Nucor Corporation

Good day everyone and welcome to the new core corporation fourth quarter of 2020 earnings call. As a reminder today's call is being recorded. Later we will conduct a question and answer session and instructions will come at that time. Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. The words we expect, believe, anticipate, and variations of such words and similar expressions are intended to identify those forward-looking statements, which are based on management's current expectations and information that is currently available. Although NUCOR believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risks and uncertainties relating to these forward-looking statements may be found in NUCOR's latest 10-K and subsequently filed 10-Qs, which are available on the SEC's and NUCOR's website. The forward-looking statements made in this conference call can speak only as of this date, and NUCOR does not assume any obligation to update them either as a result of new information, future events, or otherwise. For opening remarks and introductions, I would like to turn the call over to Mr. Leon Topalian, President and Chief Executive Officer of Nucor Corporation. Please go ahead.

Good afternoon and thank you for joining us for our fourth quarter earnings call. We hope everyone on the call is having a good start to the year and staying safe and healthy. The last 12 months have been incredibly challenging on so many different levels. The pandemic has impacted businesses and markets and taken a tremendous toll on so many that have cared for and lost loved ones during this time. The distractions we have faced as a nation and as a company are significant, yet the Nucor team has never lost its way in delivering the safest year in our history. Let me repeat that again. 2020 was the safest year in the history of our company. I'm extremely grateful for the hard work, dedication, ownership of our nearly 27,000 team members who made this result possible. While there still is a great deal of work ahead of us in our journey to become the world's safest steel company, I am more convinced than ever that this team will accomplish our goal. To our Nucor teammates, thank you. I am proud for you all. Well done. Now, let's make 2021 our safest year ever. Joining me today on the call are the members of Nucor's executive team, including Jim Frias, our Chief Financial Officer, Dave Samosky, Chief Operating Officer, Al Baer, responsible for plate and structural products, Craig Feldman, responsible for raw materials, Doug Jellison, responsible for DJJ and logistics. Greg Murphy, responsible for business services and our general counsel. Ray Napolitan, responsible for engineered bar products. Rex Query, responsible for sheet and tubular products. Mary Emily Slate, responsible for our commercial strategy. Chad Udemark, responsible for fabricated construction products. And Dan Needham, who will be joining our Charlotte team on February 1st and be responsible for bar products. At the end of the year, we announced several changes to our executive team. Dave Samosky was promoted to Chief Operating Officer. Dave has been with Nucor since 1995 and has led multiple steel product groups and strategic initiatives, most recently combining our domestic rebar steel mill and fabrication businesses. Dave is uniquely positioned to help Nucor continue to build lasting partnerships while executing our enterprise-wide strategy. Mary Emily Slade has taken on a new role as Executive Vice President for Commercial. This is the first time we have had an EVP-level leader in this role at Nucor. The purpose is to enhance our ability to focus on our key markets and to better connect with our customers. Meeting the future needs of our customers while maintaining and maximizing the benefits of the broad and diversified offering of Nucor will be a vital function of Mary Emily's team as we move forward. I'd also like to welcome four new team members to our executive team, Rex Query, Doug Jellison, Greg Murphy, and Dan Needham. Each of these executive management team promotions will enhance our ability to serve our customers and our shareholders. Business conditions remain strong in the fourth quarter, with improving pricing and healthy volumes across our diverse product portfolio. Of particular note, utilization rates at our sheet mills and plate mills continue their sharp upturn in the fourth quarter. While we were pleased with our operating performance and cash flow for the period, our earnings were impacted by non-cash charges, which were more than offset by tax benefits recognized in the quarter. The most substantial of these were related to our agreement to exit from the Divertifin New Quarter Joint Venture and the impairment charge writing down the value of our cash trip operations, both of which impacted our steel mill segment earnings. The capabilities of our new state-of-the-art cold mill and the Generation 3 galvanizing line we have under construction at Nucor, Arkansas have diminished our utilization of Castrip. We do plan on continuing to fully support existing customers as well as the technology to further improve Castrip's product offerings for Castrip licensees. The non-cash charge that we recorded upon exiting the DeFertifin-Nucor joint venture was actually more than offset by a tax benefit related to our investment, so it did not hurt our net income for the quarter. Jim Frias will elaborate more in his opening remarks. Turning now to comment on 2020 as a whole, the year ended up much stronger than anyone would have anticipated when the pandemic first took hold of our global economy in March of last year. Our team and our business model proved to be incredibly resilient and we were able to take advantage of this stronger than expected recovery because of the Nucor team doing an excellent job keeping our mills running reliably and safely throughout the volatility that characterized 2020. This allowed us to reliably fulfill our customers' requirements. Our focus remains on continuing to deliver a differentiated value proposition to meet and exceed our customers' needs. Looking at specific end-use markets, construction remained strong throughout the pandemic, and automotive was quick to recover in the second half of the year after shutting down in the second quarter. Together, these two markets account for nearly two-thirds of steel consumption. We are aware of certain leading indicators signaling a downturn in non-res construction activity, but so far, we don't see much evidence of that. Our company is well positioned in attractive subsegments of the non-res construction market. There are areas of strength, most