Good day, and welcome to the Steel Dynamics Third Quarter 2021 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, October 19, 2021, 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 David Lipschitz, Director, Investor Relations. Please go ahead.

Thank you, Kate. Good morning, and welcome to Steel Dynamics' Third Quarter 2021 Earnings Conference Call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millett, Chairman and Chief Executive Officer of Steel Dynamics; 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. 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 to 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 Record third quarter 2021 results. And now I'm pleased to turn over the call to Mark.

This is the operator. Mark, are you still with us?

I’m sorry. Let me repeat. I was on mute. They were keeping me quiet, but no, seriously. Good morning, everybody. Welcome to our third quarter '21 earnings call. We appreciate your time today. And as I was saying, the entire Steel Dynamics team delivered another exceptional financial and operating performance, including record sales, operating income, cash flow and adjusted EBITDA. Aided by the market tailwind, it was a tremendous accomplishment, driven by the commitment and passion of our teams executing on our long-term strategies that continue to drive higher through-cycle earnings. The team is truly delivering exceptional results and I'm proud to be among them. Due to the steadfast commitment of our teams to one another, our families and our customers, we continue to operate safely amidst COVID. The health and welfare of our teams is paramount, and I thank each of them for being their brothers’ and sisters’ keeper. Record financial results are not important if our teams do not remain safe. Our safety performance continues to be significantly better than industry averages, but our intent will always be to have zero incidents. Since our founding over 25 years ago, Steel Dynamics has been intentional in managing our resources sustainably for the benefit of our teams, communities and our environment. We are the steel industry leader in sustainability, operating exclusively with electric arc furnace technology with a differentiated circular manufacturing business model. As our journey continues, we are committed to the reduction of our climate footprint, including a practical and achievable goal for our steel mills to be carbon neutral by 2050. We're starting from a position of strength, yet plan to do more. We're competitively positioned and focused on generating long-term sustainable growth for our stakeholders. But before I continue, Theresa will share some insights into our recent performance. Theresa?

