Q3 2024 Steel Dynamics Inc Earnings Call
I will turn out differently such statements involve risks and uncertainties related to integrating are starting up new assets. The aluminum industry. The use of estimates and assumptions in connection with our anticipated project returns and our steel metals recycling and fabrication businesses as well as to general business and economic conditions. Examples of these are described in the related press release as well as <unk>.
McKinditions.
Examples of these are described in the related press release, as well as in our annually filed SEC Form 10K under the headings forward-looking statements and risk factors.
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Speaker Change: We'll also find any reference non-gap financial measures reconciled to the most directly-compared gap measures in the press release issued yesterday entitled Steel and Amix reports 3rd quarter 2024 results. And now, please to turn the call of it a mark.
Mark: Thank you, David. Good morning, everyone. Thank you for joining our third quarter, 24 earnings call. As you have read and seemingly many have concluded, teams executed well through the quarter, achieving another solid financial and operational performance.
Mark: Most gratifying to us, to me, in particular, was achieving another great quarter of a safety.
Mark: The rampups of our four-new value-adflap-roll steel coating lines have been an unqualified success with the expectation of full earnings benefit in 2025.
Mark: He's lines represent an additional 1.1 million tonnes of higher margin product labour certification for us.
Mark: In Texas, despite a couple of challenges in the quarter, the Synth Team gained considerable momentum, running out of 72% utilization rate of scheduled runtime in September.
Mark: We had extended periods in excess of 90% and were achieved during that quarter and I think it proves the mill's ultimate capability.
Mark: New Shipments with 3.2 million tons, third quarter revenues, 4.3 billion, just to the EBITDA was 557 million and cash flow from operations 760 million.
Mark: As I stated, we had a great quarter in terms of safety. Historically, the summer months can be challenging in period, but the teams reversed that trend this year with an excellent performance. Not only was that trend reversed, but both our total recordable incident rate and last time rates were the lowest in our history.
Mark: Our employee dedication to our take control of safety program is extraordinary. Our core safety teams visited 30 facilities in third quarter alone, which is I think a clear testament to their commitment to keep each other safe.
Mark: We continue to build a world-class safety culture and the positive results have been clearly demonstrated.
Mark: A4% of our locations in the third quarter did not have a recordable injury, that's 104 locations out of our 124, and 94% of them did not have a lost time incident.
Mark: I'm continually inspired by the commitment of our team members to have for one another. They really truly consider themselves family and China's status quo every day to do better in every way.
Mark: That's why we are so focused on providing the very best for the health, the safety and the welfare.
Mark: That said, there's still a lot of work to do as we strive toward a zero incident environment. But with that, I will pause for Theresa first and then bury it to add color for the quarter.
Theresa: Thank you Mark. Good morning everyone. We really do appreciate you taking the time to be on the call with us this morning and I want to add my thanks to our teams for a really solid performance this quarter.
Theresa: As Mark suggested, our third quarter of 2024 net income was $318 million or $2.5 per Luted Share with adjusted EBDA of $557 million.
Speaker Change: 3rd quarter, 2012 or revenue of $4.3 billion, was below sequential second quarter results, due to lower-realized, flat-rolled steel pricing tied to lagging contractual volume.
Speaker Change: Our third quarter operating income of $395 million was 29% lower than sequential second-quarter results driven by steel, metal, spray, contraction, as average real-life pricing decline more than scrap raw material costs in the quarter.
Speaker Change: Our seal operations generated operating income of $3.5 million in the third quarter.
Speaker Change: Lower than sequentially, lower than sequential results due to average-realized pricing declining $79 to $159 per ton, while total shipments were steady as increased flat-roll volume offset lower structural and SBQ volume.
Speaker Change: For those of you that track our individual flat rolled shipments quarter by quarter and the third quarter hot rolled shipments were 942,000 tons, cold rolled shipments were 118,000 tons, and coated shipments were 1,335,000 tons.
Speaker Change: For metals recycling, operating income was $12 million, lower than sequential second-quarter results due to lower-realized pricing and volume. In addition, we had an unrealized non-cash copper hedging loss of $10 million in September.
Speaker Change: We're the largest, nor the largest, nor the American metals recycle or processing and consuming. They're a scrap and non-gross aluminum, copper and other metals. And we're growing in support of our increased steel and planned aluminum production investments.
Speaker Change: Through new and expanded relationships and through the use of innovative news separation technologies. I'm really proud of the team. They're also reducing operating costs very effectively.
Speaker Change: Our steel fabrication team achieves strong operating income of $166 million dollars in the third quarter. Lower than second quarter results as a 5% decrease in release pricing offset steady shipment.
Speaker Change: Boarder activity in the third quarter was a strongest we've seen this year, supporting our Joyce Indec backlog extending through the first quarter of 2025.
Speaker Change: has interest rates decline and public funding begins to be distributed post-election and into 2025. We expect to see increased fix asset investment and corresponding demand drivers for steel and steel fabrication products next year.
Speaker Change: Regarding our aluminum investments, as a reminder, as we can construct the aluminum facilities, non-capitalizable expenses are required to flow through a shenanet until start-up.
Speaker Change: As a result, our SUNA will be higher until we start operations in 2025. You have visibility to this amount provided in our supplemental data schedule for the third quarter at which $24 million.
Speaker Change: We have expectations for our aluminum investments to be even a positive in the second half of 2025 and planned to operate the rolling mill at approximately 75% of its capacity in 2020.
Speaker Change: Mark's going to provide more details related to our ramp and product mix expectations later on the call, as well as define our differentiated cost expectations.
Speaker Change: The construction of the Rally Mill and the San Luis Putty Seary Cycles Flab Center is going extremely well.
Speaker Change: Approximately $1.9 billion has already been invested through September of 2024, with expectations of funding between $350 to $400 million in the fourth quarter, and the remainder then to be spent in the first half of 2025.
