Q3 2021 Nucor Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the Nucor Corporation third quarter.
1021 earnings call as a reminder, today's call's being recorded later, we will conduct a question and answer session and instructions will come at that time certain statements made during this conference call will be forward looking statements that involve risks and uncertainties. They're words, we expect believe anticipate and variations of such words and similar.
If toothbrushes are intended to identify those forward looking statements, which are based on management's current expectations and information that is currently available. Although nucor believes there are based on reasonable assumptions there can be no assurance that future events will not affect their accuracy more information about the risks and uncertainties relating to.
These forward looking statements may be found in Nucor's latest 10-K, and subsequent shall filed 10, Qs which are available on the SEC's and Nucor's website.
The forward looking statements made in this conference can speak only as of this date and Nucor does not assume any obligation to update them.
As a result of new information future.
Events or otherwise for opening remarks, and introductions I would like to turn the call over to Mr. Leon Topalian.
President and Chief Executive Officer of Nucor Corporation. Please go ahead.
Good afternoon, and thank you for joining us for our third quarter earnings call. Joining me today on the call are the members of Nucor's.
Core's executive team, including Jim Frias, our Chief Financial Officer, Dave Some Mosqui, our chief operating officer.
They are responsible for plate and structural products, Doug jellison responsible for raw materials and logistics Greg.
Greg Murphy responsible for business services, and our general counsel.
Dan need him responsible for bar and rebar fabrication products, where X query responsible for sheet and tubular products Mary Emily slate responsible for enterprise commercial strategy and Chad <unk> responsible for engineered bar and fabricated construction products.
Nucor continues to deliver.
Liver strong results in our safety performance as we work towards our goal of becoming the worlds safest steel company our.
Our performance in 2021 is slightly ahead of last year, which was the safest year in Nucor's history.
Our team is committed to identifying and eliminating those risks which could lead.
To injury.
Our most important value is the safety health and wellbeing of our entire Nucor family.
During the third quarter, we once again achieved record results with earnings per share of $7 28.
Our third quarter performance surpasses, our previous record of $5 <unk> said in.
Quarter of this year and nearly matches our full year earnings record of $7 42 that.
We set back in 2018.
I'd like to congratulate the entire nucor team for delivering the phenomenal results. We've seen so far this year, while staying focused on our safety goals I'm incredibly proud of our team.
Second what we are accomplishing together.
Since our founding 56 years ago sustainability has been at the core of Nucor's business model more than ever before we see opportunities to advance our continued success by partnering with customers to help them meet their own growth and sustainability objectives.
Our recent launch of.
<unk>, which is a new line of net zero carbon emission steel products. It gives our customers confidence and the trust that the products that they're purchasing firm Nucor will not only help them meet their sustainability goals, but provide a differentiated value proposition for them for the future our use of recycled scrap based EAM technology.
Technology enables us to operate at 70% below the current ghd intensity for the global steel industry.
<unk> steel will further advance our leadership position by applying credits from 100% renewable electricity and high quality carbon offsets to Nick.
Any remaining scope.
One or two emissions from our steelmaking process.
We are delighted that general motors will be the first customer for Iconix, where their first shipments slated for early 2022, <unk> is going to be a key piece of Gms vision of a net zero emissions future.
As GM continues to work towards reducing carbon.
<unk> emissions throughout their supply chain and through electrification of their model lineups and we also look forward to deploying iconic more broadly to help customers from across numerous other steel consuming end markets meet their goals and develop more sustainable products.
And while I'm on the topic of sustainability.
Ability, our new corporate sustainability report can be found on <unk> dot com, along with our first TC ft aligned report and updated SaaS be aligned to report from our steel Mills segment. We hope you will find all this information informative and useful.
In the third quarter was a very eventful.
One for Nucor strategically as we announced or closed on several investments that will help us continue to advance our company's mission to grow the core expand beyond and live our culture.
We announced our plan to build a state of the art sheet mill in the Midwest on September 20th with 3 million tons of annual capacity. This.
Mill will be located to serve the country's largest steel consuming regions the Midwest and the northeast.
These are regions, where nucor's currently under represented with coil width of up to 84 inches of tandem cold mill and initially two galvanizing lines, the new sheet mill will position nucor to grow its market share.
<unk> and value added products from automotive appliance HVAC AC heavy equipment agricultural transportation and construction applications. The mills product mix will be approximately two thirds cold rolled and gals.
The U S steel market is undergoing a structural transformation driven by the dual.
Youll imperatives of economic efficiency and sustainability, our mill will be state of the art and have a significantly lower carbon footprint than nearby competitors.
With our financial strength and multi decade track record of innovation and execution Nucor is uniquely positioned to continue leading this.
<unk> steel market transformation.
Our investment in this greenfield sheet mill represents a continuation of nucor's balanced approach to capital allocation investing in projects and acquisitions expected to generate returns that substantially exceed our cost of capital. While also continuing to return at least 40%.
<unk> of our net income to stockholders through a combination of dividends and share repurchases Jim will discuss this further in his opening remarks.
Also we recently announced our plans to expand out west we will build a new melt shop in one of our existing bar mills in the Western United States. This facility will have the capacity of six.
