Q2 2019 Earnings Call
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Thanks, <unk>. Thanks, everyone have your first and last name please.
Kevin Laflam K E V I and.
L.A.F.L.A.M.M.E.
Thank you company name.
Era A.I.E. our AG.
Hi perfectly moment.
Hi.
[noise].
Subject to a number of risks and uncertainties as described in rest of SEC filings and actual future results may vary materially.
Forward looking statements in the press release that we issued yesterday.
Along with our remarks today are made as of today and we undertake no duty to update them as actual events unfold.
I would now like to turn the conference call over to US steel President and CEO , Dave Burritt, who will begin today's presentation on slide four.
Thank you Kevin.
Good morning, everyone and thank you for your interest in Us steel.
The market has been challenging over the past few months, we have made a lot of progress since our last call we are executing better.
So today, we will focus our discussion on execution.
We are playing offense and we are stronger.
More competitive.
We are turning strategy into action and creating value for stockholders customers employees and the stakeholders that depend upon our success.
We believe execution of our strategic investments quarter by quarter year by year is the key to our success.
This is hard work, but I grow more confident in our future each day.
Sure what today's highlights.
We delivered $278 million of adjusted EBITDA in the second quarter.
In the flat rolled segment, we delivered for our customers and overcame significant weather related logistic challenges at the end of the quarter.
We also announced adjustments to our blast furnace footprint.
Our supply is more balanced and we are better positioned to serve customers and optimized value.
There will be a lagging effect on pricing in the third quarter, but we are beginning to see signs of a rebound.
Market challenges continue in Europe , and we don't see that dynamic changing soon.
We made the decision to also adjust our blast furnace footprint in Europe in response to the continued market weakness.
Our European business remains a through cycle strength.
And we are investing in it.
In tubular spending was up as we expected for our Lone Star number one mill restart and continued progress on our electric arc furnace construction.
Moving to our execution update.
We completed planned outages on time and on budget.
We advanced strategic projects on time and on budget with annual EBITDA benefits of nearly $400 million over the next three to four years and we are adding best capabilities not capacity with many options available to fund strategic execution.
A lot has happened since our last call, but the actions. We are taking are the right ones. We are demonstrating the operational agility required to be successful in these ever changing market dynamics.
While we have seen market challenges persist we are focus on what we control and are adapting to market opportunities and challenges for sure we have work to do.
Our goal remains the same.
Execute the strategy and deliver long term value for our stockholders.
Let me be clear our critical assets are better and performing at improved levels through June 32019, because of asset revitalization.
We're playing offense and have delivered on every asset revitalization target.
For EBITDA for Capex for reliability for quality.
Turning to page five.
We continue to complete projects across the footprint today, we will focus on three key elements of execution.
One improve reliability to execute planned outages three reduce capital intensity.
Before we get to the details of each element, let us give you context on our broader engineering and capital project execution.
So far this year, we have spent approximately $320 million of capital on 67 projects, including approximately $130 million on asset revitalization capital.
Again, these projects advanced operational excellence expanded capabilities and improved reliability and quality and delivery.
The team continues to execute delivering projects on time and on budget.
These are significant projects on key strategic assets focused on improving reliability to generate throughput and efficiency benefits.
For example.
Caster upgrades at Gary works.
Finishing mill standard motor upgrades at our Gary works Hot strip mill, and blast furnace and steel shop enhancements at our Mon Valley works.
At the Mon Valley, we executed a major planned outage in the second quarter investing $115 million as we take big steps toward making Mon valley the best.
Low cost high Tech mill.
The project was on time and on budget with the investment made at the steel shop completed one week ahead of schedule.
This outage included major enhancements at the number three blast furnace and have good replacement at one of our BOP vessels.
We are spending on these investments to secure the Mon valley its low cost liquid steel position as we transition to best state of the art endless casting and rolling over the next four years.
This is our strategy in action.
