Q2 2020 Steel Dynamics Inc Earnings Call

Good day and welcome to the steel dynamics second quarter 2020, <unk> earnings Conference call.

Hi, all participants are they listen only mode. After management's remarks, we will conduct a question and answer session and instructions will follow at the time see Besides this call is being recorded today July 21st 2020, and your participation implies consent to our recording this call it.

You do not agree to these terms. Please disconnect at this time I would like to turn the conference over to Mr. Tricia Meyers Investor Relations manager. Please go ahead.

Thank you Laura good morning, and welcome to steel dynamics second quarter 2020 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 or Mark Millett, President and Chief Executive Officer of steel dynamics, and Theresa Wagler Executive Vice President and Chief Financial Officer.

The other members of our senior leadership team are joining us on the call individually as we're all following appropriate social distancing guidelines.

Some of today's statements, which speak only as of this state me before looking at predict it typically preceded by believe expect anticipate are worth of similar meeting their 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 metal first.

Cycling and fabrication businesses as well as to general business and economic conditions.

Examples of these are described in the related press release as wells in our annually filed assay form 10-K under the heading forward looking statements and risk factors found on the Internet at Www Dot FCC Dot Gov, and ethical and any later as you see form 10-Q, you also find any reference non-GAAP financial measures are reconciled to the most directly compete.

Wearable GAAP measures in the press release issued yesterday entitled Steel Dynamics reports second quarter, 2020 result, and now I'm pleased to turn the call over to Mark.

Well, thank you Trisha good morning.

Welcome to our second quarter 2020 Onek school.

We certainly appreciate in value a time with us this morning, especially during these uncharted times.

Leaders attached to make decisions today that are not being required in recent history regarding the health and safety about people their families and all communities.

We're closely monitoring the cobot 19 situation and are continuing to operate safely.

None of our operations have been impacted today.

As always protecting the health and welfare about teams our highest priority.

On a thank each all right sized some 400 team members for their passion and continued dedication to excellence.

I'm incredibly proud to work alongside each of them during this unprecedented time.

There are a special group Conversely extraordinary things.

And we're committed to them the families and all communities all while supporting all suppliers and meeting the needs of all customers.

Before I continue trees that we provide insights into our outstanding second quarter performance absolutely. Thank you Mark good morning, everyone. Thank you for being here.

Our second quarter 2020, net income was $75 million or 36 cents per diluted share above our guidance of 29 to 33 cents per share due to stronger than anticipated flat rolled steel shipments.

Our second quarter results were reduced by the falling to item costs related to our June 2020 refinancing activities of approximately eight cents per diluted share.

And costs net of capitalized interest associated with the construction that were sent in Texas flat rolled steel mill at approximately three cents per diluted share.

Excluding these two items second quarter 2020, adjusted net income was 47 cents per diluted share above our adjusted guidance of 40 to 44 cents per share.

One comment people before proceeding yes, the compare ability of second quarter 2020 financial results to sequential or prior year amounts is on favorable but to achieve what our teams have achieved and this unchartered environment as Mark mentioned is simply incredible.

Steel and ferrous scrap demand declined significantly in the second quarter of 2020 due to the cobot 19 pandemic and the resulting temporary closures of numerous steel consuming businesses.

As a result, or second quarter 2020 revenues were $2.1 billion, 19% lowered them first quarter sequential results and 24% lower than prior year sales.

Our second quarter 2020, operating income with $159 million over 40% lower than those sequential first quarter and prior year results.

From an operating platform perspective, our steel operations delivered an outstanding performance during this challenging time.

Second quarter steel shipments of 2.5 million tons were only 12% lower than the record 2.8 million tons achieved in the sequential first quarter of this year and only 9% lower than prior years second quarter.

Our steel mills operated almost 80% of their capability, while the rest of the domestic industry operate at 55%.

Due to the momentum in the first quarter, our steel shipments in the first half of 2020 are only 2% lower than in 2019.

Our ability to maintain higher steel volumes as a result of our value added highly diversified product offerings, our supply chain differentiation and our internal manufacturing businesses a sincere congratulations the entire team.

