply chain has been maturing for these products, and it allows us to move our tons to balance our production needs as well as where the markets are interesting.

Lawson Winder:

Maybe if I could just ask a follow-up on your -- you've provided some commentary on fabrication order backlog and then the pricing on that and indicated it was above pre-COVID levels. Maybe if I could just try to get a little bit more color on that. Would it be fair to say that pricing in your new bookings and backlog, at least, are converging to some level, and perhaps ask how that might compare to 2023 levels?

Operator:

Your next question is coming from Tristan Gresser from BNP Paribas.

Theresa Wagler:

Tristan, this is Theresa. We're not specifically giving guidance on any of our segments from an earnings perspective. We don't do that, but I'll talk to you about certain levers. So, we do expect, as Mark said earlier, and you would see this normally, but we will have higher volumes, both across fabrication steel and mills recycling, as we move through the year, which is generally the case in the second, third quarter environment as you move out of the seasonality into stronger demand periods.

Tristan Gresser:

All right. That's clear. And maybe just the last one. You mentioned in your outlook in your prepared remarks that you expect lower imports. Can you discuss that a little bit? And there have been some discussion at the high level between the U.S. and Europe of potential carbon-based tariffs. Do you believe that's still on the table and that could potentially materialize depending on who is the next president in the United States?

William Peterson:

Nice job on the quarterly execution. I wanted to talk about some of the reshoring trends but -- and also the data center buildout. You've obviously seen a big uptick in data center. But on the same side, we've seen, obviously, warehouses continue to kind of remain negative. So I guess the question is, what is the typical steel intensity you see of data centers? And how does that opportunity compare to a warehouse opportunity, again, since that's kind of normalized here recently?

Theresa Wagler:

Yes. The biggest chunk of capital will relate to, obviously, the aluminum investment. And we would expect to see those tick up in the second and third quarter, as equipment continues to arrive and they hit certain milestones. So you should see the bulk of that additional CapEx or remaining CapEx being in the second and the third quarter, probably about equal and then probably go down to about the same level you saw in the first quarter and the fourth quarter.

John Tumazos:

I see that you're not staggering the 3 aluminum slab melt shops, with 1 or 2 of them to follow. Does that mean that you have a lot of customers pent up already for the aluminum rolling mill and that you're concerned that you need the raw material because it might sell out fast?

Mark Millett:

Well, I wish it was all absolute strategic, but some of it is just luck or bad luck, John. But firstly, the satellite mills will -- or slab plants will be pretty well focused on UBC. And so the Columbus mill itself will have to produce the 5000, 6000 automotive stuff and some of the industrial stuff.

John Tumazos:

So it's fair to be lucky than smart.

Operator:

Thank you. That concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millett for any closing remarks.

Operator:

Good day, and welcome to the Steel Dynamics Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised this call is being recorded today, January 24, 2024, and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Mark Millett:

Thank you, David. Good morning, everyone. Thank you for being with us on our fourth quarter and full year 2023 earnings call. As you saw on our release, our teams achieved a strong annual 2023 financial and operational performance. I think most gratifying was achieving our best safety year with the lowest recordable incident rate ever. I want to applaud and congratulate all the teams because that it was a monumental effort put into get it. Steel shipments were record 12.8 million tons. I think, it needs to be emphasized that we've got 3 million tons yet of additional shipping capability to leverage. We have the second best year for revenues at $18.8 billion and cash flow from operations of $3.5 billion. Adjusted EBITDA was $3.7 billion. I think, the year clearly demonstrated the through cycle earnings resilience of our business model. It's manifest by a diverse value add product portfolio supported by a superior operating culture, driving world class low cost operations. I can be more pleased at Sinton. Sinton is showing significant operating improvement was EBITDA positive in December, with a clear path to profitability in the first quarter of 2024 and thereafter. We're also achieving fast paced progress on our aluminum flat rolled investments. There continues to be strong commercial support for a new and innovative supply chain solution from Steel Dynamics. So the aluminum industry is considering a well-known and highly regarded metals producer. I'm incredibly proud of the Steel Dynamics team. They're the foundation of our company and they drive our success. And to be honest, they inspire me. Feeling they were esprit de core and commitment to the SDI family during the recent holiday parties was absolutely just simply humbling. And that is why we were so focused on providing the very best for their health, safety and welfare. They're actively engaged in safety at all times and at every level, keeping it top of mind in an active conversation each and every day. As I already suggested, with that focus, the team's safety performance was a record low incident rate in 2023. Obviously, though there's more to do, we will not rest until we consistently achieve our goal of zero injuries. So that said, I will hand it to Theresa, who will then bet the ball to Barry and then back to me to finish up. So Theresa?

Barry Schneider :

Thanks, Theresa. Our steel fabrication operations performed exceptionally well throughout 2023, achieving historically strong earnings. At the end of the year, our steel joists and deck order backlog was solid extending to the first half of 2024. We continued to have high expectations for the business, continued onshoring and manufacturing, coupled with infrastructure spending and fixed asset investment related to the IRA programs could continue to provide momentum for additional construction spending. Equally important, our customers tell us demand remains solid and share our optimism. Current pricing is stabilized at historically higher levels and order entry has improved. Fabrication platform provides meaningful volume support for our steel mills, critical and softer demand environments, allowing for higher through cycle steel utilization compared to our peers. It also helps mitigate the financial risk of lower steel prices. Our metals recycling operations also perform well this year, considering the challenge of declining scrap prices throughout much of 2023. The North American Geographic footprint of our metals recycling platform provides a strategic competitive advantage for our steel mills and for our scrap generating customers. Particular our Mexican locations competitively advantage our Columbus and Sinton raw material positions. They will strategically support aluminum scrap procurement for our future flat rolled aluminum investments. Our metals recycling team is also partnering even more closely with both our steel and aluminum teams to expand our scrap separation capabilities through process and technology solutions. This will help mitigate potential prime fair scrap supply issues in the future. It will also provide us with significant advantage to materially increase recycled content for our aluminum flat roll products and increase the earnings opportunities. The steel team had another strong year achieving record volume of 12.8 million tons. During 2023, the domestic steel industry operated at an estimated production utilization rate of 76%, while our steel mills operated at a rate of 93% excluding the Sinton plant. We consistently operate a higher utilization due to our value added steel product diversification, our differentiated customer supply chain, and the support of our internal manufacturing businesses. This higher through cycle utilization of all our steel mills is a key competitive advantage, supporting our strong and growing cash generation capability and best-in-class financial metrics. Regarding the steel markets, steel pricing improved in the fourth quarter 2023 and into January. Customer order entry rate has been strong and lead times have been extended, while their inventory levels remained at historically low amounts. In fact, our flat wheel steel operations have experienced one of the strongest order entry environments in January, especially for our value added products. Additionally, steel imports have generally remained at a manageable level with expectations of this to continue. As Sinton and the team has achieved significant improvements in operating efficiency and consistency. They average about 65% of capability in November, December, and have been running even stronger rates here in January. We are planning for Sinton additional improvements in production after the team makes changes to certain transformers at the end of this first quarter, 2024, while we allow access to a 100% of our mill capacity versus the current 80% capacity. Additionally, the two new value added coating lines will begin operating in the first quarter, supporting increased volume and margins. Regarding the steel market environment, automotive production estimates for 2024 or estimated 16 million units, while automotive dealer inventories remain below historical norms. Non-residential construction remains solid as evidenced by the strength of shipments and backlogs at our structural rail division, and customer inventory levels are low. Additionally, onshoring and infrastructure spending should provide meaningful support to fixed asset investment in related construction oriented projects in the coming years. As for the energy market, oil and gas activity is strong, driving approved orders for OCTG and solar, those areas all grow. Looking forward, we are optimistic regarding steel demand and pricing dynamics for 2024. With that, Mark?

Operator:

[Operator Instructions] Your first question for today is coming from Martin Englert with Seaport Research.

Theresa Wagler:

As the way that the information that you guys can use to back into our conversion costs, I know it's a little difficult, but you hit the primary driver with Sinton and ramping up as significantly as we're expecting them to do in the first quarter and as they are doing right now in January already, we would expect to see that overall as you calculate it conversion costs come down absent any other factors, correct?

Theresa Wagler:

No, it is really hard for us to give you guidance, as you know, Martin, as it relates to the conversion costs as you're calculating it. As conversion costs really stand within the steel operations themselves, the two conversion costs are very stable. We don't expect to see a lot of movement except for Sinton again because of the additional volumes. The substrate does have an impact, as you mentioned, but we don't expect to see that mix of processing versus production be dramatically different in the first quarter.

Theresa Wagler:

Martin, the backlog prices held in very steadily. There's not a dramatic difference. And again, we don't give specific sense to the backlog pricing for fabrication or for other operations. But the resiliency and the price, both what we're seeing now and in that backlog is very steady.

Martin Englert:

Your comment on you believe that its trough, does that pertain to volumes or price or volumes and price?

Operator:

Your next question is coming from Tristan Gresser with BNP Paribas.

Mark Millett:

I guess, I would just leave it as already stated, the order input rate increased in Q4. That will flow through this year. You all have as you -- I know you appreciate sort of seasonality in this first quarter with the winter months and construction being a little inhibited by the weather. But I think we will certainly see a turn into the second quarter and through the rest of the year.

Theresa Wagler:

Thanks, Tristan. So the biocarbon project hasn't increased in cost. It's stayed put. It stayed the same. It's $260 million. We did expect at one point in time to possibly get some tax credits that became unavailable once the definitions kind of became more precise from the administration. But otherwise, the capital cost of $260 million remains what we thought it would be. And that project is still online to be completed and to start before the end of 2024 which, as a reminder, is incredibly additive to our decarbonization path, and it's going to really help our customer base as you look at the carbon content across our steel operations with the benefit of using the biocarbon. So incredibly excited and the team is doing a fantastic job in Mississippi getting that up and running. So that will be spent primarily in 2024. And that $2 billion is a number that I would have given you last quarter as well. So that stayed the same for total CapEx in 2024. As it relates to the aluminum project, most of the incremental and it rounded to $200 million, but it was less than that in actuality. But most of that will be spent in 2024. So I gave you the spend for aluminum of about $1.4 billion. This year, and it would be our expectation. And then there would be a trailing, call it, $150 million to $200 million remaining to be spent in 2025 related to the aluminum projects. And so really nothing significant has changed on the capital front, except for that incremental addition in the aluminum project itself -- I'm sorry, I forgot, I had to look at my notes. You asked a lot of questions, Tristan. The last one was related to consensus for 2025. And I would just -- and free cash flow. I would just point out for everyone on the call. So for the last two years, unfortunately, Sinton has been negative from an EBITDA perspective. And Mark said on the call this morning that we will be EBITDA positive in the first quarter and thereafter, that's a significant swing in just earnings itself just as it relates to the ramp-up of Sinton. In addition to that, you have the four value-add flat roll lines that are coming online in 2024, which are significant additional opportunity for contribution to earnings on the value-added side as well as that's where the demand is today is in the painted products and the Galvalume products. And then if you couple that with the fact that we've been increasing and will continue to increase volumes in our metals recycling segment, both related to the collection of nonferrous scrap, specifically aluminum and to help service our steel mills on the ferrous side of the equation. And then finally, in 2025, we will be starting our aluminum mill, midyear is the current forecast. So that's contributing to earnings, as Mark mentioned, not we believe through cycle earnings of $650 million to $700 million. So I think everybody maybe needs to take a step back and kind of look at the opportunities that we have from an earnings perspective. And yes, we do expect to generate cash in 2024, and we expect to continue -- we plan to continue with our share repurchase program.

Operator:

The next question for today is coming from Carlos De Alba with Morgan Stanley.

Mark Millett:

Thank you, Carlos. The commercial team, in all honesty, has only been put together over the last, I would say, two months. They're very, very active with our customer base and all honestly, we all are at every level. And the reception is incredibly high. And I would suggest that we have total confidence that we're going to be able to support the ramp-up in '25 into '26.

Theresa Wagler:

As far as the ramp-up, I'll let Barry address how quickly they ramp up. I would tell you from a financial perspective, the coating lines, they are in totality, all four, around $600 million and they tend to have a 2.5 to 3-year payback. So it's very nice returns.

Mark Millett:

When you think about the four lines or particularly the two lines in Sinton, obviously, it's going to expand our value-add sort of product portfolio down there and enhance the margin directly there. But as importantly, it will allow us to fully utilize the downstream lines. So yes, the team has done a phenomenal job on the hot side. The -- you're going to see great gains there through increased utilization. As Barry said, we're knocking on 75% utilization today in January and 80% is right around the corner. But downstream, when you take that product, you pickle it, you put it through the time mill and other lines. Having the additional what is 300,000, 400,000 tons of downstream. That's going to allow probably loading of those downstream lines and obviously a dilution of the cost structure. So it's a very, very important and effective impact to some here in the next three or four or five months.

Timna Tanners:

I wanted to ask about -- I wanted to follow -up and just -- I know you mentioned that you thought volumes had hit bottom and prices were stabilizing. Do we have kind of the effect of the higher price from the -- into the fourth quarter hitting in the first quarter? Or is that more of a second quarter phenomenon? So that was my first question -- asking about costs from throughput from the hot-rolled side.

Timna Tanners:

Okay. That's actually really helpful, but I was asking about fabrication and the throughput of flat-rolled price increases and the impact on margins on downstream. So if you could actually answer that as well, that would be great.

Timna Tanners:

And then if I could, just one last one. I know Barry talked about and Mark talked about customer inventories being low. So I just don't understand that because I know that at least SMU actually had some really high inventories for December. So is that just not aligned with what you're seeing? Or can you help me understand why the difference of narrative there?

Mark Millett:

And just to add to that. I think generally, we believe we are just very, very constructive for 2024 relative to steel demand. And everyone gets a little excited by maybe a little backing off of hot-band pricing here of late. But for us, flat roll continues to be very, very solid. And maybe the macro indicators may not be overly constructive right now. The order input rate in January for us has been incredibly strong. And we would, as Barry said, suggest that supply chain inventories, not just MSCI or SMU, but just supply chain in general is relatively tight. And imports are not a material factor today and won't be. We're booked out for coated and prepayment, right? It's very, very strong for us. And I think the -- again, when you look at the -- just the hot band pricing because coated, prepaint is all very, very, very strong still. It's just like recent cycles, and its more emotion than anything else, but you get that steep climb. You have exuberance hence to overshoot the market a little bit, and it just sort of retrenches itself a little bit. And I think that's where we are today. And it's not a signal as it used to be. It's not a signal as the underlying -- the structural underlying demand because there's so little spot material transacted today. Just because you have a slight erosion in hot band price, it doesn't mean to say that that's reflective of where the demand is. So for us, demand is, as I said, very, very solid throughout our sheet mills. And I also see that long products is in a very, very solid territory. Would like to congratulate the team. They had record earnings and record volumes in 2023. They've done an incredible job. They've changed the commercial approach somewhat. They've expanded their product portfolio, and that's going to support higher through-cycle volumes going forward for the long product platform as well. So I think for us, [indiscernible] quite rosy.

Curtis Woodworth:

Just wanted to follow-up on the fab pricing dynamic. I think at the start or maybe at the end of the first quarter of '23, you talked about pricing in the back half of the year being down 10% to 15%, and you came in down 22%. And then I think for now two quarters in a row, you have talked about price stabilization. And obviously, you mentioned the order entry getting better. So would you be willing to provide any directional color on pricing? Like should we assume that the first half -- that the backlog you've priced for the first half of this year is somewhat similar to where you were in the fourth quarter, which would be consistent with kind of what you've said in the past two quarters, that pricing has stabilized?

Curtis Woodworth:

Okay. And then in terms of -- I think you noted the order entry in fab was the highest you've seen in the past six quarters, which is a pretty healthy statement. So I'm just curious, like what's driving that? A lot of the data we've seen in terms of warehouse starts is still somewhat negative. I know data centers is growing in other areas. But how do you characterize kind of the composition of your end market composition of fabrication demand today versus maybe how that looked 18 months ago.

Barry Schneider:

No, I'd just say that the mix is -- it's a good mix for them on the engineering side of the business to keep up with their lead times. So it -- isn't substantially different than the typical business flow that comes through it's small changes in the segments that we're serving through fabrication.

Katja Jancic:

Just quickly on the aluminum segment, you started disclosing the operating loss. Can you provide some color how we should think about the cost there over the next few quarters or how it should impact you?

Katja Jancic:

But is it a fair -- fair to assume that they should come up. I think in the fourth quarter, they were around $11 million? Or is that a fair assumption over the next few quarters?

Operator:

Your next question is coming from Alex Hacking with Citi.

Barry Schneider:

Yes, we've had a very good ability to move product into Mexico. We have a very established team down there that's been serviced in our Flat Roll Group for a while, but we added a warehouse capability in Monterrey. And last year, we moved about 600,000 tons into Mexico in various industries altogether. But we're very pleased with how the business is moving. We are welcoming -- being welcomed by the customer base in Mexico. And in many cases, we've had relationships and haven't had the ability to get the tons there. Sinton provides us the opportunity not just through proximity, but through the advanced product features that we have. So we have wider, we have heavier products than we would typically have. And these products are being very well received in the various industries. I would tell you that the continued near-shoring of manufacturing in the United States is very apparent with the investments we see in Mexico and the customer base there. So it continues to go along with our strategy as being a great place to do business, and we're excited about it.