<unk> hundred thousand tons annually, adding milk capacity positions nucor to build on our market leadership position in the region, which is experiencing both population growth and the infrastructure investment that typically accompanies it.
Our bar Mill group is where our steelmaking started over 50 years ago and it continues to generate very attractive.
Corrective returns on capital.
In addition to prudently investing to grow our core steel businesses, we are executing on our opportunities to expand beyond.
During the quarter, we acquired cornerstones insulated metal panels business as well as Hannibal industries steel racking manufacturer.
We're now able to offer a broad range of insulated metal panel products and racking solutions. Each of these businesses is aimed squarely at serving fast growing markets, such as warehouses and data centers.
Our strategic investments will continue to be aimed at positioning nucor to serve attractive growing.
<unk> end use markets as the economy evolves to rely more on renewable power and Internet based services.
We are excited to welcome our newest team members to the Nucor family.
As you can see we are adding capabilities to increase our presence in attractive markets and extend our company's long record of growth.
And value creation Nucor is positioned to provide the sustainable steel and steel products needed to build the 20 <unk> century Green economy.
A key requirement of that economy is modern resilient and sustainable infrastructure Republicans and Democrats agree that the bipartisan infrastructure and bill.
Urgently needed and we hope Congress can find a path forward to get this bill passed.
In order to ensure the safety of our citizens the health of our economy and future opportunities for American workers, we cannot afford to have Congress Miss this opportunity.
Before I turn the call over to Jim Let me take a moment to congratulate our team.
You all should be very proud of the safety and financial results achieved in the first nine months of the year.
We can only benefit from the strong market conditions, if our facilities are running safely responsibly and reliably once again. Thank you to each of you for what you do to help Nucor when Nucor will continue to invest in our.
Sure and provide our customers a differentiated value proposition, while offering the most diverse set of capabilities.
Steelmaker.
Thank you all for what you do and as we approach the end of the year, let's continue to make 2021, our safest and most profitable year in Nucor's history.
Now Jim <unk> will provide.
Future more details about our performance in the third quarter Jim.
Thanks Leann.
Our proud to report our third quarter of 2021 earnings of $7 28 per diluted share, establishing a new quarterly earnings record.
This quarter's results also compare favorably with year ago third quarter earnings.
<unk> of <unk> 63 per diluted share.
We are benefiting from strong demand and profitability across new course diverse portfolio of products and capabilities.
<unk> product breadth continues to be a powerful driver of value creation for both new core customers and shareholders.
Due to higher than expected inventory.
Tori profit eliminations third quarter earnings were slightly below our guidance range of $7 30 to $7 40 per diluted share.
Year to date earnings of $15 34 per diluted share are more than double 2000, Eighteen's record annual earnings of $7 42 per diluted share.
We are extremely proud of our team's strong performance during the current up cycle and through all the pandemic related challenges we have experienced this year and last.
Our confidence in Nucor's competitive positioning has never been greater as we look to execute on further opportunities in the months and years ahead.
Our results reflect strong returns.
Returns from consistent reinvestment in our operations over the years and outstanding execution by our team.
Five significant organic growth investment projects, representing approximately $1 billion.
In aggregate capital investment completed startup and full product commissioning over the 2019 to.
2020 period.
The Rolling mill modernization at our Marion, Ohio, Rebar mill, the Hot band Galvanizing line at our Kentucky sheet mill the.
The specialty cold Rolling mill at our Arkansas sheet mill, the rebar micro mill in Missouri, and the rebar micro mill in Florida.
Each of these projects are delivering life.
To date profitability well above their original projections.
During this past quarter. These projects together generated EBITDA exceeding $180 million.
The two completed sheet mill capability expansion projects Merit additional comments.
Just two years after beginning operations in September of 2019.
With Galton, Kentucky Hot band Galvanizing lines cumulative EBITDA exceeds the projects 200 million dollar investment at.
At 72 inches wide. This line is the widest hot Rolling Galvanizing line in North America, and is uniquely positioned to serve value added markets such as automotive solar tubing grain store.
Ridge culverts and cooling towers.
The facility ran at 112% of design capacity in the third quarter of 2021.
Next the Hickman, Arkansas specialty Cold mill continues to be another great success story.
After beginning operations in mid 2019, the specialty cold mill.
Cumulative EBITDA already exceeds half of the projects capital investment.
This facility also ran at 112% of rated capacity in the third quarter of 2021.
Further our specialty cold mill team is still very early in the process of developing unique product capabilities and applications leveraging hickman.
This flexible cold rolling mill to produce the high strength lightweight products that are increasingly demanded by OEM customers to our teammates at these locations and across Nucor, Congratulations and thank you for your outstanding work.
As most of you are aware two more major capital projects also totaling approximately one.
Billion.
Are on schedule to begin startup during the fourth quarter.
These investments will expand further new course product capabilities into the sheet market.
They are the expansion and modernization of the Gallatin sheet Mills Hot band production capability and the generation three flexible galvanizing line at the Hickman sheet.
Mill Galton would begin a 25 day production outage on November 23rd for final equipment installation.
After the outage startup and commissioning will commence.
At Hickman commissioning of the flexible galvanizing line is underway with prime production expected in December.
Looking into 2022, our team construed.
