Q2 2022 United States Steel Corp Earnings Call

July 29, 2022

Okay.

Yeah.

Good morning, everyone and welcome to United States Steel Corporation's second quarter 2020 earnings conference call and webcast.

As a reminder, today's call is being recorded.

I'll hand, the call over to Kevin Lewis, Vice President of Investor Relations and corporate DNA.

Thank you Tommy good morning, and thank you everyone for joining our second quarter 2022 earnings call.

Joining me today on today's call is U S steel president and CEO , Dave Burritt.

Senior Vice President and CFO Christie briefs.

And senior Vice President and Chief strategy, and sustainability Officer Rich Fruehauf.

This morning, we posted slides to accompany today's prepared remarks. These can be found on the U S steel investor's page under the events and presentation section.

Before we start let me remind you that some information provided during this call may include forward looking statements that are based on a 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.

Looking statements in the press release that we issued yesterday along with our remarks today are made as of today and we undertake no duty to update them as actual events unfold.

I would now like to turn the conference call over to U S steel President and CEO , Dave Burritt, who will begin on slide four.

Thank you, Kevin and good morning to everyone joining us today.

We appreciate your continued support of USD.

Okay.

I am bullish on U S steel's future because we are executing and most importantly, we are executing safely.

We are on pace for a third consecutive year of record safety performance as measured by days away from work and building on our already industry, leading position, which is second to none.

We take our role as the industry leader in safety very seriously.

At USD <unk> <unk>.

<unk> is always first.

When safety is great our operations are great.

Thank you to our employees. We appreciate you for your continued focus and commitment to our shared safety goals.

As we continue to execute our best for all strategy, we are progressing towards a less capital and carbon intensive business.

We are pleased to share an update on our latest sustainability disclosure later in our prepared remarks.

The rapid progress we've made demonstrates our continued commitment to become the best.

They come to the best we are expanding our competitive advantages by leveraging our unique competitive advantage and lowest cost iron ore.

Combining highly capable integrated assets with low cost and technologically advanced mini mills, and investing and finishing capabilities that best serve our customers.

As we've said before to become the best for all we need the best from all.

I wanted to take a moment to recognize the continued trade enforcement by the current administration. We are very pleased with the Itc's recent decision to continue.

And of the anti <unk>.

Does this.

And eight <unk> CVD orders on cold rolled steel for another five years.

Continued strong trade enforcement from the United States government supports our national economic security and gives the domestic steel industry the opportunity to advance actions that make steel more sustainable.

The United States remains the leader in sustainable steel, making as many in our industry have embraced the electrification of the steelmaking process, which is the most sustainable way to make steel.

We are doing what is best for all because our customers our employees and our stockholders are counting on it.

As geopolitical and macroeconomic impacts shift our best for all strategy remains constant.

We will spend the next few moments highlighting three key messages.

On slide five our record second quarter performance, our differentiated strategy and our balanced capital allocation framework supporting both profitable growth and direct returns to stockholders.

Let's get started on slide six two.

2022 continues to be another year of exceptional financial performance for our company.

We reported our best ever first quarter in April April and are pleased to deliver another quarter of record setting performance.

Over the past four quarters, we've generated EBITDA of $6 7 billion free cash flow of over $4 billion and returned nearly $850 million of capital to stockholders.

We delivered record second quarter, adjusted EBITDA of $1 6 billion with each operating segment contributing meaningfully to the enterprise performance.

We also continued translating our earnings into cash by generating another $642 million of free cash flow in the quarter.

This strong performance contributed to our quarter ending cash balance of over $3 billion and nearly five $5 billion of liquidity.

Last quarter, you heard us say when we do well you do well and I want to continue that drumbeat today in April we committed to meaningfully increasing direct returns in the second quarter and we delivered on that commitment to stockholders in the quarter. We returned approximately $400 million of capital to stockholders and we've continued.

<unk>, our direct returns in July exhausting, our $800 million program in less than a year.

Since October we have repurchased approximately 13% of our stock we continue to see tremendous value in repurchasing our own stock and are pleased to announce another $500 million program that will further reduce our share count and gives us the opportunity to acquire more.

More of the best value Steel company U S steel.

We are confident we are.

Are the best value because of our differentiated strategy.

Today, we will discuss on slide seven the structural improvements to our business that are improving our through cycle resiliency.

The decarbonization of our footprint and executing towards our 2030 in 2050 decarbonization goals.

The unique metallic strategy, we're advancing to expand our lowest cost iron ore advantage.

Let's get into the details on slide eight.

