Good day and welcome to the Steel Dynamics Second Quarter 2024 Earnings Conference call. At this time, all participants are in a listen-only mode. After management's remarks, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised this call is being recorded today, July 18, 2024, and your participation implies consent to our recording of this call. If you do not agree to these terms, please disconnect. At this time, I'd like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Thank you, Matt. Good morning and welcome to Steel Dynamics second quarter 2024 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, 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 integrating or starting out new assets, 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. Example of these are described in the related press release as well as in our annually 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 also find any referenced non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Second Quarter 2024 Results. Now, I'm pleased to turn the call over to Mark.

Thank you, David. Good morning, everyone. I appreciate you being with us on our second quarter ‘24 earnings call. As you likely read, our teams achieved a solid second quarter financial and operational performance. I think most gratifying was achieving another great quarter for safety. Teams have been commissioning and ramping up four new value-added flat rolled steel coating lines at a record rapid pace, which is adding 1.1 million tons of higher margin product diversification. We're experiencing some challenges in the second quarter. The Sinton team continues to make progress, gaining full access to their melting capacity this past week. Steel shipments for the quarter were 3.2 million tons, revenues were $4.6 billion, adjusted EBITDA $686 million. Cash flow from operations was $383 million. I remain incredibly proud of the Steel Dynamics team. They are family. It's an honor and pleasure to be part of the team that looks out for one another and that strives for excellence each and every day. And that's why we're so focused on providing the very best for their health, safety and welfare. We're actively engaged in safety at all times and at every level, keeping it top of mind and an active conversation each and every day. That’s a significant impact the team continues to be deeply focused on our take controller safety program that is yielding an even better safety culture. But as I always say, there's more to do and we will not rest until we consistently achieve our goal of zero injuries. So with that said, Theresa, would you like to add some color to the quarter?

Thank you, Mark. Good morning everyone. Thanks for joining us and thanks to teams for another solid performance. Our second quarter 2024 net income was $428 million or $2.72 per diluted share with adjusted EBITDA of $686 million. Second quarter 2024 revenue of $4.6 billion was slightly below sequential first quarter results due to lower realized steel pricing. Our second quarter operating income of $559 million was 26% lower than first quarter results driven by steel metal spread contraction as pricing declined more than scrap raw material costs. Our steel operations generated operating income of $442 million, 34% lower sequentially due to average realized pricing declining $63 to $1,138 per ton, while total shipments were generally steady. Uniquely, all of our steel mills, except for Roanoke, had planned maintenance outages in the second quarter, which impacted utilization and related conversion costs for the quarter. Additionally, our Sinton, Texas flat rolled steel division operated close to 60% of capacity for the quarter compared to almost 70% in the first quarter due to required outages to implement needed changes, which Barry will describe in a moment. Operating income from our mills recycling operations was $32 million, significantly higher than sequential first quarter results despite lower realized pricing as volumes increased and the team continues to gain operating efficiencies. As many of you already know, we're the largest North American metals recycler processing and consuming ferrous scrap and non-ferrous aluminum, copper and other metals. The team continues to effectively leverage the strength of our circular manufacturing model, benefiting both our steel and metals recycling operations and shortly also our aluminum