Tricia Meyers – Investor Relations Manager Mark Millett – President and Chief Executive Officer Theresa Wagler – Executive Vice President and Chief Financial Officer Russ Rinn – President and Chief Operating Officer-OmniSource Corporation Glenn Pushis – Senior Vice President, Long Products Steel Group Barry Schneider – Senior Vice President, Flat Roll Steel Group.

Evan Kurtz – Morgan Stanley David Gagliano – BMO Capital Markets Justin Kwan – Barclays Tony Rizzuto – Cowen and Company Brett Levy – Loop Capital Seth Rosenfeld – Jefferies Michael Gambardella – JPMorgan Phil Gibbs – KeyBanc Capital Markets Jorge Beristain – Deutsche Bank Matthew Fields – Bank of America Merrill Lynch.

Good day, and welcome to the Steel Dynamics’ Fourth Quarter and Annual 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, we will conduct a question-and-answer session, and instructions will follow at that time.

Please be advised this call is being recorded today, January 25, 2017, 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..

Thank you, Donna. Good morning everyone and welcome to Steel Dynamics’ fourth quarter and annual 2016 earnings 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 our Metals Recycling operations, Russ Rinn, Executive Vice President; our Steel Fabrication Operations, Chris Graham, Senior Vice President Downstream Manufacturing Group; and our Steel Operations, Glenn Pushis, Senior Vice President Long Product Steel Group; and Barry Schneider, Senior Vice President of Flat Roll Steel Group.

Some of today’s statement, which speaks only as of this date may be forward-looking and predictive. Physically preceded by believe, expect, anticipates or words with 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 to general business and economic conditions.

Examples of these are described in our annually filed SEC Form 10-K under the heading forward-looking statements and Risk Factors found on the internet at www.sec.gov, and is applicable in any later SEC Form 10-Q.

You will also find any referenced non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Fourth Quarter and Annual 2016 Results. And now, I’m pleased to turn the call over to Mark..

Thanks, Tricia. Good morning everybody. Welcome to our fourth quarter and full year 2016 earnings conference call. We appreciate you sharing your time with us today, and we all wish every one of you health and happiness in this New Year in 2017.

I would like to start the call by recognizing and thanking the entire Steel Dynamics’ team for their dedication and strong performance this past year.

They did a terrific job further reducing our safety incident rates, turning in best-in-class financial metrics, producing at record rates, and they continue to expand our production capabilities and product offerings.

There’s a tangible momentum that continues to build within our Company and within our industry, supported by underlying market fundamentals for 2017 and likely beyond. Coupled with our existing unique earnings catalysts, lean capacity and intended growth objectives, we’re definitely optimistic heading into the year.

But to begin this morning, I ask Theresa to comment on our financial results..

Thank you. Good morning, everyone. I would like to add my thanks and congratulations to the entire SDI team. We have really had a lot of milestones on many fronts this year, and some of those have benefited 2016, but I think many of them have us set up very well for the coming years as well.

A few of the items of note are we had record steel shipments this year. We had our third consecutive record year for fabrication shipments and revenues. We had record annual adjusted operating income of $861 million, and we recorded our second highest annual adjusted EBITDA of $1.2 billion.

And I will note that the accounting folks have us just about $10 million shy of our record, so very good year. For the full year 2016, our net adjusted income was $472 million, or $1.92 per diluted share. The adjustments included three items.

One was in the third quarter, with litigation settlement charges of about $5 million related to our industry-wide Standard Iron Works lawsuit.

The fourth quarter, there was debt refinancing and repayment charges of $17 million associated with the refinancing of our 2019 senior notes and the repayment of our senior secured term note and fourth quarter non-cash asset impairment charges of $132.8 million of which $127 million was related to our Idles of Minnesota iron operation.

As we noted in our December 2016 guidance, we evaluated the appropriateness of the carry value of the assets in Minnesota, primarily at the Mining Resources joint venture. These are the operations that produced iron concentrate from tailings that we idled in May of 2014.

We determined that the estimated fair value did not support the existing book values, and therefore recorded the impairment. On an unadjusted basis, 2016 GAAP net income was $382 million, or $1.56 per diluted share.

Specifically for the fourth quarter, excluding the aforementioned refinancing impairment items, adjusted net income was $106 million, or $0.43 per diluted share, within our adjusted guidance of between $0.40 and $0.44. On an unadjusted basis, fourth quarter 2016 GAAP net income was $20 million, or $0.08 per diluted share.

