Good day and welcome to the Steel Dynamics First Quarter 2022 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, April 21, 2022, 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, Holly. Good morning and welcome to Steel Dynamics first quarter 2022 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 this 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 our 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 reference to non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Record First Quarter 2022 Results. Now, I'm pleased to turn the call over to Mark.

Thank you, David. Welcome to our first quarter earnings call. And as always, we appreciate and value your time with us this morning. Record results are of no importance if our teams do not remain safe. So before beginning this morning, I want to pause for a moment to acknowledge a recent workplace fatality that occurred at our Heartland Flat Roll division. We are deeply saddened; our thoughts and prayers are with his family and friends. The reason I always begin our calls with a topic of safety is that it can never be overemphasized. Safety is our number one value and first priority. Nothing is more important than sustaining a safe environment for our employees. We must all be continuously aware of our surroundings and our team members. We must actively think about safety at all times, keeping it top of mind, an active conversation. Simply, safety comes before everything. And with this backdrop, it's difficult to celebrate an otherwise phenomenal performance. But we're here this morning to share what the team accomplished in the first quarter and to congratulate them. Their record performance this quarter was another extraordinary achievement driven by the commitment, innovation, and passion of our people, executing on our long-term strategies of diversified value-adding growth. I thank the whole team, the entire team for your dedication to excellence in every pursuit. We're committed to operating our business in an environmentally responsible manner and have been since our founding. We have always been and continue to be a leader in the production of sustainable low-carbon emission steel products. We encourage the use of new technologies and processes to reduce our impact on the environment, including a strategic focus on carbon emissions mitigation with a goal for our steel mills to be carbon neutral by 2050. Our sustainability strategy is an ongoing journey. We are starting from a leadership position within the industry and plan to stay there by doing even more. But before I continue with more market commentary, Theresa will share insights into our performance.