However, steel prices deteriorated, our average quarterly realized sales price decreased $19 per ton to $755 in the second quarter.

While average scrap costs decreased only a dollar per tonne resolving steel metal margin compression. The result was second quarter 2020 operating income of $172 million for steel operations, 41% lowered and sequential first quarter.

I state issued shelter in place mandate and domestic manufacturing slowed scrap supply and collection declined this in combination with lower domestic steel production cost week ferrous scrap demand as a result or mills recycling operations recorded an operating loss of $6 million for the second quarter of 2020, but they remain.

And cash flow positive.

Our metals recycling operations provide a competitive advantage to sourcing ferrous scrap or steel mills, allowing for increased scrap quality belt deficiency and reduction of companywide working capital requirements are vertically connected operating model benefits both platforms.

For steel fabrication business second quarter 2020, operating income remained strong at $27 million compared to sequential results of $29 million due to study shipments. We continue to experience is strong backlog and custard <unk> customers remain constructive in three nonresidential construction projects.

Our cash generation continues to be very strong based on our differentiated business model and highly variable cost structure. During the second quarter of 2020, we generated $486 million of cash flow from operations, representing our second best quarterly performance as we stated on last quarter's call during weaker and.

Firemen, our working capital can be a meaningful funding source and it wasn't a second quarter generating over $290 million of cash flow.

For the first half of 2020, we generated $697 million of cash flow from operations, representing a record first half performance.

We also invested $527 million and fixed asset.

Of which $371 million wasn't invested in our new taxes flat rolled steel now.

We also maintained our cash dividend at 25, <unk> at 25 cents per share in the second quarter after increasing at 4% in the first quarter this year.

During the first half of 2020, we repurchased $107 million of our common stock and $444 million remains authorized for repurchase at the ended the quarter.

In June we also took advantage of the capital markets and executed our second investment grade notes offering issuing 400 million of 2.4% notes due in 2025, and 500 million a 3.25% notes due in 2031.

These transactions were leveraged neutral and proceeds were used to repay two tranches of our then existing higher cost high yield notes.

Combined with our December inaugural investment grade refinancing, we've extended our overall debt maturity profile and lowered our effective interest rate to under 4%.

These actions reflect the strength of our capital foundation, consistent cash flow capability and strong liquidity profile, demonstrating our confidence in our sustainable through cycle strong cash generation.

For the second half of 2020, we currently are planning for capital investments to be roughly between 808 hundred $50 million, which are new taxes steel mill represents $700 million to $750 million at that range.

We estimate capital investments for the full year of 2021 to also be in the range of $700 million to $750 million with the Texas, no representing about $580 million of that amount as their operations are expected to begin midyear 2021.

We entered 2020, a position of strength with a strong cash position and available liquidity of $2.8 billion and Weve remained in a position of strength as we maintain that liquidity with cash and short term investments of $1.6 billion and a $1.2 billion fully available revolving credit facility.

One can't look historically at our financial performance to determine either a future trough or peak, we've grown significantly transformed our Columbus flat roll division further diversified our steel product offerings and incorporate even more levers to increase our through cycles financial performance.

We've also added new manufacturing businesses to opera portfolio that you steel at the raw material provide additional opportunities to sustain our steel mills utilization and a weaker market cycle.

In addition, collectively our primary recent and planned strategic growth investments provide an estimated incremental annual future EBITDA of over $425 million on a through cycle historical spread basis, you can see that on a slide in our second quarter Investor Day, I believe it slide 13.

This estimate includes our Texas steel mill.

The third galvanizing line at Columbus, which is just recently started and our two rebar expansions.

We are simply even more agile today than we've ever been before.

We're also dedicated to preserving our investment grade credit rating, our capital allocation strategy prioritizes responsible strategic growth with appropriate shareholder distributions comprised of a base positive dividend profile, that's complemented with a variable share repurchase program when appropriate.

Are squarely position for the continuation of the steep sustainable optimized long term value creation.

