Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Schnitzer Steel's fourth quarter 2019 earnings release, calling webcast at this time all participants' lines are in listen only mode.
After the speakers presentation, there will be a question and answer session.
To ask a question during this session you'll need to press Star then one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star then zero.
I would now like to hand, the conference over to your Speaker today Mr., Michael Bennett Investor Relations, Sir you may begin.
Thank you Chris still good morning.
Michael Bennett, the company's senior director of Investor Relations.
I'm happy to welcome need this interest field earnings presentation for the fourth quarter and fiscal year 2019.
In addition to today's audio comment we've issued a press release and posted instead of slide both of which you can access on our web site at Schnitzer steel dot com or S.C.H. and dot com.
Before we start let me call your attention to the detailed safe Harbor statement on slide two which is also included in our press release in in the company's Form 10-K , which will be filed later today.
As we note on slide two we may make forward looking statements on our call today, such as our statements about our outlook target volume growth and future margin expansion.
Our actual results may differ materially from those projected in our forward looking statements.
Additional information concerning factors that could cause actual results could materially differ from those in the forward looking statements is contained in flight too.
As well as our press release of today and our Form 10-K .
Please note that we will be discussing some non-GAAP measures during our presentation today.
We've also included a reconciliation of those metrics to gap in the appendix to our slide presentation.
Now, let me turn the call over to Tamra Lundgren, our Chief Executive Officer, She will host the call today with Richard Peach, Our Chief Financial Officer, and Chief of corporate operations.
Thank you Michael and good morning, everyone. Thank you all for joining us on our fourth quarter fiscal 2019 conference call.
We appreciate your interest in our company and we look forward to sharing our results with you. This morning.
On our call today, I'll review, our quarterly and full year financial result, and the market and macroeconomic trends affecting our business.
I'll also provide an update on the initiatives and capital projects, we have underway to address the evolving industry dynamics.
Richard will then provide more detail on our segment performance, our capital structure and our capital investments all wrap up and then we'll take your questions, but before we get started.
Please turn to slide four as I'd like to highlight the safety performance of our team this year.
Fiscal 2019 was the safest year recorded in our company's history.
Our recordable incidents declined steadily throughout the year, our total recordable injury rate was 33% better than last year.
And we have made excellent progress and identifying and addressing potential hazards before they become injuries.
I'm very proud of our teammates throughout the company.
Good demonstrated the leadership necessary to achieve these results and to continue our commitment to a safe work environment and a sustainable safety culture.
Now, let's turn to slide five to review our quarterly financial results.
Earlier this morning, we announced our fiscal 19 fourth quarter adjusted earnings per share of 42 cents.
Our Q4 results were impacted by very challenging market environment for both AMR and CSS.
During a quarter marked by sharp declines in ferrous and nonferrous prices as well as in prices for finished steel products.
Our teams delivered solid results both businesses were successful in expanding sales volumes sequentially and both benefited from the productivity initiatives, we implemented earlier this year.
In both businesses the forward sales executed earlier in the quarter enabled us to blunt the impact of the significant drops in ferrous and nonferrous prices during August .
We were also very pleased that our continued focus on inventory management led to another quarter of strong operating cash flow, which enabled us to continue to reduce our debt and to return capital to our shareholders through both our 102nd consecutive quarterly dividend and share repo.
Purchases.
Now, let's turn to slide six to look at the full year in perspective.
Fiscal 19 was our second best performance since 2011, reflecting the success of our team in delivering higher sales volumes implementing significant productivity improvements generating strong cash flow and further strengthening our balance sheet by reducing our debt.
For the year as a whole we experienced steadily declining prices in both recycled metals and finished steel products.
And more experienced margin compression as the drop in ferrous and nonferrous scrap prices outpaced the change in purchase cost.
The fall in non ferrous prices and in particular in Zorba was the major contributor to the compressed margins door by has now fallen by almost 50% since his most recent peak in the spring of 2018.
