The operator welcomes participants to the Steel Dynamics Third Quarter 2023 Earnings Conference Call and reminds them that the call is being recorded. David Lipschitz, Director of Investor Relations, introduces Mark Millett, Chairman and CEO, and Theresa Wagler, EVP and CFO. Lipschitz also mentions that some statements made during the call may be forward-looking and subject to risks and uncertainties. These risks and uncertainties are described in the press release and SEC filings.

Steel Dynamics reported strong financial and operational results for the third quarter, with a high percentage of facilities having zero safety incidents and a record-low incident rate. Cash from operations was $1.1 billion and adjusted EBITDA was $876 million, demonstrating the resiliency of the company's diversified product portfolio. The company's aluminum flat rolled investments have been successful and have received positive feedback from customers. The Sinton mill has faced some equipment reliability issues, but the company is confident they will be resolved by the end of the year. The company credits its success to its dedicated and passionate team.

The third paragraph discusses the positive and inspiring work environment at SDI, with a focus on treating people right and ensuring their safety. The company's leadership commitment is to their employees and their families, with over 45,000 people relying on their decisions. The company's financial performance in the third quarter is also mentioned, with solid results and a focus on continued growth initiatives.

In the third quarter, the company's steel operations generated $474 million in operating income, which was lower than the previous quarter due to decreased pricing and lost volume from an unplanned outage. The company expects to increase their value added mix with the addition of four new coating lines in 2024. The mills recycling operations also saw a decrease in operating income due to metal spray compression and reduced demand for ferrous scrap. However, the steel fabrication operations still achieved strong results, with solid demand for steel joist and deck and a backlog extending through the first quarter of 2024.

The backlog of steel fabrication has decreased from record highs in 2022 due to increased shipments and strong pricing. The company expects earnings to remain solid in the fourth quarter, but lower than the third quarter due to seasonal factors. Domestic fixed asset investment in steel and related products is expected to be supported in the coming years. The company has strong cash generation and liquidity, and has invested in capital projects and increased its dividend and stock repurchases. Since 2017, the company has increased its dividend per share and repurchased a significant portion of its outstanding shares.

The company's capital allocation strategy prioritizes high return growth and shareholder distributions, while maintaining investment grade credit. Their free cash flow has significantly increased, allowing for sustainable strategic growth and strong shareholder returns. They plan to fund their aluminum investments with available cash and continue responsible shareholder distributions. The company is committed to sustainability and reducing their carbon footprint through a joint venture with Aymium. They believe this approach is more manageable and cost-effective compared to their industry peers. Their sustainability and carbon reduction strategy is an ongoing journey.

The steel fabrication platform had a strong quarter and is expected to continue performing well in the future due to a predicted increase in non-residential construction markets. Despite some delays in public funding, infrastructure spending and reshoring efforts are expected to drive construction spending through 2024. The current order backlog is strong and pricing remains resilient. The steel mills benefit from the fabrication platform's strong performance, providing a natural hedge against lower steel prices. However, the metals recycling platform faced challenges in the third quarter due to softer demand from domestic steel mills and declining scrap prices.

The geographic location of our metals recycling platform in North America provides us with a competitive advantage for our electric arc furnace steel mills and scrap generating customers. We strategically support aluminum scrap procurement and are expanding scrap separation capabilities to increase recycled content and earnings opportunities. Our steel operations achieved strong shipments and utilization rates, driven by diversified product offerings and differentiated supply chain solutions. Our through cycle utilization rate is a key differentiator and supports our strong cash generation and financial metrics. Looking ahead, our steel backlogs are strong and customer order entry is good.

Customer inventories are low, but the ongoing strike may impact auto production estimates for 2023. However, demand remains strong and the auto build rate is expected to be higher than anticipated for 2024. Non-residential construction is solid and long product steel backlogs are good. Residential construction is rebounding and oil and gas activity is driving increased orders for OCTG products. Overall, demand for both long and flat products is strong, with extended lead times and increasing prices. The Sinton plant produced over 290,000 tons in the quarter after an unplanned outage in July.

The Texas steel mill has demonstrated its production capabilities and is expected to reach a production of 2.4 million tons by the end of 2023. Despite some equipment reliability issues, the team has shown the competitive advantages of the mill, including full product dimensional capability and the ability to produce higher strength grades at lower costs. The market response has been positive, and the company is also expanding into aluminum with plans to collocate customers at the site.

The project is a 650,000 metric ton flat rolled facility located in Columbus, Mississippi, with additional satellite aluminum slab casting centers in Mexico and Arizona. The project will cost around $2.5 billion and is expected to generate annual EBITDA of $650-700 million. The aluminum industry is similar to the steel industry 30 years ago, with older assets, high costs, and a deficiency in supply. The project is seen as an adjacent industry for the company.

