Q4 2019 Earnings Call

Good day and welcome to the steel dynamics fourth quarter and full year 2019 earnings conference call. At this time all participants are in listen only mode. After management's remarks, we will conduct a question answer session and instructions will follow at that time.

Please be advised this call is being recorded today January 20, Threerd 2020, and your participation implies consent to our recording this call.

If you do not agree the these terms please disconnect.

At this time I would like to turn the conference over to Tricia Meyers Investor Relations manager. Please go ahead.

Thank you Melissa good morning, everyone and welcome to steel dynamics fourth quarter and full year 2019 earnings Conference call. As a reminder, today's call is being recorded and will be available on the company's website a replay later today.

During today's call or Mark Millett, President and Chief Executive Officer of steel dynamics entry, So wagler executive Vice President and Chief Financial Officer. We also have leaders for operating platforms, including our metals recycling operations Russ Rinn Executive Vice President are still operation, Chris Graham Senior Vice President long products still group and Barry Schneider end.

<unk> flat roll steel group for southwest strategy, we hadn't Mcgill Alvarez senior Vice President southwest U.S. in Mexico and for fabrication operations, Jim Anderson Vice President.

Location.

Today's statements, which speak only as of this thing maybe forward looking unpredictable typically proceeded by believe expect anticipate are worth of some more meaning they are intended to be protected by the private Securities Litigation Reform Act of 1995 should actual results turned out differently such statements involve risks and uncertainties related to our steel metals recycling and fabrication business.

As well as to general business, an economic condition. Examples of these are described in the related press release as well in our annually filed S&P Form 10-K under the headings forward looking statements and risk factors found on the Internet Www Dot assay Si dot Gov and applicable in any later I see Form 10-Q , you'll also find any reference non-GAAP finance.

So measures reconciled the most directly comparable GAAP measures and the press release issued yesterday entitled Steel dynamics reports fourth quarter and annual 2019 result, and now I'm pleased to turn the call over to Mark.

Thank you, Georgia and welcome good morning, everybody I'm happy to 2020.

Thanks for joining us this morning for all fourth quarter full year 2019 earnings Conference call. We certainly appreciate your time today.

That's a began I would like to fight interest the I'd team and their families for their extraordinary dedication and passion.

2019 represented a period of market challenge.

The team achieved numerous operational milestones as well as a strong financial performance.

Right well steel shipments record fabrication shipments to name just too.

2019 represented the third best years since our inception 1993.

Bears Testament to superior performance of our teams and our differentiated business model.

And Paul clarity Teresa will provide insights into our recent performance.

Thank you good morning, I had my sincere appreciation and congratulations to the entire steel dynamics team. It was a strong year with many operational milestones as well as being one of the best years financially revenues of $10.5 billion derived from record stealing fabrication volumes represented our second highest annual performance.

Operating income of $987 million and net income of $671 million worth $3.04 per diluted share represented our third best annual performance.

Cash flow from operations of $1.4 billion, an EBITDA of $1.3 billion represented our second and third best performance is respectively.

Notably the achievement of gaining an investment grade credit rating designation in recognition of our capital Foundation and capital allocation philosophy.

Regarding our fourth quarter 2019 performance net income was $121 million were 56 cents per diluted share, which includes financing costs related to our December 2019 refinancing activities of approximately one penny per diluted share and lower earnings resulting from our two planned annual maintenance outages at her Butler.

We're in Columbus flat rolled divisions of approximately five cents per diluted share. The outages also impacted fourth quarter flat rolled steel shipments by an estimated 70000 tons to 80000 times.

Fourth quarter earnings were above our mid quarter guidance of 49 cents pretty lose share to 53 cents per diluted share primarily due to stronger than anticipated December steel shipments. Excluding these items fourth quarter 2019, adjusted net income would have been 62 cents per diluted share above our adjusted guidance of 55 to 59 cents per diluted share.

There.

Fourth quarter, 2019 revenues were $2.4 billion, 18% lower than fourth quarter 2018 sales.

And 6% lower than sequential third quarter results as average realized steel prices declined.

Our fourth quarter 2019, operating income was $182 million, 50% lower than prior year fourth quarter earnings and 20% lower than sequential third quarter results due to lower realized flat rolled steel pricing, which more than offset the benefit of lower scrap costs.

As we discussed her business morning, you'll find we are constructive considering underlined steel demand an optimistic concerning our unique earnings catalyst.

Within our steel operations fourth quarter shipments declined sequentially, a modest 2% to 2.7 million tons Oliver steel volumes increased 3% compared to last year as value added shipments from or flat roll operations group.

