Nucor Q3 2021 Earnings Call Transcript

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Provided by Quartr
October 20, 2021

Key Takeaways

  • Record Q3 EPS of $7.28, surpassing the prior quarterly high and driving year-to-date EPS to $15.34 — more than double 2018’s full-year record.
  • Launch of Iconic, a net-zero carbon emission steel line using EAF technology, 100% renewable electricity credits and carbon offsets, with General Motors as the inaugural customer.
  • Announced a new state-of-the-art 3 million-ton sheet mill in the Midwest featuring 84″ coil widths, tandem cold mill and two galvanizing lines — designed to serve underrepresented Midwest and Northeast markets.
  • Acquired Cornerstone’s Insulated Metal Panels business and Hannibal Industries to bolster offerings in fast-growing warehouse, data center and racking markets, expanding beyond traditional steelmaking.
  • Raw Materials segment faces DRI margin pressures, which management expects to weigh on that segment’s performance in Q4.
AI Generated. May Contain Errors.
Earnings Conference Call
Nucor Q3 2021
00:00 / 00:00

There are 15 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the Nucor Corporation Third Quarter of 2021 Earnings Call. As a reminder, today's call is being recorded. Later, we will conduct a question and answer session and instructions will come at that time. Certain statements made during this conference Call will be forward looking statements that involve risks and uncertainties. The words we expect, believe, anticipate and variations of such words and similar expressions are intended to identify those forward looking statements, which are based on management's current expectations and information that is currently available.

Operator

Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risks and uncertainties relating to these forward looking statements may be found in Nucor's latest 10 ks and subsequent filed 10 Qs, which are available on the SEC's and Nucor's website. The forward looking statements made in this conference can speak only as of this date, and Nucor does not assume any obligation to update them either as a result of new information, future events or otherwise. For opening remarks and introductions, I would like to turn the call over to Mr. Leon Topalian, President and Chief Executive Officer to Nucor Corporation.

Operator

Please go ahead.

Speaker 1

Good afternoon and thank you for joining us for our Q3 earnings call. Joining me today on the call are the members of Nucor's executive team, including Jim Frias, our Chief Financial Officer Dave Simosky, our Chief Operating Officer Al Baer, responsible for Plate and Structural Products Doug Jellison, responsible for Raw Materials and Logistics Greg Murphy, responsible for our Business Services and our General Counsel Dan Needham, responsible for Bar and Rebar Fabrication Products Rex Query, responsible for Sheet and Tubular Products Mary Emily Slaight, responsible for our enterprise commercial strategy and Chad Utemark, responsible for engineered bar and fabricated construction products. Nucor continues to deliver strong results in our safety performance as we work towards our goal of becoming the world's safest steel company. Our performance in 2021 is slightly ahead of last year, which was the safest year in Nucor's history. Our team is committed to identifying and eliminating those risks, which could lead to injury.

Speaker 1

Our most important value It's the safety, health and well-being of our entire Nucor family. During the Q3, we once again achieved record results with earnings per share of $7.28 Our 3rd quarter performance surpasses our previous record of $5.04 set in the Q2 of this year and nearly matches our full year earnings record of $7.42 that we set back in 2018. I'd like to congratulate the entire Nucor team for delivering the phenomenal results we have seen so far this year, while staying focused on our safety goals. I'm incredibly proud of our team and what we are accomplishing together. Since our founding 56 years ago, Sustainability has been at the core of Nucor's business model.

Speaker 1

More than ever before, we see opportunities to advance our continued success by partnering with customers to help them meet their own growth and sustainability objectives. Our recent launch of Iconic, which is a new line of net zero carbon emission seal products gives our customers confidence and the trust that the products that they're purchasing from Nucor will not only help them meet their sustainability goals will provide a differentiated value proposition for them for the future. Our use of recycled scrap based EAF technology Enables us to operate at 70% below the current GHG intensity for the global steel industry. Iconic Steel will further advance our leadership position by applying credits from 100% renewable electricity and high quality carbon offsets to negate any remaining Scope 1 or 2 emissions from our steelmaking process. We are delighted that General Motors will be the 1st customer for Aconic.

Speaker 1

With our first shipment slated for early 2022, Iconic is going to be a key piece of GM's vision of a net zero emissions future. As GM continues to work towards reducing carbon emissions throughout their supply chain and through electrification of their model lineups, And we also look forward to deploying Iconic more broadly to help customers from across numerous other steel consuming end markets Meet their goals and develop more sustainable products. And while I'm on the topic of sustainability, our new corporate sustainability report can be found on nucor.com Along with our first TCFD aligned report and updated SASB aligned report from our Steel Mills segment, We hope you will find all this information informative and useful. The Q3 was a very eventful one for Nucor Strategically, as we announced or closed on several investments that will help us continue to advance our company's mission to grow the core, expand beyond and live our culture. We announced our plan to build a state of the art sheet mill in the Midwest on September 20 with 3,000,000 tons of annual capacity.

Speaker 1

This mill will be located to serve the country's largest steel consuming regions, the Midwest and the Northeast. These are regions where Nucor is currently underrepresented. With coil widths of up to 84 inches a tandem cold mill and initially 2 galvanizing lines, The new sheet mill will position Nucor to grow its market share and value added products from automotive, appliance, HVAC, heavy equipment, agricultural, transportation and construction applications. The mills product mix will be approximately 2 thirds cold rolled and galv. The U.