I noticed some of you actually I'm model some more specificity within our flat rolled group shipments. So I will provide those for you now during the second quarter, we had flat rolled shipments representing a hot roll coil and pickled and oiled of 746000 tons.

We had cold rolled shipments a 132000 tons.

And we had coded shipments a 900000 tonne.

Representing a 1.778 million tons and the second quarter in totality.

And finally on a personal now I just want to sincerely. Thank the teams for their passion and their generosity and the care that they're showing for one another's health and safety. It truly is tremendous so thank you mark.

Well, thank you Theresa.

As a I've mentioned many times in the past safety is and it's always going to be on on them on value. There is nothing is more important.

Oh safety performance continues to be significantly better than industry averages.

But as I've said also many times before it's not enough. Our goal is to have zero injuries across the company and we will continue to strive for that.

I'll safety performance was further improved during the last 12 months, although second quarter results continuing the positive trend.

We all must be continuously a wearable surroundings and I'll fellow team members.

Challenge all of us to be focused.

Both in the traditional sense, but even more so now as it relates to keeping one another in good health.

The steel fabrication platform delivered a strong second quarter performance.

I'll fabrication order backlog remains strong and is higher than it was at this time last year.

Customers remain constructive concerning non residential construction projects.

We've had some jobs delayed or postponed but has not been widespread all material.

We anticipate this strength remaining through the rest of this year and expect setting them have 2020 volumes being equal if not higher than the first half performance.

In contrast states issued shelter in place mandates and domestic manufacturing slowed scrap supply and collection declined.

In particular prime scrap flow decreased considerably as automotive production granted to an abrupt halt.

In addition, significantly lower second quarter domestic steel production utilization, which was estimated at 55% across the industry resulted in week ferrous scrap demand.

As a result metals recycling operations, what cash flow positive in the second quarter, but incurred losses at the operating level.

The states have started to reopen scrap flows have improved and we expect all metals recycling platform to return to profitability for the second half of 2020 based on increased volume.

The still team had a tremendous performance in this environment.

After a record shipments in the first quarter. This year, our volume only decreased 12% in the second quarter.

I'd like to command all commercial teams and the support of our customers for making this happen.

And thank you to the metals recycling team for providing the raw materials required to achieve this level of production and won't became a very tight market.

The strength of our differentiated business model.

And with the passion about people drove strong steel mill production utilization to almost 80% across the company.

Well the overall domestic industry as I said only operated at 55%.

Meaningfully a flat roll operations achieved utilization of almost 90% the quarterly.

As cobot 19 unrelated state closure implications unfolded in late March through today.

Steel demand and selling values decreased rapidly from the strength seen in much of the first quarter. This yeah.

Temporary closure of automotive production and the related supply chain closures meaningfully reduce flat roll steel demand.

The severe decline in energy prices related to oversupply significantly reduce steel demand from steel pipe and tube manufacturers.

However, construction related steel demand was more resilient.

A structural rail division maintained utilization of over 70% in the second quarter.

As a result to reduce flat roll steel demand and lower pricing a considerable number of high cost flat roll steel operations came offline since the end at 29 team.

We believe it by 15 million tons of so flat roshi capacity has been idled representing over 20% of annual domestic production capacity.

And tough environments, the strength of our people and our superior business model become even more evident.

As demonstrated in the second quarter and historically.

During periods of market inflection, we maintain high utilization levels than our peers and gain market share.

And Ryan uninterrupted low cost operations provides the greatest customer optionality.

Our broad product portfolio on end market diversification within value added market niches drives flexibility for our commercial teams.

Superior supply chain solutions create additional value for our customers, making us a preferred placed the shop.

Furthermore, a powerful drivers the optionality of internal steel sourcing from our captive manufacturing businesses, which we call pull through volume.

To put this in perspective.

Steel fabrication platform and steel processing locations purchased 2.3 million tons of steel in 2019.

Only about half of this volume is typically source from S. The own steel mills, but in difficult markets, we increased the percentage.

As states continue to determine their reopening guidelines in many steel consuming businesses have resumed operations.