Our average quarterly realized external steel sales price decreased $45 per ton sequentially to $764 in the fourth quarter, an average scrap cost only declined $32 per tonne, causing lower steel metal margins.

The result was fourth quarter steel operating income of $201 million, 16% lower than third quarter results do are due to our planned collateral outages seasonally lower shipments and lower realized steel pricing.

For the full year 2019, or steel facilities achieved numerous production and shipping that records. The platforms operating income was $1 billion lessen their excuse me less then record 2018 results of $1.9 billion due to lower flat rolled steel metal margins annual overall metal spread declined from the historical high.

Hi, his experience in 2018, everyone should be proud its 2019 was a challenging to deal environment based on significant customer destocking.

Well, we we achieved record annual steel shipments of 10.8 million tons. In 2019, we still have additional market opportunity with annual steel shipping capability of over 13 million tons.

We continue to grow our internal manufacturing capability. During 2019, it's a powerful strategic advantage to have internal processing capability to sustain higher steel mill utilization drain weaker demand environment.

To create optionality of supply for customers and to allow for value added product upside in all market environment.

Why metals recycling platform fourth quarter ferrous price indices declined approximately $35 per gross ton and volumes were seasonally lower this challenging market resulted in a fourth quarter operating loss of $5 million compared to operating income of $3 million sequentially.

As ferrous scrap prices declined in eight of 12 months during 2019 or metals recycling operations annual operating income decreased to $28 million in 2019 compared to $88 million in 2018.

Approximately 65% of our mills recycling ferrous shipments server own steel mills increase increasing scrap quality melt efficiency and reducing companywide working capital I vertically connected operating model benefits both platforms as a company, we reintroduced over 11 million tons of recycled various materials and one.

1 billion pounds of recycled nonferrous materials into the manufacturing lifecycle in 2019.

For fabrication business fourth quarter 2019, operating income of $33 million remained aligned with sequential results and was there a third best quarter. The team also achieved record quarterly shipments in what is traditionally seasonally slower timeframe substantially offsetting a modest decline in prices.

For full year 2019, our fabrication operations achieved record shipments of 644000 tons and operating income of $119 million almost double last year's earnings.

Order activity was strong throughout 2019 supporting higher average sales prices as average steel input costs declined resulting in margin expansion. We continue to see strong order inquiry and customer optimism, we're beginning the year with a strong project backlog.

Our cash generation Canadian continues to be incredibly strong during the fourth quarter 2019, we generated $409 million of cash flow from operations and for the full year 1.4 billion, our second best year.

2019 capital investments totaled $452 million of which 205 million related to our new sitting in Texas flat rolled steel known Bassett weaker. It. We currently estimate 2020 full year capital investments to be in the range of $1.4 billion.

$1.2 billion allocated to sit in Texas Steel mill.

$60 million to complete Columbus's third galvanizing line, which should start operating mid 2020, and the remaining 140 million related to smaller growth projects or sustaining projects.

Regarding shareholder distributions after 28% increase in first quarter of 2019, we maintained our cash dividends for the fourth quarter at 24 cents per common share.

We also repurchased $56 million or a common stock during the fourth quarter totaling $349 million for full year 2019 with $51 million remaining authorized for repurchase at the end of the year. Since 2016, we've invested $1.1 billion repurchasing approximately 14% of our out.

Standing chairs, we believe these actions reflect the strength of our capital structure consistent cash flow capability and liquidity profile and the continued optimism and confidence that our future.

We achieved record liquidity of $2.8 billion at December 31st 2019, representing $1.6 billion in cash and short term investments and $1.2 billion available funding under our unsecured revolving credit facility.

Regarding our newest Denton, Texas flat rolled steel now the investment is still expected to be approximately $1.9 billion. We just received the required environmental permits last week, allowing pool construction efforts to begin with a current expectation of operations beginning mid year 2021.

Based on this timeline, we estimate the remaining capital investment to be approximately $1.7 billion again $1.2 billion to be funded in 2020 with remaining $500 million to be funded in the first half of 2021.

We've also been awarded approximately $155 million in state and local incentive benefits that will be received overtime.

Collectively our primary strategic growth investments provide an estimated incremental annual future EBITDA of over $425 million on a through cycle historical spread basis. The estimate includes our plan sitting in Texas Steel mill and the third galvanizing line at Columbus, as well as our two operational rebar expansions in October .

