Q4 2020 Nucor Corp Earnings Call
Later, we will conduct a question and answer session and instructions will come at that time.
Certain statements made during this conference call will be forward looking statements that involve risks and uncertainties.
The words, we expect believe anticipate and variations of such words and similar expressions are intended to identify those forward looking statements, which are based on management's current expectations and information that is currently available on.
Although nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy.
More information about the risks and uncertainties relating to these forward looking statements may be found in Nucor's latest 10-K, and subsequently filed 10, Qs which are available on the SEC's and Nucor's website.
The forward looking statements made in this conference call can speak only as of this date and Nucor does not assume any obligation to update them either as a result of new information future events or otherwise.
For opening remarks, and introductions I would like to turn the call over to Mr. Leon Topalian, President and Chief Executive Officer of Nucor Corporation. Please go ahead.
Good afternoon, and thank you for joining us from our fourth quarter earnings call.
We hope everyone on the call was having a good start to the year and staying safe and healthy.
The last 12 months have been incredibly challenging on so many different levels.
The pandemic has impacted businesses and markets and taken a tremendous toll on so many that have cared for and lost loved ones. During this time.
The distractions, we have faced as a nation and as a company are significant.
Yet the Nucor team has never lost its way and delivering the safest year in our history.
Let me repeat that again 2020 was the safest year in the history of our company.
I'm extremely grateful for the hard work dedication ownership of our nearly 27000 team members who made this result possible.
While there still is a great deal of work ahead of us on our journey to become the world's safest steel company.
I'm more convinced than ever that this team will accomplish our goal.
To our Nucor teammates thank you.
I'm proud for you all well done now, let's make 'twenty 'twenty, one our safest year ever.
Joining me today on the call are the members of Nucor's executive team, including Jim Frias, Our Chief Financial Officer, Dave Some asking Chief operating officer fell bear responsible for plate and structural products, Craig Feldman responsible for raw materials.
Doug Jellison responsible for D J, J and logistics, Greg Murphy responsible for business services and our general counsel.
Marina politics responsible for engineered bar products, <unk> query responsible for sheet and tubular products.
Emily slate responsible for our commercial strategy Chad.
Chad you demark responsible for fabricated construction products.
<unk>, Dan Needham, who will be joining our Charlotte team on February 1st and be responsible for bar products.
At the end of the year, we announced several changes to our executive team. David <unk> was promoted to Chief operating officer, Dave has been with Nucor since 1995 and has led multiple steel product groups and strategic initiatives. Most recently, combining our domestic rebar steel mill and fabrication businesses, David uniquely positioned to help new.
<unk> continued to build lasting partnerships, while executing our enterprise wide strategy.
Mary Emily slate has taken on a new role as executive Vice President for commercial.
This is the first time, we've had an EVP level leader in this role at Nucor. The purpose is to enhance our ability to focus on our key markets and to better connect with our customers meeting the future needs of our customers, while maintaining and maximizing the benefits of our broad and diversified offering of nucor will be vital function of Mary Emily as team.
As we move forward.
I'd also like to welcome four new team members to our executive team Rich query, Doug Jellison, Greg Murphy and Dan need them.
Each of these executive management team promotions will enhance our ability to serve our customers and our shareholders.
Business conditions remained strong in the fourth quarter with improving pricing and healthy volumes across our diverse product portfolio.
Of particular note utilization rates at our sheet Mills and plate Mills continue their sharp upturn in the fourth quarter.
While we were pleased with our operating performance and cash flow for the period, our earnings were impacted by noncash charges, which were more than offset by tax benefits recognized in the quarter. The most substantial of these were related to our agreement to exit from the diverted from Nucor joint venture.
And the impairment charge, writing down the value of our caster of operations, both of which impacted our steel Mills segment earnings.
The capabilities of our new state of the our cold mill and the generation free Galvanizing line, we have under construction at Nucor, Arkansas have diminished our utilization of cash strip.
We do plan on continuing to fully support existing customers as well as the technology to further improve cash rich product offerings for Castro licensees.
The noncash charge that we recorded upon exiting the deferred for Nucor joint venture was actually more than offset by a tax benefit related to our investment. So it did not hurt our net income for the quarter Keith.
Jim Frias will elaborate more in his opening remarks.
Turning now to comment on 2020 as a whole.
The year ended up much stronger than anyone would have anticipated when the pandemic first took hold of our global economy in March of last year.
Our team on our business model proved to be incredibly resilient and we were able to take advantage of the stronger than expected recovery because of the nucor team doing an excellent job keeping our mills running reliably and safely throughout the volatility that characterized 2020.
This allowed us to reliably fulfill our customers' requirements. Our focus remains on continuing to deliver a differentiated value proposition to meet and exceed our customers' needs.
Looking at specific end use markets construction remained strong throughout the pandemic and automotive was quick to recover in the second half of the year after shutting down on the second quarter. Together. These two markets account for nearly two thirds of steel consumption. We are aware of certain leading indicators signaling a downturn in non res construction activity.
But so far we don't see much evidence of that.
Our company is well positioned in attractive sub segments of the nonresident structured market. There are areas of strength, most notably warehouses and data centers that may not be fully reflected in the Abi and other indicators. We have worked to build relationships. In these sub segments that are bright spots, ensuring that we are providing the best solutions.
