Steel Dynamics Inc Q3 FY2024 Earnings Call

Good day, and welcome to the Steel Dynamics Third Quarter 2024 Earnings Conference Call. Please be advised that this call is being recorded today, October 17, 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 would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Thank you, Kelly. Good morning, and welcome to Steel Dynamics' Third 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 and should actual results turn out differently. Such statements involve risks and uncertainties related to integrating or starting up new assets, the aluminum industry, the use of estimates and assumptions in connection with our anticipated project returns in our steel, metals recycling and fabrication businesses as well as to general business and economic conditions. Examples of these are described in the related press release as well as in our annually filed SEC Form 10-K under the headings Forward-looking Statements and Risk Factors, found on the Internet at www.sec.gov, and if applicable, in any later SEC Form 10-Q. You will also find any referenced non-GAAP financial measures reconciled to the most directly compared GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Third Quarter 2024 Results.

Thank you, David. Good morning, everyone. Thank you for joining our third quarter '24 earnings call. As you have read and seemingly many have concluded, our teams executed well throughout the quarter, achieving another solid financial and operational performance. Most gratifying to me, in particular, was achieving another great quarter for safety. The ramp-ups of our four new value-added flat-rolled steel coating lines have been an unqualified success, with the expectation of full earnings benefit in 2025. These lines represent an additional 1.1 million tons of higher-margin product diversification for us. In Texas, despite a couple of challenges early in the quarter, the Sinton team gained considerable momentum, running at a 72% utilization rate of scheduled run time in September. We had extended periods in excess of 90% achieved during that quarter, which I believe proves the mill's ultimate capability. Steel shipments were 3.2 million tonnes, third quarter revenues were $4.3 billion. Adjusted EBITDA was $557 million and cash flow from operations of $760 million. As I stated, we had a great quarter in terms of safety. Historically, the summer months can be a challenging period, but our teams reversed that trend this year with an excellent performance. Both our total recordable incident rate and lost time rates were the lowest in our history. Our employee dedication to our safety program is extraordinary. Our core safety teams visited 30 facilities in the third quarter alone, which is a clear testament to their commitment to keep each other safe. We continue to build a world-class safety culture and the positive results have been clearly demonstrated. 84% of our locations in the third quarter did not have a recordable injury. That's 104 locations out of our 124, and 94% of them did not have a lost time incident. I'm continually inspired by our team members' commitment to one another. They truly consider themselves family and challenge the status quo every day to do better in every way. That said, there's still a lot of work to do as we strive toward a zero-incident environment. But with that, I will pause for Theresa first and then Barry to add color for the quarter.

