Steel Dynamics, Inc.

Good day and welcome to the Steel Dynamics first quarter 2025 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, April 23, 2025, 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 Lipchitz, Director, Investor Relations. Please go ahead.

Thank you, Holly. Good morning, and welcome to Steel Dynamics' first quarter 2025 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, Teresa Wagler, Executive Vice President and Chief Financial Officer, and Barry Schneider, President and Chief Operating 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 risks 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, 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 will also find any reference non-GAAP financial measures reconciled to the most directly compared GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports First Quarter 2025 Results. And now I'm pleased to turn the call over to Mark.

Well, thank you, David. Good morning, everyone. It's good to be with you on our first quarter 25 earnings call. I will apologize in advance. I've got a crushing head code, so if I feel or sound a little rugged, please excuse that. But that said, our teams achieved a solid financial and operational performance in the first quarter. It's a continued testament, I think, to our business model and performance-driven culture. Highlights included record steel shipments of 3.5 million tons and adjusted EBITDA of $448 million. And most importantly, our teams continue to operate safely. We've been successfully ramping our four new value-add flat-rolled steel coating lines with the expectation of full earnings benefit later this year. These lines represent an additional 1.1 million tons of higher margin product diversification, which further adds to our position of being the largest non-automotive coater in North America. The Sinton team gained considerable momentum in the quarter, running at around 86% of capacity and many times over 90%. The team also achieved positive EBITDA for the quarter, with expectations of a steep acceleration of profitability for the remainder of this year. I'm very excited for the accomplishments that the team has made in the last six months, and there's absolutely no doubt it is the mill of the future. And Barry will go into some more detail during his opening comments. Lumen Dynamics. It successfully cast its first aluminum ingot in January at our Columbus, Mississippi facility and in March at our Mexican satellite slab facility. We're extremely proud and excited for the teams. Everything is on schedule for the systematic commissioning of the rest of the lines with an expectation to ship commercial quality coils in June. Again, I'm proud of the entire Steel Dynamics team. They are the foundation of our company and they continue to amaze me We're singly focused on providing the very best for their health and safety, and we continue building a world-class safety culture. In particular, our team's dedication to our Take Control of Safety program is extraordinary. We're actively engaged in safety at all times and at every level, keeping it top of mind in an active conversation each and every day. I'm continually inspired by the commitment our team members have for one another They consider themselves family and challenge the status quo each day. That said, there always will be more to do as we drive toward a zero-incident environment. So, Teresa, would you like to give us some details on the quarter?

Thank you, Mark. Good morning, everyone, and thank you for joining us. I add my sincere thanks to the teams for another solid performance. Our first quarter 2025 net income was $217 million, or $1.44 per diluted share with adjusted EBITDA of $448 million. First quarter 2025 revenue of $4.4 billion was 13% higher than fourth quarter sequential results, primarily driven by record steel shipments. First quarter operating income of $275 million was 16% higher than sequential results, also related to steel volumes. As we discuss our business this morning, we continue to focus and execute on our transformational growth initiatives. Our steel operations generated operating income of $230 million in the first quarter, sequentially higher as record shipments more than offset metal spread contraction, with an average realized external steel price decline of $13 per ton and an average scrap price increase of $16 per ton. I do want to add my congratulations to the Sinton team. They've really turned a corner. I'm very excited for them. From a steel price perspective, as a reminder, approximately 75% to 80% of our flat-rolled steel business is tied to lagging contracts, generally on average about two months in arrears. So the more recent increases in flat-rolled steel pricing will positively impact the second quarter. For modeling purposes, for the first quarter of 2025, hot van shipments were 1,093,000 tons, cold rolled shipments were 116,000 tons, and coated shipments were 1,403,000 tons. And as a reminder, we'll continue to see that coded volume actually increase from a product mix perspective as the four new lines start to have full utilization. In the first quarter, they were still only utilized on average around 50% to 55%. For the first quarter, operating income from Rimmel's recycling operations was $26 million, improving modestly as volumes in ferrous metal spreads increased. We're the largest non-ferrous metals recycler processing and consuming ferrous scrap, non-ferrous aluminum, copper, and other metals. And we're growing in support of our increased steel capacity and soon-to-be aluminum flat-rolled operations through new and expanded supplier relationships and through the use of innovative new separation technologies. And I want to congratulate the Omnisource and Nanoel teams as they're increasing those separation technologies and we're actually adding capacity in the coming months. Our steel fabrication team achieved first quarter operating income of $117 million, lower than sequential fourth quarter results as realized pricing declined a modest 4% and shipments seasonally decreased. Our steel joists and deck demand remained solid with good order activity. March was our strongest order entry month in two years. Our backlog extends into the fourth quarter of 2025 and forward backlog pricing remained solid. Federal programs, manufacturing growth, and onshoring are expected to support domestic fixed asset investment and related flat and long product steel and steel enjoys demand in the coming years. Pitting to our aluminum operations, a quick reminder, as we finish constructing the aluminum facilities, non-capitalizable expenses are required to flow through SG&A. As a result, our SG&A in the first quarter was higher by approximately $37 million. We continue to have expectations to achieve positive EBITDA in the second half of 2025 for the aluminum platform and plan to operate the rolling mill at approximately 30% for the full second half of the year with an exit rate of 50% and 75% for the full year of 2026 with an exit rate of 85%. Construction is coming to completion and commissioning progressing extremely well. Approximately $2.4 billion has already been invested through March of 2025 with the remaining 300 million forthcoming. During the first quarter of 2025, we generated cash flow from operations of $153 million, which was reduced by an annual company-wide profit sharing retirement distribution of $165 million. excluding this payment cash flow was 318 million dollars in the quarter with net working capital growing about 105 million dollars as steel prices increased later in the quarter we ended the quarter with strong liquidity of 2.6 billion dollars we invested 306 million dollars in capex during the quarter for the full year of 2025 we still believe capital investments will be in the range of 800 million to a billion dollars with the majority related to the completion of our aluminum and biocarbon strategic growth investments. As a reminder, our sustaining or what some call maintenance capital requirements are conservatively in the range of 200 to 250 million dollars annually.

