Steel Dynamics, Inc.

Good day and welcome to the Steel Dynamics third quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. After management's remarks, we will conduct a question and answer session and instructions will follow at that time. Please be advised this call is being recorded today, October 19th, 2023, and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I'd like to turn the conference over to David Lipchitz, Director, Investor Relations. Please go ahead.

Thank you, Holly. Good morning, and welcome to Steel Dynamics' third quarter 2023 earnings conference call. As a reminder, today's call is being recorded and will be available on our website for replay later today. 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 returns, and our steel, metal 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 annual 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 will also find any reference non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled, Steel Dynamics Reports Third Quarter 2023 Results. And now I'm pleased to turn the call over to Mark.

Thank you, David. Good morning, everyone. Thank you for being with us on our third quarter earnings call. As you saw in the release, once again, our teams achieved a solid financial and operational quarter. Almost 80% of our facilities had zero safety incidents, and our company-wide trailing 12-month incident rate is running at an all-time low. So congratulations to everyone, but more importantly, thank you for all your work to make that happen. It takes each and every one of us to get there. Cash from operations was a healthy $1.1 billion, and with a trusted EBITDA generation of $876 million. I think this performance truly affirms the cash generation resiliency of our diversified value-added product portfolio. In significant momentum in our aluminum flat roll investments, both current and prospective customers are excited by our market entry and the new and differentiated supply chain solutions we can provide. They are actually very, very surprised by the speed and completeness of our execution so far. Clinton Mill has proven its nameplate production capacity rate and full product capability but does remain challenged by equipment reliability issues. We are confident we can resolve the majority of these issues by the year end. Successes cannot be achieved without the best metals team in the industry. I'm incredibly proud of the whole SDI family. Their passion and spirit form the foundation of our company. They drive our success, and it's an honor to work among them. In fact, in this world of turmoil with the catastrophe happening in Ukraine, the atrocities in Israel, the suppression of the Palestinian people, and even closer to home, the anger and diversiveness within America and our political structure. It really is inspiring to come to work each and every day and be surrounded by very, very positive people that think right, they get it, they treat people right. and a focus on what we do each and every day. As such, our greatest leadership commitment is to our SDI family, not only our colleagues that come to work, but also their partners in life and their kids. I remind our teams, great financial performance is of no importance without keeping everyone safe. We continue to be focused on providing the very best for their health, safety, and welfare. Today, the SDI family, when you include everyone, We have over 45,000 people that are reliant on the decisions we make each and every day, and we truly are focused on that. Together, we're actively engaged in safety at all times and at every level, keeping safety top of mind and an active conversation. Before I continue, Theresa, would you like to give us some details?

