Q1 2021 United States Steel Corp Earnings Call

April 30, 2021

Beyond.

First on optimism.

Our first quarter performance.

And expectations for a record second quarter EBITDA margins for our flat rolled and mini mill segments.

Confirm our optimism.

Our operations are running well and in a market where every single ton of quality steel produced matters I am pleased to report record quality and reliability performance at numerous facilities across our footprint.

Strong market conditions are great.

We are delivering on the fundamentals that keep our business resilient throughout the market cycle.

Second on Optionality.

Big River steel first quarter performance and early successes of our best of both footprint confirm the inherent optionality of our strategy.

An opportunity our best of both footprint created the opportunity for U S deal to be the industry leader in sustainability launching our <unk> line of sustainable steel, becoming the first north American producer.

To join responsible steel and announcing our 2015 net zero aspiration confirms our sustainability leadership role in American steelmaking.

Rich will detail how best of both footprint creates the foundation for differentiated sustainable steel only available from U S steel.

Let's get started on slide five.

You heard us speak in January about our continued optimism for steel markets, while our optimism has been exceeded by what is happening in the market today.

Today's robust demand long lead times and insight from customers have us even more bullish.

Further strengthening of the economy and a much needed infrastructure bill would be catalysts for additional earnings growth.

Another factor informing our market perspective is today's supportive steel making costs.

Costs for steelmaking inputs, particularly scrap and iron ore are supporting today's higher steel price environment.

This is where U S steel has a compelling competitive advantage first in iron ore.

Our low cost fully integrated iron ore mine supply, our blast furnaces with high quality iron ore.

Days iron ore prices are near record highs, but U S steel iron ore input cost is the lowest in North America, providing a structural cost advantage in our flat rolled segment.

Next in scrap with Big River steel fully consolidated with USD, we're optimizing our scrap sourcing.

The high quality prime scrap generated internally in our integrated operations is being used at big River steel to offset some of their need for prime scrap purchases.

This opportunity has already saved approximately $5 million through April and we are continuing to assess additional ways to optimize scrap flows for the remainder of the year.

Another reason, we're bullish for a stronger for longer market are the low levels of steel in the supply chain.

And customer demand has been so strong that most steel customers haven't had the opportunity to restock depleted inventories.

This need will continue to support the future steel demand.

While today's market is certainly driving significantly significant earnings growth, our well timed acquisition of Big River steel is the real headline this quarter.

We acted boldly to accelerate the purchase of Big River steel and now are benefiting from the best in class performance in the first quarter.

Expectations for a continued strong steel market makes our well timed acquisition of Big River steel even more compelling.

Slide six just begins to showcase our first quarter achievements at Big River steel.

From day, one Big River steel has been improving the value of our strategy, including.

Our highly variable cost structure.

And entrepreneurial workforce.

And increased efficiencies from the phase two expansion.

Each of these driving factors contributed to Big River steel.

Superior performance in the quarter.

Big River steel delivered 32% EBITDA margin in the first quarter or $360 of EBITDA per ton shipped.

These are enterprise changing financial results that truly reposition our competitiveness and value creation potential average selling prices of $967 per ton on the quarter reflects big River steel complementary commercial contract structure.

To put this in perspective.

Slide seven compares Big River steel superior margin performance to other domestic mini mills.

Big Rivers Phase II expansion has led to world class labor productivity.

With 651 employees capable of producing three 3 million tonnes. That's 5000 tonnes of quality high quality low emission steel per employee produced by a world class team.

We expect continued margin expansion in the second quarter as utilization and profitability per minute remained strong at Big River steel is not just about how much steel you can make it's about how much money you can make per minute a blind time.

Lying time that is highly valued by customers and highly optimized and OCR, Arkansas.

Big River steel superior first quarter performance and differentiated capabilities confirm the optionality that Big River steel and our best of both footprint provides this optionality gave us the confidence to expand our commitment to sustainability.

In March we announced a new line of sustainable steel solutions called vertex.

This is shown on slide eight.

