Steel Dynamics, Inc.

Good day, and welcome to the Steel Dynamics Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's remarks, we will conduct a question and answer session, and instructions will follow at that time. Please be advised, this call is being recorded today, July 21, 2022, and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipsitz, Director, Investor Relations. Please go ahead.

Thank you, Holly. Good morning, and welcome to Steel Dynamics' second quarter 2022 earnings conference call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millett, Chairman and Chief Executive Officer of Steel Dynamics, and Teresa Wagler, Executive Vice President and Chief Financial Officer. The other members of our senior leadership team are joining us on the call individually. Some of today's statements, which speak only as of this date, may be forward-looking and predictive, typically preceded by believe, expect, anticipate, or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995, should actual results turn out differently. Such statements involve risk and uncertainties related to integrating or starting up new assets, the aluminum industry, the use of estimates and assumptions in connection with anticipated project or 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 in our annually filed SEC Form 10-K under the headings Forward-Looking Statements and Risk Factors found on the Internet at www.sec.gov and, if applicable, in any later SEC Form 10-Q. You'll also find any referenced non-GAAP financial measures reconciled to the most directly compared GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Record Second Quarter 2022 Results. Now I'm pleased to turn the call over to Mark.

Well, thank you, David. Thank you, everyone, for being with us on our second call this week. It's been exciting to announce our new growth initiative on Tuesday with our entry into the aluminum market. And it's only been, I think, probably 48 hours or so. And the customer response from all three market segments, whether it be distribution processes, whether it be the packaging industry, or even automotive, it's been absolutely staggering, the early sign of affirmation of us getting into the marketplace. I think it speaks to the lack of supply and optionality within that market. So that's exciting. And now it's as exciting, even more exciting, to announce yet another record quarter, record consolidated volumes, earnings per share, cash flow, all supporting our cash allocation strategy and commitment to build shareholder value. Specifically, we repurchased $517 million worth of the company's common stock, representing 3.5% of our outstanding shares in the quarter. So we're staying true to our repurchase programs. We are certainly beneficiary of a strong market tailwind, but I'm incredibly proud of our 11,000 strong team. They are the foundation and the catalyst of our success. They are the ones driving the superior results. It's their culture of excellence, and the strategic positioning executed over the last 10 years that allows us to exploit the current market and will continue to produce higher lows and higher highs through the cycle. I've said it many times before, but none of this matters without keeping everyone safe. Often, employees are described as a company's most important asset. For us, they are more than that. They're part of the SDI family. They're people, and we're always striving to provide the best for their health, their safety, and for their welfare. We're actively focused on safety at all times, keeping it top of mind and an active conversation at every level within the organization. We're certainly better than industry averages, but we're not going to rest until we consistently achieve our goal of zero incidents. We're continuing to see material market share gains driven by our ESG profile and industry-leading low-carbon footprint for flat-road products. We will continue our journey to environmental excellence through a defined and achievable plan to be carbon neutral by 2050. Our recent Amium investment and our joint venture is a perfect example of that. It's an exciting opportunity to reduce greenhouse gas emissions through renewable biomass, replacing fossil fuels in our electric arc furnaces. We have tested the product and it works beautifully. We believe it will also work within our iron operations. Initially, it'll be 160,000 metric tons per year And the CapEx is estimated to be around $125 to $150 million. It will reduce our Scope 1 steelmaking greenhouse gas intensity by some 20-25%, with even further potential upside from the use of the biogas. With that said, Teresa, would you like to give us some thoughts?