notably warehouses and data centers, that may not be fully reflected in the ABI and other indicators. We have worked to build relationships in these subsegments that are bright spots, ensuring that we are providing the best solutions across steelmaking and steel products to serve those customers. We are cautiously optimistic that a significant infrastructure spending bill will be passed by Congress and signed by the new president this year. After years of talk, this must get done. We are still driving on roads and bridges designed and built during the Eisenhower administration. This is not sustainable. We would not be surprised if a funding bill focused in part on green infrastructure spending, including renewable power generation and transmission. Nucor is well positioned to meet our country's needs of environmentally friendly steel and steel products. With roughly 50% of our steel used in the construction sector, There is arguably no company more poised and ready to meet the needs of rebuilding our country, the new core. In the automotive market, we believe demand should continue its rebound. We think 2021 light vehicle production in North America will be around 16 million vehicles. Having wrapped up the fall contract season, we feel good about our prospects for continuing share gains in the automotive market. The investments we have made at our sheet mills in Arkansas and in Kentucky are To expand our production of value added products are paying off demand from the oil and gas sector continues to be weak, even as oil prices have been rising, along with many other commodities. I think that significant continued improvement in that market is going to depend on how quickly vaccines can get out to a large number of people and how long it takes for commuting and travel patterns to approach pre pandemic levels. Strong demand growth from the renewable energy sector has partially offset the weakness in oil. Our sales to the renewable power sector have been very strong this year, with steelmaking segment orders related to these markets growing by double digits compared to the 2019 total. The renewable power market is one Nucor is targeting, and many of our steel and steel products are essential to its continued build-out. We rely primarily on recycled steel to make these products and they themselves are 100% recyclable. This fact positions us well as a supplier of choice here as we see sustainability and product transparency becoming a more important factor in product sourcing decisions in the renewable power sector and in most other end use markets. We're also seeing signs that other end use markets will rebound from this past year's depressed levels, including heavy duty trucks, heavy equipment, and agriculture. Turning to our strategic growth projects, we continue to make excellent progress on them during the fourth quarter. Our new rebar micro mill in Frostbrook, Florida started up operations on schedule in December. Congratulations to the entire Nucor Steel Florida team for getting this new steel mill up and running on time and for doing it safely. This past October, we celebrated the groundbreaking of our new steel plate mill in Kentucky. Our Nucor Steel Brandenburg team has done a great job keeping the project on schedule throughout this year and we are moving at full speed to bring the state-of-the-art plate mill to market during the fourth quarter of 2022. We're also making great progress on our expansion project at our Gallatin Sheet Mill. The expansion project is expected to start up in the second half of this year. With regard to some of our facilities that are in operation I'm pleased to report the new pickle galvanizing line at Gallatin had an excellent first full year of operation, despite the pandemic shipping 39% more tons than we projected when we approved the project. Year one profitability was also ahead of plan. Gallatin's entry into the value added coated sheet market has proven very timely with a strong flat rolled market conditions that emerged in the second half of 2020 and are continuing into Q1 2021. We have experienced very strong customer acceptance of Gallatin's coated product as we further develop target markets that include automotive, solar, tubing roll forming, grain storage, culvert, and cooling towers. Also, the new cold mill at Nucor Steel Arkansas has gotten off to a strong start with shipments almost 30% ahead of our initial plan for the mill. Strong customer acceptance rates following trials were conducted throughout 2020 mean that the new mill is now booked out for this year at 85% of its nameplate capacity for contract customers. We are looking forward to running our first prime coil off our new Gen 3 gaupline at Arkansas later this year. This is slightly behind our original schedule due primarily to the slowdown in capital expenditures we instituted around the beginning of the pandemic. Our new rebar micro mill in Sedalia has also exceeded our expectations. The team there generated a solid operating profit during the most recent quarter and its spooled rebar product continues to be well received by our customers. At our galvanizing line joint venture with JFE in Mexico, we are back up running after a government mandated shutdown and beginning to ship coils to automotive customers. Congratulations to the team there. Our Kankakee, Illinois bar mill completed commissioning of its new MBQ rolling mill in December. While the timeline of this project was slightly extended due to COVID-related disruptions, customer acceptance of the new products has been extremely strong. We expect to achieve positive cash flow from this investment in Q1. Construction on upgrades to Kankakee's Melt Shop, including a new caster and ladle stir station, will begin in earnest in February, with final commissioning of this equipment expected in Q4 of this year. This investment will significantly improve the energy efficiency of the Kankakee Mill. Before I turn the call over to Jim, let me give a shout out to our teammates at Louisiana DRI Operations. As many of you are aware, we took some downtime at Louisiana in 2019 and have invested approximately $200 million to enhance operational reliability there. It has really paid off. In 2020, the Nucor Steel Louisiana team set new records for production, shipping, and operating hours. Most importantly, our team there accomplished all of this while operating safely for more than 450 consecutive days. Later this quarter, we will finish our work improving Louisiana's ore yard. With that, let me turn the call over to Jim to provide more details about our financial performance and outlook for the first part of 2021. Jim? Thanks, Leon.

