Good day, and welcome to the Steel Dynamics Fourth Quarter and Full Year 2023 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, January 24, 2024, 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 fourth quarter and full year 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; Theresa Wagler, Executive Vice President and Chief Financial Officer; and Barry Schneider, President and Chief Operating 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 Fourth Quarter and Full Year 2023 Results. And now, I’m pleased to turn the call over to Mark.

Thank you, David. Good morning, everyone. Thank you for being with us on our fourth quarter and full year 2023 earnings call. As you saw on our release, our teams achieved a strong annual 2023 financial and operational performance. I think most gratifying was achieving our best safety year with the lowest recordable incident rate ever. I want to applaud and congratulate all the teams because it was a monumental effort to achieve this. Steel shipments reached a record 12.8 million tons. I think it needs to be emphasized that we've got an additional 3 million tons of shipping capability to leverage. We had the second-best year for revenues at $18.8 billion and cash flow from operations of $3.5 billion. Adjusted EBITDA was $3.7 billion. The year clearly demonstrated the through-cycle earnings resilience of our business model. It is manifested by a diverse value-added product portfolio supported by a superior operating culture, driving world-class low-cost operations. I could not be more pleased with Sinton. Sinton is showing significant operational improvement, was EBITDA positive in December, with a clear path to profitability in the first quarter of 2024 and thereafter. We are also achieving fast-paced progress on our aluminum flat-rolled investments. There continues to be strong commercial support for a new and innovative supply chain solution from Steel Dynamics. The aluminum industry is considering a well-known and highly regarded metals producer. I'm incredibly proud of the Steel Dynamics team. They are the foundation of our company and they drive our success. To be honest, they inspire me. The esprit de corps and commitment to the SDI family during the recent holiday parties was absolutely humbling. That is why we are so focused on providing the very best for their health, safety and welfare. They are actively engaged in safety at all times and at every level, keeping it top of mind in an active conversation each and every day. As I suggested, the team's safety performance was a record low incident rate in 2023. Obviously, there's more to do, and we will not rest until we consistently achieve our goal of zero injuries. So that said, I will hand it to Theresa, who will then pass the ball to Barry and then back to me to finish up.

Thank you, Mark. Good morning everyone. Thank you for being with us today. In addition to the achievements Mark just mentioned, the teams also achieved our third best year for operating income of $3.2 billion and net income of $2.5 billion or $14.64 per diluted share. Cash flow from operations and liquidity stood at $3.5 billion and a three-year after-tax return on invested capital of 32%. A truly great performance; my sincere thank you and congratulations to our entire team. As for the fourth quarter of 2023, net income was $424 million, or $2.61 per diluted share, with adjusted EBITDA of $659 million. Fourth quarter 2023 revenues were $4.2 billion, and operating income was $519 million, lower than sequential third-quarter results, driven by seasonally lower volume and realized steel and steel fabrication pricing. Our steel operations generated operating income of $365 million in the fourth quarter, lower than sequential third-quarter results due to lower realized flat rolled steel pricing. Our steel shipments remained steady at 3.1 million tons. Our four new flat rolled coating lines have either begun operating this quarter or will begin soon, increasing our higher margin value-added product mix by an additional 1 million tons, making our capacity in value-added and flat roll at 7 million tons on the coating lines. For the full year of 2023, operating income from our steel operations was $1.9 billion with record annual shipments of 12.8 million tons. For those tracking our flat rolled shipments in more specificity, hot rolled coil and P&O shipments were 927,000 tons, cold rolled shipments were 124,000 tons, and coated shipments were 1,192,000 tons. For metals recycling, fourth quarter operating income was $6 million due to seasonally lower volume and nonferrous metal spread compression. For the full year, operating income from our metals recycling operations was $108 million, lower than prior year results based on decreased ferrous scrap pricing more than offsetting higher volume. We are the largest nonferrous and ferrous metals recycler in all of North America, recycling aluminum, copper, and other metals. The team continues to leverage our circular manufacturing operating model, providing high quality, low-cost scrap to our steel mills, which improves furnace efficiency and reduces company-wide working capital. Our steel fabrication operations achieved operating income of $250 million in the fourth quarter, lower than sequential third-quarter results, yet historically strong due to lower pricing and seasonally lower shipments. Our steel fabrication platform had another exceptional year in 2023 with operating income of $1.6 billion. Congratulations to the team. Demand for our steel joists and deck remained solid with good order activity. Our backlog extends through the first half of 2024, and forward pricing remains strong. The Infrastructure Inflation Reduction Act, DOE decarbonization support, and manufacturing onshoring are expected to support domestic fixed asset investment and related flat and long product steel consumption and related joists and deck consumption as well. During the fourth quarter of 2023, we generated strong cash flow from operations of $865 million. For the full year, we achieved our second-best annual cash flow of $3.5 billion. Our cash generation is consistently strong based on our differentiated circular business model and highly variable low-cost structure. At the end of the year, we had liquidity of $3.5 billion. During 2023, we invested $1.7 billion in capital investments, of which almost 60% related to the construction of our aluminum flat rolled investments. For 2024, we believe capital investments will be in the range of $2 billion, of which approximately $1.4 billion relates to aluminum investments. During the fourth quarter, we maintained our cash dividend at $0.425 per common share after increasing it by 25% in the first quarter of 2023. During the full year of 2023, we paid cash dividends of $271 million and repurchased $1.5 billion or 8% of our outstanding shares, representing a 62% net income shareholder distribution rate. The Board also authorized an additional $1.5 billion share repurchase program in November, with $1.4 billion remaining available at the end of the year. Since 2017, we've increased our cash dividend per share by 174%, and we've repurchased $5.5 billion of our common stock or 37% of our outstanding shares. 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 high-return growth with shareholder distributions consisting of a base positive dividend profile complemented by a variable share repurchase program, while we remain dedicated to preserving our investment-grade credit designation. Our free cash flow profile has fundamentally changed over the last five years from an annual average of $540 million to $2.8 billion. We are squarely positioned for the continuation of sustainable and optimized long-term value creation. Our three-year after-tax return on invested capital of 32% is a testament to our profitable growth. 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 are committed to operating our business with the highest integrity. We have a tangible path forward to carbon neutrality that is more manageable and we believe considerably less expensive than what lies ahead for many of our industry peers. Our sustainability and carbon reduction strategy is an ongoing journey, and we're moving forward with the intention to make a positive difference. Thank you for your time this morning. Barry?

