Nucor Corporation

Ladies and gentlemen, and welcome to the Nucor Corporation third quarter of 2021 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 involves 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 risk and uncertainties relating to these forward-looking statements may be found in NUCOR's latest 10-K and subsequent filed 10-Qs, which are available on the SEC's and NUCOR's websites. The forelooking statements made in this conference 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 third quarter earnings call. Joining me today on the call are the members of Nucor's executive team, including Jim Frias, our chief financial officer, Dave Samosky, our chief operating officer, Al Baer, responsible for plate and structural products, Doug Jellison, responsible for raw materials and logistics, Greg Murphy, responsible for our business services and our general counsel, Dan Needham, responsible for bar and rebar fabrication products, Rex Query, responsible for sheet and tubular products, Mary Emily Slate, responsible for our enterprise commercial strategy, and Chad Udemark, responsible for engineered bar and fabricated construction products. Nucor continues to deliver strong results in our safety performance as we work towards our goal of becoming the world's safest steel company. Our performance in 2021 is slightly ahead of last year, which was the safest year in Nucor's history. Our team is committed to identifying and eliminating those risks which could lead to injury. Our most important value is the safety, health, and well-being of our entire Nucor family. During the third quarter, we once again achieved record results with earnings per share of $7.28. Our third quarter performance surpasses our previous record of $5.04 set in the second quarter of this year and nearly matches our full year earnings record of $7.42 that we set back in 2018. I'd like to congratulate the entire Nucor team for delivering the phenomenal results we have seen so far this year while staying focused on our safety goals. I'm incredibly proud of our team and what we are accomplishing together. Since our founding 56 years ago, sustainability has been at the core of Nucor's business model. More than ever before, we see opportunities to advance our continued success by partnering with customers to help them meet their own growth and sustainability objectives. Our recent launch of ACONIC, which is a new line of net zero carbon emission seal products, gives our customers confidence and the trust that the products that they're purchasing from Nucor will not only help them meet their sustainability goals, but provide a differentiated value proposition for them for the future. Our use of recycled scrap-based EAF technology enables us to operate at 70% below the current GHG intensity for the global steel industry. Econic Steel will further advance our leadership position by applying credits from 100% renewable electricity and high-quality carbon offsets to negate any remaining Scope 1 or 2 emissions from our steelmaking process. We are delighted. that General Motors will be the first customer for Econic. With our first shipment slated for early 2022, Econic is going to be a key piece of GM's vision of a net zero emissions future. As GM continues to work towards reducing carbon emissions throughout their supply chain and through electrification of their model lineups. And we also look forward to deploying Econic more broadly to help customers from across numerous other steel consuming end markets meet their goals, and develop more sustainable products. And while I'm on the topic of sustainability, our new corporate sustainability report can be found on Nucor.com, along with our first TCFD aligned report and updated SASB aligned report from our steel mill segment. We hope you will find all this information informative and useful. The third quarter was a very eventful one for Nucor. Strategically, as we announced or closed on several investments that will help us continue to advance our company's mission to grow the core, expand beyond, and live our culture. We announced our plan to build a state-of-the-art sheet mill in the Midwest on September 20th. With 3 million tons of annual capacity, this mill will be located to serve the country's largest steel-consuming regions, the Midwest and the Northeast. These are regions where Nucor is currently underrepresented. With coil widths of up to 84 inches, a tandem cold mill and initially two galvanizing lines, the new sheet mill will position Nucor to grow its market share in value-added products from automotive, appliance, HVAC, heavy equipment, agricultural, transportation, and construction applications. The mill's product mix will be approximately two-thirds cold rolled in galve. The U.S. steel market is undergoing a structural transformation driven by the dual imperatives of economic efficiency and sustainability. Our mill will be state-of-the-art and have a significantly lower carbon footprint than nearby competitors. With our financial strength and multi-decade track record of innovation and execution, Nucor is uniquely positioned to continue leading this acceleration steel market transformation. Our investment in this greenfield sheet mill represents a continuation of Nucor's balanced approach to capital allocation. Investing in projects and acquisitions expected to generate returns that substantially exceed our cost of capital while also continuing to return at least 40% of our net income to stockholders through a combination of dividends and share repurchases. Jim will discuss this further in his opening remarks. Also, we recently announced our plans to expand out west. We will build a new melt shop at one of our existing bar mills in the western United States. This facility will have the capacity of 600,000 tons annually Adding melt capacity positions Nucor to build on our market leadership position in the region, which is experiencing both population growth and the infrastructure investment that typically accompanies it. Our bar mill group is where our steelmaking started over 50 years ago, and it continues to generate very attractive returns on capital. In addition to prudently investing to grow our core steel businesses, we are executing on our opportunities to expand beyond, During the quarter, we acquired Cornerstone's Insulated Metal Panels business, as well as Hannibal Industries, a steel racking manufacturer. We're now able to offer a broad range of insulated metal panel products and racking solutions. Each of these businesses is aimed squarely at serving fast-growing markets, such as warehouses and data centers. Our strategic investments will continue to be aimed at positioning Nucor to serve attractive, growing end-use markets as our economy evolves to rely more on renewable power and Internet-based services. We are excited to welcome our newest team members to the Nucor family. As you can see, we are adding capabilities to increase our presence in attractive markets and extend our company's long record of growth and value creation. Nucor is positioned to provide the sustainable steel and steel products needed to build the 21st century green economy. A key requirement of that economy is modern, resilient, and sustainable infrastructure. Republicans and Democrats agree that the bipartisan infrastructure bill is urgently needed, and we hope Congress can find a path forward to get this bill passed. In order to ensure the safety of our citizens, the health of our economy, and future opportunities for American workers, we cannot afford to have Congress miss this opportunity. Before I turn the call over to Jim, let me take a moment to congratulate our team. You all should be very proud of the safety and financial results achieved in the first nine months of the year. We can only benefit from these strong market conditions if our facilities are running safely, responsibly, and reliably. Once again, thank you to each of you for what you do to help Nucor win. Nucor will continue to invest in our future and provide our customers a differentiated value proposition while offering the most diverse set of capabilities of any steelmaker. Thank you all for what you do, and as we approach the end of the year, let's continue to make 2021 our safest and most profitable year in New Course history. Now, Jim Frias will provide more details about our performance in the third quarter. Jim?

