The Steel Dynamics Second Quarter 2024 Earnings Conference call is being held, with participants in listen-only mode. The call is being recorded and will be available for replay. Leading the call are the Chairman, CEO, CFO, and President of Steel Dynamics, with other senior leaders joining individually. Some statements may be forward-looking and are protected by the Private Securities Litigation Reform Act. These statements involve risks and uncertainties related to integrating new assets and general business and economic conditions.

The second paragraph discusses the examples of the company's performance and safety measures, including new product lines and challenges faced. The CEO expresses pride in the company's team and their focus on safety.

In the second quarter of 2024, the company's net income was $428 million, with adjusted EBITDA of $686 million. Revenue was slightly lower compared to the previous quarter due to lower steel pricing, resulting in a 26% decrease in operating income. The steel operations saw a 34% decrease in operating income due to lower pricing and planned maintenance outages. However, the recycling operations saw a significant increase in operating income due to higher volumes and operational efficiencies. The company's circular manufacturing model has been beneficial for all operations, including the upcoming aluminum flat rolled division.

In the second quarter, our steel fabrication team saw strong operating income of $181 million, thanks to an 11% increase in shipments. Our joists and deck backlog extends to the fourth quarter of 2024, and we expect domestic fixed asset investment and infrastructure projects to increase steel consumption in the coming years. However, as we construct our aluminum facilities, non-capitalizable expenses will flow through SG&A until startup, resulting in increased costs. We estimate these costs to be around $25 million per quarter until the first half of 2025. We expect to be EBITDA positive in the second half of 2025 for our aluminum investments and plan to initially ramp with industrial products before moving on to can sheet and automotive products. The construction of our aluminum facilities is going well, and we reaffirm the total project costs at $2.7 billion, with $1.5 billion already invested through June 2024. We expect to invest another $900 million in the aluminum investments for the remainder of 2024.

In 2025, the company will have $250 million remaining in cash due to their strong cash generation and variable cost structure. They generated $383 million in cash flow from operations in the second quarter of 2024 and have strong liquidity of $2.7 billion. They plan to invest $2 billion in capital, have increased their quarterly cash dividend, and repurchased $607 million of their common stock in 2024. Their capital allocation strategy prioritizes strategic growth and shareholder distributions while maintaining their investment grade credit rating. Their free cash flow has significantly increased in the past five years and they recently issued $600 million in investment grade notes. The proceeds will be used for general purposes and to repay their $400 million notes due in December 2024. The company is also committed to sustainability as a key part of their long-term value creation strategy.

The company is excited about their joint venture with Aymium, which will help decrease their steel emissions and move them towards carbon neutrality. Their sustainability and carbon reduction strategy is ongoing and they have a strong order backlog for their steel fabrication operations. The company expects continued growth in the construction industry and their steel fabrication platform helps mitigate financial risk.

The company's metals recycling operations saw an improvement in earnings in the second quarter due to increased demand for North American steel and stable ferrous scrap prices. The company's geographic footprint in North America provides a competitive advantage for its steel mills and scrap generating customers. The company is also focusing on expanding scrap separation capabilities to increase recycled content in aluminum products and increase earnings potential. The field team had a solid quarter with 3.2 million tons shipped. The company's steel mills consistently operate at higher utilization rates due to value added products and differentiated customer supply chain solutions. However, realized steel pricing declined across product portfolios in the second quarter.

Despite challenges in the steel market, our value-added flat rolled steel pricing remained strong and supported our earnings. We have added four new coating lines and expect positive pricing moves in the future. Our Sinton steel team has made improvements in operating efficiency and we expect further improvements as we have resolved previous limitations. Our new coating lines have successfully commenced operations and will support increased volume and margins. The North American automotive production forecast for the next few years is strong, with continued growth expected.

The automotive dealer inventories remain below historical norms despite recent cyber disruptions and non-residential construction has remained stable with some slowdowns due to higher interest rates. Onshoring and infrastructure spending are expected to support fixed asset investment and construction projects in the future. The energy market is growing, but increasing imports have posed challenges for domestic producers. The company is optimistic about steel demand and pricing dynamics for 2024 and their value added flat rolled steel coating lines have performed well. The progress on the Sinton project is on track and there is confidence in increased volume and profitability. The aluminum growth strategy is also progressing rapidly and there is strong commercial support for Steel Dynamics as a producer in the industry.

The project is a state-of-the-art aluminum flat rolled facility in Mississippi with a target mix of 300,000 tons of can stock and industrial and construction products. It will have on-site melting and casting capacity of 600,000 metric tons and will be supported by two satellite recycled aluminum slab casting centers. The rolling mill is expected to start up in mid-2025, with the Mexico slab center in the first quarter and the U.S. slab center in the second half of 2025. The aluminum market is similar to the domestic steel industry 30 years ago, with older assets, high costs, and a supply deficit. The project leverages the company's core competencies and culture to drive performance and efficiency, and also benefits from the company's large aluminum scrap recycling business and innovative separation technologies. Overall, it is seen as a high-return growth opportunity.