CSS as fiscal 19 results for the second highest since 2008.
Supported by prices that reached a multi here high in the first fiscal quarter before falling significantly in the second half of the fiscal year on a year over year basis extended customer de stocking and lower finished steel volumes, including from severe winter weather conditions were the primary contributors to that.
Klein in the full year results.
Lastly, we delivered $145 million of operating cash flow for the year.
As a result, our strong balance sheet positions us to further build out our platform through investment and transactional growth.
And to return more capital to our shareholders.
Let's turn now to slide seven for a more detailed review of market trends.
As you can see in the upper left hand chart.
Ferrous scrap prices declined through most of fiscal 19 in fact ferrous prices have fallen in eight of the last 10 months.
And since the beginning of August ferrous prices have decreased by almost 20% to levels that we last saw in 2016.
And there are currently about $100 below the 10 year average of 330.
The primary drivers of this decline has been slower global growth.
Weaker export prices and demand.
And reduced mill purchases due to a combination of weaker order books sufficient inventories and planned mill outages.
Looking at the export market scrap import prices into Turkey have declined by about 30% over the last 12 months.
And Turkish scrap import volumes were lower by approximately 15%. Although there has been some recent restocking into Turkey is still too early to tell whether this will lead to us to a sustainable uptick in prices and demand for the remainder of calendar 2019.
Even at the most recently reported prices overall levels are still hovering near three year lows.
Turning to non ferrous prices as you can see in or left hand chart.
Non ferrous prices also trended down during the fiscal year and Zorba prices have now reached levels last seen during the great recession of 2009.
Prices have been impacted by trade and regulatory actions by China, including tariffs import quotas and higher metal content requirements as well as by declining global auto sales in key markets.
Not surprisingly supply flows have been tightening as a result of these low ferrous and nonferrous prices as they did in 2016, which was the last time that ferrous prices traded at these levels for a sustained period.
Zorba prices at that time, however were significantly higher until the impact of the structural downward shift in demand for Zorba is reflected in purchase prices for scrap.
Or until ferrous sales prices recovered to more normalized levels. We may see continued pressure on supply flows.
Looking at the upper right hand chart.
Rebar and wire rod prices were relatively flat for most of the year, but trended down sharply during the fourth quarter.
West Coast demand continues to show resiliency in construction spending and has the potential benefit longer term from increased state will support for infrastructure projects.
Now, let's turn to slide eight to discuss some of the longer term trends.
The long term trend for recycled metals is underpinned by several trends.
These include the increased focus on the steel industries environmental impact.
The wide ranging objective to lower greenhouse gas emissions and the economic and environmental benefits of reducing energy consumption.
Equally important.
Is that a future lower carbon economy is widely acknowledged as more metal intensive.
Whether it's driven by the demand for electric cars, the deployment of renewables or the efficiency and convenience of smart cities, a green economy means a metal intensive economy.
A world Bank report released last year counted dozens of metals, which could see a growing markets with the rising use of wind solar and batteries for power generation. In addition to steel aluminum copper and nickel were identified as being among the metals expected to be in highest demand. We expect these trends.
Needs to accelerate and for the recycled metal industry. The play an increasingly important role and we can see how some of these trends have already been translated into higher ferrous scrap metal usage by looking at the chart in the upper left hand corner of this slide.
As this chart shows ferrous scrap usage has significantly outpaced the growth in crude steel production in some of the largest steel manufacturing countries and as you can see in the charts on the bottom of the slide the share of global steel production from electric arc furnaces continues to grow in China as well as.
In the U.S.
By 2020 Chinese steel production from Eas is expected to increased by 15% compared to 2018.
Scrap consumption by the Chinese steel industry grew over 20% in the first six months of 2019.
Driven primarily by requirements to lower carbon emissions and by higher production.
China experts have also forecast that the proportion of scrap used in blast furnaces will rise from 20% in 2018% to 30% in 2025.
Let's turn now to slide nine to review the strategic actions we have underway.