Good morning, everyone. Thank you, Mark. I add my sincere appreciation to our teams for a really solid performance in the third quarter. Our third quarter 2023 net income was $577 million, or $3.47 per diluted share, with adjusted EBITDA of $876 million. Third quarter 2023 revenues of $4.6 billion and operating income of $734 million were lower than sequential second quarter results, driven by lower realized steel and steel fabrication pricing. We see solid industry fundamentals for the rest of this year and beyond, and we're focused on our continued transformational growth initiatives. Our steel operations generated operating income of $474 million in the third quarter, lower than sequential second quarter results due to flat-rolled steel pricing metal spray compression, as realized pricing declined more than average scrap cost. Our steel shipments remain steady at 3.1 million tons, excluding the lost volume of approximately 90,000 tons related to Sinton's unplanned July outage. We expect our four new flat-rolled coating lines to begin operating in the first quarter of 2024 at both Sinton and Heartland, increasing our value-added mix by an additional 1 million tons, making so that our total coating capacity will be 6.9 million tons going forward. For those that track our detailed flat-rolled shipments, in the third quarter we had hot-rolled and P&O shipments of 858,000 tons, cold-rolled shipments of 132,000 tons, and coated shipments of 1,202,000 tons. Operating income from our MELS recycling operations was $19 million, significantly lower than second quarter results due to non-ferrous, unferrous metal spray compression. Ferrous scrap demand was also reduced as numerous domestic steel mills had maintenance outages in the quarter. We are the largest North American metals recycler, processing and consuming ferrous scrap and non-ferrous aluminum, copper, and other metals. The team continues to lever our circular manufacturing operating model, providing higher quality, lower cost scrap to our steel mills, which improves furnace efficiency and reduces company-wide working capital requirements. Our steel fabrication operations achieved operating income of $330 million in the third quarter. Lower than sequential second quarter results, yet historically strong, as average realized pricing declined 11% and volumes declined 16,000 tons. Our steel joist and duct demand remained solid with good order activity. Our backlog extends through the first quarter of 2024. The backlog has contracted from record highs experienced in 2022, as shipments have outpaced spot order activity. Forward backlog pricing remains very strong and spot pricing resilient. Based on our backlog, customer sentiment, and manufacturing momentum, we expect steel fabrication earnings to remain solid in the fourth quarter, but below third quarter levels based on seasonally lower volumes. Infrastructure, Inflation Reduction Act, Department of Energy decarbonization support, and manufacturing on-going are expected to support domestic fixed asset investment in related steel and joist and debt consumption in the coming years. Our cash generation continues to be strong based on our differentiated circular business model and variable cost structure. During the third quarter of 2023, we generated strong cash flow from operations of $1.1 billion and generated $2.7 billion on a year-to-date basis. By September 30th, we achieved record liquidity of $3.7 billion, inclusive of cash, liquid investments, and our unsecured $1.2 billion revolver. Year-to-date of 2023, we've invested $1.1 billion in capital investments. For the fourth quarter, we estimate capital investments will be in the range of $500 to $550 million, of which around $350 million is related to our aluminum flat roll investments. Much of the remaining capital is related to the completion of our four new value-added coded lines. In February, we increased our cash dividend 25% to 42.5 cents per common share. Year-to-date 2023, we've also repurchased $1.1 billion of our common stock, representing almost 6% of our outstanding shares. At September 30th, $278 million remained authorized for repurchase under our existing $1.5 billion authorized plan. Since 2017, we've increased our dividend per share by 174% and repurchased $5.2 billion of our common stock, representing over 40% of our outstanding shares. Our capital allocation strategy prioritizes high return growth, with shareholder distributions comprised of a base positive dividend profile that's complemented with a variable share repurchase program. We remain dedicated to preserving our investment-grade credit designation at the same time. Our free cash flow profile has fundamentally changed over the last five years, generating from an annual average of $540 million to $2.6 billion today. We've placed ourselves in a position of strength to have a sustainable capital foundation that provides the opportunity for meaningful strategic growth and strong shareholder returns while maintaining investment grade metrics. Our aluminum growth strategy is consistent with this philosophy. We will readily fund our flat rolled aluminum investments with available cash and cash flow from operations. We also plan to continue strong and responsible shareholder distributions as we've clearly demonstrated. We're squarely positioned for the continuation of sustainable, optimized, long-term value creation. Sustainability is also a significant part of our long-term value creation strategy, and we're dedicated to our people, our communities, and our environment. We're committed to operating our business with the highest integrity. In that regard, we remain excited about our joint venture with Amium, a leading producer of renewable biocarbon products. We believe our first joint venture facility could decrease our CO Scope 1 greenhouse gas emissions by as much as 35% and we currently expect to have the facility operating in the second half of 2024. We have an actual 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 We're moving forward with this intention to make a positive difference. And again, before I turn the call back over to Mark, I just want to thank the teams for a great performance. Mark?

