Good day. And welcome to the Steel Dynamics Second Quarter 2020 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 21, 2020, and your participation implies consent to our recording this call. If you do not agree to these terms please disconnect. At this time, I would like to turn the conference over to Ms. Tricia Meyers, Investor Relations Manager. Please go ahead.

Thank you, Laura. Good morning. And welcome to Steel Dynamics second quarter 2020 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, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer. The other members of our senior leadership team are joining us on the call individually as we are all following appropriate social distancing guidelines. Some of today’s statements which speak only as of this date may be forward-looking and predictive, typically preceded by believe, expect, anticipate, or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995 should actual results turn out differently. Such statements involve risks and uncertainties related to our steel, metals 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 annually filed SEC Form 10-K under the headings Forward-Looking Statements and risk factors found on the Internet at www.sec.gov and if applicable in any later SEC Form 10-Q. You will also find any referenced non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Second Quarter 2020 Results. And now, I am pleased to turn the call over to Mark.

Well, thank you, Tricia. Good morning. Welcome to our second quarter 2020 earnings call. We certainly appreciate and value your time with us this morning, especially during these uncharted circumstances. Leaders are tasked to make decisions today that have not been required in recent history, regarding the health and the safety of our people, their families and our communities. We are closely monitoring the COVID-19 situation and are continuing to operate safely. None of our operations have been impacted to date. As always, protecting the health and welfare of our teams is our highest priority. I want to thank each of our 8,400 team members for their passion and continued dedication to excellence. I am incredibly proud to work alongside each of them during this unprecedented time. They are a special group, accomplishing extraordinary things and we are committed to them, their families, and our communities, all while supporting our suppliers and meeting the needs of our customers. But before I continue, Theresa, will you provide insights into our outstanding second quarter performance?