Productivity improvements investments in advanced metal recovery processing technologies and volume growth underpinned the strategic actions that we have underway to leverage these positive long term trends and to offset some of the current market headwinds that are impacting our busy.
Yes.
Let's focus first on what we're doing to offset the cyclical headwinds that we are facing.
Our productivity improvement program.
Centered on delivering benefits from production and functional cost efficiencies improved asset management procurement and logistics.
We are expanding the $35 million of productivity initiatives that we announced at the beginning of fiscal 19 by $15 million. We've already achieved approximately $30 million of these combined savings and benefits in fiscal 19.
And we expect to achieve the remaining $20 million in fiscal 20.
These additional savings and benefits should enable us to partially offset some margin compression caused by the significant decline in ferrous and nonferrous prices.
Second as we've highlighted previously and that Richard will discuss in more detail.
We are also rolling out a capital investment program that can eliminate our production of lower value mixed nonferrous products such as Zorba.
And enable us to produce a wide range of furnace ready products.
We believe that the benefits from this investment will deliver at least $8 per tonne once fully operational.
The benefits come from three sources.
First improving the efficiency of our processes to enable us to meet global metal content and quality requirements on a cost effective basis.
Second increasing our throughput and extracting more materials from our striving process.
And third.
Trading profit Optionality and furnace ready materials that can be marketed globally, and both broaden and deepen our customer relationships importantly.
These investments will also support our sustainability objectives to increase recycling and reduce waste.
Lastly, let's review, our volume growth and sales diversification initiatives.
Profitable growth in our ferrous sales volumes has been a successful multiyear strategic focus for our company.
Our financial performance has benefited from the increased flexibility provided by our investments to expand our ability to access the domestic market.
As well as by our focus on expanding our sales two additional export markets and customers.
Our volume initiative targets additional growth of 700000 tons to reached 5 million tons annually based on our retained capacity and assuming supportive market conditions.
We expect this growth to create operating leverage equal to approximately $7 per ton or on overall margins.
The timing and trajectory of this goal could of course be impacted if current market conditions extend materially into calendar year 2020, or by political economic and regulatory uncertainties together, our productivity technology investment and volume growth initiatives should enable us to significantly.
We improve our margins and to continue generating strong operating cash flow, providing us with additional opportunities to grow and to return more capital to our shareholders, assuming some market recovery in the second half of fiscal 20.
We expect these initiatives to benefit our margins in the range of 15 to $20 per tonne with up to half of the benefits in fiscal 20, and the full year run rate achieved by the end of fiscal 21.
Now, let me turn it over to Richard for more detailed review of our segment performance and our strategic capital investments.
Thank you, Tom ROE and good morning.
I'll begin with a review over ferrous volumes.
In the fourth quarter, we're talking ferrous volumes grew sequentially by 8%.
On for fiscal 19, as a whole ER volumes were stable compared to the previous year.
We achieved these higher volumes by using our global sales reach.
We're flexible operating platform on their ability to diversify seals.
Even in a declining price environment.
Which we experienced through most of fiscal two engineering team.
Pivoting between most economically advantageous markets allows us to focus on profitable volume growth.
As the Pie chart shoe in the fourth quarter, we did this by increasing our ferrous sales to the export market.
Which reflected higher selling prices compared to a weaker domestic price environment.
As the chart on the receipt focuses on our annual volumes by destination.
On shows that in fiscal 2019 weakness in the Turkish market lay those to reduce or sales Williams to Turkey to 12% of total volumes.
On which we offset by expanding our sales to the domestic market.
On to additional export destinations in Asia.
Now, let's turn to slide 11.
For an update on nonferrous.
The Chinese government has recently begun to implement quarterly cuso's for Chinese scrap importers.
During the process of developing quality standards for imports of clean grades of Resequence drop.
Recent reports of indicators that subject to more pronouncements leases to Chinese import quarters issued for the fourth calendar quarter will reduce permitted volumes or imported copper and aluminum scrap by 80 per cent compared to the third calendar quarter.