Thank you, Teresa. As you saw, the steel fabrication platform continues to perform well, and it's earned in another solid quarter. We continue to have high expectations for the future earnings profile of this business. We believe non-residential construction markets will be strong in the coming years. Some residential starts and build rates are forecast to remain strong into 2024, and related spending has been higher in 2023 compared to the last year at this time. Though political dysfunction has delayed the awarding of public monies, likely into the first quarter of next year, the infrastructure spending and fixed asset investment related to the IRA programs, along with the reshoring and manufacturing, should provide momentum for additional construction spending through 2024. effectively extending the construction cycle. And customer commentary, as I talked to a lot of folks out there, has confirmed our positive outlook. The oil fabrication order backlog is certainly shortened from its historical high of over 12 months achieved in 2022, but it remains strong from a historical perspective, extending through March 2024 with strong forward pricing. Current order entry pricing remains resilient, Not only a significant contributor unto itself, our fabrication platform provides meaningful pull-through volume for our steel mills, particularly important in softer markets, allowing for higher through-cycle steel production utilization rates compared to our peers, adding to the resiliency of our through-cycle cash generation. Furthermore, it provides an effective natural hedge to lower steel prices. Our metals recycling platform had a challenging quarter demand from domestic steel mills softened and realized ferrous scrap prices declined. Scrap prices pulled back in the third quarter with bushing prices falling some $80 a ton. The North American geographic footprint of our metals recycling platform provides a strategic competitive advantage for our electric arc furnace steel mills and our scrap generating customers. In particular, Our Mexican locations competitively advantage our Columbus and Sinton raw material positions. We also strategically support aluminum scrap procurement for our future flat-rolled aluminum investments. Our metals team is partnering even more closely with both our steel and aluminum teams to expand scrap separation capabilities through process and technological solutions, enhancing margin and increasing the availability of low-residual ferrous scrap. This will mitigate prime ferrous scrap supply issues in the future. It will also provide us with significant advantage to materially increase the recycled content for our aluminum flat row products and increase our earnings opportunities on that platform. Our steel operations achieved strong shipments of 3.1 million tons and solid financial results in the third quarter. Steel production utilization rate, when you exclude symptom, was 90%. compared to a domestic industry rate of some 76%. Higher utilization rates have been clearly demonstrated throughout all market cycles, driven by the value-added diversified product offerings, which amount to 70% of our sales. And this, as Theresa mentioned, will increase further with the addition of two galvanizing and two paint lines that will be commissioned in the first quarter of 24. Differentiated supply chain solutions driving customer preference and mitigating price volatility, and supportive downstream internal pull-through manufacturing volume are all contributors. Our high through-cycle utilization rate is a key differentiator and supports our strong and growing through-cycle cash generation capability and best-in-class financial metrics. Looking forward, steel backlogs are strong and customer order entry is good. Customer inventories are also at historically low levels. Auto production estimates for 23 remain around 15 million units, but obviously with the ongoing strike, the outlook for the remainder of the year is somewhat opaque. But positively, dealer inventories remain below historical norms, which will be further reduced by the ongoing strike. With demand that is still strong and with tight supply, the auto build rate will likely be higher than the already anticipated 6 million unit plus for 24. In the meantime, unfortunately, our auto direct flat road exposure is more concentrated toward European and Asian producers, which so far has mitigated the strike impact on our flat road auto volume. Although not a significant impact to overall earnings, we are seeing greater impact at our engineer bar division as their 15%, 20% auto exposure is mostly consumed by domestic auto producers. Non-residential construction remains solid. Along product steel backlogs are good and customer inventory levels are low. General market is estimated to be off 8% of some due to seasonality, but should rebound as infrastructure spending provides meaningful support in the first half of 24. The turn down in residential construction seems to be abating. with a depletion of available home inventory. Oil and gas activity is strong, driving improved orders for OCTG products, and solar continues to grow at a rapid rate. In total aggregate, long product demand remains solid, and in flat role, lead times are expanding. We're seeing excellent order entry, supply chain inventory is low, and pricing is certainly in an upward trend. We certainly anticipate further meaningful strength once the