Fourth quarter 2016 consolidated revenue was $1.9 billion, 9% lower than the sequential quarter based on both lower steel shipments and the average selling value. Our adjusted operating income was $189 million, compared to $284 million in the sequential third quarter.

The decrease was driven by reduced shipments and metal spread compression within our Flat Roll operations, as average quarterly hot roll prices declined. For steel specifically, the full year was a great year. Our Steel Operations achieved numerous performance milestones, resulting in record volumes and operating income.

Notably, full-year flat roll shipments were 14% higher, driving record total shipments of 9.2 million tons. The annual metal spread improved as the annual average scrap raw material costs fell more than average sales prices. Sales prices were down about $17 per ton, where scrap was down $35 per ton.

Specifically for the fourth quarter of this year, steel shipments actually decreased 3% to 2.2 million tons. The result of both seasonality and slow flat roll customer order activity early in the quarter. Volumes declined for both flat and long products, although our utilization remained well above the industry.

Lower volume in metal spread resulted in a 30% decline in Steel Operating income for the fourth quarter compared to the sequential third quarter. Steel platform average selling prices decreased $60 per ton to $680, outpacing decreased average scrap costs of $31 per ton. Moving to Metals Recycling.

This platform had a really steady to improving price environment throughout the year, along with considered focus on operating efficiency resulting in a significant improvement in full-year profitability.

Excluding a non-cash $5.5 million goodwill impairment charge, they achieved annual 2016 operating income of $40 million, driven by a 10% improvement in metal spread. Specifically for the fourth quarter of 2016, seasonally slower demand resulted in slightly lower shipments.

However, steady metal spread and focused cost efforts resulted in steady sequential operating income of $10 million. Additionally, the team continues to effectively lever the strength of our vertically integrated business profile benefiting both the steel mills and the scrap operations.

Metals Recycling increased the percentage of total of their shipments to Steel Dynamics’ mills from 54% of their volume in 2015 to over 60% in 2016. For Fabrication’s full year 2016, they achieved another strong operating and financial result. Achieving record sales of $704 million on record shipments of 563,000 tons.

However, full-year operating income declined just over 20% from the record results of 2015. As noted throughout the year, the decrease was driven by metal spread compression, as higher average steel input costs coincided with lower annual selling values. Specifically for the fourth quarter, Fabrication shipments declined due to seasonal impacts.

However, product pricing improved an average of 5%, which more than offset lower shipments and resulted in steady sequential profitability of $18 million. Non-residential construction demand continues to be steady throughout much of the United States.

We continue to see strong quote and order entry activity, even considering the seasonally slower winter timeframe. On a consolidated basis, we generated our second strongest year of cash flow from operations in 2016 of $853 million and free cash flow after fixed asset investment of $655 million.

Importantly, the quality of the cash flow in 2016 was far superior to last year’s record, as much of 2015 benefited from reduced working capital, while in 2016 it was earnings driven and working capital was effectively managed in a stronger market environment.

Even in this seasonally slower fourth quarter, our operating framework allowed us to generate meaningful cash flow from operations of $207 million. Based on favorable market dynamics, we opportunistically refinanced our 6% and 8% $400 million senior notes due 2019 within a new 10-year 5% senior note offering in the same amount.

And we repaid $228 million of secured term note debt in the quarter. These transactions are expected to reduce annual 2017 interest burden by about $10 million and further extend our debt maturity profile.

We maintained our cash dividend for the fourth quarter at $0.14 per common share, and we repurchased $25 million of our common stock pursuant to the October 2016 Board authorized $450 million program.

As demonstrated, our business model and unique operating culture generates strong cash flow through all market cycles, based on the low highly-variable cost structure of our operations and our highly-diversified value-added product offerings.

Even after investing in operations, decreasing debt and increasing dividends early in the year while also initiating a share repurchase program, we maintained near-record liquidity of over $2 billion at the end of the year.

The strength of our through-cycle cash generation coupled with a strong credit and capital structure profile provides great opportunity for continued organic and inorganic growth. We are squarely focused on the continuation of sustainable optimized value creation. Thank you.

Mark?.

Thank you, Theresa. I think that encapsulates what an incredible performance of the team in all honesty did in 2016, and how successful our business model is going to be through the cycle.

But the safety and welfare of our employees remain our number one priority, and nothing surpasses the importance of creating and maintaining a safe work environment. Our safety performance remains significantly better than industry averages, and we continue to work toward a zero incident environment at every location.