Where we received an investment grade rating designation from three rating agencies. We filed this upgrade in December with the syndication of a new 1.2 billion dollar unsecured revolving credit facility and the execution of our inaugural investment grade notes offering we issued 400 million of 2.8% notes and 600 million a 3.4 or five.

5% notes, we use of proceeds to repay $700 million of existing five and an 8% notes and for other general corporate purposes, We're very appreciative and excited concerning the incredible receptiveness of the investment grade market. These transactions extended our debt maturity profile and will reduce annual interest the cost.

Receiving the designation of investment grade is a natural progression of our strategic growth and recognition of our strong balance sheet profile and sustainable through cash free.

Sustainable through cycle free cash flow generation capability due to the strength in optionality within our capital structure and the free cash flow generation business model, we have the flexibility for continued growth and responsible shareholder distributions, while also being dedicated to preserving investment grade credit ratings, our capital allocation still priority.

Sizes responsible strategic growth with appropriate shareholder distributions comprised of a.

Base positive dividend profile that is complemented with a variable share repurchase program, we're squarely position for the continuation of sustainable growth and optimize long term shareholder value creation.

For those of you that track more specifically our flat rolled shipment.

For the fourth quarter, we had hot rolled and pickled and oiled shipments of 838000 tons.

Cold rolled shipments of 167000 ton.

And finally coated shipments of 911000 tons.

Thank you Mark.

I hear Teresa thanks for the detail I I get profiles and incredible job blade an incredible team.

As we've always suggested.

And execute upon safety is always.

Has been our Oh number one value our first priority.

Nothing surpasses the importance of creating and maintaining safe environment for all people.

Our 2019 incident rate crept up slightly and I lost time rate ticked up a little above all 2018 record low.

The most importantly, all severity rate continue to improve in 2019.

Well, a safety performance remains significantly better than our industry averages, there's not enough we almost be continuously aware of our surroundings and all team members around us.

Safety must always be top of mind on challenge all of us to remain focused let's keep moving toward our ultimate goal of no injuries.

The fabrication platform delivered an outstanding performance with the team achieving record annual earnings and shipments.

Profit margins expanded as average 2019 product pricing rose and raw materials steel input cost decline.

Additionally, the fabrication platform provided increased utilization across the operations purchasing over 438000 tons of steel internally.

The fabrication group is confident regarding 2020.

Despite seasonality they achieved record fourth quarter volumes.

The order backlog is even stronger entering 2020 than it was this time last year and the customer base is optimistic concerning non residential construction products.

Hi metals recycling team also supported our steel operations by supplying over one third of our steel mills scrap requirements during the year.

2019 was a particularly difficult.

In the metals recycling industry with ferrous scrap prices declining in each of eight months.

The combination of trade and uncertainties around China's environmental policies also pressured recycled nonferrous prices and demand.

This month over month price drop decreased earnings during the year, but within this backdrop. The team continue to focus on efficiency gains, which yielded sustainable positive results.

Prime scrap prices normalized increasing approximately $80, but gross ton since October .

Recovering from the tepid demand environment caused by low middle your utilization rates manifested by numerous maintenance outages and coupled with an uptick in export activity.

Stable rising market should return the recycling platform to more normalized zones.

Longer term, we're studying scrap supply from the manufacturing base and the potential for additional scrap substitute production in the United States. We believe scrap supply will outpace the man, creating a positive steel mill.

Steel margin environment.

Still team delivered a strong performance with record 2019 shipments a numerous production records.

A steel processing on conversion locations also supported us steel mills.

Including the fabrication platform, we transferred over 1.4 million tons of steel internally or about 13% of our total 2019 steel shipments.

Well manufacturing businesses provide a powerful utilization levels for our steel mills, increasing through cycle utilization, thereby compressing fixed costs and supporting solid cash flow generation.

Even though 2019 was one of our best use it was challenged by high customer steel inventories throughout the supply chain as many customers purchase beyond normal demand levels in 2018.

While domestic steel demand remained steady through the year inventory de stocking drove flat roll steel prices lower.

As an example average 2019 hot rolled coil price indices decreased over $225, but Tom.

Fortunately pricing from in the fourth quarter as de stocking subsided and inventory levels will right size.

Long public steel pricing on shipments remain pressured by excess domestic supply and continued import competition.

However, we all see in the benefits from our recent investments in product diversification and supply chain differentiation, helping to offset some of these market pressures.

Underlying domestic steel demand.

Remains intact for the primary steel consuming sectors, including automotive and construction.

