Marlene Owen - Director-Investor Relations Mark D. Millett - President, Chief Executive Officer & Director Theresa E. Wagler - Chief Financial Officer & Executive Vice President Richard P.

Teets - Director, EVP-Steelmaking, President & COO-Steel Operations Chris Graham - President of New Millennium and Vice President of Steel Dynamics, Steel Dynamics, Inc. Russell B. Rinn - Executive Vice President-Metals Recycling.

Tony B. Rizzuto - Cowen and Company, LLC Matthew James Korn - Barclays Capital, Inc. Evan L. Kurtz - Morgan Stanley & Co. LLC Brian Hsien Yu - Citigroup Global Markets, Inc. (Broker) Timna Beth Tanners - Bank of America Merrill Lynch Philip N. Gibbs - KeyBanc Capital Markets, Inc. Aldo Mazzaferro - Macquarie Capital (USA), Inc. Jorge M.

Beristain - Deutsche Bank Securities, Inc. John C. Tumazos - John Tumazos Very Independent Research LLC Justine B. Fisher - Goldman Sachs & Co. David A. Lipschitz - CLSA Americas LLC Matt Murphy - UBS Securities Canada, Inc..

Good day, and welcome to the Steel Dynamics' Third Quarter 2015 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, October 20, 2015 and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect. At this time, I'd like to turn the conference over to Ms. Marlene Owen, Director of Investor Relations. Please go ahead, Mrs. Owen..

Thank you, Manny. Good morning, everyone, and welcome to Steel Dynamics' third quarter 2015 financial results conference call. As a reminder, today's call is being recorded and will be available on the company's 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.

We also have our leaders from the company's operating platforms, including Dick Teets, President and Chief Operating Officer for our Steel Operations; and Russ Rinn, President and Chief Operating Officer for our Metals Recycling Operations; and Chris Graham, President of our Fabrication Operations.

Please be advised that certain comments today may involve forward-looking statements that by their nature are predictive. These are intended to be covered by the safe harbor protection of the Private Securities Litigation Reform Act of 1995.

Such statements, however, speak only as of this date today, October 20, 2015, and involve risks and uncertainties related to our metals business or to general business and economic conditions, which may cause actual results to turn out differently.

More detailed information about such risks and uncertainties may be found at the Investor Center Advisory Information tab on our Steel Dynamics' website and our Form 10-K Annual Report, under the captions Forward-Looking Statements and Risk Factors, or as applicable in subsequently filed Forms 10-Q filed with the Securities and Exchange Commission.

And now, I'm pleased to turn the call over to Mark..

Thank you, Marlene, and good morning everyone. Thank you for joining our call today. 2015 continues to be an interesting challenge. But as often said, in adversity there is opportunity, and I think at least for those that have prepared for it.

Significant industry shifts have taken place in both the global steel community, in raw material and product pricing, as well as recent preliminary trade case advancement.

But before exploring our thoughts regarding the domestic steel landscape and how Steel Dynamics is uniquely positioned for growth, I ask Theresa to comment on the third quarter financial results.

Theresa?.

Good morning, everyone. Before I begin, one quick note. Consistent with how we're now managing the business, we've made a change to our reporting segment. The segment that we previously referred to as metals recycling and ferrous resources has been changed to just Metals Recycling.

The previous segment included not only our metals recycling, our OmniSource operations, but also our two iron-making initiatives and another small 55% owned joint venture. Beginning with our third quarter earnings report, our Metals recycling segment will now only include OmniSource results.

Iron Dynamics has been moved to our Steel segment, as 100% of its output is used at our Butler Flat Roll Division and the impact of Minnesota and the JV have been moved to other. The supplemental quarterly information reflects this change for all periods presented.

For your convenience, we've also posted the quarterly 2013 and 2014 historical data in this format on our website, under Investors' Supplemental Financial Information. Now regarding our third quarter 2015 financial results. Net income was $61 million or $0.25 per diluted share, just above our guidance of between $0.20 and $0.24.

These results compared to sequential adjusted second quarter 2015 net income of $53 million or $0.22 per diluted share and reported GAAP results of $32 million or $0.13 per diluted share.

Third quarter 2015 consolidated revenues were $2 billion, approximately 3% less than the second quarter 2015 results, based on lower pricing and a 12% decline in external fair shipments from our metals recycling operations as well as lower steel shipments from our Flat Roll Group.

Operating income was $131 million, compared to adjusted second quarter results of $120 million, representing a 9% improvement based on improved Steel margins and record setting Fabrication performance.

For the third quarter of 2015, Steel shipments remained relatively unchanged at 2.2 million tons as the 4% decrease in our Flat Roll Group shipments were basically offset by a slight improvement in our Long Product operations.

Despite slightly lower shipments, operating income increased as both average sales pricing and scrap cost improved in the quarter. Our average sales price increased $3 per ton, while our average cost of scrap used declined $3 per ton.

As we indicated during our second quarter conference call, we expect the Steel imports to moderate in the third quarter and they did decline. However, higher customer inventories combined with continued high albeit decreased imports continued to cause downward pressure on steel prices especially in the Flat Roll arena.

For our metals recycling platform, total third quarter 2015 ferrous shipments were relatively unchanged from the second quarter, however, internal shipments increased, 10% representing 59% as our total ferrous volume. Ferrous metal spread contracted 14% as the cost of procuring unprocessed material increased while selling values decreased.

Additionally, although our non-ferrous shipments increased, non-ferrous metal spread declined 20%, as both copper and aluminum index prices fell in the quarter. As a result, our Metals Recycling operations third quarter operating income decreased meaningfully to a profit of $463,000 compared to $12.3 million in the second quarter of 2015.

Our Fabrication operations continue to provide terrific results. The positive momentum in underlying non-residential construction demand, combined with our national presence and stellar customer service, resulted in another quarter of record performance metrics.