The team did a phenomenal job this year continuing their success of year-over-year improvement, achieving a record Company wide performance. We reduced the annual recordable injury rate by a further 20%, and 63% of our locations were totally incident free. My sincere thanks to the entire STLD team for their dedication and continued focus.

As Tricia outlined, the Steel platform continued to perform at the top of the industry in 2016, achieving numerous operating and financial records. Due to having one of the most highly-diversified and value-added product portfolios in the industry, we maintained an annual utilization rate of 87%.

Once again, markedly better than the domestic industry rate of about 71%. 2016 certainly provided a changing landscape to the domestic steel market. Demand from the automotive and construction sectors remained positive. The demand related to heavy equipment, agriculture, and energy while not deteriorating further remained anemic through the year.

The year was somewhat of a tale of two cities, flat roll steel versus long products. Domestically, flat roll steel utilization rates were much higher during 2016, compared to long product utilization rates. 2016 flat roll supply dynamics benefited from the decline in year-over-year imports.

Hot roll coil import volume was down 25%, while sheet products in total were down 14%. When coupled with the starkly low customer inventory levels and steady demand, a positive sellers environment evolved.

However, the fourth quarter was a bit of an anomaly in our mind, as flat roll customers were hesitant in late September and October to place orders ahead of expected scrap price declines.

As we suggested at the time, the resulting short dip in order entry and pricing was purely procurement driven and not a result of any structural change in underlying demand. Order activity picked up significantly in November and December. Lead times stretched out and pricing recovered.

Unfortunately, the same supply demand balance did not exist for long product steel, as production overcapacity persisted relative to the current demand environment. Although our total annual utilization rate was 87%, our long products utilization was only 68% with our engineered bar division suffering the most.

Even though the SBQ expansion into small diameter bars has significantly helped utilization as these sizes are generally tied to the automotive sector which remained strong, operating rates were still far less than we would like. There is good news I think though.

The FDA Steel platform still has about 1.5 million to two million tons of unused existing production in shipping capability, and most of the products would potentially be consumed by infrastructure and large civil engineering projects.

Although no one can be certain, recent conversations suggest that it is highly likely that the new administration will keep their word and execute on a broad-based infrastructure plan which is deeply needed in our country. Columbus provides another significant earnings catalyst for us.

The change the team has made are nothing short of transformational. The successful market and product diversification that has been achieved over the last two years is one of the key differentiators for the improved profitability that we realized in 2016, and will be key in the coming years as well.

It’s a very exciting time for the Columbus team, as they continue to focus on product diversification and increasing their value-added product capabilities.

The team shipped prime Galvalume product in the second half of 2016, and the paint line was successfully commissioned in the fourth quarter with production starting in December about a month earlier. Prime painted product is already being shipped.

The total $100 million investment provides 250,000 tons of annual coating capability, and further diversification into some of our highest margin products. We have two existing paint lines in Indiana, but this new line allows for high-quality double-wide steel and access to the southern U.S. and Mexican markets.

Our existing painted steel customer base is excited to have the geographic and product diversification and optionality. Our Steel platform also continues to benefit from other organic growth investments as well.

The $22 million investment for an additional 600,000 tons of annual flat roll pickering capability at our Butler flat roll division ramped up in 2016. The addition has meaningfully increased value-added sales.

The $15 million investment to increase annual galvanizing productivity by an additional 180,000 tons at the Butler flat roll division is underway. We anticipate commissioning this summer with increased production capability through the second half of this year.

Also, the recently announced $28 million investment at our Roanoke bar division to utilize excess melting and casting capability by adding equipment that will allow for multi-strand slitting and rebar finishing.

With a highly competitive cost structure, we expect to have a strong market penetration being the only non-competing supplier of rebar to independent rebar fabricators. Commissioning should commence at the end of 2017.

The operation and profitability of our Metals Recycling platform remained steady in the fourth quarter, despite weaker demand due to lower seasonal domestic steel mill utilization.

Lower shipments and slightly lower metal spread were offset by the benefit from the team’s continued focus on cost reductions, and better alignment of our Metals Recycling assets. In December, we entered into an agreement to sell some of our recycling assets in the Southeast and the U.S.

We believe this transaction will benefit both parties, as these assets are non-core to our own Steel Operations and have closer proximity to the buyers’ steel production facilities. The transaction better aligns our existing metals recycling locations to directly serve our own mills.