Thank you, Mark. Good morning, everyone. I'd like to add my sincere appreciation and congratulations to the team. We continue to achieve new milestones throughout the business, attaining record third quarter performance with record revenues of $5.1 billion derived from strong product pricing and volumes across all of our operating platforms. Record quarterly operating income of $1.3 billion and net income of $991 million or $4.85 per diluted share and record cash flow from operations of $631 million and adjusted EBITDA of over $1.4 billion, a truly extraordinary performance. Our third quarter 2021 results included costs of $30 million or $0.11 per diluted share associated with the continued construction of our Sinton, Texas flat-rolled steel mill. Excluding these costs, third quarter 2021 adjusted net income was $1 billion or $4.96 per diluted share, above our guidance due to stronger than forecast September steel and fabrication earnings. Our third quarter 2021 revenues of $5.1 billion were 14% higher than sequential record second quarter results with improvements in all of our operating platforms, but most significantly from our steel operations based on increased flat-rolled steel selling values and strong shipments. Our third quarter 2021 operating income of $1.3 billion was 38% higher than second quarter results, also driven by increased flat rolled steel pricing and continued strong demand, more than offsetting increased raw material ferrous scrap costs. As we discuss our business this morning, we continue to see positive industry fundamentals for the fourth quarter and 2022, and we are focused on our continued transformational steel growth initiatives. Our steel operations generated record operating income of $1.4 billion in the third quarter, 33% greater than second quarter sequential earnings as flat rolled steel selling values strengthened and our lagging contract business represented over 80% of our flat roll volume in the quarter. We also saw expanded margins throughout our long product steel operations due to improved pricing. We achieved strong quarterly steel shipments of 2.8 million tons, with our steel mills operating at 93% of their capability. We have additional volume opportunity based on our existing annual steel shipping capacity of over 13 million tons. And when our new Texas steel mill is fully online, we will have over 16 million tons available. Our mills recycling business had operating income in the quarter of $47 million, aligned with strong second quarter performance as higher average pricing resulted in improved ferrous margins. The team continues to effectively leverage the strength of our circular manufacturing operating model, benefiting both our steel and metals recycling operations by providing higher quality scrap, which improves furnace efficiency and reduces company-wide working capital requirements. Our steel fabrication operations once again achieved record shipments and significantly expanded margins in the quarter as realized selling values more than offset continued higher steel input costs. Operating income was a record $89 million, more than triple our second quarter earnings of $28 million. Steel joist and deck demand remains very strong as evidenced by continued robust order activity, resulting in another record order backlog at the end of the quarter. Based on our backlog and customer sentiment, we expect steel fabrication earnings to continue to increase even further in the fourth quarter and into 2022. Our cash generation continues to be strong based on our differentiated business model and highly variable cost structure. At the end of the third quarter, we had liquidity of $2.3 billion. During the third quarter of 2021, we generated record cash flow from operations of $631 million and $1.5 billion during the first nine months of the year, also a record. Working capital has grown $1.2 billion in the first nine months of 2021 due to higher selling values, resulting in increased customer account and inventory values. During the first nine months of 2021, we have invested $802 million in capital investments, of which $666 million was invested in our new Texas flat-rolled steel mill. For the fourth quarter, we estimate capital investments will be roughly $220 million. Based on early forecasts, capital investments for the full year 2022 could be in the range of $700 million inclusive of a significant portion of investment for the four new flat rolled coating lines to be placed in Sinton and Heartland. Regarding shareholder distributions, we maintained our quarterly cash dividend at $0.26 per common share after increasing it by 4% in the first quarter of this year. We also repurchased $338 million of our common stock, representing 3% of our outstanding shares. Since 2016, we've increased our cash dividend per share over 85% and we've repurchased almost $2 billion of our common stock, representing 21% of our outstanding shares. While during the same timeframe, we achieved an investment-grade credit rating and maintained our growth company profile by investing over $3 billion in organic capital investments and funding $720 million in acquisitions. These actions reflect the strength of our capital foundation and consistently strong cash flow generation capability, and the continued optimism and confidence in our future. Our capital allocation strategy prioritizes strategic growth with shareholder distributions comprised of a base positive dividend profile that's complemented with a variable share repurchase program, while also dedicated to preserving our investment grade credit rating. We are squarely positioned for the continuation of sustainable optimized long-term value creation. Sustainability is a part of our long-term value creation strategy, and we are dedicated to our people, our communities and our environment. We are committed to operating our business with the highest integrity. Further committing to this path, we recently announced greenhouse gas reduction and renewable energy goals, including a goal for our steel mills to be carbon neutral by 2050. To increase transparency and accountability, we have also set interim milestones for 2025 and 2030. We have led the steel industry with our exclusive use of electric arc furnace steelmaking technology, our circular manufacturing model and innovative solutions to increase its efficiency, reduce raw material usage, reuse secondary materials and promote material conservation and recycling. We plan to sustain our leadership position by executing our climate goals through, among other avenues, implementing emission reduction projects, improving energy management, increasing the use of renewable energy and developing and supporting new innovative technologies. We have an actionable plan that is more manageable and we believe considerably less expensive than what may lay ahead for our traditional blast furnace industry peers. Our sustainability and climate strategy is an ongoing journey and we're moving forward with the intention to make a positive difference. We plan to continue to address these matters and to play a leadership role moving forward. And for those of you that track more individually our flat rolled shipments, for the third quarter of 2021, we had hot rolled coil and P&O shipments of 676,000 tons, cold rolled shipments of 145,000 tons and finally, coated shipments of 1,037,000 tons. Mark?

