Good day and welcome to the Steel Dynamics Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management 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, 2023 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 third quarter 2023 earnings conference call. As a reminder, today’s call is being recorded and will be available on our website for replay later today. Leading today’s call are Mark Millett, Chairman and Chief Executive Officer of Steel Dynamics 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, specifically 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 integrating or starting new assets in the aluminum industry, the use of estimates and assumptions in connection with anticipated project returns and our steel metal 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 annual filed SEC Form 10-K under the heading 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 Third Quarter 2023 Results. And now, I am pleased to turn the call over to Mark.

Thank you, David. Good morning, everybody. Thank you for being with us on our third quarter earnings call. As you saw in the release, once again, our teams achieved a solid financial and operational quarter. Almost 80% of our facilities had zero safety incidents, and our company-wide trailing 12-month incident rate is running at an all-time low. So congratulations to everyone, but more importantly, thank you for all your work to make that happen. It takes each and every one of us to get there. Cash from operations was a healthy $1.1 billion, and with the adjusted EBITDA generation of $876 million. I think this performance truly affirms the cash generation resiliency of our diversified value-added product portfolio. We are seeing significant momentum in our aluminum flat-rolled investments; both current and prospective customers are excited by our market entry and the new and differentiated supply chain solutions we can provide. They are actually very, very surprised by the speed and completeness of our execution so far. The Sinton mill has proven its nameplate production capacity rate, and full product capability, but does remain challenged by equipment reliability issues. We are confident we can resolve the majority of these issues by the year-end. Successes cannot be achieved without the best metals team in the industry. I am incredibly proud of the whole SDI family. Their passion and spirit form the foundation of our company. They drive our success, and it's an honor to work among them. In fact, in this world of turmoil with the human catastrophe happening in Ukraine, the atrocities in Israel, the suppression of the Palestinian people, and even closer to home, the anger and divisiveness within America and our political structure, it is inspiring to come to work each and every day and be surrounded by very, very positive people that do the right thing, treat people right, and focus on what we do each and every day. As such, our greatest leadership commitment is to our SDI family: not only our colleagues that come to work but also their partners in life and their kids. They remind our teams that great financial performance is of no importance without keeping everyone safe. We continue to be focused on providing the very best for the health, safety, and welfare. Today, the SDI family, when you include everyone, consists of over 45,000 people who are reliant on the decisions that we make each and every day, and we are focused. We truly are focused on that. Together, we are actively engaged in safety at all times and at every level, keeping safety top of mind and an active conversation. Before I continue, Theresa, would you like to give us some details?