flat rolled operations. Our steel fabrication team achieved strong operating income of $181 million in the second quarter, slightly higher than first quarter sequential results. Earnings were supported with an 11% increase in shipments more than compensating for a 5% reduction in realized pricing. Our joists and deck backlog extends to the fourth quarter of 2024. Infrastructure Inflation Reduction Act, DOE, decarbonization support and manufacturing onshoring are expected to increase domestic fixed asset investment and in turn related flat and long product steel consumption and joists and deck consumption later this year and in the coming years. A reminder, as we construct the aluminum facilities, non-capitalizable expenses are required to flow through SG&A until startup, so you'll see increased costs in this line item until we start operations mid-2025. This amount was $19 million in the second quarter. Our supplemental schedule provides visibility as a separate aluminum segment. We estimate that average similar costs of approximately $25 million per quarter will occur through the first half of 2025. We have expectations to be EBITDA positive in the second half of 2025 for our aluminum investments with plans to initially ramp with industrial type products, as we qualify our can sheet and automotive products. We expect to be operating the rolling mill at approximately 75% of its capability for the full year 2026 and full thereafter. Mark is going to provide more details related to our ramp and product mix expectations for aluminum investments later on the call, as well as our differentiated cost expectations. The construction of the aluminum rolling mill and the San Luis Potosi recycled slab center is going extremely well. We want to reaffirm the total project costs at $2.7 billion of which $1.5 billion has already been invested through June of 2024. For the remainder of 2024, we expect to invest another $900 million in the aluminum investments. And finally, in 2025, the remaining $250 million. Our cash generation continues to be strong based on our differentiated circular business model and highly variable cost structure. During the second quarter of 2024, we generated cash flow from operations of $383 million. Inventories were moderately higher in the quarter as we increased product ahead of our new value-added flat roll coating lines. Additionally, estimated tax payments were $273 million in the quarter, representing a 23% cash tax rate for the first half of the year. We ended the quarter with strong liquidity of $2.7 billion, comprised of cash and short-term investments of $1.5 billion and our fully available unsecured revolver of $1.2 billion for 2024. We believe total capital investments will be in the range of $2 billion, of which we have already funded $793 million this year. In February, we increased our quarterly cash dividend 8% to $0.46 per common share, continuing our positive dividend profile as through-cycle cash flow grows. We also repurchased $607 million of our common stock in 2024, representing 3% of our outstanding shares. Our capital allocation strategy prioritizes high return strategic growth with shareholder distributions, comprised of a base positive dividend profile that's complemented with 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 currently $2.9 billion, excluding our large strategic investments in aluminum. In July, we successfully issued $600 million of 5.375% investment grade notes with 10-year tenure. The proceeds will be used for general purposes and anticipation of repaying our $400 million notes due December 2024. We are very pleased with the transaction. We thank those who invested. Lastly, sustainability is a significant part of our long-term value creation strategy. 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, which we plan to start commissioning late in the fourth quarter, will decrease our steel Scope 1 greenhouse gas emissions by as much as 35%. We uniquely have an actionable path towards carbon neutrality that is more manageable and we believe is 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 intention to make a positive difference. Finally, for those of you on the call that track categories of our flat rolled steel shipments, in the second quarter, we shipped hot-rolled and P&O of 1,004,000 tons, cold rolled products of 124,000 tons, and coated products of 1,245,000 tons.