Thank you, Mark. Good morning, everyone. We really do appreciate you taking the time to be on the call with us this morning. I want to add my thanks to our teams for a really solid performance this quarter. As Mark suggested, our third quarter 2024 net income was $318 million or $2.05 per diluted share with adjusted EBITDA of $557 million. Third quarter 2024 revenue of $4.3 billion was below sequential second quarter results due to lower realized flat-rolled steel pricing tied to lagging contractual volume. Our third quarter operating income of $395 million was 29% lower than sequential second quarter results driven by steel metal spread contraction as average realized pricing declined more than scrap raw material costs during the quarter. Our steel operations generated operating income of $305 million in the third quarter, lower than sequential results due to average realized pricing declining by $79 to $1,059 per ton, while total shipments were steady as increased flat-rolled volume offset lower structural and SBQ volume. In the third quarter, hot-rolled shipments were 942,000 tons, cold-rolled shipments were 118,000 tons and coated shipments were 1,335,000 tons. For the metals recycling operations, operating income was $12 million, lower than sequential second quarter results due to lower realized pricing and volume. We also had an unrealized noncash copper hedging loss of $10 million in September. We're the largest North American metals recycler processing ferrous scrap and nonferrous metals like aluminum, copper, and others, and we're growing in support of our increased steel and planned aluminum production investments through new and expanded relationships and through innovative new separation technologies. I’m proud of the team; they're also effectively reducing operating costs. Our steel fabrication team achieved strong operating income of $166 million in the third quarter, lower than second quarter results as a 5% decrease in realized pricing offset steady shipments. Order activity in the third quarter was the strongest we've seen this year, supporting our Joist Index backlog extending through the first quarter of 2025. As interest rates decline and public funding begins to be distributed post-election and into 2025, we expect to see increased fixed asset investment and corresponding demand drivers for steel and steel fabrication products next year. Regarding our aluminum investments, as we construct the aluminum facilities, non-capitalizable expenses are required to flow through SG&A until startup. As a result, our SG&A will be higher until we start operations in 2025. You have visibility to this amount provided in our supplemental data schedule for the third quarter, which was $24 million. We expect these aluminum investments to be EBITDA positive in the second half of 2025 and plan to operate the rolling mill at approximately 75% of its capacity in 2026. Mark will provide more details related to our ramp and product mix expectations later, as well as define our differentiated cost expectations. The construction of the rolling mill and the San Luis Potosi recycled slab center is going extremely well. Approximately $1.9 billion has already been invested through September of 2024, with expectations of funding between $350 million to $400 million in the fourth quarter and the remainder then to be spent in the first half of 2025. Our cash generation continues to be strong based on our differentiated circular business model and highly variable cost structure. During the third quarter of 2024, we generated cash from operations of $760 million. We ended the quarter with strong liquidity of $3.1 billion, comprised of cash and short-term investments of $1.9 billion and our fully available unsecured revolver of $1.2 billion. For the fourth quarter of '24, we believe capital investments will be in the range of $500 million to $550 million. Preliminarily, we believe 2025 capital investments will be in the range of $700 million to $800 million. We repurchased $970 million of our common stock year-to-date 2024, representing 4.5% of our outstanding shares, and as of September 30, we have $486 million remaining available for share repurchases. Our capital allocation strategy prioritizes high-return strategic growth with shareholder distributions comprised of a base dividend profile that's complemented with a variable share repurchase program while we remain dedicated to preserving our investment-grade credit designation. Our track record has proven achieving a 5-year after-tax return on invested capital of 24% during a period of transformational growth and strong shareholder returns. Our free cash flow profile has fundamentally changed over the last 5 years from an annual average of $540 million to $2.9 billion, excluding our substantial strategic Sinton and aluminum investments. In July, we successfully issued $600 million of investment-grade notes with a 10-year tenure in anticipation of repaying $400 million of our notes that are due this December. Before I conclude, I want to thank the decarbonization and biocarbon teams. I'm proud of them and excited about the recent announcement concerning our new certified science-based greenhouse gas emissions intensity targets for our steel mills, which are aligned with the 1.5-degree Celsius scenario set forth in the Paris Agreement. In fact, our steel mills are already well ahead of that curve. We recently set a 2050 emissions intensity target, which aligns with the International Energy Agency's net zero by 2050 industry targets, and an interim target for 2030 representing a 15% reduction in our greenhouse gas intensity. These targets were established using the Global Steel Climate Council's steel climate standard, of which we are a founding member. The biocarbon project is also going incredibly well with expectations for a first quarter 2025 start. Sustainability is a significant part of our long-term value creation strategy, and we're dedicated to our people, our communities, and our environment. We're committed to operating our business with the highest integrity. We uniquely have an actionable path toward carbon neutrality that we believe will be considerably less expensive and more manageable than 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. Barry?