strike is concluded. Turning to Sinton, after the unplanned July adage related to the cast of shear, the Sinton team produced over 290,000 tons in the quarter. The mill has clearly demonstrated its production rate capability. It's been achieving 36 heat sequence lengths, and it's exceeded its hourly nameplate run rate. However, as I said, The constrained production is manifest from a low utilization rate caused principally by equipment reliability issues. That said, we expect to progressively ramp up to about 70% total run rate by the end of 2023, reaching a production of 2.4 million tons for 2024. Despite our challenges, the team has demonstrated the key competitive advantages of the Texas Steel Mill. We have completed full product dimensional capability proven up to 1 inch thick, down to 0.53, I do believe, up to 84 inch width. Customers are reporting exceptional surface quality. And the hot strip mill design is allowed for thermal mechanical rolling, allowing production of higher strength grades, tough grades, with lower alloy content, and thus lowering costs for those value-added products. We've achieved grade 80 and 100. and already had been approved for some API grades. I think just generally, it affirms our technical and process choices, and there's no doubt that, in my mind, it's the next generation of electric arc furnace flat-row steel technology of choice. We have gained strong market acceptance, and we can sell every pound of steel we can make. Our exceptional through-cycle operating and financial performance continues to support our cash generation and our growth investment strategies. Relative to our expansion into aluminum, as I said, the responses from existing and new customers across all markets is absolutely incredible. We are developing the site. We purchased some 2,600 acres, I do believe. But we're developing it for the co-location of customers for the rolling mill, as we successfully did in sentence. We're seeing a number of customers are already indicating strong interest in that model because it provides a sustainable competitive model for all of us. To recap the project, the 650,000 metric ton flat row facility in the roller mill will be located in Columbus, Mississippi. State-of-the-art facility serving the sustainable beverage and packaging automotive and industrial sectors. Approximately 300,000 metric tons will be canned, 200,000 tons auto, and 150,000 industrial. We have on-site melt and cast slab capacity in Columbus of around 600,000 metric tons. The project will be supported by two satellite recycled aluminum slab casting centers, one in central Mexico and one in Arizona, to capture scrap close to its source. We'll have two cache lines, coding lines, and downstream processing and packaging lines to fully support our customer base. Startup plans are still anticipated for a mid-25 startup for the rolling mill. Mexico's slab center should start up late 24, perhaps January 25, and the Arizona slab center in the first quarter of 25. Total project cost. including all recycled slab centers, is around $2.5 billion, 100% to be funded with cash. As we've stated in the past, we expect a through-cycle annual EBITDA of around about $650 to $700 million from the aluminum portion, and the support of OmniSource will draw another $40 to $50 million for them. I think the market, from an investment perspective, What excites me is the market environment is very similar to the domestic steel industry when we started SDI 30 years ago. The industry generally has older assets, had a tough time earning its cost of capital. There's been little reinvestment over the last 45 years. It has heavy legacy costs, tends to be inefficient and have high cost operations. parallels the situation we saw within the steel industry 30 years ago. Following that, we see a definite deficiency in supply that exists in North America, and that deficiency is expected to grow even with our and a second competitor's new facility. From our perspective, it is a an adjacent industry to us. It leverages our ability to design and build, commission, ramp up large capital assets and operate those assets very effectively, efficiently, at low cost through our performance-incentivized, innovative, and very effective culture. In closing, we're excited and impassioned, and we always are, and we continue to be, by our future growth opportunities as they will continue the high returning growth momentum we have consistently demonstrated over the years. Our culture and business model continue to positively differentiate our performance, leading to best-in-class financial metrics, allowing a balanced cash allocation strategy that has rewarded our shareholder by top-in-class returns. We are no longer a pure steel company, but an integrated metals business providing enhanced supply chain solutions to the industry, mitigating volatility and cash flow generation through all market cycles. Our teams are our foundation. I thank each and every one of them for their passion and their dedication. We're committed to them, and as I remind those listening today, that safety for yourselves and your families and for each other is the highest of priorities. We're competitively positioned and continue to focus on providing superior value for our company, our customers, team members, and our shareholders alike. Thank you. Thank you for joining us again today. And, Holly, we would love to turn it over to questions.