Taking the $1 $7 billion Brandenburg, Kentucky state of the Art plate mill is on track for startup late next year.
Project to date capital spending totaled about $570 million.
Located in the middle of the largest U S plate consuming region and able to produce 97% of plate products.
<unk> consumed domestically this mill positioning nucor to support domestic production of wind towers, while securing our market leadership position in plate.
Turning to cash flow and the balance sheet.
Cash provided by operating activities for the first nine months of 2021 was approximately three.
$6 billion.
New course free cash flow, our cash provided by operations minus capital spending of $1 2 billion.
Was about $2 4 billion.
For full year 2021, we now estimate capital spending of approximately $1 7 billion.
At.
In the third quarter, our cash and short term investments and restricted cash holdings totaled $2 3 billion.
This is a decline of about $900 million from the second quarter level.
During the third quarter Nucor funded significant uses of cash totaling approximately $3 6 billion.
Including acquisitions of $1 3 billion capital spending of $505 million.
Share repurchases of $858 million in cash dividends of $120 million and our net working capital expansion on inventory receivables payables and accruals totaling 700.
<unk> hundred $66 million.
These uses were funded primarily from nucor's ongoing strong cash generated from operations, the cash and short term investments drawdown plus the receipt of $197 million from the issuance of green bonds tied to the Brandenburg project.
At the close of the third.
Quarter total long term debt, including current portion was approximately $5 6 billion.
Gross debt as a percentage of total capital was approximately 29%.
Net debt was about 17% of total capital.
Our financial strength continues to be a critical underpinning of nucor's ability to grow.
Long term earnings power and provide attractive cash returns to shareholders. We remain committed to returning capital through cash dividends and share repurchases a minimum of 40% of our net income over time for the first nine months of 2021 cash returned to shareholders totaled $2 1 billion.
That represents approximately 47% of nucor's net income for this period.
The year to date capital returns consisted of dividends of $367 million and almost $1 8 billion of share repurchases.
During the third quarter, we repurchased eight 2 million shares.
At an average cost of approximately $105 per share.
Year to date repurchases totaled 23 5 million shares at an average cost of just over $87 per share.
Over the first nine months of 2021 Nucor shares outstanding have decreased by about five 5%.
Percent.
As we approach year end Nucor's board will consider a dividend increase for 2022.
We have paid and increased our regular quarterly dividend every year since dividends were instituted and $19 73.
We expect the board's deliberations will consider.
<unk>, both the effects of our recent repurchases and the sustainable earnings power, we see in our businesses.
Since the end of 2017, New course capital allocation framework has helped us achieve significant value creation for our investors.
Issued and outstanding shares have been reduced by more.
More than 10% moving from 318 million shares at the end of 2017 to approximately 286 million shares at the end of the third quarter.
Over that same period, we have grown our steel bar production capacity by about 13% to $9 6 million tonnes.
We have.
<unk> also added about 1 million tons of value added processing capability to our sheet business.
Additionally, our steel products capacity has also grown by more than 1 million tons. Today, we have significant projects under construction that will grow our sheet and plate capacity to more than $4 million and 1 million tons.
Respectively.
Further increasing our earnings power for decades to come.
We are having a remarkable year in 2021, but it should not be missed that nucor's ability to generate higher earnings per share is continuing to grow.
Turning to the outlook for the fourth quarter of 2021.
One we are encouraged by ongoing robust demand conditions in most of the end market served by Nucor.
In fact order backlogs at most of our businesses suggests strength well into 2022.
At the same time customer inventories remain relatively lean.
Logistical challenges throughout the economy continued.
To represent a risk factor. However, the moderating influence. This is having on current demand may prolong the duration of this favorable economic cycle.
We believe earnings in the fourth quarter of 2021 are likely to be at or near the record level achieved in the third quarter.
Compared to third quarter, we expect earnings.
Growth at our steel mills and steel products segments.
The raw materials segment's performance will be challenged by margin pressures in our DIY business we.
We are encouraged by our first nine months of 2021 performance and we see great opportunities in our future.
We are committed to delivering increasing.
<unk> long term value for our shareholders living our culture means driving performance. Thank.
Thank you for your interest in our company operator, we are now ready for questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker.
Phone. Please make sure your mute function is turned off July your signal to reach our equipment again. Please press star one to ask a question, we'll pause just a moment to allow everyone an opportunity to signal for questions.
We will take our first question from.
Fathers' cursed with van <unk> with Deutsche Bank. Please go ahead.
Yeah, Hi, good afternoon, thanks for taking my questions.
First question is on the cost inflation can you talk about what youre seeing on the cost side other than <unk>.
Scrap.
Natural gas for your DRA and steamers also.
It would be helpful. If you could remind us what percentage of your annual gas requirement is colored by production from your own natural gas natural gas wells.
The fixed price contracts that you have and how much is exposed to the spot pricing.
Yes, yes, thank you and I appreciate the question Neil Let me start broadly and.
Maybe ask Jim to chime.
Chime in.
On some details, but obviously, we're looking at all of our.
Cost across the segment and how that affects the bottom line performance of Nucor, whether that the energy scrap.
Sure.
Flavor and again goods and services that are coming in again, mostly domestically.