Thanks, Leon. We are proud to report our third quarter of 2021 earnings of $7.28 per diluted share. establishing a new quarterly earnings record. This quarter's results also compare favorably with year-ago third quarter earnings of 63 cents per diluted share. We are benefiting from strong demand and profitability across Nucor's diverse portfolio of products and capabilities. Nucor's product breadth continues to be a powerful driver of value creation for both Nucor customers and shareholders. Due to higher than expected inventory profit eliminations, Third-quarter earnings were slightly below our guidance range of $7.30 to $7.40 per diluted share. Year-to-date earnings of $15.34 per diluted share are more than double 2018's record annual earnings of $7.42 per diluted share. We are extremely proud of our team's strong performance during the current upcycle and through all the pandemic-related challenges we have experienced this year and last. Our confidence in New Course competitive positioning has never been greater as we look to execute on further opportunities in the months and years ahead. Our results reflect strong returns from consistent reinvestment in our operations over the years and outstanding execution by our team. Five significant organic growth investment projects representing approximately $1 billion in aggregate capital investment Completed startup and full product commissioning over the 2019 to 2020 period. The rolling mill modernization at our Marion, Ohio rebar mill. The hot band galvanizing line at our Kentucky sheet mill. The specialty cold rolling mill at our Arkansas sheet mill. The rebar micro mill in Missouri and the rebar micro mill in Florida. Each of these projects are delivering life-to-date profitability well above their original projections. During this past quarter, these projects together generated EBITDA exceeding $180 million. The two completed Sheet Mill Capability Expansion projects merit additional comments. Just two years after beginning operations in September of 2019, the Gallatin, Kentucky Hot Band Galvanizing Line's cumulative EBITDA exceeds the project's $200 million investment. At 72 inches wide, this line is the widest hot rolling galvanizing line in North America, and is uniquely positioned to serve value-added markets such as automotive, solar tubing, grain storage, culverts, and cooling towers. The facility ran at 112% of design capacity in the third quarter of 2021. Next, the Hickman Arkansas Specialty Cold Mill continues to be another great success story. After beginning operations in mid-2019, the Specialty Cold Mill's cumulative EBITDA already exceeds half of the project's capital investment. This facility also ran at 112% of rated capacity in the third quarter of 2021. Further, our specialty cold mill team is still very early in the process of developing unique product capabilities and applications, leveraging Hickman's flexible cold rolling mill to produce the high-strength, lightweight products that are increasingly demanded by OEM customers. To our teammates at these locations and across Nucor, Congratulations and thank you for your outstanding work. As most of you are aware, two more major capital projects, also totaling approximately $1 billion, are on schedule to begin startup during the fourth quarter. These investments will expand further Nucor's product capabilities into the sheet market. They are the expansion and modernization of Galton Sheet Mill's hot band production capability and the Generation 3 flexible galvanizing line at the Hickman Sheet Mill. Gallatin would begin a 25-day production outage on November 23rd for final equipment installation. After the outage, startup and commissioning will commence. At Hickman, commissioning of the flexible galvanizing line is underway with prime production expected in December. Looking into 2022, our team constructing the $1.7 billion Brandenburg, Kentucky state-of-the-art plate mill is on track for startup late next year. Project-to-date capital spending totaled about $570 million. Located in the middle of the largest U.S. plate-consuming region and able to produce 97% of plate products consumed domestically, this mill positions Nucor to support domestic production of wind towers while securing a market leadership position in plate. Turning to cash flow and the balance sheet. Cash provided by operating activities for the first nine months of 2021 was approximately $3.6 billion. New Course Free Cash Flow, or cash provided by operations minus capital spending of $1.2 billion, was about $2.4 billion. For full year 2021, we now estimate capital spending of approximately $1.7 billion. At the close of the third quarter, our cash, short-term investments, and restricted cash holdings totaled $2.3 billion. This is a decline of about $900 million from the second quarter level. During the third quarter, Nucor funded significant uses of cash, totaling approximately $3.6 billion, including acquisitions of $1.3 billion, capital spending of $505 million, share purchases of $858 million, and cash dividends of $120 million, and a net working capital expansion on inventory, receivables, payables, and accruals, totaling $766 million. These uses were funded primarily from Nucor's ongoing strong cash generated from operations. The cash and short-term investments drawdown, plus the receipt of $197 million from the issuance of green bonds tied to the Brandenburg project. At the close of the third quarter, total long-term debt, including current portion was approximately $5.6 billion. Gross debt as a percentage of total capital was approximately 29%, while net debt was about 17% of total capital. Financial strength continues to be a critical underpinning of Nucor's ability to grow long-term earnings power and provide attractive cash returns to shareholders. We remain committed to returning capital through cash dividends and share repurchases, a minimum of 40% of our net income over time. For the first nine months of 2021, cash return to shareholders totaled $2.1 billion. That represents approximately 47% of Nucor's net income for this period. The year-to-date capital returns consisted of dividends of $367 million and almost $1.8 billion of share repurchases. During the third quarter, we repurchased 8.2 million shares at an average cost of approximately $105 per share. Year-to-date repurchases total 20.35 million shares at an average cost of just over $87 per share. Over the first nine months of 2021, Nucor's shares outstanding have decreased by about 5.5%. As we approach year end, Nucor's board will consider a dividend increase for 2022 We have paid and increased our regular quarterly dividend every year since dividends were instituted in 1973. We expect the Board's deliberations will consider both the effects of our recent repurchases and the sustainable earnings power we see in our businesses. Since the end of 2017, Nucor's capital allocation framework has helped us achieve significant value creation for our investors. Issued and outstanding shares have been reduced by more than 10%, moving from 318 million shares at the end of 2017 to approximately 286 million shares at the end of the third quarter. Over that same period, we have grown our steel bar production capacity by about 13% to 9.6 million tons. We have also added about 1 million tons of value-added processing capability to our sheet business. Additionally, Our steel products capacity has also grown by more than 1 million tons. Today, we have significant projects under construction that will grow our sheet and plate capacity to more than 4 million and 1 million tons respectively, further increasing our earnings power for decades to come. We are having a remarkable year in 2021, but it should not be missed that Nucor's ability to generate higher earnings per share is continuing to grow. Turning to the outlook for the fourth quarter of 2021, we are encouraged by ongoing robust demand conditions in most of the end markets served by Nucor. In fact, order backlogs at most of our businesses suggest strength well into 2022. At the same time, customer inventories remain relatively lean. Logistical challenges throughout the economy continue to represent a risk factor. However, the moderating influence this is having on current demand may prolong the duration of this favorable economic cycle. We believe earnings in the fourth quarter of 2021 are likely to be at or near the record level achieved in the third quarter. Compared to third quarter, we expect earnings growth at our steel mills and steel product segments. The raw material segments performance will be challenged by margin pressures in our DRI business. We are encouraged by our first nine months of 2021 performance and we see great opportunities in our future. We are committed to delivering increasing long-term value for our shareholders. Living our culture means driving performance. Thank you for your interest in our company. Operator, we are now ready for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We'll pause just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Satish Keshathan with Deutsche Bank. Please go ahead.