Good morning, everyone. Thank you, Mark. I add my sincere appreciation to our teams for a really solid performance in the third quarter. Our third quarter 2023 net income was $577 million or $3.47 per diluted share, with adjusted EBITDA of $876 million. Third quarter 2023 revenues of $4.6 billion and operating income of $734 million were lower than sequential second quarter results driven by lower realized steel and steel fabrication pricing. We see solid industry fundamentals for the rest of this year and beyond, and we're focused on our continued transformational growth initiatives. Our steel operations generated operating income of $474 million in the third quarter, lower than sequential second quarter results due to flat-rolled steel pricing; metal spray compression as realized pricing declined more than average scrap costs. Our steel shipments remain steady at 3.1 million tons, excluding the lost volume of approximately 90,000 tons related to Sinton's unplanned July outage. We expect our four new flat-rolled coating lines to begin operating in the first quarter of 2024 at both Sinton and Heartland, increasing our value-added mix by an additional 1 million tons, making our total coating capacity 6.9 million tons going forward. For those that track our detailed flat-rolled shipments, in the third quarter, we had hot-rolled and P&O shipments of 858,000 tons; cold-rolled shipments of 132,000 tons; and coated shipments of 1,202,000 tons. Operating income from our mills recycling operations was $19 million, significantly lower than second quarter results due to non-ferrous and ferrous metal spray compression. Ferrous scrap demand was also reduced as numerous domestic steel mills had maintenance outages in the quarter. We are the largest North American metals recycler, processing and consuming ferrous scrap and non-ferrous aluminum, copper, and other metals. The team continues to leverage our circular manufacturing operating model, providing higher quality lower-cost scrap to our steel mills, which improves furnace efficiency and reduces company-wide working capital requirements. Our steel fabrication operations achieved operating income of $330 million in the third quarter, lower than sequential second quarter results, yet historically strong as average realized pricing declined 11% and volumes declined 16,000 tons. Our steel joist and deck demand remains solid with good order activity. Our backlog extends through the first quarter of 2024. The backlog has contracted from record highs experienced in 2022, as shipments have outpaced spot order activity. Forward backlog pricing remains very strong, and spot pricing is resilient. Based on our backlog, customer sentiment, and manufacturing momentum, we expect steel fabrication earnings to remain solid in the fourth quarter but below third quarter levels based on seasonally lower volumes. Infrastructure, Inflation Reduction Act, Department of Energy decarbonization support, and manufacturing onshoring are expected to support domestic fixed asset investment and related steel and joist and deck consumption in the coming years. Our cash generation continues to be strong, based on our differentiated circular business model and variable cost structure. During the third quarter of 2023, we generated strong cash flow from operations of $1.1 billion and generated $2.7 billion on a year-to-date basis. At September 30th, we achieved record liquidity of $3.7 billion inclusive of cash, liquid investments and our unsecured $1.2 billion revolver. Year-to-date 2023 we've invested $1.1 billion in capital investments. For the fourth quarter, we estimate capital investments will be in the range of $500 million to $550 million, of which around $350 million is related to our aluminum flat-rolled investments. Much of the remaining capital is related to the completion of our four new value-added coated lines. In February, we increased our cash dividend 25% to $0.425 per common share. Year-to-date 2023 we've also repurchased $1.1 billion of our common stock, representing almost 6% of our outstanding shares. At September 30th, $278 million remained authorized for repurchase under our existing $1.5 billion authorized plan. Since 2017, we've increased our dividend per share by 174% and repurchased $5.2 billion of our common stock, representing over 40% of our outstanding shares. Our capital allocation strategy prioritizes high return growth with shareholder distributions comprised of a base positive dividend profile that's complemented by a variable share repurchase program. We remain dedicated to preserving our investment grade credit designation at the same time. Our free cash flow profile has fundamentally changed over the last five years, generating from an annual average of $540 million to $2.6 billion today. We've placed ourselves in a position of strength to have a sustainable capital foundation that provides the opportunity for meaningful strategic growth and strong shareholder returns while maintaining investment grade metrics. Our aluminum growth strategy is consistent with this philosophy. We will readily fund our flat-rolled aluminum investments with available cash and cash flow from operations. We also plan to continue strong and responsible shareholder distributions as we've clearly demonstrated, we're squarely positioned for the continuation of sustainable, optimized long-term value creation. Sustainability is also a significant part of our long-term value creation strategy, and we're dedicated to our people, our communities, and our environment. We're committed to operating our business with the highest integrity. In that regard, we remain excited about our joint venture with Aymium, a leading producer of renewable biocarbon products. We believe our first joint venture facility could decrease our steel scope one greenhouse gas emissions by as much as 35%, and we currently expect to have the facility operating in the second half of 2024. We have an actual path toward carbon neutrality that is more manageable and, we believe, considerably less expensive than may lay ahead for many of our industry peers. Our sustainability and carbon reduction strategy is an ongoing journey, and we're moving forward with the intent to make a positive difference. And again, before I turn the call back over to Mark, I just want to thank the teams for a great performance. Mark?

