Q3 2023 Steel Dynamics Inc Earnings Call

Speaker 1: Good day and welcome to the Steel Dynamics third quarter 2023 earnings conference call. At this time all participants are in a listen-only mode. After management's remarks we will conduct a question and answer session and instructions will follow at that time.

Good day and welcome to the steel dynamics third quarter 2023 earnings Conference call.

At this time all participants are in a listen only mode.

After management's remarks, we will conduct a question and answer session and instructions will follow at that time.

Speaker 1: Please be advised this call is being recorded today, October 19, 2023, and your participation implies consent to our recording this call. If you do not agree to these terms, please return to your seat.

Please be advised this call is being recorded today October 19th 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'd like to turn the conference over to David Lipschitz Director of Investor Relations. Please go ahead.

Speaker 1: At this time, I'd like to turn the conference over to David Lipchitz, Director Investor Relations. Please go ahead.

Thank you Holly good morning, and welcome to steel Dynamics' third quarter 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 2: Thank you, Holly. Good morning, and welcome to Steel Dynamics third quarter 2023 earnings conference call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millet, Chairman and Chief Executive Officer of Steel Dynamics, and Theresa Waggler, Executive Vice President and Chief Financial Officer. The other members of our senior leadership team are joining us on the call individually.

Leading today's call are Mark Millett, Chairman and Chief Executive Officer of steel dynamics, and Theresa Wagler Executive Vice President.

And Chief Financial Officer, the other members of our senior leadership team are joining us on the call individually.

Speaker 2: Some of today's statements, which speak only as of this date, may be forward-looking and predictive, typically preceded by believe, 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.

Today's statements, which speak only as of this date may be forward looking and predictive typically preceded by believe expect anticipate or words of similar meaning they.

Were 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 are starting up new assets. The aluminum industry. They use of estimates and assumptions in connection with anticipated project returns and our steel metals recycling and fabrication businesses as well as <unk>.

Speaker 2: Such statements involve risk and uncertainties related to integrating or starting up new assets, the aluminum industry, the use of estimates and assumptions in connection with anticipated project returns, and our steel, metals recycling and fabrication businesses, as well as to general business and

General business and economic conditions. Examples of these are described in the related press release as well as in our and annual filed SEC Form 10-K under the headings forward looking statements and risk factors.

Speaker 2: Examples of these are described in the related press release as well as in our in-annual filed SEC Form 10-K under the headings, forward looking statements and risk factors found on the Internet at www.SCC.gov and if applicable, in any later SEC Form 10-Q . 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 Field Dynamics Reports, third quarter 2023 results. And now I'm pleased to turn the call over to Mark.

On the Internet at Www Dot at SEC Gov, and if applicable in any later SEC Form 10-Q.

Find any reference non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics reports third quarter, 2023 result, and now I'm pleased to turn the call over to Mark.

Yeah.

Well. Thank you David Good morning, everyone. Thank you for being with us on our third quarter earnings call.

Speaker 2: Thank you David, good morning everyone. Thank you for being with us on our third quarter earnings call.

As you saw on the release once again, our teams achieved a solid financial and operational quarter.

Speaker 2: As you saw in the release, once again, our teams achieved a solid financial and operational quarter. Almost 80% of our facilities...

Almost 80% of our facilities had zero safety incidents and our company wide trailing 12 months incident rate is running at an all time low so congratulations to everyone. The more importantly, thank you for all your work to do.

Speaker 2: and our company-wide trailing 12-month incident rate is running at an all-time low.

Speaker 2: to everyone. The more importantly, thank you for all your work.

To make that happen it takes each and every one of us to get though.

Speaker 2: Cash from operations was a healthy 1.1 billion dollars.

Cash from operations was a healthy $1 $1 billion.

Speaker 2: with the trust of EBITDA generation of 800 and 70.

Adjusted EBITDA generation of $876 million.

Speaker 2: this performance truly affirms the cash generation resiliency of our diversified

And this performance truly affirms the cash generation resiliency of our diversified value added product portfolio.

Speaker 2: We've seen significant momentum in our aluminum flat roller investments. Both current and prospective customers are excited by our market.

We're seeing significant momentum.

And our aluminum flat roll investments, both current and prospective customers are excited by our market entry in a new and differentiated supply chain solutions, we can provide.

Speaker 2: and the new and differentiated supply chain solutions we can provide.

And they are actually very very surprised by the speed and completeness of our execution so far.

The Simpsonville has proven its nameplate production capacity rate when full product capability, but it does remain challenged by equipment reliability issues.

Speaker 2: The Sintland Mill has proven its nameplate production capacity rate and full product capability, but does remain challenged by equipment reliability.

Speaker 2: We are confident we can resolve the majority of these issues by the year end. Our successes cannot be achieved without the best metals team in the industry.

We're confident we can resolve the majority of these issues by the year end.

Our successes could not be achieved without the best metals team in the industry.

I'm incredibly proud of the whole SDI family.

In spirit form the foundation of our company.

Speaker 2: They drive our success and it's been on to work among

They drive our success and it's an honor to work among them.

Speaker 2: In fact, in this world of turmoil with the human catastrophe happening in Ukraine, the atrocities in Israel, the suppression of the Palestinian people, and even closer to home, they, the anger and divestiveness within America and our political structure. It's...

And in fact and in this world of.

Turmoil with the.

Human catastrophe happening in Ukraine, the atrocities in Israel, the suppression of the Palestinian people.

And even closer to home.

The.

And do you believe the aggressiveness within within America.

Political structure it truly is inspiring to come to work each and every day.

And be surrounded by very very positive people that think right. They get it they treating people right and our focus on what we do each and every day.

Speaker 2: As such, my greatest leadership commitment is to ask the high family, not only are colleagues that come to work. For us, will there be a problem?

As such our greatest leadership commitment is due honesty I family.

And really all colleagues that come to work for also live forms and lives and their kids.

Speaker 2: As I remind our teams, great financial performance is of no importance without keeping everyone safe.

Cause I remind our teams great financial performance of no importance without keeping everyone safe.

We continue to be focused on providing the very best for the health safety and welfare.

Speaker 2: continue to be focused on providing the very best for their health, safety and well.

Speaker 2: the SDI family when you include everyone. We have over 45,000 people that are reliant on the decisions that we make each and every day. And we're focused.

Today, the SDI family when you include everyone.

Oh, the 45000 people that are reliant on the decisions, we make each and every day and we're focused where you truly all focused on that.

Speaker 2: Together, we're actively engaged in safety at all times and at every level, keeping safety top of mind and an active conversation. So before I can...

Together, we are actively engaged in safety at all times and at every level.

Safety top of mind and an active conversation.

So before I continue Theresa would you like to give us some details.

Good morning, everyone. Thank you Mark and my sincere appreciation to our team for a really solid performance in the third quarter our third.

Speaker 3: Good morning everyone, thank you Mark. I had my sincere appreciation to our teams for a really solid performance in the third quarter. Our third quarter, 2023 net income was $577 million or $3.47 per due to chair with adjusted EBDA of $876 million.

Third quarter 2023, net income was $577 million or.

$3.47 per diluted share with adjusted EBITDA of $876 million third quarter 2023 revenues of $4 $6 billion in operating income at $734 million well lower than sequential second quarter results driven by lower realized steel and steel fabrication.

Speaker 3: Third quarter of 2020 revenues of $4.6 billion in operating income of $734 million will lower than sequential second quarter results driven by lower realized steel and steel fabrication price.

And pricing.

Speaker 3: We see solid industry fundamentals for the rest of this year and beyond. And we're focused on our continued transformational growth initiative.

We see solid industry fundamentals for the rest of this year and beyond and we're focused on our continued transformational growth initiatives.

Speaker 3: Our steel operations generated operating income of $474 million in a third quarter. Lower than sequential second quarter results due to flat-rolled steel pricing metal spray compression. As realized pricing declined more than average scrap costs.

Our steel operations generated operating income of $474 million in the third quarter lower than sequential second quarter results due to flat rolled steel pricing metal spread compression as realized pricing declined more than average scrap costs.

Speaker 3: Our seal treatments remain steady at 3.1 million tons, excluding the lost volume of approximately 90,000 tons related to sentence unplanned July out.

Our steel shipments remained steady at $3 1 million tons, excluding the lost volume of approximately 90000 tonnes related it didn't unplanned July outage, we expect our four new flat rolled coating lines to begin.

Speaker 3: We expect our four new flat-rolled coding lines to begin operating in the first quarter of 2024 at Bow Sinson and Heartland, increasing our value added mix by an additional one million tons, making so that our total coding capacity will be 6.9 million tons going forward.

Operating in the first quarter of 2024 at those centers and Hartland, increasing our value added mix by an additional 1 million tonne, making so that our total coating capacity will be $6 9 million tonnes going forward.

Speaker 3: For notes that track our detailed flat-rolled shipments, in the third quarter we had hot-rolled and PNO shipments of 858,000 tons, cold-rolled shipments of 132,000 tons, and coded shipments of 1,2002,000 tons.

But does that track our detailed flat rolled shipments in the third quarter, we had hot rolled N P N O shipments of 858000 tons.

Cold rolled shipments of 133000 tons and coated shipments of 1.202 million tons.

Speaker 3: Operating income from our Melger cycling operations was $19 million dollars, significantly lower than second quarter results due to non-ferrous, unfairest, Poisoning hunger.

Operating income from our metals recycling operations was $19 million significantly lower than second quarter results do the nonferrous and ferrous metal spread compression ferrous scrap demand was also reduced as numerous domestic steel mills had maintenance outages in the quarter.

Speaker 3: Ferris Scrapnamy and was also reduced as numerous domestic steel mills had maintenance outages in the cord.

Speaker 3: We are the largest North American metals recycler, processing and consuming ferrous scrap and non-ferrous aluminum copper and other metals. The team continues to lever our circular manufacturing operating model, providing higher quality lower cost scrap to our steel mills, which improves furnace efficiency and reduces company-wide working capital require.

We are the largest north American metals Recycler processing engine family in ferrous scrap in nonferrous aluminum copper and other metals. The team continues to lever our circular manufacturing operating model, providing higher quality lower cost scrap touristy all amounts we can produce furnished efficiency and reduces company wide working capital requirements.

Speaker 3: Our steel fabrication operations achieved operating income of $330 million in the third quarter. Lowered in sequential second quarter results yet historically strong. As average, realized pricing declined 11% and volumes declined 16,000 pounds.

Our steel fabrication operations achieved operating income of $330 million in the third quarter lower than sequential second quarter results, yet historically strong as average realized pricing declined 11% and volumes declined 16000 tonnes.

Speaker 3: Our SEAL Joyce inducted me and remained solid with good order activity. Our backlog extends through the first quarter of 2024. The backlog has contracted from record highs experienced in 2022 as shipments have outpaced spot order activity.

Our steel joist and deck demand remained solid with good order activity our backlog extends through the first quarter of 2024. The backlog has contracted from record highs experienced in 2022, I shipments have outpaced spot order activity.

Speaker 3: Forward back love pricing remains very strong and spot pricing resilience.

Forward backlog pricing remains very strong and spot pricing resilience.

Speaker 3: Based on our backlog, customer sentiment and manufacturing momentum, we expect steel fabrication earnings to remain followed in the fourth quarter, but below third quarter levels, based on seasonally lower volume.

Based on our backlog customer sentiment and manufacturing momentum, we expect steel fabrication earnings remain solid in the fourth quarter, but below third quarter levels based on seasonally lower volumes infra.

Speaker 3: Infrastructure, inflation reduction act, Department of Energy, decarbonization support, and manufacturing on-tuning are expected to support domestic, fixed asset investment in related steel and jointing that consumption in the coming years.

Infrastructure inflation reduction Act department of energy Decarbonization support and manufacturing onshoring are expected to support domestic fixed asset investment and related steel and joist and deck and Samsung in the coming years.

Speaker 3: Our cast generation continues to be strong based on our differentiated circular business model and variable costs.

Our cash generation continues to be strong based on our differentiated circular business model and variable cost structure. During the third quarter of 2023, we generated strong cash flow from operations of $1 $1 billion and generated $2 $7 billion on a year to date basis.

Speaker 3: During the third quarter of 2023, we generated strong cash flow from operations of $1.1 billion and generated $2.7 billion on a year-to-date.

Speaker 3: At September 30th, we achieved record liquidity of $3.7 billion, inclusive of cash, liquid investments, and our unsecured $1.2 billion revolver.