Satish Keshathan Yeah, hi. Good afternoon. Thanks for taking my questions. My first question is on the cost inflation. Can you talk about what you're seeing on the cost side other than scrap, mainly natural gas for your DRA and steel mills? Also would be helpful if you could remind us what percentage of your annual gas requirement is covered by production from your own natural gas wells or the fixed price contracts that you have and how much is exposed to the spot pricing? Thank you.

Yeah, thank you and appreciate the question. Let me start broadly and maybe ask Jim to chime in on some details. But obviously, look, we're looking at all of our costs across the segment and how that affects the bottom line performance of Nucor, whether that be energy, scrap, labor, and again, goods and services that are coming in, again, mostly domestically. So while we're certainly seeing and following and tracking the supply chain constraints, you know, we source most of our products here domestically. And so in some cases, in most cases, we've been a little sheltered from some of those impacts. But as we look at labor, as we look at moving trucks and materials, barges, getting ships in and out, those costs are certainly having an impact. What we're seeing with energy, obviously we're watching. We have natural gas wells that – over the years we've not continued to drill. However, as we see the market moving up, now it's really a question of how long do we believe that's sustainable? Do we believe that will continue well into the future? And again, that's part of our team's analysis, ongoing analysis now to determine how bullish we are about that future as we move forward. Jim, anything you'd add to that?