Super. Thank you, Theresa. As you saw, the steel fabrication platform continues to perform well and it turned in another solid quarter. We continue to have high expectations for the future earnings profile of this business. We believe non-residential construction markets will be strong in the coming years. Some residential starts and build rates are forecast to remain strong into 2024, and related spending has been higher in 2023 compared to the last year at this time. Political dysfunction has delayed the awarding of public funds likely into the first quarter of next year; the infrastructure spending and fixed asset investment related to the IRA programs, along with reshoring and manufacturing, should provide momentum for additional construction spending through 2024, effectively extending the construction cycle. Customer commentary has, as I talked to a lot of folks out there, confirmed our positive outlook. The steel fabrication order backlog has certainly shortened from its historical high of over 12 months achieved in 2022, but it remains strong from a historical perspective, standing through March 2024 with strong forward pricing. Current order entry pricing remains resilient. Not only is it a significant contributor unto itself, our fabrication platform provides meaningful pull-through volume for our steel mills, which is particularly important in softer markets, allowing for higher through-cycle steel production utilization rates compared to our peers, adding to the resiliency of our through-cycle cash generation. Furthermore, it provides an effective natural hedge to lower steel prices. Our metals recycling platform had a challenging quarter. Its demand from domestic steel mills softened, and realized ferrous scrap prices declined. Scrap prices pulled back in the third quarter with bushing prices falling some $80 a ton. The North American geographic footprint of our metals recycling platform provides a strategic competitive advantage for our electric arc furnace steel mills and our scrap-generating customers. In particular, our Mexican locations competitively advantage our Columbus and Sinton raw material positions. We also strategically support aluminum scrap procurement for our future flat-rolled aluminum investments. Our metals team is partnering even more closely with both our steel and aluminum teams to expand scrap separation capabilities through process and technological solutions, enhancing margin, increasing the availability of low-residual ferrous scrap. This will mitigate prime ferrous scrap supply issues in the future. It'll also provide us with a significant advantage to materially increase the recycled content for our aluminum flat-rolled products and increase our earnings opportunities on that platform. Our steel operations achieve strong shipments of 3.1 million tons and solid financial results in the third quarter. The steel production utilization rate, when you exclude Sinton, was 90% compared to a domestic industry rate of some 76%. The higher utilization rates have been clearly demonstrated throughout all market cycles, driven by the value-added diversified product offerings, which amount to 70% of our sales. As Theresa mentioned, this will increase further with the addition of two galvanizing and two paint lines that will be commissioned in the first quarter of 2024. Differentiated supply chain solutions driving customer preference, mitigating price volatility, and supporting downstream internal pull-through manufacturing volume are all contributors. Our higher through-cycle utilization rate is a key differentiator and supports our strong and growing through-cycle cash generation capability and best-in-class financial metrics. Looking forward, steel backlogs are strong, and customer order entry is good. Customer inventories are also at historically low levels. Auto production estimates for 2023 remain around 15 million units, but obviously with the ongoing strike, the outlook for the remainder of the year is somewhat opaque. So positively, dealer inventories remain below historical norms, which will be further reduced by the ongoing strike. Demand there is still strong, and with tight supply, the auto build rate will likely be higher than the already anticipated 16 million unit plus for 2024. In the meantime, unfortunately, our auto direct flat-rolled exposure is more concentrated toward European and Asian producers, which so far has mitigated the strike impact on our flat-rolled auto volume. Although not a significant impact on overall earnings, we are seeing greater impact at our engineered bar division as their 15% to 20% auto exposure is mostly consumed by domestic auto producers. Non-residential construction remains solid. Our long product steel backlogs are good, and customer inventory levels are low. The general market is estimated to be off 8% or so due to seasonality but should rebound as infrastructure spending provides meaningful support in the first half of 2024. The downturn in residential construction seems to be abating with a depletion of available home inventory. Oil and gas activity is strong, driving improved orders for OCTG products, and steel continues to grow at a rapid rate. In total aggregate, long product demand remains solid, and in flat-rolled lead times are extending. We're seeing excellent order entry. Supply chain inventory is low, and pricing is certainly in an upward trend. We certainly anticipate further meaningful