Speaker 1

S. Deal market is undergoing a structural transformation driven by the dual imperatives of economic efficiency and sustainability. Our mill will be state of the art and have a significantly lower carbon footprint than nearby competitors. With our financial strength and multi decade track record of innovation and execution, Nucor is uniquely positioned to continue leading this acceleration Steel Market Transformation. Our investment in this greenfield sheet mill represents a continuation of Nucor's balanced approach to capital allocation.

Speaker 1

Investing in projects and acquisitions expected to generate returns that substantially exceed our cost of capital, while also continuing to return at least 40% of our net income to stockholders through a combination of dividends and share repurchases. Jim will discuss this further in his opening remarks. Also, we recently announced our plans to expand out West. We will build a new melt shop at one of our existing bar mills in the Western United States. This facility will have the capacity of 600,000 tons annually.

Speaker 1

Adding mill capacity positions Nucor to build on our market leadership position in the region, which is experiencing both population growth and the infrastructure investment that typically accompanies it. Our Bar Mill Group is where our steelmaking started over 50 years ago and it continues to generate very attractive returns on capital. In addition to prudently investing to grow our core steel businesses, We are executing on our opportunities to expand beyond. During the quarter, we acquired Cornerstone's Insulated Metal Panels Business as well as Hannibal Industries, a steel racking manufacturer. We're now able to offer a broad range of insulated metal panel products and racking solutions.

Speaker 1

Each of these businesses is aimed squarely at serving fast growing markets such as warehouses and data centers. Our strategic investments will continue to be aimed at positioning Nucor to serve attractive, growing end use markets As the economy evolves to rely more on renewable power and Internet based services, we are excited to welcome our newest team members to the Nucor family. As you can see, we are adding capabilities to increase our presence in attractive markets and extend our company's long record of growth and value creation. Nucor is positioned to provide the sustainable steel and steel products needed to build the 21st century green economy. A key requirement of that economy is modern, resilient and sustainable infrastructure.

Speaker 1

Republicans and Democrats agree that the bipartisan infrastructure bill is urgently needed and we hope Congress We can find a path forward to get this bill passed. In order to ensure the safety of our citizens, the health of our economy and future opportunities for American workers, We cannot afford to have Congress miss this opportunity. Before I turn the call over to Jim, let me take a moment to congratulate our team. You all should be very proud of the safety and financial results achieved in the 1st 9 months of the year. We can only benefit from these strong market conditions if our facilities are running safely, responsibly and reliably.

Speaker 1

Once again, thank you to each of you for what you do to help Nucor win. Nucor will continue to invest in our future and provide our customers a differentiated value proposition while offering the most diverse set of capabilities of any steelmaker. Thank you all for what you do. And as we approach the end of the year, let's continue to make 2021 our safest and most profitable year in Nucor's history. Now Jim Frias will provide more details about our performance in the Q3.

Speaker 1

Jim?

Speaker 2

Thanks, Leon. We are proud to report our Q3 of 2021 earnings of $7.28 per diluted share, Establishing a new quarterly earnings record. This quarter's results also compare favorably with year ago 3rd quarter earnings of $0.63 per diluted share. We are benefiting from strong demand and profitability across Nucor's diverse portfolio of products and capabilities. Nucor's product breadth continues to be a powerful driver of value creation for both Nucor customers and shareholders.

Speaker 2

Due to higher than expected inventory profit eliminations, 3rd quarter earnings were slightly below our guidance range of $7.30 to $7.40 per diluted share. Year to date earnings of $15.34 per diluted share are more than double 20 eighteen's record annual earnings of $7.42 per diluted share. We are extremely proud of our team's strong performance during the current upcycle and through all the pandemic related challenges we have experienced this year and last. Our confidence in Nucor's competitive positioning has never been greater as we look to execute on further opportunities in the months years ahead. Our results reflect strong returns from consistent reinvestment in our operations over the years and outstanding execution by our team.

Speaker 2

Five significant organic growth investment projects representing approximately $1,000,000,000 in aggregate capital investment, Completed start up and full product commissioning over the 2019 to 2020 period. The rolling mill modernization Marion, Ohio rebar mill, the hot band galvanizing line at our Kentucky sheet mill, the specialty cold rolling mill at our Arkansas sheet mill, the Rebar Micro Mill in Missouri and the Rebar Micro Mill in Florida. Each of these projects are delivering life to date Profitability well above their original projections. During this past quarter, these projects together generated EBITDA exceeding $180,000,000 The 2 completed sheet mill capability expansion projects merit additional comments. Just 2 years after beginning operations in September of 2019, The Galton, Kentucky hot band galvanizing line's cumulative EBITDA exceeds the project's $200,000,000 investment.

Speaker 2

At 72 inches wide, this line is the widest hot rolling galvanizing line in North America and is uniquely positioned to serve value added markets such as automotive, solar tubing, grain storage, culverts and cooling towers. The facility ran at 112% of design capacity in The Q3 of 2021. Next, the Hickman, Arkansas Specialty Cold Mill continues to be another great success story. After beginning operations in mid-twenty 19, the Specialty Cold Mill's cumulative EBITDA already exceeds half of the project's capital investment. This facility also ran at 112% of rated capacity in the Q3 of 2021.

Speaker 2

Further, Our specialty cold mill team is still very early in the process of developing unique product capabilities and applications, Leveraging Hickman's flexible cold rolling mill to produce the high strength, lightweight products that are increasingly demanded by OEM customers. To our teammates at these locations and across Nucor, congratulations and thank you for your outstanding work. As most of you are aware, 2 more major capital projects also totaling approximately $1,000,000,000 are on schedule to begin start up during the Q4. These investments will expand further Nucor's product capabilities into the sheet market. They are the expansion and modernization of the Gallatin sheet Mill's hot band production capability and the Generation 3 flexible galvanizing line at the Hickman Sheet Mill.