Yeah, thanks, Leon. You know, we have an active risk management team that looks at especially related to energy and natural gas. And we do have hedges in place to cover our gas consumption. They cover about 40% of our total gas consumption as a company going out into 2023 right now. So we're seeing some inflation, obviously, with gas costs, but a lot of it's being offset by the hedges that we have in place.

Okay. Thanks for the color. My second question is on shipments. Mill volumes were down 4% quarter-on-quarter. Can you provide some color on what led to the quarter-on-quarter decline versus your previous guidance for an improvement? And how should we look about shipments for fourth quarter given the planned shutdown at Gallatin for the expansion and also the normal seasonality that you see?

Yeah, let me be clear. We didn't miss our guidance because of shipments. We were down 4%, but largely from a shipments perspective, that was because of the outages we took across our sheet mill group. We approximately took about a week down at each of our sheet mills, and that equated to the shipments, roughly, that we were down. And as we think about performance and, again, think about the quarter's perspective, You know, we think a better measure of how Nucor's performed against that is our operating cash flows. Year to date, we've generated $3.6 billion worth of cash in that time period. However, in the third quarter alone, we generated $1.8 billion of that. So nearly half of the overall year's earnings were accrued or accounted for in the last three months. So in terms of our performance, the demand drivers driving our business They remain very, very robust. The piece that we underestimated was the intercompany eliminations. And with that, I'll turn it to Jim. Let him take you through a little more color around that and how we accrued that or accounted for that.

Yeah, thank you, Leon. First of all, let me give you some data on what intercompany ELIMs have been in each quarter this year. There were about 183.6 million in the first quarter, 148.7 million in the second quarter, and they jumped to $268 million in the third quarter. And so let's talk about why they jumped by such a large amount. Our normal amount of intercompany steel inventory, and I'm talking about finished steel products that have been sold to a downstream business or to a sister division that needs that steel for some purpose, is normally around 1.3 million tons. It goes up and down from time to time. And this year, because of the strong demand market, that has trended down. In fact, at the end of the second quarter, That was down to 1.076 million tons, so down more than 200,000 tons from what we would consider a normal level. And in the third quarter, that inventory came up a little bit. It's now, at the end of the third quarter, 1.14 million tons. So it went up by roughly 65 – I'm sorry, yeah, by around 60,000 tons. And most of that happened in September, and we didn't forecast it. And the margins on that inventory were very large, and so it caused us to miss our pre-tax earnings by about $64 million. That was the impact within our forecast. That's the equivalent of $0.16 per share. So we view it as not something you would call out because it wasn't like a one-time item that's tied to an operational issue. It's an intercompany accounting thing that happens when you have so much vertical integration. We view the fact that over 20% of our steel is consumed by in-house customers as a strategic advantage that's important to our business. And so in the quarter, and specifically in September, the inventory they required, we had them a little hand-to-mouth, wasn't enough, and we stepped it up a little in September. And we don't have a way to see that at corporate. We have so many businesses that make steel and sell it to the internal customers. There's no way for us to measure that on a timely basis until we close the books at the end of the quarter. And that was what happened. Okay?

Yeah. Thanks for it. It was very clear. And congrats on a great quarter. Thank you.

Thank you. Thank you. We'll take our next question from Martin Englert with Seaport Research Partners. Please go ahead.

Hi. Good afternoon, everyone.

Good afternoon, Martin.

Given the increasing EAS flat-rolled capacity that we're seeing in the North American market, Can you touch on your metallic strategy for prime scraps and substitutes briefly? Maybe more so, is there anything that you're undertaking on the technology or metallurgical front with scraps or increasing imports of substitutes?

Yeah, I'll kick us off, Martin, and then I'll turn it to Doug Jellison to give us some more details. Doug's our EVP of raw materials. You know, it's something that goes back a very long way in Nucor, and that was – a focus many, many years ago to begin to control more of our iron units and the build out obviously in Trinidad and then subsequently what we had built in our DRI facility in Louisiana gave us a significant amount of material that we could internally control and offset some of the different iron units, whether it's pig iron and certainly with the DRI we produced, being able to balance that approach out. Over the years, we had some challenges as we started up, as were well documented on many of these calls. The performance that the team in Louisiana has had has been exceptional since their big outage in November or the fourth quarter of 19. Their reliability has come up significantly. But, Doug, why don't you just speak more specifically about how we look at prime, what that balance is for Nucor and our mix, and some of the things that we're looking at moving forward.