So while we're certainly seeing and following and tracking of the supply chain constraints.
We source most of our products here domestically and so in some cases in most cases, we've been a little.
Sheltered from some of those impacts, but as we look at labor as.
We look at moving trucks and materials barges.
Getting shifted in and out those costs are certainly having an impact while we are seeing with energy.
Obviously, we're watching we have natural gas wells.
Sure.
Over the years, we have not continued to drill however, as we see the market moving up now it's really a question.
How long do we believe that is sustainable and we believe that will continue well into the future and again, that's part of our teams analysis ongoing analysis now to determine how.
How bullish we are about that future as we move forward, Jim anything you'd add to that yes. Thanks, Leon we have an active risk management team that looks at.
Commercial risk or price risk, especially related to energy and natural gas.
And we do have hedges in place to cover.
Our gas consumption that cover about 40% of our total gas consumption as a company.
Going out into 2023 right now so we're seeing some inflation, obviously with gas cost.
A lot of it is being offset by the hedges that we have in place.
Okay. Thanks for the color.
My second question is on shipments made.
<unk> volumes were down.
One 4% quarter on quarter can you provide some color on what led to the quarter on quarter decline versus your previous guidance for <unk>.
Improvement and how should we look about shipments for fourth quarter given the planned.
<unk> got it in for the expansion.
And also the normal seasonality that you will see.
Yes, let me be clear, we did miss our guidance because of shipments we were down 4%.
Largely from a shipments perspective.
The outages, we took across our sheet mill group.
Approximately took about a week down at each of our sheet mills and that equated to.
The shipments roughly that.
We were down.
We think about performance and again think about the quarters perspective.
We think a better measure of how new course performed against that is our operating cash flows year to date, we've generated $3 $6 billion worth of cash in that time period. However, in the third quarter alone we generated $1 8 billion of that so nearly half of <unk>.
The overall year's earnings.
Crude and or accounted for in the last three months. So in terms of our performance the demand drivers driving our business. It remains very very robust.
The piece that we underestimated was the intercompany eliminations and with that I'll turn it to Jim, but then take you through a little more color around.
Uh huh.
We accrued that are accounted for that yeah. Thank you Liana first of all let me use some data on what intercompany loans had been in each quarter. This year. They were about $183 6 million in the first quarter of $148 7 million in the second quarter and they jumped to 268 million.
In the third quarter, and so let's talk about why they jumped by such a large amount of our normal amount of intercompany steel inventory and I'm talking about finished steel products have been sold to a downstream business.
Our sister division that needs that fuel for some purpose.
It is normally around $1 3 million tonnes. It goes up and down from time to time in this year.
Because of the strong demand market that has trended down in fact at the end of the second quarter that was down to 1.076 million tons. So down more than 200000 tons before we would consider a normal level and in the third quarter that inventory came up a little bit. It's now at the end of the third quarter 1.14.
Year one.
So it went up by roughly 65, I'm, sorry, yes around 60000 tonnes and most of that happened in September and we didn't forecast it and the margins on that inventory, we're very large and so that caused us to miss our our earnings by about our pre tax earnings by about 60.
$4 million that was the impact within our forecast that two Clinton equivalent of <unk> 16 per share. So it's we view. It is it's not something you would call out because it wasn't like a one time item that's tied to an operational issue. It's an intercompany accounting thing that happens when you have so much vertical integration, we view the fact that over 20%.
Four of our steel is consumed by in house customers as a strategic advantage that is important to our business and so in the quarter and in specifically in September the inventory. They required we had him a little hand them out.
Wasn't enough and we stepped it up a little in September and we don't have a way to see that in corporate Norway of so many businesses that.
Percent deal and sell it to the internal customers, there's no way for us to measure that on a timely basis until we close the books at the end of the quarter and that was what happened okay.
Yeah. Thanks for the thanks for that but it was really good and congrats on a great quarter. Thank you.
Thank you. Thank you.
We'll take our next.
It makes us Jim from Martin Englert with Seaport Research partners. Please go ahead.
Hi, good afternoon, everyone.
Good afternoon Mark.
Given the increasing Eas flat rolled capacity that we're seeing in the North American market can you touch on your metallics strategy for prime.
Question from substitutes briefly maybe.
Maybe more so is there anything that you are undertaking on that technology or metallurgical front with scrap or increase the importance of substitutes.
Yeah, I'll I'll kick us off Martin and then I'll turn it to Doug jealous seem to give us some more details.
<unk> scribe EVP of raw materials.
It is something that goes back a very long way and Nucor that was a focused many many years ago to begin to control more of our.
Iron units.
The build out obviously in Trinidad and then subsequently what we built.
And our <unk> facility in Louisiana gave.
<unk> a significant amount.
The amount of material that we could internally control and offset some of the different iron units, whether it's pig iron.
And certainly with the DRA, we produced a one to.
To balance that that approach out.
Over the years, we had some challenges as we started up its work.
Give us well documented on many of these calls the performance of the team in Louisiana has had has been exceptional since they are big outage in November for the fourth quarter of.
<unk> 19.
A liability is.
Come up significantly, but Doug why don't you just speak more specifically about how we look at.
We're playing with that balances for Nucor and our mission.
