Earnings Call Transcript
Steel Dynamics Inc (STLD)
Earnings Call Transcript - STLD Q1 2020
Operator, Operator
Good day and welcome to the Steel Dynamics’ First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised this call is being recorded today, April 21, 2020, 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 Tricia Meyers, Investor Relations Manager. Please go ahead.
Tricia Meyers, Investor Relations Manager
Thank you, Michelle. Good morning, everyone, and welcome to Steel Dynamics’ first quarter 2020 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, President and Chief Executive Officer of Steel Dynamics, and Theresa Wagler, Executive Vice President and Chief Financial Officer. The other members of our Senior leadership team are joining us on the call individually as we are following appropriate social distancing guidelines. Some of today’s statements, which speak only as of this date, may be forward-looking and predictive typically preceded by believe, expect, anticipate, or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995, should actual results turn out differently. Such statements involve risks and uncertainties related to our steel, metals recycling, and fabrication businesses as well as the 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 comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports First Quarter 2020 Results. And now, I’m pleased to turn the call over to Mark.
Mark Millett, CEO
Thank you, Tricia. Good morning, everybody. Welcome to our first quarter of 2020 earnings call. We certainly appreciate and value your time during these unprecedented circumstances. Steelmaking is designated as a critical infrastructure industry by the U.S. Department of Homeland Security, deemed essential to the nation’s defense, infrastructure, transportation, and overall economy. As such, all our operations have been operating. Protecting the health and well-being of the teams is our critical priority. We are closely monitoring the COVID-19 situation and have implemented numerous additional practices throughout the Company to protect each of us. I want to thank our more than 8,400 team members for remaining steadfast and passionate. We continue to operate safely with a spirit of excellence. I’m incredibly proud to work alongside each of them during this unparalleled time. We are committed to the health and safety of our people, their families, and our communities, all while supporting our suppliers and meeting the needs of our customers. But before I continue, Theresa, will you please provide insights on the team’s recent incredible performance during the first quarter that should not go unstated despite these present environmental issues along with our strong financial foundation.
Theresa Wagler, CFO
Thank you. Good morning, everyone. Our first quarter 2020 net income was $187 million or $0.88 per diluted share, above our guidance of $0.83 to $0.87 due to stronger than anticipated March flat-rolled steel shipments. First quarter 2020 revenues were $2.6 billion, somewhat lower than prior year’s first quarter sales, but 10% higher than fourth quarter sequential results driven by improved steel pricing and shipment. Our first quarter 2020 operating income was $274 million, $18 million lower than prior year’s first quarter, but notably 50% higher than sequential fourth quarter results due to record steel shipments driven by solid first quarter underlying demand. From a platform perspective, our steel operations’ first quarter shipments increased 7% sequentially to a record 2.8 million tons with increased volumes experienced across the platform. Our average quarterly realized sales price increased $10 per ton to $774 in the first quarter, and average scrap cost increased $24 per ton, profiting steel metal margin compression. The result was first quarter steel operating income of $293 million, 45% higher than the sequential fourth quarter results. For our metals recycling platform, first quarter operating income was $8 million compared to a loss of $5 million sequentially, a result of higher ferrous to non-ferrous selling values and shipment with prime scrap indices rising almost $30 per gross ton during the first quarter. About 65% of our metals recycling ferrous shipment is served by all the steel mills, increasing our scrap quality, our melting efficiency, and reducing our companywide working capital requirements. Our vertically connected operating model benefits both platforms. For our steel fabrication business, first quarter 2020 operating income remains strong at $29 million compared to near record sequential results of $33 million, primarily due to seasonally lower first quarter shipments. We experienced record order inquiry and bookings in the first quarter, and demand has a record backlog. We are still experiencing strong order inquiry and are entering the traditional construction season on good footing. Our cash generation continues to be strong. During the first quarter of 2020, we generated $211 million of cash flow from operations offset by operational working capital growth related to higher steel selling values and the $74 million distribution of our annual companywide profit sharing to our teams. We spent $218 million in fixed asset investments during the first quarter, of which $130 million related to our new Sinton, Texas Flat-rolled Steel Mill investment. To date, we have funded $335 million of the $1.9 billion project. Regarding shareholder distributions, we increased our cash dividends by 4% in the first quarter of this year to $0.25 per common share. This follows increases of over 20% in both 2018 and 2019. The Board also authorized an additional $500 million for stock repurchases in February of this year. We repurchased $170 million of our common stock during the first quarter, and $444 million remains available under the new authorization. In 2016, we invested $1.3 billion in our common stock, representing over 15% of our outstanding shares. These actions reflect the strength of our capital foundation, consistent cash flow capability, and strong liquidity profile, demonstrating our confidence in our sustainable through-cycle strong cash generation. Part of that confidence is based on the high variability of our cost structure within our operating platforms. During market weakness, working capital becomes a funding source; 2015 is a great example where working capital provided over $500 million to cash flow that year. For the coming months, we expect working capital to also be a source of cash flow for us. For the remainder of the year, we currently are planning the capital investments to be roughly $1.2 billion of which the new Sinton, Texas Steel Mill represents $1 billion. This spending is heavily weighted to the second half of 2020, with over $700 million of that $1 billion budgeted for the second half of this year. As we gain more visibility and see the extent of the disruption in 2020 related to the Coronavirus, we could shift some of the 2020 investment into 2021 if we believed it was necessary. Based on current timelines, we estimate capital investments for 2021 to be in the range of $700 million to $750 million, of which Sinton represents $600 million. We entered the Coronavirus crisis in a position of strength with a strong cash position and liquidity profile. Entering 2020, we had over $1.6 billion of cash in short-term investments. At the end of the first quarter, we have almost $1.5 billion, combined with a $1.2 billion undrawn unsecured revolving