The well timed Big River steel acquisition has outperformed expectations since its inception in first quarter of 2021, our mini mill segment has contributed EBITDA of nearly $2 billion.

The Big River acquisition has already more than paid for itself.

Our new mini Mills segment now represents nearly 30% of our domestic flat rolled steel EBITDA.

Is lowering our capital and carbon intensity and is expected to deliver more consistent results.

While the acquisition of Big River Steel has transformed our business model. We've also transformed our balance sheet, specifically, we strengthened our balance sheet last year, we repaid over $3 billion of debt and cleared the maturity runway to complete strategic projects with confidence.

We have no significant upcoming debt maturities until 'twenty 2009, and and all over funded pension plan as of the end of the second quarter. Our net debt is 0.2 times.

A stronger business enable stronger customer relationships, we're closer to the customer than ever before and have exposure to the diversified end markets like automotive construction appliance and 10 packaging.

Importantly, we are uniquely positioned to serve the resurging energy market from our flat rolled mini mill and tubular segments.

We continue to see growth in today's order book for energy product, while investing in capabilities to serve growing markets in the future.

The electrical steel market is expected to grow at a compounded annual growth rate of 9%.

The world class non grain oriented or NGL electrical steel line that were construction constructing will position us as the leader in NGL steels in North America.

We will produce thinner.

And we will produce wider NGL electrical steels through this brand new asset to become the supplier of choice. We are developing the next generation of electrical steels that will be required to support the continued electrification of the automotive market.

We're also expanding our coating capabilities at Big River, notably on Valvoline.

With improved capability, coupled with our strong customer relationships, we are well positioned to profitably grow our participation in this expanding market.

While we are investing to support our customers' sustainability strategies. We are also making progress towards our own de carbonization goals.

Last week, we issued our sustainability report, which highlights the steps taken in 2021 to improve our carbon footprint and advance our ESG programs.

On slide nine as an enterprise we are executing on our 2030 and 2050 targets.

Our greenhouse gas emissions intensity has been reduced by 16% since 2018, and we are well positioned to achieve our 2030 target a 20% reduction in <unk> emissions intensity.

We also remain committed to achieving net zero greenhouse gas emissions by 2050.

As we expand our low <unk> emissions electric arc furnace footprint raw materials will be a key differentiator.

On slide 10.

We continue to expand our lowest cost iron ore.

To advantage, our mini mill segment.

Yes.

While 10% of our metallics or in source today that number could increase to 40% by 2024 with addition.

Our pig iron at Gary works, and the proposed granite city pig iron facility in collaboration with Sun Coke, We look forward to finalizing agreement with Suncor to provide a mutually beneficial transaction that is a win win for U S steel and Sun Coke securing 500, good union jobs, while transitioning to a more.

Sustainable future.

We're also expanding our metallic strategy by upgrading our iron ore pellets, we're investing to upgrade our capabilities at key Tac to make direct reduced grade pellets key tax high quality ore body and long mine life makes it the best choice for Dr Grade pellet capabilities.

We will have the ability to produce both blast furnace and Dr grade pellets at key tack in the future.

These actions will allow us to become increasingly self sufficient to feed our mini mill segment with key metallics.

Access to Virgin Metallics is what keeps our many new competitors awake at night, we're making full use of our compelling competitive advantage at our iron ore mines right here in the USA onshoring, our supply chain and advantage that will be very difficult for our competitors to replicate.

On final topic shown on slide 11 is our disciplined and efficient approach to capital allocation.

Our capital allocation priorities are guided by three main considerations, which are.

Balance sheet strength.

Announced best flow investments and direct returns.

These capital allocation priorities are on track.

Our balance sheet remains very strong and then.

Better than our through cycle adjusted debt to EBITDA objective.

And our ending cash balance remains well beyond our.

Next 12 months Capex, ensuring our best for all strategic investments are fully funded.

With those capital allocation objectives, Matt and the completion of our previously announced stock repurchase program. We are pleased to have a new $500 million authorization in place as we expect positive free cash flow to continue into the third quarter.

We now have an industry, leading mini mill segment that we didn't have in the past.

Our balance sheet is rock solid and we have a record cash and liquidity.

To complete our investments by.

By 2026, we expect those best for all investments to deliver $880 million of run rate through cycle, EBITDA and position our mini mill segment to contribute one $3 billion annually.

Supported by less than $100 million of sustaining Capex, we expect our mini mill segment to have differentiated cash generation capabilities and attributes that will significantly increase the EBITDA multiple of our business.