Speaker Change: Our cast generation continues to be strong based on our differentiated circular business model and highly variable cost structure.
Speaker Change: During the third quarter of 2020, we generate cash from operations of $760 million.
Speaker Change: We ended the quarter with strong liquidity of $3.1 billion, comprised of cash and short tremendous of $1.9 billion, and are fully available in secure growth of $1.2 billion.
Speaker Change: With a fourth quarter of 24, we believe capital investments will be in the range of 500 to $550 million. Plymanairly, we believe 2025 capital investments will be in the range of 700 to $800 million.
Speaker Change: We repurchased $917 million of our common stock year to date 2024 representing 4.5% of our out-saining shares and as of September 30th we have $486 million remaining available for share purchases.
Speaker Change: Our capital allocation strategy prioritizes high-return strategic growth with shareholder distributions, comprised of a base positive dividend profile.
Speaker Change: That's complemented with a variable share of purchase program, while we remain dedicated to preserving our investment grade credit designation. Our track record is proven that he means five year after tax return on a vested capital of 24 percent during a period of transformational growth and strong shareholder returns.
Speaker Change: Our free cash flow profile has fundamentally changed over the last five years, from an annual average of $540 million to $2.9 billion, excluding our large strategic sentin and aluminum investments.
Speaker Change: In July, we successfully issued $600 million of investment grade notes with a 10-year 10-year and anticipation of repaying $400 million of our notes that are due this December.
Speaker Change: Before I conclude, I want to thank the decarbonization and biocarbon team.
Speaker Change: I'm proud of them, and excited about their recent announcement, considering our new certified science-based greenhouse gas emissions intensity targets for our steel mills, which are aligned with the one-and-a-half-degree Celsius.
Speaker Change: Scenario Set Force and the Paris Agreement. In fact, our steel mills are already well ahead of that curve. We recently set both a 2050 emissions intensity target, which is aligned with the International Energy Agency's net zero by 2050 industry targets, and an interim 2030 target, which represents a 15% reduction in our greenhouse gas intensity.
Speaker Change: These targets were established using the Global Seal Climate Council's Steel Climate Standard of which we are a founding member.
Speaker Change: The Biocarbon Project is also going incredibly well with expectations for a first quarter 2020-25 start. Sustainability is 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.
Speaker Change: We uniquely have an actionable path toward carbon neutrality that is more manageable and we believe consider a way less expensive than may lay ahead for many of our industry peers.
Speaker Change: Arts Sustainability and Carbon Reduction Strategy is an ongoing journey and we're moving forward with the intention to make a positive difference. Thank you, Barry.
Speaker Change: Thank you for watching!
Speaker Change: Sorry, Michael. Thank you, Theresa.
Speaker Change: Our Steel Fabrication Operations performed well in the third quarter, achieving historically strong earnings in steady volume in the quarter. Our Steel Fabrication Order backlog remains at a healthy level, extending to the first quarter of 2025.
Speaker Change: We remain optimistic as it relates to demand for the steel joyson deck markets over the next number of years. Based on a moderating interest rate environment, continued manufacturing on-choring, and public funding for infrastructure and other fixed asset investment programs. The uplift from this macro environment could be considerable for this platform, as well as our steel operations.
Speaker Change: Our steel fabrication platform also provides meaningful volume support for our steel operations, which allows us to constantly operate at a higher, through cycle utilization rate. It also mitigates the financial risk of lower steel prices.
Speaker Change: The metals recycling team did a good job navigating a challenging, marketing, a market environment in the third quarter. There were a number of domestic sealant audages, which decreased fair scrap demand, coupled with pricing volatility. Fair scrap prices have stabilized, and we believe should remain relatively stable to the rest of the year, subject to seasonal moves.
Speaker Change: The North American geographic footprint of our metals recycling platform provides a strategic competitive advantage for our steel mills and for our scrap generating customers.
Speaker Change: Our Mexican recycling locations competitively advantage our Columbus and Sinton raw material positions. They also strategically support increased procurement of aluminum strap for our future flat roll aluminum operations.
Speaker Change: Our metals recycling team is partnering even more closely with both steel and aluminum teams to expand scrap separation capabilities through process and technology solutions.
Speaker Change: This helps mitigate potential prime-fair scrap supply issues in the future. It also provides us with a significantly advantage to increase the recycled content and our aluminum flat roll products and increase our earnings opportunities.
Speaker Change: The steel team also had a solid quarter achieving steady ship and so 3.2 million tons. During the third quarter of 2024, the domestic sealants re-operated at an estimated production utilization rate of 78%. While our steel mills operate at a rate of 86%, excluding our sin and operation.
Speaker Change: We consistently operate at a higher utilization rates due to our value at its steel product diversification, our differentiated customer supply chain solutions, and the support of our internal manufacturing business.
Speaker Change: The higher through cycle utilization of our COMOs is one of our key competitive advantages. Supporting our strong and growing cash generation capability and best in class by the natural metrics.
Speaker Change: A Realized Average Flatroll Steel Price declined in the quarter due to contract lags, but prices stabilized and improved in the quarter. Positively, value added flatroll steel pricing spreads remained resilient, supporting our earnings as we are the largest producer of these products in North America and growing.
Speaker Change: Our activity is solid heading in the fourth quarter with normal seasonal trends expected. General, our flat road steel mills lead times are actually at level higher than we've seen over the last six months.
Speaker Change: Underlying steel demand remains steady, but a surge in steel imports, but pressure in the supply dynamics in certain product areas, specifically for coded flat-roll steel up products. In response, we led me to trade case and we expect to get a preliminary ruling for the ITC in a few weeks.
Speaker Change: are sitting Texas flat roll steel milleteen successfully completed needed changes early in the quarter to access 100% of the mill's melt capacity.