Third quarter 2015 record operating income from our Fabrication platform was $37 million, 30% higher than their previous record achieved just last quarter. Record operating income per ton was $285, over 13% higher than second quarter performance.

I'd also like to congratulate the Fabrication team on the acquisition of additional steel decking facilities from consolidated systems, which closed on September 14. The purchase price was $45 million, including net working capital of approximately $30 million, resulting in what we believe is a transaction price below fixed asset replacement value.

Great job from the team. We incurred approximately $1.3 million of cost associated with the acquisition in the third quarter, most of which is included in non-segment operations within the Supplemental Quarterly Financial Table and with that other expense from the Consolidated Income Statement.

We continue to see improvement in underlying non-residential construction demand, good news for all of our businesses as the construction sector historically is almost the largest domestic steel consumer. During the third quarter 2015, we continued to generate significant cash flow from operations of $164 million.

Operational working capital was essentially unchanged and required $7 million in funding. Third quarter capital investments totaled $30 million. We estimate annual 2015 capital expenditures to be in the range of $120 million.

Our preliminary estimate for full year 2016 capital investments is in the range of $250 million to $300 million, which includes the $100 million paint line addition at our Columbus Flat Roll Division that is expected to start operations in the first quarter 2017.

Year-to-date 2015, we've generated $708 million of cash flow from operations and after CapEx, $622 million of free cash flow. We've maintained our quarterly cash dividends to shareholders which increased by 20% in the first quarter this year.

Our history of increased quarterly dividend continues to demonstrate evidence of the confidence our Board of Directors have in the strength of our cash generation capability, financial position and optimism concerning our future.

As demonstrated during the first nine months of 2015, throughout market cycles, our business model generates strong cash flow, based on the low, highly variable cost structure of our operations.

Even after deleveraging our balance sheet and increasing cash dividends to shareholders beginning with the first quarter this year, we have record liquidity of $1.7 billion at September 30, 2015. Total debt declined slightly the $2.6 billion and a net debt of $2.2 billion decreased $61 million due to our free cash flow performance.

The adjusted EBITDA in our press release schedule denotes the number we use for financial covenant purposes. Our third quarter adjusted EBITDA was $214 million and trailing 12-months adjusted EBITDA $850 million resulting in a net leverage of 2.6 times.

Our credit profile remains aligned with our preferred through-cycle net leverage of less than 3 times, a testament to our disciplined approach to growth, creating shareholder value through sound capital allocation and an efficient balance sheet. Additionally, our debt maturity outlook is incredibly flexible.

We don't have any near-term meaningful maturities and those in the longer-term are well laddered and in the interim years have call provision flexibility. Looking forward, we believe that our capital structure and credit profile have the flexibility to not only sustain current operations but to support additional strategic growth investments.

Thank you. Mark..

Super. Thanks Theresa. The safety and wealth of our employees is always top of mind and nothing is more important to us than creating and maintaining a safe work environment. Safety is at the forefront, integral to everything we do. I would like to thank all our employees for their continued diligence to work safely.

Our safety performance is better than the industry average, but our goal remains squarely a zero safety incident work environment throughout all our locations. The team is doing a great job. Over half our locations achieved zero recordable injuries so far this year.

We will continue to implement new initiatives and reinforce others to drive toward our ultimate goal of no injuries. Operationally, the team has performed well in the challenging environment.

The ongoing flood of steel imports and elevated customer inventory levels continued to pressure steel product pricing and domestic steel producer volumes, most notably in commodity grade flat roll steel.

Although commodity grade CIU average hot roll coil pricing fell in the quarter, our overall third quarter average steel selling price increased by $3 a ton compared to the second. Our value-add diversified product mix allowed better than industry performance.

Somewhat improved average pricing coupled with lowest average scrap costs allowed our metal spreads and profitability to expand in the third quarter, despite lower steel shipments of approximately 2%. Our third quarter steel production utilization rate was 82% compared to 87% in what was a fairly robust second quarter.

The production decline was driven by lower commodity grade hot roll coil shipments from our Butler division. However, our overall performance remains well above average domestic mill utilization.

While our company-wide exposure to the energy sector approximates only 8%, it is higher at our recently acquired Columbus flat roll steel mill, which has been particularly impacted by both imports and reduced energy sector steel consumption.

As you may recall, our first order of business and after buying Columbus was to significantly expand market and product diversification, moving toward a greater number of customer relationships and a broader mix of value added products serving more industries. The teams are making tremendous progress in automotive and construction related products.

We're also making good progress in potential export opportunities into Mexico. 94 new customers have been added. Market shifts take time, but our planned paint line and Galvalume addition on Columbus campus will be a significant catalyst.

The $100 million investment will provide approximately 250,000 tons of annual coating capability and further diversification into higher margin products for Columbus.

We already have two paint lines and a Galvalume capability in Indiana, but this project allows for a higher product quality, double-wide steel and access to the Southern markets, including Mexico. We plan to sell surface-critical, appliance-grade steel as well as construction-related products.

Operations are expected to begin during the first quarter of 2017. In the interim, we continue to improve Columbus' operating costs and product breadth and quality capabilities.

During the third quarter of 2015, Columbus served 46% more value added galvanized steel compared to the first quarter of this year, and achieved record production results from those lines. Just less than 50% of Columbus' shipments were hot roll coils, almost a 10% shift in the beginning of the year.

We continue to see the benefit of collaboration between our Columbus and Butler flat roll steel mills. Along with production and process successes, since the acquisition, Columbus is focused on implementing significant cost reduction initiatives with many more in the works.

We have realized that at least $15 million in sustainable annualized cost savings so far in 2015 with identified plans for at least another $15 million in 2016. In addition, we anticipate continued benefit from the progressing product mix shift.

