Q2 2019 Earnings Call
Thank you for calling it your direct the leader and Investor Relations Conference and webcasting.
And operator will be with you momentarily.
Conference Center could have renamed plays.
My name is Brian Healy.
Why.
Okay.
All right and the company that you're with please.
Oh, My my company, sorry era A.I.U.R.H.
Uh huh.
Okay.
Thanks, I'll put you through to the steel dynamics call.
Uh-huh leaders for operating platforms, including or metals recycling operation.
<unk> Executive Vice President are still operation <unk> Senior Vice President President long products still group.
Barysch Snyder senior Vice President spiral still group for a new file mill in southwest strategy. We have one pushes senior Vice President special projects and make L. Alvarez Senior Vice President Southwest U.S. in Mexico, and four if advocation operations, Jim Anderson vice-president steel fabrication.
Some of today's statement should speak only as of this date, maybe four and looking in perspective typically preceded by believe expect anticipate or worth of similar meetings, they're intended to be protected by the private Securities Litigation Reform Act of 1995 should actually results turn out differently such statements involve risks and uncertainties related to our steel metals recycling and fabrication businesses as well as to general business and economic conditions. Examples of these are described in there and only file the S.P.C. form 10, k. under the heading forward looking statements and respect are found on the internet at W.W.W. Dot F.C.C. Dot Gov, and if applicable in any later actually coupons. Thank you you will also find any reference nine got financial measures reconciled to the most directly comparable got measures and the press release issued yesterday entitled skill dynamics reports second quarter 2019 result.
And now I'm supposed to turn the call over to Mark.
Oh, you're Georgia.
Good morning, everyone.
Welcome to our second quarter 2000 lines, you know new school.
Israel as always we appreciate in value upon with us.
So it's like I actually if you want to for delivering a solid core.
Despite a challenging pricing environment and congratulate them for their continued innovative passionate spirit.
It continues to drive is phenomenal completes ward excellent.
It was gratifying to see all teams continue to break records, creating new products and find new ways to be even more cost efficient and safe.
The book.
Big in the morning, Theresa will provide insights regarding on second quarter results.
Thank you <unk> good morning.
Our second quarter, 2019 that encounter with $194 million or 87 cents per diluted share.
Within our guidance range at 86 to 97.
Second quarter 2019 revenues were $2.8 billion, 10% lower than second quarter 2018 sales in 2% lower than the first quarter sequential result.
As average flat road, we realize steel prices decline.
I second quirky doesn't 19 operating income with $285 million.
43% lower than prior second quarter earnings driven by flat rolled steel and metal margin compression and 2% lower than sequential first quarter results.
Primarily due to lower shipment and product pricing within our long products steel operation.
To take just a moment to levels that our financial results are quite strong, they're just lower relative to our record high 2018 result, and as we discuss their business. This morning, and you'll find we are constructive concerning underlying steel demand and optimistic concerning or unique earnings catlin.
Well there are still operation second quarter shipments increased 3% sequentially to 2.8 million times result of the continued ramp up of our Heartland facility and the recent addition to do nice deal supply.
Our average quarterly realize steel sales price it costs all operations decrease $23 for time to $879 in the second quarter. However, if you exclude are sealed processing location sales.
The average sales price for a steel mills declined $41 for time.
Average scrap costs only decline 22, compressing arceo metal marking.
The result, with second quarter steel operating income of $295 million and although lower than prior your result, historically a very good performance.
I want to take a moment to mention additional information, we provided religion or steel production volumes versus are still processing volume.
It's important to note the changing or steal next from almost purely steel production economics to the higher percentage of steel processing or conversion economics that we have today.
We posted a a second quarter slides back on our website and if he reviews flight eight you'll note that the next shift changes how you should view are still operating costs.
We still maintain the lowest in the most highly variable conversion costs positions and we now have a larger component over costs related to the raw materials deal with inputs to use at our steel processing location.
For example, the costs just feel input with only 10% of our sealed platform cost of goods sold in 2017 and his grown to 16% year to date in 2019 and will likely increase further as we continue to grow volume that goes heartland and United Steel supply.