Speaker Change: The team experienced some difficulty ramping back up after the outage. However, the reliability and the improved dramatically in September. In the company believes SITN's product utilization rate will increase to around 75% for the 4th quarter of 2024.
Speaker Change: Also, the additional two new value added coating lines were successfully commissioned in a commenced operations, improving the mill's value at product bics and through cycle earning capability.
Speaker Change: Regarding the steel mill market environment, North American automotive production estimates for 2024 were recently revised to stable production over the next several years. Automotive dealer inventory is also continuing to remain below historical norms.
Speaker Change: Nine Resortal, Non-Residential Construction Remain Stable, was slowed down to cross some industries. However, we believe moderating interest rates will unlock pen-up project work and create new opportunities in 2025.
Speaker Change: Additionally, I'm sure an infrastructure spending should provide further support to fix acid investment and related construction oriented products.
Speaker Change: As for the energy market, the solar industry continues to grow and be a meaningful part for both our flat, real products and structural sections.
Speaker Change: Oil and gas also remain steady.
Speaker Change: Looking forward, we are optimistic regarding steel demand in price-ig dynamics, as we end 2024, get ready to enter 2025.
Mark: with that set it back to Mark.
Mark: Thanks Theresa, thank you, Barry, but it's more than evident that our performance driven employee-centric culture in combination with a proven highly diversified value-added business model tries superior through cycle financial metrics.
Mark: are consistently strong operating and financial performance continues to support our cash generation and growth investment strategies, allowing a balanced cash allocation strategy that is consistently delivered the best-in-class Sherauder returns.
Mark: For instance, our investment strategy is cheaper three-year return on invested capital, a 32% from 21 through 23 compared to only 12% for the S&P 500.
Mark: and a discipline in high return investment approach continues.
Mark: As I said, the four-valuated, flat-roll steel coating lines are increasing volume and performing very well from a quality perspective. These types of high-return investments are key to all-valuated product and supply chain differentiation strategies.
Mark: As I mentioned also, Simpson continues to improve its operational reliability with expectations for a strong production capability in 2025.
Mark: A recent aluminum growth strategy is especially compelling.
Mark: The Markon environment in Alumam is not unlike the steel industry wars when we started FTI 30 plus years ago.
Mark: has older assets, heavy legacy costs, a lot of the facilities are inefficient and high cost and they've had the industry in general that difficulty in earning the cost of capital and hence there's been little investment in facilities and new technologies in recent years.
Mark: But unlike our steel entry, the one huge positive is that there's a...
Mark: Significant deficit in aluminum.
Mark: Just in North American General, and that deficit is expected to grow considerably.
Mark: It's a clear business alignment. They leverage core competencies, core competency of construction and operational know-how and one only has to look at the drone video on our website to see the extraordinary progress the team has made to construct in the new mills.
Mark: It also will leverage our performance driven culture, driving higher efficiency in lower cost operations.
Mark: It also levered on these recycling footprint.
Mark: is a resource suggested with the largest North American aluminum scrap recyclers.
Mark: and we also are developing some in-house new technologies to separate the 5,000 and 6,000 series alloys.
Mark: It's a very, very cost effective and a high return growth opportunity for us.
Mark: Construction of the expansive rolling mill in Columbus, Mississippi, as they said is proceeding at an extraordinary pace. And I believe the Illumium industry is now recognizing that we truly will be a force to be reckoned with.
Mark: The future customer base across all sectors is excited to have a new market entrant that is known to be innovative, customer-centric, and responsive to their needs.
Mark: The Mutual range of being put in place to match an order book to our ramp up needs in 2025.
Mark: Responses from existing and new customers across the markets remain incredible as they thirst for new supply.
Mark: As in Cinton, we're developing an onsite industrial part to locate a limiting, processing and consuming facilities.
Mark: Through a range of currently being negotiated that were created approximately 100,000 tons of annual ton of processing capability per year.
Mark: And as our project has become a visible reality and our reputation permeates the limit industry, aluminum professionals have been knocking at our door and we've been building on a phenomenal team when an in-depth knowledge of aluminum operations, commercial markets, process technology and customer service.
Mark: For those who may not have heard in our last call, the scope of the facility.
Mark: It's the state of the art 650,000 metric tunnel year, a limon flat road facility located in Columbus, Mississippi.
Mark: We'll have an optimised mix of this.
Mark: 300,000 tons of can start 230,000 tons of auto and 130,000 tons of industrial and construction products when we're up fully running.
Mark: The actual site in Columbus, Mississippi, as a Mount Cast Sennelabka, past the 600,000 metric tons. And it's going to be supported by two satellite recycled aluminum slab casting centers located in UBC Scrant Richard Regions.
Mark: We expanded the project scope to include, as I said, additional scrap processing and segregation technologies, to maximize aluminum recycled content.
Mark: These enhanced developmentalities are currently operating successfully, separating the 5 and 6,000 series and always on a commercial basis every day.
Mark: The team plans to begin production of slabs in San Luis Pottesy, Mexico in the first quarter of 2025.
Mark: We will commission the Columbus Cast House in the first quarter of 25, downstream lines in the second quarter, with commercial shipments in mid 2025.
Mark: and that is absolutely unscheduled.
Mark: In 2025, we plan to begin production with a product mix, weighted to industrial and construction products. As we qualify our can sheet in 25 and older products into 26.
Mark: We anticipate production to grow to 50% of our annual rate by the end of 2025 and expect 75% capacity in 2026.
Mark: The project is expected to add 650 to 700 million of through cycle annual EBITDA, and we should generate approximately 40 to 50 million dollars through the recycling platform in addition to that.
Mark: Although this computes to a higher EBITDA pattern than the industry has experienced in the past, we're confident in that projection.
Mark: and the most significant savings are in 4 key areas. Labor, recycle content, yield and logistics.