Additionally, our steel platform continues to benefit from our organic growth and investments, including the addition of premium rail capability, our expanded engineered special bar quality capacity which has provided product diversification and aided mill utilization in this tough market environment for the structural mill.

The planned increase in flat roll pickling capacity through the new push pull pickle line being installed at Butler will increase their downstream value add volume capability in 2016.

Metal recycling platform profitability, meaningfully deteriorated in the third quarter, compared to a $12 million operating profit in the second quarter, we were just above breakeven for the third quarter, the erosion driven by significantly lower metal margins.

Not what we would like to see, but a solid performance by the team against the tough market backdrop. Our ferrous metal margins declined approximately 14%, while non-ferrous margins declined 20%. Non-ferrous market indices have fallen over 10% in the third quarter and spreads have contracted substantially. The recycling environment remains challenging.

The continued significant overcapacity of shredders, particularly in the Southeast and the U.S. continues to constrain margin as processors are all competing for the same material. Additionally, scrap export levels have fallen in the past two consecutive years to volumes significantly lower than recent historical norms.

With the expectation of a continued strong U.S. dollar reducing scrap exports and the resulting ample scrap supply, we don't see likely drivers for significant increases in ferrous scrap prices in the near term and believe the market is essentially bottomed. The fabrication platform continues to achieve record operational and financial performance.

Third quarter 2015 operating results of $37 million surpassed the previous record by 33%, which was achieved during this year's second quarter. Through the third quarter of 2015, the team has generated $86 million of operating income, 184% more than last year's year-to-date $30 million record.

The team is executing on all fronts, doing a phenomenal job. Our September acquisition of additional decking assets further supports our growth strategy by enhancing New Millennium's position as the leading North American provider of steel, joist and deck. It will accelerate our growth and diversification into new steel deck parts.

By increasing our deck production capability and sales, we plan to better match our joist market share of approximately 34%. In 2014, our deck market share was only 24%, so it's definitely an opportunity for growth, initiative to supply the catalyst.

Additionally, the acquisition provides an opportunity for increased utilization on our Columbus Flat Roll Division. Over the last three years, the acquired operations averaged over 60,000 tons of annual steel purchases, predominantly flat roll galvanized steel most of which from other suppliers.

This volume can be substantially sourced internally, which would help shift Columbus' product mix, boost utilization and compressed conversion costs. The New Millennium team continues to perform exceedingly well, both in market share gain and leveraging our national footprint.

It is the credit to the foresight and positioning work the team did over the past several years. Based on sustainable increased demand and market share gain, we have added production shifts at several of our plants, creating more jobs in our local communities.

The strength of this business provides positive insight into the continued growth in non-residential construction activity. Relative to the macro environment, the U.S. has steady demand dynamics in place. Forecast for the two largest domestic steel consuming sectors, automotive which historically represents about 25% of total U.S.

steel consumption, and construction which is represented by 40% of total U.S. steel consumption in the past, both remained good. Automotive has continued forecasted strength and overall construction spending continues to trend favorably.

SDI has growing exposure to both of these sectors through our Columbus Flat Roll Division, additional long products production capability and our growing Fabrication operations. Annualized at (19:09) the current domestic demand is reasonably strong, at about 120 million tons to 125 million tons.

It is not demand that is our industry's challenge, it is squarely the excess levels of unfairly traded imports. Other countries are exporting their own financial problems to America. Excessive steel import volume combined by high customer inventory levels has limited U.S. steel mill utilization and pressured domestic steel pricing.

While SDI's production utilization remains well above our peers and the industry in general, there is certainly more to be done. The continued decline in scrap prices has resulted in a stalled customer order activity. As everyone waits on the side lines until the scrap market stabilizes. The scrap flow remains good and the strength of the U.S.

dollar should continue to impede the export market. Consequently, there doesn't appear to be any strong driver for ferrous scrap price appreciation, which is certainly good for Steel Dynamics. Again, we expect a relatively flat scrap market in the months ahead.

We believe the fundamentals are supportive of a continued positive trend and economic growth in the U.S. In contrast, the current unimpressive global growth combined with a severe worldwide excess in steel capacity will promote imports and continue to be an industry headwind to steel pricing and utilization.

However, we've seen import levels have consistently receded year-to-date, and the trade cases under review will likely reduce them further. Reduced imports, idling of domestic capacity along with upward trending demand should create a positive pricing environment that should allow some room for price appreciation going into 2016.

As raw material prices remain at lower levels and production utilization improves, there is margin expansion opportunity. Importantly, as we typically do, we're not waiting around.

In order to help insulate ourselves from imports, part of our strategy is to not only develop strong customer relationships but to also manufacture products that are more difficult to compete with on a global basis, such as our painted flat roll steel, highly engineered SBQ steel and longer length premium rail.

As such, we are able to mitigate some of the import impact, and with our broad portfolio of value-added products, maintain highest steel mill utilization rates when compared to our peers. Driven to maintain a sustainable differentiated business, we are focusing on opportunities to maximize our financial performance.

We believe our superior operating and financial performance clearly demonstrates the sustainability of our business model throughout the market cycle. In these challenging times, our low, highly variable cost structure coupled with a highly diversified value added product portfolio will continue to generate significant cash flow.

As we look ahead, we continue to be optimistic regarding our own future. Columbus is one aspect of the story, and our organic growth products is another. We have a solid financial foundation, and an outstanding liquidity profile providing a unique position for growth as opportunities arise.

We will concentrate on opportunities that will improve the quality of our margins with a particular focus on downstream, value-added growth to mitigate imports, and inevitable cyclicality of our business. The strong character and determination of our employees are unmatched.

They are a phenomenal group, and I am proud to stand with them in these challenging times and look forward to creating new opportunities with them in the months and years ahead. I thank each one and remind them, safety is always the top priority. Again, thank you for your time today. And Manny, please open the call for questions..