Thank you, Mark. Good morning, everyone. It's exciting to continue to see all the new milestones being continually reached throughout the company. A personal thanks to our teams and congratulations. Your performance resulted in another record quarter for Steel Dynamics with net income of $1.1 billion or $5.71 per diluted share for the first quarter of 2022. In the quarter, we incurred costs of $84 million or $0.31 per diluted share for the continued commissioning start-up of our Sinton Texas Flat Roll Steel Mill. Excluding these costs, first quarter 2022 adjusted net income was $1.2 billion or $6.02 per diluted share. First quarter 2022 record revenues of $5.6 billion and record operating income of $1.5 billion were both 5% higher than sequential fourth quarter results driven by higher realized selling values in our steel fabrication business and continued strong performance in our steel and metals recycling operations. We also achieved record quarterly cash flow from operations of $819 million and adjusted EBITDA of $1.6 billion, a truly exceptional performance. We see positive industry fundamentals for at least the remainder of 2022 and believe our second quarter 2022 results could achieve yet another new record performance. Our steel operations generated very strong operating income of $1.2 billion in the first quarter, achieving record shipments of 2.9 million tons, of which Sinton contributed 50,000 tons. Earnings from our steel operations were 15% lower than sequential record fourth quarter results related to metal spread compression and our flat-roll steel operations as realized pricing declined more than raw material costs. In contrast, our long product steel operations experienced metal spread expansion based on rising product prices. Despite hitting record volumes, we still have additional steel shipping capacity, much of which is within the long product steel group. When Sinton is fully operational, it will contribute an additional 750,000 tons per quarter of availability. Operating income from our mills recycling operations for the first quarter were strong at $48 million, based on improved metal margins as both average ferrous and nonferrous pricing improved in the quarter. 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 by reducing company-wide raw material working capital requirements. Mark will expand on the meaningful benefit of our steel and metals recycling teams working together to reduce our cost of raw materials as well. A huge congratulations to our steel fabrication team. They almost doubled their previous record results, achieving a new record high quarterly operating income of $467 million, eclipsing the entire full year of 2021 results by almost 30% in just one quarter. These earnings were driven by record pricing supported by near-record shipments of 210,000 tons. Steel joist and deck order activity remains incredibly strong. Our steel fabrication business continues to operate with a record backlog considering both forward product pricing and volumes which currently extends through the first quarter of 2023. Based on this strength, we expect steel fabrication earnings to continue to increase even further as the year progresses. Our cash generation continues to be consistently strong based on our differentiated circular business model. At the end of March, we had liquidity of $2.4 billion comprised of cash of $1.2 billion and our fully undrawn unsecured revolver. During the first quarter of 2022, we generated record cash flow from operations of $819 million. Working capital grew $757 million due to higher customer account values stemming from higher prices and volume, coupled with the payment of our 2021 company-wide profit sharing of $360 million. We also funded $159 million in organic capital investments. We believe full year 2022 capital investments will approximate $750 million, the majority of which relate to our four new flat-rolled value-added coating lines to be located in Sinton and Heartland. We also finalized the purchase of 45% of the equity interest in New Process Steel on February 1. We increased our first quarter cash dividend by 31% to $0.34 per common share based on the additional ongoing through-cycle free cash flow expected from our new Sinton steel mill. We repurchased $389 million of our common stock in the first quarter, representing 3% of our outstanding shares. As we exhausted our previous program, we also announced the Board's approval for an additional $1.25 billion share repurchase authorization, further demonstrating our confidence in Steel Dynamics' future cash flow generation. Since 2017, we've increased our cash dividend per share by 143%, and we've repurchased $2.7 billion of our common stock, representing 27% of our outstanding shares. Our capital allocation strategy prioritizes strategic growth with shareholder distributions comprised of a base positive dividend profile that is complemented with a variable share repurchase program while also dedicated to preserving our investment-grade credit designation. We're squarely positioned for the continuation of sustainable optimized long-term value creation. Sustainability is a part of that long-term value creation strategy and we're dedicated to our people, our communities, and our environment. We're committed to operating our business with the highest integrity. Further committing to this path, in 2021, we 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've also set interim milestones for 2025 and 2030. We had led the steel industry with our exclusive use of electric arc core steelmaking technology, our circular manufacturing model, and our innovative solutions. We plan to sustain our leadership position by executing our carbon reduction goals through, among other avenues, investing in emission reduction projects, increasing the use of renewable energy, and developing and supporting new innovative technology. As an example, we're incredibly excited to recently invest $25 million in the equity of Aymium. Aymium is a producer of renewable biocarbon products that replace fossil fuels and reduce emissions in large global industries, including the new electric arc furnace steel industry. We have an actionable path towards carbon neutrality that is more manageable and we believe considerably less expensive than most of our peers. Our sustainability and carbon reduction strategy is an ongoing journey and we are moving towards the intention to make a positive difference.

