The Steel Dynamics Second Quarter 2023 Earnings Conference Call began with an operator's instructions and then David Lipschitz, Director of Investor Relations, welcomed everyone to the call. Mark Millett, Chairman and Chief Executive Officer of Steel Dynamics, Theresa Wagler, Executive Vice President and Chief Financial Officer, and Barry Schneider, President and Chief Operating Officer were all leading the call. The call also included other members of the senior leadership team. Statements made during the call were forward-looking and predictive and involve risks and uncertainties related to the aluminum industry, steel metal recycling and fabrication businesses, and general business and economic conditions. These risks and uncertainties are described in the related press release and on the SEC website.

Steel Dynamics had a successful second quarter in 2023, with 81% of their facilities being incident-free, $808 million in cash from operations, and $1.2 billion in EBITDA. They also received improved investment-grade credit ratings and are making progress on their aluminum flat-rolled investments. Mark Millett is proud of the team's safety performance which is ahead of industry averages. Theresa Wagler is then set to give some financial color.

In the second quarter of 2023, the team achieved strong results with net income of $812 million, revenues of $5.1 billion, and EBITDA of $1.1 billion. Operating income from steel operations was $706 million due to metal spread expansion and record shipments, while operating income from metals recycling operations was $40 million due to increased shipments. The team leveraged their circular manufacturing model to benefit from high-quality, lower cost scrap and to reduce company-wide working capital. Additionally, their Mexico recycling operations provide a competitive advantage for reliable supply and future aluminum collection.

North American Metals Recycler is experiencing historically strong steel fabrication operations, with a backlog extending into 2024. Cash flow from operations during the first half of 2023 was $1.5 billion, and capital investments for the second half of the year are estimated to be around $1 billion. The Infrastructure Inflation Reduction Act, Department of Labor, decarbonization support, and manufacturing onshoring are expected to support steel consumption in the coming years. The company has $3.5 billion in liquidity, including a recently renewed $1.2 billion revolver.

The company has taken steps to increase shareholder returns, such as increasing the cash dividend by 174% since 2017 and repurchasing $4.8 million of their common stock, representing 39% of their outstanding shares. Additionally, they have recently received upgrades to their investment grade credit designation from both Moody's and S&P. Their capital allocation strategy prioritizes high-return growth and they plan to continue strong and responsible shareholder distributions while also remaining dedicated to their investment-grade credit designation. The company is committed to operating with the highest integrity and is dedicated to their people, communities, and environment.

Steel Dynamics had a strong second quarter, with hot-rolled shipments at 972,000 tons, cold-rolled shipments at 149,000 tons, and coated shipments at 1,150,000 tons. Mark Millett was discussing the company's sustainability and carbon reduction strategy, and how it is an ongoing journey. However, the call was interrupted due to technical difficulties, and Millett apologized for the issue. He then continued the call, talking about how the fabrication platform had a strong quarter.

The non-residential construction market is expected to remain strong for the rest of the year and into 2024 due to onshoring of manufacturing businesses, infrastructure spending, and fixed asset investment. The steel fabrication order backlog is strong with resilient pricing, and the metals recycling platform achieved a strong second quarter despite price declines.

Scrap pricing is expected to fluctuate modestly during the second half of the year, and the metals recycling team is working closely with the steel and aluminum teams to expand scrap segregation capabilities. Steel operations achieved near record shipments and solid financial results in the second quarter, with a higher utilization rate than the domestic industry. Backlogs and customer order entry are strong, and auto production is expected to increase in 2023.

Non-residential construction is strong, and onshoring and infrastructure spending should provide further support in the coming years. Sinton's team achieved positive EBITDA for the second quarter and is expected to ramp up to 80% run rate by the end of the year. The mill has four product dimensional capability and produces high-strength grades with lower alloy content and lower costs. It has gained strong market acceptance and can sell everything it makes.

This paragraph is about a new aluminum flat roll facility that is being built in Columbus, Mississippi. It will be a state-of-the-art facility that will serve sustainable beverage and packaging markets, automotive, and industrial sectors. It will have a melt slab capacity of 600,000 metric tons and two satellite recycled aluminum slab casting centers. The project is expected to be completed by mid-2025 and will cost $2.5 billion, which will be funded with cash.

SDI is investing in an aluminum flat rolled supply deficit in North America with the expectation of adding $650 million to $700 million of through-cycle annual EBITDA to the company. They will leverage their core competencies of construction strength, operational know-how, and their culture to exploit the technology and maximize recycled content of the product. They are excited and impassioned by the future growth opportunities that will continue their high returning growth momentum. Safety is their highest priority and they are committed to their teams.