Compliant combine our competitive advantages of low cost liquid steel at the Mon valley achieve through our fully integrated mining and Cokemaking with state of the art sustainable steel technology required to achieve differentiation in some of our most strategic end markets.
Most importantly, we did all of this work without any lost time incidents with US safety is first.
That is 600000 hours of work without any lost time, our employees are conscientious and continue to set all time safety Records.
It's a privilege to be on their team.
Special Thank you to the Mon Valley team for their impressive execution on this critically important strategic projects not only to the Pittsburgh community, but also to use steel's future.
Projects, just like these make us more competitive today and secure our long term future.
Our assets are more competitive our assets are more reliable and we are delivering for our customers.
As we complete this important work, we believe we will optimize the future investment.
In our facilities.
We have been purposeful and the investments we have made across the enterprise and are now better positioned to adjust our spending as we recognize the benefits of our investments.
Let's turn to slide six.
We expect improvements in reliability will generate throughput and efficiency benefits, while strengthening our ability to serve our customers, we have reduced unplanned downtime and gain the equivalent of one and a half months of production I will say that again, we reduce unplanned downtime, one and a half months or more than 12% improvement of additional production are running are constrained assets more reliably.
This improved utilization increased our earnings power.
Equally as important we will be better positioned to serve our customers, enabling better delivery performance better quality and better customer satisfaction.
This increased utilization as valuable as overtime it falls to the bottom line as a proof point, let's turn to page seven where we will take a closer look at the Mon Valley steel shop.
Strong execution of planned outages positions us to extract value.
From investments at the Mon Valley, where we have 85% of our asset revitalization work completed.
Our upgraded blast furnaces and steel shop will be critical to providing high quality low cost liquid steel for our future endless casting and rolling investment.
We are seeing real improvement.
Roughly 200000 tons of additional throughput.
Due primarily to improved reliability from the hood replacements at each of the vessels.
To complete these replacements, we took additional planned outage days in the second quarter, which more than offset the reliability improvements, we expect to generate on a run rate basis.
Now that the work has been completed we expect the run rate reliability improvements to generate 200000 incremental tons. Another proof point of execution is a suite of initiatives, we have undertaken at Gary blast furnace number 14.
Let's turn to page eight where we will review these improvements in more detail.
During the first half of 2019, we've executed critical investments at the number 14 blast furnace the largest blast furnace within our footprint.
These investments allow us to provide fuel sourcing flexibility to optimize fuel rates when the full scope of work is completed later this year, we will be able to pivot between fuel sources to improve our blast furnace cost structure.
These investments are increasing our competitiveness and improving our operational performance.
The investments, we are making across our entire footprint have been purposeful and targeted and we are strengthening the foundation of our operations.
Going forward, we expect to adjust our capital investments and generate better cash flow. Once these strategic investments are completed we expect to preserve the operational benefits generated from these investments while consuming less capital to deliver strong free cash flow.
Page nine provides an overview of this opportunity.
A $600 million improvement post strategic investments.
Post investment horizon, we expect to optimize the levels of sustaining and maintenance and outage spend across our footprint.
As I mentioned, we have deliberately been spending more across our footprint to derive significant improvements in operational performance.
We have and are investing in key competitive advantages, including lowest cost taconite mines in North America.
Best and largest coke, making facility in North America.
Technologically advanced Eas in the tubular business.
Market, leading electrical steel mill in Europe .
One of the best Hot strip Mill is making heavy gauge steel at Gary works and of course, the state of the art endless casting and Rolling mill, making sinned gauge steel at Mon Valley works that complements our X gene three advanced high strength steel investment at our pro Tec JV.
Between both sustaining capex.
And maintenance and outage expense, we are currently spending approximately $2.5 billion annually.
In the future, we see an opportunity to adapt our spend to $1.9 billion, a $600 million cash impact versus today's levels.
Turning to slide 10.
We are executing our strategic investments in line with our expectations.
Let's review three technology investments, starting with the Mon Valley endless casting enrolling investment.
We are combining the best of both integrated Mills and mini mills with this investment.