Now before I turn it over to Christy, Let me take a moment to acknowledge her tremendous contributions to the U S steel over the years, especially in her latest role as CFO .

This will be Christie's last earnings call, but we are extremely fortunate that she will be remaining with us through year end as executive Vice President of business transformation to continue supporting our best for all initiatives Christie's knowledge leadership and superb inside have contributed greatly to today's record performance we were.

Not be the same company today without the benefits of our efforts.

We're also excited to welcome Jessica Graziano as U S deals new CFO beginning on August eight.

I am excited for you to get the chance to speak with her directly once she has settled into her new role.

With that I'll turn it over to Christie to cover the financials Christy.

Thank you, Dave and thank you to the whole team at U S steel our stockholders, our board and our customers. It's been the highlight of my career to serve as CFO of this iconic organization.

A part of this company's incredible transformation has been an exciting and rewarding experience.

Can't wait to see how the progress we've made to date and the strategy underway delivers for all of our stakeholders I'm confident that you Jessica and the rest of the team will succeed in getting U S steel to its best for all future.

I'll begin on slide 12.

We delivered a record second quarter adjusted EBITDA of over $1 $6 billion generated from revenue of nearly $6 3 billion.

Our 26% adjusted EBITDA margin represents another strong quarter of profitability.

At the segment level flat rolled EBITDA was $902 million or 23% EBITDA margins in the second quarter compared to $636 million and 21% in the first quarter.

Higher volumes and the absence of first quarter iron ore mining seasonality were partially offset by raw material inflationary headwinds as well as higher steelmaking additions costs.

Higher utilization rates and the related efficiencies also helped improve our flat rolled segment margin performance versus the first quarter.

And our many metals segment, we delivered EBITDA of $309 million and EBITDA margins of 31% in the second quarter higher volumes were more than offset by the combination of lower average selling prices.

Higher metallics costs.

In Europe , our Slovakian operations again overcame significant geopolitical hurdles to delivery of.

$302 million and EBITDA margins of 22% in the second quarter compared with the $287 million and 23% in the first quarter.

Average selling prices more than offset rising raw material costs in the second quarter.

And then tubular we reported strong quarterly performance EBITDA totaled 119 million.

Yeah.

In this quarter.

The flow through of higher sales selling prices and the benefits. We are starting to see from pending trade cases outpaced higher scrap costs, resulting in continued improvements in profitability.

Our second quarter EBITDA translated into free cash flow of nearly $650 million to contribute to a record cash and liquidity.

This performance gave us the confidence to accelerate our stock buybacks in the second quarter, returning another $413 million of cash to stockholders, including our quarterly dividend payout, we repurchased over 17 million shares in the quarter and have repurchased another 7 million shares in July .

We have completed our authorized share buyback program and are pleased to announce another $500 million share repurchase program.

Our business continues to perform well above through cycle averages and remains on track against our clearly defined capital allocation priorities.

Unsurprisingly, the declining steel price environment through much of the second quarter and into the third quarter has kept some buyers on the sidelines. This is expected to result in sequentially lower EBITDA for our flat rolled segment.

Conversations with customers and recent customer enquiries suggest end market demand is healthy customers are just waiting for the right time to reenter the market.

And our mini mill segment greater market base monthly contract exposure versus the flat rolled segment is expected to accelerate the flow through of lower steel selling prices.

Also continues to work through more costly inventory and therefore.

<unk> meaningfully sequentially lower EBITDA at Big River steel in the third quarter.

In Europe , the conflict in Ukraine, and negative impact on raw material and energy prices are reducing industrial and manufacturing demand as a result in the third quarter. Our U S. S. E segment is experiencing significant margin compression.

Steel prices have softened, while raw material costs remain elevated.

Lastly, our tubular segment continues to capture higher selling prices and is running at elevated utilization rates to meet strong customer demand.

With this support from the ongoing <unk> trade cases, where it is.

Another meaningful increase in segment EBITDA in the third quarter.

Spot prices falling from high levels over the past several months are expected to negatively impact results in the third quarter.

Our diverse end market exposure and increasingly flexible operations are expected to cause is more resilient than in the past with EBITDA in the third quarter is expected to be just under $1 billion.

Opportunities in working capital in the third quarter are expected to keep cash from operations resilience in the business continuing to generate free cash flow, while also advancing our strategic projects as planned.

The market remains dynamic and we can't stand still that's why we're taking advantage of the temporary slowdown by moving our planned outage. Originally scheduled for October to September at Mon Valley. This decision allows us to be better prepared for the anticipated recovery as steel prices bottomed.