strength once the strike is concluded. Turning to Sinton. After the unplanned July outage related to the caster shear, the Sinton team produced over 290,000 tons in the quarter. The mill has clearly demonstrated its production rate capability, achieving 36 heat sequence lengths, and it has exceeded its hourly nameplate run rate. However, as I said, the constrained production is manifest from a low utilization rate caused principally by equipment reliability issues. That said, we expect to progressively ramp up to about a 70% total run rate by the end of 2023, reaching a production of 2.4 million tons for 2024. Despite our challenges, the team has demonstrated the key competitive advantages of the Texas steel mill. We have completed full product dimensional capability. It's proven up to one inch thick, down to 0.53, I do believe, out to 84-inch width. Customers are reporting exceptional surface quality, and the hot strip mill design has allowed for thermal mechanical rolling, allowing production of higher strength grades, tough grades with lower alloy content and thus lowering costs for those value-added products. We've achieved grades 80, 100 and have already been approved for some API grades. I think just generally, it affirms our technical and process choices, and there's no doubt in my mind it's the next generation of electric arc furnace flat-rolled steel technology of choice. We have gained strong market acceptance, and we can sell every pound of steel we make. Our exceptional through-cycle operating and financial performance continues to support our cash generation and our growth investment strategies. Relative to our expansion into aluminum, as I said, the responses from existing and new customers across all markets is absolutely incredible. We are developing the site; we purchased some 2,600 acres, I do believe, but we're developing it for the colocation of customers with the rolling mill as we successfully did in Sinton. We're seeing a number of customers who are already indicating strong interest in that model because it provides a sustainable competitive model for all of us. To recap the project, the 650,000 metric ton flat-rolled facility will be located in Columbus, Mississippi; a state-of-the-art facility, serving the sustainable beverage and packaging, automotive, and industrial sectors. Approximately 300,000 metric tons will be canned, 200,000 tons for automotive, and 150,000 industrial. We have onsite mill and cast slab capacity in Columbus of around 600,000 metric tons, and the project will be supported by two satellite recycled aluminum slab casting centers, one in central Mexico and one in Arizona to capture scrap close to its source. We'll have two cast lines, coating lines, and downstream processing and packaging lines to fully support our customer base. Startup plans are still anticipated for mid-2025 for the rolling mill. The Mexico slab center should start up in late 2024, perhaps January 2025, and the Arizona slab center in the first quarter of 2025. So the project cost, including all recycled slab centers, is around $2.5 billion, 100% to be funded with cash. As we stated in the past, we expect a through-cycle annual EBITDA of around $650 million to $700 million from the aluminum portion, and the support of OmniSource will draw another $40 million to $50 million for them. I think the market from an investment premise perspective is exciting because the market environment is very similar to the domestic steel industry when we started Steel Dynamics 30 years ago. The industry generally has older assets, has had a tough time earning its cost of capital, and there has been little reinvestment over the last 45 years. It has heavy legacy costs and tends to be inefficient in high-cost operations. Again, parallels the situation we saw within the steel industry 30 years ago. We see a definite deficiency in supply that exists in North America, and that deficiency is expected to grow even with our and our second competitor's new facility. From our perspective, it is an adjacent industry to us. It leverages our ability to design, build, commission, ramp up large capital assets, and operate those assets very effectively and efficiently at low costs through our performance, incentivized innovation, and a very effective culture. In closing, we're excited and passionate, and we always are, and we continue to be, by our future growth opportunities, as they will continue the high returning growth momentum we have consistently demonstrated over the years. Our culture and business model continue to positively differentiate our performance, leading to best-in-class financial metrics, allowing for a balanced cash allocation strategy that has rewarded our shareholders with top-notch returns. We're no longer a pure steel company but an integrated metals business providing enhanced supply chain solutions to the industry while mitigating volatility and cash flow generation through all market cycles. Our teams are our foundation, and I thank each and every one of them for their passion and their dedication. We're committed to them. As I remind those listening today, safety for yourselves, your families, and for each other is the highest priority, but we're competitively positioned and continue to focus on providing superior value for our company, our customers, team members, and shareholders alike. Thank you for joining us today. And Holly, we would love to turn it over to questions.