Thank you, Theresa. Our steel fabrication operations performed well in the third quarter, achieving historically strong earnings and steady volume in the quarter. Our steel fabrication order backlog remains at a healthy level, extending through the first quarter of 2025. We remain optimistic regarding demand for the steel joist and deck markets over the next several years based on a moderating interest rate environment, continued manufacturing onshoring, and public funding for infrastructure and other fixed asset investment programs. The uplift from this macro environment could be considerable for this platform, as well as our steel operations. Our steel fabrication platform also provides meaningful volume support for our steel operations, allowing us to consistently operate at a higher through-cycle utilization rate while mitigating the financial risk of lower steel prices. The metals recycling team navigated a challenging market environment in the third quarter. There were a number of domestic steel outages, which decreased demand for ferrous scrap, coupled with pricing volatility. Ferrous scrap prices have stabilized, and we believe 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-generation customers. Our Mexican recycling locations competitively support our Columbus and Sinton raw material positions and strategically support increased procurement of aluminum scrap for our future flat-rolled aluminum operations. Our metals recycling team is partnering more closely with both steel and aluminum teams to expand scrap separation capabilities through process and technology solutions. This helps mitigate potential prime ferrous scrap supply issues in the future, providing us with a significant advantage to increase the recycled content in our aluminum flat-rolled products and boost our earnings opportunities. The steel team also had a solid quarter, achieving steady shipments of 3.2 million tons. During the third 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 86%, excluding our Sinton operation. We consistently operate at higher utilization rates due to our value-added steel product diversification, differentiated customer supply chain solutions, and the support of our internal manufacturing business. The higher through-cycle utilization of our steel mills is one of our key competitive advantages, supporting our strong and growing cash generation capability and best-in-class financial metrics. Our realized average flat-rolled steel price declined in the quarter due to contract lags, but prices stabilized and improved in the quarter. Positively, value-added flat-rolled steel pricing spreads remained resilient, supporting our earnings as we are the largest producer of these products in North America and continue to grow. Our activity is solid heading into the fourth quarter with expected normal seasonal trends; in general, our flat-rolled steel mill lead times are at levels we haven't seen over the last six months. Underlying steel demand remains steady, but a surge in steel imports puts pressure on the supply dynamics in certain product areas, specifically for coated flat-rolled steel products. In response, we initiated a trade case and expect a preliminary ruling from the ITC in a few weeks. Our Sinton, Texas, flat-rolled steel mill team successfully completed necessary changes early in the quarter to access 100% of the mill's north capacity. The team experienced some difficulty ramping back up after the outage; however, the reliability of the mill improved dramatically in September, and the company believes Sinton's product utilization rate will increase to around 75% for the fourth quarter of 2024. Also, the additional two new value-added coating lines were successfully commissioned and have commenced operations, improving the mill's value-add product mix and through-cycle earning capability. Regarding the steel mill market environment, North American automotive production estimates for 2024 have recently been revised to stable production over the next several years. Automotive dealer inventories also continue to remain below historical norms. Nonresidential construction has remained stable with slowdowns across some industries; however, we believe moderating interest rates will unlock pent-up project work and create new opportunities in 2025. Additionally, onshoring and infrastructure spending should provide further support to fixed asset investment and related construction-oriented products. As for the energy market, the solar industry continues to grow and is a meaningful part of both our Flat Rolled Products and structural sections. Oil and gas also remain steady. Looking forward, we are optimistic regarding steel demand and pricing dynamics as we end 2024 and prepare to enter 2025.