Additionally, steel consumed by the pipeline infrastructure for the collection on distribution of liquids and gas is continues to be strong and we expect it to remain so as the U.S.U.S. continues its energy independence journey.

We believe north American steel consumption will continue to improve with Mexican growth outpacing that of the U.S. based on meaningful increases in Mexico's manufacturing base.

Furthermore, we believe the U.S. trade position will continue to support moderated steel imports.

When coupled with increased domestic steel content requirements included in the recent U.S.M.C.A. for automotive produces provides a positive landscape for domestic steel production.

We continue to competitively positioned steel dynamics for the future through optimization of our existing operations and differentiated growth investments.

During 2019, we invested over $385 million and I'll still platform.

And specifically in the first quarter, we completed a 240000 ton rebar expansion and our structural rail division.

This differentiated rebar supply chain mom is expected to meaningfully enhance customer optionality and flexibility.

Providing significant logistics yield and working capital benefits for our customers.

Including our 2018 Roanoke bar Rebuy investment, we now have 440000 tons of rebar capability.

Shifting 40% of this volume in 2019.

Market dependent we plan to increase rebar shipments to over 375000 tons in 2020.

Within the flat roll group, the 2018 acquisition of Harlan provides value added product diversification.

The Holland team achieved record annual shipments with no additional staffing in 2019.

The 500000, Tom plus shipping volume represented over 60% of their expected 800000 ton plan or run rate.

During 2020, and we plan to hire additional team members to increase utilization to over 80% 80%.

Additionally, by allocating lighter gauge flat real production to Harlan Butler flat roll Division has increased its value added up production output setting new volume records.

I'd like to applaud the Hartland team for a highly successful integration into all family.

We're also in the process of value added growth that our Columbus lot Road Division.

Columbus is transformed its product offering through the addition of apparent line on the introduction of more complex grades of flat roll steel.

The diversion of product to these diversified value added outlets is reduced the volume of product available to our existing galvanized steel customers.

The to address this lack of sufficient galvanizing capability will be owning a third galvanizing line at Columbus.

The 140 million dollar 400000 ton galvanizing line will begin operations mid 2020.

Well satisfying our customers around the product realignment will decrease commerce is hot rolled coil exposure.

Allowing for an existing customer base in the region to provide a good good base load from new Texas still facility.

And we continue to become even more excited about the material growth. The construction on this new next generation Simpson, Texas flat roll steel mill will deliver.

Well construction and startup team has an incredible depth of experience in the construction start up an operation of large steel manufacturing assets.

Collectively we believe they have more experience that exist in any other company in the industry.

The core group began site work in the second half of 2019.

And we're excited to announce the recent receipt of the required environmental permitting to allow for full construction efforts to begin.

The Texas Mill will follow the same stringent sustainability models are the steelmaking facilities with state of the environmental processes.

Our existing steel mills literally have a fraction of the energy intensity about 11% and group and greenhouse gas emission intensity of average world steel making technology.

There's a tremendous amount of excitement both internally and SDR and outside as we continue to add engineers and professionals to the onsite team.

We are moving fast and building out too.

The new state it up 3 million tons steel mill.

Include value added coating lines comprised of a 550000, Tom Galvanizing line and a 250000 ton paint line with Galvalume capability.

The Texas mill will have capabilities beyond existing electric arc furnace flat roll steel producers competing even more effectively with the integrated steel model in foreign competition.

The mill will have the capability to produce high strength tougher grades of flat roll steel for the energy and automotive markets.

This is due to having a sick ucaas section and a more conventional two stage hot rolling process, which allows for some on mechanical rolling.

The mill will be capable of 84 inch wide one inch thick hundred Kansai hot rolled coil.

Product that is unavailable in the United States today.

Additionally, launch away coils will provide energy Piper juices in transit cost and yield savings.

The configuration will also allow us to ship soon plate products on a limited basis, providing further product diversification.

Steel mills strategically located and sent in Texas, which is adjacent to Corpus Christi.

The site as a significant parent competitive advantages, including geographic market position power accessibility freight benefits water availability and constructability.

Since and location provides a signal significant freight benefit to most of our intended customers relative to the current supply chain.

Compared to the current domestic supply options, we expect the potential custom savings to be a minimum of 20 to $30 per ton and for some much higher.

In addition customers will be able to place orders with a much shorter lead time, providing significant delivery on working capital advantages.

We have the opportunity to provide steel in terms of weeks versus months.

These benefits provided differentiated supply chain solution, allowing us to effectively compete with imports arriving in from Houston and the West coast.

Which inherently have long lead times, a speculative pricing Russ.