Thank you. Your first question for today is coming from Martin Englert at Seaport Research Partners.

Hello. Good morning, everyone.

Good morning.

Within the Steel segment, steel conversion costs, which do include some substrate costs, increased to around $576 per ton in the quarter from $522. Is there any additional color that you can share regarding the portion of substrates, and maybe some positives and negatives when you think about these sequential changes in contributions between true conversion costs and substrates, as well as if there was any material impact from the Sinton outage on that conversion cost?

Good morning, Martin. It's Theresa. Great question and observation. The increase really didn't have anything to do with the change in substrate mix, but that can have an impact. There are two things that I would point to. One is the fact that because Sinton didn't operate all of July, the way that you are calculating your conversion costs, that lack of volume does have a pretty significant impact. It's not that there were additional costs; the costs were pretty minimal. It's just that lost volume affecting the denominator. It's really affecting your conversion costs on a per ton basis a little bit in an outsized way. The second thing is that we are preparing to start the value-added lines in Heartland, and then Sinton will follow thereafter in the coming months. There is some additional cost related to that as well, but nothing to point to that would be systemic of higher conversion costs going forward.

There was definitely a significant one-time event for the quarter, along with some ongoing temporary issues as you work on ramping up the other value-added assets. How long do you think this will continue, through the fourth quarter and into the first quarter of next year? Do you have any thoughts on that?

No. So, Martin, with the advent of Sinton now operating and not being a part of that outage, you're going to have that incremental volume, which is going to really make that conversion cost get back in line with what you're used to seeing. But the value-added line, there is some incremental cost. It's nothing that is necessarily significant that you'll have to try to figure out for the fourth quarter. We have two of the lines coming line, maybe even before the end of the year, with the remaining two for probably the first couple months in the first quarter.

Thank you for that. If I could one last one here, excluding 2020, looking at seasonality in 4Q total steel shipments, they tend to decline around 5% sequentially. Is there anything you're seeing this year that would suggest something different? And I imagine comparing the sequential with the Sinton outage and then Sinton backup probably might have an impact here on a sequential basis.

Yeah. So you're spot on, Martin. We would expect to see normal seasonality within the steel operations, but as you have now Sinton ramping up and operating for the full fourth quarter, you will see some benefit from that additional volume.

And you're aiming for 70% utilization on exit for the year with Sinton, correct?

That's correct.

Okay. Thank you very much. Congratulations navigating the downward market on and the continued growth investments.

Thanks, Martin.

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

Yeah. Thank you very much. Good morning. Just continue on Sinton. I wonder if you can give us a little bit of color on the EBITDA generated by the operation, and how you see that going forward.

Carlos, we can't provide specific guidance on the earnings associated with Sinton. However, we are giving updated items on volume so that you can understand from a modeling perspective. We would expect to see a significant improvement from the third quarter, given that we weren't operating all of July. That being said, I really can't give you any guidance specific to what the EBITDA will be at Sinton.

All right. And then just maybe one more on the fabrication business. You did mention strong forward pricing in your backlog. Is there any additional color that you can provide given the extraordinarily strong pricing that we have seen in recent quarters relative to history?

No, that's okay. It relates to fabrication and the pricing in the backlog. Historically, and even in recent 2023, the pricing in the backlog is very strong, much higher than previous peaks. We've observed that the spot market maintains this strength, even though order activity isn't as robust as it was in 2022. While it's still good historically, it is slightly contracting the backlog. This situation is expected to extend into the first quarter of 2024. Additionally, we want to keep in perspective the IRA funds and Department of Energy funds that are being allocated from the administration. Our estimate, which aligns with others, suggests that only about 5% to 10% of that funding has been allocated or awarded so far. The pace is slower than anticipated and much slower than the administration indicated. These projects are not currently enhancing the elongation of construction, steel consumption, or asset investment, which includes steel joists and deck demand. We anticipate, based on information from the administration and others, that these funds will begin to flow in the first half of 2024. Currently, there's a funding gap, which is reflected in the volumes, but we fully expect that to improve in 2024 and 2025.

Thank you very much.

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

Thank you for taking my questions. To start, I want to follow up on the fabrication guidance you provided in Q2. I see that the stable volume guidance has been reduced again, and I'm curious about the reasons behind this recurring weakness. You mentioned some sequential changes, so could you elaborate on the fabrication aspect regarding Q4 volumes? Additionally, on the ASP side, you indicated a decrease of 10% to 15% in the second half compared to the first half, but Q3 ASP has already fallen by 17%. Can you provide insight into the expected weakness in ASP for both Q4 and Q1, as you have some visibility for that quarter as well?

From a modeling perspective, regarding volume, I indicated earlier that we anticipate some regular seasonality in the steel fabrication volume. Consequently, we expect it to be slightly lower sequentially than what was observed in the third quarter. However, this decrease is not due to consumption issues, as I mentioned in my response to Carlos. In terms of average pricing, the backlog remains very strong. If volumes decrease seasonally, it is reasonable to expect a slight decline in pricing, but we do not foresee it being as significant as the decrease from the second to third quarter; it will be somewhat less than that.

The market dynamics regarding pricing have been quite puzzling. Since mid-July, the market has exhibited significant strength, and the order input rate has been robust. The situation has been more influenced by emotional factors rather than a fundamental shift in demand that would cause pricing to drop. In mid-September, as people began to realize that the effects of the situation had already been largely factored into the prices, and with inventories remaining extremely low and supply chain lead times extending, we noticed a turning point. There is currently a clear upward trend in collaborative pricing. We and others anticipate that once there is a resolution to the strike, there will be a substantial increase in market pricing. Overall, we expect a very favorable market environment ahead.