Okay back to you. Thank.

Thank you Christie.

Before we get to questions. Let me summarize today's remarks on slide 13.

Record second quarter performance was a result of continued execution across each of our operating segments.

For U S steel, we must execute execute execute a differentiated strategy.

And we have.

Sure the economic environment is uncertain, but we know and you know that this isn't the same U S steel from just a few years ago.

We now have industry, leading mini mill operations.

Our rock solid balance sheet.

And record cash with liquidity of over $5 billion.

All of these factors support our best for all strategy execution and are expected to deliver an additional $800 million of run rate through cycle EBITDA.

We are delivering on our objectives and capital allocation priorities and look forward to earning a re rating of our stock.

Kevin let's move to Q&A.

Thank you Dave our first two questions today come from say technologies. The first question, Dave We received several questions about domestic steel demand our outlook across key end markets can you share your perspectives on our markets and customers.

Thanks, Kevin I can see how that's top of mind for so many people that.

Second to that.

Line of questioning.

I'd break it up in a couple.

The near term and of course, there is a lot of uncertainty and the growth, we're talking about growing capability, creating profitable growth.

In the near term.

There is different dynamics across many of the markets we serve but.

But our order book and end market diversification.

It's a great advantage.

We're not dependent upon just one market, it's not just auto for US we got multiple markets that we serve not one dominates where a.

A lot more balanced.

As far as automotive and appliance the supply chain issues are persisting.

A bit less but we're still going to have those challenges. The good news is mined melted and made in the USA.

We basically find ourselves in a much more resilient position, especially with strong trade enforcement.

Industrial construction and service centers I would say that we.

We're seeing mixed or cautious buying just saw the inflation that headline here, obviously that has an impact on on everyone, but while we saw.

GDP.

Negative in the first quarter and second quarter that doesn't mean that U S. Steel is tied to those GDP numbers. What it means is were more resilient than ever before and we're preparing for the future and being ready for whatever markets, we serve but the really bright spot here for us is in energy.

Unique exposure and really strong demand for us today. The tubular business. For example is so very different than a year ago and it's a much more meaningful contributor to EBITDA towards the near term goes the actions, we're taking we're managing the inventory optimizing our loading plans matching our production with the.

Order books, and its going fine, but there is a lot of uncertainty in the third quarter, we will.

We will definitely be.

Lighter as far as growth profitable growth, it's about being low cost.

And or high capability those are the things that we're pursuing with our differentiated strategy.

And frankly were.

I'm more than just a little excited about the future here because the strategic market growth is outpacing overall market growth and we're winning in the strategic markets.

There is growing demand for advanced high strength steel there is a higher interest in green deals, there's rapid electrification and the infrastructure bills passed and we expect to see the benefits of that come through sometime next year.

And we know that we must win in these strategic markets advanced high strength steels in automotive.

And the non automotive applications, we're seeing many opportunities there and electrical steels, who got the world class NGL line that will be soon completed and we're just really excited about the potential. There then of course green steel with our vertex line of sustainable steels that we've come up.

Out with and.

The much lighter carbon footprint than we've had in the.

In the past, we're again performing very well so we're investing in capabilities, we're investing in talent.

We are.

Making sure that we're investing in profitable growth in the markets that we serve and growing the strategic markets.

Yes.

Okay. Thank you very much Dave the second question.

We received as it related to the adoption of Green energy and our sustainability roadmap. So rich can you. Please provide your thoughts on that question.

Sure Kevin Thank you for that question.

First as we say U S steel, we're committed to doing our part to address climate change and advanced sustainable steelmaking technologies.

We've issued let's just last week, our latest sustainability report so I encourage everyone to take a look at that on our website.

There is a global race going on right now to Decarbonize steelmaking and we wanted to be part of the solution.

That requires developing and deploying new technologies in collaboration with governments and other companies and communities. So what have we been doing in this space. Let me start with in February we announced an alliance with leading companies.

Likes of GE power EQT <unk> show Marathon Mitsubishi heavy industries.

For the Tri State region of Ohio, Pennsylvania, and West Virginia.

Who share our vision for a more sustainable industrial future and that alliance that partnership we're looking for ways to create a national model for sustainable energy and production systems.

That includes things like hydrogen carbon capture in the more immediate future. We are working with utility providers towards more renewable sources of energy. So for example at our Big River steel bigger over too complex in Oce, all are our partners entergy.