Across steelmaking and steel products to serve those customers.
We are cautiously optimistic that a significant infrastructure spending bill will be passed by Congress and signed by the new President this year.
After years of talk this musket done.
We are still driving on roads and bridges designed and built during the Eisenhower administration. This is not sustainable we would not be surprised if a funding bill focused in part on green infrastructure spending, including renewable power generation and transmission Nucor is well positioned to meet our country's needs of environmentally.
<unk> steel and steel products.
With roughly 50% of our steel used in the construction sector. There is arguably no company more poised and ready to meet the needs of rebuilding our country the nucor.
In the automotive market, we believe demand should continue its rebound we think 2021 light vehicle production in North America will be around 16 million vehicles having.
Having wrapped up the fall contract season, we feel good about our prospects for continuing share gains in the automotive market.
The investments we have made at our sheet mills in Arkansas and in Kentucky to expand our production of value added products are paying off.
Demand from the oil and gas sector continues to be weak even as oil prices have been rising along with many other commodities.
I think thats significant continued improvement in that market is going to depend on how quickly vaccines can get out to a large number of people and how long it takes for commuting and travel patterns to approach pre pandemic levels.
Strong demand growth from the renewable energy sector has partially offset the weakness in oil.
Our sales to the renewable power sector have been very strong this year with steel, making segment orders related to these markets growing by double digits compared to the 2019 total.
The renewable power market is one nucor is targeting and many of our steel and steel products are essential to its continued build out.
We rely primarily on recycled steel to make these products and they themselves are 100% recyclable. This fact positions us well as the supplier of choice here as we see sustainability and product transparency, becoming a more important factor in products sourcing decisions in the renewable power sector and in.
Most other end use markets.
We're also seeing signs that other end use markets will rebound from this past year's depressed levels, including heavy duty trucks heavy equipment and agriculture, turning to our strategic growth projects. We continue to make excellent progress on them during the fourth quarter, our new rebar micro mill in <unk>, Florida started up operations on schedule in December.
Congratulations to the entire Nucor steel, Florida team for getting this new steel mill up and running on time and for doing it safely.
This past October we celebrated the groundbreaking of our new steel plate mill in Kentucky.
Our Nucor steel Brandenburg team has done a great job keeping the project on schedule throughout this year and we are moving at full speed to bring the state of the art plate mill to market during the fourth quarter of 2022.
We're also making great progress on our expansion project at our Gallatin sheet mill the expansion.
Project is expected to startup in the second half of this year.
With regard to some of our facilities that are in operation I am pleased to report the new pickup galvanizing line at Gallatin had an excellent first full year of operation. Despite the pandemic shifting 39% more tons than we projected when we approved the project year. One profitability was also ahead of plan Gallatin enter.
Free into the value added coated sheet market has proven very timely with a strong flat rolled market conditions that emerged in the second half of 2020 and are continuing into Q1 2021, we.
We have experienced very strong customer acceptance of Gallatin is coated products as we further develop target markets that include automotive solar tubing roll, forming grain storage Culver and cooling towers.
Also the new Cold mill at Nucor Steel, Arkansas has gotten off to a strong start with shipments almost 30% ahead of our initial plan for the mill strong customer acceptance rates. Following trials were conducted throughout 2020, meaning that the new mill is now booked out for this year at 85% of its nameplate capacity.
For contract customers.
We're looking forward to running our first prime coil off our new Gen. Three <unk> at Arkansas. Later this year. This is slightly behind our original schedule due primarily to the slowdown in capital expenditures, we instituted around the beginning of the pandemic.
Our new rebar micro mill in Sedalia is also exceeded our expectations. The team there generated a solid operating profit during the most recent quarter and its spooled rebar product continues to be well received by our customers.
At our galvanizing line joint venture with <unk> in Mexico, We are back up running after a government mandated shutdown and beginning to ship coils to automotive customers congratulations to the team there.
Our Kankakee, Illinois Bar mill completed commissioning of its new <unk> Rolling Mill in December while the timeline on this project was slightly extended due to COVID-19 related disruptions customer acceptance of the new products has been extremely strong we expect to achieve positive cash flow from this investment in Q1.
Construction on upgrades to can't Kiki's melt shop, including a new caster and latest share station will begin in earnest in February with final commissioning of this equipment expected in Q4 of this year.
This investment will significantly improve the energy efficiency of the Kankakee mill.
Before I turn the call over to Jim Let me give a shout out to our teammates a Louisiana DRA operations as many of you are aware, we took some downtime in Louisiana in 2019 and have invested approximately $200 million.
To enhance operational reliability. There it has really paid off in 2020, the Nucor steel, Louisiana team set new records for production shipping and operating hours. Most importantly, our team Theyre accomplished all of this while operating safely for more than 450 consecutive days later this.
Quarter, we will finish our work improving louisiana's or yard.
With that let me turn the call over to Jim to provide more details about our financial performance and outlook for the first part of 2021, Jim. Thanks, Lee on fourth quarter earnings of $1 30 per diluted share exceeded our guidance range of $1 15 to $1 20 per diluted share.
As detailed in our news release results for the just completed quarter included a number of non operational items that were not included in our guidance.