Regarding Cheryl's

Our cash generation is consistently strong based on our differentiated circular business model and highly variable low-cost structure. The actions of our cash generation continue to build confidence in our future. 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. While we remain dedicated to preserving our investment grade credit designation, our track record is proven and recognized. In the last five years, our average, excuse me, our after tax return on invested capital was 23%. And this was during a timeframe of transformational growth and strong shareholder returns. We opportunistically accessed the investment-grade bond markets in March and issued $1 billion of unsecured notes comprised of a 5.25% $600 million 10-year tranche and a 5.75% $400 million 30-year tranche. using the proceeds to pre-fund a $400 million note that matures in June of 2025 and for other corporate purposes. We really appreciate the receptiveness of the credit investors for our offering, allowing us an excellent outcome, and we sincerely thank you to all involved. A quick forecasting comment. As aluminum dynamics ends construction, so will the associated interest expense capitalization in the second quarter. So net interest expense in the first quarter was around $12 million. In the second quarter, it'll be closer to $30 million and therefore likely $40 million a quarter. Our free cash flow profile has fundamentally changed over the last five years from an annual average of $540 million to most recently $3 billion if we exclude aluminum and sentin. Even if we include aluminum sitting, it's still over $2 billion per year. 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. We are squarely positioned for the continuation of sustainable, optimized, long-term value creation. Thank you. Barry?

