Steel Dynamics Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 20, 2023

There are 12 speakers on the call.

Operator

Good day, and welcome to the Steel Dynamics Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After management's remarks, we will conduct a question and answer session and instructions will follow at that time. Please be advised this call is being recorded today, July 20, 2023, and your participation implies At this time, I would like to turn the conference over to David Lipchitz, Director, Investor Relations, please go ahead.

Speaker 1

Thank you, Holly. Good morning, and welcome to Steel Dynamics' Q2 2023 Earnings Conference Call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millett, Chairman and Chief Executive Officer of Steel Dynamics Teresa Wagner, Executive Vice President and Chief Financial Officer And Barry Schneider, President and Chief Operating Officer. The other members of our senior leadership team are joining us on the call individually.

Speaker 1

Some of today's statements, which speak only as of this date, Maybe forward looking and predictive, physically preceded by believe, expect, anticipate or at a similar meaning. They are intended to be protected by the Private aluminum industry has used estimates and assumptions in connection with anticipated project returns in our steel, metal recycling and fabrication businesses, as well as the general business and economic conditions. Examples of these are described in the related press release as well as in our annual filed SEC Form 10 ks Under the heading Forward Looking Statements and Risk Factors, you can find the Internet at www.sec.gov and if applicable in any later SEC forward 10 Q. You will also find any reference to non GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Gale Dynamics reports Q2 2023 results. And now I'm pleased to turn the call over to Mark.

Speaker 2

Hubert, thank you, David, and Good morning, everybody. Thank you for being with us on our Q2 earnings call. Once again, our teams achieved a solid financial and operational quarter. Highlights include continued safety improvement. 81% of our facilities were incident free through the quarter.

Speaker 2

Cash from operations of $808,000,000 and EBITDA generation of $1,200,000,000 We also received improved investment grade credit ratings, Providing further third party confirmation of the strength of our business model. We're also making significant progress on our aluminum flat rolled investments. There's great excitement within the prospective customer base for new and innovative supply chain solutions from a differentiated supplier. I'm incredibly proud of our teams. They are the foundation of our company and they drive our success.

Speaker 2

It's their culture of excellence Combined with our meaningful value added growth, diversification and supply chain positioning that is resulting in our earnings strength in all market cycles. As I've often said, great financial performance is of no importance without safety for our SBI family. We're focused on providing the very best for their health, safety and welfare. We're actively engaged in safety at all times and at every level, Keep it at top of mind and an active conversation. That focus, as I said, the team's safety performance further improved in the 2nd quarter, Way ahead of industry averages.

Speaker 2

There's more to do. We will not rest until we consistently achieve our goal of 0 injuries. But before I continue, Teresa, would you like to give us some financial cover?

Speaker 3

Thank you, Mark. Good morning, everyone. I have my sincere appreciation and congratulations to the entire team for another strong performance. Our Q2 2023 net income was $812,000,000 or $4.81 per diluted share with, As Mark mentioned, EBITDA of $1,100,000,000 2nd quarter 2023 revenues of $5,100,000,000 were higher than sequential first quarter results, driven by increased realized steel selling values. Our 2nd quarter operating income of $1,100,000,000 It was 27% higher than 1st quarter results as a result of significantly expanded steel metal spread.

Speaker 3

As we discussed our business this morning, we are positive with industry fundamentals for the remainder of 2023 beyond, and we're focused toward our continued transformational growth. Our steel operations generated strong operating income of $706,000,000 in the 2nd quarter due to metal spread expansion and near record shipments of 3,200,000 tons. Higher realized pricing more than offset moderately higher scrap costs in the quarter. We realized increased pricing and metal As a reminder, we are the primary domestic steel supplier into the railroad rail market as well as a producer of all other long steel products, including structural steel, special bar quality, merchant shapes, Specialty shapes and reinforcing bar with over 4,500,000 tons of annual capacity. Operating income from our metals recycling operations was $40,000,000 consistent with sequential first quarter results due to increased shipments being offset by lower metal spread.

Speaker 3

The team continues to lever Our circular manufacturing model benefits and ES by providing high quality lower cost scrap, which improves furnace efficiency and reduces company wide working capital. Our Mexico recycling operations also provide a competitive advantage for reliable supply as well as for future increased scrap aluminum collection. We are the largest North American metals recycler today, processing and using ferrous scrap and non ferrous aluminum, copper and other metals. Our steel fabrication operations achieved operating income of $462,000,000 in the 2nd quarter, lower than 1st quarter results, Historically strong as average pricing decreased 13% and volumes were steady. Our steel joist and deck order backlog Since the Q1 of 2024, it is contracted from record highs experienced in 2022 as shipments have outpaced Spot order activity.