While it’s always difficult to part ways with our employees, we are confident that the buyer will provide a good home for them. While the team achieved a significant improvement in profitability during 2016, we see additional positive momentum for 2017. With the expectation of a continued strong U.S.

dollar and relatively low scrap exports, we anticipate ample scrap supply and expect the pricing environment to stabilize as the year progresses. The Fabrication platform continues its ongoing historically strong performance, achieving record shipments in 2016. We have a great market penetration across all our product offerings.

Since our acquisition of additional deck assets a little more than a year ago, we have gained considerable market share for deck. Approaching 30% for the full year of 2016, compared to only 24% prior to the acquisition. Our Fabrication Operations purchased 330,000 tons of steel from our own SDI mills in 2016.

The power of pull-through volume from our Fabrication platform or steel that can be sourced from our own steel mills was critical in 2015 and beneficial in 2016 as well. This pull-through strategy remains one of our focuses for ongoing growth. The new millennium team continues to perform exceptionally, levering our national footprint.

The strength of this business provides positive insight also into the continued strength in non-residential construction activity, which has been steady with the opportunity for growth in 2017.

Relative to the macro environment, the Steel consuming sectors that were weak in 2015, such as energy and heavy equipment and agriculture, remained so in 2016. And those sectors that have been strong or recovering are continuing this path, such as automotive and construction.

Reduced imports and lower than historically normal custom inventory levels coupled with steady demand have created a year-over-year improved environment for flat roll products that we expect to continue into 2017. We have a constructive view on our domestic steel consumption in the coming years.

Domestic automotive production may be edging off record levels, but we believe total 2017 NAFTA production will grow slightly as Mexico continues to grow production with the current assets in place. This is highly complementary to our commerce division’s automotive strategy.

We believe there will be additional growth in the construction sector, especially for larger public sector infrastructure projects, which would greatly benefit our long products group. We also expect to see strong improvement activity within the energy sector.

Going forward, we will continue to focus on adding value-added products to our portfolio that help insulate us from imports and create long-lasting customer partnerships such as our painted flat roll steel, highly engineered SBQ, and longer length rail.

Our business model and execution on our long-term strategy continues to strengthen our financial position through strong cash flow generation, demonstrating our sustainability and differentiating us from our industry.

Customer focus coupled with our market diversification and low-cost operatings will support our ability to remain our best-in-class financial performance and differentiation. The Company and the team is poised for continued growth. And the strong character and determination of our employees provides the foundation for our success.

I would like to take the opportunity to thank each and every one of them for their hard work and dedication, and remind them safety is always the first priority. We continue to focus on providing superior value for our Company, customers, employees and shareholders alike, and look forward to creating new opportunities for everyone in the years ahead.

So again, thank you for your time today. And Donna, please open the call for our questions..

Thank you. [Operator Instructions] Our first question is coming from Evan Kurtz of Morgan Stanley. Please proceed with your question..

Good morning, Mark and Theresa..

Morning..

Good morning..

I will ask a question on scrap. Just hearing recently that in Turkey, the scrap has come under a lot of pressure. And I am just wondering how that is influencing the conversations right now in the U.S. scrap market right now? Seasonally, demand is probably picking up a little bit.

And I’m wondering if that is going to mute some of the impact from what we’re seeing on the export front?.

Evan, this is Russ. I think what we’re seeing and what we see is we think probably December and January markets got a little hotter than they probably should have. So I am anticipating we will see a mild correction in February and maybe a little bit in March, but I think beyond that I think we’re seeing a pretty robust market.

I think the demand for our steel products continues. So I do not think we’re going to see the corrections we’ve seen over the last couple of years. I think there will be a mild retrenchment and we will go from there..

And maybe just a….

Just to kind of color that as to SDI specifically, a stable market sort of pricing environment should really aid the recycling profitability of OmniSource. The last two years, 2015 and 2016, you saw kind of prolonged downward trend in pricing.

And when you’re working in kind of an inventory based by it one month sell it the next, it is tough to make the spread. So it’s just a stable, stable environment going through the year, I think is going to be positive for us. And I think Russ and the team have done a terrific job.

You just look at the fourth quarter, volumes were down, margins were down, but our profitability was flat. And that was driven by a lot of cost containment, much of which was – came from the realignment of assets and we anticipate continued cost efficiencies there of probably $10 million or so.

With the idling of the Wilmington shredder, Smithfield shredders, and with the sales of the Carolina and Georgia assets..

Great, thanks for the color. Maybe just one follow-up on that.