Thank you, Mark. Good morning, everyone. As Mark said, what an incredible week. We announced our aluminum strategy on Tuesday, and now we're sharing our record results. A sincere and personal thanks from me to the entire SDI family. Your performance resulted in record sales, earnings, and cash flow. A truly exceptional performance. Our second quarter 2022 net income was $1.2 billion, or $6.44 per diluted share, inclusive of costs of $77 million, or $0.29 per diluted share, associated with the continued startup of our Sinton, Texas, flat-rolled steel mill. Excluding these costs, second quarter 2022 adjusted net income was $1.3 billion, or $6.73 per diluted share. Revenues improved across all of our platforms to a record $6.2 billion, driven by record steel shipments and record pricing volume in our steel fabrication business. Our second quarter 2022 record operating income of $1.6 billion improved 8% versus first quarter results, driven by record steel fabrication earnings. Our steel operations generated very strong operating income of $1.1 billion in the second quarter, with record shipments of 3.1 million tons, of which Sinton contributed 171,000 tons. Sequential earnings were 5% lower due to metal spread compression in our flat-roll steel operations, as realized pricing declined and average scrap costs increased. In contrast, Our long product steel operations experienced metal spread expansion, resulting from rising product prices. In fact, we set quarterly record shipments at our structural, engineer bar, and Roanoke bar divisions. Second quarter operating income for our mills recycling operations remained strong at $58 million, representing a 20% sequential quarterly improvement as ferrous metal margin and volume improved. The team continues to effectively lever the strength of our circular manufacturing operating model benefiting both our steel and mills recycling operations by providing higher quality scrap, which improves furnace efficiency and by reducing company-wide working capital requirements. A huge congratulations once again to our steel fabrication team. They achieved record second quarter operating income of $599 million. These earnings were driven by record average pricing coupled with record shipments. Steel, joists, and duct demand remains strong as evidenced by the continued strength in our order backlog, which remains at near record levels and contains strong forward pricing. Based on this strength, we expect steel fabrication earnings to continue to increase even further as the year progresses. Our cash generation continues to be consistently strong based on our differentiated circular business model and highly variable cost structure. At the end of June, we had record liquidity of $2.5 billion. comprised of cash and short-term investments of $1.3 billion and an undrawn, unsecured revolver of $1.2 billion. We generated record cash flow from operations of $1 billion in the second quarter and $1.8 billion year to date. During the first half of 2022, we have funded $323 million in capital investments. For the 2nd, half of 2022, we estimate capital investments will be approximately 350 to 400M dollars. The majority of which relate to our 4 new flower coding lines to be located in and heartland. We maintained our cash to that end at 34 cents per common share after increasing at 31% in the 1st quarter. Year to date, we've repurchased $906 million, or 6.5% of our outstanding shares. At the end of the second quarter, $727 million remained available under our most recent share repurchase authorization. Since 2017, we've increased our cash dividend per share by 143%, and we have repurchased $3.2 billion of our common stock, representing 30% of our outstanding shares. These actions reflect the strength of our capital foundation and consistently strong cash flow generation capability throughout all market cycles, and the continued optimism and confidence in our future. Our capital allocation strategy prioritizes strategic growth with the shareholder distributions comprised of a positive dividend profile that is complemented with a variable share repurchase program, while also dedicated to preserving our investment grade credit designation. Our recently announced aluminum investment is consistent with our unchanged strategy. As I mentioned on Tuesday's call, our cash flow profile has fundamentally changed over the last five years. We will readily fund this investment with available cash and cash flow from operations. We also plan to continue strong shareholder distribution. We've strategically placed ourselves in a position to have a sustainable capital foundation that provides the opportunity for strategic growth, strong shareholder returns, and maintain investment-grade metrics. We are squarely positioned for the continuation of sustainable, optimized long-term value creation. Sustainability is a part of our long-term value creation strategy, and we are dedicated to our people, our communities, and our environment. We're committed to operating our business with the highest integrity. In that regard, as Mark mentioned, we're very excited that we formed our joint venture with Amium recently, a leading producer of renewable biocarbon products. Steel Dynamics owns 55% of the joint venture, and we're the operating partner. We have an actionable path toward carbon neutrality that is more manageable and we believe considerably less expensive than may lay ahead for many of our industry peers. Our sustainability and carbon reduction strategy is an ongoing journey, and we are moving forward with the intention to make a positive difference. We plan to continue to address these matters and to play a leadership role moving forward.

Mark? Thank you, Teresa.