The company is excited about future growth opportunities and their performance and culture have led to strong financial metrics and returns for shareholders. They are now an integrated metals business that provides supply chain solutions and mitigates volatility in cash flow. The company's teams are the foundation and safety is a top priority. The company is committed to providing value for all stakeholders. The first question is about the increase in steel conversion costs, which include substrate costs, in the Steel segment.

The speaker is responding to a question about the change in contributions between true conversion costs and substrates. They mention that the Sinton outage in July had a significant impact on conversion costs due to lost volume. They also mention that the start of value added lines in Heartland and Sinton will lead to some additional costs, but these are not expected to be systemic going forward. The speaker estimates that the conversion costs will get back in line with previous levels due to the advent of Sinton operating and the incremental volume it will bring. However, there may be some lingering costs related to the value added lines.

The speaker is asking for clarification on the expected EBITDA for Sinton, a new plant that is expected to start operating in the fourth quarter. They also mention the impact of the plant on overall steel shipments and seasonality. The company expects to see some benefit from the additional volume and aims for 70% utilization by the end of the year. The question is about the expected EBITDA going forward for Sinton.

Theresa Wagler, a representative from the company, declined to give specific guidance on the earnings associated with Sinton. She did mention that there would be a significant improvement from the third quarter, but could not provide any specific numbers for EBITDA. In regards to the fabrication business, the pricing in the backlog is very strong and extends through the first quarter of 2024. However, the slow allocation of funds from the government for public projects is not having as much of an impact on the demand for steel as expected.

The speaker says that there has been a decrease in funding for fabrication, leading to lower volumes and a decrease in average pricing. They expect the funding to pick up in 2024 and 2025, but for now, there will be a decrease in volumes and pricing. The speaker also mentions that there will be some regular seasonality in steel fabrication volume and that the backlog is strong.

The company expects pricing to decrease slightly due to seasonal factors, but not as much as in the previous quarter. The market has been strong since mid-July, with an increase in order input rate. The strike had a temporary emotional impact on pricing, but once resolved, there is expected to be a significant increase in pricing. The company's capital allocation priorities remain the same, with a focus on organic growth and potentially small acquisitions in the aluminum sector. They cannot confirm if they are not interested in large acquisitions in the flat rolled sector.

The company's primary focus is on high return growth, both organically and through transactions, with a priority on their aluminum strategy. They have a record liquidity of $3.7 billion and plan to continue investing in both organic and transactional opportunities while also providing strong shareholder returns. Regarding Sinton, they expect to be at 70% production by the end of this year and 2.4 million tons next year, with the potential to exceed their 3 million ton nameplate in the future. They expect to reach full capacity by the middle of 2024.

The speaker addresses a question about the timing of downstream lines that will enrich the company's product mix. They clarify that the lines will start in the second half of 2023 and continue into the first quarter of 2024. The speaker also mentions that the company is currently planning for 2024 and expects the capital investment to be around $1.8 billion to $2 billion, primarily driven by investments in aluminum and the construction of a biocarbon facility. They will have a more precise estimate in the first quarter.

The speaker, Mark Millett, responds to a question about potential changes to tariffs and quotas in the US steel market. He states that there is uncertainty about the outcome of the summit and that the US and Europe have conflicting positions. He also mentions that tariffs only affect a small percentage of steel imports and that quotas may remain in place. He predicts that a carbon tax on border tax may be more effective in the long run. He also notes that the countervailing duty anti-dumping cases will not change and will continue to limit imports.

The speaker responds to a question about the impact of the strike on bar volume. They state that the strike has not had a major effect on their automotive business, which is mostly based in Europe and Asia. The speaker also addresses apparent demand in the steel industry, noting that their own choice business has seen a decline in tonnage. They suggest that this may be due to a decrease in demand from segments such as distribution and warehouse.

The speaker discusses the impact of Amazon's public announcement about holding development, stating that it has not affected other distributors. They mention that the education, healthcare, and manufacturing sectors are showing positive growth, but it is not enough to offset the decline in distribution. The decline in spot sheet prices has reduced speculation in the supply chain, resulting in consistent order input rates and deliveries. The speaker compares this situation to last year, when there were similar concerns but no structural change in demand. They believe that demand is still strong across all market sectors.

The speaker, Mark Millett, discusses how lead times are increasing, causing some concern. He mentions that their order book is closed for November and they may not be able to satisfy all orders for December. He also mentions positive market momentum for 2024. An unidentified analyst thanks him and Millett thanks customers, service providers, and shareholders for their support and expresses confidence in creating shareholder value in the future. The call concludes.

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