Some of the things that we're looking at moving forward, yes. Thanks Liana.
Yes, Mark Good question I think I'll start with just putting some.
A little bit of detail around the capabilities that we have I think sometimes we lose sight of this we have about $4 three.
Million tons of capacity in our recycling yards, which is primarily obsolete grades.
We have what we call the industrial group that controls about a little over a million tons of prime scrap a year, which is about a six fold increase over the last five or six years, and we can see that continuing to grow.
There.
We have the DRA facilities that we talked about was about $4 5 million tons of capacity and then all of that is tied together with our brokerage group that manages the use of all of that our national purchases in our international purchases. So we have a very robust set of capabilities that we can move and react.
Act in many different markets as.
As we see the growth of our steelmaking capacity, we'll be able to take products and use them at the best place to get the best value for them. So places that might be using DRA now we may shift them to other places backfill that with different grades from different sources.
As far as the new technologies, we're looking at things all the time were constantly improving our recycling yards to produce a better grade of shred.
Shred were constantly recovering more non ferrous materials and increasing the value that way and then just a broad scope of new technologies.
Here around the world wherever it is so we're pretty comfortable with where we are pretty aggressive in what we're doing.
Do you think there.
What you've undertaken previously and what's ongoing.
Enough to maintain the.
Yes.
Historical average prime scrap spread relative to obsolete grades.
Or do you think that there is some risk that that moves higher.
Martin what they're certainly going to be an increased pressure on price without a doubt a new core and others move up the value chain as we make more.
Locations, but at the end of the day and Doug Correct me, if I'm wrong, roughly about 25% of our mix in our sheet Mills. These prime scrap so it's not a commodity that we're emboldened to at 40 50, 60% of the mix that we need so with what Doug mentioned in the David Joseph Company.
We've been building relationships in this market and it's again a commodity driven.
Product, where we're going to pay which required but what's what's the governor we believe.
D awry actually keeps the level set between.
Prime and obsolete grades, but will that increase.
Demand, yes, we do think it will increase but we feel incredibly good and well positioned with what we've done what we're currently doing in the mix of.
That are in our mills today, and what Doug mentioned rationalizing that because we generate the priv. It offsets other uses but some of the mills that are using cri today don't need that.
For the end use customer requirements, we're going to shift those mixes. So again as we build this new sheet mill, we feel very well positioned to be able to do to get the mix that we need to make the grades that we want as we move into the highest applications in automotive and other markets.
Thanks for all the detail.
<unk> that's helpful.
I'm kind of curious one years back when you were pursuing the Louisiana.
There had been some talk about a potential another leg blast furnace, which im sure thats been off the table and probably wouldn't come back given <unk> focus now but would.
So thats something you would consider on like a hydrogen basis.
Martin I think the timing.
Timing or do you prefer so we actually looked at building our two blast furnaces at the Louisiana site first and then shifted to the <unk> I would tell you at this point there is zero.
Champs nucor's going to build a blast furnace, however to your comment around hydrogen whether it's T O to sequestration that we're evaluating whether it's a hydrogen reforming and its cost.
Impact to the business, we have a team in that.
Under Doug Gelatin group technically that are following and tracking.
Would it be.
Dozens of technologies and some that we're going to invest in some we're going to explore further.
But we're going to stay very close to making sure that nucor's on the cutting edge of steelmaking.
Steelmaking move to a more sustainable future and again, a big part of that for US was our launch of iconic offering net zero.
Racking today to our customers, particularly in automotive and the relationship with general Motors being the first customer, but since that announcement the the.
The interest and inquiry and demand for that product in that family of products, it's been significant.
You get any type of premium for that product.
Steel versus yes, yes, yes.
Okay very interesting.
Thank you Bruce Thank you for all.
All the color and detail very helpful. Congratulations to you on the team on the quarter and look forward to next quarter.
Thanks, very much Mark I appreciate it.
We'll take our next question from Michael Glick with J P. Morgan. Please go ahead.
Hi, Yes, just on the gross capital.
Following your recent acquisitions mill announcement and other organic projects how.
How should we think about your appetite for incremental organic or inorganic growth projects going.
Forward.
Let me start at the macro and Jim Please jump in as.
As we think about Nucor Nucor as a growth company, we're going to continue to grow our mission statement I've shared several times is a words, it's grow the core expand beyond and live our culture and so we're going to look for those organic growth projects like.
Our announcement of building a sheet mill and in the in the Midwest, We're going to look to continue that.
Things in completing Brandenburg and we're so excited about both those projects in Brandenburg coming online late next year.
So we're going to continue to look at those as well as continue to look at what are the one standard deviation.
Removed and that expand beyond that give us a differentiated position so the acquisitions of the insulated metal panel billing business.
Interestingly gave us a market leadership position at nearly.
Nearly half or over half of the insulated panel market today, and that's a growth market.
Think about Hannibal when the racking industries, the digital economy, and Green economy will be built with steel those are growing those are not under the steel type of cyclicality the.
Our focus on data storage and warehousing cold storage is.
Significant growth as we move forward, so youre going to see new core continue to.
As we saw in those areas.
I can't get into detail, but I would tell you that there are many irons still in the fires for nucor to continue to grow based on a very deliberate market driven approach, where we believe our culture can bring.
