Q4 2020 United States Steel Corp Earnings Call
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Yeah.
Okay.
Good morning, everyone and welcome to the United States Steel Corporation's fourth quarter and full year 'twenty 'twenty earnings conference call and webcast.
Today's call is being reported on.
I'll now hand, the call over to Kevin Lewis, Vice President of Investor Relations and corporate F. E. N E Z go right ahead.
Thank you Dan Good morning, we appreciate your continued interest in U S steel and welcome you to our fourth quarter and full year 2020 earnings call.
On the call with me this morning will be U S steel President and CEO, Dave Burritt.
Senior Vice President and CFO, Christie briefs, and senior Vice President and Chief strategy and development Officer Rich Fruehauf.
After the close of business yesterday, we posted our earnings release and earnings presentation under the investors section of our website on.
On today's call, we will walk through via webcast select slides and our fourth quarter and full year results.
The link and slides for today's call can also be found on our website.
Before we start let me remind you that some information provided during this call may include forward looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings and actual future results may vary materially.
Forward looking statements in the press release that we issued yesterday along with our remarks today are made as of today and we undertake no duty to update them as actual events unfold.
I would now like to turn the conference call over to U S steel President and CEO, Dave Burritt, who will begin today's presentation on slide four. Thank you Kevin Good morning, everyone and thank you for being a part of today's call and for your interest in U S steel.
What a difference of quarter can make we've been busy since our earnings call on October purposefully executing our customer centric best of both future and creating significant stockholder value.
In the year that could have easily distracted us or gotten us off course, we set our company on a new path one of profitable growth and value and we rewarded our stockholders of the 48% 2020 total stockholder return.
Instead of writing the storm out we went on the offense to deliver transformative value in not only of trough, but the pandemic, which puts us in a position of strength to benefit from today's sustainably strong market.
And we did it safely building on our industry, leading position to deliver record safety and environmental performance in 2020.
With the faster than expected close of the Big River steel transaction in January I can confidently say the future is now Big River steel is a critical element of our best of both future and were excited about the opportunities. We've identified together in just a few short.
Weeks since closing.
But no we are just scratching the surface of this powerful combination.
Yeah.
And lastly, I am bullish about the strong market, we are seeing and we are positioned more strongly than ever to capitalize on our flat rolled business is vertically integrated and benefits from a balanced commercial contract mix supported by a revitalized portfolio of differentiated assets.
We know on Big River steel the world's first flex mill merging the superior capabilities of integrated steel, making with the agility of mini mill steel making.
Tubular will begin to more fully benefit from the third EIF in our portfolio and market conditions in Europe have informed our decision to restart the third blast furnace in Slovakia.
As I said before the future is now and the future is bright at USD.
So let's get started on slide five where we highlight key accomplishments in 2020 that got us to today's best of both reality.
One of our team.
Able to accomplish in 2020 was truly remarkable 2020 was full of challenges.
Our team rose to meet each one of them.
Because of the team's hard work, we are positioned for a stronger more sustainable more competitive and more profitable future.
This includes delivering on our strategic promises.
First on reducing fixed cost.
We have made considerable progress on increasing the efficiency and how we work and are on track to meet our objective of approximately $200 million of run rate fixed cost reduction.
Next.
We were able to create incremental value in 2020 by monetizing excess iron ore Youll recall, we entered into an option agreement with stelco on April delivering $100 million for the balance sheet. This agreement in 2020 recognize the value of our strategically advantaged iron ore assets of deal that implied of value of two point for.
Yeah.
We've also entered into a third party sales agreement with Algoma that begins in 2021, and we are nearing additional third party merchant pellet agreements.
Another opportunity that we've turned into a competitive advantage is adding sustainable EIF technology to our portfolio.
In October we commissioned our new Aif at Fairfield to in source substrate for seamless pipe production and in December we announced the exercise of our call option to acquire the remaining equity in Big River Steel, which closed. This month. These actions took us from zero Eas and our footprint to now.
Three of the newest Eas in the country.
<unk> steelmaking, along with our existing integrated footprint allows us to be more nimble and agile to the changing needs of our customers while generating more value through the cycle 2020 has taught us that nothing stays the same so we must remain adaptive to ever changing market dynamics.
And customers' needs our investments in state of the art sustainable steel technology are also integral to our ESG commitments and to provide a path to achieve our 23 global greenhouse gas emissions intensity reduction target.
Lastly, we ended 2020 by executing on and other key objective extracting value by divesting non core assets from our attractive real estate portfolio.
In December we sold the Keystone industrial Port complex outside of Philadelphia for about $160 million in cash.
The unique challenges of 2020 provided unique opportunities.
And we seized on those opportunities none more important than acquiring big River steel.