As you saw, absolutely incredible results from the new Millennium Fabrication Platform. Record operating income of $599 million in Q2. On record, 218,000 tons of shipments. We see the non-residential construction markets remaining strong. Despite the caution emanating from Amazon's message to next year, we have had reaffirming Reaffirmation from our major customers anyway, including warehouse customers, that everything remains incredibly strong going forward into 2023. Cloud-based computing, data centers, pharma, and schools are all strong. Although the ABI index may have drifted slightly month over month, the AI reports ongoing order activity on architectural firms, as well as new work online, remains very strong. For us, ordering input activity remains robust, and we still have near-peak backlog persisting. So that's a very, very good position to be in. Q3 earnings from fabrication will certainly increase. We're going to see increased shipments and metal spread expansion from both increased selling values and lower steel input costs. As you've seen, it's providing a perfect hedge to softening steel prices. Although we mentioned his impending retirement on our Q1 call, Russ Wren had his final official day in the office last week after 11 years of dedicated commitment to SDI and the OmniSource recycling platform. And yeah, people say it's sweet and sour, but for me, it was tough to see him go. He repositioned OmniSource to record earnings last year, dramatically influenced their safety performance over the years, and has been a key contributor to the strategic moves we've made as a company. Right now, he's hiking in Virginia. And, mate, thank you very much for everything you've done. The recycled platform saw stronger earnings based on higher domestic steel industry utilization, pushing demand up, drove higher shipment volume, pricing, and associated metal spread. After a strong downward move in prime scrap relative to shred through the quarter, that spread is normalized and pricing is expected to remain more stable in the months ahead. The Omni platform is continuing to work with the steel melt teams to further expand our shred segregation to provide higher volumes of low residual shred scrap, which continues to reduce our dependence on more expensive prime grades. Kegelian availability is normalized. and pricing has moderated significantly to a low $500 per ton range. We have sufficient pig iron sourced well into next year, and supply is not an issue. And the rumors of us having problems with the fossil levels and such is totally inaccurate. There's no problem using the Brazilian pig iron that we're bringing into our mills. Steel operations had another terrific quarter. Record shipments of 3.1 million tons, strong operating income of 1.1 billion. Our second quarter production utilization rate was 95%, certainly above the industry average of some 82%. I think we clearly communicated in the past that higher utilization rates have been clearly demonstrated over time. Our strategy of the value-add diversified product offerings and coming up with differentiated supply chains support that along with our internal support from fabrication and downstream. It supports our strong and growing through-cycle cash generation capability. Our customer order entry remains strong. Support of value-added products is certainly part of that. And as I said, we've intentionally grown that value-added steel product mix, created valuable supply chains to mitigate the impact of price volatility. Today, some 70% of our steel sales are value-added. This supports our continued best-in-class financial metrics and cash generation. Specifically to the markets, we expect the automotive arena to remain strong and probably improve as the chip issue mitigates. We still have extremely low dealer inventories and a very strong vehicle demand from the consumer base. There'll be some, I don't know, around about 14 million units, and it's projected to grow to 16.4 in 2023 and perhaps 16.8 in 2024. I think the chip shortage actually for us is a good thing. It's effectively extending the auto cycle and just giving us a market that's going to be strong for longer. Construction remains strong. As evidenced with the fabrication backlog, our long products steel backlogs are also strong, and several of our divisions recorded record earnings and volume in the second quarter, demonstrating that market's depth. Infrastructure is a further meaningful support. High demand continues for HVAC, appliance, and other related products. Energy continues to improve, and we're getting large orders in the SAC. I think it's significant to note that the import arrivals that the sort of Ukraine-Russia conflict drove early in the year, those are arriving now, but there's very, very little import interest for sort of October, November, December, and I believe we're gonna see moderated import volumes in the second half. And significantly, it appears our hot roll coil order input rate has improved dramatically in the last week or so, showing signs of an inflection there. Turning to Sinton, commissioning continues on the hot side and tandem cold mill. The rest of the mill is fully operational. The hot mill has established target volume throughput rates with an average run rate of 75% to 80%. And I just want to emphasize that when we are running, we're running at that rate. Surface quality is excellent. It's proven to be superior to both our Columbus and our Butler facilities. The hot strip mill design is allowed for thermomechanical rolling. That's allowing higher strength grades to be produced at lower alloy content. The reported coil shape from our processors is