Thank you, Teresa. Our steel fabrication operations had a solid performance in the first quarter. In fact, as Teresa mentioned, March represented the single highest month order entry volume in two years, with whom we met with the momentum continuing in April. Our order backlog extends into the fourth quarter with attractive pricing levels. We continue to have high expectations for the business due to the strong quoting and order activity, continued onshoring of manufacturing, recently announced significant privately funded manufacturing projects and public funding for the infrastructure and other fixed asset investment programs. The long-term uplift from this backdrop could be considerable for all of our platforms. Our steel fabrication platform provides meaningful volume support for our steel mills, critical and softer demand environments, allowing for higher through cycle steel utilization. It also mitigates the impact of lower steel prices. Our metals recycling operation improved earnings in the first quarter as demand from North American steel producers supported higher ferrous scrap volume. The team also continues to grow its access to recycled aluminum in advance of our aluminum flat-rolled operations ramp-up. Ferrous scrap prices increased each month in the first quarter of 2025 before moderating approximately $40 per ton in April as weather improved, supporting higher scrap flows. We currently expect prices to remain fairly stable throughout the year. The North American geographic footprint of our metals recycling platform provides a strategic competitive advantage for our steel mills and for our scrap generating customers. Our metals recycling team is also partnering even more closely with both our steel and aluminum teams to expand scrap separation capabilities through both process and technology solutions. This helps mitigate potential risk of supply as more grades of ferrous and non-ferrous scrap become usable for our steel and aluminum operations. It also provides us with a significant advantage to materially increase the recycled content for our aluminum flat roll products and increase our earnings opportunities. The steel team had a strong quarter, achieving record shipments of 3.5 million tons. During the first quarter, the domestic steel industry operated at a utilization rate of approximately 75%, while our steel mills operated 89%. We consistently operated higher utilization rates due to our value-added steel product diversification, our differentiated customer supply chain solutions, and the support of our internal manufacturing businesses. This higher through-cycle utilization of our steel mills is a key competitive advantage, supporting our strong and growing cash generation capability and best-in-class financial metrics. Regarding the flat-roll steel markets, pricing and order entry have stabilized at levels much higher than we saw in the second half of 2024. However, there has been some hesitation with certain customers awaiting more market certainty. Overall inventories remain historically lean, but increased imports kept incremental buying at bay in certain product areas, specifically for coated flat-rolled steel products. We levied a trade case related to these products in the third quarter of 2024, and we recently received favorable preliminary countervailing and dumping rulings, which has already slowed the imports of unfairly priced coated steel flat-rolled products. This, along with the announced 232 tariffs, should positively impact demand for lower carbon emission U.S.-produced steel products. This positions us incredibly well as we have the largest producer of non-automotive coated flat roll steel products in North America. As for the long product steel market, they also improved in the first quarter with demand for most sectors stable or improving. Prices have increased over the last several months with solid order entry and improving backlogs. Our sit-in Texas flat roll mills production and reliability continue to improve. In the first quarter, operating at 86% utilization and at times over 90%. As Mark said, they achieved positive EBITDA for the quarter. We expect to see significant increase in Sinton's earnings contributions as they continue in the second quarter and again the second half of the year. As the team further improves yield, lowers their cost structure, and improves the cost of quality, we also continue to work on product development at Sinton to expand our existing flat roll product offerings. Currently, API pipe grades and high strength steels are in various stages of development in the operations. Also, the additional two new value-added coating lines are increasing volume, improving SITN's value-added product mix, and through-cycle earnings capabilities. Regarding the steel market's environment, North American automotive production estimates for 2025 were recently revised lower, with uncertainty due to the impact of recently discussed auto and auto part tariffs. However, there's ongoing discussions of these being softened as well. Fortunately, our specific automotive customer base has remained stable. with us growing automotive market share in both flat roll and SPQ steels. Non-residential construction remains stable with slowdowns across some industries. However, as I mentioned earlier, we have seen pricing for structural beams, engineered bars, and merchant bars increase over the last several months with expanding backlogs. Additionally, on-shoring, large recently announced domestic manufacturing projects, and infrastructure spending should provide further support to fix asset investment and related construction-oriented projects. As for the energy market, oil and gas activity remains steady, with recent signs of increasing activity for both Flat Road Steel and SPQ. We also see ongoing demand in the solar markets, which we are very active. Looking forward, we remain optimistic regarding steel demand and pricing dynamics for the remainder of 2025.

With that, I'll surrender the microphone.

So surrendered.