For electricity supply and they've already they are they are today I guess is the way I'd put it. They are today already supplying significant amounts of non greenhouse gas nuclear power generation to Big River, but they've also committed as part of our Big River too.

Project development to supply a more renewable power like solar so we're looking forward to continuing that partnership with Entergy and at our Mon Valley works, we have obtained emission free energy certificates from our local utility partner so.

Those are some of the things we're working on we have other projects and.

In other parts of our footprint looking at renewable power generation.

Well.

And then I would say on the customer side, we are playing an increasing role in making renewable energy possible by selling sustainable steels for example into the solar market solar market. We have a new partnership with next tracker, which just last month opened a new facility here to make.

Solar tracking systems do energy Secretary ground homeless there for the for the ribbon cutting so we're really proud to partner with next tracker. So what I would say is while we aren't standing still as a company. If we truly want to unlock the full potential of green steelmaking in the us.

We need these kinds of partnerships across the public and private sector.

For us, it's about making profitable steel solutions.

We need to be able to make money in these investments, but it also it's clear action is required it's not just about concepts. So anyway. These are a few examples so hopefully that helps address the question was a good question.

Okay. Thanks, so much rich and thanks, Dave.

So now operator, if you may queue line the phone line for questions and we will remind each participant please ask one question.

Follow up so everyone has the opportunity to ask a question. This morning.

Yes.

Certainly thank you.

Once again, if you'd like to ask a question on compressor won by the four on your telephone.

Tom Prospect nausea request.

I have been asked questions. Roger restoration is the one.

Thank you.

One moment, please our first question.

And our first question on the line from David Johnson, Ronald <unk> capital markets.

Go ahead.

Hi, Thanks for taking my questions on my first question is regarding the.

Capital allocation strategy.

The buyback authorization just announced obviously.

You guys still generate a lot of free cash historically recently, but thank you for changing heading into.

A transition period.

It's been very high Capex and obviously the results are coming down.

So the cash balances of $3 billion now could get below that $1 5 billion. It's not inconceivable. So my question is on the authors prior to buying back stock. My question is on the authorization how aggressive we'll use still be buying back shares in the near term considering the changing environment. That's my first question.

Thanks for that question.

I think David that we're in this highly desirable position because of.

The purposeful execution of our strategy, so with $3 billion of cash and well over 5 billion liquidity we have.

A lot of opportunities.

You heard in.

Some of the remarks, how bullish we are about being able to execute on the strategy you've seen our capital allocation framework, we put it in the deck again.

We're committed to that capital allocation framework, we're going to be opportunistic and you go through the.

The individual pieces of that we're guided by the balance sheet strength. The best for all investments we want to make sure we get all of those down and then we have the direct return. So you kind of go through each one of these in the ESA Okay balance sheet strength check strong cash position check advancing the strategy that makes our business.

Our earnings.

Our free cash flow more resilient check so we felt that authorization was a must and so we're within that framework, we will be opportunistic, but we're not going to commit to a certain amount by quarter, but we do feel very good where we are and we'll see how the economy unfolds and will be again.

Within the framework, we're going to be as active as our framework dictates and executed a pace that maintains a high level of strength and liquidity to support our investments. So we think this is.

A good program again.

Completely exhausted the $800 million that we committed to really not that long ago within the last year. So we feel very good about where we are and we'll see how the economy unfolds and stay committed to that capital allocation framework, because we do need to get these strategic investments done and we do need to make sure that we're providing.

Rewards to our stockholders with stock buybacks and dividends.

Okay. That's helpful. Thank you my follow up is a two part follow up with regards to the European operation.

My questions are.

Hey.

Will Europe be EBITDA positive in the third quarter and be as far as the contingency planning that was kind of mentioned in the press release.

As you are still considering either.

Scaling back or setting it down until.

If things improve in Europe .

Well I think you've seen the numbers with <unk>, it's been a significant contributor to <unk> and obviously there is margin compression over the last few months and we've seen.

Northern European prices with a reach a peak of about six $700 a ton and now they've fallen by $700 a ton. So we definitely have some some margin compression but.

We will be positive EBITDA no doubt here I feel very comfortable that USS case is going to continue to be positive EBITDA. This business frankly, I think it's always been positive EBITDA and it runs very well theres a lot of uncertainty due to the Warren Ukraine.

And while prices have declined.

The raw material basket has has only fallen.

About $400 a ton.

So.

You think about that.

That is.

Quite a squeeze but we still feel good that U S. S. K has gone up.

Continue to contribute and the thing to remember here is is that U S. S. K comes down and while <unk> won't be able to offset all of that reduction the tubular business is continuing to perform extraordinarily well and I think in the first half it had EBITDA that was in excess of $200 million.