Thank you. And with that, our first question is from Tony Rizzuto of Cowen & Company. Please go ahead..

Thank you very much. Hi all. Got a couple questions. First of all....

Good morning, Tony..

Hey Mark. Good results in a very challenging environment. My first question is how should we think about your fourth quarter metal margins with all the moving parts. Scrap has plummeted again and there has been more broad-based selling price weakness.

How should we think about that?.

There certainly continues to be import pressure, Tony. And as I said, imports are continuing to recede. They have sort of almost month-over-month through the year. I think with the one exception, July just popped up a little bit. We do believe the trade cases will further improve that situation, although the timing of that is a little uncertain.

I think, Dick can speak to the trade cases in a second, but the timing is kind of extended out to the end of the timeframe. And so, when the impact of that occurs is, I guess, anyone's guess.

I do think margin expansion in the fourth quarter is tough, but I think there is certainly a positive pricing environment going into 2016, and with a flat scrap arena I think there is margin expansion certainly in 2016. Whether that occurs or not in the fourth quarter is doubtful..

Okay. It's very helpful.

Dick, do you want to add something there that Mark indicated or...?.

All I could add is that, looking at the license data for August and September, there is a couple of bad actors that sort of are thrusting a few of their extra tons this way, but quite a few of the countries have been moderating their tons. And so, the slope of the imports have been decreasing through the second quarter and third quarters.

So, I think the trade cases are getting the traders' attention, even though preliminary determinations have been pushed off into the December timeframe. I do believe that overall, things are improving in the marketplace. So, they will begin to make some difference not necessarily whole lot in the fourth quarter but rolling into 2016..

Okay. That's very helpful, both of you. Thank you. My second is, I was surprised to see the magnitude of sequential decline in shipments at Butler. I think they were down about 11.5% sequentially and then in rail, which was down about 14% and obviously the imports affecting HRC shipments.

Was there anything else going on at Butler during the quarter, I just want to check on that? And then rail shipments have been improving quite nicely over the past three quarters, four quarters and I was a little bit surprised that they were down, but just wanted to get your view of that and how we should think about going forward here?.

Let me first – I'll address the rail. Actually from a rail perspective, I think railroads adjusted orders a little bit. October is usually when they start placing orders for the next calendar year. So, I think that they were really looking forward to what was going to happen in 2016.

I could tell you that we already surpassed the production of our Continuous Welded Rail in the third quarter that we did in the total year of 2014, and that we expect to ship 265,000 tons of rail in all of 2015, which would be a record for us. And so, I think things are going well there. And we'll also look at shipping 150,000 tons of Welded Rail.

So, again, extremely well. So, I think the rails everything is healthy and fine there. At Butler, again things turned down as basically the spot market on hot band is not a lot – there wasn't that much out there and the stuff that was out there was at prices that we just weren't interested in it.

There is a line that you draw and with our variable costs at such a high level, we've said before that 80% of our costs are variable. And so, I think some companies need cash. We are not a company that is on survival mode, and so cash isn't what we require, and so we don't chase them.

And so, we pull maintenance and do a few other things, but we didn't need the market share approach.

Theresa, do you want to?.

Yeah. Tony, I would just add if you – where the weakness was with, I'd only (29:00) reiterate what Dick said, it was really in the hot band. If you look at the value-added line, they operated at basically the same levels that they operated in the second quarter, and second quarter actually Butler operate at over 100% capacity....

Yeah, we are....

It's a little difficult to compare..

Yeah. But we have a bottleneck. I mean, we are backlogged through our pickle line and we're looking forward to the startup of our second pickle line at the beginning of 2016. And so therefore, we couldn't put anything through. We're running at over 98% in total utilization through our complete cold mill complex at Butler.

And so therefore, the only thing that was not running full was the hot metal..

Thank you. And our next question is from Matthew Korn of Barclay's. Please go ahead..

Hi, good morning everybody. Thanks, for taking my call..

Good morning..

So, let me ask, Mark, with imports and shipments both falling apparently, how much of the incremental order softness is really coming from imports taking additional market share, if that's actually happening for a certain products in certain regions? And how much of it is this – that are these lower global prices that are causing the deflationary expectations really setting in among buyers?.

Well, it is truly difficult to discern whether the issue is underlying demand or just total excess inventory levels. From our perspective, underlying demand still remains in many areas and I won't say is robust and phenomenal but it certainly hasn't deteriorated by any great degree. There is a significant inventory out there.

You see that in the recent MSCI data and unfortunately that data doesn't reflect material that is at the port. Obviously, a lot of the material is hot rolled coil and that's where we're seeing the principal softness. The customer base, I think, as I said earlier, is just stalled. They were expecting a price decline here this month.

Obviously scrap came off $50 or so and they are essentially waiting sort of stabilization or at least transparency as to where that level ends up. And again, as I said earlier, we believe the scrap market is somewhat bottomed and should be essentially flattish in the weeks ahead, certainly not going up, but sort of soft sideways..

Okay. Let me follow-up with Graham on the Fabrication division. Of course, very good result for the quarter. Now, at your recent analyst event you mentioned that kind of region-to-region you're seeing some fluctuations in demand levels, good in the South, out West, maybe some less good out in the East.

But, you are seeing overall order rates in line with normal seasonality. Now this quarter I saw year-over-year volumes did end up falling pretty substantially.

Is that a slowdown in project, certain (32:26) activity or is that competitive pressures or the downstream customers, are they showing the same type of kind of stalled out expectations on price?.

Chris?.

That's more of a competitive pressure in our regional basis. We see the overall joist market still has grown. We've had one or two plants in Midwest and East where there is a more of a concentration of producers. To your point, Texas and California still remain, far and away, the most robust markets that we're participating in.