Thank you, Theresa. Well, the steel fabrication platform delivered a tremendous performance, achieving another quarter of record shipments and more than tripling sequential operating income. Based on the strength of steel joist and deck demand, increased product pricing is more than offsetting the continued rise in steel input costs. Quoting and order activity remains extremely strong, resulting in another record order backlog at levels considerably higher than historical peaks. The nonresidential construction market is strong, especially in areas that support online retail, computing activities, and pharmaceuticals, specifically represented by construction of distribution and warehouse facilities. We believe this will continue for the foreseeable future due to permanent changes in consumer behavior. Our metals recycling operations had a strong quarter with sequentially higher ferrous metal margins somewhat offsetting marginally lower volume. As we suggested on our second quarter call, prices moderated in August and September after rising throughout the first half of the year. Export prices may support pricing near-term, but auto recovery will ease prime scrap pressure and compress prime obsolete spreads to more normal levels in the near future, I do believe. The steel team had another outstanding quarter, achieving record operating income of $1.4 billion. During the third quarter, the domestic steel industry operated at a production utilization rate of 85%, while our steel mills operated at 93% due to our product diversification, the high proportion of value-added mix, and supply chain differentiation. From a steel end market perspective, the automotive sector is operating at production rates lower than normalized levels due to the continued electronic chip shortage. Fortunately, our specific auto model awards have not been materially affected, and we have not yet experienced any significant impact to orders related to the chip shortage. The longer-term outlook for the auto industry is positive. Automotive build rate forecast for '22 and '23 continued to be solid at over 15 million and 17 million units respectively. Vehicle inventories continue to be at historically low levels, approximately 70% below the five-year average and at the lowest level in over 35 years. The nonresidential construction sector remains strong as evidenced by the strength of shipments and order backlogs at our Structural and Rail and steel fabrication businesses. We expect this strength to continue well into next year. Residential construction has also been strong, resulting in high demand for HVAC, appliances, and other related products. We're also seeing healthy demand from mining on yellow goods customers and our Engineered Bar Products Division. And as oil and gas prices increased, we are seeing improved energy sector demand. These positive market dynamics are driving strong steel demand across the platform. The steady demand, coupled with continued historically low absolute inventory levels throughout the supply chain, continue to support strong steel selling values, especially within the flat rolled steel market. We also believe current legislative steel trade policies, including the Section 201 flat roll cases launched in 2015 and 2016 with the subsequent circumvention restrictions will continue to keep steel imports at moderated levels. The current US administration has also committed constructively concerning trade parameters and the issues created by China's steelmaking overcapacity. Regarding the ongoing negotiations between the US and the EU on revoking 232 tariffs, we expect the final agreement will include a steel quota mechanism to protect US national security goals and eliminate import surge risks. Aside from Turkey, Europe has not been a significant steel input source. We strongly believe that collaborating with our European allies against the real perpetrators of global overcapacity in the steel industry, represented by China and other Asian export-based economies, is the most effective path to free trade. Steel Dynamics is a dynamic growth company, increasing through-cycle earnings and cash flow to support continuous value creation. The most significant growth initiative to date is on the cusp of unleashing transformational change for us and our customers. It's our new Texas electric arc furnace steel mill starting production before the end of this year. The excitement generated by this project from our teams and customers continues to grow. This investment represents competitively advantaged strategic growth for Steel Dynamics and our teams, with associated long-term value creation for all our stakeholders. This growth initiative represents lower carbon emitting next-generation electric arc furnace steel production capability, providing differentiated products and supply chain solutions for existing and for new customers. The 3 million ton state-of-the-art facility is designed to have product capabilities beyond that of any existing electric arc furnace flat-rolled steel producer, competing even more effectively with higher carbon emitting integrated steel facilities and high carbon foreign competition. It provides us with a more diverse steel product portfolio and benefits our customers with an even broader climate conscious supply option. The team shipped their first painted coils in September. We anticipate shipping galvanized products early in November and commencing hot-rolled coil production before the end of the year. The Sinton team is doing a terrific job. It is truly a transformational project, and we are on the verge of seeing the significant benefits it will bring to our company, our teams, our customers, and our other stakeholders. Vitana Sinton provides a strategic location near Corpus Christi with underserved regional commercial markets representing over 27 million tons of relevant flat-rolled steel consumption in the US and Mexico. Our customers are excited to have a freight-advantaged regional flat-roll supplier. We have six customers committed to locate on site, representing 1.8 million tons of annual processing and consumption capability, five of these customers have already broken ground. Based on this geographic location, we can offer shorter delivery lead times, providing a superior customer supply chain solution. We will also effectively compete with steel imports arriving in Houston and the West Coast, benefiting consumers in these areas with lower logistics costs while removing the ocean transit price, quality, and delivery risks. We've also made considerable progress concerning our raw material procurement strategy for Sinton. We completed the acquisition of a Mexican metals recycling company in August 2020, a critical step. The recycling operations are strategically located near high-volume industrial scrap sources throughout Central and Northern Mexico. We also recently acquired three strategic recycling locations in the Houston and Corpus Christi area, further supporting raw material supply for Sinton. Our performance-based operating culture, coupled with a considerable experience in successfully constructing and operating highly profitable steel assets, positions us incredibly well to successfully execute this transformational growth. As I've said before, we're not simply adding flat-rolled steel production capacity. We have a differentiated product offering, a unique regional supply chain solution, a significant geographic freight and lead time advantage, and offer a sustainable alternative to imports in a region in need of options. We also plan to construct four additional value-added flat-rolled coating lines, comprised of two new paint lines and two new galvanizing lines with Galvalume coating capability. Our unique value-added coating supply chain strategy has resulted in our existing lines consistently running at or near full capacity. Our existing customers are anxiously awaiting the volume from these new lines. The galvanizing line and prepaint line will be located on site to benefit our new Sinton steel mill, while the other two lines will be placed at our Heartland Flat Roll division located in Terra Haute, Indiana. Each site will thus increase coating capacity by 540,000 tons to further support our regional flat-rolled steel operations, providing them with more value-added product diversification to serve our customers' needs. We expect these lines will begin operating in mid-2023. New Process Steel has been a significant customer for these value-added products. In fact, they have grown to be our single largest flat-rolled steel customer in recent years. And importantly, the majority of their business relates to high-margin coated flat-rolled products, which are further manufactured for HVAC, appliance stores, and automotive applications. Our plans to purchase a 45% minority interest in New Process provides us security and supply in these OEM customers. More importantly, the partnership provides Steel Dynamics more exposure to nonautomotive value-added manufacturing in Mexico, a key strategic objective to develop additional downstream pull-through volume, which will help support our new Sinton steel mill. As the majority owner and operator, New Process' CEO, Richard, and his management team will continue to control day-to-day operations, including all decisions concerning steel purchases and product sales. In closing, our culture and the execution of our long-term growth strategy continues to strengthen our financial position through strong cash flow generation, demonstrating our sustainability and differentiating us from our competition. We are a growth company. The team will continue to identify and execute high-return, organic and transactional growth opportunities while providing attractive shareholder returns. Our people and the spirit of excellence provide the foundation for our success, and I thank each of you for your passion and dedication to each other, our customers, and our communities. And to our teams, remember that your health and safety are the most important issue at hand, and thank you for the exceptional job you do. So everyone, thank you for joining us today. And Kate, will you please open the line for questions?