credit facility. We have available liquidity of over $2.6 billion. One cannot look historically to our financial performance to determine either a trough or a peak in future performance. We have grown significantly, transformed our Columbus Flat-rolled division, further diversified our steel product offerings, and incorporated even more levers to increase our through-cycle financial performance. Since 2015, we have increased our total shipping capacity from 11 million tons to over 13 million tons, while increasing our value-added revenues from just over 55% in 2015 to almost 70% last year. Since 2015, we have transformed Columbus’s through-cycle earnings capability by reducing their operating costs, dramatically increasing their value-added product capabilities, and diversifying our customer base and end market factors. We have expanded our structural and rail and Roanoke Bar steel divisions to include reinforcing bar production capabilities, further diversifying the locations and product offerings in order to sustain higher through-cycle utilization. We have also added new manufacturing businesses to our portfolio that use steel as a raw material, providing additional opportunities to sustain our own steel mills utilization throughout market cycles. Since 2015, we have increased the possible internal volume by over 1.5 million tons through acquisitions and growing our steel fabrication platform. This is an incredibly powerful tool during weak demand environments. In addition, collectively, our primary recent and planned strategic growth investments provide an estimated incremental annual future EBITDA of over $425 million on a through-cycle historical spread basis. This estimate includes our Sinton Steel Mill and third Columbus galvanizing lines, as well as our two operational reinforcing bar expansions. We are simply even more agile today than ever before. We are also dedicated to preserving our investment-grade credit rating. Our capital allocation strategy prioritizes responsible strategic growth with appropriate shareholder distributions, comprised of a base positive dividend profile that is complemented with a variable share repurchase program during periods of excess cash generation. We are squarely positioned for the continuation of sustainable, optimized long-term value creation. And on a personal note, I want to take just a moment. I want to wish my dad a very happy birthday. He has not listened to one of these calls in 25 years and he is listening this morning. I also want to thank our teams truly for their passion and generosity and the care that they are showing for each other’s health and safety. God bless.
Mark Millett, CEO
Well, thank you Theresa. As I stated, safety is and always will be our number one value and priority. Nothing is more important. During the first quarter of this year, our safety performance improved from the previous quarter with a meaningful improvement in the severity of incidents. Our safety performance continues to be significantly better than industry averages. As I said many times before, it is not enough; it will never be enough until we reach our goal of zero. We all need to be continuously aware of our surroundings and our fellow team members. I challenge all of us to be focused both as we think traditionally of safety, but even more so now as it relates to keeping each other in good health. The steel fabrication platform delivered a strong first quarter performance; construction is also deemed an essential business, and as such, almost all the states allow construction projects to remain open. We have had some jobs delayed or postponed, but at this time, it is not widespread or meaningful. This should be expected as in previous market downturns, construction lags the rest of the market by four to six months due to already funded ongoing projects. We experienced the highest number of inquiries and bookings in the first quarter; our fabrication order backlog remains very strong, about 15% higher than at this time last year. Our metals recycling team performed well in the quarter, returning to profitability. During the first quarter, prime scrap appreciated about $25 or $30 per gross ton, primarily due to lower domestic steel production. In April, prime scrap prices were tracked at about $30 and shredded $45 per gross ton. Lower industrial prime scrap flow related to the temporary idling of the automotive sector in April was offset by reduced demand due to lower steel mill utilization, maintaining sufficient prime scrap availability. As the announced staggered automotive plant restarts beginning in late April and throughout May, we expect to see prime scrap levels return to good levels prior to a ramp-up in steel mill utilization and stable scrap prices. In general, the steel teams had a phenomenal performance in the quarter, hitting record volumes in a tough environment. We saw underlying steel demand strength and increased steel values in those flat-rolled and long steel product segments throughout substantially all of the first quarter before the Russia and Saudi Arabia oil price war and the COVID-19 stay-at-home directives. Since mid-March, the landscape has shifted rapidly. A severe decline in energy prices related to oversupply has significantly reduced steel demand from the pipe and tube manufacturers, and the temporary closure of automotive production and the related supply chain closures will meaningfully impact flat-rolled steel demand for this upcoming second quarter. Since mid-March, hot-rolled coil index pricing has declined over $100 to about $485 per ton according to plans. As a result of reduced flat-rolled demand and reduced pricing, a considerable number of higher-cost flat-rolled steel operations have been indefinitely idled. Since the end of 2019, we believe that represents a reduction of between 12 million to 14 million tons of annual flat-rolled sheet steel capacity, approaching about 20% to 30% of total domestic capability. In contrast, the construction sector continues to be steady, which, as mentioned, is a critical steel-consuming sector, representing 40% to 45% of total domestic consumption in normal markets. The order activity from our construction-related customers, in addition to the current strength in our steel fabrication and order backlog, supports this sentiment. We believe that the coming months will be difficult; within these environments, the strength of our people and our differentiated business model becomes even more evident and impactful. As demonstrated historically during times of market inflection, we will likely gain market share based on our uninterrupted low-cost operations, providing the greatest customer optionality, product end-market diversity, value-added marketing measures, and additional internal steel sourcing from our captive manufacturing businesses. To put that in perspective, our steel fabrication platform, including Tex, Holland, and Vulcan, purchased 2.3 million tons of steel in 2019 and only sourced about half that from Steel Dynamics' owned steel mills. This provides additional opportunity for internal purchasing to keep our steel mills running at higher utilization rates, even in a weaker demand environment. The U.S. Administration’s recent guidance for states to begin a staged reopening is positive. As they begin this critical process, improved steel demand will follow, along with some pent-up demand from already low steel inventories. We have provided a summary of our recent growth investments on a slide