Thank you, Theresa. Our steel fabrication operations performed well in the second quarter, achieving strong earnings and steady volume aligned with first quarter results. The market segments that we participate in influence the mix of joist deck that we engineer for each job. Our team's ability to engineer and manufacture the best solution for each segment remains a core strength. Our steel fabrication order backlog remains at a healthy level, extending through the end of the year. We continue to have high expectations for the business, continued onshoring and manufacturing, along with continued infrastructure spending and fixed asset investment related to the IRA programs should provide momentum for additional construction spending later this year and through 2025. Our steel fabrication platform provides meaningful volume support for our steel operations, critical in softer demand environments allowing for higher through-cycle utilization compared to our peers, but also helps to mitigate the financial risk of lower steel prices. Our metals recycling operations improved earnings in the second quarter, as increased demand for North American steel producers supported higher ferrous scrap volume, more than compensating for the challenging price environment. We believe ferrous scrap prices have stabilized and should remain relatively stable through the rest of the year, subject to seasonal moves. 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. In particular, our Mexican recycling locations competitively advantage our Columbus and Sinton raw material positions. They also strategically support increased procurement of aluminum scrap for our future flat-rolled aluminum operations. Our metals recycling team is partnering even more closely with both our steel and aluminum teams to expand scrap separation capabilities through both process and technology solutions. This will help mitigate potential prime ferrous scrap supply issues in the future. It will also provide us with a significant advantage to materially increase the recycled content in our aluminum flat rolled products and increase our earnings potentials. Field team had a solid quarter, achieving shipments of 3.2 million tons. During the second quarter of 2024, the domestic steel industry operated at an estimated production utilization rate of 78%, while our steel mills operated at a rate of 81%. We consistently operate at higher utilization rates due to our value-added steel product diversification and our differentiated customer supply chain solutions in support of our internal manufacturing businesses. The higher through-cycle utilization of our steel mills is a key competitive advantage, supporting our strong and growing cash generation capability and best-in-class financial metrics. Our realized steel pricing declined across product portfolios as prices weakened throughout the second quarter. However, value-added flat rolled steel pricing spreads remained very resilient during the same time frame, supporting our earnings as we already are the largest producer of these products in North America. We are growing with the new addition of four coating lines with 1.1 million tons of additional capacity. Underlying demand remains steady, but customers remain hesitant to place orders due to the continuing decline of scrap prices throughout the quarter. Additionally, a surge in steel imports put pressure on the supply dynamics. However, order activity has increased over the last month, especially within the last several weeks, stabilizing our lead times. We believe this is the bottom range for pricing with positive moves in the future. The Sinton steel team continues to make improvements in operating efficiency and consistency. We are planning to see additional improvements in production and profitability as the team took two different four-day outages during the second quarter to, among other things, resolve the transformer limitations we have previously discussed. The outages were necessary to install the additional safety circuits and restore our electrical capacity, which will now allow us to access 100% of our melting capacity versus the previous 80%. Also, the additional two new value-added coating lines were successfully commissioned and have commenced operations with great success, improving the mill's value-added product mix and enhancing the operating efficiency of the facility. The additional lines will support increased volume and margins as we head through this year. Regarding the steel market environment, North America automotive production estimates for 2024 have recently been revised to a strong 16 million units, with continued growth expected in '25 and 2026. This forecast is based on demand resilience of stronger production results as supply chain constraints continue to dissipate. Automotive dealer inventories also continue to remain below historical norms despite the recent cyber disruptions. Non-residential construction remained stable with slowdowns across some building types due to hesitancy around higher interest rates. Additionally, onshoring and infrastructure spending should provide meaningful support to fixed asset investment and related construction-oriented projects in the coming years. As for the energy market, the oil and gas industry continues to grow and keep activity steady. However, increasing OTCG and line pipe imports presented a challenging second quarter environment for domestic producers. Looking forward, we are optimistic regarding steel demand and pricing dynamics for 2024. And with that, I'll turn it over to Mark.