Speaker 3

However, forward backlog pricing remains very strong and spot pricing remains very resilient. Based on our backlog, customer sentiment and manufacturing momentum, we expect Steel Fabrication earnings to remain strong, but slightly lower than the first half of twenty twenty three levels for the second half of the year. Infrastructure Inflation Reduction Act, Department of Labor Decarbonization Support and Manufacturing Onshoring are expected to support not only success that investment in steel consumption, but also still joystick demand in the coming years. Our cash generation continues to be strong based on our differentiated circular business model and variable cost At June 30, our liquidity was $3,500,000,000 inclusive of our recently renewed unsecured $1,200,000,000 revolver. I'd like to congratulate the team.

Speaker 3

They actually refinanced through already yesterday. So thank you to Rick and Dominic. During the Q2 of 2023, we generated cash flow from operations of $808,000,000 $1,500,000,000 for the first half During the first half, we invested $585,000,000 in fixed asset investments. We believe capital investments for the second half of the year will be in the range of $1,000,000,000 The vast majority relating To our aluminum flat rolled investments and the completion of our 4 flat rolled steel coating lines by the end of 2023. In February, we increased our cash dividend 25 percent and repurchased $734,000,000 or 3.9 percent of our standing shares in 2023.

Speaker 3

At June 30, dollars 606,000,000 remained authorized repurchase under our existing $1,500,000,000 program that we put in place during November of 2022. Since 2017, we've increased our cash dividend 174% and repurchased $4,800,000,000 of our common stock, representing 39% of our outstanding shares. In recognition of our growth, strong balance sheet profile and consistent free cash flow generation capability, last month, we received upgrades, as Mark mentioned, to Our capital allocation strategy prioritizes High return growth with shareholder distribution comprised of a positive base dividend that's complemented with a variable share repurchase program, While we remain dedicated to our investment grade credit designation, we've placed ourselves in a position of strength to have a sustainable capital Foundation that supports meaningful strategic growth, strong shareholder returns and investment grade metrics. Our free cash flow profile has fundamentally increased over the last 5 years from an annual average of $580,000,000 to 2 point $1,000,000,000 currently. Our aluminum growth strategy is consistent with this strategy.

Speaker 3

We will readily fund our flat rolled aluminum investments with available cash and cash flow from operations. We also plan to continue strong and responsible shareholder We have clearly demonstrated. We are squarely positioned for the continuation of sustainable optimized long term value creation. Sustainability is also a significant part of our long term value creation strategy, and we're dedicated to our people, our communities and our environment. We're committed to operating our businesses with the highest integrity.

Speaker 3

We have an actionable path toward carbon neutrality that is more manageable and we believe considerably less expensive than they may lay ahead for many of our industry and other peers. Our sustainability and carbon reduction strategy is an ongoing journey, and we're moving forward with the intention For those of you on the call that like to track The product differentiation among our flat rolled shipments. For the Q2, our hot rolled shipments were 972,000 tons, Our cold rolled shipments were 149,000 tons and our coated shipments were 1,150,000 tons. With that, I'll turn the call back over to Mark.

Speaker 2

Thank you, Theresa. And Hopefully, you folks can hear us. I know it's I guess, our AD is not quite up to snuff today, so apologies for that. Nonetheless, our steel fabrication platform turned in another strong quarter. The team continues to do an absolutely phenomenal job there.

Speaker 2

Hi, everyone. Apologies, but it appears that many folks can't hear us, hear the call. We'd ask you to Hang up and call back in, and we'll just pause the call for a second. Thank you.

Speaker 4

Ladies and gentlemen, apologies. Please remain connected. David, we will dial out to you and reconnect on your line.

Operator

Ladies and gentlemen, please remain on the line. The conference call will resume shortly. Ladies and gentlemen, please remain on the line. The conference call will begin shortly.

Speaker 4

And the speaker line is now reconnected.

Speaker 1

Sorry about that folks. We'll just continue from where we were.

Speaker 2

Well, good morning again. Apparently, I believe you heard everything that's been said, but it's very, very choppy. So obviously, we'll clarify things in the Q and A that perhaps you didn't You didn't hear. So I was just kicking off, our steel fabrication platform turned in another strong quarter. That team continues to do an absolutely phenomenal job.