in our investor deck posted on the website. In the last 12 to 18 months, we have executed several strategic investments that will benefit our through-cycle earnings and cash flow position. We expanded two steel mills with the combined addition of 440,000 tons of steel rebar production capability, providing product diversification and a differentiated supply chain for the customer. Our model provides meaningful customer optionality and flexibility, significant logistics yield, and working capital benefits. This end-market diversification provides high through-cycle utilization for our structural and Roanoke steel divisions. Heartland Steel, an 800,000 ton value-added flat-rolled steel processor that sells primarily cold roll and galvanized products, has been ramping up nicely, providing additional support and operational flexibility for our Butler flat-rolled division. This has increased through-cycle utilization of our steel assets and broadened our value-added product mix. The acquisition of 75% of the United Steel Supply has been another excellent investment. This flat-rolled, galvanized, and pre-painted steel distribution company has provided a meaningful distribution channel to new customers. As a consumer of our internal steel products, they also increase the power of our through-cycle steel utilization. Since our acquisition of the Columbus flat-rolled division, the transformation of its product portfolio through the expansion of its value-added steel capability, diversification of its customer base, and the addition of a paint line has meaningfully increased its through-cycle capability, which will be clearly demonstrated in this downturn. We are now close to completing a $140 million, 400,000 ton value-added fluid galvanizing line, which we expect to begin operating mid-2020. The value-added products increase will decrease Columbus’ hot roll coil exposure and provide a readily available hot bank customer base in preparation for our new Texas Steel Mill. As I mentioned, we continue to be excited about the material growth that our new next generation flat-rolled steel mill will deliver. As Theresa explained, our financial strategy is focused on entering 2020 while providing for the required investment associated with this transformational project. Our team has an incredible depth of experience in the construction, startup, and operation of large steel manufacturing assets. Collectively, we believe they have more experience than any company in the industry, and their performance and momentum have been remarkable. In January, we received the required environmental permitting to allow for full construction efforts, and we currently anticipate mid-2021 startup. That said, as Theresa mentioned, we will be reassessing our timeline throughout the second quarter as we gain more visibility into the impact of COVID-19. Additionally, even though we intentionally did not purchase equipment from China, some of our equipment is being manufactured in other countries where the Coronavirus is also active. We are having weekly conversations with these manufacturers, and we currently do not believe our planned schedule has been meaningfully impacted. The new state-of-the-art three million ton steel mill will include a value-added coating line comprised of a 550,000 ton galvanizing line and a 250,000 ton paint line with Galvalume capability. We will follow the same stringent sustainability model as our other steel-making facilities, with state-of-the-art environmental processes. Our existing steel mills have a fraction of the greenhouse gas emission intensity of the average world’s steel making technology, with a 94-inch coil width, one inch thick, and 100 KSI product capability. The Texas mill will have capabilities beyond existing electric arc furnace flat-rolled steel producers, competing even more effectively with the integrated steel model against foreign competition. As you know, the steel mill is strategically located in Sinton, Texas, near Corpus Christi. We have targeted three regional sales markets for the mill representing over 27 million tons of relevant flat-rolled steel consumption in the Southern and West coast of the United States and Mexico. We also plan to effectively compete with heavy imports in Houston and the West coast. Our customers are excited to have a regional flat-rolled steel supplier. There are several customers in discussions, with one already committed to locate on site with us, and a second is close behind. These two customers alone will represent over 800,000 tons of local steel processing and consumption capability. The Sinton location provides a significant freight benefit to most of our intended customers relative to their current supply chain options. We believe the potential customer savings related to freight alone are a minimum of $20 to $30 per ton, and for some, much higher. This freight advantage, along with much shorter lead times, provides a differentiated supply chain solution, allowing us to not only be the preferred domestic steel supplier in the Southern and Western U.S., but also to effectively compete with imports, which inherently have long lead times and speculative pricing risk. From a raw material perspective, our metals recycling operations already control significant and growing scrap volume in Mexico through scrap management agreements, much of which is prime. As I mentioned in March, we are also planning to acquire a Mexican scrap company as part of our raw material strategy for Sinton. Their primary operations are strategically located near high-volume industrial scrap sources through Central and Northern Mexico. The company currently ships approximately 500,000 gross tons of scrap annually but has an estimated annual processing capability of about two million tons. After closing, we plan to ramp up volume fairly quickly. We are currently waiting for Mexican regulatory approval, as well as other closing requirements that are expected to be finalized in the coming months. We believe our unique operating culture, coupled with our considerable experience in successfully constructing and operating cost-effective and highly profitable EAF steel mills, positions us incredibly well to successfully execute the Sinton project. As I said before, we are not simply adding flat-rolled production capability; we have a differentiated product offering, a significant geographic freight and lead time advantage, and an import alternative to a region in need of options. Our unique culture and the execution of the long-term strategy continue to strengthen our financial position through consistent, strong cash flow generation and long-term value creation, differentiating us from our competition and demonstrating our sustainability. Again, our commitment is to the health and safety of our people, our families, and our communities, all while supporting our vendors, serving our customers, and sustaining our value creation journey. Our team is simply incredible. I would like to thank each of them for their patience, resilience, and commitment during these tough times. They have an indomitable spirit that drives us to excel, and also a very special thank you to the healthcare providers and their families within Steel Dynamics and those serving individuals across the globe. Thank you. Be safe, be well. And Michelle, please open the call for questions. Thank you.
Operator, Operator
Thank you. Our first question comes from Chris Terry with Deutsche Bank. Please go ahead with your question.