Thank you, Mark. Good morning, everyone. I appreciate your presence today. In the second quarter of 2020, our net income was $75 million, or $0.36 per diluted share, which surpassed our guidance of $0.29 to $0.33 per share, driven by higher-than-expected flat-rolled steel shipments. However, our results were impacted by two main items: costs related to our refinancing activities in June 2020, which amounted to around $0.08 per diluted share, and costs linked to the construction of our new Flat Roll Steel Mill in Sinton, Texas, which were about $0.03 per diluted share. When excluding these factors, our adjusted net income for the second quarter was $0.47 per diluted share, above our adjusted guidance of $0.40 to $0.44 per share. It's worth noting that although the comparison of our second quarter 2020 financial results to earlier periods may seem unfavorable, the accomplishments of our teams in such uncertain circumstances, as Mark highlighted, are truly remarkable. The demand for steel and ferrous scrap saw a significant drop in the second quarter due to the COVID-19 pandemic and the temporary shutdown of many steel-consuming businesses. Consequently, our revenues for the second quarter were $2.1 billion, which is 19% lower than the previous quarter and 24% less than the same period last year. Our operating income for the second quarter was $159 million, down over 40% compared to both the prior quarter and the same quarter a year ago. On the operating side, our steel operations performed exceptionally well during this tough period. We shipped 2.5 million tons of steel in the second quarter, just 12% below the record 2.8 million tons from the first quarter and only 9% lower than the prior year’s second quarter. Our steel mills operated at nearly 80% of capacity, while the rest of the industry was at 55%. Thanks to strong momentum from the first quarter, our steel shipments so far in 2020 are only 2% lower than in 2019. This ability to sustain higher steel volumes is attributed to our value-added, diversified product offerings, our supply chain strengths, and our internal manufacturing capabilities. I want to congratulate the entire team on this achievement. Unfortunately, steel prices declined during this period, and our average quarterly realized sales price dropped by $19 per ton to $755, while average scrap cost only fell by $1 per ton, leading to compression in steel metal margins. Consequently, our operating income from steel operations for the second quarter was $172 million, which was 41% lower than the first quarter. As states implemented shelter-in-place measures and domestic manufacturing slowed down, the supply and collection of scrap diminished, resulting in weak demand for ferrous scrap. Thus, our metals recycling operations reported an operating loss of $6 million in the second quarter; however, they remained cash flow positive. These operations give us a competitive edge in sourcing ferrous scrap for our steel mills, enhancing scrap quality, melt efficiency, and reducing overall working capital needs. For our Steel Fabrication division, the operating income in the second quarter was solid at $27 million, slightly down from $29 million in the previous quarter due to consistent shipment levels. Our backlog remains strong, and our customers are optimistic regarding non-residential construction projects. We continue to generate substantial cash flow due to our differentiated business model and flexible cost structure. In the second quarter, we produced $486 million in cash flow from operations, marking our second-best quarterly performance. As we mentioned last quarter, during weaker conditions, our working capital proved to be a vital funding source, generating over $290 million in cash flow. In total, for the first half of 2020, we achieved $697 million in cash flow from operations, a record for that period. We've invested $527 million in fixed assets, with $371 million going towards our new Texas Flat Roll Steel Mill. Additionally, we maintained our cash dividend at $0.25 per share in the second quarter, having increased it by 4% in the first quarter. During the first half of 2020, we repurchased $107 million of our common stock, and there remains $444 million authorized for repurchase as of the end of the quarter. In June, we capitalized on market conditions to execute a second offering of investment-grade notes, issuing $400 million in 2.4% notes due in 2025 and $500 million in 3.25% notes due in 2031. These hikes were leverage-neutral, and the proceeds were used to pay off certain higher-cost high-yield notes. Together with our December refinancing, we have extended our debt maturity profile and reduced our effective interest rate to below 4%. These measures show the robustness of our capital structure, steady cash flow generation, and strong liquidity, highlighting our confidence in sustainable cash generation over the long term. For the second half of 2020, we are planning capital investments of approximately $800 million to $850 million, with our new Texas Steel Mill accounting for $700 million to $750 million of that total. We estimate that capital investments for the entire year of 2021 will also be in the range of $700 million to $750 million, with the Texas Mill representing around $580 million of that sum, as operations are expected to commence in mid-2021. At the start of 2020, we had a strong cash position and liquidity of $2.8 billion, and we have maintained that position with $1.6 billion in cash and short-term investments and a fully available revolving credit facility of $1.2 billion. It’s important to avoid relying solely on historical financial performance to predict future peaks or troughs. We have significantly grown, transformed our Columbus Flat Roll Division, further diversified our steel product offerings, and included more levers for enhancing our financial performance throughout cycles. Additionally, we have integrated new manufacturing businesses that utilize steel as a raw material, providing further opportunities to maintain our steel mills’ utilization during weaker market periods. Together, our recent and planned strategic growth investments are estimated to create an incremental annual future EBITDA of over $425 million on a historical spread basis. This figure can be found on slide 13 of our second-quarter investor presentation. Today, we are more agile than ever. We remain committed to upholding our investment-grade credit rating, with our capital allocation strategy emphasizing responsible strategic growth along with appropriate shareholder returns, which include a stable dividend profile supported by a variable share repurchase program when suitable. We are well-positioned to continue generating sustainable long-term value.