Our integrated mill gives us high quality low cost steelmaking and the mini mill technology will give us industry, leading casting and rolling.
We are also building a state of the art cogeneration facility at our Clairton plant.
The facility will convert coke oven gas to electricity and steam delivering not only significant environmental improvements for the community, but also efficient internally generated energy to our mill.
When completed this $1.2 billion investment at the Mon Valley should deliver run rate EBITDA benefits of $275 million.
The second technology investment is our tubular segment.
We are building a new state of the art electric arc furnace at our Fairfield, Alabama Mill.
To insource rounds production for our seamless mills, we expect $80 million of annualized run rate benefits by 2021 from this $280 million capital investment to complete the electric arc furnace.
Our third technology investment isn't electrics electrical steel line at our European business.
This $130 million capital investment should deliver annualized run rate EBITDA benefits of $35 million.
These three projects represent $390 million of expected run rate EBITDA growth.
Slide 11 illustrates the balance stream of technology enabled EBITDA benefits expected from these three investments no one benefit stream contributes more than 50% of the value.
Capability enhancement provides a $180 million and cost improvement provides a $170 million of the total $390 million benefit.
Our best State of the Art Mon Valley endless casting enrolling investment benefits are multifaceted and include.
Benefits from the increased capability to serve new markets, including the advanced high strength steel market.
Structural cost improvement from lower conversion costs, and lower sustaining capital and energy efficiencies from the cogeneration facility.
The benefits from our tubular.
Yes, our solely driven by in sourcing our round supply this significantly de risks.
The benefit realization our electrical steel line benefits have also been significantly de risks we entered into a customer partnership agreement with a large multinational customer for almost half of the tons available from the planned line.
Now I'll turn it over to Kevin to talk about our financial strategy to fund these investments.
Thanks, David Good morning, everyone. We thought it'd be helpful to give some additional insight on the financing alternatives, we're considering for these projects.
The funding scenario shown on slide 12 provides an example of how this should play out.
Starting from the bottom we expect to fund roughly 300 million with environmental revenue bonds. The majority of this capital is associated with the Fairfield, Alabama, EA App installation.
We are anticipating a 30 year term on this capital at an attractive coupon.
The next source also approximately $300 million.
As for vendors supported financing.
This is primarily for the equipment portion of the Mon Valley project.
The structure of this financing allows us to draw down as needed to match cash requirements and avoid negative carry.
We can also turn this structure out for up to eight years from the completion of the project.
Then we have our European revolver to draw on this facility is extremely efficient with a variable rate of euro LIBOR, plus 1.7% and as zero percent floor.
Our Dynamo line construction will have first access to this capital.
For the next stores, we're planning to upsize, our us Abdel and partially drawn the facility.
This is also an attractive source of capital that we will utilize while maintaining strong enterprise liquidity.
As the chart indicates we can also opportunistically access the high yield market as an additional source of financing.
We have a lot of flexibility on timing as the majority of these investments is spread out over the next two and a half years.
The blended rate on these five funding options would be approximately 6% based on today's index, where the variable rate components.
Before I turn it back to Dave Let's recap some of Q2 highlights on slide 13, and I'll also provide some context on Q3.
We ended the quarter with total adjusted EBITDA of $278 million, a stronger close to the quarter than we anticipated.
Our flat rolled segment results were higher than the first quarter due in part to the seasonal impact of higher third party pellet sales.
Higher strong shipment volumes on the commercial side and lower scrap and natural gas prices on the cost side.
This was partially offset by lower average selling prices as the spot market declined $70 per net ton in the quarter.
We were able to overcome some weather related shipping issues mentioned in our guidance press release to deliver better than expected results. Our team did an impressive job to arrange alternative shipping options and meet customer needs.
Operationally, we performed well running our assets effectively while taking increased outages as part of our planned asset revitalization work.
Currently we are seeing a pickup in order entry rates. However, the third quarter flat rolled selling prices will be negatively impacted as roughly 60% of our book of business is impacted by the significant drop in market prices, we experienced in Q2.