Okay. Thank you, Teresa. Thank you, Barry. Well, I think the last six months are a great example of the resiliency of our business model. A performance-driven team-based culture in combination with a proven, diversified, and value-add business model drives superior through-cycle financial metrics. Such consistently strong operating and financial performance continues to support our cash generation and growth investment strategies. allowing a very balanced cash allocation strategy that has delivered the highest shareholder returns in our industry. Our disciplined investment approach continues to support a strong and growing through-cycle cash generation profile while maintaining the highest return on invested capital among our peers. Again, the four flat-road steel coating lines are increasing volume and performing very well from a quality perspective. These types of high return investments are key to our value-added product and supply chain differentiation strategies. As we mentioned, Syntem continues to perfect its operational reliability and downstream operations. They were EBITDA positive in the first quarter, with expectations for a material positive shift in financial contribution this year. And most recently, our aluminum growth strategy is months away from contributing to our earnings. I think the aluminum investment premise is especially compelling and parallels our disruptive entry into steel industry some 30 years ago. We see a market environment in aluminum similar to the domestic steel industry back then. Older assets, high legacy cost burden, inefficient, high cost operations. They've had a difficulty earning their cost of capital and hence little additional investment in facilities and technologies taking place. no significant expansion in the past 40 plus years. But unlike our entry into the over-supplied steel market back then, there's a significant North American supply deficit for aluminum sheet, and it's growing. There's clear business alignment between our steel and aluminum operations. We're leveraging SDI's core competencies in construction and operational know-how, and exploiting that with our performance-driven culture driving higher efficiency, lowest cost operations. It also levers Omni's recycling footprint, being the largest North American aluminum scrap recycler, along with its new separation technologies. This meaningful investment is a cost-effective and high return growth and diversification opportunity for us. And the project is no longer just a vision, but it's a reality. Construction of the expansive mill in Columbus, Mississippi is nearing completion, and is in commissioning phase, being executed at an extraordinary pace. The aluminum industry is finally realizing we're here, and we will be a force to be reckoned with. The customer base across all sectors is excited to have a new market entrant that is known to be innovative, customer-centric, and responsive to their needs. For us, business relationships are long-term, founded on trust and the continuous goal of creating mutual value. We strive to be a differentiated supplier each and every day. As our aluminum growth has become a reality and our reputation permeates the industry, aluminum professionals with vast experience have joined us in this exciting project. And it's exciting to see. They see the vision and are excited by our culture where they see that they themselves can make a major contribution. They're helping us build a phenomenal team that combines in-depth knowledge of aluminum flat-road operations, commercial markets, and process technology, along with customer service, complementing our SDI professionals that will bring our performance-driven culture to bear. As many of you know, the physical assets will be a state-of-the-art 650,000 metric ton aluminum flat-road facility in Columbus, Mississippi, with about 300,000 ton of can sheet, 230,000 ton eventually of auto, and 130,000 ton of industrial and construction products. We will, in Columbus, have on-site melt-cast slab capacity of around 600,000 metric tons, supported by two satellite recycled aluminum slab casting centers located in UBC scrap regions. Project scope includes additional scrap processing and new segregation technologies to maximize aluminum recycled content. The team is executing exceptionally well. The team successfully cast their first industrial on beverage can ingots in Columbus, Mississippi in January, and have since then been developing practices for the 3,000, 5,000 series alloys. And in San Luis Potosi in March, they cast their first ingots also. We plan to continue commissioning throughout the facilities during the coming months and to produce commercially viable products in June 2025. Production is expected to grow to an exit rate capacity of 50% this year and 75% capacity for the full year 2026. Relative to cost differentiation, we expect through cycle annual EBITDA of $650 to $700 million plus $40 to $50 million for metals recycling platform. The most significant savings relative to our competition center on four key areas. labor savings, higher recycled content, significant process yield improvements, and logistics. And while walking the plant floor, you can feel the excitement as our teams recognize their ability to revolutionize the North American aluminum industry as we did in steel. We're impassioned by our current and future growth plans as they will continue to drive the high return growth momentum we have consistently demonstrated over the years. The earnings growth of these new projects is compelling. Capital spending for Synton, the four value ad lines, and the aluminum dynamics facilities is largely spent with a projected future through cycle EBITDA contribution of some $1.4 billion or more. Fuel dynamics has grown to an incredibly resilient cash generating business of scale and diversification, driven by the best teams in the world. In the last five years, We've invested billions of dollars in organic strategic growth, earned a return on invested capital of 23% compared to the S&P 500 at only 12%, and certainly way better than our industrial peers. We've increased our cash dividend over 100%. We've repurchased over 30% of our outstanding shares and over 40% since 2017. All the while, maintaining best-in-class investment-grade credit metrics, in creating outstanding value for our customers and suppliers, our teams, and our shareholders. I'm excited as investors clearly see now the power and consistency of our through cycle cash generation combined with our consistent and high return capital allocation strategy. It is our belief that the steel industry has undergone a paradigm shift in recent years. There's a pervasive sense of mercantilism that will provide a level playing field through continued and appropriate trade mechanisms. We've seen that in the recent coated flat road steel positive trade determinations. Recent Trump administration steel and aluminum moves, the tariffs. Risk mitigation to address numerous supply chain dislocations of accelerated reshoring and manufacturing. AI and cloud computing will support non-residential construction, data centers, chip factories and battery plants, along with growing fixed-acid investment associated with public and private dollars. Decarbonization will materially steepen the global cost curve, providing steel dynamics with a significant competitive advantage to gain market share and increase metal spreads. This evolving metals business environment should amplify our earnings capability. So as you see, we are blessed with good fortunes. our people being our foundation. I thank each of them for their passion and dedication. We are committed to them, and I remind those listening today that safety for yourselves, your families, and each other is the highest priority. I'd be remiss not to thank our loyal customers, many of whom have supported us since our inception. As I said earlier, these partnerships are based on trust, on doing what we say we will do, and creating new solutions to enhance their value propositions. Our new and aluminum partners will experience the same. And also to our suppliers and service providers who we value and trust. Thank you. Our culture and business model continue to differentiate our performance, leading to best-in-class financial metrics. We're a circular metals business, providing enhanced lower carbon supply chain solutions and in turn mitigating volatility in cash flow generation through all market cycles. providing an enhanced shareholder returns and value to all participants. We look forward to creating new opportunities for all of us today and in the years ahead. With that said, Holly, we'd love to open the lines for 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. Please hold while we poll for questions. Your first question for today is from Katia Jancic with BMO.

Hi, thank you for taking my questions. Maybe starting on your raw materials or metallics needs, can you talk about how exposed you are to importing those?