Certainly. Ladies and gentlemen, the floor is now open for questions. Our first question today is coming from Sathish Kasinathan at Deutsche Bank. Your line is live.

Yes. Hi. Good morning, Mark and Theresa. Thanks for taking my questions. My first question is on growth strategy. In the last call, you mentioned that you don't see any Sinton-type greenfield projects on your horizon. Since then, we have seen a couple of new greenfield projects announced by your peers, a few more acquisitions on the raw material side. So just curious on what's your latest thinking regarding organic growth and M&A?

Yes. So Satish, I'm not sure that our strategy has necessarily changed because of recent announcements from competitors. I would say that we're very focused on high-margin organic investments where we can be differentiated through value added or a supply chain or both solution. And so that's what the four coating lines provide from the flat roll side of the business. From an acquisition perspective, we're still very focused and we believe there's a lot of options available now and likely into next year as it relates to both mainly high-end manufacturing businesses that help us with our pull-through volume for our steel mills as well as there might possibly be some tuck-in scrap acquisitions as it relates to building out areas around our steel mills from a strategic perspective and the geographic supply of scrap as well as potentially their steel assets as well, but we're very busy from a growth perspective. Mark, do you have anything to add?

Not really. I think that our strategic path, as demonstrated over the years, continues to demonstrate that we always grow in a differentiated way. And so the new projects that are coming online and the changes in the scrap market don't change that outlook.

Okay. Yes, thanks for the additional color. And my second question is on Sinton. Can you talk about the ramp-up profile in detail? It seems you have trimmed your volume guidance for 2022 by 200,000 tons. When do you expect Sinton to achieve full run rate? Thank you.

Yes. We did, Sathish, based on the delay in the start-up, which Mark can talk about. They're still doing incredibly well given the circumstances. But we decided that we would probably pull back our estimate from 2.2 million to 2.4 million tons next year to the 2 million to 2.2 million tons. So it's not a huge reduction, but it's a reduction taking into consideration the ramp will start a little bit later in 2021 than we expected. But Mark, maybe you can give some details on when Sinton will be fully operational.

Yes, the actual trajectory of the ramp remains unchanged. It's just the starting point that has been delayed a little bit. I would emphasize and echo Theresa, the team continues to do an absolutely phenomenal job in bringing such a huge scale project online. We have had a couple of issues just recently that have delayed it into late November, early December. We have a crane delivery issue that slipped just literally last week by a couple of weeks. The recent COVID wave in Texas impacted the number of contractors available on site each day. And to be honest, as areas have opened up just recently on the electrical side, we've had a tough time getting night shift electricians on board to complete it in mid-November. So it has slid here another two or three weeks. We're still confident for an end of year start-up. The paint line has been running, running quality product that shipped coil in September. We expect the galvanizing line to be up, going through final commissioning, and should be shipping coils here early November.

And Sathish, to answer your last question, we would expect that they would be at a full run rate likely by mid-year 2022.

Okay, great. Thank you.

Thank you.

Thank you, everyone. Our next question today is coming from Martin Englert at Seaport Research Partners. Your line is live.

Hi. Good morning, everyone.

Good morning.

Good morning.

Do you expect the lag in flat-rolled contracts will remain around 80% of your flat order book into 4Q and then moving into next year? And then maybe if you can also touch on the contract dynamics, specifically the potential elimination of discounts on the lagging contracts for next year.

We anticipate concluding the year with our flat roll at approximately 75% to 80% on the contract side. As Sinton gains momentum next year, this is expected to decrease to around 70% of the flat roll base. In terms of contract discussions, we are actively negotiating, and we've finalized some contracts with terms that are more favorable than in previous periods. Notably, the volume ranges are contracting, allowing us better control over the order book as market conditions change.

Okay. Thanks for that color there. And some of this you touched on in your prepared remarks, but can you kind of discuss your metallic strategy, if that's changing heading into next year, specifically, there's three flat-rolled EAF mills that are ramping capacity near-term, all of which are going to require prime scrap and/or substitutes. And do you feel that there is ample North American supply of primes or will more imports of substitutes be required or some other strategy?