Speaker 2

Galton will begin a 25 day production outage on November 23 for final equipment installation. After the outage, start up and commissioning will commence. At Hickman, commissioning of the flexible galvanizing line is underway with prime production expected in December. Looking into 2022, our team constructing the $1,700,000,000 Brandenburg, Kentucky state of the art plate mill is on track for start up late next year. Project to date capital spending totaled about $570,000,000 Located in the middle of the largest U.

Speaker 2

S. Plate consuming region And able to produce 97% of plate products consumed domestically, this mill positions Nucor to support domestic production of wind towers while securing a market leadership position in plate. Turning to cash flow and the balance sheet. Cash provided by operating activities for the 1st 9 months of 2021 was approximately $3,600,000,000 Nucor's free cash flow or cash provided by operations minus capital spending of $1,200,000,000 was about $2,400,000,000 For full year 2021, we now estimate capital spending of approximately $1,700,000,000 At the close of the Q3, our cash, short term investments and restricted cash holdings totaled $2,300,000,000 This is a decline of about $900,000,000 from the 2nd quarter level. During the Q3, Nucor funded significant uses of cash Totaling approximately $3,600,000,000 including acquisitions of $1,300,000,000 capital spending of 505,000,000 Share repurchases of $858,000,000 and cash dividends of $120,000,000 and A net working capital expansion on inventory, receivables, payables and accruals totaling $766,000,000 These uses were funded primarily from Nucor's ongoing strong cash generated from operations.

Speaker 2

The cash and short term investments drawdown plus The receipt of $197,000,000 from the issuance of green bonds tied to the Brandenburg project. At the close of the Q3, total long term debt, including current portion, was approximately $5,600,000,000 Gross debt as a percentage of total capital was approximately 29%, while net debt was about 17% of total capital. Financial strength continues to be a critical underpinning of Nucor's ability to grow long term earnings power and provide attractive cash returns to shareholders. We remain committed to returning capital through cash dividends and share repurchases, a minimum of 40% of our net income over time. For the 1st 9 months of 2021, cash returned to shareholders totaled $2,100,000,000 That represents Approximately 47 percent of Nucor's net income for this period.

Speaker 2

The year to date capital returns consisted of dividends of $367,000,000 and almost $1,800,000,000 of share repurchases. During the Q3, we repurchased 8,200,000 shares at an average cost of approximately $105 per share. Year to date repurchases totaled 20,350,000 shares at an average cost of just over $87 per share. Over the 1st 9 months of 2021, Nucor shares outstanding have decreased by about 5.5%. As we approach year end, Nucor's Board will consider a dividend increase for 2022.

Speaker 2

We have paid and increased our regular quarterly dividend every year since dividends were instituted in 1973. We expect the Board's deliberations will consider both the effects of our recent repurchases and the sustainable earnings power we see in our businesses. Since the end of 2017, Nucor's capital allocation framework has helped us achieve significant value creation for our investors. Issued and outstanding shares have been reduced by more than 10%, moving from 318,000,000 shares at the end of 2017 to approximately 286,000,000 shares at the end of the Q3. Over that same period, we have grown our steel bar production capacity by about 13% to 9,600,000 tons.

Speaker 2

We have also added about 1,000,000 tons of value added processing capability to our sheet business. Additionally, our steel products capacity has also grown by more than 1,000,000 tons. Today, we have significant projects under construction that will grow our sheet and plate capacity to more than 4,000,000 and 1,000,000 tons respectively, Further increasing our earnings power for decades to come. We are having a remarkable year in 2021, but it should not be missed The Nucor's ability to generate higher earnings per share is continuing to grow. Turning to the outlook for the Q4 of 2021, We are encouraged by ongoing robust demand conditions in most of the end markets served by Nucor.

Speaker 2

In fact, Order backlogs at most of our businesses suggest strength well into 2022. At the same time, customer inventories remain relatively lean. Logistical challenges throughout the economy continue to represent a risk factor. However, the moderating influence this is having on current demand may prolong the duration of this favorable economic cycle. We believe earnings in the Q4 of 2021 Likely to be at or near the record level achieved in the Q3.

Speaker 2

Compared to Q3, we expect earnings growth at our Steel Mills and Steel Products segments. The raw material segment's performance will be challenged by margin pressures in our DRI business. We are encouraged by our 1st 9 months of 2021 And we see great opportunities in our future. We are committed to delivering increasing long term value for our shareholders. Living our culture means driving performance.

Speaker 2

Thank you for your interest in our company. Operator, we are now ready for questions.

Operator

Thank We'll take our first question from Satish Keshavath with Deutsche Bank. Please go ahead.

Speaker 3

Yes, hi, good afternoon. Thanks for taking my questions. My first question is on the cost Inflation, can you talk about what you're seeing on the cost side other than scrap, mainly natural gas For your DRA and steel mills, also would be helpful if you could remind us what percentage of your annual gas requirement It's covered by production from your own natural gas wells or the fixed price contracts that you have and how much is exposed to the spot pricing?

Speaker 4

Thank you.