Full ownership of Big River steel together with U S steel knowhow deep customer relationships and proprietary finishing lines were the catalyst for this exciting product launch.

Which rich will provide more details on this differentiated product offering rich.

Thank you Dave we are pleased to announce our verdict line of sustainable steels. The first of its kind in the domestic steel industry. This is U S steel as best of both strategy realized.

And our new game changing product.

<unk> combines the best of mini mill production with the best finishing technology from our existing flat rolled business.

Through this combination we are now able to offer our customers some of our most proprietary grades of steel, including our X gene three grades of generation three advanced high strength steels now with up to 75% reduction in Cotwo emissions.

We are the market leader in generation three advanced high strength steel and we're ready to take the next step with customers by offering a green sustainable version of our most advanced steel products.

This is something our competition cannot offer today Big River steel substrate together with our world class, finishing assets that are being qualified with many customers and Oems creates a unique customer solution.

We've heard our customers.

We understand their needs for more sustainable solutions and we are meeting their request to provide them with a sustainable steel to help them meet their own de carbonization goals.

Our verdict sustainable steels provide the best for our customers and the best for our planet.

Customers can convert today's steel orders into a sustainable alternative and begin to market. The green endless recyclability of the U S steel verdict sustainable solutions.

Customers are looking to partner with the right suppliers.

By offering tomorrow sustainable steel today, we can help them get to their future faster.

Today U S steel's offering our customers an opportunity to turn pledges into action by utilizing our new verdict line of advanced sustainable steels, we look forward to boldly partnering with those that share our vision and value of our differentiated customer value proposition Dave back to you.

Thanks, Rich a verdict sustainable steel is just one of many announcements this year that reinforce our industry leading sustainability proposition.

The proof points on slide nine build off our 2019 announcement to reduce global greenhouse gas emissions intensity by 20% by 2030 versus 2018 baseline.

We put our money, where our mouth is by acquiring Big River steel.

Only LEED certified steel mill in the United States, and perhaps anywhere in the world.

Next we announced our line of sustainable steel solutions. So that we can partner with current and future customers as they meet their own decarbonization goals.

And just last week, we expanded our commitment to sustainability by setting an ambitious 2050 net zero carbon emissions goal.

Our 2050 goal announced last week is the catalyst to take our best of both strategy to the next level with our best for all strategy not just best for investors best for customers best for our employees, but best for the communities, where we live and work and best.

For our planet.

To reinforce our commitment to sustainability, we became the first North American based steel company to join responsible steel the industry's first global multi stakeholder standard and certification initiative.

Net zero carbon emissions is a big hairy audacious goal or <unk> of this generation.

That is why we announced our ambition to achieve carbon neutrality by 2050.

We aspire to be part of the solution.

<unk> this goal won't be easy it requires us to re imagine the way we work.

How we make steel.

How we amaze and delight, our customers and how we allocate capital that means we have to make hard decisions.

Let's turn to slide 10.

Today, we're announcing one of those difficult decisions.

One of those difficult choices.

With a clear vision for our future.

We have evaluated how we allocate capital through the lens of sustainability.

Value creation.

And lower capital and carbon intensity across the footprint.

When facts change, we must change and as we step forward to meet the needs of a rapidly changing world. We must set aside the Mon valley endless casting and rolling and Cogeneration project.

This is not a decision we took lightly but the events of the last year gave us the opportunity to reevaluate our capital allocation priorities.

On today's best of both footprint and the global call to action of the emerging climate crisis. We know that this difficult decision is the right one for the business.

To be clear the Mon valley remains a structurally competitive steel making asset in our portfolio.

It is our lowest cost steel, making facility and our flat rolled segment with advantaged logistics and energy costs.

The non value will continue to serve strategic markets, including appliance and construction customers.

We're also evaluating our coke, making footprint and are announcing that we plan to permanently idled batteries one through three at our clairton Coke, making operations by first quarter 2023.

This timeline provides the opportunity to limit workforce impacts through regular attrition.