Barry Schneider:

Great question. Obviously, I think we're advantaged by having OmniSource recycled platform because today, not only are they the largest or second largest ferrous scrap recycler that they are clearly the largest nonferrous recycler and they're recycling somewhere around 500 million pounds of aluminum. We also have a secondary aluminum operation here in Fort Wayne that we're making, I don't know, 260 million pounds or thereabouts of secondary aluminum. So we're not -- it's not a new environment for us. I think we've got a great team. We've actually hired some incredible talent to supplement our already incredible talent. And so sourcing the material is not a -- we don't believe a major issue. If you look at our strategy, there are two principal kind of scrap streams, you might say. One is for the automotive industrial base. The other is for Comstock and the UBC scrap is -- well, it's highly available in California. They're a deposit state. So there's a lot of aluminum UBC scrap generated up and down the West Coast, currently either moving to Asia or to the Midwest. And similarly, in Mexico, a sort of a UBC scrap arena, so that's why we're locating two facilities, two satellite facilities in those scrap-rich areas, like the scrap at the source, molded in the freight of then moving big solid slab versus scrap to the Midwest is at around about half the price. And so we're not only advantaging ourselves on the scrap collection side but economically on getting that aluminum to the mill.

Mark Millett:

We certainly will. And you don't -- because you've got 900,000 tons of just to be clear, of cash need because the yield loss through the system, and when I say yield loss, it's not what we call of loss. This appears is just sort of a circular within the mill, you still only need roughly 650,000 tons of total input, 20% of which is primary.

William Peterson:

Just on Sinton, I think you mentioned hitting stride in the second quarter. How should we think about utilization for the full year? If I recall correctly, I think you had expected on 80% for the full year at the last quarterly earnings call. Is that still the target? Or should we assume a bit lower?

Barry Schneider:

No. We continue to strive for 80%. We the team is doing, as Mark said, a phenomenal job. It's a big challenge of bringing such a big asset up all at once. Transporter problems have been unfortunate, but we have several fixes in the works. Approaching the problem for both resiliency is also is getting back to full power capacity. So we remain confident that the operational levels we're going to see 80% is the target the whole team is aware of. We're all incentive to make that happen.

William Peterson:

Okay. We'll plug in 84%. No, just joking. Just on the -- I guess, things like onshore and the infrastructure bill. You said this is an expectation to benefit in 2024. I guess have you seen orders. When do you expect to see orders, should we think of this more as a second half '24 to really kind of benefit you? And then between, I guess, onshoring and infrastructure, specifically, which you've seen being more impactful for you this year?

Barry Schneider:

We also see in the long products, a lot of, let's call it, foundational type structural sales. And even though it's a smaller division, Steel of West Virginia is very, very full with us right now with stuff that is tangential, whether it's solar fields, the support deal that goes in the ground or fork trucks and things like that, that go into these new factories and these new warehouses and data centers. So we do see a good bounce from that. We also see the pipeline industry in the states is picking up orders some cases for carbon sequestration lines as well as some major pipelines. So those markets are awake, and we see a lot of inquiry activity that is very exciting for us ultimately.

Operator:

Your next question for today is coming from John Tumazos, a private investor.

Theresa Wagler:

Yes, we do have projects in mind for 2025. I'm not sure that we're prepared to go into that today. I would say from the perspective of capital spending, as I mentioned earlier on the call, aluminum will probably have a tail of somewhere between, call it, $200 million and $250 million. Our teams are consistently bringing us wonderful ideas that have high returns associated with them. Again, I'll point back to our ROIC. They do a good job of giving us those projects that have really great returns. So the number for 2025, I would say would be a minimum of probably $500 million, something like that, because you do still have some sustaining capital as well, which for us is very low at around $160 million, but there's still some benefit there. Mark, I don't know if you want to add any addition to that?

John Tumazos :

As we build our financial models, if in 2025, the CapEx fell to somewhere, let's just say, for discussion in the range of $500 million to $1 billion, should we be increasing the share buyback dollars from the levels of the last several years given the drop in CapEx?

John Tumazos :

Thank you very much. I'm a happy shareholder.

Martin Englert :

I appreciate the time for the follow-up. Just two quick ones here. Over the last four years, seasonal sequential 1Q gain in external steel volumes averaged about 7% quarter-on-quarter based on what you're seeing with order intake in the new year here, and then also taking into account the continued ramp in Sinton and value-added lines. Should we expect something at the core, similar on a sequential basis, around 7% and then layer in the additional volumes from ramping assets.

Martin Englert:

What were the outages in 4Q? And assume that you mentioned it because it did have an adverse impact on volumes?

Martin Englert:

One last one, if I could, on the aluminum project. Based on the two cycle estimate to give implied EBITDA of around $900 to $1,000 per ton, when you were coming up with that analysis, are you able to share what you think the bottom and top quartile of profitability might look like when we think about peak to trough?

Operator:

That concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millett for any closing remarks.

Operator:

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation, and have a great and safe day.

Operator:

Good day and welcome to the Steel Dynamics Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management remarks, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised this call is being recorded today, October 19, 2023 and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Mark Millett:

Thank you, David. Good morning, everybody. Thank you for being with us on our third quarter earnings call. As you saw in the release, once again, our teams achieved a solid financial and operational quarter. Almost 80% of our facilities had zero safety incidents, and our company-wide trailing 12-month incident rate is running at an all-time low. So congratulations to everyone, but more importantly, thank you for all your work to make that happen. It takes each and every one of us to get there. Cash from operations was a healthy $1.1 billion, and with the adjusted EBITDA generation of $876 million. I think this performance truly affirms the cash generation resiliency of our diversified value added product portfolio. Seeing significant momentum in our aluminum flat rolled investments, both current and prospective customers are excited by our market entry and the new and differentiated supply chain solutions we can provide. They're actually very, very surprised by the speed and completeness of our execution so far. Sinton mill has proven its nameplate production capacity rate, and full product capability, but does remain challenged by equipment reliability issues. We're confident we can resolve the majority of these issues by the year-end. Successes cannot be achieved without the best metals team in the industry. I am incredibly proud to the whole SDI family. Their passion and spirit form the foundation of our company. They drive our success and it's an honor to work among them. In fact, in this world of turmoil with the human catastrophe happening in the Ukraine, the atrocities in Israel, the suppression of the Palestinian people and even closer to home, the anger and divisiveness within America and our political structure really is inspiring to come to work each and every day and be surrounded by very, very positive people that think right, they get it, they treat people right and a focus on what we do each and every day. As such, our greatest leadership commitment is to our SDI family. Not only our colleagues that come to work, but also their partners in life and their kids. They remind our team’s great financial performance of no importance without keeping everyone safe. We continue to be focused on providing the very best for the health, safety, and welfare. Today, the SDI family, when you include everyone, we have over 45,000 people that are reliant on the decisions that we make each and every day and we're focused. We truly are focused on that. Together, we're actively engaged in safety at all times and at every level, keeping safety top of mind and an active conversation. Before I continue, Theresa would you like to give us some details?

Mark Millett:

Super. Thank you, Theresa. As you saw, the steel fabrication platform continues to perform well and it turned in another solid quarter. We continue to have high expectations for the future earnings profile of this business. We believe non-residential construction markets will be strong in the coming years. Some residential starts and build rates are forecast to remain strong into 2024, and related spending has been higher in 2023 compared to the last year at this time. So political dysfunction has delayed the awarding of public monies likely into the first quarter of next year, the infrastructure spending and fixed asset investment related to the IRA programs, along with the reshoring and manufacturing should provide momentum for additional construction spending through 2024 effectively extending the construction cycle. And customer commentary has, as I talked to lot of folks out there, has confirmed our positive outlook. Deal of fabrication order backlog has certainly shortened from its historical high of over 12 months achieved in 2022, but it remains strong from a historical perspective, standing through March, 2024 with strong forward pricing. Current order entry pricing remains resilient. Not only a significant contributor unto itself, our fabrication platform provides meaningful pull-through volume for our steel mills, particularly important in softer markets, allowing for higher through cycle steel production utilization rates compared to our peers, adding to the resiliency of our through cycle cash generation. Furthermore, it provides an effective natural hedge to lower steel prices. Our metals recycling platform had a challenging quarter. Its demand from domestic steel mills softened and realized ferrous scrap prices declined. Scrap prices pulled back in the third quarter with bushing prices falling some $80 a ton. The North American geographic footprint of our metals recycling platform provides a strategic competitive advantage for our electric arc furnace steel mills, and our scrap generating customers. In particular, our Mexican locations competitively advantage our Columbus and Sinton and raw material positions. We also strategically support aluminum scrap procurement for our future flat rolled aluminum investments. Our metals team is partnering even more closely with both our steel and aluminum teams to expand scrap separation capabilities through process and technological solutions, enhancing margin, increasing the availability of low residual ferrous scrap. This will mitigate prime ferrous scrap supply issues in the future. It'll also provide us with significant advantage to materially increase the recycled content for our aluminum flat rolled products and increase our earnings opportunities on that platform. Our steel operations achieve strong shipments of 3.1 million tons and solid financial results in the third quarter. Steel production utilization rate when you exclude Sinton was 90% compared to a domestic industry rate of some 76%. The higher utilization rates have been clearly demonstrated throughout all market cycles driven by the value added diversified product offerings, which are amount to 70% of our sales. And this, as Theresa mentioned, will increase further with the addition of two galvanizing and two paint lines that will be commissioned in the first quarter of 2024. Differentiated supply chain solutions driving customer preference and mitigating price volatility and support of downstream internal pull-through manufacturing volume are all contributors. Our higher through cycle utilization rate is a key differentiator and supports our strong and growing through cycle cash generation capability and best-in-class financial metrics. Looking forward, steel backlogs are strong and customer order entry is good. Customer inventories are also at historically low levels. Auto production estimates for 2023 remained around 15 million units, but obviously with the ongoing strike, the outlook for the remainder of the year is somewhat opaque. So positively, dealer inventories remain below historical norms, which will be further reduced by the ongoing strike. [Indiscernible] demand there is still strong and with tight supply, the auto build rate will likely be higher than the already anticipated 16 million unit plus for 2024. In the meantime, unfortunately, our auto direct flat rolled exposure is more concentrated toward European and Asian producers, which so far has mitigated the strike impact on our flat rolled auto volume. Although not a significant impact to overall earnings, we are seeing greater impact at our engineered bar division as their 15% -- 20% auto exposure is mostly consumed by domestic auto producers. Non-residential construction remains solid. Our long product steel backlogs are good and customer inventory levels are low. General market is estimated to be off 8% of some due to seasonality, but should rebound as infrastructure spending provides meaningful support in the first half of 2024. The turn down in residential construction seems to be abating with a depletion of available home inventory. Oil and gas activity is strong driving improved orders for OCTG products and still continues to grow at a rapid rate. In total aggregate, long product demand remains solid and in flat rolled lead times are extending. We're seeing excellent order entry. Supply chain inventory is low, and pricing is certainly in an upward trend. We certainly anticipate further meaningful strength once the strike is concluded. Turning to Sinton. After the unplanned July outage related to the caster shear, the Sinton team produced over 290,000 tons in the quarter. The mill has clearly demonstrated its production rate capability and achieving 36 heat sequence lengths, and it’s exceeded its hourly nameplate run rate. However, as I said, the constrained production is manifest from a low utilization rate caused principally by equipment reliability issues. That said, we expect to progressively ramp up to about 70% total run rate by the end of 2023, reaching a production of 2.4 million tons for 2024. Despite our challenges, the team has demonstrated the key competitive advantages of the Texas steel mill. We have completed full product dimensional capability. It's proven up to one inch thick, down to 053, I do believe out to 84-inch width. Customers are reporting exceptional surface quality and the hot strip mill design has allowed for thermal mechanical rolling, allowing production of higher strength grades, tough grades with lower alloy content and thus lowering costs for those value added products. We've achieved grade 80, 100 and already been approved for some API grades. I think just generally, it affirms our technical and process choices, and there's no doubt that in my mind it's the next generation of electric arc furnace flat rolled steel technology of choice. We have gained strong market acceptance and we can sell every pound of steel we make. Our exceptional through cycle operating and financial performance continues to support our cash generation and our growth investment strategies. Relative to our expansion into aluminum, as I said the responses from existing and new customers across all markets is absolutely incredible. We are developing the site. We purchased some 2,600 acres, I do believe, but we're developing it for the colocation of customers with the rolling mill as we successfully did in Sinton. We're seeing a number of customers who are already indicating strong interest in that model because it provides a sustainable, competitive model for all of us. To recap the project, the 650,000 metric ton flat rolled facility, the rolling mill will be located in Columbus, Mississippi, state-of-the-art facility, serving the sustainable beverage and packaging, automotive and industrial sectors. Approximately 300,000 metric tons will be canned, 200,000 tons auto and 150,000 industrial. We have onsite mill and cast slab capacity in Columbus of around 600,000 metric tons and the project will be supported by two satellite recycled aluminum slab casting centers one in central Mexico and one in Arizona to capture scrap close to its source. We'll have two cast lines, coating lines, and downstream processing and packaging lines to fully support our customer base. Startup plans are still anticipated for mid-2025 start for the rolling mill. Mexico slab center should start up late 2024, perhaps January 2025, and the Arizona slab center in the first quarter of 2025. So the project cost, including all recycled slab centers, is around $2.5 billion, 100% to be funded with cash. As we stated in the past, we expect a through cycle annual EBITDA of around about $650 million to $700 million from the aluminum portion, and the support of OmniSource will draw another $40 million to $50 million for them. I think the market from an investment premise perspective, what excites me is the market environment is very similar to the domestic steel industry when we started SDI 30 years ago. The industry generally has older assets, had a tough time earning its cost of capital. There's been little reinvestment over the last 45 years. It has heavy legacy costs, tends to be inefficient in high cost operations. Again parallels the situation we saw within the steel industry 30 years ago. According that we see a definite deficiency in supply that is exists in North America. And that deficiencies expected to grow even with our and second competitor's new facility. From our perspective, it is an adjacent industry to us. It leverages our ability to design and build commission ramp up the large capital assets and operate those assets very effectively, efficiently, at low cost through our performance and incentivized innovated and very effective culture. In closing, we're excited and impassioned and we always are, and we continue to be by our future growth opportunities as they will continue to the high returning growth momentum we have consistently demonstrated over the years. Culture and business model continue to positively differentiate our performance leading to best-in-class financial metrics, allowing a balanced cash allocation strategy that has rewarded our shareholder by top-notch in class returns. We're no longer a pure steel company, but an integrated metals business providing an enhanced supply chain solutions to the industry. In return [ph], mitigating volatility and cash flow generation through all market cycles. Our teams are a foundation. I thank each and every one of them for their passion and their dedication. We're committed to them. As I remind those listening today, that safety for yourselves, your families, and for each other is the highest of priorities, but competitively position and continue to focus on providing superior value for our company, our customers, team members, our shareholders alike. Thank you. Thank you for joining us again today. And Holly, we would love to turn it over to questions.

Martin Englert:

Hello. Good morning, everyone.

Martin Englert:

Within the Steel segment, steel conversion costs, which do include some substrate costs increase I think to around about 576 per ton in the quarter from 522. Is there any additional color that you can share regarding the portion of substrates, and maybe some positives and negatives when you think about these sequential change in contributions between true conversion costs and substrates, as well as if there was any material impact from the Sinton outage on that conversion cost.

Martin Englert:

Okay. So there's certainly a one-off that seemed material for the quarter and then some lingering, kind of transitory as you're working on ramping the other value added assets that will -- how long do you think that will persist for -- through the fourth quarter and then in the first quarter of next year? Any idea?

Martin Englert:

Thank you for that. If I could one last one here, excluding 2020, looking at seasonality in 4Q total steel shipments, they tend to decline around 5% sequentially. Is there anything you're seeing this year that would suggest something different? And I imagine comparing the sequential with the Sinton outage and then Sinton backup probably might have an impact here on a sequential basis.

Martin Englert:

And you're aiming for 70% utilization on exit for the year with Sinton, correct?

Martin Englert:

Okay. Thank you very much. Congratulations navigating the downward market on and the continued growth investments.

Operator:

Your next question is coming from Carlos de Alba at Morgan Stanley.

Theresa Wagler:

Martin, I'm sorry. You cut out.

Carlos de Alba:

Yeah. Yeah. Sure. Just on Sinton, given the outrage and that you experienced, but things now are ramping up nicely and you expect full production, well at least production throughout the fourth quarter. How do you see the evolution of the EBITDA generated by the company, by this -- the plant Sinton?

Carlos de Alba:

All right. And then just maybe one more on the fabrication business. You did mention strong forward pricing in your backlog. Is there any additional color that you can provide given, the extraordinary strong pricing that we have seen in recent quarters relative to history?

Carlos de Alba:

Thank you very much.

Tristan Gresser:

Yes. Hi. Thank you for taking my questions. Maybe the first one, following up on the fabrication. You provided some guidance back in Q2 and I now understand that the stable volume guidance half and half is no longer valued. So I was wondering if -- and it's not the first time the guidance has been cut there, so what is driving quarter after quarter that they can have cut in that weakness? And you provided some color on the sequential movements. I guess on the scale side for Q4 volumes, can you tell us a little bit more about fab. And the same question a little bit on ASP, you guided for down 10% to 15% in H2 versus H1 on the ASP front. The Q3 ASP is already down 17% versus that level. So can you help us try to calibrate the weakness in ASP we should expect in Q4, but also in Q1 because you have some visibility into that quarter as well.

