Q2 2023 Steel Dynamics Inc Earnings Call

Speaker 2: Good day and welcome to the Steel Dynamics second quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. After management remarks, we will conduct a question and answer session and instructions will follow at that time.

Speaker 2: Please be advised this call is being recorded today, July 20th, 2023, and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipchitz.

Speaker 2: Director, Investor Relations. Please go ahead.

Speaker 3: Thank you, Holly. Good morning and welcome to Steel Dynamics second quarter of 2023 earnings conference call. As a reminder, today's call is being recorded and will be available on our website for replay later today.

Speaker 3: Leading today's call are Mark Millet, Chairman and Chief Executive Officer of Steel Dynamics, Theresa Waggler, Executive Vice President and Chief Financial Officer, and Barry Schneider, President and Chief Operating Officer. The other members of our senior leadership team are joining us on the call individually.

Speaker 3: Some of today's statements, which speak only as of this date, may be forward-looking and predictive, typically preceded by belief, expect, anticipate, or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995 should actual results turn out differently. Such statements involve risks and uncertainties related to integrating or starting up new assets.

Speaker 3: aluminum industry, the use of estimates and assumptions in connection with anticipated project returns, and our steel, metal recycling, and fabrication businesses, as well as the general business and economic conditions.

Speaker 3: The sample disease are described in the related press release as well as in our annual filed FCC form 2K under the heading forward-looking statements and risk factors.

Speaker 3: on the Internet at www.scc.gov. And if applicable, in any later SEC report, thank you. You will also find any reference non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled for

Speaker 3: And now I'm pleased to turn the call over to Mark.

Speaker 4: Thank you, David, and good morning everybody. Thank you for being with us on our second quarter of the school.

Speaker 4: Once again, our team has achieved a solid financial and operational quarter.

Speaker 4: Highlights include continued safety improvement. 81% of our facilities were incident free through the quarter.

Speaker 4: They're cash from operations of $808 million and EBITDA generation of $1.2 billion.

Speaker 4: We also received improved investment grade credit ratings, providing further third-party confirmation of the strengths of our business model.

Speaker 4: We're also making significant progress on our aluminum flat-world investments.

Speaker 4: There's great excitement within the prospective customer base for new and innovative supply chain solutions from a differentiated supplier. I'm incredibly proud of our teams. They are the foundation of our company and they drive our success. It is their culture of excellence combined with our meaningful value added growth and their

Speaker 4: diversification and supply chain positioning that is resulting in our earning strength in all market cycles.

Speaker 4: However, as I've often said, great financial performance is of no importance without safety for our SBIR family. We are focused on providing the very best for their health, safety, and well-being.

Speaker 4: We're actively engaged in safety at all times and at every level keeping it top of mind and an active conversation.

Speaker 4: That focus, as I said, the team safety performance further improved in the second quarter, way ahead of the industry averages. There is more to do. We will not rest until we consistently achieve our goal of zero injuries.

Speaker 4: But before I continue, Theresa, would you like to give us some financial cover?

Speaker 5: Thank you, Mark. Good morning, everyone. I had my sincere appreciation and congratulations to the entire team for another strong performance. Our second quarter 2023 net income was $812 million or $4.81 per deleted share.

Speaker 5: with, as Mark mentioned, EBITDA of $1.1 billion.

Speaker 5: Second quarter 2023 revenues of $5.1 billion were higher than sequential first quarter results driven by increased real-life steel selling values.

Speaker 5: Our second quarter operating income of $1.1 billion was 27% higher than first quarter results as a result of significantly expanded steel metal spread. As we discussed our business this morning, we are positive with industry fundamentals for the remainder of 2023 and beyond and we're focused toward our continued transformational growth.

Speaker 5: Our steel operations generated strong operating income of $706 million in the second quarter due to metal spread expansion and near record shipments of 3.2 million tons. High realized prices were then offset moderately higher scrap costs in the quarter.

Speaker 5: We realized increased pricing and metal spread across both our flat rolls and our long product steel operations.

Speaker 5: As a reminder, we are the primary domestic steel supplier into the railroad rail market as well as a producer of all other long steel products including structural steel, special bar quality, merchant shapes, specialty shapes, and reinforcing bar with over 4.5 million tons of annual capacity.