Yeah, thanks, Leon. Yeah, Mark, good question. I think I'll start with just putting a little bit of detail around the capabilities that we have. I think sometimes we lose sight of this. We have about 4.3 million tons of capacity in our recycling yards, which is primarily obsolete grades. We have what we call the industrial group that controls about a little over a million tons of prime scrap a year. which is about a six-fold increase over the last five or six years, and we can see that continuing to grow in there. We have the DRI facilities that we talked about with about 4.5 billion tons of capacity, and then all that's tied together with our brokerage group that manages the use of all of that, our national purchases and our international purchases. So we have a very robust set of capabilities that we can move and react in many different markets. As we see the growth of our still-making capacity, we'll be able to take products and use them at the best place to get the best value for them. So places that might be using BRA now, we may shift them to other places, backfill that with different grades from different sources. As far as new technologies, yeah, we're looking at things all the time. We're constantly improving our recycling yards to produce a better grade of shreds. We're constantly recovering more non-ferrous materials and increasing the value that way. And then just a broad scope of new technologies here around the world, wherever it is. So we're pretty comfortable with where we are and pretty aggressive in what we're doing.

Do you think that what you've undertaken previously and what's ongoing is is enough to maintain the historical average prime scrap spread relative to obsolete grades? Or do you think that there's risk that that moves higher?

You know, Martin, look, there's certainly going to be an increased pressure on prime, without a doubt, as Nucor and others move up the value chain as we make more demanding applications. But at the end of the day, and Doug, correct me if I'm wrong, roughly about 25% of our mix in our sheet mills is prime scrap. So it's not a commodity that we're emboldened to at 40, 50, 60% of the mix that we need. So with what Doug mentioned in the David Joseph Company, we've been building relationships in this market, and it's, again, a commodity-driven product where we're going to pay what's required, but what's the governor? We believe the DRI actually keeps the level set between prime and obsolete grades, but will that increase? Yeah, we do think it will increase, but we feel incredibly good and well-positioned with what we've done, what we're currently doing in the mix that are in our mills today, and what Doug mentioned, rationalizing that. Because we generate the DRI, it offsets other uses, but some of the mills that are using DRI today don't need that for the end-use customer requirements. we're going to shift those mixes. So again, as we build this new sheet mill, we feel very well positioned to be able to get the mix that we need to make the grades that we want as we move into the highest applications in automotive and other markets.

Thanks for all the detail there. That's helpful. I'm kind of curious. Years back when you were pursuing the Louisiana DRI, there had been some talk about a potential nether lag blast furnace which I'm sure that's been off the table and probably wouldn't come back given ESG focus now. But would it be something you would consider on like a hydrogen basis?

You know, actually, Martin, I think the timing is reversed. So we actually looked at building two blast furnaces at the Louisiana plant. site first and then shift it to the DRI. I would tell you at this point there is zero chance Nucor is going to build a blast furnace. However, to your comment around hydrogen, whether it's CO2 sequestration that we're evaluating, whether it's hydrogen reforming and its cost impact to the business, we have a team that's under Doug Jellison's group technically that are following and tracking dozens of technologies, and some that we're going to invest in, some we're going to explore further. But we're going to stay very close to making sure that Nucor is on the cutting edge of the steelmaking move to a more sustainable future. And again, a big part of that for us was our launch of Econic, offering net zero steels today to our customers, particularly in automotive and the relationship with General Motors being the first customer. But since that announcement, the The interest and inquiry and demand for that product and that family of products has been significant.

Do you get any type of premium for that product line versus?

Yes. Yes.

Yeah, you do. Okay. Very interesting. Thank you for all the color and detail. Very helpful. Congratulations to you on the team on the quarter and look forward to next quarter.

Thanks very much, Mark.

Appreciate it. We'll take our next question from Michael Glick with JP Morgan. Please go ahead.

Just on growth capital, following your recent acquisitions, mill announcement, other organic projects, how should we think about your appetite for incremental organic or inorganic growth projects going forward?

Let me start at the macro, and Jim, please jump in. As we think about Nucor as a growth company, We're going to continue to grow. Our mission statement I've shared several times is eight words. It's grow the core, expand beyond, and live our culture. And so we're going to look for those organic growth projects like our announcement of building a sheet mill in the Midwest. We're going to look to continue the things in completing Brandenburg, and we're so excited about both those projects and Brandenburg coming online late next year. So we're going to continue to look at those as well as continue to look at what are the one standard deviation removed and that expand beyond that give us a differentiated position. So the acquisitions of the insulated metal panel building business instantly gave us a market leadership position at nearly half or over half of the insulated panel market today. And that's a growth market. As we think about Hannibal and the racking industries, The digital economy and green economy will be built with steel. Those are growing. Those are not under the steel type of cyclicality. The focus on data storage and warehousing cold storage is significant growth as we move forward. So you're going to see Nucor continue to focus on those areas. And I can't get into detail, but I would tell you that there are many irons still in the fires for Nucor to continue to grow based on a very deliberate strategy market-driven approach where we believe our culture can bring significantly above our cost of capital returns.

And then just on the fabrication business, obviously really strong this quarter. Could you talk a bit about how that book is shaping up in terms of the, you know, backlog from a volume and pricing perspective versus called prior peaks?