Well, thank you, Theresa. Thank you, Barry. I appreciate that. Looking toward continued growth, our consistently strong through-cycle operating and financial performance continues to support our cash generation and growth investment strategies. The four value-added flat rolled steel coating lines are increasing volume and have performed extremely well. These types of high return investments are key to our value-added product and supply chain differentiation strategies. Regarding Sinton's progress, Barry will provide some more information but the team completed a key task this week. As we look forward to the rest of the year, we have confidence in increased volume and profitability from them. The aluminum growth strategy, I believe, is especially compelling. We're achieving fast-paced progress on the construction of our aluminum flat rolled investments. There continues to be strong commercial support for a new and innovative supply chain solution from Steel Dynamics for the aluminum industry has become to be recognized as a well-known and highly regarded metals producer today. Responses from existing and new customers across the markets remain incredible. As a quick overview of the project, it is a 650,000 metric ton aluminum flat rolled facility in Columbus, Mississippi. It is a state-of-the-art plant with an optimized target mix of 300,000 tons of can stock, as well as tons of industrial and construction products. On-site melting and casting slab capacity are 600,000 metric tons and are supported by two satellite recycled aluminum slab casting centers located in UBC scrap-rich regions. We expanded the product scope to include additional scrap processing and segregation technologies to maximize our aluminum recycled content. Start-up plans right now for the rolling mill to commence in mid-‘25, the Mexico slab center in the first quarter of '25 with the U.S. slab center coming online in the second half of '25. From an investment perspective, I think the market environment today in aluminum is similar to the domestic steel industry when we started SDI 30 years ago. It has older assets that have heavy legacy costs; the mills are somewhat inefficient and high-cost operations. Unlike the steel environment 30 years ago, there's an absolute supply deficit in the North American market, and that deficit is likely to grow. It aligns with our business; we can leverage our core competencies in our construction and operational know-how and drive performance through our culture, which in turn will drive high efficiency and low-cost operation. It also leverages our Omni recycling footprint. Today, Omni is the largest North American aluminum scrap recycler and has developed some very unique and innovative separation technologies to segregate the different aluminum supply streams. This presents a very cost-effective and high-return growth opportunity for us. The team plans to begin production of slabs in San Luis Potosi, Mexico, as I mentioned, in the first quarter of '25, followed by the commissioning of the Roanoke mill mid-‘25, and those are both on schedule. In '25, we plan to begin production with a mix heavily weighted to industrial and construction product sectors, as we qualify our can sheet and automotive products. We believe volumes for the second half of 2025 will be at 50% of capacity, growing to 75% in 2026. In the first 24 months, we will continue to transition the product mix to more can sheet and automotive, targeting 45% can sheet and 30%-35% automotive probably in 2027. We have some key can and auto customers that are keen on helping us achieve the highest quality in the shortest time possible, and I know our team is up to it. The total project cost, including the recycled slab centers, is $2.7 billion, and we are confident in the budget. Virtually all equipment and construction contracts are complete. We also expect to add about $650 million to $700 million of through-cycle annual EBITDA plus an additional $40 million to $50 million for the Omni recycling platform, and we are confident in our operating cost assumptions. Some of you have asked us to quantify savings in areas we've outlined in the past to help differentiate our project from the rest of the industry. The most significant savings are in four key areas: labor, recycled content, yield, and logistics. Labor makes up about 35% of the differential; we will have a reduced workforce. We anticipate around 750 people versus over 1,200 or more for a competitive plant today. This comes from an optimized plant layout and material flow. We also have a central automated storage system, eliminating significant material handling and workforce numbers. We drive productivity through our culture and performance-based incentives. We will not have the high legacy costs that some existing competitors currently maintain. The second differential is recycled content, which accounts for about 25% of the differential. We believe we can achieve that through leveraging the OmniSource platform. Again, this is the largest non-ferrous recycler in North America today. We already have a secondary aluminum operation that we can also lean on. The satellite facilities will help being close to UBC-rich areas. We believe the innovative segregation technologies we've developed in-house will also allow us to increase the recycled content compared to our competitors. The third area is yield. We are being a little conservative here, estimating about 20% of the differential. Firstly, we will have a brand-new state-of-the-art facility, which will help. The sculpting technology is innovative and measures the slab's profile and quality to ensure we only take off what is absolutely needed. We will also be utilizing supersized coils to decrease yield loss. We are comfortable with substantial improvements in yield. Finally, logistics represent about 10% of the differential. Again, the slab satellite lab centers are located next to or within UBC-rich areas, allowing us to melt, cast, and ship solid slabs instead of less dense UBC bales, presenting a considerable freight advantage. We're excited, and I think that excitement is palpable within our company as our younger generations want to emulate our steel history and revolutionize the North American aluminum market. More generally, we're impassioned by our current and future growth plans as they will continue to drive the high return growth momentum we've consistently demonstrated over the years. A disciplined, intentional organic and acquisition strategy focused on differentiated value-added supply chain solutions is providing sustainable cash generation. In the near-term, the continued ramp-up of four new coating lines will be closely followed by our aluminum strategy significantly increasing that through-cycle cash flow generation. I am excited looking forward. I believe the market dynamics are in place to support long-term demand growth across all our operating platforms. As Theresa mentioned, North America will benefit from continued onshoring of manufacturing businesses, and the U.S. will benefit from the allocation of public funds from the infrastructure program, Inflation Act, and other public programs. Steel Dynamics is well-positioned to benefit from those initiatives through increased steel joist and deck demand, flat and long product steel demand, and the associated higher demand for recycled scrap and aluminum. Furthermore, it should not be understated, we are blessed with the best-in-class carbon footprint. Our integrated peers, both domestic and global, will be spending substantial CapEx to improve their carbon footprint. Many will include hydrogen-based DRI but will incur additional operating costs of approximately $200 per ton. This will materially steepen the global cost curve and will support higher product pricing in the future. Steel Dynamics, being at the bottom of the cost curve, will effectively expand our long-term metal spread throughout the cycle. In closing, our teams, as I've always said, are our foundation. I thank each of them for their passion and dedication. We are committed to them and remind those listening today that safety for yourselves, your families, and each other is the 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. We aim to mitigate volatility and improve 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 all of us today and in the years ahead. That being said, Matt, I would love to listen to the questions.