At September 30th we achieved record liquidity of $3 $7 billion inclusive of cash liquid investments and our unsecured $1.2 billion revolver.

Year to date of 2023, we've invested $1 $1 billion in capital investments for the fourth quarter, we estimate capital investments will be in the range of $500 million to $550 million of which around 350 million is related to our aluminum flat roll investments much of the remaining capital is related to the completion.

Speaker 3: Year to date of 2023, we've invested $1.1 billion in capital investments. For the fourth quarter, we estimate capital investments will be in the range of $500 to $550 million, of which around $350 million is related to our aluminum flat roll investment.

Speaker 3: Much of the remaining capital is related to the completion of our four new value added code.

Of our four new value added coated lines.

Speaker 3: In February , we increased our cash dividend 25% to 42.5 cents per common

In February we increased our cash dividend, 25% to 42 and a half cents per common share year to date 2023, we've also repurchased $1 $1 billion of our common stock representing almost 6% of our outstanding shares.

Speaker 3: Year to date 2023, we've also re-purchased $1.1 billion of our common stock, representing almost 6% of our outstanding.

Speaker 3: I just up at September 30th, $270 million remained authorized for repurchase under our existing $1.5 billion authorized plan.

I just thought at September 30th $278 million remained authorized for repurchase under our existing $1 5 billion dollar authorized plan.

Speaker 3: Since 2017, we've increased our dividend per share by 174% and we purchased $5.2 billion of our common stock, representing over 40% of our outstretched.

Since 2017, we've increased our dividend per share by 174% and repurchased $5 $2 billion of our common stock representing over 40% of our outstanding shares.

Speaker 3: Our capital allocation strategy prioritizes high return growth, which shareholder distributions comprise of a base positive dividend profile. That's complemented with a variable share purchase program.

Our capital allocation strategy prioritizes high return growth with shareholder distributions comprised of a base positive dividend profile that is complemented with a variable share repurchase program.

Speaker 3: We remain dedicated to preserving our investment grade credit designation at the same time.

We remain dedicated to preserving our investment grade credit designation at the same time.

Speaker 3: Our free cash flow profile has fundamentally changed over the last five years, generating from an annual average of $540 million to $2.6 million today.

Our free cash flow profile has fundamentally changed over the last five years generating from an annual average of $540 million to $2 $6 billion today.

Speaker 3: We've placed ourselves in a position of strength to have a sustainable capital foundation that provides the opportunity for meaningful strategic growth and strong shareholder returns while maintaining investment grade metrics. Our aluminum growth strategy is consistent with this philosophy. We will readily fund our flat-rolled aluminum investments with available cash and cash flow from operations.

We've placed ourselves in a position of strength to have a sustainable capital Foundation that provides the opportunity for meaningful strategic growth and strong shareholder returns, while maintaining investment grade metrics, our aluminum growth strategies consistent with this philosophy, we will readily find our flat rolled aluminum investments with available cash and cash flow from.

<unk>.

Speaker 3: We also plan to continue strong and responsible shareholder distributions as we clearly damage.

We also plan to continue strong and responsible shareholder distributions as we've clearly demonstrated we're squarely positioned for the continuation of sustainable optimized long term value creation.

Speaker 3: We're squarely positioned for the continuation of sustainable optimized wrong-term diet.

Speaker 3: 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 business with the highest integrity. In that regard, we remain excited about our joint venture with AEMM, a leading producer of renewable biocardan products.

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 business with the highest integrity in that regard we remain excited about our joint venture with ADM, a leading producer of renewable bio carbon products. We believe are.

Speaker 3: We believe our first joint venture facility could decrease our COSCO-1 greenhouse gas emissions by as much as 35%. And we currently expect to have the facility operating in the second half of 2024.

First joint venture facility could decrease our seals go boy and greenhouse gas emissions by as much as 35% and we currently expect to have the facility operating in the second half of 2024.

Speaker 3: We have an actual path toward carbon neutrality that is more manageable and we believe considerably less expensive than they lay ahead for many of our individuals.

We have an actionable path towards carbon neutrality that is more manageable and we believe considerably less expensive than may lay ahead for many of our industry peers, our sustainability and carbon reduction strategy is an ongoing journey and we're moving forward with its intention to make a positive difference and again before I turn the call back over to Mark.

Speaker 3: Our sustainability and carbon reduction strategy is an ongoing journey and we're moving forward with its intention to make a positive difference.

Speaker 3: And again, before I turn the call back over to Mark, I just want to thank the teams for a great performance. Mark.

I just want to thank the teams for a great performance Mark.

Well, thank you Theresa.

Oh, you sold the steel fabrication platform continues to perform well and turned in another solid quarter.

Speaker 2: As you saw, the steel fabrication platform continues to perform well and it turned in another solid quarter.

Speaker 2: We continue to have high expectations for future earnings profile of this.

And we continue to have high expectations for the future earnings profile of this business.

Speaker 2: believe non-residential construction markets will be strong in the coming years.

Believe nonresidential construction markets will be strong in the coming years.

Speaker 2: Namah residential starts and build rates of forecast are remains strong into 2024. And a related spending has been higher in 2023 compared.

Residential starts and build rates are forecast to remain strong into 2024 and related spending has been higher in 2023 compared to last year at this time.

Speaker 2: Although political dysfunction has delayed the awarding of public money, likely into the first quarter of next year, the infrastructure spending and fixed asset investment related to the IRA programs along with the research.

Although political dysfunction is delayed the awarding of public bodies likely into the first quarter of next year, the infrastructure spending and fixed asset investment related to loop by our own programs along with the re shoring of manufacturing should provide momentum for additional construction spending through 2024.

Speaker 2: to provide momentum for additional construction spending through 2024. Effectively extending the construction.

Actively extending the construction cycle.

Speaker 2: And customer commentary, as I talk to our folks that has confirmed our positive outlook. Thanks so much folks, see you next time.

And customer commentary as I talked to a lot of folks out there who's confirmed on positive outlook.

That's still a fabrication order backlog.

Speaker 2: Certainly shortened from its historical high of over 12 months achieved in 2022, that it remains strong from a historical perspective, extending through March 2024 with strong forward pricing.

Suddenly shortened from its historical high of over 12 months achieved in 2022.

Remains strong from a historical perspective.

Ending through March 'twenty, 'twenty, four with strong forward pricing.

Current order entry pricing remains resilient.

Not only that it was a significant contributor onto itself.

Speaker 2: Another significant tribute unto itself, a fabrication platform provides meaningful pull through volume across the omels, particularly

Fabrication platform provides meaningful pull through volume for our steel mills.

Particularly important in softer markets alone for Ohio through recycled steel production utilization rates completed law abuse.

Speaker 2: allowing for a higher through cycle steel production utilization rates compared to our peers, adding to the resilience of the...

Adding to the resiliency of our through cycle cash generation.

Speaker 2: Furthermore, it provides an effective natural hedge to low steel.

Furthermore, it provides an effective natural hedge to lower steel prices.

Speaker 2: A metal's recycling platform had a challenging quarter if the man from domestic steel mills softened and realized fair scrap prices declined.

Our metals recycling platform had a challenging quarter as demand from domestic steel mills softened and realized ferrous scrap prices declined.

Speaker 2: Scrap prices pulled back in the third quarter with bushing prices falling for $80.

Scrap prices pulled back in the third quarter with bush selling prices falling some $80 a ton.

The North American geographic footprint of our metals recycling platform provides strategic competitive advantage for all electric arc furnace steel mills, and all scrap generating customers.

Speaker 2: The North American Geographic footprint of our metals recycling platform provides strategic competitive advantage for electric art furnace steel mills.

Speaker 2: In particular, American locations competitively advantage our Columbus and Stanton Roll Materials.

In particular, our Mexican locations competitively advantage, all Columbus and center enrollment through our positions there.

Speaker 2: and also strategically support aluminum scrappy German for our future flat-roads aluminum.

It will also strategically support aluminum scrap procurement for all future flat rolled aluminum investments.

Our rentals team is partnering even more closely with book on steel and aluminum teams to expand scrap separation capabilities through process and technological solutions.

Speaker 2: A metal's team is partnering even more closely with both our steel and aluminum teams to expand scrap separation capabilities through process and technological solutions.

Speaker 2: enhancing margin and increasing the availability of lowers the dual ferrous graph.

Enhancing margin and increasing the availability of low residual ferrous scrap.

This will mitigate prime ferrous scrap supply issues in the future.

Speaker 2: It will also provide us with significant advantage to materially increase the recycle content for aluminum flat-row products.

He will also provide us with significant advantage to materially increase the recycled content for aluminum flat rolled products and increase our earnings opportunities on that level.

Speaker 2: The operations achieve strong shipments of 3.1 million tons and solid financial results in the food.

Our steel operations achieved strong shipments of $3 1 million tonnes and solid financial results in the third quarter.

Now steel production utilization rate when you exclude center it was 90% compared to the domestic industry rate of some 76%.

Speaker 2: The production utilization rate, when you exclude sentin, it was 90% compared to a domestic industry rate of some...

Ohio utilization rates have been clearly demonstrated throughout all market cycles.

Speaker 2: Higher utilization rates have been clearly demonstrated throughout all market cycles driven by the value added diversified product offering.

Driven by the value added diversified product offerings, which remains at 70% of our sales.

Speaker 2: And this, as Theresa mentioned, will increase further with the addition of two galvanizing and two paint lines that will lead commission in the first quarter.

And this is Teresa mentioned will increase further with the addition of two galvanizing and through paint lines that will be commissioned in the first quarter of 'twenty four.

Speaker 2: Differentiated supplier chain solutions driving customer preference and mitigating price-pollucillum.

Differentiated supply chain solutions, driving customer preference and mitigating price volatility.

In support of downstream into pull through manufacturing and volume are all contributors.

Speaker 2: supportive downstream internal pull-through manufacturing volume are all contributing.

Speaker 2: Our HANA-3 cycle utilization rate is a key differentiator and supports our strong and growing through cycle cache generation capability.

Uh-huh through cycle utilization rate is a key differentiator and supports a strong and growing through cycle cash generation capability.

Best in class financial metrics.

Looking forward steel backlogs are strong and customer order entry is good.

Speaker 2: Looking forward, steel backlogs are strong, and customer oil entry is good. Customer geometries are also good.

Operator: Good day and welcome to the Steel Dynamics third 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.

Customer inventories are also at historically low levels.

Speaker 2: Auto production estimates for 23 remain around 15 million units. But obviously with the ongoing strike, you have looked for the remainder of the year.

Auto production estimates for 'twenty, three remaining around 15 million units, but obviously with the ongoing strike you look through the remainder of the year is somewhat opaque.

Speaker 2: positive. Dealer inventories remain below historical norms, which will be further reduced by the ongoing strike.

So positively dealer inventories remain below historical norms, which would be further reduced by the ongoing strike.

Operator: Please be advised this call is being recorded today October 19, 2023 and your participation implies consent to our recording this call. If you do not agree to these terms please disconnect.

Consumers demand that are still strong.

Speaker 2: The same with demand that is still strong. And with tight supply, the auto build rate will likely be higher than the already anticipated six, 10 million unit plus 24.

Tight supply the auto build rate will likely be higher than the already anticipated 6 million units plus up to 24.

David Lipschitz: At this time I'd like to turn the conference over to David Lipschitz, Director Investor Relations, please go ahead. Thank you Holly, good morning and welcome to Steel Dynamics third quarter 2023 earnings conference call. As a reminder today's call is being recorded and we'll be available on our website for replay later today.

Okay.

Speaker 2: In the meantime, unfortunately, our auto direct flat rail exposure is more concentrated toward European and Asian produce.

In the meantime.

Unfortunately, our auto direct flat real exposure is more concentrated towards European and Asian producers.

Speaker 2: so far as mitigated the strike impact on our flat road auto bonnet.

So far has mitigated the strike impact on our flat rolled order volume.

Speaker 2: Although not a significant impact to over earnings, we are seeing greater impact that our engineer bar division as their 15% or 20% auto-exposure is mostly consumed by

Although not a significant impact to overall vault. Our earnings we are seeing greater impact that our engineered bar division is there 15%, 20% auto exposure is mostly consumed by domestic auto producers.