The team is on track to begin production in Mexico and at the Roanoke mill in 2025. They plan to start with a mix of industrial and construction products and gradually transition to more can sheet and automotive products. The total project cost is $2.7 billion and is expected to generate significant savings in labor, recycled content, yield, and logistics. The labor force will be reduced to around 750 people, compared to over 1,200 in a competitive plant. The savings are estimated to contribute $650 million to $700 million in annual EBITDA.

The company plans to increase productivity and reduce costs by utilizing technology and incentives, as well as leveraging their recycling capabilities and implementing innovative segregation technologies. They also expect to improve yield through a new facility, sculpting technology, and utilizing supersized coils. Logistics will also contribute to the overall cost reduction.

The company is excited about their growth plans and the potential for increased demand in the North American aluminum market. They believe that their strategic location and focus on differentiated value added supply chain solutions will lead to sustainable cash generation. They also anticipate benefiting from onshoring of manufacturing businesses and public programs, as well as their superior carbon footprint compared to their competitors.

The company's global cost curve will steepen, leading to higher product pricing in the future. This will expand their long-term metal spread and they are committed to safety and their employees. They are now an integrated metals business and are competitively positioned to provide value to all stakeholders. The recycled content for their aluminum project will vary depending on the product, with a target of 90-95% for UBC and 70% for automotive.

Mark Millett, CEO of a steel company, discusses the company's progress in expanding its processing capacity for low copper shredded scrap. They have been investing in technologies to segregate the scrap and have been successful in utilizing it at their Columbus and Butler flat roll mills. They are also working on deploying it at their other mills in the South. The technology is currently located at shredding facilities and helps reduce copper in the scrap and obtain better recoveries of other elements.

The speaker discusses the progress and current focus of the facility, stating that they are confident in their ability to match productivity levels of their sheet mills. The next question is about Sinton, and the speaker explains that the maintenance and transformer issue took longer than expected to resolve. They had to do work in the high-voltage switchyard, and there were delays due to hurricane conditions in South Texas.

The speaker discusses the recent addition of new safety gear to the high-voltage system in the Sinton plant, which will allow for increased productivity. They also mention the development of next-generation technology at the plant and the potential for increased profitability in the second half of the year. The supply outlook is expected to improve with the increased volume from Sinton.

The HRC prices have decreased by 40% and the margin on a spot basis is also down. However, the company is confident that the market can absorb a higher volume from Sinton due to the new technology and higher value products they offer. They have been able to gain market share in Mexico and the import action in the region is heightened, making a local supplier of high-value products welcomed by customers. The company remains bullish on the market's capability to absorb high-value tons from a regional source and can sell every ton they produce in Sinton.

The speaker discusses the growth of demand in Mexico and the potential for exports to increase due to outages in the Mexican market. They also mention the aluminum rolling mill and how the initial mix will focus more on industrial products.

The speaker discusses the margin differences between industrial products, can sheet, and auto market products. They mention that can sheet has thinner margins due to its high volume, while industrial products have higher value due to being put through paint lines. The speaker also talks about the company's favorable balance sheet position and their conservative approach to leverage, which allows for potential future growth opportunities.

The company has been able to consistently grow shareholder distributions during high-growth periods, and they plan to continue this trend. They are considering organic growth opportunities, but are also being disciplined in their approach to potential acquisitions. They expect to start qualification for can sheet and auto markets in 2025 and secure longer-term contracts in 2026.

Theresa Wagler from the company discusses the extensive demand draw and plan in place for 2025 and 2026 with a robust commercial dialogue. The utilization of the aluminum mill is expected to be 50% in 2025 and 75% in 2026, with the exit rate close to full capacity in 2026. In regards to the total steel market, indirect steel imports rose by 3 million tons last year and total steel imports, including slabs, were at a 30% share in April and May. The company believes that the licenses are mitigating the increase in imports, with a focus on coated products.

The speaker discusses the pricing for the backlog in the fabrication business, stating that it is strong and stable. They apologize for not being able to provide more specific information. The next speaker asks about the cash flow and working capital build in the second quarter, wondering if any of it is related to the aluminum mill. The speaker clarifies that it is not and mentions a structural increase in inventories for value added lines.

The company expects to see an increase in working capital in the second half of the year, but not as significant as in the first half. They are comfortable with their cash flow generation and do not plan to change their capital allocation policy. There is some concern about the rhetoric surrounding steel trade with Mexico, but the company believes that the long-term growth in steel demand in Mexico will continue.

The speaker concludes the call by thanking everyone and expressing confidence in the company's future. He credits the company's success to its dedicated teams, loyal customers, and supportive service providers. He also thanks shareholders for their faith and promises to continue growing the company wisely.

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