Your first question is coming from Carlos De Alba from Morgan Stanley.

Just wanted to ask you, Mark, can you remind us what is the recycled content that you expect to have in the aluminum project and how that may evolve over time?

The recycled content in our aluminum project will improve over time, depending on the product. Our goal for UBC is around 90% to 95% for the raw material, while for can sheet, we aim for a similar range, with a specific target of 95%. I believe this is achievable due to the segregation technologies we've developed to separate the 5,000 series from other products. However, for automotive, we expect a lower percentage, targeting around 70%.

So overall, it's probably going to be something closer to 80%, 85%?

I've not done the math, but intuitively, that sounds right.

Your next question is coming from Martin Englert from Seaport Research Partners.

For low copper shredded scrap, can you provide an update on the processing capacity within the internal network and any ongoing growth initiatives there and where you think that capability might be entering next year?

I think the question was about the low copper scrap. Yes, we're continuing to expand that to all our shredding operations. As far as the absolute volume, I would just say we are making investments in technologies to segregate the scrap and get the copper residuals out, which requires quite a bit of know-how in the melt shop to maximize utilization. So we've been expanding that growth down to our Mississippi mill and also into Sinton. Right now, we have a very healthy mix at our Columbus flat roll or Butler flat roll mill, which meets our requirements. The investments that Omni is making will take that product even further down into the South where we can get better utilization at the other flat rolled mills. We are very excited about the opportunity and about how to deploy it once it gets to the mills. About half of the challenge is getting it usefully into your mix in the mills. We are making great progress on that as well.

Are you putting the technology in at the shredding facilities or are you co-locating it at the mills?

To this point, it's at the shredding facilities. And it is a series of equipment to pull the value streams out along the way. So not only does it reduce the copper in the actual scrap shred for the mills, but it also allows us to achieve better recoveries in the other elements coming out of the scrap stream, such as Zorba and Twitch. So placing those facilities is best practice for us, and right now that is our focus.

And no current estimates as to how much of your capability is for processing that today?

I can't provide the exact number, but we're confident that we will be able to create a volume that matches our productivity at our sheet mills.

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

The first one is on Sinton. I think back in April, you mentioned that you had that maintenance and that the transformer issue kind of was about to be solved. But now it seems this issue lasted longer, as you only mentioned that you got full capability back last week. So if you can explain a little bit of what happened and why it took longer essentially? And also, was Sinton EBITDA positive in Q2? And do you expect a significant step up in profitability into Q3? Or is that going to be a much more gradual process, given the market conditions?

On the outage front out in Sinton, the work we had to do took place in the high-voltage switchyard. We bring in transmission voltage in Texas, and we're the only facility in the state of Texas that brings in 345,000 volts. In the early April outages, we put down the concrete necessary to support the equipment and made bus modifications. As the equipment arrived, there was a protocol of testing it, pressurizing it, and safely getting it to where we were ready to turn it on. During that process, we had to have the high voltage shut off. As we got the equipment fully on-site, installed, and turned on, there was a series of outages associated with that. We did have a slight delay with the hurricane situation in South Texas, and out of prudence, we decided to make sure we weren't messing with our high-voltage system while experiencing hurricane winds. We're in a much better position now, and we're very comfortable that we've addressed the root cause. We've installed new safety gear necessary to operate in the electrical world, and that's about as deep as I can go into it myself; I'm a mechanical guy. But we're confident that we are now well-positioned to fully utilize the power in the furnace, and our practice teams are up to speed. We see this as a pivotal step in achieving even more productivity out of the plant.

And if I could add and perhaps expand a bit. We took a little bit of a dip in our report last night regarding our performance at Sinton. But I think it’s important to recognize that we're developing next-generation technology there. It is phenomenal technology, and it’s what the world will be using going forward. Important items such as the product qualities we want to achieve, the improved surface quality, and the tougher, higher-strength qualities produced through the mechanical rolling. The productivity and design capability from a productivity standpoint is proven; we can produce over 5,000 tons a shift there. The technology is absolutely in place; we just need to increase utilization at that facility.

So I guess Sinton was not EBITDA positive in Q2. And that means there could be a significant step-up in profitability in Q3?

Tristan, you're correct. So for the second quarter, we were basically breakeven from an EBITDA perspective. Therefore, there are very high expectations for the second half of the year as it relates to Sinton.

Could you provide an update on the supply outlook as you increase volume from Sinton? U.S. HRC prices have dropped 40% from their peak, and spot margins haven't been this low for quite some time. What leads you to believe that the market can handle a higher volume from Sinton? Have you thought about further reducing production capacity at this point? Finally, have you been able to gain market share during these challenging circumstances?