Speaker 5: Operating income for metals recycling operations was $40 million consistent with sequential first quarter results due to increased shipments being offset by lower metal spread. The team continues to leverage the

Speaker 5: Our circular manufacturing model is at SNES by providing high quality, lower cost crap which improves furnace efficiency and reduces company-wide working capital.

Speaker 5: Our Mexico recycling operations also provide a competitive advantage for reliable supply as well as for future increased scrap aluminum collection. We are the largest North American metals recycler today, processing and using ferrous scrap and non-ferrous aluminum, copper, and other metals.

Speaker 5: Our steel fabrication operations achieved operating income of $462 million in the second quarter, lower than first quarter results, but historically strong as average pricing decreased 13% in volume per study.

Speaker 5: Our steel, joist, and deck order backlog extends into the first quarter of 2024. It is contracted from record highs experienced in 2022 as shipments have outpaced spot order activity. However, forward backlog pricing remains very strong and spot pricing remains very resilient. Based on our backlog, customer sentiment, and manufacturing momentum, we expect steel parts will win.

Speaker 5: demand in the coming years.

Speaker 5: Our cash generation continues to be strong based on our differentiated circular business model and variable cost structure. At June 30th, our liquidity was $3.5 billion, inclusive of our recently renewed unsecured $1.2 billion revolver. I'd like to congratulate the team. They actually refinanced the revolver yesterday. So thank you to Rick and Dominic.

Speaker 5: During the second quarter of 2023, we generated cash flow from operations of $808 million and $1.5 billion for the first half of the year.

Speaker 5: During the first half, we invested $585 million in fixed asset investments. We believe capital investments for the second half of the year will be in the range of $1 billion. The vast majority relating to our aluminum flat rolled investments and the completion of our four flat rolled steel coating lines by the end of 2023.

Speaker 5: In February , we increased our cash dividend 25% and repurchased $734 million, or 3.9% of our outstanding shares in 2023.

Speaker 5: At June 30th, $606 million remained authorized for repurchase under our existing $1.5 billion that we put in place during November of 2022.

Speaker 5: Since 2017, we have increased our cash dividend 174% and repurchased $4.8 million of our common stock, representing 39% of our outstanding shares. In recognition of our growth, strong balance sheet profile.

Speaker 5: and consistent free cash flow generation capability. Last month we received upgrades, as Mark mentioned, to our investment grade credit designation from both Moody's and from S&P.

Speaker 5: Our capital allocation strategy prioritizes high return growth with shareholder distributions comprised of a positive base dividend that's complemented with a variable share purchase program while we remain dedicated to our investment grade credit designation. We've placed ourselves in a position of strength.

Speaker 5: to have a sustainable capital foundation that supports meaningful strategic growth, strong shareholder returns, and investment grade metrics.

Speaker 5: Our free cash flow profile has fundamentally increased over the last five years, from an annual average of $580 million to $2.6 billion currently.

Speaker 5: Our aluminum growth strategy is consistent with this strategy. We will readily fund our flat load aluminum investments with available cash and cash flow from operations.

Speaker 5: We also plan to continue strong and responsible shareholder distribution as we have clearly demonstrated. We are squarely positioned for the continuation of sustainable optimized long-term value creation.

Sustainability is also a significant part of our long-term value creation strategy and we're dedicated to our people, our communities and our environment. We're committed to operating our businesses with the highest integrity. We have an actionable path toward carbon neutrality that is more manageable and we believe considerably less expensive. For more information on these topics visitasa.gov important

then they may lay ahead for many of our industry and other peers.

Our sustainability and carbon reduction strategy is an ongoing journey and we're moving forward with the intention to make a positive difference playing a leadership role.

For those of you on the call that like to track the product differentiation among our flat rolled shipments, for the second quarter our hot rolled shipments were 972,000 tons, our cold rolled shipments were 149,000 tons, and our coated shipments were 1,150,000 tons.

With that, I'll turn the call back over to Mark.

Thank you, Theresa. And hopefully you folks can hear us. I know our AV's not quite up to snuff today, so apologies for that.

But nonetheless, our steel fabrication platform turned in another strong quarter. The team continued to do an absolutely phenomenal job there.