Sure, and perhaps Katia, just expand that a little bit because I'm sure the whole tariff and trade situation is of interest to everyone. And I think the generally paraffin trade actions today, specific to steel and aluminum, are extremely beneficial for us. One has to recognize, even before this present term, that Section 201, 301, anti-circumvention, and other past cases are still firmly in place and prevent impact from China. And I think the recent core case, and I know I'm deviating from the raw materials, but just giving you a broad picture, the recent core case, which is the trade action against the coated steels, is going to be very impactful. In fact, it's already impactful. It covers, I think, Barry, 10 Asian countries, and about three, four million tons of dumped coated steel. And that will be very beneficial to us. And I think the derivative products actions are extremely beneficial. There are, I think, some two to three million tons of fabricated structural steel items coming through onto our shores. And that's an appreciable amount. You know, that market is probably somewhere six to eight million tons, and suppressing that will have a major, major impact for our long products platform. And then just generally the tariffs on supply chains already is providing, I think, a positive momentum from a reshoring standpoint. Relative to raw materials in particular, Obviously, scrap is not included today, and all my comments are as of today. One doesn't know necessarily what may happen in the days, weeks, and months ahead. But the scrap flowing across the border is not an impact to us. We bring about 700,000 tons of scrap in from Canada and about 400,000 tons up from Mexico, but that remains unaffected. P-1020, which will be consumed in our aluminum facilities, the tariffs tend to be absorbed through the Midwest premium and passed on to the customer base, so that has little impact. We will have a little impact from tariffs on pig iron if they remain in place. Just as we did at the onset of the Ukrainian war, When pig iron pricing went skyrocketing and availability was challenged, we increased the prime scrap and, more importantly, our sort of what we call shred one, our low residual scrap, and reduced that pig iron content or appetite so that they will be reduced. And then there will be some impact on slab, aluminum slab coming up from Mexico. That'll be incremental this year because of obviously we're ramping up and the volume is not gonna be very large. But I think in general, we are well positioned relative to our peers. And I think it sets the stage for The renegotiation, you know, the USMCA gets renegotiated in 2026. I wouldn't be surprised if that got pulled forward, but I think there would be a very, very positive outcome for the country when that occurs.

Okay, thank you. I'll hop back into the queue.

Your next question for today is from Timna Tanners with Wolf Research.

Yeah, hey, good morning, and I hope you're feeling better soon. I wanted to ask, if I could, about what changed that sentence from prior guidance. You know, you talked about it not being even positive than it was. And then, if I could, also, are you still looking to produce exposed automotive eventually there? Any updates, please, would be great. Thanks.

Hey, Tim, real quick, can you just re-ask that first part of your question about what changed? Can you just clarify that a little bit?

Yeah, so initially you had talked about Sinton not being profitable, I think, in the mid-quarter update. And then in the results, you talked about it being profitable. So I just wanted to understand that and maybe what's improved there and can continue to improve going forward. Thanks. Okay, thank you.

So from a change perspective, I'm going to let Barry get into the details of something because we are really excited. That's why we congratulate the team and hopefully somebody down there is listening. But from the perspective of what changed, we were just really trying to see where the end of the quarter fell out. And obviously they were more exposed to spot pricing. than Columbus and Butler are. So some of the price appreciation on the flat roll side was actually able to be captured in the March timeframe, where it will be more lagging at Butler and Columbus. So it was nothing that was significant, but it was very exciting for us to have an EBITDA positive quarter heading to operating income in the second quarter.

And really, the team maturing and bringing the line utilization rates higher has allowed us to capture that market quicker. as Teresa mentioned. With the long-term projection of Automotive Exposed, we are very excited about the product we produced down there. I think it's early to be talking about Exposed, but we are developing really good practices so that we continue to make our customers happy as we ramp the facility up and we introduce new products. So I wouldn't rule it out, but it's not something we're advertising at this minute.

Okay, makes sense. Thank you.

Your next question for today is from Carlos D'Alba with Morgan Stanley.

Carlos, your line is live.

Yeah, sorry, I was on mute. Thank you very much. On the fabrication business, I think I heard that March had the strongest order entry in two years. Does this mean that the volume that we saw in Q1 mark probably the bottom, and it should increase from here, and if not the second quarter, maybe the third quarter, because we did notice that the shipments in the first quarter, and I understand the seasonality, but they were the lowest, I think, since 2015 or 2017 on a quarterly basis.

Thanks, Carlos. I'll let Barry add. What I would say is we've been talking about this. We talked about it kind of the whole quarter that for fabrication in the first quarter because there was still some hesitancy around what was happening with the administration, what steel costs would be, where interest rates were, that there was some hesitancy from a customer perspective of actually having those jobs proceed forward. And so we knew there'd be some open patches, if you will, and those generally get filled with smaller projects that have a little bit lower pricing dynamics. So we definitely are seeing strength in the second half of the year as it relates to fabrication, and that's the momentum you're seeing in March and April, but I'll let Barry further comment.

Yeah, the activity we're seeing is robust, and it's the type of projects that we do very well in with New Millennium. So we do see those projects materializing, and we also see some of the projects that have been temporarily on hold status with the uncertainty. Some of those are starting to free up, so we anticipate growing forward through second quarter and into the second half of the year as what we see today comes into realization.

Thank you.

Your next question is from Tristan Gresser with PNB Paragraphs.

Yes, hi. Thank you for taking my question. Just a quick follow-up on the downstream side. Does that mean that with the visibility you have and backlogs into the the end of the year, do you expect volumes to improve on a year-on-year basis starting Q2 or maybe in H2?