Speaker 2

So thank you to each and every one of them. We continue to have high expectations For that business, we believe non residential construction markets will continue to be strong in the coming years. Non residential starts and build rates are Forecast to remain strong through the rest of this year and into 2024 and related spending has been higher in 2023 compared to last year at this time. Continued on shoring of manufacturing businesses, coupled with infrastructure spending and fixed asset investment related to the IRA programs, Should provide momentum for additional construction spending and extend the whole non residential construction cycle. Equally important, our customers tell us demand remains solid and share our perspective.

Speaker 2

Our steel fabrication order backlog is shortened from its all time high of over 12 months achieved in 2022, but it remains very strong from a historical perspective, extending into January of 2024 With a strong pricing profile. Current order entry pricing remains resilient and we expect second half twenty twenty three volumes to be comparable The first half twenty twenty three shipments. We also believe average pricing will remain elevated, but possibly drift 10% to 15% lower than average For the first half of the year. Not only a significant contributor itself, our fabrication platform provides meaningful pull through volume for our steel mills, Particularly important in softer markets, allowing for higher through cycle utilization rates compared to our peers. It also provides an effective natural hedge to lower steel prices.

Speaker 2

Our metals recycling platform achieved a strong second quarter despite price declines. After rising in the Q1, scrap prices pulled back May through July with shredded scrap prices falling almost $100 a ton. We expect scrap pricing to fluctuate modestly during the second half of the year, perhaps seasonally rising somewhat in the Q3 and moderating again in the 4th. Our metals recycling geographic footprint provides a strategic competitive advantage for our electric arc furnace steel mills and our scrap generating customers. In particular, our Mexican volumes competitively advantage our Columbus and Sinton raw material positions.

Speaker 2

They will also strategically support aluminum scrap procurement For our future flat rolled aluminum investments. Our metals recycling team is partnering even more closely with both our steel and aluminum teams To expand scrap segregation capabilities through process and technology solutions. This will preclude Prime First scrap supply issues in the future. We will also provide margin enhancement from the aluminum scrap streams and materially increase recycled content of our aluminum sheet products. Our steel operations achieved near record shipments of 3,200,000 tons and solid financial results in the 2nd quarter.

Speaker 2

Our steel production utilization rate, excluding Centum, was 93% compared to a domestic industry rate of 76%. Our higher utilization rates have been clearly demonstrated throughout all market cycles, as manifest by our value added diversified product offerings, Which amount to about 70% of our sales today competitive advantage supply chain solutions, which is driving customer preference And mitigating price volatility and the support of internal pull through manufacturing volume. Our higher through cycle utilization rate It's a key differentiator and supports our strong and growing through cycle cash generation capability and best in class financial metrics. Looking forward, backlogs are strong and customer order entry is good. Order production is good with expectations of higher output in 23 relative to 2022 rates and dealer inventories have improved but still remain below historical norms.

Speaker 2

Non residential construction remains strong. Our long product steel backlogs are solid. Onshoring and infrastructure Spending should provide further meaningful support in the coming years. The turndown in residential construction seems to be abating. Oil and Gas activity is strong, driving improved orders for OCTG, and solar continues to grow substantially.

Speaker 2

At Cintin, the team achieved positive EBITDA for the Q2 and produced shy of 309,000 tons, which is about 52% of full capacity, which is obviously lower than we had planned. But that said, The team has done a phenomenal job to get to that EBITDA positive position. Some of that Lack of utilization was being on a single electric arc furnace for a portion of the quarter. As we announced, on July 1, we experienced equipment issues with the Castreshear. Repairs are well underway, and we should be restarting within the next few days.

Speaker 2

Once restarted, we fully expect to progressively ramp up month over month to an 80% run rate by the end of the year. The team has demonstrated the key competitive advantages of the mill. We have full product dimensional capability That has been proven all the way over the 84 inches down to the 0.57 and up to 1 inches thick. Customers are reporting surface quality to be exceptional. Our strip 1 design has allowed for thermal mechanical rolling, allowing the production of higher strength grades with the lower alloy content and thus lower costs.

Speaker 2

Grade 80, grade 100 have been achieved, and we've been approved on and shipped some API grades. And it affirms our technical process And there's no doubt that this is the next generation electric arc furnace flat rolled steel technology of choice. We have gained strong market acceptance and can sell everything we make and then some. Our exceptional through cycle operating and financial performance continues to support our cash generation and growth investment strategies. Relative to our expansion into aluminum, Responses from both current and new customers across all market sectors remains incredible.