One second. Sorry everyone, apologies, but it appears that many folks can't hear us, hear the call.

would ask you to hang up and call back in. And we'll just pause the call for a second.

to hang up and call back in. We'll just pause the call for a second. Thank you.

Ladies and gentlemen, apologies. Please remain connected. David, we will dial out to you and reconnect on your line. Ladies and gentlemen, press A.

Participants, please remain connected. We will reconnect the speaker line. David will dial out to you momentarily.

Ladies and gentlemen, please remain on the line.

The conference call will resume shortly.

Ladies and gentlemen, please remain on the line. The conference call will begin shortly.

Thank you for holding, ladies and gentlemen. We do apologize. Please remain on the line. The Steel Dynamics conference quality resumes shortly.

And the speaker line is now reconnected.

Sorry about that, folks. We'll just continue.

Sorry about that, folks. We'll just continue from where we were.

Good morning again. Apparently, I believe you heard everything that's been said, but it's very, very choppy. So obviously, we'll clarify things in the Q&A that perhaps you didn't hear.

I was just kicking off a steel fabrication platform, turned in another strong quarter. That team continues to do an absolutely phenomenal job. So thank you to each and every one of them.

We continue to have high expectations for that business and we believe non-residential construction markets will continue to be strong in the coming years.

Non-residential starts and build rates are forecast to remain strong through the rest of this year and into 2024. Related spending has been higher in 2023 compared to last year at this time.

Continued onshoring of manufacturing businesses coupled with infrastructure spending and fixed asset investment related to the IRA programs should provide momentum for additional construction spending and extend the whole non-residential construction cycle. Equally important, our customers tell us demand remains solid.

share our perspective. A steel fabrication order backlog is shortened from its all-time high of over 12 months achieved in 2022 but it remains very strong from a historic perspective.

extending into January of 2024 with a strong pricing profile.

Current order entry pricing remains resilient and we expect second half 23 volumes to be comparable to the first half 2023 shipments.

We also believe average pricing will remain elevated, but possibly drift 10-15% lower than average for the first half of the year.

Not only a significant contributor itself, our fabrication platform provides meaningful pull-through volume for our steel mills, particularly important in softer markets, allowing for higher through-cycle utilization rates compared to our peers.

Our metals recycling platform achieved a strong second quarter despite price declines.

After rising in the first quarter, scrap prices pulled back May through July , with shredded scrap prices falling almost $100 a ton.

We expect scrap pricing to fluctuate modestly during the second half of the year, perhaps seasonally rising somewhat in the third quarter and moderating again in the fourth.

Our metals recycling geographic footprint provides a strategic competitive advantage for our electric arc furnace steel mills and our scrap generating customers.

In particular, our Mexican volumes competitively advantage our Columbus and St.

Our metals recycling team is partnering even more closely with both our steel and aluminum teams to expand scrap segregation capabilities through process and technology solutions.

This will preclude prime fur scrap supply issues in the future.

It will also provide margin enhancement from the aluminum scrap streams and materially increase recycled content of our aluminum sheet products.

Our steel operations achieved near record shipments of 3.2 million tons and solid financial results in the second quarter. Our steel production utilization rate, excluding Centon, was 93% compared to a domestic industry rate of 76%.

Our higher utilization rates have been clearly demonstrated throughout all market cycles.

And it's manifest by our value-added diversified product offerings, which amount to about 70% of our sales today. Competitive advantage supply chain solutions, which is driving customer preference and mitigating price volatility.

and the support of internal pull-through manufacturing volume. Our higher through-cycle utilization rate is a key differentiator and supports our strong and growing through-cycle cash generation capability and best-in-class financial metrics.

Looking forward, backlogs are strong and

Auto production is good with expectations of higher output in 2023 relative to 2022 rates.

and dealer inventories have improved but still remain below historical norms.

Non-residential construction remains strong. Our long product steel backlogs are solid.

Onshoring and infrastructure spending should provide further meaningful support in the coming years.

Oil and gas activity is strong, driving improved orders for OCTG.

and the solar continues to grow substantially. At Sinton, the team achieved positive EBITDA for the second quarter and produced a shy of 390,000 tonnes, which is about 52% of full capacity, which is obviously lower than we had planned.