We anticipate steel demand will materially improved from the second quarter trough.

The automotive sector and its related supply chain of restarted production.

And we have started to see some resulting increase in steel demand.

The construction sectors remain more resilient and related steel demand has been steady.

As evidenced by our structural rail division volume and steel fabrication customer backlog.

The order activity from our construction related customers combined with the strengthen our steel fabrication order backlog supporter optimism for continued strength through the rest of the yeah.

We can sectors continue to be related to energy and general industrial consumers, which are likely to require a slightly longer recovery period.

Related to continue growth, we provided a summary update of our recent growth investments on our slide in our investor deck posted on the SDR web site.

And the last 12 24 months, we've executed several strategic investments that have a will benefit all through cycle earnings and cash flow position.

We expanded to steel mills by the combined addition of 440000 tons of steel revamp production capability.

Providing product diversification differentiated supply chain for the customer.

Model provides meaningful customer optionality and flexibility with significant lot logistics yield and working capital benefits.

This end market diversification provides for higher through cycle utilization for our structural and Roanoke steel divisions.

We continue to expand capacity at Harlan steel.

It is 800000 ton value added flat roll steel processor.

And the team has been operating at record coding levels, providing additional internal production support an operational flexibility for our Butler flat roll Division.

Increasing the through cycle utilization of our steel assets and broadening our value added product mix.

The acquisition of 75% United Steel supply has been an excellent investment in addition to our portfolio.

As a local distributor pre painted construction product. It has provided a meaningful channels and you more diversified customers.

With our customer preferred cobranded supply chain more routinely located customer base and recent stimulus dollars flow into these communities United steel supply achieved record second quarter shipments.

We anticipate this strength to continue through the rest of this year.

Since the acquisition of Columbus flat Roll Division.

We have meaningfully increase that through cycle earnings capability.

We have transformed its product portfolio with the expansion of its value added steel capabilities the diversification of its customer base.

And the addition of a paint line.

And a few weeks ago the team achieved another milestone they coated the first prime galvanized coil on U 400000 ton line.

Columbus now has for value added coating lines.

Messman reduces Columbus is hot rolled coil exposure and provides a ready hot band consumer base and the sites for our new Texas front rows mill when it starts operating and less than a year from there.

Sure we remain incredibly excited about anew next generation flat mill in Texas.

And it's certain contribution to our growth and earnings capability.

As Teresa explained how strategy focused on entering 2020 from a point of financial strength.

For writing for the required investment associated with this transformational project.

Our team has an incredible death experience in the construction start up an operation of large steel manufacturing assets.

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

The Texas this team's performance and momentum had been absolutely remarkable.

Construction is going extremely well within our expanded capital cost of 1.9 billion.

We expect operations to begin mid 2021.

Well, having weekly conversations with the equipment suppliers regarding the impact of Cobot 19, and don't believe our plan schedule has been meaningfully impacted thus far.

The new state of the all 3 million tons steel mill will include two value added coating lines comprised of a 550000 ton galvanizing line and a 250000, Tom paint line.

It will follow the same stringent system the below the model as our other steelmaking facilities, which they did they all environmental controls and processes.

Our existing steel mills have a fraction of the greenhouse gas emission and energy intensity of average world steel, making technology and.

Less than 15% or the average producer.

Well, the 94 inch coil wit and up to one inch thick hundred Kansai product.

The Texas mill will have capabilities beyond existing electric arc furnace flat roll steel producers.

And we'll compete even more effectively with the integrated steel model and foreign competition.

The mill is strategically located in Sinton, Texas <unk> Corpus Christi.

We have three targeted regional sales markets for the census, steel mill, representing over 27 million tons of relevant flat roll steel consumption.

In the southern than West Coast, United States and Mexico.

We also plan to effectively compete with the heavy imports in Houston and the West Coast.

Our customers are excited to have a regional flat roll steel supplier.

We are two customers know committed to locate onsite with us revenue representing over 800000 tons of annual.

Consumption.

Processing and.

Consumption capability.