David Lipschitz: Leading today's call or Mark Millett, Chairman and Chief Executive Officer of Steel Dynamics and Theresa Wagler, Executive Vice President and Chief Financial Officer, the other members of our senior leadership team are joining us on the call individually. Some of today's statements which speak only as of this date may be forward-looking and predictive, typically preceded by believes, expect, anticipate or words of similar meaning. They are intended to be protected by the private security's litigation reform act of 1995 should actually result turn out differently.

Speaker 2: Non-residential construction remains solid. Along products steel back alongs, are good in customer inventory levels are low.

Nonresidential construction remained solid.

Our long product steel backlogs are good and customer inventory levels are low.

Speaker 2: The general market is estimated to be off 8% of some due to seasonality, but should rebound as infrastructure spending provides meaningful support in the first half of 2020.

The general market is estimated to be off 8% of them due to seasonality, but should rebound as infrastructure spending provides meaningful support in the first half of 'twenty four.

David Lipschitz: Such statements involve risk and uncertainties related to integrating or starting up new assets, the aluminum industry, the use of estimates and assumptions the connection with anticipated project returns and our steel, metal recycling and fabrication businesses as well as general business and economic conditions. Example of these are described in the latest press release as well as in our annual filed SEC form 10K under the headings forward-looking statements and risk factors. Found on the internet at www.sec.gov and if applicable in any later SEC for one cancube.

It turned out is rent and residential construction seems to be abating depletion of available home and drawing.

Speaker 2: Turned down is in residential construction, seems to be abating, with a completion of available home in

Speaker 2: Oil and gas activity is strong, driving improved orders for LCTG products, and fellow

Oil and gas activity strong driving improved orders for Oc T G products.

And silicon seniors will grow at a rapid rate.

Speaker 2: And total aggregate, long product demand remained solid. And in flatwall, lead times are extending. We're seeing excellent order entry.

In total aggregate long product demand remains solid and in flat roll lead times are extending we're seeing excellent order entry supply chain inventories low and pricing is certainly in an upward trend.

Speaker 2: The plate chain in the tree is low and pricing is selling in an upward trend.

David Lipschitz: We will also find any reference non-gap financial measures reconciled to the most directly comparable gap measures in the press release issued yesterday entitled Steel Dynamics Reports 3rd quarter 2023 results.

And we certainly anticipate further meaningful strength once the strike is concluded.

Speaker 2: and we only anticipate further meaningful strength once the strikers conclude.

Mark Millett: And now please turn the call over to Mark. Well thank you David.

Speaker 2: Turning to Centen after the unplanned July average related to the cast of sheer, the Centen team produced over 290,000 tons in the quarter. The mill is clearly demonstrated.

Turning to the center.

After the unplanned July outage related to the cost issue the syndrome team produced over 290000 tons in the quarter.

Mark Millett: Good morning everyone. Thank you for being with us on our third quarter earnings call. As you saw in the release once again our teams achieved a solid financial and operational quarter. Almost 80% of our facilities had zero safety incidents and our company-wide trailing 12 month incident rate is running at an all-time low. So congratulations to everyone for more importantly thank you for all your work to make that happen. It takes each and every one of us to get cash from operations with a healthy 1.1 billion dollars and with just the EBITDA generation of 876 million.

The mill has clearly demonstrated its production rate capability.

Speaker 2: It's been achieving 36 heat sequence lengths, and it's exceeded its hourly name played run.

Been achieving 36 heat sequencing lengths and it's exceeded its allie nameplate run rate.

Speaker 2: However, as they said, the constrained production is manifest from a low utilization rate, caused principally by equipment reliability.

So as I said the constrained production is manifest from a low utilization rate caused principally by equipment reliability issues.

Speaker 2: We expect to progressively ramp up to about 70% total run rate by the end of 2023, reaching a production of 2.4 million tons for 2024.

That said, we expect to progressively ramp up to about 70% total run rate by the end of 2023, reaching a production of $2 4 million tons for 2024.

Speaker 2: Despite our challenges, the team has demonstrated the key competitive advantages of the text.

Despite our challenges the team has demonstrated the key competitive advantages of the Texas Steel mill.

Mark Millett: I think this performance truly affirms the cash generation resiliency of our diversified value added product portfolio. We see in significant momentum in our aluminum flat-roll investments both current and prospective customers are excited by our market entry and the new and differentiated supply chain solutions we can provide. And they are actually very very surprised by the speed and completeness of our execution so far. The centren mill has proven its nameplate production capacity rate and full product capability but does remain challenged by equipment reliability, of the issues.

Speaker 2: We have completed four product dimensional capability.

We have completed full product dimensional capability.

Speaker 2: Proven up to 1 inch thick down to 0.53 I do believe at the 84 inch width

It's been proven up to one inch thick down to Oh 53, I do believe the 84 inch width.

Speaker 2: Customers are reporting exceptional surface quality.

Our customers are reporting exceptional service quality.

Speaker 2: And the hospital design is allowed for thermal mechanical rolling, allowing production of higher strength grades, tough grades, with lower alloy content, and thus lowering costs for those value added products.

And the Hot strip Mill design has allowed for thermal mechanical rolling.

Production of the highest strength grades tough tough grades with lower alloy content and thus lowering costs for those value added products.

Mark Millett: We are confident we can resolve the majority of these issues by the year end. Our successes cannot be achieved without the best metals team in the industry. I'm incredibly proud of the whole SBI family. They're passionate and spirit form the foundation of our company. They drive our success, and it's an honor to work among them.

Speaker 2: We've achieved grade 80 and 100 and already had been approved for some API.

We've achieved greater than 100 and over.

Florida and approved for some API grades.

I think just generally.

Speaker 2: I think just generally it affirms our technical and process choices and there's no doubt that in my mind it's the next generation or that you got for us flat-roll steel technology.

<unk> technical and process choices and Theres no debt.

In my mind, it's the next generation of electric arc furnace flat rolled steel technology of choice.

Speaker 2: as we have gained strong market acceptance, and we can solve every pan to steal weakness.

We have gained strong market acceptance, we can sell every pound of steel we can make.

Mark Millett: And in fact, in this world of turmoil with the human catastrophe happening in Ukraine, the atrocities in Israel, the suppression of the Palestinian people, and even closer to home, the anger and divestiveness within America and our political structure. It truly is inspiring to come to work each and every day and be surrounded by very, very positive people that think right, they get it, they treat people right, and focus on what we do each and every day.

Our exceptional through cycle operating and financial performance continues to support our cash generation and a growth investment strategies.

Speaker 2: Our exceptional through-cycle operating and financial performance continues to support our cash generation and our growth investment strategies. Well,

Relative to our expansion into aluminum.

Speaker 2: As they said, the responses from existing and new customers across all markets is absolutely incredible.

As I said the responses from existing and new customers across all markets is absolutely incredible.

Speaker 2: We are developing the site. We purchased some 2600 acres, I do believe. But we're developing it for the co-location of customers. But the rolling roll, as we successfully...

We are developing the site we are approaching some 2600 acres I do believe.

But we've developed that for the co location of customers.

But the rolling mill as we successfully did in symptoms.

Mark Millett: As such, our greatest leadership commitment is to our SBI family. Not only are colleagues that come to work, but also their partners in life and their kids. As I remind our teams, great financial performance of no importance without keeping everyone safe. We continue to be focused on providing the very best for the health, safety, and welfare. And today, the SBI family, when you include everyone, we have over 45,000 people that are reliant on the decisions that we make each and every day, and we're focused, we truly are focused on that. Together, we're actively engaged in safety at all times, and at every level, keeping safety top of mind and an active conversation.

And we're seeing a number of customers already indicating strong interest in that model because it provides a sustainable competitive model for all of us.

Speaker 2: And we're seeing a number of customers are already indicating strong interest in that model. I give it provides a sustainable competitive...

To recap the project.

Speaker 2: 650,000 metric ton flat road facility and their all in all will be located

So 650000 metric ton flat road facility.

And the Rolling mill will be located in Columbus, Mississippi.

It's a state of the art facility, serving the sustainable beverage and packaging automotive and industrial sectors.

Speaker 2: State of the Armed Facility, serving the sustainable beverage and packaging, automotive and industrial sex.

Approximately 300000 metric tons will be can 200000 tons auto on 150000 industrial.

Speaker 2: Approximately 300,000 metric tons will be can, 200,000 tons, auto and 150,000.

We'd have onsite milk and cast slab capacity in Columbus of around 600000 metric tonnes.

Speaker 2: We have on-site melt and cast slab capacity in Columbus, of around 600,000 metric tons.

Speaker 2: and the project will be supported by two satellite recycled aluminum slap castings.

And the project will be supported by two satellite recycled aluminum slab casting centers.

Theresa Wagler: Before I continue, Theresa, would you like to give us some details? Good morning, everyone. Thank you, Mark.

Speaker 2: one in Central Mexico and one in Arizona to capture scratch.

One in Central Mexico, and one in Arizona to capture scrap close to its source.

Theresa Wagler: I had my sincere appreciation to our teams for a really solid performance in the third quarter. Our third quarter, 2023 net income, was $577 million, or $3.47 per due to share with adjusted EBIDA of $876 million. Third quarter of 2023 revenues of $4.6 billion in operating income of $734 million, were lower than sequential second quarter results, driven by lower realized steel and steel fabrication pricing. We see solid industry fundamentals for the rest of this year and beyond, and we're focused on our continued transformational growth initiatives.

We'll have to cash lines coating lines, and downstream processing and packaging lines to fully support our customer base.

Speaker 2: We'll have two cash lines, coding lines, and downstream processing and packaging lines.

Speaker 2: Start up plans are still anticipated for mid 25.

So what our plans are still anticipated for a mid 25.

Speaker 2: Start up for the Ronemel. Mexico's slab center should start up at late 24, perhaps January 25, and Arizona's slab center in the first quarter.

Startup for the Rolling Mill.

Mexico slabs centers should startup a late 'twenty four perhaps January of 'twenty five.

Zona Snap center in the first quarter of 'twenty five.

Speaker 2: The project cost, including all recycled slab centers, is around $2.5 billion. Hundreds of them to be funded with cash. And as we've stated in the past, we expect a through cycle annually, but are...

Total project costs, including all recycled slab centers is around $2 $5 billion.

100% to be funded with cash.

As we've stated in the past, we expect a through cycle annual EBITDA of around about $650 $700 million from the aluminum portion.

Theresa Wagler: Our steel operations generated operating income of $474 million in the third quarter, lower than sequential second quarter results due to flat-rolled steel pricing, metal spray compression, as realized pricing declined more than average scrap costs. Our steel shipments remain steady at 3.1 million tons, excluding the lost volume of approximately 90,000 tons, related to sentence unplanned July outage. We expect our four new flat-rolled coding lines to begin operating in the first quarter of 2024 at Bocenton and Hartland, increasing our value added mix by an additional 1 million tons, making so that our total coding capacity will be 6.9 million tons going forward. For those that track our detailed flat-rolled shipments, in the third quarter, we had hot-rolled and P&O shipments of 858,000 tons, cold-rolled shipments of 132,000 tons, and coded shipments of 1,200,000 tons.

Speaker 2: And the support of Army Source will draw another 40 to 50 million dollars.

And to the support of omni source will draw another $440 million to $50 million for them.

Speaker 2: I think the market from the investment premise perspare.

I think the market.

From a investment premise perspective.

Speaker 2: And what excites me is the market environment is very similar to the domestic fuel industry when we started SBI 30 years ago. The industry generally has older assets. It's had a tough time learning. It's cost the capital.

And what excites me is the market environment is very similar to the domestic steel industry. When we started that's the highest 30 years ago.

The industry generally is older assets is.

I had a tough time, earning its cost of capital.

It's been a little reinvestment over the last 45 years. It has heavy legacy costs it tends to be inefficient and the high cost operations.

Speaker 2: tends to be inefficient in high cost operation.

Gain parallels the situation, we saw with our within the steel industry 30 years ago.

Speaker 2: The situation we saw within the still industry 30 years ago. Supporting that, we see a.

The polling that we we see a.

Definitely deficiency.

Theresa Wagler: County. Operating income from our Melder cycling operations was $19 million, significantly lower than second quarter results due to non-ferrous and ferrous metal spray compression. Ferrous scrap demand was also reduced as numerous domestic steel mills had maintenance outages in the quarter. We are the largest North American metals recycler, processing and consuming ferrous scrap and non-ferrous aluminum copper and other metals. The team continues to lever our circular manufacturing operating model providing higher quality lower cost scrap to our steel mills, which improves furnace efficiency and reduces company-wide working capital requirements.