It's a powerful strategic advantage to have processing capability to sustain higher steel mill utilization during weaker to me and environment.
Create optionality of supply for our customers and allow for value added product outside in all markets.
Moving toward amount of recycling platform second quarter operating income was $11 million or 47% decrease decrease sequentially based on lower fares selling evaluation lower nonferrous shipments.
Index Ferris scrap prices fell almost $90 for gross ton from March to June 2090.
We continue to effectively lover, the strength of earthly connected operating model, which benefits both the steel mills on the scrap operation.
Second clergy got a 19 operating income for our fabrication business improved sequentially to $31 million.
Rubber Lane, a 49% increase in our third best quarterly performance.
Congratulations to the team.
Bernese improve based on strong shipments a measly lower seal input costs.
We continue to see strong ordering quirion customer optimism, coupled with a strong project backlog.
Cash generation continues to be incredibly strong during the second quarter to eat out in 19, we generated $361 million of cash flow from operations.
And $543 million for the first half of 2019.
This incredible performance represents a trailing 12 month, 85% free cash flow conversion rate.
First have 2019 capital investments were $140 million, we estimate second half 2000, nineteensix asset capital investments to be approximately $150 million.
We still have about $80 million to spend on Columbus, just started galvanizing line, which is on schedule to start mid 2020.
We maintained our costs dividend for the second quarter at 24 cents per common share. We also repurchase $93 million over common stocks during the second quarter and $177 million during the first half of the year.
Just over $220 million remains authorized for a purchase at the end of the corridor.
Since June 2006 team, we were purchased 24.3 million shares representing 11% of our outstanding balance.
We believe these actions reflect the strength of our capital structure and liquidity profiles and they continued optimism and confidence in our future.
[noise], we achieved record liquidity of over $2.3 billion at June 30th 2019, representing $1.1 billion in cash and short term investments in $1.2 billion of available funding under our revolving credit facility.
Before I had a call back tomorrow I'll share some updates pertain to the anticipate cash investment timeline for a new southwestern U.S. slot real steel mill to be located in sin taxes.
The total investment is currently expected to be approximately $1.9 billion.
Based on an expanded projects go to accommodate a differentiated 84 inch with an associate coil handing requirement.
We also increase the galvanizing line from 450000 tons to 550000 pounds.
Assuming timely receipt of required environmental and operating permit we expect to begin facility construction early 2020.
Followed by starting operations mid year 2021.
Based on this timeline, we estimate capital outlays to be approximately $275 million in 2019.
A billion dollars in 2020 with remainder in 2021.
In 2019, so far we've spent approximately $30 million.
These arguments do not include state and local incentive benefit.
The strength of our to recycle cost generation, coupled with a strong capital foundation provides meaningful opportunity for growth and continued shareholder distribution through our positive did in profile and share repurchase program.
We're squarely position for the continuation of sustainable optimize the long term value creation.
And lastly for those that track in more detail or <unk>.
During the second quarter, we shipped 856000 tons of hot rolled and you know.
191000 tons of cool room.
And 950000 tons as coded material.
<unk>.
Szuba Lady Teresa.
So it is.
Hello.
Number one value and first priority.
There's nothing more important.
One of the foremost remain significantly better than industry averages is clearly and on or not it was not good enough.
We must all remain vigilant both of working at home.
It'd be continuously aware of my surroundings and those around us.
A challenge all of us to remain focused.
And strive toward our ultimate goal zero in this little.
The publication platform delivered a strong performance.
He was increasing almost 50%.
Despite continued went whether hindering the pace of construction project volumes increase based on a city underlined the mine environment.
[noise] profit margins also expanded his role materials C. labor costs degree <unk>.
Oh, what a backlog remain strong.
It's a slightly ahead of where we were at this time last year.
Cross your backlogs are extending his contract the struggle with the construction labor shortage.
Which should clomazone residential construction site.
The only ones strength for this business and continue to <unk>, So <unk> phenomena residential construction demand well into next year.