Chris Terry, Analyst
Hi Mark and Theresa, and thanks for the comments. Just interested in the outlook side or what you have seen so far in April. Obviously, the chart you provided, your presentation had utilizations in the 80%. Mark, you are above the average that fell into the mid-50s in the last couple of weeks. Just wanted if you could comment on how steel is performing so far in April and maybe based on your order book, what you might expect that to be during 2Q. I know it is a difficult question, but just wondering if you can provide some color on the ground.
Mark Millett, CEO
Well, certainly. I think as you said, it is an incredibly difficult question. Not so sure our crystal ball is clearer than others, but I will say that it is positive looking through the lens of our order book and our order input right. I read this morning in American Metal, individuals saying, well, nobody is buying, I guess perhaps they are not buying from other people, but they are buying from us. I believe that obviously energy is going to be very stagnant for the rest of this year into next year. Automotive is going to come back again; one doesn’t necessarily know exactly when, but the expectation is late this month and through May. But the bright spot is construction. As I mentioned earlier, construction tends to lag market downturn; you know we saw it in 2015, we saw it in 2008 and 2009. It tends to lag the downturn in the market by about four to six months because operations or projects tend to be pre-funded, and we are seeing that in our new millennium building fabrication business and our structure mill. As I said, new millennium has an extremely strong backlog despite some project push backs. But there is nothing significantly meaningful changed yet, and we are very, very strong and have a large market share in the distribution warehouse market. Given people staying at home and the expansion of Amazon and others, that remains a growth area in all honesty. Our structural rail division's backlog is currently solid certainly through May. We did see a $25 price decrease just recently, but I do believe that people will recognize that we are toughing out the bottom of the market. The scrap is going to be somewhat stable here in the next month or two. So those that have been hanging on the sidelines not buying will likely come to market. In that arena, in the beam arena, heavy structural distribution has certainly slowed as they whittled down their inventories; they are now pretty tight, and we are starting to see them come back and buy as they need. The fabricators, that business is still strong as they supply the ongoing construction projects. The rail is actually very, very strong for our rail division, and rebar is an addition for us. Compared to past downturns, our product portfolio of the structural rail division is much more diverse today, and we won’t see the depth of low utilization rate. If you remember back in 2009 and 2010, that business went to 30% to 35% utilization, still remaining somewhat profitable. But that is not going to happen this time. It is a much more diversified product one can make, so that should weather this along very, very well. Engineered bar is seeing a little softness right there. Obviously, automotive is down, energy too is down there, and so that is one arena that is probably as soft as anything going on in our product portfolio. Flat-rolled remains relatively robust, probably too strong a word. But I would target those operations to run around about 80% utilization. That for us seems to be a good balance between fixed costs absorption and pricing. And it appears that we should be able to sustain that targeted output certainly for April, certainly for May, and we are confident that we can do that in June as well. So generally, I think it is obviously quarter-over-quarter; it is going to be a tough couple of months for us. But we are positive.
Chris Terry, Analyst
Okay, thanks. Thanks for the call, Mark. I will leave it there.
Operator, Operator
Thank you. Our next question comes from the line of David Gagliano with BMO Capital Markets. Please proceed with your question.
David Gagliano, Analyst
Hi, thanks for taking my questions and congrats on a solid start to obviously a challenging year. I just want to follow-up on the prior question. If we look at Slide 11, 94% utilization rates in the first quarter. What is that number today?
Theresa Wagler, CFO
Dave, I think that is what Mark just really tried to address. So we have not - there are a couple of things that I think differentiate us. One is that we continue to operate 24x7. And so with that, we get the orders and we gain market share during environments like this, especially as others, higher cost production is being shut down. Right now, we are still operating at a very good utilization rate across the platform. The most challenged division frankly is our engineered bar division. And that is because they are tied to both the energy market and to just general industrial activity. Once automotive comes back and more specifically for engineered bar, with Caterpillar, John Deere, etc., starting to operate again, and I think that is scheduled for around mid to end of May, you will start to see that pick up. But that being said, it is a very difficult environment. We are able to gain market share. And we are very nimble in our order entry, working with the customers, and that tends to make it a lot easier in very difficult environments, keeping our utilization rate higher. The other point is the internal volume, which should not be overlooked. So fabrication is still incredibly strong with a record backlog. They need steel; they will be buying that steel from our own steel mills. The same thing regarding our internal processing divisions, so Heartland Steel, United Steel Supply, etc. They need steel; they will be buying that from our internal steel mills. So that helps our utilization profile, and most of our competitors, if any, do not have that same lever to pull. So we can’t give you an exact percentage number today. Frankly, I don’t know what the exact percentage would be overall, but I know that we feel good about where we are and that the teams are doing a great job.
David Gagliano, Analyst
Okay, thanks for the additional color. The commentary was targeting 80% on the flat side; how about you know is there a target for the remainder of the year in the product mix?
Mark Millett, CEO
Well, I think structural should remain in that sort of 75% to 80% range. Again, the merchant shapes probably less than that. Again, merchant shapes around tend not to be a massive part of our earnings profile anyway, but three out of four of our principal mills, Butler, Columbus, and Structural Rail Division are targeting that 75% to 80% utilization rate. As Theresa said, engineered bar right now looks pretty softer than that.
Theresa Wagler, CFO
So Dave, just as an example, if you go back to 2015, which I would suggest is last week on steel environment, we have seen across the overall operations; even at that time we were operating at over 70%. On the flat-rolled side, they were actually operating closer to 90%. It is always more challenging on the long product side because there is just extra capacity out in the system as it relates to long products, and because they are all electric-arc furnace based. But today, we would suggest that we just have more internal levers to pull. And so we wouldn’t think that necessarily overall when you grow both flat and long has as much impact as it might have at one point in time.