Super. Thanks Theresa. Thank you, Barry. It's evident that our performance-driven employee-centric culture combined with a proven highly diversified value-added business model drives superior through-cycle financial metrics. Our consistently strong operating and financial performance continue to support our cash generation and growth investment strategies, allowing a balanced cash allocation strategy that has consistently delivered best-in-class shareholder returns. For instance, our investment strategy achieved a three-year return on invested capital of 32% from '21 through '23 compared to only 12% per the S&P 500. Our disciplined high-return investment approach continues. The four value-added flat-rolled steel coating lines are increasing volume and performing very well from a quality perspective. Sinton continues to improve its operational reliability, with expectations for strong production capability in 2025. Our recent aluminum growth strategy is especially compelling. The market environment in aluminum is similar to what the steel industry faced when we started Steel Dynamics over 30 years ago. It has older assets, heavy legacy costs, many facilities are inefficient and high-cost, and the industry in general has struggled to earn the cost of capital. As such, there has been little investment in facilities and new technologies in recent years. However, unlike our steel entry, the one huge positive is that there is a significant deficit in aluminum in North America, and that deficit is expected to grow considerably. There's a clear business alignment that leverages our core competencies and construction and operational know-how. One only has to look at the drone video on our website to see the extraordinary progress our team has made in constructing the new mills. It will leverage our performance-driven culture to drive higher efficiency and lower-cost operations. Furthermore, we are the largest North American aluminum scrap recycler and are developing in-house technologies to separate the 5,000 and 6,000 series alloys. This is a very cost-effective, high-return growth opportunity for us. The construction of the expansive rolling mill in Columbus, Mississippi is proceeding at an extraordinary pace. The aluminum industry is recognizing that we truly will be a force to be reckoned with. We are putting commercial arrangements in place to match our ramp-up needs in 2025. Responses from existing and new customers remain incredibly positive for a new supply. We are developing an on-site industrial park to locate aluminum processing and consuming facilities, and these arrangements that are currently being negotiated would create approximately 100,000 tons of annual processing capability per year. As our project becomes a visible reality and our reputation permeates the aluminum industry, aluminum professionals have been knocking at our door, and we have been building an exceptional team with in-depth knowledge of aluminum operations, commercial markets, process technology, and customer service. For those who may have not heard in our last call, the scope of the facility is a state-of-the-art 650,000 metric ton per year aluminum flat rolled facility located in Columbus, Mississippi. It will have an optimized mix of 300,000 tons of can sheet, 230,000 tons of automotive, and 130,000 tons of industrial and construction products when fully operational. The Columbus site has melt, cache, and lab capacity of 600,000 metric tons and will be supported by two satellite recycled aluminum slab casting centers located in UBC scrap-rich regions. We expanded the project scope to include additional scrap processing and segregation technologies to maximize aluminum recycled content. These in-house developed technologies are currently operating successfully, separating the 5000 and 6000 series alloys on a commercial basis daily. The team plans to begin production of slabs in San Luis Potosi, Mexico, in the first quarter of 2025, with commissions for the Columbus cash outs in the first quarter and downstream lines in the second quarter, expecting commercial shipments in mid-2025 and staying on schedule. In 2025, we plan to begin production with a product mix weighted towards industrial and construction products while we qualify our can sheet in 2025 and automotive products into 2026. We anticipate production to grow to 50% of our annual rate by the end of 2025 with expectations of 75% capacity in 2026. The project is expected to add $650 million to $700 million of through-cycle annual EBITDA, and we should generate approximately $40 million to $50 million through the resegment platform in addition to that. Although this computes to a higher EBITDA per ton than the industry has experienced previously, we are confident in that projection. The most significant savings are in four key areas: labor, recycled content, yield, and logistics. Labor should have a reduced workforce of approximately 700 to 750 people compared to potentially 1,200 or more in a conventional facility of this size, benefiting from improved plant layout and material flow. We will have a centralized automated storage system, eliminating the handling from slab to truck, while our proven performance-based incentive-driven culture drives high productivity, efficiency, and low costs. We will carry no legacy costs. For those who dare to consider the impact, I would refer you to what our teams have achieved throughout our steel operations over the years. In terms of recycled content, we will leverage our metals recycling platform to drive higher recycled content. We have the largest nonferrous recycling operations, as stated. Our secondary aluminum facility has operated for many years and will be additive. We are locating satellite facilities close to scrap-rich areas, both to the west and in Mexico. Our sorting technologies will support improved yield in this new facility; it will be equipped with state-of-the-art technology that will minimize material removal. We are actually processing through the facility with supersized coils, leading to fewer heads, tails, and line stops, all contributing to lower yield losses. In logistics, locating slab centers close to rich areas will offer significant benefits as well. The excitement within our company and particularly at the ADI sites continues to grow as our teams recognize their ability to help revolutionize the U.S. aluminum industry, just as they did in steel. We are impassioned by our current and future growth plans, which will drive the high-return growth momentum we have consistently demonstrated over the years. The earnings growth of these new projects is compelling. The capital spending for Sinton, the four value-added lines, and aluminum dynamics is approximately 85% complete, with an estimated future through-cycle annual EBITDA contribution of over $1.4 billion. As a prominent institutional portfolio manager recently pointed out to us, Steel Dynamics has evolved into an incredibly resilient cash-generating business, driven by the best teams in the world. We invested billions of dollars in organic strategic growth over the past five years, resulting in an impressive 24% return on invested capital versus the S&P 500 at just 12%. We've increased our cash dividend by over 90% and have repurchased over 30% of our outstanding shares while maintaining best-in-class investment-grade credit metrics. This has become a textbook lesson in capital allocation, and I am genuinely excited as investors recognize our power and consistency in through-cycle cash generation, combined with our consistent high-return capital allocation strategy. We believe the steel industry has undergone a paradigm shift in recent years, which will further support our earnings profile. The current climate reflects a sense of mercantilism that will ensure fair competition. We are witnessing COVID-driven supply chain dislocations that have accelerated the reshoring of manufacturing. Decarbonization should materially steepen the global cost curve, providing SDI a significant competitive advantage to gain market share and improve metal spreads, given our mills have some of the lowest carbon footprints in the world. AI and cloud computing will also enhance nonresidential construction through data center development. Finally, growing fixed asset investments driven by the Inflation Reduction Act and other public funding will amplify demand as interest rates moderate. We firmly believe that demand will be robust as we move into and through 2025. In closing, we have been fortunate, and our people are the foundation of our success. I thank each of them for their dedication and passion. Your safety and the safety of your families and colleagues is our highest priority. Our culture and business model continue to differentiate our performance, leading to best-in-class financial metrics. We are an integrated metals business, providing enhanced lower-carbon supply chain solutions to our customers, while mitigating volatility in our cash flow generation and enhancing shareholder returns and value for all participants. We eagerly anticipate creating new opportunities for everyone in the years to come. With that said, we will open up the call to questions.