These advantages will also get the North American Piper juices, a competitive supply chain to once again compete with the foreign Piper juices that have dominated the market.

Customers were excited to have a regional flat roll steel supplier.

We have several customers already committed to located on site with us representing over 800000 tons.

Annual tons of local steel processing on consumption capability.

From a raw material perspective, our metals recycling operations already control is significant and growing scrapped volume in Mexico through scrap management agreements.

Much of which is prime scrap.

We also plan to cost effectively source pig iron through the poor system. So we're confident in our ability to procure high quality raw materials in the region.

We are three targeted regional sales markets, representing over 27 million tons of relevant flat roll steel consumption and we believe this will increase in the coming use as Mexico continues to grow.

We have 7 million tons from the four state region of Texas, Oklahoma, Louisiana in Arkansas, which is limited domestic regional supply and relies heavily on imports.

Since in lies in close proximity for both rail and truck delivery in this region.

There are 4 million tons of consumption from the undeserved West Coast region, which also relies heavily on imports.

And approximately 16 million tons from the growing northern amid central Mexican regions.

In 2018, the Mexican market imported seven a half million tons of flat rolled steel.

Based on their growing manufacturing base, we believe Mexican demand growth will continue to utilize pay supply, making this an even more attractive underserved market in the coming years.

Since in one of the most freight divan shipments into this region from the U.S.

Huh.

We've been developing a flat roll steel strategy for these regions in Mexico for several years.

We've been cultivating both customer in scrap relationships and we are confident in the long term strategic value in investment profile. This project provides.

We think in the sense and community for the continued enthusiastic support.

And truly look forward to growing together in the future.

We believe our unique operating culture, coupled with our considerable experience and successfully constructing an operating cost effective and highly profitable steel mills positions us well to execute the strategic finish.

To be clear.

We're not just adding flat roll steel production capacity right, we're expanding our whole Sci business model into the southwest and into Mexico.

We will have a differentiated product portfolio, we will have a significant geographic freight and lead time advantage, we will effectively compete with steel imports and we have targeted regional markets.

In conclusion.

<unk> culture, and the execution of a long term strategy continues to strengthen our financial position through consistent strong cash flow generation and long term value creation.

Differentiating us from our competition and demonstrating our sustainability.

As recently recognized by our investment grade rating designation.

Our exceptional team provides the foundation for our success I am proud of our recent inclusion as one of the world's most admired companies by Fortune magazine.

As a testament to our incredible team.

Each one contributes each one has an impact I think Asian every one of you for your passion and commitment to excellence.

Remember that we say for yourselves your team and your families.

We are committed to providing exemplary long term value to off fellow colleagues communities customers and shareholders and look forward to creating new opportunities for all.

So again, thank you for your time today Melissa Please open the call for questions.

Thank you if you'd like to ask your question. Please signal, but pressing the star key followed by the digit one on your telephone keypad.

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Also.

We ask that you please limit yourself to one question to facilitate time for everyone.

Any additional questions maybe addressed upon reentering the Q.

Our first question comes from the line of Martin Englert with Jefferies. Please proceed with your question.

Hi, good morning, everyone.

Good morning [noise].

Within the release and prepared remarks, you noted expectations of modest demand growth in North America, what percentage growth do you think that implies some perhaps if he can provide a little bit more detail maybe on specific end markets puts and takes where that you're expecting ongoing growth and perhaps contraction.

Yes, so I I think we're incredibly constructive on the on the market in general going into 2020, and a 2021 to be.

For that matter.

Because again underlying demand last you didnt dissipate.

The whole price drop was was the sort of a draw down or de stocking of customer inventory.

And that obviously is reversed a here the last the last couple of months of a of the year and going into 2020.

And so it's it's a very positive market.

You have the two principal markets, a flat roll markets automotive and construction and great great shape.

Not represent 60.

60, 70% of the other markets.

This incredible optimism on the construction side no minimum billing systems, our fabrication platform.

As as incredible business going into the year.

And I think that bodes incredibly well for for construction in general.

And it also parallels with prepaying a building products on the flat roll side. So construction. We believe is gonna be very strong in the u.

The as I mentioned earlier, we think the energy sort of.

Pipeline infrastructure is going to be strong for the year and for the next two or three years.

As we go down that path of energy independence, and drawing all those those energy products down into the coast for for export.

Downhole energy is a little is a little weak perhaps.

But again, the the improving demand environment and if you look at our order books generally a they've been very very strong.

Pricing is very very robust lead times have stretched out.