Speaker 1

Yes. Thank you and appreciate the question. Let me start broadly and maybe ask Jim to chime in on some details. But obviously, look, we're looking at all of our costs across the segment and how that affects the bottom line performance of Nucor, whether that be energy scrap, labor and again, goods and services that are coming in, Again, mostly domestically. So while we're certainly seeing and following and tracking the supply chain constraints, We source most of our products here domestically.

Speaker 1

And so in some cases, most cases, we've been a little sheltered from some of those impacts. But as we look at labor, as we look at moving trucks and materials barges, Getting ships in and out, those costs are certainly having an impact. What we're seeing with energy, obviously, we're watching. We have natural gas wells that Over the years, we've not continued to drill. However, as we see the market moving up, now it's really a question of how long do we believe that's sustainable?

Speaker 1

We believe that will continue well into the future. And again, that's part of our team's analysis ongoing analysis now to determine How bullish we are about that future as we move forward. Jim, anything you'd add to that?

Speaker 5

Yes. Thanks, Leon. We have an active risk management team that looks at Commercial risk or price risk, especially related to energy and natural gas. And we do have hedges in place to cover Our gas consumption that cover about 40% of our total gas consumption is company, going out into 2023 right now. So, we're seeing some inflation obviously with gas costs, but a lot of it's being offset by the hedges that we have in place.

Speaker 3

Okay. Thanks for the color. My second question is on shipments. Mill volumes were Down 4% quarter on quarter. Can you provide some color on what led to the quarter on quarter decline versus your previous guidance for an improvement?

Speaker 3

And how should we look about shipments for Q4 given the planned shutdown at Gallatin for the expansion And also the normal seasonality that you see.

Speaker 1

Yes. Let me be clear. We did miss our Guidance because of shipments, we were down 4%, but largely from a shipments perspective, that was because of the outages we took across our sheet mill group. We approximately took about a week down at each of our sheet mills and that equated to the shipments roughly that We were down. And as we think about performance and again think about the quarter's perspective, we think a better Measure of how Nucor has performed against that is our operating cash flows.

Speaker 1

Year to date, we've generated $3,600,000,000 worth of cash in that time period. However, in the Q3 alone, we generated $1,800,000,000 of that. So nearly half of The overall year's earnings were accrued and were accounted for in the last 3 months. So in terms of our performance, the demand drivers driving our business, They remain very, very robust. The piece that we underestimated was the intercompany eliminations.

Speaker 1

With that, I'll turn it to Jim, let him take you through a little more color around that and how we accrued that or accounted for that.

Speaker 5

Yes. Thank you, Leon. First of all, let me use some data on what intercompany elims have been in each quarter this year. They were about $183,600,000 in the 1st quarter, $148,700,000 in the 2nd quarter and they jumped to $268,000,000 in the 3rd quarter. And so let's talk about why they jumped by such a large amount.

Speaker 5

Our normal amount of intercompany steel inventory and I'm talking about finished steel products that have been sold to a downstream business or to a sister division that needs that steel for some purpose, is normally around 1,300,000 tons. It goes up and down from time to time. And this year, Because of the strong demand market that has trended down, in fact at the end of the second quarter that was down to 1.076 1,000,000 tons. So down more than 200,000 tons from what we would consider a normal level. And in the 3rd quarter, That inventory came up a little bit.

Speaker 5

It's now at the end of the Q3, 1,140,000 tons. So went up by roughly 65, I'm sorry, yes, around 2,000 tons and most of that happened in September and we didn't forecast it. And the margins on that inventory were very large And so it caused us to miss our earnings by about our pre tax earnings by about $64,000,000 That was the impact within our forecast. That's Equivalent of $0.16 per share. So, it's we view it as not something you would call out because it wasn't like a one time item that's tied to an operational issue.

Speaker 5

It's an intercompany accounting thing that happens when you have so much vertical integration. We view the fact that over 20% Of our steel is consumed by in house customers as a strategic advantage that's important to our business. And so in the quarter and specifically in September, The inventory they required, we had them a little hand them out, wasn't enough and we stepped it up a little in September and we don't have a way to see that in corporate. We have so many businesses That makes deal and sell it to the internal customers. There's no way for us to measure that on a timely basis until we close the books at the end of the quarter.

Speaker 5

And that was what happened. Okay? Okay. Yes.

Speaker 3

Thanks for it. It was very clear and congrats on a great quarter. Thank you.

Speaker 1

Thank you. Thank you.

Operator

We'll take our next question from Martin Englert with Seaport Research Partners. Please go ahead.

Speaker 6

Hi, good afternoon, everyone.

Speaker 1

Good afternoon, Mark.

Speaker 6

Given the increasing EAF flat rolled capacity that we're Seeing in the North American market, can you touch on your metallic strategy for prime scraps and substitutes briefly, Maybe more so, is there anything that you're undertaking on the technology or metallurgical front with scraps or increasing imports of substitutes?

Speaker 1

Yes. I'll kick us off Martin and then I'll turn it to Doug Jellison to give us some more details. Doug is our EVP of raw materials. It's something that goes back a very long way in Nucor. That was a focus many, many years ago to begin to control more of our Iron units and the build out obviously in Trinidad and then subsequently what we had built in our DRI facility in Louisiana Gave us a significant amount of material that we could internally control and offset some of the Different ironies, whether it's pig iron, and certainly with the DRI we produced, we're aiming to balance that approach out.