Significantly above our cost of capital returns.
And then just on the fabrication business, obviously really strong this quarter could you talk a bit about how that book is shaping up in terms of the backlog from a volume and pricing perspective versus call. It prior peaks.
Yes, yes, I, certainly will actually stop caf.
Have you to Mark Hughes over our fabrication.
Some products to share some detail there.
Thank you Leon.
Yes, Michael as we look forward in the non res construction arena, we see a really strong 2022.
And why is that I mean, Leon touched on it but it starts with this digitization economy, that's happening it's firing on all cylinders.
Acacia is creating significant demand for distribution centers warehouses server storage facilities are also seeing manufacturing growth and expansion in plants and as we probably all read overall in the U S. Consumer is in a very healthy place when you take that backdrop, and then look at our backlog.
Anders <unk> across our industry, leading breadth of steel products are.
Our quoting activity.
Has been and continues to be very robust across all the steel product groups and we have very strong backlogs and most of our downstream businesses and in some cases, all time record backlogs.
<unk> pricing, obviously, that's a market driven phenomenon, but we continue to see pricing moved up through 2021, and <unk> and <unk>.
Very healthy spot really excited about 2022 and beyond and our downstream businesses.
Thanks, Chad.
Got it thank you.
We will take our next question from Carlos de Alba with Morgan Stanley. Please go ahead.
Okay.
Carlos Your line is open please check your mute button.
Oh, yes, thank you very much everyone.
Indeed, so in terms of your mix for scrap.
Scrap can you comment as to how it has evolved how much.
Even if it is on a range how much prime versus subsidy that you're using.
Maybe you can describe.
Prime also need.
As well as DIY any comments.
B.
It would be helpful. And then in terms of the lead times. So we're seeing.
Seeing the industry data showing lead times coming down in the last few months.
And but do your comments that obviously very constructive in terms of end markets.
Look for the fourth quarter and beyond.
Can you help us understand and reconcile what were seeing in this industry report the data and what Youre seeing in your in your business.
Yeah.
Yes, Carlos maybe I'll kick us off on your latter question around you know what we're seeing in terms of the market in there Doug maybe you can start.
Address your your initial question on prime and the other grades.
Look there are certain segments within Nucor Nucor has the widest.
Our product offering of any steel company in North America, our ability to serve end use markets from automotive AG heavy equipment.
Renewable sectors the digital economy the.
H Bac construction arena provides a unique insight and obviously backdrop to what.
As Chad mentioned as we think about half of our our products move into the construction arena.
The robust demand there as Chad mentioned is seemed well out into 2022, so we see no slowing there at all if we're seeing some.
Sloane.
Is it from me.
To market. Shortly then I'll touch on one is automotive the.
Chip shortages is certainly well documented something that people are very familiar with.
But when that comes.
Some unique opportunities, obviously nucor's not heavily laden automotive today, where it is.
708%.
Sloan overall mix 151, 6 million tons that move into the automotive markets and that is going to increase we want to double that over the next two to three years and when the chip shortage and an subsides.
The pent up demand and.
Disposable income by consumers in the United.
Added states I think is gonna be a boon for the auto industry, but also for companies like Nucor that continued to supply into that so I think there is going to be some or is some of the elasticity of that we're seeing but I think it's not demand driven we see them more from a.
Rebounding and supply chain issues in consumer.
Shrinks. The other is in some of the construction while again the demand is strong we're seeing some job sites.
That are slowing because they're having trouble there and customers are getting.
Having issues getting their needs from overseas, if they require chemicals or overseas parts and deliveries.
He said are being held up and waterways refining trucks and getting containers across our across the ocean. So there are pieces of that that I think are going to create some some softening in that but again overall, we see the fourth quarter being very robust and again potentially eclipsing that.
The Q3 record.
We'll wait obviously to see the results of that but we anticipate that it could be.
As stronger or slightly stronger.
Doug maybe just touching on opening question around prime yet Carlos.
As you look across the all of our steel Mills 19.
Percentage of our mix as prime grades of scrap.
And about 15% DIY.
Did I cover that question.
Yeah, maybe just then I guess, the rest of the subsidies right or different grades of obsolete.
Yes, 10% pig and there.
The balance is obsolete yep.
Excellent. Thank you very much and good luck in the quarter.
Thank you.
We will take our next question from Tristan Gresser with Exane BNP Paribas. Please go ahead.
Yes, hi, Thank you for taking my questions.
The first one on working capital was there any one off impacting the one point too.
BLT, assuming Q3, I don't know maybe related to the growth projects and some lower.
Uptake from Oems, you mentioned order weakness.
Or is it all a price ethic and also if you can.
What you could expect in Q4 still use of cash when you think you'd be able to release them.
Sure.
Chris Let me just make sure I am clear on this.
Part of the question around working capital was it wanting to understand the Q3 performance or I'm not sure I caught the.
The gist of what you were trying to get.
Yeah, the inventory building working capital in Q3 came a bit elevated compared to what we had I was wondering if there was any.
One of the fact that we were just a price effect and also if you can touch on on Q4 your expectation if you think.
So you are going to be a use of cash and working capital.
This is Jim frias. Thank you.
Refining the question.