Fourth quarter earnings of $1.30 per diluted share exceeded our guidance range of $1.15 to $1.20 per diluted share. As detailed in our news release, results for the just-completed quarter included a number of non-operational items that were not included in our guidance. After tax effects, again, for the items not included in our guidance, the total impact was produced net income by just under $34 million, or approximately 11 cents per diluted share. Earnings significantly exceeded our guidance as the pace of margin expansion at our steel mills surpassed our expectations. Conditions improved for many of our businesses throughout the quarter and now are the strongest they've been in some years. As Leon mentioned and as detailed in our news release, we were able to claim tax deductions related to our investment into Fertifin Nucor Joint Venture that more than offset the related loss on assets we recorded in the fourth quarter. Cash provided by operating activities for full year 2020 was $2.7 billion. New course free cash flow or cash provided by operations minus capital spending was $1.2 billion in 2020, comfortably exceeding cash dividends paid to stockholders of $492 million. Over the last three years, Nucor has generated $3.9 billion of free cash flow, even as we reinvested $4 billion in our businesses. As mentioned on previous calls, we have intensified our focus on maintaining appropriate working capital levels and reducing the asset base we require to generate strong profitability. I am happy to report that even as steel market demand and pricing has rebounded strongly in recent months, our tons of raw material inventory are actually down by more than 6% from the prior year end. At the close of the fourth quarter, our cash, short-term investments, and restricted cash holdings totaled just under $3.2 billion. Nucor's liquidity also includes our undrawn $1.5 billion unsecured revolving credit facility, which matures in April of 2023. Total long-term debt, including the current portion, was approximately $5.3 billion. Gross debt as a percent of total capital was 32%, while net debt represented 13% of total capital. The flexibility provided by Nucor's low-cost operating model and financial strength continues to be a critical underpinning to our company's ability to grow long-term earnings power and return capital to our shareholders. Dividends and share purchases total $531 million, or 74% of net income during 2020. And with the dividend increase announced in December, NUCOR has increased its base dividend for 48 consecutive years, every year since we first began paying dividends in 1973. Speaking of growing long-term earnings power, let me take a moment to provide a brief rundown on where we stand on some of our organic growth projects. Three projects started operations in 2019. A new specialty cold rolling mill at our Arkansas sheet mill, a rolling mill modernization at our Ohio rebar mill, and a hot band galvanizing line at our Kentucky sheet mill. Another four projects started production during 2020. Our rebar micro mill in Missouri, our Illinois merchant bar rolling mill, our joint venture sheet steel galvanizing line in Mexico, and our Florida rebar micro mill. The remaining three projects are the expansion and modernization of our Kentucky sheet mill, our generation three flexible galvanizing line at our Arkansas sheet mill, and our Kentucky plate mill. At the close of 2020, remaining capital expenditures for these three are approximately $1.9 billion, with the Kentucky plate mill project representing about three-fourths of that total. We expect that Nucor's total capital spending for 2021 will be in the area of $2 billion. Approximately 80% of the 2021 spending is to improve product capabilities and reduce costs. Turning to the outlook for the first quarter of 2021, as Leon indicated, we are encouraged by a number of positive factors impacting our markets. We expect earnings in the first quarter of 2021 to be significantly higher than our reported results for the fourth quarter of 2020. The expected performance of the steel mill segment in the first quarter of 2021 is the primary driver for this increase as our sheet, plate, bar, and structural mills are all forecasting increased profitability. Our downstream steel product segments performance in the first quarter is expected to decrease compared to the fourth quarter of 2020 due to typical seasonal patterns and some margin compression due to a lag between rising steel input costs and increased selling prices. The raw material segments performance in the first quarter is expected to be significantly improved due to higher raw materials selling prices. Thank you for your interest in our company. Leon.

Thank you, Jim.

And we'd be now happy to take any of your questions.

Thank you. To signal for a question, please press star one on your telephone keypad. Also, if you are using a speakerphone, please make sure that your mute button is turned off to allow your signal to reach our equipment. Once again, it is star one at this time for questions, and we'll pause to give everyone the opportunity to signal. And our first question will come from Seth Rosenfeld with Exane BNP.

Good afternoon. Thank you for taking our questions today. If I can kick off, please, with a question specifically on your raw material segment. Obviously, very strong performance this last quarter. I was wondering if you can touch on a little bit your own expectations for scrap prices as we look ahead through 2021. It's obviously been a very strong last couple of months. What would be your expectations going into the February settlement and longer term, given the growth in domestic EAS capacity where you see domestic scrap prices settling out. And as a follow-up, please, you touched on earlier some of the work within your DRI business in Louisiana, which seems to be paying off. Can you give us a little bit of color and the level of profitability in Louisiana and your broader DRI business? How should we think about that progressing going forward? Is there more upside, or do we already hit a pretty strong level at Q4? Thank you.

Okay, Seth, why don't I start with the back half of your question regarding the DRI. And while we don't specifically call out the individual divisions' profitability, what I would tell you is the results that I shared with you in my opening remarks regarding Louisiana's performance and reliability, their uptime, again, their incredible safety record, and the things that they've continued to be able to improve in their reliability is going to yield stronger financial performance. What I'd like to do now is maybe invite Craig Feldman, Craig, to share just a little bit of the backdrop around scrap, what we're seeing, some of the metallic spread, as well as how we think about prime scrap as we move forward. So, Craig, why don't you jump in, and then I'll maybe close at the end.