Since it does seem like scrap may soften a bit in the first quarter and given your comments on some of the positive market dynamics on steel, would you expect metal margins the first quarter to expand versus the fourth quarter?.

I think that’s a good assumption..

Great, thank you..

Thank you. Our next question is coming from David Gagliano of BMO Capital Markets. Please proceed with your questions..

Great. Thanks. My question was similar to what Evan just asked. I was curious about metal margins.

Just to follow-up on that and as an add-on, can you frame just sort of given the current environment and the outlook for scrap, can you frame roughly the magnitude of the expected expansion metal margins, number one? And then number two, can you also give us some commentary regarding first-quarter volumes relative to the fourth quarter as well?.

Well as you know, David, we would refrain from quantifying the margin expansion and again where the first quarter still unraveling. But we would anticipate expanded margin, and we would anticipate from what we see in the marketplace, volume expansion as well. And just to maybe preempt a question on the markets.

And if I bifurcate that into flat roll and long products, in sheet, we believe the supply-side tightness will be sustained. When you look at the December eminent CI data, it showed the typical seasonal decline in shipments but inventories remain at historically low levels.

But we believe the import volumes will remain constrained with the duties in place. The arbitrage against global price and it’s certainly reversed and there is less import interest out there. Mill lead times for the industry and certainly for ourselves are healthy.

Hot roll coil for us is at four to six week tag, and coated and coiled roll sheet is six plus weeks out. And the industry utilization, albeit at 71%, 72%, obviously flat roll is as much higher as an industry in general. So we believe the supply side is healthy and positive.

On the demand side, demand remains pretty healthy and I think we should see growth. And again, I am just specifically talking about sheet. If NAFTA order will remain strong and SDI is certainly increasing its market share through the Columbus mill and Mexico activities. Non-residential continues incremental growth, I believe.

The ABI has been positive, and it’s been gone for the last three months I think. And Chris’ group, New Millennium Building Systems’ order activity, inquiry and bookings remains very, very strong there, which is good.

As Theresa indicated, we have about 1.5 million, 2 million tons of latent capacity that is correlated strongly with non-residential construction. So as that incremental growth continues, we will benefit and certainly we’ll get a major boost from what I believe is an inevitable infrastructure spend.

On then once out there, I think people are going to be very, very surprised with the strength in the energy recovery. We talked last quarter about we started to see glimpses, but has strengthened dramatically.

Our rig count is growing, energy pricing is going to be sustained we believe at that $50 or more, and we think on the flat roll sort of scalp side there is a lot less inventory or pipe or usable pipe than is anticipated. We are seeing significant pickup in order activity at Converse just the past four weeks.

Their pipeline projects have taken off, and I think it is going to grow and surprise us all. So in general, we anticipate a positive flat roll market, sheet pricing we think will continue or should appreciate through the year, and the first-quarter volumes should pick up a little and margins expand.

In long products, again as I said earlier, unlike sheet the overcapacity does persist, but we’re starting to see a market change in customer sentiment, and market dynamics turning very, very positive, I believe. Beams remain under pressure from overcapacity, but consumption should grow as non-residential continues to grow.

Specific to SDI, I think the team has done a great job expanding the product portfolio and we will continue to do that with angles in 2017. That seeing fabricator – or the fabricators are reporting strong order inquiry and are building backlog. And again, there should be an infrastructure spend there.

So I think structural arena has got some positive momentum. Class one rail, although CapEx for the class one’s has softened some, again, the team has been expanding the product range, getting into the high carbon grades and different sections and we think that the volumes will remain strong and flat through the year.

And similarly, merchant shapes seems to be showing some signs of recovery with the fabricators having stronger backlogs and service centers restocking. But most significantly, and I think we’re excited, is a very strong rebound in engineered bar and SBQ. It has taken place probably in the last four to five weeks.

But the team is probably more optimistic now than it has been in 2 or 3 years, and the customers are definitely in a markedly significant difference frame of mind. And they are starting to pull out there orders or pullout from their forecasts, and it is most noticeably in the oil patch.

We’ve seen the tubers and the forages are significantly stronger than we have seen for a very long time. And I think we are even seeing a rebound in Caterpillar off-road. So we’re excited about that. So long products in general, we believe is – it’s going to see some good growth through the year..

That’s helpful. Thank you very much..

Thank you. Our next question is coming from Matthew Korn of Barclays. Please proceed with your question..

Hey, everyone. This is Justin filling in for Matt..

Morning..