excellent. So in total, it affirms the technical process capability of the equipment, affirms the design decisions that were made some years ago for the mill. We are wrestling a little with uptime in July. We have a substation arcing issue that should be resolved this week. We have some unique Texas power supply issues right now. And we are seeing some miscellaneous equipment failures that are typical of commissioning an integrated line. The supply chain is aggravating that a little bit because when you need a part, instead of getting it in a matter of hours, sometimes it takes a day or two. So we are wrestling with those alligators, not atypical of a startup, of a new plant. But we expect substantial resolution of these issues over the next few weeks. The July issue may have cost us 100,000, 150,000 tons of production for the year, we think. Too early to tell because July is not over yet. But certainly moving in the right direction. And we clearly expect to be EBITDA positive in the Q4. We're continuing on growth. We have the four value-added coding lines under construction and progressing well. They're targeted for the second half of 2023 to start up. As you know, again, it's the strength of our overall strategy and our product mix, but the largest non-automotive coder of flat-rope steels, and now have an annual coding capacity of over 6 million tons. Four new lines will increase that capacity by an additional 1.1 million tons. We've created unique supply chain solutions for our customers, and these lines are almost always fully utilized with our highest margin products. So switching now to aluminum dynamics, It's been an incredibly exciting week, and it has been incredible. I said it earlier, it's been staggering, the initial support that we're seeing from all our customers and a massive number of new customers. To recap, it's a 650,000 metric ton a year flat row facility that's going to be located in the southeastern U.S., It has on-site melt and cast slab capacity of roughly 450,000 metric tons. It's a fully equipped flannel mill with two cash lines, a coating line, and downstream processing and packaging capability. It's going to be supported by two satellite recycled aluminum slab casting centers, one in the southwest U.S. and one in Mexico. We expect the mill itself to start up in the first half of 2025, the Mexican Slab Casting Center in 2024, and the Southwest Slab Casting Center at the end of 2025. Financial impact, the total project cost of some $2.2 billion. That expenditure is going to be spread over four years of the project. It's going to be 100% funded with available cash and cash flow through operations. And it's expected to add a good $650 to $700 million in through-cycle consolidated annual EBITDA per year. And we certainly anticipate no requirement to add any additional debt. From conversations on the call and subsequent conversations, there appears to be some skepticism regarding our EBITDA per ton target of $1,000. We are confident of that number, and it speaks to or is driven by a myriad of things, but firstly, it's a greenfield facility. Everything is happening essentially on one site, all the rolling, processing, coding. It allows for an optimum light layout and flow of material and logistics, and you can quite easily reduce the labor, the manpower input because of that with robotics and automatic storage and retrieval systems. Input is going to be dramatically less than the current industry. We will not be burdened by aged facilities and legacy costs. Energy, because of the state-of-the-art equipment that we'll be installing, is going to be a lot lower. Yield improvements will dramatically improve the cost structure, pushing higher scrap content levels. and transportation given the satellite slab casting standards, transporting solid dense slab as opposed to scrap is gonna be a significant improvement. So we're very, very confident of that cost projection. From an investment premise standpoint, obviously we see a very clear gap in supply and demand. There's a current and growing deficit, supply deficit. We see a very close sort of overlap and business alignment. And essentially, if we filmed a steel mill and an aluminum mill in black and white, most people on the call today wouldn't be able to tell the difference. I mean, it's All it is is a different metal. We clearly will be able to execute the project well. It's incredibly cost-effective growth. Given the opportunities that are in the marketplace today and the exorbitant multiples that are expected from sellers, this is a very, very CapEx-efficient growth project. As I said, we have got absolutely great customer support. And at the end of the day, our success has always been driven by the SDI culture, by our employees. It drives higher efficiency than anyone else. It'll drive lower cost. If you look at that industry, it has a very, very, very steep cost curve. And that will obviously, if you're at the lowest quartile, that's going to support margin through the cycle. So we're incredibly excited by the opportunities. So, in general, it's been a phenomenal week. It's been a phenomenal year for SDI. That will continue through the rest of this year. Our team provides our success, the foundation for that success, and I thank each of them for their hard work and their commitment. I remind each and every one to remember safety is always our first priority. We're going to continue to focus on providing superior value for our customers. for our company, team members, and shareholders alike. We look forward to creating new opportunities for everyone in the years ahead. With that said, I'd like to pass the call over to questions. Holly.