I know that some of you actually model some more specificity within our flat roll group shipments, so I will provide those for you now. During the second quarter, we had flat-rolled shipments representing hot roll coil and pickled and oiled of 746,000 tons, we had cold-rolled shipments of 132,000 tons and we had coated shipments of 900,000 tons, representing 1,778,000 tons in the second quarter in totality. And finally, on a personal note, I just want to sincerely thank the teams for their passion and their generosity, and the care that they are showing for one another’s health and safety. It truly is tremendous. So, thank you. Mark? Well, thank you, Theresa. As I have mentioned many times in the past, safety is and is always going to be our number one value because nothing is more important. Our safety performance continues to be significantly better than industry averages. But as I have said also many times before, it’s not enough, our goal is to have zero injuries across the company and we will continue to strive for that. Our safety performance has further improved during the last 12 months, with our second quarter results continuing the positive trend. We all must be continuously aware of our surroundings and our fellow team members. I challenge all of us to be focused both in the traditional sense, but even more so now, as it relates to keeping one another in good health. The steel fabrication platform delivered a strong second quarter performance. Our fabrication order backlog remains strong and is higher than it was at this time last year. Customers remain constructive concerning non-residential construction projects. We have had some jobs delayed or postponed, but it’s not been widespread or material. We anticipate the strength remaining through the rest of this year and expect second half 2020 volume is being equal if not higher than the first half performance. In contrast, as states issued shelter-in-place mandates and domestic manufacturing slowed, scrap supply and collection declined. In particular, prime scrap flow decreased considerably as automotive production ground to an abrupt halt. In addition, significantly lower second quarter domestic steel production utilization, which was estimated at 55% across the industry, resulted in weak ferrous scrap demand. As a result, our metals recycling operations were cash flow positive in the second quarter, but incurred losses at the operating level. As states have started to reopen, scrap flows have improved and we expect our metals recycling platform to return to profitability for the second half of 2020 based on increased volume. The steel team had a tremendous performance in this environment. After record shipments in the first quarter of this year, our volume only decreased 12% in the second quarter. I’d like to commend our commercial teams and the support of our customers for making this happen and thank you to the metals recycling team for providing the raw materials required to achieve this level of production in what became a very tight market. The strength of our differentiated business model coupled with the passion of our people drove strong steel mill production utilization to almost 80% across the company. While the overall domestic industry, as I said, only operated at 55%. Meaningfully, our flat roll operations achieved utilization of almost 90% in the quarter. As COVID-19 and related state closure implications unfolded in late March through today, steel demand and selling values decreased rapidly from the strength seen in much of the first quarter of this year. Temporary closure of automotive production and the related supply chain closures meaningfully reduced flat-rolled steel demand. The severe decline in energy prices related to oversupply significantly reduced steel demand from steel pipe and tube manufacturers. However, construction-related steel demand was more resilient. Our Structural and Rail Division maintained utilization of over 70% in the second quarter. As a result of reduced flat-rolled steel demand and lower pricing, a considerable number of high cost flat-rolled steel operations came offline since the end of 2019. We believe about 15 million tons or so of flat-rolled sheet capacity has been idled, representing over 20% of annual domestic production capacity. In tough environments, the strength of our people and our superior business model become even more evident. As demonstrated in the second quarter and historically, during periods of market inflection, we maintain higher utilization levels than our peers and gain market share. Uninterrupted low cost operations provide the greatest customer optionality. Our broad product portfolio and end market diversification within value-added market niches drives flexibility for our commercial teams. Superior supply chain solutions create additional value for our customers, making us a preferred place to shop. And furthermore, a powerful driver is the optionality of internal steel sourcing from our captive manufacturing businesses, which we call pull-through volume. To put this in perspective, our steel fabrication platform and steel processing locations purchased 2.3 million tons of steel in 2019. Only about half of this volume is typically sourced from the SDI-owned steel mills, but in difficult markets, we increase the percentage. As states continue to determine their reopening guidelines and many steel-consuming businesses have resumed operations. We anticipate steel demand will materially improve from the second quarter trough. The automotive sector and its related supply chain have restarted production, and we have started to see some resulting increase in steel demand. The construction sectors remain more resilient and related steel demand has been steady, as evidenced by our Structural and Rail Division volume and steel fabrication customer backlog. The order activity from our construction-related customers, combined with the strength in our steel fabrication order backlog, support our optimism for continued strength through the rest of the year. The weaker sectors continue to be related to energy and general and industrial consumers, which are likely to require a slightly longer recovery period. Related to continued growth, we provided a summary update of our recent growth investments on our slide in our investor deck posted on the SDI website. In the last 12 months or 24 months, we have executed several strategic investments that have or will benefit our through-cycle earnings and cash flow position. We expanded two steel mills by the combined addition of 440,000 tons of steel rebar production capability, providing product diversification and differentiated supply chain for the customer. Our model provides meaningful customer optionality and flexibility, with significant logistics, yield and working capital