After tax effects again for the items not included in our guidance. The total impact was produced net income by just under $34 million or approximately <unk> 11 per diluted share.
Earnings significantly exceeded our guidance as the pace of margin expansion at our steel mills surpassed our expectations.
<unk> improved for many of our businesses throughout the quarter and now are strong as they've been in some years.
As Leon mentioned and as detailed in our news release, we were able to claim tax deductions related to our investment in deferred at the Nucor joint venture debt more than offset the related loss on assets, we recorded in the fourth quarter.
Cash provided by operating activities for full year 2020 was $2 7 billion.
New course free cash flow or cash provided by operations minus capital spending was $1 2 billion in 2020 comfortably exceeding cash dividends paid to stockholders of $492 million.
Over the last three years Nucor has generated $3 $9 billion of free cash flow, even as we reinvested $4 billion in our businesses.
As mentioned on previous calls we have intensified our focus on maintaining appropriate working capital levels and reducing the asset base, we required to generate strong profitability.
I am happy to report that even as steel market demand and pricing has rebounded strongly in recent months our tons of raw material inventories are actually down by more than 6% from the prior year end.
At the close of the fourth quarter, our cash and short term investments and restricted cash holdings totaled just under $3 2 billion.
Nucor's liquidity also includes our Undrawn $1 5 billion.
Unsecured revolving credit facility, which matures in April of 2023.
Total long term debt, including the current portion was approximately $5 3 billion.
Gross debt as a percent of total capital was 32% while net debt represented 13% of total capital.
The flexibility provided by Nucor is low cost operating model and financial strength continues to be a critical underpinning to our company's ability to grow long term earnings power and return capital to our shareholders dividends.
Dividends and share repurchases totaled $531 million.
Or 74% of net income during 2020.
And with the dividend increase announced in December Nucor has increased its base dividend for 48 consecutive years.
Every year since we first began paying dividends in 1973.
Speaking of growing long term earnings power, let me take a moment to provide a brief rundown on where we stand on some of our organic growth projects.
Three projects started operations in 2019 day.
On a new specialty cold Rolling mill in our Arkansas sheet mill on.
Our rolling mill modernization at our Ohio, Rebar Mill and a hot band Galvanizing line at our Kentucky sheet mill on.
On another four projects started production during 2020.
Our rebar micro mill in Missouri, or Illinois merchant Bar Rolling Mill.
Our joint venture sheet steel Galvanizing line in Mexico, and our Florida Rebar micro mill.
The remaining three projects or the expansion and modernization of our Kentucky sheet mill.
Our generation three flexible galvanizing line at our Arkansas sheet mill.
And our Kentucky plate mill.
At the close of 2020 remaining capital expenditures for these three are approximately $1 9 billion.
With the Kentucky plate Mills project, representing about three fourths of that total.
We expect that Nucor's total capital spending for 2021 will be in the area of $2 billion.
Approximately 80% of the 2021 spending is to improve product capabilities and reduce costs.
Turning to the outlook for the first quarter of 2021 as Leon indicated we are encouraged by a number of positive factors impacting our markets.
We expect earnings in the first quarter of 2021 to be significantly higher than our reported results for the fourth quarter of 2020.
The expected performance of the steel Mills segment in the first quarter of 2021 is the primary driver for this increase as our sheet plate bar and structural mills are all forecasting increased profitability.
Our downstream steel products segment's performance from the first quarter is expected to decrease compared to the fourth quarter of 2020 due to typical seasonal patterns and some margin compression due to a lag between rising steel input costs and increased selling prices.
The raw materials segments performance from the first quarter is expected to be significantly improved due to higher raw materials selling prices. Thank you for your interest in our company Leon.
Thank you Dan and we see now happy to take any of your questions.
Thank you to signal for a question. Please press star one on your telephone keypad also with you're using a speaker phone. Please make sure that youre on mute button is turned off to allow your signal to reach our equipment.
Again, it is star one at this time for questions and we will pause to give everyone the opportunity to signal.
And our first question will come from Seth Rosenfeld with Exane BNP.
Good afternoon, Thank you for taking our questions today.
If I can kick off with a question specifically on your raw material segment.
Obviously very strong performance. This last quarter I was wondering can touch on a little bit your own expectations for scrap prices. As we look ahead through 2021, it's obviously been a very strong on last couple of months what would be your expectations going into the February settlement at longer term given the growth in domestic eas capacity, where you see domestic scrap.
Price is settling out.
And as a follow up Keith you touched on earlier from a the work within your DIY business in Louisiana with PG Peg Marc can you give us a little bit of color and the level of profitability in Louisiana and your broader derivedness how.
How should we think about that progressing going forward is there more upside or do we already had a pretty strong level of Q4. Thank you.
Okay Seth.
I'll start with the back half of your question regarding the <unk> and while we don't specifically call out the individual divisions.
Operability, what I would tell you is the results that I shared with you on my opening remarks regarding Louisiana performance and reliability and uptime.
Again, they're incredible safety record and the things that they continue to be able to improve on that reliability is going to yield stronger financial performance.
During the analyst day.
Craig Feldman, Craig to share just a little bit of backdrop around scrap what we're seeing some of that.
Metallic spread as well as how we think about price.
We're on track as we move forward. So Craig you jump in on the level, maybe closer to Dan.