Mark: We should have a reduced workforce of perhaps 700-750 people versus perhaps 1200 or more in a conventional facility of their size.
Mark: We'll have optimized plant layout and material flow, we'll have a centralized automated storage system so there'll be no touch from slant to truck.
Mark: In our proven performance-based incentive driven culture would drive high productivity, high efficiency and low cost.
Mark: and we will have no legacy costs.
Mark: So for those who doubt the impact, I would just ask you to look at what our teams have done throughout us the operations over the years.
Mark: Resolute content. Again, we will level at level our metals recycling platform to drive higher recycled content.
Mark: We have the largest non-ferrous operations, recycling operations is already been stated. And we also have a secondary aluminum facility that is been operating for many years, but will be additive.
Mark: We're locating satellite facilities close to the UBC rich areas to the west and in Mexico. And again, leverage the sorting technologies.
Mark: The yield will be improved, we do believe, it's going to be a new facility, state of the development of equipment and technologies.
Mark: The scalping technology is absolutely stayed in the arm and will minimize material removal.
Mark: and we're actually processing through the facility, super sized coils, it produces less heads, less tails, less line stops, all adding to lower yield losses.
Mark: and logistics, again, locating, slab centers closely, UBC, rich areas will be a huge benefit as well.
Mark: for the excitement within our company, and particularly at the AEDI sites, continues to grow as our teams recognize the ability to help revolutionize the US aluminum industry as they did in steel.
Mark: We're in passion by our current and future growth plans as they will continue to drive the high return growth momentum we have consistently demonstrated over the years.
Mark: The earnings growth of these new projects is compelling.
Mark: The capital spending for symptom, the four-value airlines and aluminum dynamics is approximately 85% complete. With an estimated, collect this future through cycle annual EBITDA contribution of over $1.4 billion.
Mark: As a problem, institutional portfolio manager recently pointed out to us, steel dynamics has grown to an incredibly resilient, cash-generating business, driven by the best teams in the world.
Mark: He said in the last five years you've invested billions of dollars in organic strips for teacher growth.
Mark: You've earned a return on invested capital at 24% compared to the S&P 500 at only 12%.
Mark: You've increased your cash divas and over 90%.
Mark: You repurchased over 30% of your outstanding shares.
Mark: for the while maintaining best-than-class investment grade credit metrics.
Mark: He said it's better than a textbook capital allocation lesson.
Speaker Change: and obviously somewhat biased by agree. And I am excited as investors recognize the power and consistency of our through cycle cash generation combined with our consistent and high return capital allocation strategy.
Speaker Change: And it's our belief that the steel industry is undergone a paradigm shift in recent years. A shift that will further support our earnings profile.
Speaker Change: is a pervasive sense of mercantilism, which will provide a level plan field through continued and appropriate trade relief.
Speaker Change: You have COVID-driven supply chain dislocations, which have accelerated reassuring of manufacturing.
Speaker Change: De-carbonization should materially steep on the global cost curve, providing SDI a huge competitive advantage to gain market share and increase metal spreads as our mills have some of the lowest carbon footprints in the world.
Speaker Change: A.I. and Klo Computing should support non-residential construction through data center
Speaker Change: and there will be growing fixed asset investment driven by the inflation reduction act, chipset and other public monies.
Speaker Change: In turn, with the interest rates moderating, the man will be strong, we do believe, going into and through 2025.
Speaker Change: So, in closing, we've been blessed with good fortune and our people of our foundation. I thank each of them for their passion and their dedication.
Speaker Change: We're committed to them, and I remind those listening today that you're safe to yourselves, your families, and each other is our highest priority.
Speaker Change: Our culture and business model continue to differentiate our performance leading to best in class financial metrics.
Speaker Change: We are an integrated metals business providing enhanced lower carbon supply chain solutions to our customers In turn, mitigating volatility in our cash flow generation and providing enhanced shareholder returns and value to all participants.
Speaker Change: We truly look forward to creating new opportunities for everyone today tomorrow and in the years ahead.
Speaker Change: So with that said, we will open up the call to 200 questions.
Speaker Change: Thank you. If you would like to ask a question, please signal by pressing the star key, followed by one on your telephone keypad.
Speaker Change: If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to recharge equipment. If you have pressed R1 earlier during today's call, please press R1 again to ensure our equipment has captured your signal.
Speaker Change: Also, we ask that you please limit yourselves to one question to facilitate time for everyone. Any additional questions can be addressed upon re-entering the queue. Please hold just a moment while we pull for questions.
Speaker Change: Your first question is coming from Martin Angler with Seaport Research Partners. Please post your question, your line is live.
Martin Angler: Hello, good morning, everyone. You briefly touched on this in the prepared remarks, but for the Greenfield Alumni Projects, are there any other key personnel additions that are still needed? And could you just more broadly touch on the general labor market and how you found the process of filling the needs there?
Martin Angler: Selling. I think the...
Speaker Change: There are no key folks or talent needed from a skill set or experience, we are pretty well built out, but we will always talk to anyone who wants to join us.
Speaker Change: But the management team, I think is absolutely solid, it's a blend combination of season, aluminum folks, managers, leaders.
Speaker Change: alongside our STI proven leaders, and so you'll get the blend of aluminum experience in knowledge space with the cultural performance driven sort of passion that we have within the student Alex.
Speaker Change: So I'm incredibly, incredibly impressed by the team.
Speaker Change: It's actually a much better location, and finding talent is not an easy thing nowadays. But compared to the challenges that we experience in Cinton, I think it's a much much better location.
Speaker Change: Fortunately, we have one of our large flat road steel facilities right across the road.
Speaker Change: That's allowing again a transfer of people at all levels and they can transfer over, without moving the families and dislocating the lives.
Speaker Change: and so that is a huge benefit for us as well. So now, we're excited by the team now.