But that said, the team has done a phenomenal job to get to that EBITDA positive position. Some of that lack of utilization was being on a single electric arc furnace for a portion of the quarter. As we announced on July 1st, we experienced equipment issues with the cast this year.

Repairs are well underway and we should be restarting within the next few days.

Once restarted, we fully expect to progressively ramp up month over month to an 80% run rate by the end of the year. The team has demonstrated the key competitive advantages of the mill. We have full product dimensional capability.

That has been proven all the way out to 84", down to 0-57", and up to 1 inch thick.

Customers are reporting surface quality to be exceptional. Hot strip mower design is allowed for thermal mechanical rolling, allowing the production of higher strength grades with lower alloy content and thus lower costs.

Grade 80, Grade 100 have been achieved and we've been approved and shipped some API grades.

and it affirms our technical process choices and there's no doubt that this is the next generation electric arc furnace flat road steel technology of choice.

We have gained strong market acceptance and can sell everything we make and then some.

Our exceptional through-cycle operating and financial performance continues to support our cash generation and growth investment strategies. Relative to our expansion into aluminum, responses from both current and new customers across all market sectors remains incredible. We're developing the mill site to...

locate processing and consuming operations as we have successfully done in Sinton. We have a number of customers already speaking with us about such opportunities.

which would be a competitive and sustainably competitive model for all of us.

which would be a competitive and sustainably competitive model for all of us. To recap the project.

It's a 650,000 metric ton aluminum flat road facility which will be located in Columbus, right across the highway essentially from our steel mill there.

state-of-the-art facility serving the sustainable beverage and packaging markets both including BODI and ANTAR, the automotive arena and industrial sectors.

Specifically, we're targeting 300,000 tons of CAN, 200,000 tons of auto, and 150,000 tons of industrial product.

The on-site melt-cast slab capacity of 600,000 metric tons will be supported by two satellite recycled aluminum slab casting centers. We are purchasing and should be closing on land both in San Luis Porto C, in central Mexico, and also in the southwest US.

in the next two or three weeks. The mill includes two cache lines for automotive, coating lines, downstream processing and packaging lines. We expanded the project scope to include additional scrap processing and treatment to maximize aluminum recycled content.

All the principal equipment has been ordered. We anticipate rolling mills start up around mid-25. The Mexico slab center should be January 1st at 25 and the Southwest US slab center sometime in the first quarter of 25. Total project cost including the recycled slab centers should be 2.5 billion dollars.

100% of that is going to be funded with cash.

We expect to add 650 to 700 million dollars of through cycle annual EBITDA to the company through that investment. Plus around 40 to 50 million dollars of additional earnings from the Omni Recycling platform.

From an investment premises perspective, we just see a market environment not unlike that in the steel industry when we started SDI 30 years ago.

old assets, little reinvestment, heavy legacy costs, inefficiency and high cost operations. A significant aluminum flat roll supply deficit is existing today in North America and is expected to grow in the coming years.

And we see a real business alignment whereby we can leverage our core competencies of construction, strength, our operational know-how and our culture to truly leverage and exploit the technology. We also will be able to leverage Omni's Recycling Footprint.

and maximize recycled content of the product.

We believe it's a very, very cost effective high return growth for us.

And again, the existing new customer interest and support is quite unbelievable.

In closing, we are excited, we're impassioned by the future growth opportunities as they will continue the high returning growth momentum we've consistently demonstrated over the years.

and we're celebrating our 30th year in business this August , and there are only better things to come. Our teams are our foundation, and I thank each of them for their passion and their dedication and their commitment.

We're celebrating our 30th year in business this August , and there are only better things to come. Our teams are our foundation, and I thank each of them for their passion and their dedication and their commitment. And we're committed to them.

And I remind those listening today that safety for yourselves, your families, and each other is our highest priority. There's nothing more important.

Our culture and our business model continue to positively differentiate our performance, leading to best in class financial metrics.

As I said I think in the last call, we're no longer a pure steel company.

We're competitively positioned and continue to focus on providing superior value for our company.

customers, team members and shareholders alike. We look forward to creating new opportunities for all of us, today and in the years ahead.

So with that said, Holly, we would love to hand the call over to you and start the Q&A session.