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 1 earlier during today's call, please press star 1 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 re-entering the queue. Your first question for today is coming from Martin Engler at Seaport Research Partners.

Hello. Good morning, everyone.

Good morning. Within the steel segment, steel conversion costs, which do include some substrate costs, increase, I think, to around about 576 per ton in the quarter from 522. Is there any additional color that you can share regarding the portion of substrates and maybe some positives and negatives when you think about the sequential change in contributions between true conversion costs and substrates, as well as if there was any material impact from the sentent outage on that conversion cost?

Good morning, Martin. It's Theresa. Great question and observation. It really didn't have anything to do with the change in substrate mix, but that can have an impact. But there's two things that I would point to. One is the fact that because Sinton didn't operate all of July, the way that you're calculating your conversion costs That lack of volume does have a pretty significant impact. It's not that there was additional cost. The costs were pretty de minimis. It's just that lost volume affecting the denominator. It's really affecting your conversion costs on a per ton basis a little bit on an outsized way. The second thing is that we are preparing to start the value-added lines in Heartland, and then Sitton will follow thereafter in the coming months. And there's some additional costs related to that as well. But nothing to point to that would be systemic of higher conversion costs going forward.

Okay. So there is certainly a one-off that seemed material for the quarter and then some lingering kind of transitory as you're working on ramping the other value-added assets. How long do you think that will persist for through the fourth quarter and then, you know, in the first quarter of next year? Any idea?

No, so Martin, with the advent of Fenton now operating and not being a part of that outage, you're going to have that incremental volume, which is going to really make that conversion cost get back in line with what you're used to seeing. But the value adds in line, there is some incremental cost. It's nothing that is necessarily significant that you'll have to try to figure out for the fourth quarter. We have two of the lines coming online, maybe even before the end of the year with the remaining two for the first, probably first couple of months in the first quarter.

Thank you for that. If I could, one last one here, excluding 2020, looking at seasonality and 4Q total steel shipments, they tend to decline around 5% sequentially. Is there anything you're seeing this year that that would suggest something different, and I imagine, you know, comparing the sequential with the Sinton outage and then Sinton back up probably might have an impact here on a sequential basis.

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

And you're aiming for 70% utilization on exit for the year with Sinton, correct?

That's correct.

Okay. Thank you very much. Congratulations navigating the downward market in the continued growth investments.

Thanks, Martin.

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

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

Martin, I'm sorry, you cut out a little bit.

Carlos, can you repeat that? Yeah, yeah, sure. Just on Synton, Given the outage that you experienced, but things now are ramping up nicely and you expect full production, well, at least production throughout the fourth quarter, how do you see the evolution of the EBITDA generated by the company, by the plant, Synton?

Okay.

Carl, we won't give specific guidance on the earnings associated with Sitton. We are giving updated items on volume so that you can understand from a modeling perspective. So we would expect to see a significant improvement from the third quarter given the fact that we weren't operating all of July. But that being said, I really can't give you any guidance specific to what the EBITDA will be at Sitton.

All right, and then just maybe one more on the fabrication business. You did mention a strong forward pricing in your backlog. Is there any additional color that you can provide given the extraordinary strong pricing that we have seen in recent quarters relative to history? Yes.

No, it's okay. It has to do with fabrication and the price in the backlog. So from a historical basis and even from, you know, recent 2023, pricing in the backlog is very strong, much higher than previous historical peaks. We've seen that be maintained. The spot market, where the order activity isn't as strong as it was in 2022, it's still really good from a historical basis. but that is contracting the backlog somewhat. So now it extends through the first quarter of 2024. And I think something else that we just want to keep in perspective, Mark mentioned it on his opening notes, but I want to reiterate it because I think it's really important. We've been talking about the IRA monies, the Department of Energy monies, monies that are coming from the administration for public dollars. It's our estimate, and others would agree, that there's likely not even 5% to 10% of that money that's been allocated or awarded yet. It's going much slower than anyone had expected and much slower than the administration had indicated that it would. So those projects aren't benefiting the elongation of construction, steel consumption, fixed asset investment, steel, joist, and death demand as well. We're fully expecting and what we're hearing from the administration and from others is that those dollars will start flowing in the first half of 2024. So right now there's a bit of a gap in funding, and I think you're seeing that in the volumes, but we fully expect that to pick up and improve in 2024 and 2025. Thank you very much.

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

Yes, hi. Thank you for taking my questions. Maybe the first one, following up on the fabrication, you provided some guidance back in Q2, and I now understand that the stable volume guidance, half and half, is no longer valid. So, I was wondering, and it's not the first time the guidance has been cut there. What is driving quarter after quarter that they can have cut and that weakness? And you provided some color on the sequential movements, I guess, on the steel side for Q4 volumes. Can you tell us a little bit more about FAB? And the same question a little bit on ASP. You guided for down 10% to 15% in H2 versus H1 on the ASP front. The Q3 ASP is already down 17% versus that level. So Can you help us try to calibrate the weakness in ASP we should expect in Q4, but also in Q1 because you have some visibility into that quarter as well?