Thank you, Theresa. Our steel fabrication operations executed another exceptional record quarter. The earnings power of this platform in this environment still has not been completely displayed as customer demand and pricing continue to be strong. Our steel joist and deck order backlog remains at record volume and forward pricing levels, extending well into the first quarter of '23. The nonresidential construction market remains solid, considering the trend we have seen over the last year, especially in areas that support online retail, specifically represented by construction of distribution and warehouse facilities, along with data centers, schools, and healthcare. Our steel fabrication operations provide a significant natural hedge to our steel production operations in a stable or moderating steel price environment. They also support our steel mills during periods of weaker steel demand as a ready internal customer, what we call pull-through volume, increasing the through-cycle utilization of our steel mills. We have steel fabrication facilities located throughout the U.S. and in Mexico, providing us with an advantaged, broad-based customer-centric supply chain. As I move into metals recycling, I'll just take a moment to thank Russ Rinn given his impending retirement in July for the truly significant contributions he's made to that platform over his 10-year, 11-year tenure. He's helped transform that business. Today, we're operating at the same volumes with 1,500 less teammates. So the consolidation there and rationalization has been excellent. And I have massive faith in Miguel Alvarez, who now is leading that platform. I've got great faith that he's going to continue that transformation and do great things with that business. So Russ, my sincere thanks. Our metals recycling operations also performed well in the quarter with steady operating income of $48 million. As one of the largest ferrous and nonferrous metal recyclers in North America with operations throughout the U.S. and Mexico, we have a competitive advantage in providing the highest quality, cost-effective scrap to our EAF-based steel mills and to our other customers. In today's environment, our advantage of having our metals recycling platform is even greater. During the last 18 months, our recycling and steel teams have worked closely in developing a higher-quality shredded scrap that can be used in place of prime scrap. The combined effort resulted in our Butler Flat Roll Steel division reducing its need for prime scrap from 65% of its mix to only 40%, while achieving the same steel qualities. We are currently rolling this out to our Columbus and Sinton Steel divisions, allowing for a lower cost, readily available, low-residual scrap supply. Additionally, given the historically high spread between prime and obsolete grades which is around $170 a ton today, the reduced prime scrap requirement has provided a significant cost savings. The teams are also working together as global pig iron supply chains have been disrupted with the advent of the invasion of Ukraine. Our flat-roll steel operations have reduced the demand for pig iron usage while maintaining the highest level of steel quality through changes in our operating practices and the health of our metals recycling team and sourcing alternative inputs. We have sufficient resources for our steel production to continue operating uninterrupted. Additionally, of particular note, our Butler Flat Roll division has the advantage of Iron Dynamics, an on-site liquid pig iron production facility that supplies almost all of Butler's pig iron requirements. Charging liquid pig iron into the electric hot furnace also significantly increases productivity and reduces melting costs. We developed the technology years ago and it's the only existing facility of its kind today. We are currently in the process of pursuing opportunities to become even more pig iron self-sufficient for the future. The steel team had an outstanding quarter as well, achieving record shipments and operating income of $1.2 billion. During the quarter, the domestic steel industry operated at a production utilization rate of 80%, while our steel mills operated at a rate of 93%. We consistently operated at higher utilization due to our value-added product diversification, our differentiated customer supply chain solutions, and to support our internal manufacturing businesses. Hot roll coil pricing moderated during the early part of the first quarter but prices have recently firmed with extending order lead times across the product set, especially in coated products. With continued strong demand, we believe steel prices will remain strong. Based on higher raw material input costs, global flat-rolled steel supply disruptions related to the Ukraine, Russia conflict, and lower steel imports. Throughout our company history, we have intentionally grown our value-added steel product portfolio and created valuable customer supply chain solutions to mitigate the impact of price volatility. Today, at least 70% of our steel sales are considered value-added. This differentiated business model will continue to provide best-in-class financial metrics and through-cycle cash generation. Looking forward, we remain optimistic. The automotive sector steel consumption is expected to grow with production through 2024 returning to over 17 million units supported by an extreme lack of automotive dealer inventory and strong pent-up demand. The nonresidential construction sector is strong as evidenced by the strength of our customer backlogs within our long product steel group. Our Structural and Rail and Roanoke Bar divisions both achieved record quarterly earnings and our Engineered Bar Products division is operating at historically strong volumes. Additionally, as we discussed, steel fabrication operations are operating at never-seen-before levels. Residential construction is also good, resulting in high demand for HVAC appliance and other related products. Strong energy prices continue to push up the rig count and we have seen solid demand for energy products. In aggregate, our steel order backlogs and order input strength coupled with broad optimistic customer commentary and general market momentum drive us to conclude that steel market dynamics will remain strong throughout 2022. Steel Dynamics is a dynamic growth company, increasing through-cycle earnings and cash flow to support continuous long-term value creation. Our most recent and significant investment represented by a new state-of-the-art electric arc furnace flat roll steel mill located in Sinton, Texas. This differentiated strategic investment facilitates significant through-cycle operational and financial growth for our teams, customers, and for our vendors and shareholders. This electric arc furnace steel mill represents next-generation lower carbon emitting steel production capabilities, providing differentiated products and supply chain solutions. The 3 million tons 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 value-added steel product portfolio and benefits our customers with an even broader climate-conscious supply option. Sinton's strategic location is centralized in our underserved steel consumer region that represents over 27 million tons of relevant flat roll steel consumption in the U.S. and Mexico. We offer shorter delivery lead times, providing a superior customer supply chain solution for the region. We will also effectively compete with steel imports arriving in Houston and the West Coast. We have seven customers locating on our site, representing up to 1.8 million tons of annual flat-rolled steel processing and consumption capability; four are already operating and three have broken ground. This represents a unique closed-loop process as we provide them on-site steel while simultaneously reclaiming the scrap to be remelted into new steel products. We have an advantaged raw material procurement strategy for Sinton. Our acquisition of a Mexican metals recycling company in 2020 provides a critical source of prime scrap supply. These operations are strategically located near high-volume industrial scrap sources throughout Central and Northern Mexico. Sinton provides a differentiated product offering, a unique regional supply chain solution, with significant geographic freight and lead time advantage and offers a lower carbon alternative to imports in a region in need of options. We currently expect 2022 shipments from Sinton to be over 1.5 million tons achieving utilization of approximately 80% by the end of the third quarter and over 90% before year-end. In addition, our previously announced additional four value-added flat roll coating lines are still on schedule to begin operating mid-'23 in support of our Sinton steel mill and our Heartland flat roll operations. The four lines are 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. Existing customers are anxiously awaiting the volume from these new lines. We're the largest domestic non-automated coater of flat roll steels with an annual coating capacity of over 6 million tons. These four lines will increase that capacity by an additional 1.1 million tons. In closing, our sustainable symbiotic operating platforms and customer-centric supply solutions demonstrate our financial and operating stability differentiating us from any competition. We're not the same company that we were nearly five years ago. We are not just a steel company. Our average annual free cash flow has more than doubled and is still growing. The consistency and industrial strength of our earnings is clear and we are investing for transformational growth. Our people and their spirit of excellence provide the foundation for this success. And I thank you, each and every one of you for your passion and dedication and remind you that safety is always our most critical priority. So everyone, thank you for joining us today and we'll open the line for questions.