Speaker Change: Excellent, if I could one last one in steel fabrication with more recent sales that you have that have been added in the back log over the past month or two, are you seeing any pockets of pricing strength relative to where you have been?
Speaker Change: Martin, I would suggest that heading into the fourth quarter, we're going to see that normal seasonality that you typically see in anything that's tied to construction. But as we look at 20 to 25, we definitely think that there's opportunity for not just price support, but price appreciation as we've talked about interest rate changes and additional demand coming from public funding, etc.
Speaker Change: So we're feeling really good with the study aspect of what we've seen in the last six to nine months. And now we'll just get through the fourth quarter seasonality and then head toward what we think is going to be a really robust 2025.
Martin Angler: Okay, I appreciate that congratulations on results, thank you.
Speaker Change: Your next question is coming from Cassia Gentic with BMO Capital Market. Please push your question, your line is live.
Speaker Change: Hi, thank you for taking my question.
Cassia Gentic: Right now 80% of your businesses can track really based. Does that change with further symptoms, ramp-up, or should we continue to see about 80% contractual?
Speaker Change: Contractor Relationships are a big part of our value added supply chain solutions. So as we've increased our paint lines and our coding lines, it keeps that contract.
Speaker Change: Concentration about in that 70 to 80 percent range. We anticipated this growth with our new line. I would see us being in the same kind of market perhaps a little bit less in the future. Once we get the established customer bases and work out these supply chains in each region.
Speaker Change: Thank you.
Speaker Change: Okay, maybe just to clarify, I think you recognize it, but the 80% contractual is on the flat real side of our business. We obviously have a whole bunch of other stuff being a very very diverseified provider, which is more in this kind of the smart spot day-to-day.
Speaker Change: Okay, maybe just one quick one, Barry, I think you mentioned that Sinton had a bit of a challenge starting up after maintenance. If I'm not mistaken, what was the issue there?
Speaker Change: Just whatever we work with high voltage systems, you have kind of a normal making sure everything safe as you ramp up. So having the team, the outages about four days, it was just a little bit slow to get back up to regular running rates.
Speaker Change: It's not on herd of in our industry, it was just worth noting it because we did so much work, the team was really...
Speaker Change: Really resolves some of those high-power problems we had had from the beginning and we safely were able to do that so all in all I considered it a good outage that team did very well, but it wasn't like turning a light on an office just a little bit more complicated with that high voltage.
Speaker Change: Perfect, thank you.
Speaker Change: Your next question is coming from a Tristan Gresser with BMP Paraboxane. Please pose your question, your line is life.
Tristan Gresser: Insight, thank you for taking my questions.
Speaker Change: This is Barry. The scrap that we're able to move to our mills from the Meadows Recycling Platform is really beneficial because we find the best value.
Speaker Change: and the time limit of our supply chain allows us to really optimize that. So having the right material at the right time is essential for that business to really to get the value from it.
Speaker Change: As we look specifically at long products, our structural and heavy section Millett Columbia City is not just a heavy section, though is also railroad, the largest railroad producer in the country, so we have a nice balance of...
Speaker Change: Where we tend to move our products.
Speaker Change: So as the markets tend to change over time, we're always able to optimize into the right product mix for the opportunity and make sure that we keep our regular customers invested and they understand what we're doing. So having that diversification a product.
Speaker Change: Across all of our business is essential when we're looking at our moderating quarter to quarter with the natural flow of business. So long products remain very resilient. We're excited about the opportunities that we see coming, particularly with the investment and reshoring opportunities.
Speaker Change: Alright, that's that's everyone.
Speaker Change: Maybe a full purchase on the update, galvanized, trade case you mentioned, and the potential impact of that. I understand Vietnam being a part of the investigation.
Speaker Change: I think there have been a push to include a certain countries like Canada and also Mexico and given you exposure to Mexico, can you explain a little bit the rational behind including those countries in the investigation?
Speaker Change: Yes, there was actually ten countries involved in the investigation and each of those countries, there was...
Speaker Change: very demonstrative increases in the actual tons that have surged through those various countries into American markets.
Speaker Change: and the necessity of including Canada and Mexico was because of the volume of tons that are coming through those countries.
Speaker Change: The U.S. MCA is a great treaty that we all enjoy. We do good business based on that in that agreement. There is provisions to do just what we did, which is...
Speaker Change: He will engage the ITC for anti-dumping and counter-bailing duties cases. The numbers are staggering, and in many cases these tons are not melted or poured in those countries, but they're flowing from some of the other countries listed.
Speaker Change: So as there's problems in Asia, that puts pressure on that part of the world and they all want to flow to our shores. So this mechanism is expensive, it's lengthy but it's necessary to make sure that the competitive...
Speaker Change: Markets, we have in our United States, are truly fair trade.
Speaker Change: So I think the process will render out what the appropriate duties are in each country.
Speaker Change: and if there truly was less damage for some of those countries, the final tear of amounts will reflect that. So it is something that was absolutely necessary and as we watch, we don't ask for handouts or protection, we just ask for a fair field to play the game on and this is all part of that process.
Speaker Change: Alright, thank you very much.
Speaker Change: Your next question is coming from Carlos Diaba with Morgan's family. Please pose your question. Your line is left.
Speaker Change: Thank you very much. I'm very continuing with the conversation on the anti-dumping case. Someone related the spread between Gaban, I think the steel and coral oil has been depressed. Your low-level sprawling in the economic car. If the anti-dumping investigation doesn't go your way, or even if you don't see a big improvement, if it does.
Speaker Change: What is the dynamics as a leader in the sector prepared to do, to maybe enhance those spreads?
Speaker Change: Carlos is Barry again.
Speaker Change: We do anticipate great success with these trade cases, especially with certain of these countries that were the most egregious offenders.