Thanks, Theresa. Our steel fabrication operations performed exceptionally well throughout 2023, achieving historically strong earnings. At the end of the year, our steel joists and deck order backlog was solid, extending into the first half of 2024. We continue to have high expectations for the business; continued onshoring and manufacturing, coupled with infrastructure spending and fixed asset investments related to the IRA programs could continue to provide momentum for additional construction spending. Equally important, our customers tell us demand remains solid and share our optimism. Current pricing has stabilized at historically higher levels, and order entry has improved. Our fabrication platform provides meaningful volume support for our steel mills, critical in softer demand environments, allowing for higher through-cycle steel utilization compared to our peers. It also helps mitigate the financial risk of lower steel prices. Our metals recycling operations also performed well this year, considering the challenges of declining scrap prices throughout much of 2023. The North American geographic footprint of our metals recycling platform provides a strategic competitive advantage for our steel mills and for our scrap generating customers, particularly our Mexican locations which competitively advantage our Columbus and Sinton raw material positions. They will strategically support aluminum scrap procurement for our future flat-rolled aluminum investments. Our metals recycling team is also partnering even more closely with both our steel and aluminum teams to expand our scrap separation capabilities through process and technology solutions. This will help mitigate potential prime ferrous scrap supply issues in the future. It will also provide us with significant advantages to materially increase recycled content for our aluminum flat roll products and increase our earnings opportunities. The steel team had another strong year achieving record volume of 12.8 million tons. During 2023, the domestic steel industry operated at an estimated production utilization rate of 76%, while our steel mills operated at a rate of 93%, excluding the Sinton plant. We consistently operate at a higher utilization rate due to our value-added steel product diversification, our differentiated customer supply chain, and the support of our internal manufacturing businesses. This higher through-cycle utilization of all our steel mills is a key competitive advantage, supporting our strong and growing cash generation capability and best-in-class financial metrics. Regarding the steel markets, steel pricing improved in the fourth quarter of 2023 and into January. Customer order entry rates have been strong, and lead times have been extended, while their inventory levels remained at historically low amounts. Our flat roll steel operations have experienced one of the strongest order entry environments in January, especially for our value-added products. Additionally, steel imports have generally remained at a manageable level with expectations for this to continue. As Sinton and the team achieved significant improvements in operating efficiency and consistency, they averaged about 65% of capability in November and December, and they have been running even stronger rates here in January. We are planning for additional improvements in Sinton's production after the team makes changes to certain transformers at the end of the first quarter of 2024, while we allow access to 100% of our mill capacity versus the current 80% capacity. Additionally, the two new value-added coating lines will begin operating in the first quarter, supporting increased volume and margins. Regarding the steel market environment, automotive production estimates for 2024 are projected at 16 million units, while automotive dealer inventories remain below historical norms. Non-residential construction remains solid, as evidenced by the strength of shipments and backlogs at our structural rail division, and customer inventory levels are low. Additionally, onshoring and infrastructure spending should provide meaningful support for fixed asset investments in related construction-oriented projects in the coming years. On the energy market front, oil and gas activity is strong, driving approved orders for OCTG and solar. Looking forward, we are optimistic regarding steel demand and pricing dynamics for 2024. With that, Mark?