Slide six reinforces why full ownership of Big River steel unlocks additional significant opportunities.
<unk> with the customer.
As for owners of Big River, we are fully collaborating across our entire product mix. The determined the best way to serve customers and develop new products using U S steel Knowhow and Big River state of the art facility on.
Also of Big rivers location in Arkansas provides a greater reach and increased flexibility to serve new and existing customers in the growing southern U S and Mexico markets.
As of the Nations only LEED certified Steelmaker Big River also offers our customers an incredible opportunity to partner with our sustainable steel to meet their own sustainability targets, including some of the most advanced high strength steel available anywhere.
As slide seven shows the Big River team set a new world record for the fastest ever startup and ramp up of the compact strip production worldwide.
This remarkable achievement further demonstrated that we not only acquired of technologically superior flex mill, but of World class operating and management team. Another example of Big River doing what they do best operating the world's first flex mill and constantly reinventing what is possible.
The records any ramp up of Big River is driving earnings growth as shown on slide eight.
The phase two expansion is running near 90% utilization, resulting in strong year end performance EBITDA for the month of December total approximately $30 million Big River ended the year with $267 million of liquidity, including $47 million of cash with the phase two expansion nearing.
For completion, we expect Big River to continue to benefit from greater exposure to the strong hot rolled market on the through cycle basis, We expect big River to deliver EBITDA margins in the mid to high teens.
As we turn our sights of the future slide nine summarizes why we are confident 2021 is poised to be of your unlike any other for U S. Steel we are optimistic about the future and encouraged by improving market conditions.
But this isn't the.
Irrational exuberance as Alan Greenspan famously said demand continues to improve spot prices are strong and the industry's utilization rates are moving towards pre COVID-19 levels, we have not seen a surge in imports yet, but we'll continue to monitor the situation.
We're also confident because of the greater optionality that our best of both footprint provides.
To better serve demand through distinct cost and capability differentiation and expanding geographic presence into the southern U S and Mexico regions.
As we integrate and learn from Big River steel, we are preserving optionality to incur corporate our findings and remain adaptive, particularly we have enhanced our focus on reducing capital intensity across the enterprise. This includes identifying and prioritizing cash.
Projects that support lower capital intensity lower capital intensity is critical to delivering consistent cash flow through the cycle and creating long term value.
With increased Optionality comes increased opportunity.
As you get closer to our customer matching our sustainable steel offerings that big river's low ghd emission facility can provide with customers' needs.
Big River is a leader in this space as the only LEED certified steel mill in the World. This puts U S steel at the forefront to meet our customers' growing demand for green sustainable steel that can help them meet their own sustainability targets.
The new Big River U S. Steel combination provides unique opportunities and a strong platform for future growth and value creation across all of our stakeholders.
Our market, leading proprietary grades of advanced high strength steel.
Now also capable with Big River substrate provides further opportunity to penetrate strategic markets by highlighting the unmatched value proposition for customers.
Time is now to take sustainability to a new level and steel and we look forward to boldly partnering with our customers to lead in this space.
A strong market backdrop combined with our best of both footprint has us confident that 2021 will be a year of significant value creation and earnings growth.
Christi.
Thanks, Dave and thank you everyone for joining us. This morning, I'll begin my remarks on slide 10.
Our fourth quarter performance marked the beginning of the recovery for U S steel, particularly in the month of December adjusted EBITDA in the fourth quarter was $87 million compared to the third quarter loss of $49 million and 136 million improvement in the quarter.
<unk> outperformed our EBITDA guidance of $55 million largely due to strong flat rolled performance.
For the full year, we reported adjusted EBITDA loss of $162 million or 2020 results were negatively impacted in the second quarter of the year when a significant portion of our OEM customers halted production due to the pandemic the second quarter, Mark Mark the trough and results have improved.
Turning to the balance sheet, we ended the year with liquidity of nearly $3 2 billion, including cash of nearly $2 billion. We continue to generate cash from working capital, including an additional 365 million in the fourth quarter.
Our pension and <unk> status also ended the year strong with the funded status of 98% and 115% respectively for 2020.
We do not expect any mandatory contributions to our defined benefit pension plan in the next several years based on our healthy funded status.
Customer demand remained strong throughout the fourth quarter and higher stealing selling prices began to be reflected in our average selling prices.
Continued strong demand led to our decision to restart of blast furnace at Gary works and the our key tech iron ore mine in December and the third blast furnace in Slovakia and January will continue to monitor demand closely and remain nimble and flexible.
And the flat roll, we generated $50 million of EBITDA in the fourth quarter commercial tailwind from higher average realized prices was a significant driver to better performance versus the third quarter of.
Also increase the efficiencies from reliable operations running at higher Utilizations benefited the segment's cost structure.