Yeah, I certainly will. Actually, I'll ask Chad Unimark, who's over our fabrication products, to share some detail there.

Yeah, thank you, Leon. Yeah, Michael, if we look forward, in the non-res construction arena, we see a really strong 2022. And why is that? I mean, Leon touched on it, but it starts with this digitization economy that's happening. It's firing on all cylinders. creating significant demand for distribution centers, warehouses, server storage facilities. We're also seeing a manufacturing growth and expansion in plants. And as we probably all read, overall, the U.S. consumer is in a very healthy place. When you take that backdrop and then look at our backlogs across our industry-leading breadth of steel products, Our quoting activity has been and continues to be very robust across all the steel product groups, and we have very strong backlogs in most of our downstream businesses, and in some cases, all-time record backlogs. As far as pricing, obviously, that's a market-driven phenomenon. and beyond in our downstream businesses. Thanks, Chad.

Got it. Thank you.

We'll take our next question from Carlos D'Alba with Morgan Stanley. Please go ahead. Carlos, your line is open. Please check your mute button.

Thank you very much, everyone. So in terms of your mix for Scrap, can you comment as to how it has evolved, how much, even if it is on a range, how much prime versus obsolete are you using? And maybe it's a Scrap prime obsolete. as well as DRI, any comments would be helpful. And then in terms of the lead times, so we're seeing the industry data showing lead times coming down in the last few months, but your comments are obviously very constructive in terms of end markets and the outlook for the fourth quarter and beyond. So can you help us understand and reconcile what we're seeing in this industry reported data and what you're seeing in your business?

Yeah, Carlos, maybe I'll kick us off on your latter question around what we're seeing in terms of the market, and then Doug maybe can address your initial question on Prime and the other grades. Look, there are certain segments within Nucor. Nucor has the widest product offering of any steel company in North America. Our ability to serve any use markets from automotive, ag, heavy equipment, renewable sectors, the digital economy, the HVAC construction arena provides a unique insight and obviously backdrop to what is happening. As Chad mentioned, as we think about half of our products move into the construction arena, the robust demand there, as Chad mentioned, is seen well out into 2022. So we see no slowing there at all. If we're seeing some slowness it's from a two markets really that I'll touch on one is automotive you know the chip shortages is certainly well documented something that you know people are very familiar with but with that comes some unique opportunities obviously Nucor is not heavily laden automotive today we're at you know seven eight percent of our overall mix you know one and a half one point six million tons that move into the automotive markets and that's going to increase we want to double that over the next two to three years. And when the chip shortage ends and subsides, the pent-up demand in disposable income by consumers in the United States, I think, is going to be a boon for the auto industry, but also for companies like Nucor that continue to supply into that. So I think there is going to be some or is some elasticity that we're seeing, but I think it's not demand-driven. We see it more from a rebounding in supply chain issues and constraints the other is in some of the construction while again the demand is strong we're seeing some job sites that are slowing because they're having trouble they're in customers are getting having issues getting their needs from overseas if they're requiring chemicals or overseas parts and deliveries that are being held up in waterways or finding trucks and getting containers across the ocean. So there are pieces of that that I think are going to create some softening in that. But again, overall, we see the fourth quarter being very robust and again, potentially eclipsing the Q3 record. We'll wait, obviously, to see the results of that, but we anticipate that it could be as strong or slightly stronger. Doug, maybe just touching on this opening question around prime.

Yeah, Carlos, if you look across all of our steel mills, about 19% of our mix is prime grades of scrap and about 15% DRI. Did I cover the question?

Yeah, maybe just the rest is obsolete, right, or different grades of obsolete.

Yeah, there's 10% PIG in there, and the balance is obsolete there.

Yeah. All right. Excellent. Thank you very much. Good luck in the quarter.

Thank you. We'll take our next question from Tristan Gresser with Exane P&P Parabas. Please go ahead.

Yes, hi. Thank you for taking my questions. The first one on working capital, was there any one-off impact in the 1.2% billion built, you saw in Q3. I don't know, maybe related to the growth project and some lower offtakes from OEMs, you mentioned auto weakness, or was it all a price effect? And also, if you can, what you could expect in Q4 is still use of cash, or you think you'd be able to release some cash there?

Tristan, let me just make sure I'm clear on the initial part of the question around working capital. Was it wanting to understand the Q3 performance, or I'm not sure I caught the gist of what you were trying to get.

Yeah, the inventory built in working capital in Q3 came a bit elevated compared to what we had. I was wondering if there was any one-off impact or just a price effect. And also, if you can touch on Q4, your expectation, if you think there's still going to be your use of cash in working capital.