Sure, Leon. Thank you. And, Seth, thanks for the question. You know, you asked the question about longer-term view on scrap. Our crystal ball probably isn't significantly better than yours. Let me just share a few thoughts with you, though. We certainly do anticipate a near-term correction in the month of February, which I guess is not all that surprising given the nearly $200 increase that we've seen in the last 90 days or so. In fact, we've already seen some international scrap prices, notably turkey, fall here just really in the recent days. So we certainly see some moderate corrections. from the January levels, especially on obsolete grades, which are highly elastic and where flows have really been pretty good recently. Prime scrap grades are also likely to moderate a bit, but we don't believe we'll fall as much as the obsolete grades. February pricing would likely be down $30 to $50 a ton, depending on both the grade and the region, but we'd certainly characterize that as, I would say, a fairly normal correction given the size of the recent run-up in prices. And just a couple other things, and Leon alluded to this in his opening remarks, but there's some other factors at work here, too. The overall commodity price environment is pretty darn solid, and I don't think Leon mentioned this, but a relatively weak dollar really could help put a floor under that and really sustain the general commodity environment. The other thing I would point to, there are some seasonal factors. The month of February is typically a pretty weak month for scrap pricing overall. Meanwhile, March typically sees higher prices. We track this pretty closely with some heat maps, as you might imagine, Steph. Historically, scrap prices in the calendar month of February are either flat or down around 70% of the time. We're going back to the last 20 years or so. March is the exact opposite of that, with prices rising or flat around 70% of the time. We certainly could see some exceptions to those trends, but we really believe that this year will follow that more typical seasonal pattern, if you will. Bottom line, our near-term view on scrap pricing is some downward pressure, and it's likely to stabilize after that. If I may, one final comment on this. Just an observation with regard to scrap and steel pricing. You know, this may not be fully apparent or intuitive to most folks, but scrap pricing follows steel pricing and not the other way around. Again, steel demand and steel pricing lead scrap demand and scrap pricing. And as Jim and Leon alluded to in their opening remarks, you know, our view is pretty darn optimistic right now. So hopefully that gives you some color.

That's great. Thank you very much.

Thanks, Brian.

Thanks, Seth.

And once again, it is star one for questions. Moving on, we'll go to David Gagliano with BMO Capital Markets.

Hi, thanks for taking my question. I just have really just one. I was wondering if you could talk a little bit more about the spending plans beyond the $2 billion in 2021, given the timing of the remaining capital spend on the Kentucky plate now. I know it's early, but can you just give us a bit of a sense as to what your thoughts are with regards to 2022 on the capital spending side?

Yeah, this is Jim. I'll take a shot at that. I had some things in my opening comments regarding capital spending, and I'm trying to find that to make sure I repeat it in exactly the same fashion. When we think about 2021 spending, roughly $900 million of that will be on the plate mills. Roughly $250 million of it is going to be on Gallatin. And roughly another $100 million is going to be on completing the galvanizing line in Hickman, Arkansas. And, you know, we have about $1.9 billion overall on those three projects going forward. So you can then extrapolate off of that what's left beyond 2020. in most projects, take the 1.9 minus the 900, the 250, and the 1, and that tells you what's going to carry over roughly into 2022. Beyond that, we're always working on possible capital projects across our portfolio, and it's way premature for us talking about what new major capital projects could be put, but there's always ideas that are being worked on across the company.

Okay, can you remind us again, maintenance capex again is what these days?

There's no exact number, but we think of it as being in the range of $400 to $500 million, and it's never pure maintenance. You know, as we said in our comments, a significant portion of this year's capex, roughly 80%, can be categorized as, you know, creating some incremental value by reducing costs or broadening our value-add product mix. Okay, that's helpful. Thank you.

And moving on, we'll go to Tema Tanners with Bank of America Securities.

Hey, good afternoon, everyone.

Afternoon, Tema. How are you?

Good, thanks. I wanted to ask a little bit more to understand the flat-rolled segments, volume and pricing, and not to dwell on the past, but just looking at your average realized selling price in the fourth quarter, it rose like $80 a ton. And the spot increase that we calculated, at least, was about three times that. So I'm just trying to figure out how to do the right calculation in terms of the average realized selling price for you guys on flat rolled, especially as we see this really sharp increase into the first quarter, trying to think about how to calculate that. And then along those same lines, if you can remind us, what is the capability of the flat rolled segment? Because when I looked at your volume shy of 2.3%, And given how high prices were, I would have expected volumes to be maxed out. So can you just run through what the capability is and how to think about prices? That would be great.

Sure. Why don't I start off? And Marianne, if you've got some comments regarding kind of how we look forward in terms of the contract versus spot market. But look, at the end of the day, you know, we've got a lot going on. I'll begin kind of a little broader. As we think about the supply-demand picture, the demand side, really, again, all product groups are incredibly strong. We're at or near historic levels of backlogs in almost every product group that we have, including our downstream groups as well. Our activity and entry rates remain very robust and continue to be strong. I think a further strengthening sign of that or support of that As we talk to our customers, they're experiencing very similar things with their customers in incredibly strong back loss, order entry rates, again, at the customer level. So as we look forward, and I think Jim framed up well in his opening remarks, as we look at our sheet group, but really all product groups, but in particular as we look at Q1, we see a significant improvement as we move forward. Mary Emily, you want to share just a little bit about, again, how we're looking at 2021 and now that we've completed the contract year?