Surely on thank you and thanks for the question.
You asked the question about the longer term view on scrap.
Our crystal ball, probably isn't significantly better on the euro. So let me just share a few thoughts with you, though we certainly do anticipate a near term correction in the month of February which I guess is not all that surprising given the nearly $200 increase that we've seen in the last 90 days or so.
In fact, we are already seeing some international scrap prices, notably Turkey fall here just really in the recent day. So we certainly see some moderate corrections from the January level levels, especially on obsolete grades.
Which are highly elastic and where flows have really been pretty good recently.
Prime scrap grades are also likely to moderate a bit but we don't believe will fall as much as the obsolete grades February price than you would likely be down 30% to $50 a ton depending on both the grade in the region.
But we would certainly characterize that as a.
I'd say a fairly normal correction given the size of the recent run up in prices and just a couple of other things and re on alluded to this in his opening remarks, but there are some other factors at work here too. The overall commodity price environment is pretty darn solid and I don't think Leon mentioned, this but a relatively weak dollar.
Really help put a floor under that and really sustain the general commodity environment.
The other thing I would point to there are some seasonal factors. The months of February is typically a pretty weak month for scrap pricing overall, and Meanwhile, March typically sees higher prices, so and we track this pretty closely on some with some heat maps as you might imagine.
Historically scrap prices in the calendar months of February are either flat or down around 70% of the time and we're going back the last 20 years or so and March is the exact opposite of that with prices rising or flat around 70% of the time so.
We certainly could see some exceptions to those trends, but we really believe that this year will follow that more typical seasonal pattern. If you will so bottom line our near term view on scrap pricing has been on some downward pressure.
And is likely to stabilize after that.
If I'm if I may one final comment on this.
Just an observation with regard to scrap and steel pricing and this may not be fully apparent or intuitive to from those folks, but scrap pricing followed steel pricing and not the other way around again steel demand and steel pricing lead scrap demand and scrap price.
Jim and Leon alluded to in the opening remarks.
Our view is pretty darn optimistic right now so hopefully that gives you some color.
Great. Thank you very much thanks, Mike.
Thanks, Ed.
Once again it is star one for questions moving on we'll go to David Gagliano with BMO capital markets.
Hi, Thanks for taking my question I just have really just one I was wondering if you can talk a little bit more of that.
The spending plans beyond the $2 billion in 2021, given the timing on it.
The remaining capital spend on the Kentucky plate now.
I know, it's early but can you just give us a bit of a sense as to what your thoughts on with regards to 2022 on the capital focused on.
Yeah. This is Jim.
I'll take a shot at that I had some things in my opening comments regarding capital spending.
<unk>.
I'm trying to find that to make sure I repeat it in exactly the same fashion when we think about 2021 spending.
Roughly $900 million debt will be on the plate mill.
On a $250 million EPS is going to be on Gallatin.
<unk>.
Roughly.
Another Heather day as can be on completing the galvanizing line in Arkansas.
And.
We have about $1, namely overall on those three projects on.
So you can you can extrapolate out debt on.
That's net.
Beyond <unk>.
'twenty 'twenty, one and those projects kick $1 9 million to $902 15 day, one and that tells you what's going to carryover roughly into 2022.
Net we're always working on possible capital projects across our portfolio and it's way premature for us talking about what major.
Major capital projects could be absorbed if there is always ideas that are being worked on across the company.
Okay, and can you remind us again maintenance capex again.
What these days.
Okay.
Exact number, but we think of it as being in the range of $400 million.
And its negative share maintenance.
Comments, a significant portion of this year's Capex from 80% can be categorized as <unk>.
Creating stemming from the value of RPC Foster broadening our.
Value added products.
Okay. That's helpful. Thank you.
Okay.
Okay.
And moving on we'll go to Timna Tanners with Bank of America Securities.
Hey, good afternoon, everyone.
Good afternoon Timna earlier, okay.
Thanks, I wanted to ask a little bit more to understand the flat rolled segment volume and pricing and not to dwell on the path.
Just on looking at your average realized selling price on that.
It's quite at ROE, that's like 80 Bucks a ton on the spot increase that we calculate at lease was about three times debt.
Just trying to figure out how to do the right calculation.
The average realized selling price for you guys on flat rolled, especially as we see this.
Really sharp increase into the first quarter trying to think about how to calculate that.
And along those same lines you know what.
Just can you remind us what is the capability of the flat rolled segment when I looked at your volume shy of $2 3 million that was less than the first quarter and given how high prices, where I would've expected volumes to be.
Next out so can you just run through what the capability is and how to think about prices that would be great.
Sure you want on that.
It started off.
Mike if you've got some comments regarding kind of how we look forward in terms of.
The contract vs.
Spot market.
At the end of the day to now ill begin kind of broader.
And so as we think about the supply demand picture the demand side really get all product groups are incredibly strong were add.
Or near historic levels of backlogs in almost every product group debt that we have including our downstream groups as well order activity at entry rates remain very robust and continue to be strong.
A further strengthening sign of that order support of debt as we talk to our customers.
They are experiencing very saying similar things with their customers and incredibly strong backlogs order entry rates again at the customer level. So as we look forward.
Thanks, Jim.
Framed up low his opening remarks.
We look at our sheet Corp.