I was wondering, have you guys had a chance to interact with anyone from the new administration yet? And if you have, what have the talks been about?.

We have not..

Okay..

Have we? Everyone is shaking their head no..

Okay. And then just one more.

Did the potential for reopening NAFTA cause any complications with marketing plans with Columbus and the shipments to Mexico at all, or is there anything we’re missing on that?.

No, we are continuing to look at Mexico as a strong marketplace for us. There are a lot of existing assets in place there. You just have to travel through the industrial centers there. Consumption is massive, and we’re not looking for a large portion of that.

We shipped 200,000 tons into Mexico last year, and the intent is to increase that to around about 400,000 tons. And I think we are confident that it’s going to happen. Again, I think with the new administration, you have got some very, very positive things that they reportedly want to do, tax reform, trade, some sensible regulation.

The balance is going to be not to shut down trade with Mexico or Canada or – I guess we need flow going both ways across the borders. But we are going forward, but we are not planned..

Okay. Thanks, everybody..

Thank you. Our next question is coming from Tony Rizzuto of Cowen and Company. Please proceed with your question..

Thanks very much. Good morning, Mark, Theresa, and Russ. Just got a couple questions here if I maybe. The first one is, Mark, on your comments over the latent capacity that you have.

Over what time period do you envision that you would be able to operate that more fully and be able to achieve that 1.5 million to 2 million tons?.

I think that it’s probably the second half of the year that we’ll ramp into that. We are going to see volume growth through – in the first half compared to the fourth quarter for sure. But from an infrastructure build, that will ramp up obviously.

And you have two sectors there, you have the fast track where there’s numerous projects already kind of lined up and they will likely, and we’re starting to see them more I think, but they will likely come on in the second quarter. And then any infrastructure buildout from the new administration, that’s probably a second half and going into….

Okay. And then, if I may, just there’s a lot of things arguably about the new administration, which are very supportive to the steel demand and the steel industry in general.

And maybe following up on the question about NAFTA, are there any other areas that worry you about any potential outcomes with new policy? What is most concerning to you potentially?.

Again, everything is speculative I think right now, Tony. I think they’ve come out with guns blazing and following up on the some of their promises. And I think tax reform, as I said, tax reform and sensible regulation will certainly help the country have a more positive business climate and boost the economy.

And their position on trade, I think – we are already benefiting dramatically from the cases that were approved last year. They can only sort of vulcanize that environment.

I think the sensitivities or the balance is trade and not getting into a trade war, and hopefully we have some sensible people advising that new administration and we won’t get that point..

Thanks, Mark. I appreciate that..

Thank you. Our next question is coming from Brett Levy of Loop Capital. Please proceed with your question..

Hey, Mark, hey, Theresa.

Is it on your plate at all to consider adding any assets in Mexico, and have you heard anything from competitors or, I don’t know, even substitute products that sort of thing, to add capacity to address the capacity that is already left for Mexico?.

I guess our strategy in Mexico currently, Brett, is commercial more than bricks and mortar..

So continue to send stuff that way.

I mean, is there any advantage to putting SBQ or any other form of capacity there as opposed to shipping it to them?.

We’re not looking at that I would suggest currently. They obviously are steel short. They import pretty much all oil products, but that is not something that we are considering right this second..

All right. Thanks very much, guys..

Thank you. Our question is coming from Seth Rosenfeld of Jefferies. Please proceed with your question..

Good morning. I have a couple questions on the outlook for the long steel market. Can you just comment about more on what you’re currently seeing for long steel import trends into the U.S.? In 2017, have you already seen some countries begin back out of the U.S.

proactively following the law into the most recent rebar trade case? And can you give us a little bit of a sense of what level of confidence you have looking forward, both with regards to the Turkey trade case also including two other Asian peers? And also the Mexican tariff review, what impact could that have in the market various scenarios? Thank you..

Good morning. This is Glenn Pushis. The rebar trade case, we are involved in it but we’re just not a real big player in that sector. At this point, we do maybe 50,000 or 60,000 tons in arguably about 9 million ton market here in North America. So it is really hard for me to answer any of those questions, Mark, with much distinct knowledge about that..

Okay, thank you. I guess then looking the other areas of long steel where you’re more focused like SBQ. You commented very positive on the demand trends.

Can you just talk about what headwinds you could see the market with regards to other local capacity domestically within the U.S., or if you could see the risk of imports once again coming in should those prices really start to pick up as you mentioned earlier?.