Your first question for today is coming from Emily Chieng with Goldman Sachs.

My first question is just around your raw material update there. Can you remind us what the raw material mix is or was previously before the shift to using more obsolete versus prime scrap? The amount of IDI that your liquid pig iron that you're using and perhaps how we should see that changing over time?

Well, IDI is consistently running at about a 260,000 ton rate as we speak. It's been very, very consistent for many years now. And after the original pioneering efforts or challenges that we had long ago, it has proven to be a solid technology for us. And again, as I mentioned, virtually all our pig iron needs that Butler is captive from that facility.

Emily, one way to look at it from the shift that Mark talked about from going to prime scrap to an upgraded type of obsolete scrap is that we reduced the use from 65% to 40%. So if that were accomplished with Columbus, Sinton, and Butler, if you make high-level assumptions, we generally would use approximately 20% of pig iron. If you think about that from a volume perspective, it could be as much as 1.5 million to 2 million tons shifting from prime scrap to higher-grade scrap. If you apply any spread to that — today, I think Mark mentioned it's around $170 per ton which is higher than normal. Even if it's $100 or $150 per ton, that could be a significant change once all three mills are fully operational.

Your next question for today is coming from Michael Glick with JPMorgan.

Just on the cost side, beyond scrap, how should we think about energy costs more broadly, just given some of the recent moves we've seen in several of the regional power hubs and natural gas prices as well?

Just as a reminder, from a natural gas perspective, for electric arc furnaces for Steel Dynamics specifically, it isn't a huge part of the cost structure. It ends up being somewhere around 2% or 3% of the cost of manufacturing of steel products. But obviously, there's an impact. We're likely to see increasing prices across the spectrum from a natural gas perspective but nothing that we believe is necessarily significantly impractical. And from a power perspective across the spectrum, we're operating in all different grades. And so it's very different. In some areas, we're in the open market and others, we actually have contracts in place. So there should be some escalating prices but nothing that we think will be material at this point.