Today's Monde Valley announcements are informed by our expanded understanding of our steelmaking future and accelerated approach to reducing our carbon and capital intensity.

But to be very clear.

This is not the end of the Mon Valley works.

This highly competitive mill will continue to serve strategic customers today and into the future.

We can decarbonize cost effectively.

With the right like minded partners to create solutions for people.

And profits and planet.

This means everyone must step up countries.

Company's counties competitors to do what's best for the planet.

Christine will provide details on the quarter as well as how we're approaching the capital allocation informed by our 2050 net neutrality goal Christy.

Thanks, Dave I'll begin on slide 11 in the first quarter, we were busy strengthening the balance sheet and restoring financial flexibility in total we reduced U S steel level debt by $1 2 billion and as a result, we lowered our annual run rate interest expense by $100 million.

We restored secured debt capacity at the U S steel level by redeeming all of the 12% senior secured notes due 2025, and we extended our maturity profile by issuing $750 million of unsecured senior notes due 2020.

Nine to refinance near term debt.

The progress we've made in advancing our best of both strategy gives us an opportunity to prioritize and better defined capital allocation.

Businesses, performing well and having the right capital allocation strategy is critical to delivering on our near term and longer term strategic goals.

In the first quarter, we took significant steps to enhance the balance sheet in the second quarter. We believe we have the opportunity to further deleverage.

As you will stay on our 10-Q disclosure we have already completed additional deleveraging actions in April including open market repurchases of our 2025 and 2026 notes of approximately $32 million.

And approximately 60 million repayment of our U S S K credit facility.

And $30 million repayment on the Big River steel ABL facility today.

In addition to the actions already taken in the quarter. We currently plan to Opportunistically repay at least $500 million of additional debt and could increase that amount as the year progresses.

As we think about potential investments, we have a bias for or.

Organic growth in existing competitive advantages and assets with strong strategic fit.

<unk> investments that support our transition to a best for all future.

And drive lower capital and carbon intensity.

Now turning to the quarter on slide 12.

Our first quarter adjusted EBITDA of $551 million came in stronger than our March 12, 12 guidance of approximately $540 million.

The better than expected results were driven by improved performance from our flat rolled segment.

We ended the quarter with strong liquidity after repaying approximately one 2 billion net debt.

Ending liquidity for the quarter totaled approximately $2 $9 billion. This includes cash and cash equivalents of $753 million.

On January 15 2021.

We acquired the remaining stake in Big River steel for approximately $770 million.

We acquired the Lewis most technologically advanced still making asset in the country.

This is contributing strong earnings growth and cash flow not additional pension and <unk> liabilities.

Our pension on OPEC ended 2020, well funded at 98% and 115% respectively.

Based on the rate environment and asset returns in the first quarter those funded ratios have improved by approximately 3% to 5%.

Buying a fully funded status of the plans were re measured today.

We do not expect any mandatory contributions to our defined benefit pension plan in the next several years based on our healthy well funded status.

Turning to our operating segments.

And our flat rolled segment, our average selling price increased over 20% and drove a significant improvement in our first quarter EBITDA higher market prices will continue to flow through our selling contracts and.

Our expected to increase average selling prices further in the second quarter.

Additionally, our flat rolled segment is expected to benefit from reopening of the Soo locks on great Lakes.

Most of our iron ore pellet either for our own consumption or for third party sales travel through the Soo locks.

First quarter EBITDA of $162 million on the mini mill segment reflects our full ownership of Big River steel from January 15th through March 31.

EBITDA margin of 32% showcases the power of the mini mill business model a model, we expect to drive further value.

In the second quarter.

We expect our flat rolled and mini mill segments to set new records in the second quarter for EBITDA margin performance.

In Europe higher selling prices are also improving EBITDA performance in the segment.

Restarting the third blast furnace in January improved efficiencies and increased shipments.

We expect strong performance from our European segment in the second quarter from modestly higher shipments and higher average selling prices.