It really wasn't much of an inventory build you know I talked about the inter company inventory. The only went up by tens of thousands of tons and scrap didn't go up much finished goods. So it was really a valuation issue.
The value of inventories went up significantly in our portfolio as well as the valuation of receivables. They both went up the selling price per ton were still collecting receivables and 30 days essentially and.
But the value of each ton that customer owed us for went up and so we used about $1 two.
$2 billion between inventory receivables net of payables in.
In cash in Q and Q3, so as we think about Q4.
Think there could be some margin expansion, but not at the same rate that we.
Achieved in the third quarter. So we think working capital use of cash would be down dramatically we're not.
Going to forecast number, but it won't be nearly at that $1 $2 billion level.
Alright.
That's really helpful.
Maybe a second question on low carbon steel would be interested to know given the visibility you have on the <unk> savings you're going to be able to generate.
How much tonnage economic you maybe see some next year and 2023.
And you know do you see this commercial opportunity as a way to boost your margins were rather to gain market share and notably in the automotive market.
Yes to the above Tristan.
So yes to both piece.
Pieces of your question, Yes, there is value added new course capability to be able to do this.
Provides a differentiated value proposition is as announced as again, we're so excited with the partnership with General Motors, but we're also excited about the other into.
And the companies that we're working with beyond not just within the auto sector in other companies, but much wider so the the market acceptance for that is going to be.
Significant and it's also going to be quick.
But the other piece of that as we think about volumes have not got it.
Stays exactly.
What our volumes are what I would tell you is when we say it's at scale, we're not talking insignificant tonnages, we're talking very significant tonnage is that.
That nucor's going to supply into the Kotick family.
So just stay tuned because thats going to ramp up very quickly.
[laughter].
Thank you.
Thank you we'll take our next question from Andreas spoken Hauser.
With UBS. Please go ahead.
Thank you very much just a follow up question on the ultra market you guys, obviously want to capture more market share.
How is it looking so far in the second half of the year I mean, we've been hearing that also produces have been shifting more orders to.
Electric arc furnace producers and obviously one of your peers kind of confirmed they were starting to see that or are you seeing that as well during the second half of the year that you are capturing market share in the auto market.
Okay.
Absolutely and again I'm not going to give you specific numbers, but I would tell you that opportunities.
Ramping up very very quickly and again our team has done an amazing job.
Building the relationships with the major Oems in this nation.
We're excited about the opportunities that to serve that market and at.
Yeah.
Connick family and providing a net zero steel is is going to be a piece of the automakers commitments and providing a net zero output. So in order for them to reach their goals they've got to start with the nature of steel. We believe we have a differentiated value proposition to offer.
At the end of the steels today. Unlike any other producer. So yeah. We're very excited about that our market share is growing.
And again part of the new Mills.
Focus is to move and continue up that value chain. The mill Thats being built there is is differentiated it will not be what we.
We've built in the past.
Further it will provide significant quality and <unk>.
Advanced high strength steel capabilities that are <unk>.
<unk> mirror very very nicely with the lowest carbon footprint.
Anywhere in the world. So we're again im tremendously excited about.
That and the relationship that <unk> built.
Past, the only producer ever to receive the GM supplier of the year Award. We've now done that back to back to back years three years in a row and so again.
It's been a.
A lot of years at New course worked very hard, but the fruits of that work and the relationships that are built are paying dividends.
That's very clear maybe just a second question on the second half of this year. So obviously, we're a little bit in maintenance shutdown season at the moment.
Have you guys kind of been restocking ahead of any maintenance shutdowns to kind of ensure your volume state stay stable into the fourth quarter.
Yeah.
<unk> <unk>, who is our EVP of sheet and tubular and perhaps maybe just give him a little bit of color as we think about that broadly and then specifically as we think about the.
The startup of our Galaxy project.
Alright, I appreciate the question I'll address.
I would start.
Which had a broader sense.
With Nucor, having five sheet mills.
Common practice for us.
We have outages at various plants and we will look at the needs from a customer standpoint.
And we're able to support a plant that may have an extended outage going off so that's pretty common practice not unusual for us will shift.
On a supply.
When our plants to accommodate that probably the outage just getting the most notoriety right now with the expansion of Galaxy and that's progressing well we're excited about it and we're gonna be concluding that soon and that's going to conclude.
Conclude with the largest outage, we have coming up in December.
Five day outage.
We've been prepping for that for months.
Already ahead of time, so we have already had and will continue to have coil set and so that we could continue to ship ship from the pickle golf line through there, but also we will take care of customers from some of our other plants. So you'll.
20.
Minimal.
Impact on the volume and the total sheet side based on that due to our prep ahead of time.
Thank you.
No. Thank you. Thank you for taking my question I appreciate the answers. Thank you very much.
Thank you.
We will take our next question from David.
Youll see aviano with BMO capital markets.
Hi, Thanks for taking my questions I just wanted to ask you about 2022 and potentially even some insights on 2023 capital spending at this point.
And we don't have this is Jim Frias, who don't have our final budget yet.
Some color around the bigger projects that.
Wrapping up this year and next year, so when we flip to Mike.
Documents that has an information.