European market continues to be challenged.
Heading into the seasonally weak third quarter.
The dynamic between steel selling prices and raw material costs remains disjointed.
We can market demand coupled with continued high levels of imports are pressuring steel selling prices. Meanwhile, supply constraints keep iron ore prices at elevated levels.
Given the seasonal slowdown combined with these market headwinds, we believe Q3 results will be below the second quarter for Europe .
Our tubular segment experienced commercial challenges and investment related spending offset by lower substrate costs.
We restarted our number one welded pipe mill in June and the construction on our Iot continues as planned.
With that I will turn it back to Dave.
Thank you Kevin before we turn to Q on a let me take a moment to recap this morning's presentation on slide 14, first and foremost we are focused on what we control and are pleased with the execution in the quarter, we delivered second quarter adjusted EBITDA above our own expectations and continued to make progress on the execution of our strategy.
But there are challenges.
We will keep the business nimble, we will continue to demonstrate discipline and matching our supply with our order book and.
We will continue our focus on cash and maintaining the financial flexibility, we need to execute our long term strategy cash is king and we don't forget that.
We'll stay liquid Kevin lets move to Q and a.
Thank you Dave.
Operator can you please queue the line for questions.
Certainly thank you if you relate to register a question. Please press the one followed by the four on your telephone you will hear three tone prompt to acknowledge a request. If your question has been answered any relate to let's try registration. Please press. The one followed by the three again to register for a question. Please press. The one followed by the four one moment for the first question.
And it comes from the line of Chris Terry with Deutsche Bank. Please proceed with your question.
Hi, good morning, good morning, guys.
Few questions from me, maybe just starting with with working capital for the quarter on a $140 million I'm just wondering whether you could comment on the rest of the year the outlook for working capital. Thanks.
Yes. So we were happy this Kevin Bradley, we're happy with the progress we made in Q2.
Eating into the negative.
Working capital impact in Q1, we typically consume capital.
In Q1, that's a seasonal thing.
What we're looking to do is over the remainder of the year.
Make up the rest of that and turn positive working capital. We've got a lot of work to do but for the full year. We think we can make up the rest of that deficit and have a positive number.
By year end.
Okay. Thanks, and then just in terms of the the ongoing that you started in the quarter. Just wondering whether you could comment on the cost to auto versus the operational savings you expect thanks.
Yeah, Chris This is Kevin Lewis, we probably won't get into the details on the idling costs that we incur.
But what I will say and to provide some context. This is certainly an enterprise.
Decision.
So we are certainly take into consideration the idling costs, but we believe that the.
Benefits more than offset that so we will continue to analyze and evaluate the market will continue to analyze our order book and our footprint and the impacts our decisions have on our profitability. This year and we will make the decision most optimal for the business.
Okay. Thanks, and then the last one from me its slide 24 in the presentation on looking at the 1.6 billion of capital needs, where you split up with the way that Youll Finance finance business.
Just wondering if you can comment a little bit on expected cash generation over that time, Youve oversea allocated all the capital buckets.
Through other means of an actual cash of the business. So just wondering your thoughts on what your generate and then also given the capital needs in front of you just wondering whether you could comment on the $70 million shares you repurchased in the first half of the year and why that's down when the when you made the capital for for these projects. Thanks.
Okay I'll take that.
No, we're not going to comment on free cash flow expectations, clearly, we're going to be an investment mode. Here for the next couple of years.
And that's going to put some pressure on free cash flow both as as you guys noted the balance sheet is in a great position to handle that but we're not going to kind of forecast EBITDA.
But over the long term.
Your comment on the.
On the share repurchase read we announced that program $300 million over a two year period, you can see now through June on the first seven months of the program. We have extinguished about half of that so we're pleased with our utilization of the share repurchase program. However, as we get into this in this mode of an investment.
We're pretty excited about the return prospects, obviously as we were looking at what's going on in the market and within the company and you can expect us to pace the level of.