For a scrap price in trying to dance recorder with both freiman obsolete describing seems blowing almost $90 for gross tongue in three months.
Metals recycling profitabilitys decreases or as well for the lower fares starting values.
<unk>.
<unk> approaching appears to save lives in July .
Scrapped flows began to slow later in the quarter to manifest by lower procurement routers, thereby reducing dealer on the on him injuries.
An export volumes remain weak.
Although muted we would expect from forming on the front price over the next four to eight weeks by price $20 would talk.
Manufacturing base are still generating an ample supply of French fries.
We anticipate export volumes to remain constraints for the rest of the year.
So this is consistent with our longer term Scranton here the price in New Orleans stable and supportive of healthy steel metal markings into the next year.
Still not home delivered assaulted second quarter performance in a challenging still pricing environment.
Well, we knew scrap environment color would continue to enjoy golfing.
That's a still buying hesitancy throughout the quarter.
Oh really low price indices of 400 cost me $200 per ton since December 2018.
Despite his challenges with the addition of United steel supplying around for the top ones deal.
<unk> volume improves.
The good news is that underlying steel demand has remained in time.
Scrapped prices of study.
<unk> recently soon stabilization and improve the flat road pricing.
Resulting in increased the water activities and improved backlogs across the it's not really a problem like this.
In contrast, structural merchant ball and Reba steel pricing remains pressured from domestic and import.
Competition.
I'm drawing domestic steel demand remains constructed.
And we're seeing continued positive activity across most of us do consuming sexes.
Including automotive construction and industrial customers.
Energy is particularly strong.
And with the necessary drove him transportation pipeline infrastructure for both gas and liquid.
Well remain strong for several years to come.
They believe both the U.S. to Mexico steel consumption will continue to improve in the coming years.
The Mexican girls I pasting them out of the U.S.
Based on meaningful increases in their manufacturing base.
Furthermore, the U.S. trade position should continue to erode imports increased domestic steel content requirements of the anticipated U.S.M.C.A., which has recently been approved by next school and is in the process of approval by Canada.
Should enhance domestic demand them further support industry utilization.
We continue to position still dynamics for the future through optimization of existing operations organic investments and transnational grow.
June 2018, <unk> reinvested and all existing still operations and acquired Apollo.
Oh this year, we also acquired a 75% of controlling interest <unk> United Steel supply.
To further enhance our present supply chain.
You completed a 38 million dollar 200000 ton reborn expansion and I ruin Oaklawn division in the third quarter of 2018.
Becoming the only independent supplier in the area.
In the first half of 2009 to your team achieve close to 75% voting rights capability.
In the first quarter 2019, we also completed a 240000 ton 82 million dollar rebate expansion.
An Australian rail Division.
Round up here, it's been a little slower than anticipated.
But a key piece of equipment is no commission and we expect to achieve a 75% production right later in the second half of 2019.
This expansion includes cuts alliance encode Reebok capability.
Oh, you need revolve supply chain model is expected to meaningfully enhance customer functionality and flexibility.
Providing significant logistics yield and working capital benefits for the customer.
In addition, we will be the largest independent revolve supplier in the Midwest week.
We acquired Harlem mid year, 2018, increasing our front row product by this effect diversification.
Through value added wider and later gave you follow capability.
It's geographic proximity to our existing Midwest flat rule operations.
Also allows for meaningful value creation.
Butler has been enhancements production capability by redirecting lighter gauge orders the Harlan.
Line, but let's increase more value added production.
In fact live in setting production records on all the coding times, even after 25 years of continued growth.
It's a tribute to their innovative passionate spirit.
And I congratulate both teams for the continued commitment and never failing the can do attitude.
We plan to reach approximately 70% of the planned 800000 ton runrate for Harlan.
In the second half of 2019.
In today's an I.D. and we also know further growth from Columbus front Little Division.
And the last two years Columbus is transformed its product offerings through the addition of a paint line.
And the introduction of more complex grades it's not real steel.
But I version of products. These diversified value added <unk> reduce the volume of existing products available to our current galvanized steel customers.
To address the associated lack of sufficient galvanizing capacity.