Thanks, Barry. Thank you, Theresa. I think our consistently strong through-cycle operating and financial performance continues to support our cash generation and growth investment strategies. As Barry mentioned, the four value-added flat roll steel coating lines are starting this quarter, and Sinton should see a significant improvement hitting its stride in the second quarter of this year. Our aluminum growth strategy is especially compelling, with responses from existing and new customers across all markets remaining incredible, only strengthening as we move forward. Many customers have already indicated they would like to build facilities on our rolling mill site in Columbus, Mississippi, and this core location strategy provides a sustainably competitive model for us, conserving time, money, and reducing emissions across the supply chain, and has already proven itself in Sinton. The project itself is a 650,000 metric ton aluminum flat rolled facility located in Columbus, Mississippi. It will be a state-of-the-art plant, serving the sustainable beverage and packaging sectors, as well as the automotive and industrial sectors. Roughly 300,000 metric tons of Canstar, which is about 45% of the output, approximately 200,000 tons for automotive, and 150,000 metric tons for industrial and construction products. The onsite metal cast slab capability of 600,000 metric tons will be supported by two satellite recycled aluminum slab casting centers located in UBC scrap-rich regions, one in West and one in Central Mexico. The expanded product scope includes additional scrap processing and treatment to maximize aluminum recycled content. Our plans are on schedule; the rolling mill should be operational by mid-2025, the Mexico slab center at the end of 2024, and then the Arizona slab center around mid-2025. The total project cost, as you saw in the release, including the recycled slab centers has risen to $2.7 billion. The installation cost for the rolling mill has expanded due to inflationary installation costs that we are all facing. With virtually all equipment and construction contracts complete, we are confident in this final budget. As we've said before, it will be 100% funded with cash. And the expectation is to have a through-cycle annual EBITDA of around $650 million to $700 million from the aluminum facility, with an additional $40 million to $50 million from other activities. We are going to see superior financial metrics relative to our competition. The market environment is similar to where the domestic steel industry was when we started SDI 30 years ago, with other assets having little reinvestment, heavily legacy costs, and inefficient high-cost operations. We are confident that we can emulate the high-efficiency, low-cost model that drove our success in steel to achieve superior financial metrics in aluminum. Our organizational mill structure takes advantage of advanced layout and technology, and our performance-driven core culture will drive a headcount of around 750 people, versus typically 2,000 or more at a similar competitor. We will achieve higher yields through the system, leveraging OmniSource's market position and separation technologies to ensure a higher recycled content. We will not have the legacy burden that others face. We will have production cost efficiencies along with customer co-location. In the end, we also have a preferred sustainability profile. If you put it all together, we are confident that our earnings profile will be far superior to the industry today. We have developed the best financial metrics in the steel industry, and as I said, we are confident we can do the same in aluminum. We are poised for continued growth. We have an additional 3 million tons, as I said earlier, of shipping capability that will be leveraged through our new processing lines, new products, and new supply chains. We are passionate about our future growth plans as they will continue to drive the high return growth momentum we have consistently demonstrated over the years. We have the highest average five-year after-tax return on invested capital within the S&P 500 materials companies. In the last three years, we achieved an average after-tax ROIC of 32%. Such performance does not happen by accident. Our disciplined, intentional organic and acquisition strategy, focused on differentiated value-added supply chain solutions, is providing sustainable cash generation and strong returns. I continue to be optimistic moving forward. I believe the market dynamics are in place to support increased demand across our operating platforms in 2024 and the years ahead. North America will benefit from continued onshoring and manufacturing businesses, and the U.S. will benefit from the allocation of public funds from the infrastructure program, Inflation Reduction Act, and other public programs. Fuel dynamics will benefit from those programs through increased demand for steel joists, deck demand, flat and long product steel demand, and the associated higher demand for recycled scrap and aluminum. In closing, our teams are our foundation. I thank each of them for their passion and dedication. We are committed to them, and I remind those listening today that safety for yourself, your families, and each other is our highest priority. Our culture and business model continue to positively differentiate our performance, leading to best-in-class financial metrics. We are no longer a pure steel company, but an integrated metals business providing enhanced supply chain solutions to the industry and, in turn, mitigating volatility in cash flow generation through all market cycles. We are competitively positioned and continue to focus on providing superior value for our company, customers, team members, and shareholders alike. We look forward to creating new opportunities for everyone, today and in the years ahead. With that said, Holly, I would love for you to open it up for questions.

