Q4 2020 Steel Dynamics Inc Earnings Call
Good day, and welcome to the steel dynamics fourth quarter, and full year, 'twenty and 'twenty earnings Conference call.
At this time all participants are in a listen only mode.
After management's remarks, we will conduct a question and answer session and instructions will follow at that time.
Be advised this call's being recorded today January of 'twenty, six 'twenty 'twenty, one and.
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At this time I'd like to turn the conference over to Tricia Meyers Investor Relations manager of please go ahead.
Thank you Kevin Good morning, and welcome to steel dynamics fourth quarter and full year 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 are 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 are following appropriate social distancing guidelines and some of today's statements, which speak only as of this day, maybe forward looking and predictive typically preceded by believe expect anticipate or words of similar meaning they are intended to be protected by the private Securities Litigation Reform Act of 1995 should add.
The results turn out differently, such statements involve risks and uncertainties related to our steel metals recycling and fabrication businesses as well as to general business and economic conditions.
Examples of these are described and the related press release.
As well as in our annually filed SEC form 10-K under the headings forward looking statements and the risk factors and on the Internet at Www Dot FCC Dot Gov, and if applicable in any later SEC form 10-Q, you will also find any referenced non-GAAP financial measures are reconciled to the most.
The comparable GAAP measures and the press release issued yesterday entitled Steel dynamics are for the fourth quarter and annual 2000, and 'twenty results and the.
And I'm pleased to turn the call over to Mark.
Thank you Trisha good morning, everybody and thank you for joining our fourth quarter and full year, 'twenty and 'twenty earnings call.
And I apologize for the early early hour, particularly for those of that maybe on the coming in from the West coast, but.
And hopefully you're going to enjoy and drawing the results Nonetheless.
Because 2020 was the a year of unprecedented the health and economic challenge as we navigated the impacts from the cover of buying us pandemic.
Yeah, it's really extraordinary dedication and passion of the steel dynamics team, we took care of one another while also providing for our families and serving our customers.
Protecting the health and welfare of our people and is our highest priority and I want to thank each of them for their continued commitment to each other I am proud to work alongside each of them there of special team and they continue to do incredible things.
Despite the challenges we achieved best in class performance with record fabrication of volume strong earnings and steel shipments they were only 1% less and our record year.
Simply of phenomenal performance given the conditions.
We accomplish these milestones while and remembering that none of it matters unless everyone goes home safely at the end of each day.
Our safety performance improved and the fourth quarter and notably our annual 2020 injury severity rate was the lowest and our history.
Again, nothing is more important on the health and safety of our people safety is and always will be on number one volume.
Our safety performance of significantly better than industry statistics, but our aim is to have no injuries and we will work tirelessly tirelessly to get the.
And I wanted to achieve this we must all be continuously aware of our surroundings and our fellow team members keep safety top of mind to control safety, both on the traditional sense and as it relates to keeping one another and good health.
But before I continue Theresa will provide insights into our recent performance. Thank.
Thank you Mark good morning, everyone I'd.
I'd like to add my sincere appreciation and congratulations to our entire steel dynamics team as Mark mentioned, we achieved numerous milestones despite the social and economic impacts from the coronavirus.
We achieved revenues of $9 $6 billion derived from record fabrication shipments and our second highest annual steel shipment.
Operating income of $847 million, and net income of $551 million or $2.59 per diluted share and cash flow from operations of $987 million and adjusted EBITDA of $1 2 billion.
And I truly extraordinary performance considering all of the peripheral challenges rigor.
Regarding our fourth quarter 2000, and 'twenty performance, specifically net income was $188 million or <unk> 89 cents per diluted share, which includes financing costs related to our October 2020 of refinancing activities of four cents per diluted share.
Cost net of capitalized interest associated with the construction of our Sinton, Texas flat rolled steel mill of five cents per diluted share and non.
Noncash asset impairment charge related to non core oil and gas investments of $17 million or six cents per diluted share net of Noncontrolling interest and finally, a tax benefit related to the reduction of the valuation allowance of $13 million or six cents per diluted share net of noncontrolling interest exclude.
And these items fourth quarter 2020, adjusted net income was 97 cents per diluted share above our adjusted guidance of 80 to 84 cents per share due to stronger than anticipated December flat rolled steel shipments and order activity remains very strong.
Our fourth quarter of 2020 revenues were two boys $6 billion 12 per cent higher the sequential third quarter results and steel and metals recycling pricing and improved our fourth quarter of 2020 operating income was $259 million $103 million or 66% higher the sequential third quarter results.
Due to higher realized flat rolled steel pricing more than offsetting increased scrap costs and.
And we just got their business. This morning, you'll find that we are positive heading into 2021, considering underlying steel fundamentals and confident and our unique earnings catalysts.
All three of our operating platforms performed well and 2020 and and the fourth quarter with the steel and metals recycling team's achieving their best quarterly performance of the year.
Our steel operations generated $298 million of operating income and the fourth quarter more than double the third quarter of sequential earnings as flat rolled steel selling values increase significantly throughout the fourth quarter driving expanded metal margin.
Fourth quarter of steel shipments of two 7 million tons were on par with sequential third quarter volume our steel mills operated at 84 per cent of their capability during the quarter well above the industry average of 72%.