Your first question is from Martin Englert with Seaport Research Partners.

You briefly touched on this in the prepared remarks, but for the greenfield aluminum project, are there any other key personnel additions that are still needed? And could you just more broadly touch on the general labor market and how you found the process of filling the needs there?

Certainly, I think there are no key folks or talent needed from a skill set or experience perspective. We are pretty well built out, but we will always talk to anyone who wants to join us. The management team is solid, blending seasoned aluminum professionals with our proven Steel Dynamics leaders. Finding talented individuals is not easy nowadays, but compared to the challenges we experienced in Sinton, the location is much better. Fortunately, one of our large flat-rolled steel facilities is right across the road, allowing for a transfer of people at all levels without dislocating their families.

Excellent. If I could, one last one in steel fabrication with more recent sales that you've added to the backlog over the past month or two, are you seeing any pockets of pricing strength relative to where you had been?

Martin, I would suggest that heading into the fourth quarter, we're going to see the normal seasonality tied to construction. As we look at 2025, we definitely think there are opportunities for not just price support but price appreciation, given interest rate changes and additional demand from public funding. We're feeling really good about the steady aspects of what we've seen in the last six to nine months. We'll get through the fourth quarter seasonality and then move toward what we anticipate will be a robust 2025.

Your next question is coming from Katja Jancic with BMO Capital Markets.

Right now, 80% of your business is contract-based. Does that change with further ramp-up at Sinton? Or should we continue to see about 80% contractual?

Katja, this is Barry Schneider. Contractual relationships are a big part of our value-added supply chain solutions. As we've increased our paint and coating lines, that concentration remains around the 70% to 80% range. We anticipated this growth with our new lines, so I see us staying in this kind of market, perhaps a little less in the future once we establish our customer base and work out the supply chains in each region.

Just to clarify, that 80% contractual is on the flat-rolled side of our business. We have a diverse product mix, being a very diversified provider, which includes more spot day-to-day activity.

Okay. Maybe just one quick one. Barry, I think you mentioned that Sinton had a bit of a challenge starting up after maintenance, if I’m not mistaken. What was the issue there?

Whenever we work with high-voltage systems, there is always a normal safety check as you ramp up. The outage was about four days. It was just a little slow to get back to regular running rates, which is not unusual in our industry. It was worth noting because our team did significant work resolving some high-power issues from the beginning. All in all, I consider it a good outage—the team performed well; though it was more complicated than just flipping a switch.

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

First one is just on the increase in spreads in metal spreads for your long portfolio. Where did you see more strength? And could you discuss the differentiated outlook for your structural products that drove that strength?

The scrap that we're able to move to our mills from the metals recycling platform is really beneficial. We find the best value, and the timeliness of our supply chain allows us to optimize that. Our structural and heavy section mill in Columbia City is not just a heavy section mill; it is also the largest railroad producer in the country. This balance ensures that we can move our products effectively as market conditions change, maintaining strong relationships with our customers. Long products remain resilient, and we are excited about opportunities arising, particularly due to investments in reshoring.

That's helpful. And maybe a follow-up just on the carbonized trade case you mentioned and the potential impact of that. I understand Vietnam is part of the investigation, but there has been a push to include certain countries like Canada and also Mexico. Can you explain the rationale behind including those countries in the investigation?