The Midwest and the Northeast did not grow at the rates that the West did and the Southwest, and hence we seemed to feel a little more competitive pressure in those areas this year than historically we've experienced..

Thank you. Our next question is from Evan Kurtz of Morgan Stanley. Please go ahead..

Hey, good morning, everyone..

Hello, Evan..

First question is on SBQ. It looks like your Engineered Bar shipments were up, which I thought was a pleasant surprise given that the pure play SBQ producer in the industry got in for some severe kind of demand shipment weakness in the third quarter.

Could you give us a little bit of color on what might have happened there, were you able to take share, was it end-market exposure? What caused that?.

I think, obviously that arena has seen some softness recently. For us, we've seen a little deterioration in our book, energy-related heavy equipment agriculture, but that has been largely offset by the expansion into the lower diameter SBQ.

It would have been nice for that expansion to be increasing volume over last year, but in this tough environment it's kind of replacing that and keeping things relatively flat..

Great, it's helpful. And maybe a question for Ross.

What are you seeing as far as scrap collection behavior at these sorts of price levels particularly after this last October drop? Is there money to pay peddlers to go out and collect, are they exiting the business? How are smaller feeder yards faring in this environment?.

Evan, thanks for the question. As we look at the world we live in, certainly these lower price drops have created some problems, particularly for the obsolete grades of scrap, and we're seeing some reduced flows in some areas of the obsolete scrap collection.

Again, if you can just put in perspective, a year ago, one year ago, the prices that we were able to get for scrap out in the marketplace was double what it is today. And so, over the year's time, our market price has been cut in half.

So certainly, that's put financial duress on many of the dealers and collectors out there and it's also made it, in some cases unaffordable for people to collect scrap and bring it in.

So there has been some impact particularly on the obsolete grades and we have seen some instances where if you look at the American metal market, over the last six months or so, you've got some folks that have exited the business and we also are seeing the phenomenon of some areas where people are walking away from the accounts because they are underwater.

So, again, this reinforces the bottoming out of the scrap market. And again, as Mark said, I think we're looking relatively flat from my perspective, going forward, for the next several months..

Thank you. Our next question is from Brian Yu of Citi. Please go ahead..

Great. Thanks. Good morning. On the....

Good morning, Brian..

Hey. On the Fabrication business, I know the results there have been doing quite well and you've got a 21% operation margin there, and in the press release you talked about benefits from lower steel cost.

Is there a way to try to quantify what the benefit is of lower steel cost or maybe another way, is there a longer term sustainable operating margin percentage that we can think about for the Fab business?.

So, Brian, as we've said, I guess, probably the last three quarters in a row, because each quarter has been a record quarter, we're trying to help you with rationalizing that number because, to your point, we're actually operating at what we'd consider record spreads today and that's been the – Fabrication has been a beneficiary of rapidly decreasing scrap – or steel prices.

As that moderates, they're actually now bidding on jobs that don't have kind of real steel prices with real products pricing as well, which they're starting to get some pressure on that side of the equation. So, yes, the third quarter probably shouldn't be what you use for a through-cycle margin for Fabrication.

I believe the operating income per ton for them, which is kind of how we looked at it in the third quarter was $285, EBITDA per ton was actually I think like $308 per ton. That would suggest that's very much on the high side of the equation and numbers that we've not seen here Q4.

But for that to be in the $200 range probably on an operating income per ton isn't something that is unfathomable for a through-cycle type number..

And I think it should be pointed out that, again, through-cycle, the future is certainly not like it would be if you look at it on a historical basis. That industry has consolidated dramatically.

We have a national footprint there having – sort of restarted three of the CMC assets, we got 34%, 35% market share in joist and there are essentially only three principal players there. And so that will bode well and the future through-cycle earnings are going to be certainly much, much better than the past.

On the decking side, market share has been lower and typically you kind of sell a ton of deck for a ton of joist, give or take a little bit, but we've been around that 24% market share percent in deck.

Obviously the acquisition of the CSi assets will act as a catalyst to boost that up and we'll get parity, we do believe, quite quickly between joist and deck. So, it's an exciting business. And again, my hats off to the team. They made some decisions several years ago and they build upon that and it's a good platform for us..

Okay, great. And then the follow-up question separately is just on your utilization rates here, as you mentioned, it was quite high, and probably close to 90% in the third quarter.

Say your competitors are looking to idle some of their blast furnaces, does this open up some opportunities for you guys to maybe grab a little bit more market share and keep that utilization rate at high levels in what is typically a seasonally soft fourth quarter?.

I would say, absolutely. I think there is a potential. Again, we got a phenomenally low cost, highly variable cost structure that we can take advantage of. The rationalization should allow greater utilization of other assets that are operating. And also, we still expect imports to continue to come back. So it should be a good market environment for us..

Thank you. Our next question is from Timna Tanners of Bank of America. Please go ahead..

Yeah. Hey, good morning..

Good morning, Timna..

So, just wanted to dig in a little bit more and I know you said on the call in your commentary that this isn't a demand problem, it's a problem of imports. But there have been some recently reports from other companies in the industrial sector in particular, in some construction highlighting potential weakness.

So I just wanted to see if you could give us a little bit more color of what you are hearing from your customers, a little more granularity please?.

Well, if you look at the principal markets, Timna, obviously a couple of them are pretty stagnant and weak, energy remains slightly poor as is mining, off-road and agriculture. But in other areas, we'd not necessarily assume any great weakness or deterioration. Automotive continues to be strong I think.

We have intelligence there through our scrap management programs and relationships, the stampers are still stamping and cars are still being produced. So we don't see anything to get overly concerned about there. Truck, trailer, material handling, it's a peak year for us, but it's – no near-term change over the next quarter.