Your first question for today is coming from Martin Englert with Seaport Research.

Quick question on steel conversion. Costs were estimated around $5.30 per ton in the fourth quarter and kind of average around there for the year. Looking ahead at 1Q, taking that point of reference into account, should we expect some decline there based on the ramping of Sinton further and some better fixed cost leverage?

As the way that the information that you can use to back into our conversion costs, I know it's a little difficult, but you hit the primary driver with Sinton and ramping up as significantly as we're expecting them to do in the first quarter and as they are doing right now in January, we would expect to see that overall, as you calculate it, conversion costs come down absent any other factors, correct?

Okay. And any goalpost as far as when we think about what that could potentially decline on a sequential basis? And I understand there might be other offsets there with substrate that's flowing through as well.

No, it is really hard for us to give you guidance, as you know, Martin, as it relates to the conversion costs, as you're calculating it. Conversion costs really stand within the steel operations themselves; the two conversion costs are very stable. We don't expect to see a lot of movement except for Sinton, again because of the additional volumes. The substrate does have an impact, as you mentioned, but we don't expect to see that mix of processing versus production become dramatically different in the first quarter.

Okay. If I could one follow-up on steel fabrication. In the release, you noted improved activity as well as well price backlog extending through the first half of '24. On average, is the backlog price higher or lower than the fourth quarter ASP of $3,500 per ton?

Martin, the backlog prices held in very steadily. There's not a dramatic difference. And again, we don't give specific sense to the backlog pricing for fabrication or for other operations. But the resiliency in the price, both what we're seeing now and in that backlog is very steady.

I would just add that in the fourth quarter, we believe fabrication has mostly hit its lowest point. However, in that quarter, we experienced the highest order input rate in the last six quarters. Therefore, we expect volumes to increase. There may be some seasonal fluctuations in the first quarter, but we anticipate a positive trend after that.

Your comment on you believe that it's trough, does that pertain to volumes or price or volumes and price?

I would say that for sure, volume and pricing appears to have stabilized.

Your next question is coming from Tristan Gresser with BNP Paribas.

The first one is kind of a follow-up on the fabrication guidance, maybe on the volumes. If we look at the shipments you had in Q4, it's probably the lowest fab shipments we've seen in five years, and you mentioned you've seen that trough, but could you explain a little bit what has been holding you back there of late? And if we look at 2024, what kind of growth expectation do you foresee for the business? I know you provided some guidance last year on a half-on-half basis. So anything there would be helpful. That would be my first question.

I would just say that, as previously mentioned, the order input rate increased in the fourth quarter, and that will carry into this year. As you all know, there is some seasonality in the first quarter due to winter weather affecting construction activity. However, I believe we will see improvement in the second quarter and throughout the rest of the year.

All right. That's fair. My second question is about the increases in capital expenditures or project budgets. You mentioned the aluminum project, but I think the biocarbon project has also seen high capital expenditures. What caused this? Regarding the $300 million increase compared to prior budgets, how should we distribute this between 2024 and 2025? I understand you provided some insight on the 2024 budget, which is around $2 billion, but there seems to be a significant decline in consensus expectations for 2025. It would be helpful to understand how much of this is allocated to 2025 for those projects. Additionally, considering the elevated capital expenditure budget for next year and your expectations across various businesses, do you anticipate being free cash flow positive for 2024?

Thank you, Tristan. The biocarbon project has not increased in cost; it remains at $260 million. We previously anticipated potential tax credits that became unavailable due to more defined regulations from the administration. However, the capital cost of $260 million is consistent with our earlier estimates. The project is still on track for completion and initiation before the end of 2024, which significantly supports our decarbonization efforts and benefits our customers regarding carbon content in our steel operations. We are very excited, and the team in Mississippi is doing a great job in progressing this project. Most of the capital will be spent in 2024, and the $2 billion total capital expenditures for that year is unchanged from my previous updates. Regarding the aluminum project, approximately $200 million will be spent in total, with a significant portion of that in 2024, leading to an expected $1.4 billion in spending this year. We anticipate an additional $150 million to $200 million will remain for 2025 concerning aluminum projects. Overall, nothing significant has changed in our capital planning, aside from the incremental addition in the aluminum project. Regarding your question about consensus for 2025 and free cash flow, I want to highlight that Sinton has been negative from an EBITDA standpoint for the past two years. However, Mark mentioned earlier today that we expect to be EBITDA positive in the first quarter and subsequent quarters, marking a major improvement in earnings as Sinton ramps up. Additionally, the four value-added flat roll lines coming online in 2024 will greatly enhance our earnings on the value-added side, especially as demand grows for painted and Galvalume products. Coupled with increased volumes in our metals recycling segment, particularly for nonferrous scrap like aluminum, and our support for steel mills on the ferrous side, we anticipate starting operations at our aluminum mill by mid-2025. While it may not immediately contribute to earnings, we project through-cycle earnings in the range of $650 million to $700 million. It’s essential for everyone to recognize the earnings opportunities ahead. We expect to generate cash in 2024 and intend to maintain our share repurchase program.