Of share buybacks that you've been seeing over the last couple of quarters. So you can expect a slowdown in the utilization of the program for a while as we kind of move into full on high return investment mode.
And the next question comes line of Karl Blunden with Goldman Sachs. Please proceed with your question.
Hi, Good morning, guys. Thanks for taking the question.
Just with regard to the financing for the investments that you've outlined on the slide it's very helpful. Slide I think it.
That helps us understand that the range of sources that you have.
I guess two questions related to that if there are cash flow shortfalls.
Is the does the plus there on the high yield market imply that thats, where it will be made up.
And then as you think about timing.
Looks like the hail market's been by far the most volatile of all of these sources of financing. So how do you think about market risk with the high yield market being relatively stable right now potentially.
Prefunding that and leaving some of the more stable sources for for another time.
Thanks, Carl I appreciate the question Yeah, Yeah, the high yield piece being higher we're pretty pleased with the way. Our you know our bonds have been trading in an improved fashion, certainly not where we want them to be but the healing has been occurring over the last several weeks as you point out we're hoping that that continues can high yield portion be higher absolutely.
But we've got to 1.5 billion dollar HDL the amount that we're comfortable drawing down on that could also be higher than what's indicated on that page. So I would say those are probably the two big toggle points, depending on what's happening with cash flow a little more into the deal or a little bit higher on the on the high yield or both.
Got you. Thanks, then.
It's probably a small one but yeah. The results actually came in quite well relative to your Preannouncement, where there are a couple of factors there or just maybe some information wasn't a available at the time of the pre announcement just in terms of the report EBITDA versus the guide.
Yeah, there were a few things that impact it but the anchor tenant in the in the B versus our guidance was we were looking at the flooding situation that was that was happening in our ability to get shipments out to key customers.
The team as I mentioned in my opening remarks did a pretty good job of of kind of toggling between different shipping.
Alternatives and getting much more out than we expected in those last couple of weeks to some pretty important customer. So it was actually increased ship in shipping at pretty good bcms.
That drove a good percentage of of that.
Upside versus the guide we are frankly, we were impressed with the team to the logistics teams at our plants and at corporate works, so well together that they exceeded all of our expectations and we are delighted that you're able to get that that volume out the door. When we didnt think it was possible.
And our next question comes line of Dave Gagliano with BMO. Please proceed with a question.
Okay. Thanks, So I'm just a.
You keep people on the same line of questioning on the on the financing side it.
And I think you may have kind of covered it off but just to address it a little more directly it looks like.
You know what our numbers, we have a about a two and a half billion dollar cash burn between now and 2022, we've got some.
Somewhat optimistic price assumptions embedded in those numbers so.
Obviously, you mentioned the.
You know the debt side and then the potential upsize.
As well is equity also being considered as an alternative.
<unk> <unk>, India, and we'll consider all alternatives, we're not seeing that it's necessary option for us through this investment period.
You know we're in really good shape coming into this we came into 2019 with probably the best balance sheet. We've had in 10 years, we've managed our liquidity our maturity profile extremely well. So we're sitting in a really good position as we start this investment period.
Clearly, we're going to be prudent we're going to be disciplined in how we approach. This we're gonna be acutely aware of what's happening within our business and across the industry to make sure that we never put this company in harms way, but I am I got to say, where we've got a lot of confidence here in our ability to execute on this this funding approach and we've got time on our side work. We are aware of the market risks and we're going to manage those appropriately, but we're feeling really good in our ability to execute this without equity and let me just add to that I do think we've done a.
Commendable job on cash over the last few years and we have a balance sheet, where we don't have the significant debt due until 2025 and Meanwhile, we have.
A very disciplined.
Process for managing cash and actually rewarding people up and down the.
The company.
Based upon cash conversion cycle time, so people can feel the pulse of cash in their pocket book and so frankly this is a weekly process. They gets cascaded through the organization from our CFO and supply chain leaders, so that everybody from the top of the company.