Yes, sir. There were actually ten countries involved in the investigation. Each of these countries demonstrated significant increases in volumes that surged through their markets into the U.S. The addition of Canada and Mexico was necessary due to the volume of tons coming through those countries. The USMCA is an agreement that facilitates fair business operations. Based on that agreement, we engaged the ITC for antidumping and countervailing duties cases—as the numbers are staggering. Many of these tons are not melted and reported within those countries, but they are flowing from other countries into our markets. This mechanism is lengthy and costly, but essential to ensure that competitive markets in the U.S. remain fair. We are monitoring this process closely; we do not ask for handouts or protections but simply seek a level playing field.

Next question is coming from Carlos Diaba with Morgan Stanley.

Continuing with the antidumping case, the spread between galvanized steel and cold-rolled coil has been depressed and probably not economical. If the antidumping investigation doesn't go your way, or even if you don't see a big improvement if it does, what dynamics as a leader in this sector are you prepared to implement to enhance those spreads?

We anticipate significant success with these trade cases, especially against the countries that have shown the most egregious behavior. We routinely evaluate how we move our flat-rolled products through our process lines, making decisions based on where the margins lie. We've managed through pressures effectively over the last twelve months, which is evident in our earnings results; our diverse product mix allows us to navigate these challenges efficiently.

If I may squeeze another one...

If I could just add, you’ve heard us say before that we don’t manage based on expectations of trade or policy changes. We take control of our destiny. Our teams do a phenomenal job of further diversifying our product mix. Currently, approximately 65% of our flat-rolled product mix is value-added products, and we've developed innovations and creative solutions in coatings and digital printing that are driving value.

The supply chain differentiation that we maintain across all products is the key for us.

Just if I may squeeze another one on the steel fabrication business. Any further details on pricing? I think Barry mentioned stable pricing from the current levels observed in the third quarter. But any further color there or on volumes, how you expect that to develop going forward?

Yes, Carlos, thanks for the question. We’re consistent in not discussing exact pricing and commercial specifics as it relates to that. Our commercial team, however, is well aware of the nuances of the market. From a volume perspective, we expect regular seasonality in the fourth quarter concerning construction-related businesses, while we anticipate much stronger volumes next year, which should also support pricing.

Your next question is coming from Lawson Winder with Bank of America Merrill Lynch.

Thanks for the update today. Barry, maybe I think this question would be best directed to you. Could you walk us through the path from 72% utilization at Sinton in September to your optimal utilization? What is that optimal fully ramp utilization, and what are the remaining bottlenecks and steps to resolve that? If possible, could you provide timelines on hitting that number?

Yes, Lawson, I'll articulate why we have confidence in the Sinton team. Improving reliability and reducing unplanned downtime is crucial. Our flat-rolled steel mills operate as coupled units, and issues with one can impact the others. We've made significant strides in reducing unplanned downtime and improving equipment reliability. As we control our costs and optimize performance, we see a clear path toward higher utilization. We've witnessed periods nearly at capacity, which reinforces our confidence. We hope to finish the fourth quarter strongly, preparing for 2025 to showcase the facility's potential.

The color is definitely helpful. Following up, Theresa, as Sinton reaches its potential and considering the dividend discussion for February, can we anticipate that the dividend increase might be more substantial than in recent times? How will the aluminum dynamics startup factor into that decision?

That's a tricky question, Lawson. The Board determines the dividend amount, and we aim for a positive dividend profile that usually occurs in the first quarter of the year. I would anticipate the same absent any significant setbacks. We expect substantial EBITDA contributions next year, which changes our earnings profile significantly. We want to observe how Sinton performs in 2025 before providing insight into the dividend magnitude. As for the aluminum assets starting in 2025, we are excited about that. Those investments will be EBITDA positive in the second half of 2025, which we believe will contribute positively by 2026.

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

I wanted to delve deeper into the status of the value-add lines ramp-up, especially concerning the four lines between paint and coated galvanization. What utilization levels are these lines operating at, and what can we expect as they ramp up?

All four of the new lines we added are operating at about 65% to 75%. With trade cases causing pressure on certain coated products, we're ensuring efficient operations on these lines, focusing on product mix for efficiency and good yields. The Terre Haute operations are improving market opportunities and diversifying product mixes, while Sinton's additional lines enhance value-add product options.