Manufacturing for us is okay. That would be perhaps one area that could be under pressure given the strong dollar, but we're not necessarily seeing that yet ourselves. And we still remain incredibly optimistic on the non-residential construction side of our business. We see it through New Millennium Building Systems for sure.

The beam markets are okay, a little under pressure, but again the imports have been picking up there. But from a standpoint of our customers, I spent some time at METALCON last week, which are principally sort of value-add coated and pre-paint customers.

The building products folks suggesting that 2015 that they're up 12% year-over-year over 14%, and they see continued strength through 2016. So I wouldn't say I'm doing cartwheels down the hallway, but we're optimistic that things are – they're certainly not deteriorating..

Okay. That's helpful. I guess I also just wanted to ask in light of that downstream strength that you've been highlighting, is that still a preferred use of cash and cash generation has been quite strong.

Any updated thoughts on the opportunities there?.

Well, I think just at a high level, from a cash allocation perspective, we've positioned ourselves over the past year to make sure that we've got some dry powder and a strong leverage profile to take advantage of, I think, core strength opportunities that are going to befall us over the next 12 months.

We expect to maintain the positive dividend profile that we've seen in the past. Obviously, we boosted that 20% early in the year as a reflection of the step-up cash flow generation from Columbus, but we would hope to see that being positive going forward.

And we'll continue to repay debt as appropriate to comfortably stay within our 3 times net leverage..

Thank you. The next question is from Phil Gibbs of KeyBanc Capital Markets. Please go ahead..

Good morning, Mark, Theresa, Dick..

Good morning..

Good morning..

Good morning..

And Russ, and Chris, you're all there..

They are all here..

I saw that about 60% of the ferrous scrap that you sold was to your own steel mills. I think historically that's been around 50%, so a pickup here in the quarter.

Should we expect that to continue right now? Is that more of an imperative for you to get that that percentage up in this market or was it a just bit of a, just one quarter, and we shouldn't read too much into it?.

Well, Phil, I'd tell you that as, again, the one thing that you've got to keep in mind is whether the scrap is at steel mills or it's in our scrap yards, SDI owns the scrap. So it is certainly in our best interest to make sure we utilize the working capital, we've got already in place to do that.

So, again, I think the function of what we supply internally versus externally is really market related and again demand related based on what the demand of not only our internal mills are, but external mills, so it naturally will flow depending upon where that demand is..

Okay. I appreciate that. And then on the energy side, are your major sheet buying customers particularly in the South giving you any indication when things may pick up for them in terms of their buys? I know they're probably a couple quarters away, but what are they telling you in terms of timing when they may look to procure a bit more steel..

Well, Dick, you may have a different impression, but I would suggest that it's quite a ways out. There's some business in sort of larger transmission type projects out there, but from the standpoint of just basic energy pipe, ERW type line pipe, it's going to be quite a while.

We kind of have to come up and the inventory have to dissipate before anything meaningful happens..

That's right. Again, the Columbus mill, as you just pointed out though, we ran the hot mill at about 83%, 84% utilization. So the tonnage isn't bad. Need to say the sales prices on where we want it, but the ton has been okay.

A lot of that had to do with the increase in number of customers you pointed out, the 90-plus new customers, most of them were trying to direct forwards through the cold mill and the galvanizing line and so forth. We're doing quite well with new automotive enquiries and so forth and we've gotten some new platform work already for 2016.

We've received another automotive company platform work last week. I'm very pleased with that. That doesn't necessarily translate to shipment for the fourth quarter of this year, but we continue to be awarded work for next year. But we're going to continue to try to move work through the galvanizing lines through value-add and so forth.

But as you pointed out, there is not a rebound in the energy sector yet and those hot band tons that we are producing, what we really want to do is increase the value.

We made shipments of X70, and so I think we're the first mini mill to successfully supply X70 grade line pipe substrate to the market, and we're extremely pleased with the efforts by the whole team down at Columbus on that success. And we look forward for their continued supply of that and development of additional grade.

So we're working hard down there..

Yeah. And not to be redundant, but I think the team needs to be congratulated. We knew we have to diversify that product portfolio when we purchased Columbus about just a year and a week – a year and two weeks. But they've done a phenomenal job in a tough market.

It would have been nice for the energy market to have been sustainable for a year-and-a-half whilst we did it. But hey, it is what it is. But to boost our customer base by 94 customers or so and worked incredibly well with our existing customer base to expand exposure there. And to Dick's point, I'm amazed at our automotive team.

As we may have mentioned in the past, we've changed our supply – sort of supply chain there and going direct, they got seven or eight very, very capable young men and women there and their penetration of that market is – in such a short time is....

Phenomenal..

...is phenomenal. And also the production team down there, we challenged them to push the equipment to go lighter, to go wider on the high-strength, low-alloy grades; getting to the X70 type pipe grades, and they've responded incredibly well. And it's all reflecting in the utilization of that mill in a very, very tough environment.

It's a reflection of the record coated shipments production activity that they've been able to accomplish there. So seriously, my hats off to the folks there..

Thank you. Our next question is from Aldo Mazzaferro of Macquarie. Please go ahead..

Hi.

Can you hear me?.

Yeah..

We can hear you, Aldo..

Oh, great. Sorry, I thought – okay. So this might be a question for Theresa. Your average selling price actually went up a few bucks sequentially. And I would bet there's the shift between the flat roll being a little softer in the mix and the bars being stronger and the rail stronger had a mix effect.

Can you break out a little bit what the mix effect was in the quarter on a per ton basis?.

Aldo, we purposely try not to get into that granularity by products for obvious reasons on the average selling price perspective. I'll tell you that it is mix related.

As you will notice, when we talked about it for – Butler is a great example as their hot band actually decreased, the mix shifted much higher to the value-add side, which actually impacted their average selling price very positively. And you just saw that shift throughout the product chain for us in the steel perspective.