Speaker Change: But we routinely evaluate how we move our flat-roll products through our process lines. So we routinely move hot-roll all the way through the process and the galvanized and painted. We make those decisions about where the margins are. So we've been...
Speaker Change: Having very good success in dealing with these pressures over the last 12 months.
Speaker Change: and you can see from our earnings results that we're finding a solution to the problem.
Speaker Change: It has to do with we have so much diversity in our product mix that we respond to where we can go and be safe. So I believe the ITC will come back favorable, particularly with some of the more egregious offenders, and that does create an opportunity for us to co-balance into a more product mix that is more perhaps friendly to those times.
Speaker Change: Thanks for having me. If I could just add, you've heard us say before, we don't manage to hope, nor do we manage and make a strategic decision based on, we think trade or policy of any nature is going to go one way or the other. You have to take control of your own destiny.
Speaker Change: and I think the teams...
Speaker Change: Year over year, do a absolutely phenomenal job for the diverse of buying our product mix.
Speaker Change: I think I don't know what the reason number is 65, 70% of our flat real product mix, 65% is value add. And when we say value add, I'm talking about really value add. When you get into pre-paint and you get into the coding developments that the teams have achieved.
Speaker Change: and most recently they've got into this digital print stuff that literally is absolutely phenomenal.
Speaker Change: Wood Grains for the garage door, folks, and architectural. You just have to have innovation and creativity continue to drive up the product mix. So no matter what happens, we will succeed in no matter where the trade goes to be honest.
Speaker Change: and the thing that Mark and Barry talked about, but without saying the exact words, it's the supply chain differentiation that we have, with all the products that you just spoke about, and so that's the key for us.
Speaker Change: Alright, thanks. I'm just maybe five, if I may squeeze another one on the FIFA Regation Business.
Speaker Change: and any four of the details on pricing, I think Barry, I miss this, but I think Barry talked about the stable pricing from Colin Nebuchadnevus from what you saw in the third quarter. But any, any four of the color there or volumes, how do you expect that going forward?
Speaker Change: I think through the question, but again, we're pretty consistent. We won't talk about pricing and commercial things as a relates to that. The commercial team would...
Speaker Change: They would be outside my door, and they'd be ready to do bad things. So we can't do that, but from a volume perspective, we do expect regular seasonality here in the fourth quarter, as it relates to the construction-related businesses which deal fabrication as one, but we do expect to see much stronger volumes next year, which could support pricing as well.
Speaker Change: Thanks Theresa.
Speaker Change: Your next question is coming from Los and Winder with Bank of America. Please post your question. Your line is live.
Speaker Change: Fantastic. Thank you, operator and good morning, Mark, Tristan Barry. Nice to hear from you both. Thanks for the update today. Barry, maybe I think this question would be best directed to you. Could you just walk us through the path from 72% utilization that's sent in in September to your optimal utilization? What is that optimal fully-ranked utilization and what are the remaining bottlenecks and steps to resolve that? And if possible, timeline to any of that number. Thanks. Thank you.
Speaker Change: Yeah, I'll try to articulate why we have confidence in what the CITN team is doing and the first major thing is reducing the unplanned downtime.
Speaker Change: So when things happen as the team not only develops themselves as teammates, but also as competency develops, they're able to address issues that they occur. So we've been making significant strides at reducing the unplanned downtime.
Speaker Change: Necessary to make that happen is improving the reliability of the equipment in the plant.
Speaker Change: As you may know, our flat road steel mills are actually coupled units where we go from the furnace to the hot rolling mill as one coupled unit.
Speaker Change: And to make that happen, as various parts of the system have normal issues, it can impact the other units. So what we're seeing now, and we've seen days, we've seen weeks, and now we've seen month of continuous...
Speaker Change: Reduction of unplanned downtime, better reliability of the equipment, and also just as important, making sure that all the products that are actually being produced are able to get to higher value destinations through the mill, whether it's selling it as hot rolled.
Speaker Change: Gold Road or Coded Products. So, as we see each of the units of the mill respond, we see the uptown uptime increasing, we see the yields getting better and better, and as we start controlling the cost situation, we see a very good path towards the facility running well.
Speaker Change: We have had weeks that we're nearly at capacity.
Speaker Change: and that again is more reasons we have confidence in what we see. So we see kind of the watershed moments.
Speaker Change: Happening Under Our Feet.
Speaker Change: We anticipate fourth quarter to finish strong and it really sets the stage for 2025 to really allow this facility to show the stakeholders what they've been doing and how well they've been earning it down there, hope that helps.
Speaker Change: Yes, the color is definitely helpful. And then maybe if I could just follow up to that, I think it's probably directed toward Theresa. I mean, when you think of sentient now kind of being there or close to being where you need it to be, and you look at the dividend consideration for February , could we anticipate the dividend increase in February might be more material than we've seen more recently? And then how will the aluminum dynamics start up to factor into that decision? Let's check it out.
Speaker Change: Well, that's a very good question, Lawson, a very tricky question, so the board is who determines what the dividend will be in your correct. We like to keep a positive dividend profile and that generally happens in the first quarter of each year and I would anticipate this same absence and any extraneous things occurring this year as well.
Speaker Change: We do expect to have certain the significant, even the contributor next year, which it hasn't been up to this point, so that's the significant change in the earnings profile. That being said, we'd like to see how it's sitting operates in 2025, so I would expect to see it.
Speaker Change: Positive dividend move, but I can't really speak to the magnitude of that at this point in time.
Speaker Change: As it relates to the aluminum assets starting in 2025, very excited about that. As I mentioned in my prepared notes, we do expect those investments to be even positive in the second half of 2025, which is pretty extraordinary. So we'll really start to see that benefit 2026. So I would think that would generally be kind of a time frame to think about how that contributes to through cycle cash flow and possible dividend moves. Thank you very much.