Speaker 1

Over the years, we had some challenges as we started up as we're well documented on many of these calls. The performance of the team in Louisiana It's had, it's been exceptional since their big outage in November or Q4 of 2019. The reliability has come up significantly. But Doug, why don't you just speak more specifically about how we look at Brian, what that balance is for Nucor and our mix and some of the

Speaker 4

things that we're looking at moving forward? Yes. Thanks, Leon. Yes, Mark, good question. I think I'll start with just putting some a little bit of detail around the capabilities That we have.

Speaker 4

I think sometimes we lose sight of this. We have about 4,300,000 tons of capacity in our recycling yards, which is primarily obsolete grades. We have what we call the industrial group that controls about a little over a 1000000 tons of prime scrap a year, which is about a 6 fold increase over the last 5 or 6 years and we can see that continuing to grow in there. We have the DRI facilities that we talked about with about 4,500,000 tons of capacity. And then all that's tied together with our brokerage group that manages

Speaker 7

The use of all of that are national purchases and our international purchases.

Speaker 4

So we have a very robust set of capabilities that we can move and react in many different markets. As we see the growth of our steelmaking capacity, we'll be able to take products And use them at

Speaker 5

the best place to get

Speaker 4

the best value for them. So places that might be using BRI now, we may shift them to other places, backfill that with Different grades from different sources. As far as new technologies, yes, we're looking at things all the time. We're constantly improving Our recycling yards to produce a better grade of shred, we're constantly recovering more non ferrous materials And increasing the value that way. And then just a broad scope of new technologies here around the world, wherever it is.

Speaker 4

So we're pretty comfortable with where we are and pretty aggressive in what we're doing.

Speaker 6

Do you think that what you've undertaken previously and what's ongoing Is enough to maintain the historical average prime scrap spread Relative to obsolete grades? Or do you think that there's risk that that moves higher?

Speaker 1

Martin, look, there's certainly going to be an increased pressure on prime without a doubt. Nucor and others move up the value chain as we make More demanding applications. But at the end of the day, and Doug correct me if I'm wrong, roughly about 25% of our mix in our sheet mills is prime scrap. So it's not a commodity that we're emboldened to at 40%, 50%, 60% of the mix that we need. So with what Doug mentioned in the David Joseph Company.

Speaker 1

We've been building relationships in this market and it's again a commodity driven product where We're going to pay what's required, but what's the governor? We believe the DRI actually keeps the level set between Prime and obsolete grades, but will that increase? Yes, we do think it will increase, but we feel incredibly good and well positioned with what we've done, what we're currently doing in the mix that are in our mills today. And what Doug mentioned, Rationalizing that because we generate the DRI, it offsets other uses, but some of the mills that are using DRI today Don't need that for the end use customer requirements. We're going to shift those mixes.

Speaker 1

So again, as we build this new sheet mill, we feel very well positioned to be able to get the mix that we need to make the grades that we want as we move into the highest applications in automotive and other markets.

Speaker 6

Thanks for all the detail there. That's helpful. I'm kind of curious when years back when you were pursuing the Louisiana DRI, There had been some talk about a potential another lag blast furnace, which I'm sure that's been off the table and probably wouldn't Come back given ESG focus now, but would it be something you would consider on like a hydrogen basis?

Speaker 1

Actually, Martin, I think the timing is reversed. So we actually looked at building Two blast furnaces at the Louisiana site first and then shifted to the DRI. I would tell you at this point, there is 0 Chance Nucor is going to build a blast furnace. However, to your comment around hydrogen, whether it's CO2 sequestration that we're evaluating, whether it's Hydrogen Reforming and its cost impact to the business. We have a team that's Under Doug Jellison's group, technically that are falling and tracking dozens of technologies and some that we're going to invest in, some we're going to explore further, But we're going to stay very close to making sure that Nucor is on the cutting edge of the steelmaking move to a more sustainable future.

Speaker 1

And again, a big part of that for us was our launch of Oconic offering net 0 steels today to our customers, particularly in automotive and the relationship with General Motors being the first customer. But since that announcement, the interest in inquiry and demand for that product And that family of products has been significant.

Speaker 6

Do you get any type of premium for that product line Versus Yes. Yes, you do. Okay. Very interesting. Thank you for All the color and detail are very helpful.

Speaker 6

Congratulations to you on the team on the quarter and look forward to next quarter.

Speaker 1

Thanks very much, Mark. Appreciate it.

Operator

We'll take our next question from Michael Glick with JPMorgan. Please go ahead.

Speaker 8

Yes. Just on the growth capital, following your recent acquisitions, mill announcement and other organic projects, How should we think about your appetite for incremental organic or inorganic growth projects going forward?

Speaker 1

Yes, let me start at the macro and Jim please jump in. As we think about Nucor as a growth company, And so we're going to look for those organic growth projects like our announcement of building a sheet mill in the Midwest. We're going to look to continue The things in completing Brandenburg and we're so excited about both those projects in Brandenburg coming online late next year. So we're going to continue to look at those as well as continue to look at what are the one standard deviation removed in that expand beyond that give us a differentiated position. So the acquisitions of the insulated metal panel building business Instantly gave us a market leadership position as nearly half or over half of the insulated panel market today.

Speaker 1

And that's a growth market. As we think about Hannibal and the racking industries, the digital economy and green economy will be built with steel. Those are growing. Those are not under the steel type of cyclicality. The focus on data storage and warehousing cold storage is significant growth as we move forward.

Speaker 1

So You're going to see Nucor continue to focus on those areas. I mean, I can't get into detail, but I would tell you that there are many irons Still in the fires for Nucor to continue to grow based on a very deliberate market driven approach where we believe our culture can bring Significantly above our cost of capital returns.