<unk>. The addition of a third galvanizing line at Columbus.
140 million dollar investment is another step further value added diversifications, Columbus, unless hot real cold exposure.
The 400000 son line is planned to begin operating mid year 220 20.
Additionally, when asked a 90 million dollar investment at Columbus to further increase the range of complex grade capabilities include in advance hi strength steels for both the automotive and energy sectors.
These upgrades will be completed by the end of 2020.
And I read it these upgrades will reduce the availability of about 400000 tons of non coated not real steel.
That we currently supplying the southern U.S., whether you're 2021.
This advantage tastelessly coincides with the timeframe, it's time to begin operating a brand new flat roads steel mill.
It should be on immediate help for volume loading the new mail.
I can see.
Continue to be increasingly excited about expansive opportunities and long term value creation of Los Angeles U.S. in Mexico growth strategy will provide student on it.
Each of our operating platforms I'm, an existing presence in the region today.
But we were on the news and planning to meaningfully expand our influence in the region.
The plan construction of a new front rows steel mill suit a significant part of that plan.
The facility is designed to have an annual production capacity of 3 million times.
Mmm include a 550000, some galvanizing line and a 250000, it's on the same line.
Gobbled them capability.
We estimate the investments to be approximately $1.9 billion.
We've entered into equipment supply agreements and mostly autumns, but estimates being the primary supplier.
The new mill will have capabilities beyond existing electric off when it's flat prosumer juices.
Computing, even more effectively with the integrated steel model foreign competition.
I mean, it took a calf section and more conventional two stage pot roaming process.
<unk> mechanical roaming.
The middle capability will provide highest right tougher grades for the energy and automotive market.
The middle of the cables 84 inch wide, one or 600, K.S. 900 coil.
The capability essentially unavailable in the U.S. today.
Well the more heavier <unk> size will provide energy fight reduces intrinsic costing you'll save it.
Configuration would also allows to ship someplace products on a on a limited basis.
Hmm dentistry evaluated capabilities will include as I said galvanizing and pre thing.
To be clear.
We're not just adding production capacity.
We have a differentiated product portfolio.
We will have a significant geographic freight and leave time advantage.
When we have targeted customer markets.
As you saw.
<unk> happy and excited to announce an email would be located in the sense in Texas.
The <unk> the Corpus Christi, the geographic location as numerous significant competitive advantages to almost any side along the Gulf coast.
When considering geographic market position.
How on freight benefits.
And what became increasingly significant and it's like sewage water availability and constructability.
The people in the system to have been very log domain and we thank them for their partnership and shared vision for their strategic investment.
Sicknesses competitive advantage lies in the Simpson location in central to our target customer them off at regions.
Since the last just 190 miles from the launch still consuming.
City of Houston.
300 miles from the growing Monterrey, Mexico region.
It also provides advantageous capability to access the west coast.
The site will provide a significant afraid benefit most of our intended customers relative to the current supply chain configuration.
We would expect the savings to be a minimum of 20 to $30 per ton compared to the current closest domestic supplies.
In addition to the customers will be able to order on a much shorter lead time basis, providing a significant delivery time working capital events.
Where the opportunity to provide steel in terms of weeks not months.
These benefits provided competitive supply chain.
Hello, and then you may also effectively compete with inputs flown into Houston and the West coast that inherently have long lead times inspector pricing for us.
This will give the American type produces a competitive supply chain to once again compete with foreign Piper juices.
That have dominated the market of late.
Consider.
That approximately 2.4 million tons of L.C.D.T.G. and one on half million tons of blowing pipe.
Important for the port of Houston in 2018.
Customers are excited to have a regional supplier and I've already expressed interest in costly locating facilities on on your own site.
Alright currently in dialogue with many of them today.
From a raw material prospectus metals recycling operations already control, a significant and growing scrap blown in Mexico.
You don't spent management relationships much of which is prime scratch.
We also plan to cost effectively source pick on through the court system.
Based on our current <unk> relationships, both in Mexico in the southern U.S. with confidence and the ability to procure high quality from scratch from the region.