And just to add, if you look at it from a global perspective, obviously, energy prices in other parts of the world have appreciated far greater than the U.S., along with other commodity pricing issues. And so the actual global cost curve has risen and should support pricing further. And obviously, given our low-cost position advantages, Steel Dynamics will benefit.

Your next question for today is coming from David Gagliano with BMO Capital Markets.

I just wanted to ask a little more about the fabrication business. Unbelievable how much this has exploded higher over the last year, I know it's directionally not new but again, another doubling in basically the profit contribution this quarter, which is fabulous. But there's a lot of moving parts embedded in that business. And mind me, the visibility towards longer term is still fairly low. So I'm just trying to see if you could give us a little more information on that segment. Can you talk more about how this business is priced? Are there cost pass-throughs? Are there lags between those pass-throughs and contract prices? I know there's a lot of different pieces within that business. But if there's any more visibility, I really appreciate it. And it really just to summarize, if you could just give us what you think your view is on a normalized go-forward EBITDA contribution basis from this business beyond the first quarter of 2023.

Several points, perhaps collected together. Firstly, demand is at historic highs. If you follow the American Joist Institute numbers, it's at peak levels for sure. And it is driven largely by the change in retail, going online retail distribution houses along with the data centers. So that arena is truly pushing massive demand. Secondly, I think it needs to be recognized that the industry since prior peaks has changed dramatically. It's a rationalized, consolidated industry today. That allows us to have greater pricing strength. As a realization today, the value of the product is a lot higher than people would suggest in past history. That product is going to sell at higher levels going forward no matter where we are in the cycle.

Good morning, David. Just a couple of other points to add to what Mark described. So if you're looking at a backlog for the fabrication business versus the steel business, it's very different. Once a project enters the backlog in our fabrication business, the entire project has been highly engineered and is part of a bigger construction project overall. If you look at the steel costs that are involved in these large projects that we're participating in, it's really not a large percentage of the entire project. The customer base is not as sensitive to steel pricing as one would think. You saw that in the first quarter where even though flat-rolled steel prices had a couple of months of weakening, that didn't change what we were putting in the order backlog at our fabrication business. Our backlog is out much longer than it typically is. We expect to see a commitment through at least well into 2023. We've also changed some of the contract terms to ensure more security and visibility around the backlog. We believe that we have a great deal of visibility. Mark mentioned in his notes that the forward pricing is higher than what we realized at this point in time, which is why I had the confidence to say that we expect earnings from the fabrication business to continue to increase throughout 2022.

Yes. That's absolutely helpful. Just again, I'm trying to gauge what the comfort level is around a normalized — the EBITDA contribution now is 20 times what it was historically for well over five years, and that 20 times increase happened in four quarters. I'm just trying to figure out as we go out beyond 2022 and in 1Q '23. Some of this is structural, and some of it is not; I'm trying to figure out what you think a normal sort of contribution should be for a business that's relatively low visibility from my perspective.

Sure, David. I would tell you that — and I can't answer you specifically at this point but what I would tell you is that it's certainly not what the last five years were. Mark pointed to some structural changes within the industry itself from consolidation and other avenues as well as the construction market itself and what it's doing. There has been some structural change which I think will make that normalized earnings moving forward higher than we've seen historically. The fabrication team has really done an incredible job. We're looking to further automate and to do some really exciting things in the future as well, but this is not what we're experiencing today from a normalized level. Specific to there's a large concentration in warehouses at this point. We will do our best in the future to try to give you a little better idea of what normalized might look like.

Your next question for today is coming from Seth Rosenfeld with BNP.