benefits. This end market diversification provides the higher through-cycle utilization for our Structural and Roanoke Steel divisions. We continue to expand capacity at Heartland Steel. It is an 800,000-ton value-added flat-rolled steel processor and the team has been operating at record coating levels, providing additional internal production support and operational flexibility for our Butler Flat Roll Division, increasing the through-cycle utilization of our steel assets and broadening our value-added product mix. The acquisition of 75% of United Steel Supply has been an excellent investment in addition to our portfolio. As a local distributor of pre-painted construction product, it has provided a meaningful channel to new and more diversified customers. With our customer-preferred co-branded supply chain and more rurally located custom base, and recent stimulus dollars flowing into these communities, United Steel Supply achieved record second quarter shipments. We anticipate the strength to continue through the rest of this year. Since the acquisition of Columbus Flat Roll Division, we have meaningfully increased its through-cycle earnings capability. We have transformed its product portfolio with the expansion of its value-added steel capabilities, the diversification of its customer base and the addition of a paint line. In a few weeks ago, the team achieved another milestone. They coated their first prime galvanized coil on our new 400,000 ton line. Columbus now has for value-added coating lines. The investment reduces Columbus’ hot-rolled coil exposure and provides a ready hot band consumer base in the south for our new Texas Flat Roll Mill when it starts operating in less than a year from now. We remain incredibly excited about our new next-generation flat mill in Texas and its certain contribution to our growth and earnings capability. As Theresa explained, our strategy focused on entering 2020 from a point of financial strength, providing for the required investment associated with this transformational project. Our team has an incredible depth of experience in the construction, startup and operation of large steel manufacturing assets. Collectively, we believe they have more experience than exists in any other company in the industry. The Texas team’s performance and momentum have been absolutely remarkable. Construction is going extremely well and within our expanded capital cost of $1.9 billion. We expect the operations to begin in mid-2021. We are having weekly conversations with the equipment suppliers regarding the impact of COVID-19. I don’t believe our planned schedule has been meaningfully impacted thus far. The new state-of-the-art 3-million-ton steel mill will include two value-added coating lines comprised of a 550,000-ton galvanizing line and a 250,000-ton paint line. It will follow the same stringent sustainability model as our other steelmaking facilities with state-of-the-art environmental controls and processes. Our existing steel mills have a fraction of the greenhouse gas emissions and energy intensity of average world steelmaking technology, less than 15% of the average producer. With an 84-inch coil width and up to 1-inch thick 100 ksi product, the Texas Mill will have capabilities beyond existing electric-arc furnace flat-rolled steel producers and will compete even more effectively with the integrated steel model and foreign competition. The mill is strategically located in Sinton, Texas near Corpus Christi. We have three targeted regional sales markets for the Sinton Steel Mill, representing over 27 million tons of relevant flat-rolled steel consumption in the Southern and West Coast United States and Mexico. We also plan to effectively compete with the heavy imports in Houston and the West Coast. Our customers are excited to have a regional flat-rolled steel supplier. We have two customers now committed to locate on site with us, representing over 800,000 tons of annual consumption and processing capability. We still have others in conversation and would expect to have further volume in the next months. The Sinton location provides a significant freight benefit to most of our intended customers relative to their current supply chain options. This freight advantage along with much shorter lead times provides a superior supply chain solution, allowing us to not only be the preferred domestic steel supply in the South and Western U.S., but also to effectively compete with imports, which inherently have long lead times and speculative pricing risk. From a raw material perspective, our metals recycling operations already control a significant and growing scrap volume in Mexico through scrap management relationships, much of which is needed prime scrap. As announced earlier this year, we are also planning to acquire a Mexican scrap company as part of our raw materials strategy for Sinton. Their primary operation is strategically located near high-volume industrial scrap sources throughout Central and Northern Mexico. The company currently ships approximately 500,000 gross tons of scrap annually but has an estimated annual processing capability of almost 2 million tons. After the acquisition is finalized in the coming months, we plan to ramp up that volume quickly. We believe our performance-based operating culture, coupled with our considerable experience in successfully constructing and operating highly profitable steel assets positions us incredibly well to successfully execute the transformational Texas growth investment. As I have said before, we are not simply adding flat-rolled production capacity. We have a differentiated product offering, a unique regional supply chain solution, a significant geographic freight and lead time advantage, and offer an import alternative to a region in need of options. Our unique culture and the execution of our long-term strategy continue to strengthen our financial position through consistent strong cash flow generation and long-term value creation, differentiating us from our competition and demonstrating our sustainability. I believe you would all agree this was clearly demonstrated this past quarter. Again, our commitment is to the health and safety of our people, our families and our communities, all while supporting our vendors, serving our customers and sustaining our value creation journey. Our team is incredible. I would like to thank each of them for their patience, their resilience and commitment during these uncharted times. They have an indomitable spirit that drives us all to excellence. Additionally, a sincere and heartfelt thank you to the health care providers and their families within Steel Dynamics and those serving individuals across the world. So, on behalf of SDI, thank you all, be safe, be well. And Laura, we’d like to open the call up for questions.