Through that the operational side of the business understands that cash is king and I think thats reflected in and how.
We've been able to demonstrate a superior cash conversion cycle time over the last few years.
Okay. That's helpful. Thank you and then just as a follow up switching gears to the near term. Thank you for the near term market color as well.
In terms of other drivers in the second half.
Can you can you just give us a little color on on things like outage costs. I think there were about in total across the company about $50 million or something like that across three segments.
What should we assume for outage costs in the third quarter fourth quarter and any other.
Major pluses or minuses.
Yes, David This is Kevin Lewis, So I think the second quarter was clearly a really important quarter for us related to planned outages in asset revitalization work as we look at third quarter, we don't see any outages to it to that magnitude in the third quarter. So I would expect.
Outage costs to be an opportunity in the third quarter.
And for and for the rest of the year. So I think most of the work behind US second quarter is really really important quarter for us and we execute extremely well.
And our next question comes line of Timna Tanners with Bank of America Merrill Lynch. Please proceed with your question.
Yes, Hey, good morning Happy Friday.
I want to follow up on the cask questions. The cash position was the lowest that I saw it in.
Since Q4 of 2013.
Is there a minimum level that you you know demand its four or can you talk to that a little bit just on the balance sheet.
And then.
If I could also I wanted to hear a little bit more about the clerical situation. Given there was another fire and you put out a release, we haven't really heard from you on that topic.
Is this is this behind US now is as well the payments suffice all of the concerns from the air quality management district are there other potential liabilities related to that.
And I'll start with the cash we're we're looking to maintain a minimum cash balance over half a billion dollars through the investment period.
As well as a minimum of a b L access of $1 billion and as of now we're also looking to retain.
Or secured.
Secured financing capacity and right now that's sits at about 1.2 billion I'm. So we're that's that's kind of how we're looking at a liquidity and capacity and.
And secured capacity through the investment period as of now.
Okay.
Regarding clarity there. This was another these multi part question. So the second part of your question I believe was related to Clarington.
On June 17th.
We had this.
Very small electrical disruption.
That.
The impact of the Desulphurization process, we had full restoration of the desulphurization process within the day with.
On any exceedances recorded by the ambient air monitors that day, so basically even on the the worst day, we were in compliance there was no material financial impact from this intra day event.
And.
The facility is running exceptionally well.
Of course, we do have pending litigation and you know we don't comment on any litigation.
And the next question comes from Matt Fields with Bank of America Merrill Lynch. Please proceed with your question.
Hi, everyone.
Thanks for the clarity on the on the funding and financing questions I want to I don't want to beat a dead horse, but I'm going there too.
The slide on.
Page 24 that shows the investments by years very helpful. But I was hoping to get like a more holistic picture of your cash needs for that time period.
I know, there's still about a billion left on the asset revitalization program between 19 and 20.
200 that you won't have to spend a claritin as part of the agreement with the Health Department.
And then sustaining capex, which would be about 875 per year based on slide 21.
Before the investments are done so can we can we get a maybe a breakdown of your sort of total capex and investment needs for for those 19 2021 buckets.
Yeah.
I don't think we're going to give that and that we're not going to forecast out of all the specifics of a capex and cash flow. Obviously it will depend on what the market gives brings us in terms of pricing and EBITDA potential so.
We're going to stay away from that for now.
It is a general kind of amounts that I mentioned sort of about right. If you know they might be up or down in any given year, but are those the right way to sort of aggregate buckets, the right way to think about it.
I think I think your outline is fair, obviously, we're going to be.
We continue with our revitalization is planned and.
And complete the strategic projects so.
The mathematical walk I think is Directionally correct I think an important point here is all these things is we need to be nimble, we need to adapt and we're going to make sure that we made it manage the cash needs to ensure that we execute these strategic projects and secure this long term future. It's really important that we continue to focus on cash and I think we've demonstrated that we can manage this well and frankly, we're going to we're going to spend some money from their time in order to get the kind of returns that our stockholders deserve.