I have two follow-ups, please with regards to the raw material strategy. First, thanks for the color on your efforts to cut your reliance on prime scrap and pig iron. Can you just talk a bit more about those markets and the outlook into spring? You had a huge squeeze in March. Are you now seeing any signs of some softening of those markets as availability improves? And a follow-up, please, you commented quickly in your prepared remarks with regards to some interest in becoming more self-sufficient for pig iron. What might that include? Is it going to be organic or inorganic in nature? I'll stop there, please.

Well, firstly, on the pig iron opportunities I prefer not to go into that. Just suffice it to say that we have plans. Relative to — and I apologize, I didn't necessarily hear all the first question.

Mark, the question Seth asked relates to pricing around raw materials and what we're seeing kind of in the near term and longer term for scrap and maybe for pig iron?

Well, obviously, the unimaginable human tragedy of Ukraine should be at the forefront of everyone's mind but the consequences of that on our industry have obviously been massive and I think just on commodities in general, all commodities. If you look at pig iron, the typical global trade is around about 12 million tons merchant trade; roughly 7 million, maybe 8 million tons of that were originating from Russian and Ukrainian mills. So there's been a big chunk of availability or supply taken out. We — I can't speak really for other metals but I think they followed suit in that we scrambled as an industry to cover our needs for the rest of the year into 2023 from other sources. We were very, very successful in procuring material from Brazil and from India, and at the same time, changing our sort of operations and processes to lower the need or the requirement for that pig iron. Our mills today are running around about a 14% pig iron input, rather than the customary 22%. In combination, that's got us into 2023 from an uninterrupted supply. The consequence of all that, though, obviously, pushed pig iron pricing up, it peaked at around about $1,100 a ton. That raised prime scrap with it. Prime scrap today is around $75-ish, I guess. Pig iron there is turned over; transactions are in the kind of the very low $900 range today. We foresee that pressuring scrap pricing down, at least sideways but more likely pressure it down going forward into the summer. On the flip side, on the obsolete side, when you have pricing at these levels — as Theresa suggested, there's a record spread between obsolete shred grades to prime of around $170 a ton. Historically, that was only about $40 a ton. So at these trading levels, everyone is out there with their pickup trucks picking up old cars and old refrigerators. So the obsolete stream is considerable today. The flow is very, very high and we feel that is going to pressure scrap pricing over the next few months as well.

If I can have just one follow-up, please. Within your recycling business, I noticed that the fair shipments were down year-over-year quite considerably. Can you touch on what's driving that decrease and how you'd expect it to transpire into Q2?

So from a ferrous perspective, the shipments were down in the first quarter. It wasn't structural per se. It had to do with where raw material inventories were at the end of the year, heading into the first quarter. There were some mill outages during the first quarter as well. Heading forward is when traditionally, you're going to see seasonality kick in; based on where we see steel demand and how that translates into raw material demand, we would expect to see increasing volumes in the second and third quarters for mill recycling.

Your next question is coming from Timna Tanners with Wolfe Research.

So first, I just wanted to get a little bit more color on the new guidance for Sinton starting up. I think now 1.5 million and it was previously 2 million. Is it possible? There's just further delays. Can you give us a little more color on that and what's happened there?

Sure. Absolutely. The progress at Sinton is truly impressive. The reduced volume we noted in our January call was slightly higher than before the delays in starting up the hot side of the caster. Since then, the mill has been operating exceptionally well as we roll out various enhancements and capabilities. We've already achieved 84.6-inch width coil and managed to reach 0.60 on high-strength low alloy grades. Our customers even described the hot band this morning as beautiful. Overall, I think things are going well, and we're confident that we will surpass 1.5 million tons, though we are being a bit conservative. We recently had national flat roll sales for Sinton over the last two days, and the level of customer interest is extraordinary. This market is currently underserved, and the product differentiation from our facility will be remarkable. Plus, having selling facilities, four of which are already operational, will significantly boost volume for that facility. We're very pleased with our progress.

So, 90% of the...