Thank you. The first question comes from Chris Terry with Deutsche Bank. You may proceed with your question.

Hi, Mark and Theresa, and thanks for taking my question. The main thing I wanted to talk about was the market share gains in 2Q, just wanted if you could talk about that on a more granular level. Obviously, you had high utilization rates with some of the blast furnaces offline. Just thinking about it though on a sort of a customer basis, is it the broader offerings, the better service, just because the blast furnaces are offline. I just wondered if you could talk about that and then further opportunities, just thinking about it whether it’s sort of step changes or gradual improvements and other opportunities there, obviously, you have got Sinton, which you can get more gains in a year or so, but just thinking about the next couple of quarters?

I guess that, obviously, that you just, sorry. I got to unmute myself there. You missed the best part. No. I think, as we have always demonstrated in the past, in moments of inflection down and tough markets, we continue to gain market share. And again, I want to emphasize, yeah, our shipments were down 12%. The 12% from a record, record production level in Q1. So it’s an absolutely incredible performance by the team and I think that the fact that we are fully engaged, fully operational, obviously, allows our customer base to access products, particularly when they are constrained in their own inventories. We just allow them to continue and they have got confidence in us. What we are here to deliver and we will deliver a product. We are fortunate, as we have said before, particularly in Columbus, we have been expanding our automotive presence. A lot of our automotive customer base is actually European, so BMW, VW and Mercedes. They have tended not to be as hard hit in Q2 as some of the domestic producers and we certainly benefited from that.

Yeah. I think I would just complement to what Mark said in that, where we saw the most market share gains was in the flat roll group, as well as structural steels, railroad rail. And then we have a bit of a niche in the solar products with the solar customers as well both within the hot rolled side of the business and within the specialty steel, the Steel of West Virginia. And in addition to that, with the advent of the Columbus teams starting up with the third galvanizing line, it will be nice to see that getting into the market and actually increasing the value add portion of their capabilities in the second half of this year. So I think there’s a lot of opportunity for us to both enrich the mix and then to continue in that market share gain.

And just to emphasize that…

Okay.

Just like anecdotally because we continue to say that part of our strength as a company through-cycle, generating strong through-cycle cash is the diversity of our product mix. And just as an example, Steel of West Virginia, small metal for us, but they were impacted pretty dramatically by the reduction in truck and trailer. That industry is off about 50%. But because of their expansion into solar, they are going to ship about 100,000 tons of solar product, as compared to 30,000 tons last year. And so it’s the diversification both the product and market sector allows us to outperform our competition quarter in, quarter out.

Thanks for your comment. I have a follow-up question regarding your remarks on construction. This market seems to be under active discussion, with various indicators pointing to a potential slowdown and some concerns arising. You mentioned that there haven’t been widespread cancellations, but there are individual changes within the market. Has there been any variation in your total backlog in that sector?

From a loan product perspective, the Structural and Rail Division's backlog has increased compared to the previous quarter. We observe continued strength, with fabricators staying very active. Large projects have remained strong, and we are beginning to see smaller projects that were delayed or put on hold earlier this year due to COVID starting to move forward. We are optimistic, especially since we have visibility through our New Millennium Building Systems and Fabrication business, which also reports a very strong backlog. There haven't been widespread delays or project postponements. While there is some softness in the Northeast market, which isn't significant for us and has seen some construction sites closed, overall, we anticipate very positive strength for the remainder of the year.

Thanks, Mark. Appreciate it.

Our next question comes from the line of Dave Gagliano with BMO Capital Markets. You may proceed with your question.

