The Steel Dynamics Fourth Quarter and Full Year 2023 Earnings Conference Call is being held, with management and senior leadership present. The call is being recorded and will be available for replay. The call will include forward-looking statements, which are subject to risks and uncertainties related to integrating new assets and general business and economic conditions.

The second paragraph of the article discusses the examples of the company's performance and financial results, as well as their strong safety record. The company achieved record steel shipments, revenues, and cash flow from operations, demonstrating the resilience of their business model. The Sinton facility is also showing improvement and is expected to become profitable in the first quarter of 2024. The company is also making progress on their aluminum flat rolled investments and has strong commercial support for their supply chain solution.

The aluminum industry is considering a well-known metals producer and the Steel Dynamics team is proud and inspires the company. They are committed to the safety and well-being of their employees, resulting in a record low incident rate in 2023. The team also achieved their third best year for operating income and net income. In the fourth quarter of 2023, the company saw lower results due to seasonally lower volume and pricing.

The company's steel shipments have remained steady at 3.1 million tons, with an additional 1 million tons expected from new coating lines. Operating income for the steel operations in 2023 was $1.9 billion, with record annual shipments of 12.8 million tons. The metals recycling operations saw a decrease in operating income due to lower scrap pricing. The steel fabrication operations had a strong year, with operating income of $1.6 billion. Demand for steel joists and deck remains solid with a strong backlog and pricing.

The company has generated strong cash flow from operations and invested in capital projects, particularly in the aluminum sector. They have maintained a consistent cash dividend and have also repurchased a significant amount of their outstanding shares. This reflects the company's confidence in their future and their strong capital foundation.

The company prioritizes high return growth and shareholder distributions while maintaining investment grade credit. Their free cash flow has significantly increased in the past five years and their after-tax return on invested capital is 32%. They are dedicated to sustainability and have a plan to achieve carbon neutrality. Their steel fabrication operations had strong earnings and a solid backlog. They have high expectations for the business due to onshoring, infrastructure spending, and customer demand. Current pricing is stable at higher levels and order entry has improved.

The fabrication platform of our steel mills provides volume support and helps mitigate financial risk in both critical and softer demand environments. Our metals recycling operations, particularly in North America, give us a competitive advantage and support our steel mills' raw material positions. We are also expanding our scrap separation capabilities through partnerships with our steel and aluminum teams. Our steel mills achieved record volume in 2023 and consistently operate at a higher utilization rate compared to the domestic steel industry. This, along with our value added steel products and differentiated customer supply chain, gives us a competitive advantage and strong cash generation capability. Steel pricing improved in the fourth quarter of 2023 and into January.

The customer order entry rate has been strong and lead times have been extended, while inventory levels remain low. The flat wheel steel operations have experienced a strong order entry environment, and steel imports are manageable. Sinton has achieved improvements in operating efficiency and plans for additional improvements in production. The two new value added coating lines will begin operating in the first quarter. The steel market environment is positive, with solid non-residential construction and strong energy market activity. The company is optimistic about steel demand and pricing for 2024. The company's strong performance supports their cash generation and growth investment strategies.

The company is seeing strong growth in their aluminum division and many customers are interested in building facilities on their rolling mill site in Columbus, Mississippi. The project, which includes a state-of-the-art plant and two satellite recycled aluminum slab casting centers, is on schedule and expected to be completed by mid-2025. However, the total project cost has increased to $2.7 billion due to inflationary installation costs. Despite this, the company is confident in the final budget as all equipment and construction contracts are complete.

The company plans to fully fund their new aluminum facility with cash and expects to generate annual EBITDA of $650 million to $700 million. They believe they can replicate their successful steel industry model to achieve superior financial metrics in the aluminum industry. Their organizational structure, technology, and culture will allow them to operate with a smaller workforce and higher yield, and they will leverage their partnership with OmniSource for higher recycled content. They do not have the same legacy burdens as their competitors and are confident in their ability to achieve higher earnings and sustainable growth in the aluminum industry.

The company has achieved the highest average after-tax return on invested capital in the S&P 500 materials companies due to their disciplined and intentional approach to organic growth and acquisitions. The CEO is optimistic about future demand and credits the company's success to their dedicated teams, strong safety culture, and diversified business model. They are focused on providing value for all stakeholders and are well-positioned for future opportunities. The paragraph ends with a request for questions from the audience.

Martin Englert from Seaport Research asks about steel conversion costs for the first quarter, taking into account the ramping up of Sinton and better fixed cost leverage. Theresa Wagler responds that they expect the conversion costs to come down due to Sinton's increased volume, but it is difficult to give an exact estimate. Martin then asks about steel fabrication and the backlog price, to which Theresa responds that the backlog price is higher than the fourth quarter ASP of $3,500 per ton.

The backlog prices for fabrication and other operations have remained steady, with no significant differences. The company believes that fabrication has reached its lowest point and expects a turnaround in volumes and pricing in the second quarter and throughout the year. The order input rate increased in the fourth quarter and is expected to flow through this year, with some seasonality in the first quarter due to winter weather.

The speaker responds to a question about the increase in CapEx and project budgets, clarifying that the biocarbon project cost has not changed and will be completed by the end of 2024. The majority of the increased budget will be spent in 2024, with the aluminum project accounting for most of it. The speaker also mentions the company's expectation to be free cash flow positive in 2024.