Christine, yes. We do expect to see, based on what we can tell today and the order activity and the current macro environment that we're all watching day-to-day, we absolutely expect volumes to be higher year-over-year.

All right. Thank you. My question then is more on the demand side of the equation. Could you discuss a little bit by end markets what has been the recent developments since the tariffs were announced in early April? You mentioned you had a strong Q1, and now there is some uncertainty. So I'm curious to see the order activity, how it's been in the past two weeks, and also how we should – I mean, you had a very strong shipment figure in Q1. How we should think about – shipments into Q2.

Yeah, Tristan, we continue to see a lot of real consumption out there. In spite of all the uncertainty out there, there are a lot of customers that are actually looking to further their relationships with us. We've seen more growth in our longer-term contracts, people trying to cement their supply chains. And when you look at specific marketplaces like construction goods, Our painted products are doing very well. We see resilient demand out there. We see opportunities for growth. With the HVAC industry we support, we saw an uptick February and March. And some of it we think was a little bit buying ahead of uncertainty of tariffs. But now we're seeing some demand fill back in there. So we continue to be pretty excited about what we see with HVAC. The appliance business we do is pretty steady. And I think that, much like automotive, depending where you're at in those industries, your vision of them might be different. So our appliance vision is pretty strong right now. We're also very strong with automotive. The platforms that we are on are actually doing very well. So we saw a Q1 kind of surge, particularly with the North American players that we're associated with. So we remain very excited about that. We're seeing a lot of activity for pipe and tube, whether it's oil and gas or whether it's infrastructure. Those projects are starting to materialize and, you know, there's real demand for some of these activities that has just kind of been put off. So we're excited about that. And some of the rail business we do is also very steady. So last year was slow with class one railroads, but we're starting to see that pick up again in 2025 here. So again, we see a lot of pockets where things are good. So in spite of the perhaps perception of the industry, people are still trying to make things go. And our team is really good. When things get tight like this, our relationships come back and our relationships help support how we go forward. So in times like this, we're excited about the opportunity to grow. and to enrich those relationships we've worked so hard at building. So all in all, with what we see today, we're excited about where 2025 is going.

All right. That's very helpful. So just to confirm, normal seasonality in Q2 seems a fair base case in terms of volumes.

I'm sorry, Tristan. Can you say that again?

Normal seasonality into Q2 for steel shipment seems like a fair assumption.

So we've got a lot of different things happening right now to Barry's point. So we've got Sinton growing. We're gaining market share and especially the core cases. can't be under-discussed as far as the positive impact. And since we're the largest coder of non-automotive flat-rolled steel in North America, it's specifically impactful to us in a very positive way. So I would not expect to see shipments go backward if that's what you're asking.

Thank you. Thanks a lot.

Your next question is from Chris Lefimina with Jefferies.

Hi, thanks for taking my question. I actually have a kind of more of a strategic question. You've obviously spent a lot of time on your existing organic growth at Sitton and the aluminum mill and the value add lines, all of which are getting close to the finish line now. So you're going to start to generate higher through cycle cash flows. You've talked about being excited about your current growth plans as well as your future growth plans. And I'm wondering what happens next. I mean, you know, you'll be, presumably you're on a higher through cycle cash flow run rate You've talked in the past about doing more in non-steel recycling, including, I think you talked about in copper, but copper and aluminum. You've obviously been buying back shares as well. I mean, do we get into a situation where steel dynamics becomes an even bigger capital return story, or is it about the next leg of growth? And then, sorry, secondly, on the next leg of growth, if you look at growing in the U.S. steel industry, are you worried about investments from sparring steel mills building new capacity here to sort of circumvent tariffs and ultimately that leaving little opportunity for you to grow and steal domestically. So really just kind of question around medium to long-term strategy. Thank you.

Well, I think, as I mentioned earlier, we were absolutely blessed. We have a great team and the strategic initiatives they've put in place over the last 5, 10, 15 years is why we're here today. And as you rightfully say, we're going to have a very, very strong cash position moving forward as all these recent projects come to fruition. It's going to allow us a continued sort of balanced cash allocation strategy. I don't think it's going to change. And we will use all the tools in our toolbox to improve shareholder value. I think you will see growth in aluminum, for sure, as you've seen it in steel. A lot of the things that evolved through our lifecycle in steel, downstream, value-add, processing, coating, painting, can be done in the aluminum world as well. So that will continue. And steel itself, for sure, there's still plenty of opportunities Still plenty of opportunity there. Our teams are incredibly innovative, and there are market spaces and niches that we don't play in today that we intend to penetrate. We don't grow just to be big. We always grow if you look at both our organic and our inorganic growth. we always differentiate ourselves, and you'll continue to see that value-add sort of profile going forward.