This is Jim Frias. Thank you for clarifying the question. It really wasn't much of an inventory building. I talked about the intercompany inventories. They only went up by tens of thousands of tons, and scrap didn't go up much, finished goods. So it was really a valuation issue. The value of inventories went up significantly in our portfolio, as well as the valuation of receivables. They both went up. The selling price per ton, we're still collecting receivables in 30 days, essentially. But the value of each ton that a customer owed us for went up. And so we used about $1.2 billion between inventory receivables, net of payables in cash in Q3. So as we think about Q4, you know, we think there could be some margin expansion, but not at the same rate that we achieved in the third quarter. So we think capital use of cash should be down dramatically. We're not going to forecast a number, but it won't be nearly at that $1.2 billion level.

All right. That's really helpful. And maybe a second question on low-carbon steel. I mean, I would be interested to know, given the visibility you have on the CO2 savings you're going to be able to generate, how much tonnage of econics you maybe see for next year and 2023? And do you see this commercial opportunity as a way to boost your margins or rather to gain market share, notably in the automotive market?

Yes, to the above, Tristan. So, yes, to both pieces of your question. Yes, there is value added. New course capability to be able to do this provides a differentiated value proposition, as announced. And, again, we're so excited with the partnership. with General Motors, but we're also excited about the other interests in the companies that we're working with beyond, not just within the auto sector in other companies, but much wider. So the market acceptance for that is going to be significant, and it's also going to be quick. But the other piece of that is we think about volumes. I'm not going to state exactly what our volumes are. What I would tell you is When we say at that scale, we're not talking insignificant tonnages. We're talking very significant tonnages that Nucor is going to supply into the cotic family. And so, yeah, just stay tuned because that's going to ramp up very quickly.

Thank you.

Thank you. We'll take our next question from Andreas Bokenhauser with UBS. Please go ahead.

Thank you very much. Just a follow-up question on the auto market. You guys obviously want to capture more market share. How is it looking so far in the second half of the year? I mean, we've been hearing that auto producers have been shifting more orders to electric arc furnace producers, and obviously one of your peers kind of confirmed they were certainly seeing that. Are you seeing that as well here in the second half of the year, that you're capturing market share in the auto market?

Yeah, absolutely. And again, I'm not going to give you specific numbers, but I would tell you that opportunity is ramping up very, very quickly. And again, our team has done an amazing job of building the relationships with the major OEMs in this nation. We're excited about the opportunities to serve that market. And at the end of the day, the iconic family in providing a net zero steel is going to be a piece of the automakers' commitments in providing a net zero output. So, in order for them to reach their goals, they've got to start with a net zero steel. We believe we have a differentiated value proposition to offer those steels today, unlike any other producer. So, yeah, we're very excited about that. Our market share is growing. And, again, part of the new mill's focus is to move and continue up that value chain. You know, the mill that's being built there is differentiated. It will not be what we've built in the past. It will provide significant quality and advanced high-strength steel capabilities that match and mirror very, very nicely with the lowest carbon footprint anywhere in the world. So we're, again, tremendously excited about that and the relationship that Nucor's built. We are the only EAF producer ever to receive a GM Supplier of the Year Award We've now done that back-to-back-to-back years, three years in a row. And so, again, it's been a lot of years that Nucor's worked very hard, but the fruits of that work and the relationships that are built are paid dividends.

Thank you. That's very clear. And maybe just a second question on the second half of this year. So, obviously, we're a little bit in maintenance shutdown season at the moment. Have you guys kind of been restocking ahead of any maintenance shutdowns to kind of ensure your volumes stay stable into the fourth quarter?

Yeah, I'll switch that over to Rex Query, who is our EVP of Sheet and Tubular. And, Rex, maybe just give them a little bit of color as we think about that broadly, and then specifically as we think about the startup of our Gallatin project.

All right. Appreciate the question, Andreas. I would start on a broader sense with Nucor having five sheep mills. It's common practice for us is we have outages at various plants, and we'll look at the needs from a customer standpoint, and we're able to support a plant that may have an extended outage going on. So that's pretty common practice, not unusual for us. We'll shift supply between our plants to accommodate that. Probably the outage that's getting the most notoriety right now is with the expansion in Gallatin. And that's progressing well. We're excited about it. And we're going to be concluding that soon. And that's going to conclude with the largest outage we have coming up in December, a 25-day outage. We've been prepping for that for months already ahead of time. So we have... already had, and we'll continue to have coils sent in so that we can continue to ship from the Pickle Gallop line through there, but also we'll take care of customers from some of our other plants. So you'll see a minimal impact on the volume and the total sheet size based on that due to our prep ahead of time. Thank you.

No, thank you. Thank you for taking my question. I appreciate the answers. Thank you very much.

Thank you. We'll take our next question from David Gagliano with BMO Capital Markets.

Hi, thanks for taking my questions. I just wanted to ask about 2022 and potentially even some insights on 2023 capital spending at this point.