Thank you for letting me ask my questions. I have a quick clarification. I reviewed the EBITDA reconciliation tables before asking this. Does the second quarter adjusted EBITDA, the $217 million figure, include or exclude the $10 million of costs related to the startup at Sinton? Additionally, does it include or exclude some or all of the $25 million in one-time refinancing costs mentioned in the adjusted EPS?

Yeah. So, Dave, whatever is in the EBITDA on adjusted basis are non-cash items only. So at Sinton, those are cash items, so there’s nothing that’s been excluded. So they are deducted from the adjusted EBITDA, and from a financing perspective only, I think, about $4 million were actually added back, because they were non-cash write-offs. Otherwise, if it’s cash related, we are not adding that back.

Okay, great. It's consistent. I just want to ensure it aligns with the adjusted EPS. Thank you. Regarding the market, you mentioned a significant amount of idled sheet capacity. It appears that at least 5 million tons of that will be coming back soon or is already in the process of being reinstated, and potentially up to 7 million to 8 million tons if reduced utilization rates increase. This seems to be occurring at a time when lead times for the industry remain relatively low, and you also noted that prime scrap supplies are returning. My questions are: do you think the demand environment is strong enough to handle these near-term restarts? Additionally, do you believe that scrap demand will be sufficient to absorb the extra prime scrap supplies, or do you anticipate a decline in prime scrap prices beyond August?

In response to your last question about scrap, we do not have any concerns regarding the scrap flow. There was a month when automotive production and its related support facilities were significantly reduced, which caused a complete halt in prime scrap. However, we are observing a strong recovery in this area, and we expect that recovery to persist. The scrap market has been somewhat inflated over the past few months, and the recent decline has brought it back to a more balanced level. We anticipate some softness in prime scrap specifically in August, but it should stabilize at a more normal value for the remainder of the year. Therefore, supply should not pose any issues at all.

Yeah. Dave, Mark and I are looking into this a bit because, from a capacity standpoint, you might have heard things that we haven't. We do not think there are 5 million to 7 million tons of capacity coming back online in the near term, which is a figure we do not agree with.

What numbers do you ascribe to as far as the capacity coming back? We just added up the ones that we have heard about in various trade publications…

We are more… We believe that some capacity will be coming offline, though I'm unsure if this information has been made public. We estimate that it will be in the range of 1.5 million to 2 million tons of capacity returning in the near term. From that standpoint, we feel confident that this demand can be met. Currently, we are not witnessing a significant reaction to this, but it's possible we may be behind on the announcement.

And obviously it is…

No. That’s helpful. Thanks.

It's clear that there's a balance between potential recovery and the growing demand. Demand is undoubtedly increasing as the automotive sector picks up, despite some minor disruptions in the supply chain. Conversations with large dealerships indicate a notable inventory tightness, especially for pickup trucks, SUVs, and crossover vehicles, which will support automotive production. I believe the automotive industry will perform well, though it may face regional challenges related to COVID and workforce availability in plants. On the white goods and HVAC appliance side, we are also witnessing a strong rebound in demand. We had one HVAC customer contact us this week to confirm that we have sufficient materials available as they are operating at above-normal capacity, again limited by local workforce issues. Our order book, input rates, and customer feedback indicate a robust underlying economy for steel consumption. We entered the first quarter with significant strength, and now we’re seeing pent-up demand. Inventory levels, especially with distributors, are intentionally low as they avoid speculative risks. Imports will be limited for the remainder of the year, and the prices of iron ore and raw materials for integrated mills remain strong, supporting the global cost structure. Overall, I believe the dynamics in our industry look promising for the rest of the year.

Okay. That’s helpful. Thanks very much for the additional color.

Our next question comes from the line of Seth Rosenfeld with Exane BNP Paribas. You may proceed with your question.

Good morning. Thank you for taking the questions today. If I can, I have a couple of questions with regards to the outlook for the Fabrication business, please and the margin there. Can you just comment on how you viewed sustainability at least in healthy fab margins as you look ahead to the second half? In light of the current steel price weakness, is there potential for some upside going into Q3 or do you view the recent run rate being more sustainable in the longer term, I recognize we are already below where we were back in 2019? And then secondly with regards to fab, I wonder if you can comment a little bit with regards to some of the end markets you are serving there with regard potentially any shift between, say, public or private sector activity for fab? Thank you.