But really all product groups that are in particularly as we look at Q1, we see a significant improvement as we move forward.
Mary Emily let me share just a little bit about.
Hey, Dan how we're looking at 2021 now that we've completed the contract here.
Absolutely. Thank you for the question.
Fourth quarter, we actually were or still working on contracts for 2000.
And as they tackle before there is a lag in price.
Keith breakdown on a monthly or quarterly basis, and we're really well positioned.
You saw that increase from fourth quarter.
We are well positioned going into 2021 with a healthy contract versus spot net and I think one area.
Is that on.
20% of our capacity dedicated to an internal downstream customers, including all craft building systems and <unk> and each of these businesses are growing doing very well projecting.
Very good years, and our backlog right now is price hit.
Historic high and it's about 50%.
Then the next time last year.
Dan.
So as I as I say bad debt.
That 20% is is for internal downstream customers and then we also have about 50% to 55% of our capacity locked up with external customer contract at the price follows the market on on monthly or quarterly basis.
That answer your question.
Okay.
I was on mute, sorry, I guess, but I mean in the first quarter. You also had strong internal sales from what I could count on in fact, if anything your tubular products were higher on the first quarter than the second quarter. So I'm just trying to figure that out and I understand that you have contract business and I don't expect you to detail.
Until your customers on the line on all that but.
If you only achieved a third of the spot price increase in the last quarter and that would suggest that you have contract terms that are absorbing more than half of your quarter over quarter moves just back on the envelope. So I'm just wondering do we expect like the similar contract percentages of fixed versus variable or lagged.
Variable into the future has anything changed in your contract structure.
And is it possible to regain the volumes you gave on the first quarter, it's fourth quarter, a better run rate.
Let me jump in.
Real quick first off I think it's important to remember.
These contracts from a fixed price contracts.
Things that flow to them and so I get that exactly right that as you described on the back of it low fort.
Fort Rucker layout.
But at the end of the day.
There is a lag effect on the way up and as well on the way down and so on.
Our expectation as we move forward, yes, there is obviously up more opportunity because the price increases that we've has been certainly the movements that you've seen in the indices ICR you.
We think are going to move forward in stages.
Stay strong.
In terms of the volume on our sheet mills are operating with a incredibly high utilization rate, while they're at capacity.
So that we see continuing and again I think their production levels.
We will stay very high.
Some details on capacity utilization, we marked our capacity at 2.942 million tons for the fourth quarter and we actually produced 2.902 million tonnes. So we computed 90, 865% utilization rates now the recent shipments are so different compared to the first quarter we.
We've had some extra inventory at the end of 2019 debt that helped us boost our shipments we do have more downstream processing now with more galvanizing lines. So with inventory in our system is probably a little higher when we think about what it's sitting at GAAP and that would've just concentrating on have been shipped in the past. So there's other factors that come into play.
In terms of the timing of shipments versus production.
But we would expect debt strong shipping months on the first quarter as well as a strong production line.
Okay. Thank you.
Room for another one I just wanted to get your thoughts on the like higher higher level philosophical view on the scrap market. So I know we talked about in the near term dynamic, which makes a lot of sense, but.
Listen to steel on Amex call based on a pretty relaxed about scrap availability, even with all the new capacity consuming more of more scrap over the next couple of years and if you listen to cliffs they'll tell you that you know there's going to be around on scrap so kind of wanted to hear where new questions. In terms of your perspective, clearly you have the <unk> capability that does enables you to.
More vertically integrated in the iron units, but do you think that it's going to be an issue do you think that it makes sense to expand your position just would be great to get your thoughts.
Yes, maybe I'll kick us off and Jim Craig jump in if you've got some other points and look as we look at the long term as the mix continues to shift from.
Integrated mills to Eas and again, we're about 70% of the.
Steelmaking capacity today in the United States.
Sector is.
The demand on prime scrap is going to is going to stay very tight personnel increase as reported out on previous calls because we need more clarity on the automakers are often make more units because the steel mills that scrap so the high metallic smoothed the quality metallics side of things and controlling our own.
<unk>.
Downstream input to that for US is really very strategic and so I don't think we're at the point, where we're going to an increased emphasis on things that we're doing every day to continue to maximize that the investments in Louisiana.
Continuing on some of those investments in the <unk> to increase the efficiency and increase the yield improvements there will be.
Areas of that but again as we move forward I do see as more ETF based mills come online and the demand as we move up the value chain, even for ourselves and automotive is going to put continued pressure on the prime market, Craig anything you'd like to add with debt.
Yes.
And are.
You touched on some of it but.
Youre right there is a.
A lot of dialogue around this topic and it's something that we've been thinking about for frankly for years.
And we do we do agree with the vs.
<unk> on that high quality metallics.
Ted will become tighter going forward, even obsolete grades we do envision that getting getting tighter with the conversion from integrated to EIF.
And maybe what I'd like to talk about more as what we've been doing in preparing for in that regard.
What we've been doing with our overall raw material strategy, if I could.
And I guess, the key to that strategy really.
Is around our flexibility and Optionality and it's really around three key components.
Give us access to an influence over our total raw material needs and first of all in you're talking about just a lot with regard to the DRA plants.
But our capability there is roughly 4 million tons of high quality material.