And the second half is going to exceed the first half performance. So we feel good about that in terms of.

Some offsets and again the diversified footprint helps us with that but yes, SK is an excellent business and these people our team over there knows how to run this very very well when the Ukraine warhead.

They bought ahead on and made sure there were no supply disruptions and so now they are carrying the carrying extra inventory.

We typically target about 30 days inventory, but have increased that target to 60 days and <unk>.

Currently a little bit higher than that so the softer demand is going to make.

The consumption of higher price raw materials longer so, yes, there's going to be some stress on that but it's still it's a really good business in Europe .

Thank you very much.

I will now proceed to our next question on the line is from Emily Chang with Goldman Sachs.

Ed.

Good morning, and thanks for taking my question. The first one I have is just around the granite city last granulated pig iron facility.

Maybe could you help us frame the strategy behind the potential sale to Suncor, Ken maybe help us understand what the technical and capital differences between that granulated pig iron facility in the <unk>.

Mine unit, which you will be constructing instead.

Emily Thanks, very much for the question I'll, let turn it to rich, but just punctuate again, how important metallics R&R business. This is a sustainable competitive advantage for us, let's face it they're not making the iron ore range anymore, God's not make any iron ore range anymore. So this is something that cannot be replicated. So we feel very.

Very good about the strategy and where it's headed rich yeah. Thanks, Dave So Emily Yeah, let's start with a little bit of context, So pig iron right now pre the war in the Ukraine about two thirds of the market for it was coming out of Russia, and the Ukraine right. So what's the cutoff of that supply it's put pressure on.

Iron ore in <unk> excuse me pig iron <unk> and as we know you are talking 75% or more of your cost to produce a ton of steel and in EIF as Youre metallics. So as Dave said first and foremost having these virgin iron ore metallics in our footprint.

Able to supply the EIF fleet is a huge advantage for us because then we won't be as exposed to the ups and downs of the scrap market or cutoff of supply or price spikes and pig I think pig hit close to $1000 a ton delivered to NOLA New Orleans earlier this year as a result of the the cutoff from Russia.

Great. So so that's the basic.

We're addressing with it so with respect to.

Granite city, I mean, we already produce low cost iron ore.

Minnesota for our blast furnaces and what we're working on doing here is pivoting that to be able to also supply the eas for the reasons I just indicated now with respect to pig iron pig iron trades at a premium over <unk> and <unk>, because it's exothermic you get a value in use what that means is it gives off heat and the furnace, which means.

You improve productivity by loading pig iron and your furnaces.

You speed up the top to top times, so having pig iron.

Whether it's Gary or at granite City is a huge win now the difference between what we're doing at Gary which is what we'll call the sort of standard lumpy pig and the granulated pig iron at granite city granulated as sort of smaller pellets. It distributes more evenly in the furnace and so you've got a faster and a better melt.

And so that's why we chose to go with the granulated pig iron at granite City.

Theres not a significant co riskier granulated pig iron is will be unique to North America.

We're partnering with Sun Coke, because we think that's the best way.

Q to get this project underway as quickly as possible as you know suncor, because our coke supplier granite city. So I mean, the basic model is moving just doing what we're doing today moving iron ore for Minnesota down to granite city, but instead of turning it into steel, we're going to turn it into granulated pig iron.

And reap the benefit of having that.

Vertical integration in our EIF fleet.

Thanks, Rich and maybe just as a follow up.

Why was this decision for granite city to be potentially sold to suncook instead of <unk>.

U S steel executing on that capital project Lasalle with was it.

The fact that perhaps granite city.

The granulate pig iron facility might not have met your 15% IRR.

Or was there something else that sort of triggered that decision.

I think the main thing I would say is we're already in a partnership today with some code for granite city, because they are the onsite coke provider, so running blast furnaces to make pig versus running blast furnaces to make liquid liquid metal that gets turned into steel we're already in a partnership with Sun Coke and I think with respect to the path forward.

<unk>, we saw this as an opportunity to take that partnership with Sun Coke to the next level.

So thats really what drove this.

We think suncorp is going to be a great partner, a good operator for making the GPI and.

This allows us to focus on our core steelmaking.

Our talents and skills.

I think with respect to this we really see this as a win win for both companies because as I said.

We will be able to benefit from our low cost iron ore move through granite city, and then turned into into pig I mean, it's our iron ore that there'll be converting for us into GPI.