And supply that exists in North America and not.

Speaker 2: exists in North America and that deficiency is expected to grow even without and a second competitor's new facility. From all perspectives, it...

Inefficiencies expenses grow even without <unk> and a second competitor is a new facility.

From our perspective it is a isn't.

As an adjacent industry to us and Leverages our ability.

Speaker 2: to design and build commission ramp up for large capital S.

Two to design and build commissioning and ramp up the large capital assets.

Speaker 2: and operate those assets very effectively, efficiently, at low cost, throughout performance and incentivized

And operate those assets very effectively efficiently at low cost.

Through our performance and incentivize the innovative and very effective culture.

Theresa Wagler: Our steel fabrication operations achieved operating income of $330 million in the third quarter. Lower than sequential second quarter results yet historically strong, as average realized pricing declined 11 percent and volumes declined 16,000 tons. Our steel joist inductive man remains solid with good order activity. Our backlog extends through the first quarter of 2024. The backlog has contracted from record highs experienced in 2022 as shipments have outpaced spot order activity. Forward backlog pricing remains very strong and spot pricing resilient.

So in closing we're.

Speaker 2: We're in closing. We're excited and in passion. We always are. We continue to be by our future growth opportunities, as they will continue to high returning growth momentum we have consistently demonstrated over.

We're excited and passion and we always are we continue to be a buyer of future growth opportunities as they will continue the high returning growth momentum we have consistently demonstrated over the years.

Our culture and business model continue to positively differentiate outperformance.

Speaker 2: Culture and business model continue to positively differentiate our performance, leading to best in class financial metrics, allowing a balanced cash allocation strategy that has rewarded us.

Even into best in class financial metrics, allowing a balanced cash allocation strategy that is rewarding.

A shareholder by a top himself.

Class returns.

Speaker 2: We're no longer a pure steel company, but an integrated metals business providing enhanced supply chain solutions for the end.

No longer a pure steel company with an integrated metals business, providing enhanced supply chain solutions to the industry.

Theresa Wagler: Based on our backlog, customer sentiment and manufacturing momentum, we expect steel fabrication earnings to remain solid in the fourth quarter but below third quarter levels based on seasonally lower volumes. Infrastructure, inflation reduction act, Department of Energy, decarbonization support and manufacturing on-join are expected to support domestic success at investment in related steel and joisten that consumption in the coming years. Our cast generation continues to be strong based on our differentiated circular business model and variable cost structure.

Speaker 2: turn, mitigating volatility and cash flow generation through all markets' cycles. Let's...

So mitigating volatility and cash flow generation through all market cycles.

Our teams are foundation.

Speaker 2: Thank each and every one of them for their passion and their dedication.

Thank each and every one of them for their passion dedication.

We are committed to them as I remind those listening today, the safety for yourselves and your families and for each other is the highest priorities.

Speaker 2: We're committed to them. As I remind those listening today, the safety for yourselves, your families, and for each other is the highest the prior.

Yeah.

Well competitively positioned and continue to focus on providing superior value for our company our customers team members.

Speaker 2: We're a competitive position and continue to focus on providing superior value for our company, our customers, team members.

Theresa Wagler: During the third quarter of 2023, we generated strong cash flow from operations of $1.1 billion and generated $2.7 billion on a year-to-date basis. At September 30th, we achieved record liquidity of $3.7 billion, inclusive of cash, liquid investment and our unsecured $1.2 billion revolver. Year-to-date of 2023, we've invested $1.1 billion in capital investments. For the fourth quarter, we estimate capital investments will be in the range of $500 to $550 million of which around $350 million is related to our aluminum flat roll investments. Much of the remaining capital is related to the completion of our four new value added coded lines.

And our shareholders alike.

Speaker 2: Thank you. Thank you for joining us again today and Holly, we would love to turn it over to questions.

Thank you. Thank you for joining US again today and Holly we would love to turn it over to questions for questions.

Thank you if you would like to ask a question. Please signal by pressing the star key followed by the digit one on your telephone keypad.

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Theresa Wagler: In February, we increased our cash dividend 25 percent to 42.5 cents per common share. Year-to-date 2023, we've also re-purchased $1.1 billion of our common stock, representing almost 6 percent of our outstanding shares. At September 30th, $270 million remained authorized for repurchased under our existing $1.5 billion authorized plan. Since 2017, we've increased our dividend per share by 174 percent and re-purchased $5.2 billion of our common stock, representing over 40 percent of our outstanding shares. Our capital allocation strategy prioritizes high return growth, which shareholder distributions comprise of the base positive dividend profile that's complemented with a variable share of purchase progress.

Your first question for today is coming from Martin Engler at Seaport Research partners.

Speaker 1: Your first question for today is coming from Martin Engler at Seaport Research Partners.

Hello, Good morning, everyone.

Good morning.

Speaker 4: Within the steel segment, steel conversion costs, which should include some substrate costs, increase, I think, around about 5.76 per ton in the corner from 5.22.

With the steel segment as steel conversion costs, which do include some substrate cost increase I think to around about plus 76 per ton in the quarter from 522.

Speaker 4: Is there any additional color that you can share regarding the portion of substrates? Maybe some positives and negatives when you think about these sequential change in contributions between two conversion costs and substrates, as well as if there was any material impact from the sentinality on that conversion cost?

Are there any additional color that you can share regarding a portion of substrate.

Maybe some positives and negatives when you think about the sequential change in contributions between two conversion costly substrates as well as if there was.

Any material impact from the center knowledge on that conversion costs.

Theresa Wagler: Program. We remain dedicated to preserving our investment grade credit designation at the same time. Our free cash flow profile has fundamentally changed over the last five years, generating from an annual average of $540 million to $2.6 million today. We've placed ourselves in a position of strength to have a sustainable capital foundation that provides the opportunity for meaningful strategic growth and strong shareholder returns while maintaining investment grade metrics. Our aluminum growth strategy is consistent with this philosophy.

Speaker 3: Maureen Martin, it's Teresa, a great question and observation. It really didn't have anything to do with the change in substrate mix, but that can have an impact.

Good morning, Martin, It's Theresa Great question and observation it really didn't have anything to do with the change in substrate mix, but that can have an impact on that.

There's two things that I would point to one is the fact that because sitting didn't operate all of July the way that you're calculating your conversion costs that lack of volume does have a pretty significant impact is not that there was additional costs and the costs were pretty de minimis at just that lost volume affecting the denominator.

Speaker 3: two things that I would point to. One is the fact that because Sitten didn't operate all of July , the way that you're calculating your conversion cost, that lack of volume does have a pretty significant impact. It's not that there was additional cost, the cost for pretty diminimous. It's just that lost volume affecting the denominator. It's really affecting your conversion cost on a pretend basis, a little bit on an outsized way.

Theresa Wagler: We will readily fund our flat-rolled aluminum investments with available cash and cash flow from operations. We also plan to continue strong and responsible shareholder distributions as we've clearly demonstrated. We're squarely positioned for the continuation of sustainable, optimized long-term value creation.

Affecting your conversion costs on a per ton basis, a little bit on an outsized way.

Speaker 3: The second thing is that we are preparing to start the value added lines in heartland and then sit and will follow thereafter in the coming months and there's an additional cost related to that as well.

Second thing is that we are preparing to start the value added mines and Hartland and then we will follow thereafter in the coming months and there's some additional costs related to that as well.

Theresa Wagler: 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 business with the highest integrity. In that regard, we remain excited about our joint venture with AEMIM, a leading producer of renewable biocarbon products. We believe our first joint venture facility could decrease our COSCO-1 greenhouse gas emissions by as much as 35 percent, and we currently expect to have the facility operating in the second half of 2024.

Speaker 3: but nothing to point to that would be the systemic of higher conversion costs going forward.

But nothing to point to that would be the stomach of higher conversion costs going forward.

Okay. So there is.

Speaker 4: Certainly a one-off that seemed material for the quarter and then some lingering.

Certainly a one off that material for the quarter and then some lingering.

We've kind of transitory as youre working on ramping the other value added assets that will how long do you think that will persist for the fourth quarter in <unk>.

Speaker 4: kind of transitory is you're working on ramping the other value added assets that will how long do you think that will persist for through the fourth quarter and then you know into first quarter of next year? Any idea?

The first quarter of next year any idea.

Speaker 3: Um, no, some Martin with the advent of setting now operating, um, and not being a part of that outage, you're going to have that incremental volume, which is going to really make that conversion cost get back in line with what you're used to seeing.

Theresa Wagler: We have an actionable path toward carbon neutrality that is more manageable and we believe considerably less expensive than they lay ahead for many of our industry peers. Our sustainability and carbon reduction strategy is an ongoing journey and we're moving forward with its intention to make a positive difference.

No. So Martin with the advent of sitting now operating them and not being a part of that outage, you're going to have that incremental volume, which is going to really makes that conversion costs get back in line with what you're used to seeing.

Speaker 3: But the value add in lines, there is some incremental cost. It's nothing that is necessarily significant that you'll have to try to figure out for the fourth quarter. We have two of the lines coming online, maybe even before the end of the year, with the remaining two for the first probably, first couple of months.

But the value add in line. There is some incremental cost. It's nothing that is necessarily significant that you'll have to try to figure out for the fourth quarter. We have two of the lines coming online maybe even before the end of the year with the remaining two mm for that first probably the first couple of months in the first quarter.

Theresa Wagler: And again, before I turn the call back over to Mark, I just want to thank the teams for a great performance.

Mark Millett: Mark? Sure, but thank you, Teresa. As you saw, the steel fabrication platform continues to perform well, and it turned in another solid quarter, and we continue to have high expectations for the future earnings profile of this business. We believe non-residential construction markets will be strong in the coming years. Non-residential starts and build rates of forecast remain strong into 2024, and related spending has been higher in 2023 compared to the last year at this time.

Okay. Thank you for that if I could one last one here, excluding 2020 looking at seasonality and <unk> total steel shipments they tended to decline around 5% sequentially is there anything you see this year.

Speaker 4: Thank you for that. If I could one last one here, excluding 2020 looking at.

Speaker 4: Seasonality and for cube total steel shipments, they tended to climb around 5% sequentially. Is there anything you're seeing this year?

Speaker 4: That would suggest something different. And I imagine comparing the sequential with the sitting outage and unsincenting back up probably might have an impact here on the sequential base.

Suggest something different.

I imagine.

No.

Mark Millett: Although political dysfunction has delayed the awarding of public monies, likely into the first quarter of next year, the infrastructure spending and fixed asset investment related to the IRA programs, along with the reshoring and manufacturing, should provide momentum for additional construction spending through 2024, effectively extending the construction cycle. And customer commentary, as I talked to our folks out there, has confirmed our positive outlook. A steel fabrication order backlog is certainly shortened from its historical high of over 12 months achieved in 2022, but it remains strong from a historical perspective, extending through March 2024 with strong forward pricing.

Comparing the sequential was an outage in <unk> syndrome.

Backup probably might have an impact here on a sequential basis.

Yeah, So you're spot on Martin and we would expect to see normal seasonality within the steel operations, but as you have now sitting ramping up and operating for the full fourth quarter, you will see some benefit from that additional volume.

Speaker 3: Yeah, to your spot on Martin, we would expect to see normal seasonality within the skill operations, but as you have now sitting ramping up and operating for the full fourth quarter, you will see some benefit from that additional volume.

Speaker 4: and you're aiming for 70% utilization on exit for the year with Send and Correct.

And you're aiming for 70% utilization on taxes for the year with Susan correct.

That's correct.

Speaker 4: Okay, thank you very much, congratulations, navigating the downward market on the continued growth investments.

Okay. Thank you very much congratulations.

Navigating the downward market and continued growth investments.

Thanks Martin.

Mark Millett: Current order entry pricing remains resilient. Non-residential significant tribute come to itself. A fabrication platform provides meaningful pull-through volume for our steel mills, particularly important in softer markets, allowing for a higher through cycle steel production utilization rates compared to our peers, at the Resiliency of our three-cycle cash generation. Furthermore, it provides an effective natural hedge to the other steel prices. A metal's recycled platform had a challenging quarter if the man from domestic steel mills softened and realized fair scrap prices declined.

Speaker 1: Your next question is coming from Carlos DiAlba at Morgan Stanley .

Your next question is coming from Carlos de Alba at Morgan Stanley .