Well, I've been in the business for 40 years now. And every year, people are worried about whether you can get scrap next year as the EAF industry continues to grow. And today, the EAF industry is around about 70%, growing to 75% or thereabouts. I do believe some of the recent alternative iron units, almost 1.8 million tons or whatever from Cleveland-Cliffs certainly helps. And I would imagine that over time, we'll see more investment in those products going forward. I think you're also going to see a reduction of prime scrap required by the electric arc furnace community. We've been very successful over the last – well, since last March, reducing our prime scrap, our busheling and bundle requirements from 60% of the mix down to 40% of the mix through better processing at our scrap facilities. So that will certainly ease the - any volume demand there. So we think it will grow or the scrap volume, which is grow in lockstep with increased capacity. It may take a few more dollars to draw out the obsolete grades, that's historically been very elastic. And as you saw recently with the higher pricing, obsolete grades flowed very, very well.

What specifically changed with your scrap processing that dropped it from 60% to 40% of primes?

Well, I'd be giving away trade secrets, if I told you the detail there, but obviously, just better separating techniques.

Okay, appreciate the color there. And congratulations on the results and the positive outlook.

Super, thank you very much. Team did a great job.

Our next question today is coming from Emily Chieng at Goldman Sachs.

My first question is around capital allocation. I believe in the past, you've mentioned that you'd be looking at increasing the dividend once Sinton comes online. Can you perhaps give us a sense of the magnitude of that bump and perhaps when we should be expecting that to take place?

Well, from a magnitude perspective, that's difficult, Emma, and I appreciate the question, but that's a board decision. I would tell you if you looked at history, when we've had transformational growth that we believed provided sustainable through-cycle cash flow increase, such as when we purchased the Columbus Flat Roll division and we were finished transforming that early in the kind of 2016 timeframe, you would have seen several 20% increases in our dividend profile at that point in time. I don't think that that is unreasonable at all. As far as the timing, I would fully expect to see something happen in the early part of 2022. But again, that's a board decision and so I guess more to come on that.

And then a follow-up just around sort of the acquisition there. Can you perhaps talk around the rationale around the acquisition of 45% minority ownership of New Process Steel rather than perhaps a full 100% ownership there? I'll leave it at that.

Again, as we mentioned, New Process has grown to be our largest customer. It has a particular concentration of value-add prepaint to OEM customers, and we wanted to ensure security in that supply chain going forward. But as importantly, if not more importantly, they have a strong focus on downstream manufacturing, particularly in Mexico. And that is aligned with our strategic desires and objectives to increase pull-through volume. And so that would add support to our Sinton facility.

The minority position really, Emma, allows that management team and Richard Fant to continue to run the business, basically unchanged. And that's something that was attractive to us at this point in time.

Our next question today is coming from Michael Glick at JPMorgan.

Costs are obviously top of mind for the market right now. You've already hit on scrap. But could you talk a bit about what you're seeing on the cost side outside of scrap, including energy and raw materials and any supply chain issues you're monitoring or working to mitigate?

Well, I think the energy pricing here has risen to some degree. But again, natural gas cost is a very, very small percentage of our overall cost structure. On the raw material side, probably ferrosilicon is the only item that we're actually watching and taking steps to ensure a secure supply there.

Actually, throughout the supply chain, especially on the steel side but in the other operating platforms as well with the supply disruptions that everyone is experiencing across any industry at this point in time, whether it relates to logistics or just lack of supply chain stability, we actually have been doing a very deep dive into looking at the relationships we have with suppliers and to have redundancy in suppliers, et cetera. That's something that we do regularly but we're refocused on it as well. And at this point in time, we feel very good about, I'll call them consumables, the supply of consumables. Obviously, natural gas is very highly priced and going into the winter months, I think a lot of people are expecting that natural gas might continue to rise. Obviously, it is in the rest of the world, but possibly in the US as well. But that means that, as Mark mentioned, being 100% electric arc furnace is only a couple of percentages of our cost profile. So we're feeling pretty good heading into 2022 at this point.

And then on the fabrication business, I mean, you talked about the record backlog and pricing. But curious what sort of order of magnitude you're seeing in pricing versus what you posted this quarter just given the lead times associated with that business. And really just trying to get a handle on the staying power of the earnings in that segment.

Well, I guess the staying power or the health of that industry is, in my mind, phenomenal. Number one, as said in my earlier remarks, there certainly has been a permanent change in consumer sort of mindset. And so the online retail purchasing is just driving massive distribution warehouse type construction, cloud computing activity likewise. And we're seeing projects and honestly being pushed out 10 months. Our backlog is even longer than 10 months. And you might say people are concerned about the labor shortage and those sorts of things, but in a strange way, that's actually helping extend this whole economic cycle and pushing those projects out. So we are very, very, very bullish in that arena for 2022.