Rich I'd say win win win because not only is a win for Sun Coke a win for U S. Steel that's preserving 500 jobs that would ordinarily go away.

Think people remember what it was at March of 2018 when.

The trade tariffs came into place that's when we opened up those blast furnaces at granite city.

When the tariffs came off in.

Candidate Ko with U S MCA that that challenge demand that challenged other aspects of the business. So this I think is the best we can do to preserve as many jobs as we possibly can and at the same time make sure that we take care of the company and also frankly take care of Sun Coke as well as the employee.

Yeah.

Thank you very much.

Next question on the line.

Seth Rosenfeld with Bnb Paribas go right ahead.

Alright, good morning, Thanks for your questions today.

I've got preferred some things on the tubular business with very strong recovery in energy Capex, Obviously accumulative earnings how do you think about the path to the business hopefully in recent years, we've idled a great deal to their capacity is there opportunity to restart wells.

Facilities.

On the raw materials side can touch on how the EIF within tubular impacting your competitiveness versus past cycles.

There please.

Yes, maybe first I'll start with the.

The EIF.

<unk> been running extraordinarily well.

<unk> safety performance, there now and we got some really strong talent that understands how to run the eas. So that's a big improvement too.

For us.

The investments we made through the energy downturn.

Our paying off significantly with that <unk>.

F providing about $100 million in.

Annual cost savings so that's a big deal for us.

We now control the supply of rounds at Fairfield, and we're leveraging that wide range of seamless capabilities that we have so so the cost actions, we've taken to invest in EAA app capabilities, plus the opportunity to continue to earn higher average selling prices.

In the second half frankly, I'm very optimistic about the tubular business.

But again, we're counting on strong trade enforcement. So that we can continue to profitably serve the domestic energy market and create value for our stockholders, but I'd say this there are no current plans to.

Yes.

And open anything up or increase that would be far too soon to suggest anything like that.

Okay. Thank you.

Second question, please with regards to the mini Mills segment.

Remarkably accomplished on elevated raw material costs working through inventory I think back in April you discussed some effort to Derisk pig iron supply culling of observation of Ukraine. Please.

Can you just walk us through what the impact of that spend with regard potentially safety stocks in short is bigger Brookfield have sitting on particularly elevated inventory to pig iron or prime scrap procured peak prices a few months ago as we think about that.

I think.

This was an issue.

Obviously, when the warrant Ukraine started so we had to have.

Surety of supply it's been.

Critical and so we secured new raw material sourcing from Brazil.

And India and have of course shifted away from Ukrainian supply, especially the pig and.

So we have elevated pig iron and <unk> inventory and so that we do have to manage that out and that obviously high cost and so we're going to have.

Some some compression on price there with the mini mill business and have to manage that.

Very closely so.

The good news side, we expect to release.

Some working capital that Big river of about $250 million, which would be a.

Nice.

Favorable uplift, but theres no doubt with spot prices falling through the quarter, we expect EBITDA to be sequentially lower at anthem.

The mini mill segment.

But we would expect similar volumes third quarter versus the second quarter.

Thank you very much Mr.

Our next question on the line comes from Michael Glick with Jpmorgan go right ahead.

Good morning, just on your raw material strategy going forward beyond the pellet investment how are you thinking about <unk> sitting into the picture.

Okay.

Yes, So I think Michael this is Kevin I think we've said that.

It's not a matter of if it's when and where and when it comes to cry.

So the investment that we're making at key tag to produce Dr. Grade pellets I think further expand the optionality, we have to advance a Dr strategy in the future. However, as rich articulated as we laid out in our prepared materials. The actions underway are relatively capital light actions.

Underway to advance the pig iron strategy meaningfully increase our self sufficiency of metallics. So I think that is where our near term focus will be on pig iron no regrets decision to invest in Dr grade capabilities at key tack, it's our best.

Our best ore body, our longest life of mine, so a very logical choice to add that capability to their already kind of blast furnace blast furnace pellet production capabilities.

And that puts us in a great position moving forward to explore DIY, but rich maybe anything else that Kevin I think you touched on it I mean, we're focused on pig first and foremost because of the benefit gives you versus cri in the furnace.

And we saw sooner opportunities sooner near term opportunities to get those metallics converted into pig iron and into our Eas, but as you said <unk> is an opportunity for the future.

With the <unk>.

<unk> of the float plant a key tack that allows us to get started I will tell you that we've had tremendous outreach to us once we went public with that so we see a lot of commercial opportunity and as Kevin said potentials for partnerships that we might look at as well in the future. When we think about DRA, which as Kevin said its not a question of if it's when.