And those plants that <unk> really can reach all of our DRA consuming mills on the river or the east coast, and a very economic or freight logical way and.
As Leon alluded to that.
The Louisiana team really has made tremendous progress to improve the production and the reliability and Meanwhile, and sometimes it gets overlooked is moving one team in Trinidad just keeps chugging, along and they've got a long history of low cost production and really world class quality and reliability in a way that produces cri and the <unk>.
Second leg of this is really the David Joseph Company or D. J J is recycling operations with four to 5 million tons, a year of ferrous processing capacity and they're just really well positioned to supply our own mills.
Are these DJ locations and there was about 65 sites in total are focused on producing scrap again within the freight logical range of our own mills.
And we continue to.
I would say opportunistically add capacity to the DJ processing platform.
We did in the last 18 months or so with a handful of tuck in acquisitions, including a couple of shredders and finally, the third leg of the overall strategy is again, the DJ brokerage and trading team really give excellent coverage.
Both the domestic and international markets from a on a third party supply basis, which we think is a big advantage and I know the DJ to brokerage team.
<unk> itself on knowing.
Apply based on extremely well and has access to scrap and scrap substitutes not only in the U S. But globally and for example, the team did a really nice job here recently with the tightness in supply, which I do believe now Tim going back to your question is symptomatic of what we're going to see in the future, but they've been able to capitalize on both.
I would say long standing relationships with our key supply partners, but also into some areas of the world that we haven't been too on a long time and they.
Done a really good job with that.
And on to secure all the material we need despite supply constraints so to sum it up yes, we certainly envisioned that the metallics market.
And probably will tighten up but the flexibility and the options that we have from our own <unk> scrap processing assets of around eight or 9 million tons a year in total along with the third party relationships.
That gives us the access and influence just on on the.
On the material that we have our own assets.
Dedicated to giving us about one third of our total metallics demand covered so that eight to 9 million tonnes really represents about a third so.
Yes, I feel very confident very comfortable on our ability to economically and efficiently secure metallics needs going forward.
Will it be.
Will it be the normal market gyrations of course, but I feel like our strategy is well established and we're in a good spot to navigate it well hopefully it gives you a little extra color.
Yeah, no for sure thanks, guys.
And once again it is star one at this time for questions moving on well go to Carlos de Alba with Morgan Stanley.
Thank you very much good afternoon. So two questions. If I may just first one how do you see the profitability and growth downstream businesses and throughout the year on do you expect the bottom in the first quarter as you highlighted obviously on a sequential decline there, but do you think we will see the bottoming in the coming months and net improvement.
As we move into the second quarter and then the other question is regarding working capital.
Again any comments that you can provide us there.
Sales of the evolution on working capital throughout the year there'll be useful thank you.
Thanks for the question Carlos.
Let me begin on the first one day.
Mark I might ask you to just chime in as well.
On a cover all of this but.
At the end of the day 2020 was.
As I mentioned in my opening remarks, certainly a very challenging year.
And at the same time, Carlos Nucor, and our downstream businesses, we had three product groups that set record for them.
Profitability and so we ended up in a very very strong position and again as we move forward on.
Our entry rates and backlogs were at or near historic highs and so while we expect to see some compression there.
John.
The recent price increases our metal margins are actually going to continue to grow in most businesses and certainly the downstream side, we will face a little bit of compression, but again, it's coming off again in most of our downstream near record.
Profitability standpoint, so again, we do see it staying very strong.
As we move forward to your point around working capital.
That we as a team and I'm really proud of our executive leadership team at the onset of this pandemic in February of last year, we met and we put some things in place with.
On our leadership across all of the mills in operations to be incredibly disciplined into very very.
Deliberate steps to manage our working inventories in scrap.
In finished goods and net that discipline and net.
Well that discipline is going to continue and it has continued and so we're not long as we think about the product groups were not long and scrap on the Oregon with and we're low on the steel make steel mills, providing tool on our downstream product groups. So we feel very good about the through cycle profitability of all of our businesses.
<unk>.
Is that any any comments you'd like to add on the products segment.
Yes, Thanks, Leon and Carlos Thanks for that question.
I want to Echo what was said by Leon and Jim about the forward look that we see in non res construction and from most of our downstream businesses and we are very excited as we enter 2021 and I know there are some sources out there that are indicating non res may not be as strong as perhaps.
We say it is or even looking into the future, but we derive our business outlook from numerous sources, but we did put a heavy emphasis on our customer input and our internal order entry data points and we're excited as many of our downstream businesses have very strong backlogs and.
In some cases, we have a record backlogs all time record backlogs as we head into 2021.
And also we monitor our recent quoting activity and I can tell you on a lot of our businesses over the last 4567 weeks, we've seen activity rise.
I want to repeat something Jim Frias said.
In his opening comments and while we respect and do monitor the industry trade group data, we offer that some of the rising non risk construction arenas may not be fully reflected in that architecture on data. So our strong relationships with key customers our breath of.
Products that we offer to the market.
I guess I would just summarize by saying we're very excited as we head into 2021, there will be some compression and some of our downstream businesses with rising steel costs, but.
Those prices.
Are being passed on in the marketplace are being accepted in and we look forward to the coming months.
Thanks Liam.
Carlos This is Jim Frias I just wanted to ideas one on on the site.