Tristan Gresser:

Alright. If I may…

Tristan Gresser:

Thank you. That's very helpful. If I just have a quick follow up and this time more on the capital allocation side. I mean, given the current context, and I think you touch on and you reaffirm what are your capital allocation priorities are, can you just reiterate what you view on inorganic growth? And could you confirm that at the moment you're not interested in looking at large acquisition on the flat rolled side and that's not an area of focus and that right now a 100% of your attention is on aluminum?

Tristan Gresser:

All right. That's very clear. Thank you.

Theresa Wagler:

Hey, good morning, Timna.

Mark Millett:

Yeah. No. That's fine. We probably have not done an elegant job of explaining that. The 70% is just the run rate at the end of this year, Timna. Again, we'll continue to ramp up. We expect to be 2.4 million tons total production next year, which I think is around over 80% of the 3 million. And then we'll continue to ramp up from there. There's absolutely no doubt that the plant capability can exceed the 3 million ton nameplate that we've advertised in the past.

Timna Tanners:

Helpful. Okay. Thank you. One other timing question was really on the downstream lines that are going to really enrich your product mix. And in the presentation it says they're starting in the second half, but I thought I heard you saying they were contributing more in the first half. So just trying to get the cadence of when that ramps up.

Timna Tanners:

Great. Thanks. And then the last question, if I could squeeze it in is just on the CapEx guidance. I think we had -- last quarter you had talked about a number for 2024 of about 1.5 billion and just with the higher CapEx guide for Q4, we just wanted to check on if that number is still right for 2024. Thanks again.

Timna Tanners:

Appreciate it.

Bill Peterson:

Yeah. Hi. Good morning. Thanks for taking the question. We've been seeing some reports that the US and Europe are ahead of this summit tomorrow. Maybe looking at removing some of the tariffs or adjusting quotas and things like that. I guess, assuming that some of this does happen and quotas go away, how would you see this impacting the US steel market?

Bill Peterson:

Okay. Thanks for that color. Second question. So on bar volume, so you mentioned that there's some impact with the strike, but the strike really only started, I guess in late in the third quarter. So how should we think about the trajectory of volumes, assuming a bigger hit in the fourth quarter for that segment?

Bill Peterson:

Okay. Thanks for sharing the insights.

Unidentified Analyst:

Thank you.

Unidentified Analyst:

With all the great dynamics benefiting the steel business, industry-wide apparent demand looks like it's trending about 8 million tons below the average of 2017, 2018, 2019. I don't know what's normal, but I'm looking to the pre-pandemic period. Your own choice business is off 16,000 tons sequentially, and I guess 56,000 tons year-on-year. And there's no inventories in choice because they're made custom order. What are the segments that are down that are negating some of the other growth or accounting for the decline? A high rise office building with work at home with lower consumer spending, ecommerce warehouses and retail space are poor. Are there any other segments that could account for the deviations?

Unidentified Analyst:

In terms of the two-year decline in spot sheet prices of $1,200 from big records, how much damage do you think that's caused across consumer and distributor inventory as you know, and prices fall, people don't want to hold the hot potato.

Unidentified Analyst:

Thank you. I'm a shareholder.

Operator:

[Operator Instructions] That concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millett for any closing remarks.

Mark Millett:

Well, thank you, Holly. And for anyone that remains on the line, I would tell you I am blessed. SDI is blessed. Each and every one of us is blessed here because we have phenomenal loyal customers. Thank you for your support today and in the future. We have great service providers. We've got a phenomenal, phenomenal team of people that come to work, as I said earlier, inspired and positive each and every day. So thank you. Thank you for those that our shareholders and those on, I would hope that you consider us because we will create better shareholder value than most folks in the years ahead. So thank you very much. Have a great day. Bye-bye.

Operator:

Good day and welcome to the Steel Dynamics Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised this call is being recorded today, July 20, 2023 and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Mark Millett:

Thank you, David and good morning everybody. Thank you for being with us on our second quarter earnings call. Once again, our teams achieved a solid financial and operational quarter. Highlights included continued safety improvement, 81% of our facilities were incident free through the quarter, our cash from operations of $808 million and EBITDA generation of $1.2 billion. We also received improved investment-grade credit ratings, providing further third-party confirmation of the strength of our business model. We are also making significant progress on our aluminum flat-rolled investments. There is great excitement within the prospective customer base for new and innovative supply chain solutions from a differentiated supplier. I am incredibly proud of our teams. They are the foundation of our company and they drive our success. Is their culture of excellence, combined with our meaningful value-added growth, diversification and supply chain positioning that is resulting in our earnings strength in all market cycles? However, as I have often said, great financial performance is of no importance without safety for our SDI family. We are focused on providing the very best for their health, safety and welfare. We are actively engaged in safety at all times and at every level, keeping it top of mind and an active conversation. Our focus, as I said, the team’s safety performance further improved in the second quarter, way ahead of industry averages. There is more to do, we will not rest until we consistently achieve our goal of zero injuries. But before I continue, Theresa, would you like to give us some financial color.

Mark Millett:

Thank you, Theresa. And hopefully, folks can hear us, I know it’s – I guess is not quite up to snuff today, so I apologize for that. But nonetheless, our steel fabrication platform turned in another strong quarter. The team continues to do an absolutely phenomenal job there, one second. Everyone apologies, but it appears that many folks can’t hear us, hear the call. I would ask you to hang up and call back in and we will just pause the call for a second. Thank you.

David Lipschitz:

Sorry about that, folks. We will just continue from where you were.

Operator:

Thank you. [Operator Instructions] Your first question is coming from Curt Woodworth at Credit Suisse.

Mark Millett:

Good morning.

Theresa Wagler:

Thanks, Curt. This is Theresa. So I appreciate the question. When Mark said that the average pricing was expected to be down 10% to 15%, that was just for clarity for everyone on the call, that was measuring the first half of 2023 to the second half of 2023. So it wasn’t specific to a point in time or specific to the second quarter itself. And we would say that we expect the cadence to be pretty equal from that step down in the third quarter and then stepping down a bit finally into the fourth quarter. Pricing is stable. It’s been very – I think the term we keep using is resilient, and that’s something that we pointed to in the past. We think there is been a structural shift in pricing for steel fabrication as there is really a lack of substitutability when you think about steel joist and deck and there is a very good demand today and we think increasing demand with the momentum behind manufacturing for all the different reasons that we pointed to this morning. The backlog has a good pricing, very strong pricing from a historical perspective. And I think that we see that heading very favorably into the first quarter. And frankly, we were just talking about it this morning, as you think about a lot of the public monies in those programs, those are being awarded, especially with the IRA and some of the Department of Labor dollars. Those are getting awarded sometime this fall kind of call it late third quarter, early fourth quarter. So that should really benefit 2024 and 2025 as you think about manufacturing and construction. And definitely, steel fabrication will benefit from that.

Theresa Wagler:

Thanks, Curt. Yes. So as it relates to the mix of the backlog and I would say more so even in the current order intake activity. We have seen – and I think it’s positive for the economy in general. We’ve seen a more projects coming in from, whether it be education, healthcare, definitely manufacturing. So we’re starting to even see the electric vehicle batteries. We’ve seen the chips we’ve seen a lot of advent and manufacturing from onshoring new things that we’ve talked about. So there is a mix towards those type of projects and away from just purely retail warehouses, which we’ve been seeing and talking about for a while now, probably 6 to 9 months. As it relates to capital spending for 2024, we expect to have capital spending for the aluminum project this year is likely to be somewhere between $900 million and $950 million in total. Next year for the aluminum project is likely to be about $1.2 billion. So when you combine that with additional growth projects as well as a minimal amount of maintenance capital. We’re likely to have total capital spending in 2024 from what we can see today, still around that $1.5 billion for the year.

Operator:

Your next question for today is coming from Cleveland Rueckert at UBS Securities.

Mark Millett:

Absolutely not. We remain very, very bullish now. If you go back like a year now, perhaps the folks were projecting that demand would grow and you need four new aluminum mills. We didn’t believe that then. We don’t believe that now. But we certainly feel there is more space than to satisfy our market share for sure. The kind of the – sort of the pull back, I would say, is more an inventory standpoint. There is a lot of inventory people panicked a lot last year. That inventory has to flow through the system. And there is absolutely no doubt that it is doing so today. And in all honesty, when our mill comes up, I think that the marketplace is going to be in a beautiful place for us to receive product. Are you going to look longer-term, there definitely is a social change away from POC plastic bottles that will continue. It’s not just beer, it’s water, it’s all fluids. And then when you look at the automotive arena, we believe and we’ve – with our communications with virtually all the automotive folks, they have been restrained from developing greater volumes of aluminum through the lack of availability. We’re providing that availability going forward. And I think we – just as we’ve done in steel, we will gain market share quite rapidly. So from a market perspective, we are still very bullish that the amount of interest we have across the aluminum space is incredible. And I think I said it on our last call, in steel, we’ve never entered a market that is underserved. Every market we’ve gone into, we’ve had to differentiate ourselves to gain market share. It’s refreshing for us that people are actually coming to us and when you combine that need with our ability to change the supply chain to provide much greater value to the customer base, I think we’re confident to gain that market share quite rapidly.

Cleveland Rueckert:

Good. Got it. I appreciate the confidence. And if I may just sneak in one follow-up question on Sinton. I think you had to replace a bearing on the caster. I’m just wondering if you’ve got – I didn’t hear it in the prepared remarks that maintenance work has been done and back on schedule.

Cleveland Rueckert:

Thanks, Barry. But didn’t – wasn’t there an unplanned outage very recently?

Cleveland Rueckert:

Okay, got it. Thank you. Appreciate it.

Tristan Gresser:

Yes. Hi, good morning. Thank you for taking my questions. The first one is maybe on the steel side. Can you tell us a little bit about the volume outlook into Q3 I noticed loan volumes were down on a year-on-year basis in Q2. So should we expect some pickup there? And with the symptom outage, how should we think, generally speaking, for steel shipments into Q3? That’s my first question. Thank you.

Tristan Gresser:

Okay. No, that’s helpful. And maybe a quick follow-up just on the fabrication business. You mentioned that joist and deck spot prices have stopped falling, at which level exactly you are seeing them now.

Tristan Gresser:

Okay. I appreciate the color. Thank you.

Carlos De Alba:

Thank you very much. Good morning. So, just on pricing as well. Maybe you can provide some color even without giving those details. What we have seen in the benchmark information is how deep galvanized prices have been recently below the substrate cold-rolled coil prices, which is a little bit weird and obviously not sustainable. But can you provide some color as to whether you are also seeing that in your realized prices for these products? And one might explain the initial situation?

Carlos De Alba:

Alright. Okay. Thanks Mark. And then just on Sinton, I wanted to confirm that you still expect the cost of the recent outage to be around $1 million, which is pretty insignificant. And when would you expect to reach closer to 100% capacity utilization, if that is your intent or do you believe or you want to stay around 80% that you will reach towards the end of the year?

Carlos De Alba:

Got it. So, in the second half of next year, fourth quarter next year is when you expect to get full capacity then?

Carlos De Alba:

Alright. Got it. Thank you very much. Appreciate it.

Operator:

Your next question for today is coming from Timna Tanners at Wolfe Research.

Mark Millett:

Good morning Timna.

Barry Schneider:

Timna, this is Barry. We are anticipating bringing the new coding and the galvanizing lines, paint lines on at the end of the year. But I wouldn’t expect any kind of a significant contribution to shipment still going into 2024. But the lines are constructing very well. There continues to be supply chain issues with certain parts of the construction, but we are resolving those and mitigating them and moving stuff, teams are very active in manned up. So, we look forward to bringing these lines on, but it will be near the end of the year.

Mark Millett:

From – other than a small little bit of non-ferrous, we have no export activity other than Mexico.

Timna Tanners:

Okay. Thanks again.

Timna Tanners:

Got it. Thank you.

Bill Peterson:

Yes. Hi. Good morning. Thanks for taking the questions. I wanted to ask you about the decarbonization strategy. You put some information on the about carbon initiatives. I mean you discussed the operations by early 2024, but just to confirm, I guess is the plant construction begun, or are there any other areas to prove out or technical readiness issues to address? That’s the first question.

Bill Peterson:

Yes, appreciate that. And I forgot to ask what do you expect in terms of the cost on that, but compared to traditional? But I guess my second question is, as we think about this additional galvanized capacity, you have mentioned this kind of end of the year and then more contribution for next year. But I guess how is your view given that there is also another – a lot of other plant capacity coming to market? What’s the risk you might see in terms of lower prices longer term with the additional capacity from competitors in the space in and so would that kind of – and for me to wrap up?

Bill Peterson:

Okay. Thanks.

Bill Peterson:

Appreciate the color. Thanks.

John Tumazos:

Thank you. In planning Sinton, you have 1.8 million tons of customers on your campus. The buy end to the distributor based in Houston, for coating lines as well as the customer opportunities in Mexico, you were describing more than the 3 million-ton capacity. As you are ramping up, how are you allocating the volume among those customers? It appears as though there is more customers and China output. What specifications have you been not yet gotten to melting and casting and rolling in terms of chemistries, gauges, widths, etcetera?

Mark Millett:

Yes, John, I guess we remain – this is what is happening. Hopefully, you can hear us still. But we remain incredibly excited by what we have seen in Sinton. As I have said earlier, we can sell everything we can make and a whole bunch more. We are really excited about the additional galv line and pre-paint line down there that will allow us to, as we have done at Columbus and at Butler diversify the product mix and bring even more value add to it. The energy products, the ability to thermal mechanical roll produce those higher strength grades, the high tough grades at lower cost is working incredibly well. And that’s going to be a great market for us down there. And those products are value-add. It may be hot band, but you accrue a good premium for those products. And we are also seeing in the plate arena, great potential then. One of the on-site processes that you mentioned that we co-locate is a real heavy plate cutter length line. And we feel there is going to be massive opportunity there, particularly as the infrastructure growth occurs and plate is going to be a big component in that. So Sinton, it’s incredible. One needs to go there to really experience it. The equipment reliability issues are frustrating, but it’s absolutely a state-of-the-art mill. The team is excited. They will get that thing running for blast in time. And it will be the technology of choice going forward.

Mark Millett:

Well, thank you. And for those still on the call, our employees, in particular, thank you for what you do each and every day. You do drive a success. We can’t do things without you. Our customers, thank you for your loyal support. And our shareholders, thank you those that are invested in us. We will continue to treat your dollars just like they are our own. We are going to continue to grow them. And we have a huge bright future ahead of us, Sinton kicking in the aluminum going forward, the growth momentum continues. So, thank you.

Operator:

Good day and welcome to the Steel Dynamics First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's remarks, we'll be conducting a question-and-answer session and instructions will follow at that time. Please be advised this call is being recorded today, April 20, 2023, and your participation implies consent to our recording of this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Mark Millett:

Thank you, David. Good morning, everybody. We certainly appreciate you all joining us for our first quarter earnings call today. As you read, once again our teams achieved a solid financial and operational quarter. It was highlighted by most importantly, a consecutive quarter of significant safety improvement. 82% of our facilities were incident free and most importantly, our piece of focus appears to be minimizing severity rate. We had record steel shipments of 3.3 million tons and adjusted EBITDA generation of a strong $950 million. Sinton's performance is showing improvement with a clear path to profitability in the second quarter '23 given the expectation of increased volumes. And we are also making great progress on our aluminum flat rolled investment. There's great excitement within the prospective customer base for a new and innovative supply chain solution. As always, I'm incredibly proud of our teams. They are the foundation of our company and they drive our success. It is their culture of excellence and the intentional diversification of our product portfolio that allows us to maintain higher utilization rates and maximize opportunities, resulting in higher lows and higher highs through all market cycles and producing superior financial metrics. However, for safety, great financial performance is of no import without having our team safe. Often, employees are described as a company's most important resource. But for us, for Steel Dynamics they're more than that, they're family. And now we number over 12,000 strong. We're focused to provide the very best for their health, safety and welfare. We're actively engaged in safety at all times, keeping it top of mind and an active conversation at every level of the organization. With that focus, as I mentioned, the teams safety performance further improved in the first quarter '23. But there's more to do, and we will not rest until we consistently achieve our goal of zero injuries throughout our organization. So with that said, and before I pursue the quarter, Theresa.

