United States Steel Corporation

United States Steel Corporation's first quarter 2021 earnings conference call and webcast. As a reminder, today's call is being recorded. I'll now hand the call over to Kevin Lewis, Vice President of Investor Relations and Corporate at P&A. Please go right ahead.

Thank you and good morning. We appreciate your continued interest in U.S. Steel and welcome you to our first quarter 2021 earnings call. On the call with me this morning will be U.S. Steel President and CEO Dave Burritt, Senior Vice President and CFO, Christie Brees, and Senior Vice President and Chief Strategy and Sustainability Officer, Rich Fruehauf. After the close of business yesterday, we posted our earnings release and earnings presentation under the investor section of our website. On today's call, we will walk through via webcast, select slides, and our first quarter results. The link and slides for today's call can also be found on our website. Before we start, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties, as described in our SEC filings, and actual future results may vary materially. Forward-looking statements in the press release that we issued yesterday, along with our remarks today, are made as of today, and we undertake no duty to update them as actual events unfold. I would now like to turn the conference call over to U.S. Steel President and CEO, Dave Burritt, who will begin today's presentation on slide four.

Thank you, Kevin. Good morning, everyone. Thank you for being a part of today's call and for your interest in U.S. Steel. Last quarter, you heard us reference optimism, optionality, and opportunity for 2021. Well, those themes are confirmed in our first quarter performance and our outlook for the rest of the year and beyond. First on optimism, our first quarter performance and expectations for record second quarter EBITDA margins for our flat rolled and mini mill segments confirm our optimism. Our operations are running well and in a market where every single ton of quality steel produced matters, I am pleased to report record quality and reliability performance at numerous facilities across our footprint. Strong market conditions are great, but we are delivering on the fundamentals that keep our business resilient throughout the market cycle. Second, on optionality. Big River Steel's first quarter performance and early successes of our best of both footprint confirm the inherent optionality of our strategy and opportunity. Our best of both footprint created the opportunity for U.S. Steel to be the industry leader in sustainability, launching our Virtex line of sustainable steels, becoming the first North American producer to join Responsible Steel. and announcing our 2050 net zero aspiration confirms our sustainability leadership role in American steelmaking. Rich will detail how best of both footprint creates the foundation for differentiated sustainable steels only available from U.S. Steel. Let's get started on slide five. You heard us speak in January about our continued optimism for steel markets. Well, our optimism has been exceeded by what is happening in the market today. Today's robust demand, long lead times and insight from customers have us even more bullish. Further strengthening of the economy and a much needed infrastructure bill would be catalysts for additional earnings growth. Another factor informing our market perspective is today's supportive steelmaking costs. Costs for steelmaking inputs, particularly scrap and iron ore, are supporting today's higher steel price environment. This is where U.S. Steel has a compelling competitive advantage. First, in iron ore. Our low-cost, fully integrated iron ore mines supply our blast furnaces with high-quality iron ore. Today's iron ore prices are near record highs, but U.S. Steel's iron ore input cost is the lowest in North America, providing a structural cost advantage in our flat rolled segment. Next in scrap. With Big River Steel fully consolidated with U.S. Steel, we're optimizing our scrap sourcing. The high quality prime scrap generated internally at our integrated operations is being used at Big River Steel to offset some of their need for prime scrap purchases. This opportunity has already saved approximately $5 million through April, and we are continuing to assess additional ways to optimize scrap flows for the remainder of the year. Another reason we're bullish for a stronger for longer market are the low levels of steel in the supply chain. End customer demand has been so strong that most steel customers haven't had the opportunity to restock depleted inventories. This need will continue to support the future steel demand. While today's market is certainly driving significant earnings growth, our well-timed acquisition of Big River Steel is the real headline this quarter. We acted boldly to accelerate the purchase of Big River Steel and now are benefiting from the best-in-class performance in the first quarter. Expectations for a continued strong steel market makes our well-timed acquisition of Big River Steel even more compelling. Slide six. just begins to showcase our first quarter achievements at Big River Steel. From day one, Big River Steel has been proving the value of our strategy, including a highly variable cost structure, an entrepreneurial workforce, and increased efficiencies from the phase two expansion. Each of these driving factors contributed to Big River Steel's superior performance in the quarter. Big River Steel delivered 32% EBITDA margin in the first quarter or $362 of EBITDA per ton shipped. These are enterprise changing financial results that truly reposition our competitiveness and value creation potential. Average selling prices of $967 per ton in the quarter reflect Big River Steel's complimentary commercial contract structure. To put this in perspective, slide seven compares Big River Steel's superior margin performance to other domestic mini mills. Big River's phase two expansion has led to world-class labor productivity. With 651 employees capable of producing 3.3 million tons, that's 5,000 tons of high-quality, low-emission steel per employee produced by a world-class team. We expect continued margin expansion in the second quarter as utilization and profitability per minute remain strong. At Big River Steel, it's not just about how much steel you can make, it's about how much money you can make per minute of