Speaker 5: Yeah, thank you very much. Good morning. Just continue on, Sinton. I wonder if you can give us a little bit of color on the EBITDA generated by the operation and how to see that going forward.

Yeah. Thank you very much and good morning.

You don't seem to have I wonder if you can give us a little bit of color on the EBITDA generated by the operation and how do you see that going forward.

Okay.

Martin I I'm, sorry, you cut out listen you repeat that.

Speaker 5: Yeah, yeah, sure. So I was just on Sinton, given the average that you experience, but you know, things now are ramping up nicely and you expect full production, or well, if production throughout the fourth quarter, how do you see the evolution of the EBDA generated by the company, by this, the plant, Sinton?

Yeah, Yeah sure.

And just on the same Tony.

Given the outage and that you experienced by doing things now are ramping.

Ramping up.

Mark Millett: Scrap prices pulled back in the third quarter with bushing prices falling for $80 a ton. The North American Geographic footprint of our metal's recycled platform provided strategic competitive advantage for electric art furnace steel mills and our scrap generating customers. In particular, American locations competitively advantage our Columbus and Stanton Roll material positions. They will also strategically support aluminum scrap procurement for our future flat-rolled aluminum investments. Our metal's team is partnering even more closely with both our steel and aluminum teams to expand scrap separation capabilities through process and technological solutions, enhancing margin and increasing the availability of low residual ferrous scrap.

And you expect full production well at least for.

Throughout the fourth quarter, how do you see the evolution of the EBITDA generated by the company.

But the plan syndrome.

Yeah.

Speaker 3: Carl, we can't give, we won't give specific guidance on the earnings associated with certain, we are giving updated items on volume so that you can understand from a mildly perspective. So, you know, we would expect to see a significant improvement from the third quarter given the fact that we weren't operating all of July , but that means that I really can't give you any guidance specific to what the EBITDA will be.

Charles we can't give them we won't.

We won't give specific guidance on the earnings associated with with it and we are giving updated items on volume. So that you can understand from a modeling perspective.

So yeah, we would expect to see a significant improvement from the third quarter given the fact that we werent operating all of July but that means I really can't give you any guidance specific to what the EBITDA would be X and.

Speaker 5: And then just maybe one more on the fabrication business. You didn't mention strong forward pricing in your backlog. Is there any additional color that you can provide given your extraordinary strong pricing that we have seen in recent quarter relative to history?

Alright, and then just maybe one more on the fabrication business you didn't mention the strong for where pricing in Europe box that backlog.

Mark Millett: This will mitigate prime ferrous scrap supply issues in the future. It will also provide us with significant advantage to materially increase the recycled content for aluminum flat-rolled products and increase our earnings opportunities on our platform. Our steel operations achieved strong shipments of 3.1 million tons and solid financial results in the third quarter. Our steel production utilization rate, when you exclude Stanton, was 90 percent compared to a domestic industry rate of some 76 percent. Our higher utilization rates have been clearly demonstrated throughout all market cycles driven by the value added diversified product offerings, which are made to 70 percent of our sales.

Is there any additional color that you can provide given the extraordinary strong Brian that we have seen in recent in recent quarters relative to history.

Yeah.

Yeah no.

Speaker 3: No, it's okay. It has to do with fabrication and the price and the backlog. So from historical basis and even from recent 2023 pricing in the backlog is very strong. Much higher than previous historical peaks. We've seen that. You maintained.

No. That's okay. It has to do with fabrication of the pricing in the backlog so from a historical basis and even from you know recent in 2023 pricing and our backlog is very strong and.

Much higher than previous historical peaks and we've seen that you maintained the spot market I'm worried the order activity isn't as strong as it was in 2022, it's still really good from the and historical basis, but that is contracting the backlog somewhat so now extends through the first quarter of 2024 my thanks.

Speaker 3: The spot market where the order activity isn't as strong as it was in 2022. It's still really good from an historical basis.

Mark Millett: And this, as Theresa mentioned, will increase further with the addition of two galvanizing and two paint lines that will be commissioned in the first quarter of 24. Differentiated chain solutions, driving customer preference and mitigating price volatility and supportive downstream internal pull-through manufacturing volume are all contributors. Our higher thru-cycle utilization rate is a key differentiator and supports our strong and growing thru-cycle cash generation capability and best-in-class financial metrics. Looking forward, steel backlogs are strong and customer order entry is good.

Speaker 3: But that is contracting the backlog somewhat. So now it extends through the first quarter of 2024. And I think something else that, when we just want to keep them perspective, Mark mentioned on this opening notes, but I want to reiterate it because I think it's really important. We've been talking about

I'll start with just I want to keep in perspective, Mark mentioned on the opening notes, but I want to reiterate it because I think it's really important and we've been talking about the I R. A monies the department of energy money monies that are coming from the administration or public dollars. It's al.

Speaker 3: IRA monies, the Department of Energy monies, monies that are coming from the administration for public dollars.

Speaker 3: It's our estimate and others would agree that there's likely not even five to ten percent of that money that's been allocated or awarded yet. It's going much slower than anyone had expected and much slower than the administrative administration had indicated that it would.

Our SG&A others would agree that there's likely not even 5% to 10% of that money that's been allocated or awarded yet it's going much slower than anyone had expected and much slower than the administrated in the administration has indicated that it would cause those projects aren't benefiting the elongation of construction steel can Trump.

Mark Millett: Customer inventories are also at historically low levels. Auto production estimates for 23 remain around 15 million units, but obviously with the ongoing strike, you have looked for the remainder of the years somewhat will take. But positively, dealer inventories remain below historical norms, which will be further reduced by the ongoing strike. In sum of demand that is still strong and with tight supply, the auto build rate will likely be higher than the already anticipated 6 billion units plus 24.

Speaker 3: So those projects aren't benefiting the elongation of construction, steel-consumption, success at investment, steel, deft and meandage well.

Fixed asset and that's what steel joist and deck demand as well, we're fully expecting and what we're hearing from the administration and from others is that those dollars will start flowing in the first half of 2024. So right now there's a bit of a gap in funding and I think you're seeing that in the volumes, but we fully expect that to pick up in <unk>.

Speaker 3: We're fully expecting what we're hearing from the administration and from others, is that those dollars will start flowing in the first half of 2024. So right now there's a bit of a gap in funding, and I think you're seeing that in the volumes, but we fully expect that to pick up and improve in 2024 and 2025.

Prove in 2024 and 2025.

Mark Millett: In the meantime, unfortunately, our auto direct flat row exposure is more concentrated toward European and Asian producers, which so far has mitigated the strike impact on our flat rowed auto volume. Although not a significant impact to over earnings, we are seeing greater impact that our engineer bar division as their 15%, 20% auto exposure is mostly consumed by and Domestic Auto Producers. Non-residential construction remains solid, along product steel backlogs are good, and customer inventory levels are low.

Thank you very much.

Your next question for today is coming from Tristan Gresser at Eczema BNP Paribas.

Speaker 1: Your next question for today is coming from Tristan Gresser at Xane BNP Paraba.

Yeah.

Speaker 6: Yes, I thank you for taking my questions. Maybe the first one following up on this fabrication, you provided some guidance back in Q2.

Yes, hi, Thank you for taking my questions maybe.

Maybe the first one following up on the subrogation that.

You provided some guidance back in Q2, and I now understand that the stable volume guidance half on half is no longer valid. So I was wondering if it's not the first time the guidance has been cut there as to what what is driving you know quarter after quarter that they can have cut and that weakness.

Speaker 6: And I now understand that the stable volume guidance half and half is no longer valid. So I was wondering if, and it's not the first time the guidance has been cut there. So what is driving quarter after quarter that they can have cut in that weakness?

Mark Millett: The general market is estimated to be off 8% or some due to seasonality, but should rebound as infrastructure spending provides meaningful support in the first half of 24. The turn down in residential construction seems to be abating with a depletion of available home in the drain. Oil and gas activity is strong, driving improved orders for OCTG products, and still continues to grow at a rapid rate. In total aggregate, long product demand remains solid, and in flat role lead times are extending, we're seeing excellent order entry, supply chain inventory is low, and pricing is selling in an upward trend, and we only anticipate further meaningful strength once the strike is concluded.

Speaker 6: And you provided some color on the sequential movements. I guess on the CL5 or Q4 volumes, can you tell us a little bit more about Fab?

And you provided some color on the sequential movements I guess on the scale side for Q4 volumes can you tell us a little bit more about fab.

Speaker 6: And the same question a little bit on ASP. You got it for down 10 to 15% in H2 versus H1 on the ASP front. The Q3 ASP is already down 17%. Versus that level. So can you help us try to calibrate the weakness in ASP? We should expect in Q4, but also in Q1 because you have some visibility into that quarter as well.

And the same question a little bit on a S. P. You guided for down 10% to 15% in H two versus H one on the E. S. P. From the Q3, a S. P is already down 17% versus that level.

Can you help us try to calibrate the weakness in the U S. P. We should expect in Q4, but also in Q1, because you you have some visibility into that quarter as well.

Speaker 3: From a modeling perspective, to some, from a volume, I mentioned in my opening notes that we do expect to see some regular seasonality in this field fabrication volume as well. So sequentially, we would expect it to be modestly lowered in what you would have seen as a recorder. But again, we're not attesting that to, I think I addressed the consumption question when I responded to Carlos.

From a from a modeling perspective to send them from a volume I mentioned in my opening notes that we do expect to see some regular seasonality and the steel fabrication volume as well so sequentially, we would expect it to be modestly lower than.

Mark Millett: Turning to centen, after the unplanned July average, related to the cast of sheer, the centen team produced over 290,000 tonnes in the quarter. The mill has clearly demonstrated its production rate capability. It's been achieving 36 heat sequence lengths, and it's exceeded its hourly name-plane run rate. However, as they said, the constrained production is manifest from a low utilization rate, caused principally by equivalent reliability issues. That said, we expect to progressively ramp up to about 70% total run rate by the end of 2023, reaching a production of 2.4 million tonnes for 2024.

You would've seen in third quarter, but again, we're not touching that too I think I addressed the consumption question. When I responded to carloads as it relates to average pricing again, the backlog is very strong if you're having seasonally lower volumes I think it's a reasonable expectation to think pricing will be.

Speaker 2: As it relates to average pricing, again, the backlog is very strong. If you're having seasonally lower volumes, I think it's a reasonable expectation to think pricing will be down somewhat, but we don't see it being in the same magnitude as the sequential second to third quarter. It'll leave somewhat less than that. I mean, I think they might have meant more. What relatives do you want?

Down somewhat but we don't see it being in the same magnitude as the sequential second to third quarter, it'll be somewhat less than that.

Hello.

Mark Millett: Despite our challenges, the team has demonstrated the key competitive advantages of the Texas steel mill. We have completed full product dimensional capability. It's been proven up to 1 inch thick, down to 053 I do believe, out to 84 inch width. The customer is reporting exceptional surface quality, and the hospital design is allowed for thermal mechanical rolling, allowing production of higher strength grades, tough grades, with lower hourly content, and thus lowering costs for those value added products.

But relative to the pricing of it.

Yeah.

The market actually has been a little confounding because since our since mid July we have seen the market being very very strong very solid in fact order input rate has been great.

Speaker 2: Since mid-July, we have seen the market being very strong, very solid in fact.

You you have a situation where people it was more emotional theres no stroke means structural change in demand that allowed oh.

Speaker 2: you have a situation where people are more emotional, there's no struck main structural change in demand.

Collateral for quite some time.

It was more emotional relative to the strike.

Mid September when people recognize that.

Speaker 2: Sounds of biggest

Mark Millett: We've achieved grade A in 100, and already had been approved for some API grades. I think, just generally, it affirms our technical and process choices, and there's no doubt that, in my mind, the next generation will let you go up for a front-wheel steel technology of choice. As I said, we have gained strong market acceptance, and we can sell every pound of steel we make. Our exceptional through-cycle operating and financial performance continues to support our cash generation and our growth investment strategies.

Is that a sort of already been baked into the price.

Speaker 7: and I saw that the emitteries were very, very, very low.

When they saw that our inventories are very very very low in the supply chain.

Speaker 7: that lead times the stretch already stretched.

They see that the lead times of stress already stretching here.

Speaker 7: that we've seen an inflection and there is definitely an up with momentum in in flavor of price in today and it's our anticipation and anticipation of others.