Thank you. If you would like to ask a question, please signal by pressing the star key followed by the digit 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you pressed star 1 earlier during today's call, please press star 1 to receive your message.

please press star 1 again to ensure our equipment has captured your signal. Also, we ask that you please limit yourselves to one question to facilitate time for everyone. Any additional questions can be addressed upon reentering the queue. One moment while we poll for questions.

Your first question is coming from Kurt Woodworth at Credit Suisse.

Your first question is coming from Kurt Woodworth at Credit Suisse. Yeah, thanks. Good morning, Marc and Theresa.

Good morning. Mark, you talked about fab pricing. You said it would be roughly 10 to 15 percent lower in the back half of the year versus the first half.

which seems to put realized pricing around the 4,100 per ton level. Can you help us understand maybe the cadence of how that would shake out between 3Q and 4Q? And then you noted the backlog for fabrication is extending into 2024.

Are you seeing any evidence of price stabilization at this point in terms of how the backlog is shaping up into the early part of next year?

Thanks, Kurt. This is Theresa. I appreciate the question. When Mark said that the average pricing was expected to be down 10 to 15%, that was just for clarity for everyone on the call. That was measuring the first half of 2023 to the second half of 2023. It wasn't specific to a point in time or specific time.

that we've pointed to in the past that we think there's been a structural shift in pricing for steel fabrication as there's really a lack of substitutability when you think about steel joist and duct. And there is very good demand today and we think increasing demand with the momentum behind manufacturing for all the different reasons that we've pointed to this morning.

The backlog has good pricing in it, very strong pricing from a historical perspective. And I think that we see that heading very favorably into the first quarter. And frankly, we were just talking about this morning, as you think about a lot of the public monies in those programs, those are being awarded, especially with the IRA and some of the Department of Labor.

Okay, and then in terms of the volume guidance, it seems like…

volumetrically you're still expecting year-on-year declines.

15 to 20 percent level and you noted some project delays. Can you just kind of comment on within the backlog or I guess projects that have been burning off, are there certain pockets of weakness you're seeing that are greater than others? Obviously there's been kind of a lot of talk on some of the warehouse spending dying down, but data centers and other areas seem to be really strong. So any color you can give on that would be helpful. And then –

Just as a follow up, can you give a comment on what you think capital spending for 2024 would be? Thank you very much. Thanks, Kurt. Yes, so as it relates to the mix of the backlog, and I would say more so even in the current order intake activity, we have seen, and I think it's positive for the economy in general, we've seen a more...

projects coming in from whether it be education, healthcare, definitely manufacturing. So we're starting to even see the electric vehicle batteries, we've seen the chips, and we've seen a lot of advent and manufacturing from onshore and the things that we've talked about. So there is a mix toward those type of projects.

and away from just purely retail warehouses, which we've been seeing and talking about for a while now, probably six to nine months.

As it relates to capital spending for 2024, we expect to have capital spending for the aluminum project this year is likely to be somewhere between $900 and $950 million in total. Next year for the aluminum project is likely to be about $1.2 billion. When you combine that with

additional growth projects as well as a minimal amount of maintenance capital, we're likely to have total capital spending in 2024 from what we can see today still around that 1.5 billion dollars for the year. Great thanks so much.

Your next question for today is coming from Cleveland Rooker at UBS Securities.

Great good morning. Thanks for taking my question. I said maybe just one sort of on the aluminum side. I guess just looking at your budget and sort of outlook for demand there. Recently there's been a downturn in aluminum can demand and that industry has been

It's a little bit disrupted. I'm wondering if that's at all concerning to you and if you've adapted your demand forecast at all. Absolutely not. We remain very, very bullish now. If you go back, well, like a year now, perhaps the...

the folks were projecting that demand would grow and you need four new aluminum mills. We didn't believe that then, we don't believe that now. But we certainly feel there's more space to satisfy our market share, for sure.

So the sort of the...

pullback I would say is more an inventory standpoint. There's a lot of inventory. People panicked a lot last year. That inventory has to flow through the system and there's absolutely no doubt that it is doing so today. And in all honesty, when our mill comes up, I think that the marketplace is gonna be in a beautiful.

fluids.

And then when you look at the automotive arena...