Speaker 2

We are developing the mill site to co Locate processing and consuming operations as we have successfully done in Cintam, and we have a number of customers already speaking with us about such opportunities, which would be a competitive and sustainably competitive model for all of us. To recap the project, It's a 650,000 metric ton Aluminum Flat Roll Facility, which will be located in Columbus, Mississippi, right across The highway essentially from our steel mill there. State of the art facility serving the sustainable beverage and packaging Markets, both including body and Antam, the automotive arena and industrial sectors. Specifically, we're targeting 300,000 tons of can, 200,000 tons of auto and 150,000 tons of industrial product. The on-site melt cast slab capacity of 600,000 metric tons will be supported by 2 satellite recycled aluminum slab casting centers.

Speaker 2

We are purchasing and should be closing on land both in San Luis Potosi and Central Mexico And also in the Southwest U. S. In the next 2 or 3 weeks. The mill includes 2 cash lines for the automotive, coating line, downstream processing and packaging lines. We're expanding the project scope to include additional scrap processing and treatment to maximize aluminum recycle content.

Speaker 2

All of the principal equipment has been ordered. We anticipate rolling mill start up around mid-twenty 5. The Mexico Slabs Center should be January 1, 25 and the Southwest U. S. Slab Center sometime in the Q1 of 25.

Speaker 2

Total project costs, including the recycled slab centers should be $2,500,000,000 100 percent of that is going to be funded with cash. We expect to add $650,000,000 to $700,000,000 of through cycle annual EBITDA to the company through that investment, Plus around $40,000,000 to $50,000,000 of additional earnings from the Omni recycling platform. From an investment premise perspective, we just see a market environment not unlike that in the steel industry when we A significant aluminum flat roll supply deficit is existing today in North America and is expected to grow in the coming years. We see a real business alignment whereby we can leverage our core competencies of construction strength, our operational know how and our culture to truly leverage and exploit the technology. We also will be able to leverage Omni's recycling footprint and maximize recycled content of the product.

Speaker 2

We believe it's a very, very cost effective high return growth for us. And again, the existing new customer interest and support It's quite unbelievable. In closing, we are excited. We're impassioned by the future We are committed to them. And remind those listening today that safety for yourselves, your families and each other is our highest Priority.

Speaker 2

There's nothing more important. Our culture and our business model continue to positively differentiate our performance, leading to best in class financial metrics. As I said, I think in the last call, we're no longer a pure steel company, but an integrated metals business providing an enhanced Supply chain solutions to the industry, which in turn mitigates volatility and cash flow generation through all market cycles. We're competitively positioned and continue to focus on providing superior value for our company, customers, team members and shareholders alike. We look forward to creating new opportunities for all of us today and in the years ahead.

Speaker 2

So with that said, Holly, we would love to hand the call over to you and

Operator

Your first question is coming from Curt Woodworth at Credit Suisse.

Speaker 5

Yes. Thanks. Good morning, Mark and Teresa.

Speaker 2

Good morning.

Speaker 5

Mark, you talked about Fab pricing, you said, would be roughly 10% to 15% lower in the back half of the year versus the first half, which seems to put Realized pricing around the $4,100 per ton level. Can you help us understand maybe the cadence of how that would shake out between 3Q and 4Q. And then you noted the backlog for fabrications is extending into 2024. Are you seeing any evidence of price stabilization at this point in terms of how the backlog is shaping up in the early part of next year?

Speaker 3

Thanks, Kurt. This is Teresa. So appreciate the question. When Mark said that the average pricing was expected to be down 10% to 15%, that was just for clarity for everyone on the call. That was measuring the first half of twenty 3 to the second half of twenty twenty three.

Speaker 3

So it wasn't specific to a point in time or specific to the second quarter itself. And we would say that we expect the cadence to be pretty equal from that step down in the Q3 and then stepping down a bit Finally into the Q4, pricing is stable. It's been very I think the term we keep using is resilient, And that's something that we pointed to in the past that we think there's been a structural shift in pricing for steel fabrication as there's Really lack of substitutability when you think about steel joist and deck. And there is very good demand today and we think increasing demand with the momentum behind manufacturing For all the different reasons that we've pointed to this morning, the backlog has good pricing in it, very strong pricing from a historical perspective. And I think that we see that heading very favorably into the Q1.