We have three targeted regional sales markets.
Representing over 27 to 28 million tons are relevant flat rolls fuel consumption.
And we believe that demand will increase in the coming years.
Regions include approximately 8 million tons from the four state region of Texas, Oklahoma, Louisiana and Arkansas.
Which is limited to domestic regional supply.
And relies heavily on endpoint.
Since one lives in close proximity for both rail and trucking delivery into this <unk> these regions.
Reprocess, forming in tongues from the underside of West Coast region, which also relies heavily on imports.
And they were approximately 16 million tons from the growing northern the mid Central next next week.
In 2018, the Mexican market imploded, seven and a half million tons of flat roofs field.
And based on their growing manufacturing base, we believe Mexican but demand growth will continue to I pay supply.
Magnusen, even more attractive understood market in the coming years.
Since then we'll have the most trade advantaged ship went into this region from the U.S.
We've been developing a flat real steel business strategy for this region of Mexico for several years.
We've been developing in both customers grant relationships.
Confident in the long term strategic value and investment profile is for John product providers.
We believe all unique operating culture couple of without considerable experience and successfully constructing and operating cost effective and highly profitable steel mills positions as well to execute the screen in Philadelphia.
Well generally we are also optimistic about our existing market opportunities for 2019.
The second half of 2019, we believe North American steel consumption will experience continued modest growth.
Supported by sort of stealing port reductions and the end of in three D. stuff.
The actions taken by the U.S. Federal government have developed a healthy domestic steel industry, you should provide a sustainable long term support the U.S. manufacturing base.
There's in recent on I still convention trade actions that we believe can have a positive impact and further reducing unfairly traded stealing forces the United States.
Including the code is that real steel.
Which could have a significant positive impact or steal dynamics.
As we have the largest non automotive flat rolled steel code or in the U.S.
Additionally, we're already seeing a benefit from trade action against prefabricated steel imports.
But as games significant market share over the last few years.
Specific to steal dynamics.
Oh unique culture, and and the execution of a long term strategy continues to strengthen our financial business through through strong cash flow generation and lonesome value creation.
Clearly, demonstrating our sustainability and differentiating us from our competition.
Customer focus.
Coupled with market diversification low cost offering platforms.
Support our ability to to maintain our best in class performance differentiation.
The company M. team poised for continued organic them transactional grill.
And that team is exceptional and provides the foundation for our success.
I think each and every one of you for your for your passion and commitment to excellence reminds you six is always the first priority.
We are committed to providing exemplary long term value for a fellow colleagues communities customers and shareholders.
And the poor to creating new opportunities.
So again, thank you for your time and Christine we'd love the turn of the colder with the question.
Thank you.
If you would like to ask a question. Please signal by pressing the star keys, followed by the digit one on your telephone keypad.
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Also we ask that you please limit yourself to one question to facilitate time for everyone.
Any additional questions can be addressed upon re entering the cue.
Thank you. Our first question comes from the line of Chris Terry with Deutsche Bank's. Please proceed with your question.
<unk> Hallmark and thanks for taking my question just around the around in your meal I'm. Just wondering if you could talk a little bit about the incentives how they play out and have a what Tom on and and the sort of things said discussions you had on that side and then.
Around the galvanizing just on the on the on the Catholic side, the extra hundred thousand ton a expansion that can you just talk a little bit about customer feedback and how you came to a decision on that thank you.
So Chris really city incentive that was approximately $150 million to $155 million worth of the incentive.
Some of that probably 10 or 15% of that would be more in the immediate time frame over the you know two to three year timeframe. The rest of it is a little bit longer on hostages property taxes. So Moreover, it's on your time frame and we'll be getting more specific with that as time goes on.
It has been relative to the the the <unk> expanded volume, it's actually said 450 in the past the 515.
<unk>, obviously, a a plastic elementary was way before the real details conversations with a oppose suppliers.
And also just a internal debate.
For the design without with our own old town.
Yeah, we just believe that.
550000 tons for the.
Hey, there line is a is a is reality so that line.
And certainly can be absorbed by the marketplace.