I would just add to that. Right now, and the teams are doing it, we're in a period of execution and optimization of these larger growth projects that we've had. So we don't see billions of dollars of CapEx in the near term, but we do see the cash flow coming, so that will allow opportunities for shareholder returns to continue at a really strong rate. It also allows us though, we don't want to forget about the fact that we are acquisitive. So we do look at transactions from time to time as well. We're just really disciplined and that's what differentiates us from our peers. So there's still a lot of opportunity for growth while distributing strong shareholder returns on a through cycle basis.

I guess I was also wondering in terms of the mechanism for capital returns and Buybacks are nice, but having a higher through-cycle dividend that could be funded by the higher through-cycle cash flows might actually be an even more compelling point of differentiation. And how does the board and the management team think about the allocation of those capital returns? And is it possible that you just change the dividend payout model based on the higher through-cycle cash flows? So thank you for answering my questions.

No worries. So from a dividend perspective, I mean, we've increased our dividend by over 100% in the last five years. We definitely keep an eye on it and we definitely know that it's important, but we grow the dividend when our cash flow structure fundamentally grows on a through cycle basis. So you should expect to see dividend growth as you have seen in the past, as we have more significant cash flow opportunities come to fruition through organic or transactional growth, such as aluminum, such as sentence, you will see more significant dividend increases. I think we are following that philosophy. We want to keep dividends on an absolute basis meaningful, yet conservative, and we complement that with the share buybacks. So the board looks at it that way, as does management, because we want to be responsible so that that dividend's never at risk.

Great. Thanks again.

Your next question for today is from Bill Peterson with JP Morgan.

Hi, good morning. Thanks for taking the questions and, you know, nice job on the quarterly execution. I wanted to ask about downstream margins and how to think about it in the second quarter. You know, we think about the lag input costs, higher steel prices. Do you think this will overshadow the pricing stabilization or improvements you've spoken to about in the past? Just trying to get a sense for us as we think about margins in the quarter and looking ahead.

Well, we generally, as you know, Bill, don't give a specific guidance as it relates to things like that. I would just point you to some of the drivers to consider. So one of the drivers is that fabrication generally keeps eight to 10 weeks of inventory or substrate inventory, maybe 12 weeks on the ground. So as we've had escalating flat rolled steel prices, you will see higher steel input costs going into fabrication. But that can also be a premise or a driver for increased profitability or increased pricing on the product side. And we have seen stabilization there. So later in the year, we definitely think there's opportunity for growth. Whether that comes sooner or later is hard to say. The other thing that I would remind you of is that volume is really, really impactful in our fabrication operations because it really is about people. And so as you have more volume, that margin expands pretty dramatically pretty quickly because of the cost compression. So I can't give you specific guidance as it relates to fabrication operations. I would just say for the year we're feeling very strong.

Okay, thanks for that.

Your next question is from Mike Harris with Goldman Sachs.

Yes, thanks, and good morning. There was a couple of times during the call where my sound cut out, so if you answer this, I apologize in advance. But under the non-cash adjustments, can you provide a bit more color on what's behind the $19 million in unrealized gain losses and maybe speak to how we should think about the potential impact for the balance of 2025?

Yeah, absolutely. So, Mike, just for clarification to make sure I'm answering your question, you're speaking about adjusted EBITDA, correct?

That's correct.

Yeah. So that relates to we have a risk commodities team where we manage risk around the amount of scrap copper, finished product copper at our copper rod and wire mill, and aluminum. And so that was just an unrealized loss. in the first quarter related to the sharp moves and non-ferrous pricing. Generally, that will come back then in the following quarter. So if you look at that quarter over quarter, you're going to see over a period of a year, you know, 18 months, 24 months, it doesn't have that much impact. But that's what it was related to specifically in the first quarter. It's just an unrealized hedging loss.

Okay, so just a timing issue that nets itself out over the course of the year is a good way to look at it?

That's a great way to look at it.

Okay, perfect. Thanks a lot.

Your next question for today is from Andrew Jones with UBS.

Can you hear me okay? Yes.

Are you there?

Hello.

Andrew?

Yes, I am.

Can you hear me?

We can now.

Hello. Okay, great. Thanks. Just a follow-up. I mean, you were asked earlier about the metallic exposure, and we heard your point that, you know, you can use more time to scrap and reduce that exposure. But can you give us a, you know, an actual number for how much pig iron was It was consumed maybe in 2024 or your kind of expectations for 2025 with the ramp up of Simpson prior to these coming in, just so we can get an idea for the impact going forward.