That we've seen an inflection in that there is definitely a upward momentum in flat rolled pricing today.

And it's our anticipation and anticipation of others.

We're gonna be quite a market increase in pricing once there's a resolution to it that's correct. So looking forward, we see a very positive.

Mark Millett: Relative to our expansion and to the customer, as I said, the responses from existing and new customers across all markets are absolutely incredible. We are developing the site. We purchased some 2600 acres, I do believe, but we're developing it for the co-location of customers, but the rolling, though, as we successfully did in symptoms. I was seeing a number of customers already indicating strong interest in that. Model. I'll give it provides a sustainable competitive model for all of us.

Positive constructive market environment.

Thank you that's that's very helpful. I just have them.

Speaker 6: a quick follow up and this time more on the capital oil locations side. I mean, even the current context, and I think you touched on and you read from what are your capital oil location priority are. Can you just reiterate what you view on organic growth and can you confirm that at the moment you're not interested in looking at larger position on the flat roll side and that's not an area of focus and that right now 100% of your attention is on their aluminum.

Quick follow up and this time more on the capital allocation side I mean, given the current context.

Thank you touch on that in your you reaffirm what are your capital allocation priority yard, but can you just reiterate what what's your view on inorganic growth and could you confirm that at the moment you are not interested in looking at the large acquisition of the flat rolled side and that's not an area of focus and that right now 100% of your attention to the aluminum.

Mark Millett: To recap the project, it's a 650,000 metric tonne flat row facility, and the Royal Mill will be located in Columbus, Mississippi. It's a state-of-the-art facility serving the sustainable beverage and packaging automotive and industrial sectors. Approximately 300,000 metric tons will be canned, 200,000 tonne's auto and 150,000 industrial. We have onsite melt and slab capacity in Columbus of Iran, 600,000 metric tons, and the project will be supported by two satellite recycled aluminum slab casting centers, one in Central Mexico and one in Arizona to capture scrap close to its source.

Yeah.

Speaker 3: Tristan, we can't confirm that. So from a growth perspective, we're very transparent on capital allocation. Our primary focus is for high return growth and that can be both organically and it can be trans-lactional.

Tristan we we can't confirm that so from a growth perspective, we're very transparent on capital allocation.

Our primary focus is for our high return growth and that can be those organically and it can be transactional and we are very much focused on the aluminum strategy and that will be a priority. We are sitting with record liquidity at the end of the quarter of $3 $7 billion. So we really have I think.

Speaker 3: We are very much focused on the aluminum strategy and that will be a priority.

Speaker 3: We are sitting with record liquidity at the end of the quarter of $3.7 billion. So we really have, I think, a luxury and we don't take it for granted because of the performance of the teams which is incredible. The luxury to be able to both invest organically, transactionally, if there was something that were to fit into our long-term strategy, as well as continue with a strong shareholder return. And that at this point in time is our full intent is to be able to accomplish that. We are now at the end of the quarter of $3.7 billion.

The luxury and we don't take it for granted because of the performance of the teams, which is incredible the luxury to be able to both invest organically transaction. Lee. If there was something that worked to fit into our long term strategy as well as continue with a strong shareholder returns and not at this point in time is our full intent is.

Mark Millett: We'll have two cash lines, coating lines and downstream processing and packaging lines to fully support our customer base. Start-up plans are still anticipated for a mid-25 startup for the Royal Mill. A Mexico slab center should start up late 24, perhaps January 25, and Arizona slab center in the first quarter of 25. The project costs including all recycled slab centers is around $2.5 billion, 100% to be funded with cash, and as we've stated in the past, we expect a through-cycle annual EBITDA of around about $650 to $700 million from the aluminum portion, and the support of Omnisource will draw another $40 to $50 million for them.

To be able to accomplish that.

Alright, that's a that's very clear thank you.

Your next question is coming from Timna Tanners at Wolfe Research.

Speaker 1: Your next question is coming from Tim Le Tanner's at Wolf Research.

Hey, good morning, Tim.

Yeah.

Speaker 3: Wanted to just ask a little bit more about Sintin. If I go back in my notes a couple years ago, you were talking about being at full capacity, three million tons, and now you're talking about 70, 80%. So I'm just trying to understand, is there some reason that it's no longer expected to run full out, or are you just assuming like maybe some gradual ramp up? I just wanna understand that better.

I wanted to just ask a little bit more about certain if I go back in my notes a couple years ago, you were talking about being at full capacity 3 million tons and now you're talking about 70% to 80%. So I'm just trying to understand is there. Some reason that it's no longer expected to run full out or are you just assuming like maybe some gradual.

But I just want to understand that better.

Mark Millett: I think the market from the investment premise perspective and what excites me is the market environment is very similar to the domestic field industry when we started SBI 30 years ago. The industry generally has older assets, it's had a tough time learning, it's cost the capital, it's been a little reinvestment over the last 45 years, it has heavy legacy costs and tends to be inefficient in high cost operations. Again, parallel is the situation we saw within the steel industry 30 years ago.

Yeah, I know that's fine, we we probably have not done an elegant a job of explaining.

Speaker 2: You know, that's fine. We probably have not done an elegant job.

Explaining that.

Speaker 7: The 70% is just the run rate at the end of this year. At 10, again, with contingent ramp up, we expect to be 2.4 million tons total production next year, which I think is around of 80% of the $3 million.

The the 70% is just the run rate at the end of this year.

Timna.

Again, we'll continue to ramp up we expect to be a $2 4 million tonnes total production next year, which I think is around about 80% of the $3 million.

Speaker 2: and then we will continue to ramp up from there. There's absolutely no dirt. So that's the...

And then we will continue to ramp up from that there's absolutely no doubt.

Is that the the the plant capability.

Speaker 2: plant capability can exceed the 3 million ton main plate that we've ever...

Can exceed the 3 million ton nameplate, but we've advertised in the past.

Mark Millett: Supporting that, we see a definite deficiency in supply that exists in North America, and that deficiency is expected to grow even without and a second competitor's new facility. From our perspective, it is an adjacent industry to us, it leverages our ability to design and build commission ramp up the large capital assets and operate those assets very effectively, efficiently, at low cost through our performance and incentivized, innovative and very effective culture.

Speaker 3: And I guess just to bring a little bit more clarity to that, we would expect to be operating around that sole capacity by the middle of 2024. Mark's just giving a total year of view.

And I guess just to bring a little bit more clarity to that we would expect to be operating around that full capacity by the middle of 2024, Mark is just giving a total year view.

Oh helpful. Okay. Thank you one other timing question was really on the downstream.

Speaker 3: Oh, helpful. Okay, thank you. One other timing question was really on the downstream lines that are going to really enrich your product mix. And in the presentation, it says they're starting in the second half, but I thought I heard you saying they were contributing more in the first half, so just trying to get the cadence of when that ramps up.

Lines that are going to really enrich your product mix and in the presentation. It says there starting in the second half, but I thought I heard you, saying they were contributing more in the in the first half. So just trying to get the cadence of when that ramps up.

Yeah, I, probably should've been updated in our investor deck I'm guessing that's what you're pointing toward we're planning to have the hartland paint line and the Heartland Galvanizing line running first which could be towards the end of 2023, but no probably moving into that first month month and a half in <unk>.

Speaker 3: Yeah, it probably should have been updated in the investor deck. I'm guessing that's what you're pointing toward. We're planning to have the Heartland paint line and the Heartland galvanizing line running first, which could be toward the end of 2023, but probably moving into that first month, one-thin-a-half in 2024. And then very closely thereafter, sentence additional paint line and galvanizing line will be starting as well, still within the first quarter of 2024.

Mark Millett: We're in closing, we're excited and in passion, we always are, and we continue to be, by our future growth opportunities, as they will continue the high returning growth momentum we have consistently demonstrated over, of the years. A culture and business model continued to positively differentiate our performance, leading to best-in-class financial metrics, allowing a balanced cash allocation strategy that has rewarded our shareholder by top and top in-class returns. We are no longer a pure steel company, but an integrated metals business providing enhanced supply chain solutions for the industry. In turn, mitigating volatility and cash flow generation through all market cycles. Our teams are a foundation. I thank each and every one of them for their passion and their dedication. We are committed to them.

24, and then very closely thereafter siddons additional paint line in galvanizing line will be starting as well, it's still within the first quarter of 2024.

Okay. That's all great. Thanks, and then the last question if I could squeeze it in is just on the Capex guidance I am I think we had last quarter you had talked about a number for 'twenty 'twenty four and about 1.5 billion and just with the higher Capex Guide for Q4, we just wanted to check on it that number is still right for 'twenty 'twenty four thanks again.

Speaker 3: Great, thanks. And then the last question if I could squeeze it in, it's just on the CAPEX guidance site. I think we had last quarter you had talked about a number for 2024, about 1.5 billion. And just with the higher CAPEX guide for 24, we just wanted to check on if that number is still right for 2024. Thanks again.

Speaker 3: You're welcome Tim, that actually we're in the middle of planning for 2024 on the on the capital investment fight right now. It looks like it's going to be closer to 1.8 possibly two billion dollars. I'll be able to put a fire point on that as you get through the first quarter.

Youre welcome Timna actually we're in the middle of planning for 2024 on the on the capital investment side right now it looks like it's going to be closer to 1.8 mm to possibly $2 billion I'll be able to put a finer point on not as we get through the first quarter, but it's primarily.

Mark Millett: As I remind those listening today, the safety for yourselves and your families and for each other is the highest of priorities. We are a competitively positioned and continue to focus on providing superior value for our company, our customers, team members, and our shareholders alike.

Speaker 3: But it's primarily comprised of a little bit more on the aluminum side just from a timing perspective, that a total investment. So aluminum may be as much as 1.3 to 1.4 billion next year. We also have the construction and startup of the Bio-Carbon facility, which could be as much as $150 to $175 million.

Merrily comprised of a little bit more on the aluminum side just from a timing perspective amount of total investment so aluminum maybe as much as 1.3 to $1 4 billion next year. We also have the construction and startup of the bio carbon facility, which could be as much as $150 million to $175 million and then we have some.

Mark Millett: So thank you for joining us again today.

Operator: And Holly, we would love to tone it over to questions and for questions. Thank you.

Speaker 3: And then we have some kale to the four value added lines as well of maybe a hundred million dollars.

Tail to the floor value added lines, as well or maybe $100 million. So I will be putting a finer point on that but right now I'd say, it's probably in the range of $1 $8 billion to $2 billion.

Operator: If you would like to ask a question, please signal by pressing the star key followed by the digit one on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you press star one earlier during today's call, please press star one again to ensure your R equipment has captured your signal.

Speaker 3: So I will be putting a finer point on that, but right now I'd say it's probably in the range of $1.82 billion. $1.

Okay I appreciate it.

Your next question for today is coming from Bill Peterson with J P. Morgan.

Speaker 1: Your next question for today is coming from Bill Peterson with JP Mord.

Speaker 8: Yeah, hi, good morning. Thanks for taking the question. We've been seeing some reports that the US and Europe are ahead of this summer tomorrow, maybe looking at removing some of the tariffs or adjusting quotas and things like that. I guess assuming that some of this does happen and quotas go away, how would you see this impact in the US steel market?

Yeah, Hi, good morning, and thanks for taking the questions.

We've been seeing some reports that the U S and Europe are ahead of this summit tomorrow may be looking at removing some of the tariffs are adjusting quotas and things like that I guess, assuming that some of this does happen in quarters go away. How would you see this impacting the U S steel market.

Operator: 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.

Martin Englert: Your first question for today is coming from Martin Engler at Seaport Research Partners. Hello. Good morning, everyone. Good morning. Within the steel segment, steel conversion costs, which should include some substrate costs increase. I think around about five seventy six per ton in the corner from five twenty two.

Yeah.

Well I guess, we donuts.

Speaker 7: have the same intelligence that others have from our

I have the same intelligence that the others have for from our.

Uh huh.

Folks on the Hill and just.

Conversations.

Speaker 7: It really seems still up in the air. The European position on the US position or that's...

It really seems still up in the air the European <unk>.

Martin Englert: Is there any additional color that you can share regarding the portion of substrates in maybe some positives and negatives when you think about the sequential change in between two conversion costs and substrates as well as if there was any material impact from the sentin outage on that conversion cost? Good morning, Martin. It's a great question and observation. It really didn't have anything to do with the change in substrate mix, but that can have an impact.

On the U S position or a totally yet at all.