Speaker 3

And frankly, we were just talking about this As you think about a lot of the public monies in those programs, those are being awarded, especially with the IRA and some of the Department of Labor dollars. Those are getting awarded sometime this fall, kind of call it late Q3, early Q4. So that should really benefit 20242020 as you think about manufacturing and construction and definitely steel fabrication will benefit from that.

Speaker 5

Okay. And then in terms of the volume guidance, it seems like, volumetrically, you're still expecting Year on year declines are kind of the 15% to 20% level and you noted some project delays. Can you just kind of comment Within the backlog or I guess projects that have been burning off, are there certain pockets of weakness You're seeing that are greater than others. Obviously, there's been kind of a lot of talk on some of the warehouse spending, dying down, but data centers and other areas seem to be really strong. So any And then just as a follow-up, can you give a comment on what you think capital spending for 2024 would be?

Speaker 5

Thank you very much.

Speaker 3

Thanks, Kurt. Yes, so as it relates to the mix of the backlog, and I would say More so even in the current order intake activity, we have seen and I think it's positive for the economy in general. We've seen more Projects coming in from whether it be education, healthcare, definitely manufacturing. So we're starting to even see the electric Vehicle batteries, we've seen the chips and we've seen a lot of advent and manufacturing from onshore and new things that we've talked about. So there is a mix toward those type of projects And away from just purely retail warehouses, which we've been seeing and talking about for a while now, probably 6 to 9 months.

Speaker 3

As it relates to capital spending for 2024, we Expect to have capital spending for the Aluminum project this year is likely to be somewhere between $900,000,000 $950,000,000 in total. Next year for the aluminum project, it's likely to be about $1,200,000,000 So when you combine that with additional growth projects As well as, a minimal amount of maintenance capital, we're likely to have total capital spending in 20 24, from

Operator

Your next question for today is coming from Cleveland Rooker at UBS Securities.

Speaker 4

Great. Good morning. Thanks for taking my question. I said maybe just one sort of on the aluminum side. I guess just looking at your budget and sort of Outlook for demand there, recently there's been a downturn in aluminum can demand and that industry has been It's a little bit disrupted.

Speaker 4

I'm wondering if that's at all concerning to you and if you've adapted your demand forecast at all?

Speaker 2

Absolutely not. We remain very, very bullish now. If you go back like a year now, Perhaps the folks were projecting that demand would grow and you need 4 new aluminum mills. We didn't believe that then. We don't believe that now.

Speaker 2

But we certainly feel there's more space than To satisfy our market share, for sure. The kind of the sort of the Pullback, I would say, is more an inventory standpoint. There's a lot of inventory. People panicked a lot last year. That inventory has to flow through the system, and there's absolutely no doubt that it is doing so today.

Speaker 2

And In all honesty, when our mail comes up, I think that the marketplace is going to be in a beautiful place for us to receive product. So you're going to look longer term. There definitely is a social change away from PGT, plastic bottles that will continue. It's not just beer, it's water, it's all fluids. And then when you look at the automotive arena, we believe and We've with our communications with virtually all the automotive folks, they have been restrained from developing Greater volumes of aluminum through the lack of availability.

Speaker 2

We're providing that availability going forward. And I think we Just as we've done this deal, we'll gain market share quite rapidly. So from a market perspective, We are still very bullish. The amount of interest we have across the aluminum space is incredible. And I think I said it on last call.

Speaker 2

In steel, we've never entered a market That is underserved. Every market we've gone into, we've had to differentiate ourselves to gain market share. It's refreshing for us that people are actually coming to us. And when you combine that need with our ability to change the supply chain To provide much greater value to the customer base, I think we're confident to gain that market share quite rapidly.

Speaker 3

Philippe, just as a quick reminder. In the last several years, they've had domestically, the consumers of aluminum sheet actually had to import about 20% of their needs, and that Had high tariffs associated with that imported cost. So there's definitely room for just 650,000 tons of additional supply.

Speaker 4

Good. Got it. I appreciate the confidence. And if I may just sneak in one follow-up question on Simpson. I think you had to replace A bearing on the caster, I'm just wondering if you've got I didn't hear in the prepared remarks if that maintenance work has been done and if Back on schedule.