These increasingly restrictive regulations have changed as demand patterns for recycled nonferrous metals, which we have a dip adopted to in the following week.
First we've reduced the exposure for the Chinese market ended fiscal 2019, we shipped 75% of our nonferrous two countries, although when China.
Second we've expanded our customer base on increased sales diversification.
In the fourth quarter, we sold nonferrous to 19 countries, including India, Japan, South Korea, Malaysia, Taiwan, Thailand.
Third.
Activity improvements of higher yields from a shredding process contributed to a 6% increase and non ferrous sales during fiscal 19 against the backdrop of a falling price environment.
On four we make sure to sale a balanced mix of nonferrous products from a combination of schrader production on purchase material over.
Of the total volume Zorba is around one served with the majority consisting of pewter high value products, including copper aluminum on although foremost ready missiles.
Finally to create more value and continue to meet the needs of our customers. We are currently undertaking a major investment program to install advanced metal recovery on product enhancement technologies in several of our major yards I'll discuss this initiative in more detail wiesel must presentation.
Now, let's turn to slide 12 to discuss the operating trends anymore.
Despite declining ferrous and nonferrous traces DMR was able to deliver solid financial performance quarterly operating income of $22 million, which represented operating income of $22 per ton.
However, compared to the third quarter. This was down sequentially as benefits from higher sales volumes were more than offset by the impact of the declining prices on margins seasonally lower retail sales on to a lesser extent higher environmental related expenses.
For the full year fiscal 19, IBM ours on average operating income per tonne was $26.
As a top lift on chart shows quarterly performance was relatively consistent over the year. Despite the margin compression from falling prices.
The two primary reasons for this consistency, we're operating leverage from sequentially improving volumes under an increasing trend of benefits from our productivity initiatives, which contributed $6 to ecommerce per ton profitability for the year.
However, as the chart on the top rate shows we've recently seen ferrous prices at near 2016 levels on Zorba prices are low at 10 year lows.
The drop in silver prices has adversely impacted ecommerce profit per ton in fiscal 19 by around $15 compared to the margins being achieved before China impose tariffs on aluminum scrap.
DMR ferrous sales volumes in the fourth quarter increased by 9% sequentially benefiting from seasonally improved supply flows steady car purchase volumes and contributions from commercial initiatives.
Exports in the quarter over 74% over ferrous volumes and we made sales to customers in 10 countries on several continents.
Average ferrous net selling prices in the fourth quarter were driven by 8% sequentially and by 16% year over year.
While our average selling prices were lower sequentially. The prices, we achieved reflect or ability to sell a hands on the ships prices, we realized that the star of the fourth quarter, where we'll have both lose that we achieved in August .
Non ferrous sales volumes were up by 4% sequentially on higher production volumes on our successful sales diversification program.
Average nonferrous net selling prices decreased by 10% sequentially, reflecting the continued impact of Chinese retaliatory townships import restrictions on floating rates of ultra production globally.
It's important to note.
There are forward sales me the earlier in the quarter led to or average non ferrous selling prices falling by less than the drop in market prices during the fourth quarter. However, in our first quarter, we would expect to see a more direct impact of these lower market prices in realized selling prices.
As for our non ferrous shipments.
I am looking ahead to other aspects of ecommerce first quarter.
We anticipate ferrous sales volumes to be 5% to 10% less than last year's first quarter on supply flow impacts from the lower price environment.
Non ferrous sales volumes are expected to be around 15% lower year over year due to the impact of weaker demand more ferrous production and timing of seals, which had benefited last year's first quarter.
Ferrous market prices have fallen sharply by $70 per tonne since August .
To provide more context for Q1 outlook. The last time ferrous prices were near current levels was back in fiscal 2016.
Ended the first two quarters of not fiscal year DMR operated at near breakeven performance.