line time. Line time that is highly valued by customers and highly optimized in Osceola, Arkansas. Big River Steel's superior first quarter performance and differentiated capabilities confirm the optionality that Big River Steel and our best of both footprint provides. This optionality gave us the confidence to expand our commitment to sustainability. In March, we announced a new line of sustainable steel solutions called VERDEX. This is shown on slide eight. Full ownership of Big River Steel together with U.S. Steel know-how, deep customer relationships, and proprietary finishing lines were the catalyst for this exciting product launch. Rich will provide more details on this differentiated product offering. Rich? Thank you, Dave. We are pleased to announce our Vertex line of sustainable steels, the first of its kind in the domestic steel industry. This is U.S. Steel's best-of-both-strategies realized. In a new, game-changing product, Vertex combines the best of mini-mill production with the best finishing technology from our existing flat-rolled businesses. Through this combination, we are now able to offer our customers some of our most proprietary grades of steel, including our XG3 grades of Generation 3 Advanced High Strength Steels, now with up to a 75% reduction in CO2 emissions. We are the market leader in Generation 3 Advanced High Strength Steels, and we're ready to take the next step with customers by offering a green, sustainable version of our most advanced steel products. This is something our competition cannot offer today. Big River Steel substrate, together with our world-class finishing assets that are being qualified with many customers and OEMs, creates a unique customer solution. We've heard our customers, we understand their needs for more sustainable solutions, and we are meeting their request to provide them with the sustainable steels to help them meet their own decarbonization goals. Our Verdict sustainable steels provide the best for our customers and the best for our planet. Customers can convert today's steel orders into a sustainable alternative and begin to market the green, endless recyclability of the U.S. Steel Vertex sustainable solutions. Customers are looking to partner with the right suppliers. By offering tomorrow's sustainable steels today, we can help them get to their future faster. Today, U.S. Steel is offering our customers an opportunity to turn pledges into action by utilizing our new VERDEX line of advanced sustainable steels. We look forward to boldly partnering with those that share our vision and value our differentiated customer value proposition. Dave, back to you. Thanks, Rich. Our VERDEX sustainable steel is just one of many announcements this year that reinforce our industry-leading sustainability proposition. The proof points on slide nine build off our 2019 announcement to reduce global greenhouse gas emissions intensity by 20% by 2030 versus a 2018 baseline. We put our money where our mouth is by acquiring Big River Steel, the only LEED-certified steel mill in the United States and perhaps anywhere in the world. Next, we announced our line of sustainable steel solutions so that we can partner with current and future customers as they meet their own decarbonization goals. And just last week, we expanded our commitment to sustainability by setting an ambitious 2050 net zero carbon emissions goal. Our 2050 goal announced last week is the catalyst to take our best of both strategy to the next level with a best for all strategy. Not just best for investors, best for customers, best for employees, but best for the communities where we live and work, and best for our planet. To reinforce our commitment to sustainability, we became the first North American-based steel company to join Responsible Steel, the industry's first global multi-stakeholder standard and certification initiative. Net zero carbon emissions is the big, hairy, audacious goal or BHAG of this generation. That is why we announced our ambitions to achieve carbon neutrality by 2050. We aspire to be part of the solution. Achieving this goal won't be easy. It requires us to reimagine the way we work, how we make steel, how we amaze and delight our customers, and how we allocate capital. That means we have to make hard decisions. Let's turn to slide 10. Today we're announcing one of those difficult decisions, one of those difficult choices. With a clear vision for our future, we have evaluated how we allocate capital through the lens of sustainability, value creation, and lower capital and carbon intensity across the footprint. When facts change, we must change, and as we step forward to meet the needs of a rapidly changing world, we must set aside the Mon Valley Endless Casting and Rolling and Cogeneration Project. This is not a decision we took lightly. But the events of the last year gave us the opportunity to reevaluate our capital allocation priorities. Based on today's best of both footprint and the global call to action of the emerging climate crisis, we know that this difficult decision is the right one for the business. To be clear, the Mon Valley remains a structurally competitive steelmaking asset in our portfolio. It is our lowest-cost steelmaking facility in our flat-rolled segment with advantaged logistics and energy costs. The Mon Valley will continue to serve strategic markets, including appliance and construction customers. We're also evaluating our coke-making footprint and are announcing that we plan to permanently idle batteries one through three at our Clareton coke-making operations by first quarter 2023. This timeline provides the opportunity to limit workforce impacts through regular attrition. Today's Mon Valley announcements are informed by our expanded understanding of our steelmaking future and accelerated approach to reducing our carbon and capital intensity. But to be very clear, this is not the end of the Mon Valley works. This highly competitive mill will continue to serve strategic customers today and into the future. We can decarbonize cost-effectively with the right like-minded partners to create solutions for people and profits and planet. This means everyone must step up, countries, companies, counties, competitors, to do what's best for the planet. Christy will provide details on the quarter as well as how we're approaching the capital allocation informed by our 2050 net neutrality goal. Christy.