Again, our focus at Pittsboro is principally in engineered bar not in commercial commodity type SBQ. The import pressure comes in just 1-inch RAND 1045, 1018 commodity type materials.

The team has done a phenomenal job down there building relationships with the Caterpillars and their automotive, the forches whereby it can take 2 or 3 years to get qualified for a certain application. Those cannot be substituted one month in one month out by imports.

So I do not believe SBQ is dramatically impacted from – or at least our SBQ business, dramatically impacted from import pressure..

Okay, thank you very much..

Thank you. Our next question is coming from Michael Gambardella of JPMorgan. Please proceed with your question..

Good morning and congratulations on another good quarter..

Thank you, Mike..

You’re welcome, Mark thanks. I was watching CNN on Tuesday, the second day that Trump was in the office, and noticed that the U.S. Steel’s CEO was standing there next to Trump smiling in the White House office.

And I was just stunned over the last 35 years of following this industry to think that a steel executive would be invited into the White House the second day a president was in the office just shocked me.

What do you think you can expect to get out of Washington on the trade front? Even I would say on the sheet side, even if they could strictly enforce the laws that are on the books right now would be a big positive for you and the rest of the players in the sheet market, and I’m really talking about the diversion that China is doing through Vietnam and other countries to evade the trade tariffs that they have in place.

Because legally, you would think China wouldn’t be able to export a pound of sheet steel into the U.S. given the tariffs they have on hot roll, cold roll, and coated, recently.

What are your expectations for strict enforcement of the trade laws that we have right now coming out of Washington?.

I think you actually likely answered your own question, Michael. I believe there will be vigorous enforcement of the anti-circumvention laws. If you consider the whack-a-mole we saw last year with Vietnam, I think Vietnam ended with 800,000 tons of the coated product coming in which is huge, huge volume.

That, and as you know there is a case or intervention pending there and I think that will end positively. Certainly the rhetoric and the trade position that we’re seeing out of Washington right this second gives you a high likelihood or high probability that that will be successful.

And that is very meaningful, certainly meaningful for us with the Galvalume product that has been coming in and the building product commodity prepayments coming in. Just the non-market subsidization, and I think a strong point will be just taking action on the currency manipulation by China..

What other benefits could you see coming out of trade in terms of regulations that you – that may have been imposed on you guys over the last five, eight years?.

Well if you look in that timeframe, and I do not know whether you are implying or inferring like a section 201 type activity, again, it would just be speculative for us to talk about at this moment..

Okay. All right. Thanks a lot and congratulations again, Mark..

Thank you. Mike, just I guess one thought. Relative to the trade cases that we already have in place, because I think it’s illustrative to look at the downturn in Q4 of 2015 and the recent one in 2016. Both are relatively procurement driven.

But you had in 2015, hot roll coil plummeted like $3.20 and that down cycle lasted for the fourth quarter into January. This most recent one, hot roll did come off, only down to about $4.20 and obviously it was almost an eight week dip.

And I think that that foreshortening of that cycle and the lessening of the debt is a result of those trade cases in place. And it gives us confidence anyway that for some time to come we’re going to see a different pricing environment for our products, a much stronger pricing environment for our products..

Thanks a lot, Mark..

Thank you. Our next question is coming from Phil Gibbs of KeyBanc Capital Markets. Please proceed with your question..

Good morning..

Good morning..

Just had a question on the mix in sheet products in the quarter, and what that breakout was, Theresa..

Phil, I’m so sorry – yes I have that for you. So for hot band and P&O it was 781,000 tons, cold roll was 112,000 tons, and coated was 673,000 tons for the total of 1.6 billion..

Okay.

And can you remind us how much lag there is in the sheet business in terms of how much business is direct spot versus quarterly or monthly indexes?.

Yes, so we’re still have right around that 40% to 45% that is contractual, Phil, and that is what I would put a lag on. The rest of it truly is spot business..

Okay, I appreciate that. And the last one I have is on electricity and power rights. I know natural gas itself is not necessarily a big driver for you guys, but electricity is.

Have we seen power rates move higher as call it the last 12 to 18 months have gone on with higher call it info cost minimum in oil and natural gas?.

Phil, it is nothing that would be significant enough for us to note..

Okay. Thanks very much..

And, Phil, if I may, and it maybe self evident and most of recognize it. But just for perhaps the newcomers on the call, when we talk about contract pricing at 40%, that’s volume driven and pricing is actually against index. So there is no fixed price contracts out there, just for clarity..