Our European segment generated 61 million of EBITDA in the quarter.
Higher average realized selling prices lifted our quarter over quarter performance.
Prices and higher operating efficiencies resulted in EBITDA margin of approximately.
Approximately 11% in the fourth quarter of 300 basis point improvement compared to the third quarter.
Our tubular segment also reported improved performance, although still negative at an EBITDA loss of 21 million Nick.
Improvement was largely due to management actions, primarily related to reduced carrying cost associated with indefinitely idled lonestar and lorain tubular.
As Dave mentioned we.
We're optimistic for what lies ahead in 2021, we had a strong into the year in December and the trajectory of improvement has continued into the new year.
In the first quarter, we expect the significant improvement in our flat rolled segment performance, primarily from high higher average realized selling prices, while steel shipments are likely to be similar to the fourth quarter seasonal headwinds related to our mining operations will negatively impact the EBITDA, including third.
Party pellet sales this happens each year since the great Lakes shipping Lane as close typically from January <unk> through March 25th. This is an important consideration for your modeling your financial modeling.
Our European segment results are expected to be comparable to the fourth quarter higher average realized selling prices and increased shipments will primarily be offset by higher raw material cost, particularly for iron ore.
In addition, we expect to incur higher C O two credit cost in the first quarter related to the restart of the number three blast furnace.
In tubular customer demand is improving resulting in higher volumes, but selling prices remain under pressure.
As a result, we expect similar performance in the first quarter compared to the fourth quarter.
The first quarter will also be the first time Big rivers. The results are fully consolidated in our performance, reflecting their full contribution since our close on January 15th.
River strong December performance is expected to continue reflecting the successful ramp up of the phase two expansion.
Our cash and liquidity remained strong.
After Big River steel acquisition and transaction cost our January 22nd cash and liquidity was $1 2 billion and $2 5 billion respectively.
Strong cash and liquidity and unchanged Capex budget and no significant notes maturities until 2025 supports our near term financial priorities of robust liquidity financial flexibility and maturity profile of management.
Before I turn it back to Dave Let me spend a few seconds on my last point around our debt maturity profile.
Slide 11 illustrates our combined U S steel Big River steel debt maturity profile, you'll recall as part of our December of Big River Steel announcement that we are maintaining their attractive capital structure together with the U S steel existing cap structure, we maintain a manageable maturity profile.
All of that supports continued strategy execution cost.
The provisions across most material debt allows us to be proactive to manage our debt maturity profile.
While our extended maturity profile provides us with flexibility to Opportunistically access capital markets to refinance or deleverage, we do not have any significant note maturities until 2025.
Dave back to you.
Thank you Christy, let's turn to slide 12, before we take your questions. Let me summarize what you heard on today's call first we created value in the trough of 2020, something we know truly demonstrates the progress. We've made second we executed our number one strategic priority by acquiring.
The remaining stake in Big River steel. This marks the beginning of our best of both future and third actions in 2020 of set us up for a strong 2021 to realize the potential of our best of both strategy and deliver significant earnings growth and value.
Kevin let's move to Q&A.
Thank you, Dave we ask that you each please limit yourself to one question and a follow up so everyone has the opportunity to ask the question.
Operator can you please queue the line for questions.
Thank you very much.
If you'd like to register a question on once again, you mean, the personal one oh by the for on your telephone keypad Urethrotome prompt took nausea request of question has been aspect of draw your restoration of the one by the three during the.
The speaker phone for such a handset for entering your request.
One moment please for the first question.
Well I guess, our first question on the line from the line of Chris Terry with Deutsche Bank Go right ahead of me the question.
Yeah.
The other than Christy I'm one of those.
A little bit more about the big ribbon now that you.
<unk> got the asset as of the last week or so.
Wondering if you could talk about how you're integrating it into the broader business and how you can leverage of <unk>.
The business and how well each of the assets.
Can really run in a better way going forward.
Well thanks, so much.
Chris for that question I think that's probably on the a lot of People's minds housing going and where do we think this is headed I'll make just a few comments and then I'll turn it over to rich who has been working on that integration with the team daily and I'll just say this about that each and every day, we find new opportunities we.
Find opportunities whether it be in raw materials product development operations procurement logistics, SG&A maintenance, capex, but mostly with how we're going to serve the customer with these advanced high strength steel new steel we went from 11.
Pre pre.
Close to now 14, prequalified, new steel so we're pretty pumped up and excited about the possibilities of this and.
Rich has been knee deep in the integration with the team rich sure Dave Thanks for that and as you said.
Since we announced the exercise of the call option in December the <unk>.
Team is trial of three more successfully trialed three more grades of steel. So we're up to 2014 as you said on these are low carbon emission intensity of steel.