Raw material costs, particularly higher higher iron ore costs remain a headwind.

In tubular market conditions are improving rig counts have increased distributor inventories are normalizing and the oil country tubular goods prices continued to increase.

Direct import levels remain high these factors are driving improved customer pipe demand on the tubular segment, we expect tubular second quarter EBITDA to be near breakeven.

Back to you.

Thank you Christy, let's recap today's prepared remarks on slide 13.

Our optimism for a stronger for longer environment has confirmed first quarter performance was strong in the second quarter will be even stronger.

Second Big river's performance confirms the flexible optionality that a best of both footprint creates and third our sustainability leadership role in the United States is confirmed we have the most recognizable brand in the industry and we now have the biggest voice in the industry about the opportunity sustainability means.

For steel.

Kevin let's move to Q&A.

Thank you Dave.

Ask that you each please limit yourself to one question and a follow up so everyone has the opportunity to ask a question.

Operator can you please queue the line for questions.

Thank you very much from once again, because I was just a first question. Please press star one by the Florida on your telephone keypad and you run through total proppant Marcia request.

This question has been answered for drug administration out of the one four by different assets.

One moment please for our first question.

<unk>.

I will get to our first question on the line from Karl Blunden with Goldman Sachs.

Please go ahead.

Hi, good morning, Thanks for the time.

You made some interesting comments about capital allocation on the debt Paydown just on that front I was interested in the tradeoffs between using liquidity to pay down debt certainly sounded like you were going to reduce debt rather than replace it with some new debt and.

And then how that fits in relative to some investment options you have outside of non value of course, and then also in the last up cycle. In 2018, you did do some cash.

Payments to shareholders through buybacks, so just interested on that.

On the balance between making yes.

Thanks, very much for that question Carl.

Make a comment and then I'll pass it to Christie.

For more information I think first priority here is of course to make sure. We keep this resilient balance sheet. We're obviously in a much different place than what we were a year ago and it won't be long before people would be asking us.

What are you going to be doing with all that cash because we do have so much optimism for 2021 and beyond but more specifically to your questions may be kristie can provide a little bit more.

Okay, Yes, we have very clear priorities for the cash that we expect.

To be generated from the increased earnings in 2021.

As we've often said our first priority is to make sure we have a more resilient balance sheet.

We believe that that will create a foundation to support future growth.

On our guiding principles when we think about our capital structure is to maintain strong liquidity financial flexibility and make sure we have a supportive maturity profile.

We also like investments, though that advance our best of both strategy.

And we like investments that are in existing competitive advantages and assets that have a strong strategic fit.

We also like investments debt now are aligned with our sustainability objectives, you've heard our recent industry, leading sustainability announcements and these also are informing our future investment decisions, obviously, we're targeting investments that lower our capital intensity our carbon intensity.

And that are aligned with that with our 2015 net neutrality target.

Thanks, Christy so very clearly it's about the balance sheet, making sure. We're in a good position on our balance sheet, there's going to be more action to make sure that we have that de Levered and then we do have some opportunities with our best of both strategy to create value for our stockholders.

That's helpful here much thereabout shareholder returns maybe approaching that.

On the backbone on for now just shifting to Nick.

On the sustainability in some ways point to focus on electric.

Electric arc furnaces, and the investment in Big River. So I just wanted to focus in on that day was yes.

Great day performance from an earnings standpoint from the bigger asset in the quarter.

A little bit more production from HFC.

We're typically seeing there some of that maybe represents the price and margin opportunity, but has anything changed there in terms of what youre thinking long term mix bump from that mill should be.

Karl This is Kevin I think that what you saw in the mixed profile of Big River in the first quarter does indeed.

Confirm the exposure that they add to the strong environment I think you've heard us talk though about on the medium to longer term transitioning some of those previously integrated only grades of steel on two big River, where it makes sense to leverage their lower carbon footprint and to leverage our proprietary steel lines as we think.

[noise] about coming to market with our vertex line of steel so.

Does that accelerate that we continue to engage with customers.