Thank you. If you would like to ask a question, please signal by pressing the star key followed by the digit 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you pressed star one earlier during today's call, please press star one again to ensure our equipment has captured your signal. Also, we ask that you please limit yourselves to one question to facilitate time for everyone. Any additional questions can be addressed upon reentering the queue. Please hold while we poll for questions. Your first question for today is coming from Emily Chang with Goldman Sachs. Emily, your line is live.

Good morning, Mark and Teresa, and thank you for the update today. My question is just around your power cost exposures across the portfolio. Can you highlight to us what is hedged or fixed price power and what still remains on spot is Sinton actually exposed to market prices or have you since put some hedges in place there?

I mean we have across the portfolio for the steel mills we have a mix so for example and to be able to split it out in a manner on a percentage basis I'll have to kind of go back and talk to the team but I would say it's probably at least 50 to 60% that's contractual, and they tend to be long-term contracts of two to three years that have escalating factors included in them, and the remainder is spot. There is some that we hedge. Sinton right now is a little bit difficult simply because Mark mentioned we're in startup, and they actually constructed a massive substation on our behalf. in the region, and so I think most of Sinton at this point is still on a spot basis because of the stop and starts that we've been having right now in July.

Emily, that's the electrical power. On the natural gas side of things, we typically edge around about 60%, 60%, 65% of our consumption.

Great. That's very clear. Thank you.

Your next question for today is coming from Seth Rosenfeld with B&B Parabas.

Seth, your line is live.

Thanks for taking our question. For fabrication, one result I think you noted is still record.

Can you give us any color for how significant or duration has been utilized? And on the pricing side, aggregate price realizations .

Thanks, Seth.

So as it relates to the fabrication business, we said near record is just because of we have people fact checking all the time. And if it's not a record, we have to say near record. There has been some contraction from the peaks, but we're still, Having a backlog that's well into 2023, so it's not something that we're concerned about or we think is endemic of anything changing significantly. From a pricing perspective, we're still having very strong price support, and there is still increased pricing that is included in the backlog. So we're feeling very good about the non-residential market, specifically for our steel fabrication business. Mark, do you have anything to add?

No, no. That sums it up well. Okay. Thank you very much. I'd like a separate question, please. On the working capital side, earlier this week, you highlighted potential tailwinds from working capital and Q3, large investment.

Do you see any color in your expectations for Q3? Absolutely, Seth.

We're still – so I don't – I guess I wouldn't call it a significant increase. I think the increase in the second quarter for working capital was just a little over $100 million, so – Not that that's small, but given the size of the working capital at this point in time, it was incremental. But we would expect a pretty significant working capital release in the next probably two to three quarters. And it has to do with not necessarily just, you know, have seen some weakness, as Mark mentioned, or some softening in the flat roll prices. But we've also been specifically reducing physical inventories at our steel fabrication business. They had extra substrate for different reasons on the ground with steel perspective. So there's some structural things that we're doing as well as from a pricing standpoint. So, again, second half of the year into next year, I would expect working capital release.

Your next question for today is coming from Carlos D'Alba with Morgan Stanley. Carlos, your line is live.

Great. Thank you. Good morning, Mark and Teresa. Question is on CAPEX progression for the aluminum project announced. How do you see the CAPEX for this year and for the coming years until the project is ready to start up?