Seth, from the perspective of our fabrication business margins, the teams are expecting strong volume for the second half of this year based on the current order backlog and inquiry rates, which is encouraging. You asked about specific end markets, and we have a significant presence in large box buildings, particularly warehouses. This sector is performing well due to the increase in online ordering and the decreased foot traffic at retail locations, creating a demand for more warehouse space. Currently, we are seeing more activity in the private sector compared to the public sector, although this could change based on future stimulus measures, which are uncertain at this time. As for margins, we typically maintain about six to eight weeks of steel inventory. With the lower prices of steel, we expect to benefit from this, possibly leading to some margin expansion in the second half of the year. However, forecasting this expansion is challenging, and while the margins we are sustaining are decent, they are not exceptional in terms of long-term sustainability.

Very clear. Thank you very much.

And I am not sure if I hit all your points or not. Okay. Great. Thanks.

Our next question comes from the line of Andreas Bokkenheuser with UBS. You may proceed with your question.

Thank you. Just one question from me and just following up on when you are talking about the scrap price coming down obviously and where you on spread. This is typically an environment where we have historically seen you capture market share and you are obviously doing that at the moment. So, I guess, just trying to get a little bit of a stent. How comfortable do you feel about the current spreads as they are at the moment, I mean, we have obviously seen steel prices coming down and scraps coming down as well, and the falling steel price, obviously, effectively prevent some of the integrators on restarting capacity. So do you feel comfortable with spreads at the current level, I guess, the question?

Again, it’s interesting times to predict and when you said in an environment you used the word typical. I don’t think there is anything typical about the environment that we are in. All I can say is, I do believe we have reached a trough point. Second quarter was the trough for volumes for sure, particularly on the sheet side of our business, and I think there is an inflection point in pricing in the next few weeks. So I think that that’s a positive direction or a momentum for pricing, and as I suggested, you are likely to see a little softness on prime scrap here in August and then kind of stabilize for the rest of the year. So you can make your own predictions as to where spreads might go. I need to emphasize that some of you recognize this, but you have got to recognize that some of our business, our flat-rolled business is related to sort of the CRU index-type pricing and so there is a lag impact in the third quarter.

I am smiling, Andreas, because I don’t know if we are comfortable with spreads. We always like as high a spread as we possibly can have. But to Mark’s point, I think on a spot basis there is an opportunity to see spreads expand. Is it fair, Mark?

That’s clear. Thank you very much for taking my question.

You are welcome.

Our next question comes from John Tumazos with Very Independent Research. You may proceed with your question.

Congratulations on all of the good work in a tough time. Your steel…

Thank you, John. Yeah. We have got a great team.

Your steel scrap collections fell 2 times or 3 times more than the steel shipments. Were you deliberately reducing mill inventories of scrap or inventories in the recycling system or did the opportunities to collect scrap decline with the economy or did outside brokers gain share and if a business doesn’t earn good returns, maybe it’s okay thing if you let the other guys do more business at a loss?

Well, I think, a little bit of all of the above. Obviously, scrap flow dropped dramatically because of automotive business. Prime scrap pretty well dried up, so that impacted flows. Flows from OmniSource to our mills was strong, it went up. But at the same time, our competition had their own problems. They weren’t producing as much and so we had less homes to broker scrap to. You are welcome.

This concludes your question-and-answer session. I would like to turn the call back over to Mr. Millett for closing remarks.

Well, thank you, Laura. And for those that remain on the call, again, thank you for your attention today, joining us. I just would like to emphasize what an absolutely phenomenal performance our team demonstrated this past quarter. They say when conditions get tough, the tough get going, that’s our team. They did a tremendous, tremendous job and I think it clearly demonstrates the passion, the commitment and the innovation of our team, but also the strength of our business model, because, again, we generated a very, very, very strong cash flow for the quarter under the circumstances. And we would also like to thank our customer base because you folks on the call, you certainly unload us, you certainly supported our ability to perform our peers. So thank you for that. And to all the employees on the call, thank you, thank you, thank you, you did a great job, be safe. Make it a great day. Bye-bye.

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