We feel that that is pretty sensitive commercial information, so it's hard for us to share that. I apologize..

I get it. That's okay. Thanks. A follow-up question then on the – Mark, on your comments about margins being tough to improve in the fourth quarter.

If scrap goes sideways from here on an index basis, wouldn't there be some – at least a little bit of a lag effect, where you'd see a declining usage cost in the fourth quarter? And if that's true, would that imply that you're thinking junk prices might go down in the fourth quarter for you?.

Yeah. I guess, my comment is just marginally in general. There's certainly a flow through of scrap, not quite as steep as we'd like to see it because operating rates aren't maxed out there.

But I guess my concern is what is the relative rate of decline of our scrap input cost relative to product pricing, and the product price environment is a little (53:42) right now..

Thank you. Our next question is from Jorge Beristain of Deutsche Bank. Please go ahead..

Good morning, Mark, and everybody. Mark, could you provide any insight through your legal team as to why we saw this delay in the determination of the countervailing duties on hot roll sheet by commerce department? That's my first question..

Well, I'm going to pass that over to my legal Washington expert, Mr. Teets..

Thank you..

Well, I think really all the delays are due to the fact that I think there is about 135 cases between countervailing and dumping that have been filed since June, and it's just a massive amount of data that's being collected from everybody and it's an overloaded situation.

So everything has been pushed back to basically the latest dates available to them for making their preliminary determination. So when we had filed, we knew the earliest dates and we knew the final dates and I think just about everything pointed towards the later dates being the timeframes in which to expect results.

So I don't think anyone is really surprised.

And I do believe mostly the traders expected it too and hence why in some of the higher levels of imports coming in from some of the countries that are still being maintained, because they expected not to be caught at this time with the shipments coming because they knew that trade cases determination is going to occur until the later dates, or they were quite sure of that..

Right.

But those duties are retroactive to the point of filing, are they not?.

No. No, no, no. Only if there was a – only critical circumstances would be determined and that hasn't been determined in any cases. So they only are as of the point of the date of the determination normally..

Got it. Thank you. My other question is for Mark, and maybe he could just comment as to what you are hearing maybe in Washington or just at an industry level feeling. But is the ball kind of back in the court of the U.S.

steel companies? Is Washington or industry kind of being forced to look to itself and say, what can they do to fix the issue and it kind of comes back to consolidation.

I guess, my question is, can the industry in your opinion support another round of large scale consolidation or are we kind of technically at the point where electric arc furnaces has, most end clients have two or three options within a certain radius and imports, same thing on integrated.

And I'm just wondering if you could just talk about, can the current issue in the steel industry be fixed by for the consolidation..

Well, firstly going to your comment of Washington, I think generally the – there is political support for our industry. I think there's definite support and you see that in the new language going through the TPP in the customer's bill.

Is I am right, Dick?.

Right. The TPA..

TPA, sorry. So there is a positive stance there. Some of the margins on the duties that we've seen particularly on pipe (57:33) perhaps a little disappointing to some. But given the cost structure, the strength of the dollar, devaluation of the won, devaluation of the ruble, lower oil price, they're starting off at a very low basis.

But generally, our impression or our thought belief is that trade cases are going to be positive, varying duties to varying countries, but nonetheless a positive for our industry and imports will recede and we've already seen that. I think the corrosion-resistant license – import licenses....

Are down..

...were down. Actually imports were down and then the licenses were down quite dramatically. So they will have an effect. Will that effect be substantial enough to change the market strength to a degree that some of the challenged players can sustain themselves? I think that's an open question.

Obviously, folks are looking inwardly to survive and get through this. You're seeing that AK, U.S.

is certainly doing some strong things to resolve their woes and that will bring some rationalization at least near term for the next – these plants are not likely to go away, but certainly the volumes are going to come out of the market and generally utilization of our industry will pick up from that.

So a combination of lower imports, some rationalization, I think that will reflect in a more positive environment. Will that get us up to utilization near term to 85% or 82% or low 80%s that you really need for material margin expansion? Don't know. Certainly take us in the right direction there..

Thank you. Our next question is from Evan Kurtz of Morgan Stanley. Please go ahead..

Hey. Thanks for taking my follow-up. Just another quick one on trade cases.

Just thinking with all these delays, have you been able to amend the initial filing with some of the incremental data, I mean, (60:11) prices are really falling off the cliff since you initially filed a lot of these cases, is there any way to incorporate that into the process so that the DOC comes up with maybe a stronger margin?.

No, there is no mechanism to allow that to occur. It's the window in which the case was originally filed upon is what the data that's submitted and that's the data you live with. Hindsight is always 20/20, Evan..

Great. That's helpful. Thanks, guys..

Thank you. The next question is from John Tumazos of Very Independent Research. Please go ahead..

Thank you.

Do you believe the scrap market will recover enough for you to earn a good return on your recycling assets or should we expect that you consolidate carry less inventory and otherwise reduce the assets employed?.

John, I would tell you, I think if you look back in history with the exception of the 2000s, we are pretty much back to levels where scrap prices were created and historically going back in the 1900s, last century to put it that way. Dick was looking at me like I'm crazy. Sorry..

1901..

1901. But, again I think the scrap business was a viable business at those levels in the not too distant past. The business itself has just got to readjust itself to the levels of the market that the market is going to last. Does that mean further consolidation or people dropping out of the business, it could.

But again the flow and the amount of scrap generated in the United States is relatively stable. And so, that flow whether it comes through OmniSource or it comes through somebody else is likely to be there. So, again I think we just got to look at a new reality in our business and deal with it..

But when you say that the recycling industry in general is under extreme financial stress....

All you have to do is look at the American metal market and see the guys dropping out weekly..

So, there is certainly – it doesn't happen overnight, but certainly material rationalization is going to happen over the next two years, three years..

I think so. Yeah..