[noise].
'cause thanks Huh.
Oh next question comes from line of Matthew Corn with Goldman Sachs. Please proceed with your question.
Hi, good morning, everybody. Thanks for taking my question.
So we we so we spent so many months watching street prices fall in focusing on supply ramp ups, it's exciting to see prices start dish gained some traction and bullishness appear in the scrap markets.
And now back in February it looked like the Mark was also headed for a little bit of a turn you saw favorable seasonality anticipated <unk> popping some price hikes right now.
But that turned out to be a head fake. Some a question for you is what do you think is different this time around with where we are on the cycle.
Oh.
I think obviously the the the the the the principal freshmen.
Has been the the destock into the supply chain.
And to be honest as as I.
<unk> customers over the past six or seven months somebody since December .
People have been a a little.
Surprise.
<unk>, the the price and draw the as far as it did in the first place.
Because underlined the man, we we believe and I think the one with customs bleed is is generally in tact and <unk> as we said is very very constructive.
So you've seen.
A couple of sort of 40 down the price increases I think you probably saw all the.
But public price increase a a game additional price increase again yesterday.
The indices to come out to a random five fiftyish today from a from a love with five five in in in June .
The you know future September futures is around six or five.
I do believe that the the the the recent recent price increases will sell the achieve it's not exceed that that feature level.
Got it Okay, let me ask on the new site in Texas. So first.
From the timing of permitting a final incentives winds should we see that all sewn up and cleared for construction.
And then second yeah with the aim for the mid 21 operations just to start up how active aren't you and can you be today and actually building out the book a business I you have a target in terms of how much he'd what you expect to be under from contract you know how much you do your <unk> buyers as you described any detailed here in the strategy to would be how it would be very helpful.
Okay well.
Firstly, we would anticipate almost of the.
<unk> occurring later this year, but troop construction on the current till early next year after the upper limit it's been.
Put in place.
We were expecting 10 of Philly.
That we'd get a permit first quarter of 2020 give or take a a little bit.
Well relative to the the the <unk> the Buffalo.
I I think it.
If I could.
Trying to expand a little bit on that.
There's a there's been some some criticism levied I I guess as to the Sanford plans of.
Stevens in general.
I just want to completely.
The sort of say that <unk>. This project this opportunity is really differentiated.
It's only brings a combination of technologies.
And dimensional capabilities that is is almost a past yeah.
Largely unavailable.
In the U.S. today.
The the energy fight produces a lot of material.
Through necessity as being important because we just don't have the quality capability within the United States.
So I I would tell you that the the mill.
Isn't just adding domestic <unk>, it's more of an import killer.
There's a substantial amount of material flowing through the quarter Houston.
And it's going to <unk>.
But but but type produces in the area for the first time.
In a long time competitive supply of scope.
Or oil.
To compete with the the the Korean and other like importers.
As I said earlier you know this is about 2.2 thousand 18 by 2.4 million times, although C.C.G. and about a million and a half tons of a blind like king came in.
Competing with our American pie produces as because they they just they didn't have a substrate too.
To to use competitively priced substrate.
So we we think that.
We're going to complete the admirably to be honest on the input side of the business.
Because I suggested the the the rearrangement redirection of product that Columbus.
It's gonna essentially eliminate our ability to supply by a 400000 tongues upon recoil like products into into the Texas.
That will coincide with the the start of the male so there's the kind of an immediate based loading just from from our current politics.
We have a growing.
Automotive.
Volume in into Mexico, essentially through through B.M.W. on on other European <unk> providers.
Three U.S. steel supply.
I think we have a an immediate broke the opportunity for more repainted, California.
That's roughly.
Right.
250, 300000 tons of album that came through.
Ah the quarter Houston.
Last year, and obviously with with the.
Compete with that.
And then finally.
We have had.
Considerable <unk>.
It's actually more than two incredible amount of interest.
From a customer base.
Those in the industry incredibly decided to have a regional produced in in in in that area.
And we have numerous.
Steel consumes both pipe produces.
You'll still have a santa's distributors.