Thanks, Mark..

Thank you. Our next question is coming from Jorge Beristain of Deutsche Bank. Please proceed with your question..

Hey, good morning, Mark and Theresa. I had a question about the Columbus mill.

Could you just recap again, you said the percentage of value added has increased from when you guys took it over, could you just give me those numbers again?.

Well when we actually purchased Columbus in 2014, over 60% of their shipments were what we would call more just straight hot band. And today, they are actually operating at almost full capacity on their galvanizing lines.

And we just added a paint line which will add 250,000 tons of really our highest margin product throughout our flat roll operation, and that actually started. And so we expect to ramp that up throughout 2017 with new and existing customers.

I would say today, if you look at that same percentage of just straight hot band, it is more in the area of 45% and we hope to get that even down lower. I think we could get it as low as 40% at some point in time..

So would it be fair to say you’ve had about a 20 percentage point increase in value add?.

Yes. Absolutely..

Okay. And then just on the energy exposure from Columbus. Because at the time you’d acquired it, energy was heading south at the time.

What is the energy exposure there historically, and how much is it for your Firm overall and how quickly could you re-ramp up service to the energy sector if those pipelines come back on?.

So from an energy perspective, when we bought Columbus, they had a real strong concentration. It was probably at least 20% that was tied directly into that energy sector, and there’s nothing that they need to do to ramp up capacity it is just different products that they produce on existing equipment.

So it is really about the customer base itself, and they have maintained great relationships with those energy customers. And so, Barry, you can jump in if you would like. But I don’t think it’s a matter of ramping it up, it is a matter of keeping a diversified customer base that they stay at high utilization rates..

Absolutely, Theresa. And I think one of the things that I would like to add is that we continually add new products, so we are able to make higher strike steels in wider widths which is what that sector requires. And we do have a capital project this year to upgrade a coiler to allow us to go heavier in gauge.

Although a relatively small project, $10 million or so, we want to be able to go after the projects in that sector that make sense for us. So it is always going to be good sector, we just do not want to be 20% dependent on it. So we never want to leave it, we just want to make sure we are providing the best products to that sector as possible..

And the other division that we have leverage related to energy really is in the engineered bar division, and that is what Mark spoke about earlier about the optimism that we see there.

And the other thing I just don’t want to leave the call without talking about Columbus as far as a lever, it’s not just the diversification in customer base and product, which has been phenomenal.

It is hard to describe the change from even 2015 to 2016 with Columbus, But they still have additional what I would say earnings capability, both regarded to the paint line and other products that they are developing there including in the automotive arena.

But additionally, there’s still some cost benefits that I think can be realized as well in 2017 and 2018. So Columbus is not a fully told story in my mind..

Great, thanks very much..

Thank you. Our next question is coming from Matthew Fields of Bank of America Merrill Lynch. Please proceed with your question..

Hello, everyone. Congrats again on the nice year. I just wanted to ask you, and I apologize if I missed this earlier in the call.

But one of your competitors that’s been pretty active in the downstream space buying up some fabricators in their pipe and tube sector, would you consider looking at the space and maybe some of the either smaller or larger players that are available?.

I think we – I think it is better answered by – just saying we are obviously focused on growth, it remains our first priority from a cash allocation perspective. And we look at an array of opportunities..

When you say growth, is there one particular tilt that you’re preferring whether it is upstream or downstream or anything like that?.

I think we – as we have said in the past, two principal areas of focus. One is, as I mentioned, pull-through volume, downstream opportunities that will allow us to support our own mills in times sort of down cycle. That is one specific focus.

The second is obviously we’re still makers first and foremost in downstream, so a higher-margin value-add type products is another focus for us..

And is there sort of a size that you’re focused on, or would you not be uncomfortable going to a $1 billion or $2 billion size acquisition?.

Matt, I think if you look at the capital structure today and you look at our net leverage and our credit metrics and the cash flow generation, we absolutely can do things that are sizable. But we can also do maybe several meaningful medium-sized transactions as well. So it’s really – we have got – we’re in a great spot to have optionality..

Okay, great. Thanks very much..

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

I think on behalf of the team here, Russ, Barry, Chris, Glenn, and Tricia, and Theresa, we would like to thank you for your time today and for your support. And as importantly to our customers, we will continue to try and provide the greater value to you as the years go on.

And to our employees, again, a reminder, safety is absolutely paramount for us. Nothing is more important to us, and so be safe out there and thanks for all you do. So thank you, everyone.

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