We still have others in conversation and wouldn't expect to have further for the volume in the next months.

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

This freight advantage along with much shorter lead times provides a superior supply chain solution.

I want us to not only be the preferred domestic steel supply on a south and west in the U.S., but also to effectively compete with imports, which inherently and have long lead times and speculative pricing risk.

From a raw material perspective.

Metals recycling operations already control is significant and growing scrapped volume in Mexico through scrap management relationships much of which is needed prime scrap.

As announced earlier this year, we're also planning to acquire a Mexican scrap company as part of our raw material strategy for sentence.

The primary operations, a strategically located near the high volume industrial scrap sources throughout central and Northern Mexico.

The company, who currently ships approximately 500000 gross tons of scrap annually, but have an estimated annual processing capability of almost 2 million tones.

After the acquisition is finalized in the coming months, we plan to ramp up that volume quickly.

We believe our performance based operating culture, coupled with our considerable experience and successfully constructing an operating a highly profitable steel assets.

Positions us incredibly well to successfully execute the transformational Texas growth investment.

As I've said before we're not simply adding flat rolled production capacity.

We have a differentiated product offering a unique regional supply chain solution.

A significant geographic freight and lead time advantage.

And offer an import alternative to a region in need of options.

Our unique 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 demand demonstrating our sustainability.

Steve you would all agree this was clearly demonstrated this past quarter.

Again, our commitment is to the health and safety of our people our families and communities all while supporting our vendors, serving our customers and sustaining our value creation journey.

Our team has incredible I would like to thank each of them for their patients the resilience and commitment during these uncharted times.

They haven't indomitable spirit that drives us all to excellence.

Additionally, our sincere and heartfelt. Thank you to the health care providers and their families within steel dynamics I know serving individuals across the world.

So on behalf of S. The I. Thank you all be safe be well and Laura we'd like to open the call up for questions.

Thank you if you like to ask a question. Please signaled by pressing the star Keach, followed by the did you won on your telephone keypad, if you're using speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

You Press Star one earlier during today's call. Please press star one again to ensure our equipment has captured your signal also we ask that you. Please limit yourself to one question for the so lets say hi, everyone. Any additional questions can be addressed upon reentering. The Q1 moment. Please poll for questions.

The first question comes from the line of course car with Deutsche Bank. You May proceed with your question.

Hi, Mark and Theresa and thanks for taking my question.

The main thing I want to talk about what's the market share guidance in two to just wanted if you could talk about that on a more granular level love to see at high utilization right through some of the blast furnaces offline just thinking about it though and I sort of a customer basis is that a broader offerings the better service.

Just because the Boston issues or offline.

Just wanted to be could talk about that and then further opportunities just thinking about it whether it's sort of step changes all gradual improvements in other opportunities. There, obviously, you've got season, which which you can get mall wont gains in euro side, but just thinking about the next couple of quarters.

Yes.

Yes.

Sorry, I got to on a mute myself there.

You Miss you missed the best part [laughter] No I think a as we've always demonstrated in the past.

And moments of inflection Dan and tough markets.

We continue to gain market share and again I I want to emphasize yeah, our shipments were down 12%, a 12% from a record record production level in Q1, so it's a absolutely incredible incredible a performance by the team.

I think the fact that we all fully engaged fully operational obviously, a allows our customer base to ER to access products, particularly when they are constrained in their own inventories.

We just that allowed them to two to continue and they've got confidence in us what we're here to deliver and we will deliver a product.

We are.

Fortunate as we've said before particularly in Columbus, a we've been expanding automotive presence.

A lot of our automotive customer base is actually European so BMW VW Mercedes they tended not to be as hard.

Hit in Q2 as some of the domestic producers and we certainly benefited the Bennett fitted from that.

Yeah, I think I would just a complement to what Mark said in that where we saw the most market share gains was in a flat roll group as well as structural steel.

Railroad rail and then we have a bit of a niche in the solar products with the solar customers as well both within the hot roll side of the business and within the specialty steels that steel of West Virginia.

And in addition to that with the advent of the Columbus team starting up the third galvanizing line it'll be nice to see that getting into the market and actually increasing the value add portion of their capabilities and the second half of this year. So I think there's a lot of opportunity for us to both enriched the mix I'm going to continue in that Mark.

Yes your game.

And just okay, guys that are just a anecdotally because we continue to say.

That a in a part of our strength as a company through cycle.

Generating strong through cycle cash or is the diversity of our product mix interest as an example, steel west Virginia small us small mail for us.

But they were impacted pretty dramatically by the reduction in in a truck and trailer that that industries off about 50%.

But because of their their expansion into solar the they're going to ship about a 100000 tons of solar product as compared to 30000 tons a lot last year.

It's.

The the diversification both product and market sector allows us to outperform our competition quarter on quarter right.

Thanks, Thanks for the comments and just a follow up question on so many comments surrounding construction specifically, obviously this is a market where it's pretty hotly debated where where it's all trending would do different different indicate as you know, suggesting a slow down and some concern in that market <unk> E.

Commented I think that there's been a broad brush cancellation, but some some changes in the market on an individual level as if any change in your backlog in total backlog.

In that market.

Well on a from a long product standpoint search rail division there that backlog is actually up.

<unk>.

Oh, we see continued strength or there are the fabricators are remaining very busy.

The large projects remains strong.

And constructively some of the smaller private projects that that what kind of delayed for all put on hold.

Hold earlier the year, because the cobot, we're starting to see those products no no getting released.

We're very very constructive obviously, we get inside the or or visibility through a new millennium billing systems, our fabrication ER business.

Yeah, again, a very very strong backlog.

No widespread Pushbacks all project postponements.

A little softness up in the northeast that's not a big market for us, but some of the construction a sites were closed down and haven't closed there.

But seriously we see very very positive strength.

Through the rest of the.

So thanks appreciate it.

Our next question comes from the line, David Gagliano with BMO capital markets. You May proceed with your question.

Great. Thanks for a after my questions I have personally I said, one quick clarification question and I did look at the EBITDA reconciliation tables before asking us, but that doesn't the second quarter adjusted EBITDA of $217 million number does that include or exclude.

Those 10 million of cost tied to the startup at sent and also does it include or exclude some or all of the 25 million a onetime refinancing costs called out in the adjusted again.

Yeah, So Dave whatever is in the EBITDA and adjusted basis is our noncash items only so setting those are cash items. So there's nothing that's been excluded so they are deducted from the adjusted EBITDA and from a financing perspective, only I think about 4 million, we're actually I back because.

They were noncash write offs otherwise if its cash related we're not we're not adding that back.

Okay right. So it is concerned I just want them. It makes it consistently Jesse Jess thanks.

And then just on the on the market you mentioned, obviously, you know I'm quite a bit of idle cheat capacity.

It sounds like you know at least 5 million, that's coming back very soon or in the process coming back a annual capacity and.

Arguably perhaps closer to seven 8 million tons, if if those reduce utilization rates ramp up.

And it seems to be happening when the time at a time when times are actually still pretty low.

For the industrial wrong, and then you also flight obviously prime scrap supplies are coming back as well. So my questions are do you believe that the demand environment.

Strong enough to absorb these near term resorts and likewise, you believe that scrap demand will be strong enough to absorb the incremental prime scrap supplies or or do you see weakness beyond August for prime scrap prices as well.

Well.

Taking your last question Oh from a scrap perspective, we certainly see no issues with a with the scrap flow.

Obviously, there was a month or they've got a little tight when you had all the all the automotive for.

Virtually all the automotive production and a the there associated support facilities stamp as Diane.

Prime scrap absolutely grant to a halt.

But with was seeing that come back a quite dramatically and that's going to continue to come back.

And I think the scrap market, which has been over baked in for the last few months.

And that the the recent downtick kind of normalize that so.

I think you'll see a little more bit more softness in August on scrap Alan on prime scrap in particular.

And then stabilize at a more normalized.

The value for the rest of the so but but supplies should not be an issue whatsoever.