Absolutely. Thank you for the question, Tim. In fourth quarter, we actually were still working on contracts for 2020. And as we've talked before, there is a lag in contract pricing. It's usually done on a monthly or quarterly basis. And we're really well positioned. You saw that increase in fourth quarter, but we're really well positioned going into 2021 with a healthy contract versus spot mix. And I think one area to note is that almost 20% of our sheet capacity is dedicated to internal downstream customers, including bullcraft building systems and new cord tubular. And each of these businesses are growing, doing very well, projecting very good years. And our backlog right now is close to historic high, and it's about 50% better than this time last year. And so as I stated, That 20% is for internal downstream customers, and then we also have about 50% to 55% of our capacity locked up with external customer contracts. The pricing follows the market on a monthly or quarterly basis. Does that answer your question?

I was on mute. Sorry. I guess, but I mean, in the first quarter, you also had strong internal sales from what I could tell. In fact, if anything, your tubular products were higher in the first quarter than the second quarter. So I'm just trying to figure that out. And I understand that you have contract business, and I don't expect you to detail it to all your customers on the line and all that. But if you only achieved a third of the spot price increase in the last quarter, then that would suggest that you have contract funds that are absorbing more than half of your quarter-to-quarter move just back in the envelope. I'm just wondering, do we expect like the similar contract percentages of fixed versus variable or lag variable into the future? Is anything changed in your contract structure? And, you know, is it possible to regain the volumes you did in the first quarter or is the fourth quarter a better run rate?

You know, let me jump in real quick. First off, you know, I think it's important to remember These contracts are now fixed price contracts. There are things that float within them. Again, that exact breakout as you described on the back of the envelope, we're not going to lay out on this call, but at the end of the day, there is a lag effect on the way up and as well on the way down. Our expectation as we move forward, yes, there is obviously more opportunity because the price increases that we've past, and certainly the movements that you've seen in the indices like CRU, we think are going to move forward and stay strong. In terms of the volume, our sheet mills are operating at an incredibly high utilization rate while they're at capacity, and so that we see continuing, and again, I think their production levels will stay very high.

Some details on capacity utilization. We marked our capacity at 2,942,000 tons for the fourth quarter and we actually produced 2,902,000 tons. So we computed 98.65% utilization rates. Now the reason the shipments are so different compared to the first quarter, we may have had some extra inventory at the end of 2019 that helped us boost our shipments. We do have more downstream processing now with more galvanizing lines. So the WIP inventory in our system is probably a little higher when we think about the whip that's sitting at Galton that would have just gone straight to a high-paying ship in the past. So there's other factors that come into play in terms of the timing of shipment versus production. But we would expect to have a strong shipping month in the first quarter as well as a strong production month.

Okay, thank you. I have room for another one. I just wanted to get your thoughts on the higher-level philosophical view on the scrap market. So I know we talked about the near-term dynamic, which makes a lot of sense. But, you know, if you listen to Steel Dynamics call, they sounded pretty relaxed about scrap availability, even with all the new capacity consuming more scrap over the next couple years. And if you listen to Cliffs, they'll tell you that, you know, there's going to be a run on scrap. So kind of wanted to hear, you know, where Nucor stands in terms of your perspective. Clearly you have the DRI capability that enables you to be more vertically integrated in the iron units. But do you think that it's going to be an issue? Do you think that it makes sense to expand your position? Just would be great to get your thoughts.

Yeah, maybe I'll kick us off and Jim or Craig jump in if you've got some other points. And look, as we look at the long term, as the mix continues to shift from integrated mills to EAFs, and again, we're about 70% of the steelmaking capacity today in the United States, the EAF sector is, the demand on prime scrap is going to stay very tight. That's going to increase. And as we've pointed out on the previous calls because we need more prime. The automakers aren't going to make more units because the steel mills need that scrap. The high metallics, the quality metallics side of things and controlling our own downstream input to that for us is really very strategic. I don't think we're at the point where we're going to increase that, but there are things that we're doing every day to continue to maximize that. the investments in Louisiana and continuing some of those investments in the 4-yard to increase the efficiency and increase the yield and throughput there will be areas of that. But again, as we move forward, I do see as more EF-based mills come online and the demand as we move up the value chain, even for ourselves in automotive, is going to put continued pressure on the prime market. Craig, anything you'd like to add to that?