Sorbara prices are low afford more when the where in 2016, which we have offset through productivity improvements and benefits of operating leverage since that time.
However, the recent sharp drop in ferrous prices is expected to result in an adverse impacts of average inventory accounting of $8 per ton.
The adverse accounting impact combined with reduced sales volumes compress metal spreads and lower zorba prices is expected to leads to breakeven performance in our first quarter fiscal 20.
Well the changes in ferrous prices and volumes or cyclical in nature, which we're offsetting through or productivity.
Volume initiatives, we are addressing the structural change in the market for Zorba with our implementation of advanced metals recovery technology, which we expect to deliver benefits beginning in the second half of the current fiscal year.
No, let's move to slide 13 on discuss operating trends in CSN.
CSS fourth quarter operating income was $6 million, which was a solid performance, albeit a sequential decrease of $2 million compared with fourth quarter.
Benefits from higher sales volumes were more than offset by an adverse impact on margins of the decline in selling prices for finished steel.
CSS operating income for fiscal 19 was $32 million.
This was the second best performance for CSS in a decades.
As the chart on the bottom live shows reflects much higher profitability compared to fiscal 13 and 14 when rebar imports were at similar levels.
Both finished steel metal spreads were higher in fiscal 19. This improvement also demonstrates benefits from increasing productivity on for maximizing internal synergies between our steel mill under Oregon recycling operations.
We're finished steel sales volumes were 4% higher sequentially and rolling mill utilization was 90% in the fourth quarter.
Demand in West Coast markets remain steady on our sales activity benefited from a seasonal improvement.
Average selling prices for finished steel were down sequentially by 4%.
Reflecting lower input costs, including for scrap on other consumables.
Looking ahead to the first quarter fiscal 20, we expect CSS finished steel sales volumes to approximately the first quarter of the prior year.
Due to lower contributions from recycling, we expect CSS operating income in the first quarter to be slightly below the fourth quarter fiscal 19.
Moving on lets proceed to slide 14 to review of capital structure.
Operating cash flow in the fourth quarter was a healthy $82 million driven mainly by profitability and effective working capital management.
Operating cash flow for fiscal 19, as a whole was $145 million, which continues a strong multi year trends.
As the chart on the top rate shoes are operating model provides for opportunities to generate positive operating cash flow through cycle and in deferring market conditions.
This is because and strong markets increased profits can exceeds a buildup in working capital and in weaker markets.
Benefits from releasing working capital tend to exceed the adverse impact on profitability.
Our strong fourth quarter cash flow enabled us to reduced net debt sequentially by $41 million on at the end of fiscal 19 are meant day of $93 million represents the lowest level in the past nine years.
Our balance sheet remains strong with net leverage of only 12% on a net debt to adjusted EBITDA ratio of just 0.66.
We have an existing credit facility of $700 million with a 2020 three maturity on which provides us with financial flexibility as we pursue or strategies for growth.
Reducing debt is part of a balanced capital allocation strategy, which also includes investing in our business and returning capital to shareholders.
In addition to our quarterly dividend.
In the fourth quarter, we repurchased an additional 115000 shares.
For the full year, we have repurchased almost 2% over to outstanding shares.
Capital expenditures in the fourth quarter two totaled $34 million on included a combination of spend on continuing the business.
Environmental capital projects and investments in growth.
For fiscal 19, as a whole our capital expenditures totaled $95 million.
Corporate costs in the fourth quarter were $11 million.
Which was lower sequentially because the third quarter included 2 million dollar charge for the legal settlement.
Looking ahead to the first quarter fiscal printing, we expect corporate costs to be $1 million lower compared to the fourth quarter.
Our effective tax rate in the fourth quarter was an expense of 25% and we expect a tax rate in the first quarter to be the seem although or actual tax rate will be subject to a level of financial performance.
Other relevant factors.
No, let's talk in more detail of or capital investment plans for fiscal 20, including or advanced metal recovery on product enhancement technology strategy.