Not much progress has been made but maybe.

Speaker 7: be wrong. That said, obviously the tariffs today, you know, a lot of that has been negotiated away and only probably 25% or so of incoming steel imports are affected by that. And obviously quotas are in place with Brazil and Korea and others. And I would imagine that they will remain in place.

Maybe we're wrong.

But that said obviously the tariffs today.

You know a lot of that has been negotiated away and only probably 25% or so of our incoming steel imports.

And by that.

Yeah, obviously quotas are in place with.

Martin Englert: But there's two things that I would point to. One is the fact that because sentin didn't operate all of July, the way that you're calculating your conversion cost, that lack of volume does have a pretty significant impact. It's not that there was additional cost. The costs were pretty diminished. It's just that lost volume affecting the denominator. It's really affecting your conversion costs on a per ton basis a little bit on an outsized way.

Brazil and.

Korea and others.

I would imagine that they will remain in place in some form or fashion.

Uh huh.

European tariffs, maybe that are a little different whether it's Europe is not really.

Big influence on our market in Austin.

If you look at the straightforward the arbitrage today between.

Asian pricing on European pricing.

Martin Englert: The second thing is that we are preparing to start the value added lines in heartland and then sit and will follow their after in the coming months. And there's an additional cost related to that as well. But nothing to point to that would be systemic of higher conversion costs going forward. Org.

This is not a lot of trying to so we don't necessarily see a big influence the we.

We do feel strongly that.

Anytime.

Uncoated type activity.

Transitioning into some form of common times carbon border times, which actually are in the long run will likely be a lot more effective than <unk>.

Martin Englert: Okay, so there's certainly a one-off that seems material for the quarter and then some lingering kind of transitory as you're working on ramping the other value added assets that will, how long do you think that will persist for through the fourth quarter and then, you know, in the first quarter of next year? Any idea? No, so Martin with the advent of now operating and not being a part of that outage, you're going to have that incremental volume which is going to really make that conversion cost get back in line with what you're used to seeing.

Tariffs.

Quotas in place today.

And again, we need to remember and highlight the.

Speaker 7: and highlight that the principal...

Principal trade constraints.

The kind of availing duties anti dumping.

Cases that were brought on in 2015, they went through Sunset last summer and got stuck continued I think it's another five years.

Those are our legislators in nature.

They won't change.

Martin Englert: But the value added lines, there is some incremental cost. It's nothing that is necessarily significant that you'll have to try to figure out for the fourth quarter. We have two of the lines coming online maybe even before the end of the year with the remaining two for the first probably first couple months in the first quarter. Okay, thank you for that.

And they firmly family.

Or eliminate a Chinese imports for instance.

In addition was Oh in concert with the kind of availing duties.

Okay.

Speaker 8: Okay, thanks for that color. Taking questions, so on bar volumes, so you mentioned that there's some impact with the stripe, but the stripe really only started, I guess, in late in the third quarter. So how should we think about the trajectory of volumes, you know, with some of the bigger head in the fourth quarter through that segment?

Thanks for that color.

Martin Englert: If I could one last one here, excluding 2020 looking at seasonality in 4Q total steel shipments, they tended to climb around 5% sequentially. Is there anything you're seeing this year that would suggest something different? And I imagine, you know, comparing the sequential with the sitting outage and uncertain back up probably might have an impact here on a sequential basis. Yeah, to your spot on Martin, we would expect to see normal seasonality within this deal operations, but as you have now sitting ramping up and operating for the full fourth quarter, you will see some benefit from that additional volume. And you're aiming for 70% utilization on exit for the year with send and correct. That's correct.

Second question. So on bar volumes. So you mentioned that Theres, some impact with the strike, but the strike really only started I guess in late in the third quarter. So how should we think about the trajectory of volumes.

We're assuming a bigger hit in the fourth quarter for that segment.

Well for US, we don't really see.

Speaker 7: For us, we don't really see a major change in volume from an auto-monks perspective in the fourth quarter for us. As I mentioned in my notes, we have a large ship, a sandwich of auto-

A major change in volume.

From an automotive perspective in the fourth quarter for us.

As I mentioned in my notes.

We have a large ship percentage of our auto book is European and Asian.

They are not impacted.

By by the strike is over there.

Speaker 7: We do have some business with Stellanis and with Ford. But again, on a percentage basis, it's not going to be monumental.

Are we all we do have some business with the Atlantis and with Ford.

But for the game on a percentage basis, it's not going to be.

Monumental to it to our those volume or earnings.

Martin Englert: Okay, thank you very much, congratulations navigating the downward market on the continued growth investments. Thanks, Martin.

Okay. Thanks for sharing the insights.

Your next question is coming from John Tumazos, with John Tumazos Independent research.

Speaker 1: Your next question is coming from John Tomazzo's with John Tomazzo's independent research. John Tomazzo's independent research.

Carlos DiAlba: Your next question is coming from Carlos DiAlba at Morgan Stanley. Yeah, thank you very much, good morning. Just continue on the scene. I wonder if you can give us a little bit of color on the EBITDA generated by the operation. And how do you see that going forward? Martin, I'm sorry, are you... Carlos, do you repeat that? Yeah, yeah, sure. So I'm just on Sinton, given the average that you experience, but you know, things now are ramping up nicely and you expect full production while with production throughout the fourth quarter.

Thank you.

We're falling John .

Speaker 9: If all the great dynamics benefiting the steel business in

All the great dynamics benefiting the steel business.

Industry wide apparent demand.

Speaker 9: Looks like it's trending about 8 million tons below the average of 2017.

It looks like it's trending about 8 million tons below.

The average of 2017, 18, 19, I don't know, what's normal, but I'm looking to the pre pandemic period.

Speaker 9: Your own choice business is off 16,000 tons of quench oil.

Your own choice businesses 16000 tons sequentially.

Carlos DiAlba: How do you see the evolution of the EBITDA generated by the company, by this plant, Sinton? So, Carlos, we can't give... We won't give specific guidance on the earnings associated with Sinton. We are giving updated items on volume so that you can understand from a mildly imperceptive. So, you know, we would expect to see a significant improvement from the third quarter given the fact that we weren't operating all of July. But that means that I really can't give you any guidance specific to what the EBITDA will be, and then just maybe one more on the fabrication business.

And.

I guess 56000 tons year on year, and Theres, no inventory's choice because they're made custom.

Speaker 9: 56,000 tons year on year and there's no inventories and choice because they're made custom.

To order.

What are the.

Speaker 9: segments that are down, they're negating some of the other growth or accounting.

Segments that are down there negating some of the other growth or accounting for the decline.

Speaker 9: High rise office building with work at home.

High rise office building with work at home.

Speaker 9: are slower consumer spending e-commerce warehouses and retail space report? Are there any other segments that could account for the deviations? Yeah that's machines.

With lower consumer spending e-commerce warehouses and retail space are poor.

Are there any other segments that could account for.

The deviations.

Carlos DiAlba: You did mention strong forward pricing in your backlog. Is there any additional color that you can provide given your extraordinary strong pricing that we have seen in recent quarter relative to history? From recent 2023 racing in the backlog is very strong, much higher than previous historical peaks. We've seen that be maintained, the spot market where the order activity isn't as strong as it was in 2022. It's still really good from an historical basis, but that is contracting the backlog somewhat.

Well I think.

From a.

We got some feedback going on them, but the.

But we're talking principally fabrication here.

Uh huh.

Speaker 7: Yeah, I think it wouldn't, again, all we can do, John , is look through our book, or the book by a lamp.

Yeah, I think it will.

Again, all we can do John is look through through all our book and the order book or limbs.

Speaker 7: But obviously the distribution where has arena has come off.

But obviously the distribution warehouse arena has come off.

It has not stopped.

Speaker 7: Amazon, obviously came out very publicly and so it was almost holding the development because they overed.

Amazon obviously came.

Came out very publicly sort of almost holding the development because they they overbuilt.

Speaker 7: That's not the case with others or distributors. It's still an ongoing market for us, although it is there. But I think we picked it up.

Carlos DiAlba: So now it extends through the first quarter of 2024. I think something else that I want to keep in perspective. Mark mentioned it on this opening note, but I want to reiterate it because I think it's really important. We've been talking about the IRA monies, the Department of Energy monies, monies are coming from the administration for public dollars. It's our estimated others would agree that there's likely not even five to 10% of that money that's been allocated or awarded yet.

Not the case with with others around distributors is it still a ongoing on go to market for us all of us there.

But I think we picked it up the education health.

Health care has been positive.

And the just manufacturing manufacturing facilities.

Speaker 7: the manufacturing facilities, the battery plants, chip plants are picking up.

The battery plants chip plans or picking up.

It is not at the rate to offset.

Totally offset the distribution.

Speaker 7: totally offset that distribution base, but nonetheless it's picking up strongly and we would anticipate the continued growth.

But nonetheless, it's picking up strongly and we would anticipate the continued growth next year.

Carlos DiAlba: It's going much slower than anyone had expected and much slower than the administrative administration had indicated that it would. So those projects aren't benefiting the elongation of construction, steel-consumption, success at investment, steel, joist and death demand as well. We're fully expecting what we're hearing from the administration and from others is that those dollars will start flowing in the first half of 2024. So right now there's a bit of a gap in funding and I think you're seeing that in the volumes, but we fully expect that to pick up and improve in 2024 and 2025. Thank you very much.

Speaker 7: just the infrastructure, the IRA spending, that certainly will...

And just the the infrastructure the I R. A spending that certainly will will bolster order book, though and give us some support.

In terms of the two year decline in spot sheet prices of $1200 from Big Records.

Speaker 9: In terms of the two-year decline in spot cheap prices of $1,200 from big records, how much damage

How much damage to think that's cause.

Speaker 7: across consumer and distributor inventors, you know, when prices fall people don't want to hold the hot potato. Well, I think the biggest impact is, that there is freedom from so much

Across consumer and distributor inventory as you know when prices fall people don't want to hold the hot potato.

Well I think the the biggest impact.

Carlos DiAlba: Your next question for today is coming from Tristan Gresser at Xane BNP Parabas. Yes, I thank you for taking my questions. Maybe the first one following up on the fabrication. You provided some guidance back in Q2 and I now understand that the stable volume guidance half and half is no longer valid. So I was wondering if and it's not the first time the guidance has been cut there. So what is driving quarter after quarter that they can have cut in that weakness.

As.

The.

The reduced level of speculation.

And in the supply chain and fine, but it's not a reduced.

The reduced level of speculation people just don't speculate anymore.

Speaker 7: So you see people that kind of hand in their mouth, they tend to be ordering and buying on a...

So you see people are that's kind of Hans Morris the they tend to be ordering and are buying on a.

As needed basis.

Without that all those.

Carlos DiAlba: And you provided some color on the sequential movements. I guess on the steel side for Q4 volumes. Can you tell us a little bit more about fab. And the same question a little bit on ASP. You got it for down 10 to 15% in H2 versus H1 on the ASP from the Q3 ASP is already down 17%. Versus that level. So can you help us try to calibrate the weakness in ASP we should expect in Q4, but also in Q1 because you have some visibility into that quarter as well.

Speaker 7: since July mid-July that we've seen very very very consistent order input rates and deliveries.

Consistent shipping since since July mid July we've seen very very very consistent order input rates.

And deliveries.

Speaker 7: even as the pricing came off, the pricing.

Even as even as the pricing came off the pricing.

Speaker 7: This time, and just as it was last year, last year, we had a similar story with a very constructive outlook for 2023, which in all honesty came to fruition.

At this time.

As it was last year last year, we had a similar story with a very constructive outlook for 2023 which in all honesty came came to fruition.

Speaker 7: The emotional last year was, what was us headed for a recession, we got high interest rates, inflation, et cetera.

The the emotion last year was what was the US we're headed for a recession, we all have high interest rates inflation et cetera, et cetera et cetera.

Carlos DiAlba: From a modeling perspective, Tristan, from a volume, I mentioned in my opening notes that we do expect to see some regular seasonality in the steel fabrication volume as well. So sequentially, we would expect it to be modestly lower than what you would have seen as a quarter. But again, we're not attesting that to I think I addressed the consumption question when I responded to Carlos as relates to average pricing. Again, the backlog is very strong.

There was no change no structural change in underlying demand in the fourth quarter last year.

Speaker 7: There was no structural change in underdying demand in the fourth quarter of last year.

We're seeing the same same thing today.