I just want to add that while we are disappointed with the increases in capital expenditures at the Columbus aluminum project, we are very confident that this will be the final increase and it will not affect the schedule. To be honest, the progress is exceptional, and the team is doing a fantastic job. There is no doubt that we will be operational by mid-year 2025.

The next question for today is coming from Carlos De Alba with Morgan Stanley.

My question is on the aluminum project. I don't know if you could maybe give a little bit of color as to what extent have you been able to contract some of the volumes that will come online in mid-2025? And what type of pricing mechanism or structure, even at just a high level and on a qualitative basis, have you been able to implement in those contracts, if you have done so?

Thank you, Carlos. The commercial team, in all honesty, has only been put together over the last, I would say, two months. They're very, very active with our customer base and honestly, we are as well at every level. The reception is incredibly high. I would suggest that we have total confidence that we're going to be able to support the ramp-up in 2025 and into 2026.

And if I may ask on the expected ramp-up and EBITDA contribution for the four coating lines? I mean, I think two of them will start in the first quarter.

As far as the ramp-up, I'll let Barry address how quickly they ramp up. I would tell you from a financial perspective, the coating lines, they are in totality around $600 million, and they tend to have a 2.5 to 3-year payback. So it's very nice returns.

Yes, this is Barry. I'd just like to add the teams. The personnel are in place. They've been training, building the lines. That's our culture to be part of the construction. So the teams are already very familiar with the equipment. Two of the lines have actually run first coils, one at Heartland, the paint line, and a coating line down in Sinton. So that's great news. It's always exhilarating for the teams to reach that point. The next two lines are in hot commissioning now, and we anticipate those running first coils in the March timeframe. So the ramp-up, keep product ready for them; we are pretty aggressive in what we do typically, and we anticipate these will be contributing to our customers here in the near future. I envision prime sales in Q1 from the two lines that have run first coils, and we see all four of the lines making and shipping salable goods into the marketplace in Q2. We anticipate our experience and our culture will allow these startups to be very, very seamless. We take our responsibility to our customers seriously to ensure the product leaving is nothing less than what they expect from us.

When you think about the four lines or particularly the two lines in Sinton, obviously, it's going to expand our value-added product portfolio down there and enhance the margin directly. More importantly, it will allow us to fully utilize the downstream lines. So yes, the team has done a phenomenal job on the hot side. We're knocking on 75% utilization today in January, and 80% is right around the corner. But downstream, when you take that product, you pickle it, put it through the time mill and other lines, having the additional 300,000 to 400,000 tons of downstream will allow loading of those downstream lines and obviously a dilution of the cost structure. It has a very, very important and effective impact to us here in the next three to five months.

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

I wanted to follow up and ask if you believe that volumes have reached their lowest point and prices are stabilizing. Will we see the effects of the higher prices from the fourth quarter impacting the first quarter, or is that more likely to happen in the second quarter? My first question is regarding the costs associated with throughput from the hot-rolled side.

Yes. While you were referring to fabrication, it's actually about flat roll. We're currently experiencing a lag in our contract business of about two to three months. The price increases we observed in flat roll during the fourth quarter will positively impact the first quarter from a contract standpoint. The consistency of 80% has been maintained throughout the year for our flat roll operations, so we expect to see that benefit in the first quarter.

Okay. That's actually really helpful, but I was asking about fabrication and the throughput of flat-rolled price increases and the impact on margins on downstream. So if you could actually answer that as well, that would be great.

Sorry, I'll get this right eventually. From a cost perspective, for the substrate for fabrication, they tend to have anywhere between call it, eight to ten weeks of inventory on the ground. That's the same thing that they would have had coming into the first quarter. So you're going to see some of that incremental price hike in the first quarter, but you would have seen some in the fourth quarter as well.

And then if I could, just one last one. I know Barry talked about and Mark talked about customer inventories being low. So I just don't understand that because I know that at least SMU had some really high inventories for December. So is that just not aligned with what you're seeing? Or can you help me understand why the difference of narrative there?