Speaker 6

Yes, this is Barry. I'd just like to comment that those Bearing issues we talked about at the tail end of last year, our teams mitigated most of the effects of that. We have a supply chain Now that is both a more robust design and a more robust supply chain. So we're really excited about the quality improvements And really the reliability of those casting segment parts, we believe our long term plans, we kind of approach it with several Different prongs and all of them are really being successful and it's to the point now that we can manage it very well and we're operating at full capacity as Mark All capabilities of the machine right now are in place. So we believe long term that's going to be not an issue going forward, That it will just continue to be higher reliability and continuing high quality.

Speaker 4

Thanks, Barry. But Didn't wasn't there an unplanned outage very recently?

Speaker 6

Yes. That we had a caster shear issue just here at the beginning of July, Not related to the bearing issue. Perhaps you mentioned with the casting machine. And it's kind of a technical issue with the caster shear. And suffice to say, it's large parts that we wanted to make sure we had put in properly and we are taking this opportunity To address a couple of other issues, but we anticipate that facility being up and operational in the next few days.

Speaker 6

The team has done a phenomenal job For working together and getting this scope of a project, we're super excited. Mark and I were down there for moral support. Definitely not getting in the way of the guys making the repairs, but great to see this team just really owning their technology and So we anticipate this problem to be behind us and we think we put in really good things to mitigate any Future failures that are similar to this.

Speaker 4

Okay. Got it. Thank you. Appreciate it.

Operator

Your next question is coming from Tristan Dressler with Exane BNP Paribas.

Speaker 7

Yes. Hi, good morning. Thanks for taking my questions. The first one is maybe on the steel side. Can you tell us a little bit about the volume outlook into Q3?

Speaker 7

I noticed loan volumes were down on a year on year basis in Q2. So Should we expect some pickup there? And with the Sinton outage, how should we think, Generally speaking, for steel shipments into Q3? That's my first question. Thank you.

Speaker 3

Tristan, this is Theresa. Thanks for the question. So we generally, we don't give guidance as it relates to specifics on shipments. And if you look historically, the 3rd quarter is going to be generally the strongest shipment quarter that we have in shipments for steel simply because of seasonality. Sinton is going to be down for July.

Speaker 3

We are still running the coal mill and the value add lines, which will help some of the lost volume, but we're likely to have, lost volume of anywhere between 5,000,70,000 tons of total steel shipments as it relates to the sheer outage in July. Other than that, we really can't give you any additional guidance. But As Mark mentioned, the backlogs across the Steel platform are very strong and order activity has been very good.

Speaker 7

Okay. No, that's helpful. And maybe a quick follow-up just on the Fabrication business. You mentioned that Joyce and deck spot prices have stopped falling. At which level exactly you're seeing them now?

Speaker 3

Tristan, we can't give specific pricing related to Commercial teams would be after me. So I think what we said about pricing for fabrication is that The pricing has been very resilient. We have strong pricing in the backlog, but we did mention that there are expectations that pricing on average From compared to the first half of the year, pricing on average for the second half of the year, is likely to be down 10% to 15%, But we do believe pricing is stable and it's been very resilient.

Speaker 4

Okay. I appreciate the color. Thank you.

Operator

Your next question is coming from Carlos De Alba at Morgan Stanley.

Speaker 8

Thank you very much. Good morning. So just on pricing as well, maybe you can provide some color even without giving us details. What we have seen in the benchmark information is the hot dip galvanized or galvanized prices Have been recently below the substrate cold rolled prices, which is a little bit weird and obviously not sustainable. But can you provide some color as to whether you are also seeing that in your realized prices for these products?

Speaker 8

And what might explain this usual situation?

Speaker 2

Hey, Carlos. Thanks for the question. The marketplace is a little frothy right now. I would tell you The recent the most recent change here in the CIU, Dan was here yesterday or the day before, In our mind, doesn't represent the market dynamics that's going on out there.

Speaker 8

All right. Okay. Thanks, Mark. And then just on Syntron, I wanted to confirm that you still expect The cost of the recent outage to be around $1,000,000 which is pretty insignificant. And when would you expect to reach closer to a 100% capacity utilization, if that is your intent or you believe or you want to stay around 80% that you will reach Towards the end of the year?

Speaker 2

Well, the actually the outage, the actual specific cost, It was well under $1,000,000 As Barry said, the issue was just getting parts And just the size of the equipment involved, it wasn't necessarily a large expense to repair. And the second part of that, sorry. Well, again, As you saw or as you heard from our comments, we're just tempering our expectations. We've always had High, high, high expectations. And we just believe once we get up and running here in the next few days, We were at when we shut down 52%, 55% or thereabouts.