Speaker 8

And then just on the fabrication business, obviously really strong this quarter. Could you talk a bit about how that book is Shaping up in terms of the backlog from a volume and pricing perspective versus call it prior peaks?

Speaker 1

Yes, yes, I certainly will. Actually, I'll ask Chad Unumark, who's over our fabrication products to share some detail there. Yes. Thank you, Leon.

Speaker 5

Yes, Michael, as we look forward

Speaker 7

in the non res construction arena, we see a really strong 2022. And why is that? I mean, Leon touched on it, but it starts with this digitization economy that's happening. It's firing on all cylinders. It's creating significant demand for distribution centers, warehouses, server storage facilities.

Speaker 7

We're also seeing a manufacturing growth and Expansion in plants. And as we probably all read, overall, the U. S. Consumer is in a very healthy place. When you take that backdrop and then look And our backlogs across our industry leading breadth of steel products, our quoting activity Has been and continues to be very robust across all the steel product groups and we have very strong backlogs In most of our downstream businesses and in some cases all time record backlogs.

Speaker 7

As far as pricing, obviously, that's a market driven Phenomena, but we continue to see pricing moved up through 2021. It's very we're in a very healthy spot, really excited about 20 22 and beyond in our downstream businesses. Thanks, Chad.

Speaker 5

Got it. Thank you.

Operator

We'll take our next question from Carlos De Alba with Morgan Stanley. Please go ahead. Carlos, your line is open. Please check your mute button.

Speaker 9

Yes. Thank you very much, everyone. I was on mute, indeed. So in terms of your mix for scrap, can you comment as to how it has evolved? How much Even if it is on a range, how much prime versus obsolete are you using?

Speaker 9

And maybe it's a scrap prime, obsolete As well as DRI, any comments will be helpful. And then in terms of the lead times, So we're seeing the industry data showing lead times coming down in the last few months. And but Your comments are obviously very constructive in terms of end markets and the outlook for the Q4 and beyond. So can you help us understand and reconcile what we're seeing in this industry To report the data and what you're seeing in your business?

Speaker 1

Yes, Carlos, maybe I'll kick us off on your latter question Around what we're seeing in terms of the market and then Doug maybe can address your initial question on prime and The other grades. Look, there are certain segments within Nucor. Nucor is the widest product offering of any steel company in North America. Our ability to serve end use markets from automotive, ag, heavy equipment, renewable sectors, the digital economy, the HVAC Construction Arena provides a unique insight and obviously backdrop to What is happening, as Chad mentioned, as we think about half of our products move into the construction arena, the robust demand there, As Chad mentioned, is seen well out into 2022. So we see no slowing there at all.

Speaker 1

If we're seeing some Slowness, it's from 2 markets really that I'll touch on. 1 is automotive. The chip shortages is Certainly, well documented, something that people are very familiar with. But with that Some unique opportunities. Obviously, Nucor is not heavily laid in automotive today.

Speaker 1

We're at 7%, 8% of our overall mix, 1,500,000 tons, 1,600,000 tons that move into the automotive markets and that's going to increase. We want to double over the next 2 to 3 years. And when the chip shortage ends and subsides, the pent up demand in Disposable income by consumers in the United States, I think is going to be a boon for the auto industry, but also for Companies like Nucor that continue to supply into that. So I think there is going to be some or is some elasticity that we're seeing, but I think Not demand driven. We see it more from a rebounding in supply chain issues and constraints.

Speaker 1

The other is in some of the construction, while again the demand is strong, we're seeing some job sites that are slowing because they're having trouble. Their end customers are getting having issues getting their needs from overseas if they're requiring chemicals or Overseas parts and deliveries that are being held up in waterways, refining trucks and getting containers across the ocean. So There are pieces of that that I think are going to create some softening in that. But again, overall, we see the 4th quarter being very robust and again potentially eclipsing the Q3 record. We'll wait obviously See the results of that, but we anticipate that it could be as strong or slightly stronger.

Speaker 1

Doug, maybe just touching on this Opening question around prime. Yes, Carlos, if you look across all of

Speaker 4

our steel mills, about 19% of our mix It's prime grades of scrap and about 15% DRI. Did I cover the question?

Speaker 9

Yes, maybe just the neck of the rest is obsolete, right, or different grades of obsolete?

Speaker 4

Yes, there's 10% pig in there and the balance is obsolete.

Speaker 5

Yes. All right.

Speaker 9

Excellent. Thank you very much. Good luck in the quarter.

Speaker 1

Thank you.

Operator

We'll take our next question from Tristan Gressler with Exane BNP Paribas. Please go ahead.

Speaker 10

Yes. Hi. Thank you for taking my questions. The first one on working capital, was there any one off Impacting the $1,200,000,000 build you saw in Q3. I don't know maybe related to the growth project and some lower Offtakes from OEMs, you mentioned order weakness or was it all a price effect?

Speaker 10

And also if you can what you could expect in Q4 For still use of cash, you think you'd be able to release some cash there?

Speaker 1

Tristan, let me just make sure I'm clear on the Initial part of the question around working capital, was it wanting to understand the Q3 performance or I'm not sure I caused the Just what you were trying to get.

Speaker 10

Yes. The inventory built in working capital in Q3 came a bit elevated compared to what we had. I was wondering if there was any one off impact or it was just a price effect? And also if you can touch on Q4, Are your expectation if you think there's still going to be your use of cash in working capital?