You asked the question about how much further pricing could move. So we can't give you specifics but it's a meaningful increase because as they have the backlog that Mark mentioned that's almost a year out, you already have that product pricing substantiated. And so that's why in my opening remarks, people may not have picked it up, but I may mention the fact that we do expect to have increased fabrication earnings in the fourth quarter as well as into 2022, and that's based off of the record comparison of the third quarter. So there's substantial earnings uplift that we're expecting from the steel fabrication segment.

I think I saw a comment this morning regarding a possible change in the tone of our press release, but I want to emphasize that we are very optimistic, if not more so, for the fourth quarter and into next year than we have ever been.

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

So I wonder if you could comment or elaborate a little bit more on your growth strategy. And how would you either rank or prioritize potentially investments in additional capacity above and beyond potentially further investments are sized below the quarter lines that you have already announced and the scrap processors and locations that you have acquired recently. Is it another greenfield, something that you would prioritize over more targeted acquisitions and/or further downstream investments?

We had a tough time understanding the whole question there. So if I don't answer it, just come back and hit me again. But on the recycling side, I think you were suggesting or asking whether or not we have major plans in transactions or growing that business. I would say, again, we've said this in the past, we're not interested in growing our recycling platform for the sake of just growth. We will continue to identify regional assets that complement our steel mills, such as we did in the Southwest about purchasing those three yards and then also the Zimmer acquisition in Mexico. But there's not a wholesale change in our recycling strategy whatsoever. We will continue...

And what about further investments after Sinton including steel capacity?

So what Carlos is asking is after Sinton is complete and after we have the four value-added lines that are processing, what greenfield might come after that?

Well, I do believe we will continue to focus on value-add opportunities downstream, more so in processing. The greenfield project of Sinton was a very unique opportunity, at least in my eyes. It was a combination of differentiating ourselves relative to product, bringing new supply chain solutions to our customer base, and having a very, very unique sort of geographic location to serve those customers. We wouldn't build another greenfield facility unless it had truly differentiating characteristics. And it's difficult to see that will avail itself in the US today. And then the other sort of strategic path we've continued to chase is downstream sort of fabrication, manufacturing, and we would be looking to do that both in the U.S. and in Mexico.

And Theresa, if I may ask you, how do you see working capital in the fourth quarter? Clearly, prices are still very high, raw materials are increasing your forecast for the fourth quarter for another record result. So is it fair to assume mostly higher working capital levels. But do you have a sense of the magnitude of how much cash that would consume in the last quarter of the year?

There's a few things happening at the same time in the fourth quarter. So we will have higher average steel selling values simply because of the carryover in the lagging contract business that we mentioned from the Flat Roll Group. And in addition to that, we'll be ramping up Sinton. And so we'll be putting additional working capital both through steel substrate and through scrap on the ground as they begin to produce. So I would expect to see a continued use of cash in working capital. I don't expect it to be close to the same magnitude that we saw in the third quarter. We also in the third quarter had some building at Sinton as well. So I would expect maybe a couple of hundred million dollar build but nothing beyond that. Again, it's a very difficult thing to monitor when prices continue to rise, but I think that's probably a good estimate at this point.

Our next question today is coming from David Gagliano at BMO.

I just have actually a few numbers-related questions. I think in the Q&A last quarter, you indicated preliminary 2022 CapEx of $550 million to $600 million. And I thought I heard you say on this call earlier that you expect CapEx to be $750 million for 2022. And I also noticed that the rolling mill start-up looks like it's been pushed out to 2023 versus what I thought was mid-2022 previously. So my first questions are A, what is the driver for the higher 2022 CapEx, if that's correct and B, what is the driver for pushing the rolling mill start-ups to mid-2023 versus 2022 previously?

So to address your last question first, if you're speaking about the Sinton rolling mill, David, are you talking about the Sinton rolling mill?

I thought effectively, there was commentary back in April, I think it was. And then again, in the last quarter that that just in general, the four rolling mills would be starting up by mid-2022. Perhaps I got that wrong.

The value-added lines, no. So the value-add lines we had hoped to be in the second half of 2022. But given the engineering of the lines and just the delivery of equipment at this point in time, it's pushing us back to now, we think those lines will be operational in the first half of 2023. So you're correct, that is a change, but that has to do with the engineering and the equipment delivery timeline. As it relates to capital spending for 2022, you're correct. On the last quarter call, we would have given something closer to the $600 million range, but that's prior to us doing the deep dive that we do every fall into capital projects. And as you'll remember, there's so much of all of our team members' compensation at risk to performance and high return investments, they always put together to wishlist of very good investment opportunities that would result in higher compensation for them if they have high returns. So we went through that process. And at this point in time, that's added probably about $100 million to the capital that we expect to spend next year and that would be projects that we believe will have a very good return profile to it. Some of them will start next year. Some of them will just have the money spent and then kind of roll into 2023. But there's no one significant project that's adding to that. Most of that $700 million is actually tied to the four value-added flat roll lines.