Mark Millett:

Thank you, Theresa. Although there was some seasonality in shipping volume for fabrication, we saw yet another strong quarter driven by the sustained market strength and an absolutely extraordinary execution by our team. Productivity of our operations is incredible. So thank you for all for the great job you all are doing up there. We continue to have high expectations for the fabrication business. We believe non-residential construction markets will continue to be robust in the coming years. Non-residential starts and build rates are forecast to remain strong throughout '23 and related spending has been significantly higher so far in '23 compared to last year at this time. There'll be continued onshoring of manufacturing businesses and infrastructure spending programs should provide momentum for additional incremental construction spending. More real time, our customers tell us demand remains solid, as confirmed by strong order entry rates, especially the most recent March order activity. Steel fabrication order backlog as Theresa suggested, extends seven to eight months into October, November with strong pricing dynamics. Not only a significant contributor onto itself, our fabrication platform provides meaningful pull through volume for our steel mills, particularly important in softer markets, allowing for higher through-cycle utilization rates. It also provides an effective natural hedge to lower steel price. Our metals recycling platform achieved a strong first quarter. Congratulations to them. They are on a path to higher volumes and increased metal margin. After seven consecutive months of declining pricing in '22 ferrous scrap prices improved in December and throughout the first quarter. Increasing well over a $100 per gross ton. We expect scrap pricing to remain fairly steady at these higher levels based on increased seasonal North American steel mill demand in Q2 and Q3. Our metals recycling geographic footprint provides a strategic competitive advantage for our steel mills and our scrap generating customers. In particular, our growing Mexican volumes enhance our Columbus and Sinton raw material positions. It will also strategically support aluminum scrap procurement for our future flat-rolled aluminum investments. Our metals recycling team is working closely with both our steel and aluminum teams to expand scrap separation capabilities through process and technology solutions. Our low residual shred 1 is just one example of that. The impact of these efforts, along with others in the industry is demonstrated that innovation will provide ample ferrous and nonferrous scrap supply in the years ahead. Our steel operations achieved record quarterly shipments of 3.3 million tons and solid financial results in the first quarter. Steel production utilization rate excluding Sinton was 94% compared to a domestic industry rate of 75%. Our higher utilization rates are clearly demonstrated throughout all market cycles. Value-added diversified product offerings provide broad optionality across all market segments. Enhanced supply chain solutions is driving customer preference and were supported by the internal pull through manufacturing volume. Our higher through cycle utilization rate is a key differentiator and supports our strong and growing through-cycle cash generation capability and best-in-class financial metrics. Looking forward, customer order entry is good and backlogs are solid. March in particular was a very strong booking month for the steel platform. Auto is solid. Auto production is expected to increase in '23 over '22 rates and dealer inventories have improved but still remain below historical norms. Build rate in '22 was some 14.3 million units, and we expect '23 to show 15.1 and a little higher in '24. Nonresidential construction remains strong, as evidenced by strong fabrication backlog and long product steel volumes. Our long products are seasonally solid from a backlog perspective and onshoring and infrastructure spending should provide further meaningful support in the coming years. Residential construction has softened to some degree, but that erosion appears to be easing a little, but that segment tends to be a small part of our overall portfolio. Oil and gas activity is very strong, driving improved orders for OCTG and line pipe and solar continues to grow appreciably. At Sinton, we produced 420,000 tons of hot band in the quarter, which is 56% of eventual capacity. Fifth and daily records were achieved in March, clearly demonstrating the mill's ability to reach the 3 million tons. As we discussed in our first quarter call, production through the quarter was impacted by certain supply chain issues related to bearings and rolls needed for the caster. This issue has now been resolved, and we expect a significant advance in productivity and earnings in Q2 and we should see the mill being EBITDA positive in Q2 for sure. We believe full-year capacity utilization could be in the range of 80% of rated capacity. The team has clearly demonstrated the key competitive advantages of the Texas Steel Mill. Full product dimensional capability has been proven. We have gone down to 50-ish and all the way up to one inch and all the way out to 84 inch width. The customers are reporting that the surface quality is absolutely exceptional. The hot strip mill design has allowed for thermal mechanical rolling, which allows the production of higher strength grades with lower alloy content with a significant reduction in production cost. Grade 80, Grade 100 has been achieved and we've already been approved and shipped some API grades. In my mind, this affirms our technical and process choices. And there's no doubt that this is the next generation electric arc furnace flat rolled steel technology of choice. We certainly have gained strong market acceptance. Commercially, we can sell everything we make and then some. With the Caster segment issue resolved, we're able now to fully lever our heavy gauge wide capability. Our onsite customers are busy with two of them already expanding their capabilities. Our exceptional through-cycle operating financial performance continues to support our cash generation and growth investment strategies. Relative to our expansion into aluminum, the market response from both current and new customers across our targeted market segments has been incredible. But to recap the project, that's a 650,000 metric ton aluminum flat rolled facility that will be located in Columbus, Mississippi. State-of-the-art facility serving the sustainable beverage and packaging, automotive and industrial sectors reproduces roughly 300,000 metric tons of can sheet, 200,000 metric tons of auto and 150,000 metric tons of industrial alloy. On-site melt cast slab capacity will be 600,000 metric tons, and that'll be supported by two satellite recycled aluminum slab casting centers, one in Central Mexico. We've already purchased the property there, and we're pursuing a Southwest U.S. site as we speak. Technology will include two cast lines, coating lines, and dense stream processing and packaging. We've expanded the project scope to include additional scrap processing and treatment to maximize aluminum recycle content. All the principal equipment is already on order, and we expect the roller mill to start up mid-'25, the Mexico Slab Center second half of '24 and the Southwest Slab Center probably the first quarter of '25. Total project cost, including the recycled slab centers is expected to be $2.5 billion, 100% to be funded with available cash and cash flow from operations. As we've said in the past, the expectation is to add somewhere between $650 million to $700 million of through-cycle annual EBITDA for the aluminum project, plus likely $40 million to $50 million for Omni. I think it's a very, very compelling investment premise. We see a market environment not unlike that in the steel industry when we started SDI 30 years ago. It's predominantly owed assets, little reinvestment, heavy legacy costs is inefficient with high cost operations. A significant aluminum flat roll supply deficit exists in North America and is expected to grow in the coming years. There is business alignment, we can leverage our core competencies of our construction strength and operational know how and also lever Omni's recycling footprint as Omni is the largest North American aluminum scrap recycler today. SDI culture will drive high efficiency and low cost and throughout the industry, there's a very steep cost curve which is going to support margin, a very, very cost effective, high return growth initiative. We're excited and impassioned by our future growth opportunities as they will continue the high returning growth momentum we have consistently demonstrated over the years. We were added to the S&P 500 Index in '22. We are arguably one of the top five steel producers in the world as measured by market cap and the third largest in North America relative to capacity. All these achievements in a relatively short time frame. We celebrate our 30th year in our business in '23 and there are only better things to come. Our teams are our foundation and I thank each of them for their passion and their dedication and we are committed to them. And I remind those listening today that safety for yourselves, your families and each other is our highest priority. Our culture and business model continue to positively differentiate our performance, leading to best-in-class financial metrics. We're no longer a pure steel company, but an integrated metals business, providing enhanced supply chain solutions to the industry, in turn mitigating volatility and cash flow generation through all market cycles. We're competitively positioned and continue to focus on providing superior value for our company, customers, team members and shareholders alike. And we look forward to creating new opportunities for all of us today and in the many years ahead. So, with that all said, I'd like to open the floor up for questions.

Emily Chieng:

Good morning, Mark and Theresa. Thank you for taking my questions this morning. I wanted to ask a bit about the fabrication volume expectation there and just trying to take a look at the 1Q number. It certainly was a little weaker than anticipated. You mentioned that there was some seasonality and some customer supply chain constraints there. Can you provide some color as to what they were? And how we move past this and anything you'd highlight as we look forward to the rest of the year as to what that volume trajectory could look like?

Emily Chieng:

Great. Thank you.

Curt Woodworth:

Thank you. Good morning, Mark and Theresa. A follow-up question on fabrication as well for me. In the past, you've talked about backlog pricing in the $5,000 per ton level. We've been hearing that price has definitely come in a lot from kind of peak levels last year. So I just wanted to get a sense for if you could comment on pricing you're seeing in the market. And then you talked about the March order entry being very good. Can you give us a sense of what the makeup of that backlog or that order entry is? And then if you give any comments on EBITDA per ton expectations?

Curt Woodworth:

Okay, that's helpful.

Curt Woodworth:

Okay, and then just a quick follow-up on Sinton, as we think about that asset running 56% utilization, but having a net loss of $70 million. We would think that given where metal spreads are today, if that asset could be 70% utilized in the second quarter, it theoretically should make a lot of money, right, but it seems like there's still some kind of lingering startup issues, and you talked about some of the supply chain constraints. So can you help us understand a little bit about maybe the earnings power of that asset later this year or any frame of reference in terms of 2Q, in terms of what you think utilization rates could look like? Thank you.

Theresa Wagler:

Just as a reminder, on through cycle basis, we still believe very strongly that sitting, when it has four of the value added lines operating, we'll have a through cycle EBITDA in the range of $450 to $500 million per year. So that outlook hasn't changed. So it is a significant benefit long-term. It's just a matter of this year.

Operator:

Thank you. Your next question is coming from Carlos De Alba from Morgan Stanley. Your line is live.

Theresa Wagler:

Carlos. Thanks. I know everyone's trying to figure that out. And what I would say to that is, yes, we do believe that going forward, we're going to have -- there has been a structural shift and change in how the commercial aspect of the steel joist and deck business has materialized in the last two years, if I would say it that way. And the change is that, first of all, there's considerable volume and we believe that demand is going to stay in place for a considerable amount of time. There's limited supply. So in today's environment, and I think in the future environment, it's not so much as looking at just a product itself. But this is a highly engineered product, so it's looking at a product as well as a service. And that service is requiring time on the mill or time in the facility itself. And that has a value. And that's what now has come to the force that the customers understand there's a time element and a service element, as well as a very highly engineered product set. So we believe those are structural changes. And I think that that came to bear and was proven in the second half of 2022 when steel prices actually were being reduced pretty significantly. And we think an overcorrection. And yet we had increasing pricing within our steel joist and deck facilities themselves. So we do believe there's a structural change. I can't help you more than that. I would tell you that we expect very strong volumes this year to be comparable to last year. And I think that we've told you we've got an order backlog that goes out into October, November, and it has a significantly higher price. And that price is not too far off of what the average pricing would have been for 2022. So I think we've given you a lot of data points to hopefully help you with your estimates.

Mark Millett:

Slowly, I think the -- again, as I said earlier, I'm expecting a step function improvement in the second. I'm sorry.

Mark Millett:

I would suggest that it's and that's a great question in honesty, because we're wrestling with that. Ourselves right now to be honest, and trying to understand fully the -- some of the approval certification process of can sheet as opposed to auto sheet. The fact that we're creating slab ahead of time will aid that, and the fact that we have on the automotive side some very, very good relationships with two or three key auto producers that are seeking our aluminum. And I think that will accelerate that certification process. So, from the standpoint of actual ramp, it would imagine it wouldn't be too much different than you would expect for any facility. Sort of 50% for the first 12 months, 80% for the second 12 months, and then ramping up thereafter. That would be probably as good estimation as I would suggest to you.

Operator:

Thank you. Your next question is coming from Timna Tanners from Wolfe Research. Your line is live.

Mark Millett:

Certainly garage door is off a little, Timna, for sure, in concert or in parallel with the residential erosion. But typically, as you see -- typically as you see the housing market come off. You see the replacement business go up. So it's not one for one, but it is off a little bit. The warehouse market. I think when you're talking about warehouse market, I'm assuming you're looking at the sort of distribution warehouse type facilities.

Mark Millett:

Obviously there's been a lot of focus on the fact that Amazon overbuilt. Amazon wasn't a principal customer of ours. The other warehouse distribution organizations are not off to that same degree. That said, cloud computing pharma is very, very, very strong. And as Theresa mentioned, you're starting to see true sort of reshoring sort of industrial manufacturing growth, the Tesla's of the world, the battery facilities, that sort of thing.

Mark Millett:

We're really excited with the ramp up of the galvanizing down at Sinton. We do have to feed our paint lines right now, so we are working automotive discussions and trials into our production plants, but we're also anxious on making sure the whole plants operational. All these units starting together. We want to feed the paint line, we want to feed our broader range of customers in the galvanized. We're really excited about the capabilities that we've seen in the galv line itself, paired with our technology on the hot side. So we are excited about the surface quality especially. That was one of the big decision makers for us. And to this point, we're really excited. We have not begun actually putting material into automotive plants, but we're engaging with customers that have entrusted our future with them and they're excited they come to the shop and they see a path. So our technical teams are very much in discussions there and very much complemented with our Columbus operations that are doing the workhorse of the automotive today. So we're excited to see it, and I think it has to happen at a pace that technical people are comfortable with, so that we can -- once we earn that business, we can entrust it with them that we're going to be shipping a good product into them. And obviously, Timna, the -- my watch has gone off, sorry? My ears are such that I don't hear high pitched voices. Well, definitely voices, but any sound. So if you heard my watch alarm, I apologize. But Timna, I think the auto penetration is going as planned, though. And if you look at the strength of our business model, the strength of Sinton itself, it's a very, very, very diversified product portfolio. And we can leverage different market segments and give us greater optionality. So currently the energy is incredibly strong. OCTG market line pipe is strong, and that will continue. I think, for the rest of this year, going into the next year, particularly with the infrastructure build out. And we're seeing actually, and it's surprising us a little bit, perhaps, but the energy markets for heavy plate or heavier plate, heavier products anyway, that we produce at any of our other mills, that is something that we're starting to leverage, particularly now we've got the caster issue behind us and can go up to full 1-inch thick. So we can sort of dance and work through or work around the different market segments. To be honest, that's the strength of Sinton. It's the strength of all of our flat-rolled facilities.

Mark Millett:

Well, I think the AMSA situation certainly is aided both not just the Mexican market, but the U.S. market, because Mexican output and capability has been sort of focused or redirected squarely within the Mexican market itself. So that's helped us. I think the customer base of AMSA is when you go through a shockwave like this, you sort of reflect on your future. And I think they see a need for optionality. But even when AMSA comes back, I think we're confident, in all honesty, of maintaining a lot of that business. So it's been very fortuitous for us.

Mark Millett:

You're welcome.

Tristan Gresser:

Yes, hi. Good morning. Thank you for taking my question. The first one, and I apologize, it's again about the fabrication outlook. You flagged that you're targeting volumes of last year. So strong volumes, is that fair then to assume a strong pickup than in volumes into Q2? And also the second part to that question is maybe on the moving pieces there for the outlook. It's also on the cost side, can you discuss a little bit the cost side there especially into Q2? I mean, we've seen flat steel prices double over the past month. The backlog is kind of locked. So anything you can say there in terms of potential cost pressure into Q2 that would be helpful.

Tristan Gresser:

All right, that's helpful. So the price increase we've seen has not been reflected at all.

Tristan Gresser:

All right.

Tristan Gresser:

Okay, that makes sense. And maybe a quick follow-up on working capital, we've seen quite a good release in Q1, how would you see that evolve moving forward?

Tristan Gresser:

Okay, perfect. Thanks a lot.

Andreas Bokkenheuser:

Thank you very much. Good morning, everyone. Two quick questions for me. One on steel and one on ali. On steel, you're very obviously growing your volumes both quarter-on-quarter and year-on-year, and it certainly looks to be faster than the market. So you guys seem to be capturing market share. Assuming you agree with that, can you give us a little bit of color on where specifically you're capturing market share from peers? Is it non-res? Is it autos? Is it energy, possibly all of the above. But is anything kind of standing out? And maybe also why you're able to capture that market share, obviously. And then secondly, on the ali question, obviously you're targeting automotive, among other sub-industries. Where specifically will the ali go in automotive? Is this going into auto body sheet that historically has been dominated by steel and especially steel supplied by the blast furnaces? Is that where you envision the aluminum to go? Those are my two questions. Thank you very much.

Andreas Bokkenheuser:

That is clear. Thank you very much.

Andreas Bokkenheuser:

Got it. Thank you very much.

John Tumazos:

Thank you.

John Tumazos:

Congratulations on all the progress. I'm looking at your almost $1 billion of cash flow for uses in the quarter, it's just so large and formidable without Sinton at a positive EBITDA and sheet prices were a little low. The numbers are just so big. My first question is, what will you do with all the money? Would you perhaps invest more in scrap? Ferrous scrap, non-ferrous iron ore, lots of opportunities and raw materials or resources. And second, you had a $418 million deduction from cash flow for accrued expenses. I was just curious, what was such a big accrual?

John Tumazos:

So it should really be almost amortized uniformly over the quarters from the standpoint of forecasting cash flow?

John Tumazos:

The first quarter had that big deduction from it, and it was still a lot of money?

Mark Millett:

And actually, John, if you're within about 100 miles of any of our facilities on March the 15th, you would have heard the shout and screaming and the crying as to the amazing thing that is and it's massive, massive, massive boost to our employees. And as I tell each and every one of them, it is not a gift. Each and every one of them has earned that profit sharing check. So sorry that's profit sharing. Relative to investing our wealth, so to speak, scrap iron sort of backwardly integrating is not a primary target, certainly iron is certainly not a target at this moment in time. We will and we are looking at options for during a strategic supply of our own pig iron, a green supply, so that's ongoing but not a massive capital expenditure once we move forward with that. On the scrap side, we are spending money on segregation, different ways of cleaning up all the different scrap flows to maximize, a recycled content in the aluminum business and also to reduce the residual level of the obsolete flow again to supplant some of the prime scrap. And that's working out incredibly well, particularly when there's a good spread between obsolete and prime. Not only are you securing a flow of prime scrap, but the cost impact is very, very, very significant reduction in cost or savings. But again we are -- smaller, smaller investments in segregation there, you see us spend a few dollars expanding our scrap footprint in the Southwest, but we're not talking about anything that's going to impact the balance sheet. In all honesty, we expect that that cash flow to continue. And we will continue, I think just the same cash allocation strategy that we've had in the past with a strong balance sheet, huge liquidity, it allows us to have a balanced perspective. We'll continue to have a positive dividend profile. You saw us increase, was it 25% here earlier this year. We'll continue to repurchase our shares. We think it's still at an incredible value today, sure. We're continuing with the organic growth. We got the four coating lines going in, start up later this year. We got the aluminum project and the team for 30 years have continually found good, cost effective, high returning organic growth projects. And there's a bunch in the pipeline there. And obviously, we continue to review the sort of M&A activity as it comes across our desk. So we're very, very blessed for sure.