We believe and we've, with our communications with virtually all the automotive folks, they have been restrained from developing greater volumes of aluminum.

through the lack of availability. We're providing that availability going forward and I think we, just as we've done in steel, we'll gain market share quite rapidly. So from a market perspective, we are still very bullish. The amount of interest we have across the aluminum space is incredible.

And I think I said it on last call, you know, in steel, we've never entered a market that is underserved. Every market we've gone into, we've had to differentiate ourselves to gain market share. It's refreshing for us that people aren't actually coming to us.

When you combine that need with our ability to change the supply chain to provide much greater value to the customer base, I think we're confident to gain that market share quite rapidly. Please, just as a quick reminder, in the last several years, they've had domestically...

the consumers of aluminum sheet actually had to import about 20% of their needs and that had high tariffs associated with that imported cost. So there's definitely room for just you know 650,000 tons of additional supply.

Good, got it. I appreciate the confidence. And if I may just sneak in one follow up question on since and I think you had to replace the bearing on the caster. I'm just wondering if you've got I didn't hear in the prepared remarks that maintenance work has been done. And, and if you have any questions, I'll be happy to answer them.

confidence. And if I may just sneak in one follow-up question on since and I think you had to replace the bearing on the caster. I'm just wondering if you've got I didn't hear in the prepared remarks if that maintenance work has been done and and it's back on.

back on schedule. Yeah, this is very, I just like comment that those bearing issues we talked about, the tail end of last year, our team has mitigated most of the effects that we have as supply chain now that is a

both a more robust design and a more robust supply chain. So we're really excited about the quality improvements and really the reliability of those casting segment parts. We believe our long-term plans, we kind of approached it with several different prongs.

And all of them are really being successful, and it's to the point now that we can manage it very well. And we're operating at full capacity, as Mark spoke. All capabilities of the machine right now are in place. So we believe long-term that's going to be not an issue going forward, that it will just continue to be higher reliability and continuing high quality.

Thanks, Barry. But it wasn't there an unplanned outage very recently. Yeah, we had a cast or shear issue just here at the beginning of July , not related to the bearing issue, perhaps you mentioned with the casting machine. And it's kind of a technical issue with the cast or shear. And suffice to say it's large parts that we wanted to make sure we had.

put in properly and we are taking this opportunity to address a couple other issues, but we anticipate that facility being up and operational in the next few days. Team's done a phenomenal job for working together and getting this scope of a project. We're super excited. Mark and I were down there for moral support.

Definitely not getting in the way of the guys making the repairs. But great to see this team just really owning their technology and bringing it forward. So we anticipate this problem to be behind us. And we think we've put in a...

that are similar to this. Okay, got it. Thank you. Appreciate it. Your next question is coming from Tristan Dresser with Exeam BNP Paribas. Your next question is coming from Tristan Dresser with Exeam BNP Paribas.

Yes, hi, good morning. Thank you for taking my questions. The first one is maybe on the steel side. Can you tell us a little bit about the volume up into Q3? I noticed long volumes were down on the year-on-year basis in Q2. Should we expect some pick up there?

Thanks for the question. We generally don't give guidance as it relates to specifics on shipments. If you look historically, the third quarter is going to be generally the strongest shipment quarter that we have in shipments for steel simply because of seasonality.

Sinton is going to be down for July . We are still running the cold mill and the value add lines, which will help to place some of the lost volume. But we're likely to have lost volume of anywhere between 50,000 and 70,000 tons of total steel shipments as relates to the sheer outage in July .

Other than that, we really can't give you any additional guidance. But as Mark mentioned, the backlogs across the steel platform are very strong and order activity has been very good. Okay, I know that's helpful. And maybe a quick follow-up just on the fabrication business. You mentioned that

Joyce and Dec's prices have stopped falling at which level exactly are you seeing them now? Tristan, we can't give specific pricing related to this. The commercial teams would be after me.

So I think what we said about pricing for fabrication is that the pricing has been very resilient We have strong pricing in the backlog, but we did mention that there are expectations that Pricing on average from compared the first half of the year pricing on average for the second half of the year Is likely to be down 10 to 15 percent

But we do believe pricing is stable and it's been very resilient.

Okay, I appreciate the call. Thank you. Your next question is coming from Carlos Diaba at Morgan Stanley .