David Gagliano, Analyst
Okay, I will leave it at that. Thanks very much.
Operator, Operator
Our next question comes from the line of Seth Rosenfeld with Exane BNP Paribas. Please proceed with your question.
Seth Rosenfeld, Analyst
Good morning Mark and Theresa, thanks for taking my question. With regards to the cost performance that we have seen in the business, as you continued to grow your processing volumes, utilizing some internal and some third-party substrates, can you give us a sense of how that’s impacting your overall fixed cost base for the business? Again, if we think about how you are positioned in 2020 compared to past downturns, should we consider the growth and processing as essentially more verbalizing your cost base versus history, or should we think about this in a different way perhaps? And then secondly, just one more follow-up with regards to Sinton; I wonder if you can please give a little bit of color with regards to the decision to continue with the same three million ton target, given the weakness in oil and gas yourself, how did that being weak trough 2021, and plan for one million times going into energy. How do we think about that three million ton target in the current market environment versus the dynamics? Thank you.
Theresa Wagler, CFO
Okay. Seth, good morning. I think I have all the questions written down. So the first question is about the adding of the manufacturing businesses or the processing businesses. There are two points that you should keep in mind. One is, you are correct, it is increasing the variability of our cost structures, but again, as a reminder, each of our operating platforms is already over 85% variable cost, but this helps that as well. The other component to recognize is that because they are buying steel and using steel as a substrate, that is impacting our cost of goods sold by having steel run through cost of goods sold, which is higher priced. And so, just anecdotally, in the first quarter, we had about 15% of our cost of goods sold was associated with those steel purchases from the converting companies. From a Sinton perspective, Mark, I will let you handle the energy question.
Mark Millett, CEO
Yes, for sure. I think that the mill is structured or designed for three million tons, which is not like a conventional EAF where you have two casters; this has one caster with a three million ton capability. And as such, it is not a matter of doing half the plant or anything like that, nor would we be defensive about doing so. Obviously, the export would be adjusted somewhat to demand, but again, the energy markets are pretty tough at this time. But for those that have been in the industry for a significant amount of time, things do cycle, and that market will come back. But the advantage of the Sinton facility is its geographic location; we are not dependent on one single market product. We have around about 27 million tons of market capability when you look at the Southwest, the West Coast, and Mexico. And we can ship that product between energy and automotive and construction, and we feel that the investment premise remains totally intact.
Theresa Wagler, CFO
And just a quick point on that; from an energy perspective last year, I think our shipments were about 7% related to energy. But that was primarily from our engineered bar division at Columbus. So within that number, we also shipped quite a bit of volume from our steel facility in West Virginia into solar. So our energy number also includes solar, and solar is still something that is actually increasing in demand during this time as well.
Seth Rosenfeld, Analyst
Great. Thank you very much.
Operator, Operator
Thank you. Our next question comes from the line of Timna Tanners with Bank of America Merrill Lynch. Please proceed with your question.
Timna Tanners, Analyst
Hey, good morning, and hope everyone is healthy and safe.
Mark Millett, CEO
Likewise, Timna.
Theresa Wagler, CFO
Thank you.
Timna Tanners, Analyst
Thank you. I wanted to just drill down a little bit into your cash flow philosophy. So I heard you - maybe Theresa, I misheard. Can you clarify; you said for the remainder of the year CapEx is $1.2 billion, which sounds like your CapEx forecast is intact at $1.4 billion, or did I hear that wrong? And you also went on to say that you could adjust it if needed, but you are not adjusting it. And you also said that you just authorized further buybacks and just completed what is it, $170 million in buybacks in the quarter. So I kind of get the impression that now Steel Dynamics is operating as if the impact of reduced demand and COVID-19 impact is a shorter-term phenomenon and kind of getting back to normal later in the year? That is what I’m piecing together from your comments on the CapEx and then the buybacks. But I just wanted a little bit more thought on how you are thinking philosophically about the rest of the year and CapEx and buyback? Thanks.
Theresa Wagler, CFO
Great. So let me clarify, you are right concerning the capital expenditures. Currently for 2020, we started the year saying we expect to spend about $1.4 billion. We spent a little over $200 million in the first quarter. So for the remainder of the year, there is $1.2 billion of that $1.2 billion. Over $700 million of that is actually late in the second half of the year and it is related to Sinton. As we progress, Timna, through the second quarter, we believe we are going to gain a lot of visibility as states reopen on what that means for steel consumption and on our own operations for the remainder of 2020. As we progress to the second quarter, should we think that we want to potentially take some of that capital and push it into 2021, we can make that decision to do that at that time. But right now, from what we are seeing, as Mark mentioned, how the mills are operating and the market share and the activity that we are seeing, we don’t believe that that decision is something that we are making today. As it relates to our share repurchases, we repurchased $107 million in the first quarter; most of that was purchased within the January and February timeframe, but you should expect to see from us in the second quarter that we will be watching the markets, watching the impact of the Coronavirus, and you will see us heavily in the share buyback market at that point. Then we will reassess for the second half of the year. The reason the Board authorized an additional $500 million in February of this year is simply because we think share repurchases during periods of excess cash flow are an important tool to have, and so we wanted to have that tool because we actually only had, I think about $40 million to $50 million left on a previous program. Does that help clarify how we are thinking about things?
Timna Tanners, Analyst
Yes, absolutely. Because I was having a difficult time squaring some of those comments with the market environment. Okay. So I guess just as a follow-up if I could, can you just talk a little bit about when you think you will have more visibility on construction? So, like you said, construction is late cycle. You wouldn’t see cancellations yet on that, but it sounds like that could start to flow through later in the year. I just wanted to get a little bit more thought on when you would start to see any impact on your backlog or any commentary from what you are seeing on the ground because we are hearing that private sector activity is kind of drying up. So I’m just wondering if that is in line with what you are hearing as well. Thanks.