Speaker 7: The demand is very, very solid across virtually every market sector that we have. Yet we see that. So that was softness, strike-related.

Mind.

Very solid across virtually every market sector that we have that we see them. So that was a softness.

Strike related emotional.

Speaker 7: People are starting to see lead time stretcher. Just starting to see, get a little worried. You know, we're booked there. And essentially our order book is closed for November .

People are starting to see lead times stretch or just starting to see it get a little worried.

We're booked out and essentially our order book is closed for November .

Carlos DiAlba: If you're having seasonally lower volumes, I think it's a reasonable expectation to think pricing will be down somewhat, but we don't see it being in the same magnitude as the sequential second to third quarter. It will be somewhat less than that. All right, if I may. I'm relative to the pricing. The market actually has been a little confounding, because since mid-July, we have seen the market being very, very strong, very solid.

Speaker 7: And given the interest we see for December , we haven't opened that book yet. I'm not so sure we will be able to satisfy the total appetite.

And given the interest we see for December we haven't opened up book yet.

We're not so sure we will be able to satisfy the the total appetite.

Speaker 7: So it's a positive market momentum going into 24. Thanks.

So it's a positive positive market.

Momentum going into 'twenty four.

Thank you I'm a shareholder.

[laughter] ranking stay that way.

Carlos DiAlba: In fact, order input rate has been great. You have a situation where people are more emotional. There's no structural, structural change in demand that allowed, or closed pricing down. It was more emotional relative to the strike. Mid-September, when people recognized that sort of already been baked into the price, when I saw that industries are very, very, very low, as the mid-Chang, they see that lead times are already stretching air, that we've seen an inflection, and there is definitely up with momentum in the collateral price of today, and it's our anticipation and the anticipation of others that there's going to be quite a market increase in pricing once there's a resolution to the last strike.

Speaker 1: Once again, if there are any questions, please press star 1.

Once again, if there are any questions. Please press star one.

That concludes our question and answer session I'd like to turn the call back over to Mr. Millett for any closing remarks.

Speaker 1: That concludes our question and answer session. I'd like to turn the call back to Mr. Millett for any closing remarks.

Speaker 7: Well, thank you, Holly, and for anyone that remains on the line. I would tell you, I am blessed, SDI is blessed, each and every one of us.

Well, thank you Holly.

For for anyone that remains on the line.

I would tell you I am Blessed SD EIS blessed.

Each and every one of us.

Speaker 7: last year because we have phenomenal loyal customers. Thank you for your support today.

It is less to you because we have we have phenomenal loyal customers. Thank you for your support.

Today.

Speaker 7: in the future. We have great service providers. We've got a phenomenal, phenomenal team of people that come to work as we said earlier, inspired and positive each and every...

And in the future.

Great service providers.

The phenomenal phenomenal team of people that come to work as I said earlier inspired and positive each and every day. So thank you. Thank you for those that are shareholders and those I would hope that you consider us because we will create shareholder value. The most folks are in the years ahead.

Speaker 7: So thank you, thank you for those that share others. And those on, I would hope that you consider us, because we will create better share of value than most folks in the years ahead.

Carlos DiAlba: So looking forward, will we see a very positive, very positive, constructive market environment? Thank you. That's very helpful. If I just have a quick follow-up, and this time more on the capital allocation side, I mean, even the current context, and I think you touched on and you read from what are your capital allocation priority are. Can you just reiterate what you view on organic growth, and can you confirm that at the moment you're not interested in looking at larger position on the flat-roll side, and that's not an area of focus, and that right now, 100% of your attention is on that aluminum.

So thank you very much have a good day bye bye.

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

Speaker 1: Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation and have a great and safe day.

Carlos DiAlba: Tristan, we can't confirm that. So from a growth perspective, we're very transparent on capital allocation. Our primary focus is for high return growth, and that can be both organically, and it can be transactional. We are very much focused on the aluminum strategy, and that will be a priority. We are setting with record liquidity at the end of the quarter of $3.7 billion. So we really have, I think, a luxury, and we don't take it for granted because the performance of the teams, which is incredible, the luxury to be able to both invest organically, transactionally, if there was something that were to fit into our long-term strategy, as well as continue with the strong shareholder returns. And that at this point in time is our full intent, is to be able to accomplish that. All right, that's very clear.

Tristan Gresser: Thank you.

Tristan Gresser: Your next question is coming from Tim Le Tanner's at Wolf Research. Hey, good morning, Tim. I wanted to just ask a little bit more about Sinton. If I go back in my notes a couple of years ago, you were talking about being at full capacity, 3 million tons, and now you're talking about 70-80%. So I'm just trying to understand, is there some reason that it's no longer expected to run full-out, or are you just assuming maybe some gradual ramp up?

Tristan Gresser: I just want to understand that better. You know, that's fine. We probably have not done an elegant job of explaining that. The 70% is just the run rate at the end of this year, Timna. Again, we'll continue to ramp up. We expect to be 2.4 million tons total production next year, which I think is around 80% of the 3 million. And then we'll continue to ramp up from there. There's absolutely no doubt to start that the plant capability can exceed the 3 million tons main plate that we've advertised in the past.

Tristan Gresser: And I guess just to bring a little bit more clarity to that, we would expect to be operating around that full capacity by the middle of 2024. Mark's just giving a total year view. Oh, helpful. Okay. Thank you. One other timing question was really on the downstream lines that are going to really enrich your product mix. And in the presentation, it says they're starting in the second half. But I thought I heard you saying they were contributing more in the first half, so just trying to get the cadence of when that ramps up.

Tristan Gresser: Yeah, it's probably should have been updated in the investor deck. I'm guessing that's what you're pointing toward. We're planning to have the heartland paint line and the heartland galvanizing line running first, which could be toward the end of 2023, but no, probably moving into that first month. Once in a half in 2024, and then very closely thereafter sentence additional paint line and galvanizing line will be starting as well, still within the first quarter of 2024.

Tristan Gresser: Okay. That's all great. Thanks. And then the last question if I could squeeze it in. It's just on the capex guidance. I think we had last quarter, you had talked about a number for 2024 of about 1.5 billion. And just with the higher capex guide for 24, we just wanted to check on if that number is still right for 2024. Thanks again. You're welcome to that. Actually, we're in the middle of planning for 2024 on the capital investment site right now.

Tristan Gresser: It looks like it's going to be closer to 1.8 to possibly $2 billion. I'll be able to put a fire point on that as you get through the first quarter. But it's primarily comprised of a little bit more on the aluminum side just from a timing perspective that a total investment. So aluminum, maybe as much as 1.3 to 1.4 billion next year. We also have the construction and startup of the bio carbon facility, which could be as much as 150 to 175 million dollars.

Tristan Gresser: And then we have some tail to the four value added lines as well of maybe $100 million. So I will be putting a fire point on that. But right now, I'd say it's probably in the range of 1.8 to $2 billion. Appreciate it.

Timna Tanners: Your next question for today is coming from Bill Peterson with JP Morgan. Yeah, hi. Good morning. Thanks for taking the question. We've been seeing some reports that the US and Europe are ahead of this summer tomorrow, maybe looking at removing some of the tariffs or adjusting quotas and things like that. I guess assuming that, you know, some of this does happen in, you know, quotas go away. How would you see this impact in the US steel market?

Timna Tanners: Well, I guess we don't have the same intelligence that others have from our folks on the hill in conversations. It really seems still up in the air. The European position and the US position are totally at odds and not pro-much progress has been made, but maybe we're wrong. That said, obviously the Tarris today, a lot of that has been negotiated away and only probably 25% or so of incoming steel imports are affected by that.

Timna Tanners: Obviously, quotas are in place with Brazil and Korea and others, and I would imagine that they will remain in place in some form of fashion. European tariffs, maybe that is a little different, but Europe is not really a big influence on our market, in all honesty. If you look at the street forward, all the tries today between by Asian pricing and European pricing, it's not that attractive. We don't necessarily see a big influence there.

Timna Tanners: We do feel strongly that any tariff and quota type activity will transition into some form of carbon tax, carbon border tax, which actually in the long run will likely be a lot more effective than the tariffs and quotas in place today. Again, we need to remember and highlight that the principal trade constraints, which are the kind of LED and I dumping cases that were brought in 2015, they went through sunset last summer and got continued, I think it's another five years, but those are legislated in nature. They won't change and they firmly, firmly enter or eliminate Chinese imports, for instance. Still in addition, we're in concert with kind of a leading duty.

Timna Tanners: Okay, thanks for that color. Second question, so on bar volumes, so you mentioned that there's some impact with the strike, but the strike really only started in late in the third quarter. How should we think about the trajectory of volumes, assuming a bigger head in the fourth quarter through that segment? For us, we don't really see a major change in volume from an auto most perspective in the fourth quarter for us.

Timna Tanners: As I mentioned in the notes, we have a large ship, a percentage of our auto book is European and Asian. They are not impacted, by the strike as of now. We do have some business with Stanis and with Ford, but again on a sandwich basis, it's not going to be monumental to our both volume more earnings.

Timna Tanners: Okay, thanks for sharing the insights.

John Tumazos: Your next question is coming from John Tumazos with John Tumazos Independent Research. Thank you. With all the great dynamics benefiting the steel business industry-wide apparent demand, looks like it's trending about 8 million tons below the average of 2017-18-19.

John Tumazos: I don't know what's normal, but I'm looking to the pre-pandemic period. Your own choice business is on 16,000 tons sequentially and I guess 56,000 tons year on year. And there's no inventories in choice because they're made custom to order. When are the segments that are down, they're negating some of the other growth or accounting for the decline? High rise office building with work at home and with lower consumer spending e-commerce warehouses and retail space or poor?

John Tumazos: Are there any other segments that could account for the deviations? Well, I think we've got some feedback going on here. But what we're talking is principally fabrication here. I think all we can do, John, is look through our book or order book or lens. But obviously the distribution warehouse arena has come off. It's not stopped. Amazon came out very publicly, so almost holding the development because they overbuilt. That's not the case with other distributors.

John Tumazos: It's still an ongoing market for us, although it's there. But I think we picked it up education, healthcare has been positive and the manufacturing facilities, the battery plants, chip plants are picking up. Not at the rate to offset, totally offset that distribution base, but nonetheless it's picking up strongly and we would anticipate the continued growth, both next year. And just the infrastructure, the IRA spending, that certainly will bolster our older book and give it some support.

John Tumazos: In terms of the two-year decline in spot cheap prices of $1,200 from big records, how much damage do you think that's caused across consumer and distributor inventories? You know, when prices fall, people don't want to hold the hot potato. Well, I think the biggest impact is the reduced level of speculation. In the supply chain, in fact it's not a reduced level. The reduced level of speculation, people just don't speculate anymore. And so, you see people that's kind of hand in mouth, they tend to be ordering and buying on a as needed basis.

John Tumazos: That allows, you know, consistent shipping. Since July, mid-July, that we've seen very, very, very consistent order input rates and deliveries. Even as the pricing came off, the pricing, this time, and just as it was last year, last year, we had a similar story with a constructive outlook for 2023, which in all honesty, came to fruition. The emotion last year was, what was us? We were headed for a recession, we got high interest rates, inflation, et cetera, et cetera.

John Tumazos: There was no change, no structural change in underlying demand in the fourth quarter of last year. We're seeing the same thing today. Demand is very, very solid across virtually every market sector that we have. Yeah, we see that. So that was softness, strike related, emotional. People are starting to see lead time stretcher, just starting to see or get a little worried. You know, we're booked there and essentially our order book is closed for November. And given the interest we see for December, we haven't opened that book yet. I'm not so sure we will be able to satisfy the total appetite there.

Operator: So it's a positive, positive market momentum going into 24. Thank you. I'm a shareholder. Thank you. Stay that way. Once again, if there are any questions, please press star one.

Operator: That concludes our question and answer session.

Mark Millett: I'd like to turn the call back over to Mr. Millett for any closing remarks. Well, thank you, Holly. And for anyone that remains on the line, I would tell you I am blessed. SDI is blessed each and every one of us, is blessed here because we have phenomenal loyal customers. Thank you for your support today and in the future. We have great service providers. We've got a phenomenal, phenomenal team of people that come to work as we said earlier, inspired and positive each and every day. So thank you. Thank you for those that are shareholders and those on.

Operator: I would hope that you consider us because we will create a better sure of value than most folks in the years ahead. So thank you very much. Have a great day. Bye bye.

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