Thank you very much. Good morning. So just on pricing as well, maybe you can provide some color even without giving those details. What we have seen in the benchmark information is how deep galvanized prices have been recently below the soft-strait coal-roar-coil price.

Thanks for the question. The marketplace is a little frothy right now. I would tell you the most recent change here in the CIU, Dan would hear yesterday or the day before, in our mind, doesn't represent the market dynamics that the...

that's going on right now. All right, okay, thanks Mark. And then just on Cinton, I wanted to confirm that you still expect the cost of the recent outage to be around a million dollars, which is pretty insignificant.

And when would you expect to reach closer to 100 percent capacity utilization if that is your intent or you want to stay around 80 percent that you will reach towards the end of the year? Effectively, you will try. And clearly, having received its Commission report from our guests, our recommendations

Well actually the actual specific cost was well under a million dollars. As Barry said the issue was just getting parts in just the size of the equipment involved. It wasn't necessarily a...

a large expense to repair. The second part of that...

Again, as you heard from our comments, we're just tempering our expectations. We've always had high, high, high expectations. And we just believe once we get up and running here in the next few days, we'll be able to get through this.

You know, we were at, when we shut down, 52-55% or thereabouts.

We're just suggesting now that, hey, month over month we're going to progressively ramp up to that 80% by the end of the year and then into next year we'll continue to incrementally ramp up for production through through 2024. So in the second half of next year, fourth quarter next year is when you expect to get...

100% of capacity very quickly in 2024.

All right, got it. Thank you very much. I appreciate it. You're welcome Your next question for today is coming from Timna Tanners at Wolf Research.

Hey, good morning. Why don't you just ask a little bit more about the cadence of added supply that you've outlined on the new coating and painting lines? Like, should we start modeling contribution, you know, immediately in the third quarter? That'd be more fourth and first quarter weighted. And then I have a second question. Thanks. Tim, this is Barry. We're anticipating bringing the new coating and the galvanizing lines, paint lines on.

So we look forward to bringing these lines on, but it will be.

near the end of the year. Okay, helpful. Appreciate that. And then my only other question was just an update on your export activity and Just just how that's trending. I know you've been pretty active shipping to Mexico. Just wondering if there's anything new there.

Other than a small little bit of non-ferrous, we have no export activity other than Mexico. This isise or GDOT information that was sent by the Department of Forestry and other than Mexico.

Yeah, Tim, this is Barry again. We've been doing quite a bit of shipments into Mexico this year. Sinton is uniquely... The capabilities of Sinton are unique for what the Mexican markets are. So being able to get some heavier gauge products and wider product down there has been a very good place for us to develop relationships. So we've been down and shipping to Mexico for a long time, but...

Significantly so in the first half of this year, and we continue to do more of that, especially through our campus partners at the Sinton facility. So we see that as really good business and continuing to grow forward.

Okay, thanks again. We certainly capitalized a little on the the OMSA situation down there. And even as they restart, and obviously there's a lot of projections as to how quickly they restart, if they restart. But we're quite confident that the customer base...

there around OMSA, certainly in the Monclova, has recognized that single sourcing is a huge mistake.

And even with an arms of startup, we're going to continue to secure a lot of that business and market share that we've gained.

And with an arms-to-startup, we're going to continue to secure a lot of that business and market share that we've gained. Got it. Thank you.

Your next question is coming from Bill Peterson at JP Morgan.

Hi, good morning. Thanks for taking the questions. I wanted to ask you about the decarbonization strategy. You put some information on the Biochar initiatives.

I mean, it's just the operations by already 2024, but just to confirm, I guess, is the plan construction begun or are there any other areas to prove out or technical readiness issues to address? That's the first question.

Thanks, Jim.

The bio-reductant, bio-carbon facility is actually going really well. The teams have done a lot of ground work already. The major equipment is either a has-been order or is on order and some of it is actually going to be received fairly shortly. So the team is doing a phenomenal job. I'm very proud of them in Mississippi and the expectations are that it will start before the end of 2018.

a wonderful product that we can replace eventually 100% or a very large portion thereof of our anthracite usage going forward. So everything is going really, really well.

I appreciate that and I forgot to ask what do you expect in terms of the cost on that but compared to traditional. But I guess my second question is as we think about this additional galvanized capacity, you mentioned kind of end of the year and then more contribution for next year. And we just think it's falling out.