Mark Millett, CEO
Well, Timna, I have seen the same commentary and it seems to be a little disconnected to the higher actual order book and what we have seen. As I have said quite consistently, our real lens for Steel Dynamics is through that order book and through the inquiry, right? And all that remains quite strong. The analogy, if you look at the downturn in 2008 and 2009, which was pretty significant in its own right, was that we saw the structural rail division performing pretty consistently into the summer of 2009. That was a good four, five, six months of strong continuation from pre-funded projects, and we are seeing, as I said, a large part of our business is in the distribution warehouse arena, and that is, I would say is expanding more than contracting. So, I think we see things optimistically. We were also very, very realistic, and I just want to go back to what you are saying about is there a dichotomy between the markets and what was saying relative to a strategy. But I’m going to ramble a little bit; I think, but you know, probably some of the members of the Steel Dynamics team been in the business probably longer than anyone on the call, and probably mostly leadership in steel companies. And we have seen the 80, 81; we lived through and managed through 2001 and 2002 when 45% of the industry was in insolvency through 2008 and 2009. We lived through 2015. So we are very realistic and recognize the impact in the market change and manage to that. And I think we have demonstrated through our 25, 26-year history that we are very intentional, we are very disciplined, and we are actually conservative. At the same time, in periods like this, leaders and you have got one of the best leadership teams in the world here, need to lead; they shouldn’t be seeking cover, we need to be seeking opportunity. And that is where we think Sinton is a very, very good investment, a very good opportunity, and we will continue to go down that path. That being said, just to reemphasize what Theresa said, we are continuing to reassess our order books, the market, cash flow generation, and we will adjust as we see fit. But I think it is very, very important to recognize that, again, a lot of the capital expenditures for Sinton are in the back end towards the end of the year here. And it is a huge lever that we can pull if necessary.
Timna Tanners, Analyst
Okay. And by lever, you mean to delay, right? I don’t envision you are talking about, like you pulling it per se, right?
Theresa Wagler, CFO
No, what we are just talking about is delaying it, Timna.
Timna Tanners, Analyst
Right.
Theresa Wagler, CFO
And one other point, and you really can’t forget the strength of the working capital for us. And the funding sources it can be if necessary.
Timna Tanners, Analyst
Okay. Really helpful, guys. Thank you.
Theresa Wagler, CFO
Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.
Phil Gibbs, Analyst
Hey. Good morning.
Mark Millett, CEO
Good morning.
Theresa Wagler, CFO
Good morning.
Phil Gibbs, Analyst
Mark, can you talk a little bit about the onsite customers that you are going to have on Sinton? I think it was part of your script on Sinton, but I just wanted to be sure because I think you said over 800,000 tons of local onsite processing, and obviously that is a big chunk of the three million tons that you are looking to get. So I just want to make sure I heard that correctly, and two, where do you think that can go as this project evolves?
Mark Millett, CEO
Well, I think we have got one signed and a second very, very, very close to signing. There is a preference on their part not to disclose names at this moment in time. But you are right; the two of them would amount to about 800,000 tons of consumption and processing capability. We probably have another – not probably, we do have four other interested customers that have been given full packages, lease packages, and those sorts of things. They just slowed a little bit because of the situation we are in. But we are confident that we are going to get those folks too. But it is a very important part of the overall strategy at that note.
Theresa Wagler, CFO
Collectively, it is likely to be somewhere over a million tons of onsite capability.
Phil Gibbs, Analyst
Okay. Well, that is helpful. So talking about basically a third kind of built in onsite there. I think that there are tax benefits or deferrals or accelerated depreciation on years where new assets go into service. Let us just say 2021 is intact for Sinton, at least as it is today. What should we be thinking about the size of just the accelerated depreciation benefits in terms of tax avoidance in the year it goes into service? Because obviously with $2 billion of spending, it could be pretty meaningful.
Theresa Wagler, CFO
You know, so we don’t have exact numbers, but I would estimate that of the $1.9 billion, you are likely to have accelerated depreciation on at least 80% to 85% of that number.
Phil Gibbs, Analyst
Okay. Would you take that all in year one? I guess all the assets go into service in 2021?
Theresa Wagler, CFO
Yes. So that would all be recorded in the 2021 year.
Phil Gibbs, Analyst
Thanks very much.
Operator, Operator
Thank you. Our next question comes from the line of Andreas Bokkenheuser with UBS. Please proceed with your question.
Andreas Bokkenheuser, Analyst
Well, thank you very much and good morning. I hope you guys are all well. Just two quick questions from me; first of all, on oil, obviously this week’s oil volatility, how do you guys think about that? Just aside from what it could do to investment in the energy sector on tubular steel and so on and so forth, you know when you kind of saw what happened yesterday to prices, what kind of went through your mind in terms of are there any opportunities for Steel Dynamics that we should be thinking about and what are the less obvious challenges as well? So maybe just give a little framework, if you will, around how you are kind of thinking about the oil price move yesterday. And I guess the second question is more on construction. Can you give a little bit more granularity there? When we look at the residential and non-residential construction numbers, there seems to be as much weakness as the restraints and has been for the last year also. You guys seem to be exposed to the strength of it, so could you give a little bit more granularity on where you are seeing that strength in any particular areas? Is it residential or non-residential and geographically more south than north and so on? That would be very helpful. Thank you very much.