Speaker Change: Great, thank you all very much.
Speaker Change: Your next question is coming from Tim Nataners with Wolf Research.
Speaker Change: Please push your question in your mind as life.
Speaker Change: Yeah, hey, good morning. I wanted to probe a bit more of the status of the value-add line ramp up, ramping up the four lines between paint and coated gauve. I'm just looking at the volumes. It wasn't clear to me what utilization you have those lines at and what we might have yet to see play out as they ramp up.
Timnid: Timnid is Barry. The line all four of the new lines we added are actually operating it somewhere around 65 to 75%.
Timnid: As we discussed with the trade cases, we've seen some pressure in certain coded products, particularly galvalume.
Timnid: So we are trying to make sure we're efficiently running those lines and making sure we don't waste money by operating it at levels that perhaps we could do with the existing lines.
Timnid: So what we look at is the ability to really allow each line to do the proper product mix to be very efficient.
Timnid: and to be very good yields.
Timnid: So we're really excited with what we've seen. The tear-hode operations are...
Timnid: Definitely improving the opportunity for that facility to reach more markets, diversifying that product mix there, by adding a second coding opportunity with Galvolume and with the prepane opportunity has really opened up relationships with new customers as well as existing customers who needed those products in that region. And it's sitting, the additional lines really allow us to have a more efficient operation between our galvanized coatings and our galvolume coatings.
Timnid: so might be a bit technical but we're really excited how the lines perform the quality itself has been very good and that is difficult with these type products these are a lot of this new capacity is prepainted markets which have very demanding customer base so we've been really excited to see how the teams have responded and the sales team continues to bring new opportunities to the midd to to
Timnid: Timna, as it relates to their contribution to earnings, I would say that that really hasn't been significantly impactful up to this point. So as a reminder, the four lines were about a $600 million investment. And generally, the paint and galvanizing lines for us, given our supply chain differentiation, have a payback period of anywhere between two and three or two and a half years. So pretty significant. You're going to start to really see their impact in 2025. I think as everything gets ramped up.
Speaker Change: and just one follow-up thought at Sinton, obviously the volume throughput on those lines is a little inhibited right now because of the heart side not at full capacity.
Speaker Change: So as you see, as we increase the throughput on the outside, the volume through those two lines, then there will...
Speaker Change: and Creason in Tamil.
Speaker Change: Okay, for modeling purposes, if we look at what 1.3 plus million tons in the quarter of galvanized, that represents about or galvanizing code that represents about 65% of the new capacity ramping up, so we have yet to see that remaining third or so flow through, and we would expect that conditional tune that imports coming off. Is that fair?
Speaker Change: So, in that coded number, it's not just our lines that you're seeing Timna, and no, it wouldn't show like shipments of that rate, because you also have our United Steel Supply, and you have other processing facilities rolling through that that aren't really included in a lot of the benefit of the additional volume in the third quarter actually came through different avenues. So, I think I would suggest there's more volume that's still the benefit, it's not just
Speaker Change: Okay, thanks. I'll be back with your phone. Please hit it.
Speaker Change: Your next question is coming from Bill Peterson with JP Morgan. Please pose your question. Your line is live.
Speaker Change: So, from the perspective of Sinton, no, in the third quarter because we had additional outage time that Barry actually mentioned and because we had additional maintenance costs related to that. Sinton wasn't even that positive in the third quarter but we have full expectations about it will be in the fourth quarter and certainly next year.
Speaker Change: As it relates to the lines, they're really integral into the operations of the steel mills themselves, so to answer that question is a little bit difficult. Again, I would tell you, as Mark mentioned earlier in Barry, and now I will for a third time, we expect the value add lines to really benefit 2025. So as you think about your modeling, I would add that as an additional benefit for us that's outside of just normal market dynamics. Thanks.
Speaker Change: Great, thanks for that. And I'm sort of the lower carbon items and thanks for providing the color there. It looks like on the bio-carbon projects particularly it looks like it's going to be a few quarters before operation, but what remains to be done before operational start and then I guess when do you plan to introduce internally produced bio-carbon into your steel production flows? Do you have, I mean, is there a need for customer commitments for the products with this bio-carbon, or do you expect the premium for products coming using that product? Let's get started.
Speaker Change: That's a good question.
Speaker Change: I would hope to have a premium but Barry's laughing at me. So the bio-carbon facility teams doing a great job. It's still under construction and again, everything's pointing toward a first quarter 2025 start. We will have that product. It's already been fully tested at each of those steel mills that we'll be receiving it. We don't have enough product to satisfy all the carbon needs at our steel mills, but a majority of it. So we'll start using that. And easing that into the product mix for the steel mills.
Speaker Change: as we enter the first half of next year, as far as whether or not there's premium charge to that product, that's just going to be part of our decarbonization journey. So it's going to be used as a matter of whether it's not for a specific customer necessarily. It will be just part of the normal operating mechanisms for each of the steel mills as a different lower carbon raw materials that substituting for anthracite.
Speaker Change: Yeah, Theresa, I would just add on that, we don't need customer approvals for this product, it's so early in the process that
Speaker Change: that the use of what kind of carbon doesn't factor into what the final steel product will actually how it will perform. And I would think of it as it's not a binary decision or it's one or the other, so the path towards introducing this to the mills will really flow based on how the startup goes and the proximity and how the teams respond to it. The trials that have been done have been very successful through the AMIUM pilot facility. So we have a good working knowledge going into this and the mill shop teams are regularly meeting with the bio-carbon team and we're excited about it, it's a beautiful plant down
Speaker Change: Thanks for entry, so appreciate it.
Speaker Change: Your next question is coming from Andrew Jones with UBS. Please push your question. Your line is life.