Processes wanting to locate <unk> in that region.
And I would imagine.
That is so we can achieve very very quickly the same model as we have in Buffalo.
Well I think we have five or 600000 autonomy.
Okay. So on campus consumption.
Right.
I'm confident that we can wrap up on the Mel very quickly.
Got it good luck to Mark Thank you.
[laughter].
Our next question comes from line I've Kinda Tanners with Bank of America Merrill Lynch interesting with your question.
Yeah, Good morning, guys.
Right.
I know I know quite call they talked a little bit about third quarter being affected by the sharp decline in price in the second quarter on a lag basis to contact customers.
So I wonder if you could expand on how that can affect your operations and if you have seen the same phenomenon.
Yes, as a reminder to every line <unk>, we have about 50 per cent of our volume not compatible.
So it will have no <unk> tied in some form or fashion C.P.R.U. random.
Yeah, we'll have that same phenomenon that new quite mentioned on their call.
Okay, and you know it'd be interesting to hear if there's other facets, a kid, except that especially because we've been expanding like a downstream, but I want to pass my second question.
On the new Mel I'm, just wondering if you could expand on a few things. One is you say incredibly incredibly I'm quick ramp up which it sounds like but when you talk about metal I've 2021.
When would you expect to get to a full run right and you know at what point would that convert to from hot role. Okay. You know, creating more of the galvanized like how quickly can you expand on your value add paint line et cetera, and how much could be <unk> cause that was intriguing with the capability to go up to five and a half inches. Thanks.
Well I think the the plate one so that's why forget the the the five and a half inches.
<unk> section.
<unk>, we're going with a much stick a section than than any other electric aren't finished based <unk> in the in the states today, if not the will to be honest.
And that all those.
You to to do so <unk> metalurgica things spent on mechanically rolling greater reduction is better services.
The actual.
Finished product maximum thickness is is one that I want to have a hobby.
So it's no no point in having display don't gotcha, Okay. So it's.
But when it's cold cold like that we we can process, we'll have processed into into.
For a couple of like like.
And maybe if you look at the plate market.
Yeah, there's a in the 84 inch range.
Yeah, we should be able to supply a you know 100 and 200000 tons of like I was like.
This one would hope.
On the.
Ramp up again, starting up in mid 21.
You know I would hope that.
To be in in 22 around about 70, 580% of its way to come back.
Then relative to the value add.
You know given that we we have a real cold substrate available at Columbus <unk> organization.
We will attempt to <unk> the the galvanizing line them free paint line.
And that.
Yeah.
Land is gonna French, but I would imagine that's going to be the the first half of 21.
As a as a spot.
Okay. Thank you very much.
Our next question comes from the line of Matthew Fields with Bank of America Merrill Lynch. Please.
Hey, everybody <unk>.
Probably yeah more boring question on the balance sheet here.
But you basically been at about $2.4 billion at that for the last two and a half years.
Heading into especially next year, where you're gonna ramp up the capital spending.
It's 2.4 billion kind of the right level of you know dollar amount of debt for your balance sheet or do you think that there's a a lower or higher level that you're more comfortable with.
Yeah, I know, we absolutely have more debt capacity for the balance sheet.
We actually key on both organic and potential transactional opportunity.
<unk> no way when I'm, when it's necessary because there's still room.
Okay. So.
Is that I mean that I investment grade rating is a little bit less important than it was in the past if you're willing to borrow more on the balance sheet too.
Fun these growth opportunities.
I say that because today I'm not sure if they're actually far superior to <unk>. So there's still room to have that on the balance sheet and have an investment grade range as well, but that's something that will happen when the time huh.
Okay.
But the focus is on I was on the the new South West Mill, and then potentially other how many opportunities for for the for the shorter term.
Right.
Okay, Thanks, very much and good luck.
Yeah.
Our next question comes from a line of Alan packing with City investment Research. Please proceed with your question.
Hi, good morning, Ah. Thanks, <unk> I just wanted to follow up on on the taxes smell quickly.
<unk>, if I sent to fight for what I think you said Mark just looking at the U.S.P. for the smell, which is going to be about 2 million tons of supply or 70%.