And all of our end markets about what's sustainable steel solutions like vertex could need for their business you could see a.

A change and a change in that mix, but we will continue to run.

Big River prioritizing profitability for permitted on the line to ensure we're driving the right margin performance the right EBIT per ton performance and.

Continue to generate value from that assets. So.

Phase II phase III expansion naturally creates a bit more HRC and the ramp up but I think we'll have the ability to optimize as we continue to progress with the integration strategy execution, but I'll pass it to Richard some additional color as well yeah. Thanks, Kevin I think one of the things to keep in mind too is as we move through the integration of Big River that mill was built with capabilities that are pretty unique for a minute.

For example, they are in our Ht gas or where most mini mills on vacuum.

<unk> that capability is something our U S steel technical experts are working on with the Big River operators and I think over time youll see the ability to make even higher end products.

Is that day gas or comes on line and really really gets optimized so I think theres more to come and as Kevin said, we've got.

Expanded on the 14 grades that have been Trialed successfully we're working with customers.

On qualification.

Two to move up the margin and the mix.

I think obviously this is.

New acquisition for US we're learning a lot how this works, but if you get back to the best for both in the best of both and then best for all to Rich's point with this degas or we're able to take the background. The experience the knowledge from U S steel and help work on debt to gasser and at the same time, the nimbleness that Big River Steel day.

To operate the entrepreneurial spirit.

Catching that virus with the integrated mills, so it really does.

Layoff on another.

And while you have a lot of issues. When you first acquire a business I can say for the most part it's gone pretty well and we understand what a great asset debt Big River steel has been to our portfolio, especially so early on and we expect it to get better and what that mix of products going to be is all going to be dependent upon.

How fast we can move with Fedex with our 17 prequalified products and on and on so there is a lot of opportunity in and weighted.

As we said at the opening we want to make sure we keep that Optionality on open so that we can leverage U S steel integrated with with the mini mill capabilities of Big River steel.

Yeah.

Thank you very much.

We will now proceed to our next question on the line from the line of David Gagliano from BMO capital markets. Please go right ahead.

Hi, Thanks for taking my questions I actually just wanted to follow up on the on the capital allocation question.

Obviously with the chemical Council canceling on the Mountain Valley project and where prices are.

As you mentioned quite a few options here and clearly a focus on debt reduction liquidity and investments.

Rather than assuming.

Is it is it reasonable to assume or what is the policy towards.

Net cash returns to shareholders specifically.

Yes.

The way to think of this first half and David weighted as you get to the Mon Valley and you think about that.

On the capital allocation in terms of what.

Where we're putting the money you can pretty much go pencils down on the $1 3 billion that remains at Mon Valley that is not going to be spent we have endless caster thats.

The largest portion of that has been built and so we have optionality with where that might go.

So.

As far as.

Cash capex spend for the balance of this year will still be at the 675, but I would expect in the short term here to continue to have outsized returns and as we sort through this new footprint that we're putting together I think we will we will see outsized through cycle improvements in our margins.

And frankly, we're figuring that out as we work through with Big River.

What those next steps are and I just have to say more to come.

Okay.

And then when you look at investments on our U R.

I'm talking more about organic growth.

Specifically steelmaking or are you talking about acquisitions.

Well, what we've said I think is that our preferences for organic growth use our existing footprint and look for those advantaged assets, where they either have a cost advantage or a capability advantage and spend the money there expand the money there grow the opportunity in Big River Steel for example, and see what's possible.

As we continue this path of best of both looking at the integrated look at mini mill will find where that least capital intensity, our highest optimized through cycle profitability is.

Thank you very much on right now proceed to our next question on the line from the line of Seth Rosenfeld with Exane BNP. Please go right ahead.

Good morning.

Another question focused again on capital allocation, but it has tightened the decarbonization strategy. Obviously, you leapfrog some of your U S peers announcing quite aggressive deleveraging target on a couple of decades on the lot.

It remains to be confirmed with regards to technology change.