Because of the Big River production route the integrated or excuse me the mini mill versus the integrated route. So we've had great customer reaction to that our integration.
As Dave said, we keep learning new things surprising things things that are really exciting the strategy for integration, we've been focused on safety enterprise risk and value capture opportunities. We're trying to lead the team alone there minimize distraction and the let them do what they do best I think you saw that in the.
For the December results.
The Kristi talked about we don't see a lot of incremental cost to.
And the integration and the opportunities as Dave said are tremendous in terms of the Greenfields, we can make taking advantage of our finishing assets to leverage with the big river's production capabilities and the team down there that team is just amazing we love the entrepreneurial culture, we want to preserve that that team is critical.
For the success of the business and so we have the key members of that team in place and.
Things are going really well and we're just learning more and as you said we've had about two weeks.
Since we closed the transaction.
It's every day, we learn something new that makes us increasingly optimistic that theres a lot more value to be captured.
One of the things Rich said, there I think that is really important to us.
They get to run their operations, we find the integration opportunities, where they exist and where we can make things better but for the most part of it standalone and they're making progress on what they know how to do their the <unk>.
Minimill experts they set all time records in terms of getting up and running this mini mill. So we are trusting their capabilities and their demonstrating their capability. So when we acquired Big River, we acquired their management team and we're thrilled that they are here with us and we're going to invent new new possibilities for.
Gains for all of our stakeholders, but for the most part they run their operations and then we make sure that we work together to get the benefits of U S. Steel's research is iron ore and its capabilities for a bigger footprint of size.
Thanks for the just to follow up on you did the divestment of Keystone and the ports I was just wondering if there's anything else you can all of that you might be able to divest or any other reconfigurations of other assets to further optimize the portfolio.
Well thanks for that it we've said this for a very very long time that everything is for.
For sale of its all about stockholder value and when we look for opportunities and partnerships with people that can help us create value we certainly.
<unk> been able to capitalize on that with the sale on the IPC you've seen what we've done with our iron ore assets. There are other opportunities for us to look at for partners, we're not ready to disclose all of those right now, but we do have ongoing opportunities that we look for in terms of our particularly our real estate.
Yeah, Hey, Dave I'd, just add we have a whole list of noncore real estate assets and now I'd say, we've refined our process around that and are working net so we do think there will be more sales to kind of noncore assets one of the things we're doing it on a lot more rhythm lot more discipline I think in.
In terms of the way we approach of our strategy very purposeful.
Weekly reviews into Christie's credit even on things like cash it's a daily exercise first thing in the morning, where people are getting together and making sure that we're managing the details as well as looking at the strategic possibilities to create value.
Thank you very much.
We will now proceed to our next question on the line from the line of Seth Rosenfeld with Exane.
Go right ahead.
Good morning, Thank you for taking my questions today.
If I may ask the question with regards to Capex and capital allocation. Please.
I guess, given how much you've discussed in the past the pressing need to invest in Mon Valley, Gary Dynamo line and I think in the past even frame in terms of the risk to the business of not investing in the outside I'm of.
Little bit surprised that there's been no move to try to accelerate that in light of the current market strength and improved cash generation of the business.
How should we think about what's holding you back from Reaccelerate on these projects and what environment would you really want to move forward with these three significant growth areas.
Okay. Thanks for that question because you know this last year, we made it very clear in terms of what our priorities were protecting lives and livelihoods going after big River of their top strategic priority and then also making sure that we had.
Adequate liquidity to make sure we got through this difficult term time, but if you think about what we're trying to do is we're preserving optionality.
We are learning so much more about how this mini mill technology works and so we want to understand that fully because we have to be of less capital intense organization of typically during these times. When you see this big uplift you could see us steel, saying, what we're going to spend a lot more capex, we're going to spend money on maintenance capital we are re looking.
Our entire resource allocation process, and seeing where we can create the most value and a much leaner way so.
I have to say stay tuned theres a lot of work to do we're learning so much more from Big River and they're learning from US. It's a great combination that we have here and so we're going to see opportunities, where we don't have to be as capital intense and we're going to allocate the resources to the best opportunities to get through the future faster.
Okay. Thank you.
I can ask.
Separate question. Please with regards to working capital, obviously very impressive working capital of management of cash contributor of late.
What impact does the current surge in steel prices have on working capital moving forward and what scale of investment might be forecast in early 'twenty one please.
We do expect to build some working capital in 2021 because of the higher volume levels.
So we have a very good process, where we're going to minimize that as much as possible, but we will be adding some inventory and some receivables where you saw the numbers here of the cash conversion cycle time is an all time record I think for US It took for five days in receivables and dip below a $1 billion. So clearly this is.