Well, Timna, this is Barry. I think a lot of our relationships, especially with the galvanized and the paint, are directly with customers. So we see our supply chains still needing to fill orders at a really good rate. The MSCI inventories remain traditionally pretty low. But more to the point, our specific OEM relationships are still pulling tons from us. We have conversations, and the lead times haven't changed at all with a vast majority of the business we do that is on these contract relationships. So I think what we're seeing out there and the nature of our inquiries make us feel like there is a real demand out there still underneath everything we're doing.

Just to add to that, generally, we believe we are very, very constructive for 2024 regarding steel demand. Everyone gets a little excited by the slight backing off of hot-band pricing here of late. For us, flat roll demand remains strong. Macro indicators may not appear overly constructive right now, but our order input rate in January has been incredibly strong, as Barry indicated. We suggest that supply chain inventories, not just MSCI or SMU but across the supply chain as a whole, remain relatively tight. Imports are not a material factor today and won't be. We are booked out for coated and prepayment, right? Demand for us remains very solid across our sheet mills. Long products are in a very solid territory too. I would like to congratulate the team; they achieved record earnings and record volumes in 2023. They have done an incredible job of adapting the commercial approach and expanding their product portfolio, which is going to support higher through-cycle volumes going forward for the long product platform as well. For us, the market outlook is quite optimistic.

Your next question is coming from Curt Woodworth with UBS.

I would like to follow up on the pricing dynamics in the fabrication sector. Earlier this year, you mentioned that pricing in the second half of the year would drop by 10% to 15%, but it actually decreased by 22%. For the past two quarters, you've indicated that prices are stabilizing, and you've noted improvement in order entries. Can you provide any guidance regarding pricing? Should we expect that the backlog pricing for the first half of this year is similar to what it was in the fourth quarter, aligning with your previous comments about price stabilization?

Well, I never do well in Vegas. So I don't think that given a projection is solid at all. But directionally, I do believe, again, that the underlying structural demand is there. If you look at the last 18 to 24 months, you have seen hot band pricing cycles, and they have not been driven by demand. They've been driven by emotional responses to various economic factors. But the underlying demand remains strong and is expected to be sustained through the year, supporting pricing.

Okay. You mentioned that the order entry in fabrication was the highest in the past six quarters, which is quite positive. I'm curious about what is fueling that growth. Although the data concerning warehouse starts is still somewhat negative, I know data centers are expanding in other areas. How do you describe the current composition of your end market demand for fabrication compared to how it was 18 months ago?

Here you may have additional commentary as well, but we're seeing a lot of incremental demand on the manufacturing side. We've been discussing onshoring that is actually happening, and that does have a good impact on the steel joists and deck market. We're also seeing a lot of activity in education as well as in the, I'll call it, pharma or health care sectors. Anecdotally, you have to separate warehouses from data centers, but we're continuing to see really good strength in the data center arena as well. Barry, I don't know if there's anything I'm missing.

I would say that the mix is good for them on the engineering side of the business to maintain their lead times. It isn't significantly different from the typical business flow; there are just small changes in the segments that we're serving through fabrication.

Your next question for today is coming from Katja Jancic with BMO.

Just quickly on the aluminum segment, you started disclosing the operating loss. Can you provide some color on how we should think about the cost there over the next few quarters or how it should impact you?

Katja, we did break out. So aluminum, because of the investment size, we will have a separate segment going forward. We can't really give you projections on start-up losses. We expect them during 2024 to not be of significant size, and you will be able to see them. The one thing I'd note is that it's an unusual requirement from an accounting perspective, but those start-up losses actually get reflected in our SG&A amount. So if you see SG&A fluctuating, and maybe being higher than it is normally, it's because those start-up losses during construction are included in that line.

But is it fair to assume that they should come up? I think in the fourth quarter, they were around $11 million? Or is that a fair assumption over the next few quarters?

We do have a good contingent of people on the ground now. Yes, during the year because we'll be scaling up, as Mark said, in mid-2025, you should expect to see those costs rise during 2024.

Your next question is coming from Alex Hacking with Citi.

On Sinton, how much of Sinton's output is currently being sold into Mexico? If I remember correctly, you were targeting something like 30% before that mill started up?