Andrew Jones: Hi, I did a thanks for the opportunity. Just on the mark in Surgery 5 and when we hear the comments we've made on the post about luck and potential for demand to recover. We're just in a more pessimistic scenario where that doesn't happen, Big River 2 starts to come through.
Andrew Jones: Maybe you don't get the same trade protection that you are hoping for, men.
Andrew Jones: What would you consider doing within your portfolio to kind of...
Andrew Jones: Do your best to help to...
Andrew Jones: Bounce the market, then would it change your production plans in any way or would you be an active participant trying to write the market or do you see as I was just a low-cost producer and you can essentially take care and expect others to potentially drop out of the higher end because how do you look at 20-25 in that more pessimistic scenario?
Speaker Change: Well, we'll drive that.
Speaker Change: and our customer base in general, our customer base is very, very positive for 25. You should have a lower interest rate environment, that will kick start, non-residential construction, new millennium right now, the order book, the order, the engineering, the whole flow of things is strong, it just needs a slightly lower interest rate environment. For those developers to push buttons and move forward. So again, just want to emphasize, we're constructive on the marketplace.
Speaker Change: Just in general, and it's not a matter of 2025 or it's just a matter of any market cycle. We will produce to what our customer base requires quite simply.
Speaker Change: Okay, I don't know if I can't just, uh, this is...
Speaker Change: and I think one half of the recognised.
Speaker Change: Part of the, uh, I hope business model.
Speaker Change: It revolves around just that.
Speaker Change: We recognize that the market is all sick of coal in our business.
Speaker Change: So over the years since the very beginning, 30 years ago, we have always focused on a very diverse product, that product mix is a value and a very diverse across actual products, but also also markets.
Speaker Change: Adelaide's huge flexibility as Mark had said in flow.
Speaker Change: A very, very strong part of our strategy has always also been the Pulse Revolume. So if you look today, you know, New Millennium, they consume about 600,000 tons, I think, while they're about last year, maybe a little bit more of the products that we make. The conversion facilities at Hartland, you know, they've got...
Speaker Change: roughly 800,000 ton of capability. You have the tax, they have about 800,000 ton capability. So in all internal sort of substrate requirements is well over 2 million tons.
Speaker Change: We supply some of that internally, but Barry and his team also procure a lot in the marketplace. So we're actually one of the strangely, and a lot of people don't recognize it, but we're one of the largest buyers of sheet products in the US today. That pull through volume can flex.
Speaker Change: So if you look at our utilization rates, through cycle.
Speaker Change: Those are the utilization rates that always superior to any of our peers because of the value add type of product mix and also the pulse through volume that we have internally. So even if it does come off a little bit, you will see that we retain our strong cash through cycle of cash generation capability without that.
Speaker Change: Okay, all right, but no major closures of higher cost lines of all the lines or any sort of...
Speaker Change: The reaction to the millions of energy displacing.
Speaker Change: All right, I didn't hear that. That's okay, you would say no. No. No. Yeah, no, okay. Cool, okay, no worries, thank you.
Speaker Change: Once again, if you do have any remaining questions or comments, please press star 1 on your phone at this time.
Speaker Change: Here next question is coming from John Tumazos, which John Tumazos independent reads.
Speaker Change: please post your question in your life as life.
John Tumazos: Thank you for taking my question.
John Tumazos: Looking out a couple of years.
John Tumazos: which sector do you think are most fertile?
John Tumazos: for the next big investment.
Speaker Change: This year, U.S. women demand is trending up 5%.
Speaker Change: Steel has been now.
Speaker Change: Down in the Pentagon, 5 out of 6 years now.
Speaker Change: Lots of companies have built a lot of steel capacity.
Speaker Change: and we expect it.
Speaker Change: Aluminum or recycling or some other new area.
Speaker Change: is the candidate for the next big project in 2026 or 7 or 8.
Speaker Change: Well, firstly, John, we will always take your questions up.
Speaker Change: and they look across the portfolio. We're not strong.
Speaker Change: Strong on the recycle markets, just in general, where there are regional focused opportunities to vulcanize our supply chains, we certainly will anticipate that, or look at that. But I think we have a good recycle platform. You will see us grow here and there to expand our aluminum supply chain. But that's...
Speaker Change: Will it won't be meaningful dollars to do that.
Speaker Change: on the steel side, I think you're correct, you know, I don't see the opportunity necessarily for, you know, another 3 million ton of you, the green field side, but we're not the...
Speaker Change: Well, not as you know, we're not in business just to grow big for the sake of it. We want to differentiate our value chain.
Speaker Change: Always, or always sort of diversify.
Speaker Change: that the team has identified several value ad opportunities, products that we don't make today.
Speaker Change: and those are sort of percolating in the background and you'll see over time us continuing to level those high value products.
Speaker Change: Aluminum is obviously new to us. We want to walk before we run, get the first mill up. But there's no doubt the volume growth in aluminum going forward will be much stronger than steel.
Speaker Change: and it gives rise to the opportunity there.
Speaker Change: As you've seen our strategy in the past and steel, you know, the move down downstream again into value add the products in aluminum, capitalise on our pre-paint expertise. I think you will see that also.
Speaker Change: That concludes our question and answer session. I would like to turn the call back over to Mr. Millett for any closing remarks.
Mr. Millett: We're super, well for any of our employees and our teams out there that are still on the call. Thank you, thank you for what you do. You're an incredible and incredible team doing incredible things.
Mr. Millett: We can't do what we do without a loyal customer base and again, thank you, thank you for your support over the years. We will continue to try and bring value and create value for you.
Mr. Millett: Shareholder that they're on the line that on us, thank you. Those investors that don't on us, all I can say is you should. So from SDI and every employee, thank you for all those that support us. Have a great, great day and be safe.
Speaker Change: Once again, ladies and gentlemen, that concludes today's conference call. Thank you for your participation and have a great day.
Speaker Change: You You You You You