Mark Millett:

Thank you, John.

Mark Millett:

Super, thank you. Well, again for those that are still on the call, I just want to appreciate your time today. Appreciate your support for our customers. Thank you, thank you, thank you. We can't do it without you. And to our sure, our team, each and every one of you, you do an absolutely phenomenal job each and every day. And just do one thing for us and me personally, be safe, look after each other. Have a good day. Bye-bye.

Operator:

Good day and welcome to the Steel Dynamics Fourth Quarter and Full-year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, we will conduct a question and answer session and instructions will follow at that time. Please be advised this call is being recorded today, January 26, 2023, and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Mark Millett:

Thank you, David. Good morning, everybody. Thank you for being with us for our fourth quarter and full-year 2022 earnings call. And as I think you saw, operationally, our teams had a very, very, very solid fourth quarter. Our New Millennium Building Systems platform generated record steel fabrication earnings, Sinton is showing significant operating improvement with a clear path to profitability in the second quarter of 2023. Our new aluminum group is making great progress on our aluminum flat-rolled investments, and I will share more details later in the call. Relative to full-year 2022, the entire Steel Dynamics delivered an exceptional performance with record sales, earnings and cash flow generation. I think it was a tremendous achievement, and I’m incredibly proud of our team. They are the foundation of our company, and they are the ones that have truly driven our success over the years. It is their culture of excellence and the strategic positioning executed over the last number of years that allows us to maximize opportunities resulting in higher lows and higher highs through all market cycles. However, none of this matters without keeping our teams safe. Often, employees are described as a company’s most important resource. But for Steel Dynamics, they are more than that, they are a family. And now we number over 12,000 strong. We are continually focused and provide the very best for their health, safety and welfare. We are actively engaged in safety at all times at every level, came in to top of mind and an active conversation at all levels through the organization. And with that focus, the team’s safety performance improved significantly in 2022. We but there is certainly more to do as we will not rest until we consistently achieve our goal of zero injuries. But before I add any more detail, Theresa, would you like to give us some detailed financial results.

Mark Millett:

Thank you, Theresa. Well, as was mentioned, steel fabrication saw phenomenal results in the platform in the year. And again, thank you to the Penal team. I think their effectiveness and their efficiency and their output per employee exceeds anyone in the industry. So congratulations to you and thank you for all you do there. It was another record quarterly performance, and record annual operating income of $2.4 billion for the year, with record shipments of 856,000 tons. Although the macro industries remain a little mixed, we believe nonresidential construction markets are and will continue to remain strong throughout the year. Despite lower ABI indications, I believe overall architectural firms remain optimistic for 23 Dodge Momentum Index improved around about 6% in December. And nonresidential starts and build rates are also forecast to remain solid through the year. I think the continued onshoring of manufacturing businesses and the infrastructure spending programs will start kicking in that will continue to provide momentum for construction spending. More relevant, I think our customers certainly tell us demand remains solid in spite of economic uncertainty, and it is certainly confirmed by current order rates, not only in the joist and deck business but also our structural products business as well. Our steel fabrication order backlog extends through the first half of 2023, with strong pricing dynamics. And with continued solid order intake rates, we expect to see continued strong volume and performance those operations throughout 2023. And the fabrication platform is not only a significant contributor itself, but it provides significant pull-through volume for our steel mills, allowing higher through-cycle utilization rates, and it also provides a meaningful natural hedge to lower steel pricing. Our MEL’s recycling platform had a solid year, especially in light of the challenging pricing environment. During 2022, ferrous scrap prices declined nine out of 12 months and volumes were marginally lower. The team managed to achieve metal margins that were only $2 per gross ton lower than record 2021 results. After seven consecutive months of declining price during 2022, First scrap prices improved in December and January, and it is our expectation that pricing will continue a moderate seasonal increase during the first quarter. Our metals recycling geographic footprint provides a strategic competitive advantage for our steel mills and our scrap generating customers. In particular, our growing Mexican volumes will enhance our Columbus and symptom positions and the Zimmer and Roka acquisitions are performing very well, and integration is outstanding. Our metals recycling team continues to partner with our steel teams to expand traded scrap separation to provide more high-quality, low-residual scrap to our steel mills. The impact of these efforts, along with others in the industry, has demonstrated that innovation will provide ample scrap supply in the years ahead. Similarly, we are also exploring technologies for more effective aluminum scrap separation in anticipation of sourcing material for our upcoming aluminum flat rolled operations to maximize recycled content. Steel operations achieved record shipments in the second best annual earnings in 2022, again, outstanding performance by an outstanding team. So thank you for each and every one of you there, record shipments of 12.2 million tons, operating income of $3.1 billion. Our 2022 steel production utilization rate was 92%, excluding Sinton, compared to a domestic industry rate of 78%. And again, our higher utilization rates are clearly demonstrated throughout all market cycles. Our value-added diversified product offerings differentiated supply chain solutions provides stickiness and the support of our internal pull-through manufacturing volume has clearly demonstrated time and time again that we can maintain a higher utilization than our peers in the industry. As a key differentiator. It supports our strong and growing through-cycle cash generation capability and best-in-class financial metrics. Looking forward, customer order entry is good and backlogs are solid. In actuality, December was a historically high order intake month followed by another historic high order intake year-to-date. So we see a very, very, very solid market developing for the rest of the year. Auto production is expected to increase in 2023 from the lower 2022 rates. Dealer inventories have improved, but still remain meaningfully below historic norms. The build rate in 2022 was roughly 14.3 million units, and it is expected to grow a little to about 15%, 15.1% for 2023 and higher thereafter. Nonresidential construction remains solid as evidenced by fabrication backlog, and as I said, the long product steel volumes. Residential construction has certainly softened. It is impacting HVAC, appliance and other housing-related products, but fortunately, much of our portfolio is biased toward replacement. Oil and gas activity is driving improved orders for OCTG and line pipe and solar continues to grow. And I think generally, this market strength is clearly supporting market price appreciation and in particular, the challenges with OMS in Mexico, has certainly changed the regional sort of markets and the Mexico a stand in Mexico and the U.S. market is certainly benefiting from that. In Sinton, the downstream coating lines are running well. They are running below full capacity, though, as the rest of the mill continues to work through start-up items. The hot mill, and that is the good news, the homes turned the corner, running more consistency, approaching 65% capability month-to-date. We have been experiencing very, very long sequence lengths on the case recently up to 22 hours at a time. We are achieving days in excess of 85% capacity, and we should be around about 150,000 tons for the month of January and improving thereafter. Our current utilization is certainly being impacted by certain supply chain issues related to bearings and roles. This is specific to the casted roles in the segments. But we expect to have this resolved before the end of the first quarter, which will allow for a much stronger production for the rest of the year. Additionally, high-priced pig iron inventory is being drawn down through the quarter and the raw material input cost was normalized for Q2 through the rest of the year. While financial performance will likely be flat there in the first quarter, as we consume that high-price pig iron we expect significant events in both productivity and earnings in Q2. Mill production dimensional capabilities improving there. The hot strip mill design is certainly allowed for thermal mechanical rolling, allowing production of higher strength grades with lower alloyed content and associated alloy cost, and we have already been approved and shipped some API grades. I think experience to-date certainly affirms our technical and process choices, and there is no doubt that this is the next-generation electric arc furnace-based flat-rolled steel technology of choice going forward. We continue to grow our exceptional through cyclical operating and financial performance continues to support our cash generation and growth investment strategies. We have the four value-add flat-rolled steel coating lines under construction. These projects have gone well, and they are targeted for start-up in the second half of 2023. We have a galvanizing line and paint line going in at Sinton and similarly into Heartland, and we are seeing very good customer interest for that new volume. Currently, we are the largest domestic nonautomotive coater flat rolled steel with and annual coating capacity of over six million tons, these four new lines will increase that capacity by an additional 1.1 million tons. We have created unique supply chain solutions for our customers, which allow our downstream lines to remain always fully utilized with our highest margin products. Switching to aluminum, market response from both current and new customers across all markets has truly been incredible. To recap the project itself the 650,000 metric ton per year aluminum flat roll facility. The main mill facility will be located in Columbus, Mississippi. It is close to the Southeastern markets and well positioned to serve Mexico. It is on the KCS rail line, which connects us again to Mexico to bring slab up and material back down to Mexico and it also connects to Canada to bring primary aluminum down from the sources up there. We intentionally located it on the TVA power grid to allow supply green energy. And we have water access by the Tom Big B waterway. So the transportation structure is good for us. We attained an attractive incentive package and having our current our Columbus steel mill close by. It allows us to draw on that facility for talent or professional services, and there will be a transition or transfer of many of our folks there which will have an immediate infusion of our culture to that aluminum facility. So we are excited about that. The mill itself will have on-site melt slab capacity of roughly 600,000 metric tons and will be supported by two satellite recycled aluminum slab casting centers. One will be located in the Southwest U.S. and one in SLP Mexico. Both sites, we have - letters have been sent in place, and we are under due diligence, but I believe it will serve us very, very, very well. And obviously, the strategic thought there was to place the slab centers in areas of surplus scrap and the California Western market and Mexico will have an abundance of UBC material. The mill itself, again, is going to be equipped with the two cash lines, the coating line, downstream processing and packaging lines. We have actually expanded the product scope there to include additional scrap processing and treatment to maximize recycled content. It is a state-of-the-art facility, and we will be serving the sustainable beverage and packaging markets, both body and TAM, the automotive sector and industrial sectors. Breakdown would be 300,000 tons of can sheet, 200,000 tons of auto and about 150,000 tons of industrial, or the principal equipment is on order, allowing for a pretty firm startup of the mill mid-2025. We believe the Mexican slab center will start up in the second half and the Southwest U.S. slab Center early 2025. The total project cost, including the recycled slab centers has grown a little from our initial $2.2 billion estimate. The increase is somewhat associated with - now that we have truly defined the equipment costs. But we have also added scope as I said, we put in a scrap processing and treatment and segregation at both the slab centers, which has increased that number a little and today, we estimate a firm budget of about $2.5 billion. It will be 100% funded with available cash and cash flow from operations. So there is no additional debt or financial needed to push this thing forward. And we clearly expect to see about $650 million to $700 million of through-cycle annual EBITDA, with an additional $40 million to $50 million arising from our recycled Omni Source efforts. From an investment premise and we have talked about it before, but we see the aluminum market, not unlike that in the steel industry, when we started SDI some 30-years ago. It is an industry that has essentially older assets, there has been little reinvestment over the years, heavy legacy cost, there is inefficiency and sort of high-cost operations. And the advantage compared to any other steel market that we have entered is there is actually a supply side deficit. Every other market in steel has always been oversupplied, and we have had to use our culture and low-cost strategies to penetrate those markets. With aluminum, there is a clear, clear supply deficit will certainly aid the ramp-up and a very, very quick profitability of that project. Certainly business alignment, we believe it is sort of an adjacent industry, so to speak. It is going to allow us to leverage our core competencies of constructing design, constructing, ramping up very, very large capital assets. It will allow us to leverage our recycling footprint, Omni Source is the largest North American recycling of nonferrous products, including aluminum. We recycle over GBP 1.2 billion, half of that is aluminum to there. I believe we will certainly be able to infuse the project with our culture, and that will power a very low cost, very high efficiency operations. So we are very, very excited and we are certainly excited from the reception we are getting from those aluminum customers. Looking forward, we are certainly excited and passion by our future growth opportunities as they will continue the high returning growth momentum we have consistently demonstrated over the years. We were recently added to the S&P 500 Index. I feel that is a true testament to our people and to the financial strength and maturity of our company. We are arguably one of the top five steel producers in the world as measured by market cap today and the third largest in North America by capacity and we certainly have the best financial metrics of any of our peers. And all these achievements have been achieved in a relatively short time frame, and that could not be accomplished without the phenomenal commitment of our extraordinary people. Everyone has had an impact and everyone contributes each and every day. We are celebrating our 30th year in business later this year, and there are only better things to come. Our teams and the culture they create on our foundation, and I thank each of them for their passion and their dedication. And in turn, we are committed to their wealth firm, their health and their safety. And I remind those listening today that safety for yourselves and each other is our highest priority each and every day. Our success is also driven by the loyal support of our customers who have become partners and friends over the years and together, we have created many innovative supply chain solutions, creating value for all. And we look forward to providing similar value and optionality to all our new customers as we continue to expand our product offerings in the steel arena, but also in the new aluminum market that we are entering. And finally, thank you to all that have invested in us. There is a growing number that recognizing the power of our culture, the resilience of our business model and the potential outsized depreciation that are significant yet disciplined growth will return. We certainly look forward to creating new opportunities for all of us today and in the years ahead. So with that said, I would love to open the floor up or the call up for questions.

Emily Chieng:

Good morning, Mark and Theresa and thank your taking my question. I would like to start with the aluminum rolling mill and what progress you have made there. Maybe curious as to how many sort of contract negotiations or discussions you have started to have with different customers. Maybe what end markets you have been targeting so far and as you think about how Steel Dynamics may ultimately disrupt this industry, are there any indications that the pricing construct that we have historically seen of this industry could change.

Theresa Wagler:

From a progress perspective Emily, I think that Mark mentioned earlier that we do have locations that we have in mind and we are negotiating right now for both of the recycled slab facilities plus we now have a location. And so there is a lot of excitement happening in Columbus, Mississippi. Last year, we spent about just a little over $120 million on the investments going forward, just to kind of recalibrate since we do have an increased amount of $2.5 billion. In 2023, we are likely to spend somewhere between $900 million and $950 million in capital, in 2024, $1.2 billion, with the remaining $200 million to $300 million during the startup year of 2025. So the teams are pushing forward very quickly.

Operator:

Thank you. Your next question is coming from Carlos de Alba of Morgan Stanley. Carlos your line is live.

Mark Millett:

Thank you Carlos, you were like a machine gun there. So I’m not so sure I got all your questions. I think from a ramp-up, I will work backwards, but from the ramp-up of the coating lines, those will be, I think, very, very, very strong. Obviously, we have many, many galvanizing lines, prepaint lines throughout the company, and we will harness all our technical resources there to get those lines up quickly. We certainly have the substrate available to fully load those lines. So I think the ramp up, again, those lines of start up at second half, perhaps fourth quarter and will ramp up quite quickly through the rest of the year into the following year.

Carlos De Alba:

All right. Great. Thank you very much Mark and Theresa. I’m sorry Mark I will slowdown next time.

Timna Tanners:

Hey good morning guys. I wanted to ask about the downstream, the fabricate segment please. Just a little clarity, if you could, on the guidance. As I understand it, you talked about some slippage from very high levels, but still above historical levels. But historically, EBITDA per ton prior to 2022 is $190 a ton, and 2022 is $2,850. I’m just wondering if you could provide a little more color on where we should fall between those two extremes. And maybe if you could, it would be helpful. I know Nucor mentioned a year-over-year comparison? Or if there is anything that you can provide a little more clarity on that, that would be great.

Timna Tanners:

Okay. Mark, does that strength on volumes, strengthen prices into margins I mean do you expect year-over-year to be up and just like I’m saying it is a big gap. I get that it will be higher than it is been historically, but any color on if we should expect some continuation of what we saw in 2022?

Timna Tanners:

Okay, thanks Mark.

Curtis Woodworth:

Yes, thanks good morning, Mark and Theresa, how are you? Good. I just want to follow up on the fabrication comments. So in the past, you have talked about you have had backlog basically priced through the middle part of this year, and I think you had discussed I believe pricing in the 5,000 or higher level. So I just wondered if you could confirm that, that is kind of the price level your backlog is at. And then if you are sold through the first part of this year, I assume you are bidding projects now for can you comment on price levels you see there? And then with respect to some of the delays or project push outs from what we have seen, the data center and some of those areas are still very strong oil the Amazon type warehouse spent a lot of those have been canceled. So if you could just kind of help us maybe understand a little bit of the DNA of the backlog would be helpful.

Mark Millett:

And just the one comment, though, I think it was mentioned that the distribution warehouses are again canceled. We actually are only seeing that in one customer. Well, actually, not a customer of ours, but one company the distribution warehouse business in our backlog is solid and not getting canceled out. So that is not a comprehensive issue. And just to reemphasize what Teresa said on earlier on the reshoring. Reshoring is real. It truly is. That is going to be supportive of that business. And if you look through just the size of some of these factories, the battery manufacturing facilities is a huge, massive, massive facilities that will require a lot of joists and deck. So again, it is off the frenetic pace that we saw, but it is a very, very, very solid sector for us for the rest of the year.