The four value-added flat roll lines that were pushed to 2023, and I apologize I called rolling mill, I apologize. You're right. Before value-add flat-rolled lines that were pushed, I think to 2023, but then there's other projects in there that raised the total from $550 million to $600 million to $750 million. So $150 million to $200 million higher versus last quarter on some other projects. Is that right?

So they're high return projects, and there are spreads throughout fabrication, the steel mills, we're adding some inspection lines likely down at our SBQ facility. So there's just a lot of individual projects like that, David, that aren't significant individually. But as they added together, it's a higher number.

And then just one other one for me. Operationally, shipments overall were down 5% in the third quarter. Obviously, production was great. Shipments were down 5% in the third quarter on a quarter-over-quarter basis. Can you just talk about what was the main driver for the quarter-over-quarter decline? And what's a reasonable assumption for shipments in terms of quarter-over-quarter change in the typically seasonally weak fourth quarter?

I don't think we typically will project future shipments. But you're right, shipments in the third quarter were off a little. We build inventory and principally as amount of transportation, just getting rail and trucks to move that material. We would expect, for sure, though, to move that in the fourth quarter.

Our next question today is coming from Curt Woodworth at Credit Suisse.

Mark, I wanted to get your thoughts on some of the different demand verticals. Obviously, we're hearing a lot of issues with respect to the supply chain chip shortages in auto, very long lead times in appliance, HVAC. And you kind of made the point that you felt the labor shortages, to some degree, we're actually bullish for fabrication just because it's kind of elongating maybe the pace at which these projects are going to get completed. So the market, it seems like it softened a little bit here with lead times coming in. There could be some seasonality. So I was just wondering if you could maybe briefly walk us through what you're seeing on some of your key demand verticals.

We are optimistic, particularly not across all our sectors. Construction has an extended cycle that I believe remains very healthy, partly due to project delays caused by a labor shortage. Contractors and builders I speak with nationwide are having similar experiences and foresee long-term strength. On the non-residential construction side, we view it as exceptionally strong. In the automotive sector, there's a comparable situation, but the chip shortage is hindering progress, which I believe will also prolong that cycle significantly. COVID-19 resulted in a loss of approximately 4.5 million units, and this needs to be addressed. The pent-up demand is remarkable. For instance, a dealership I visited last week usually has 1,600 vehicles in inventory but currently only has 100. This is a common scenario among dealers across the country. The demand is definitely there, which will sustain strength in the automotive sector. I believe once the chip shortage is resolved, output will ramp up significantly over the next couple of years due to such high demand. In other areas, residential is robust, HVAC appliances are doing well, and we're seeing some improvement in the energy sector, particularly with drilling rigs, while distribution pipe remains weak and is likely to stay that way for another year. The yellow goods sector is strong, and overall engineering has a customer base anticipating a 20% year-over-year increase, which also provides us with positive support. Overall, we are facing an exceptionally strong demand environment.

And then a quick follow-up. With respect to the buyback, when you look at the free cash flow profile and the balance sheet, I mean, you have very significant capability to continue to buy back stock here, and your stock, at least on my numbers, trading at the cheapest level I think it's ever traded. So just curious to kind of get your thoughts on maybe how you see the buyback going forward, will be opportunistic or more steady? And I'll leave it there.

Yes, we feel very good about the capital structure and the foundation that the teams have been able to put into place. And so you've seen us be, we think, very active with the buyback program in the second quarter with very similar activity in the third quarter. I think one should expect to see us continue to have a very steady pace unless we were to come up onto a time frame where we believe that there might be a better use for those funds through strategic growth of either organic or inorganic opportunities. So at this point in time, we believe we will be very active in the buyback program.

Our next question today is coming from Andreas Bokkenheuser at UBS.

Just a quick follow-up on the auto demand. So your auto volumes or steel volumes are pretty solid. Obviously, chip shortage is weighing on production. There's been some talk about the EAFs in the US capturing market share from integrated. Is that partly what's happening here? Are you seeing yourself capturing auto steel market share here from the integrators at this point in time?

Well, we've over the last couple of years, have steadily grown market share, particularly out of our Columbus facility. Butler has always been around 28%, 30% automotive. Columbus, when we purchased it in 2015, had just incremental amount and that's grown to probably 300,000, 400,000 tons today. And I think we've got some unique products that bring value to the automotive supply chain. But probably as importantly today is the sustainability story, particularly with the European auto maintenance. We've had a lot of traction with BMW, with VW, with Mercedes, in particular. And they view our sustainability model and our carbon footprint as being among the best in the world. And so that has sort of earned considerable business. And we're also benefiting, honestly, from the USMCA. That increase in domestic content from 50% to 70% has necessitated those European manufacturers to source internal to the US, and that's driven a lot of our success as well.