Carlos, I'll point you to the presentation that's still out on the website. That we provided on Tuesday, but from a capex progression standpoint, we believe we'll spend somewhere between 2 and 300Million dollars on the flat rolled aluminum project in 2022. that would be additive to the number that I gave you earlier for the estimate for the rest of 2022 of being in that 350 to 400Million dollar range. And then the bulk of the spend will be in 2023 and 2024, each of those years being around 750 to 800 million dollars. And then finally, we would have the remainder, which is around 300 to 350 million dollars in that 2025, 2026 timeframe. So it's over a period of four to five years where we'll be spending the investment and that's why Mark was very clear and I tried to be clear as well that this will readily be funded through cash flow and cash flow from operations.

Fair enough. Thank you. And if I may just answer another one quickly. Have you seen any particular pricing pressure in the still southern markets or northern Mexico with the ramp up of Syntone? as well as the ramp-up of, still ramp-up of Ternium's facility, as well as Metel's facility a little bit further south in the Mexican market.

Well, I think, Carlos, you saw generally a sort of erosion on the hot band, hot rod coil pricing across the U.S. in general, and it was a little stronger in the south because of the reasons you suggest. As I suggested, we were seeing our order activity on Hotband recently pick up dramatically, and so I think there's no support there in that product category.

Fair enough. Thank you very much. Good luck. Thank you.

Your next question for today is coming from Timna Tanners with Wolf Research. Timna, your line is live.

Hey, good morning, everyone. Good morning. I wanted to ask a little bit more if I could. I know on the last call when we've spoken to you, you mentioned that you were looking at a pig iron alternative, kind of leveraging your iron dynamics operations. So I was wondering if you could expand on that. And then if I could throw in one more. I thought it was interesting that you mentioned the market is pessimistic, but your customers are optimistic. So I was just hoping you could also elaborate on that. Thanks a lot.

From a pig ion perspective, we certainly would like to pursue sort of some level of captive supply and self-sufficiency. And not unlike the last call, you know, we're pursuing or exploring whether the ion dynamics technology or an alternative technology is best suited for us. But that's sort of a project in process going forward, Timna. If there were to be a project, again, from a capital perspective, that's not a huge, huge issue. I'm sorry, I didn't catch quite the second comment or question.

Thanks on Ion Dynamics. That's helpful. It doesn't sound like a big capital use. Is that what you're saying?

Absolutely not. Okay, helpful. Thank you. You had a market question?

Yeah, if you wouldn't mind elaborating. In the release, you talk about how There's a prevailing pessimism, but your customers are optimistic. And then you talked about hot-rolled order entry improving recently, and I'm just wondering if you could elaborate a bit on how that contrasts with the pessimism and maybe some elevated inventories.

Well, I guess all we can do or all I can do is look through the lens of our order book, as I mentioned in previous. over the years, a wise man told me that, hey, the order book tells all, but it tells all for us. I can't speak for the rest of the industry, but we haven't seen a dramatic structural sort of change in underlying demand. Order activity has remained pretty strong. There was a little softness in hot roll coil, and that's rebounding, I think. And so there's... When I say sort of emotion in the marketplace, there seems to be a cloud out there that you've got recessionary pressures and all these things going to drive the market down. I was just pointing out right now, through our order book, we don't see it.

Thanks very much. Thanks, Donna.

Your next question for today is coming from Phil Gibbs with KeyBank. Phil, your line is live.

Hey, good morning. Morning, Phil. Hey, Mark, you mentioned spot prices for pig iron are clearly coming down, and we see that too. But are you all locked into higher numbers than that prevailing spot if you chose to hedge a lot more forward during the war?

We had, I would say, a mix. They were right at the onset of the conflict. We did buy a couple of boats that were at the high end of that range. But we now have a kind of a mix of material. I think the highest we may have paid is like $900 or so. We got a couple of boatloads of that, but then we have a lot more material coming in at lower pricing. And the forward boats are tending to be indexed against the market price, so it shouldn't be a major impact for us.

Okay.

And then, Teresa, the normal mix dispersion and sheet, if you have it?