Theresa Wagler:

Yes. So from a volume perspective Curt, Sinton had shipments in the third quarter of around just under 270,000 tons, and it increased to just under 340,000 tons for shipments in the fourth quarter, and we expect to see that improve in the first quarter and then have a significant improvement in the second quarter of 2023. From an impact, we still expect to see losses as they work through the higher-priced pigeon which is obviously matching against lower steel prices than they were at this time last year. And so like it will be -- it should improve over the fourth quarter losses pretty significantly, but still be higher than we would like to see maybe around the $10 million mark.

Operator:

Thank you. Your next question is coming from Tristan Gresser of BNP Paribas. Tristan your line is live.

Theresa Wagler:

So I think Mark mentioned the ramp-up for the two additional value-add lines that will be in Sinton the third quarter of 2023. Those should ramp, we expect fairly quickly to start benefiting their product mix. We are not going to give full-year guidance for Sinton as far as EBITDA. But I would tell you that I think Curt mentioned earlier on the call, that the losses in 2022 were over $400 million, and it is going to swing to a significant positive for 2023. So just that differential alone will have a significant momentum benefit to our earnings in 2023, but it is just too early for us to give an estimate, but it won’t hit through cycle EBITDA in the year where we are still ramping up production.

Mark Millett:

I guess from our perspective, the higher demand translates to, in large part, to price up point and spread support. Our operations are already running at quite a high utilization rate. Further demand, obviously, is certainly going to help our Sinton facility. And given the market sectors, energy is very, very strong in that area in Texas. That is helping us. And the challenges that we are seeing in Mexico and the imports of sheet coming up from Mexico into the Southwest markets, but also even under the Midwest have essentially mitigate they are staying in Mexico now. So that is going to create good demand and great dynamics. So from a market perspective, we will certainly be able to support all the capability that the ramp-up will allow.

Operator:

Thank you. Your next question is coming from Andreas Bokkenheuser from UBS. Andreas your line is live.

Mark Millett:

Well, as we have suggested in the past, we are not big in the rebar markets in at. But nonetheless, from our structural long products perspective, the infrastructure bill or spending is not necessarily kicked in yet. It typically takes six to nine months for that to materialize. And obviously, it is too soon. But come the summer of this year, I think you will start to see some benefit there.

Operator:

Thank you. Your next question is coming from Lawson Winder of BofA Securities. Lawson your line is live.

Theresa Wagler:

Good one. I’m smiling because Mark tosses things my way, and it is funny how he does it. But from a dividend perspective, we do like to grow the dividend in a way that is consistent so that we are constantly having increases across the spectrum. And I think as I mentioned, since 2017, we actually increased the dividend by almost 120%. And we like to do that lockstep with free cash flow increases that are through cycle like Sinton. I would expect that we should have a pretty significant increase coming forward as well. We like to do those traditionally in the first quarter time frame. We have additional projects that are a little bit smaller, but that are coming online in 2023 that will add to through-cycle earnings. And given our stock price, which has been fantastic, driving up recently, you should expect to see strong shareholder distributions continue, and that would include a strong increase in the dividend coming forward.

Operator:

Thank you very much. [Operator Instructions] Our next question is coming from John Tumazos, of John Tumazos Very Independent Research. John your line is live.

Mark Millett:

John, great to have you on the call as always, and thanks for the question. I think the biggest parameter is substrate costs. As we have -- over the years, we have ramped up the tech substrate, Holland substrate and even at Sinton, we actually pre-purchased about 150,000 tons, maybe a little more to load the downstream coating lines in preparation for when the hot mill started up. So you are certainly seeing that influence our costs, for sure.

John Tumazos:

In your steel mills, with the normal non-scrap cost of goods sold be closer to $200 a ton or $250 tons or $300 tons.

John Tumazos:

Thank you.

Mark Millett:

Thank you and thank you for everyone on the call for your time today. Certainly, thanks to our team. I want to remind each and every one of you that you do contribute, you do have an impact on our success and stay safe and keep each other safe. Customers, we can do it without you. And I would just like to reemphasize those that have invested in us, there is a growing cadre of folks that are building positions that - they really are recognizing the power of our culture. It is different. We are different, and we drive absolutely different results. Our business model allows us to perform and maintain a higher through-cycle cash generation than our peers. And I think hopefully, people are starting to recognize that that our capital allocation, our growth is incredibly disciplined, particularly on the acquisition side. And I think that that speaks to just our underlying results. It is interesting if one measures the earnings power of our company on an employee basis, we are substantially higher than anyone else out there in our peer group. And again, it speaks to our overall efficiency and effectiveness of the culture, the strategic decisions that the team has made over the years, and it will continue to drop to the bottom line. So investors that support us, again, many, many thanks to you as well and with that said, have a great day.

Operator:

Good day and welcome to the Steel Dynamics' Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised this call is being recorded today, October 20th, 2022, and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Mark Millett:

Thank you, David. I forgot to turn the microphone on there as always. But thank you, everyone, for being with us on our third quarter earnings call. It certainly was an exciting quarter with great performance by the team and growth on many fronts. Firstly, a great welcome to the ROCA team, Senate in Monterrey. In combination with the former Zimmer Group, OmniSource Mexico now is a significant recycling presence within Mexico that will support their existing Mexican customer base, while providing strategic sourcing opportunities for our Sinton and Columbus steel mills and soon to be aluminum mill. Sinton has turned the corner and is showing significant improvement. The team is also making great progress on our aluminum flat rolled strategy, which I will share later on the call. Operationally, our third quarter was a great quarter, achieving several new benchmarks, including record steel and steel fabrication shipments and record cash flow from operations, all supporting our cash allocation strategy and commitment to further expansion of shareholder value. I continue to be incredibly proud of our teams. They are on our foundation and the catalyst of our current and future success. It's their culture of excellence and the strategic positioning executed over the last number of years that allows us to maximize opportunities, resulting in higher lows and higher highs through the cycle. So a great quarter, yet none of this matters without keeping our teams safe. Often employees are described as a company's most important resource. For us, they are more than that. They are family and the SDI family now is 26,000 strong. We are focused to provide the very best for their health, safety and welfare. We're actively engaged in safety at all times at every level of our organization, came in top of mind and an active conversation throughout the company. We will not rest until we consistently achieve our goal of zero incidents. But before I continue, Theresa, would you like to give us some details?

Mark Millett:

Super. Thank you, Teresa. And certainly, incredible results from the steel fabrication platform, a product that is obviously a market tailwind, but our strategic positioning over the years. We had record operating income of $677 million in the quarter, with the record shipments of 218,000 tons. Nonresidential construction markets remain strong, as would be suggested by the macro indicators. They all remain positive. ABI index of fitting a little over 53. ABI reports, business conditions remain generally strong, and Dodge Momentum Index improved 6% in September. Nonresidential starts and build rates are forecast to remain good into 2023. More importantly, our customers tell us demand remains solid in spite of economic uncertainty. Order activity is better paced versus the frenetic pace of the recent past and remains higher than historical norms. Our order backlog is well into the first half of 2023 with strong pricing dynamics and we expect to see continued strong volume for fabrication in the fourth quarter and for 2023 in general. Aside from the significant advantage of pull-through volume for our sheet mills, New Millennium provides a perfect hedge to our steel operations. Although SDI mills saw steady utilization throughout the third quarter, lower domestic steel industry utilization in general reduced the demand for scrap in the quarter. First, scrap prices have declined month-over-month beginning in May through October, prime dropping from some $735 a ton to more recently around about $380 per gross ton. Omni's earnings suffered as a result of this progression in market pricing and weaker industry demand. The Omni platform is continuing to work with our steel mill teams to expand our shred separation opportunities to provide even higher volumes of low residual scrap. The impact of our efforts, along with others in the industry, has amply demonstrated our view that innovation will solve any perceived fears of prime scrap shortage in the years ahead. With additional producers coming to the market, pig iron availability is normalized and pricing has moderated significantly to a little over $500 per ton. We have sufficient pig iron sourced well into next year. Supply is not an issue for our flat rolled operations. And again, we're excited for the addition of Roka to our OmniSource Mexico portfolio, which now will grow to some 2.5 million tons of ferrous and non-ferrous annual capability. It was another historically strong quarter for the steel platform. We had record shipments of 3.2 million tons and operating income of $658 million. Our third quarter production utilization rate was around 93%, which was incrementally lower than the second quarter that was 95%, yet significantly above the industry average of 78%. High utilization rates are clearly demonstrated through time. Value-added diversified product offerings, differentiated supply chain solutions all support and the support of internal pull-through volume all support that utilization -- higher utilization rate compared to our peers. And in turn, it supports our strong and growing through-cycle cash the industry capability and best-in-class financial metrics. Looking forward, customer order entry is good and backlogs are solid and that's supported by our diversified portfolio of value-added products, which comprised now of around 70% of steel sales. We focus on value-creating supply chains to mitigate the impact of price volatility and all this just maintains a higher through-cycle utilization rate. Relative to the markets, we see automotive steady at current rates and we expect that to improve off low 2022 production based on the extremely low dealer inventories and pent-up vehicle demand. The 2022 build rate is going to be some 14.5 million units, and we would expect 2023 to grow to 15.5 units or so, and 2024 to 16-plus units -- million units. Non-residential construction remains solid as evidenced by fabrication backlog and long product steel volumes. Long product steel backlogs are good and several of our divisions, Summa City and Roanoke in particular, achieved strong volumes and record earnings in the third quarter, demonstrating our market depth. Infrastructure spending should also provide further meaningful support in the coming years. New residential construction has softened a little, impacting HVAC and appliance and other housing-related products. Fortunately, our portfolio is biased to replacement, and we won't get a ton of a ton impact. Oil and gas activity is driving improved orders for OCTG and line pipe, and solar renewable expansion continues to grow. Turning to Sinton. Both coating lines are running extremely well, and ramp-up continues on the hot side in the tandem cold mill. I believe the hot mill has certainly turned the corner, becoming more consistently running at a 60%, 65% month-to-date with days exceeding well over 80%. Surface quality is excellent. Reported coil shape from processing customers is also excellent. And our hot strip mill design has allowed for thermal mechanical rolling, allowing higher strength grades with lower alloy content and associated costs. And we've already been approved and shipped some API grades, which is quite remarkable given the mill has only been up and running for what, nine months. So the team has done a phenomenal job. And I think it certainly affirms our technical and process choices and it is indeed a next-generation mill. Our exceptional through cycle operating and financial performance continues to support our cash allocation strategies and growth. The four value-add flat-rolled steel coating lines are going well and are targeted for the second half of 2023 for startup, two for Sinton and two for Heartland, and we're already seeing customer interest for that new volume. We're the largest domestic non-automotive coater of flat-rolled steel with an annual coating capacity over 6 million tons. These four new lines will increase that capacity by an additional 1.1 million tons. We have created unique supply chain solutions for our customers, which allow our downstream lines to remain always full with our highest margin products. Relative to the lunar dynamics, the market response from both current and new customers across all market sectors has been absolutely incredible. And so to recap that project, it's a 650,000 metric ton a year aluminum flat roll facility, which will be located in the Southeastern US, and we expect to announce that site location in the next few weeks. On-site mill and cash slab capacity will consist of 450,000 metric tons, and that will be supported by two satellite recycled aluminum slab casting centers, one in the Southwest US and one in the South. We'll have two cash lines, coating line and downstream processing and packaging lines. So we'll be able to furnish all products to the beverage -- food packaging arena, automotive and industrial. The mill is planned to start up in mid-2025, the Mexico Slab Center in 2024 and the Southwest Slab Center in the first quarter of 2025. The financial impact will be around $2.2 billion CapEx over four years. It's going to be funded 100% with available cash and cash flow from operations with no additional debt needed. We expect to add about $650 million to $700 million of through cycle annual EBITDA once it's up and running. So in closing, we're excited and passion by our future growth opportunities as they will continue the high returning growth momentum we have demonstrated over the last 15 years. Our teams are our foundation. I thank each of them for their passion and their dedication and their desire to excel. We are committed to the health and safety. And I remind those listening today that safety for yourselves and each other is our highest priority. Our culture and business model continues to positively differentiate our performance from others. We're competitively positioned and continue to focus on providing superior value for our company, our customers, team members and shareholders, and we look forward to creating new opportunities for everyone today and in the years ahead. So with that said, we would love to answer any questions you might have.

Emily Chieng:

Good morning, Mark and Theresa. Thank you for the time this morning. My question is just around the fabrication business, and we've certainly seen realized pricing trend higher on a sequential basis. But perhaps could you share some color on where new contract awards are getting priced? And how should we be thinking about the sustainability of your margins in this segment in the near-term and perhaps call it on a normalized basis?

Emily Chieng:

Thank you.

Carlos De Alba:

Thank you very much. Good morning. So the question is based on the comments for end markets, it seems that long products should be doing better than the flat end markets on the lending products. But in the reported volumes, we saw your long steel volumes falling a little bit quarter-on-quarter, while flat improved. So I just wonder if you can give us a little bit of your -- how you see that evolving in the fourth quarter? Do you think that this is going to probably reverse based on the end market situation and how those are evolving? And also you mentioned in your press release that, seasonally, you see lower volumes in the fourth quarter. However, your seasonality in the last couple of years has been quite different than what we saw in, say, 2015 to 2019 prior to the pandemic. So if you could share some color as to how you see the seasonality playing out this time around will be also great.

Carlos De Alba:

Right. Thank you, Theresa.

Timna Tanners:

Great. Thanks. Good morning.

Timna Tanners:

I wanted to just ask you about things, you utilization continuing to be higher than peers. And it's a pretty big contrast, as you point out, you're ramping up Sinton. And meanwhile, US Steel has cut production, saying there's not enough demand. And your utilization is a pretty stark contrast. I'm just -- and Nucor said that they're being disciplined in holding off tons because of weaker demand. So I'm just wondering, you can explain what's different about what you're seeing? And if you could, while you do that, if you could talk a little bit about the opportunities that you'd mentioned in the past for exporting to Mexico and the West Coast from the Sinton operation. Thanks.

Timna Tanners:

Okay. Great. Would you mind on the other part of the question about the opportunities that you'd allocation strategies that ability to ramp -- produce at higher levels as well?

Timna Tanners:

Okay. Thanks. I'll get back in the queue.

Cleveland Rueckert:

Hey everybody. I'll say good day, it's almost noon here. I appreciate question I'll stick to one, just to start. But Mark, I wanted to build on your comment about raw materials and scrap availability. I'm just curious, as we think about investment opportunities, I get that you're shifting investment into aluminum and that's kind of the priority right now. But -- is there any opportunity to invest in some of the raw materials businesses that you already own? I think on these calls before; you've talked about increasing usage of different scrap grades. I'm just wondering if that's more of an R&D exercise on your part on the steel operations or if there's some infrastructure that you're thinking could add some efficiency there?

Cleveland Rueckert:

That’s well understood. Thanks.

Alex Hacking:

Yeah. Thanks Mark and Theresa. So on Sinton, Mark, I think you mentioned that it had turned the corner. How close are you there to operating at consistent 80% rate? What are the remaining challenges? And then what needs to happen to get it up to 90%, 95% or whatever you would be targeting longer term? And is that the rate you would be expecting 90%, 95% exit rate in 2023? So you stopped below 80% and then you build up through the year, or it would be more of a consistent rate through the year? Thanks.

Theresa Wagler:

But Alex, you're correct. That's for the entirety of the year. So there will be a progression of ramp so that by the time we're exiting 2023, we would expect to be operating at or near that capacity rate -- that full capacity rate.

Theresa Wagler:

Alex, I think you were asking about the full complement of our flat roll operations? And we are expecting to have higher shipments from Sinton itself, but I'll leave you to determine what seasonality does to the rest of the group.

Theresa Wagler:

You’re welcome.

Curt Woodworth:

Yes. Hi, Mark and Theresa. How are you?

Curt Woodworth:

So I just wanted to talk a little bit more about fabrication. Can you kind of talk to the diversity within your backlog and maybe how bidding activity has progressed maybe the last 90 days? I think there is some concern in the market that the data center and warehouse build-out has really driven the bulk of this growth rate, and that could potentially fall sharply. And it sounds clear, if you have like a lot of big chunky projects that once those burn off, then you could be more at risk. And then within that, I know you spoke about pricing being fairly favorable. And I think you talked about how pricing would be going up progressively, I believe, into the second quarter, but can you just confirm that?

Mark Millett:

Yes. I think it is transitioning a little bit. Early on, it was very, very sort of distribution warehouse focused with cloud computing and things are following along. Cloud computing, construction tends to be -- continue to be strong and grow. Warehouse may be kind of flat to stable. And we're also seeing sort of more infrastructure, hospitals, school type construction activity. So we see it strong. I mentioned earlier, it's not at the frenetic pace that it was perhaps six months ago or eight months ago. It's normalized to still very high relative to historic norms. And if you think about it, given the interest rate sort of environment and the little economic cloud that we have, it's not unexpected that people are wondering about projects, 7, 8, 9, 10 months out, and they're just waiting a little. But, in general, we see that just the nonresidential construction in general, remaining very, very, very robust through certainly the first half of next year into the latter half.

Curt Woodworth:

Okay. Very helpful. And then, just as a follow-up, I think there have been some maybe incremental concerns on the aluminum flat rolled market, just given some of the announcements by Ball and others on the beverage can sheet side. So can you just give an update on maybe how you're progressing commercially with that project and what initial discussions have been like since you announced the project? Thanks very much.