Speaker 5

This is Jim Frias. Thank you for Clarifying the question. It really wasn't much of an inventory build. I talked about the intercompany inventories. They only went up by tens of thousands of tons And scrap didn't go up much, finished goods.

Speaker 5

So it was really a valuation issue. The value of inventories went up significantly In our portfolio as well as the valuation of receivables, they both went up. The selling price per ton, we're still collecting receivables in 30 days essentially. And, but the value of each ton that customer owed us for went up. And so we used about $1,200,000,000 between inventory receivables net of payables in cash in Q3.

Speaker 5

So as we think about Q4, We think there could be some margin expansion, but not at the same rate that we achieved in the 3rd quarter. So we think working capital use of cash should be down dramatically. We're not going to forecast number, but it won't be nearly at that $1,200,000,000 level.

Speaker 10

All right. That's really helpful. And maybe a second question on low carbon steel. I mean, Would be interested to know given the visibility you have on the CO2 savings you're going to be able to generate, how much Sonnage of Econic you maybe see for next year and 2023. Do you see this commercial opportunity as a way to boost your margins or rather to gain market share notably in the automotive market?

Speaker 1

Yes to the above, Tristan. So yes to both pieces of your question. Yes, there is value added. Nucor's capability to be able to do this provides a differentiated value proposition As announced, and again, we're so excited with the partnership with General Motors, but we're also excited about the other interest in the companies that we're working with beyond not just within the auto sector in other companies, but much wider. So the market acceptance for that is going to be Significant and it's also going to be quick.

Speaker 1

But the other piece of that is, as we think about volumes, I'm not going to State exactly what our volumes are. I would tell you is when we say that scale, we're not talking insignificant tonnages. We're talking very Significant tonnage is that Nucor is going to supply into the iconic family. And so yes, just stay tuned because that's going to ramp up very quickly.

Speaker 10

Thank you.

Speaker 1

Thank you.

Operator

We'll take our next question from Andreas Bokkenhauser with UBS. Please go ahead.

Speaker 11

Thank you very much. Just a follow-up question on the auto repeat market. You guys obviously want to capture more market share. How is it looking so far in the second half of the year? I mean, we've been hearing that auto producers have been shifting more orders to electric arc furnace Producers and obviously one of your peers kind of confirmed they were certainly seeing that.

Speaker 11

Are you seeing that as well here in the second half of the year that you're capturing market share in the auto market?

Speaker 1

Yes, absolutely. And again, I'm not going to give you specific numbers, but I would tell you that opportunities is Ramping up very, very quickly. And again, our team has done an amazing job of building the relationships with the major OEMs in this nation. We're excited about the opportunities that to serve that market. And at the end of the day, the iconic family in Providing a net zero steel is going to be a piece of the automakers' commitments in providing a net zero output.

Speaker 1

So in order for them to reach their goals, they've got to start with a net zero steel. We believe we have a differentiated value proposition to offer those deals today unlike any other producer. So yes, we're very excited about that. Our market share is growing. And again, part of the new mills focus is to move and continue up that value chain.

Speaker 1

The mill that's being built there is differentiated. It will not be what we've built in the past. It will provide significant Quality in advanced high strength steel capabilities that match and mirror very, very nicely with the lowest Carbon footprint anywhere in the world. So we're again tremendously excited about that and the relationship that Nucor has built. We are the only EAF producer ever to receive the GM Supplier of the Year award.

Speaker 1

We've now done that back to back to back years, 3 years in a row. And so again, it's been a lot of years that Nucor has worked very hard, but The fruits of that work and the relationships that are built are paid dividends.

Speaker 11

Thank you. That's very clear. And maybe just a Second question on the second half of this year. So obviously, we're a little bit in maintenance shutdown season at the moment. Have you guys kind of been restocking ahead of Any maintenance shutdowns to kind of ensure your volume stay stable into the Q4?

Speaker 1

Yes. I'll switch that over to Rex Quarry, who is our EVP VP of Sheet and Tubular. And Rex, maybe just give them a little bit of color as we think about that broadly and then specifically as we think about The start up of our Gallatin project.

Speaker 12

All right. So I appreciate the question, Andres. I would start on a broader sense with Nucor having 5 sheet mills. It's common practice for us As we have outages at various plants, we'll look at the needs from a customer standpoint, and we're able to support a plant that may have an extended outage going on. So that's pretty common practice, not unusual for us.

Speaker 12

We'll shift supply between our plants to accommodate that. Probably the outage is getting the most notoriety right now is with the expansion of Gallatin and that's progressing well. We're excited about it And we're going to be concluding that soon and that's going to conclude with the largest outage we have coming up in December, a 25 day outage. We've been prepping for that for months already ahead of time. So we have already had And we'll continue to have coils sent in so that we can continue to ship from the Pickled Galp line through there, but also we'll take care of customers from Some of our other plants.

Speaker 12

So you'll see a minimal impact on the volume in the total sheet side based on that due to

Speaker 5

our prep ahead of time. Thank you.

Speaker 11

No, thank you. Thank you for taking my question. I appreciate the answers. Thank you very much.

Speaker 1

Thank you.

Operator

We'll take our next question from David Gagliano with BMO Capital Markets.

Speaker 13

Hi. Thanks for taking my questions. I just wanted to ask about 2022 and potentially even some insights on 2023 Capital spending at this point.

Speaker 5

Yes, we don't have this is Jim Frias. We don't have our final budget in yet. But I'll give you some color around the bigger projects that are wrapping up this year and next year. So let me flip to my document that has an information. Yes.