For the full year 2020, our steel facilities achieved numerous production and shipment records. The platform's full year operating income was $906 million with shipments of $10 7 million tons again, representing our second highest volume and only 1% less and our record of truly phenomenal performance.
As a reminder, we still have additional market opportunity, it's mostly and the long product side of our steel operations based on our existing annual steel shipping capability of over 13 million tonnes and as our new Texas Steel mill begins ramping up we will have over 16 million tons of steel shipping capability.
Our value added product mix supply chain differentiation and downstream manufacturing businesses provide a powerful strategic advantage to sustain higher steel mill utilization during all of demand environment and the increase our through cycle cash flow.
As the overall manufacturing rates improved and domestic steel production increased during 2020 scrap generation and demand strength in the fourth quarter, resulting in improved pricing and volume operating income from our metals recycling operations was $27 million, 75% higher than the sequential third quarter for.
For the full year 2020 operating income from our metals recycling business was meaningfully higher than prior year.
60% higher at $45 million based on higher and more stable of ferrous scrap prices.
And our mills recycling operations provide a competitive advantage for sourcing ferrous scrap for our steel mills, allowing for increased scrap quality melt the efficiency and reduction of company wide working capital requirements, our vertically connected operating model benefits both platforms.
Our steel fabrication business had solid operating income of $25 million and the fourth quarter compared to sequential third quarter of record earnings of $39 million lower earnings were the result of seasonally lower shipments and metal spread compression as the average selling values declined and steel raw material input cost increase.
For the full year 2020 fabrication achieved another record year with operating income of $121 million and volume of 666000 tons. Congratulations to the team we continue to see strong order inquiry and customer optimism on.
Although with the rapidly rising steel costs, we will likely see margin compression in the coming months. The order backlog is about a six month backlog and the steel raw material that we put on the ground is generally around two and a half months of steel inventory. So we're likely to see trough margin sometime in the first quarter for fabrication.
But the order entry is very strong right now and they're actually selling at record high joist and deck pricing. So we expect to see that crack very quickly as we go into the second quarter.
For our cash flow from operations, our cash generation continues to be incredibly strong based on our differentiated business model and highly variable cost structure. During the fourth quarter of 2020, we generated $138 million of cash flow from operations and for the full year of $987 million.
We're simply even more agile and agile today than ever before we more than doubled our average annual free cash flow of $1 $2 billion from 2016 to 2000 and 'twenty, that's compared to the previous five year period, even in midst of Corona virus, we generated $980 million of free cash flow this year.
Our 2020 capital investments totaled the $1.2 billion of which $928 million was invested and our new Texas flat rolled steel mill.
For 2021, we currently believe capital investments will be of roughly $950 million with the Texas steel mill, representing about $800 million of that amount the.
Texas Steel mill is expected to be within plan of $1 $9 billion.
Regarding shareholder distributions, we maintained our quarterly cash dividend at 25 cents per common share after increasing 4% and the first quarter of this year.
Or the first quarter of 2020, I should say.
Since 2016, we also increase our invested $1.3 billion of our common stock representing over 15 per cent of our outstanding shares, we repurchased a $107 million and 2020 and $444 million remains authorized for repurchase at the end of the year.
Additionally, we opportunistically accessed the investment grade capital markets and both June and October of 2020, extending our debt maturity profile since becoming investment grade we've significantly reduced our effective interest rate from $5 four per cent to three five per cent. These actions reflect the strength of our capital Foundation.
Consistent cash flow capability, and strong liquidity profile, and the continued optimism and confidence and our future.
We entered 2020 and position of strength and ample liquidity and we remain in a position of strength as we enter 2021 of December 31, 2020 of our liquidity was over $2.5 billion comprised of cash of $1 4 billion and our unsecured revolver of $1 2 billion, our capital allocation strategy priority.
And as responsible strategic growth with shareholder distributions comprised of a base positive dividend profile, that's complemented with the variable share repurchase program, while also being dedicated to preserving our investment grade credit rating, we're squarely positioned for the continuation of sustainable optimized long term value creation.
We also believe sustainability is a part of our long term value creation, and we're dedicated to our people our communities and our environment, we're committed to operating our business with the highest integrity and have been since our founding.
And we produced steel using electric arc furnace technology with recycled ferrous scrap as the primary raw material.
Yeah. The EF steel production technology currently has the least environmental impact. It is the most cost effective and provides the most operational flexibility with the addition of our metals recycling and fabrication platforms. We intentionally developed of vertically connected operating model create and almost closed loop manufacturing business, which both benefits us financially.
And reduces our environmental impact and 2020, we shared our qualitative climate related goals and our most recent sustainability report.
During 2021, we plan to also adopt quantitative goals to reduce greenhouse gas emissions participate and greater renewable energy use and continue to invest and energy efficiency opportunities. We're currently and the process of assessing the use of renewable energy alternatives and our new Texas steel mill as well.
And our sustainability and environmental impact strategy is and ongoing journey and we're moving forward with the intention and make a positive difference we plan to continue to address these matters and to play a leadership role and developing innovative ways to reduce our impact on the environment.
And on a personal note I want to thank our teams for their passion and generosity and for the care of their showing for one another's health and safety. Thank you Mark.
Well, Thanks, Teresa and as you were talking of there is a great recap I think of the of our financial performance for sure, but the the startling.
And the metric there.