And Christy to her credit and the whole team and the whole operations team what they've done on working capital of this last year is really remarkable in terms of the rigor and discipline the daily focus and so while we do think working capital will be running a bit higher debt. That's good news item for us because we expect to sell more of this year and naturally they expect to have higher receivables.
Our need for more working capital as you build the business profitably.
We'll continue the same processes that we had this year, where we literally looked at it on a daily basis.
And we will make sure that we're making efficient use of any of that we do at.
Thank you very much on.
Not for CCAR next question on the line from the line of David Gagliano of BMO capital markets go right ahead.
Hi, Thanks for taking my questions I just have a few on the Big River.
A little more on the on the detail side. Thank you for the data points for December just to try and round out. The information can you just give us a sense of what the volumes were in December from Big River and also were there any one time startup cost or anything like that flowing through that $29 million EBITDA number that's my my for.
First question.
Okay. Thank you David this is Kevin so a little context around December performance I think you saw the headline EBITDA number which was quite impressive at $30 million, but what's even more impressive is the if you put that in the context of their operating performance on December they shipped just over 180000 tons in the month.
It would suggest a.
EBITDA EBITDA per tonne of over $160 in the month of December from.
From a margin perspective that was about a 23% EBITDA margin in December so very very strong performance.
Relative to their their December EBITDA, and the ramp up in production as far as any incremental cost I mean, obviously there are some debt.
The required but you know when you have world record breaking ramp ups, you've clearly done it efficiently and cost effectively. So we would continue to expect that the trajectory of the earnings and their performance. The only improve as we are as we enter a very strong market environment of 2021.
Okay.
That's helpful. Thank you and then just somewhat related.
The guidance for the year on Big River to $6 million to $8 million of external shipments I think you know capacity.
The $3 3 million so that's it.
On the surface implies an 82 per cent utilization rate or something like that.
Or are there internal shipments there is the ramp up or what's what's the.
The the thought process behind behind that that that level of shipments and then also since.
While I'm on the line here can you comment on on your annual auto contract renegotiations on what the outcome was for 2021.
Sure. So David I'll address the first question related to Big River shipments and then we'll move into the auto side, but on the Big River shipments.
Think of we've seen anything it's only that the.
Big River Overachieve on outperforms expectations, so to the extent that that ramp up continues to be extremely efficient.
I'd say that those are numbers, we're very comfortable with in 2021.
There are certainly be some some intercompany shipments as Dave enrich both talked about one of the key elements of extracting value from this combination is around.
The operational optimization, so there certainly could be some of that in the future of as well, but I would say we are highly confident in that the shipment range. We think we expect that business to run at very healthy levels of utilization and there are only starting to scratch the surface. When it comes to the the operational excellence to be demonstrated that fate.
Two expansion.
So with that I'll pass it over to Dave talk a little bit about.
The contract negotiations with order.
And thanks for the question I think it's important people understand just where we are on this.
The customer Centricity that where we're focused on with our customers to get a lot closer to them and we've actually made some some changes in the organizational too.
Increase the commercial acumen across the organization and the.
<unk>.
Learn how the work more closely with our customers.
As you know we have had the strong relationships with our customers for all of longtime we have for.
Fixed contract spot contracts and index contracts.
We certainly favor of the long term agreements and are focused on becoming a long term solutions provider as we move the more and more into the strategic markets of advanced high strength Green steels, and that's something that we care a lot about and our customers are driving us to that direction and so we are.
Linking up with them very closely.
For recycled profitability is really important and we're focused on figuring out how we can work collaboratively with our customers that when they win we win and vice versa, and then the proprietary grades of steel now, including the sustainable steel has made it big river have our customers quite frankly.
We're excited by the possibilities. So we've got a lot of proprietary offerings combined with the solution oriented discussions that we're working through some of the contracts with some of the auto customers were completed.
Earlier last year, some continue to be ongoing but the.
Those things are continuing moving forward and we're pleased where we find ourselves today.
Thank you very much.
Our next question on the lines from the line of Karl Blunden with Goldman Sachs Go right ahead with your question.
Alright, good morning, Thanks for the time.
I guess I'm, taking a look across metals mining natural resources. It does look like the bottom of administrations moving quite quickly on on some of its policy of I'd be interested in your thoughts around tariffs for 232, and what the planning assumptions for you.
Yeah.
Well thanks for the question on on trade, obviously, Theres always concerned about the trade because what we want is fair trade and I think there's been some good progress in the in the recent past with $2 32, and I think everybody agrees that the.
The steel industry can compete extraordinarily well when there is a fair trade and.
This pivot.
Pivot to a new administration, we frequently get the question, what's going to happen to $2 32, and we just say well of $2 32 needs to continue, especially with the buy America type philosophy, and if we've learned anything from the pandemic you've got to have a resilient supply chain and that means mined melted and made the good old USA. So I think from that.
Standpoint, it's a bit of a no brainer you wouldn't take $2 32 off, especially when you you know that we can supply most of the things you of steel can supply most of the the customers needs from the U S manufacturing base.
Thanks, Dave.
To add to that I mean, we've had good relationships with the.
On both the Democrats and Republicans and look of strong steel industry is a thought of Republican issue, it's not a democratic issue. It's an American issue as Dave said all indications. We have are that the by the administration recognizes that and they are going to reinvest in manufacturing.
And if we get an infrastructure bill that would be tremendous tremendously helpful to the to the industry on Paris look.
We announced over a year ago or 20% of greenhouse gas.
Intensity goal reduction intensity goal, we're on the way to achieving that that's not where we're going to stop we keep working to improve our sustainability and it's a it's good for the planet. It's good for business as we talked about earlier our customers.
Are obviously looking to green their supply chains, and Big River gives us that opportunity to really meet those needs so per.
Yes.
Rejoining Paris.
It's not something that really changes anything we're doing strategically we've been working on sustainability and reducing our carbon intensity for some time now.
That's very helpful.
Follow up when you think about the current environment quite strong both on the credit market side, and then also the steel price environment side Christa you mentioned.
Some thoughts around the balance sheet in your prepared remarks, when you think about prioritizing things such as extending the runway you have some bonds that become callable soon thank you all of that.
Some.
Higher coupon secured bonds, obviously have some call protection, but when you think about your priorities in terms of replenishing secured capacity extending the runway.
How would you characterize for us.
We are always evaluating opportunities to strengthen our balance sheet.
The strong liquidity is our first priority, but we are looking also at deleveraging and also managing those maturity profiles that you're talking about obviously, we'd like to restore some of our secured debt capacity.
So.
We're always looking at.
What does that mean, you can't eat while it is not callable for a couple of years, there or you can call. It because there is an equity call on it.
We're continuing to evaluate our liquidity position and make sure that we as we keep saying to get to the future faster with our best of both strategy, we're quite comfortable with the cash that we're carrying it through all of it saw the $3 billion worth of liquidity.
And the.
Appropriate time, we're preserving optionality for the big opportunity that we see so when we're ready we will see.
The strengthening the balance sheet, even further yes, as we always say were always monitoring the capital markets for opportunities to improve our financial position.
And that's the variance include looking at the maturities.
Very good. Thank you very much and we'll now proceed with our next question on the line from the line of Andreas the broken Hauser with UBS go right ahead.
Ed.
Thank you very much just a question on on demand I mean, obviously demand is quite strong, especially also remarked on it.
On the previous calls you've kind of mentioned that you're watching your order book for <unk>.
For the capacity restarts, you oversee restarted Pos for the sports area and we still got the blast furnace ran it down.
What's what's kind of like the holding you back from restarting credit loss for this a is this is that still on order book issue.
Are you seeing any type of ferrous shortage given the wind so is that what's kind of factoring into that.
That would be my first question. Thank you.
Yes, Andreas so I mean, it always is about the customer and how we come to market commercially to serve our customers' needs. So obviously, we've seen very strong and accelerating recovery in our strategic end markets, including automotive, including appliance, including packaging of containers and we continue.
You to run at very high levels of effective utilization to serve.
Those customers needs.
So we will continue to evaluate things, but I think right now where we are based on the.
The financial objectives, we set for the business. The strength, we believe strongly that will continue throughout 2021, both domestically and in Europe. This is the footprint that we believe positions us to be the most successful the.
For the most profitable and allows us to win in the strategic markets, where we choose to participate in 2021 and beyond so we feel very good about the footprint that we have in place right. Now are always remain adaptive but I think we continue the extremely encouraged by the opportunities for this year.
Yeah.
That's very clear and then maybe a follow up.
Obviously now with the ease of experience the BR.
The Big River are you, giving any thoughts to actually spending more capacity of as you kind of proceed forward in.
Given that the techs.
Section of this must the ones before.
The U S market would you consider <unk>.
Spanning yea of capacity from here on.
Well everything's on the table.
What we need to make sure is that we run this very well, let the big River steel people run their operations well, we do have.
Another EIF and Fairfield, where we're seeing some great collaboration between the Big River steel and the tubular business.
But for the foreseeable future we are focusing on on this footprint and making sure that we run it extraordinarily well we have to find the solution to reducing capital intensity and we have to make sure that we don't.
Get over exuberant and start spending a bunch of Capex. We are all over this this cash flow stuff in and again more we learn about the best of both and the more we learn about what our customer requirements are and the footprint that we need we feel comfortable about todays footprint, but again.
The thing is on the table, but nothing eminent in terms of additional eas.
Thank you very much.