As I mentioned earlier, we have commenced a major capital investment program to replace upgrades and add to our metal recovery technologies, including our existing downstream sourcing equipment, which we use in our major export facilities.
Our plan includes new wet and dry processing technologies enhanced zorba separation capabilities more advanced sourcing equipment on a further rouleau over clean copper recovery program, which we had already started nttwenty team.
Once implemented these new technologies are expected to improve or a yield of metal recovery from the production process and enable us to produce more furnace ready products consistent with the needs of our customers and the structural trends in our industry.
The new automated technology will allow us to convert absorber to higher value furnace ready products, such as Twitch copper brass zinc stainless steel and other sealable missiles by early 2020 , one we expect to be in a position to eliminate absorber from.
More products sense by converting to more valuable products.
No. Let me provide you with some additional detail on the implementation schedule and are expected returns.
The new equipment will be installed and at least five over major facilities on both the east and West coast of United States and is expected to create additional operating leverage as we target further growth in volumes over the next few years.
As a projected implementation schedule shoes and subject to receipt of applicable permits on order lead times are installations will take place in three phases.
The clean copper recovery installations will come first and continue a ruler we started in 20 team within our operations in the southeast on us.
We will be installing new clean coal for equipment on both the west and East course, and expect to complete a rouleau by the fourth quarter of fiscal 20.
The second fees will be the role of advanced metal recovery equipment and four of our major export facilities.
These installations will replace and upgrades of existing downstream processing antique lease during the second half of fiscal 2020 on first half of fiscal 2020 one.
On the thought fees will be new heavy media Zorba separation plans on both the east and West Coast, which we expect to install during the second half of counted for calendar year 2020 .
We expect our aggregate investment has been the range of $75 million to $85 million with $10 million already spent in fiscal 19.
Approximately $50 million in the remainder of the remainder to be spent in fiscal 20 on the balance of the tool in the first half of fiscal 21.
The fiscal year 2020 , a moment for the advance metal recovery and product enhancement projects will be the primary component of total expected growth capital expenditures of around $60 million in fiscal 20.
Listen mode also includes investments to support volume growth on for platform expansion.
Once the new non ferrous technology is fully implemented we expect a benefit to operating income to be at least $8 per ferrous tons.
We also expect to be achieving a run rate of around half the ammonia by the end of fiscal 2020 .
The return on investment is expected to be significantly in excess of our cost of capital with an average payback of less than three years. Once we commence fuel operations with the new equipment in place.
In addition to our growth investments, we also expect to invest in the range of $65 million during fiscal Twentys on capital expenditures for maintaining the business and on environmental capital projects.
In summary.
Our strong balance sheet provides us with the opportunity to invest in major growth capital projects at the same time as investing in necessary capital expenditures to maintain our business.
I'll now turn the presentation back over to tomorrow.
Thank you Richard.
As one of North Americas largest metal recyclers sustainability as at the core of what we do and how we operate.
Advancing sustainable business practices and further integrating sustainability throughout our operations are key components of our long term strategy in fact.
The advanced metal recovery technologies that you just heard about have enormous sustainability benefits. Most importantly, the ability to divert metals, which would otherwise go to landfills.
Reduce energy usage.
And increased the amount of recycled metals used in metal production.
Our commitment to sustainability as broad and also encompasses our commitment to delivering value to our customers.
Investing in our employees dealing fairly and ethically with our suppliers.
Supporting the communities in which we work and generating long term value for shareholders.
We expect to publish our next sustainability report later this fall, which will include a number of multiyear sustainability goals focused on our people our planet and our profits.
So now, let's turn to slide 18 to conclude.
As you've heard this morning in the fourth quarter and for the full fiscal year, we delivered a strong set of financial results. Despite challenges in both the non ferrous and nonferrous markets.
Our performance can be attributed to the steps, we have already taken and steps, which are currently underway to continually improve our business performance.
While near term market conditions are challenging we have in place strategic initiatives to deliver growth.