Last December. Yes. But the good side and I think it was — I can't remember which one have you suggested but a slow ramp isn't all that bad from a supply-demand dynamic right now anyway. If you consider our ramp-up is going to be solid through the rest of this year and we went to 24/5 operation just this Monday. Up until that point, we were just commissioning sort of 12 hours a day on days. Galvalume steel, obviously, is not ramping up yet and delta is not. So net-net, it's a good thing.

Got you. So David and I have said that we're going to start a fab shop. I'm joking, obviously. But we would — I did want to ask you how hard it would be to see any competitors there in that space, right? Given that prices are now higher than $4,000 a ton. Historically, I calculated $1350. I mean even with the higher costs, those are pretty nice margins. So I know you said it's consolidated but — how hard would it be to see a new entrant there? And how much of that could be a risk?

The cost of entry from an asset perspective is not massive. As we've seen or as we described in our last call, we substantially increased productivity and volume capability from our facilities there with almost no capital expense because simply, it’s people alliance more than actual capital asset. The engineering of that product is intense; to engineer cost-effectively is a proprietary kind of intellectual evolution of many, many years. For someone who jumped in fresh, nothing is impossible. There's absolutely no way they could emulate our productivity and our efficiency and they wouldn't be able to penetrate in my mind, the marketplace.

Just to add to what Mark is saying, if you think about it, you have to have the architecture and the firms the customers are willing to design at some extent for your products, etcetera. So it's not something that someone can just get involved and have all the constituents know you right off the bat, Mark said that incredibly well.

One last thing I would add also is to create the culture for those facilities is absolutely phenomenal. The team does incredibly well. If you were to visit a joist plant, it's almost a choreography of action and activity, and it's very, very difficult to replicate.

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

Just a couple of questions. The first one, are there — could you talk about any potential additional costs in this enhanced shredded-scrap product that you are now creating and charging your mills with, other than the spread which obviously is a big incentive for you to move down to shredded. Are there any costs that you incurred or maybe we should take into consideration, just besides the spread and the cost of shredded scrap? And then my second question, if I can is, could you remind us or provide us an updated CapEx guidance for this year? And in particular, is there any changes on the CapEx for Sinton given there's lower ramp-up and the delay on the caster?

Well, I'll take the scrap one and essentially call it, I'd say, somewhere around $10 a ton.

That was a very short response. From the perspective of guidance for CapEx for this year, we're still tracking around $750 million. Your question was specific to Sinton. Specific to it, we don't expect anything of significance for digital CapEx related to the delays. There was additional expense which you saw flow through the first quarter already due to the delay in just manpower and maintenance of things associated with that delay but not from a capital perspective. So for Sinton, we're still at that $2 billion mark, which honestly is incredible, given what the teams have gone through for them to be able to maintain their budget while making it through COVID and everything else. So we're not expecting anything for the rest of the year in addition from a Sinton perspective for capital.

Your next question is coming from Curt Woodworth with Credit Suisse.

Mark, with respect to the 1.8 million tons on-site that — I know you said four are operating, three are under construction but when would you expect that to be fully operational? And then also, when you look at that sort of localized manufacturing capability, do you have a sense of if — how much of that would be a potential onshoring capability, i.e., sort of new demand, or are those facilities replacing, say, existing sites within North America? That's my first question.

Well, I guess the on-campus development is firstly evolving much quicker than we anticipated. It's been absolutely incredible to see the faith of our customer base and coming to and investing in our dream down there. And secondly, as I said, when I say intentional, we wanted to make sure is that we differentiated our supply chains. Each of those on-site customers is in a different field. We have everything covered from automotive to light-gauge coated to heavy gauge plate cuts and everything. We have a pipe producer there, and we have a couple of pipe producers there actually. So it's a good spread, a good array of activity to support our supply chain to customers. It's a huge benefit to them. We're able to first deliver that material to them free of charge, just 200 yards down the road. It’s a big site. But a mile down the track, we can deliver it very effectively at low cost. If you see and stand beside one of our coils there, it is absolutely remarkable the difference in size between a 22-ton coil and a 52-ton coil. That's giving those customers massive operational benefits and yield benefits. It also eliminates that first freight of $25, $30, $35 per ton savings in the supply chain. We see it as a very, very effective solution that will allow us to penetrate markets much quicker.