Absolutely, Phil. The hot rolled P&O number is 861,000 tons. Cold rolled, 131,000 tons. And the coated products are 1,132,000 tons. Thank you. And if I could sneak in one more here. Just on Sinton, have you all changed your thought process on what

what it's going to do this year in terms of volume, a contribution to the second half. I'm just trying to try and do, uh, to read what you're all are putting out in terms of having lost production in July, but having got the high amount utilizations at one point. So just trying to think through, you know, what the next few months look like here, because, you know, we're, we're getting to the tail end of the year.

Got it. The, And again, we're wrestling alligators a little. I guess sometimes you don't know when you're going to win. But I suggested earlier, our July issues probably cost us 100,000, 150,000 tons, Phil, from our annual sort of projection. And we were around 1.5-ish. So you can do the math now. Okay.

That number was relative to the 1.5. That's kind of just what I wanted to hear in terms of understanding that. And then last question from a housekeeping standpoint is just what the updated CapEx number is for this year, if I missed it, because I know you got the aluminum project and some other things that you had done there. Thank you.

So, Phil, for the second half of the year, excluding the aluminum project, We estimate CapEx to be somewhere between $350 and $400 million, and the majority of that relates to the four new flat roll coating lines. If we look at what we may spend on the aluminum investment, we'll likely spend an additional $200 to $300 million. So the total second half of the year is likely to be somewhere between $550 and call it, yeah, around $550, $600 million.

Thank you.

Your next question for today is coming from Andrew Ketches with Barclays.

Andrew, your line is live.

Hi, good morning. Teresa, I don't want to belabor the point, but I want to try and ask the capital deployment question from earlier in the week in a slightly different way. So you have the two turns of net debt threshold out there, but the reality is you've been operating at about half of that for the past year or so. Anybody that comment, I think it's obvious that without buybacks, you eventually find yourself net cash and you also don't want to go to the bottom end of that range. So I guess what would be helpful is to know what you think the right level of leverage is for the business at this point in the cycle. Is two times a level where you're comfortable getting back to, or should we take the fact that you've been operating below that for the last year or so as an indication that you want to keep some flexibility within that range. So we're not just going to intentionally lever back up.

No, the intent isn't to intentionally lever the balance sheet. We like to maintain it at a flexible level to allow for growth projects, just like we're doing right now. So we did this with Sinton as well. We started out with an additional cash, a lower leverage on the balance sheet so that we were able to very easily commit to a capital investment that would be funded through cash and cash flow from operations while maintaining flexibility and optionality in case there were to be some sort of acquisition opportunity that were to become available, et cetera, or in the absence of that, so that we're able to continue to have our very, what we believe is a positive shareholder distribution plan, which allows for us to continue to keep increasing the dividend at an appropriate level Because it is a forever type of investment for us, we want to make sure it's maintained at a manageable level. And then, in addition to that, we have the opportunity to strategically and opportunistically use the share by that program. So there is no intention to re, lever the balance sheet, but we are keeping that flexibility within it so that we can easily fund these projects.

Okay, maybe just as a quick follow-up. So you've talked about the cash flow profile structurally changing, but the business is also growing. So what do you think the right level of cash is for the business going forward?

We actually don't manage to a cash level on the balance sheet. We look at liquidity in totality. And so, yeah, I'm not really comfortable answering that question.

Okay, thanks a lot.

Once again, if there are any questions or comments, please press star 1 on your phone at this time.

There appear to be no further questions in queue.

I'd like to turn the call back over to Mr. Millett for any closing remarks.

Thank you, Holly. Again, thank you everyone for being on the call joining us today. Just finally like to congratulate once again the team. Absolutely fantastic performance this past quarter and we will continue that through the rest of the year. To our customers, again, you have been loyal to us. Thank you for your support and for the growing support. And I would also like to look forward to welcoming our new customers on the aluminum side. And any folks that want an incredibly dynamic career, come join us. We're going to be making some aluminum. So thank you very much, everyone. Have a great day. Bye-bye.

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