Yeah, actually, I do. And you touched on some of it, but Tim, you're right. There's a lot of dialogue around this topic, and it's something that we've been thinking about, frankly, for years. And we do agree with the assertion that high-quality metallics, as Leanne just said, will become tighter going forward. Even obsolete grades, we do envision that getting tighter with the conversion from integrated to EIF. And maybe what I'd like to talk about more is, is what we've been doing and preparing for in that regard and what we've been doing with our overall raw material strategy, if I could. And I guess the key to that strategy really is around our flexibility and optionality, and it's really around three key components that give us access to and influence over our total raw material needs. And first of all, and we talk about this a lot with regard to the DRI plants, But our capability there is roughly 4 million tons of high-quality material. And those plants, the two DRI plants, really can reach all of our DRI-consuming mills on the river and the East Coast in a very economical or freight-logical way. And as Leon alluded to, the Louisiana team really has made tremendous progress to improve the production and the reliability. And meanwhile, and sometimes this gets overlooked, is the New Iron team in Trinidad just keeps chugging along, and they've got a long history of low-cost production and really world-class quality and reliability in the way they produce DRI. And the second leg of this is really the David Joseph Company or DJJ's recycling operations with four to five million tons a year of ferrous processing capacity, and they're just really well-positioned to supply our own mills. Most of these DJJ locations, and there's about 65 sites in total, are focused on producing scrap, again, within the freight logical range of our own mills. And we continue to, I would say, opportunistically add capacity to the DJJ processing platform as we did in the last 18 months or so with a handful of tuck-in acquisitions, including a couple of shredders. And finally, the third leg of the oral strategy is again the DJJ brokerage and trading team really gives excellent coverage of both the domestic and international markets on a third-party supply basis, which we think is a big advantage. And I know the DJJ brokerage team prides itself on knowing its supply base extremely well and has access to scrap and scrap substitutes not only in the U.S. but globally. And, for example, the team did a really nice job here recently with the tightness in supply, which I do believe, Tim, back to your question, is symptomatic of what we're going to see in the future. But they've been able to capitalize on both some, I would say, longstanding relationships with key supply partners, but also went to some areas of the world that we haven't been to in a long time. And they've done a really good job with that to secure all the material we need despite those supply constraints. So to sum it up, yeah, we certainly envision that the metallics market could and probably will tighten up, but the flexibility and the options that we have from our own DRI scrap processing assets of around eight or nine million tons a year in total, along with the third-party relationships, that gives us the access and influence just on the material that we have, our own assets, dedicated to giving us about one-third of our total metallics demand covered. So that 8 to 9 million tons really represents about a third. So, yeah, I feel very confident, very comfortable in our ability to economically and efficiently secure our metallics needs going forward. Will there be the normal market gyrations? Of course. But I feel like our strategy is well established and we're in a good spot to navigate it well. Hopefully it gives you a little extra color.

Yeah, no, for sure. Thanks, guys.

And once again, it is Star 1 at this time for questions. Moving on, we'll go to Carlos D'Alba with Morgan Stanley.

Thank you very much. Good afternoon. So two questions, if I may. Just first one, how do you see the profitability in your downstream businesses throughout the year? Do you expect the bottom in the first quarter? You highlighted, obviously, a sequential decline there. But do you think we will see the bottom in the coming months and then improvement as we move into the second quarter? And then the other question is regarding working capital. Again, any comments that you can provide us there in terms of the evolution of working capital throughout the year, that would be useful. Thank you.

Thanks for the question, Carlos. And let me begin with the first one. And Chad, you and Mark, I might ask you to just chime in as well if I don't cover all of this. But, you know, at the end of the day, 2020 was – As I mentioned in my opening remarks, certainly a very challenging year. And at the same time, Carlos, Nucor and our downstream businesses, we had three product groups that set records for profitability. And so we ended up in a very, very strong position. And again, as we move forward, look at order entry rates and backlogs, we're at or near historic highs. And so while we expect to see some compression there, you know, the recent price increases, our metal margins are actually going to continue to grow in most businesses. Again, certainly the downstream side will face a little bit of compression, but again, it's coming off, again, in most of our downstream near record profitability standpoint. So, again, we do see it staying very strong as we move forward. You know, to your point around working capital, that's something that You know, we as a team, I'm really proud of our executive leadership team. You know, at the onset of this pandemic in February of last year, we met and we put some things in place with our leadership across all of the metals and operations to be incredibly disciplined and took very, very deliberate steps to manage our working inventory and scrap, whip, and finish goods. And that discipline and that commitment Well, that discipline is going to continue, and it has continued. And so we're not long, as we think about the product groups, we're not long in scrap, we're not long in width, and we're not long in the steel mills providing to our downstream product groups. So we feel very good about the true cycle profitability of all of our businesses. Chad, any comments you'd like to add on the product segment?

Yeah, thanks, Leon. And Carlos, thanks for that question. Yeah, I want to echo what was said by Leon and Jim about the forward look that we see in non-res construction and for most of our downstream businesses. And we are very excited as we enter 2021. And I know there are some sources out there that are indicating non-res may not be as strong as perhaps we say it is, or even looking into the future, but we derive our business outlook from numerous sources. But we do put a heavy emphasis on our customer input and our internal order entry data points. And we're excited as many of our downstream businesses have very strong backlogs. And as in some cases, we have record backlogs, all-time record backlogs as we head into 2021. And also, we monitor our recent quoting activity. And I can tell you in a lot of our businesses over the last four, five, six, seven weeks, we've seen activity rise. I want to repeat something Jim Prius said in his opening comments. And while we respect and do monitor the industry trade group data, we offer that some of the rising non-risk construction arenas may not be fully reflected in that architectural data. So our strong relationships with key customers, our breadth of product that we offer to the market, I guess I would just summarize by saying we're excited as we head into 2021. There will be some compression in some of our downstream businesses with rising steel costs, but those prices are being passed on in the marketplace, are being accepted, and we look forward to the coming months. Thanks, Leon.