We're very confident that the products we offer out of Sinton, as Mark mentioned, we had to introduce new technology to respond to the customer base in the region. We're selling quite a bit of tons into Mexico. These tons often feature heavier, higher-strength steels in greater demand. We’ve been welcomed across different market segments with the capabilities we've brought to the table in that region. We see the market being receptive to having a regional supplier. As you know, import dynamics in that area are notably different. There's heightened activity regarding imports compared to the rest of the country. So having a local supply chain of high-value products is essential right now for customers. When I refer to regional, that includes Mexico, where we are located just a few hours away by truck from Monterrey. We continue to see good responses and results down there. We are being very judicious with our time, knowing that we will develop new product offerings in the future. But at this point, we have very good offerings, and with our new value lines, both painted and galvanized, we're able to penetrate further into markets that lacked local providers previously. We remain bullish on what the capability in the market is to absorb high-value tons from a regional source.

To be honest, we can sell every ton we produce in Sinton without any market restrictions on shipment numbers. Additionally, we need to consider the incredible growth in demand expected in Mexico over the next few years. The growth in Mexico is phenomenal, and experiencing it firsthand is important. The market will continue to expand as we anticipated back in 2018-2019 when we first launched the project.

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

Wanted to just follow up on Sinton. Trying to understand why it's still at 75% guided in your release into the second half and not full out? Is there an opportunity to boost exports given that Lazarus Carnis has been down for about 1 to 1.5 months? Or is there any issue with the trade protections against Mexico? Does that change the dynamic?

We don't see the trade dynamics changing with Mexico in the short term. There is of course an effort to address the import surge, and we’ve seen recent activity regarding Section 232. We anticipate that the products we're moving to Mexico will continue to flow. There’s a shortage in the Mexican market stemming from outages elsewhere, and we will continue to leverage opportunities as they arise. As we consider total capacity, we recognize that, like most steel plants, it's not simply a matter of turning on a light switch. In the context of the second half, we expect to achieve those utilization rates.

Your next question is coming from Katja Jancic from BMO.

Going back to the aluminum rolling mill for a moment, I believe you mentioned that initially, the product mix will be more focused on industrial products. Could you explain if there's a difference in margins between industrial products, can sheet, and automotive markets?

Yes. The thinner margins generally tend to be in can sheet, particularly because of the volume associated with that product. The industrial products, especially if we process them through our paint lines, will be as profitable as any of the outputs.

Your next question is coming from Andrew Keches from Barclays.

A question for Theresa. Look, you've refinanced the 2024 notes or maybe even some of the '25. You generally just seem to be in a pretty favorable balance sheet position right now, that you've been upgraded by two agencies in the past year. You got another positive, you drove a lot of the aluminum spending, leverage is still pretty low, and you'll get the cash flow benefit from that probably by the end of '25 or '26, it sounds like. Taking a step back, can you update us on the direction of the balance sheet from here? Do you see the capacity to carry more leverage knowing how leverage has been relatively conservative at low pricing points? Or do you want to preserve some optionality for future opportunities? I guess that's a secondary question on what the pipeline might look like for you.

Yes, the balance sheet does have extra capacity for leverage. As you know, ahead of large projects, specifically like Sinton at just under $2 billion and now the aluminum investments at $2.7 billion, we prefer to be somewhat conservative with the balance sheet and build cash in advance of those investments to ensure that we still have optionality for growth if there’s a downturn. We believe that having optionality tends to yield better value and returns in a weaker demand environment. Thus, there is room on the balance sheet. That’s why we've been able to remain consistent and grow shareholder distributions during these high-growth periods, which is very important to us and beneficial to our shareholders. You will likely see us continue, and you will see us continue with our strong shareholder distributions. There are other opportunities for growth. The teams are discussing some organic opportunities, though they are not nearly at the size or scope of aluminum at Sinton, but they are absolutely beneficial, differentiated, high return, etc. Additionally, we believe there will be some optionality in transactions as well. We're very particular and disciplined regarding acquisitions, ensuring that there is appropriate valuation and return for Steel Dynamics. So I would say that we are looking for more of the same. However, we understand that the balance sheet is there to utilize.

Your next question is coming from Bill Peterson from JPMorgan.

When do you expect to lock in long-term contracts for the rolling mill, perhaps across the markets, as well as can you update us on your latest thoughts on the qualification timeline for packaging and automotive, those markets? How long will it take to qualify in those markets?

As we mentioned earlier, the initial material for qualification of can sheet and auto will start in '25. As you can recognize, the consumer base is not necessarily going to dedicate long, long contracts at that moment in time. But by the end of '26, we would expect to secure longer-term contracts, which in those markets span three to four years.