The 232 types of had their impact.

But just the the trade environment in general is very positive and obviously the the passage of the U.S.M.C.A.

Has already gone, earning results was certainly seeing.

Barn sort of automotive oral producers that we're bringing material in fall from a from Asia and from you're looking for for domestic sourcing and we've been the beneficiary and we've been picking up.

The amount of.

Good.

Yes.

On the long product side again pretty bullish that I think some of the.

The cloud of uncertainty is lifting a little bit on his general optimism.

As I've said in the past you are past calls engineered bar.

The is all sort of bellwether for for the steel consuming environment.

Generally they're seeing a a a pretty strong uptick.

A lot of that or some of that could be just the customs overshot the destocking and their restocking, but we truly believe underlying demand is robust.

Automotive is strong there.

We're seeing a very very strong pickup in the enough supplied to code finishes.

There's even a pickup in the and the seamless.

So it was true market traders yellow world trade it was a little flat.

But even yellow goods is picking up.

So we're seeing good strong benefit there and then obviously will benefit pittsboro and.

Structure rail division as they send a more blooms down to the for conversion.

Roanoke business, a much and shapes is okay.

And structural rail division.

I think we're seeing a little softness or little softening in a in rail.

Capex from from the marriage railroads, but we seem to be picking up market share. The team has done a phenomenal job we produce some of the highest quality rail and the world.

We're penetrating the that the transition transit and and high speed.

Rail environment.

So that's a good business for us.

And again parallel flange and the structural arena, we see that being a pretty solid through through the.

So generally I think it's going to be a a very good you a much.

More positive view than 2019.

Okay. Thanks, I appreciate all the color there and congratulations on the execution challenging environment.

I appreciate it thank you thanks Mark.

Thank you. Our next question comes from line of Chris Terry with Deutsche Bank. Please proceed with your question.

Hi, Mark and Theresa. Thanks for taking my question. The mine see I wanted to ask you about just just in the shorter time to just trying to linked together scrap the imports and the recent strength in HFC pricing and your comments on a more normalized inventory levels.

He said anything just recently Weve talked good scraps going to be down in February on the customer behaviors side that might change where people restock de stocking just see outlook maybe for the next couple of months. If you could comment on that first thanks.

Russ you want to comment on the scrap.

Sure, Thanks, Chris or give us we look at scrapped in 2019, we certainly had a very very tough environment I think the pricing levels overshot, where they were they probably should have been we've seen some of that come back in the last part of them.

You are like as we start a into 2020, we're we're anticipating more normalized year, so some ups and downs, but no no no substantial lose like we had last year.

In the short term I think we're looking at kind of a soft sideways certainly be the offshore pricing has declined slightly.

But part of that's going to be offset I, we believe with the increased <unk> steel mill utilization domestically. So we're not looking for a major changes I think the trend would be down slightly but not a not a significant pushed out.

When I think the or the weather in the Midwest is a is pretty moderate so flows are relatively strong on the obsolete or cut rates.

We see very very strong flow in prime grade still obviously industrial a business.

Importantly, automotive those time like.

Plans is going very very strong.

So the flow of scrap is good.

And then during the year I think you're going to see some additional hours will each be I hope to an IV iron units come online.

So we see a a pretty stable.

Raw material environment.

With the strong proudly.

And then I think that that bodes very very well for for spreads through the yeah.

Okay. Thanks, Thanks Smart in time for that for the <unk> just a follow up maybe you could just discuss a little bit more your expectations on on the imports for the year. Obviously it came down a lot last year your comments that they should come down further in 2020 pretty guided on the parity pro.

Last thing or are there other factors at play there. Thanks.

Well I'll just leave between Ah you know the section to a one kinda bailing duty and I dumping a trade cases.

But that have been with us for for some time and will remain with us.

For for a good long time as well and the 232.

We saw a considerable moderation in imports through the year last year.

I think that will continue.

Obviously the arbitrage.

To a European and Asian pricing is.

There's not a totally attractive.

Uh huh folks the to look offshore.

So again I think good imports will be moderated.

Okay. That's all for me thanks, guys.

Thank you.

Thank you. Our next question comes from line of Andres Bakken has or will you be S. Please proceed with your question.

Yes. Thank you very much and good morning, everyone I'm kind of staying within the same line line of question.

Most most of the rhetoric, we're getting I'm, especially from the service sensitive downstream steel bias seems to be somewhat cautious. So I'm just I'm just wondering what you're saying that the market is missing here because retirees point, you know scrap is probably going to come down.