Mark Millett, CEO
Well, certainly regarding the energy markets. I think yesterday it was quite incredible, and I’m not so sure we have had time to digest it. But just in general, obviously the immediate impact is on the energy markets, pipe and tube. And that was, that is not just a COVID thing; that obviously is Russia and Saudi Arabia doing that thing. The low energy prices will expand the downturn there that is 8% to 10%, I guess of the steel market in normal times. But we looked at that as a pretty stagnant market, it will probably remain like this for the rest of the year going into next year, first half of next year anyway. I guess the positive, well, one is scrap tends to move down with oil. I’m not for sure that the physical markets would allow that to occur in May; we are looking - perhaps it should move down in May, but we think that given the physical market, it is probably a sideways market moving forward, but that may change here in the next week or two. What I do think is that the pressure on the energy markets is going to put pressure on the integrated mills. And I think you have seen a pretty dramatic idling of integrated capacity over the last four or five, six weeks. If you look back over a longer period, you know the last couple of years, there has been a much more frequent turn-on, turn-off of some of that capacity as they suffer pretty strong economic pressure. I think a sustained downturn in the energy markets will make some of those assets make it a tough decision to ever bring them back. But I think it may, as a positive, help rationalize the industry to some small degree. Sorry. And then you had the second question on construction granularity. Again, there certainly has been weakness in the northeast, but that has tended to be more from projects or construction locations actually being shut down by the states. We certainly see strength in fact. Certainly, as I said, we see strength in that distribution warehouse arena.
Operator, Operator
Thank you. Our next question comes from the line of Gordon Johnson with GLJ Research. Please proceed with your question.
Gordon Johnson, Analyst
Hey, guys, thanks for taking the questions. This question may have been asked, but I was wondering if I could get a little bit more color on your shipments expected across some of the different lines. I know you said your utilization had dropped to 75%, 80%. Can we get maybe a little more color on kind of what you see in Q2 and maybe some of the green shoots you see in the second half?
Theresa Wagler, CFO
No, we are not going to get too specific for two different reasons. One is that we generally don’t give that type of guidance. And the second reason is especially going into the environment that we are in right now, there is not a lot of visibility. And so we want to make sure that we are being appropriate. But I think what Mark was suggesting is that we intend to see utilization, or at least we are planning for utilization, to be higher in flat-rolled operations somewhere in that 75% to 80% range. Traditionally, even in 2015, we were operating at closer to 90%. So we generally gain market share in flat-rolled during periods of weakness, and we are seeing that today as well. We don’t see a driver for that to change throughout the quarter. Across the long product side, it is more difficult. So in the structural and rail arena, we expect to maintain higher utilization in that 75% to 80% range because of the order backlog as it sits today and because construction is continuing for us in that arena. And with the addition of rail and rebar, that product diversification helps our facility. Across the other long product mill, it is more difficult. So you are going to see the most weakness in our minds in the special bar quality or the SBQ arena. And that is distributed throughout. So that is probably about as much clarity or granularity we can provide for the volumes at this point.
Gordon Johnson, Analyst
Okay, that is helpful. And then one last one; in the checks we have done, it seems like you guys are doing quite well in the construction space, particularly against the integrated mills. Is there any, I guess approach you guys have or color you can provide on, I guess, incremental attempts to share that space? Is that accurate that you guys are doing quite well in the construction space against your integrated peers? Thanks for the question.
Theresa Wagler, CFO
Yes. No, that is absolutely correct, especially – I don’t know if it wasn’t just prior to this in the first quarter, our structural rail team had a fantastic job on the construction side and pulled in volume. If you are speaking more specifically about our fabrication business, we have been gaining market share in that arena as well, and the team is doing incredibly well. And as Mark pointed out, is more specifically in that warehouse arena, but we have been taking market share, and we would expect to continue to do that.
Gordon Johnson, Analyst
Thanks again.
Operator, Operator
Thank you. Our next question comes from the line of Sean Wondrack with Deutsche Bank. Please proceed with your question.
Sean Wondrack, Analyst
Hi, Mark and Theresa, and thank you very much for all the information today. Just to look at the auto market, I think you had mentioned that some of the auto manufacturers are looking to come back online in the next few weeks. Can you talk about like are you starting to hear from them more order inquiry? Also, sort of for the industry, I realize you guys are a great operator and you are going to have the ability to potentially take share this year. What is sort of your baseline, if you have one yet, a baseline forecast for auto production? Do you assume 10% down this year? Curious about that.
Theresa Wagler, CFO
The question relates to automotive and it relates to the perspective of as they start to roll on and we have been taking market share specifically with the European automakers, etc., would we expect to continue to take that market share and what are we thinking about from a volume perspective? So how much will fuel consumption volumes or auto builds from another perspective and how much will that be down if they get to one million to 1.5 million is what I’m seeing. And then the perspective just around what do we feel about continuing to take that market share related to automotive.
Mark Millett, CEO
Got it okay. Well, I would suggest that, as I said earlier, my crystal ball is probably no better than anyone else’s on the call, and not the whole recovery is subject to when folks get back into the marketplace and at what speed do they ramp up. From present information, it appears that automotive will start rolling back during the end of this week and all the way through May depending on which company. There is a backlog of vehicles right at this second, so how quick recovery is difficult to gauge. You look at past troughs; it tends to replenish wealthy; they have been in a position to replenish inventory and pent-up demand. I’m not so sure we will see that this time around. To qualify our gain in market share is relative to time is a tough thing, but all I can say is the facilities are sort of armed and ready to go. It is our flexibility across all markets; it is not just the auto, but all markets that allows us to take off opportunistic gains. It is going to be a while before the integrated mills just saw turning on all their idled capacity. One would imagine that they need to see some visibility and transparency for a market that is only has positive momentum, and their pricing also has positive momentum. And that is not going to happen just because the automotive - one or two of their plants brought up. So there is that time period, and it is a matter of months and maybe longer; who knows, but it is a matter of months where the flexibility of electric-arc-furnace operations can take advantage of the marketplace.