I'll now proceed for our next question on the line from the line of Carlos de Alba with Morgan Stanley go right ahead.
Yes. Thank you good morning.
So the first question on East how should we think about the resetting of your prices on our 28% on 40% of firm pricing in the U S and the flat business and on Europe. When do you think we could see that completely reflecting.
The current the current.
Spot prices.
And then my second question is regarding the auto sector. We have read that there has been the some potential disruptions coming from the semiconductor of supply that out of disrupting out of production have you seen that the being reflected in your order book or have you had discussions around the stopping with your customers.
Thank you alright. Thanks, Carlos this is Kevin I'll take a shot at those two so I think first on the current pricing environment and how we expect that the impact our average selling price is moving into 2021, I think both Dave and Christy highlighted in our remarks that we're entering this very strong market environment of a very balanced portfolio of.
Contractual arrangements with our customers Dave already touched upon.
On the positivity that we have related to our fixed price contracts largely in automotive and packaging.
We feel pretty good about where those are have landed and how those are progressing throughout 2021.
I think on the on the index based part of the business clearly is going to have a outsized positive impact on our results in 2021 out of that pricing environment becomes more fully reflected in either our monthly or quarterly adjustables.
So you just need to take that into consideration as we grew for all $4 for each quarter, how those prices flow through and then obviously on the spot side of the business a very large tailwind for the business in 2021 as well. So I would think about order of magnitude your index and your spot book of business is going to be the most favorably positioned to benefit from the.
Currently strong market backdrop, and the our fixed price contracts will benefit as well.
Sure.
On your second question related to the to the auto supply chain supply chain disruptions I mean, I think we're not seeing any impact on our book.
Our auto book continues to strengthen on.
And we really continue to make every ton of steel possible.
To serve our customers.
And one of our customers have an issue whether it's within their broader supply chain or within their steel for this our supply chain to be quite Frank.
We place a high priority on making sure we're there to serve their needs. So nothing on our book, we continue to be very optimistic about the strength of automotive demand.
Low levels of inventory in the auto sector that just continue to reinforce that there is a.
The demand will continue to accelerate and Theres real sustainability of what was the marketplace. So from our vantage point.
I think we're very very positive on the auto order book.
Alright, Thank you Kevin and good luck.
Thank you.
Thank you very much.
Our next question on the line from the line on the Nick Thomas <unk> with Stifel go right ahead of us.
Hi, good morning.
For you on the calculated cost per ton generally most seven hundreds of where it's been prior to the Covid shutdowns, how should we think about that figure going forward with.
Gary for restarting or are we going to be able to get back to the figures that we've seen in the past once you start seeing operating leverage kick back in.
Short answer Nick is yes, I think as you know of the integrated production route benefits greatly from increased throughput and healthy levels of utilization.
And just for some color in the fourth quarter. If you look at the blast furnaces that we had on line.
We ran at an effective utilization rate of approximately 90% in the quarter. So Christy touched upon better than expected flat rolled performance in the fourth quarter certainly the continued strengthening in our utilization rates played a big part of that and we will look for those increased efficiencies from the incremental throughput in the <unk>.
<unk> to be a material improvement in our cost structure in 2021.
So, yes I think.
Unit cost are going to certainly benefit from from the health of utilization rates. We ended 21 with our 'twenty with an end of 'twenty 'twenty one with.
Okay and then a question for you on the revenue mix.
It wasn't reported for much of of 2020 mix between spot for them in the.
Market based.
Nick.
But it looks like you've got more spot exposure, we went from 23% to 27% in the.
The U S operations and then in Europe. It went from 37% at the end of 2019 now it's a 52% can you talk about what happened in the revenue the revenue mix customer mix is it a function of what the customers are doing or is it a different set of customers.
And so I think that.
For our commercial mix is going to reflect the strategic markets, we choose to participate in and the customers that we.
Are here to serve.
I think what you saw during 2020 as we purposefully.
Better aligned our production with our order book, we saw a a higher mix of kind of fixed exposure, especially given the accelerating strength, we saw at automotive with the incremental restart of Gary number for here in the here.
Here in the fourth quarter of 2020 as well as the really the new Melton on available to the business at Big River I think we would expect us to restore some of our spot exposure to be able to go after the the really strong environment right now, but the ultimate at the end of the day, our customers will dictate to us and we will work with them too to ensure we are.
Of the right commercial arrangements in place to create value for both of us and as Dave mentioned a lot of these negotiations arent about any one point in time, it's about creating.
Through cycle of strategic value for our stakeholders as well as our customers stakeholders.
Okay. Thank you.
Thank you very much.
I turn the next question on the line some of the line of Timna Tanners with Bank of America go right ahead.