Carlos, this is Jim Frese. I just want to add two ideas, one on commercial discipline. Leon touched on how the team got together and was very thoughtful about managing working capital as a result of the crisis. We also were very thoughtful about the volatility downward in pricing that we were seeing last summer and not getting caught up in that and taking too much business out of books at below market pricing. And so that discipline has positioned us well as we go into 2021 to not have a lot of low-priced backlog to work through, And so, yes, with the extreme movement in field pricing we've seen in the last 90 days, there is some minor compression in downstream business, but it's going to be minor. So that's the first point. And then back to your question on working capital, we think volumes of working capital, if you think about it on a tons basis, will be similar. Scrap prices will be relatively flat, so we think inventory values will be relatively flat. But receivables values will go up because steel mill pricing, on average, selling prices will be higher in Q1 than they were in Q4. So we'll let you estimate what you think average prices are going up. We'll take that times the amount of tons we ship, and that should be the bill of working capital for one month because we basically collect receivables in about 30 days. And I guess that's pretty much it. So thank you for the question. Thank you very much.

Next we'll hear from Tyler Kenyon with Cowan and Company.

Thanks very much. Good afternoon. Just first question here on the wind down of the Dufresne and JV. Was there operating headwinds from that JV in 2020 and was that flowing through the steel mill segment? Just curious as to how large that may have been. I'm sorry. When you say an operating wind down, you mean were we incurring operating losses at the joint venture? Correct. And was that flowing through the steel mill segment? Yes, it was incurring operating losses that were not very material, but they were generating losses and it was going through the steel mill segment. Okay. And then just maybe your outlook just for startup costs as we move into the new year and maybe in comparison to 2020 levels, which I believe were over $100 million? Yeah, we did $28 million in the fourth quarter, and both $19 million and $20 million will be flat just over $100 million. We're going to start off with the first quarter pre-operating startup being about $42 million, and it's probably going to be, on average, higher than last year. It might be in the range of $120 million. We don't really give a one-year outlook, but I would think that that $40 million pace is probably going to be the right range. We're going to have a few areas winding down, but both Galton and Brandenburg will be ramping up. So we'll be looking forward to the updates as we go. But right now, $42 million in Q1. And there was another part of your question I wanted to speak to, and I lost track of it. Was there a part I didn't answer? No, that's helpful. And I just wanted to ask one more. Go ahead.

I'm sorry. I just wanted to ask one more on the CapEx.

So, Jim, you said roughly $2 billion for 2021, right?

If I sum all the spend this year just on the major projects, the plate mill, the gallatin expansion, and gale wind in Arkansas, I get about $1.25 billion.

And then assuming, you know, $400 million or $500 million of maintenance-related spend, the difference is a bucket somewhere around $300 million, $350 million. Just curious as to what kind of projects these are. Sounds like it may be additional growth. And, you know, maybe how we should be thinking about that bucket moving into 2022. One of the projects was at our NYS plant. We had a roughing mill that had been in service since the infancy of NYS II, which makes the bigger sections. And it had really been reaching its end of useful life, and we needed to replace it. But when we replaced it, we didn't just replace it with an identical stand. We put something in that was more robust. You should speak instead of me. I started it. Once you finish it, then I'll continue.

That's great. Actually, I think you were doing great. I might invite Al there. Al, why don't you just quickly share and share with Tyler the tremendous work that the NYS team has done in bringing that project online and really expanding the capability of what ranges they can run as, again, that investment wasn't just a maintenance replacement. So, Al, why don't you make a few comments?

Yeah, I'm happy to and thanks, Alex. I want to make sure we addressed your question because that was a 2020 project. Were you asking about 21 or 20? He was asking about both.

He wanted to know what was in the bucket for 2020 and then what's going to be in 21. So I'll talk about 21 if you could sort of give him what it was for 20 and maybe what the project's capabilities are.

Yep, so that was about $145 million, Alex, at our Arkansas bean mill and that was just a modernization of one of the rolling mills and it's not It's an example of one of the many capital projects we do that don't always get a lot of press. The new stuff, the new mills, for good reason, get a lot of press, but we continually upgrade and add to the capabilities of these mills on a regular basis. That gave us improvements in quality, certainly in safety and flexibility and agility, the ability to move between sections more seamlessly. And so I think it's a great example that our mills, you know, that mill's been around for 30 years. It's not a 30-year-old mill by any stretch. It's continually upgraded. It's state-of-the-art. And we maintain those facilities to be competitive into the future. So we're excited about that. And I think it will ensure that we maintain our leadership position in Beams and compete effectively for a number of more years.

Yeah, and I would just add, Tyler, that there are projects of a similar nature next year. You know, we are doing some investing in our process gas business, adding process gas plants at both Gallatin and Brandenburg. Those, I think, are in the $40 million, $50 million range each. And then there's another project that is being worked on that our team has asked us to keep silent on because they're still negotiating some things. But it's in the mid-100 million range, like 150 million range kind of approach. And we'll talk more about that in the future once some things are finalized in terms of negotiations. Thanks very much.

And next we'll hear from Alex Hacking with Citi.