And you have a team that the produced almost $1 billion of free cash flow through and Ah Ah.
Pandemic and.
And the incredible on economic downturn.
The speaks remarkably for for the team that we have.
And as you also mentioned the steel fabrication platform delivered an outstanding performance.
Moving record annual earnings and shipments.
The non residential construction market has remained resilient throughout 2020 the.
Especially in areas that support online retail and the computing activities, such as warehouses for the retail distribution and cloud computing functions.
This continues to be of strong area for our fabrication projects and we ended the year with the record fabrication and customer backlog, which is atypical for this time of year seasonality tends to impact of order activity. So I think it bodes well for the for the future.
Steel prices increase quickly, it's likely we'll see near term margin compression for the fabrication platform.
Of the strong steel pricing environment will obviously benefit of steel operations to a much greater degree the.
This is one of the strengths of the symbiotic nature of the vertical integration of our primary operating platforms.
Another is the ability to keep utilization on the steel mills of the highest level.
The fabrication facilities bought almost 460000 tons of steel from our own steel mills, and 2020, helping mitigate the impact of reduced demand and the second quarter driving of significantly higher utilization rate as compared to the industry as a whole.
Our metals recycling and operations performed admirably in the wake of of COVID-19 related state mandates and manufacturing disruptions earlier in the year.
The team was critical and supplying on steel mills without of course scrap when supply was severely reduced during the second quarter.
Another example of the strength of of vertical operating platforms.
And as manufacturing resume midyear and domestic steel production increased scrap generation and the brand improved significantly and the second half of 'twenty and 'twenty, culminating and a significant price increase in January of 'twenty, and one of $100 per gross ton.
We believe scrap generation will be strong in 'twenty, and 'twenty, one and that pricing will stabilize and moderately lower levels than we have today.
The steel team achieve incredible things this year and I.
I think everyone involved because.
It took a team effort on metals recycling and fabrication teams of customers and our vendors.
Everyone and contributed to the performance of.
Our own steel consuming businesses purchased one 5 million tons of steel from our steel mills.
Representing 14% of our total of 2020 steel shipments.
Clearly another example of the strength of our vertical operating platforms to mitigate risk and increase through cycle earnings.
As a result of the pandemic.
And estimated 15 million tons of higher cost of domestic blast furnace flat rolled steel production was idled and early 2020.
Since that time, we believe Duane the five to 6 million tons of net production capacity has resumed.
We believe some of the idled capacity will become permanently offline due to the high cost required restore and maintain their operations.
We believe the supports our flat roll supply demand balance thesis that the impending additional flat rolled capacity will not cause the material supply side imbalance as the only approximately 6 million tonnes of new capacity that is planned to start and the next 12 months.
Combined with the capacity already restarted it still doesn't match the tonnes taken offline and early 2020.
While the overall domestic steel industry operators of 68% utilization the.
Strength of our differentiated business model, coupled with the passion of our people draw steel dynamics is utilization rate to 86%.
Even more remarkable our flat roll steel mills achieved utilization of 97% and through the.
And tough environments, the strength of our people and our unique business model becomes even more powerful.
As demonstrated this year during periods of market inflection, we maintain higher volumes compared to our peers and regain market share.
On the ran uninterrupted low cost operations helped provide customer optionality.
The only added product and end market diversification provides flexibility for our commercial teams to go get orders.
The unique supply chain solutions creates customer value and making us a preferred supplier.
And as I mentioned, our internal manufacturing businesses provide meaningful and utilization and support.
We were and are extremely tight flat roll market right now.
We can't even supply our internal operations to the extent they would like.
Underlying demand for flat rolled steel and recover much more quickly than expected.
Coupled with already extremely low supply chain inventories the flat rolled steel supply environment, Titan and the second half of 'twenty and 'twenty and remains extremely tight today.
Customers are not yet and rebuilding inventory due to the limited availability and the speculative risk associated with the accumulation of higher price inventory.
And they appear to be ordering for the only immediate needs.
As the trade, we believe existing country agreements and legislated steel trade cases that are in place we will continue to moderate imports.
Yeah.
And from an end market perspective.
The North American automotive sector has experienced the most rapid rebound on.
Already operating at pre Covid levels with expectations of production in 2020 of around 60 million units of more.
The non residential construction sector and remained steady as evidenced by record structural and rail division shipments record steel fabrication shipments and strong customer backlogs.
Residential construction is always also been strong generating high demand for related HVA C and appliance products.
We're also beginning to see improvements and mining and yellow and green goods at our engineered bar products Division.
The slight offset the steel consumption related to the energy sector, which remains historically weak, but is seeing glimpses of of turnaround.
We are continuing on impressive growth.
Okay.
Yeah.
Margin enhancing growth.
We have recently executed several strategic investments that we believe will meaningfully benefit of future through cycle earnings and free cash flow position.
We expanded two steel mills by adding 440000 tons of annual steel rebar production capability, adding.
Adding product diversification and differentiated customer supply chain.
This end market diversification and supports higher through cycle utilization for our structural and Roanoke bar steel divisions.
The Heartland operations acquired in 2018 continue to expand.
The team has been operating at record levels, providing additional internal value added and flat roll production support and operational flexibility for our Butler flat roll Division.
The acquisition of the United Steel supply has also been an excellent and vessel.
As of regional distributor of pre painted flat roll steel construction products. They provide a strategic channel the new more diversified customers.