Yes, we've had a very good ability to move product into Mexico. We have a very established team down there that's been servicing our flat roll group for a while, but we added a warehouse capability in Monterrey. Last year, we moved about 600,000 tons into Mexico in various industries. We're very pleased with how the business is moving. We are being welcomed by the customer base in Mexico. In many cases, we've had relationships and haven't had the ability to get the tons there. Sinton provides us the opportunity not just through proximity, but through the advanced product features that we have. We have wider, heavier products than we would typically have, and these products are being very well received in various industries. I would tell you that the continued near-shoring of manufacturing in the United States is very apparent with the investments we see in Mexico and the customer base there. So it continues to align well with our strategy as being a great place to do business, and we're excited about it.

Thanks, Barry. I have a follow-up question regarding the aluminum rolling mill. How confident are you in sourcing 900,000 tons of scrap, or how much do you actually need? I'm not very familiar with the aluminum scrap market, but it appears there isn't a lot of excess scrap available. For context, how much does OmniSource currently handle in terms of tons?

Great question. Obviously, I think we're advantaged by having OmniSource recycled platform because today, not only are they the largest or second largest ferrous scrap recycler; they are clearly the largest nonferrous recycler, recycling somewhere around 500 million pounds of aluminum. We also have a secondary aluminum operation here in Fort Wayne that produces about 260 million pounds of secondary aluminum. We're not in a new environment here. Additionally, we have hired some incredible talent to supplement our already amazing team. Sourcing the material is not a major issue for us. Our strategy includes two principal scrap streams: one for the automotive industrial base, the other for Comstock, and the UBC scrap, which is highly available in California. They're a deposit state, with a lot of aluminum UBC scrap generated up and down the West Coast, currently either moving to Asia or to the Midwest. Similarly, in Mexico, there is a scrap-rich arena, which is why we are locating two facilities, two satellite facilities in those areas; having the scrap at the source molds in the freight, versus moving a solid slab is much more cost-effective. Not only do we benefit from the scrap collection side but also economically on moving the aluminum to the mill.

Okay. Just one follow-up, if I may. This is probably a really dumb question, but I assume the facility can handle primary as well, if required.

We certainly will. Just to clarify, you do need to target 900,000 tons of cash for the yield loss through the system. When I say yield loss, it's not a loss; this is just circular within the mill process. You still only need roughly 650,000 tons of total input, with 20% of it being primary.

Your next question for today is coming from Bill Peterson with JPMorgan.

Just on Sinton, I think you mentioned hitting stride in the second quarter. How should we think about utilization for the full year? If I recall correctly, I think you had expected 80% for the full year at the last quarterly earnings call. Is that still the target, or should we assume a bit lower?

It's my target, Barry?

No, we continue to strive for 80%. The team is doing, as Mark said, a phenomenal job. It's a big challenge to bring such a big asset up all at once. Transporter problems have been unfortunate, but we have several fixes in the works. Approaching the problem for both resiliency and getting back to full power capacity means we remain confident that operational levels will reach 80% and the whole team is aware of that. We are all incentivized to make that happen.

Not to complicate the math. But if you consider that in January, we're approaching 75% utilization right now, that's 75% of our ultimate capability. The team is handcuffed due to the lower power input. We are quite confident we can get to that 80% utilization for the year.

Okay. We'll plug in 84%. No, just joking. Just on the influence of onshoring and the infrastructure bill. You said this is expected to benefit in 2024. Have you seen orders come in, or should we think of this more as a second half '24 phenomenon? Which of these two influences do you see as more impactful for you this year?

Just from a product mix perspective, the growth in infrastructure is already happening. Renewables exploded last year and continue to grow dramatically. We are advantaged, particularly in structural steel for the TOR tubes and flat roll for support tubing. We are beginning to see orders starting from bridge makers currently. From my perspective, that marks the start of a ramp-up in spending.

We also see in long products a lot of foundational type structural sales. Even though it's a smaller division, Steel of West Virginia is very, very full with us right now with projects that are tangential, whether it's solar fields, or the support deals that go into the ground or fork trucks and things like that that go into these new factories and these new warehouses and data centers. So we do see a good bounce from that. We also see the pipeline industry in the states picking up orders for carbon sequestration lines as well as for major pipelines. Those markets are awake, and we see a lot of inquiry activity that is quite exciting for us.

I want to emphasize that the infrastructure program and the IRA and anything related to roads, bridges, and construction, while they benefit long products, also positively impact our steel joists and deck operations. Importantly, the flat roll operations have exposure to those as well, whether it's through HVAC systems or pipe and tube, as Barry just mentioned. There's a significant impact on flat rolled products from this legislation.

Your next question is coming from John Tumazos, a private investor.

Could you give us some feedback on the potential 2025 CapEx? With Sinton and the four coating lines in the aluminum and carbon projects behind us, what are some of the leading candidates for the next capital investments going forward? In particular, could you talk about growth in recycling where aluminum, copper, and zinc have much lower global recycling rates than steel in particular?