Thats a lot of rhetoric, suggesting that the steel price hike Oh hikes s., we've seen them over the last three months of being mostly driven by higher scrap prices.

As a parent U.S. steel demand and demand as a whole has actually been declining are the futures price flat steel futures prices have taken a pretty meaningful step down as well, suggesting that steel prices dropped 30, $50 a ton from here and we're going into an election year, which seems to suggest a lot of people are very cautious about how they're gonna be spending capex and.

Consumer spending as well so I'm just wondering you know you'll rhetoric is obviously a little bit more constructive on how you're seeing the markets or what do you think what how do you. What do you think the market is missing at this point in time.

Well all I can say is a all common.

The the the market through our through our lens.

And as I suggested the you know backlogs are very very strong right now.

They are incredibly strong and new millennium building systems, which.

I would suggest that a you know the construction a world is going to have a very very good you you know the the distribution warehouse business.

In that arena is incredibly strong.

So construction, we do believe is gonna be robust automotive, it's been running at a relatively record pace and the prognostication is that okay, maybe off a little.

But as it was going to continue to be strong.

As we look at you know through the lens of engineered bar, which I.

Suggested earlier is all bellwether, that's that's very very healthy ER business and is looking better now than a house for for a couple of years going into the Ya.

A flat roll remains very strong coated products, and obviously were little well the largest nonautomotive code or in the in the states.

That is that is very very strong for us.

So again.

We can only see what we see.

And we get we can only here, what we hear from our customers and as general General optimism I thought.

Part of that a strength.

Could be a little restocking as people, who oversaw last year and that tends to happen people by too much when they when they go to shore.

But underlying demand in a in online is very very solid.

That's very clear maybe a follow up on that or do you see that a lot of the strengthen your order book.

They also be driven by you know kind of growth I mean, you're effectively taking market share potentially from some of your peers in the market is that fair to say.

I think it's fair to say and the automotive arena in particular.

And in the prepaying.

I don't think we've taken a further market share because oh aligns the running flat out and we can't produce anymore.

But with a with a sense on plan with added capability, we will continue to it to that the but yes auto automotive we are picking up I think a market share the rest of our business is more sort of straight forward.

Okay.

Great. Thank you very much that's very clear appreciate you answered my questions.

Thank you.

Thank you, ladies and gentlemen, as a reminder, if you'd like to train. The question Q. Please press star one at this time.

Our next question comes from line of Phil Gibbs with Keybanc capital markets. Please proceed with your question Hey, good morning.

Wonderful and Mark if we could stick on automotive just just for now can you give us a picture in terms of how much of your business.

Right now, particularly in the sheet in SBQ arena is going into automotive and and on and maybe give us a view of where you are today.

Versus where you thought you'd be when Columbus has gone through their mixed transition.

And then also where you where you're trying to go.

Well, it but Barry will.

He is majority though.

Oh fell the automotive here, we have is beginning to grow through the Columbus operation.

There's a lot of different things, we're doing with our auto team directly.

That is relatively new in the last five years to scale dynamics in a lot of those awards or are as a tier one tier one suppliers to direct with automotive so those continue to grow.

We do always enjoyed good business out of the Butler facility with automotive and that remains strong.

So not only supplying service centers, but directly we continue to grow as Mark indicated getting new market shares we were awarded new parts and our capabilities increase so.

As a whole typically somewhere between 15% to 20% is automotive shipments coming out of our collateral plants.

[noise]. Thank you Barry.

Brett Reiss the keys that one.

Yeah, Phil This is Chris Chris SBQ side, where we're starting to leverage our existing and new found relationships in a flat roll in the automotive group to open up opportunities for SBQ.

Weve recently the team has recently achieved some new automotive certifications that allow us to lever, our new inspection and testing equipment in our new rolling capacity. There. So although it may be a relatively small number at our SBQ.

The plan is to grow and I think that seems position role do so.

Thanks Guy he press a little more specific.

Columbus, we as Barry said, we're on platforms.

Well a market share is picked up already but we're on platforms over the next 12 18 months to pick up probably 500000 tons will become another columbus into a direct automotive.

And obviously when the since and plant comes online we believe that about a million tons will be going to Mexico and predominantly into into the automotive arena.

If you just step back and look.

At the at automotive.

For us well generally.

Our traction has been incredibly quickly and fast or for the automotive will they tended in the past to react very slowly.

Obviously, the U.S.M.C.A. is driving a lot of that as folks are looking for domestic content.

And they look to us.