Okay, great. Thank you and if I can ask a follow up in Europe , you mentioned that that threeq will be kind of below twoq.
Are you getting hit on carbon pricing in that market are you sort of getting a step down in free carbon credits.
Is that is that leading to part of that.
Yeah, I think that's fair certainly carbon cost out C. O two credits have become more expensive and there's certainly a headwind.
Oh in the second quarter is expected to continue throughout the rest of the year certainly the raw materials dynamics that are occurring in Europe .
In the dislocation on steel prices as another is another headwind.
Given the kind of the important high levels of imports that continue to occur. So multiple moving pieces carbon is definitely one of them. In addition to the kind of the steel price steel pricing levels as well as the continued raw material challenges.
And the next question kind of sign of John Tumazos with John Tim It sounds very independent research. Please proceed with your question.
Thank you for taking my questions concerning the.
Tubular melt shop your building.
Do you have a electrode contract can supply lined up first.
Do you intend to be selling swaps with a melt capacity I guess 1.6 million tons more than.
Yeah.
Shameless smell capacity and third what grades of scrap, which you or <unk> or pig iron would you be buying.
For a seamless production.
Oh as opposed to a carbon swab third party sales excuse me just for the other analysts.
Clinton is where the stars of the Deer Hunter movie in 1977 more from EUR, one the Pennsylvania State Championship four years in a row tie were Boyd of the Bengals went declared in high school and pit.
Clara 10 is an over the counter pharmaceutical excuse me.
Okay, well there is a lot and all of that man. So thanks for the history lesson too.
Hi, Jim I'll turn it to Kevin here, just gentlemen, I was actually there are a couple of weeks ago and I can tell you the execution on the.
Electric arc furnace is going very well well I can tell you. The group down there is incredibly energized again were focusing on on time on budget and delivering the value that.
We must deliver here, Kevin as far as the the other question you take those are yeah sure like three or four yeah, no one's makes it a little tough so I think on the procurement side I think the team is well positioned to make sure that we have all all procurement.
Items lined up and ready to go the project management team continues to to be on track. So I think we're in good shape there from a slabs perspective, and as we've talked about before were really not.
Looking to for slab production as a way to justify this investment does not currently in the business case. We're currently focused solely on on on rounds production construction of the App as well as enhancements to the rounds caster. So are the in sourcing of rounds continues to be a the anchor tenant the business case, and that's how we see us using and leveraging that asset on a go forward basis.
And as a reminder to register for a question. Please press the one followed by the four on your telephone and our next question comes line of Nick Jarmoszuk with Stifel. Please proceed with your question.
Hi, good morning.
Back to the capital raise questions. So with the five debt buckets that you presented on slide 12, how do you think about which are the $1st coming in and which would be the last dollars you'd be raising.
I think the environmental bonds given the project is underway is probably something we would do.
Then in the early stages.
I would also you know as as we move forward in the Mon Valley I think will be.
Looking at the vendor supported financing as well.
The ABL upsizing can happen or not.
Pretty much at any time, so I'd say those are probably the three on the front end.
But.
You know again, the the high yield component, we're just looking to be opportunistic that will be a a chunk of it but we've got some time, we think the healing.
And that market has been positive, but we'd like a little bit more before we can do it to commit to something on that on that shrunk.
Now if I interpreted your answer to one of the earlier questions correctly. It sounds like you would only issue unsecured debt because you want to keep the billing and to have secured issuance always available is that is that accurate.
Yeah, I mean, thats, our preference I mean, we're not ruling out secured.
But we'd like to keep that a that secured capacity, we see that as an important part of our risk mitigation. So we'd like to keep as much of that 1.2 billion available as possible, but not ruling out secured debt as an option to fund this to be really clear on this we we think we have the we know we have the type of flexibility that to run this business well with these strategic investments, but we will pace things appropriately. If we can move faster because the business is healthier will move faster if we need to pull back a little bit we'll do that as well, we're going to adapt and be nimble to whatever comes our way because we've got to get these things done and so far im really encouraged with the execution capability that the team showing on the project. So.