Yes, we do have projects planned for 2025. I'm not sure that we're prepared to go into that today. However, as I mentioned earlier in the call, aluminum will probably have a tail of somewhere between $200 million and $250 million. Our teams are consistently bringing us amazing ideas that have high returns associated with them. Again, I'll point back to our ROIC. They do an excellent job of providing us with projects that have really great returns. Overall, I would say the number for 2025 would likely be a minimum of around $500 million, which would include some sustaining capital as well, which for us is very low at around $160 million. There is still some benefit there. Mark, I don't know if you want to add anything.

To address the CapEx part, not the whole thing, we have an absolutely incredible team that continues to be innovative. If you were to witness or be with us or with that team, it would be quite incredible. We are using new digital planning technology that we're exploiting. Although it's not big dollars, it is going to result in incredibly high-margin niche business. We have two product segments that we're not in today in flat roll that we're exploring, and they have a couple of innovative things associated with them. The pipeline in steel remains. For sure, in aluminum, I see that growth paralleling growth in steel, as we get on the front end and make the basic substrate. There is a significant opportunity for processing; the majority of aluminum gets prepaid today, which is our expertise. We will experience growth and expansion there. I want to emphasize how we demonstrate the ability to grow in a disciplined, intentional manner. That is the only way to achieve the return on invested capital numbers that we achieve. We will continue to focus both organically and through acquisitions for opportunities. However, we will remain very disciplined and intentional. We won't overpay for anything, and we will continue to retain some of the best financial metrics in our industry.

As we build our financial models, if in 2025, the CapEx fell to somewhere, let's just say for discussion in the range of $500 million to $1 billion, should we be increasing the share buyback dollars from the levels of the last several years given the drop in CapEx?

So John, we want to be super clear that we see the share buyback program as a very good tool for us to be able to use, and you've seen that. Very much like the dividend, we've been increasing it with increases in our structural through-cycle cash flow generation when projects come online and then we do it aggressively. We want to keep that positive momentum. However, we will use the share buyback program during periods of excess cash flow when we may have less growth in mind, but we are still very much a growth company. To Mark's point, that can happen through greenfield assets or acquisitions. We have the luxury of not having to sacrifice the share repurchase program; we can execute on all of those fronts. That's what you will continue to see us do in 2024 and 2025, absent any extraordinary circumstances.

Thank you very much. I'm a happy shareholder.

Your next question is a follow-up from Martin Englert.

I appreciate the time for the follow-up. Just two quick ones here. Over the last four years, seasonal sequential 1Q gain in external steel volumes averaged about 7% quarter-on-quarter based on what you're seeing with order intake in the new year, and then also taking into account the continued ramp in Sinton and value-added lines. Should we expect something similar on a sequential basis of around 7%, and then layer in the additional volumes from ramping assets?

Martin, we can't give directionality. Obviously, we had outages in the fourth quarter at two of our steel mills, and we won't have those in the first quarter. We've just mentioned that Sinton is going to be ramping up aggressively in the first quarter. So all in all, absent any significant market movements, you should expect to see incremental volume from our steel operations. As Barry pointed out, with the additional value-added lines, you're going to start to see that product mix get richer and richer. So it will flow more into the processing lines. You'll eventually see some really great spread enhancement throughout the year as well.

What were the outages in 4Q? I assume that you mentioned it because it did have an adverse impact on volumes?

They were just normal outages. We experience outages at our flat roll mills and in our long product mills, and they weren't significant enough to note.

One last one, if I could, on the aluminum project. Based on the two-cycle estimate, it implies an EBITDA of around $900 to $1,000 per ton. When you were coming up with that analysis, can you share what you think the bottom and top quartile of profitability might look like when we think about peak to trough?

No, Martin, we're not. We do mid-cycle and through-cycle estimates, but we don't provide that type of information.

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

Thank you, everyone, and thank you, Holly, and thank you, everyone, on the call. I guess, as John noted, he's a happy shareholder. To be honest, everyone at SDI are happy shareholders too because we all are equity holders as part of the compensation for each and every one of us. Collectively, we own a reasonable amount of our stock. I want to emphasize that we treat your dollars just like our own. We are absolutely focused on continuing to outstrip our competition regarding shareholder value creation through the cycle, but we cannot do it on our own. So any customers listening today, thank you for your support. We appreciate your loyal support, and it takes us through the cycles; suppliers can't do it without you. I want to express that we have the best metals team in the world. Our team is phenomenal. Thank you for what you do each and every day. For those that are owners on the call, thank you for your support. 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.