The four lines were about a $600 million investment. Historically, the payback for paint and galvanizing lines ranges between 2 to 2.5 years. We should see a significant impact in 2025 as capacity ramps up.

The volume throughput on those lines is a bit restricted right now due to the hot side not being at full capacity. As we increase throughput on the hot side, the volume through those two lines will also increase in tandem.

For modeling purposes, if we consider the $1.3 million plus tons in the quarter of galvanized products that represent about 65% of the new capacity, we have yet to see the remaining one-third flow through. Is that conditional on the imports declining?

That coated number is not just our lines that you are seeing, Timna. The volume benefit is shared among several processing facilities. Thus, I would suggest there’s more volume available potentially benefiting from those lines rather than just a third.

Your next question is coming from Bill Peterson with JPMorgan.

Following up on utilization and profitability, can you provide insight into Sinton's profitability? It was around breakeven in the second quarter. Did it improve in the third quarter? Are the four new coating lines profitable?

From Sinton's perspective, no; it was not EBITDA positive in the third quarter due to additional outage time and maintenance costs. However, we fully expect it will be in the fourth quarter and certainly next year. The value-add lines are integral to the steel mills but haven't significantly impacted earnings yet. As previously mentioned, we expect their contributions to emerge meaningfully in 2025.

On the lower carbon initiatives, particularly regarding the biocarbon project, what remains to be completed before operational commencement? When will you introduce internally produced biocarbon into your steel production flows? Will there be customer commitments required, or do you expect customers will pay a premium for products using biocarbon?

The biocarbon facility is currently under construction and is on schedule for a first quarter 2025 start. It has been successfully tested at the steel mills we'll receive it at once. Although we won't have enough product to meet all carbon needs at our mills, we'll begin using it to ease into our production mix in the first half of next year. While we hope for a premium, it’s part of our decarbonization journey, and its use won’t hinge on specific customer commitments.

We will not require customer approvals for this product. It’s not a binary decision; the type of carbon won't significantly affect how the final steel product performs. The introduction of biocarbon into our mills will depend on its startup success and team responses, supported by successful trials conducted through our pilot facility.

Your next question is coming from Andrew Jones with UBS.

Regarding the market environment, we hear encouraging comments about demand recovery. In a pessimistic scenario—with issues like Big River 2 coming through and potential lack of trade protection—how would you balance your portfolio? Would it influence your production plans, or would you expect to be a low-cost producer that can take share?

Firstly, we're not pessimistic; we're very constructive about 2025's future market. There are numerous drivers supporting our customer base, particularly as lower interest rates should foster nonresidential construction. We're witnessing strong order flows, and while markets are cyclical in our industry, we always focus on a diverse product mix that allows us to adapt to demand variations. That diversity and our internal procurement mechanisms provide flexibility to minimize impacts on cash generation capabilities.

Understood. So you wouldn't foresee major closures of higher-cost lines or reactions to volumes displacing others in your portfolio?

I didn’t hear that clearly.

That's okay; just to clarify, no.

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

Looking out a couple of years, which sectors do you think will see significant investment? This year, U.S. aluminum demand is trending up 5%, while steel has faced apparent demand declines in 5 of the last 6 years. Many companies have built substantial steel capacity. Will aluminum, recycling, or a different area be candidates for significant projects in 2026 or 2027?

We will maintain our focus on the recycling markets overall, exploring regional opportunities to enhance supply chain dynamics. On the steel side, I don't foresee significant investment in a new greenfield site, as we’re not focused on size for growth's sake. We aim to differentiate our value chain with ongoing investments in higher-value products across all segments. Aluminum is new territory; we plan to grow responsibly and focus on our first mill's success, while market demand in aluminum looks to outpace that of steel, thus providing opportunities.

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

Well, super! To our employees and all those still on the call, thank you for what you do. You are an incredible team achieving remarkable feats. We cannot succeed without our loyal customer base, so thank you for your support over the years. We will continue striving to create value for you. Shareholders listening in, thank you for your trust. For those who don’t own us, I can only suggest you should. From SDI and every employee, thank you, and have a wonderful day—stay safe.

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