Yeah, Rob you know, Dave I'd, Merck LDH other little bit because from a capacity standpoint, I guess, maybe you've heard things that we haven't we're not you seem to suggest that there's somewhere between five and 7 million tons of capacity coming back online in the near term and that's not a number that we would ascribe to.

What number do you see.

I've described subscribed to us as far as a capacity is going back out we just added up the.

No the ones that we heard about [noise].

In various countries Albertsons I carmike.

Yeah, we actually there's some capacity that we believe is coming off line I'm not sure. That's my main public or not but we would say that it's likely to be in the millionaire half to 2 million tons of capacity that we see coming back online in the near term. So from that perspective, I guess, our answer would be that yes, you know we believe that that.

Can be satisfied if you will and we're not seeing a a big reaction to that.

But again I, maybe were behind on the announcement.

I don't know that's helpful. Thanks.

Obviously, David it's a balance between what may come back and and obviously the increase in demand that there's absolutely no doubt demand is increasing obviously as a as automotive ramps back up.

They are.

You know, there's some little dislocations here or there in the supply chain.

But the demand is picking up I think a relatively such that substantially.

And if you look at a well at least the conversations I've had the.

With similar large dealerships and if you look at a call sort of one of a information that sort of thing.

There's a there's a tightness in the inventory and the dealerships, particularly on a pick up a you know I see the crossover type.

Vehicles.

And that that's going to help support at least the output of the automotives. So the automotive so I I do believe Oh.

Going to be in good shape constrained only by.

Perhaps.

Regional issues from from Covidien, and making sure they have the employees and their plans.

Well, we also saying on the on the sheet product side of things you know the though the white goods H.B.A.C. appliance.

They are coming back very very strong as well from a from a.

Potential I put the sort of demand perspective.

We had been a its VC customer just a call is this week, making damn sure, though he had a material in the pipeline because they are running at a an excessive or above normal volume.

And again only constrained by possible local local issues with the sort of mining that plants.

So so underlying demand.

We see and again.

No those the those that no don't predict and those that don't know predict Oh. We can go on is what we see in our order book or order input right.

And the the commentary from our customers when we see a very healthy underlying economy that steel consuming economy.

We came into this incredibly strong in the first quarter.

And I think you've got a little bit of a pent up demand.

Lean a you got inventories that are generally lean.

Particularly in the distributor space.

As they they don't want to take any speculative risk.

Right now.

Imports are.

I've got to be constrained for the for the rest of the year.

You have.

Final pricing, you know raw material pricing actually.

The integrated mills is very strong.

Which is going to support the global Costco. So so you've got general dynamics within the <unk>, Oh, a general drivers within our industry.

What I would suggest the bode well for the rest of the.

Okay. That's helpful. Thanks, very much for any additional color.

Our next question comes from the line of South Rosenfeld with Exane E M. P. <unk>.

You May proceed with your question.

Good morning, Thank you for taking the questions today.

If I care about a couple of questions with regards outlook for the fabrication business. Please and the margins. There can you just comment on how you would be the sustainability of recent healthy fat barge and they're going to head to the second half in light of current steel price weakness. There can you offer some upside going into Q3 or do you need a recent run rate thing more sustain.

Interval in the longer term I recognize we're already below where we were the Bakken 20 like team.

And then secondly, with regard to fab, what do you can comment a little bit with regard to choose from the end markets, you're serving their I went through our pension any shift between take public or private sector activity for fab. Thank you.

Yes, that's so from that perspective, a then fabrication business margins. So as Mark mentioned the teams are forecasting up pretty strong volume for the second half of this year based on the order backlog that they have and the order inquiry rates that we're seeing which is which is great.

You asked about specific end markets and they are very much into that and what we're going to call. The big box buildings that warehouses, we have a large market share or not so if you can think about the advent of online ordering people not going to retail locations that business right now it's fairly strong because there is needed warehouse.

Space as far as whether or not we're seeing it I'm more in the public versus private sector. I think we're seeing it right now still more to the private then to the public sector, but you know maybe that could change depending upon what stimulus looks like and I don't think anybody knows what that is at this point in time regarding.