Thank you. Our next question is from Justine Fisher of Goldman Sachs. Please go ahead..

Good morning..

Good morning..

Good morning..

So, it seems that the service centers are a big problem in terms of demand at the moment, because demand from some of the end markets are still pretty good, but inventories are pretty high, we just don't have the buying that it seems that we need to have in order to get things going again.

And so, what do you guys think that service centers need to see in order to get them buying again? I mean, is it just the working down of (63:18) inventories in that fit or do service centers need to get much more bullish on overall demand themselves or do they need to see international prices stabilizing before they say, okay, we'll buy domestically instead of looking to those imports? I mean, what do you think the service centers are looking for? Because it seems as though that that's one of the big demand problems because everyone talks about end markets; the end markets seems to be generally fine..

Well, I think, I can almost start saying, yes, yes, yes and yes, to a whole a lot of those items. But I think there's been of course a general shift from all the end markets. Everybody has, I think taken a breath from levels of inventories that they intended to carry until they have this assurance that there is not going to be another drop.

And so, all the end users, the people that the service centers sell to have all decided that there is no concern that they can get what they need in a relatively short period of time and I don't believe it. Very few would be concerned about the just-in-time deliveries.

So therefore, the end users, the OEMs and so forth believe that they have confidence in their service center suppliers. The service centers believe that they have confidence in their mill supply and so forth. And even some times the service centers, if they are concerned, they'll buy between themselves and to try to pull their inventories down.

And so, it's a matter of all of those inventories at the OEM. And sometimes there is inventories being held like with our SBQ at forgers. There is middle people in the supply chain, that all have to be rationalized. And it's just a matter of a little bit of time.

And so, once all of those become, I'll call the new normalized, the service centers will be buying. And I don't think that the spreads – the spreads will become I think more palatable between imports and the domestic mills.

And things will get back to ordering once before, someone assured that the scrap price is flattened, as we believe it's going to be and it becomes more palatable to take a position.

And so, then the service centers will step up a little more, but nobody is going to until the supply chain – the complete supply chain has pulled down their inventories a little bit more..

Thanks for that, that's great color.

And just to follow on, can you guys give us some color as to what your lead times are maybe across different products?.

Well, like everybody, it's not real long. We're a couple of weeks on our hot band. We're a month and a half, two months.

And again we're even longer than that on some of our finished products as we're sold out and we have a backlog sitting in front of our pickle line and Butler, we're shorter than that down in Columbus, because we do have openings there. We're fully sold out.

Our hot mill at – number one mill at Columbia City is rolling at a 100% utilization, but our medium section mill there with smaller products is about probably a three-week to a month, but we sell probably about 40% of our total sales there, come out of inventory.

Roanoke sells probably 50%, 40% out of rollings and rest out of inventory on bar and merchants, I think that's pretty traditional within that the industry for merchant bar so forth, but – and SBQ is basically all roll to order. And so, I would tell you there it depends on how much bar finishing goes through and bar finishing is sold solid.

So I would tell you there is six weeks to two months. So I think we're fine where we are and Steel of West Virginia is basically full, has a little bit of time under one mill, but real full, mill shops are running full..

Thank you. Our next question is from David Lipschitz with CLSA. Please go ahead. David, your line is live..

Sorry, had the mute on. So I guess, my question is, the thesis over the summer when all the trade cases were coming was, prices are going to rally as soon as those things come because people are going to get nervous about prices rallying. In the meantime, prices have fallen pretty precipitously.

When the trade cases are – the duties do come whatever they are, how quickly do you think people are going to react to it, because obviously people didn't react right away when the duties were announced to begin with – where the trade cases were filed?.

Well, I think it's difficult to quantify. I would suggest that given that the pricing environment or the cost structure environment out there today of the importing countries, we're not going to see this kind of a precipitous drop in imports and sort of a nice exponential hockey stick improvement in pricing.

I think I believe that it's going to be slow erosion of imports and a slowly an increasing sort of margin expansion pricing environment. But to quantify – to put dollars on it, I don't think we're that good..

Thank you..

Thank you. And the next question is from Matt Murphy of UBS. Please go ahead..

Hi. Thanks for taking the question and apologies, if I missed it. Just wondering on the CapEx budget, you've got around a $110 million on your investments at Columbus, let's say a $120 million sustaining.

I'm just wondering if the rest in particular, if you're going to hit the top range of guidance, is that more maintenance or is it actually investments in the business?.

From a maintenance perspective overall our business, we tend to look at it as about a $120 million for the year. And with paint line addition which is a $100 million that gets you to about $220 million. So, the bottom range is $250 million, so that would be like $30 million worth of additional type items top ranges is $300 million.

If we were to get that top range of $300 million, that's going to be a margin enhancing, productivity enhancing, efficiency enhancing in other words, it will be higher return type investments, it will not be additional maintenance expense – expenditure, sorry..

And is the decision on that basically predicated on market conditions or are you whittling down some ideas? Just wondering if you see any areas that you think are attractive even in a soft market..

Well, actually the finalization of our capital plan doesn't take place until November, so that was just a real high level preliminary number, because they know everyone wants to see that going into trying the model 2016, as we get to the first quarter call, we'll have that refined, but yes, there are numerous projects that are on the table and everyone is buying for theirs to be able to be approved..

Thank you. At this time, I would like to turn the conference back over to Mr. Millett for any closing comments..

Well, just for those that are remaining on the call, thank you for your support. We diligently try and do our best each and every day. Many of us are shareholders, in fact, all our employees are shareholders in one way or another and we will strive to create value each and every day.

And to any customers on the call certainly appreciate your support and we will continue to track diligently for you. And to all our employees, thank you each and every one of you for phenomenal job this past quarter, this past year and we all emphasize, be safe each and every minute that you're right there. Thanks folks, have a great day..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation..