Q2 2021 United States Steel Corp Earnings Call
Dan.
Okay.
Thanks, John.
Sure.
John.
Net.
Yes.
Good morning, everyone.
Walker to United States Steel Corporation's second quarter 2021.
If its call and webcast.
As a reminder, today's call is being recorded.
I'll now hand, the call over to Kevin Lewis, Vice President of Investor Relations and corporate Peony. Please go right ahead.
Okay. Thank you Tony Good morning, and thank you for joining our second quarter call as you read in our press release and.
Earnings cost supplemental materials yesterday, we had a very strong quarter. We look forward to discussing our results. The continued execution of our strategy and our bullish outlook with you. This morning.
Joining me on today's call is USD or president and CEO, Dave Burritt.
Senior Vice President and CFO Christie breathe.
So on.
And senior Vice President and Chief strategy, and sustainability Officer Rich Fruehauf.
This morning, we posted slides to accompany today's prepared remarks, the link and slides for today's call can be found on the U S steel investor page under the events and presentations section.
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.
<unk> 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 get US started on slide 4 thank.
Thank you Kevin Good morning, everyone and thank you for.
For being with us today and for your interest in U S steel.
Our second quarter performance was exceptional and is demonstrating the power of our strategy our footprint is positioned better than ever with the optionality to benefit from today's continued robust demand and strong operating performance.
We remain optimistic about our future and have so many opportunities ahead.
We are delivering best in nearly every aspect of our business. We are delivering our best financial performance in 2021, we are delivering our best quality performance in 2021 and our employees.
These are delivering their best and maintaining U S steel industry, leading safety performance there are no joys and profits unless we keep our employees and our environment safe.
So thank you to our employees for embodying our steel principles and for your continued focus on our number 1 core.
Safety safety is first at U S steel.
Our record setting performance so far this year demonstrates the power of our best of both strategy a strategy that is rooted in product and process innovation. So that we can continue to amaze and delight our customers we can now truly.
Let's say U S steel the original iconic Corp has its best days ahead, we can't get to the future fast enough.
We are executing from a position of great strength.
A foundation from which to continue to build and to transition to best for them.
All we've made great progress and I am pleased to provide another update this quarter on our steps forward.
Let's dig into the highlights on slide 5.
Our business is firing on all cylinders and the hard work, we put into our business is producing exceptional results.
We are safely delivering our best quality and best reliability for customers quality for North American flat rolled segment is at record levels quality performance for U S. Steel Europe is at record levels and quality performance for Big River steel is at record levels.
We've also set.
In our records on reliability and productivity at numerous assets in our portfolio.
Folio that generated strong earnings, including best margin performance for the enterprise in the second quarter.
Our second quarter EBITDA margin was 26% the best EBITDA margin in.
Set when he has history and getting better.
Our mini mill segments, 36% EBITDA margin was the best mini mill performance in the industry by far.
The bold steps, we took to acquire Big River steel faster is generating significant value today.
The value of that.
Bold action is further detailed on slide 6.
When we purchased the remaining stake in Big River Steel, we knew we were buying the best mini mill in the country.
The performance of our Big River team has exceeded even our lofty expectations, yet again Big River.
Our outperforming the competition, it's 36% second quarter EBITDA margin far exceeds other domestic mini mills with further through cycle upside potential from our planned non grain oriented electrical steel line investment, which is expected to grow margins even more upon completion.
Is 2023.
Big River is not only the clear financial leader, but it is the example of what best looks like when it comes to profitable steel solutions for people and planet.
Big River is a leader in sustainability a position that was recently validated by.
By Daimler, who awarded Big River with their global Sustainability recognition award earlier. This month. It is clear that best of both is best for all.
Moving to slide 7.
We've made a lot of improvements to our business with a high.
Sense of urgency our goal has never been to be bigger it has always been to get better and never satisfied until best.
That high sense of urgency to get better has positioned us extremely well to extract value from today's strong market.
<unk> heard me say, we've been bullish for a long time about.
About the potential of this market and my optimism for the future only continues to increase expectations for global growth continue to rise ample fiscal stimulus a recovering labor market significant pent up demand and a continued shift to domestic supply chain resiliency provide tailwind for.
For the market along with an infrastructure bill that seems inevitable steel.
Steel fundamentals are booming and we firmly believe our business will be stronger for longer.
Demand from our customers continues and lead times remain extended the.
The industry is.
Moving here at U S steel has.
Several planned outages in the second half of 2021.
And most steel industry inventory levels suggest an extended restocking periods still needs to take place supporting steel consumption into the future.
The pace of change at USDA has allowed us to benefit from the sustained market.
Market strength, we've seen over the past several quarters.
While some competitive mini mills are adding capacity, we are building to better.
Not bigger and believe our unique competitive advantages provide opportunities to expand where the market is headed.
In under a year, we've gone from zero EBITDA apps in our footprint to now 3 of the newest and most capable eas in the country.
And in under a year, we've announced industry, leading goals that support a more sustainable future for all our stakeholders.
Those goals.
Can you to guide our future a future that we can confidently say will be the best for all.
Let's turn to slide 8.
So what is best for all best flow is about the customer best for hours about the people who work in our facilities live in our communities benefit daily from the steel.
Can T produced and invest in our future and best ROE is about our most important customer the planet simply said best for all without U S. Steel will provide customers with profitable steel solutions for people and planet together.
Together with our customers employees and partners, we can contribute to a more sustainable.
With future for all our stakeholders and we're already making great progress.
Before I turn it to Christie to discuss our second quarter performance and outlook. Let me highlight the progress we've made since our last earnings call on slide 9.
We are investing to be a leader.
Stable grain oriented NGO electrical steel in June we announced the planned expansion of Big River steel to include NGL electrical steel and investments funded by the substantial free cash flow Big River steel is generating.
This investment is the very definition of best for all.
All for our customers. We are meeting you where you are headed with the next most innovative and technologically advanced generation of NGL electrical steel our customers deserve a like minded partner to support their growing fleet of electric vehicles for our people we are investing early after.
And non new short months of full ownership of Big River into an asset that is highly differentiated and has strong strategic fit.
For our planet, we plan to pursue additional LEED certification for our new NGL line, which will further expand our sustainable verdicts steel.
After a camp.
And we will do it profitably delivering industry, leading technology that we expect to generate approximately $140 million of incremental run rate EBITDA by 2026.
Permits are in place and we are moving forward quickly to get to our future faster we've.
<unk> brand, but the pool approximately $35 million of Capex from the project into 2021, and now expect to spend approximately $85 million. This year on the NGL line are expected totaled 2021, Capex budget is now approximately $800 million.
Earlier this week, we closed on the sale of our Transtar short line rail assets. The sale of Trans fats are delivers gross proceeds of approximately $640 million and generates immediate incremental value for stockholders.
Lastly, we also recently furthered our commitment.
Commitment to sustainability by adding performance targets to our U S steel in Big River Steel revolvers. This action reinforces our commitment to maintain our industry, leading safety performance lower <unk> emissions and differentiate our operating footprint through responsible steel site.
<unk> certification.
We know where we're headed and with today's market conditions as a tailwind we're getting to the future faster.
Let me hand, it over to Kristy now to highlight our financial performance Christy.
Thank you day I'll begin on slide 10.
Second quarter, adjusted EBITDA was approximately $1.3 billion.
133% higher than our first quarter 2021 performance.
This represents an all time high quarterly EBITDA margin for the enterprise and demonstrates the quality of earnings are.
Our strategy is.
Delivering well.
We also continued to significantly improve the balance sheet as you'll recall, we repaid approximately $1.2 billion of debt in the first quarter.
In the second quarter, we reduced debt by another $300 million or so through open market repurchases and revolve.
Oliver Paydowns.
In mid June we also announced the redemption of approximately $718 million aggregate principal amount of the outstanding 2025 notes.
And yesterday, we announced up to $1 billion of additional debt repayment over the next 12 months.
Year to date, we've completed or announced as much as $3.2 billion of deleveraging.
Deleveraging is a no regrets decision and.
And we can de lever while also investing in projects that grow our earnings it's not either deleveraging or increasing earnings growth.
Growth.
In June we were extremely excited to announce our investment in the NGL electrical line of Big River that Dave highlighted in his remarks, we remain focused on deploying capital to assets with existing competitive advantages, where we can grow earnings organically.
Longer term, we will continue to align investments with our best for all future fuel.
Future, where we will be less capital intensive and less carbon intensive.
Our strategy is not about being bigger it's about being better.
<unk>.
Commerce better for our employees better for our communities better for our environment and all of this translates to better results for our stockholders in pursuit of best.
Let me now talk about the second quarter before I wrap up with some comments about.
Our cash quarter.
So first in our flat rolled segment.
Our North America flat rolled segment posted second quarter EBITDA of $703 million.
164% increase versus the first quarter, our strong operating performance enabled the segment.
To capitalize on today's favorable demand environment, while keeping its cost profile largely unchanged.
We expect the third quarter to day, even stronger both from an EBITDA generation and margin perspective.
And our many metals segment good wherever steel.
<unk> doubled its first quarter EBITDA performance from a 162 million to $324 million.
Higher average selling prices and increased volumes more than offset higher metallics costs.
We expect continued strong financial performance in the third quarter.
Our European segment delivered strong financial performance as well second quarter, EBITDA was $232 million up 78% from the first quarter as the flow through of higher selling prices and effective order book management more than offset higher costs from iron ore.
We expect similar dynamics to play out in the third quarter higher selling prices to provide additional EBITDA uplift only partially offset by higher raw material costs.
In tubular.
Higher selling prices from growing.
Oil and gas demand was the primary driver.
<unk> to $11 million of EBITDA in the quarter.
We expect continued improvement in the third quarter.
In the third quarter. We currently expect adjusted EBITDA to set a new quarterly record for the enterprise.
I'll hand, it back to Dave for.
<unk> comments, Dave Thank you Christy.
Before we move to Q&A I want to spend a moment to address an important topic that Christy talked about in her remarks.
It is a topic, we think is underappreciated by investors at USD, we look at our balance sheet Holistically.
Both our debt and pension obligations, having a fully funded plan is a competitive advantage. Our competitive advantage. We are pleased to have here are some facts.
First our pension and <unk> plans are fully funded that's right greater than a 100% funded pension plan.
We acquired.
For closing any more from a country, while also reducing our pension obligations. Our employees appreciate knowing their concerns about retirement are much much less with a fully funded pension third we have no mandatory cash contributions to our pension plan anticipated for the foreseeable future.
Based on prudent liability management.
And finally.
Once completed the approximately $3.2 billion deleveraging of debt on our balance sheet will reduce our funded debt to approximately $4 billion.
Our balance sheet only continues to get.
The best singer.
Let's recap today's prepared remarks on slide 11.
We are delivering best across our business it starts with safety and carries through to our financial and operational performance.
First is what we strive for and best is what we're.
<unk>, our second quarter performance demonstrates the power of our best strategy and a strategy we've executed with.
High sense of urgency and that has us positioned better than ever.
And our best of both success creates the platform to transition to best.
Where does it all.
Our customers are clear.
They want a steel company they can partner with towards a greener future.
We're getting into the future faster to be that partner to help customers meet their own decarbonization goals.
Kevin let's move.
Move to Q&A.
Okay. Thank you day, we ask that you each please limit yourself to 1 question and a follow up so everyone has the opportunity to ask a question.
Tommy can you please queue the line for questions.
Absolutely. Thank you Dan.
As a reminder, if you'd like to register for a question.
Best force across the 1 by the 4 on your telephone.
You'll hear a 3 Tom prospect nausea requests.
It Hasnt been asked where I could draw your aspiration over 1 for the Colorado.
1 moment please for our first question.
I will get to our first question on the line.
Karl Blunden with Goldman Sachs. Please go ahead.
Hi, good morning, Thanks for taking the question I think you've done.
This work Derisking the balance sheet over the last year or so good to hear about the 1 billion debt reduction target.
When you think about.
Where do you could focus that reduction across.
Whereas steel in Big River steel bond complex would be interested if there's any color you can share about that I know you're doing some callable debt in both structures.
Well, thanks for that quest.
Question Karl you can imagine we're thinking a lot about those kinds of things and maybe just recap here a little bit just to make sure everybody's clear the no regrets decision is.
Is deleveraging.
And we're also pursuing organic profitable growth from best capability.
But if you think about the way we think about this business.
I think it's important that you understand it's about our business priorities to deliver profitable solutions and we are clearly.
Operating from a position of strength the market is exceptionally strong.
We're operating exceptionally well.
And we're continuing to deepen exceptional relationships with customers and we've made a lot of price progress.
Progress and that's why I'm convinced there is so much.
Much more that we can do we can make our business less capital and carbon intensive we can move more quickly than our competitors and we know they're an outstanding still the pace of change. It only continues to accelerate and Thats why you keep hearing us say, we want to get to the future faster in.
And it's the customer relationships that we have it's all about the customers with with the high capability steels that we make the value added solutions and it all has to be sustainable. So that's the path. We're on and then how do we get there again thinking about the priority, where we're where we're headed.
As a company and where we are in terms of our competitive advantages.
It's about our iron ore assets, which are the best in the industry. It's about our best in class, finishing assets and it's about our research innovation and deep customer relationships and it's about our newest competitive advantage.
Vantage the mini mill model at Big River.
So thats why we say that deleveraging is no regrets and you can look at the tiers of.
But that when it's due in and.
See what those possibilities are.
But for us the.
The future.
Does about day.
Deleveraging and also building the capabilities like the NGL line with Big River steel and pursuing the best type possibilities and accelerating ourselves do that so I don't want to make sure you understand that context, where we are with the strong market the deleveraging and also.
<unk> is an organic profitable growth that that we are pursuing more specifically getting back to your question on the deleveraging I will turn it over to Christie.
Okay. Thank you Dave thank.
You said it very well.
This is the strategic path.
From our capital allocation.
<unk> <unk>.
Clearly, we know where we're headed and we have the opportunity to constantly moving forward.
To talk more about our capital allocation priorities in the near term, we're going to continue to Delever.
As Dave said Thats, a no regrets decision.
In the medium term.
So they are pursuing organic growth.
And longer term, we're moving towards our best for all.
And we've made progress on each of these areas in the near term. This $3.2 billion of debt reduction has been announced or completed so far.
And we also have.
<unk>.
State of the art NGL electrical line, that's underway at Big River Steel and will also produce pursuing even more opportunities to get to our best for all faster.
To think about some of the criteria that we use to guide our decision, making non we're looking to lower our capital.
Announced city.
Our lower carbon intensity, we're looking to expand the competitive advantages that Dave went through.
We also are looking to create synergies between these competitive advantages.
So we're working to unlock value. So we can be best and day.
In terms of as Dave explained that's best for our customers our employees communities are investors and best for the planet.
And we think when we do all these things that we're talking about here, we will have delivered enduring value for all of our stakeholders and Carl and again getting back to the debt profile.
While you can see that we don't have any significant debt due until 2025 and I think after that it's 2029, I think Kevin Donlon to average yes.
Yes, sure Karl I think.
You touched on it in your question I think we have flexibility across the entire capital structure as we think about the next $1 billion of deleveraging opportunity.
And we're going to apply some pretty simple I think practical priorities to identifying where we're where we may pursue to delever.
It kind of prepayment costs associated with the debt you know what those frictional costs look like as Dave mentioned, we'll look at the maturity profile and the absolute cost of debt and those are really the kind of guiding.
Suppose we use and we're pretty confident that there is about $1 billion.
Opportunity that.
We can move we can move quickly on.
Yes, that's very helpful.
You have set it up with some flexibility in terms of the coal prices. Just 1 quick follow up I didn't hear much discussion about M&A and capital allocation plan.
Riding principally it sounds like you have.
Sort of different things to do organically I, just wanted to get a sense of M&A.
Now just let me repeat.
Repeat here because it's deleveraging.
And organic profitable growth, we're developing profitable solutions for 4 people and planet. So it's about <unk>.
Organic growth.
We're building capabilities lower on the cost curve I on the capability curve.
For our clients very much.
That's helpful. I really appreciate it thank you.
Thank you very much.
Next question on the line from the line of David Gagliano.
I know with BMO capital markets go right ahead.
Okay. Thanks for taking my questions, obviously phenomenal numbers in the second quarter.
You know in this conversion to hybrid producers obviously then.
Very impressive clearly.
Record high prices also helping.
So my question is as far as your strategy.
In terms of the capital allocation commentary.
$1 billion is nice.
Basically the free cash you generated this quarter.
Specifically do you plan to do with what's probably going to be.
<unk> 4 billion.
Things of cash over the next 12 months, if you can be a little more specific and if you could read and some commentary regarding.
We are shareholder returns fits into.
The equation thanks.
Well, thanks for that again.
Ill, just reiterate deleveraging no regrets and.
Organic.
Profitable growth more moving.
Before it here and building the capabilities.
Think about what it is that U S. Steel is best added as I mentioned in my remarks, we believe we have the best mini mill as measured by its performance, especially its EBITDA margin. So.
You can see us continuing to pursue opportunities with the NGL line that we have it at Big River steel steel and other possibilities.
That space, finishing lines are something that we're really good at as well to protect facility that we have partnership with Kobe, We have what we believe is.
The best finishing line.
Possibly in the World certainly the largest and that is completed and moving forward.
Getting qualified on new grades of steel there as well so theres, finishing line opportunity and of course, we also have our world class mining assets that.
Okay.
We don't just provide.
Iron ore assets to U S steel blast furnaces, but we also pretty much on the seaborne market and have customers outside of U S steel because of our low cost position low cost curve. So those are our competitive advantages and thats where.
We want to grow and that's where when a growth profit, that's where we want to have the capability.
And so.
3 areas.
You almost feel like a check list here.
Organic growth in those areas that we have.
Where we did have advantages.
Okay and then just.
The follow up.
Did you are you going to are you thinking are you considering adding steelmaking capacity as part of that organic growth I didn't hear that part which is.
Alright clarify steel, making as part of that and then secondly can you talk about shareholder return.
Yes.
First on shareholder returns, we believe when we execute well we perform well we believe it will be rewarded and in our share price.
We're focused on again, making sure that we have the best for all in and that doesn't mean <unk>.
Getting bigger.
The competitive that's capability and so we want to make sure that our best assets are the winner winners and that's where we're going to put our money to transition to those things that performed the best for the company and so don't be looking for us to add a bunch of capacity look for us to build capability for profitable growth.
Growth.
Business is in transition.
Best of both become is best for all.
Okay. That's helpful. Thank you.
Thank you so much.
Let's move to our next question on the line from the line of Emily Chang with Goldman Sachs.
Good morning, everyone and thank you Pat.
I wanted to touch a little bit on Big River steel.
Dan for raw material strategy.
Can you remind us again I'll provide guidance as to how much is being.
Austin tally within.
Sort of iron ore business and how much you have to put it.
The us market.
Sure sure. Emily. This is this is Kevin I'm happy to address that so we've talked about in the past.
Kind of some of those initial value capture opportunities that we've identified now that we are 100% owners of Big River steel and Thats really manifested itself in.
And the optimization of scrap within the U S steel footprint. So that's really where we've been primarily focused as optimizing the flow.
Of homes scrap internally generated prime scrap you are big River facility in order to display some of their more expensive outside purchases now that doesn't eliminate their need for outside.
With scrap it just helps optimize.
Really the cost structure there on the on the iron ore front I mean, none of the metallics that big river's consuming are currently being sourced from from U S. Steel so they're procuring their API pig iron and things like that from from the outside.
Market, but as Dave touched upon quarter. The strategy is investing in those competitive advantages looking at our iron ore assets and saying as we grow the footprint of electric arc furnaces now having 3 in the U S steel footprint, how do we use those iron ore assets to benefit.
And that's certainly an area of opportunity as Dave.
<unk> per day to extract incremental value.
Across the enterprise.
Thanks, Nick Cullen, Kevin and then 1 follow up if I may.
Given where steel prices are in sort of the healthier outlook for that product U S steel industry, maybe give us some color around the updated outlook.
Look for laughter at granite city should we anticipate this to be.
More or less indefinitely idled or is that a certain price environment on demand environment.
You would reconsider.
Since the operational status is.
What kind of data thank you.
It'll be indefinite.
Highlight we idled.
Okay, that's very helpful.
Thank you very much.
From Mikes question on the line from the line of centers.
Kathleen Wilson from Deutsche Bank. Please go right ahead with your question.
Yes, hi, thank you.
My first.
Definitely is on the annual automotive contracts.
Since with the automotive Oems and what's your expectation for 2020 to understand it's still early early stages, but would appreciate any color given the significant moving the underlying spot pricing.
Well thanks.
Thanks for that and in our discussions with our customers are ongoing. These arent events. These are continuous dialogues and understanding of what their needs are and and I would say all of us have seen in this industry, everyone, a big pivot toward de carbonization and.
That's certainly top of mind for.
Question. So the types of steel that we're able to make the advanced high strength steel the generation 3 steel then most recently the vertex the green steel that we've trademark are definitely the kinds of discussions that we're having and we're not.
About out negotiating or.
<unk>, we're about partnering with our customers and they understand like we understand the prices will ebb and flow and the prices are very high right now and we'll work with them to the mutually beneficial solution that we can win together over the longer term.
If you think about unique value.
<unk> proposition that we have for our customers. We do you think about Big River steel, we had 3.3 million tons of low GHT emission steelmaking in our portfolio. So U S. Steel is the only company provisioning generation 3 advanced high strength steel. So this is something that commands a premium and delivers.
Our cut on their de carbonization goals and so while our negotiations are continuous and ongoing we do as we've said stronger for longer better days ahead.
In fact later, it's going to be greater because of the strength of this market is clearly enduring.
<unk>.
Certainly in the short term, we're going to have records, we expect records. This.
This next quarter, all time records for the company and each time people will predict that the prices are going down we see just the opposite at some point in time, we do know that there will be more of a reversion to me to me, but more.
More likely than not it's probably going to be reset at a higher number than.
Then in the past given the fiscal stimulus given the fed's monetary policy given that the infrastructure Bill is inevitable.
And.
The strength of.
They come back from this.
Economy seems to be.
Enduring and we've certainly seen that in every prediction about this.
This cycle being short lived has been debunked.
Definitely in a good place and we expect prices to hold for for quite some time.
Okay. Thank you.
Helpful color.
Just 1 follow up on the raw material steps that are due for a big goodwill given the tightness and by market.
Prime scrap market.
I think maybe looking at EBITDA restarting.
Restocking will not be idled blast furnaces are converting the operating.
Operating.
Best friend is those 2 satellite begun to be good.
Is that something that's being considered.
Sometimes I wonder if if youre actually in the rooms that were discussing because this is certainly a hot topic.
For everybody that's got a mini mill, let's face it.
The thing that keeps mini.
Sales up at night is the metallics strategy and where are they going to get the.
The scrap in the iron ore longer term the good news for us is being vertically integrated and having this world class mine sites, we have the opportunity to.
Create a pig machine, we have several locations that it.
It is possible to do that with.
That's certainly something that's under discussion as we as we transfer.
Transitions towards best for all.
Okay. Thank you and best of luck for the next quarter.
Thank you very much.
Let's take our next question on the line from currency.
The Alba from Morgan Stanley. Please go right ahead.
Thank you very much good morning, everyone.
The question I have is if you could be.
Maybe if you can give us more color on when do you how do you see dividends in your capital allocation.
Policy and.
What I want to states and your deleveraging, which has obviously been quite.
<unk> strong.
And we will continue to be.
Given the side.
You are well funded.
In your pensions.
To stage would you consider maybe returning more money directly to shareholders either dividends or share buybacks.
Well I think there's no doubt that longer term those.
There are things that are going to be.
On the table, but for the current situation, where we are right now we think the deleveraging has no risk and then also investing in organic growth organic expansion of <unk>.
EBITDA is the right solution that will give us the best returns to our stockholders.
Especially the longer term stockholders.
And on and.
On the sort of capex, but away from organic growth.
How do you see in the coming years, the level of maintenance capex or sustaining capex that you need to deploy to.
Keep your assets in good shape.
There's just too sort of maybe take them up a notch.
Well.
That's another really good question because.
A couple of the challenges that this industry has is on.
De carbonization, and reducing capital intensity and that's certainly something that's front and center for.
For us as we pursue best of both and make the transition to best for all because we we do believe that we're on that path to become a lot less cash capital intensity intensive as we focus on those those.
Hi, competitive advantages that we have as a company.
Or the business is definitely and transition the business is definitely.
Really good place to deploy capital on those assets that perform.
The best for our stockholders and that's because they're the ones that performed the best for our customers. It's a green world, It's a sustainable world that.
So to go after them and so long as our customers are demanding that we go green and we have to help them hit their targets. We're all in on that and we'll invest in those assets that will get us there faster and and that means just.
By the very.
Very nature of what our customers are demanding we are going to be less capital intensive.
Hey, Dave I would just add when you look at sustaining capital.
Like the mini mill model.
Staining capital for example, this year is going to be about $20 million of Big River steel compared to about $4.60 for us.
For the legacy U S steel plants.
Yes, I mean tremendous difference so we really like what we're seeing there.
We will be moving more in that direction.
Yeah.
Thank you very much.
Our next question on the line from the line from Andreas Broken Hauser from.
UBS. Please go right ahead.
Thank you very much. Thank you for taking my question. A quick question on your new medium term production outlook or volume growth potential looking at you.
Your financials I think you reported growth you'll set rules.
Utilization at about 59%.
Which by my Count includes the idled capacity at Great Lakes and granite city in the denominator.
So correct me if I'm wrong, if we kind of take that out it looks like flat roll capacity to use I'd say from it was more like 85%.
And.
And that makes me wonder do you have the ability assuming my math is correct. It but do you have the ability to go from 85% closer to like mid nineties late Ninety's percent over the next 12 months that I can get more volumes into the market.
Sure. Thanks, Andreas This is Kevin your math is indeed correct.
You know for everybody.
Deposit benefit.
The idled.
Capacity, we have in our footprint is included in the denominator of that calculation. So if you were to adjust for those 3.
Furnaces being offline. In addition to the outage that we took in the second quarter demand valley, our utilization of our.
Kind of operations and North American flat rolled was closer to the mid eighties, 90% range.
As a blast furnace producer the 90% range is a very very good level of utilization.
Core 4 assets, so there could be some incremental maybe shipment volume as we look into Q3, but it's not.
Anybody a lot and we think we can probably put shipments a little bit higher and our mini mill segment as well. So I would expect that there'll still be some kind of quarterly volume growth here in the U S across both our our integrated footprint as well as in the many more segment.
That's very clear.
And maybe 1 follow up if I may just going back to the pig iron question.
If you could kindly remind me Big River, where the Big River.
Consumes prime scrap and if so is it the mill does you know do you have the ability to reduce or completely remove prime scrap in the furnace.
This end and replace it with would pick given all the talk about the prime scrap market being tight and yet to come do you have that ability to replace or do you need some prime in the in the phone is there.
Yeah, Yeah. Thanks. Thanks, So then.
Italic mix that we're currently seeing at <unk>.
Big River Operation is really.
About 65% scrap 35% scrap substitute so other Virgin Metallics, and obviously is a enormous metallic strategy continues to evolve from there is going to be some level of optimization, that's going to occur so whether thats the continued.
Transfer of internally produced prime scrap to Big River.
Or becoming more self sufficient on some of the Virgin metallic units I think those are all things that we will continue to look at the 1 we enhance I think the burden on the furnaces down at our Big River operations and more could could unlock some some additional raw material cost savings moving forward.
Okay. So it's really.
Is it fair to say it's more.
Profit maximization strategy that depends on whether you consume peak versus prime I mean, there's no there's no technological obstacles from from reducing prime in the furnace is that does that but I think it is.
Certainly you're always the customers everything so you got to make sure you produce.
Alright, Chemistries and products.
And make sure you have the right inputs to get there, but it certainly cost productivity become key considerations. When you think about how you. How you how are you bearing the furnace moving forward. So I think we have some options to certainly continue to improve in.
Net.
Produce is going to be I think a big value driver moving forward as the footprint of Eas.
And we continue to optimize what we have it.
<unk> segment as well as the 2 furnaces there at the Big River.
That's very clear thank you very much for taking my questions.
Thank you.
Okay next question.
<unk> from <unk> from <unk> <unk> with Exane BNP Paribas. Please go right ahead with your question.
Yes, hi, Thank you for taking my question.
Just 1 please.
Yesterday, 1 of your peer on the deal.
De carbonization Capex figure and.
You also ask you to read.
On the on target de Carbonization strategy.
Have you already estimated the timeline.
Any capex associated with those targets.
And more specifically in Europe, we're probably you'll see them all the pressure of carbon costs at the moment.
Would you consider switching to a tier I, yes.
Production methods. Thank you.
Yes. Thanks, John Thanks for that question and I would say I think the answer would be of course.
When you decarbonize its going to take a planet to make the improvements. So we get approach fruit frequently for partners to find ways creative ways to Decarbonize our slovakian.
<unk>, we've been there for a very very long time, it it's a large operation with over 9000 employees and and we work closely with the government. We work closely with our suppliers and we're looking at possibilities for us to partner together to create an enduring future that means.
Everybody.
He comes together to make.
The facilities become more green and that's the beauty of this be had you know the big hairy audacious goal for 2050, it's going to take.
Companies in counties in countries and all coming together in a unified way too.
Get the advantages and that's another reason why steel prices will be stronger for longer because there will be additional expenses that will come in those additional expenses are things that that we will be collaborating on and building partnerships in order to get get to this wonderful greener.
Greener future that saves the planet, So we're pretty pumped up and excited about how we're working well together whether it be in Slovakia or even more recently, we are encouraged by the work that's happening right here in.
Allegheny County, there is a higher degree of interest and de Carbonization Theres a higher degree of interest in.
Speaks to keep a strong manufacturing base in the United States, where we're thrilled frankly with build back better with bite on this because.
I think the future with this infrastructure Bill is gonna be breakthrough for manufacturing in the United States will have to see how it plays out, but it's going to be a collaborative effort and when people.
What it together again countries and companies and counties.
We ended up in a much better place.
We're excited about the potential for our industry and also for the planet.
Alright, thank you.
Thank you very.
Much.
Our next question online from our follow up question on the line of David Gagliano from BMO. Please go right ahead.
Hi, I just wanted to ask a quick follow up on the commentary.
I'm from market can you talk a little bit about the use of.
Capital printing needs there to make it a greener.
You know operations.
And then also just unrelated if you could just talk a little bit about.
Demand destruction risk or if you're seeing anything like that with regards to the steel prices being at a time.
Of your key end markets.
Yeah.
I'll answer the I can certainly address the demand question.
Question, David maybe I'll ask Richard to comment kind of on U S. S. K and how we think about de carbonization from there, but on the demand side will be honest, we're not seeing really any weakness in the order book.
We continue to have.
A really robust order books to continued strength in consumer driven end markets like apply.
Construction.
And we think that obviously the automotive supply chain has been disrupted a bit here in the near term, which which only means that there is some pent up demand that will eventually be unlocked as as the supply chain resiliency works its way out, but everything we're seeing our lead times remain.
<unk> extended we're seeing continued positive momentum in the order book.
With really really no weaknesses to be found but maybe rich I'll hand, it over to you to talk a little bit by U S. GAAP.
Yeah sure. Thanks, Kevin So I think it's interesting to think first in Europe, you've got basically 2 thirds blast furnace <unk>.
<unk>, which is the reverse here what we've got in North America, when we think about de carbonization in Slovakia as Dave said, we have.
Great partnership with the Slovak government because of the role <unk> plays in the Slovak economy looking at the opportunities there. The Europeans are I'd say further ahead in the United States in.
Public private partnerships you look at what's going on in Sweden, with hybrid and SSA be involved in fall in.
The iron ore.
Partner of that group sales.
And the Swedish government that EU. So when we think about de carbonization of U S. S. K is going to be probably need to be a public private partnership.
There are opportunities there when you look at electric arc furnace technology, you've got to assume that you'll get DRA in scrap in sufficient quantity in the right electricity rates, but theres a lot of opportunity there just from.
Any potential switch over to Eas rough.
Roughly 25% of the carbon emissions the GHT.
From a <unk> versus a blast furnace.
You look at that and Youre going to have to figure out how to get that partnership with the sale of our government.
If we're going to Decarbonize U S S K.
Is there a timeline around that de carbonization initiative and potential yes.
Plop in.
Emissions are locked in.
I wouldn't say there is a timeline obviously, what the efforts in the EU to accelerate their EU wide de carbonization goals things are accelerating in Europe.
So we have to think about that as we plan for the future of U S. S. K.
Okay. Thanks, that's helpful.
Thank you very much we can turn next question another follow up from Carlos de Alba from Morgan Stanley.
Yes. Thanks.
Wanted to flow on the assumptions for for the EBITDA generation of the NGO.
Investment.
Is there any way.
From my color behind it and realized price in the U S that you're assuming for the EBITDA.
Generation and it's fair to assume day and also that the ramp up that you provided on your EBITDA.
Yeah.
Yes.
I'm sort of ramp up that you expect on volumes.
Yes, Thanks, Charles this is Kevin.
So on the ramp up of volumes I think 1 of the really attractive things about this project and why we're really excited is this is a growing market right. So the EBITDA ramp up that you see not only is a portion of how is the asset itself going to ramp up from a productivity perspective, but also how are we going to be able to participate.
And that growth.
Our customers right. So that's driving a bit of a ramp up in addition to the assumed utilization of the facility from a pricing perspective, what we did to drive.
To determine the incremental EBITDA as we looked at through cycle HRC prices and whats the normal spread between our value added products.
Product like NGL 2.2.
HRC price and Thats, whats really driving the incremental $140 million of improvement. So it's kind of a mix effect.
Elevating the value add.
The of the NGO.
And that's generating our assumptions are on run rate EBITDA.
Alright useful thank you very much.
Sure.
Thank you we'll go to our next question on the line from Matthew <unk> from Bank of America go right ahead.
Hey, thanks.
1 of the a quick 1 about your ABL noticed that you you amended it to include some sustainability targets.
So shrunk it to.
$2.1.75 billion.
You've gotten bigger with the acquisition of Big River steel.
Understand there is a lot of seasonality in the business and you use this facility like I was just wondering why you wanted to shrink the ABL.
Instead of keeping more financial flexibility.
But John I know you are deleveraging and I know you can invest both in everything from great but.
Why a smaller 1.
Yeah. Thanks, Matt So I mean, we really looked at it whats the efficiency.
<unk> ABL, which is our kind of legacy.
Legacy ABL, So big River has its own credit facility, which was.
Extended 4.
And an additional 5 years, so when we looked at our domestic kind of legacy revolver, we're solving for efficiency and also making sure that we had full access to it throughout all points of the industry cycle. So what you've seen in the past as we've entered something that was below through cycle, we've lost and access to.
The ABL so in our mind it didn't make sense to have the bigger 1 given the down at downside access to liquidity was more limited. So we saw for efficiency. We think this is the right size to fit the footprint we have now.
Does the new ABL haven't been a credit agreement the new ABL not have that covenant, where you lose kind of 10% accessible.
Below a certain coverage ratio.
So I think that based on the footprint that we have losing that downside protection is less like downside Axa is less likely now that was a smaller a smaller facility.
Okay. Thanks, and then there's been a lot of talk about the raw material investment.
But the mini mill side now that you do have 3 eas.
1 million tons of iron substitute is.
There's a lot of it.
Is it more than just the picking machine is it is it some kind of investment in H B I D.
Our recycling infrastructure.
<unk> that you need across your footprint now that you you sort of have EAA absent a more substantial part of your footprint.
Yes, it's a good question.
Matt and obviously.
Any of our footprint has become a more.
We're part of U S steel, it's certainly an important consideration I think.
Equally positioned to target.
We purposefully all sorts of different metallic strategy. So if you think about a pig iron strategy leveraging existing blast furnaces in the footprint it doesn't require as much upfront capital in order to execute so it can it can certainly be something we move more quickly.
We are in the near term and then you think about longer term.
When you're talking about HP IRI, its not something that we're going to certainly rollout I think it could be an important part of of U S steel moving forward, but I would think about them almost potentially sequentially.
Take aren't maybe be the more near term opportunity at the right time.
<unk> on and then any kind of recycling operations.
Either you purchased or are you kind of build from scratch.
What's the outlook on that.
I think yes, I think we're mostly focused not on as Dave talked about in his remarks, we are investing in existing competitive advantages iron ore is the existing competitive advantage, that's where we'd look to allocate capital.
Thank you.
More so than starting something new.
Okay. That's helpful. Thanks.
Thanks very much.
Thank you.
Thank you very much I'll now turn the call back to the U S steel field day Berg for any closing comments.
Thanks, everyone for joining us this.
Capitalizing these are exciting times for U S deal.
And I want to conclude by thanking our customers and employees so to our customers. Thank you. Thank you for your partnership and trust and thank you for the opportunity to provide the sustainable steel that turns your visions into reality, we look forward to.
Good morning can achieve together and to our employees. Thank you for delivering a record performance in the second quarter stay focused on what you can control working safely in producing quality products that delight, our customers time and time again your commitment to your fellow co.
Worker and the customer is what makes us steel the best.
Now, let's get back to work safely.
Thank you.
It does conclude the conference call for today, we thank you for your participation huskers disconnect your lines.
Good day everyone.
Okay.
Sure.
Yes.
Growth.
Sure.
Alright.
Yes.
Okay.
So there is growth.
Okay.
John.
Yes.
Okay.
Sure.
Okay.