Yeah, good afternoon, and thanks for the call. I have a couple of questions. The first one is just on the cadence of the ramp-up. At Gallatin, obviously, with flat world markets so tight, there's a lot of interest in exactly how much tonnage Gallatin can contribute in the second half of the year. So any color there I'd appreciate. And then secondly, just following up on Tim's question around metallics, if we go back 12, 18 months ago, there was quite a bit of chat in the marketplace that some of the North American integrated mills might be interested in selling pig iron. I haven't really heard much about that recently, and obviously, Some of the structure there has changed on the integrated side. From where you sit, is that something that seems like it could be possible at some point? Would that help ease up some of the potential tightness in prime scrap? Thanks.

Hey, Alex. Thanks for the questions. I'll start with the back half of your question or the second question around metallics first and maybe ask Dave Samosky to address your opening question. Look, the short answer is Would we love to have a domestic supply of pig iron? Absolutely. But the caveat is it is at a price competitive point in the marketplace. And so if those integrators can come back on and produce pig iron at a competitive price, we will absolutely be lining up and purchasing our pig iron domestically. But again, that certainly is a challenge. We'll see what happens. And to your point, Several of our competitors have talked about restarts and doing just that. And, you know, we'll see how that unfolds as we move forward. But that's, you know, I'm certainly not going to speak to their strategies in executing. But, you know, again, it's got to be at a price competitive standpoint. And today I'm not sure if they can reach that cost or not. So really no other color to add there. Dave, do you want to comment on the first part of this question?

Yeah, sure. Alex, our Gallatin mill with the expansion will be able to produce about 3 million tons a year, which is about a 1.4 million ton add. And the startup is in the fourth quarter, so it's hard to imagine that there'd be any material tonnage coming out of Gallatin this year. But the startup at the beginning of next year, well, the startup at the end of this year, go smoothly, we'll be able to run that rate sometime in the first quarter.

Perfect. Thanks so much.

Next, we'll hear from Chris Terry with Deutsche Bank.

Hi, Leon and Jim and Tim. Thanks for taking my questions. I just had two. I just wanted to flush out one final thing on the CapEx. I know you talked about this a bit on the call, but Just looking at 2020, the guidance, $1.7 billion, you spent about $1.5 billion, and then 2021, the $2 billion, I think is unchanged. I just want to check, is that catch-up from 2020, is that now not in play because that was sort of like an unallocated project that you're talking about, or should we expect that to then be added back in 2022? Yeah, that's a great question, Chris.

It's, you know, When we estimate CapEx, we're relying on input from the business units, and I think that sometimes they get a bit concerned in trying to make sure that they give us the maximum amount they're going to spend in any year. And so that was the reason for the shortfall. And there will be carryover of what they did spend this year and the next year. But I would still say that the same thing goes true for their expectations for 2021. So there's probably going to be carryover at the end of 2021 as well. So I still think that overall, spending should be in the range of $2 billion for 21, even with that carryover effect.

Okay. So are you able to say what your 22 number expectation is?

No, I cannot. I do not know.

Okay. And just another quick one, maybe for you, Jim, just the tax rate, the cash tax and the P&L tax for 21 and maybe further out if you can, even into 22. Okay.

Yeah, let's say a normalized tax rate is going to be in the neighborhood of 24% for book purposes. But for cash purposes, obviously we've received significant tax benefits this year. We paid very little tax in the first half of the year, and we're going to be seeking a refund in the neighborhood of $140 million. We don't have the final number yet, but we'll be in that range when we do our tax return in August as a result of the great work our tax team Deb Douglas is our international tax manager. She's the one who figured out the opportunity to take advantage of the worthless stock deduction that allowed us to capture so much value after we made the decision to exit DN. And then, of course, the overall tax team, including all the managers, John Taylor, Amy Cattell, and the others, just did a great job of doing all the year-end work that's necessary for us to come up with those figures. But, you know, we're going to have cash benefits beyond this year because of the accelerated depreciation of our big projects. And, you know, we think that over the three-year period, it's $575 million. If you give me a minute to look, I think next year's cash benefit is going to be in the neighborhood of $240 million. And the year after that, when we finalize Galton, because that's going to be the, or excuse me, Brandenburg, that's going to be the biggest impactor It's going to be north of $330 million cash benefit. But our book rate should be in a normalized range of that 24%, which includes the federal and state rate, assuming there's no tax increase during that time period. Thanks, Jim. Appreciate it.

And that does conclude our question and answer session. I'd like to turn it back to Mr. Leon Tapalia for any closing comments.

Thank you. I'd like to conclude by once again thanking my Nucor team for your focus and commitment to living our culture as we have worked through a very challenging year. As you look back and reflect on 2020, I want you to know that you've displayed the very best of the Nucor culture by working safely, being innovative as we adjusted our operations, relying on teamwork, and taking care of our customers and serving each and every one of them. Both the pandemic and the protest for racial justice caused us to rethink how we define safety. We started to think more broadly about how safety means to one another and how inclusive that is as a team. I'm proud of the steps we took in 2020 to commit ourselves to becoming an even more inclusive and diverse company where every team member feels a strong sense of belonging and ownership. I've said many times during this pandemic that we'll not just emerge from this crisis will emerge from this crisis a stronger company, not just financially, but also culturally. And I believe we have seen the results that are already showing to be true. Thank you for your interest in our company.

Thank you. And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.