Mark Millett and Theresa Wagler discussed the company's transition to an integrated metals business and their focus on providing value to shareholders. They also discussed the pricing of fabrication, which is expected to be 10-15% lower in the second half of the year compared to the first half, and that pricing is currently stable and resilient. The backlog for fabrication is extending into 2024.

Theresa Wagler discussed the structural shift in pricing for steel fabrication due to good demand and a strong pricing backlog. She also mentioned the public monies being awarded in late third quarter/early fourth quarter, which should benefit 2024 and 2025 for manufacturing and construction. In terms of volume guidance, there is expected to be a year-on-year decline of 15-20%, with pockets of weakness in warehouse spending, but data centers and other areas being strong. Wagler also commented on the mix of the backlog and current order intake activity, which is positive for the economy in general.

Mark Millett of the aluminum industry remains confident in the industry's demand despite a recent downturn in aluminum can demand. He believes that their market share is large enough to satisfy the demand and that the downturn is due to inventory panic from last year. The company's capital spending for 2024 is expected to be around $1.5 billion, including $900-950 million for aluminum projects and additional growth projects.

The company is confident that they will gain market share in the aluminum space due to the lack of availability of aluminum and the need for greater supply. They are also confident that they will be able to differentiate themselves to gain market share. Maintenance work has been done to replace a bearing on the caster and they are back on schedule.

Barry Schneider discusses how the team has managed to mitigate the effects of the bearing issues they discussed last year, leading to a more robust design and supply chain. He also mentions an unplanned outage at the beginning of July due to a caster sheer issue, but the team has done a great job in making the necessary repairs and putting in measures to prevent future failures.

Theresa Wagler answered a question from Tristan Gresser regarding the steel volume outlook into Q3. She stated that the third quarter is generally the strongest shipment quarter for steel due to seasonality, but that Sinton will be down for July due to the symptom outage, resulting in a loss of between 50,000 and 70,000 tons of steel shipments. Additionally, she mentioned that the backlogs and order activity for steel are very strong. When asked about the fabrication business, Wagler said that pricing has been very resilient, but she could not give specific pricing information.

Mark Millett discusses pricing in the marketplace, stating that it is currently "a little frothy". He then goes on to answer Carlos De Alba's question about the cost of the recent outage at Sinton, saying that it was well under $1 million and that they are aiming for an 80% capacity utilization by the end of the year.

Theresa Wagler and Mark Millett are discussing the expectations of ramping up production to 80% by the end of the year and then reaching 100% capacity in 2024. Barry Schneider adds that the new coding and galvanizing lines and paint lines are expected to be brought on at the end of the year, but there will not be a significant contribution to shipments until 2024. Timna Tanners then asks about the cadence of added supply and if it should be modeled for the third quarter.

Mark Millett and Barry Schneider from Sin explain that the company has been doing a lot of shipping to Mexico this year, taking advantage of the capabilities of Sin to get heavier gauge and wider products to the Mexican market. They have been able to develop relationships and gain market share due to the situation with AMSA in Monclova, and they are confident that their customers will continue to source from them even if AMSA restarts.

Theresa Wagler reports that the biocarbon facility is making good progress and is expected to start before the end of 2024. The major equipment has been ordered or is on order and the product has been tested for injection and charge carbon. Bill Peterson asked about the cost of the facility, which is expected to be between $200 million and $230 million. He also asked about the potential for lower prices due to additional plant capacity coming to market, to which Barry and Mark will answer.

Barry Schneider explains that the Sinton facility has 1.8 million tons of customers on their campus, as well as additional customer opportunities in Mexico. He further explains that the demand for low-carbon products and coated products has been increasing, and that the world is gravitating towards lighter gauge galvanized products. He also explains how the company is allocating the volume among the customers, and what specifications they have yet to reach in terms of melting, casting, and rolling.

Sinton has explored a wide range of product dimensions and metallurgical needs, from vacuum degas products to steels used in automotive, and API type products. They are collecting data and certifying their processes to make sure they are meeting customer expectations. They have a diverse order book and are bringing new coating lines online in a controlled manner. They are excited by the progress and remain incredibly optimistic about the future.

Mark Millett thanked employees, customers, and shareholders for their support and spoke about the success of the Sinton mill. He mentioned the additional galv line and pre-paint line that will bring more value-add to the product mix, as well as the plate cutter length line that will create massive opportunity with infrastructure growth. He concluded by expressing the bright future ahead of them with Sinton kicking in the aluminum.

The operator thanked everyone for their participation in the call and wished them a good and safe day.

This summary was generated with AI and may contain some inaccuracies.