The company expects to spend $150 million to $200 million in 2025 on aluminum projects, but nothing significant has changed on the capital front. The company expects to be EBITDA positive in the first quarter and to continue increasing volumes in their metals recycling segment. They also plan to continue their share repurchase program and generate cash in 2024. The CEO mentioned that they are disappointed with the CapEx creep at Sinton.

The speaker expresses confidence in the progress of the Columbus aluminum project and assures that it will not affect the schedule. They mention the success of the team and predict that the project will be up and running by mid-2025. The next question asks about contracts and pricing for the project, to which the speaker responds that the commercial team has only recently been put together and is actively engaging with customers. They are confident in their ability to support the ramp-up in 2025-2026. The financial contribution of the four quarter lines is expected to be around $600 million with a 2.5 to 3-year payback. The personnel are already in place and familiar with the equipment.

The company has successfully started two lines at their Heartland and Sinton plants, with two more lines expected to start in March. They anticipate these lines to contribute to their customers in the near future and expect to see prime sales in the first quarter. The company is confident in their ability to seamlessly start up these lines and deliver high-quality products to their customers. The expansion of their value-add product portfolio in Sinton will also increase utilization and potentially lower costs. Analysts are optimistic about the impact this will have on the company's performance in the next few months.

Timna Tanners asked about the impact of higher prices on volumes and costs in the first quarter. Theresa Wagler clarified that the increased pricing in flat roll will benefit the first quarter, and that fabrication typically has 8-10 weeks of inventory on hand. Tanners also asked about customer inventories, as SMU had high inventories in December, but Wagler did not provide an explanation for the difference in narrative.

Barry Schneider and Mark Millett discuss their company's relationships with customers and the demand for steel. They believe that there is still strong demand for steel, despite recent fluctuations in hot-band pricing. They also mention that the order input rate in January has been very strong and that supply chain inventories are tight. They attribute the recent dip in hot-band pricing to emotion and overshooting the market, rather than a reflection of underlying demand.

The company's sheet mills and long products are seeing solid demand, and the team has done an excellent job with record earnings and volumes. The CEO believes that the pricing dynamic for the company's fab products has stabilized, but he cannot provide a specific projection for future pricing. He notes that pricing cycles in the past 18-24 months have been driven by factors other than demand.

The company believes that the underlying demand for their products will remain strong throughout the year, which should support pricing. They have seen a lot of demand in the manufacturing, education, and healthcare sectors, as well as in data centers. The mix of demand is good for the engineering side of the business. The company has started disclosing the operating loss for the aluminum segment.

The company expects to see start-up losses for their aluminum segment in 2024, reflected in their SG&A expenses. These costs will increase as construction continues throughout the year. The company has been successful in selling product into Mexico and has established relationships with customers there.

Barry Schneider, CEO of Sinton, discusses the company's proximity to Mexico and the advanced product features that have been well received in various industries. He also mentions the continued near-shoring of manufacturing in the United States and how it aligns with the company's business strategy. In terms of sourcing scrap for the ally rolling mill, Schneider is confident in the company's ability due to their ownership of OmniSource, the largest or second largest ferrous scrap recycler, and their experience in recycling aluminum. He also mentions the hiring of new talent to supplement their existing team. The company has two main scrap streams, one for the automotive industrial base and the other for Comstock and UBC scrap, which is readily available in California.

The company is expanding its facilities in scrap-rich areas to take advantage of the high volume of aluminum UBC scrap. This will allow them to economically transport the scrap to the mill. The facility can also handle primary aluminum if needed. The company is aiming for 80% utilization at the Sinton facility and is confident in their team's ability to reach this target. They are working on fixes to address transportation and power capacity issues.

The company is confident in reaching 80% utilization by the end of the year and expects to benefit from onshoring and the infrastructure bill in 2024. They have already seen orders from bridge makers and expect to see more orders in the future. The solar industry has exploded and the company is seeing a ramp-up in spend and orders for foundational structural sales and pipeline industry projects.

Theresa Wagler discusses the current inquiry activity in the steel market and encourages investors to consider the impact of infrastructure programs on both long and flat rolled products. She also mentions potential capital expenditures for 2025, with a focus on growth in recycling, particularly in aluminum. The company's teams are consistently bringing in high-return projects, which has resulted in a strong ROIC.

The projected investment for 2025 is estimated to be around $500 million, with a focus on innovative technology and potential expansion into new product segments. The company's strong team and history of disciplined growth through both organic growth and acquisitions will continue to drive their success. The company remains committed to maintaining the best financial metrics in the industry and will not overpay for opportunities.

John Tumazos asks about the possibility of increasing share buyback dollars in 2025 due to a potential decrease in CapEx, and Theresa Wagler explains that the company sees the share buyback program as a good tool and will continue to use it during periods of excess cash flow. She also mentions the company's growth plans through greenfield assets and acquisitions. In response to a follow-up question, she declines to give any specific guidance for the first quarter but notes that there were outages in the fourth quarter that will not be present in the first quarter.

The speaker mentions that Sinton will be ramping up production in the first quarter and expects to see incremental volume from their steel operations. They also mention that the product mix will become richer with the addition of value-added lines, leading to spread enhancement throughout the year. The speaker also addresses a question about outages in the fourth quarter and the profitability of their aluminum project, but declines to provide specific information. The speaker concludes by noting that everyone at SDI is a happy shareholder due to their equity ownership.

The speaker emphasizes the company's dedication to creating shareholder value and thanks customers, suppliers, and owners for their support. They also praise their team and end the call with well wishes.

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