To add to that, we have a comprehensive demand draw and plan in place for 2025 and 2026, with numerous customers who have already indicated volumes they would allocate to us for all of the industrial, automotive, and can sheet. So we have robust commercial dialogues ongoing and feel confident in our ability to market those materials in the interim.

Your next question is coming from Alex Hacking from Citi Investment Research.

Just a clarification on the aluminum mill. When you talk about 50% utilization in '25 and 75% in '26, is that the average or is that the exit rate?

No. For 2026, Alex, that's not the exit rate. That's for the full year. The exit rate would be close to full capacity in 2026.

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

Concerned with the total steel market, last year, indirect steel imports rose another 3 million tons. In April and May, total steel imports, including slabs, were at a 30% share. I thought with all the new electric furnace steel capacity coming online, domestic shipments would rise and imports would fall. Do you think there's a customer preference for blast furnace metal? Or do you think domestic pricing, in hindsight, was just too aggressive, too high? It amazes me when the customers want the foreign steel because the delivery window isn't precise, and they have to carry much more inventory and steel price risk, etc.

I think, John, as we examine the imports, overall they are up approximately 10% year-to-date, and licenses are mitigating this somewhat. The propensity for imports is mostly in coated products. Those were up by about 60% year-to-date. And obviously, the spread in hot band, the coated spread is still above $200 or thereabouts, and our international competitors have taken advantage of that to some extent.

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

I just want to see if you can comment on the pricing for the backlog in the fabrication business. If I heard correctly, the backlog extends into the fourth quarter. Any insight you can offer on the pricing for that material?

Carlos, we can't provide specifics on that. From a historical basis, pricing is very strong on a go-forward basis, and there has been stabilization specifically concerning joist products and decking products as well. That’s the extent of what we can share.

Your next question is coming from Chris LaFemina from Jefferies.

Many of my questions have been addressed, but I just had one regarding cash flow in the second quarter, particularly concerning the working capital build. How should we consider the reversal of that through the second half of the year? How much of that working capital build originates from the aluminum mill and ramp-up? Will some of that persist into 2025 and 2026?

None of it relates to the aluminum mill at this stage, as we’re still constructing it and, regarding the San Luis Potosi slab center, they are just starting to build some scrap reserves in anticipation of slab production in the first quarter of 2025. In terms of the build, there was a structural increase in inventories linked to the four value-added lines as we were anticipating ramping them up. Therefore, while we expect to see continued increases as Sinton ramps up through the second half of the year, we can also expect a reduction of inventory across long product steel mills. I would anticipate working capital to not significantly draw in the second half of the year; it could be neutral or even provide a funding source. The foremost factor affecting cash flow this quarter has been our estimated tax payments.

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

I was also inquiring about cash flow. If we consider the remaining $1.2 billion in CapEx in the second half, the $400 million debt pay down, I'm trying to assess whether you wish to keep the buyback steady as you have over the past several quarters, or if you might change your capital allocation policy given these substantial cash uses.

We are very comfortable with our cash flow generation ability at this point in time, given what we can ascertain. Therefore, there is no expectation of changing our capital allocation policy for the remainder of the year.

Your next question is coming from Alex Hacking from Citi Investment Research.

I’m curious about your perspective. Are you concerned about some rhetoric surrounding Mexico and the steel trade? The U.S. is a net exporter of flat steel to Mexico, right? Sinton is targeting Mexico for off-take. Are you worried that recent rhetoric could lead to more tariffs or retaliatory tariffs? Is that a potential risk you're considering? How do you perceive that?

From my perspective, there’s certainly some noise and perhaps short-term aggravations back and forth. However, in the long term, the steel demand growth within Mexico is going to continue to be significant. They still require our products; particularly, they need our coated and downstream products, a bit more than hot band. They will continue to be short in terms of supply. In the big picture, I don’t foresee a substantial problem now.

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

Again, thank you, everyone. I just want to close by saying that SDI is an incredible company doing incredible things. We couldn't achieve this without our inspirational teams and their families, nor without the support of our loyal customers. We will continue to work with you to create innovative value-creating opportunities for you, both for current needs and those you may not even realize you need in the future. We also require support from our service providers, who are integral to everything we do. I want to express gratitude to our shareholders for placing their faith in us. We treat your investment as our own, and we will continue to grow our company wisely. Thank you. Have a great day. Stay safe.

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