Heading for you know, Texas West Coast, which in your view as about 11 million Tom market. Yeah. You said 400000 times will substitute <unk> you know, 40% is targeted for energy, which is largely going at this place.
Imports that's not like six 700000 times, that's about a million times Oh, all the all the million times that the male is kinda South do you have a sense of what the opportunity is to displace imports yeah on that.
This is how much will be taken up with market grow from displacing other domestic supply. Thanks.
[noise], most Troy I follow the only man so but.
<unk>.
I believe other areas would be the the the <unk>.
That's been a a mascot.
But.
It's been highly pressured by.
<unk> Yeah now.
And the the circumvention actually here recently will certainly certainly help that well that's 250000 tons of.
I mean, you've probably been a in that area.
Oh you have.
Alright in about a million tons down to Mexico for automotive H.V.C. an appliance.
No. That's today at 15 16 million some market seven and a half million tons of currently imported.
And even with the increase the capacity and I suppose there.
That that the market is this located but they they just don't have the the product capabilities <unk> today.
So even with their ex internally sanctions we see.
A considerable opportunity.
He is the head for for that a that a million times.
Oh, Okay. Thanks, I just following up on the on the car market conditions. You know you mentioned you know I've I've, new car and I would sit down that you were sitting kind of a d. stocking for the industrial.
Supply chain you know do you guys have any sense about why not be stalking fans as you talk to your customers. You know did you get any sense that it's already I'm being you know <unk> in June Fest is what you were seeing in April or may. Thanks.
Well I guess it won't have to assume that it's it's okay import to continue will continue to roads with it through the rest of the year.
We believe in the second half, but the man who will be marvelously above at the beginning that's it yeah.
So I I think that.
<unk> pressure them off into oblivion by some momentum.
And increase older right.
Thanks.
Oh next question comes from wind it fill games with Keybanc capital markets. Please proceed with your question.
Good morning.
One is though.
Mark what are you what are you seeing on the conceivable side I I know that the electrodes and refractories and always have been pressure points over the last 12 to 18 months, but are we seeing any any reprieve.
In in any of those inputs.
I think the.
<unk>, yeah anyone have any they've never been so materiality would be like pros <unk> <unk>.
Okay 2020, 5%.
2020, 5%.
So that's the the protein from the peak and obviously you know those are sort of a confided volume so that doesn't happen overnight, but it happens through the the rest of this year.
So that's a that's a a positive positive mood.
Oh I don't think we'll see in a major issues with the I've always over factories around the house.
So.
Hallmark when you when you talk about electrodes being down I guess from peak or or on the spot side I know, there's there's some contract amendments at least in the U.S. market, So hot hot as that.
Does that all blend together in terms of what you all actually <unk> actually realize.
So what are the electronics I do like the the cost savings that we did in the presentation you can see that being nerves plan from 2017 2018 levels of about one per cent of our costs about 2%.
Yeah, you say, they're out probably around $25 million the first half of the year compared to the first half of last year.
That's very helpful.
I'm not just just to quell are expecting a son approximately $275 million.
In 2019.
<unk>.
Yeah, well I would expect it not likely being drawn a second huh, it's likely to be even maybe slightly funding as we worked on some of the within finish states inventories that grew I bet in the second quarter.
Thank you.
You're welcome.
That concludes our question and answer session.
I'd like to turn the call back over to Mr Mail it for any closing remarks.
[noise] then you receive at least once again, thank you and everyone that is mainly on the cool. Thank you for your time today.
It continues to be an incredibly exciting time <unk>, yeah, we've had a a very.
Three a positive growth could lose the last 25 years.
And I believe with Holland with U.S. steel supply.
And then with the new mill, we will continue to maintain if not exceed that trajectory.
And just want to think Oh casinos for phone I was to do that and for.
Employees. Thank you seriously for everything you do each and every day.
And continue to <unk> safe.
Thank you bye-bye.
Once again, ladies and gentlemen that concludes today's call.
Thank you for your participation and have a great and safe so.