When you think about what's happened at Mon Valley, how do you consider the broader true.

<unk> towards more capacity and also considering things like <unk> and hydrogen with DRA was included in your announcement from last week on the.

What scale of Capex or you can embracing for over a decade or so and do you think that U S. Steel can fund this on euro or the growth.

And working with partners to drive that de carbonization push from the Capex side.

Well there is certainly a lot in that question. There is a lot of work for us to get to this 2050 goal.

<unk>, we talked about and it was really the three categories that will be impacted that's how we make steel who we partner with to achieve those common goals and who has gone on a lineup with this debt to help us get there and then where we allocate the capital. So if you think about it in those three categories, that's where we have to figure it.

And again, our goal is to make sure, whereas the least capital intensive.

Organization possible as we make this transition from.

Integrated and mini mill to best for all but as far as the actual specific expenditures over the.

Next 30 years. The next 20 years, obviously across the whole industry steel industry. It will be billions of dollars and it won't be just all the individual companies it'll be countries and in companies and competitors collaborating if you think about the <unk> thing. It's one of those things that it's so big.

So immense that it's going to take collaboration even with competitors define the breakthroughs as to how to make.

Steel and cement and Decarbonize the planet. So theres a lot of thinking that has to go into this we're in the beginning phases. We've been first out in terms of setting the goal because we know it's necessary for the planet, but as far as the opportunity and where those funds come you have to wait and see we have to wait and see and we have to develop those partnerships as we.

Saw with COVID-19, and the collaboration that we saw across competitors to develop the vaccine theres going to be that kind of.

Collaboration over time, and we're going to have to have our suppliers pay our customers pay the governments pay our counties day for those types of improvements that have to be made now how that gives you that gets divvied up is going to be up to the markets and the policymakers to decide.

Thank you.

<unk> simply on on Mon Valley can you just again walk us through the development to date on the catheter in.

On your earlier comments I think you said that that could be allocated with different facility can you clarify and again from mountain Valley and any update on future volumes given the changes in Capex.

Yes on that.

We spend on the cash or about $170 million and I think.

Going toward.

The $250 million, so we have equip.

Equipment in storage that can be repositioned to elsewhere, and where that's going to be positioned and of course, that's under under study and on what was the second part of your question.

Dave I believe south was asking about the production of the valley without the with the capital expenditures in this investments assets as a reminder was never to expand.

Capacity of the Mon Valley. So we expect that the capabilities of that facility from a volume perspective will be.

Unchanged on a go forward basis on will continue to serve qual.

Quality steel to our strategic end markets like construction on appliance.

And no change in that regard.

Thank you we'll go to our next question on the line from such these custom Nathan from Deutsche Bank Go ahead Ed.

Yeah, Hi, thanks for taking my questions.

So given that you have had a big they low forward over three months now can you talk about the synergies that you identified and maybe quantify it for us. Please.

Also also.

The low utilization and <unk> were there any one off costs related to the better ongoing right.

<unk> and how much volume improvement should be expect into <unk>.

Sure. So it is the case this is Kevin let me address the second part of your question first and then I'll hand, it over to rich to talk a little bit about the progress. We've made on the integration of the river into U S. Steel. So on the utilization rate I think it's really important for everybody to understand how we look at loading that facility and consistent with our prior <unk>.

<unk>, it's not just about how much steel you can make it's about how much money you can make per minute of launch on that you have so while you see utilization rates may be trending a bit lower that's really a function of some of the mix and how we choose to allocate line time in order to maximize profitability. So while there were some weather disruption.

In the middle of the quarter on that impacted production, we feel like.

On the utilization rates, we had the way we loaded the facility in the first quarter. The products, we chose to make and sell into the marketplace or the right one and I think that's validated by the 32% EBITDA margin performance in the $362 a ton of EBITDA generated out of Big River. So low.

Fluffy utilization day with a grain of salt, it's a secondary measurement at least for the many most segment on our view on what we should be focused on is the EBITDA margins and EBIT per tonne, but rich if you want to maybe elaborate on the synergies and kind of lessons learned thus far.

Thanks, Kevin I think.

Big River.

Cornerstone to the best of both and what you see with Big River is what we've always thought it would be which is we are using the knowhow. The proprietary substrate technology that you are still has plus our deep customer relationships and leveraging those with big river's process.

Expertise and Thats.

Under the verdicts.

Umbrella of product opportunities for Greenfields, plus other areas, so theres value coming from that and I think on a more precise and <unk>.

But the specific value of this capture we've had is with respect to our scrap sourcing I think Dave touched on it we've been able to optimize perhaps sourcing by sending some of our high quality prime scrap generated internally at our integrated footprint to Big River steel to offset their scrap purchase needs to some degree so that saved us about <unk>.

$5 million through April and we expect that to continue we talked a little bit about the <unk> gas are already and the opportunities there to come. So we're seeing a lot of great opportunities, we're capturing some value already and we think theres a lot more to come.

Okay. Thank you just as a follow up.

In the last earnings call, you mentioned that Youre getting additional third party agreements.

Agreements.

Any update on those.

Okay.

So <unk> I think we've continued to make really good progress.

Monetizing our iron ore position, which includes selling those into the kind of the third party market.

We haven't disclosed any new agreements that I think everybody should be confident that we continue to find opportunities that are EBIT positive for our business and opportunistically sell into the market leveraging our low cost iron ore position. So.

That's an active part of the strategy that we continue to execute against and I would add at record high prices High index is hitting new records.

It's been a good really good revenue stream for us this year for sure being able to sell on the open market.

Thank you very much.

I'll now proceed to our next question on the line from the line of Timna Tanners with Bank of America go right ahead.

Yeah, Hey, good morning, guys.

I wanted to ask a bunch about the second quarter, but I'm kind of stuck on Mon Valley announcements I wanted to ask my first question really about that.

When it was announced a couple of years ago. It was described as you know game changing really crenshaw, and so I'm still kind of trying to understand what it means to not have that project and I know at the time. You also said that it was over an 82 year old Hudson on that had to be replaced so.

So can you just help us understand what not having that update does from Mon Valley and you also said it was a critical operations. So can you help us reconcile that please.

So to answer Kevin So I think when we disclose this project two years ago, we were taking a very good facility and increasing its capabilities. So that's very good facility that was serving as the foundation for this investment remains in place.

And we were talking about potentially transitioning to a different strategic market based on the technology, Dan was casting and rolling with provide however, we remain very confident that the existing capabilities at the Mon Valley will allow us to compete in the end markets that the Mon Valley has always served and has served at high levels of profitability going forward on those.

Including our clients' construction service centers et cetera. So I don't think debt going forward. This will have a material impact on the existing performance on our Mon Valley, which is our lowest cost producer, which is our one of our most efficient operations and is one of our most profitable facilities within the flat rolled segment. So.

We were obviously showcasing and highlighting back during the announcement some of the capability increases that would be made but going forward. We're highly confident on the existing operations at the Mon Valley.

Just started a blast furnace outage there today.

Or $4 25 days to make some investments in the blast furnace that we remain committed to that facility.

Going forward, we will continue to allocate capital towards it and we continue to believe it will generate strong strong earnings and strong cash flow for the business.

Okay. Thanks for that and then looking forward if I could on the margins for your blast furnace operations.

Thinking about the margins such costs were a little bit higher on the first quarter than we expected. So just wondering if you could provide any detail on cost inflation that you're seeing and then similarly, along the lines on the margin opportunity going forward in the past when prices Spike there were some revisiting of context.

For annual customers, obviously, they've got a pretty good price relative to spot market lately and just wondering if theres any talk of revisiting any context. Thanks, a lot day.

Yeah sure Thanks, Vanessa from <unk>.

<unk> over quarter perspective in the first quarter, one thing to always be mindful of is the seasonal impacts of on the mining operations.

Certainly were true this quarter.