We have the flexible balance sheet much more than in the past so yeah, we're going to get it done.
Okay, and then last question on the idled blast furnaces, how long would you keep those on the maintenance before you would look to make a final decision as to whether you would permanently decommission them.
Well you get with all these things we always start with the customer right. We have to understand what the customer needs are with the order book.
And we want to make sure that were.
Able to sell the value and create the value for our stockholders Arena again. This is that the appropriate pace at the appropriate time.
And won't we'll make sure that we manage that well.
Well, let let's assume that we stay in this sort of 600 600 dollar HRC environment.
I I can't imagine that you would.
Bring them back online so if we stay in the 600 Zip code.
Would you go two years three years before you make a final decision and ultimately I think there'll be a positive for the market. Because then there is not going to be this ongoing threat of having two blast furnaces coming back on line and flooding the market.
I would say what we're looking for it and what really influences our decision making is sustainable improvements in market conditions that have a positive impact on our order book. So we will continue to assess the market the sustainability of improvements and as Dave mentioned, we always make decision. It's in the best interest of the enterprise and the one that allows us to service our customers with the highest levels.
And our next question comes line of percussion MS right, That's fair and Burke. Please proceed with your question.
Thank you. Thank you for taking my question can you talk about what are you seeing in the U.S. domestic market and they have been pre price increase announced what's been the customer response, what how long of a customer inventories and then any other color on different end markets, which markets are strong which are week. Thank you.
Yes, sure. So I think it's clear to everybody certainly if you look at index prices that we reached a bottom.
In in late June for four weeks of consecutive price increases for C. Are you is certainly a positive indication I'm you know our business is still going to be impact into the third quarter as a as Kevin mentioned in his prepared remarks.
Given the flow through on our adjustable contracts. So we probably still have a little bit of a little bit about market downturn in twoq you, let the yet to feel but indications are positive lead times have extended to over five weeks that is certainly a an encouraging sign.
Market chatter on scrap prices is certainly positive and suggests that the positive momentum is enduring.
And you know market or market demand is generally generally strong. So like I said, we are positive indications of continued a positive momentum.
But we will have a little bit of a flow through through the flat rolled business here into into Threeq you. So hopefully that answers the question.
Yeah. Thank you and just as a follow up on tubular how should we think about cost in Q3.
As lower steel prices will that be it a tailwind next quarter.
Yeah, No I think when we look at the tubular business. We generally generally describe that businesses are relatively stable certainly what you're seeing from an end market perspective is that you know demand has been a little bit soft, but really good fit rig efficiency has certainly been a.
Better so steel demand you know not terrible imports remain at pretty high levels of demand, which is kinda, having some pricing pressure, but we're going to continue obviously with the execution of the A.F. construction, which will have some some cost impacts in the quarter and on a go forward basis, but the tubular business is looking pretty pretty stable as we look ahead.
And Mr. Lewis I will turn the call back over to you for your closing remarks.
All right. Thank you with that I will hand, it over to Dave to conclude today's call.
Thanks, everyone for your interest in US steel love before we sign off I want to reinforce a few key messages.
We are making this business stronger and more competitive.
We are turning our strategy into action by executing to drive capability and cost improvements through investments in technology.
To differentiate in the most strategic markets supported by an asset base that can offer the market with thick and thin gauge products and everything in between.
Did that come to the best of both integrated and mini mill technology.
Leverage the competitive advantages of an integrated steel mill producer producer, while investing in state of the art sustainable steel technology.
Finally to our employees I know I speak for the entire leadership team when I say.
Thank you.
Thank you for your hard work.
Thank you for your commitment to safety and thank you for your focus on protecting our shared environment. We have made great progress in our future is bright.
Now, we'll get back to work.
Thank you that does conclude the call for today, we thank you for your participation and ask that you. Please disconnect your lines have a great day.