Operator, Operator
Thank you. Our next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Please proceed with your question.
John Tumazos, Analyst
Thank you very much. How much of the Butler and Columbus mill tonnage used to be shipped for welded to for energy exploration, and in the plan for Sinton? And should we just assume that those volumes become construction steels given the short-term crude oil outlook?
Mark Millett, CEO
Well, John, I would say Butler, the energy scalp is not a massive part of their portfolio. We tend to see hot roll coil dependence fully is not really related to the oil and gas, and given the value-add diversification there, we don’t really have a massive amount of hotline to sell to be honest. Columbus certainly has greater exposure. If you remember when we purchased the mill in 2014, that was dominantly an energy pipe supplier, and I think back then it was 30% maybe 40% of its output.
Theresa Wagler, CFO
It was over 40% energy.
Mark Millett, CEO
Since then, the team has catalyzed by the downturn in energy in 2015. The team has done a phenomenal job diversifying that asset, adding greater towing capabilities, adding paint lines, adding a variety of high-strength type of great steel there, getting into automotive, getting into Mexico. Both the product and the market diversification there has totally transformed the entity. And so it is through sight learning today; there is nothing like that 2015 as much higher. That being said, it is probably 10%, maybe 15% energy related.
Theresa Wagler, CFO
So John, just overall, to put a point on it: Last year, our shipments, we only had 7% that were related across the company that were related to energy, and some of that included solar. So that was a high premium grade in OCTG, that sort of thing. So it is not that much of our business, either last year or today at this point. And then as it relates to Sinton, we will also be competing; we think very effectively with imports and I think that is something that people should recognize as well.
John Tumazos, Analyst
Thank you. Congratulations on being the oldest man on the call, Mark, I can simply tie wherever you want.
Mark Millett, CEO
I will be respectful, but you and I both know.
Operator, Operator
Thank you. Our next question comes from the line of Phil Gibbs with KeyBank Capital Markets. Please proceed with your question.
Phil Gibbs, Analyst
Hey, Theresa, could you provide the mix of sheet products as typical?
Theresa Wagler, CFO
I apologize, Phil. I didn’t. I have it here though. So for flat-rolled shipment, I know a lot of you use it for your models, our hot-rolled coil and our pickled in oil shipments were 891,000 tons, our cold rolled shipments were 151,000 tons, and our coated shipments were 948,000 tons for a total of 1,990,000 tons. Apologies.
Phil Gibbs, Analyst
No worries. That is all. Thanks very much.
Operator, Operator
Thank you. Our next question comes from the line of Charles Bradford with Bradford Research. Please proceed with your question.
Charles Bradford, Analyst
Good morning, and I have got both of you guys beat on age, but the question goes down to a little bit coming maybe out of your bailiwick, but apparently U.S. Steel has dropped out of membership of the AISI that may impact the quality of the industry data that we get. Have you seen any change in the quality? I’m thinking especially of the usually pretty bad operating rate figures.
Mark Millett, CEO
Chuck, I would say we have not seen any change that, nor have we analyzed it to be honest.
Operator, Operator
Thank you. Our next question comes from the line of Tyler Kenyon with Cowen. Please proceed with your question.
Tyler Kenyon, Analyst
Hey, good morning Mark and Theresa, I hope you are both doing well. Theresa, just a quick one for me; do you anticipate any relief in 2020 from the recently passed Cares Act, payroll tax deferrals, enhanced deductibility of interest expense, etc., in any way to bracket what kind of cash one relief they could provide in 2020.
Theresa Wagler, CFO
Yes. Given the analysis that we have done, I really can’t put a great bracket around it, but at this point in time, Tyler, it is not something that we are viewing as significant for us. There is definitely the payroll tax relief would have an impact, but apart from that, given our expectations on operating in the different areas they are helping either smaller companies or companies that are not doing as well as we are, I don’t think it is going to be something that is meaningful at this point. If that changes, we will be sure to let you know.
Tyler Kenyon, Analyst
Thank you.
Operator, Operator
Thank you. That concludes our question and answer session. I would like to turn the call back over to Mr. Millett for any closing remarks.
Mark Millett, CEO
Well, thank you Michelle and thank you everyone on the call. I just would like to emphasize, I’m a pretty optimistic guy, and if you were surrounded by the team we have at Steel Dynamics, you would have that same optimism. And it is really based on Steel Dynamics’ position, and I suggest even in these tough times, that the Steel Dynamics team shines in moments of challenge, and we are in a position of strength. Our business model is built to be resilient in tough markets. We have a high variable cost structure; 85% of our cost structure is variable. We have a broad value-added product portfolio, and we have strong pull-through volume, as we have suggested from our internal downstream operations. All that builds a high utilization rate, which we have demonstrated in every trough, achieving higher utilization rates than our competition. When you have capital-intensive steel assets, volume is absolutely critical. And that translates into better financial metrics through the cycle. So we are still confident in our cash generation capability. We are still confident in our financial foundation, and we are battling each and every day, but our orders continue to flow in. So we do remain positive. That being said, we are incredibly intentional. And we recognize that we need to assess markets and our position almost each and every day. We have demonstrated that in the past, and we will demonstrate that going forward. So, for all of you, thank you for being on the call. Customers and employees, thank you; you make Steel Dynamics who we are today, and everyone be healthy, be safe. Bye-bye.
Operator, Operator
Thank you. Once again, ladies and gentlemen, this concludes today’s call. Thank you for your participation, and have a great and safe day.