Andrew, that's a moving target for us. We all the time are looking at the economic balance for what our raw material charges are. So when we speak to the fact that we're working on segregation sorting techniques, that allows us to get what would normally be cut grade scraps into a cleanliness level where we can use them more abundantly. So we are constantly making that decision each month. When it comes to pig iron, we look at that same balance. And in many cases, it helps the operations besides just quality. It also can be productivity enhancing. So our teams are really good at having different scrap mixes in the mills at every moment of the day and having the right resources to make the best decision at the time. So we could go anywhere from 8% to 25% on our pig iron, and we will make those decisions based on what the market pricings are of those different units. Our Butler, Indiana facility has an iron facility on site, Iron Dynamics, that has been an outstanding asset to have the last five years specifically. because we're able to create iron for the Butler plant out of waste materials. So that technology has allowed us to be a little bit more independent. And down south at Sinton and Columbus, those assets, again, are continually looking at what the product mix requires and what the cost may be. So to this point, we've had great supply from our offshore pig iron suppliers. We continue to be transparent and have discussions. We think those pricing mechanisms will resound themselves through the year. So short term, we haven't done anything out of the ordinary. It's a large volume to just stock up on, and obviously we don't want to build our working capital. But we feel pretty good that as the situations unfold, we'll continue to find metallics at a competitive price. Everybody in the ARC First community is buying these same materials. It's a matter of how effectively you can use them on a day-to-day basis. And that's, again, where I think our team excels in being able to make those choices and be informed. A lot of hard work goes into doing that. So, you know, the flat roll mills are the only mills that bring offshore metals in, the pig iron. All our long products mills are 100% scrap-based. So that's the impact if you look at what our flat roll is versus the long roll.

Okay.

No, that's clear.

And just actually on that working capital point, the build that we saw in the quarter in working capital, is that purely a function of pricing with scrap and other inputs moving up through the quarter? Or were there any other kind of overlays on that?

Now, remember, the working capital bill, if you exclude the profit-sharing payment that gets paid every March every year, was really only a bill of about $100 million, and that really was associated with pricing moves, more on the steel side, actually, than on metallics. And I guess the takeaway that we would want everyone on the call to have is that as it relates to our current position with raw materials, with demand, the entire kind of set of selling products and getting the raw materials in to sell those products and the current tariffs that are in place, we feel really well positioned and we don't see a material financial impact in the negative. We actually just see a net upside as it relates to customers, pricing, et cetera.

That was good. Okay. Thank you.

Your next question is from John Tumazos, a private investor.

Thank you very much.

Concerning your original business plan for the aluminum mill, with the current aluminum tariff economics, the Midwest premium doubled roughly from $0.20 to $0.40 on the plus side. The UBC price had been about a $0.30 discount to LME. Now it's only a nickel. When you balance out the input-output analysis, are the current economics better, the same, or worse than for your original business plan a couple years ago?

Great question.

A convoluted algorithm to spit out the answer, John. I would say we feel... that with the exception of the slab coming up from Mexico, and we'll see how that pans out, the economics remain in place.

Does that mean it's all a wash?

Again, it's a wash with the

with the exception of where the tariff impact might be on SLAM coming up from Mexico.

Thank you.

But as I said earlier, for this year, that's incremental because we're just ramping up and the volumes are going to be relatively small. And I don't necessarily, well, I don't believe that the current tariff regimen is going to be in place much longer than through this year.

In terms of the competitive landscape, I recall May 1992, my old firm raised $100 million for the Hazlitt Caster in Davenport, Iowa for Quanex. Maybe that's owned by Alaris now. What are the aluminum prices rolling mills of 30-year or younger vintage, the good competitors that you'll be competing with.

So, John, if you're asking if there are North American rolling mills that are less of age than 30 years, is that the question?

I think Alaris built one. I'm just trying to remember what are the ones that are going to be your newer competitors.

Well, to be honest, I don't think there will be no close competitors to us. I mean, if you look at the technology, the scale, the efficiency, the increased recycled content that we'll be able to have, and just our culture. Johnny, you've followed us for many, many, many years now. The combination of taking state-of-the-art technology and just exploiting it with people that are impassioned, that are incented to drive every cent out of the cost structure and maximize metal spread. We are confident in that. the investment premise that would be put forth.

Thank you. Hats off to everything you're doing. Congratulations.

It's been over like 40 or 45 years since there's been a meaningful high-tech expansion. And like I said earlier, it is reminiscent for us gray hairs that have been around for a while, it's reminiscent of us getting into the steel industry business 30 years ago. Back then, the prior mill was Burns Harbor in 1961. I mean, it's the same set of circumstances that we're going to hopefully disrupt.

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

Super. Thank you, Holly. And I will be quick, but for our employees that remain on the call, again, absolute heartfelt thanks for what you do each and every day for us. Thank you for your commitment and your passion and my sincere wish that stay safe. Again, thank you to the customers and service providers out there And for those that are shareholders, again, thank you for your trust and your support. We, too, are large shareholders, so we know exactly how you think, I believe. And we work on your behalf each and every day to improve your value. So thank you. Everyone, be safe. Take care. Bye-bye.

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