Yeah, Hey, good morning, just wanted to clarify some of the last couple of questions and then if I kind of follow up on tubular so regarding that outlook I'm, sorry, if I misunderstood you, but I think you said flat volumes for the U S flat roll Division and I just wanted to make sure I assume that's without the Big River and also given that Gary the final Gary furnace was ramping.
Did I hear that wrong.
And when that happens also back to your slides the first slide deck.
On slide 15 that contract versus spot mix that'll change substantially with bank of River right Tomorrow.
If you have what that might look like it would be great.
Sure. So yes, the Gary number for restart in the fourth quarter.
We exceeded our expectations from the ability for the ramp up on produce.
That obviously influenced the exit rate from of shipments level, which is why we believe at least shipments entering the the first quarter remained relatively flat quarter over quarter. The.
The mix that you are referencing on slide 15 of our prepared on earnings materials.
Certainly.
We'll change it doesn't include.
The Big River volume, which as we said in our slides we would expect the benefit from increased hot roll exposure. So yes, the the portfolio will be different moving forward and we will manage it for what we believe to be the optimal mix in spot and.
Index based on an.
Fixed price contracts, so more to come on how we are fully integrate big river into our existing U S.
She'd commercial strategy.
Okay. Thank so stay tuned on that and then on page 17 on that same slide deck, you talk about inventories in CTG being 12 months on and if I kind of like a good level of its for the six months. So is it fair to say that that's kind of taken out through the middle of the year to get to normal and then you know I know, it's been a tough environment.
Turning up virtually all of this.
In the incrementally positive, but anything else that you can think of to detect can rectify kind of debt the challenging environment there.
Sure Timna.
If you don't mind, you were talking about OTT G inventories and your phone disconnected could you. Please repeat the question. So we make sure we answer it appropriately I don't know I'm sorry, Okay. Yeah on page 17. It just says that the inventories of about 12 months and for my recollection I think it did level is more like for the six months. So is it fair to think that that's going to be through the middle of the year before.
That debt normalization, there or is there something else I can factor in there.
Yes.
Right now clearly the the tubular market remains challenging.
But what we are most focused on is the things of we can control on the second part of your question. One of your phone came back on I think it was around the AAF and things we're doing within the segments. So yes, I think the commercial environment will remain challenged we have seen some improvement as oil prices have increased and incremental rigs have come online.
But the the footprint decisions, we made in the middle of 2020 to consolidate our tubular operations around Fairfield, we've worked our way through those idling carrying cost and believe kind of the fourth quarter is more reflective of what those costs will look like going forward and we will be on a position to more fully realized the benefits of the electric arc furnace and <unk>.
'twenty, one, particularly in the second through the fourth quarter.
So I think we're taking the actions we believe are necessary to best position. The tubular business imports remain very high on this end market, but we're focused on what we control and we believe we pulled at least the two most meaningful levers.
Operationally within our control we're.
We're also seeing good continued market acceptance of our premium connections, which we know is a way to increase our value added market participation. We had record premium connection shipments in 2020, and we'd expect fully just out of new record in 2021, so while.
While the market is difficult the actions we've taken we believe for the right ones. We believe they are the ones that were the most within our control and we're trying to position the tubular business in 2021 to be as successful as possible.
Yeah.
Yeah.
Thank you very much I'll now turn the call back over to Mr. David Burke for any closing remarks.
Thanks, everyone and thanks for your interest in U S steel, but before I sign off on I'd like to thank our customers for their continued partnership and collaboration you are our driving force and we are transforming our business to provide the steels that will create value for you and your.
Customers.
Through investments in technology, and the long term purposeful strategy, we are positioning U S steel to be your preferred steel solutions provider.
The investments like the one of Big River are advancing USD to be a leader in sustainable steelmaking technology and drive improvement in our carbon footprint.
We have a clear path to addressing climate change with our 2030 global greenhouse gas emissions intensity reduction target and have aligned our best of both strategy with this ambitious goal.
We are putting our money where our mouth is on the sustainability.
Two of our employees. Thank you for your continued focus on safety you live or steel principles is every day you set record best safety and environmental performance and remain vigilant with our COVID-19 protocols by doing so you kept yourselves and your coworkers safe all while working well on the spirit of <unk>.
The work in cooperation.
Even when physically distanced.
As to our new Big River steel coworkers welcome.
We have started our journey together as a best of both steel company every day, we see more possibilities together, we are creating something unique and valuable I have no doubt that your talent culture and entrepreneurial drive will add to our culture of success I cannot wait.
See what our best of both future holds.
For all of our stakeholders.
Now, let's get back to work safely.
Okay.
Thank you very much on thank you everyone.
It does conclude the conference call for today, we thank you for your participation I sort of disconnect. Your lines have a good day everyone.
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