In addition to what Mark said, we're getting a lot of excitement from customers of those that are on-site is that it removes a considerable amount of greenhouse gases associated with the delivery and movement of material and we'll be able to take their scrap as well. It's almost a perfect closed-loop environment that hasn't been made available before. So it will be interesting to see how that develops from a marketing perspective as well.

I prefer not to reveal our strategy on pig iron supply right now, but I appreciate the question.

We do have a follow-up question coming from Seth Rosenfeld.

Just one more with regards to working capital, please. Obviously, very significant investments in Q1 weighing on free cash flow. Can you give a bit more color on the split, perhaps, how much of that was tied to strength in steel prices and volumes versus growth in raw materials inventories? Perhaps there was a need to build particularly elevated inventories of raw materials given supply chain disruption. And then, looking forward into Q2 or into the back half, what should we think about the sequencing of working capital investment potential release as Sinton begins to ramp up?

From the second working capital. One big draw which I'll just reiterate, even though I had it in my opening comments, is that we do pay our company-wide profit sharing in March of every year for the following year. There was a $360 million payment to the profit sharing, which we're fairly excited to provide for the retirement of our teams. It's based, as you know, on 8% of pretax earnings. So that was a big part of the lever. The other piece of it really related to fabrication and customer account values and volumes. It was less to do with inventory, which was fairly flat. Specifically as it relates to Sinton, Sinton isn't in a building working capital mode. So it will increase working capital in the first quarter, somewhere around $150 million to $200 million. You'll see that continue. It might be another $100 million to $150 million in the second and third quarter combined. Then we should really be reaching that capacity point outside of any big movements in inventory valuation itself or in customer evaluations themselves for Sinton. From a consolidated perspective, moving throughout the year, again, we're heading into a seasonally strong environment, second and third quarters. You're not going to see as big of a build as we saw in the first quarter because you don't have the same movement in payables and accruals. I would say it's going to be muted; then likely, you'll see some working capital give back in the third and fourth quarters.

Your next question is coming from Alex Hacking with Citi.

I got dropped off the call for a little bit, so I apologize if this was asked. I also appreciate if you're going to give me the same answer that you just gave Curt. But you've talked about scrap and pig; how does DRI, HBI potentially fit into your raw material strategy?

We currently are purchasing DRI — well, not DRI, HBI, and have been for many years. For us, it tends to be what we call a value-in-use kind of economic calculation. If it makes financial sense to put it in the mix, then we will buy it. HBI tends to be an inferior product for the electric arc furnace. It slows productivity there, is low yield, and increases energy consumption. So it's never a preferred material. But at the right price, it makes sense. We do have a small but steady diet to keep in line with that supply chain. Our furnace is actually at Sinton, and we're converting Columbus to in-line charging which allows higher volumes of HBI to be added to the furnace if need be.

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

Well, again, we certainly appreciate your time. Hopefully, as I see some are just recognizing the strength of our business model, the vertical integration, the downstream supply chain solutions that we have, the diversified value-add mix that we have and now Sinton coming online and another four lines soon thereafter. But we truly, in my humble opinion, we and the team have truly transformed this company over the last five to six years. We're a different company today. We're not just a steel company. I see that some of you are recognizing that, and I think with time. As my mom always used to say, the proof is in the pudding. Well, we're making the pudding, we're proving it, and I can't be prouder of the team. They're a phenomenal team. I ask them to be safe each and every day and to look after each other. Thank you, customers, for your faith and support; and to our vendors, particularly the vendors that have gone far and beyond the call of duty, so to speak, in putting Sinton together. They've done a phenomenal job. So thank you, and thank you to our shareholders who support us. So with that said, thank you, and have a safe and wonderful day.

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