Our combined debt.
And as powerful and these markets established us as the clear supplier of choice.
Since the acquisition of Columbus flat Roll Division, we have meaningfully increased the through cycle earnings capability, we've transformed its product portfolio with the expansion of value added steel products and customers and markets.
The team achieved another milestone in July of 'twenty, and 'twenty with the startup of the new 400000 ton of value added metallic coating line.
Columbus now has for value added coating lines and.
And the investment reduces Columbus is hot rolled coil exposure and provides the already southern and hot band consumer base for on used Sinton, Texas Electric arc furnace flat roll steel mill when it starts operating on it later this year.
The Senate of investment will be another transformational step function increase the through cycle cash flow generation, providing next generation E F steel production capabilities, new products and new customers.
And the teams and momentum as the absolutely unbelievable and to be admired.
And when you are and when you talk to the site that the excitement there is palpable and.
We have and incredible depth of experience and the construction and startup and operation of large steel manufacturing assets.
Italy, we likely have more relevant experience than any other company and the industry.
Construction is going well and it's beyond the exciting to know we'll be producing steel this coming summer.
The new 3 million tons of state of the on flat roll Steel mill will include two value added coating lines comprised of of 550000 ton Galvanizing line and 250000 tons of paint line.
These lines will likely start ahead of the full mill and the second quarter. This year using either internally supplied or purchase steel substrate.
On your electric arc furnace steel mills and adhering to the same strength.
Stringent sustainability model as our other steelmaking facilities utilizing state of the on environmental controls and processes to produce high quality sustainable steel.
Our existing and electric arc furnace steel mills of a fraction of the greenhouse gas emission and energy intensity of average for traditional steelmaking technology.
And then 84 inch coil width.
The one is the hunter of Ksi product on.
Texas Mill will have product capabilities beyond the existing flat roll steel producers.
And even more effectively with the integrated steel model of steel imports.
The town of Sinton provides a strategic location near the port of Corpus Christi.
We have three targeted regional commercial markets for on your steel mill, which represents over 27 million tons of relevant flat roll steel consumption.
And the southern and Western United States and Mexico.
We also plan to effectively compete with the steel imports, arriving through Houston and the West Coast.
Our customers are excited to have and regional flat roll steel supplier.
The three customers committed to located on site representing over a million tons of annual processing and concern the consumption capacity.
We're still speaking with several of the potential on site customers as well those that may build facilities off site the near on campus.
On location provides a significant freight benefit the most of our intended flat rolled customers.
Compared to the current domestic supply of the options. We believe the potential customer savings will be at least 20 to $30 per ton and some would be much higher.
This freight advantage coupled with much shorter lead times provides a superior customer supply chain solution, allowing us to be preferred domestic steel supplier and the southern and Western U S and Mexico.
It allows us to effectively compete with imports, which inherently have long lead times and speculative price risk.
We have also made considerable progress concerning on raw material procurement strategy.
We completed the acquisition of the Mexican scrap company in August which was deemed a critical step.
The acquisition complements our current metals recycling business and both the U S and Mexico.
The operations of strategically located near the high volume industrial scrap sources throughout central and Northern Mexico.
And prior to our ownership they shipped 500000 gross tons of scrap annually.
They havent of estimated annual processing capability of almost 2 million gross tons, we plan to increase the volume of quickly and authority of the success in doing so.
Our performance base operating culture, coupled with our considerable experience and successfully constructing and operating a highly profitable steel assets positions us incredibly well to successfully execute this transformational growth.
We're not simply adding flat roll steel production capacity.
We have a differentiated product offering a unique regional supply chain solution of.
The significant geographic freight and lead time advantage and.
And I for a sustainable alternative to region regional imports.
Our unique culture and the execution of our long term strategy continues to strengthen our financial position through consistent strong cash flow generation and long term value creation.
Differentiating us from others and demonstrating our sustainability.
This has clearly been demonstrated during 2020.
Again, our commitment is the health and safety of our people our families and our communities.
All while supporting our vendors, serving our customers and sustaining on value creation journey.
Our leadership team and our 10th has a strong and SDI family and drives our success.
Collect as the they are second to none.
And thank each of the U for your passion strength and commitment to one another the journeys unchartered times, you're truly drive us to excellence.
And finally, a sincere and heartfelt. Thank you for the health care providers and their families. Both within the steel dynamics and those serving individuals across the world.
Thank you and be safe and be well so Kevin. Please open the call for questions. Thank you.
Thank you if you'd like to ask a question. Please signal by pressing the star key followed by the digit one on your telephone keypad if for using a speaker phone. Please make sure your mute function of its turned off toward the out of your signal to reach our equipment.
And if you press star one earlier during todays call. Please press star one again through the chore of equipment has captured the signal also we ask that you. Please limit yourself to one question to facilitate time for everyone and the additional questions can be addressed upon reentry of the Q1 moment. Please while we poll for question.
Our first question today is coming from Seth Rosenfeld from Exane BNP pair of out of your line is the alive.
Good morning, Thank you for taking our questions today.
And if I.
And I can kick off with the question on kind of how we're seeing the market develops and the near term of I think that's one of the lines at this point quite excited by the strength of the market right now for the skittish on the outlook going into 'twenty and 'twenty, one with prices where they are wondering if you can comment on how you're seeing your order book develop in recent weeks has there been any slowdown and order intake.
Due to high prices and some concern about price and then maybe inflect big in the coming months, while we still staying the same strength you've already talked through and that benefited your Q4 performance. Thank you.
Well, certainly and I think.
It.
It's is intriguing at the.
One keeps hearing about the issues with the market.
Because.
Okay.
And I'm, sorry, and I don't whether you've heard that I may have been on mute, but and it's intriguing to me that are the there's this concern about the the strength of the market because right now it is absolutely incredible.
And I know the supply side tightness, but demand is very very very strong.
The automotive recovered and it's gonna be 16 million units or also are this year and probably more and that's very very strong and for us.
And we've continued to gain market share of both the flat roll and engineered bar.
We see residential construction is very very strong.
And we we can't supply enough steel currently the appliance and HVAC garish the metal garage door panels are incredibly strong so that that's a very good a good the sector.
And although people are a little concerned about perhaps abi and numbers coming off a little bit we certainly don't see that and our order book.
As of both Theresa and I have said you know we have record sort of of booking and the backlog at a fabrication plant type of.
A patient platform.
And the retail shift.
The.
To the online sort of purchasing is really really driving the massive massive expansion of the of the warehouses distribution warehouses and cloud computing Likewise is the increasing.
And the dramatically and and has a considerable build out too and if you.
If you look at just the momentum.
You know the steel Joist Institute bookings for for last year was 17% up year over year at 1.36 million tons. That's the that's the cause.
Considerable considerable market and.
Just below there the the previous record back in 2007.
The 2020 shipments were up 7% and we're seeing we're seeing that the momentum carry into the two this year and we are very very happy with where we are from our backlog of perspective, I think Jimmy Anderson. This marine and told me the market is red Hot cloud [laughter], yeah, so that the they're pretty they're pretty excited.
And let me tell you.
And then you get the further down into the.
The you know the demand you look at the truck trailer materially of handling.
And again, they were anticipating a little bit of of flat to down here, but the or actually change that.
We're anticipating the gonna be up 20 per cent of more.
Oh, and yellow goods green goods, we're seeing very very strong demand and the telling us at least the game.
We don't know what they're doing with other customer suppliers.
But our order book is going to be substantially up throughout this year.
Solar is is of growing marketplace and a surprisingly large marketplace.
And the only the only real sort of weak area is the oil patch and we're seeing glimpses of the of light even there.
But they typically even and a strong market. There are only eight per cent of the total marketplace. So it's not a massive massive impact. So it's just generally we see a of a very very positive.
The prospect of either our order books are incredibly strong and I wish we could make a lot more steel today, because we could certainly sell a lot more steel.
And we see.
And we see it the sustaining or persisting through the year.
Thank you. The next question is coming from Curt Woodworth from Credit Suisse. Your line is and that life.
Yeah.
Hey, good morning, Mark and Theresa.
Good morning.
Mark set of couple of questions around.
And sitting in Utah, and you talked about the the paint line starting up of before the mill.
At this point when do you expect the first coil production of certain and as is the planned delight. Both yes at the same time, because I know, it's kind of the different configuration with dual yeah, yes for the single caster and so just curious what the timeline is looking like.
Well.
The second question, absolutely, we'll be starting both furnaces up at the same time, because we were expecting a strong a strong ramp.
And I think it's the exciting you know the.
And even through the challenges of the last year.
The the project still remains on schedule for a for some of startup and.
And as Teresa said, it's still remaining on our $1.9 billion of budget.
And a few of the.
And if you've seen the and you get on the website and take a look at the the drone video of that we continually update each each year.
Once a month of nature once the most of that each year.
Every couple of.
And you'll see a big difference.
But it's they're making.
Remarkable progress and is a massive massive project so they've they've done incredibly well.
That doesn't mean to say that haven't been some zig zags along the way.
And Luckily some more to come but the team has done an outstanding job I think overcoming the challenges.
We have had a few COVID-19 related delays and equipment.
And I actually more and more.
Impactful was the ocean freight getting getting ships the bring it here.
But that's no longer and issue and Fortunately and none of that was on the the critical path for the project. So again timing for the the the project is still still on on time for for Soma store.
As I said the.
Coating lines of the paint line the.
And galvanizing line and likely the the Pickle line.
Should be and in good shape for the for the second quarter likelihood of kind of a may June and stop there and we'll be supplying from substrate from from Columbus likely and.
And purchasing from substrate from from third parties.
Thanks for your next question is coming from Timna Tanners from Bank of America. Your line is that of life.
Yeah, Hey, good morning, happy to hear wanted to just ask a little bit about the capex. It looks like maybe you were a little light in 'twenty and 'twenty and that's the explanation for the higher value for 'twenty and 'twenty, one that wanted to get a little bit more color on how that's progressing and had heard that CIT and was starting a little later because of Covid delays.
But it sounds like that's not the case, so or if you could clarify those items. Please.
Yeah, no problem. The Timna good morning from a capex perspective, you're actually exactly correct and sit and simply had about $100 million that shifted from the fourth quarter of 2000 and 'twenty into the first half of 2021, So we're in and as last quarter I would've suggested capex for 2020.
And one would be about $850 million, it's now about $950 million and.
And likely I'm about 600, the 700 million of the 950 will be spent and the first half of the year.
As it relates to the timeline of CIT and Mark.
Yeah, and I think the Timna.
And we've always that advertise the service of summer startup and that's not changed.
Internally, we may have had some more aggressive goals as we typically do with the within the SDI.
And if I'm, the Sun and Moon align and May or maybe are we could have started up six weeks of so earlier, but again I've got absolutely no problems no concerns there right now and.
Everything is progressing well and the team is doing a phenomenal job.
Thank you next question today is coming from Chris Terry from Deutsche Bank, Your wireless and that life.
Thanks for taking my question on Mark and Theresa I had a question just around working capital as we think about 'twenty 'twenty one.
And the the higher price environment, and then also of the integration of Sinter and I'm. Just wondering if you could talk through maybe the first half and second half 'twenty one expectations on on working capital.
Yeah, absolutely and good morning, Chris I'm from the perspective of CIT and stand alone and is likely to have a working capital of ramp of somewhere around 130 $250 million.
And I'm, including all of the inventory and receivables and that will be of a ramp so and the second half of the year you might get some of the raw materials, and so maybe $50 million to $60 million and the first half. The most of that will come in second half of 2021, and then into the first half of 2022 and as it relates to company wide work.
And capital you would have seen that we did have a draw of about $200 million and the fourth quarter related to primarily pricing of raw materials and of finished goods and that would be and inventory at that point and time, you're likely to see a bit more of the draws were expecting to have higher prices and volumes.
Sustained into the first quarter, but not not as much of a draw of juice as you saw in the fourth quarter and.
So I would say the first half and youre going to see of draw.
And you typically would see them second half you'd see that moderate.
Thanks for the and then just in terms of the I'm real capital structure and the buyback how are you thinking about that in terms of citizen and the middle of the year and maybe second half.
So from a capital allocation perspective, and obviously, we're still focused on the big capital investment year, and 2021 that being said the cash flow generation that.
And we've been having and is quite strong and we would expect to see that continue in 2021, so from a capital perspective, a capital allocation perspective, and we would expect to see the positive dividend profile continue one sitting is up and running and that's likely going to be and opportunity for I know theres kind of step function increase and our dividend policy.
Let's see as we like to grow the dividend with sustainable free cash flow and as.
And we have excess cash flow of along the way that's what the share buyback programs for its to complement and the dividend profile, because we see the dividends as forever. So I'm, you're likely to see us start to look for opportunities potentially from time to time and the market with share buyback once we get pass more of the the larger spend for setting and in the first half.
Of the year.
Mark is that.
Yeah Okay.
Thank you. The next question is coming from Carlos de Alba from Morgan Stanley. Your line is now live.
Good morning, Mark and Theresa happening a year or just the in terms of the potential infrastructure of package are you. The comments about a one four and five trillion dollar on potentially stimulus in the second half of the year.
How do you see that benefiting of the steel demand in the U S and.
And I see that the dynamics and particular Oh.
And if you can.
And things of the volumes are.
Yeah, and that that you could you could benefit from it.
I think the at.
It's certainly more than likely that the that we will see and infrastructure packages.
You know, which is going to be a great sort of general benefit right now its difficult to discern when and where those dollars are going to be spent specifically and hence where are you know the impact of will be from a from a volume perspective.
Certainly just the the the the upward momentum that it will provide the the economy in general will certainly help the help us.
And any.
The actual infrastructure of steel consuming infrastructure project will.
And to our Oh of benefit but to actually.
Try to estimate calculate and.
Of volume when you don't really know where the dollars are going to be spent and I think that the it'll be disingenuous for us the.
Suggest.
The next question is coming from David Gagliano from BMO capital markets. Your line is now of life.
Hi, great. Thanks for taking my question I, just wanted to ask the little bit about the scrap market and and and how.
All of scrap cost.
Cost of flowing through the results just obviously historically and you know steel dynamics has it has typically.
Typically reports.
Our quarter over quarter changes and scrap costs that are that are typically less and the change that we've seen the and the public market of domain, but you know this quarter was a pretty big spread and I'm. Just wondering is any of that timing related should we be thinking about you know how should we be thinking about the first quarter in terms of the scrap input costs and also if you could just off of the share your views.
On.
You know are the near term outlook on on on scrap you know beyond what looks to be down and February. Thanks.
Yeah, I know and good morning, I'm going to let Mark talk about the scrap markets, but as it relates to the scrap flows and there really hasn't been any change were still turning inventories on a monthly basis on both the alright, the mills recycling operations and we tend to keep somewhere between three to four weeks on the ground at the store.
And on those so I can't really address why it and may have been greater than you typically see but there hasn't been the change and how where we're using or are accounting for the scrap.
I guess the on the impact will be at such a rapid increase in the short period of time and the yoga, you see and the different screen and the market and on inventory, but just in the the scrap market is as a whole obviously, it's bumped up some of the last month of two.
Quite considerably.
And we would imagine that the <unk> will retreat from the current highs or moderated somewhat and its not going to take all of a couple of hundred dollars back, but its going to retreat. We believe.
Because of the strong pricing has driven the <unk>.
Substantially increase and the flow of particularly the obsolete grades are people are out of the collecting of it's flowing in the dramatically.
And the industry has actually dropped the the scale prices and so I would expect the market prices of the drop over the next the next couple of months that's.