From a modeling perspective, Tristan, from a volume, I mentioned in my opening notes that we do expect to see some regular seasonality in the steel fabrication volume as well. So sequentially, we would expect it to be modestly lower than what you would have seen in the third quarter. But again, we're not attesting that to, I think I addressed the consumption question when I responded to Carlos. As it relates to average pricing, again, the backlog is very strong. If you're having seasonally lower volumes, I think it's a reasonable expectation to think pricing will be down somewhat, but we don't see it being in the same magnitude as the sequential second to third quarter. It'll be somewhat less than that.

All right. Relative to the pricing, the market actually has been a little confounding because since mid-July, we have seen the market being very, very strong, very solid. In fact, order input rate has been great. you have a situation where people, it's more emotional. There's no main structural change in demand that allowed or pushed the pricing down. It was more emotional relative to the strike. Mid-September, when people recognized that it's sort of already been baked into the pricing, When I saw that inventories were very, very, very low in the supply chain, I see that lead times are already stretching out, that we've seen an inflection, and there is definitely upward momentum in flat world pricing today. It's our anticipation and the anticipation of others that there's going to be quite a market increase in pricing once there's a resolution to that strike. Looking forward, we see a very positive constructive market environment.

Thank you. That's very helpful. If I just have a quick follow-up, and this time more on the capital allocation side. I mean, given the current context, and I think you touched on and you reaffirmed what your capital allocation priorities are, can you just – reiterate what you view on inorganic growth and can you confirm that at the moment you're not interested in looking at large acquisition on the flat roll side and that's not an area of focus and that right now 100% of your attention is on aluminum?

Kristen, we can't confirm that.

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

All right. That's very clear. Thank you.

Your next question is coming from Timna Tanners, at Wolf Research.

Hey, good morning, team.

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

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

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

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

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

Thanks. And then the last question, if I could squeeze it in, is just on the CapEx guidance. I think we had last quarter, you had talked about a number for 2024 of about 1.5 billion. And just with the higher CapEx guide for Q4, we just wanted to check on if that number is still right for 2024. Thanks again.

You're welcome, Tim. Actually, we're in the middle of planning for 2024 on the capital investment side right now. It looks like it's going to be closer to 1.8 to possibly $2 billion. I'll be able to put a finer point on that as we get through the first quarter. but it's primarily comprised of a little bit more on the aluminum side, just from a timing perspective, not a total investment. So aluminum may be as much as 1.3 to 1.4 billion next year. We also have the construction and startup of the biocarbon facility, which could be as much as 150 to $175 million. And then we have some tail to the four value added lines as well of maybe a hundred million dollars. So I will be putting a finer point on that, but right now I'd say it's probably in the range of $1.8 to $2 billion.

Appreciate it.

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

Yeah, hi. Good morning. Thanks for taking the question. We've been seeing some reports that the U.S. and Europe are ahead of this summit tomorrow, maybe looking at removing some of the tariffs or adjusting quotas and things like that. I guess, assuming that some of this does happen and quotas go away, how would you see this impacting the U.S. steel market?

Well, I guess we don't have the same intelligence that others have from our folks on the Hill and conversations It really seems still up in the air. The European position and the U.S. position are totally at odds, and not much progress has been made. But maybe we're wrong. That said, obviously the tariffs today, a lot of that has been negotiated away, and only probably 25% or so of incoming steel imports are affected by that. Obviously, quotas are in place with Brazil and here and others. I would imagine that they will remain in place in some form or fashion. European tariffs, maybe that is a little different, but Europe is not really an influence on our market, in all honesty. If you look at the straightforward arbitrage today between Asian pricing and European pricing, it's not that attractive. We don't necessarily see a big influence there. We do feel strongly that any tariff and quota-type activity will transition into some form of carbon tax or border tax. actually in the long run will likely be a lot more effective than what was in place today. Again, we need to remember and highlight that the principle trade constraints, the countervailing duty, anti-dumping cases that were brought in 2015 went through sunset last summer and got continued, I think it's another five years. Those are legislative in nature. They won't change. They firmly, firmly, or eliminate, you know, Chinese imports, for instance. Certainly, in addition with, or in concert with the kind of ailing duty requirements

Okay. Yeah, thanks for that, Culler. Second question, so on bar volumes, so you mentioned that there's some impact with the strike, but the strike really only started, I guess, late in the third quarter. So how should we think about the trajectory of volumes, you know, assuming a bigger hit in the fourth quarter through that segment?