Commercial discipline.
Leon touched on how the team got together and was very thoughtful about managing working capital as a result of the crisis. We also were very thoughtful about the volatility downward in pricing that we were seeing last summer and not getting caught up in net and taking too much inside books it at below market pricing.
So that discipline has positioned us well as we go into 2021, so not have a lot of low priced backlog to work through and so yes with the extreme movement in steel price than we've seen in the last 90 days and there's some minor compression downstream business, but it can be minor shift the first one and then back to your question.
On.
Working capital, we think volumes on working capital do you think about it on a tons basis will be similar.
On scrap price will be relatively fixed price, we think inventory will be relatively flat, but receivables values will go up because Jim low pricing on the average selling price will be higher in Q1, we were in Q4 share.
We'll let you estimate what you think average price are going up but take that times the.
Model tons, we ship an SUV the building working capital for one month, because we basically collect receivables from about 30 days.
And.
And I guess, that's pretty much it so thank you for the question.
Thank you very much.
Next we'll hear from Tyler Kenyon with Cowen <unk> company.
Thanks, very much good afternoon.
Just first question here on on the wind down there the different in JV.
Was there a operating headwinds from that JV in 2020 and was that flowing through the steel Mills segment, just curious as to how large that may have been.
I'm not sure.
When you say on operating wind on the mean will be incurring operating losses at the joint venture.
Correct and most of that flowing through the steel Mills segment.
Yes, it was incurring operating losses that were not very material, but they were generating losses and it was focused in this segment.
Okay, and then just maybe your outlook just for startup costs as we move into the new year, maybe in comparison to 2020, which I believe were over $100 million.
Yes, we did $28 million in the fourth quarter in both 19% and 20 relatively flat just over 140 day startup with the first quarter pre operating startup being about $42 million and it's probably going to be on average higher than the last year. It might be in the range of 120, we don't need to give them one on your outlook.
I would think that debt $40 million basis, probably.
Going to be the right range, we're going to have a few areas winding down but both GAAP.
Branded growth will be ramping up so we will give quarterly updates as we go but right now 42 million in Q1.
There was another part of your question I wanted to speak to you and I lost track of it.
What was that Friday didnt answered.
No that's helpful.
I just wanted to ask one more.
Okay.
I'm, sorry, I just wanted to ask one more on the Capex. So so Jim you said roughly $2 billion for 2021, if I sum all of our spend this year just on the major projects the plate mill Gallatin expansion and Gulf wind in Arkansas.
Again about $1 5 billion, and then assuming $4 $500 million of maintenance related spend.
The difference is the bucket somewhere around 300 $350 million.
Just curious as to what kind of projects. These are sounds like it may be additional growth.
And maybe how we should be thinking about that bucket moving into 2022.
One of the projects.
At our NYSE plant, we had a.
Roughing mill that had been in services agency, NYS, II, which makes the bigger sections.
And it hadn't really been.
Reaching its end of useful life, and we need to replace it but when we replace it we didnt replace it with <unk>.
Staying with something and that was more robust.
Dan you should certainly start to finish on that I'll continue the strength.
Actually on.
Sure John Great might invite out there on Hawaii, just quickly share and share with Tyler.
Tremendous work at the NYS team has done and bring that project online and really expanding the capability of what ranges they can run.
And again net investment wasn't just the maintenance replacement so.
Let me make a few comments.
Yes, I'm happy to and.
Thanks, Alex I want to make sure we address your questions because that was a 2020 project were you asking about 'twenty, one or 'twenty.
He was asking about both do you wanted to know what we see on the bucket for 2020, and then what's going to be in 'twenty. One. So I'll talk about 'twenty. One if you could sort of give them what it was for 'twenty and maybe what the process capabilities.
So that was it was about $145 million Alex at our at our Arkansas Mill and that was just a modernization of one of the rolling Mills and it's not.
It's an example of one of the many capital projects, we do that don't always get a lot of press the new stuff the new mills for good reason and get a lot of press, but we continually upgrade and add to the capabilities of these mills on on a regular basis. So that that gave us improvements in quality certainly in safety and flexibility and agility of the ability to.
On move between sections more more seamlessly and so I think it's a great example that our mills mills that around for 30 years, it's not a 30 year old mills by any stretch it's continually upgraded its state of the art.
We maintain those facilities to be competitive.
Future. So we're excited about that and I think it.
We'll ensure that we maintain our leadership position in <unk> and compete effectively for a number of more years.
Yeah, and I would just add how is that there are projects of a similar nature next year.
We are doing from investing in our processed gas business, adding <unk>.
<unk> gas plants at both Galveston, and Brandenburg those are I think a net $40 million to $50 million.
Range each and then there is another project that is.
He has been working on that our team has asked us to keep silent on it because there are still negotiations negotiating some thing but its in the mid $100 million range of $150 million range kind of approach, we will talk more about that in future ones.
On some things are finalized in terms of negotiations.
Thanks very much.
And next we'll hear from Alex hacking with Citi.
Yeah, good afternoon, and thanks for the call I have a couple of questions.
First one is just on the cadence of that ramp up.
At Gallatin, and obviously with flat rolled market is so tight there's a lot of interest and you know exactly how much tonnage galton can contribute in the second half of the year. So any color. There I'd appreciate it and then secondly, just following up on Tim's question around metallics.