Speaker 2

We're just suggesting now that, hey, month over month, we're going to progressively ramp up to that 80% by the end of the year. And then into next year, we'll continue to incrementally ramp up the full production through 2024.

Speaker 8

Got it. So in the second half of next year, Q4 next year is when you expect to get full capacity then?

Speaker 3

No, Carlos, I would say that's not what Mark meant. So what Mark said is that we're going to have kind of an even pace we expect I'll ramp up the second half of this year for 2023 to get up to that 80%, but then we'll reach the 100% of capacity very quickly in 2024.

Speaker 8

All right. Got it. Thank you very much. I appreciate it.

Speaker 3

You're welcome.

Operator

Your next question for today is coming from Timna Tanners at Wolfe Research.

Speaker 9

Hey, good morning. Why don't you just ask a little bit more about the cadence of added supply that you've outlined on the new coating and painting lines? Like should we start modeling contribution Immediately in the Q3, will that be more 4th and first quarter weighted? And then I have a second question. Thanks.

Speaker 6

Timna, this is Barry. We're anticipating bringing the new coating and the galvanizing lines, paint lines on at the end of the year. But I wouldn't expect any kind of significant contribution to shipments still going into 2024. But the lines are constructing very well. There continues to be supply chain issues with certain parts of the construction, but we're resolving those and mitigating them and moving stuff.

Speaker 6

Teams are very active and manned up. So we look forward to bringing these lines on, but it will be near the end of the year.

Speaker 9

Okay, helpful. Appreciate that. And then my only other question was just an update on your export activity and just

Speaker 2

From other than a small little bit of non ferrous, we have no export activity other than Mexico.

Speaker 6

Yes. Tim, this is Barry again. We've been doing quite a bit of shipments into Mexico this year. Sinton is uniquely the capabilities of Sinton are unique for what the Mexican markets are. So being able to get some heavier gauge products and wider product down there has been a very good place for us to Develop relationships, we've been down and shipping to Mexico for a long time, but significantly so in the first half of this year.

Speaker 6

And we continue to do more of that, especially through our campus partners at the Sinton facility. So we see that as really good business and continuing to grow forward.

Speaker 9

Okay. Thanks again.

Speaker 2

Yes. We certainly capitalized a little on the OMSA situation down there. And even as they restart, and obviously, there's a lot of projections as to how quickly they restart, if they restart. But we're quite confident that the customer base there around AMSA, certainly in Munklover, has Recognize that single sourcing is a huge mistake. And even with an AMSA startup, we're going to Continue to secure a lot of that business that we've and market share that we've gained.

Speaker 3

Got it. Thank

Speaker 1

you.

Operator

Your next question is coming from Bill Peterson

Speaker 10

On the Biochar, biocarbon initiatives, I mean, discuss the operations by early 2024, but just to confirm, I guess, has the plant construction begun, are there any other areas

Speaker 3

Thanks, Jim. So the bioreductant biocarbon facility It's actually going really well. The teams have done a lot of groundwork already. The major equipment is Either has been order or is on order and some of it's actually going to be received fairly shortly. So the team is doing a phenomenal job.

Speaker 3

I'm very proud of them in Mississippi, and the expectations are that it will start before the end of 2024. There's nothing left to prove as far as the product itself. There is a facility in Marquette, Michigan that Aimium operates, which is the technology provider. And we've tested the product extensively both for injection and charged carbon. So we don't have any Expectations for anything other than wonderful product that we can replace eventually 100% or a very large portion thereof of our anthracite usage going forward.

Speaker 3

So everything is going really, really well.

Speaker 10

Yes. Appreciate that. And if I forgot to ask what do you expect in terms of the cost on that, but compared to traditional. But I guess my second question is, As we think about this additional galvanized capacity, you mentioned kind of end of the year and then more contribution for next year. But I guess, how is your view given that there's also another a lot of other plant capacity coming to market?

Speaker 10

What's the risk You might see in terms of lower prices longer term with the additional capacity from competitors in the space. And would that kind of inform you of your ramp plan?