Curt Woodworth:

Great. Thank you very much.

Philip Gibbs:

Sorry, I was on mute. Can you hear me now?

Philip Gibbs:

Hey, how are you?

Philip Gibbs:

Specifically, you talked about in the script that you were at a 60% to 65% utilization on average for the month of October so far. Is that what we should expect for the fourth quarter, which would get us near 500,000 tons for that asset, or do we expect something a little bit more than that as you ramp?

Philip Gibbs:

Should we expect, given higher volume incrementally and some of that stabilization and just the overall operations that you will get to EBITDA positive in the fourth quarter and sort of out of the start-up phase that you've been in?

Philip Gibbs:

Okay. And then as just a follow-up, if you could take a shot and talking about 2023 CapEx if you have a general idea? And then just also thoughts on net working capital in Q4. Thank you.

Operator:

Thank you. Our next question is coming from Tristan Gresser with BNP Paribas.

Theresa Wagler:

So the question related to ferrous scrap pricing and our average price was higher than expected from their models. And I would tell you, there's a significant piece of that that has to do with higher pig iron prices. So during the first quarter with the Russian-Ukraine circumstance, we, as did others, went out and purchased more pig iron to have certainty around supply. It was at a higher price than we're currently seeing today, which I think Mark mentioned was around $500 per ton. And so the flat-rolled steel mills, specifically Sinton, Columbus and Butler are still working through that higher cost pig iron at this time. Mark, do you wish to add any more commentary?

Tristan Gresser:

Okay. That's very helpful. And maybe just a quick follow-up on the Buy Clean Initiative that has been put in motion by the US government. What kind of impact are you expecting from that new policy the potential boost to demand? And are you seeing already some impact on that initiative? Thank you.

Mark Millett:

No.

Operator:

Thank you. Our next question is coming from John Tumazos with John Tumazos Independent Research.

Mark Millett:

John, they've eased and ebbed a little. I would say that reduction in flow is probably going to sort of mitigate any further substantial decline in scrap pricing.

Mark Millett:

I remember.

Mark Millett:

Thank you, John. Thanks for the memory. But I do believe, to your point, the new aluminum mill -- and honestly, I don't look at it as an aluminum mill. It's a new horizon. It's the aluminum business for us. And it's not unlike 27 years ago, when we put SDI together and we penetrated and have been somewhat successful growing within the steel industry. The same sort of drivers exists today in aluminum as it did back in steel. You've got an aged industry, has very, very high legacy costs for sure, inefficiencies. Hasn't been a new mill built for some 45 years. And as you know, Glenn and his team is incredibly smart and talented getting the right technology and building it effectively and efficiently. It's exciting. And it's exciting for the young team that we have to see that being the foundation of our growth for the next 25 years.

Mark Millett:

Thanks mate.

Timna Tanners:

Hi, guys. Thanks for the follow-up. I guess I had another big picture question, if you could indulge me. There are so many new galvanizing lines being added just by you guys, by Nucor for sure, definitely some planned ones around the corner potentially from US Steel in Ternium. I'm just wondering, is there a structurally better outlook for galvanize? There some incremental demand story or some supply piece I'm missing that's going to continue to support that level -- increased level of galvanized supply?

Timna Tanners:

Okay, great. Thanks again. Appreciate it.

Operator:

Ladies and gentlemen, that concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millett for any closing remarks.

Operator:

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation and have a great and safe day.

Operator:

Good day, and welcome to the Steel Dynamics Second Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. After management’s remarks, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised this call is being recorded today, July 21, 2022, and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Mark Millett:

Well, thank you, David. Thank you, everyone, for being with us on our second call this week. It’s been – it was exciting to announce our new growth initiative on Tuesday with our entry into the aluminum market. And it’s only been, I think, probably 48 hours or so, and the customer response from all three market segments, whether it be distribution processes, whether it be the packaging industry or even automotive, it’s been absolutely staggering the early sign of affirmation of us getting into the marketplace, and I think speaks to the lack of supply and optionality within that market. So that’s exciting. And it’s as exciting and even more exciting to announce yet another record quarter, record consolidated volumes, earnings per share, cash flow, all supporting our cash allocation strategy and commitment to build shareholder value. Specifically, we repurchased $517 million worth of the company’s common stock, representing 3.5% of our outstanding shares in the quarter. So we were staying true to our repurchase programs. We are certainly beneficiary of a strong market tailwind but I’m incredibly proud of our 11,000 strong team. They are the foundation and the catalyst of our success. They are the ones driving the superior results. It’s their culture of excellence and the strategic positioning executed over the last 10 years that allows us to exploit the current market and will continue to produce higher lows and higher highs through the cycle. I’ve said it many times before, but none of this matters without keeping everyone safe. Often, employees are described as a company’s most important asset. For us, they are more than that. They’re part of the SDI family, the people, and we are always striving to provide the best for their health, their safety and for their welfare. We’re actively focused on safety at all times, keeping it top of mind and an active conversation at every level within the organization. We’re certainly better than industry averages, but we’re not going to rest until we consistently achieve our goal of zero incidents. We’re continuing to see material market share gains driven by our ESG profile, an industry-leading low carbon footprint for flat rolled products. We will continue our journey to environmental excellence through a defined and achievable plan to be carbon neutral by 2050. Our recent Aymium investment and our joint venture is a perfect example of that. It’s an exciting opportunity to reduce greenhouse gas emissions through renewable biomass replacing fossil fuels in our electric arc furnaces. We have tested the product and it works beautifully. We believe it will also work within our iron operations. Initially, it will be 160,000 metric tons per year, and the CapEx is estimated to be around $125 million to $150 million. It will reduce our Scope 1 steelmaking greenhouse gas intensity by some 20%, 25% with even further potential upside from the use of the biogas. So with that said, Theresa, would you like to give us some thoughts?

Mark Millett:

Thank you, Theresa. As you saw, absolutely incredible results from the New Millennium fabrication platform, record operating income of $599 million in Q2 on record 218,000 tons of shipments. We see the nonresidential construction markets remaining strong. Despite the caution emanating from Amazon’s message for next year, we have had reaffirmation from our major customers anyway, including warehouse customers that everything remains incredibly strong going forward into 2023. Cloud-based computing, data centers, pharma and schools are all strong. Although the ABI index may have drifted slightly month-over-month, the AI reports, ongoing order activity and architectural firms as well as new work online remains very strong. For us, order input activity remains robust, and we still have near-peak backlog persisting. So that’s a very, very good position to be in. Q3 earnings from fabrication will certainly increase. We’re going to see increased shipments and metal spread expansion from both increased selling values and lower steel input costs. And as you’ve seen, this is a – it’s providing a perfect hedge to softening steel prices. Although we mentioned his impending retirement on our Q1 call, Russ Rinn had his final official day in the office last week after about 11 years of dedicated commitment to SDI and the OmniSource recycling platform. And yes, it’s – people say it’s sweet and sour, but for me, it was tough to see him go. He repositioned OmniSource to record earnings last year, dramatically influenced their safety performance over the years and has been a key contributor to the strategic moves we’ve made as a company. Right now, he is hiking in Virginia. And mate, thank you very much for everything you’ve done. The recycled platform saw stronger earnings based on higher domestic steel industry utilization pushing demand up, drove higher shipment volume, pricing and associated metal spread. After a strong downward move in prime scrap relative to shred through the quarter, that spread is normalized and pricing is expected to remain more stable in the months ahead. The Omni platform is continuing to work with the steel melt teams to further expand our shred segregation to provide higher volumes of low residual shred scrap, which continues to reduce our dependence on more expensive prime grades. Pig iron availability is normalized and pricing has moderated significantly to low $50 per ton range. We have sufficient pig iron sourced well into next year, and supply is not an issue and the rumors of us having problems with fos levels and such is totally inaccurate. There’s no problem using the Brazilian pig iron that we’re bringing into our mills. Steel operations had another terrific quarter, record shipments of 3.1 million tons, strong operating income of $1.1 billion. Our second quarter production utilization rate was 95%, certainly above the industry average of some 82%. I think we clearly communicated in the past that higher utilization rates have been clearly demonstrated over time. Our strategy of the value-add diversified product offerings coming out with differentiated supply chains support that along with our internal support from fabrication and downstream. Altogether, it supports our strong and growing through-cycle cash generation capability. Our customer order entry remains strong. Support of value-added products is certainly a part of that. And as I said, we’ve intentionally grown that value-added steel product mix, created valuable supply chains to mitigate the impact of price volatility. Today, some 70% of our steel sales are value-added. This supports our continued best-in-class financial metrics and cash generation. Specifically to the markets, we expect the automotive arena to remain strong and probably improve as the chip issue mitigates. You still have extremely low dealer inventories and a very strong pent-up vehicle demand from the consumer base. 2022 build rate, there’ll be some, I don’t know, around about 14 million units, and it’s projected to grow to 16.4 million in 2023 and perhaps 16.8 million in 2024. I think the chip shortage actually for us is a good thing. It’s effectively extending the auto cycle and just given us a market that’s going to be strong for longer. Construction remains strong as evidenced with the fabrication backlog. Our long products steel backlogs are also strong and several of our divisions recorded record earnings and volume in the second quarter, demonstrating the market’s depth. Infrastructure is a further meaningful support. High demand continues for HVAC, appliance and other related products. Energy continues to improve. We’re getting large orders in the South. I think it’s significant to note that the import arrivals that the sort of Ukraine-Russia conflict drove early in the year, those are arriving now, but there’s very, very little import interest for sort of October, November, December. And I believe we’re going to see moderated import volumes in the second half. And significantly, it appears our hot-rolled coil order input rate has grew dramatically in the last week or so, showing signs of an inflection there. Turning to Sinton. Commissioning continues on the hot side and tandem cold mill. The rest of the mill is fully operational. The hot mill has established target volume throughput rates with an average run rate of 75% to 80%. And I just want to emphasize that, that is when we are running, we’re running at that rate. Surface quality is excellent. It’s proven to be superior to both our Columbus and our Butler facilities. The hot strip mill design is allowed for thermomechanical rolling. That’s allowing higher strength grades to be produced at lower alloy content. The reported coil shape from our processes is excellent. And so in total, it affirms the technical process capability of the equipment, affirms the design decisions that were made some years ago for the mill. We are wrestling a little with uptime in July. We have a substation arcing issue that should be resolved this week. We have some unique Texas power supply issues right now. And we are seeing some miscellaneous equipment failures that are typical of commissioning an integrated line. The supply chain is aggravating that a little bit because when you have a – when you need a part instead of getting it in a matter of hours, sometimes it takes a day or two. So we are wrestling with those alligators, not atypical of a start-up of new plant, but we expect substantial resolution of these issues over the next few weeks. So the July issue may have cost us 100,000, 150,000 tons of production for the year, we think, to [indiscernible] itself because July is not over yet, but certainly moving in the right direction, and we clearly expect to be EBITDA positive in the Q4. We continue on our growth. We have the four value-added coating lines under construction and progressing well. They’re targeted for the second half of 2023 to start up. As you know, we – again, it’s the strength of our overall strategy and our product mix, but we are the largest non-automotive coater of flat-rolled steels, and now have annual coating capacity of over 6 million tons. Four new lines will increase that capacity by an additional 1.1 million tons. We’ve created unique supply chain solutions for our customers, and these lines are almost always fully utilized with our highest-margin products. So switching now to aluminum dynamics. It’s been an incredibly exciting week, and it has been incredible. I said it earlier, it’s been staggering, the initial support that we’re seeing from all our customers and a massive number of new customers. To recap, it’s a 650,000 metric ton a year flat-rolled facility that’s going to be located in the Southeastern U.S. It have on-site melt and cast lab capacity of roughly 450,000 metric tons. It’s a fully equipped flat-rolled mill with two cash lines, coating line and downstream processing and packaging capability. It’s going to be supported by two satellite recycled aluminum slab casting centers, one in the Southwest U.S. and one in Mexico. We expect the mill itself to start up in the first half of 2025, the Mexican slab casting center in 2024 and the Southwest slap casting center in – at the end of 2025. Financial impact the total project cost of some $2.2 billion. That expenditure is going to be spread over four years of the project. It’s going to be 100% funded with available cash and cash flow through operations, and it’s expected to add a good $650 million to $700 million in through-cycle consolidated annual EBITDA per year. We certainly anticipate no requirement to add any additional debt. From conversations on the call and subsequent conversations that there appears to be some skepticism regarding our EBITDA per ton target of $1,000. We are confident of that number. And it speaks to what was driven by a myriad of things, but firstly, it’s a greenfield facility. Everything is happening essentially on one side or the rolling, processing, coating, heat treating. It allows for an optimum site layout and flow of material and logistics, and you can quite easily reduce the labor, the man power input because of that with robotics and automatic storage and retrievable systems. So labor input is going to be dramatically less than the current industry. We will not be burdened by aged facilities and legacy costs. Energy, because of the state-of-the-art equipment that where be installing is going to be a lot lower. Yield improvements will dramatically improve the cost structure, pushing higher scrap content levels and transportation, given the satellite slab casting centers transporting solid dense slab as opposed to scrap is going to be a significant improvement. So we’re very, very confident of that cost projection. From an investment premise standpoint, obviously, we see a very clear gap in the supply and demand. There’s a current and growing deficit, supply deficit. We see a very close sort of overlap and business alignment. And essentially, you could – if we filmed the steel mill and an aluminum mill in black and white, most people on the call today wouldn’t be able to tell the difference. I mean it’s – all it is a different metal. We clearly will be able to execute the project well. It’s incredibly cost-effective growth. Given the opportunities that are in the marketplace today, and the exorbitant multiples that are expected from sellers. This is a very, very CapEx efficient growth project. As I said, we have got absolutely great customer support. And at the end of the day, our success has always been driven by the SDI culture by our employees. It drives higher efficiency than anyone else, drive lower cost. And if you look at that industry, it has a very, very, very steep cost curve. And that will obviously – if you were at the lowest quartile, that’s going to support margin through the cycle. So we’re incredibly excited by the opportunity. So in general, it’s been a phenomenal week. It’s been a phenomenal year for SDI that will continue through the rest of this year. Our team provides our success, the foundation for that success, and I thank each of them for their hard work and their commitment. I remind each and everyone to remember, safety is always our first priority. We’re going to continue to focus on providing superior value for our customers, through our company, team members and shareholders alike. We look forward to creating new opportunities for everyone in the years ahead. So with that said, I’d like to pass the call over for questions. Holly?

Emily Chieng:

Good morning, Mark and Theresa, and thank you for the update today. My question is just around your power cost exposures across the portfolio. Can you highlight to us what is hedged or fixed price power and what still remains on spot? Is Sinton actually exposed to market prices? Or have you since put some hedges in place there?

Mark Millett:

Emily, that’s the electrical power. On the natural gas side of things, we typically hedge around about 60%, 65% of our consumption.

Operator:

Your next question for today is coming from Seth Rosenfeld with BNB Paribas. Seth, your line is live.

Theresa Wagler:

Thanks, Seth. So as it relates to the fabrication business, we said near records just because of recent we have people back checking all the time and if it’s not a record, we have to say near record. There has been some contraction from the peaks, but we’re still having a backlog that’s well into 2023. So it’s not something that we’re concerned about or we think it’s endemic of anything changing significantly. From a pricing perspective, we’re still having very strong price support, and there is still increased pricing that is included in the backlog. So we’re feeling very good about the non-residential market, specifically for our steel fabrication business. Mark, do you have anything to add?

Seth Rosenfeld:

Thanks very much. Let’s ask a separate question, please. On the working capital side, I think on the call earlier this week, you had a potential tailwind from working capital release moving forward. And Q2, you saw another quarter of large investment. Can you give us any color on your expectations for second half as steel raw materials price decline?

Operator:

Your next question for today is coming from Carlos De Alba with Morgan Stanley. Carlos, your line is live.

Theresa Wagler:

Carlos, I’ll point you to the presentation that’s still out on the website that we provided on Tuesday. But from a CapEx progression standpoint, we believe we’ll spend somewhere between $200 million and $300 million on the flat-rolled aluminum project in 2022. That would be additive to the number that I gave you earlier for the estimate for the rest of 2022 of being in that $350 million to $400 million range. And then the bulk of the spend will be in 2023 and 2024, each of those years being around $750 million to $800 million. And then finally, we would have the remainder, which is around $300 million to $350 million in that 2025, 2026 time frame. So it’s over a period of four to five years where we’ll be spending the investment. And that’s why Mark was very clear, and I’ve tried to be clear as well that this will readily be funded through cash flow and cash flow from operations.

Mark Millett:

Well, I think, Carlos, you saw generally a sort of erosion on the hot band, hot-rolled coil pricing across the U.S. in general, and it was a little stronger in the South, because of the reasons that you suggest. As I suggested, we’re seeing our order activity on hot band recently pick up dramatically. And so I think there’s no support there in that product category.

Mark Millett:

Thank you.

Timna Tanners:

Hey, good morning, everyone. I wanted to ask a little bit more, if I could, I know on the last call, when we’ve spoken to you, you mentioned that you were looking at a pig iron alternative kind of leveraging your iron dynamics operations. So – if you could expand on that. And then if I could throw in one more. Just I thought it was interesting that you mentioned the market is pessimistic, but your customers are optimistic. So I was just hoping you could also elaborate on that. Thanks a lot.