Speaker 5

For Brandenburg, in the Q4, we think the cap spending there is going to be in the neighborhood of $250,000,000 to $70,000,000 somewhere in that range. And then next year will be in the $800,000,000 to $900,000,000 range. For the galvanizing line at Arkansas, roughly $5,000,000 to $6,000,000 in the 4th quarter and it's going to start up in the Q4, but there's always carryover expenses because of the timing of when bills come in. So probably another $5,000,000 next year in the Q1. Galton will probably spend in the high $80,000,000 range in the Q4 and there's probably going to be carryover in the Low to mid-20s into next year.

Speaker 5

And those are the bigger items. So we don't have a formal budget yet. We have to go before the Board in December with our capital plan and have them approve it. So it wouldn't be appropriate for us to give a total number for next year. But I don't think it's going to be dynamically different than our Spending level this year.

Speaker 5

It's going to be in the range of what we're doing this year.

Speaker 13

Okay. Just a couple of quick follow ups. What are you saying now for Staining CapEx on an annual basis, that's one question. The other one is, in terms of the new mill That's starting up in 2024, 2025 timeframe. When will the lion's share of the capital for that mill be spent?

Speaker 5

I'll do the first half Leon and then if you could or Dave can talk about the new mills ramp for CapEx. So we think of maintenance CapEx as being In the neighborhood of $500,000,000 for a year. So that's the first half.

Speaker 1

Maybe just a little bit of color, maybe More than you asked for David, but as we think about the new mill, next step for us is to Finalized site selection, which we anticipate by year's end. But really as we think about CapEx ramp up, Really don't see much of anything materially in 2022. The start of that will be probably Midyear in 2023, well into 2024 and maybe early 2025.

Speaker 13

Okay. That's helpful. Thank you very much.

Speaker 1

Thank you, David.

Operator

Ladies and gentlemen, our final question will come from Andrew Cosgrove with Bloomberg Intelligence. Please go ahead.

Speaker 14

Hi, thanks for taking my question. Just a quick one on Section 232. I was curious if there's been any talk in Washington about Possibly replacing 232 with some sort of carbon border adjustment at some point in the future given the fact that obviously the U. S. Has A clear advantage with respect to low carbon produced steel and that would obviously be advantageous for U.

Speaker 14

S. Producers Protect against imports going forward. So I was curious if there's been any talk about that and what your guys thoughts are?

Speaker 1

Yes. Look, you frame the issue very well and it is certainly a concern. Look, what I would tell you is absolutely there have been conversations. We're going to Continue to work with the administration in Washington. Secretary Raimondo and Catherine Tai, the USTR have done a great job.

Speaker 1

They know the markets, they know the industry very, very well. And again, I think a piece of this, Andrew, is Already in the works now with what's being conducted with Europe. And so we think that's going to move away obviously from 232 and What the final outcome looks like, whether it's a tariff rate quota, we'll wait and see. But as you mentioned, as we think about the environmental advantage, There is a huge piece of recognizing both in Congress as well as the American consumer that when we think about a green economy, as we think about Renewables, it should be very important to the members of the House and Senate that those renewable energy projects We're not built with the dirtiest steels from overseas in the world, but are built with the most sustainable, cleanest steel and steel companies found here in the United States like Nucor and other EAF producers. There is a significant advantage.

Speaker 1

And so if That happens. Nucor has also provided our commentary and analysis on what a order adjustment tax must include because It is not apples to apples in that steel product. And so again, we're going to be very vocal. We're going to continue to advocate, but we do have a high regard for Secretary Raimondo and Catherine Talia, understanding those issues and the nuances. And again, I can't tell you when 232 will go away at some point, But it is a vehicle to bring other nations to the negotiating table to negotiate a better trade arrangement.

Speaker 14

Okay, great. Thank you. And then just the last one would just be if you could just quickly just chat briefly about the cadence of Startup at Galzan, when we should expect the additional 1,400,000 tons to hit and possibly the ramp up schedule?

Speaker 1

Yes, I'll turn that over to Rex Quirky again, our EVP of Sheet. All right, Andrew.

Speaker 12

Just as we mentioned after the outage, we'll begin The final startup base is at that project. So that will begin late this year, latter half of December. Startup will continue into the Q1 and then we'll be producing product through the mill Sometime into the Q1, I would tell you we focused in total on the tonnage through that mill. The additional tonnage Would be somewhere around 1,400,000 tons as you mentioned. We've targeted somewhere close to the 1,000,000 ton mark.

Speaker 12

I would tell you that's likely for next year for 2022 for the additional tons. So that's Likely it would be somewhere in 800,000 to 1,000,000 tons through that plant next year.

Speaker 14

Great. Thanks, gentlemen. Have a great one. Congratulations on the quarter.

Speaker 1

Thank you, Andrew. Thank you.

Operator

Ladies and gentlemen, this concludes today's question and answer session. I would like to Turn the conference back to Leon Topalian for any additional or closing remarks.

Speaker 1

As we conclude our call today, I'd like to thank our Nucor teammates for their Continued focus on the safety, health and well-being of the entire Nucor family. To our customers, thank you for the trust that you place in the Nucor team with every order. We will work hard each day to earn your business and provide you with the products and solutions that enable you to achieve your goals. And finally to our shareholders, we take seriously the stewardship of the valuable shareholder capital you entrust our company with. Nucor is extremely excited about our future and the returns we will continue to generate.

Speaker 1

Thank you and have a great day.

Operator

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.

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