Thank you. That's very helpful. If I just have a quick follow-up and this time more on the capital allocation side. Given the current context, I think you touch on and reaffirm what your capital allocation priorities are, can you just reiterate what you view on inorganic growth? Could you confirm that at the moment you're not interested in looking at a large acquisition on the flat-rolled side and that's not an area of focus and that right now 100% of your attention is on aluminum?

Tristan, we can't confirm that. From a growth perspective, we're very transparent on capital allocation. Our primary focus is on high-return growth, and that can be both organically and transactionally. We are very much focused on the aluminum strategy and that will be a priority. We are sitting with record liquidity at the end of the quarter of $3.7 billion. We truly have the luxury, and we don't take it for granted; it's because of the performance of the teams, which is incredible, the luxury to be able to invest both organically and transactionally if there was something that were to fit into our long-term strategy, as well as continue with strong shareholder returns. That, at this point in time, is our full intent.

All right. That's very clear. Thank you.

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

Hey, good morning, Timna. Wanted to just ask a little bit more about Sinton. If I go back in my notes, a couple of years ago, you were talking about being at full capacity, 3 million tons, and now you're talking about 70%, 80%. I'm just trying to understand, is there some reason that it's no longer expected to run full out, or are you just assuming maybe some gradual ramp-up? I just want to understand that better.

Yeah. No, that's fine. We probably have not done an elegant job of explaining that. The 70% is just the run rate at the end of this year, Timna. Again, we'll continue to ramp up. We expect to be 2.4 million tons total production next year, which I think is around over 80% of the 3 million. Then we'll continue to ramp up from there. There is absolutely no doubt that the plant capability can exceed the 3 million ton nameplate that we've advertised in the past.

And I guess just to bring a little bit more clarity to that. We would expect to be operating around that full capacity by the middle of 2024. Mark's just giving a total year view.

Helpful. Okay. Thank you. One other timing question was really on the downstream lines that are going to enrich your product mix. In the presentation, it says they're starting in the second half, but I thought I heard you saying they were contributing more in the first half. So just trying to get the cadence of when that ramps up.

Yeah. It probably should have been updated in the investor deck. I'm guessing that's what you're pointing toward. We're planning to have the Heartland paint line and the Heartland galvanizing line running first, which could be toward the end of 2023. But probably moving into that first month and a half in 2024, and then very closely thereafter, Sinton's additional paint line and galvanizing line will be starting as well, still within the first quarter of 2024.

Thanks. The last question I have is about the CapEx guidance. Previously, you mentioned a figure of about $1.5 billion for 2024, and with the increased CapEx guidance for Q4, I wanted to confirm if that estimate is still accurate for 2024. Thanks again.

You're welcome, Timna. Actually, we're in the middle of planning for 2024 on the capital investment side right now. It looks like it's going to be closer to $1.8 billion to possibly $2 billion. I'll be able to put a finer point on that as we get through the first quarter, but it's primarily comprised of a little bit more on the aluminum side, just from a timing perspective, not a total investment. So aluminum may be as much as $1.3 billion to $1.4 billion next year. We also have the construction and startup of the biocarbon facility, which could be as much as $150 million to $175 million. Then we have some tail to the four value-added lines as well of maybe a $100 million. I will be putting a finer point on that, but right now I'd say it's probably in the range of $1.8 billion to $2 billion.

Appreciate it.

Your next question is coming from Bill Peterson with JP Morgan.

Yeah. Hi. Good morning. Thanks for taking the question. We've been seeing some reports that the US and Europe are ahead of this summit tomorrow. Maybe looking at removing some of the tariffs or adjusting quotas and things like that. I guess, assuming that some of this does happen and quotas go away, how would you see this impacting the US steel market?