We expect our expanded productivity improvement program to deliver savings beginning in the second quarter and our advanced metal recovery investments to deliver benefits beginning in the second half of fiscal 2020.
These initiatives together with our organic volume growth in sales diversification targets should improve our margins and enable us to continue our track record of delivering strong operating cash flow through the cycle.
Providing us with additional opportunities to grow into return more capital to our shareholders.
With the demand for recycled metals underpinned by multiple positive trends the long term outlook is strong.
In closing I'd like to thank our employees, many of whom I know our listening to our call. This morning. Our performance is the direct result of your ability to drive best in class results without wavering from our core values. Each of you continues to meet our opportunities and challenges with dedication commitment Andrew.
It's all strengthening our company at every turn.
My Thanks go to each of you as Youve truly demonstrated why we continue to be a leader in our communities and the recycling industry.
Now operator, Crystal, let's open up the call for questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your question telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound King and once again, ladies and gentlemen to ask a question. Please press star and then one now.
And one moment for questions.
And our first question comes from Tyler Kenyon from Cowen Your line is open.
Good morning.
Good morning.
So Richard I, just wanted to be sure I heard you are right did you say breakeven.
Profitability and AMR.
And in the first fiscal quarter.
Yes.
Yes, Taylor and that includes.
Negative E golar per tonne expected impact from average inventory accounting.
Okay and is there any way to park crowd hallmark for this compression.
Quarter over quarter.
Here is transitory.
More or less sister functional.
Of spread compression because of what the cost is an inventory versus selling prices.
I know you have the dollar per ton impact.
From average inventory accounting, but just just trying to think if there any other transitory.
Margin margin compressing factors that that should revert moving into the fiscal second quarter.
Yes at Tyler, if you look or fourth quarter Im our profit or.
$22 million compared to the breakeven we're expecting in Q1.
You can really split.
What's happening here into into four components, the first as the accounting effect.
On average inventory accounting.
Which will be about a quarter of that change in total and of course, that's a temporary factors that works as well.
And then we have the cyclical effects.
All the impact on on or more ferrous volumes that we expect and the impact on on on spreads from the lower the lower prices the dropping prices that we've talked about.
Together these are about half of the of the tools will change and in the last thing is the continued dropping zorba prices, which is more structural in nature, and which we effect, which we are addressing through or new technology program.
Okay.
Okay, that's helpful and.
With respect to Zorba pricing lately.
Curious as to whether theres any way to determine if some of the recent.
Labor issues with with GM and some of what's been going on in the automotive sector here within North America.
Our our perhaps weighing on that.
Pricing the pricing environment.
What I would say with the GM situation I don't think that that has been a huge impact.
For what we've seen as a trend, but if you look at overall auto production globally.
It is down significantly in Asia, it's down significantly in India.
And obviously, it's down in the U.S.. So that has been a big depressant, if you will answer prices.
Okay, and then just last one for me what.
Embarking on from capital expenditure programs here.
Any way to couch exactly what you're thinking Capex will look like in fiscal 2000 and moving into fiscal 2021 at the state.
Yes.
Tyler we we expect in fiscal 20 to be spending our own $60 million owner on growth capital projects, including am and $50 million on or on our technology projects and as you know.
As we've said we expect these technology projects to have returns well in excess over cost of capsule and have a short payback.
Or less than three years and in addition to that we expect to spend $65 million.
Our capital expenditures and 2020 on maintaining the business and environmental capital projects.
Okay, So 125 million and fiscal 2000.
Yes.
Okay.
Thanks, very much at that for me.
Thank you.
Thank you and again, ladies and gentlemen to ask a question. Please press star and then one now.
And I am showing no further questions from our front line and I'd like to turn the conference back over to camera Lundgren for any closing remarks.
Thank you Crystal and thank you everyone for joining us on our call today and for your interest in our company. We look forward to speaking with you again in January when we report our first quarter fiscal 20 results. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.