Margins they tend to have you know anywhere.

Between you know maybe about even six to eight or more weeks of steel inventory I'm on the ground. So as we work through the lower priced a steel environment. They will benefit from that I'm. So you could see some margin expansion in the second half of the year related to that it's just its a little bit difficult to predict but I.

Suggests that the margins that they've been able to sustain [noise].

Our not extraordinary from from the level of being able to be sustainable into the future.

Great there and I think there my head all your voice or not okay, great. Thank that's great. Thanks.

Our next question comes in line with Andres Buffalo Houser would you be yes, well proceed with your question.

Thank you are just one question for me and just following up on when you were talking about the scrap price you know coming down obviously and where are you on spreads.

This is typically an environment, where we've historically seen you capture market share and you always should doing that at the moment. So I guess, just trying to get a little bit of a sense. How how comfortable do you feel you know do you feel about the current spreads asked as they are at the moment I mean, we've always seems fuel prices coming down scraps coming down as well.

So and and you know the falling steel prices, obviously, you know effectively prevent some of the integration on restarting capacity. So do you do you feel comfortable with spreads at the at the current level I guess the question.

Well again its a.

Yeah.

Interesting times to predict and when it when you you said the.

In an environment you used what typical I don't think there there is any anything typical about the a the environment that were that were in.

All I can say as I do believe.

We have reached the a trough point a second quarter was a trough for food volumes, but for sure.

Particularly on the the she side all business.

And I think the there is an inflection point.

And in pricing.

In the next few weeks, so I think that a that's a positive directional or a momentum for pricing.

And as I suggested you you're likely to see a little softness on prime scrap the here in the in August.

And then it's kind of stable for that for the rest of the year.

So you can.

Mike your own predictions as to where spreads spreads might go.

No need to emphasize that some of you recognize this but yes, you got to recognize that some of our business.

A flat roll business is related to a sort of this year, you index type or pricing.

And so the there is a lag impact in the third quarter.

I'm smiling Andrea because I don't know if we're comfortable with spreads we always like its highest spread as we possibly can have [laughter] lets him to Mark's point I think on a spot basis, there's an opportunity spreads expand.

Yeah Fair Mark Yes.

That's clear thank you very much for taking my question.

You're welcome.

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You May proceed with your question.

Congratulations on all the good work a tough time.

Oh, Thank you, Josh we got a great team.

Still screw up collections Phil.

Two or three times more than a.

Steel shipments.

We're used to liberate leave reducing.

No inventories.

Oh scrap for inventories in the.

Recycling system.

Or did to the opportunities to collect scrap declined with the economy.

Sure good.

Oh outside brokers Gainshare Anderson business doesn't are in good returns, maybe it's okay, saying if you like to other guys do more business at a loss.

Well, I think a a little bit of or all the above.

Obviously scrap flow dropped dramatically because of the automotive business prime scrap pretty well dried up.

So that impacted flows.

Uh huh.

You know flows from Omnisource to all mills.

I was strong and went up.

But at the same time, you know our competition.

Had their own problems they live on producing as much and so we had less homes to that's a broker scrap too.

Thank you very much.

You're welcome.

This concludes your question answer session I would like to turn the call back over to Mr. Miller for closing remarks.

Well, thank you Laura and for those that remain on the call.

Again, thank you for your attention today joining us.

I just would like to emphasize one on absolutely phenomenal performance our team demonstrated this this past quarter.

They they say you know when a win win.

Conditions get tough the tough going that that's our team.

They did a tremendous tremendous job and I think it clearly demonstrates.

The the passionate commitment.

And the innovation of our team, but also the strength of our business model because again, we generated very very very strong cash flow for for the quarter under the circumstances.

And.

Would also like to thank the our customer base because you folks are on the on the call.

You saw only allowed US you certainly supported.

Our ability to perform a appears so so thank you for that and to all the employees a on the call. Thank you. Thank you. Thank you did a great job be safe make it a great day bye bye.

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

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