Well, I guess we don't have the same intelligence that others have from our folks on the hill and just conversations. It really seems still up in the air. The European position and the US position are totally at odds, and not much progress has been made, but maybe you are wrong. That said, obviously the tariffs today, a lot of that has been negotiated away. Only probably 25% or so of incoming steel imports are affected by that. Quotas are in place with Brazil and here and others. I would imagine that they will remain in place in some form. European tariffs may be a little different, but Europe is not really an influence on our market, in all honesty. If you look at the straightforward arbitrage today between Asian pricing and European pricing, it's not that attractive. We don't necessarily see a big influence there. We do feel strongly that any tariff and quota type activity will transition into some form of carbon tax on border tax. In the long run, that will likely be a lot more effective than perhaps was in place today. Again, we need to remember and highlight that the principal trade constraints, the countervailing duty anti-dumping cases that were brought in 2015 went through sunset last summer and got continued. I think it's another five years. Those are legislative in nature. They won't change. They are firmly firmly supporting or eliminating these imports, for instance, certainly in addition to the countervailing duty.

Okay. Thanks for that color. Second question. So on bar volume, you mentioned that there's some impact with the strike, but the strike really only started, I guess, in late in the third quarter. So how should we think about the trajectory of volumes, assuming a bigger hit in the fourth quarter for that segment?

Well, for us, we don't really see a major change in volume from an automotive perspective in the fourth quarter for us. As I mentioned in my notes, we have a large percentage of our auto book is European and Asian. They are not impacted by the strike as of now. We do have some business with Aymium and with Ford. But again, on a percentage basis, it's not going to be monumental to our book volume or earnings.

Okay. Thanks for sharing the insights.

Your next question is coming from John Tumazos with John Tumazos Independent Research.

Thank you.

Hi, John.

With all the great dynamics benefiting the steel business, industry-wide apparent demand looks like it's trending about 8 million tons below the average of 2017, 2018, 2019. I don't know what's normal, but I'm looking to the pre-pandemic period. Your own choice business is off 16,000 tons sequentially, and I guess 56,000 tons year-on-year. And there's no inventories in choice because they're made custom order. What are the segments that are down that are negating some of the other growth or accounting for the decline? A high-rise office building with work from home, lower consumer spending, ecommerce warehouses, and retail space are poor. Are there any other segments that could account for the deviations?

I believe we have received some feedback regarding the situation. Our focus is mainly on fabrication. When we review our order book, we see that while the distribution warehouse segment has declined, it hasn't completely stopped. Amazon has publicly announced a slowdown in development due to overbuilding, but that doesn't reflect the situation with other distributors. There remains an active market for us in that area. We have seen improvements in education and healthcare, and sectors like manufacturing, battery plants, and chip facilities are also gaining momentum. Although this growth isn't enough to fully offset the decline in distribution, it's still strong, and we expect to see continued growth next year. Infrastructure investments and IRA spending should further support our order book.

In terms of the two-year decline in spot sheet prices of $1,200 from big records, how much damage do you think that's caused across consumer and distributor inventory? As you know, when prices fall, people don't want to hold the hot potato.

Well, I think the biggest impact is the reduced level of speculation in the supply chain. In fact, it's not a reduced level of speculation. People just don't speculate anymore. So you see people that are ordering and buying on an as-needed basis. That allows consistent shipping since mid-July, where we've seen very, very, very consistent order input rates and deliveries. Even as pricing came off this time and just as it was last year, last year we had a similar story with a very constructive outlook for 2023 which, in all honesty, came to fruition. The emotion last year was that we were headed for a recession, high interest rates, inflation, etc. etc. There was no change in the underlying demand in the fourth quarter of last year. We're seeing the same thing today. Demand is very solid across virtually every market sector that we have. Yet we see that softness along with the strike-related emotion. People are starting to see lead times stretch out. They're starting to see, or get a little worried. We're booked out, and essentially our order book is closed for November. Given the interest, we see for December, we haven't opened that book yet. We're not so sure we will be able to satisfy the total appetite there. So it's a positive market momentum going into 2024.

Thank you. I'm a shareholder.

Thank you. Stay that way.

That 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, Holly. And for anyone that remains on the line, I would tell you I am blessed. SDI is blessed. Each and every one of us is blessed here because we have phenomenal loyal customers. Thank you for your support today and in the future. We have great service providers. We've got a phenomenal, phenomenal team of people that come to work, as I said earlier, inspired and positive each and every day. So thank you. Thank you for those that are shareholders and those on. I would hope that you consider us because we will create better shareholder value than most folks in the years ahead. So thank you very much. Have a great day. Bye-bye.

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