First and foremost I think to our balance sheet. They want to partner with someone that's going to be around for the next 10 2030 years and our balance sheet is a is more solid than a than some folks I would say.

They also look at our sustainability model, obviously, there's a lot of the Europeans and a lot of attraction is been with the European automotive makers BMW Mercedes VW.

And they see how sustainability story is being very persuasive.

The fact that yeah.

We will re purpose 10 11 million tons of scrap each year, we report repurchasing about a billion pounds, a non ferrous and as a considerably more more.

Positive things.

With our U.S.G. sustainability story.

So there are attracted to that and then also attracted to our product development.

So we are gaining a lot of market share a lot of traction with the automotive industry in general.

Thanks, Mark and Barry you said, 15% to 20% where you to read talking just your overall flat roll business.

Is that what you really really thought that.

No there it was actually speaking to our total steel shipments we'd already somewhere between.

15% automotive.

Thanks, I have another one but I'll pass it on thanks.

Thank you. Our next question comes from line of Andrew Cosgrove with Bloomberg. Please proceed with your question.

Hi, Mark sorry, so thanks for taking my question I'm just had a quick one on long product shipments obviously, they were down 10%.

In 2019, and construction markets are you guys see them are covering this year, so where would we see volumes pick up if a if that materializes.

I'm a volume perspective on a long products I think couple things one is the ramp up of the rebar projects at both Roanoke and the structural mail division should have a positive impact from gaining market share with the differentiated supply chain model that we have it those locations.

And the fact that will be the only independent rebar producers in those regions. So we should be able to get improved volumes related to that in addition, the structural rail division has additional capacity. They were only operating around 70, 580% of their capacity last year. So Lou we mentioned that we have over 2 million tons of additional keep up.

Realty a lot of that isn't a long products region and then Additionally, Mark mentioned, the SBQ and Chris I think you would think there was opportunity in SBQ is that correct.

That's correct.

[laughter], Okay just the.

Just to emphasize the.

Yeah. It when you look at the structural mill, a heavy or heavy mill, which is where we rollout rail that has been kind of at 100% utilization for <unk> for some time on medium section mill is where we've been struggling.

And that's with some of the rebar or not so all the rebound there is produced.

We're in the.

The the good position, we haven't been there for a long long time and that the minimum section mill is pretty well at full utilization right Chris Yes.

So you know it's it is turning as positive.

Okay. Thank you and then just one more on Heartland, They know and the middle of 2019, I think the target utilization rate by the second half once they get 70% or being mentioned before they're slightly over 60, I guess, a little over 500000 tons [laughter] that kinda demand Oreo.

Rented oh, where it was it more employee driven as you mentioned, you're hiring more people for an extra and looking to get the 80, So just kind of gauging the impact there and.

I guess.

You know how how close you could get to target next year as far as Heartland is concerned.

Yes, we continue to develop markets for the Heartland, operator for the hardwood operations and right now a internally a lot of the.

The growth at Heartland has been through de Bottlenecking are finished.

Goods production and painted production through the Butler Jeffersonville facilities. So a lot of the development has been internally being able to get more products to our paint lines, where we could bring more value. So as we look to external shipments we've been right on the edge of where we need to add people and really just the teams finding new ways to get high productivity out of what they're doing.

So the last thing we do is bring people in.

Because we want to make sure. It's it's a sustainable growth. So we continue to find those markets and particularly in the cold rolled.

Steel sales, which is something that because of our galvanizing a painting, we we typically happens that as much cold roll sales. So we continue to make good ground, there, but really internally, it's been great to get our paint lines just fully utilizing the fully develop those products in those customers.

Okay, great. That's it. Thank you. Thank you.

Thank you you can expect that you know, we shipped 500000 tonnes a little little over last year.

And that will be ramping up through the year to that 750, the 800000 ton level.

Not going to happen. This month, the next month, but I think the as Barry said as we gain a new markets, you're going to see that ramp up through the.

Great. Thanks, so much for taking my questions and good luck that there was 23.

Thank you.

Thank you, ladies and gentlemen that concludes our question and answer session I'd like to turn the floor back over to Mr. Miller for any closing comments.

Well for those that are still on the line. Thank you for your support both from a from a customer and shareholder perspective.

And also our employees that I'm sure still on the line.

We we truly appreciate everything you do for us and I just want to emphasize that hey, let's be safe are there and make sure that you felt teammates are safe as well. So thank you every day.

[noise]. Thank you once again, ladies and gentlemen that concludes today's call. Thank you for your participation and have a great and safety.