Well, for us, we don't really see a major change in volume from an automotive perspective in the fourth quarter for us. As I mentioned in my notes, we have a large percentage of our auto book is European and Asian. They are not impacted by the strike as of now. We do have some business with Stellanus and with Ford. But again, on a percentage basis, it's not going to be...

to our both volume or earnings. Okay, thanks for sharing the insights.

Your next question is coming from John Tumazos with John Tumazos Independent Research.

Thank you. With all the great dynamics benefiting the steel business, Industry-wide apparent demand looks like it's trending about 8 million tons below the average of 2017, 18, 19. I don't know what's normal, but I'm looking to the pre-pandemic period. Your own choice business is off 16,000 tons sequentially, and I guess 56,000 tons year on year. And there's no inventories in Joyce because they're made custom order. What are the segments that are down that are negating some of the other growth or accounting for the decline? A high rise office building with work at home with lower consumer spending, e-commerce, warehouses, and retail space are poor. Are there any other segments that could account for the deviations?

Well, I think from a – we've got some feedback going on here. But we're talking principally fabrication here. Yeah, I think, again, all we can do, John, is look through our book, our order book, our lens. But obviously the distribution warehouse arena has come off. It's not stopped. Amazon obviously... came out very publicly sort of almost holding their development because they overbuilt. That's not the case with other distributors. It's still an ongoing market for us. All of them is down. But I think we picked it up. Education, health care has been positive. And just manufacturing facilities, the battery plants, the chip plants are picking up. not at the rate to offset, totally offset that distribution base, but nonetheless it's picking up strongly and we would anticipate continued growth next year. Just the infrastructure, the IRA spending, that certainly will bolster our order book there and give it some support.

In terms of the two-year decline in spot sheet prices of $1,200 from big records, how much damage do you think that's caused across consumer and distributor inventories? You know, when prices fall, people don't want to hold the hot potato.

Well, I think the biggest impact is...

the reduced level of speculation. In the supply chain, in fact, it's not a reduced level of speculation. People just don't speculate anymore. So you see people, it's kind of hand in mouth. They tend to be ordering and buying on an as-needed basis. that allows consistent shipping. Since July, mid-July, we've seen very, very, very consistent order input rates and deliveries, even as the pricing came off. The pricing, this time, and just as it was last year. Last year, we had a similar story with a very constructive outlook for 2023. which in all honesty came to fruition. The emotion last year was, woe is us, we're headed for a recession, we've got high interest rates, inflation, et cetera, et cetera, et cetera. There was no structural change in underlying demand in the fourth quarter of last year. We're seeing the same thing today. Demand is very, very solid across virtually every market sector that we have. We saw that softness. strike-related, emotional. People are starting to see lead time stretch out. They're starting to see or get a little worried. We're booked out, and essentially our order book is closed for November. And given the interest we see for December, we haven't opened that book yet, we're not so sure we will be able to satisfy the total appetite there. So it's a positive thing. positive market momentum going into 24.

Thank you. I'm a shareholder. Thank you. Stay that way.

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

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

Well, thank you, Holly. And for anyone that remains on the line, I would tell you I am blessed. SDI is blessed. Each and every one of us is blessed here because we have phenomenal, loyal customers. Thank you for your support today and in the future. We have great service providers. We've got a phenomenal, phenomenal team of people that come to work, as I said earlier, inspired and positive each and every day. So thank you. Thank you for those that are shareholders. And those aren't, I would hope that you consider us, because we will create better shareholder value than most folks in the years ahead. So thank you very much. Have a good day. Bye-bye.

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