And maybe as a follow-up, I mean, obviously, the auto contract negotiations going on. I'm not going to ask about pricing, but just in terms of timing. I mean, to what extent are you involved in all of this and when do you usually see these things ramping up?

Typically or historically, automotive was the purview of the bastion of the integrated mills because they necessitate or mandated sort of an annual fixed price contract scenario. And with the variability in the scrap markets or the volatility of scrap markets, it's something the electric arc furnace producer can stand. But given the volatility in 2015 and 2016 in pricing, the automotive folks saw that they left a lot of money on the table. And so they hedge between integrated and electric-arc-furnace supply chains today. The propensity of the automotive contract negotiations in the fall with the integrated producers not necessarily the electric arc furnace producers.

Our next question today is coming from Tristan Gresser at Exane BNP Paribas.

And maybe following up on the previous one, you obviously have near-term targets to cut your emissions, carbon emissions and some peers in Europe have tied their decarbonization savings to create new commercial offering of low carbon steel products that sell premium with good demand from companies to keep looking to cut their Scope 3 emissions. Is that also something you would consider? And do you see a similar market emerging for low carbon steel products in the US?

Well, you've seen just recently folks pursuing that direction. I would say for SDI to date, we've been the beneficiary of, again, capturing greater market share and haven't necessarily leveraged that to higher pricing as of this moment in time. I would imagine, though, over time, you could see a differentiation there.

And maybe just one question on market conditions and the pricing outlook. You have imports surging in the US, inventories building and of course, this new capacity is going to ramp up. The forward curve in US HRC is around 1,300 by March next year. I think in the previous call, you were a bit more bullish on the near term. Has anything changed to your view in the supply and demand dynamics at the moment that could warrant this drop in steel prices?

Well, there's absolutely no doubt that demand is there. I wouldn't necessarily characterize the imports as surging necessarily. Certainly, Galvalume, prepaint Galvalume is very, very strong, I'll give you that. But today, we saw some offers from Vietnam for April, May delivery. So the way, way, way out at around $1,500. So I would imagine pricing will turn over to some degree or I use the word erode, but it's not going to be a massive reduction. The market cynics out there that are suggesting that average pricing for the year is $740 a ton or $750. I just can't see that happening with the demand picture the way it is today.

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

I just wanted to follow up on New Process. I'll just ask one question with two parts, if I could. New Process is a bit of a deviation. It's acquiring one of your customers or at least partly. And I know in the past, there's been some trepidation over that, partly because you kind of compete with your other customers. So I just wanted your thoughts on that. And on the one hand, if you're concerned about the message it sends to other customers. And second, I wanted to ask if this is a new opportunity for Steel Dynamics to continue to move downstream into kind of more of the processing going forward with further capital allocation in that regard?

I want to emphasize that I don't see the acquisition as a shift in our strategy. We definitely do not intend to enter the service center business, as we would likely not excel in that area. As I mentioned earlier, we have two main goals. First, New Process has become a significant customer in the value-added prepaint supply chain, and we aim to secure that supply chain and access to OEMs for the long term. Second, we are seeking a growth platform for downstream manufacturing, and New Process aligns well with that strategy, especially in Mexico.

Our next question today is coming from Andrew Keches at Barclays.

Just one to put a finer point on the capital allocation priorities here. But Theresa, you've gradually been refinancing the old bonds and you have one left that's callable here in the fourth quarter. Should we expect that refinancing trend to continue or I guess, considering the outlook for cash flow, is there any consideration to possibly just paying that down to get yourselves to an even stronger balance position going forward?

So it's a great question. You're right that it's a $400 million tranche, and it has, I think, a 5% rate attached to it. The investment-grade market has been very supportive of Steel Dynamics, and we're very excited to be in that market today. So we are very comfortable, I guess, the first point with the debt structure that we have. We really manage to a through-cycle basis at a leverage of 2 times or less. So obviously, we're much less than that today, but we're managing to through cycles. I can't give you specifics because I would get in trouble if I did, but there is an opportunity to either repay or refinance, and we'll be making that decision here in the near term.

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

Well, thank you, Kate. And I just would like to emphasize to everyone on the call, our customers, our service providers, and particularly our team, thank you for your support. It was an absolutely phenomenal quarter. We're going to see another one in the fourth quarter, and it's only driven by, again, each and every one of you supporting our company, Steel Dynamics. We will endeavor to continue our growth trajectory going forward and creating even greater shareholder value and well. So thank you, and everyone out there, be safe.

Thank you. Ladies and gentlemen, this does conclude today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.