Speaker 3

Let me address the cost of the bio facility and then Barry and Mark can take the galvanizing pricing question. We believe we're still kind of trying to find a fine point on it, but it's likely to cost somewhere between 200 And $230,000,000 for the entire project. But remember, it is a joint venture that we have with Aimium. And so, we have

Speaker 2

And relative to the concern of overcapacity and almost over the years now, perhaps I've been in the industry But everyone it wasn't so long ago that there was going to be overcapacity in iron ore business and I'm going to go down to $35 a ton. And then there was the sheet issue where I think everyone is recognizing now that With the continued shutdown of the old inefficient high cost assets In the integrated business in the country, the desire for low carbon product That we're not going to see a material impact to any increase in the sheet market. And I think the same with coated. People are gravitating to produce their parts with more coated. I can remember cars Not so long ago, the outside skin was just galvanized.

Speaker 2

And you look at a car today and almost every single piece is galvanized. So demand is increasing for sure. The world is getting lighter gauge galvanized. And so the line time of It goes up and thus the actual sort of effective Throughput of the line is actually all lines are going down today. So we're not overly concerned.

Speaker 10

Appreciate the color. Thanks.

Operator

Your next question is coming from John Tumazos at Very Independent Research.

Speaker 8

Thank you.

Speaker 11

In Planning Sinton, you have the 1,008,000 tons of Customers on your campus, the buy in to the distributor based in Houston For coding lines as well as the customer opportunities in Mexico you were describing, More than the 3,000,000 ton capacity, as you're ramping up, how are you allocating The volume among those customers, it appears as though there's more customers and ton output. What Specifications, have you been not yet gotten to melting and casting and rolling in terms of chemistries, gauges, widths, etcetera?

Speaker 6

John, this is Barry. As far as product dimensions, we've Explored everything that we believe we needed to do. So we're doing light gauge to heavy stuff, full width of products. We've done many different of the metallurgical needs from vacuum to gas products all the way up Through the range of different steels we would make. We are minded to do automotive there, but those types of trials require us To really get an idea of what our line capabilities are, so we are doing those.

Speaker 6

We are doing the same with the API type Products, and that requires us to have confidence in the data so that we design the best products to go into trials. We do have customers Both areas taken material. So we're doing it in a very controlled manner to make sure that, again, we are Understanding the unique capabilities that Syn has. So at this point, the broad swath of products we've done something For almost every single thing we hope to sell, and it's more about getting more data, getting more characteristics from how we produce those things. And at the same time, Establishing those internal, how we process things is very important.

Speaker 6

Just this week, the ISO certification audits are going on. So we've always had a very diverse order book so that we have many small markets that we can participate in. So we're focused on making sure that we're Feeding all the different buckets, keeping all of our lines operational as we ramp up and bring these new coating lines online. So it's a very controlled structure and we're trying to be very respective to the customer base that's very anxious to receive these products.

Speaker 2

Hey, John. Thanks, Jim. The I guess, we remain it's not happening here. Hopefully, you can hear us still. But we remain incredibly excited by What we've seen in Cinburn, as I said earlier, we can sell everything we can make and a whole bunch more.

Speaker 2

We're really excited about the additional Galva line and prepaint line down there. That will allow us to, as we've done at Columbus and in Butler, Diversify the product mix and bring even more value add to it. The energy products, The ability to thermal mechanical roll produce those higher strength grades, the high tough grades at lower cost It's working incredibly well, and that's going to be a great market for us down there. And those products are value add. It may be hot band, but you accrue a good premium for those products.

Speaker 2

And we're also seeing in the plate arena great potential down there. One of the on-site Processes that you mentioned that we co locate is a real heavy plate cutter length Fine. And we feel there's going to be massive opportunity there, particularly as The infrastructure growth occurs and plate is going to be a big component in that. So Centon is it's incredible. One needs to go there to really experience it.

Speaker 2

The equipment reliability issues are frustrating, but it's absolutely a state of the art mill. The team is excited. They will get that thing running full blast in time and it will be the technology of choice going forward.

Operator

That concludes our question and answer session. I'd like to turn the call over to Mr. Millett for any closing remarks.

Speaker 2

Super. Well, thank you. And for those still on the call, Our employees in particular thank you for what you do each and every day. You do drive our success. We can't do things without you.

Speaker 2

Customers, thank you for your loyal support and our shareholders. Thank you those that are invested in us. We will continue to treat Your dollars just like they are our own. We're going to continue to grow them. And we have a huge Bright future ahead of us.

Speaker 2

Stinson kicking in, aluminum going forward, the growth momentum continues. So thank you.

Operator

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation and have a great and safe

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Earnings Conference Call
Steel Dynamics Q2 2023
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