The prime scrap flows are fully realized reestablished and.
And connectivity with the you know the automotive the.
The business coming back.
We expect prices there the to soften, but not quite as much as obsolete grades so the shred to prime spread will likely.
Likely expand the a little more than it is today.
And we think the the export market will remain relatively soft and <unk>.
So there's.
The game, we feel pricing is going to moderate.
And my I think the you know despite China lifting its import restrictions.
And you know just knock on impact of the ferrous market the dramatically and the U S anyway.
It is going to give us Oh has given us significant upside on nonferrous.
Obviously as many of you and you know.
The the dam first of the copper and aluminum zorba those sorts of grades really didn't have a much of the home for the last year or so.
And with them opening up Theyre able to.
The increase the margins there so I think that's the.
A positive for us.
Thank you. The next question is coming from Andrea and spoken Hauser from UBS, Hawaii is realized.
Well. Thank you very much just a follow up on scrap actually and and and something we've talked to you about before as well about the availability of scrap and the U S market I think of you guys have always like you know maintain your view that there is plenty of scrap and the in the U S market for for everyone to go around and does that change now given the new import rules and China.
And China, obviously reopening that goes for seaborne scrap and and it's obviously not a large cheap on market share. You think do you think that could go in and kind of tightened the market and maybe even beat for some consolidation of of meals.
Meals and the U S. The buying more scrap yards and the same way you guys did and Mexico recently or do you still see the U S scrap market pretty well supplied and that's my question. Thank you.
Well I can't I can't speak for other companies I would suggest that as we've said in the past.
We will and <unk>.
Span will grow to support the or.
Our steel mills regionally. So we did that we bought some sims of yards.
Around on our Columbus facility, just the base load of the that Mel.
And Zimmer, obviously is the destined to supply some scrap to the symptom.
The quite cost effectively so you may see us.
And again, just add small smaller opportunities, but what we're not going to be and consolidating the the whole of scrap market or anything like that for sure.
Regarding the scrap supply I think youre seeing and what has been typical in the past.
The scrap is incredibly of elastic.
And suddenly the obsolete grades are incredibly elastic.
And has as the scrap pricing has increased dramatically for the last month of to it.
It's amazing how folks get out of the and and that flow increases dramatically and so I don't see of long term issue.
Perhaps supply and any way shape or form.
I think when disaster. So as we look of scrap generation and we see of continuing to increase and we see and increasing even more quickly than potentially some of the additional demand and that will be derived from some of the new E. F capacity coming on line domestically, but one also has to look at the additional H B I D. R. I S.
And other projects that are either coming on line have been announced or being contemplated by even the blast furnace participants and I think there should be ample raw material like Mark said.
And with the the.
The the rationalization of the integrated side of the industry you know, it's quite a quite possible the.
And start to see them actually produce pig iron, which helped the the supply balance supply demand balance as well.
Thank you. Our next question is coming from Phil Gibbs from Keybanc capital markets. Your line is now live.
Hey, good morning.
Good morning for Arnie.
Eight Teresa the.
The question I had was just on the the flat rolled shipments by grade if you have that handy.
Yeah, I'm, sorry, I made you ask I skipped over I didn't mean to them, so hot rolled and and P&L for the quarter was 749000 tons.
Cold rolled 139000 tons and coated products were 973000 tons for a total of about one 9 million tons of flat roll.
And the Dakota number again I'm sorry.
Total number was 900 and the 73000 tons.
Okay.
Yeah.
Thank you I appreciate it.
No worries.
Thank you for my next question is coming from John Tumazos from John Tumazos very independent of your line is now live.
Thank you very much.
Good morning.
For the.
We're and curve for the hot rolled sheet contract is over six months down $367.
I'm not sure I understand.
The.
Do you think the forward curve.
Reflects.
New supply such as say a million tons more flat roll and a million tons more.
Long products.
Or do you think the forward curve.
Reflects a fall on the price of iron units.
Your mill is the only gonna be a quarter a million tons of months.
Not one or 2 million tons of months and you'll probably just be striking on arc by August.
The forward curve is down $367.
It seems to me the markets anticipating.
A lot of supply and I'm not sure where it is but I appreciate your view Mark.
Yeah.
Well John Simm.
Simply and I don't understand it either.
And again as I tried to suggest the earlier.
This is the isn't just the sort of the supply side tightness demand the markets are incredibly strong and robust right now.
And I, we see that persisting are suddenly very very very strong first half and I think that's going to continue on into the second half.
And I don't see.
Any appreciable change will driver out there to change that.
And so your point.
Okay. We're out of few few tons here, Oh and incremental tons relatively to the market anyway, the second half of the year.
Big River reportedly.
Ronny, we don't see them in the and the marketplace necessarily for.
They are of got their capacity up and running pretty strong from from all reports so there's not that additional capacity of that.
So I I don't see where the where the relief is going to be.
I don't see to be honest the.
On the buy and the administration changing.
On the the trade AR environment materially at least the not the not the neither the near term I think they recognize the China is a massive threat and their approach to them might be different than the Trump administration, the will likely ally with the with or without.
Friends and in Europe and in other places.
But the the message they will likely change to 30 to but.
But I think they will be a very cognizant that there the needs to be treated controls there.
And there are underlying.
The legislated trade route constraints and place the aren't just the and executive order. They are the legislated and they're going to be there for years to come.