Obviously scrap on the raw materials side as a headwind for the flat rolled segment as we.

Highlighted in our quarter over quarter Bridge charts.

And then we had some other costs, including on a variable comp and things like that that the business always encouraged on the first quarter that also was a headwind quarter over quarter.

Going forward on this type of environment, we the good news about it and the great thing about our commercial strategy is that we're negotiating contracts really throughout the year. We have some contracts and are more heavily weighted to earlier in the year, but nonetheless, we have the opportunities to engage with our customers throughout the year on fixed price contracts and we'll continue to do so so we keep those.

Discussions between us and our customers, but we're optimizing.

The way, we engage we negotiate contracts every quarter of the year and that will continue to be the case in 2021, So reported.

More to come on that.

Thank you very much we'll placebo on our next question on on a line from Andreas <unk>.

<unk> from UBS. Please go right ahead.

Thank you very much.

Just switching away from month value towards granite city for a moment.

As you said that we obviously operate bugloss bonuses based on your overall order growth necessarily on high prices.

But there's obviously been a lot of talk about demand being strong and growing and you mentioned that the sales into tubular steel better than rig count has been better can you just remind us biggest blast furnace a slow down can you just remind us what is the stages of loss for <unk>, how quickly could you start it up.

What kind of market. This is usually services energy.

If you have any kind of updated thinking on debt.

That would be great. Thank you.

In the current market environment granted cities.

Operating very well to serve its existing customer base on maximizing earnings.

Currently no plans to turn on.

Blast furnace <unk>.

It's got great cost it capabilities right now in terms of the market said, it's serving so we think it's well positioned for now and again no plans actually to add.

Another blast furnace.

Okay.

Is that a furnace that services the energy market typically or is it all over the place different.

The industries I mean, what's what's holding you back from restarting your Boston Jose.

Yes, that's right Andreas it's typically serve the energy market.

And so while weather, while the energy markets improving.

It's still below where it was a year ago. So.

I think thats, an important consideration so yes exposure on the energy market and while the market starting to improve its still a pretty pretty low levels.

The market in general continues to be impacted by high levels of imports. So I will just as Dave mentioned note no changes to the footprint.

At this time.

That's very clear. Thank you very much I appreciate you taking my questions.

Thank you very much.

Okay next question on the line from the line on what Carlos de Alba.

With Morgan Stanley go right ahead.

Yes, Thank you and good morning, everyone.

Kevin comment about the end market, particularly the auto sector.

We rent your comments on page 19.

Yesterday's presentation, but we'll given the announcement that the some of the automakers have made whats going on before.

Before very weak second quarter production rates on the back of the semiconductors problems without pricing.

Can you elaborate on batteries on what are you hearing from them from the auto customers on how do you see your order book.

On that end market.

Obviously, the market has been impacted by the.

The semiconductor chips.

This has gotten some global global attention in terms of making the improvements, but for our business and where we see ourselves now we're in a good place.

In fact, I wouldn't be surprised if.

The second quarter with double the first quarter I don't think Thats unrealistic. So.

Clearly the market's V shaped recovery, there's going to be some chips.

Starts and stops and all that kind of thing, but we continue to be optimistic that it'll be shorted true that it would probably take a couple of years.

Again with our stronger for longer.

On the suite and then finally just to clarify are part of the response.

You wouldn't be surprised to double what you had in the first quarter is that a specific on in the auto sector.

I would say just overall for them.

Though we had 551, we could see as much as double I don't think its unrealistic to think that we would.

Double EBITDA in the second quarter from the first quarter.

Alright, Great and then just going back to the prior question on.

From a debt or how long can you think can be greatly.

From the idle readout.

Completely.

Decommissioning spend money to really decide and right now.

How much of the cost of keeping that Doug.

Doug plants are idled.

Well the keeping the plant idle as it's not a material amount at this point.

If if conditions were right and.

Net have to really change dramatically.

Because we don't we don't see those blast furnaces coming on.

We believe low.

B down indefinitely until we see.

<unk>.

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