Go back 12, 18 months ago, it was quite a bit of chatter in the marketplace that some of the North American integrated mills might be interested in selling pig iron.
Haven't really heard much about that recently and obviously some of the structure that has changed on the integrated side.
From where you sit is that something that seems like it could be possible at some point on would that help you.
He's up some of the potential tightness on prime scrap.
Hey, Alex Thanks for the questions I'll start with the back half from your question or the second question around Metallics first and maybe ask <unk> to address.
Your opening question is what's the short answer with regard to average domestic supply has taken on iron absolutely, but the caveat is at a price competitive points in the marketplace and so.
If those integrators can come back on and produce pig iron at a competitive price, we will absolutely be brining up in purchasing our pig iron domestically, but again that certainly is a challenge.
We'll see what happens to your point.
On several over our competitors has talked about restarts and doing just that.
So, we'll see how that unfolds and as we move forward, but thats.
I'm, certainly not going to speak to their strategies and executing but.
Again, it's got to be weighted price competitive standpoint, and today I'm not sure from.
They can reset cost or not so.
Really no other covered out there Dan do you want to comment on the first part of this question, Yes sure Alex.
Our Gallatin mill with the expansion will be able to produce about 3 million tons, a year, which is about one.
$1 4 million on AD.
And the startup is in the fourth quarter. So it's hard to imagine that there'd be any material tonnage coming out of Gallatin.
This year.
The startup at the beginning of next year well start at the end of this year.
It goes smoothly.
We'll be able to run that rates sometime in the first quarter.
Perfect. Thanks, so much.
Next we'll hear from Chris Terry with Deutsche Bank.
Okay.
One of them, Jim and James Thanks for taking my questions. I just had two just wanted to flush out one final thing on the Capex I know you've talked about this a bit on the call but.
Just looking at 2020 guidance $1 7 billion, we spent about $1 5 billion and then 2021 and the 2 billion. I think is unchanged just wanted to check is that catch up from 2020 is that now not in play because that was sort of walking on allocated project that you're talking about or two.
We expect that to then be added back in 'twenty two.
Yes, that's a great question Chris.
Yes.
When we when we estimate capex.
Finally from the business units and I think that sometimes you get a bit conservative in trying to make sure that day.
They give us the maximum you're going to spend in any year end. So that was the reason.
For the shortfall on there will be carryover what did you spend this year in the next year, but I would still say that.
The safety and goes to for their ex expectations for 2021, so there's probably going to carryover at the end of 'twenty, one as well so I still think that overall spending should be in the range of $2 billion for 'twenty, one even with that carryover effect.
Okay. So you're able to say what you had 22 number expectation is.
No I cannot.
No.
Okay and just another quick one maybe for you Jim just the tax rate the cash tax in the P&L tax.
For 'twenty, one and maybe further out if you can even into 'twenty two.
Yeah, that's share normalized.
Tax rate, it's going be in the neighborhood.
94% and for book purposes, but for cash purposes.
We received significant tax benefits this year, we pay very little cash in the first half of the year and we're gonna be seeking a refund in the neighborhood of $140 million. When we don't have a final number you have to be in that range. When we do our tax return in August as a result of the great work our to X gene.
Did this year and I will do a shout out to a few folks debt debt, which is our international tax Andrew sheet.
<unk> figured out the opportunity to take advantage of the worthless stock deduction that allowed us to capture so much value.
And if we made the decision to exit Dan and.
And then of course, the overall cash team, including all the managers John Taylor Amy.
Amy can fail and the others just did a great job doing level year on the work that's necessary to.
Come up with those figures, but we're going to have cash benefits beyond this year because of the accelerated depreciation on big projects and we think that over the three year period, it's $535 million. If you give me a minute to look at next year's cash benefit is going to be in the neighborhood of $2 40, a year after that when we finalize galton.
Because that's going to be the or excuse me Brandenburg as can be the biggest impactor. It can be north of $330 million cash benefit, but our book rate should be in a normalized range of that 24%, which includes the federal and state rate assuming there is no tax increase.
During that time period.
Okay.
Thanks, John appreciate it.
And that does conclude our question and answer session I would like to turn it back to Mr. Leon Topalian for any closing comments.
Thank you.
Like to conclude by once again, thank you Mike Nucor team for your focus and commitment to living our culture as we work through a very challenging year.
As you look back and reflect on 2020, allowing you to know that you've displayed the very best of the Nucor culture by working safely being innovative as we adjusted our operations relying on teamwork and taking care of our customers and serving each and every one of them.
Both the pandemic and the protest ratio adjusted caused us to rethink how we define safety safety.
We started to think more broadly about how safety made from one another and how inclusive that is as a team on <unk>.
Proud of the steps, we took in 2020 to commit ourselves to becoming an even more inclusive and diverse company, where every team member feels a strong sense of belonging and ownership.
I've said many times during this pandemic that will not just emerge from this crisis.
Yeah.
We will emerge from this crisis, a stronger company not just financially, but also culturally and I believe we have seen the results are already showing to be true. Thank you for your interest in our company.
Okay.
Thank you and that does conclude today's conference we'd like to thank everyone for their participation you may now disconnect.
Yeah.
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