And where I think the keyword in all of this what I heard was Optionality. That's what everybody should think of we we need to make sure that we have nimbleness flexibility adaptability and.

But right now there's there's nothing in the capex related to DRA, even though that wouldn't necessarily be a huge number because we have again lots of options in terms of how to put that in and when we put that in so we feel pretty good about where we are with our footprint in the capex that we've announced and we need to make sure that we live to our cap.

Allocation strategy and make sure that not only do we show up with good results on the bottom line, but we make.

Make sure that we take care of our stockholders and Thats why we issued this stock buyback program that's important to US we continue to reward stockholders.

Understood and then in <unk>.

Europe , I guess just from a high level, how should we think about the longer term strategic direction of U S. S. K I think in the Slovakian papers it looks like there was a <unk>.

Recent Mou on the energy side, there. So just curious to get any of your thoughts there.

While U S. S. K has been an awesome business for US again as I said, we have great talent on this these guys are kaizen progressive improvement experts and obviously right now we're in transition with.

Recurring Ukraine, just 60 kilometers from the border we've been very fortunate that we haven't had.

Any disruption over there, but this is one of those things that we have to get through the current geopolitical concerns we have to manage this well and then we'll figure out what what that future is Meanwhile, this business has always put up positive EBITDA and we expect that to continue.

Thank you very much. Thank you. We'll now proceed to our next question on the line from Karl Blunden with Goldman Sachs go right ahead.

Hi, good morning, Thanks for the time.

Wanted to focus on your Capex number of investments in process right now.

Do you think about how things are running relative to your budget planning assumptions I was wondering if you could comment on which elements are above or below in and give us a sense of whats still on contracted the major buckets that you're focused on there.

Let me maybe just take the first part of that one of the things that.

We really focus on is on budget on time.

And we're really pleased frankly with the work that's going on with the NGL, The Galvo loom and Big River to you think about all the inflationary costs that have come in.

This team really knows how to work across our entire footprint not just big river, but it's the integrated folks our procurement people and looking for creative ways to make sure that these things are on time and on budget and.

Whether it be the NGL electrical steel, which I think was what $240 million or.

Big River.

Two.

Everything's on track on plan and.

The coating lines on plan.

<unk> strategy everything is on plan there the pig iron machines on point you go through each one of these things it's on budget.

Maybe ahead of plan in many cases, we feel good about where the.

The whole team is managing that Theres a lot of rigor.

Yes.

Dave I think that team there are long lead time items, they've got that and quick and early so they've been in place a long time ago as well as I think the team there just does an excellent job looking for.

Multiple different suppliers of something so that they have some choices they have done a good job widening.

Supplier base.

To create a little bit more competition.

That team is just really on top of it there.

That's helpful. Thanks.

The second one is just a follow up on a potential <unk> investment is there a date, we should think about it and not before date for that or could you accelerate that if you see.

Progress in enough cash flow to go after that or do you want to get some of the existing investments done I understand the optionality better.

I think we need to go back to the capital allocation strategy and look at those individual pieces. There you know we're keeping the healthy balance sheet, we're going to take care of the investments that we've laid out and thats, what we need to get focused on there is there is no commitment to anything else at this point, we're going to let the economy.

Tell us what the solution is here, but don't look for anything big anytime soon we feel very good about where we are executing this strategy and delivering.

Value to our stockholders.

Let's face it there's a lot of uncertainty some people say more uncertainty than ever before I'm not so sure that's true, but but we do know that these are different times challenging times.

And we need to make sure that what we say we're going to do we do and Thats something that we haven't been always able to say, but we've got integrated assets that are running extraordinarily well and the mini mill assets are running well Europe's performing in spite of all the challenges there and now the tubular business is coming back so.

I wouldn't look for anything here.

We're again, we're again keeping optionality available if there's a big opportunity here that adds a whole lot of value of course, we do it but there isn't anything committed to at this point.

Thank you very much.

Next question on the line from Carlos de Alba with Morgan Stanley go right ahead.

Yes. Thank you very much good morning, everyone. So just coming back to the DIY side.

Is there.

I understand that.

Particularly for the future return of.

So now, let's see where you have created but.

Any color that you could add in terms of the potential timing of when you might exercise.

Exercise that option that you have now available.

And then my second question, if I may has to do with a little bit more color on the end markets that you mentioned that consumer related.

Sectors like auto on the planet.

A little bit.

Soft, but could you comment a little bit.

Q2 2022 United States Steel Corp Earnings Call

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