Timna Tanners:

Thanks on Iron Dynamics. That’s helpful. So it doesn’t sound like a big capital use then, is that what you’re saying?

Timna Tanners:

Okay. Helpful. Thank you. No, I just wanted to…

Timna Tanners:

Yes, if you wouldn’t mind elaborating, in the release, you talked about how there’s a prevailing pessimism, but your customers are optimistic? And then you talked about hot-rolled order entry improving recently. And I’m just wondering if you could elaborate a bit on how that contrasts with the pessimism and maybe some elevated inventories.

Timna Tanners:

Thanks very much.

Operator:

Your next question for today is coming from Phil Gibbs with KeyBanc. Phil, your line is live.

Mark Millett:

Good morning, Phil.

Mark Millett:

We had, I would say, a mix. There were right at the onset of the conflict. We did buy a couple of both that were at the high end of that range over, but we now have a kind of a mix of material. I think the highest we may have paid is like $900 or so a ton. We got a couple of boatloads of that. But then we have a lot more material coming in at lower pricing. And the forward boats are tending to be indexed against the market price. So it shouldn’t be a major impact for us.

Theresa Wagler:

Absolutely, Phil. The hot roll P&L number is 861,000 tons; cold rolled, 131,000 tons; and the coated products are 1,132,000 tons.

Mark Millett:

Got it. The – and again, it’s – we’re wrestling alligators a little, I guess, and sometimes you don’t know when you’re going to win. But I suggested earlier, our July issues have probably cost us 100,000, 150,000 tons, Phil, from our annual sort of projection, and we were around 1.5-ish. So you can do the math, Phil.

Theresa Wagler:

So Phil, for the second half of the year, excluding the aluminum project, we estimate CapEx to be somewhere between $350 million and $400 million, and a majority of that relates to the four new flat-rolled coating lines. If we look at what we may spend on the aluminum investment, we’ll likely spend an additional $200 million to $300 million. So the total second half of the year is likely to be somewhere between $550 million and call it, yes, around $550 million, $600 million.

Operator:

Your next question for today is coming from Andrew Keches with Barclays. Andrew, your line is live.

Theresa Wagler:

No, the intent isn’t to intentionally lever the balance sheet. We like to maintain it at a flexible level to allow for growth projects just like we’re doing right now. So we did this with Sinton as well. We started out with an additional cash, lower leverage on the balance sheet so that we were able to very easily commit to a capital investment that would be funded through cash and cash flow from operations, while maintaining flexibility and optionality in case there were to be some sort of acquisition opportunity that were to become available, et cetera, or in the absence of that, so that we’re able to continue to have our very, we believe, is a positive shareholder distribution plan, which allows for us to continue to keep increasing the dividend at an appropriate level, because it is a forever type of investment for us. We want to make sure it’s maintained at a manageable level. And then in addition to that, we have the opportunity to strategically and opportunistically use the share buyback program. So there is no intention to relever the balance sheet, but we are keeping that flexibility within it so that we can easily fund these projects.

Theresa Wagler:

We actually don’t manage to a cash level on the balance sheet. We look at liquidity in totality. And so yes, I’m not really comfortable answering that question.

Operator:

[Operator Instructions] There appear to be no further questions in queue. I’d like to turn the call back over to Mr. Millett for any closing remarks.

Operator:

Once again, ladies and gentlemen, that does conclude today’s call. Thank you for your participation, and have a great and safe day.

Operator:

Good day and welcome to the Steel Dynamics First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised this call is being recorded today, April 21, 2022 and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Mark Millett:

Thank you, David. Welcome to our first quarter earnings call. And as always, we appreciate and value your time with us this morning. Record results are of no importance if our teams did not remain safe. So before beginning this morning, I want to pause for a moment to acknowledge a recent workplace fatality that occurred at our Heartland Flat Roll division. We are deeply saddened, our thoughts and prayers reside with his family and friends. The reason I always begin our calls with a topic of safety is because it can never be overemphasized. Safety is our #1 value and first priority. Nothing is more important than sustaining a safe environment for our employees. We must all be continuously aware of our surroundings and our team members. We must actively think about safety at all times, keeping it top of mind, an active conversation. Simply, safety comes before everything. And with this backdrop, it's difficult to celebrate an otherwise phenomenal performance. But we're here this morning to share what the team accomplished in the first quarter and to congratulate them. Their record performance this quarter was another extraordinary achievement driven by the commitment, innovation and passion of our people, executing on our long-term strategies of diversified value-adding growth. I thank the whole team, the entire team for your dedication to excellence in every pursuit. We're committed to operating our business in an environmentally responsible manner and have been since our founding. We have always been and continue to be a leader in production of sustainable low-carbon emission steel products. We encourage the use of new technologies and processes to reduce our impact on the environment, including a strategic focus on carbon emissions mitigation with a goal for our steel mills to be carbon neutral by 2050. Our sustainability strategy is an ongoing journey. We are starting from a leadership position within the industry and plan to stay there by doing even more. But before I continue with more market commentary, Theresa will share insights into our performance.

Mark Millett:

Thank you, Theresa. Our steel fabrication operations executed another exceptional record quarter. The earnings power of this platform in this environment still has not been completely displayed as customer demand and pricing continue to be strong. Our steel joist and deck order backlog remain at record volume and forward pricing levels, extending well into the first quarter of '23. The nonresidential construction market remains solid, considering the trend we have seen over the last year, especially in areas that support online retail, specifically represented by construction of distribution and warehouse facilities, along with data centers, schools and health care. Our steel fabrication operations provide a significant natural hedge to our steel production operations in a stable or moderating steel price environment. They also support our steel mills during periods of weaker steel demand as a ready internal customer, what we call pull-through volume, increasing the through-cycle utilization of our steel mills. We have steel fabrication facilities located throughout the U.S. and in Mexico, providing us with an advantaged broad-based customer-centric supply chain. As I move into metals recycling, I'll just take a moment to thank Russ Rinn given his impending retirement in July for the truly significant contributions he's made to that platform over his 10 years, 11-year tenure. He's helped transform that business. Today, we're operating at the same volumes with 1,500 less teammates. So the consolidation there and rationalization has been excellent. And I got massive faith in Miguel Alvarez, who now is leading that platform. I've got great faith that he's going to continue that transformation and do great things with that business. So Russ, my sincere thanks mate. Our metals recycling operations also performed well in the quarter with steady operating income of $48 million. As one of the largest ferrous and nonferrous metal recyclers in North America with operations throughout the U.S. and Mexico, we have a competitive advantage in providing the highest quality, cost-effective scrap to our EAF-based steel mills and to our other customers. In today's environment, our advantage of having our metals recycling platform is even greater. During the last 18 months, our recycling and steel teams have worked closely in developing a higher-quality shredded scrap that can be used in place of prime scrap. The combined effort resulted in our Butler Flat Roll Steel division, reducing its need for prime scrap from 65% of its mix to only 40%, while achieving the same steel qualities. We are currently rolling this out to our Columbus and Sinton Steel divisions, allowing for a lower cost, readily available, low-residual scrap supply. Additionally, given the historically high spread between prime and obsolete grades which is around $170 a ton today, the reduced prime scrap requirement has provided a significant cost savings. The teams are also working together as global pig iron supply chains have been disrupted with the advent of the invasion of Ukraine. Our flat-roll steel operations have reduced the demand of pig iron usage while maintaining the highest level of steel quality through changes in our operating practices and the health of our metals recycling team and sourcing alternative inputs. We have sufficient resources for our steel production to continue operating uninterrupted. Additionally, of particular note, our Butler Flat Roll division has the advantage of iron dynamics, an on-site liquid pig iron production facility that supplies almost all of Butler's pig iron requirements. Charging liquid pig iron into the electric hot furnace also significantly increases productivity and reduces melting costs. We developed the technology years ago and it's the only existing facility of its kind today. We are currently in the process of pursuing opportunities to become even more pig iron self-sufficient for the future. The steel team had an outstanding quarter as well, achieving record shipments and operating income of $1.2 billion. During the quarter, the domestic steel industry operated at production utilization rate of 80%, while our steel mills operated at a rate of 93%. We consistently operated at higher utilization due to our value-added product diversification, our differentiated customer supply chain solutions and to support our internal manufacturing businesses. hot roll coil pricing moderated during the early part of the first quarter but prices have recently firmed with extending order lead times across the product set, especially in coated products. With continued strong demand, we believe steel prices will remain strong. Based on higher raw material input costs, global flat-rolled steel supply disruptions related to the Ukraine, Russia conflict and lower steel imports. Throughout our company history, we have intentionally grown our value-added steel product portfolio and created valuable customer supply chain solutions to mitigate the impact of price volatility. Today, at least 70% of our steel sales are considered value-added. This differentiated business model will continue to provide best-in-class financial metrics and through cycle cash generation. Looking forward, we remain optimistic. The automotive sector steel consumption is expected to grow with production through 2024 returning to over 17 million units supported by an extreme lack of automotive dealer inventory and strong pent up demand. The nonresidential construction sector is strong as evidenced by the strength of our customer backlogs within our long product steel group. Our Structural and Rail and Roanoke Bar divisions both achieved record quarterly earnings and our Engineered Bar Products division is operating at historically strong volumes. And additionally, as we discussed steel fabrication operations are operating at never seen before levels. Residential construction is also good, resulting in high demand for HVAC appliance and other related products. Strong energy prices continue to push up the rig count and we have seen solid demand for energy products. In aggregate, our steel order backlogs and order input strength coupled with broad optimistic customer commentary and general market momentum drive us to conclude that steel market dynamics will remain strong throughout 2022. Steel Dynamics is a dynamic growth company, increasing through-cycle earnings and cash flow to support continuous long-term value creation. Our most recent and significant investment represented by a new state-of-the-art electric arc furnace flat roll steel mill located in Sinton, Texas. This differentiated strategic investment facilitates significant through-cycle operational and financial growth for our teams and customers and for our vendors and shareholders. This electric arc furnace steel mill represents next-generation lower carbonate emitting steel production capabilities, providing differentiated products and supply chain solutions. The 3 million tons state-of-the-art facility is designed to have product capabilities beyond that of any existing electric arc furnace flat-rolled steel producer, competing even more effectively with higher carbon-emitting integrated steel facilities and high carbon foreign competition. It provides us with a more diverse value-added steel product portfolio and benefits our customers with an even broader climate conscious supply option. Sinton's strategic location is centralized in our underserved steel consumer region that represents over 27 million tons of relevant flat roll steel consumption in the U.S. and Mexico. We offer shorter delivery lead times, providing a superior customer supply chain solution for the region. We will also effectively compete with steel imports arriving in Houston and the West Coast. We have seven customers locating on our site, representing up to 1.8 million tons of annual flat-rolled steel processing and consumption capability, four are already operating and the other two have broken ground -- three have broken ground actually. This represents a unique closed loop process as we provide them on-site steel and simultaneously reclaiming the scrap to be remelted into new steel products. We have an advantaged raw material procurement strategy for Sinton. Our acquisition of a Mexican metals recycling company in 2020 provides a critical source of prime scrap supply. These operations are strategically located near high-volume industrial scrap sources throughout Central and Northern Mexico. Sinton provides a differentiated product offering, a unique regional supply chain solution, with significant geographic freight and lead time advantage and offers a lower carbon alternative to imports in a region in need of options. We currently expect 2022 shipments from Sinton to be over 1.5 million tons achieving utilization of approximately 80% by the end of the third quarter and over 90% before year-end. In addition, our previously announced additional four value-added flat roll coating lines are still on schedule to begin operating mid-'23 in support of our Sinton steel mill and our Heartland flat roll operations. The four lines are comprised of two new paint lines and two new galvanizing lines with Galvalume coating capability. Our unique value-added coating supply chain strategy has resulted in our existing lines consistently running at or near full capacity. Existing customers are anxiously awaiting the volume from these new lines. We're the largest domestic non-automated coater of flat roll steels with an annual coating capacity of over 6 million tons. And these four lines will increase that capacity by an additional 1.1 million tons. In closing, our sustainable symbiotic operating platforms and customer-centric supply solutions demonstrate our financial and operating stability differentiating from any competition. We're not the same company that we were nearly five years ago. We are not just a steel company. Our average annual free cash flow has more than doubled and is still growing. The consistency and industrial strength of our earnings is clear and we are investing for transformational growth. Our people and their spirit of excellence provides the foundation for this success. And I thank you, each and every one of you for your passion and dedication and remind you that safety is always our most critical priority. So everyone, thank you for joining us today and we'll open the line-up for questions.

Emily Chieng:

My first question is just around your raw material update there. Can you remind us what the raw material mix is or was previously before the shift to using more obsolete versus prime scrap. The amount of IDI that your liquid pig iron that you're using and perhaps how we should see that changing over time?

Theresa Wagler:

Emily, one way to look at it from the shift that Mark talked about from going to -- from prime scrap to an upgraded type of obsolete scrap all the way from 65% to 40%. So if that were able to be accomplished with Columbus, Sinton and Butler, if you just make high-level assumptions that generally we would use approximately 20% of pig iron. And then the rest would be more geared toward that prime scrap. If you think about that from a volume perspective, it could be as much as 1.5 million to 2 million tons shifting from prime scrap to higher grade. So if you apply any spread to that. Today, I think Mark mentioned it's like around $170 per ton which is higher than normal. Even if it's $100, $150 per ton, that could be a significant change once -- if all three mills are fully operational.

Michael Glick:

Just on the cost side, beyond scrap, how should we think about energy costs more broadly, just given some of the recent moves we've seen in several of the regional power hubs and natural gas prices as well?

Mark Millett:

And just to add, if you look at it from a global perspective, obviously, energy prices in other parts of the world have appreciated far greater than the U.S., along with other commodity pricing issues. And so the actual global cost curve has risen and should support pricing further. And obviously, given our low-cost position advantages Steel Dynamics.

David Gagliano:

I just wanted to ask a little more about the fabrication business, unbelievable how much this has exploded higher over the last year, I know it's directionally not new but again, another doubling in basically the profit contribution this quarter which is fabulous. But it's -- there's a lot of moving parts embedded in that business. And mind me, the visibility towards longer term is still fairly low. So I'm just trying to see if you could give us a little more information on that segment. Can you talk more about how this business is priced? Are there cost pass-throughs? Are there lags between those pass-throughs and contract prices? I know there's a lot of different pieces within that business. But if there's any more visibility, I really appreciate it. And it really just to summarize, if you could just give us what you think your view is on a normalized go-forward EBITDA contribution basis from this business beyond the first quarter of 2023.

Theresa Wagler:

Good morning, David. Just a couple of other points to add to what Mark described. So if you're looking at a backlog for the fabrication business versus the steel business, it's very different. So once a project enters the backlog in our fabrication business, the entire project has been highly engineered and is part of a bigger construction project overall. And if you look at the steel costs that are involved in these large projects that we're participating in, it's really not a large percentage of the entire project. So the customer base, if you will, is not as sensitive to steel pricing as one would think. I mean I think you saw that in the first quarter where even though flat rolled steel prices had a couple of months of weakening that didn't change at all what we were putting in the order backlog at our fabrication business. And so that's one thing. The second thing is because our backlog is out much longer than it typically is, we typically would see a backlog of maybe four to six months. Now it's out and that would be a very good backlog. I mean now we're out into -- well into 2023. And so we changed some of the contract terms as well to try to ensure there's more security and what I would say is more visibility and certainty around the backlog. So we believe that we have a great deal of visibility. We know where we're pricing today and Mark mentioned in his notes that, that forward pricing is higher than what we even realized at this point in time. And that's why I had the confidence in my notes to say that we expect earnings from the fabrication business to continue to increase throughout 2022. And so, I'm not sure if there's no specific you asked about pass-throughs of costs, specific surcharges, etcetera, like you might see in some of the steel businesses in fabrication. But all of that, once it hits the backlog, it's already guaranteed from a price perspective. So I'll just pause on that and see if Mark and I have addressed your question.

Theresa Wagler:

Sure, David. I would tell you that -- and I can't answer you specifically at this point but what I would tell you is that it's certainly not what the last five years were because Mark pointed to some structural changes within the industry itself from consolidation and other avenues as well as the construction market itself and what it's doing. So there has been some structural change which I think will make that normalized earnings moving forward are higher than we've seen historically as well as what we've done internally. The fabrication team has really done an incredible job. And I know that you've been to some of our operations and we're looking to further automate and to do some really exciting things in the future as well. But also not what we're experiencing today from a normalized level. There are some specific things that happened and with extended steel prices with a very strong construction market, we think that market will continue. I mean specific to there's a large concentration in warehouses at this point. but we will do our best in the future to try to give you a little better idea of what normalized might look like.

Seth Rosenfeld:

I have two follow-ups, please with regards to the raw material strategy. First, thanks for the color on your efforts to cut your reliance on prime scrap and pig iron. Can you just talk a bit more about those markets and the outlook into spring, so you had a huge squeeze in March. Are you now seeing any signs of some softening of those markets as availability improves? And a follow-up, please, you commented quickly in your prepared remarks with regards to some interest in becoming more self-sufficient for pig iron. What might that include? Is it going to be organic or inorganic in nature. I'll stop there, please.

Theresa Wagler:

Mark, the question Seth asked relates to pricing around raw materials and what we're seeing kind of in the near term and longer term for scrap and maybe for pig iron?