Yeah, we don't have a – this is Jim Frase. We don't have our final budget in yet, but I can give you some color around the bigger projects that are – information yes for Brandenburg in the fourth quarter we think the cap spending there is going to be in the neighborhood of 250 to 70 million somewhere in that range and then next year will be in the eight to nine hundred million range for the galvanizing line in Arkansas roughly five to six million in the fourth quarter and it's going to start up in the fourth quarter but there's always carryover expenses is the timing of when bills come in. So there'll probably be another $5 million next year in the first quarter. Gallatin will probably spend in the high $80 million range in the fourth quarter, and there's probably going to be carryover in the low to mid-20s into next year. And those are the bigger items. So we don't have a formal budget yet. We have to go before the board in December with our capital plan and have them approve it. So it wouldn't be appropriate for us to give up different than our spending level this year. It's going to be in the range of what we're doing this year.

Okay. Just a couple of quick follow-ups. What do you say now for sustaining CapEx on an annual basis? That's one question. The other one is in terms of the new mill that's starting up in 2024, 2025 timeframe, when will the lion's share of the capital for that mill be spent?

I'll do the first half, Leon, and then You or Dave can talk about the new mill's ramp for CapEx. So we think of maintenance CapEx as being in the neighborhood of $500 million per year. So that's the first half.

Maybe just a little bit of color, maybe more than you asked for, David. But as we think about the new mill, you know, next step for us is to finalize site selection, which we anticipate by year's end. But really, as we think about CapEx ramp-up, you know, really don't see much of anything materially in 2022. The start of that will be probably mid-year 23, well into 24, and maybe early 25.

Okay, that's helpful. Thank you very much.

Thank you, David. Ladies and gentlemen, our final question will come from Andrew Cosgrove. With Bloomberg Intelligence, please go ahead.

Hi, thanks for taking my question. Just a quick one on Section 232. I was curious if there's been any talk in Washington about possibly replacing 232 with some sort of carbon border adjustment at some point in the future, given the fact that obviously the U.S. has a clear advantage with respect to low-carbon produced steel, and that would obviously be advantageous for U.S. producers to protect against imports going forward. I was curious if there's been any talk about that and what your guys' thoughts are.

Yeah, look, you framed the issue very well, and it is certainly a concern. Look, what I would tell you is absolutely there have been conversations. We're going to continue to work with the administration in Washington. Secretary Raimondo and Catherine Tai of the USTR have done a great job. They know the markets. They know the industry very, very well. And, again, I think a piece of this – Andrew is already in the works now with what's being conducted with Europe. We think that's going to move away obviously from 232 and what the final outcome looks like, whether it's a tariff rate quota, we'll wait and see. As you mentioned, as we think about the environmental advantage, there is a huge piece of recognizing both in Congress as well as the American consumer. that when we think about a green economy, as we think about renewables, it should be very important to the members of the House and Senate that those renewable energy projects are not built with the dirtiest steels from overseas in the world, but are built with the most sustainable, cleanest steel and steel companies found here in the United States, like Nucor and other EAF producers. There is a significant advantage. That happens. NUCOR has also provided our commentary and analysis on what a border adjustment tax must include because it is not apples to apples in that steel product. And so, again, we're going to be very vocal. We're going to continue to advocate, but we do have a high regard for Secretary Raimondo and Catherine Tai understanding those issues and the nuances. And, again, I can't tell you when. 232 will go away at some point. But it is a vehicle to bring other nations to the negotiating table to negotiate a better trade arrangement.

Okay, great. Thank you. And then the last one would just be if you could just quickly just chat real briefly about the cadence of the startup at Galson, when we should expect the additional 1.4 million tons to hit, you know, and possibly the ramp-up schedule.

Yeah, I'll turn that over to Rex Quigley again, our EVP of Sheet.

Right, Andrew. As we mentioned after the outage, we'll begin the final startup phases at that project. That'll begin late this year, latter half of December. Startup will continue into the first quarter, and then we'll be producing product through the mill sometime into the first quarter. I would tell you we focused in total on the tonnage through that mill. The additional tonnage would would be somewhere around 1.4 million tons, as you mentioned. We've targeted somewhere close to the million-ton mark. I would tell you that's likely to be for next year, for 2022, for the additional tons. So that's likely to be somewhere in 800,000 to a million tons through that plant next year.

Great. Thanks, gentlemen. Have a great one. Congratulations on the quarter.

Thank you, Andrew. Thank you. Ladies and gentlemen, this concludes today's question and answer session. I would like to turn the conference back to Leon Topalian for any additional or closing remarks.

As we conclude our call today, I'd like to thank our Nucor teammates for their continued focus on the safety, health, and well-being of the entire Nucor family. To our customers, thank you for the trust that you place in the Nucor team with every order. We will work hard each day to earn your business and provide you with the products and solutions that enable you to achieve your goals. And finally, to our shareholders, we take seriously the stewardship of the valuable shareholder capital you entrust our company with. Nucor is extremely excited about our future and the returns we will continue to generate. Thank you and have a great day.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.