Section two of one for countervailing duties and anti dumping.
So I don't see necessarily the the and import flood and.
The arbitrage and Sony has grown to China.
But nonetheless, you know lead times of months of months art.
And you see some specialty items coming in but I don't see any dramatic change and and import profile.
So and so I don't I don't see where the the the pressure comes off the accelerator to the dropped 370 Bucks here and and the next whatever it is six months. So I agree I don't understand it either.
We don't see we certainly don't see it.
Within the fundamental drivers of the of the marketplace.
Yeah.
Thank you for our next question today is coming from Tyler Kenyon from Cowen and company. Your line is now of life.
Hey, good morning, Mark and Theresa.
Morning.
You know certainly as you've addressed and some potential tailwind for coming from infrastructure spending but just.
And just curious if you had any thoughts on on all of the suspension of <unk> and Barbara wall construction and the cancellation of the Exxon pipeline, how that could maybe impact the steel demand and India of scrap supply and I think.
The reading for the department of Homeland security that pretty close to 700000 tonnes of steel and spend consume since 2000 and made on the board.
So yes. The question is you know how do you see that impacting the market and has you know steel dynamics from participating and supplying steel to any of these projects.
Well I think the the the border wall to be honest the was relatively incremental we didn't see much of that Oh the that.
<unk>.
And that tends to be at the the the low end commodity hot band side of the the business that we tend not to playing to any great extent anyway.
So, but I don't see.
That is a.
The massive impact the.
The two.
The demand.
The XL pipeline is hard to tell them how much of that may have an influence on what the by the administration may do going forward and with additional kind of oil and gas might obviously.
Obviously, it's not going to help them from that perspective, but as Mark said at least in the fourth quarter and which was prior to some of these things happening we were starting to see some orders come in from those customers both of that Columbus and at our engineered bar products Division, where we would have the most impact.
But I just think it's a little too early to tell.
Well and the pipeline of extra of pipeline to be honest.
And.
Of the massive amount of that that pipe has already been made and is lying on the ground. So it's and.
It's not going to of a massive impact.
Got it thanks for that and then just curious of just one last one just on cash taxes. This year I think and the last call you guided to a pretty pretty low cash tax rate. Just curious if that's the that's changed significantly and and maybe how we should be thinking about that rate moving even into 'twenty and 'twenty two.
Well and and 'twenty and 'twenty, one the provisions that allow us to expense.
The fixed asset investment once we start ups and are still in place and.
And so as long as those provisions are still in place, we'll be able to basically pay maybe three per cent state cash taxes in 2020, and likely remain very low I'm, sorry in 2021 and likely remain very low in 2022 as well, but obviously we need to watch.
The administration and things that May change according to that but right now we're still planning on the benefit and total of being somewhere around 300 of $350 million of cash tax savings between 2021 and 2022.
Thank you. Our next question today is a follow up from David Gagliano from BMO capital markets. Your line is now of life.
Hi, just to circle back on the scrap question and sorry to ask another question just on the just on the near term if it's it's to help calibrate.
Expectations on our side if.
And we start with the assumption that that scrap price is actually don't change because of the remainder of the quarter I realized that's not the the view, but if we assume that they don't change just from a timing perspective, what should we expect for.
You know the scrap cost change quarter over quarter and the first quarter.
Well again and for US David from the scrap mix perspective on the mills keep three to four months on hand, so whatever your estimation would be from I'm, sorry weeks on hand, and so whatever your estimation would be from and index perspective, and you can track.
And I apply that and youre going to get very close to what will actually happen.
Okay that works, that's what I needed to know thanks.
Mhm.
Thank you we've reached the end of our question and answer session I'd like to turn the floor back for any further or closing comments.
Well so those are on on the phone steel. We certainly appreciate you listening in and your support of your company and.
And I think I think it's just the one last comment that I guess, it didn't really come come out clearly.
People are focused on on price and it's it's not price the that matters where of margin where of metal spread business.
And again, we anticipate a very strong demand yeah.
And that's going to support pricing on the on on the price locks on the market side.
Yeah.
Supply side of the inventories remain very very low.
And we explained the import activity to remain very moderate.
The.
The significant portion of the the idled a.
Blast furnace capacity, we expect to remain down.
And.
And I you know lead times are extended so.
You couple that with the.
Moderating the scrap environment.
We see that.
You know metal spreads themselves are going to persist the sort of a higher than the normal through cycle levels and and should be very very helpful for us and we're anticipating a remarkable year enormously.
That being said.
The two our customers out there.
Folks we had on absolutely phenomenal year last year.
And we couldn't do it without you. So thank you for your support.
Similarly.
Similarly for for our vendors and service providers. Thank you.
And the most importantly, thank you for each and every employee of the it was and absolutely tremendous year.
I think it vulcanize or just the firms our business model.
And that we are of differentiated company.
To make a $1 billion of free cash.
And in the year like that.
Thank you.
Just spells out clearly that the we're a different company today and with symptom coming on line. It was gonna add 25% to us steelmaking capability and that's gonna be a significant step function increase and and and our through cycle cash generation.
So we've done a phenomenal job and we're going to keep doing it and we can't do it without each and every one of you. So thank you.
Go ahead of the great day be safe stay healthy.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time of the have a wonderful day, we thank you for your participation today.
Yeah.