Yes for Brandenburg and the fourth quarter, we think the cap spending there is going to be in the neighborhood of 250 to 70.
Becky somewhere in that range.
And then next year, we'll be in the $8 million to $900 million range.
For the Galvanizing line in Arkansas, roughly $5 6 million in the fourth quarter and it's going to start up in the fourth quarter, but theres always carryover expenses because the when the timing of when bills come in there's probably another $5 million next.
Millions in the first quarter.
Galton, we'll probably spend in the high $80 million range in the fourth quarter and there is probably going to carryover in the low to mid twenties into next year and those are the bigger items. So we don't have a formal budget yet we have to go before the board in December with our capital plan.
Next year and have them prove it so it wouldn't be appropriate for us to give up a total number for next year, but I don't think it's going to be dynamically different that our spending level. This year. It can be in the range of what we're doing this year.
Okay. Just a couple of quick follow up what are you. What are you, saying now for sustaining capex on an annual basis. That's one question. The other one is.
Plant.
In terms of the new mill, that's starting up in 2024 25 time frame when will the.
The lion's share of the capital for that and they'll be Smith.
I'll do the first half Leon if you could you or Dave can talk about the new mills ramp for Capex should we think of maintenance capex.
<unk> is being in the neighborhood of $500 million per year. So that's the first half.
Maybe just a little bit of color, maybe more than you asked for David but as we think about the new mill.
Next step for us is to.
Finalized site selection, which we anticipate by year's end.
<unk>.
Capex as we think about Capex ramp up.
We really don't see much of anything materially in 2022. This started that will be probably mid mid year 'twenty three.
Well into 'twenty, four and maybe early 'twenty five.
Okay. That's helpful. Thank you very much.
But really cute David.
Yeah.
Ladies and gentlemen, our final question will come from Andrew Cosgrove with Bloomberg Intelligence. Please go ahead.
Hi, Thanks for taking my question.
Just a quick one on section 232, I was curious if theres been any talk in Washington about possibly replacing.
32, with some sort of carbon border adjustment at some point in the future given the fact that.
Obviously the U S.
A clear advantage with respect to low carbon produced steel and that would obviously be advantageous for U S producers to protect against imports going forward. So I'm just curious if theres been any talk about that and.
Tuesday, where you guys thought sir.
Yes.
Can you frame the issue very well and it is a certainly a concern.
What I would tell you is absolutely there have been conversations we're going to continue to work with the administration in Washington, Secretary, Armando and Katherine tie the USTR lets set a great job.
Got it.
They know the markets. They know the industry very very well and again I think a piece of this.
Andrew is.
Already in the works now with what's what's being conducted with Europe, and so we think thats going to move away, obviously from $2 32, and what the final outcome looks like whether it's a tariff.
<unk> quota.
We'll wait and see but as you mentioned as we think about the environmental advantage. There is a huge piece of recognizing both in Congress as well as the American consumer that when we think about a green economy as we think about renewables it should be very important.
To the members of the house and Senate that.
Renewable energy projects are not built with attorneys steals from overseas in the world that are built with the most sustainable cleanest steel and steel companies found here in the United States like Nucor and other Eas producers.
Inefficient advantage and so if.
That happens new cortisol.
Those also provided our commentary and analysis on what a border adjustment tax must include because.
It is not apples to apples in that steel product and so again, we're going to be very vocal we're going to continue to advocate, but we do have a high regard for secretary of our Mondo and Kathryn tell you understand.
Standing there was issues in the new launches and again I can't tell you when 232 will go away at some point.
But it is a vehicle to bring other nations to the negotiating table.
To negotiate a better trade arrangement.
Okay, great. Thank you and then just the last one would just be if you could just quickly.
Just chat wrote briefly about the cadence of the startup of gout and when we should expect the additional $1 4 million tonnes to.
To hit.
Approximate the ramp up schedule.
Yes, I'll turn that over to Rex query again, our EVP of sheet.
Andrew just say as.
As we mentioned after the outage will.
We'll begin the bottle startup phases at that project. So that'll that'll begin late this year.
Latter half of December.
<unk> will continue into.
The first quarter and then we'll be we'll be producing product through through the mill.
Sometime into the first quarter I.
I'd tell you were focused in total on the tonnage through that mill the additional tonnage.
Would be somewhere around $1 4 million tons. As you mentioned, we've targeted somewhere close to the 1 million ton Mark I would tell you that it's like literally are for net for next year for 2022.
For the additional tons. So that's.
It's likely to be somewhere in 800000 to a million tonnes through that plant next year.
Great. Thanks, gentlemen have a great one congratulations on the quarter. Thank you Andrew.
Thank you.
Ladies and gentlemen. This concludes today's question and answer session I would like to turn the conference back to Leon Topalian.
<unk> for any additional or closing remarks.
As we conclude our call today I'd like to thank our nucor teammates for their continued focus on the safety health and well being of the entire Nucor family.
To our customers. Thank you for the trust that you placed in the Nucor team with every order we will work hard each day to earn your business.
This and provide you with the products and solutions that enable you to achieve your goals and finally to our shareholders. We take seriously the stewardship of the valuable shareholder capital you Entrust our company with New course extremely excited about our future and the returns we will continue to generate thank you and have a great day.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
[music].