I guess how is your view, given that there's also a lot of other plant capacity coming to market, what's the risk you might see in terms of lower prices, longer term, with the additional capacity from competitors in the space? Would that inform you, RAPAN? Let me address the cost of the bio facility and then Barry and Mark can take the galvanizing pricing question. We believe we're still kind of...

It's a fine point on it but it's likely to cost somewhere between 200 and 230 million dollars for the entire project. But remember it is a joint venture that we have with Amium. And so we have 75% ownership of the facility and Amium has 25% of the facility.

relative to the concern of over capacity and honestly over the years now, perhaps I've been in the industry too long, but everyone, it wasn't so long ago that there was going to be over capacity in iron ore business and I thought it was going to go down to 35 bucks and now, then it was the sheet.

that we're not going to see a material impact to any increase in the sheet market. And I think the same with coated. People are gravitating to produce their parts with more coated. I can remember cars...

Not so long ago the outside skin was just galvanized and you look at a car today and almost every single piece is galvanized. So demand is increasing for sure. The wood is getting lighter gauge galvanized. And so the line time of a car is increasing.

it goes up and thus the the actual sort of effective throughput of the line is actual lines are going down today. So we're not overly overly concerned.

us the actual effective throughput of a line is actually going down today. So we're not overly concerned. Appreciate the color. Thanks.

Your next question is coming from John Tumazos at Very Independent Research.

Thank you. In planning Senton, you have the million eight tons of customers on your campus, the buy-in to the distributor based in Houston, the customer service, the customer service,

for coding lines.

as well as the customer opportunities in Mexico you were describing. More than the 3 million ton capacity.

As you're ramping up, how are you allocating the volume among those customers? It appears as though there's more customers than time output.

What specifications have you not yet gotten to melting and casting and rolling in terms of chemistries, gauges, widths, etc.? John , this is Barry. As far as product dimensions, we've explored everything that we believe we needed to do. We're doing light gauge to heavy stuff.

full width of products. We've done many different of the metallurgical needs from vacuum to gas products all the way up through the range of different steels we would make. We are minded to do automotive there but those types of trials require us to really get an idea of what our line capabilities are.

So we are doing those, we're doing the same with the API type products. And that requires us to have confidence in the data so that we design the best products to go into trials. We do have customers in both areas taking material. So we're doing it in a very controlled manner to make sure that, again, we are understanding the unique capabilities that SIN has. So.

At this point, the broad swath of products, we've done something for almost every single thing we hope to sell. And it's more about getting more data, getting more characteristics from how we produce those things. And at the same time, establishing those internal, how we process things is very important. Just this week, the ISO certification audits are going on. So it's very important that we do this as our customers expect. But right now, good progress. We're excited by it.

and we will look to optimize each of our units. So we've always had a very diverse order book so that we have many small markets that we can participate in. So we're focused on making sure that we're feeding all the different buckets, keeping all of our lines operational as we ramp up and bring these new coding lines online. So it's a very controlled structure, and we're trying to be very respective to the customer base that's very anxious to receive these products. So that's our hope. Thanks everyone.

Yeah John , I guess we remain... there's something happening here. Hopefully you can hear us still, but we remain incredibly excited by...

produce those higher strength arrays, the high tough grades at lower cost is working incredibly well and that's going to be a great market for us down there and those products are value add. It may be hot band but you accrue a good premium for those products.

And we're also seeing in the plate arena great potential down there. One of the on-site processes that you mentioned, that we co-locate, is a real heavy plate cutter length line. And we feel there's going to be massive opportunity.

there, particularly as the infrastructure growth occurs and plate is going to be a big component in that. So, Centon is incredible. One needs to go there to really experience it.

The equivalent reliability issues are frustrating, but it's absolutely a state of the art mill. The team is excited. They will get that thing running full blast in time.

And it will be the technology of choice going forward.......... That concludes our question and answer session. I'd like to turn the call over to Mr. Millett for any closing remarks....

loyal support and our shareholders. Thank you those that that are invested in us. We will continue to treat your dollars just like they're our own. We're going to continue to grow them.

We have a huge bright future ahead of us. With Stinton kicking in, with aluminum going forward, the growth momentum continues. So thank you.

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation and have a great and safe day.